Member Info for epiphany121

Evening Jan,

I do realise that the SP situation is looking rather bleak at this time, but we're not the exception here. The key driver is now overall bearish sentiment in the Equity and Oil markets because of all the idiotic policies of the numpty coming home to roost, tariffs being the most important thing. Consumer and business confidence is of utmost importance and these have taken a pounding in China, but what the numb skull doesn't realise is that the global economy is interconnected and that this slow down will catch up with the US sooner than later. And this is what the equity and oil markets are trying to digest and price in.

I know that it's no consolation, but the likes of PMO are down more than us in the past 3 months and I know oil companies in the US that are down 40% to 70% also in the past 3 months, and many of them are far more stable debt-wise than ENQ is. So, this is not just a ENQ phenomenon. The only thing that can turn the tide on our favour is signs of stability in the global economy and that needs the nincompoop to bottle up a bit - unlikely I know. He always look at the DOW as a key barometer of his performance and that's not far from 52 week lows - another 3% down and we're there.

Anyone but that idiot would've been far better for the global economy and for our financial health too. I'll have to believe that we won't go into a recession just yet. We'll end up getting a spurt in 2019, but we may see that downturn in 2020, and I hope to have sold out a large portion of my holdings by then.

I won't give ENQ much of a chance to go tits-up to be honest.

best

I don't filter anyone, but Squif's nonsense is way beyond anything a so called holder would keep parroting. I'm surprised that AB or Faysal have not been slandered today. The Arabs can't be trusted can't they, Iffy squiffy? I have no doubt they're out to get you and your family.

Filtered Squif finally..

Morning Romaron,

It never is light banter with these options ;-), but at least the upshot seems to be a revival of a long forgotten political party to contend with the mainstream idiotic parties still scrapping over Brexit. Lol..

Why oh why did we end up here? History has shown that periods of strong nationalism coincides with the aftermath of a period of economic upheavals following a deep recession or an outright depression, and the past few years has been just that. Not to turn this into a political discussion on this board, but all the farce in the past few days has only reminded us of the economic mess that we would find ourselves in and it would almost certainly impact the less well-off disproportionately, should we plunge into a no-deal Brexit come March. Against that backdrop another no-philosophy party can't harm can it? ;-)

Here's hoping sanity returns soon to politics/politicians...

Afternoon Romaron,

LIke I said in one of my earlier posts - Hedging is not equal to financial trading. Enquest (and other fiscally prudent oil companies) see this as a mechanism to have predictable cash flows and not be subject to the vagaries of the spot market that makes cash flow/profit forecasts as reliable as the result of a coin toss. Enquest has already stated the following in the 2017 AR and I'd view the level of contemplated hedging as a prudent cash flow protection mechanism.

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Commodity price risk – oil prices
The Group is exposed to the impact of changes in Brent oil prices on its revenues and profits generated from sales of crude oil. The Group’s policy is to have the ability to hedge oil prices up to a maximum of 75% of the next 12 months production on a rolling annual basis, up to 60% in the following 12 month period and 50% in the subsequent 12 month period.

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I agree that ENQ won't be indulging in naked hedging - for example, trying to financially hedge Magnus 75% barrels that can't be hedged as per the Magnus SPA and must be sold at spot prices. This is what some of posters on here were suggesting that ENQ should do, but that to me would be a NO-NO. I don't believe there are any hedging restrictions imposed in Enquest by the debt covenants themselves. In the past, I've scoured through the AR to validate this too.

In the last update, ENQ only revealed what was hedged in Q1, but I wouldn't be surprised if more would've been hedged for the following quarters.

I'd speculating if I said I knew the answers to your 2 questions. I really doubt they'd have hedged anything for Q2 since oil got in the 60s, but it's possible they may have taken on some downside protection early in November when Brent was still in the 70s. That would've been good, but the down leg in oil was so rapid that I'm sure it caught almost all in the oil industry by surprise and hence, I'm not so sure.

Correct about Fixed Swaps, Pelle. This is locking into a fixed price at a future data and this what ENQ used back in 2015 to hedge 10 million barrel oil sales for 2016. That hedge transaction netted ENQ more than $200 mill additional revenue in 2016.

Swaps shouldn't cost as much as you indicate below - those costs you listed below look more like 'near the money' Put option premiums.

TWalby - Hedging costs are a function of the current market price, date of hedge expiration and the strike price and this is purely talking of options. When the current market price is circa $60, you can't really go and hedge at $80 - a put option would circa $23 a barrel at that strike price for middle of next year, and doesn't make sense. You can only look to hedge closer to the current market price.

I'd posted a link to Romaron a couple of days ago - please read through my previous posts and check that link for WTI options costs. It gives you an idea for options costs for WTI and it'll be similar for Brent too..

That's precisely my point about Squif. Every single post is all about how useless AB is and brings about Faysal on the odd occasion too. Loves Arabs and Arab origin people, Squif does. Brings nothing constructive or informative to this board other than 'hatred' for AB - pretty much every single post.

