Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Have added more today. People are reading the gas market prices incorrectly. There have been problems with the UK interconnector at Bacton. Once these are dealt with spot gas prices will change...
Really, the only obstacle to further unlocking of value from assets would be a delay in Southwark first gas.
71p? drifting lower... what is wrong?
Hi Lemming99,
We do not have data yet, but OGA will release the March data in June. So we might have to wait until then.
Ok, so based on what you wrote you accounted for a stop of 10 days on half of the production, right?
Yes, condensate is 800-1000 bbls/d, half of which is IOG's...
I agree with a) and b), and that is why we need Southwark to start producing in Q4, so that a) is moved in to b)...
I think this key. Indeed, Moleinahole is right "Had IOG hit a first gas date closer to Q3 2021 than end Q1 2022 the coffers would have been fuller." And that is something that is also holding the SP, as IOG is still spending on CAPEX almost all its Operational CF. The upside on unlocking value from the assets will happen in Q4 2022 when Southwark hits first gas.
Yes, SP will be volatile because of i) LOG; ii) gas prices; and iii) potential setbacks at Southwark. IOG does not control i) or ii), but hopefully can deliver on iii). As far as ii) is concerned, I doubt price could drop below 100p/therm for a long period of time. Serious dislocatiobns going on in the market, and once US gas prices reach $12HH all bets are off to how high prices here and in the EU will reach...
Thank you again for your work.
ATB
Hi Lemming99,
Excellent summary, but here are a few comments and questions:
You write
"2022 aprox revenue estimate since first gas in March at £1.48
At the lower end of the range £121.3m
At the higher end of the range £143.4m"
But as you know production was way lower than that in March and early April. On the other hand, the price of gas was higher. Of course, the two do not quite even out. Thus full year revenue could be lower than that £121.3M even at current gas prices. But has your estimate included the sale of 800-1000 bbl/d of condensate. Production levels of condensate might decrease quickly, yet it will add to the revenue. Every little helps...
The up side is obviously more likely than the down side. Just look at the prices of nat gas in the US spiking like crazy. So, I doubt the price even if it goes down for a while will stay below current levels.
Given the revenue above, we know that there is OPEX and CAPEX. Starting with the latter< " 2022 net capital expenditure, which is currently expected to be within the £70-85 million range". Is there any guidance on OPEX? Has IOG released any estimates? If I go with £10M, I get £25M net cah flow before Finex, which is c. £10M. Add Admin expenses of £5M (a bit too high for a company of this size), and you are left with £10M to pay down debt.
And debt is the €100M bond callable in September 2022, but maturing in September 2024.
For me the key factor to unlocking value here will be good gas production rates from Elgood&Blythe, and the need to get Southwwark producing in Q4. IOG has announced it will be late Q4. The worry here is that it gets delayed and only starts in Q2/23, not taking advantage of winter prices, which could make a huge difference.
ATB
Hi Wolster69,
Very strange price move and volume. It might be nothing, i.e., some large PI or II getting rid of their shares, or alternatively a problem with gas production. That being the case it would require a RNS, becuse for a company like this it has to be a material event.
Has anyone contacted IR?
ATB
Megan2012,
It could be just portfolio rotation. They might see better returns elsewhere. Londoner7 follows the news from the industry. nothing he has posted suggested any worries. we know energy costs could be a problem, but as long as they are passed on to the customers, it does not affect the margins.
Like dazzag, I increased my holding slightly yesterday.
ATB
GreatGigInTheSky,
What do you say is the £120K for?
Hi Modestus,
Thank you for the links. That is very impressive and a huge return. Many congratulations.
By the way my Canadian holdings (VET, CPG) doing quite well. Thank you very much for brininging them to my attention. SUNCOR doing quite well (I wish I had added more...).
More on email at l3traderuk ....
Hi canetoad, thank you for the tip. I will look at it.
ATB
Hi Londoner,
Therapist had already been informed via email...
The question is why the drop by more than 40%, and back to levels of water injection in November? Is it topside again or well integrity issues?
I am sure the followers of the Ministry of Truth won't be pleased...
ATB
Hi Londoner7,
Thank you for sharing your thoughts. Your forecasting model for BREE is always spot on. Very impressive indeed.
I live in the hope of the £150 EBIT this year...
I had hoped the TU would provide more details of current trading, company's expectations for this year and commented on energy costs. Probably not much more they could add to what they said at this stage.
ENQ: Thank you for the explanation about Kraken and Magnus.
ATB
Hi Tarmak and Londoner7,
Tarmak, when I wrote 40Kboepd, I meant net of Petronas's share of ENQ production in Malaysia and of BP's 37.5% share in Magnus. If you add this production you can get close to 50Kboepd, assuming Magnus gets to your 16Kboepd. Also, bear in mind that the new wells to arrest production decline will be drilled in Magnus and PM/Seligi mainly. In ENQ'sother production hubs (apart from GE) we will see declines. GE's drilling could end up being postponed if CNOOC are trying to sell their stake. so probably decline as well.
Hi Londoner7, I am surprised by the decline rate for Kraken being so high. The goal was starting lower than in the CMD presentation in 2013 but stay at that level for longer...
In general Robert Davenport (?) at some point stated ENQ's decline rates were single digit, double digit and high teens... So, which hubs have those single digit declines? I cannot find any.
Moving to the problem child:
If you look at slide 28:
https://www.enquest.com/fileadmin/content/general_pfds/EnQuest-half-year-results-presentation-2018.pdf
2P reserves were assumed to be about 62MMbbls, of which about 20MMbbls have been produced so far. So assuming no revisions 40MMbbls 2P reserves in the books. To which we have to add the 2C reserves transferred to 2P in 2020 for the wells drilled at that time I think. This bering true the oil is there.
