Member Info for epiphany121

Correct, L3. Pelle - please look in pages 148/149 in the 2017 AR for this detail.

Morning, L3. We need to remember that brent in 2017 was in the mid-fifties average, as opposed to the low 70s average in 2018 thus far. There'll be higher production as well in 2018 and all of this points to quicker reduction of the vendor loan in 2018.

I haven't really analysed the decomm costs (the 22.5% that was mentioned), TBH.

Morning Pelle - No, the 37.5% cash flow would only accrue to ENQ after the remaining $100 million vendor loan is paid off. The initial 25% stake vendor loan ($85 million) should also be paid off sometime next year - ENQ will receive the 62.5% cash flow after both these provisions are paid off. As of 31/12/17, the vendor loan balance (Provision, not debt and payable from future cash flows) for the 25% stake was $66 mill on the balance sheet. The wording in the balance sheet indicates that the repayment was assumed payable in 3 years, but this now should be sooner with Brent where it is.

My guess is best case, we'll get cash flows from Q3 next year with increased production and high Brent prices - but the base case would be from 2020 onwards.

L3 - this talk in the earnings call of 5 year repayment of $100 mill vendor loan to BP, sounds hypothetical.

Here's the summary from Gaffney, Cliney & Associates (GCA) CPR

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Economic Summary

GCA understands that EnQuest has the option to acquire BP’s remaining 75% working interest in Magnus field from BP under an existing sale-purchase agreement. This option can be exercised at any time between 1st July, 2018 and 15th January, 2019, back-dated to an effective date of 1st January, 2017. It further understands that the consideration to be paid by EnQuest for acquisition of this interest comprises a payment of US$300 MM (as at 1st January, 2017, subject to some customary adjustments), of which US$100 MM will be paid in cash and the rest will be covered by a loan from BP. The loan will be re-paid, with interest, out of the cash flow from the 75% interest in the field, and once the loan is paid off, additional earn-out payments will be made to BP comprising 50% of the cash flow from the 75% interest in the field, up to a limit of US$600 MM (grossed up for tax at a maximum of 40%). BP will remain responsible for almost all of the abandonment costs, but EnQuest must pay BP 22.5% of the after-tax value of these costs.
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If we read the above, BP vendor loan gets paid first, followed by sharing of the cash flows at 50% each..

Spot on, MO. We should be done with BP $100 mill before or by the end of next year, with Magnus producing 20k BOEPD in 2019.

It's not clear what JS was saying in the call (snippet pasted below) about ENQ getting $100 mill repaid first and then BP's $100 mill, before the 50-50 cash flow share. That statement doesn't make sense, does it?

And here's a tidbit about the 75% Additional Magnus Interest. I read through a few pages of the call option deed and discovered that after the completion date, NONE of the 75% can be hedged as per section 7.3.2 of the agreement. I assume that this will hold true till the 50-50 cash flow share deal is complete. So, circa 15k boepd is fully subject to the oil market's vagaries. FYI.

Best

Pelle - a correction on your Magnus assumptions for next year. ENQ will receive 100% of the production/revenues from Magnus, and 62.5% of net cash flow after BP is paid off and 25% till then.. We can be very sure that the Magnus transaction will close very soon after the rights issue closes in October. From that point onwards, 100% of Magnus production will accrue to ENQ's P&L from the closing date. I haven't modelled revenues for 2019 taking all of Magnus into account, but you're almost certainly understating the revenues and EBITDA for next year.

Here's another point that JS stated on the earnings call with regards to the profits (cash flow) share.

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Chris Wheaton

And then for the remaining 75% you're acquiring, there's the $100 million you've identified that's effectively paid back from the transaction. Sub-question here. Do any of that account against the $500 million, sorry, the $1 billion cap on payments made to BP that you identify in the statement today? But then once the $100 million is paid, is there anything else after that, that stops that payment coming straight back to the Company?

Jonathan Swinney

No, no. That money comes back within the waterfall. So that's...

Chris Wheaton

Right. Out of 50% off the 75%?

Jonathan Swinney

Yes. So yes. Once we have received our $100 million cash upfront back, then going forward, then, let's say, this is over $20 million a year for 5 years to BP. Then that comes out first. And then after that, then that's the profit share between us and BP.

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Purely from a cash flow viewpoint though, JS is stating that ENQ gets the first $100 million of net cash flow, and then BP gets the remaining $100 million, and then its 50-50 cash flow split, or profit share as he calls it. I didn't realise that ENQ will get their $100 mill back first. It's probably worth reading the option deed doc to confirm this detail.

Best

Hi MO -- This is a 100% ENQ owned SPV and sure, the SPV will own the 15% of Kraken. By the nature of them being a 100% subsidiary, all of the revenues will still accrue to ENQ. And the debt as well will sit on ENQ's balance sheet as confirmed by JS.

I suppose what AB was trying to say in that 2nd paragraph you pasted below was that the 15% SPV will have it's share of Opex/Capex - we get that. But, ultimately from an accounting viewpoint, they'll go on ENQ's books. The net cash flows (post capex/opex) from the 15% stake are ring-fenced to pay back OZ's $175 mill debt.

