Member Info for epiphany121

DB - ISMs may have slowed, but they're not contracting - that's key. What's happening under the hood is that inflationary pressures from commodity push is abating and that's a big positive. Major buckets of commodities to include crude/oil products, base metals, agriculture - all have dropped substantially from multi-year highs hit just a few weeks ago. The Fed may even surprise with the July interest rate announcement (50 bps???) and send out signals that interest rate hikes are doing what they're intended to do - dampen demand and push prices lower, and they don't need to hike as much as the market initially was pricing in after the last 75 bps hike. And if you follow the treasury market, the 2yr has dropped 50 bps along with the long end of the yield curve - 10 yr. treasury buyers are out in full force as they expect a rapid slowdown in the US economy - I have no doubt that it's happening at this time and the US markets have more than discounted this fact with a 20+% S&P drop.

To me, this is a great setup for oil awsconsumer discretionary stocks, once the market sees where the fed is going in the next meeting - contrary to what you're thinking, I don't think it's one or the other - both will move up, IMO, and as long as Brent doesn't run up more than 130 bucks and stay there, a US recession can be avoided. That's all that matters for commodities. UK is F'ked anyway along with the rest of Europe, but that won't have a discernable impact on profitability at HBR - oil's a global commodity after all. I'm a buyer here and Enquest at these levels. Both stand to substantially reduce debt by the middle of 2023, should Brent stay above 90. HBR has the advantage of even paying dividends + have a buyback programme, but the stupid WT has been a killer to both these stocks. Still, they're vastly undervalued.

P.S: I'd take a wager on NCLH as opposed to CCL, if consumer discretionary is your sector. They're financially a lot more stable than CCL and they'll go a lot better should the US avoid a steep recession, which is my base case.

"Potentially Armada Kraken lease costs?" - Yes, does look like that as long as the lease period is at least 5 years - we can see Enquest now pushing to extend that lease. Decomm expenditure isn't included and maybe why companies like HBR and TLW are getting hit a touch more than us?

"epiphany121,
Yet you would think contango would see a higher valuation of oil producers due to higher future profits than spot.".

Auson - not at all. Contango will be reflective of a period of quickly dropping spot and near term futures prices, reflecting an onset of bad economic conditions (Check Sept 2008 and Feb 2020 onwards to see how oil equities performed in a Contango scenario). If you see Contango in Brent/WTI in the near term, rest assured oil equities would drop hard even from the current levels.

Hello R - The CME link is good too and it shows the active front month (September), but not the nearest expiring contract (August 22) that the investing.com link also shows. Yes, that's what they're showing as the 'Cash' contract and is probably the nearest price marker to the Dated Brent pricing.
https://www.cmegroup.com/markets/energy/crude-oil/brent-crude-oil-last-day.quotes.html

Higher prices further out in the futures curve (this is contango) is indicative of current demand being weak and hence front month pricing is lower than future dated contracts - yes, this scenario is a negative setup for oil/commodities in general. We're definitely not in Contango land for Crude - you could say there is strong backwardation, but not as much as it was in March/April 22, just after the Russian invasion. All Enquest can and should, and I'm sure are doing now, is execute on production and focus on getting debt down in the next 6 to 12 months. There'll be a rerate much higher in the medium to long term after the longevity of high oil prices is established, but we should also see a bounce in the near term as rapid Fed hiking fears are curtailed after the next hike in July. This is where the bullish setup for stocks is in general.

Contango is a bearish setup and it comes around when demand is falling off the proverbial cliff - Covid 2020 was the last time we saw contango pricing structure in crude. And looking at the crude futures curve for the next 12 to 18 months, backwardation is the name of the game (front month pricing is higher than a few months out) and that's a bullish setup.

https://uk.investing.com/commodities/brent-oil-contracts

I'm all for quarterly reporting, like the US is. Every bloody company in the UK (or Europe) has finance systems that will aid getting out quarterly P&L numbers out and that'll also cover debt updates. Way too many times companies over here are lazy and as they are not obliged to even provide debt updates, they don't do so. Enquest is also a guilty party on that front.

On another front, it looks Q2 GDP in the US is tracking negative (Atlanta Fed GDP now says -1% for Q2) and that'll mean a 'technical recession' in the US, even though NBER is the ultimate adjudicator of US recessions. With employment where it is, I suspect they won't call this period recessionary. The good news here is that RBOB has fallen substantially in the past 3 weeks and that'll slowly reflect in lower gas prices at the pump in the US. container rates are down substantially in the past 2-3 months (30 plus %) and so are food prices. All this could mean that the fed takes its foot off the pad a bit after the next 75 bps hike in July and wait for trends to emerge in August before their next meeting in September. If that guidance were to be the case in the July meeting (and I believe it will be), we should have a good run in both tech and oil shares in the coming days/weeks. A summer rally beckons and if someone has spare cash, now's the time to put it work, IMO.

