Member Info for epiphany121

Why the confusion, KO? If you properly read my last post, you have your answer..The plateau wouldn't be 50kbopd, but more like 40kbopd. The FPSO issues are preventing Kraken from getting there.

CNE is stating that based on what they've seen so far, there's the below the boat 'issue' in that production with the higher than expected water cut in this heavy oil field is circa 20% below FDP and as per FDP the peak plateau would've been 50k and it's now likely to be 40k. They've stated that after DC4 wells go inline, production will increase rapidly at the beginning and then plateau out after 6 to 12 months.

And then you have the FPSO issues that's restricting production because of downtime and reliability. The questioning from Peel Hunt was more around the reserves itself and nothing on the FPSO.

Here's the link. http://webcasting.brrmedia.co.uk/broadcast/5c40bb9051686d4328249fb4

At approx 17:26 minutes is the COO's assessment of Kraken. That's just over 2 minutes long. And at 34:50 starts the Q&A, and the first question from Peel Hunt is about Kraken. I haven't listened to it yet though.

Are you able to paste the content here, Dol03? Cheers

I already did. I said in my post yesterday that I'm forecasting 66 kboepd for 2019 - middle of the road number, inline with 2018. Should I get more precise than that? And how is you asking about forecasting the first 2 months 61 kboepd relevant? It's not like ENQ will confirm next week what they produced for the first 2 months for 2019???

I know there's lots of angst at this moment and the SP has been pounded lower to 52 week lows, which is not good for the wealth effect of holders, but if we take a step and digested the following from CNE's presentation.

Current production similar to 2018 average; increase scheduled when DC4 wells come online Q2 2019
? Additional drilling opportunities maturing for 2020
? Main field reserves downgraded at Year End 2018

As Romaron has stated, CNE has gone with the Prudence vs Hope approach to whether they think production can be ramped up sufficiently for the NPV on the balance sheet to still be inline and this is where they're been prudent and ENQ has been hopeful that they may pull Kraken higher in the following years.

CNE is still stating that production will be inline with what's been forecast for 2019, in the 30 to 35 kbopd range. And this is the level that we've been modelling anyway. And the debt reduction that goes with it. If you cut through the noise, there's been an accounting downgrade by CNE, but no production forecast reduction. DC4 coming online in Q2 would ramp up production to within the guided range annually. After a circa 20 to 25 kbopd range in Q1, that would indicate a 30 to 40K for the remaining quarters for it to still be in the range.

The market reaction has been painful and justifiably so, I'll admit.

Fair points, Romaron. Cairn was prudent, I suppose and Enquest has a lot more riding on this to get another assessment alongside CNE and come up with this release. Yes, it does look like Barclays/CNE must've had some wind of it from their sources or at least known that CNE was going down this route. No doubt there will be lots of grilling on the call next week, but for now we know who the market has sided with - CNE.

It's a load of sh***e that ENQ has got stuck in, I'm afraid.

Evening Pelle,

My projections based on a 66 Kbopd average for FY2019 and average Brent of $70, adjusted for the circa 1.5 kboepd gas ENQ produces, EBITDA comes in at $985 mill and an FCF of $375 mill, assuming a circa $30 mill AK lease payment reduction or circa 20% reduction over the forecast $157 mill for 2019. So, we're looking at a net debt of $1400 mill at the end of 2019. We're not too far off.

For 2020, assuming nothing changes, i.e. production and Brent is the same, and Capex/Opex is also the same (yes, way too many assumptions) then FCF will be $50 mill lower because ENQ won't recoup the $100 mill Magnus upfront payment that ENQ did this year and that net cashflow (after Capex/Opex) will be equally split between BP and ENQ. Net debt will be $1075 mill at the end of 2020.

There's another small paragraph that appeared in the BUMI research note.

Kraken also saw a lower uptime as a result of extreme weather in the North Sea over November and December, resulting in a RM25m decline in revenue.

We did know that there was very stormy weather over November and December, and there were a steady 15 to 18 metre wave heights near AK for a couple of days. Presumably some of this period is what this note is referring to and resulted in a loss of revs for them in those 2 months in question. And based on the uptime noted in January/February, I'm assuming that BUMI went ahead and took these RM1.2 bn charges. Let's hope for their sake they'll claw back some of these, which will mean better output for us. Fingers crossed then..

Afternoon Hitman,

There certainly would've been a downward adjustment to day rates and based on the fact that BUMI took a charge in their FY18 accounts, we can make a pretty logical deduction that this would've happened in Q4, certainly after ENQ's H1 results came out in September. Bob Davenport did say in that call that there is a sliding scale day rate for AK depending on uptime and production rate (production efficiency), however that actual scale wasn't quantified.

Here's what a Malaysian research firm wrote about BUMI's Kraken impairment last week.

FPSO Kraken’s Impairment
Following FPSO Kraken’s impairment of RM479m made in 2Q18, BAB recognized another impairment of RM1.2bn in 4Q18. The impairment made earlier was due to Kraken having produce crude that had not met the quality standards required, which resulted in a potential contingent liability required in the future. This latest impairment was to reflect the lower uptime throughout the firm contract period. Management guided that they adopted a prudent approach to assess the impairment, and as such there’s a probability of a partial write back.
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IR probably won't give us the details now, given that the results are out next week, but if we don't have this detail released in the results notes, I'm certain the analysts would follow-up on the call, failing which we can then ask this detail from IR. I won't speculate if there's a circa 50% cut in the day rate as there may be other factors that influenced the BUMI write-down, but let's see if there's more clarity next week - your initial assessment is fair enough though, TBH. I don't want to even second guess how the idiot analysts come up with their target prices, but with Brent in the mid 60s, FCF generation is significantly higher than in the low 50s, which is when they came up with their target price.

