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Hello romaron,
Great posts.
The PIK-part of the bond is probably a big part of what is keeping the price down creating a YTM that high. In order to be able to understand if the company will meet the interest payments you need to understand all the financing that's going on within the company + the dynamics of the oil market. It adds 3 layers of complexity compared to a normal junk bond.
The PIKs can also be payed off at any moment, creating a situation where both your principal and your interest payments will be in danger if the company goes bust, while that sweet note interest rate won't materialize if the company starts performing well.
The PIK-notes shall be either payed or refinanced the latest October 2020. That will probably be solved by paying cash.
The bond will run to maturity, and given the companies debt level at that point, creditors should be bidding for our business. The current turnover in the bond is worse than the stock, so none will be able to get in with any serious money without sacrificing a couple of points at this stage.
I think our debt level will remain around $1bn going forward. Its healthy - just need better terms!
Best, HMH
Hi Pelle,
You cannot have higher revenue (+$60-80m), +$50m of working capital "non-unwinding" of positive cash balance, lower than expected Opex and still the same amount of net-debt reduction as before. Just don't add up.
Swedes don't pay taxes on dividends from abroad. Contact your lawyer, takes 2 years to redeem "källskatt". Just have to produce the correct documentation to the host countries tax authority about your holdings on the date of payment. With your 3m+ shares, 5% will add up to alot if we get some distributions down the road. Never leave money on the table. ;-)
Best, HMH
Kraken,
It's said to max out at 20kboepd. We have a 40% interest so a maximum of 8kboepd given that estimation.
This is where I derive my 80kboepd. Malaysia should offset Thistle. Kraken at 43kbopd+ was 78kboepd in June. Add Scolty/Crathes upside (which produced around 1.5kboepd H1) to the equation. 80kboepd could be low, as Bob said some positive stuff on the conf-call.
Kraken intervals is also better than June.
Being in the business for many years I know about 15 institutions that would refinance the bond at 6% over 10 years with our current production and costs. Bond will not be paid cash, debt will remain with lower interest charges.
What do Amjad, 52 have to gain from paying down the liabilities compared to distributing the cash to (among others) himself?
My biggest concern is honestly a buyout. The company is worth multiples of today's price a couple of years down the road.
Oil price will maintain itself. Just listened to Chesapeak's (big producer of oil, and gas) conf-call and shale is going down. Capex I eating the shalers and I believe US production will start falling in Q2 2020.
This is a big deal, because the supply/demand will dry up abruptly if OPEC cuts and the US growth won't cover the demand growth, but rather decrease. Still got 1.4-2m of demand increase yearly. At this price, noone (BP, Shell, Exxon, Chevron, Anadarko, Chesapeak, Apache etc.) invests in increasing future production.
ENQ will do fine. We're doing great at $60 brent. I see little downside and alot of upside both on the macro- and company level.
Hello Pelle,
I believe it was, but during the conf call opex was guided down for the year. Regarding cashflow it does not equal the accounting changes in that sense that payments are made later than the costs accumulate.
Net Debt is a derivative of the debt and the cash in the bank.
What's your net debt number for the year Pelle? I'm just trying to check my thinking.
Hello Epip,
I do my FCF-number the same way as you - amortization of RCF is in fact the cash the company is throwing off given zero debt.
This quote if "slightly better than H1" is confusing. As you mention working capital unwinding should add $50m of cash given the same production as H1. I got Sep-Dec average of 80kboepd, giving us a nice upswing from H1.
I got a net debt reduction number for H2 of $290m. About $150m higher than H1. That's significant.
What's your input price an production?
The Malaysia $10+ premium and Kraken's couple of $ premium should pretty much average the Boe's out of the equation.
"Slightly better" kind of implies that you believe production is down, having the $50m making up for lost cashflow - hence my question.
Best, HMH
Hitman,
CMD is an event where the company presents itself to the market. It will give us nothing on production and guidance. They will and should repeat what we already know.
Wait for the OP-update in the beginning of December and FY report next year.
Hi romaron,
Good post! Agree on the director dealings, I especially regard putting shares into the foundation as a good predictor of future dividends. You don't build schools paying with shares, but rather cash generated through dividends. The foundation holds like 50% Enquest if the numbers I've found is correct.
The PEG-ratio is kind of funny in this case. Topline is growing at 56% YoY and earning before exceptional items 134%. P/E is 1.38.
