Member Info for epiphany121

Hi MO - hope all's well. Hope the Rose's been kind on you of late?

Oil down 3, Gas down 5.

The good - Williston off 8 from 55 to 47. Differentials of $10 to WTI would explain that. Eagle Ford is off 1 to 66. The overall oil rig count is now down 85 over last year.

Not good - Permian's up 3 to 440. And was up 3 last week too. We really need these to turn down ..;-)

Good weekend all

Chilting - I won't characterise this as a 'loss' as you do. I view this as deferring a bit of cash flow , protected a bit by reduced BUMI payout during a breakdown. Thankfully, this is an 'above the boat' issue rather than anything 'below the boat', which was what the market was actually more concerned about when the idiots at CNE threw the kitchen sink at AK with the write-down. IMO, the lower market cap is still for me a combination of the following 2 points.

1. Execution risk and Management - the market still says show us better execution. ENQ has had a history of bad projects and deals prior to Magnus, when Brent was much higher, and the market still questions how we can execute and deliver FCF
2. Analyst perception - Compared to TLW and PMO, we're still not viewed favourably by the City analysts. I still think there's more than IR can do to improve ENQ's standing with the analyst community.

Market seems to have at least done a small re-rate recently to move it to the 22/23s recently and there was some good buying in the couple of weeks prior. We've started to outperform PMO in the past few weeks and that's a positive. Finally, I can't emphasise how much we're geared to Brent and how we need higher Brent to shake off the debt quicker.

We'll see what the BHI rig report says in about 10 minutes or so. I expect another reduction, a big one will be nice.

That's realistic indeed, L7. Well, in March 2021, ENQ may decide to hand out a final dividend for FY 2020 - that isn't out of the question. Where Brent and global economy head to in the coming months, will largely determine whether ENQ can whittle down debt enough to pay some dividends.

I can't agree more with Osaka's comments about debt reduction vs dividends.

I don't think they will. ;-) If I was a director, I'd recommend keeping capex tight and also cut debt, rather than spend the FCF on dividends. This is assuming that oil is still at these levels or less.

2021 is when there could be a dividend focus.

GL..

Hello P,
Yes, in the RI Prospectus under 'Permitted Distributions' on Page 279.

At a minimum, SFA/RCF will need to be below $500 million before we can start 'distributions' (dividends). That'll be sometime in 2020, assuming Brent doesn't fall off a cliff. That's a constraint, albeit not a massive one.

I've already commented on their numbers in a previous post. Here it is again...

TLW - interesting indeed. They've reduced a grand amount of $134 mill net debt from H1 2018 and H1 2019, and they have a 6 times larger market cap than us with a much higher debt? Lol - ENQ has reduced debt more than they have in the last 12 months. We're still perceived as risky by the market, unfairly. Hedging wise, Tullow 's is mostly collars and based on how they're structured, their price realisation is very much down to spot Brent prices and hence they Brent to go higher to get meaningful FCF. ENQ's hedges are a lot better as the floor price is much higher for H2.

Indeed, Heardy. To your point about Shalers and to we see how they're suffering - OK, we give it to them that they've boosted production massively fueled by cheap debt and easy equity raises, but their equity prices have been hammered day in and day out of late. Whilst we have moved up from 18.5 to circa 23p in the past few weeks - a majority of the shalers I track are hitting 52 week and even all-time lows, regularly.

Whilst this Shale Ponzi scheme may continue for a while yet, the funding to sustain this is dying out and if there were to be a recession in the next 12 months that moves WTI down 20 bucks from here, it's bankruptcy guaranteed for many, if not most of them, given how much debt is on their books. I just hope that we'll start to take on enough hedges for 2020, even if the floor is in the low 60s, to counteract any economic weakness should it come our way.

Thanks, YOY..

Heather is now going to Captain...

Damn..you're right DK. I jumped the gun, certainly. Lol..:-) That was certainly because of Barry and not a sudden shale drop-off fantasy. Lol. ;-)

Still, other bullish factors abound in this report

10.8 million bbls draw.
Gasoline a small draw
Distillates a small draw.
Production - down from 12 mmbbls to 11.3 mmbbls a day. Wow - that's bullish as hell.

I need to see the adjustment factors, but that's suggesting that production 'could' be tapering off. Let's see.

GLA..

L3 - I'd think that DC4 capex shouldn't impact on the 15% ring-fence cash flows that go towards OZ debt reduction. I'm not privy to the actual OZ loan agreement and what the T&Cs are though, but I'd think not.

What spooked the market a bit last week was the large products build in the EIA report. Basically, all API did yesterday was to adjust to the build in the EIA report last week (normal service resumed there..). This is why I'd wager today's EIA report will show a middle of the road draw for crude (between 5 and 10 mmbbls) and a lower build (than API last night of 4 mmbbls) /small draw for products.

TLW - interesting indeed. They've reduced a grand amount of $134 mill net debt from H1 2018 and H1 2019, and they have a 6 times larger market cap than us with a much higher debt? Lol - ENQ has reduced debt more than they have in the last 12 months. We're still perceived as risky by the market, unfairly. Hedging wise, Tullow 's is mostly collars and based on how they're structured, their price realisation is very much down to spot Brent prices and hence they Brent to go higher to get meaningful FCF. ENQ's hedges are a lot better as the floor price is much higher for H2.

API

Crude -10.961mm

Cushing -448k

Gasoline +4.436mm - biggest build since Jan

Distillates +1.42mm

Gasoline build is counteracting the large Crude build. I'd suggest that WTI will not show that large a Gasoline build tomorrow, after a large one last week.

10 mmbbls plus draw is what I'm reading on certain news feeds. Above the 4 mmbbls expected.

Yes, looks like a larger draw than forecast. Brent/WTI moving up...

Morning Pelle,

Nice. I've never been there, but I'm guessing it must be good weather with their 'winter' in force? I'm not sure if they can repay (or would want to) the OZ loan outside the 15% ring fence. If we generate surplus FCF next year on account of higher Brent, then I believe that surplus should go towards paying down the RCF and getting that covenant connected debt down.

To a point that L3 raised in his post earlier today, Production in the US has stagnated around the 12 mmbbls range this year thus far. Now, we did see a jump in the EIA April actuals to 12.17 mmbbls. We'll keep an eye out for what May actuals brings. But the weekly numbers are showing a stagnation right around the 12 mmbbls mark. The incentive for them to drill becomes lower at this price range - with both WTL and Bakken at large discounts to WTI. We shall see!!

Good luck

Sorry, I don't see a reason for there to be a 'focus' on OZ loan considering overall ENQ debt. Let's face it - it is only secured by NET cash flows from 15% of Kraken, and without any covenants to go with it. Whatever net cash flows accrue from this 15% Kraken would be set aside for the OZ loan interest and principal repayment. Reading between the lines from the hedging news release around OZ repayments, $58 was the hedge floor and I'd suggest that's the minimum level that Brent needs to be at to pay down the OZ loan over 5 years. The higher Brent is above this level, the better the cushion to pay off the loan sooner than expected, i.e. ahead of the 5 years term.

No, there are no fixed amortisations for repaying the OZ loan. If Brent does go to $100 due to any unforeseen reason, then this loan could be repaid in just over a couple of years - this was discussed in this year's AGM when I brought up this topic. To make it clear, there's nothing that needs to be managed by ENQ for OZ repayments this year or in any coming years, other than repay the loan with the periodic net cash flow sweeps. If there is shortage at the end of 5 years, then ENQ can either roll it over or repay it from cash balances.