I hope this clarifies.

L3 - the revenues will definitely accrue on ENQ P&L, just as the OZ debt will come on the ENQ's balance sheet, and this was confirmed on the call as well. I doubt there's a separate hedging programme for the 15% ring-fenced production - nothing that's been announced certainly.

Afternoon MO,

As always, your inputs are most appreciated. The revenues and production from 15% ring-fenced 'stake' will still accrue to ENQ, even though the net cash flow will go towards paying back OZ's debt. We don't need to reduce any of that in ENQ's P&L and production estimates.

Let's hope that the Scolty fix next year, as per your technical details below, will indeed lead to more production from those fields. Given that we have a bit of cash now, it's probably worth it for ENQ to bring this forward to this year, assuming that's doable?

Best

L3 - here's my take on some of the points you've raised. I also believe that production in H2 will be much better than H1 - in the circa 60 to 65K boepd range for H2. I'd predicted that this was the updated range that ENQ would put out last week, but didn't.

Let's assume AK produces 38K bopd for H2 and that equates to 26.5k BOEPD for ENQ. That's a 5K uplift for H2. Say Alma gives us a net 4K conservatively, and PM8 say an 2K additional - these numbers puts ENQ at the top end of the range already, with still room for some under-performance at some fields.

I doubt ENQ would provide another update before the November update. However, it looks like maybe they're noticing some of the comments on this board and feedback from elsewhere, and are being a bit more visible on social media as well as putting out releases like the SVT STS transfer. That's taking a page out of PMO's books to make itself more visible to the market.

No idea about the revised commitment for AK, to be honest. All that BD would say on the call was vague in that each month's payout to BUMI is a sliding slide based on what AK produces.

True, DD. They're all over the place with their price targets. For once, what a better benchmark for us are crude offloads from AK and possibly EP (going forwards).

MO - as you'd have noted from the new press release today about SVT STS, circa 500K barrels looks like about the average load size we must factor in from AK. If we work backwards from your load time records, they should be pretty accurate to the reported production in the OGA database as well as in the ENQ updates.

For the last 2 loads, AK has been producing at a 40K BOPD clip and let's keep our fingers crossed that this continues till DC4 comes online.

Best

Cheers, Romaron. That was well put.

Auson...Eeyore has opened up their sarcastic self big time, just in case you haven't noticed the last few posts... ;-)

Who's the Eeyore again?

I think you're all reading the new Barclays target price incorrectly. Why would they list the previous target at 60p (pre-rights as we know) and downgrade the share and put a new target of 45p post rights price? I read them both as pre-rights price.

https://www.londonstockexchange.com/exchange/news/alliance-news/detail/1536913851455960500.html

Either way, it doesn't matter much if we take a longer price horizon - ENQ will need to produce more and get those cash levels up and net debt down. This is what the market is waiting for and we'll get a better sense of that in the next update in November on the back of higher Brent prices and higher production.

DD - are you 100% sure that this is a post-RI price? I'm reading this as like for like, and Barclays bringing down the target price from 60p (pre-rights) to 45p (pre-rights).

Their full research note, if we find it somewhere, will help clarify. However, ENQ needs to deliver and target prices will adjust in the right direction.

Does anyone have more details of the downgrade? It looks like the pre-RI price target has come down from 60P to 45P - this is what I can see in London Stock Exchange announcement.

Evening MO,

How's the Rose keeping you? Happy, no doubt. ;-)

I agree that since funds aren't too much of an issue with the cash accruing over the next few months, if it were me, I'd start locking in Brent puts for 2019, but not have a collar. We'd have downside protection and retain all of the upside, just in case Brent does solidly break above $80-$85 a barrel. Yes, it is a bit expensive, but we're not scraping the bottom for paying these puts - I have no doubt.

How much do we lock down is the big question? I'd suggest that a put option say at $70 for 2019, may cost $1.5 to $2 a barrel and assuming a 65k bopd run rate for H1 (circa 12 mill barrels for H1), we could be looking at a circa $10 million premium for a 50% hedge. I'd lock in 50% for H1 and 25% for H2, and then assess how Brent goes from here. They should look to take another view in November and if Brent does move up more, lock in puts at that level.

We can see that Brent Futures are still solidly in the $77 range right through April 2019.

https://www.marketwatch.com/investing/future/lcox8

That's my fantasy - we'll see what JS/AB do end up doing..;-)

Brent settled at 79.06 today and currently a couple of cents above this level.

Put options at this price would be lovely ..;-)

US output forecast cut, small demand cut. You have Florence and Iran. Let oil stay at these levels..

https://www.forexlive.com/technical-analysis/!/wti-crude-climbs-above-50-retracement-of-the-recent-swoon-20180911

Cheers, Fernan.

ENQ is guiding for a 70% entitlement in H2, but I haven't modelled what the entitlement would drop to based on movements in Brent prices. With further wells drilled in Q2, it's good if we know this.

Have you done this modelling, Fernan?

Best