Member Info for Fernan10

Here is what the Magnus acquisition prospectus says abou this (from page 111 on):

The economic date of the Magnus Transaction is 1 January 2017 (the “Economic Date”) hence, on completion
of the Magnus Transaction, cash flow since the Economic Date will be reclassified as accruing to
EnQuest’s account and reduce the amount of the BPCO vendor loan. Based on Magnus’s performance to
date and assuming current oil prices persist until the end of 2018, the amount of the vendor loan is expected
to be reduced by approximately $100 million by 31 December 2018.

Loan Agreement
On completion of the Magnus Call Option Deed, EnQuest Heather and BPCO will enter into a loan
agreement (the “Loan Agreement”). Under the Loan Agreement, BPCO agrees to make available to
EnQuest Heather certain amounts equal to the aggregate of:

(a) the lesser of: the payment payable by EnQuest Heather under the Magnus Call Option Deed at
completion plus any true-up amount that is subsequently payable by EnQuest Heather under the
Magnus Call Option Deed in relation to customary adjustments (based on an effective economic
date of 1 January 2017), less $100 million; and (ii) $500 million; and

(b) certain additional amounts which cover any shortfall between the amount due to be paid by EnQuest
Heather to the Lenders and the amount which is available to be paid to the Lenders pursuant to the
Net Cashflow Share Deed and the STWD (as further described below).

Interest shall accrue on each loan made under the Loan Agreement from day to day at a daily rate
equivalent to an effective rate of 7.5 per cent. per annum if compounded quarterly in arrear, on the basis
of a 360 day year.

Waterfall mechanics and profit share
On completion of the Magnus Call Option Deed, BPEOC and EnQuest Heather will enter into a net cash
flow deed which sets out how revenue from the 75 per cent. Interests will be shared between them (the
“Net Cashflow Share Deed”). The Net Cashflow Share Deed will be effective from the date of signing
(on completion under the Magnus Call Option Deed) and will automatically terminate on the earlier of:

(a) the date on which the aggregate amount received by BPEOC under the profit share arrangements
equals $600,000,000/(1-TR), where TR is the rate of Corporation Tax in force on date of completion
under the Magnus Call Option Deed (not to exceed 40 per cent.) (the “Profit Share Cap”);

The net cashflow amount for the 75 per cent. Interests is calculated quarterly by deducting any costs paid
by EnQuest Heather in respect of the 75 per cent. Interests from all income received by EnQuest Heather
in respect of the 75 per cent. Interests. If this results in a figure greater than $0, such amount constitutes a
“Net Cashflow Gain”.

Good morning.

Is there any legal obligation for Exxon to provide a detailed info about the recently drilled wells to the government of Guyana?

For how much time do they have the right to keep the info in a confidential status?

I´m sure this info will substantially increase the chance of success for future drilling in Orinduik.

Comments?

Thanks in advance

Fernan

Any oppinions?

Hi E121

You wrote:

"When we model revenues for H2 (and the future), we need to take the PM8 entitlement barrels into account and not the WI production of circa just over 8k boepd that we saw as a headline number in H1."

In reality, Enquest have always accounted for the reduced entitlement in Malaysia as a lower selling price, in relation to market prices (that is, the selling price for Malaysia is aprox 65% of market prices).

And it´s not a fixed entitlement. Malaysia applies a suplemental tax (at a rate of 70%) on the difference between prevailing market prices and a base oil price. As a consecuence of that, the greater the market price, the lower the entitlement for Enquest.

See Enquest´s Capital Markets day presentation on Dec 8, 2015, page 70.

Regards

Fernan

Lots of personal attacks from you in the last few days. Don´t know if you will read this post, because you said I will be filtered...

In case you read this, I will provide my share price valuation as soon as I have greater visibility on Free cash flow for 2019.

In relation to my "failed" forecast for 1H 2018 EBITDA, had the company provided more info about the type of hedging activities during the 1H, I´m sure I would have been in a better position to make a forecast.

And it´s not true that I posted all negative info about the company. On my post last Thursday 02:40, I "found" that the projected debt amortization payment scheluded for next October was substantially lower than everybody anticipated. But in the end I was wrong, because the company had modified the scheduled amortization payments without notifying shareholders.

