Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Hi Therapist,
Thank you for the figures.
Good that you agree that Magnus was not in any way producing any sensible volume in December. Many people wrote that it was fixed. But, there was no evidence that it had been. And, as usual ENQ did what it does: It had put out a statement saying that they ANTICIPATED it to be fixed by the end of November... and then would neither confirm nor deny it. Surely, this is the way to allienate current and potential investors and analysts...
And, as I wrote earlier today I have my doubts it reached 12Kboepd in January, unless GEAD faltered. Speaking of which... why did GEAD drop to 8.527 in November, Therapist? If it is due to decline, then the new wells are declining fast...
With regard to your numbers, I thought the typo was related to the Chardonnay... not the cell in Excel...
A few remarks:
A) Anyone focusing on the SP, please do read E121's comments. Even if ENQ was producing 60Kboepd in H1 2022, it would not make a difference unless it was listed in the US or Canada... IIs are not buying... for now... as Modestus rightly points out, eventually something has to give. Think of Tobacco companies: well, some IIs are starting to buy again, even if they do not touch oil companies. Just a matter of time they eventually buy oil shares again.
B) Barclays must be annoyed... big time, and so might be COBAS... I hope they increase their stake and clear half of the board.
C) The "bad luck" excuse for ENQ's travails does not work with me. Three reasons: 1) Alma/Galia was always a non-starter; 2) poor hedging (not the money lost on the oil prices increase, but the money lost for not keeping a constant volume hedged across time to avoid financial distress when the oil price tanked/tanks; 3) As a result of 2) shutting down the older oil fields when they qould be very profitable when the cycle turned. (The reason given is that the new policy was to focus on low-cost fields they had. Well, this is like soviet style propaganda, because Magnus opex/bbl is way above $30, and GKA will be close as well, and ENQ exclude the FPSO lease from its OPEX, which is a fundamentally flawed calculation. Once you include it, OPEX/bbl in 2022 will be above $25/bbl.
Hi Tigar, squif was critical of AB and ENQ for a while, then for a year or more he was quite content with them, but now he is critical again. So, I do not see anything wrong.
This is not an ENQ fan club, despite the ever present ENQ social media influencers on the BB, all filtered.
Get Magnus up to 20Kboepd (as promised in the CMD 2019), and January2 will start planning... until Magnus is fixed, and Londoner7 believes it will - and I am not going to disagree with him, and the Balance Sheet will look a lot different very quickly.
ATB
Hi Hamp,
You are correct, yes it was March 2021. I am multitasking, so overlooked the March column... Anyway, let us hope the Therapist reads your December calculation. And reflects on whatever else he wrote in his post.
Hi January,
I am sorry I overlooked your post. Most I read had lower numbers than your number. Part of the problem might be that I sometimes might inadvertely skip posts in between the green filtered ones. I have never filtered you!
I am happy for the cash to be spent drilling to increase production in the 4 current production hubs assuming they know what they are doing (geology & top-side), assuming the expected value of the IRR is at least 20% at $60/bbl!
ATB
Hi E121,
I could have provided more context to my statements to avoid misunderstandings. I was not criticizing anyone's calculation sklils in any way.
The main difference between my numbers and those of others that had been posted before yesterday at 7 am, was that I was guiding; i) CAPEX and ABEX b/w $240M, and others were guiding amounts that were smaller by at least $50M to $70M;
ii) OPEX at $370M, and others were at least $50M less than that...
So, this explains most or all (it does not matter) of the difference.
I never believed in $700M FCF because I knew AB would want to increase CAPEX to get the production up. And the higher the prices of oil he saw ahead the more wells he would drill. And this is a strategy that I am happy to support, as I would do the same. My investment has always been based on a longer horizon than 1 year. In fact, I would want to see activity in the GKA area in 2022 as well...
As long as there is FCF to repay the RBL facility to a level that allows the refinancing of the HY bonds + $100M margin of safety , I am fine with investing the rest of the CF in 2022. Production at the different hubs needs to grow to lower the OPEX/bbl in all of them (which are high; by my estimate Magnus is above $35/bbl in 2021).
Unfortunately, all these new wells are being described as just being enough to arrest declines. I thought they would allow to grow production to 55Kboepd by year end. You write that ENQ might be being cautious, and I would agree with that. I am still expecting production in 2022 to come in around 51 Kboepd, as I wrote yesterday. The only way this will not happen has a name very close to the name of an ice cream Unilever produces...
