Member Info for epiphany121

The Cairn COO finished his Kraken update on the call just now. He did say that they will add the Worcester flank reserves to the Kraken reserves at the end of the year. Also confirmed that the water cut has now stabilised at 60% and voidage is much better now. No mention of the write back of the written down reserves from back in March, but expect the sell-side to probe that point. He does sound a lot more bullish on Kraken!!!

Slow and steady for Enquest..;-)

Additional notes from the presentation doc. The Third bullet point confirming that total well capacity is GT 47 kbopd, is important. If production keeps up, they'll come around to an upgrade at the end of the year. We'll see if the question does get asked on the call today by the sell-side.

Kraken (Cairn 29.5% WI, EnQuest Operated)
14 Half Year Results Presentation, September 2019
Production
? Average gross production:
H1 2019 ~32,700 bopd (net ~9,650 bopd)
? 3 DC4 wells successfully commissioned
in Q1 2019
? Q2 2019 full suite of well tests conducted,
confirmed total well capacity >47,000 bopd
? Field water-cut stabilised and reservoir
voidage improving
? Western flank development
? Single producer and injection pair planned for
2020 from DC2 template
? Further western potential being evaluated
? Kraken crude pricing continues to strengthen

Kraken
Average gross production in the six months to June 2019, was more than 32,700 bopd (~9,650 bopd
net). Significantly improved facilities performance at Kraken together with the DC4 wells coming online
has resulted in more continuous periods with production rates above ~40,000 bopd being achieved.
Additional drilling opportunities are maturing in the Western flank where development drilling of a
producer-injector pair through spare capacity in the existing DC2 sub-sea infrastructure is planned for
2020. Kraken crude pricing continues to strengthen internationally in light of the current heavy oil
market.

Total production costs of US$33.8m include US$10.1m of variable lease payments on the Catcher and
Kraken FPSOs.

Development additions in the period totalling US$68.7m include the completion of development drilling
on Kraken
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No upgrades yet to Kraken reserves, but I remember that Simon Thompson did say previously that any moves would be made in the YE results.

GL

I was reading that Bibi announced that they found these secret Iranian nuclear sites, just a week or so ahead of the Israeli elections. I've no idea what the reality is and where this is going to go eventually - maybe it's just bluster ahead of these elections, but these back and forth accusations are heating up tensions in the Middle-east yet again and can only be good for oil, as noted today.

:-) Nice P. Just bring that car over to the UK for the AGM next year - I promise to take very good care of it.

Pelle - filtered HM and no more friendly banter anymore. ;-) I realise it's a complete waste of time having pointless arguments.

My $90 mill FCF was based on a 68k runrate for H2. I see a circa $7 mill sensitivity per each kboepd produced. 71k gives me 110 Mill. I'm optimistic that these numbers will be beaten to the upside with Brent doing well like it did today. Let's see what CNE says tomorrow regarding Kraken.

Lol...GKB. ;-) Handbags not involved though..

HM - Given the obvious clueless idiot that you are, let me quote a few genius posts from you, to jog you back from your Dementia. Try and remember these, maybe for 5 minutes.
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RE: Pelle08 Aug 2019 18:07
Hi Pelle,

Thank you, I see.
The payables is dependant on the credit time given by vendors and the credit time given to customers. If we pay our bills within 6 months and our customers pay us within 3 month we will always have higher payables than receivables.

Receivables+payables=Working capital. ---- IDIOTIC & CLUELESS ACCOUNTANT ALERT

So the $50m payed in first 4 month was a reduction of payables with regards to receivables.
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Here's another pearl.

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H1 Numbers26 Jul 2019 18:03
Time to review some numbers.
I've been on Swedish forums for a while, and other posters have forwarded my cashflow estimates earlier to LSE.
Here's my final estimates for H1:

http://www.bilddump.se/bilder/20190726182843-77.105.206.118.png

You should dedact the -$50m working capital unwinding from the cashflow estimates (does not affect earnings).

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YEAH SURE $235 mill net cash flow in H1.

Enough of this useless banter - Filtered!!!!

HM - Here's a general food for thought for helping you to put together a realistic cash flow projection for Enquest, and for that I'm ignoring timing of cash flows both incoming and outgoing, as far as possible.

