RE: POO29 Oct 2018 19:05
Pelle, Squif and L3 - Good debate/discussion here on cash flow. For once, Squif has actually modelled something other than AB. What has the world come to really???
Pelle is right about ENQ getting 62.5% of cashflows, but an additional factor to consider is that this number is AFTER the purchase price via the vendor loan is paid off and ENQ then receives the $100 million payment consideration back. We know it's a complex transaction in terms of how cashflows are adjusted to BP and ENQ - allow me to clarify and you can then adjust your CF projections.
On completion of the 75% Magnus transaction, say in December 2018, we know the $300 million purchase price will be adjusted based on interim cash flows from Jan 2017 (post tax as these profits/net cash flows still belong to BP until the closing date) plus Working capital adjustments plus transition costs. Enquest has already stated they expect the net purchase consideration be 100 mill less, say this is $200 million. ENQ pays $100 mill cash to BP and the remaining say $100 mill will be the vendor loan from BP at an interest of 7.5%.
In 2019, 100% of the Net Cash flow will be FIRST applied to repaying BP. Remember that unlike in 2017 and 2018, there's no tax accruing to these cash flows as they're protected by ENQ large accumulated tax loss. Assuming 5 million barrels are produced from the 75% in 2019, and net cash flow is say a conservative $30 a barrel with oil sticking around $70 a barrel on average, then BP first receives the $100 mill out of the $150 mill net cash flow (5 mill * $30) and the remaining $50 mill goes to ENQ to repay the $100 cash payment that ENQ will make shortly to close the transaction.
Then in 2020, the first $50 mill net cash flow will go to ENQ for recouping the remainder of the $100 mill cash payment. The next circa say $6-7 mill will be to BP for interest payment on the $100 mill vendor loan. Only after these 3 component repayments (1. vendor loan 2. ENQ $100 mill and 3. BP Vendor load interest) are completed from the net 75% cash flows, will we get to the 50% - 50% profit share with BP. It may not make too much of a difference in the grand scheme of things from a cash flow viewpoint, but it isn't a straight 62.5% Magnus cash flow for ENQ from 2019 onwards.
It's more like 50% for ENQ for 2019, 75% for 2020 and 62.5% from 2021 onwards.
With regards to net debt at the end of 2018, Pelle - you've captured $30 mill rights, $20 mill Thistle and the $10 mill BUMI payment. In addition, it's looking like DC4 could be deferred to a bit later into 2019 and hence the Capex for H2 may actually be lower. Couple this with higher production of circa 60k BOPD + higher realisation that's conservatively $10 a barrel higher than H1, we could see cash from operations higher than H1 by circa $110 mill and with reduced capex spend of say 40 million, net debt could be down by over $200 mill in H2.
We just need Brent to hold over $70. Numpty is threatening more China tariff
Sign In
Follow the stocks
