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Hi PYUECK,
Until ENQ tells us the interest rate of the RBL, it is difficult to compute the cost of the gross debt.
But, we know a few things. the new RB pays 9%, and the $305M of the new HYB, pays c. 12%.
The old RBL was 4.5% + 12 months LIBOR, i.e. 4.5% + c . 5% =9.5%. I doubt the new RBL will have a lower spread than 4.5%. So, effectively the weighted average interest rate on gross debt is going to be >10%. Assume it is 10%.
And ENQ pays interest on gross debt, which will be $305M + $450M + $160M (new RB. Sterling will appreciate a bit) = $915M. So, every year ENQ will pay $90M in interest. This is not much less than the amount it was paying in interest in the last few years. So, while the amount of debt has decreased a lot, the cost of debt has not decreased. In my book, this averages about $7/bbl of ENQ's yearly net WI (i.e., after BP's "WI" and Petronas's WI from the PDC agreement).
The good news is that this bb is a broad curch, with people who have different views.
AB+Malik run the show, and AB even had to lend $15M from his family's cash. This shows that the cash balance was not quite enough to seal the deal at this stage, because some of the cash it has, about $200M, is ring-fenced to run the operations with its partners.
However, I would have preferred that ENQ didn't issue debt in the middle of the current turmoil in the credit markets. They could have waited and used the FCF to keep buying back the HYB, to eventually owe less than $600M, and just used the RBL facility that was available to them.
We have to wait and see until we find out what the new T&Cs. But with poo at current levels ENQ will not pay dividends in 2023. Blame it on the EPL, and the need to pay down debt to get down to their Debt/EBIDTA target.
Londoner7, when I first wrote about the EPL I said that those low ball figures of $10M/14M were incorrect. If the POO stays as it is c. $40M, a figure not very dissimilar to the one Tarmak has in his calculations is probably a very accurate figure. Neither ABEX nor interest expenses are considered a cost in the adjusted profit measure used to compute the EPL. CAPEX in the UK this year is quite low. One of the new wells planned for Magnus didn't go ahead.
L7, have you looked at the august OGA data? the problem child shows no improvement, still under 11Kboepd. But there is hope that the new well / and the one that broke down. I wrote in early 2021, that Magnus had serious problems. Almost 2 years later, there has been 0 improvement.
I still "expect ENQ to be very cautious about spending on CAPEX until Q3 in 2023.” (This means no Eagle, Magnus south or even Western flank in Kraken
I am afraid nothing I have seen written leads me to change my expectation for 2023. ENQ has to pay $50M in July to Suncor and > $130M of the old RB before October. That is $180M in 9 months. ENQ has never had one year with FCF> $40M/month over 12 months. Perhaps in 2022 can achieve $45M/month. We shall see.
ATB
Hi Londoner7,
You wrote "The proposal outlined is $300 Bond and $500 RBL ($425m excl, LofC), therefore $725m." Yes, but ENQ owes $792M on the HY bonds. That means they will have to pay the remainder, i.e., $67M in cash. (But, As of September 30, 2022 cash and cash equivalents were $322.8 million, including $9.2 million of restricted cash and $178 million.) So, the cash available for ENQ to play with is $135.6M.
So, enough to cover those $67M, but remember that they will have to pay accrued interest on those bonds... Basically the whole interest that is accrued in a semester, so another $30M.
So, they will be left with about $35M. This is not enough of a cushion, because issuance of bonds has costs (so, apparently they will be added to the debt -that is fine). I still think that ENQ if it can will try to issue more than $300M in bonds to give them more flexibility in using the RBL.
As for your question of hedging requirements, the answer is all I can do is to speculate. I do not see how the banks will not require some minimal level of hedging going forward. It might be only, say 40% of WI entitlement in the 12 months ahead, but unlikely they will say do as you wish.
What is surprising is that the RBL facility has now been lowered to $425M from $600M, if we exclude the letters of credit. I have no idea why. It seems to me having optionality here to borrow up to $600M from the RBL facility to increase CAPEX would make sense.
If it is fully utilized as outlined above, then ENQ can only invest in CAPEX from Operational CF minus CF from financing activities and taxation. So, the hope is that it earns enough of it between now and year end to push forward with its CAPEX plans.
Anyway, back in early September you wrote: " Back in August..."For 2022 using 1,400 boepd and a price of 250p/therm for H1 and 400p/therm for H2 (pick your own numbers). This leads to c$50m in H1 and c80m in H2."
Using HBR's 176p/therm I now see H1 gas revenues (excluding 3rd party purchases) at c.$32m."