The CMD and the op-update a few weeks later will give some good ideas of what we can expect from H2 and beyond.
Anyway one put it, if the production and oil price remains solid the numbers will tell the story. Even Amjad put it that way, so he's probably part of our camp. ;-)
Best, HMH
Hi Pelle,
Looking at Emerging Markets and Europe I believe the last couple of years was the recession everyone is now preparing for. Also, we bottomed out near Christmas last year - so this years "rally" started from a low-point.
With interest rates this low the general market should be alot higher in my view. Tech has been the primary driver of the American markets the last couple of years. Without Tech, the S&P should be nowhere near this level.
FED easing should start showing up in the hard data H1 2020, Emerging markets with $ denominated debt will see both interest rates fall and the USD fall, making interest payments and debt levels measured in local currencies lower which will spill into growth in the regional economies. Commodity prices should start rising as demand picks up, and the USD drops.
Last weeks China data was showing signs of manufacturing picking up. This may be the fiscal policy, but being a big net exporter the demand is likely not domestic.
My worry is runaway inflation forcing the Central Banks hike globally. That would creat a massive disruption, but it's probably many years down the road (unless we get an oil shock) and it would also fuel a rise in commodity prices (while wrecking everything else).
We could be in the start of the next big commodity cycle. Under valuation in commodities are massive, and the macro picture is looking good going forward.
See picture:
https://images.app.goo.gl/scR9YYTuhhPqHaxH8
We'll see what happens. Timing is always hard, but things tend to regress towards the mean, and usually turns on the point of most pessimism.
"Great fortunes are made when cannonball fall in the harbour, not when violins play in the ballroom" - Sir Nathan Rothchild
Best, HMH
Pelle,
Market being pessimistic is great when you understand the companies accounts.
Great opportunities comes around every few years. I believe the current energy market have produced alot of cheap future yield to cost in solid oil and gas companies. This is, however, probably the best case I'm seeing looking 5 years into the future outside of sketchy markets in developing countries.
To quote Ben Graham:
"In the short run, the market is a voting machine but in the long run, it is a weighing machine."
Now we wait.
Hi Pelle,
We'll see buddy. I'm holding my shares based on my own assumptions, so I dont really care too much about the forum/market sentiment.
I had $70-75 brent / and a bit higher production early this year making my numbers bigger than they turned out to be. Company is still performing great.
Next year I believe I may be low at FCF $800m á 78kboepd average /$65 brent. We'll see, oil is really looking like a possible winner for 2020.
I'm not selling a share. The market will come around - in 2020 (around July, my numbers) we'll be in a position when we cannot amortize another penny. I smell some massive dividends beginning 2021 or maybe in the second half of next year if we get to do some refinancing.
Good times ahead.
Best, HMH
Given a $200m yearly dividend, price should push $2bn given 10% dividend yield.
I, however, believe company can distribute $4-600m yearly the coming 3 years.
You're looking at P/E 4 based on TTM valuation, and trying to make a conclusion based on a speculative valuation over the last years?
The FCF will change the dynamics substantially. See this picture:
http://www.bilddump.se/bilder/20191024113428-77.105.206.118.png
I could see a valuation 6-10x and beyond with some dividend supported by FCF.
We'll see.
I also seem to be late to the party here,
But I think the next OP-update may surprise on the upside. We're seeing Kraken June numbers as we speak, when company produced ~78kboepd.
Back then Scolty/Crathes was stuffed (like Neil on a Saturday night...), Magnus did quite poorly (18kboepd from my recollection) and still, we hit that number.
Scolty/Crathes should peak somewhere around 20kboepd, and we've got a WI of 40%. That should offset any loss from Thistle and then some. The new pipeline was said to significantly increase volumes, which has previosly been capped around 1.5kboepd. This alone pushes current production close to 80kboepd.
Payback time for wells in PM8/SELIGI is 10-15 months, which would imply around 5kboepd net average over the period. Front heavy, putting us in the 80-85kboepd range.
Then we got the Magnus wells, which have a payback time of only 5-8 months. That would suggest (using $25m/well) that there will be an additional 7.7kboepd average over that period, heading into 2020 at potentially 90kboepd+
I also believe Magnus might have seen some addressable issues during summer. With natural decline of 12.5% production should hover around 22kboepd year end prior to new wells coming online. The one-off accounting charges makes this a plausibility.
Interesting times ahead.