Our Therapist in residence wrote that in December the ice cream oil field produced more than in any other month in 2021. One should never question our own therapist. He is the one asking questions. But, the best month in 2021 was January with 15,619boepd. Now in November production was 7,328boepd. So, I leave it to him to complete the rest of the calculation, given that we know the daily production in the first 10 months of 2021 and for the full year in 2021.
Was the ice cream oil field back to its best in January 2022? ENQ Production in Jan 22 was c. 52Kboepd.
Given that Kraken was at least 21Kboepd (net), and assuming that Malaysia only went back to its regular production at the end of Jan, so I assume it was 5.5Kboepd, and that GEAD was at 9.5Kboepd, and GKA/Scotly/Crathes/Alba was 3.5Kboepd, it means the ice cream oil dield was still stuck at below 12Kboepd in January... So, definitely not back to normal.... And until ENQ can sort out this pile of steel (by which I mean producing 16Kboepd or more)....
Time to buy the said ice cream now...
ATB
p.s.: I won't ever complain about the hedging volume in place for 2022. In fact, I would want to see more hedging for 2023. But they can learn to do it differently for 2023... But, I am not sure they kno
In 2022 or for how long I am a shareholder this year(...), I will only post in the thread I am initiating with this post.
At 6:29 today, I predicted
OPEX: $370M. It turns out ENQ thinks it will spend another $60M, so $430M.
CAPEX and ABEX: $220 to $240M. ENQ guided $240M
Production guidance: 47K to 54Kboepd (Kraken net 19Kboepd, GEAD, 9Kboepd, Malaysia 7Kboepd, GKA/Scolty/Crathes/Alba 4Kboepd, Magnus ?????). As it turns out, ENQ guided 44K to 51Kboepd, so lower
production than I anticipated (but 7Kboepd range spot on).
This is driven by 3 factors: ENQ is anticipating lower production at Kraken,
i.e., no more than 18,500 Boepd net, and clearly also in the GKA/Scotly/Crathes/Alba - perhaps as low as 3Kboepd, but more shockingly at Magnus. Londoner7 is using 12 Kboepd, and I am in the mood to agree with him (I had pencilled in as much as 16 Kboepd in 2022... Optimism at play). Nevertheless, I am still expecting production to come in around 51 Kboepd. But when I subtract the production whose FCF accrues to BP and 1/3 of the Malaysia production, then it is clear
that the production ENQ will rely on to generate "FCF" is actually less than 45 Kboepd.
And, if I was never convinced that FCF could be as high as $700M as posted here by several people, I am now dead certain it will come under $500M in 2022.
The minimum FCF ENQ has to generate is the $315M ENQ it needs to repay of the RBL facility. Should be possible, and H1 will be a walk in the park, i.e., only $115M repayment. But, Kraken needs to deliver at the top end of the guidance in 2022, since Magnus is unreliable (For those who stated that Magnus had been fixed in November all you need to do is to read the following passage from the TU, " Repairs to a compressor gear box failure which resulted in single train operations during MUCH OF THE FOURTH QUARTER 2021 were completed and both trains are now in operation." (the key word is "much"), and reflect on why production at year end came in at 44,415 boepd, with GEAD at c. 10Kboepd in Nov&Dec, given that in the first 10 months it was 44,306 boepd. So, lets us use our toes and fingers.... In Nov&Dec ENQ produced less than 45Kboepd. Magnus's average daily production dropped from 12,640 in the first 10 months to 11,870 across the 12 months. This implies in the last 2 months it produced 8,032 boepd. Obviously, Magnus was still not back to speed for a great part of December. It was never fixed by the end of November, not even by December 15th...) No 60p party w/out Magnus delivering big time, as I have written ad nauseam...
As I wrote this morning I still see the HY Bonds renegotiated in Q3 (the retail bonds to be paid at maturity). New $600M bond issue at 7% (as Londoner7 suggests) is still looking good.
No news Eagle deal with Hibiscus.
I do hope that COBAS increases its holding to 10%, and asks half of the board to leave....
Hi Londoner7, easy to talk figures anonymously over email... you know my email uk@gma
OPEX: 370M
CAPEX: 220 to 240M
Production guidance: 47Kboepd to 54Kboepd (Kraken net 19Kboepd, GEAD, 9Kboepd, Malaysia 7Kboepd, GKA/Scolty/Crathes/Alba 4Kboepd, Magnus ?????)