Regarding the lack of info about production on individual fields, everybody here (except you, maybe) were waiting for the results of the Alma Galia workover program. We are talking of a project with a US$ 800 million investment, that was producing less than 2k bopd before the workovers (a total failure, I should say). I think it´s not acceptable for the CEO to say that the wells after the workover program are simply "perfoming according to expectations". what expectations? I don´t remember the CEO providing any forecast for production from the wells after the workovers. So I coulnd´t say if he was talking about 1k bopd or 5k bopd for each individual well.

Given the lack of info from the CEO, MO and others are trying to guess production from the field by doing tanker watching. I simply don´t think this is fair to shareholders.

Just my oppinion

Fernan

For the second half of the year, at an average Brent price of US$ 76/b, I expect:

Commodity price swap contracts: 0 (nil) cost

Amortization of premiums paid: management informed that they bought put options for 5,3 million barrels, at an average price of US$ 66/b. The cost of buying these put options is anybody´s guess. It shouldn´t be a high cost, since the futures curve is well above that level. As a reference, in the case of WTI price, the cost of put options for December 2018 that are US$ 10 under the current price (as the case of Enquest puts) is aprox. US$ 1,55/b. I don´t know the cost of equivalent put options in relation to Brent. Applying the same cost per barrel to Enquest, this translates into an expected cost of US$ 8 million. If the cost of the puts is around that level, it sounds to me as the right hedging strategy for the 2H.

Selling of barrels to Mercuria at a capped price: 440.000 barrels X (US$ 76/b –US$ 64/b)= US$ 5 million.

Other miscellaneous costs here and there, and we could expect a total hedging cost for the second half in the US$ 15-18 million range

Comments?

Regards

Fernan

Last week, I posted a forecast for revenues and EBITDA for the first half of the year.

The comparison between my forecast and the numbers announced by Enquest are the following:

1. Revenues
Forecast: US$ 622,8 million; real US$ 548,3 million. Difference: US$ 74,5 million

2. EBITDA
Forecast: US$ 387,4 million; real US$ 311,9 million. Difference: US$ 75,5 million

These differences come down basically to the unexpected US$ 77 million of hedging losses. Almost all the remaining variables (production, OPEX, etc) came in general according to expectations.

So, I decided to analyze the breakdown of the hedging losses, and will try to forecast the amount of losses (or gains) for the second half of the year.

Let me start by saying that some of the items analyzed here (for example, premiums paid on put options) are not really “losses”, but in reality are the cost of protecting the cash flow from unexpected variations in the price of the commodity.

In the 2017 Annual results presentation, company informed that for 2018 “the group has hedged c. 7,5 million barrels of oil, at an average price of US$ c.62/b”. They didn´t provide any additional info about the type of hedging (swaps, options, etc).

In order to look for some clarification, it´s necessary to read note 12 to the B/S, where you find the following:

Commodity price swap: management informed that they signed commodity price swaps contracts for 2018, for 4.150.000, at a weighted average price of $59.1/bbl. Analyzing the note, it´s clear that these contracts are for the first half of the year.

Applying the Brent average price for the period (US$ 70,6), this contract generated a loss of US$ 47,72 million (4.15 million barrels X (US$ 70,6/b – US$ 59,1/b)).

The company informed a loss of US$ 47,74 million for this concept, see note 12.d) of the B/S. This is the first cause of the “hedging losses” incurred in the period

A second cause of “losses” was the amortization of premiums paid for buying put options, for US$ 16 million (see note 12.b) of the B/S.)

A third cause was the credit facility prepayment with Mercuria. Enquest had to deliver aprox. 440.000 barrels during the period at a cap of US$ 64 per barrel (US$ 6,6/b lower than the average market price). This produces a loss of aprox. US$ 3 million.

There are other hedging losses for a total of US$ 10 million that I could not find an explanation.

So, the breakdown of the hedging losses incurred in the period is:

Commodity price swap contract: US$ 48 million
Amortization of premiums paid: US$ 16 million
Selling of barrels to Mercuria at a capped price: US$ 3 million
Other losses to be explained: US$ 10 million
Total losses: US$ 77 million

E121:

The amortization payments for 2019 mencioned by JS (US$ 175 million in April/19 and US$ 100 million in October/19) are in line with the schedule included in the prospectus.

Regards

Fernan

Hi E 121.

In relation to the new debt amortization schedule, on Friday night I wrote the following (see my posts at Friday 21:41 and 21:58):

________

Good Afternoon.

