Member Info for epiphany121

Hitman,

I disagree with the $150 million debt reduction assessment. There's $275 mill RCF repayments due to be repaid in 2019 - $175 mill next month and $100 mill in October. I have no doubt these will be repaid fine. By my calculations, even with 63 kboepd production and a $67 per barrel realisation, FCF will still be in the circa $210 - 220 mill range.

Regarding Kraken - Let's wait to hear from the horse's mouth on Thursday next week.

Hmmm, I'm not in a state of panic at all, Fernan. If you can remember now, you were the one accusing Enquest and AB of lying and cheating (or it's equivalent), just 2 days ago..

Thanks for digging that out, Fernan.

What CNE said on the call was that a higher water cut is usually to be expected in heavy oil reservoirs like Captain and Kraken, but after an inital period of higher oil production, Kraken experienced a slightly higher water cut than forecast in the FDP and this has now stabilised. This is what they're using as a basis to cut their reserves and take a charge. They did say that issue with AK was two-fold - below the boat (Reservoir) and the FPSO itself and how it has lower uptime and efficiency than expected.

I'll want to hear GCA and ENQ's opinion with regards to the reservoir itself.

Morning Romaron,

That is a question and certainly the impairment would be done as of the balance sheet and that's 31/12. You're right that Brent was near it's lows at that time, certainly a good $13-14 lower than where it is now, but I'm not 100% sure how that would feed into their reserves valuation of Kraken. And we'd all certainly like ENQ to be unequivocal about putting out GCA's assessment and why they think Kraken shouldn't be impaired.

Other than the Kraken story, with Magnus closing late last year, ENQ will recognise a large gain on it's P&L on that transaction and that'll feed into the book value as well. Book value should be in the mid to high 30p by my reckoning as of 31/12.

We may be surprised though. The share is badly damaged, technically, and until there's clarity next week in the earnings release, I wont be surprised to see us linger at these levels, even if Brent marches higher.

Other than the headine 4 mmbbls draw on Crude, here's the most interesting bit. Crude production dropped from 12.1 mmbbls a day to 12 mmbbls. That is the first drop in forever, if you exclude the Hurricane related loss in September last year.

For those of you who aren't aware, EIA has an adjustment factor that guesstimates what that week's production range could be in reality and that moves up and down frequently and is more like an adjustment. That number is at -730 k, which means it could be in a 11.3 to 12 mmbbls a day range. Probably closer to 12 though, but with the slowdown in drilling is definitely going to moderate production and we're seeing WTI jump as a result today.

KO - maybe some switching is in order. ;-) I did some to ENQ today...

Hitman - I'd agree with that. Cairn was pretty confident that production would ramp up to the 30 kbopd plus range after DC4 is online in Q2. I'd assume that AK can cope well with lower water cuts from the new wells and thus accounting for the ramp-up next quarter. Unlike what Chilting is saying about AK being fixed before production goes up, Cairn has a different perspective and I'm sure so will ENQ. Sure, AK being fixed during the scheduled maintenance will help carry on processing higher volumes from then to bring the average up.

Nope..that's not what I'm saying. For every $1/bbl price increase above $51, FCF generated by ENQ is something like $17 mill and not $23 million, assuming an annual 23 mmbbls production.

KO - it won't be a straight $23 mill to FCF based on a per barrel increase. Two reasons - lower price realisation based on PSA for PM/Seligi and BP 50-50 cashflow split for the 75% Magnus. It's approx $17 mill or so.

Hi Hitman - I was basing AK lease numbers on the $447k day rate listed in the Magnus prospectus over 350 days a year. However, I see your point that finance leases under current liabilties as of 30/06 are listed at $100 mill. Equally, we saw a cash outflow of $77 mill for H1 for finance leases too. I haven't quite squared up these numbers, TBH. So, there is a possibility that I'm overestimating the lease payments. I'll try and dig deeper when I get some free time.

