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Very good upgrade from the harshest of sceptics and a very hard one upgrade, especially when considering how far Brent fell in 2020 and the high level of debt over the last five years or so.

Part 3
STRUCTURAL CONSIDERATIONS

The Caa1 rating on the senior notes is one notch below the B3 CFR reflecting the substantial amount of secured liabilities ranking ahead of the senior notes. The notes are senior unsecured guaranteed obligations and are subordinated in right of payment to all existing and future senior secured obligations of the guarantors, including their obligations under the RBL.

EnQuest's main borrowings, which include the $600 million RBL, $797 million high-yield bond and $249 million retail bond, are guaranteed by essentially all of its operating subsidiaries. The RBL is secured by share pledges and floating charges of the subsidiary guarantors. The guarantees and security pledges are subject to a priority of claim in accordance with their terms, ranking the facility most senior with the notes effectively subordinated.

RATINGS OUTLOOK

The stable outlook reflects Moody's expectation that EnQuest will continue to conservatively manage its balance sheet, securing a substantial part of its production with commodity hedges and keeping its leverage comfortably within the guidance for a B3 rating. Moody's also expects the company to continue to apply its free cash flow generation primarily to debt reduction, while maintaining a healthy liquidity profile.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

While an upgrade is unlikely, EnQuest's ratings could be upgraded should a continuous recovery in operating profitability boost FCF generation, leading to a strong liquidity profile and Moody's-adjusted gross leverage sustained below 3.0x. The refinancing of the high yield notes maturing in 2023 is also a required condition for a possible upgrade.

Conversely, the ratings could come under pressure if leverage trended above 5.0x or liquidity deteriorated most likely as a result of a decline in oil prices. Failure to address the 2023 maturities at least 12 months in advance could also lead to a downgrade.

Part 2
The B3 rating continues to reflect a relatively low 2P reserves life of approximately 9 years and thus Moody's highlights the need to continue to invest in order to replenish the reserves. In addition, the company will need to invest in order to convert its 2C resources into producing ones in order to sustain production in the years to come.

LIQUIDITY

EnQuest's liquidity profile is adequate. As of end of June 2021, Moody's estimates that the company had approximately $200 million of cash and $70 million availability under the recently signed RBL.

If the high yield notes are refinanced, the new RBL will be automatically extended to the earliest date between seven years from the day of signing or the point at which the remaining economic reserves for all borrowing base assets are projected to fall below 25% of the initial economic reserves forecast. If the bonds are not refinanced, the RBL will mature in June 2023.

The RBL has an amortization schedule of approximately $100 million per quarter starting from March 2022. The facility has a biannual redetermination of the reserve base and it contains a net leverage covenant set at 3.5x, under which the company has significant capacity. The RBL also has a cash sweep provision for any cash exceeding $75 million being applied towards debt repayment.

Despite the company's adequate liquidity over the next 12-18 months, Moody's notes that the company will face a maturity wall in October 2023 when the existing bonds come due.

Part 1
London, 30 July 2021 -- Moody's Investors Service ("Moody's") has today upgraded EnQuest plc (EnQuest)'s corporate family rating to B3 from Caa1, the probability of default rating to B3-PD from Caa1-PD and the rating assigned to the guaranteed senior unsecured high yield notes due in 2023 to Caa1 from Caa2. The outlook on all the ratings is stable.

RATINGS RATIONALE

Today's upgrade reflects the company's improved liquidity following the refinancing of the bank debt with a new Reserve Based Lending Senior Secured Facility (RBL) as well as an improved outlook for free cash flow generation.

Last June, the company completed the refinancing of its bank debt with a $600 million RBL and in July 2021 it finalized a $50 million placing and open offer. The refinancing improves Enquest's liquidity profile given that the maturity of the bank facilities has been extended out to June 2023 from October 2021.

The significantly improved oil and gas prices, compared to last year, and the sizeable hedging book required under the terms of the RBL will support cash flow generation in 2021 and 2022. As a result, Moody's expects that the drawings under the RBL will be repaid early prior to its maturity in 2023, absent further acquisitions.

In 2021, Moody's expects EnQuest's production to decline to around 49 kboepd (excluding the production from the Golden Eagle fields), from 59 kboepd in 2020, as several mature assets ceased production.

Taking into account the group's current hedge book and assuming an average Brent price of $55/barrel and opex of $15/boe, Moody's estimates that EnQuest will generate a Moody's Adjusted EBITDA of $730 million and a Free Cash Flow of around $400 million in 2021 after (i) $130 million of capex and principal lease repayments and (ii) approximately $40 million of deferred and contingent consideration paid related to the Magnus acquisition. Our FCF expectation excludes $73 million of interest payments on the bonds that are paid-in-kind when the Brent price is below $65/bbl.

