Member Info for epiphany121

Hello VoR, SA,

Seek and you'll find them.. ;-)

The Covenant restrictions start on page 228, as below.

Certain covenants
Restricted payments
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

Covenant Suspensions start on Page 246, as below

Suspension of covenants when Notes rated investment grade
If on any date following the Issue Date:
(1) the Notes have achieved Investment Grade Status; and
(2) no Default or Event of Default shall have occurred and be continuing on such date,

Hello L7,

Yes, this is from the Bond Prospectus. There are hedging requirements under the RBL (not the bond itself) and these cease to exist once the RBL is repaid. Please see below. The terms are 'better' than the last RBL and the requirements drop as more of the RBL is repaid.

Derivative financial instruments
Our results are affected by commodity and foreign currency hedging. Our commodity hedging 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. Under
the terms of our RBL Facility, we are required to hedge (i) a minimum of 45% of volumes of net entitlement
production expected to be produced in the 12 months following the relevant quarter date and (ii) from the date
12 months after the relevant quarter date to the date 24 months after that date:
• if 75% or more of the facility is utilized on the relevant quarter date, 35% of volumes of net
entitlement production expected to be produced;
• if less than 75% but 50% or more of the facility is utilized on the relevant quarter date, 25% of
volumes of net entitlement production expected to be produced; and
• if less than 50% of the facility is utilized on the relevant quarter date, 15% of volumes of net
entitlement production expected to be produced.

Buybacks are still restricted by covenants, just like dividends are. From a quick read of the prospectus, it looks like there are a few more exceptions to buybacks vis-a-vis dividends.

"- NO dividends to be given to Romaron until he buys a round at the pub !"

Lol - what has he done to deserve this?

There are covenants restricting payments of dividends. Dividends can't be paid until either

1. The $300 million bonds are repaid/fully redeemed
OR
2. These bonds become investment grade rated.

Given that there is limited scope for early redemption till November 2024 (restricted to 10% annually for the next 2 years), the best option for Enquest is to pay down the $400 million RBL ASAP and build up enough cash on hand such that these $300 million bonds become IG rated - the dividend gloves will then come off.

If there are no big capex plans, this could be achieved by the end of H1 next year. No dividends till then though...

Auson - you'll need to update 1990 statistics to something more relevant to 2022???

https://www.eia.gov/petroleum/imports/companylevel/

WW3 - hmm, why are we even discussing SPRs?

The US can get plenty of the heavy/medium grades that they need for their refineries from Canada or the South American producers - even assuming that the 'hostile' middle eastern producers turn their backs on the US. Even in the largest storm related dislocations in the past few decades since the SPR was instituted, there's never been a call for more than 50 mmbbls on the SPR. Of course the US will never say that the SPR isn't important and that it will never fill it. They are not time-pressured to refill it and can/will do so at their own leisure.

As a net oil exporter (products + crude) why does the US really need the size of the SPR that it currently has? There was a time and a place for it in the 1970s when they were a massive net importer - not anymore. The thing with oil is that it does very well during a democratic administration and generally goes the other way during a republican administration. The US oil producers secretly love a democrat administration as they're guaranteed to bring on high prices with their rhetoric to pull back on US drilling and promoting green policies, but its no secret that they have found religion and that's more shareholder returns. Nothing will pull them back from that now, not Biden's pleads or a proposal to start buying back oil to refill the SPR when the prices are at $70/bbl.

BTW, that 70 bucks is NOT a floor price. Should a recession arrive in the US in 2023 and WTI falls to the 50s, the US government isn't guaranteeing that they'll buy at 70. This floor talk in the article posted previously is based on a serious misunderstanding of what was proposed. The only way WTI gets to 70 is if there is indeed a recession next year and not even OPEC can prevent oil falling through on the downside if there's a US recession next year. It may be short-lived, like it was in the 2008/09 collapse, but it will get there.

This is exactly why the US producers will not go all out to drill and produce a whole lot more than they're planning at this time - there's no guaranteed price or quantity that can be purchased to refill the SPR. Hamm's continental is going private and would drill anyway as they can make tonnes of FCF with oil even in the 60s, without having to worry about the market marking down their share price.

