Member Info for epiphany121

There is no real reason to hedge at these levels - a bit fat zero, IMO. Wait out a few weeksinto Q3 and US inventories will start to draw down quickly as the Saudi dumping inventory overhang is washed out. Brent should start moving up into the high 40s and low 50s soon.

Morning L7,

I'm with you on US coming back and re-signing the Paris accord, if Biden does become president in November. In the medium term after such an event, you'll see oil bounce as the EPA under a democratic administration would be far less forgiving on the rampant flaring and other environmental violations in the shale patch. That is a massive plus for me. I don't think that fossil fuels will be disappearing in a hurry in the coming decade and consumption will keep going up. That's way beyond my investment time horizon in the oil patch anyway. If Trump is re-elected, oil will continue to be range-bound with a $70 WTI ceiling as shale will be alive and kicking - we'll still do well, not just as well.

Hello R - I agree that even of Biden wins, it's a near zero-probability event that he'd focus on Carbon taxes. Their senate still needs 60 votes to get something like that approved and that kind of majority is impossible under any scenario that I can think. I doubt that we'd impose copious amount of carbon taxes in the near future and oil will continue as the fuel of choice. I suspect that BP may be singing a different tune when oil prices jump (in the near future).

Dexamethasone's positive efficacy news for Patients on a ventilator is pushing up oil and stock markets right now..

Cheers, Chilting.. If a Magnus type deal can be made, then that's fantastic - I can't imagine any other NS oilers will be interested in making deals at these Brent levels. PMO only did so because of where Brent was when the deal was signed and it's still a sh**te deal, IMO.

Clair would be too expensive for Enquest, but I'd wager that AB is already talking to BP about talking on some of their other fields (now handsomely written down). If we can get another arrangement like Magnus, that's fantastic. I'm not sure that a purchase transaction like PMO is pushing forward with BP will be supported by either the Debt or Equity markets with Brent at these levels - Equity should be a no-no at this time anyway.

Back in the shale patch, XOG filed for Chapter 11 yesterday - https://twitter.com/mr_skilling/status/1272672706568368129

Chesapeake should file soon also, even though this has been touted for weeks now, this flashed on the CNBC screens a few minutes ago. It only means Equity is wiped out, but the assets are still around. No new investments in wells is some comfort and will lead to tightening supply in 2021 and up goes Brent.

Enervus has indicated a 12 rig reduction for the week ending 10th June. Baker Hughes should more or less reflect this and we should see a small reduction when they report later today. However, lack of rigs today don't impact near term production and that is more a reflection of production falling later in the year (assuming DUCs aren't completed) and 2021.

https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/061120-us-oil-gas-rig-count-falls-12-on-week-to-299-enverus-says-amid-shut-in-output-return

Jan..Lol. I'm an optimist and very hopeful that Enquest will get it right for 2021, with the right hedger-in-chief in place. Therapist can get AB to hire his mate, the stripper-in-chief, for way less than 31 an hour.

RiskingIt - There's a hedging strategy for multiple scenarios. A swap is a fixed forward sale price and that's what you're referring to and isn't my favourite, but the cost is minimal/none.

"What if they hedged at say $65 and made good money..... But then the price rose to say $80+" - To mitigate this, buy a put option, pay a premium and get downside protection and fully retain the upside. The cost = Put Premium, which could be anywhere from a few cents to a low single digit bucks per barrel, depending on how far the strike price is from the current market price.

To mitigate premium costs and assuming little volatility, one could also take out a collar, where there is downside protection, but upside is also capped. This may be costless depending on how the floor and ceiling price is structured vis-a-vis futures prices.

So no, hedging is NOT hindsight and a hedge is NOT a gamble. It's a risk mitigation strategy to protect a company's future cashflows, if done by a seasoned hedger.

Hi Romaron/Pelle,

Enquest's chequered hedging history is about my biggest bone of contention from a management viewpoint. I have much confidence in their operational execution and AB as a person, but just not how they go about with their hedging strategies. You only need to look at our competitors PMO/TLW to note how much more they hedged last year for the current year and at much favourable prices. If Brent didn't recover as quickly as it did and we can only thank the Fed's unlimited QE for this, we would've been left with the usual sell-side questions over whether our debt was sustainable and whether next year's RCF amortisation would've been repaid. If we'd hedged like our peers did, and not even considering quite a few shalers who last year hedged between 50% to 90% of 2020 production at WTI 50+ levels, then our standing in the market's eyes would've been better, IMO. It's this lack of hedging last year that forced our hand this year with taking out swaps at $31 that was mentioned on this board. I don't fault Enquest doing what they did in March/April as the outlook back then was dire and that was the only play they could make. I really hope they've finally learnt their lesson.