Page 276 of the Prospectus of the Right Issue shows the modified schedule for the amortization of the Debt Facility, as follows:

Tranche A must, in accordance with the amortisation schedule of the SFA, be repaid on
specified dates and may not be re-borrowed:

1. From the effective date under the last amendment and restatement agreement of
17 November 2016 up to and including 31 March 2018: US$1,125 million
2. From 1 April 2018 up to and including 30 September 2018: US$985 million
3. From 1 October 2018 up to and including 31 March 2019: US$855 million
4. From 1 April 2019 up to and including 30 September 2019: US$680 million
5. From 1 October 2019 up to and including 31 March 2020: US$580 million
6. From 1 April 2020 up to and including 30 September 2020: US$460 million
7. From 1 October 2020 up to and including 31 March 2021: US$425 million
8. From 1 April 2021 up to and including 30 September 2021: US$360 million
9. On 1 October 2021 (the “SFA Final Maturity Date”): nil.

This schedule was modified from the original one agreed in October 2016 (modification that was not informed to shareholders).

The original schedule was the following:

the following updated amortisation schedule for the Term Facility:
1. From the Effective Date up to and including 31 March 2018: US$1,200 million
2. From 1 April 2018 up to and including 30 September 2018: US$1,060 million
3. From 1 October 2018 up to and including 31 March 2019: US$930 million
4. From 1 April 2019 up to and including 30 September 2019: US$755 million
5. From 1 October 2019 up to and including 31 March 2020: US$655 million
6. From 1 April 2020 up to and including 30 September 2020: US$535 million
7. From 1 October 2020 up to and including 31 March 2021: US$500 million
8. From 1 April 2021 up to and including 30 September 2021: US$435 million
9. On the Final Maturity Date: nil;

As the company explains in page 6 of today´s results press release, "Scheduled amortisation reductions under the facility are due in October 2018 ($195 million) and April 2019 ($175 million)."

The filosofy of the debt amortization schedule remains the same: Enquest is obligated to reduce the outstanding amount of the credit facility on certain dates, by paying the amount in excess of the limit, or by simple not drawing down on the facility.

Regards

Fernan

________________________

The US$ 195 millon debt repayment to be made in OCtober is calculated as follows:

+ Debt oustanding at July 31, 2018: US$ 1.075 millon (see page 275 of the Prospectus)
- Voluntary payment in August: US$ 25 millon (page 6 of 2018 1H results press release)
- Maximum amount permitted to be oustanding from October 1, 2018: US$ 855 millon (page 276 of the prospectus)

= Amortization payment to be made in October: US$ 195 m

Hi MO.

The RI prospectus includes the June 30, 2018 CPR for Magnus.

Regards

Fernan

Hi Squif.

I´m going to post an analysis of hedging losses for the period. I´m sure DD would love it

Regarding the OZ financing, it will be included in the B/S. See my previous post on the subject. I understand, from what E121 has said, that Enquest CFO JS confims this in the conference call.

Regards

Fernan

DD:
when I wrote "“Lack of justification to do a right issue to buy Magnus, after agreeing a ring-fence financing using Kraken cash flows.”, I didn´t know that the company had agreed a modification of the credit facility amortization schedule (without notifiyng shareholders).

The modification required Enquest to make an amortization payment by October for an amount US$ 75 millon greater than originally agreed with the banks.

See my post on Friday 21:41

Had they mantained the original schedule, it wouldn´t have been necessary to ask shareholders for additional funds for the purchase of Magnus.

Just my oppinion

Regards

Fernan

Hi L3.

The US$ 12 millon waiver fee was part of the October 2016 restructuring agreement.

In relation to financial charges for the AK FPSO leasing, note 2 to FS for 2017 states the following:

"Finance leases that transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group, are capitalised at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the income statement."

In summary, financial leases are accounted for in a similar way of a financial debt. Monthly payments of the lease rate includes both an interest charge and an amortization payment.

The total amount of "debt" in relation to the leasing at December 31, 2017 (excluding of future interest payments) was US$ 798 millon (US$ 118 millon of current liabilities and US$ 680 millon of non current liabilities). See item "Obligations under finance leases".

Hence, the US$ 28,5 millon financial charge for the 1H 2018 period is equivalent to an interest rate on the debt of around 8,1% (the calculation is a little more complicated, because, in order to ascertain the effective interest rate, you need to take into account the average balance of the debt for the period, but this rate is a reasonable approach to the real number).

