Member Info for hitman1a

I think Squif previously referred to the conservative base case in the half year accounts : the negative NAV will probably be positive at the 31.12.2020.

"The Base case is in line with the Group’s production guidance and uses an oil price assumption of $40/bbl for the remainder of 2020, $47/bbl for 2021, with a longer-term price assumption of $60/bbl and are broadly in line with current consensus."

The $47 estimate for 2021 looks rather low, but then it was estimated in March 2020. The 498m US oil inventories are still 14% above 5 yr average , so perhaps another 70m barrels to be drained away.. Just depends on the rate of natural declines in US in Q4. You could wish a weekly drain of 9m barrels , but that would mean there would be no oil inventories in the US within a year.. Expecting the drain to take 4 to 6 mths, so a pick up in US drilling in mid Q1 next year.. they still need WTI above $50 to restart with any meaningful effect, and so long as there are enough banks to lend them the cash.

Thanks to Mark Wilson. nice write up. even he knows the volume of cash Enquest will generate next year can justify his buy recommendation and 17p target. He can always increase it in 12 mths time to 30p. ie market cap of £500m by 31 Dec 2021.
Just need GS estimate of $59 Brent average for 2021 to be correct.

Bit of info from accounts: KUFPEC now settled in full

Decommissioning provision
An additional provision of $20.4 million was recognised mainly in relation to the accelerated decommissioning profile of
Heather offset by the impact of exchange rates on the Group’s underlying Sterling and Malaysian Ringgit cost estimates.
At 30 June 2020, an estimated $77.9 million is expected to be utilised within the next year, $223.5 million between one
and five years, $161.0 million between six and ten years, and the remainder in later periods.

Other provisions
At 30 June 2020, the amount due to BP by reference to 7.5% of BP’s decommissioning costs on Thistle and Deveron on
an after-tax basis was $47.6 million (31 December 2019: $39.8 million). The increase was primarily driven by the earlier
than expected cessation of production at Thistle/Deveron.

During 2019, the Group finalised and settled the historical breach of warranty claims with KUFPEC, the Group’s field
partner in respect of Alma/Galia. The settlement completed all outstanding claims and a provision of $22.5 million was
recognised, in 2019, for the payments to be made to KUFPEC. A total of $5.6 million was paid by June 2020, with $5.6
million disclosed within current provision as scheduled for repayment (31 December 2019: $11.3 million).

At 30 June 2020 the Group recognised a redundancy provision of $6.2 million in relation to its transformation
programme. The Group expects to settle this liability by year end.

I agree Tom, Bloomberg had a few discussions on Carnival today.. up , as FANGs declined , as businesses start to believe they will reopen and stay open as the US has a vaccine.. still early days.. but equity appears to have become more valuable in some beaten sectors. I was surprised they also mentioned "oil stocks" too but i can't see any evidence today... maybe tomorrow.

JS and AB seem confident the business can support $500m overdraft and $500 Bond if needed in Oct 2023 based on reserves and asset base.. Essentially the banks are saying just pay back what you can over the next 3 years. JS also seems confident that the Oct 2021 RCF can be repaid out of existing cashflow on time ..albeit with slightly higher oil prices.. but worst case scenario it's extended for a few months.. so what happens to all the cashflow from Nov 2020 to Oct 2023.. that's a lot of cash which I think they want to keep and invest. A Bressay tie-back cost is similar to Western Flank so $15/b, but nothing decided yet.. especially if the different partners don't agree to change the blend. . Where will this cash go.? I still think net debt zero should be the target for Oct 2023.. albeit it looks like they need a $500m facility in Oct 2023 to support cashflow and pay for a few small drills here and there.. Also the annual capex maintenance spend remains the same at $50m/yr and there is also now $50m/yr Decommissioning costs. Be glad when we get Brent above $55, ..even $50 will make a big difference . If Bank of A and GS think $60/$65 in mid 2021.. we will be doing very well..