As Romaron pointed out, volume is so anaemic, it doesn't take much to move the price down or to keep it depressed. Let's hope that next week brings better news..

Typo...I meant to write that ENQ is heavily reliant on NOPEC to keep Brent stable at these levels where debt can be whittled down.

Also, with regards to the Permian, with the oil majors now coming in big time, I have a tough time believing that production will not cross 13 mill BOPD by the end of 2019. Pending a fall in WTI to below 50 and staying there for a while, large scale rig reduction will not happen. Rig count at this time is still more than it was in 2018 and we know that US increased production by 2 mill BOPD in 2018 and they should increase by circa 1 mill bopd in 2019 too. What may happen as result is WTI Brent differentials will blow out more, at least that's my expectation and even though Brent breaks into the 70s, WTI may stay in the mid to high 50s. This will put pressure on the marginal producers in the US and we'll see moderation of growth in FY20 - that's my best guess as to how this may play out in the shale patch. ENQ is heavily reliant on ENQ to balance out this market and keep prices at these levels.

Debt is not directly related to profit, as it's only the interest component of the debt that is counted as a cost in the P&L. ENQ will certainly be profitable for FY18 and more so in FY19 with Brent at these levels. EBITDA forecasts are at $750 mill + and with Magnus closing in December, there may be one-off gain as well that'll come on our balance sheet and also P&L. It's not the P&L that's the issue for ENQ; it's the concern over AK and at what rate ENQ will then to go on to reduce debt, if AK materially underperforms because of issues with the FPSO. This is the unknown that the broader market is grappling with and hence, shorts are having it all their way since the beginning of the year.

You and I can speculate till kingdom come, L3, but we'll have our answers next week. ENQ will not, IMO, downgrade production forecasts for FY 2019, which is what you're implying with your 61K forecast. The February forecast will be held, and depending on what happens with AK for the rest of the year, we could be at the top or the lower end of the range for the year as a whole. I'm hopeful, but I'd like more colour next week and I'm sure that the analysts will do their usual grilling as well on the call.

As Romaron pointed out, the market's angst over operational issues with Kraken is being compunded by ENQ's debt level. This concern may not be that high by this time next year if Brent averages $70 and assuming Kraken averages 30 kbopd (same levels as last year). Net debt should be under $1.5 billion and the debt to EBITDA should be comfortably under 2. At the end of FY 18, we should be at circa 2.6 or so.

It's the current Kraken uncertainty that's causing the weakness in the SP and hence my hope that we'll get more details on the call next week.

Crystal ball's gone a bit fuzzy, Jan. ;-) Oil rigs down 9 and Gas rigs are down 2. Permian has only lost one though and that is not great, but a few other Shale basis have dropped a few more.

Thanks, Pelle. In a couple of other research notes, there was additional colour that I've copied and pasted below. The last line talks of a huge slash to the day rates - it could just be 'sensational' analysis or there could've been this large level of day rate slashing - we don't know yet.

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Kraken also saw a lower uptime as a result of extreme weather in the North Sea over November and December, resulting in a RM25m decline in revenue. Notwithstanding, core net profit increased 7% qoq driven by a RM17m variation order from LukOil project (the last of it).

FPSO Kraken’s Impairment
Following FPSO Kraken’s impairment of RM479m made in 2Q18, BAB recognized another impairment of RM1.2bn in 4Q18. The impairment made earlier was due to Kraken having produce crude that had not met the quality standards required, which resulted in a potential contingent liability required in the future.

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Sequentially, 4Q18 core earnings plunged 37% QoQ, dragged by poorer FPO (-22%) mainly on the back of lower vessel productivity from Armada Kraken FPSO, coupled with lower contributions from Armada TGT FPSO after signing an extension agreement in Aug 2018. This offset stronger OMS (+31%) from variation order for the LukOil project.

Plagued by both operational and financial problems. Operationally, its biggest asset – the Armada Kraken FPSO, continued to face problems during the quarter, having suffered system outages leading to less-than-expected production output for its client, EnQuest. We believe this may not be an isolated incident, having delayed receiving final acceptance until September last year as the vessel was not able to meet specifications. This led to massive impairments of the asset during the year (>RM1.6b), which we believe could imply either (i) massive reduction in the vessel’s assumed utilisation moving forward, or (ii) huge slash in charter rates from the clients.

Jan - I have no doubt that We'll do pretty well for 2018. We've already had a taster for what to expect in a couple of weeks' time, based on what we've read from the Feb update.

It's the Kraken update that'll be key. Continued Kraken performance, even in-line performance, will be key for our SP. On all available metrics, we're underpriced, vis a vis PMO. As Chilts pointed out, they have Catcher working well for them.

Another point I'd like to clarify is that PMO's production is 75 kBOEPD and NOT 75 kBOPD. They produce more gas than we do and hence, their revenues will be lower on a like for like BOEPD production basis. ENQ has lots of positives going for it, but Kraken is hanging over our heads like Damocles' sword.

FFs...Get a grip, Auson. I'm calling you out on what you said yesterday. I said PMOs results will be relevant to our SP, and you kept banging on about how it would turn around ENQ SP. I'm not talking about a bloody selloff here..I don't know how you extrapolated that from what I said..

Brent is about the only thing that can move our SP at this time..