Near term, my take is that oil can go break up to the 100s towards the end of th year or Q1, but the near term outcome for oil price after that is entirely predicated on whether the US economy goes into a recession or not. There's still a small chance that the fed can engineer a soft landing and that'll determine whether WTI goes to 50 or 130 in the next 6 to 9 months.

Longer term - there are definitely bullish tailwinds for oil, just as soon as the markets navigate the short/medium term rocky waters.

Texan - the source lives rent free in lightie Jefffff's walnut sized brain (I'm being very generous here). However, that does work efficiently when spouting conspiracies. JFK is well and will turn up in Dealey plaza very soon no doubt.

This has been a day of revelations and I didn't even need to open the book of revelations. The wisdom from the all-knowers has been rather insightful.

Don't bother with facts, Texan!!! However, if you specialise in conspiracies, you're more than welcome to be part of the only all-knowing club in town - no matter its relevance to economics and the markets.

Chaps - "HBR oil and gas is heavily hedged at much lower rates then the current oil and gas price so no reason for the large drop" - has no one really been following NBP dated/day ahead prices and tying that to the current bout of weakness in the share price?

The day ahead spot prices are typically what a producers sells into the market, whilst the future prices is what a producer could financially look into for hedging at a future date. The day ahead spot price as of yesterday was 35p/therm, which is lower than the hedge price which is in the 40p+/therm for H2 - HBR actually stands to gain on that hedge if spot prices stay lower for any duration. Blame these low prices on the current warm weather in the UK and wind based power production has also been high in the past few days - all knocking down NBP spot. Watch that weather!!!!

"Mrc I agree the tax and energy reductions were critically needed but the 45% giveaway was what really hit the markets." - no, not really. That was a red herring even though it was symptomatic of the fiscal imprudence that these two unleashed at the wrong time. It was costing the circa £2bill, but it was easy pickings for newsmongers. Did we really need a Stamp Duty cut at a time when rates was going to jump anyway - that costs a lot of money. And so did the corporation taxes giveaway. It was all of these together that were expensive and problematic for the market. And boy did they shake the UK tree or what? The level of climb-downs from the government is mind-boggling - all much required, IMO.

We definitely didn't need economic unorthodoxy when the UK economy is staring at a recession. The problem was that these two went on a fool's errand of unorthodoxy that flew in the face of monetary policies that the BOE was setting out to do. There was a time for this unorthodoxy and that was when the UK was on a better economic footing and that could've been as soon as the middle of next year, after the monetary hikes were done and dusted. Implementing these pro growth fiscal policies at that time would've provided the right stimulus to the economy - instead of the market forcing their hand and weakening this government to no end. JH provides that stability and economic orthodoxy that's badly needed at this time - that was a good move.

Anyway, i'm glad that this is behind us and we can look away from the all-consuming theatrics of the past few weeks - one that even engulfed the US markets.

Well, well. Kwasi is a goner already - what a disaster of a chancellor. L & T gambled that the market would give them a wide berth, alas not to be. I'm hearing that Jeremy Hunt will be the chancellor, and I'd wager that none of the unfunded tax cuts that have riled the UK economy in the past 3 weeks - a crashing pound and high gilt yields are but symptoms of an underlying issue with pension fund derivatives in the shadow banking world.

Time to get back to good old governing that requires the fiscal side to at least communicate properly with the monetary side. What a mess we find ourlselves in !!!

https://twitter.com/IGSquawk/status/1580892070193303552

Cheers, VOR. That is a good outcome and in an environment where the 10-year gilts are yielding 350 bps higher than they were when the likes of Tullow refinanced at just over 10%, this is a sign of strength above anything else. I just hope that the Macro works with us than against - fingers crossed.

My take is even if there are near term headwinds and oil equities go down with the rest of the market , near term, on recession concerns - I can see a 2023 bounce, just like it happened in 2009 with oil equities, post recession. Yep - valuations here are mind-boggling. Canada and US equities have nothing on Enquest's valuation.

Morning P - that's what I read and is my understanding too!! The additonal cash outflows for H2 is WFT payment + h2 capex.