Bonds renegotiated in Q3 (retail bonds stay until the end) New $600M bond issue at 7% (as Londoner7 suggests)
Eagle deal with Hibiscus is dropped.
Bressay and Bentley are put in the back burner....
As for the 60p party, ask Magnus if it is in the mood to deliver...
Finally, COBAS increases its holding to 10%, and asks half of the board to leave....
Hello Tigar,
(reply to your question/comment at the weekend)
If you read my posts you know I liquidated my ISA wrapped holdings in November, but bought back a bit of it after the NED bought as posted. I am not expecting to hold them for a long time for the reasons I outlined at the time (major one is lack of disclosure to shareholders of releavent information and another one is poor execution on the operational side). I have not touched my SIPP holding, but it is not sacrosanct. Apparently the new motto is "Spurs Forever, Enq we shall see"
My view of ENQ is tied to how assets are performing and the info that ENQ releases. Definitely, a bad idea to base buy/sell decisions on what I write. The day traders have done well, and so has Chilting, and you with your timely bond purchases.
Please see Londoner7's post dated October 10 12:32 post. it has the calculations you are asking for.
We know taxes are no longer relevant, after completion of the deal. We also know the CPR indicated c. 9Kbopd in 2022 under one of their scenarios. Assuming no CAPEX (which i think is not the correct assumption, as there will be CAPEX IN 2022 in GEAD. Infills in 2023 will actually go ahead this year, I think...) and OPEX of $10/bbl, and oil at $75/bbl, you get c$210M. Not bad at all. Indeed most FCF generated in 2022 will be driven by GEAD and KRAKEN.
Other production hubs not so profitable because of lower production volumes and higher OPEX/bbl.
By end of 2022 if CPR is correct, GEAD 2P reserves will be c. 11MMbbls, w/out accounting for new drilling or revisions driven by a higher oil price, which might or not stay elevated. Keep an eye on the guys in Texas. Many players, from Exxon to mom and pop's companies are increasing production in 2022.
Getting Eagle back and developing it would be a very welcome piece of news. So, I hope Londoner7 is correct.
ATB
Could the outsourcing agreement be part of what's gone wrong?
Possibly....but they might need to raise more cash if they cannot mend this quickly...
What will be the bottom? This is really bad performance. A good brand being ruined by bad management, or is it just bad luck? any thoughts?
try at least to be as soft as you can:
https://twitter.com/Reuters/status/1488103514794512392
Hi Tigar,
"FCF for GE during 10 months of purchase with the costs of drilling wells gave us a $75m reduction in purchase price this was after 40% tax so for a 12mth period would have been $150m before tax."
Let me go through your reasoning: So $75M / 10 months = $7.5 month. Thus 12 months means the reduction would have been $90M. Since there is a 40% tax rate, $90M/0.6 = $150M.
This is not correct. Please see posts by Londoner7 who explained the calculation a few times since February.
(Revenue - Costs - Depletion and Amortization) = Accounting Profit, to which you apply a 40% tax rate.
Reserves are in the BS as assets, but as they are extracted they are no longer there... Thus, ...
Anyway, the calculation would imply that the taxes would be lower than the $60M you have in mind.
ATB
hI londoner7, yes i know you were jesting with me. optimist is what has kept humankind evolving over millennia. of course when it is a bias then that is not so good.
but let us wait see if ENQ will MMGA ("make magnus great again").
a pity you do not post those 3000 chracters.... you know you can splt them into two posts. no one will ever know you did that, i promise...
CAPEX: i am expecting more drills (GEAD)
OPEX: yes, on red/marine diesel taxation. but also expect higher level of maintenance work in the different hubs.
ATB
hi therapist,
looks like neil needs your services... there is not such a thing as a "posterior prior"...
wrt one or the other being degenerate, we are not "Doomed, I tell you, we’re not doomed!”
any activity in Nigg or around Magnus?
Overall, the contest b/w TULLOW and ENQUEST being played is quite interesting:
TULLOW: TEN (Geology) vs. ENQUEST: MAGNUS (Top-side)
ATB
hi Londoner7, "fix it, and it will work" is what i had in mind...
