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Hi oldholder.
Interesting.
Seems as if someone didn't like my first response to your mail...so be it. I'll try again.
It would be nice to think that there's a greater level of probity as you scale the accounting league structure.
In fact, in my experience, at the highest level you get the most self interest.
As a consequence, the accounting of publicly quoted companies can become more about what is defensible, rather than what is actually happening. The best accountants are like the best lawyers; it's all about who makes the most persuasive argument.
No cynicism, just experience.
Anyway, I digress. What's your view on Enwell going forward as an investment?
Hope this blog makes the trip!
Hi oldholder,
Got ya.
Unfortunately, while you would hope that there was a different scale of accounting probity with the multinationals, my own experience tells me different.
Like the best lawyers, they are paid on their ability to make an argument that, when tested in court, will be persuasive...it has nothing to do with the greater good at all.
Not cynical, just seen it. It's how they make their fees.
Anyway, I digress; what's your position on the future for this stock?
Cash was $67 mn at some point, only $54 mn now
So they’ve spent ALL what they earned for the last couple of years, PLUS $13 mn
To get a small increase in production only
Cash machine, indeed))
Hi straycat,
Enwell having PWC as auditor ,IMO, wants to demonstrate that the financial sheets are accurate and for this reason no use a "second"class auditor.
I don't believe PWC is so naive ... and risk their reputation .
Hi oldholder,
Don't understand.
It was you who pointed out that the auditors were PWC, using it as a counter to Krok's argument concerning 'capex management'.
Have I misunderstood? Apologies if so.
PWC is an expensive cost auditor and they don't risk their reputation especially with so small clients like Enwell.
IMO , Enwell would have appoached a second class auditor to make fake works...
Hi Krok,
I see.
Not a great endorsement of this share investment if your share valuation is wrong, as we have all been before...
I shouldn't be writing like this; my interests are in you being bang on the money!!!
But I can't help thinking that the 83% major shareholder will do what he wants, irrespective of the rest of us.
And if you're right and he takes his money out regularly in other ways, then he will. It's cheaper.
Talk of dividends will be for future investors to evaluate for themselves.
All he's got to do is to keep us interested.
I'm going to stop now; I'm depressing myself!
GLAH.
Oldholder,
Smart energy might have reasons to depress their performance...with intercompany trading this happens all the time. Profits are regularly moved around for tax purposes to support the best possible tax outcome.
That would be an issue for Smart energy and their auditors, not Enwell.
And PWC would eventually have to accept the Directors' position in Smart Energy and Enwell on market trading conditions and whatever plausible reasons they gave for their purchasing/sales arrangements.
Not very palatable, I know.
Oldholder, dont be so naive when you invest in dodgy stocks
Kickbacks are a common thing in drilling, can be done easily. No auditor will track this, particularly big 4, who “rely on internal controls”))
Hey, Straycat
I would at least wait for new well results. 650-700 boepd will give a decent boost to 4Q revenue and profitability
Gas prices increase every day. There is a chance the stock will get noticed
40-45p should be the price for this stock in the current environment, in my view
Hi Krok, two observations
you wrote
3) Capex is likely one of the ways to get cash out of the company by the shareholder. Hence, no need for dividend,
BUT the auditor is PriceWaterHouse Coopers one of the big three in the world.
4) Sales do not increase proportionally to the gas prices. All gas is sold via Smart Energy. Probably, another source to get money outside of the company. Even less need for the divi,
BUT JKX sell the gas at $232/MCM instead of Enwell sell at $249/Mm3.
Hi Krok,
Good post.
So you're holding because we'll get the benefits of what?
On your analysis new investors would have to be crazy.