I remember Disco Dave writing a while ago about Squif being AB's love child - now that's about the only thing that makes sense. :-) I don't mind posters with a negative spin (Fernan/L3) as they offer another perspective that keeps me on my toes and possibly makes me consider my investment thesis holistically - but Squif is a different kind of a beast. It's a constant drumbeat of depressive/soul sucking posts about how AB F'cked up - probably a reflection of his/her life in reality. How anyone could stay invested in such a company is beyond my intellect to comprehend and it's a good thing that I'm not a psychoanalyst.

May AB save his soul.. Lol. ;-)

It's only depressing if you allow yourself to be depressed. ;-) This is December and Christmas is almost upon us. Take in the festive atmosphere - the lights, the sounds - and shake this off. There's always a silver lining at the end of every dark cloud - Brent price in this case.

Maybe a daily dose of Bobby McFerrin's Don't Worry, Be Happy is needed for the depressed on here.. :-)

China is cutting auto tariffs signalling some de-escalation in the Tariffs war. Fingers crossed now.

https://www.zerohedge.com/news/2018-12-11/china-moves-cut-auto-tariffs-sending-futures-higher

Morning Romaron,

Headache or not, it's really useful to understand the hedging picture for oil companies. The biggest plus is assured cash flows that are more important to the likes of ENQ/PMO - companies with higher debt loads. All oil majors have trading desks globally - Shell has 5, for example - and all trading desks deal with Crude oil,whilst only a couple trade downstream products. I don't quite know what the hedging mix (Options Vs Forwards) is for majors such as Shell/BP, but it may not be so insignificant to the point of being irrelevant.

I'd say that for the likes of Enquest the interest is more in protecting cash flows, rather than engage in speculative financial activities. The costs of hedging in the form of options ARE available in the public domain. In the link below, costs of options for future months can be seen. I've already posted this link a few months ago.

https://www.cmegroup.com/trading/energy/crude-oil/west-texas-intermediate-wti-crude-oil-calendar-swap-futures_quotes_globex_options.html#optionProductId=2767&strikeRange=Active&Expiration=Jun2019

In the page, select the month in the Expiration drop-down and that gives us options pricing for both Puts and Calls at various strike prices, at 50 cent increments. Take this example - the current WTI spot price is $52 and purchasing a Put at $50 for June 2019 costs $3.69 a barrel. This will be the floor. Then selling a call at $58 provides an income of $3.75 a barrel, and makes this collar between $50 and $58, cost neutral for a trader. Enquest is using such an approach to hedge their oil production and protect cash flows, at the lowest possible cost, ostensibly. I can't see why there'd be anything amiss with ENQ taking on such hedges - it's fiscally the prudent thing to do, particularly if the direction of oil prices aren't clear. I doubt ENQ's 'trading team' are sat there and putting on these type of hedging trades to make income. That is clearly not their business model, unlike the oil majors where the trading desks are clearly P&L divisions on their own.

Yes, I do trade stock options over on the NYSE/NASDAQ. The principle is the same whether it is a individual stock or a single global commodity, like crude. However, because of the recent volatility in crude prices, we have seen option premiums go up a bit particularly with those buying Puts, seeking downside protection.

Here's a though. Grow a real pair, Squid. And someday, you may just take responsibility for your shiite investment decisions, rather than blame someone else. ;-)

Hey MO - Hang in there. One load maybe doesn't make a trend. There are now quite a few spotters here now, maybe not as avid as you, and I'm sure we'll see how the loads are progressing. ;-)

Enjoy the Róse yet and stick around.

Squif - here's the key calc you need - 0 + 0 = Zero (still). This is not being disputed by AB, and so must be wrong. AB is even causing problems in basic maths - who'd have thought he could do it??

BananaJ - OK, I see where you're coming from. I interpreted the statement call 'spread between $78 and $84' as just sold calls in Q1 at various points, whilst I think you're interpreting it as a sold call at $78 and a bought call at $84 (the 'atypical 3-way collar'.

The 'typical' Three way collar consists of a sold put as the 3rd component of the collar that generates additional premium income for the company and the strike price is usually at a lower level that a company deems the oil price won't get to, but there's no guarantee it won't get there. The sold put isn't quite the floor as price below that level would mean that company stops benefiting from the purchased put option.

Take this scenario for the typical 3-way collar with a sold put - say as an example, ENQ in Q1 19 has a bought put at $70 and a sold call at $80 - this regular collar offers downside protection below $70 and caps upside at $80. Let's say ENQ sells a put at $60 creating a 3 way collar, then this is what happens.
1. Above $80, ENQ only receives $80
2. Between $70 and $80, ENQ receives Brent actual sold price
3. Between $60 and $70, ENQ receives $70
4. Below $60, ENQ receives Brent PLUS $10 (difference between bought and sold puts)

Let's now consider an conservative/atypical 3-way collar scenario - which is a bought put and sold call (these 2 are always the same for an oil producer), and then the 3rd option is a 'bought call' (instead of a 'sold put' above). Let's take the prices given out by ENQ $70 (Bought put and the floor), $78 (Sold call and a first ceiling) and $84 (Bought call to ride upside above 84). In this scenario
1. ENQ gets $70 if the Brent price is below $70.
2. ENQ gets actual Brent price when Brent is between $70 and $78.
3. ENQ gets $78 when Brent is between $78 and $84
4. ENQ gets Brent price MINUS $6 (Difference between Sold call and Bought call) when Brent is over $84

The traditional 3-way collar (bought put) is what screwed many US oil companies when oil fell sharply in 2014.