If you go to slide 29, ENQ is pretty confident it can find the unswept areas..."Successful 2018 two-well programme provided Confidence in ability to drill low cost wells targeting un-swept areas of the Magnus field". Why only 1500 boepd per well?
I missed the reference to 2000boepd production of current wells. Do you happen to know how many producer wells do they have at present?
Thank you.
ATB
Krakie,
Probably turned 4 corners of the quadrilateral...
Relax, I just saw that AK's Sunday's offload is headed to the Netherlands. The Therapist and Tarmak posted the revenue numbers....
It is also possible the problem child is better behaved today... you will need to ask Londoner7 and the Therapist about that.
It is days like Monday and Tuesday that should focus people's minds on the need for ENQ to keep a constant hedging policy in place. In fact, I hope the RBL's conditions on hedging stay, even though I am sure banks would be willing to change them for a generous fee, and allow AB to take a gamble on the price of oil, as in the past...
Hi Londoner7, I owe you some answers but this bb is no the best to go into minutiae.
The RB will for sure sit at the bottom in terms of seniority of debt. I expect the new HYB to be issued with a maturity date arround that of the RB.
I can only speculate about the amount of the new HYB. I am pretty sure it will be at least $500m. That is the amount needed to repay the existing HYB if ENQ uses the RBL facility to top up the $500M so that it can redeem the current HYB . Could ENQ issue a HYB for a larger amount? Possibly, if it is shopping for new assets at the moment, or wants to adapt EP for a new oil field.
In my mind, gross debt of $1B is too high for ENQ, if the weighted average cost of debt (including fees) is close to 9% per year. The net production of ENQ (i.e., excluding BP's entitlement and Petronas's entitlement) isn't high enough (no higher than 40Kboepd) to support a very high level of debt without much downward protection of future revenue.
ATB
January2,
I thought your target here was also 60p.... lol.
i have a small punt here as well for sometime...
ATB
Hi Londoner7,
Apologies for the delay in replying.
You ask if I know more about EP, as a result of me writing "refitting of EP for a 3rd party as part of a farm-in.” The answer is I do not. but I do not see any other option than some company offering partial ownership in one of their licenses to secure EP to produce oil. That is my interpretation of AB having said they are considering offers. It might take time for production to start once an agreement is reached. But, I treat this possibility as a catalyst to unlock value that is sitting on the BS. It just means the value of the company would go up. Not necessarily the SP moving up at the same time...
As far as the bond issuance and debt are concerned, I took note of your comments. I still do not see how ENQ will not issue a new HYB, even if it increases the amount of money borrowed with the new RB. if we take ENQ's target for the ratio b/w net debt and EBIDTA of 0.5 at face value, we might be talking of net debt not higher than $600M even at this high level of the POO. Of course gross debt which is what matters for the bond issuance would be close to $900M (assuming ENQ keeps $300M in cash). I understand that the new RB and RBL would be enough for ENQ to be able to borrow $900M.
If that were to be the case then we will have to wait a bit until the HYB can be repaid, even with Kraken performing very strongly. The RBL facility balance must first get close to $0M, before the bond can be repaid, as the RBL will only allow $600M to be borrowed, and the HYB to be repaid amounts to $773.5M, if I remember it correctly. We shall see.
I believe there is still life in the GKA. Eagle can be developed (if the sale to Hibiscus did not materialize) quickly (presumably in late 2023 if the oil prices are supportive)
(https://www.enquest.com/fileadmin/content/operations/Downloads/EHE8014_Eagle_Development_ES_Complete_Rev01.pdf) A good source of OCF and a means to postpone CoP and decommissioning expenses. ENQ already has its plate of ABEX full with the 4 production hubs that are being decommissioned.
Now, let me turn to the problem child. Let me first say that if I misquoted you on your prediction for production in 2022 it was not intentional. I would not be impressed with anything less than an average of 13.5Kbopd this year given the 3 new wells if the top side and the other wells are back in shape. Yes, water injection is back up again at high levels and with a two month delay the oil production should be back at its "new" level.
Yet note 22 in the ARA states that Magnus's payment of BP's contingent consideration for 2022 will be $22.2M (at $75/bbl as per the assumptions). This implies that OPEX/bbl at Magnus will be very high and/or production not so high.
Anyway, the problem child is an issue for value creation, not for the SP to reach new multi-year highs (closing in on 40p). And at the end of the day that is what matters for most people who post here.
ATB
Hi Londoner7,
Thank you for sharing your thoughts for 2022. i have yet to hear the earning call. Only read the FY results presentation.
I guess we won't see the £1,500M I am hoping for in revenue, but if the EBIT margin goes up to the levels you mention then we will see the reduction in debt you forecast in your post.
The slump in SP is clearly common to companies that are energy intensive businesses (like bricks) with the explanation being the increased fuel costs, or the idea that companies won't be able to pass them on to their clients. (I have a small holding in Michelmersh. They make high end bricks which means they can pass on cost increases; yet its SP is down like BREE's...)
I had posted once or twice to ask if there were other reasons for the slump in the SP besides higher fuel costs that I was not aware of. Since you would know I am now reassured there is not.
But, I am expecting M&A activity by BREE like you wrote. It remains to be seen what BREE will acquire and how it will finance the acquisition...
Absent major events, I expect the SP to return to its level for most of 2021, i.e., above 100p.
ATB
Krakie,
Let me post another "half-truth"...
Tide Spirit left AK at the ATD: 2022-04-05 14:38 LT (UTC +1).
Based on my calculations this offload cycle we have c. 31Kbopd, and the average over the last two offload cycles is c. 29Kbopd. Above top end of the guided range...
ATB