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L7 - Now I am confused. Your response was due to a question I responded insultingly to? You've lost me. It might have been easier if they had responded or perhaps they weren't insulted?
Hi romaron, I’ve no issue with any questions or comparisons being posted no matter how bizarre I might think they are. It’s not in my nature to criticise. But having posed the question I thought your response to a poster who answered a little insulting, particularly as I had thought about responding. That’s how it came across to me and that prompted my reply with detail to emphasise how inappropriate I thought your comparison between Enquest and BP.
Hi Londoner7 - I didn't realise your EBIT interest cover question was rhetorical 23.31 Sunday. I struggle between EBIT and EBITDA so my eyes glazed over with the mention of EBIT. I see where you're coming from and that BP is in a much stronger position regarding interest cover. For some time I've been using a rough rule of thumb and halving everything when using BP comparisons and we still look a good investment. These ratios are subjective in many ways but some regard them as a creed. In my defence I would point to my post of 25 Nov where (like you) I pointed out that half a billion dollars was a not inconsiderable sum to be repaid within 2 years. Others think we'll do it standing on our head and with a $65 oil price I'd agree but there are no guarantees with oil. My Nov post was more to suggest that Moody's and analysts cast a more jaundiced eye on debt and today's events (PMO, TLW) confirm that.
Hi L7 - Buy backs can be subjective and the motives can be as you say. My tongue in cheek was more to counter a suggestion that I had been on the juice and considered BP and EnQuest equals. I recently watched a video where Warren Buffet discussed buy backs and said that you had to research each one because they could suggest growth had stalled. He was talking about Apple and thought their timing was good. The worry is sometimes that the management hasn't a clue what to do next. There is also the consideration of what has the buy back done for BP shares? I really haven't a clue but it usually lifts a share price (it didn't) which is as acceptable to many investors as a dividend. I do though think that on many metrics we are improving and I will shout them out; subjective or not. Partisan support is allowed.
I included the EBIT ratio because I considered it part of the sentence I copied and pasted. It means nothing to me.
https://simplywall.st/stocks/gb/energy/lse-bp./bp-shares/news/bp-lonbp-takes-on-some-risk-with-its-use-of-debt/
I can do the big numbers but leave the clever stuff to you and others like hitman and E121. HMH also usually has an interesting view but isn't a slave to numbers although he understands them a lot better than me.
I've started using MarketScreener on Pelle's advice (I had to give my email details) and that has ratios which could be handy for reference purposes in posts. I'm assuming they know what they're talking about. As for your challenge on the interest cover on EnQuest I'm afraid I'll have to pass as I haven't a clue.
Romaron, tongue in cheek?
When I saw this, ‘If you want a more rousing endorsement of oil then note they {BP] have used a chunk of this debt to buy back their own shares over the past years.’ I thought someone’s hit the wine early – good lunch?
Then the EBITDA comparison with BP. I thought, that’s a 2nd bottle opened.
I’m guessing you’ve sobered up now. ??
Buy backs are made when the company has nothing better to do with the money – hardly a rousing endorsement of oil. Shareholders would prefer a dividend but management prefers a buyback because it super charges their LLP awards.
Forget the EBITDA comparison. You’re closer to the mark with the interest cover metric. I’ll take your word that BP has EBIT interest cover of 9.1. What’s interest cover for Enquest?
At the interims EBIT was $265m, pre-exceptions. For the purpose of this exercise let’s be generous and use that number and double it for the full year - $530m.
Going into 2020 net debt is expected to be $1500m so gross debt will be close to $1700m. At 7.5% that’s $130m in interest.
Interest cover 530/130 = 4.1. Someway short of 9.1 but that’s not the full picture. A more significant risk is that Enquest has approx. $600m of debt to repay in the next 24 months.
If you ask questions of the ‘numbers guys’ then try it without your tongue in cheek.
Sorry for the smackdown, but I’m now on the wine, albeit much later in the day. ??
E121 18.26 - I was tongue in cheek there because I've got tired at trying to find a peer comparison so I went for the biggest in UK. It doesn't matter what company you choose there is always a qualification e.g. CNE tax and India, PMO Sealion etc. so why not choose BP? I was going to make a full post with the subject "Dipstick" but held myself back as Kraken Oil would probably take it personally.
We have a lot of variables but so do other companies and I just wanted to illustrate how ludicrous our MC is. I wonder where BP would be without the buybacks? Not that far away I feel sure but the Directors of BP aren't trying to halt the tide imo. They know a bargain when they see one!