1) Whatever this company earns, it spends all of it on capex
2) Capex does not result in a material increase in production, it is value destructive
3) Capex is likely one of the ways to get cash out of the company by the shareholder. Hence, no need for dividend
4) Sales do not increase proportionally to the gas prices. All gas is sold via Smart Energy. Probably, another source to get money outside of the company. Even less need for the divi
5) No income on cash. Should be at least $3-4 mn per annum on $60 mn cash balance. One more way to earn money, possibly. Zero chance for divi, alas
6) Said it many times, cash will decrease in 2021 and, likely, going forward. Those who try to calculate by which date cash will equal to mcap are idiots. Minus $6 mn for 8 months 2021, at a time of record gas prices and increasing production. Wow
That all said, I am still holding for now. Everything has its price and gas prices help a lot here. Have nothing to do with the company, though
2021 Interim Results are out - https://polaris.brighterir.com/public/regal_petroleum/news/rns/story/rngd80x
Will take some reading through but good to see "On 25 February 2021, the Company completed a reduction of its share capital through the cancellation of its entire share premium account. This reduction of capital created distributable reserves of the Company, which enables the Company to make distributions to its shareholders in the future, subject to the Company's financial performance. However, the Company is not indicating any commitment, and does not have any current intention, to make any distributions to shareholders."
Lets see what happens when the market opens - any thoughts?
What I mean is was VAS actually Novinskiy's?
Enwell Energy
The company was founded in 2001. It has a special permit for commercial development of Vasishchevskoye gas condensate deposit (Kharkov region), which is valid till 2032.
Marketable products of the company: natural gas, gas condensate.
Yes, it may well be that Novinskiy earns money either on drilling or on re-selling ENW’s gas. If this is the case, he may not need any dividends
Also, dividends may not be tax efficient for him
He owns UGV directly, this is an asset which is appr. 2/3 the size of ENW. Bigger risk here is that he sells it to ENW at an inflated price and, as a result, gets all cash ENW has. Plus, ENW may need to borrow something for that to happen
That said, the market can initially react positively on this, not understanding the real intention
Krok,
With all this apparently wasted drilling expenditure sunk in.
I guess the fear could be the man in charge doesn't care about drill results or flow longevity as perhaps the drilling contracts are to his own teams?!
I wonder what is in it for him? how does he make anything out of this enterprise?
What about the buying of actual fields themselves did he own any of the bought assets. I wonder.
Not sure I understand what you mean here
They are unable to properly deploy their existing cash, why borrow?
What they’ve spent recently on drilling seems to be value destructive, at least at ENW level
The controlling shareholder is not willing to share company’s cash with poor minorities. Obvious by now
Any debt will be expensive, I reckon around 12% per annum. JKX had 9% convertible bond but that was in a different, pre-2014 world
Hey Krok, instead of self finance they can go to the bank to try to raise the finance ,they need for the investment.
Or make a mixing.
There is not in economic universe a “serious company “ with no bank loan.
Also, you should not forget that the SC well they have recently spudded at their new asset is riskier and even more expensive that what they drill at the SV field
Furthermore, even if they are successful with their SC-4 well, once the well is drilled and tested, they will need to shut it down for another 1-2 years until they build a pipeline and a gas plant at the field. So $15 mn or more will be spent this year, revenue will start in 2022 or 2023
Hey. oldholder, $1oo mn revenue and $35 mn net profit are easily achievable in 2021, no doubt
But then there are two wells ($25-30 mn), 3D seismic ($3-5 mn) and plant upgrade (cost unknown)
So free cash flow will be zero or negative, most likely. Cash will decrease or stay around the current $60 mn level
And then the question is what will be initial flow rates from these wells and how quickly they will deteriorate
In Russia, average gas prices are around US$60/mcm in 2021 and you can buy as much as you need))
Gas prices in Europe are US$120 per boe (divide mcm by 5.6). This is almost two times the Brent price - unbelievable, never happened before
Hey, OfficerFigby, spot on. Two latest wells drilled by ENW have been a disaster indeed. Mentioned it a few times here
The worst part is that each did cost US$12-15 mn. Will never pay back in any gas price environment
That said, those are sunk costs, irrelevant now. The wells still added somewhat to the overall production, which is 5 kboepd and which is pure gold these days
Hi Krok,
thanks for those posts. Better understanding.
The weakness for both ENW/JKX is well flow rate depletion.
Last couple of SV wells look to have fallen off pretty quickly.
JKX fall off in Ukrainian well production also looks bad.
However, at these gas prices it doesn't matter I guess!?
Roll on the return to 60p.