Member Info for hitman1a

Hi Pelle

I would say at least 2 years from today.. so 2019 and 2020 and maybe half of 2021, running at 30k/35k.. Thereafter the tailoff is quite severe.. your talking 25k to 20k for a decade.

As Opec is unhappy with Brent $67 and Bank of America is expecting average $70 for 2019, so it helps quite a bit if we trend to $75 over the next 2 years.. with Shale growth stalling.

I believe we should take a break from any capex in 2020.. I can understand why AB has chased production to pay off debt, and dumped a placing and rights issue on us, but he did say at last year's AGM.. that they sanctioned Kraken when things were good. They signed the contract and then the oil price started it's heavy decline . They had no choice but to carry on..

I'd like to see him mention a change in strategy over the next 3 years.. infield opportunities only that can be financed by annual interest savings. so net debt to zero by Dec 2022.. repayments of $500m /year. if we are at $1500m at end of Dec 2019. Capex spend in 2021 of say $60m and $75m in 2022 to develop Magnus/ more of Mayalsia.

As we can see from Cairn.. and others.. smaller production, but less debt gives a higher market cap so we need to point more towards this direction from now on.. We had reserve life of say 16 years at end of Dec 17, and now have balance of Magnus.. so why take on any more large FPSO projects.. it's not appropriate in a low/medium price oil environment for a small cap company to take on.. All delays eat profits..

GL.. can't be far off a bounce. I'd like to see RBC revised cashflow forecasts based on today's Brent prices and not $50 .. as if their ratios were wrong, so was their cashflow analysis..

They did however get the short-term SP target right.. 15p

I did find an older production profile picture.. We are definitely too low to get to 50k with DC4, but 38k/40k peak will be fine. I agree with Cairn to concentrate on reliability and uptime from now on..to aim for 35k average for rest of year. That's what the data says is achievable.. so 32.3k gross average for 2019 whole year.

Enquest will make the case that the missed initial plateau production period is due to the water only being able to shift a certain amount of oil (as per Cairn), but this oil is only deferred and can be recovered later on in years 4 to 7, so the overall oil recovered over the 20 year life span is still the same..

If oil price trends slightly higher than estimates used, then NPV is unchanged or better.. so no write down required in the accounts.. especially when you consider lower leasing costs of FPSO. It does really come down to which estimates were used... I guess I always thought they would have been the same.

Yes Chilting, I can see it's due at Kraken at 9pm Sat. Maybe it can leave early Sunday morning.

Is it possible to get a tanker by next weekend ?

Via HUR, expected to move soon, maybe Monday ,

Dyor

There's nothing wrong with reflecting back on the RBC note.. she was right. (if Brent was in still in the $50 range)..

But Brent is $67 and we now know from Cairn that the Enquest annual production is 63K worst case scenario..

Lets give Enquest a chance to achieve the best case of 70k.. it's still doable..and achieve some real deleveraging in 2019.. Sort out the cold weather reliability issues later in the year which enables them to have a decent 2020.

They were previously at 55p , which is where we all expected to be approaching with Magnus performing very well and Brent at $67. We have analysed the cashflow to death.. so they must just be tired of the way Enquest kicks things down the road...and doesn't deleverage.. Last October's OZ deal was the final straw...post RI.. and then carrying forward $100m of suppliers invoices..

Not reaching 40k/day or even 35K/day with reliability in 2018 caused the above cashflow issues, so not surprised by their downgrade in Jan 19. Look forward to their view in April /May 19..based on updated cashflow forecasts.

They were previously at 55p , which is where we all expected to be approaching with Magnus performing very well and Brent at $67. We have analysed the cashflow to death.. so they must just be tired of the way Enquest kicks things down the road...and doesn't deleverage.. Last October's OZ deal was the final straw...post RI.. and then carrying forward $100m of suppliers invoices..

Not reaching 40k/day or even 35K/day with reliability in 2018 caused the above cashflow issues, so not surprised by their downgrade in Jan 19. Look forward to their view in April /May 19..based on updated cashflow forecasts.

RBC’s downgrade sees EnQuest rated as ‘underperform’, previously ‘outperform’, and the bank’s price target moved to 15p, down from 55p (current price: 21.58p).

“System outages and equipment repairs on the Kraken FPSO continue to limit performance, which has led EnQuest to lower its production guidance for 2019,” the analyst said.

“Gross Kraken production is now expected to be 30-35,000b/d, which includes DC4 contributions but is well below the previous guidance for total field plateau production of 50,000b/d and our annualised expectation of 40,000b/d.

“Although well testing is now complete at all 11 producing wells, we believe that given the revised production profile there is a risk of a reserves downgrade alongside FY18 results on 21st March.”

Definitely advised from Cairn 2 months ago.. almost identical... hmmmmm ?

I agree Squif, the writedown doesn't make any difference to the cashflow/production this year.. even Cairn said so as well..will it make a difference over 20 years.. probably , but we could be net debt free within 4 years anyway..

250mb .. small write down.. but Magnus and Malaysia are also excellent options to develop now too.

Hard to watch... but we really need to hit the top end of production guidance this year.. ie 70K

I'm perplexed why we got approval at the AGM to purchase our own shares and during the questions, they confirmed they wouldn't do it.. I understand why now, because they were planning a RI..

But surely selling at 21p with cost 15.5p.. is a 26% margin for 6 mths... just as good as drilling imv

If now isn't the time. what price would be?.