Shock horror with PMO. It looks like they might have discovered a Nick Leeson in Hongkong. Probably a trader with insufficient management oversight who played the gap between borrowing stock c. .50% and a coupon of c.7%. Forgot to tell the authorities (cough) and obtained an unfair advantage. Expect a massive fine if we have the reach. It might though free a log-jam tomorrow with EnQuest if there has been any malarkey.
*In my day the Bank of England would randomly intervene in the sterling market because overseas clients had to trade Euro Sterling which traded at a higher rate. Would you believe it; some of those Johnny Foreigners were borrowing on the domestic interbank market. The Old Lady would let them get comfortable and on a reporting day squeeze the market. You could have overnight domestic trading at (say) 5% and Euro sterling at 2,000%.
Pelle,
I agree with you. The boys here are wrong. They are acting/talking liked weary and tired investors who have been ground down. oh wait a minute, yes we have !
However, when it turns positive it will go crazy, to the upside. POO will be the driver for this, which will be when it is confirmed that US production has "peaked for good" !
AB will want the company's valuation up from these levels. I feel confident he has his eyes on the ftse250 for Enquest and the kudos that goes with it for him. Paying a dividend sometime in 2020 may just be the trigger to secure our place in the ftse250 late in 2020. (by increasing our MC)
Summary-
Dividends are coming and so is that delayed 60p Party. I'm buying the first load of drinks !
I can’t see any talks of dividend payments until end of next year, would be very nice but realistically ain’t going to happen until sub $1b debt level.
E- nah, it can’t be correct.
They must align the dividend with 60p party next year.
Its a minimum request after this pain
P - Enquest is still viewed as risky by the markets and is a straight play on Brent prices. I'm also of the opinion that no distributions are considered until at least 2021 H1 results, unless Brent dramatically over-performs in 2020. Net debt needs to get down below $1 bill at a MINIMUM, before any divs are considered. And that is exactly what your snippet from the 2018 report clearly says - sustainable debt levels before returns to shareholders are considered.
@Romaron - we need to be at much lower net debt/EBITDA levels than BP, before we're considered safer by the markets. I'd say that metric needs to be somewhere closer to 1, rather than BP's 1.4. We could get there by the end of 2020 and that's when a true re-rate could happen. With $65 Brent, I believe that we'll get there in a year's time.
2018 Report:
Longer-term development
In the near term, we remain focused on
delivering on our plans to reduce our
debt. We also have the opportunity for
material growth where our portfolio
has significant potential for near-field,
short-cycle development, particularly
at Magnus, PM8/Seligi and Kraken.
After we have reduced our debt to
sustainable levels, and dependent on price
conditions and company performance,
our capital allocation will balance
investment to develop our asset base,
returns to shareholders and the acquisition
of suitable growth opportunities. The
application of our proven capabilities
in enhancing hydrocarbon recovery
from mature and underdeveloped
assets means we are well placed to
pursue long-term sustainable growth.
NH, whats the point try grow if oil tanks and go to zero month after?
"Buy another Magnus"
There's 2 more fields in the UK north sea that contained more than 1bn barrels, Clair and Forties. Enquest will not find another Magnus, atleast not without fronting the cash ($1bn+).
I'm curious if AB will change the "operating within Net Debt/EBITDA 1-1.5x range", since we will hit 1x during spring next year.
Many shareholders have suffered, so hoarding excess cash for no obvious reason is out of the question. Im sure we'll get the game plan and some clarity in a couple of month. There's alot of cash comming at us if oil stays above $60.
AB did say they could talk about "distributions and other things" after 2020..
(ie: when they are cash drunk and not cash strapped).
I dont see a dividend until end 2021 or end 2022
They are highly unlikely to pay a dividend in 2020 even if it is allowed. If they have spare cash they will buy another Magnus when valuations for oil and gas assets is at historic dislocation
Hi Yhyh
Thats right but they build up production for many years and now reduced debt for 2 years.
RCF is already around 500 mill , the point there dividend is allowed
So its the PIK on bonds around 130 mill remains.
Teoritical I guess they could pay dividend April 2020
Give it until sept/oct and the most of the RCF and PIK is gone
enquest has not once given out a payout since listing
Dividend in 2020 is out of question in my view unless oil goes stratosphere
Rcf has to be fully settled and pik completely washed out then we can talk about dividends