If you think on this issue, the amount outstanding of the "Obligation under financial leases" at December 31, 2017 should have been included in the total "net financial debt" of the business. I always take that amount into consideration when I try to value the company.

Regards

Fernan

Good morning.

The company didn´t provide a Breakdown of the Financial Charge for the period (US$ 121,9 millon, excluding extraordinary items).

I think a reasonable breakdown is as follows:

Credit facility: US$ 1.100 millon @ 7,5%= US$ 41 millon
Bonds: US$ 945 millon @ 7%= US$ 33 millon
Crude prepayment facility: US$ 60 millon @ 9,5% (interest applied on average balance por the period)= US$ 3 millon
Kraken FPSO leasing: US$ millon 28 (See note 15 to FS)
Unwind of discount on decomissioning: US$ 6 millon (see note 14 to FS)
Waiver fee payable to lenders in March: US$ 12 millon

Total: US$ 123 millon

Regards

Fernan
Credit facility 1.220 7,5%
Bonds 945 7%
Crude prepayment facility 40 9%
Kraken FPSO leasing. Interest

Here is what the Prospectus says about the agreement:

EnQuest Heather will transfer a 15% interest in the Kraken field (the “SPV Kraken
Interest”) to its indirect wholly-owned subsidiary EnQuest Advance in order to raise a loan.
Completion of the transfer is subject to obtaining necessary consents. The proceeds of the
sale will be applied to reduce the total Tranche A commitments and the Aggregate
Commitments under the SFA.
EnQuest Advance is a special purpose vehicle which EnQuest incorporated together with its
intermediate holding company EnQuest Advance Holdings Limited for the purposes of this
transaction. EnQuest Advance will not accede to the SFA and the necessary consent of the
SFA Lenders has been obtained. EnQuest Advance will fund the purchase price by obtaining
a $175,000,000 facility from Sculptor Investments IV S.a.r.l (“OZ”). The facility agreement
was signed on 4 September 2018 with Global Loan Agency Services Limited (“GLASL”)
as facility agent, GLAS Trust Corporation Limited (“GLAS”) as security agent and OZ as
the backstop lender (the “OZ Facility Agreement”). The availability of the facility under the
OZ Facility Agreement is subject to satisfaction of customary conditions precedent.
EnQuest Advance will pay the proceeds of the OZ loan to EnQuest Heather after deducting
fees and expenses payable to OZ, GLASL and GLAS and retaining a certain amount of the
drawing to fund its initial working capital requirements. EnQuest Heather will apply the
whole amount received by it from EnQuest Advance from the proceeds of the OZ loan for the prepayment of the SFA. The outstanding balance of the purchase price will be funded by
an intercompany loan from EnQuest Heather to EnQuest Advance.

My comment:

given that the debtor (Enquest Advance) is an indirect wholly-owned subsidiary of Enquest PLC, the debt with OZ will be fully reflected in the consolidated financial staments of Enquest PLC. In the same way, the 15% interest in Kraken transferred to Enquest Advance will be accounted for unchanged from the current situation.

Just my oppinion

Fernan

Hi L3.

I found I missed a very important point in my calculations.

The Prospectus states that "consolidated net financial indebtedness means the aggregate of all financial
indebtedness (with the PIK Amount excluded from the definition of indebtedness) of
the Group under the SFA at the relevant time less the aggregate of cash and cash
equivalent investments of the Group" (SFA being the credit facility).

In the same way, Prospectus for the 2016 debt restructuring indicated that "consolidated net financial
indebtedness will take into account the drawn Existing RCF amounts net of cash and cash
equivalents, with the Existing Notes excluded due to their coupon structure and the PIK Amount
and the potential finance lease for the Kraken FPSO also to be excluded from the definition of
indebtedness)"

So, under the restrictive definition of Net financial debt for the calculation of the leverage ratio, the bonds and AK FPSO financial lease will be excluded.

Then, Enquest was in compliance with the covenant at June 30.

My fault

Regards

Fernan

DD:
you said:
"Fernan,
As usual you always feel the need to put a negative slant on news here. You posted earlier that there was no underwriters for the RI, which I suspect you know not to be true, or you just thought you would put a bit more negativity out there, as always."

I neved said that, DD.

You need to review my posts before engaging in a personal attack

Fernan

Good afternoon.

