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Hi E121,
I had read your back to the board message: hope you and yours are fully recovered from covid, and that it was not a very bad experience to be put through.
I do hope they will listen to you on the hedges if Brent gets that high. I will be emailing them every other day...
I had hinted at the unavoidable RI on the board often for a few months, but I really did not want to go further. No point in upsetting some people on this bb. There was no way out but do go ahead with an acquisition and reshuffle the cards and hope for a winning hand.
Yes, debt is going to go higher in the short term, but if AB goes snorkelling for a year and does not do more deals or drills further, debt with decrease rapidly. Kraken oil is definitely doing miracles for the company, and ENQ thinks that AK is very reliable, otherwise they would not hedge all the H1 production at the lower end of their projection for Kraken (3.3MMbbls/ 21.150bbl/d = 156 days).
For me the major minus on the TU is Magnus not doing well at all, as otherwise production guidance would not have a lower bound of 46Kboepd, but something closer to 50Kboepd, and the upper bound would be around 55-56Kboepd.

--------------------------------
Jan2: net debt figure very good. It is clear that Londoner7 and chilting nailed it perfectly. Expect Oz loan balance to reflect their insight, with balance at 2020YE at $65M.

gkb47: than you for the info on Golden Eagle. Does anyone else have more info on this field and nearby fields? I bet ENQ will try to become the operator. I hope there are no more deals in play at the moment, apart from the issuance of sukus in Malaysia!!!

GLA

I will cough up. As many posters know, my opinions on ENQ are not of the ramping type. Yet, I see value in the strategy put forward here. And that s why I would like to cough up!
The price at which the assets are being bought is not great ($17.5M ber 1MM 2P reserves, and I assign $2M per 1MM 2C reserves), but expect prices of 2P reserves to trend higher in transactions further down in 2021 and 2022.
And the bottom line, as I wrote many times, the RCF was not going to be fully repaid by 09/21, as the FCF generated until there was never going to be enough, unless the poo averaged $65/bbl (which still might Pelle!), so a deal had to be done. Exxon was never going to sell assets for other than cash now. So, there were not many options.
GLA

chilting, it is not minor dilution. We have to first be told the price at which shares will be issued? somehow I feel he is taking advantage of the PIs. Not what I would expect of someone who is seen by some posters on this board as a very generous and fortright CEO.

Hello E121,
Hope you are doing well.
The question is, will we be invited to participate in the RI? What do you think?
There are some very good news:
1) if working capital stayed constant, then Londoner7 and Chilting powerful insight really shows on the net debt figures. sending the Kraken oil to the Far east in batches of 1MM/bbls w/ delayed payment, would kick into the cash holding w/ some delay. Only that can explain the very sizeable debt reduction in the last 2 months.
2) Hedges in place for about 90 days of production at the end of the guidance. And the Kraken premium in relation to the VLSFO benchmark (which some people on the bb have argued is real) will be additional revenue.
Bad news:
3) Production guidance: if you remove Kraken's projected estimate, along with that of other fields, you are left with Magnus not contributing as per the CMD2019 projection figures. It seems Magnus cannot deliver as envisaged initially.

New RCF: as along as cost of debt is below 6%, I am ok with it!!!

GLA

Further, the Group anticipates raising up to US$50 million of equity through a placing and open offer, in which shareholders related to Amjad Bseisu are expected to participate in line with their equity holdings. Amjad Bseisu and/or persons related to him are expected to make financing commitments assuring there will be no funding shortfall in respect of this $50 million. These financing commitments constitute a related party transaction and will therefore require independent shareholder approval. J.P. Morgan Securities plc (which conducts its UK investment banking activities as J.P. Morgan Cazenove)("J.P. Morgan Cazenove") is acting as global coordinator, bookrunner and sponsor to EnQuest in connection with the placing and open offer, as financial adviser and sponsor to EnQuest in connection with the Transaction and as sponsor to EnQuest in connection with the related party transaction.

Completion of the Transaction is subject to the satisfaction or waiver of various conditions precedent, including putting in place the funding arrangements, approval from EnQuest's shareholders by ordinary resolutions, the approvals of joint venture partners in the Golden Eagle area and receipt of other customary regulatory and third party consents.

No stand-alone balance sheet valuation or profit before tax associated with Suncor's assets in the Golden Eagle area are currently available.

Since the Transaction constitutes a reverse takeover for the purposes of the Listing Rules, EnQuest will need to seek shareholder approval and re-admission of its ordinary shares upon completion to the Official List of the FCA and to trading on the main market of the London Stock Exchange.