KO/Hitman - Based on the model I have, for combined Magnus 75% and rest of the business, I have approx. $51 per Brent barrel as the point after which FCF is generated by ENQ to go towards debt reduction. This is taking into account a circa $30 mill reduction in annual lease payments to BUMI (down from the circa $157 mill estimated), slightly higher opex as guided in the recent update and higher capex (from deferrals from previous years) that we'll now have to pay in 2019, again as guided in the recent update.

L3 - I don't understand what you're going on about with OZ. You wrote..

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Oz Loan: I do not care that other oil companies will earn less if poo is low. I care that 15% of a $2.2B investment (Kraken, excluding work on DC4) was loaned for $175M. So $330M of investment was traded for $175M. ENQ will only get the 15% of Kraken back if it repays the $175M in full out of 15% of Kraken's FCF (post Capex). If it repays only $150M, they can say bye bye to the 15%..

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I don't know what you mean by they can say bye bye to the 15%. That's the weirdest thing I've heard. The 15% is ring-fenced and the net cashflows from it is used to repay OZ capital within a 5 year time-frame. Say something happens to either Kraken AND/OR Brent, and ENQ is not able to repay OZ within 5 years, are you implying that OZ will get to keep that 15% Kraken stake forever? Where on earth did you get that understanding from - LOL? Come on, that's elementary.

There is a ring-fencing on the cash flows accruing from the 15% and that is the 'implied' collateral. It's not that ENQ has put that 15% down as collateral that OZ could 'own' if the loan is not paid off in 5 years. In the worst case scenario, there is a second charge on the remaining ENQ assets that OZ could call on should the first call on the 15% be not enough to repay the loan after 5 years.

DK - I said that I do want to hear ENQ's side of the story. The market has obviously decided to side with CNE and marked ENQ down 14% today. CNE wouldn't come out and talk about a higher water cut, just for the fun of it and on the back of that do a reserves downgrade. They did what they thought was right based on their assessment. ENQ thinks otherwise and the market doesn't believe them. It is a fact that ENQ didn't talk about water cuts being an issue in the past and they could maybe now say that there is such an issue, but it doesn't warrant a downgrade.

What I do agree with is that ENQ didn't mention water cuts during the last update and I'd assume they'd have known by then. Is that material - not in their eyes as we know from today and backed by the fact that they think they'll produce in the guided range for 2019.

I don't dispute that ENQ has been a bit generous with the truth and I'd suggest that they didn't want to risk upsetting the market any more by not being upfront with the reasons behind the under performance of Kraken. However, the market does find out and you get what happened on a day like today. I can wager that the short count would've shot up today.

However, I still want to hear ENQ's side of the story and the rationale behind their decision not to downgrade or not talk about water cut issues in any more detail. Till then, everyone worth their opinion, Fernan included, can speculate as much as they like.

Cairn took a write-down of about 19% on Kraken reserves, ENQ said no to downgrade reserves. And the market sold ENQ off - summarises today well. We'll hear ENQ rationale next week, but on a circa potential 6 - 7% reserve downgrade, we're off 13%. ENQ's just not catching a break.

What CNE said on the call was that the water cut would be low when they start (hence high production) and then slowly start to increase and then stabilise. At the current wells, the water cut has now stabilised for the past few months and CNE doesn't expect any more increased water cuts in these older wells.

That's the case with the RCF debt and any other debt that ENQ is due to repay this year and the next and the year after, all dependent on production and price of Brent. That's the case with every other oiler. We know that OZ is to be repaid out of the 15% cash flow from Kraken and obviously that's tied to how much Kraken produces. Even at 30 kbopd, that's circa 1.7 mmbbls a year and loan repaid out of FCF from that portion. If Brent isn't high, then it's not OZ that'll be a problem, but oil companies broadly will be hit.

My question still stands - what is it about OZ loan that makes it the elephant in the room?

L3 - please explain with facts/figures why the OZ loan is the elephant in the room? Why is it that we need to be talking about it?