Well, the ideal scenario is that ENQ did take on the atypical 3-way collar for Q1 2019 and that way, downside is fully protected below $70 or the hedged 3 million barrels.

HTH...

Mostly incorrect, Joe.

They'll get $70 if Brent is lower than $70 in Q1 -that's correct.

They'll get market price between $70 (the Floor) and $78 to 84 (the Ceiling) - I assume they've sold calls at varying points between 78 and 84), so, one month could be $78 as ceiling and another could be $80 and the other $84. So, ENQ will get the Brent market price if it's between the Floor and Ceiling prices in a given month.

If Brent is above the Ceiling price, they'll only get a maximum of the Ceiling price.

Pelle - no, I don't think they acted too late to start buying puts - it'll be that much more expensive to do it then. I'd suggest that they'd have bought puts when oil was in the high 70s/close to 80s - it then makes sense to buy puts then to put a floor in at around 70 and then recover these costs, you need to sell calls (not sell puts) at maybe the same time or when the price went up to the 80s. Selling calls creates a ceiling and ENQ can only get that price even if Brent goes to a 100. It seems they timed that selling calls part right.

But they didn't buy additional puts for H2 when price was in the 80s. This is all good in hindsight, but as January said, no one expected that kind of a violent down move in Brent in the 2nd week of October. It was way worse than what happened in 2014.

And let's not forget that it was only back in September that most people on this board were moaning and groaning that ENQ screwed up in H1 2018 by hedging at 59 and average price was $68. ;-) There's no catching a break for JS on this board, I assure you - ENQ was slammed as being too cautious back in 2017 and now they are too greedy for not hedging more, although I could be accused of using the greed word too... Lol. ;-) If I had to re-phrase, I'd say that JS wasn't prescient enough. :-)

Pelle - I remember you'd asked this question and I meant to write to you about this, but I forgot.

What ENQ described below in the Ops update, isn't the classic 3 way collar. A 3-way is a combination of 1. a bought put, in this case average put bought was at $70 and this provides the floor (usually) 2. a sold call that limits upside and it looks like calls were sold at prices between $78 and $84 3. A sold put at a lower level than the bought put.

Typically used are 2-way collars - 1 and 2 above, intended to lock in prices between a range, and the put bought premiums are negated (as much as possible) by premiums from sold calls. The sold put is intended to generate additional income for the put seller, but can be dangerous in an environment where oil prices fall hard and breach the put sold level to the downside. The seller is then liable for losses if oil price stays below that sold put level at the time of settlement.

Does this clarify?

Thanks for the insightful and informative posts, Romaron. The notion that ENQ's Kraken oil is Champagne compared to the Heavy Sands oil from Alberta rings very true and we know what's happening there at this time, with no takeaway capacity and the WCS price down to the teens in the past few weeks, though it's recovered a bit now. We'll never get there with our heavy oil though. ;-)

I'm not an oil technocrat pretending to know all the ongoing issues with the FPSO and heavy oil extraction issues, but my hope is that we can turn around Kraken to better than the conservative forecasts that was issued for 2019 and boost our valuation. As was already noted by other posters, this Ops update was the first time in a while that the SP didn't sell off on potential negative news and lends credence to the notion that this news was baked in by the market.

May 2019 be the break out year, supported by a higher Brent price!!

Afternoon MO,

No doubt, you've been sipping on the Róse for the past 2 days. I do hope you aren't feeling too down - minor setbacks do happen and I optimistically believe that Kraken will come back soon, maybe in the next few weeks/months.

Hopefully, OPEC has put a $60 floor under Brent and we can look forward to other positives for ENQ in the coming days and weeks. No doubt the weak US jobs report should put a dampener on the USD and aid oil prices as well. Hopefully, numbskull will also play ball better with China after all the brouhaha over the Huawei CFO arrest.

Best

Afternoon L3,

Here's hoping ENQ hedges more in the mid to high 60s for H2, when it does get there. If there was ever a lesson learnt from the past 8 weeks for ENQ regarding Brent, they just can't afford to be greedy. The next time Brent does get into the 70s, just sell 50% forward for 2019 H2. We may lose some money if Brent does go up for any reason, but ENQ can then hedge more for 2020.

I've already said this before - I don't think we can really count on SVT as a cash/profit generating mechanism for ENQ, Squeezing costs lower is the best outcome we can hope for here. SVT is more of BP letting go of these non-core assets as a bundle with Magnus.