Hi January2,
not too bad. hope you are well too. thank you for the additional explanation and number crunching.
i am expecting capex & decom in 2022 to be around $220 to $240M and OPEX excluding the lease to be $370M.
ATB
hi Iondoner7,
if you read my posts since 2018 you would conclude that my initial prior for Magnus was that it would deliver a high level of production, and for a long time my posteriors were aligned with that view, but by end of 2020, the data that OGA published on production and my textual analysis of ENQ's TUs and conference calls led my successive posteriors to change to a different view, which you describe as “Doomed, I tell you, we’re doomed!”. That would amount to saying that currently i hold a degenerate prior about production of magnus, which i do not hold. if i did, my future posteriors would be easy to predict.
my non-degenerate prior is what allows me to say that many of the projections for overall production volume in 2022 across the portfolio that have been posted here by different people are theoretically feasible if Magnus delivers.
however, my conjecture is similar to yours: the guys who knew which hammer to bang on the pile of old steel must have left in summer of 2020, and AB did not learn those skills when he was young. so perhaps as you are an engineer you could think that this could be another moment of glory waiting for you. remember the moniker: "fit it, and it will work!"
i have my NPL tool ready to analyze the TU...
ATB
Hi Indy0105 and Therapist,
CPR on Magnus by GC&A "the greatest risk to the commerciality of the investment is the possibility of a major failure of one or more of the key components of the infrastructure resulting in an extended shut-down for repairs, and while this is unlikely with a prudent and rigorous inspection and maintenance programme, it should be recognised as a potential outcome, given the age of much of this infrastructure."
In short, n 2022, ENQ will need the pile of old steel to be looked after (i.e., prudent and rigorous inspection and maintenance programme) much better than in 2021...
"EnQuest considers that the WAG project does not contribute significantly to the production performance and that the production is supported mainly by water injection. Gas import contracts run until 2023, and pending the results of further studies, gas injection rates may be reduced or terminated prior to this date."
i suggest others than you two read the CPR before being so certain that Magnus is going to deliver production around 17-18Kbopd as AB once stated in 2021 with 100% probability...
Tigar: calls and puts are settled in cash, but the (net) price of the oil sales won't be above the strike price of the call that was sold if physical oil is sold at Brent/VLSFO, whichever of the two the call refers to. yes, in my calculations, i deduct the CApex that BP pays.
hitman1a and indy0105, your two figures for opex can be reconciled because the Kraken lease of about $115M (net) a year is OPEX, even if ENQ do not treat it as such. they like to brag about low opex/bbl, but in my book (including the kraken lease) it is going to be above $30/bbl in 2022.
ATB
See below. This company has hole in its pocket... Where is the cash going? Net debt staying the same with gold at $1750/oz.? How? Imagine gold was at $1500/oz. It would be drowning.
It seems that management changes but the cash situation never changes. What an absolute farce...
Balance Sheet and Liquidity
§ Cash (unaudited) as of 31 December 2021 was US$25.5m (30 September 2021: US$34.5m)
§ Debt principal outstanding as of 31 December 2021 was US$590m (30 September 2021: US$592m)
§ Interest-bearing gold prepays were settled in full as of 31 December 2021 after the repayment of US$18m in Q4 2021 and a total of US$64m since the beginning of 2021. The Company made it a priority to fully settle the gold prepays by year-end and has now replaced this form of quasi-borrowing with more flexible revolving credit facilities ("RCF")
Hello January2,
Let us agree on a few things: i) you cannot sell barrels hedged above the price of the sold call. So, that is 7MMbbls of 2022 production at "average ceiling price of c.$76/bbl". ii) BP gets 37.5% of the CF from Magnus (this cash cannot be used for debt reduction); iii) Malaysia, Petronas gets usuall 1/3 of the production (so no CF accrues from this oil&gas).
So, we are looking at a maximum of 47.5Kboepd (in the most optimistic scenario) counting towards debt reduction (or FCF as some refer to).
That is why, I cannot see even with oil prices at this level what eople label as FCF as anything close to $700M in 2022.
I read this $700M very often and wonder the reason why it is so salient...
Savemore, Kraken at 21Kboepd net to ENQ in 2022 is just not feasible. There will be a maintenance shutdown of 2 weeks this year.
And there aere declines w/out new wells. At the moment kraken is producing 21Kboepd net, but by December it will be no more than 19Kboepd.
ATB