I haven’t listened to the presentation yet, guess what, schools are back and there’s traffic , I expect we are capable at today’s prices of deleveraging another $25/mth for the remaining 4 mths of this year and then $30m/mth from Jan 2021. The RCF shouldn’t be an issue . Besides the supercycle in mid/late 2021/2022 will resolve all issues.

The US CDC aims to release its vaccine on 1 Nov , FT reported yesterday US aims to dose 10m US citizens in 2 mths ie by 31 Dec 2020. That should cover most of the higher risk groups .

Hedging at $36 in 2H is fine on 5.1m , as the rest of the portfolio gets higher prices . Allowing for $20m cash capex in 2H , I see net debt reducing to $1250m by year end , still very good and gives us 2 yrs and 10mths to be net debt zero by Oct 2023. As JS said , we have a very long runway , . The equity in the balance sheet increases for every $ of debt repaid , so long as there are no more write/offs , adjustments due to oil price assumptions .

Probably lots of detail on maintenance on remaining hubs in Q3

eg: We have been putting off a Powerflush for a couple of years but finally had it done.. the boiler said it wasn't going on any further without one. Limp home mode is the best it could do. Must admit a Magnacleanse helped and on inspection of the 10 year old pump, decided to put back the 15 yr old one as it seemed in better condition as it had only been used for 5 years... Rads piping hot, and boiler very happy.. You can't skip maintenance forever.. so Q3 production might be weaker than Q1/Q2. That will get us though Winter.. perhaps a new pump in Q1 if needed or when Screwfix have a sale.. I wonder if Kraken gets its version of a Magnacleanse each year.. imagine how much £££ inhibitor it uses.. I'll spare you details of how long it took a couple of years ago to dismantle the flue and reconstruct it with new seals..

Interesting Ithaca reset it hedges and cashed in the difference.. must have needed the cash in a hurry.

I think tomorrow will be a non-event. We had our ops update in late May, so repeat of same.

US CDC have just said a vaccine will be ready on 1 Nov 2020, so the headlines should be changing soon, with oil usage in Q1 2021 increasing steadily.

https://oilprice.com/Energy/Oil-Prices/Goldman-Expects-Oil-To-Reach-65-Next-Year.html

Ithaca also now have the Chevron assets, so if it’s a 50/50 merger , It would value Enq a lot more than the current market cap. They do look similar size.

https://www.energyvoice.com/oilandgas/north-sea/262108/delek-ithaca-merger-articleisfree/

We know Delek looked at Kraken when Enquest were looking to sell a portion .. we know they might be similar in size , 65k v 75k , ? What value does a merger add for us , if it's Enquest. I know we have the expertise, but does it become more valuable when 2 become 1. I guess our Malaysia bit makes us international. . ?

Delek Group
https://www.energyvoice.com/oilandgas/north-sea/262108/delek-ithaca-merger-articleisfree/

We have started to already use some :

UK corporate tax losses at the end of the year Dec 2019 reduced
to $2,903.4 million (2018: $3,225.3 million). The Group
generated taxable profits on increased production
which were offset against existing tax losses. In the
current environment, no significant corporation tax or
supplementary charge is expected to be paid on UK
operational activities for the foreseeable future. The Group
paid cash corporate income tax on the Malaysian assets
which will continue throughout the life of the Production
Sharing Contract.

From the last accounts published 9 April 2020:

"The maturity dates of the existing $746 million High Yield Bond and the £172 million Retail Notes (both figures at
year end 2019 and inclusive of the PIK notes) are in April 2022, with a mandatory extension to the maturity date to
October 2023 if the existing facility is not fully repaid or refinanced by October 2020. The Directors recognise that
refinancing of the High Yield Bond and Retail Notes is expected to be required beyond the viability period in 2023
and, based on recent research analyst projections for oil prices, and believe this would be achievable subject to
other market conditions at that time. "

"Notwithstanding the principal risks and uncertainties described above, after making enquiries and assessing the
progress against the forecast, projections and the status of the mitigating actions referred to above, the Directors have
a reasonable expectation that the Group can continue in operation and meet its commitments as they fall due over
the viability period ending March 2023. Accordingly, the Directors therefore support this viability statement."