@R - with WTI at these prices, I wouldn't say that MOST shalers are in trouble. The ones that are trouble are ones that have near term debt repayments coming up. Most shale companies, weak and strong, shut down wells in May and June, but they're slowly bringing them back online. However, none of them are increasing their capex at these levels - I'll continue to watch their capex spends for indications on what 2021 looks like. As you pointed out, they'll first work through their DUC inventory when WTI is firmly in the 40s before bringing on new rigs to boost their DUC count for later years. I can only believe that they're a humbled lot and won't go all-out on production increases like they did from 2017 to 2019. Having more regulations on the shale sector is never a bad thing and if Biden gets elected, shale won't get a free pass from the democrats. Weaker players with large debt payments this year or next (CHK, DNR, CHAP) will go into chapter 11 re-org, but they will tcontinue producing and only the shareholders will be wiped out. IMO, the best outcome we can hope for from the shale sector is capital discipline and production control, but not a vanishing act.

I just watched Epiphany Macs on Bloomberg say that $43 in on the cards this week and that move is well underway. I love the sound of champagne cork popping!!

Nothing ever goes up in a straight line, but go up Brent will. It's a twin themed mantra - Money Supply and Fed Backstop. Brent may be taking a breather, just like the stock markets today, but the trend is up... 50s soon

HSBC and the Moaners can't predict oil prices any better than they could predict this sharp rally in the US markets (and global markets as a result) just a few weeks ago - they're clueless.

Chilts - I called Brent 40 a few weeks ago when you were sceptical - there's way too much liquidity/money supply in the global financial system to hold back risk assets' prices - stocks and commodities. Brent will be in the 50s early in Q3 at the very latest. Enquest will be back in the 20s in that timeframe.

Morning R - I wanted to comment on a few themes in your post. "those stocks you mentioned are penny stocks" - it's a bit more nuanced than that - CDEV/QEP were $5 shares in January this year and they did fall heavily (a 95% fall to $0.25 in mid-March) when Armageddon kicked in this February/March. True they were penny stocks for all of 3 months and as the market realised that the US treasury would backstop distressed debt, plus their capex discipline coupled with a WTI rally to where it is now did invariably result in the market marking up their prices dramatically. For context, these companies were circa $2 billion market cap companies 2 years ago and this shows you how hard shale has fallen. I'm not yet convinced that Shale can or will maintain their capex discipline and priortise FCF over debt fuelled growth, and hence I see these stocks as trading plays - very profitable nonetheless if the timing was right.

Unlike the UK, the credit markets for energy companies in the US have been very robust in the past few weeks. I've been reading of the many companies have successfully refinanced their debt and pushed out their debt maturities out much longer. Contrary to the talking points here and pretty much everywhere on the internet of shale's imminent demise, the only question mark is whether there will be capital discipline or not with the shalers. If there is, then it's a win-win for all, most of all for UK based companies.

Numpty is a bumbling idiot who's done more harm to the shale and the oil/gas services sector. The Fed certainly saved these companies, but there were big losses in the O&G services companies (Rigs + Frac Spreads) and quite a few E&P companies too - Texas and Oklahoma took the brunt of a few hundred thousand job losses. Of course, in the revisionist world of his, he's certainly saved millions.

Wells across Bakken and Permian that were shut-in are now coming back online, as there is now positive netback with the current WTI prices (even with local price differentials). We will see US production go back up in the next couple of months by maybe 1 to 1.5 mmbbls/day, but there is a steep production fall-off coming soon without additional drilling and also well completions. They may well increase frac spreads and complete their DUCs this year without engaging new rigs and this is going to be key for us to monitor. Any such sustained capex spend will continue to be an issue for OPEC+ and their desire to support/subsidise oil prices.

We'll need to keep an eye out for this as this will ultimately impact how quickly we can get debt down to a sustainable level and in the market's eyes, de-risk us more relative to the likes of PMO/TLW.