Bonne Chance..

You need to give the market time to get over the twin evils hanging over us - demand drop-off worries and the WT. You could keep harping on about supply deficiences, but it means nothing should there be a recession incoming that will lead to drop-off in demand. This is what the market is grappling with and why oil equities are down circa 40% even with crude at these levels. Don't be surprised if oil SPs drop more from these levels and adjust back up once there's more clarity on either of these 2 concerns.

Hello Mod,
Even though the focus of this article is on Canadian O&G producers, there are some parallels to what's happening with UK producers, albeit over a longer timeframe than just the past 2 weeks. And TBH, the Canadian producers have solf off a lot more in the past 2 weeks than ENQ/HBR and other UK ones. Recession concerns which normally leads to a drop-off in inflation, is the current blocker for O&G valuations. The tide will turn over the next few months once results come out, but we in the UK are still facing the additional WT fiscal headwind. And Sunak seems to be doubling down on 25% WT - that level of short-sightedness is mind boggling. We just got to keep trundling on and generate lots of FCF to get net debt down and wait for a re-rate.

"If you think $120 is fine you clearly are far away from reality. The price is having massive impact on non producing countries especially far east!
The demand would collapse from Sept onwards unless Brent goes sub 90....." For once, Ammu posts something that's semi-intelligible. ;-).

KO - the problem we have is that Fuel prices (Diesel, Petrol, Kerosene (Aviation fuel)) have detached substantially from crude prices because of refining capacity issues. Fuel prices now are at crude price levels that are 50 bucks or so higher, and as we all know, its fuel that consumers use, not crude. When WTI hit $145 in 2008, average Pump gasoline prices in the USA peaked at $4.04 a gallon and it's already hit $5+/gallon with WTi around $120-125. We really wouldn't want WTI at $130 and threaten a demand fall-off. Until refining capacity is better, we don't new highs in brent - demand will then be well and truly screwed, and recession is certainly guaranteed.

The point I made earlier this week still stands - from an oil price viewpoint, demand concerns will always dominate supply concerns. Oil prices will not rise in the face of an incoming recession, unless there is a massive long-term supply outage, which is an extreme stagflationary scenario where the economy tanks and oil stays elevated. I don't see that happening in 2022/23. Russia is still producing/exporting as it was in Feb 2022.

However, Oil has fallen 15 bucks in the past couple of weeks in the face of a potential recession and this will help pull back some of the inflationary concerns should oil prices stay at around these levels (slighty lower is even better). Fed will slowly back off after a 75 bps hike next month should inflation moderate and that's a big positive for the global economy. There's still a chance that the fed can pull off a soft landing and that's what I want to see. Oil prices are currently factoring in a slow-down, not a recession. Oil shares are pricing in the worst and I believe are priced as though oil is in the 70s/80s - the market just doesn't believe that oil can stay elevated for longer. if you take the US, oil equities are still circa 5% of the S&P, versus the historical 10 -12% weighting - that tells a story, even though they're vastly outperforming UK oil equities.

@chilting - oil consumption won't fall if oil prices stay around these levels. Another 20 to 30 bucks higher - and it's a different story. Refining capacity is still an issue globally and crack spreads needs to drop to bring fuel prices down - demand moderation is important.

It'a painful to see Enquest and ther UK oil equities fall by the extent they've done, but the WT dealt us a bigger blow. I hope Sunak can grow a pair and pull back even a little to keep NS investments up. However, even North American oil equities have taken a pounding just in the past 2 weeks - the basket I track is off circa 30%. We just need to let this bull bear tug of war play out and I strongly believe that the bull will come out on top this time around - oil price dropping is good for the global economy.

Stay patient!!

Auson,
The oil majors have large trading desks and they do plenty of hedging too. So do the sell-side banks - GS, JPM, MS, Citi - they're all possible counter-parties. And finally, global commodity trading companies like Vitol, Gunvor, etc. You're right, it's hard to know whether these hedge contracts were done on UK paper and if not, the UK govt can't touch those profits.