So, have you had the chance to look at the accounts and compute how much the gas revenus were? And what are you predicting for H2, assuming NBP day ahead prices stay where they are now, but the much higher prices in Q3 will have earned ENQ quite a tidy sum of money.
Thank you.
ATB,
L3
londoner7
The Group LTMH1 2022 Adj. EBITDA of $934mm
ENQ repaid the outstanding RBL facility cash balance of $90.0 million.
As of 30th September 2022, EnQuest's Net Debt stands at $750mm in September.
GLA
what do you see Megan?
"At the end of June, total cash and available facilities were $467.0 million." Cash and cash equivalents $369.7. The difference is available facilities, $97.3. Now, since Letters of credit at 30/06/22 were $52.7M. Add $97.3+$52.7M=$150M. "In 2021, EnQuest entered into a new RBL of $600.0 million and an additional amount of $150.0 million for letters of credit for up
to seven years."
So, the available facilities are for letters of credit that could be issued. But ENQ cannot borrow a single pound from the RBL facility until it renegotiates the HY bonds.
When will it renegotiate the HY bonds?
Londoner7 hinted that he liked it sooner than later. So do I. But realistically it won't happen before end March 23 or early September 23, just before the maturity date.
RBL's cash sweep was yesterday. How much was repaid? Who knows, but at least $35M from the July/August debt reduction of $60M minus the $25M that had been repaid, plus September's CF, which is hard to guess, but could be another $30M... So by end of October RBL will be fully repaid. October and November's CF used to buy back bonds. Money from issuance of new RB not yet used to buy bonds will most likely be used to buy back more HY bonds. By year end the HYB yet to be repaid might be down to c. $725M. So, not far from the $600M that could be borrowed under the RBL once extended (but note hedging obligations), but note that in July 23, $50M will have to be paid to Suncor.
I expect ENQ to be very cautious about spending on CAPEX until Q3 in 2023.
Of course, a merger with SQZ would sort out the debt immediately... One way or another, ENQ will deal with the HY bonds, but PIs will have to be patient, like a parent is with a "problem child". Speaking of which, Magnus comes to mind...
I go back to my end of August thread:
In the first 90 days IOG produced 28.6 mmscf/d, with average realised gas prices of 274 p/therm. So 294K thm/day total, but IOG only get 40% of this so, 120Kthm/day. So about £30M in gas revenue + £ condensate revenue so far.
Given that IOG's CAPEX in H2 will be c. £50M, and it needs to pay interest, OPEX, and last but not least G&A, it needs to bring in another £35M at least to not have to use its cash balance of £12.3 million the end of H1.
But working capital outflow of £10M (Receivables) in H1 can hopefully be in part reverted to compensate for that.
Cat it get those £35M by year end?
Commenting on today's announcement, Peter Levine, Chairman said:
"President has delivered a period of solid profits..."
Agreed, about inability to deliver #IO9. But does the company even need IO9, when it produces so little and yet cannot sell its production?
"With low production levels, inventories rose by a lot: Inventories increased $2.1M"
How is this possible? What is IOF not telling shareholders? something is not right.
I have zero trust in the CEO after all this obfuscation.
CEO says "The Group has delivered a strong first half performance, particularly when compared to the exceptional H1 2021 period, which was heavily weighted to the sale of the excess raw iodine inventory that built up during Covid. With iodine prices increasing by 40% during the period, the Group has achieved higher profitability, which has also been supplemented by improved cost controls."
Looking at the accounts, it is is easy to see this statement bears no relationship with reality. He cannot deliver #IO9.
Worse than that, with low production levels, inventories rose by a lot:
"Inventories (increase)/decrease (2,103)"
How is this possible?
Hi Londoner7,
Thank you for your exceptionally well written summary of CNE's story over the last 2 and 1/2 years.
I did voice a few times in here that the sale of the NS producing assets to finance buying producing assets in Egypt was a very poor decision and made no sense. Bot now we need to note that the EPL would result in CNE paying 65% of its profits to HMRC. The counterfactual needs to take this into account. EPL will not be charged on the contingent consideration.
The sale of the interest in Senegal went ahead because the GOI only agreed to pay in 2021. Had it been concluded in 2020, there would never had been the need to sell the project in Senegal. The court in Hague is a guilty party in this story, because they took way too long.
But let me add more to the score
Asset 1, Shareholders 0
The Diadem exploration well 22/11b14 completed in Q3 2022 was unsuccessful.
The Jaws well completed in H1 2022 and was unsuccessful.
Exploration has only delivered duds recently.
