Facts, Projections and News15 Nov 2021 11:54
I am reading a lot of discussion about production at Kraken within the last 2 weeks (and that is so with plenty of filtered posts...).
Here are some facts:
i) Since I first invested in ENQ c. 4+ years ago, to the best of my knowledge there has not been a single RNS from ENQ to disclose production issues at Kraken, Magnus, Malaysia or anywhere else. If anyone can find one, please do correct me... During this period AK broke down several times (check Tarmak's Kraken offloads info sheet!), there was a fire in Malaysia, there were stoppages at Alma/Galia, an issue at Thistle. Nothing was ever considered to be material to require the release of a RNS. That is true even when Kraken's issues led to production outside guidance a few years ago. So, do not expect ENQ to issue a RNS due to recent/current production issues at Kraken. They simply do not do that. Their policy is "wait for the TU/HY/EY". The issue with this is that of course some people out there will have known the issues and were trading on that basis... I bet there are some pubs/bars/social clubs in Aberdeen where you would find out what the recent issues with Kraken were.
ii) The current offload's cycle is 30 days assuming all goes to plan. If you look at Tarmak's offload file you will see that since 2018 this is the longest time between two offloads. This is a fact, not an opinion! It is also the case that sometimes (but not always) AK issues have affected more than one offload cycle - not always the one immediately after, but the following one. At this stage we do not have any idea if the next offload cycle, or the one after that will be longer. Furthermore, the TU will happen before the due date for the next offload, which given past offloads, would be about 17 days. So, you will have to read the TU and make up your mind about that.
Now some projections:
i) Given the most recent 30 day offload cycle, and given that usually it is 17 days, I am estimating 13 days of production being lost. In net terms I am using 21Kbopd x 13 days = 273Kbbls. Given the hedging in place (which I am assuming is about 1MMbbls per month in H2), most but not all of them would be priced (for accounting purposes) at the spot price. Given that their marginal OPEX cost is close to zero and taking into account transportation costs, the effective margin on them could be something like c. $75/bbl. So, the impact on FCF of the loss of production is in my estimates c. $20M, assuming production is restored to its previous level from today onward. (actually given the hedges in place ENQ might be in the month of November incurring additional losses of its 2-way collars if the rest of the production ias below the volume hedged. But this would be a few million, at most.
ii) With this stoppage ENQ will now most likely miss its 2021 production guidance (made when GE was not an asset it owned). Production (w/out GE) will come in below 46Kboepd.
(to be contd.)
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