Hi gkb47,
As i was away from the board I might have missed your post (although I always read everything from where I left), or forgot about it (my apologies) when I was re-inventing the wheel with my two posts. My views coincide with yours, in particular when it comes to ENQ having shut down their aging old oilfields prematurely. Very short-sighted, but inevitable, as ENQ had no wiggle room to take on more debt and had no hedges in place the events left AB/JS with no choice. Very sad and very unprofessional risk management. I hope they have learned their lesson and are now hedging the downside w/ puts at $50/bbl for the next 4 months or so. Keep the upside or sell a call at $65/bbl. If ENQ got $65/bbl for all of its Q2 to Q4 production + Kraken premium & Malaysia premium, it would do very well. It deals with the short term.

IIs will only get onboard (and thus more the SP much higher) if ENQ has a good plan going forward that is different from those of other oil companies. Taking on aging oilfields and following the sequence of steps you describe is still a profitable business. I wonder what company will adopt that model if ENQ has moved away from it. I would be happy to invest some of my cash on such a company. Who are the other ENQUESTS?

GL and stay safe.

(Cont.)
Unfortunately, the high level of gross debt and the lack of hedging resulted in those events forcing ENQ to look at those maginal fields (Hether/Thistle/Dans) and simply compare current revenue with current expenditure, with the latter being larger than the former. Continuing production would mean daily losses until an unknown point in the future given the oil futures curve at the time. Given the high level of debt (and the RCF having to be repaid by 09/21) it was not advisable to increase the level of debt for another 6/9/12 months. It would have been too risky. So, under the circumstances ENQ made the right decision.
The problem was that the calculation ENQ had to make had to completely ignore the option value of keeping those aging oil fields afloat (i.e., until the oil price cycle turned and they became profitable again).

We know such fields could generate some profit even w/ oil at $50/bbl, and would become quite profitable with oil at $65/bbl or higher.

I might elaborate further in the future (by discussing why it was not possible to cross subsidize such fields via other ones because they were also not generating much profit, as well as the fact that although hedges are financially settled, rather than settled w/ the product itself, the main argument in the exposition above still goes through), but the bottom line is that ENQ had to change the way it operates, at least for now.

Will be board now view ENQ as an operator like others that only operates not so old fields? Does it only operate fields with low OPEX/bbl? WHAT are ENQ's differential capabilities? (Does anyone know?) The only one I know is that it can drill at a lower cost than many operators, or at least it could when it had a first rate team of geologists and engineers. But are these people still there, or have they left? ENQ's differential capabilities are the ones that their staff excel at. ENQ does not have patents or IP, or sells a branded product.

I do not think the current strategy is one that will preserve ENQ as an independent company, as it is not disctinctive enough. As the debt position improves, ENQ could go back to the strategy that just left behind, but needs to manage risk much better going forward (always hedging the downside of the production of such fields). I believe that aging oil fields will still be valuable in the right hands.

At the same time ENQ needs to prepare itself for a different future, that de-emphasizes oil production. And, many of the paths that many posters have put forward (with Chilting leading the discussion) (carbon capture, renewables production, etc., etc.) need to be looked at by the board asap. It is not the time to commit capital (no crazy capital commitments please!!!), but it is the time to commit the brainpower of its employees and hire new ones as required to explore such possibilities, and map a vision that is communicated to the shareholders.

That is all I am asking for.

GL

ENQ LTHs,
Let me start by saying that today's SP increase is very welcome, and i hope the TU delivers very positive news on all fronts, which I list next (net debt, 2021 production guidance, hedges w/ a floor of $50/bbl, Magnus's problems being history, a new challenge for the EP FPSO, Eagle project going ahead, Malaysia project being finance w/ Sukuks, disclosure of a large Kraken premium, Good production from Kraken's two western flank wells, and a new transformational deal w/out a RI).

Notwithstanding all the excitement, I want to think long term, and so I agree 100% with Chilting. ENQ needs a new direction. Indeed, the lack of a new direction being communicated to the shareholders, is why in my view the current board of non-exec directors has been completely ineffective. ENQ has been displaying a lack of medium and long term strategic vision since mid 2019. I say this because the "strategic plan" ENQ presented at the CMDs in 2019 was not robust, and got completely ripped apart by the events, because of the level of gross debt ENQ carries and by not having hedged its oil sales 6 months in advance back in 2019 (something I believe it should now). The emphasis of the plan was on growing production, and for that you would have needed to keep aging oilfields going. The best ENQ can do now is to manage production decline, unless it does a transformational deal, which might or not happen, or pushes forward in Malaysia (as I defend it should do at breakneck pace) through issuing Sukuks. The impact of losing Heather/Thistle, and soon, the Dons, as well, on the path that had been marketed for years is far from negligible. Up to 2020 ENQ conveyed the idea that one of its differential capabilities was that, unlike others, it could squeeze the last drop of oil from aging oil fields. Unfortunately, reality proved that there was a limit to how low it could drive OPEX in such fields. We finally learned that for some fields OPEX was high, probably as high as $40-$45/bbl (who knows?), which meant that ENQ was exposed to a downturn of oil prices like the one in 2015. Under such a drop of oil prices, such fields would be loss making until oil prices recovered.