According to page 281 of the Magnus prospectus, the ratio of consolidated net financial debt to EBITDA should be less than the following ratios:

31 December 2017 4.00:1.0
31 March 2018 4.00:1.0
30 June 2018 3.50:1.0
30 September 2018 2.00:1.0
31 December 2018 1:75:1.0i

In order to analyze if the company is in compliance with this covenant, it´s necessary to consider the following:

Net financial debt at June 30, 2018: US$ 1.973 millon
Annual EBITDA in 2017: U$ 303,6 millon
Semiannual EBITDA in 1H 2017: US$ 151 millon
Semiannual EBITDA in 2H 2017: US$ 303,6 millon 0 US$ 151 millon= US$ 152,6 millon
Semiannual EBITDA in 1H 2018: US$ 311,9 millon
EBITDA for July 2017-June 2018: US$ 152,6 millon + US$ 311,9 millon: US$ 464,5 millon

Net financial debt / EBITDA ratio at June 30, 2018: 4,24

Conclusion: the company is in breach of this covenant. A waiver will have to be asked.

In order to avoid that covenant breach, Enquest needs to increase the amount of EBITDA for the July2017/June 2018 period by US$ 99,5 millon. Maybe the retroactive consolidation of the 75% of Magnus do the trick.

Comments?

Fernan

The US$ 195 millon debt repayment to be made in OCtober is calculated as follows:

+ Debt oustanding at July 31, 2018: US$ 1.075 millon (see page 275 of the Prospectus)
- Voluntary payment in August: US$ 25 millon (page 6 of 2018 1H results press release)
- Maximum amount permitted to be oustanding from October 1, 2018: US$ 855 millon (page 276 of the prospectus)

= Amortization payment to be made in October: US$ 195 millon

Regards

Fernan

Good Afternoon.

Page 276 of the Prospectus of the Right Issue shows the modified schedule for the amortization of the Debt Facility, as follows:

Tranche A must, in accordance with the amortisation schedule of the SFA, be repaid on
specified dates and may not be re-borrowed:

1. From the effective date under the last amendment and restatement agreement of
17 November 2016 up to and including 31 March 2018: US$1,125 million
2. From 1 April 2018 up to and including 30 September 2018: US$985 million
3. From 1 October 2018 up to and including 31 March 2019: US$855 million
4. From 1 April 2019 up to and including 30 September 2019: US$680 million
5. From 1 October 2019 up to and including 31 March 2020: US$580 million
6. From 1 April 2020 up to and including 30 September 2020: US$460 million
7. From 1 October 2020 up to and including 31 March 2021: US$425 million
8. From 1 April 2021 up to and including 30 September 2021: US$360 million
9. On 1 October 2021 (the “SFA Final Maturity Date”): nil.

This schedule was modified from the original one agreed in October 2016 (modification that was not informed to shareholders).

The original schedule was the following:

the following updated amortisation schedule for the Term Facility:
1. From the Effective Date up to and including 31 March 2018: US$1,200 million
2. From 1 April 2018 up to and including 30 September 2018: US$1,060 million
3. From 1 October 2018 up to and including 31 March 2019: US$930 million
4. From 1 April 2019 up to and including 30 September 2019: US$755 million
5. From 1 October 2019 up to and including 31 March 2020: US$655 million
6. From 1 April 2020 up to and including 30 September 2020: US$535 million
7. From 1 October 2020 up to and including 31 March 2021: US$500 million
8. From 1 April 2021 up to and including 30 September 2021: US$435 million
9. On the Final Maturity Date: nil;

As the company explains in page 6 of today´s results press release, "Scheduled amortisation reductions under the facility are due in October 2018 ($195 million) and April 2019 ($175 million)."

The filosofy of the debt amortization schedule remains the same: Enquest is obligated to reduce the outstanding amount of the credit facility on certain dates, by paying the amount in excess of the limit, or by simple not drawing down on the facility.

Regards

Fernan

In another thread, L3 told me that the new funding from OZ can no be applied to buy the remaining 75% of Magnus, because it has to be destined to the repayment of the bank loans.

Maybe, but if this is the case, it means that ENQ is not generating positive operating cash flow during 2H.

It could perfectly be the case. The lack of info about production of recently drilled wells makes impossible for us to try to calculate EBITDA, operating cash flows, forecast debt reduction by the end of the year, etc.

As the time passes, it seems that this is progressively getting more obscure

Just my oppinion

Fernan