In the absence of a tanker. it must the paper write down Cairn mentioned..equivalent to wiping out the NPV of Magnus.

that's $175m using 48k core, 15k Mag.. so 63K

will watch out for the less than one year expected leasing rental costs on Kraken next week..

I can get $175m FCF. using 47k core business. 15k extra from Magnus ( gross 20K).

$35m short, if remainder of 2019 follows Q1, but .

Moving Kraken from 20K to 35K after TL leaves puts us in a much better place for 2019.

2020 a ridiculously much better place without $275m capex in the budget , assuming Brent at $67 or above.

Also welcome to our new non-executive.. one more mouth to fed..but hey .. he's worth it.

Yes E121, i can see the $65m repaid early last Nov.. I've been using Fernan's spreadsheet.. I know there were some differences, between Pelle/Squif and yours....

I had unit opex at 24 rather than 23, so now at $169m. FCF after paying Kraken rental lease payments of $127m

Difference of say $40m..to get to $210m will review next week after results with everyone else.

Slight correction:
Kraken 12 mths ended 31.12.2018 : 30310 average
Kraken 10 mths ended 31.10.2018 : 31427 average

Production Nov and Dec 2018: 49450 : 24725 average

Did read current average for Q1 2019 near 20K, but that's understandable given one train out of action.

We should easily do 35K plus with DC4 on board.. so although a very weak Q1 2019.. SP projections based on Q1 production shouldn't be extrapolated for all of 2019.

The current problem is we are running 63k ( ie Kraken at 20k gross for 5 mths), which means say only $150m of deleveraging this year, and not the $200m we want.. so it looks like some suppliers will be getting their money in 2020.

Unless:Brent exceeds $67 and production post DC4 completion runs well at average 35k plus for remainder of year, the SP can't recover..

Waiting for some news to leak from Kraken FPSO.. to be fed to some brokers who have goods contacts..once TL leaves.

Actual debt might only decrease by $150m this year , net debt decrease by $200m , if you rollover some supplier invoices, /.. Anyone can fudge the net debt number if you have accommodating suppliers.

Pelle, Cairn were very confident with their 3 parts of data testing , so I'm sure they are confident on production .

Reliability and uptime are the main focus for 2019. They must have learnt alot from last year and figured out how to resolve the issues or figured out that running above 35k causes too many problems that they can't figure out..

On another matter, some of the criticism towards AB is unfair. Anyone at the AGM can ask him a question, either during official Q&A or afterwards informally. He'll stay until the end.

I guess in November, Jefferies and Barclays got wind of the issues at Kraken and extrapolated forward and marked the SP down to the range we are now at, based on low production until TL left and low Brent prices over Xmas.

It has to reverse. Cairn wouldn't mislead anyone, but I agree we need confirmation.

Squif, the recent RI went well and was supported.. There was a slight bit of rump left, but next to nothing really.

So i doubt you'll find any change on the Enquest website regarding changes for major shareholders.. There was some chat after last years AGM regarding the Stockholm listing and some funds reducing.. but the SP was 40p at the time, so i didn't think it was relevant..

AB said he was happy with a market cap of £500m and this was before the Magnus deal adding another $500m NPV.

Now that DC4 is almost finished.. I'm expecting the SP to be nearer 30p , and can't really understand the current SP, apart from the loadings at Kraken have been too long apart. Because they have been since Nov. my top ups haven't been good points.. even with Brent at $67.

We will recover soon once TL leaves.. but we shouldn't have to rely on Cairn for all the information.. eg: first well DC4 now online.

Hi Auson

Yes it's $5 to $6..discount off Brent on Enquest sales.. I asked AB at the AGM last year.. this could be narrower now, so important we ask again this year in relation to current situation and 2020. Sometimes you'll get a 10% answer.. the Cairn $10 discount was a one off i believe very early one .. it happens when you want people to try your new product..

Hi Squif.. we will get to 35k with all of DC4 plugged in.. easily.. yes it's two production wells for DC4, perhaps 38/40k later on in year after planned topside adjustments.. say October 2019 if DC4 hasn't started to produce a bit of water. 40K isn't sustainable in my view.. but 35k is this year... Cairn didn't answer the question about what they thought Kraken could produce in 2020 and beyond, but they clearly have an idea, because they conducted some modelling and testing.. Call it 30k for 2020. and again for 2021.

Just some thoughts having looked at some old Cairn accounts.

If i read the note correctly, they said one early Kraken load sold for a discount >10 to Brent.. so massive discount.
No-one in the call asked about the current discount, or whether it would reduce into 2020..so although they have their own loads and sales team, analysts next week at Enquest on the 21st still have some work to do regarding this subject. Sometimes we see a tanker, but it's all going to Cairn.

One or two weeks left until TL leaves.. so perhaps details next week on well 2 .. I can't believe they would let TL leave without confirmation well 2 is working and of course guidance on the next Tanker.

I still don't think it's a coincidence that Bumi have built FPSOs in the past with a 35k average output and we are stuck at a similar level.

Bloomberg normally have a pundit on every evening after 11pm.. a small 10 sec conversation with their representative from Houston.. Last night , the lady confirmed there was a bit of chatter from shale operators that " if they weren't making money, they weren't drilling any more". They normally never say anything like this, so it's significant.

We can assume $58 WTI isn't enough. so expect this to increase over Q2 with Russia tightening a little bit more as well. Aiming for $62 in April... so if that pushes Brent from $67 to $71, then those extra $4 are really valuable to Enquest shareholders..

Q1 2019 Collar options expiring end of March.. so unhedged seems like the right decision..but OZ have spread their 1.5Mb for 2019 at $68 max, so no upside their really.