FY 2018 Results - thoughts25 Mar 2019 17:30
I thought I'd put together some of my thoughts covering the results, and the good and the bad there. Why don't we start with the not so good bits, some of which Hitman has already picked up on in his last post.
1. Accrued Expenses/Trade Payables: Accrued expenses were $296 mill up from $271 mill in 2017 and trade payables were $163 mill. The notes say the following.."Trade payables are normally non-interest-bearing and settled on terms of between 10 and 30 days. The Group has arrangements with various suppliers to defer payment of a proportion of its capital spend. The majority of these deferred payments fall due in 2019 and the balance is expected to be fully settled in 2020." We can see from the Magnus prospectus that main deferrals, among others, relate to payments to Transocean for Kraken from previous year of circa $50 mill, due to be paid back in installments from middle of last year this year. Deferred invoice payments to Technip for Kraken Subsea work for £22 mill (7% interest per annum) and for DC4 work £23 mill, due in 6 monthly installments, 9 months after DC4 completion - essentially in late 2019 to early 2020. It stands to reason that most of the accrued expenses pertain to Kraken work, as that's the theme I pick up. However, the difference between current liabilities and assets have narrowed by just under $100 mill from end 2017 to 2018, even though it's skewed by $300 mill as Hitman pointed out. Since ENQ is not looking to sell assets, we're firmly tied to the vagaries of the oil market and realised prices.
Hedging losses/Premiums: It has to be noted that whilst it is true that in H2 ENQ experienced hedge costs, I'd suspect that a lot of it is down to premiums amortised (where downside hedges didn't get used), rather than lower priced hedge losses. I agreed with Pelle that ENq screwed up on 2019 hedging, back in Q3/October 2019, when they should've taken out sold hedges in the high 70s/close to 80s for 2019 - maybe half of it. That was a missed opportunity. ENQ will end up getting hedge gains in H1 2019. They taken out an 6.5 mmbbls in H1 2019 at a floor of $66, and that indicates circa 3.5 mmbbls in H1 19 were hedged recently with a $62ish floor (and I suspect a low 70s ceiling). At least, they and others are waking up to the fact that $80 Brent may come back around as easily in 2019, if at all.
With the US trade wars, the Brexit Shenanigans and a confused state of US treasury market that forewarning an possible future US recession all playing a part there's lots of unknowns for oil and clarity may not arrive for a month or two, until we're well into Q2. We'll know where we're going with Brexit in the next days/weeks, and having an orderly Brexit is the best outcome that I can hope for at this time. Given how weak European economies are at this time, a no-deal Brexit would certainly push a few European economies into a recession (UK/Germany counted) and there will be near term pain for Brent and oil. Not good for ENQ
M
Sign In
Follow the stocks