The way to manage such risk was to always forward hedge 6-9 months of the production of all such fields at profitable prices. In doing so, ENQ could keep the those fields afloat even if it lost some money in the short run while operating them during the downturn. That would have meant that any point in time the decision to cease production (CoP) of any of those fields would be dictated by their NPV being negative, which would not be for many projections of the oil futures curve. Of course, for some fields, the NPV calculation would take into account that a later CoP/decommission date would shift a larger % of the decommission liabilities to ENQ. In other words, ENQ's CoP decision would have taken into account a time horizon of 5/10 years, as described in the CMDs presentations.

(TBC)

hi Londoner7,
the question is to what extent all these lockdowns will affect the business. Sales will be impacted, and so will profitability. A good company going against a powerful tide.

Hi Londoner7,

Thank you for the offloads time stamps. This is very reassuring about Kraken's ability to keep producing over 35Kboepd for the moment, a key input to my projection.
Any idea of when we will know why production at Magnus is still not increasing back to its levels at the start of 2020? Magnus is really pushing me to think into doing a very broad sensitivity analysis around my base case projection, which results in a very wide interval for net debt and RCF repayment...

Hi Pelle, Thanks for the summary. The only projections I read outside the intervals you provide are those from Squif: 60Kboepd and 190M 2P reserves.

Chilting's remark on Kraken cargoes, which is similar to Londoner7's hypothetical scenario might have interesting implications for net debt/cash balance/overlift figures in the 2020YE report. However, given that CNE's update was quite neutral ("Crude sales from both fields - i.e., Catcher and Kraken, averaged close to the dated Brent benchmark pricing or better during the period" and also that " Oil and gas sales revenue was US$324m, at an average realised price of US$42.23/boe") it casts doubt on the premium being large, i.e., above $5/bbl. But the time difference b/w offloading the oil from AK and getting the revenue for it could still have an effect on net debt, even if not on FCF. OZ loan balance at 2020YE will tell us more. Once the Kraken production data for 2020 are in I might try to have a better idea of the premium, through some calculations.
PRDaynes, believes OZ loan can be fully repaid by 09/21. That is not my expectation at the moment, but the OZloan balance at the end of 2020 will guide my assessment of how likely that is.

TWalbyoff posted an interesting paragraph detailing the reasons the SP does not move up. I would add lack of visibility on revenue in 2021, as we do not know the production volume that has been hedged and at what price.

GLA

All, Krakie challenged us to name a company listed on AIM that will do well. Only 2 posts so far, TRX (chilting) and
Ilika (Therapist). I follow few, but among the ones I follow or have punt size positions, I will go for KMK. Let us hope more people accept Krakie's challenge.

Pelle: As you are following people's projections on this board closely, can you please summarize the projections for 2020YE net debt, 2021 production guidance and 2020YE 2P reserves? Mine are $1340M 2020YE net debt and 48 to 56Kboepd in 2021, and 175MMbbls 2P reserves (here I am ignoring Eagle's 2C reserves being switched to 2P reserves). p.s. my lower bound for 2021 production guidance is explained by Magnus's continued underperformance. Either ENQ can fix the problems or .... no div until 2024!

Hedging: I hope ENQ uses a collar (say between $48 and $62) to hedge its Q1 and Q2 revenue. Mr. Market would like that, because it brings certainty to revenue figures and to the RCF repayment schedule.

Can anyone who has the info please post the time stamps of the last 3 Kraken offloads?

Price of oil: It is unlikely that the poo will stay in the mid $60s in the next few months for reasons we are all aware: lockdowns are having a massive effect on mobility. Across the channel and parts of Asia, more and more mobility restrictions are being put in place everyday. Finally, until air travel picks up, it is unlikely that we will see oil prices moving much higher. Air travel is 7.8% of oil consumption (Chilting's figure). Not only is the #flights down, but loads are very low, as I have witnessed myself. As countries move to limit international travel more and more, jet fuel use will stay very low. My view is that only when international travel resumes (and I am not saying it is necessary to go back to the days when you went for a weekend in Prague) can oil consumption rise enough for demand to be structurally strong. We have to remember that some business/work related air travel is not going back to what it was before covid. From personal experience, I know a lot of the flying I had to for such reasons is not coming back. So, we need non-business travel to be allowed to resume for jet fuel consumption to be back. Also, work-related ground travel has suffered a structural shock. Lots of train journesy I used to do are not coming back (everything has been switched online from now on).