Stupmy and Emerald C - Unfortunately for us, Ian's storm track is a good 150 miles further east of the GoM oil infrastructure for it to cause any lasting damage, unlike Hurricane Laura in 2020 and Ida in 2021, both of which scored direct hits on Louisiana and Texas - the heart of offshore GoM production facilities. The current shut-ins shouldn't last longer than a day or two after Ian makes landfall near Tampa, Florida.

There are other bullish tailwinds in November/December, and I understand that Russians crude oil exports have finally started to drop about a million bbls/day from just a couple of months ago. Fingers crossed that this trend continues.

MRC - you misunderstand me. I know that tax cuts ultimately leave more money in the hands of the people and affect the demand side of the economic equation and is thus inflationary by nature. What I'm talking to below is Supply-side economics which states that economic growth can only really be ramped up by indulging in large scale tax cuts (big component) and deregulation as well as free trade, and thus boosting the overall tax cut. I can understand the other 2 pillars with one overriding concern being what happens to employment when you import cheaper goods in a certain sector. Here's a read-up. https://en.wikipedia.org/wiki/Supply-side_economics

I'm all for deregulation and I'm glad that Trussy and co are doing this. My big pushback is over the need to initiate large scale tax cuts that benefit the wealthy at a time when inflation is a huge concern. Kwasi stated in an interview that he and the BOE governor talk twice a week - the reality can't be further from that. The two flawed policies for me from Friday was the 5% top bracket tax cut and the increase of the stamp duty thresholds. I suspect that cost of these 2 policies would run into billions. I care less about the removal of the bankers bonus limits - that's fine with me and it impacts a few bankers and actually results in higher revenues for the government, if only they idiotically didn't go and cut taxes for the higher income brackets. Personally, I stand to benfit from it, but I don't like it - it's a highly flawed policy and will only push sterling lower, at least in the near to medium term and negatively impact the mid to lower end of the economy - the ones who are getting crushed the most by the current bout of inflation. That's where I'm coming from - they should've given these policies a bit more time ( 6 to 9 months, IMO) whilst inflation concerns cool down.

MRC, I don't really buy the Supply-side economics BS that cutting tax rates actually boosts overall income by increasing tax collections, ostensibly through higher economic growth. There has been plenty of evidence in the US over the past few decades as to how cutting tax rates doesn't really increase in the amount of taxes collected. And chopping taxes for the ultra-wealthy when we're sitting on the throes of a recession (BOE has already said that the UK is in a recession) and borrowing money to bridge the revenue gap from this lost tax revenue is what is royally ticking the market off.

When the world is moving to a tight monetary policy, and rightly so, along come a hail mary from LIz and Kwasi that these supply-side policies should be tested now at this critical time. Is it a surprise that the GBP fell as much as it did on Friday? It's likely to go down below parity in the coming weeks. What an utter mess!!! And for a change, the UK's travails took the world stock markets in its wake. The crumbling sterling will now force the BOE to hike big in the next meeting (100 bps?) and even an emergency hike can't be discounted - if that's the means for sterling has to be saved. As an net importer, UK will now be importing inflation as a direct result of the 20% + drop in the currency in just the past 4 to 6 months and here's these cowboys adding more deficit financed stimulus to the economy - you just can't make it up.

I never expected Liz and Kwasi to take thsi route - maybe Crispin Odey knew and they were short sterling ahead of the Friday mini budget. I didn't want Rishi to win the Tory leadership election and I knew Liz was harping on a bit about the old supply-side tax cuts and could do it at some point after the current inflation scare subsides, just not at this time when sterling is vulnerable. They go and up the stamp duty thresholds (yet another pointless inflation causing exercise) when all it would do is cause the BOE to hike rates more and cause more pain to homeowners who're on variable/floating rate mortgages as well as those that are refiancing.

I know this isn't an economics discussion forum and these fiscal actions shouldn't really impact Enquest's profitability, outside of indirect effects via pushing global central banks to hike rates more and possibly causing a deeper recession that could bring Brent down another 20 bucks from these levels. Ahh, these cowboys (and girls) !!!