1. You need to split Enquest's revenues into 2 streams - 1. the 75% Magnus stake and 2. the remaining business that includes a couple broad categories - Malaysia & Rest of business.
2. For Malaysia, you need to take into account that only 70% of working interest barrels are saleable and come onto the P&L.
3. Include a small gas % in the BOEPD equivalent. I've modelled circa 5% as gas sales
4. Then you need to have the following cost components for the non 75% Magnus portion of revenues.
Opex
G&A
Interest Payments:
Bonds
RCF
Kraken Lease
Magnus 25% Last Repayment
Capex
Taxes Malaysia
Decomm Spend
KUFPEC

You then get the net cash flow for this side of business. Capex/opex needs to split between the 75% and non 75% magnus business areas appropriately.

5. For Magnus 75%, you then deduct these cost headers
Opex
Magnus Repayments
Capex

You then get gross cash flow, out of which the first X million is the remainder of the $100 mill enquest purchase consideration for Magnus 75%, and everything after that is 50-50% cash flow split between BP and Enquest,

Follow the above and you'll get to a place where the cash flow numbers are grounded in reality.

Evening P,

From what you wrote - "I am not expert on this accounting, but the other day I was looking at P29.
And saw it looked no normal in my eyes
operating profit before working capital changes: 523 mill
Cash generated from operation: 426 mill
So we "lost" 97 mill there to translate to FCF"

The $522.7 mill operating profit before WC changes that you noted is from the Cash Flow from Ops calculation in the H1 report. Contrary to what our good friend, the self-professed master of accounting on this board, HMHn thinks, Working Capital is NOT Receivables + Payables. Working capital is difference between current assets and liabilities, and gives a steer on the liquidity position of a company and how much additional cash would be needed over the next year to meet business obligations . Paying down current liabilities (Payables is one component of these) results in reduction in cash from operations in the cash flow statement and so does an increase in current receivables (from oil/gas sales primarily). That is the working capital movements you're seeing impact cash from ops. Cash from ops is a key metric, which a company can then use either for Capex OR to pay down debt OR make other investments . Very simplistically put, if we didn't have to pay back the payables that we did (or "lost" as you write), then we would have had more cash from operations. However, that is not the case and we have to deal with that reality.

I've had confirmation from IR that the $40 mill paper hedge loss in H1 was an unwind of some of the $90 million non-cash mark to market gains that were recorded on 31/12. Because the price of Brent moved up from the levels in December to when these hedges were settled at various times in H1 this year, not as much as those MTM gains were realised, and hence they had to marked down. These are pretty standard accounting book entries and there are no undisclosed hedges that are out of money at this time, and that's good.

Best

ML - I suppose we both can speculate to our heart's content, sure, but one or two analysts have gone on record last year and it their downgrade notes they were talking about the pace of debt reduction, and how a large EBITDA didn't necessarily translate to a larger net debt reduction. I personally don't think that Kraken is that much of a worry at this time as it was even a few months ago.

I'm not sure what else would move the needle with the sell-side community, but I wish I had a crystal ball..

I think this is where the market concern is, and unless oil prices fall off a cliff, Enquest will be in a good shape. Even with a high EBITDA, there is question over how much debt is being reduced and this may be the primary nagging factor for the market, given the uncertainties around oil price outlook. Interest/Capex/Leases/Magnus BP Payments are 4 key line items that'll influence how much FCF Enquest has to reduce debt. H1 was decent with $138 mill net debt reduced and my model shows circa $100 FCF generation with oil at an average of 63 for H2. Given the 4 mmbbls hedged at 66, Enquest just need Brent to average $60.5 to get this average $63 for H2.

@Pelle - I'm not sure what your numbers are showing for H2, but I'm tracking at $90 mill, which is higher than what L7 has, and mine is pretty conservative with output at 68K, Malaysia PSC resulting in 70% saleable bbls, Shrinkage of circa 1.5%, higher interest/Opex/Capex in H2. Of course, depending on timing on revenues received and capex spend happening, we may get a higher bank balance at the end of the year. I won't be too surprised to see a decent chunk of next year's RCF installment being paid out this year.

For next year, even with oil at 60, and the 75% magnus going into a 50-50 cash flow split, with reduced Capex, FCF is well over $350 mill.

Hang in there...unfortunately, we're just not in favour at the moment..

Hello L7,

From the 2018 AR, there was this note. "For the year ended 31 December 2018, gains totalling $4.4 million (2017: losses of $28.3 million) were recognised in respect of commodity contracts designated as FVPL. This included losses totalling $93.0 million (2017: losses of $20.6 million) realised on contracts that matured during the year, and mark-to-market unrealised gains totalling $97.4 million (2017: losses of $7.7 million). "

There was a $97.4 mill mark to market gains. 6.5 mmbbls at 66 and 1.5 mmbbls at 56. And there was 0.2 mmbbls swaps at 54. Brent was approx 53 on 31/12 and based on the above, there are gains of 84.5 and 4.5 mill - close to $90 million gains can be attributed from these hedge numbers. We can get close to what management stated as mark to market gains for 31/12/18 based on reported outstanding hedges. However, not so for H1 2019.