Mod - been tracking them, but don't own them. Warren doesn't get it right all the time and this only proves it - he sold them at a big loss too... Shalers are doing quite well. There's now an acknowledgement that most of them won't go bankrupt with oil jumping, but maybe they may finally realise that overproduction by piling on loads of debt isn't in their best interests. We can hope anyway ;-)

QEP up 60%, CDEV up 25%, CPE up 58% - and that's just today.. Even ESTE is up 10% today.

Hi P - Lol...Good jobs report, yes. Maybe they did include the demonstraters that may cause another wave of Covid across the pond.

OPEC will come around to some kind of a deal tomorrow. OIl will go up more Monday - remember all the stimulus and oil is a great place for it to go to - think 2009/2010 when oil exploded higher after the first QE was implemented, and this is QE on steroids. OK, shale can act as a bit of a bummer, but 60s/70s is now firmly back on the agenda for 2021 and if Covid doesn't spike back up, then it could even be Q4 2020.

Enquest can easily break through the 30p barrier in this scenario.

BTW - Oil rigs still fell 18 this week to 271 from 948 last year. Permian's down 7 to 141 and Eagle Ford was down 9 to 13 (pretty much wiped out, I'd say). It must be one of the Majors, Chevron I'd suggest, pulling the plug. This is quite a bullish setup and this is beating even the most bearish expectations for rig counts.

Good weekend all...

I'm convinced it will soon enough with Brent now in the 42s as I write and Enquest is up nearly 10% - that isn't a bad outcome with a jump of 100% off the lows. We do have lower institutional support than PMO and hence PMO has a much higher Beta and correlation with oil prices than we do. But, Enquest is now a leaner company and should meaningfully break higher with Brent heading towards the 50s. This is why predictions of doom and gloom on oil prices with so much central bank liquidity sloshing about coupled with the enormous fiscal stimulus from governments, are plain silly, IMO.

With the jobs report that came out of the US a few minutes ago showing the economy may just be heading towards a V shaped recovery, Brent in 50s in the coming days isn't a fantasy anymore.

Best

Jan - rig counts are probably closer to a bottom right now - they may go down a bit more, but what had to cut is more or less. What happens next with oil prices determines what shale will do with rigs. It's now a given that Shale will not vanish unless WTI is in the 30s (or lower), and this scenario is highly unlikely, IMO. The saving grace for shale is that the largest chunk of debt repayments are coming due in 2021 and that fortuitous timing has saved them from a Chapter 11 bankruptcy (which in reality is only the shareholders getting wiped out and the companies continuing with their merry ways). Chapter 7 liquidation isn't on the cards for most companies at this time, with the Fed's unlimited backstop.

Already the frac spreads have turned upwards for last week - up to 53 from 45. It's a small move, but is a sign of confidence returning with WTI in the 30s, and the low cost producers completing their wells. Much of the shut-in production will also return in July, if WTI is in the 30s. New drilling (rigs) and completions (Frac spreads) should slowly come back with WTI at these levels/bit higher. It's hard to quantify what the production level at the end of 2020 would be - but I'd wager somewhere around 11.5 mmbbls/day given the steep fall in rigs/frac spreads.

The reality is that shale isn't going away and Enquest will be well placed to hedge 2021/22 production in the 60s, should we get a chance later this year or in early 2021.

GL..

https://www.eia.gov/petroleum/supply/weekly/

This showed very little production reduction in March with actuals at 12.716 mmbbls/day only marginally down from 12.74 mmbbls/day in Feb. This compares to the 4 weekly average at the end of March at 12.875 mmbbls - more or less inline with actuals. Production started 'crashing' in the last of March and we should note a large drop-off in actuals in the April report.

It's that time of the week and the oil rig count is down 15 to 222 from 800 last year. Every little helps and reinforces the notion that longer WTI is in the 30s, the bigger pain there is in the shale patch in the long term. Permian's down 14 to 148 from 452, and Williston's off 2. A fair few rigs in basins like Eagle Ford is being held on to by Majors like Chevron and Exxon, with a view to increasing DUCs for 2021, but the majority of the small/midcaps are hunkering down.

We'll be good with both Brent and Enquest moving into Q3/Q4 .

Good weekend all