I believe that a merger b/w Tullow and CNE will deliver to shareholders of both companies. But, CNE's shareholders might get less in the enlarged company than a fair valuation would suggest. Tullow has 2 problems: leverage and TEN's geology (Tullow's "problem child"). Merging with CNE can mitigate the 1st problem but not the 2nd.
ATB,
L3
Hi E121,
Of course EPL on oil was misguided. It was a knee-jerk reaction to impose it so soon. But we are where we are. and it won't be repealed.
And ENQ hasn't hedged much for 2023 (AB has always liked to gamble with the POO), with the oil price going anywhere for extended periods of time. And once the RBL is extended, ENQ will then have to hedge 60% of the production of the following 12 months ... possibly at lower prices.
Running through Tarmak's numbers using lower POO and production based on recent data from GEAD, Magnus, Malaysia and Kraken, is a very revealing exercise.
ATB
p.s.: pls check email, as i will write soon.
the SP hasn't been this low since about 5 years ago. hard to comprehend.
Chilting,
you wrote: "but the market is still on the dark about how much profit is going to be paid out to the EPL."
If you read the report it is in there: "In the current environment, no significant corporation tax or supplementary charge is expected to be paid on UK operational activities for the foreseeable future, although had the Energy Profits Levy ('EPL') been considered in the interim period, a cash tax liability of $20.0 million would be recognised of which $5.6 million would have been in respect of the Business Performance in the period 26 May 2022 to 30 June 2022. "
hi Londoner7,
"I want to see bond restructuring complete, thereby easing market concerns on debt and substantial FCF, which is what's left after CapEx, Decom, law suits and other stuff is deducted from EBITDA."
no bond restructuring for a while, in my view. very difficult to convince investment bankers to lend money at an interest rate lower than current cost of current debt.
what do we know?
i) most likely RBL facility at $0 M at the end of August. why? because payment for oil&gas is 45/60/90 days after delivery in lots of contracts. so payments for april/may/early june production received in july/august. (april/may production was fine)
ii) ENQ could and can use cash raised through issuance of new Retail bond to buy back current HYB. So close to $70M available to buy back those HYBs.
iii) cost of debt of HYBs less than 9%. ENQ cannot issue debt with lower cost than that. not just ENQ. others cannot either. why?
1) fiscal regime is unstable (applies to all companies): 2nd EPL being discussed. worse, EPL is computed over adjusted profit which does tot treat interest payments as expense (this actually makes cost of debt 25% higher because interest expenses are taxed at 25%.)
2) production is low at the moment as per the OGA data. look at July data: "problem child" on her worst behaviour, wit only c. 10Kboepd; GEAD's production given ENQ's WI, at 5.6 Kboepd in July (huge decline from last year, totally tanking). fortunately Kraken doing fine, and malaysia too.
3) hardly any production in 2023 or 24 hedged.
So, i am afraid i am not expecting debt restructuring now. easier to keep buying back bonds with monthly cash flow or to accumulate cash for a few months.
anyway, i no longer follow ENQ closely. so, all above just a first pass.
ATB
Hi all,
Now that the RNS with KRG payments for the month of May has been released:
I had expected: "So, looking at cash coming in we will have about (being optimistic) $22.5M/month recurring revenue going forward." But, in fact for May it came in at $29.7M (but oil prices were higher then than now!) The payment for April was $25.9M. So, hopefully it can stay around $25M even with lower oil prices going forward.
As for the "override" revenues received for April and May they amount to $12.7M and $14.4M (thus a total of $27.1M). I am expecting this to add to close to $60M by the time the arrangement comes to and end in H2. We shall see.
ATB
hi londoner7,
you wrote "That would be ((1.07*16.13)-12.43) = 4.83m un-hedged UK gas in H2."
I got it wrong by having neglected the non-uk gas production, etc.
But with 4.83m being unhedged and sold at $200/bbl, that is basically $1B in revenue from unhedged gas in H2. And for the first 56 days of H2 unhedged gas has been above $200/bbl. So an average of $200/bbl gas across H2 leaves room for a drop in the price.
ATB,
L3
sorry, found it now....
for gas it is:
Volume hedged in H2_22, 12.45 (mmboe) .... assuming gas production stays the same, i.e., 100 kboepd gas over the period, it means 5.9 mmboe unhedged, at $200/bbl that is c. $1.2B in unhedged gas sales in H2...
kayel and comrieman,
yes, the post hedge prices are truly baffling. i was expecting after hedge price of gas sales to be higher.
does anyone know how much oil and gas is hedged for H2? i could not find it in the accounts or presentation. they only refer to 2022 as a whole.
thank you.