That can possibly mean that there are additional hedges for say 2020 in the mid 50s and that would explain the mark to market losses. This is worth checking with IR.

L3 is still ducking this simple task. I can't see why he/she doesn't like IR...

"Overall Magnus Contingent consideration was $660M at 31/12/2018. 6 months later was higher at $678M. So ENQ is now supposed to share more money with BP... I do not recall the details of the deal, but a way this could happen is that they never thought they would eventually pay the $600M of the profit sharing in full, but now they do. How? It is possible that the increase in the POO from 31/12.18 to 30/06/2019, led to this? Bizarre."

No, there's a much simpler explanation for this number than anything bizarre. It's called time value of money. Magnus is outperforming the projected output in the CPR which formed the basis of amount that was in the balance sheet as of 31/12. The contingent consideration is the discounted value of future monies due to be paid out to BP and as Magnus is producing more and oil price realisation is higher, it would mean that BP is repaid sooner and hence the value of contingent consideration is higher. In gross terms, the consideration was always a maximum of $1 billion. As simple as it gets...

Afternoon Londoner,

No, I haven't answered my own question as to how the mark to market losses came about in the adjusted P&L. ;-) Mark to Market hedge gains or losses only apply to non-settled hedges and is the difference between an option strike price and the market price on an accounting date, June 30th in this case.

What we do know is that as of 30/6/19, there were 3.9 mmbbls for H2 hedged at a $66 floor. If I assume that Enquest took out a simple 2-way collar with a bought put at $66 that represents the floor price for Enquest and a sold call at say $75 that represents the ceiling for Enquest. With oil at $66.50 on 30/6, there would no mark to market losses on these 3.9 mmbbls, because Brent was sitting between the collar (Price between floor and ceiling is the collar). We also know that there were 0.7 mmbbls hedged at a floor of $56 - if say these were straight swaps, rather than a collar or option (this is the worst case), then this would generate a mark to market loss of $7.35 million - 0.7 mill * ($66.5 - 56).

Based on these couple of realistic hedges scenarios above, for these 4.6 mmbbls hedges remaining for 2019, there shouldn't be a $47 mill mark to market hedge loss in the H1 accounts.

We do know that Enquest layers on hedges to protect revenue from downside risk and that's never in question. JS said on the call that they'll look to put on hedges when the time is right and that's exactly the right way to go. However, it'll be good to know how these came about though.

Iran don't stand a chase in a war scenario and I'm sure they know that. Yes, I suppose the other possibilities are endless, like the one you expressed. Any scenario other than one that may involve the US lifting sanctions on Iran, will be great for oil investors.

Morning P,

Yes, analysts didn't ask about the mark to market hedge losses. I'm still hoping that L3 can break the ice and write/talk to IR. ;-). Remember that these are only mark to market 'losses', but it is needed though.

In all fairness, Brent has been on a downswing from about the time of the AGM, and I don't think it's gone back above 70 since. And probably no one was counting on Numpty to escalate at the end of July. We'll see if they're any wiser on the next uptick. There can never be unbridled optimism with Brent given the unpredictability of the Buff. Taking out some collars for 2020 as soon as Brent is in the mid 60s, is never a bad option.

What we don't need now is for Iran and the US to get to the talking table. No wars, but a lot of sabre-rattling will be useful. ;-)

L3 - I'm not too concerned about the non-cash charges on the Magnus acquisition. These are truly non-cash charges and last year items like this boosted H1 results and this year they caused charges that reduced income because of exceptional items. It's not really impacting any cash flows and I can easily overlook that.

KUFPEC - that's a new provision and one that impacts cash balance. It's a 15.6 mill charge, and 10 mill is due in H2. At least that's litigation is out of the way and we can look at that as Bumi's settlement paying off this settlement.

The mark to market losses of 47 mill is intriguing and I agree that the only thing that makes sense are options in place for 2020 that aren't yet disclosed. Given that Brent closed at $66 .5 and even 5 million calls at 57.5 can explain that charge. That's worth finding out. How about you writing to IR on this count?

Cheers

2.8 million shares and attending the AGM is dependant on SP? That's not an LTH in my world. Whatever...