What they really out to do is to put the windfall tax on the HBR hedging counterparties - they're ones in line to make more than a billion from HBR's hedging losses in 2022/23/24. Of course, they wouldn't have considered that and these counterparties are the ones really getting a windfall from HBR's ill-timed hedges. You'd think that's a no-brainer , but alas. I'd like to see the WT net expanded to cover these, get the rate down to 10 or 15%, allow for Decomm expenses to be included and finally, sunset it at the end of 2023 - I can't really see them completely withdraw the tax. This is what the UK O&G sector needs at this time.

I can't see this morning's move in oil and Enquest SP stick for too long, at least in the near term. A recession is not imminent and the proposed gas tax holiday in the US will only lead to higher demand and increased oil prices in the next couple of months. I'm obviously still of the view that very high Brent/WTI prices ($130 plus) will not be good for the global economy and will in all probability usher in a recession in 2023 as inflation stays high, but I'd wager on a good run in oil and oil share prices over the summer. If Rishi backs off even a bit on his WT proposals, that's a net positive for UK O&G companies and harbour has said that this tax will lead to under-investment in the NS. Talk about the politician idiots shooting themselves in the foot.

Would oil prices fall as much as they did in 2008/09 (from $140 to $40)? I don't think any incoming recession will be as deep as the 2008 mega recession and any oil price falls will not be as large.

KO - I still have plenty of investments in the O&G sector. As an investor, you need to be aware of risks too and not be blinkered on purely bullish price views. All I'm saying is that much higher oil prices will have a knock-on effect on inflation and will spur further fed action and that in the medium run will not be good for the economy, oil prices and equities broadly. That shouldn't too difficult to fathom for investors - it's easy enough to pronounce much higher oil prices in the next few weeks and I personally won't be surprised if oil goes up another 20 - 30 bucks over the next 2 to 3 months, but I'd be foolish to think that this won't have a negative impact on where oil prices will be in 2023.

"And some people expect oil to go lower? How?" There's a good 20 bucks premium built into the current oil prices because of the Ukraine conflict. If the conflict is resolved. we should see most of that premium go away. There's then the possible recession fears which when that comes around, will certainly pull oil prices down. We know about the supply constraints, but demand fears will almost certainly override any supply concerns.

It's a US recession that can rock the boat - we're (UK) almost certainly in a technical recession currently, but it's largely irrelevant. if inflation holds up or even goes up, because oil goes up another 15 to 25 bucks from these levels, fed QT and rate raises will have to keep pace and that is what could finally tip the US economy into a recession and take oil prices down. Beware of being bláse about oil prices at $130 to 140 being good for the economy and that oil prices can keep going up without causing a recession. The other danger of course is that the Fed pauses even in the face of higher prices and that causes oil to go up more, potentially setting up a sharper decline say in 2023. There's so many dynamics at work and focusing on just supply doesn't give us a full picture. $90 to $110 WTI is the current Goldilocks zone, iMO. And that's good for Enquest and other oilers.

You're right guys. Just the production numbers were updated, without the net debt update. Today would've been as good a day as any to get the number out.

Hello R - they did put out an RNS at the end of May with a debt update to the end of April - what we're missing is a month's update. What would've been more interesting for me is to put a note clarifying the impact of WT on Enquest's finances - we need to hear that from the horse's mouth.

Strike one against Enquest. I can't believe they didn't put out an updated net debt figure plus a general ops update till the end of May - this was as good an oppirtunity as any, IMO. Come to think of it though, AB badly wants KO to attend the AD after reading his constant moaning on here and didn't want any Ops updates to get in the way. There's always a silver lining...

Good luck to the attendees, and don't forget to ask questions about excess capital allocation !!

You can't beat the Jookie twins for their conspiracy mongering. And quite the double-act doing their best to show that one of them is a english language numpty, but then they're the only sane and all-knowing ones on this planet. Best not waste any time with the douche twins - I pity the real investors on here having to trawl through thir incessant tripe on this board before they can get to something of substance and relevance!!

"The interesting bit is towards the end where she says the problem in Canada and the US is that years of underinvestment from incessant ESG attacks have driven away any incentive to invest longer term " - Complete BS from Amrita, if she said this. In reality both the US and Canada have only gone into a capex pullback mode since the pandemic and it had nothing to do with ESG and more to do with negative prices. Their focus on shareholder returns was the primary factor in the pullback in capex spend - not ESG and not fiscal policy (unlike the UK). Any other take is revisionist, IMO.

I'd like Enquest to have done analysis on impact of WT on net cash flow and set out steps to mitigate some of the tax impactss. Serica did it in good time for their AGM - we have no excuse given that we've had 2 weeks longer than SQZ. Lets see if they step up to the plate.