I'm not expecting a RI based on the above.. They need to protect shareholders. Just a simple overdraft facility of say $500m in Oct 2023. I know they said they would prefer to be net debt: EBITDA of say 1x. , but I prefer 0.5. Just because you have equity in your buy to let, it doesn't mean you have to leverage it out to the max. what if the tenant doesn't pay..? They need to leverage when the best assets come onto the market.. not the hand me downs that others don't want that rely on high oil prices.. as the old business plan doesn't work. Glad we are scaling down the hubs.. avoid all the extra maintenance capex too. Lean and mean with cashflow costs next year at $27. Brent should be $50+ in Q4 and grind higher in 2021. Sure the SP will be the last to increase , but when it does , it should at least double.

At the 2018 AGM, JS said Enquest would deliver shareholder returns in the medium term.. I interpreted it as 3 to 5 years time. I remember the SP had been quite strong but had lost a few pence in the run up to the AGM.. Little did we know about the Kraken issues and RI. The SP declined all afternoon after the AGM.

I guess with deleveraging over the next 36 mths.. our market cap should trend higher to something nearer Cairn..

Reuters) - Energy firms shut 57.6%, or 1.07 million barrels per day (bpd), of offshore crude oil production in the U.S. Gulf of Mexico because of the twin threat from Hurricane Marco and Tropical Storm Laura, the U.S. government said on Saturday.

Also, 44.6%, or 1,205 million cubic feet per day (mmcfd), of natural gas output was shut ahead of the storms, the federal Bureau of Safety and Environmental Enforcement (BSEE) said

Thanks L7/PRD
I understand from Enq that the Debt page is as of 31 Dec 2019, so will be updated as the months/years roll on.. but I can't understand why the comments sections can't be updated to 2020 so we can understand the full transaction and timing of payments.
That said, i don't expect any improvement in our net debt number from 1 March 2020 to 30 June 2020.. so perhaps the 3rd Sep might disclose the net debt position as of 31 July 2020 if slightly more favorable than end of Feb. At some point analysts and shareholders have to be updated with enough info to do a cashflow/deleveraging forecast for the rest of the year and 2021 .. I can understand Enq might have been reluctant to do so in the past, but I think they could now be forthcoming and make it easy for us. That eliminates the speculation and boosts the SP. I wouldn't mind all this debt if it was at BP rates of 1% above base.. so I still expect Enq to follow the path to zero debt into Oct 2023, even though they said they are comfortable with much higher levels.. explained as a multiple of EBITDA.

Given the comprehensive new section for Analysts Coverage.. we could be just 1 RNS away from showing the tide has turned. Uber did it, Tesla did it.. Enquest I think is close to showing it as well.. Brent above $50 on 3rd Sep would be very helpful.. a couple of storms and some extra China purchases bodes well to support prices next week, even though cheaper prices would drain the excess much quicker. GL.

Just one thing, on the new "Debt" section on the website , we have 2 debts becoming payable in Dec 20

1. $32m: TB : contracted ended in March 2020, so now payable.
2. $32m SVT : BP loan:

Does the net $137m reduce by $64m to $73m, leaving the RCF at $352m at 31 Dec 2020. ? all being well.
That leaves $35m/month from Jan 20 , for 10 months.. which seems a bit tight but possible as we also have cash reserves.

As i emphasized to AB at the 2018 AGM, we have to pay off the debt and he replied with some assurance that he would do it.. So if we look at the "Fact sheet" on the website which says net equity of $559m as of 31 Dec 2019, we should be trending to $984m. which divided by number of shares moves us from 33p to 58p. Even if you discount the NAV by 3, we still get 19p
In a better environment the NAV discount should really be 2, so 29p seems like the real target. I don't think we will see any more write-downs as we have plenty last time.. I recall the accounts were delayed to allow for this.. And we also need to stop accumulating tax losses. It's a bit of a joke as it just confirms we had a lot of sheet assets... fact !

Plenty of moving traffic on North Circular Road . Looking like demand back to normal once schools start in Sep and flexi furlough ends .