The cash flow generated will be primarily used to repay drawings under the RBL and to fund the Golden Eagle acquisition, leading to an estimated Moody's-adjusted gross leverage of around 3.0x at year-end 2021.

Moody's expects the acquisition of Golden Eagle to close by the end of the third quarter of this year leading to a full year pro-forma production of 59kboepd. The acquired assets will contribute to the moderate and ongoing shift of the business profile towards more mid-life fields compared to late-life ones. Following the cessation of production on several oil fields in the UK North Sea in 2020 and 2021, the company's production is concentrated on Magnus, Kraken, the Malaysian assets as well as Golden Eagle (when the acquisition closes).

Investors need to remember that volatility is required to create a market for shares - if volatility wasn't built in share prices would hardly move and investors would loose interest.

In the main market stock movements are generally much more controlled because more stock has to change hands to create price movements, but in AIM where the market caps are much smaller, just a few trades can make all the difference.

We have seen this market volatility working both ways for ITX over the last year, it will subside as the company gets bigger but I guess at the moment its just what we have to expect.

Obviously the latest update triggered the fall but the SP is now clearly oversold and when the SP stabilises I guess we will enter a period of very low volume, just pulling in a few buyers to gently lift the SP, until we get some good news to pull the SP sharply back up again.

For those who understand the company and its potential, nothing has changed this week.

A big spike now could do more damage than good by pushing up inflation, damaging the rebound after Covid and eventually reducing demand - big spikes are usually followed by a big dip.

Brent settling at $75 - $80 average for the long term would be far better.

Also, unless you invest just in oil, the rest of your portfolio would be adversely affected by very high oil prices.

However, a big spike might be the only way that we would see 60p here.

A fast developing story regarding the attack on a tanker owned by Israeli billionaire Eyal Ofer on Thursday off the coast of Oman in the Arabian Sea is ratcheting up the tension considerably between Israel and Iran - Israel are accusing Iran of carrying out the attack - a British citizen and Romanian died in the attack.

Yes, fully agree Neil.

Yes, this is the best video of the hive that I have seen - Thank You missdosh.

Carrington
I don't think that Blackrock or Pelham will sell out - they will just reduce their short.

I guess both of them also have active long positions that they hedge against the short.

When they see upside they reduce the short and add to the long and visa-versa when they see downside.

Maybe as Blackrock have recently reduced their short, they see upside when M&S release their next trading update - that would be logical - so it could be that now is the time to invest?

There is also good news for the over 70's regarding the Pfizer vaccine that most of them had back in the winter.

After a patient study in the US, Pfizer have said that a booster jab this Autumn will give optimum high level protection from the Delta variant of Covid.

That will help take some of the pressure off the NHS this winter.

When the pot gets bigger dilution is never an issue - the SP has already grown more than 5%.

gkb
The actual evidence is that is the vaccine that's pulling us out of the mire and without it we would be deep in a third deadly wave - so forget all your negativity and conspiracy theories.

The challenge isn't to stop using Oil and Gas - even Coal - but to reduce emissions.

How and what fossil fuels are used for should be the main focus going forward to reduce emissions.

The first step, electric cars - even though they are far from perfect - will have a positive contribution to reducing emissions.

Probably the greatest contribution would be to clean up power stations so that all forms of fuel could be used without emissions.

The Delta variant is the fast track to herd immunity that will probably see most of the Northern Hemisphere clear of Covid before Christmas.

Todays leaked news from the US Centres for Disease Control and Prevention stated that the Delta variant is as contagious as Chicken Pox and that it can be spread by vaccinated people asymptomatically.

When it becomes clear that Covid is behind us, world markets, including the oil market, will finally be unshackled.

Hello Jan
Good level of confidence here at the moment - Brent took a dip but came back strongly - onlook now looks stable for the run up towards 30p.
Have a good holiday.

Very relevant article from CNN on Covid in the US - leaked from US Government data .
Points out virulence of Delta variant and that it can be spread by vaccinated people without showing symptoms.

Basically a quick track to herd immunity but very bad news for the unvaccinated.

https://edition.cnn.com/2021/07/29/politics/cdc-masks-covid-19-infections/index.html

Neil
The main thing is we know Ocado is trading well - SP will recover on news and with market - shorts are exploiting current situation - just be patient - long term will give excellent capital return - short term just pennies.
..... and yes, I did just post exactly the same on the M&S board.

The main thing is we know M&S is trading well - SP will recover on news and with market - shorts are exploiting current situation - just be patient - long term will give excellent capital return - short term just pennies.

The last thing the North Sea Oil Industry needs is for more publicity over the extraction emissions issue.

It makes it far more likely that the timetable of voluntary reductions that the industry has already agreed to will need to be strictly followed or it will become mandatory - that involves a fair amount of capital expenditure.