GLA

Hi Therapist,

Apologies for not having thanked you for posting your production figures. Much appreciated, and I will
now try to integrate them in my snapshot for 2021. Was overseas, and for all the ones having to travel
it is getting harder and harder to leave and return to this island even for lawful trips like mine.

Hello everybody who posted their views and links with info for Bressay. I now have a better understanding
how to integrate this opportunity on my assessment of ENQ. Lots of possibilities, but all at least 2/3 years
away. Lots of exciting possibilities.

OGA data: As revealed by Therapist and Londoner7, Magnus keeps on underperforming. As I wrote before ENQ needs
it to perform for the deleverage to occur at a meaningful pace. The optimistic scenario I posted on 5Jan assumes
Magnus delivers 20Kboepd in 2021. Across all production hubs, my calculations have a slack of 1.65Kboepd, which
if all taken up by Magnus underperformance would allow production to be about 17.75Kboepd (as I subtract the 37.5%
BP stake in Magnus), but that means everything else has to match the base case, which is hard, since as Londoner7
reminds us, stuff happens.
In short, in light of the production data we have, I am baffled by anyone posting that ENQ will produce >=60Kboepd
in 2021. Where is the extra oil/gas going to come from?

Net Debt: In my notes I have a set of traffic lights for when the YE2020 net debt figures are announced:
( > $1360M is RED; < $1360M but > $1325 is AMBER; < $1325 is GREEN). This together with the figures on the
principal due on the RCF at YE2020: I am looking to read it was down to $350M.

FCF in 2021: By extending my 5Jan scenario anyone can come up with a figure for FCF for 2021 that only excludes
BP's stake in Magnus. The upper bound for such a figure is $500M FCF. Any figure above it must rely on
an average oil price for 2021 above $65/bbl, or a level of production that is simply not attainable.

It will be interesting to see how January went. Kraken must have performed in line with my 5Jan scenario, which together
with an average oil price of $55/bbl would have helped grow the cash balance, assuming Magnus improved.

Great news on Eagle from Londoner7 and the Therapist. Perhaps happening by the end of 2021?

For Squif: There is no way that 2P reserves ay 2020YE are 190MMbbl. I will be happy with 175MMbbl, which would be
a revised and optimistic figure based on the figure I posted on 14 Sep 2020 20:33.

Finally, there will be surprises on the moving parts of gross debt as I highlighted on 30 Nov 2020 16:54. So, be
prepared for any of the surprises I discussed.

GLA and stay safe.

hi Therapist,

the $45M in gas revenue in 2019 that you allude to is serious money. that is why i am trying to refine my projections by getting a closer value for the revenues for gas in 2020 and 2021. i was wondering if you could please re-post your production data, the excel spreadsheet w/ traffic lights, up to and including SEP2020. i noticed your values are different from OGA's. is that because your figures are after shrinkage? if not, where does the difference b/w the two come from?

gas production sold is only from Magnus and GKA, correct? Kraken's gas is flared i supposed. not used to power AK.

a different topic: no matter how i torture the figures Sculptor loan repayment would have been around $20M tops in H2 2020. with a bit of luck the balance, i.e., $70M would be all repaid by 2021. but note ENQ might get sculptor to lend it more money. see my post on 30NOV.

more on figures: Kraken's current production is around 35Kboepd? it seems the most recent full offload cycle, departure to departure, will be clse to 15 days. if anyone has the time stamps for the last 3 offloads, could you please post them? thank you.

CAPEX: i hope ENQ give priority to more drilling in Kraken, be is the maureen sands, whatever 2c targets they identified. rationale is simple: kraken oil attracts premium; most costas are fixed, i.e., fpso lease, so any extra revenue adds to fcf. enq needs to target drilling on 3rd/4th quarter current year. capex in malaysia with sukok financing would be very welcome.

bressay: hearing ProdOpt's views on the asset and viable production options would be great.

fpso in nigg: hope they can find a good producing asset where to deploy it.

oil price: $55 for january is fine, indeed for all of Q1. i hope enq has hedged the downside by buying puts at $50/bbl for over 50% of its q1 production.

gla

hi Therapist,

yes, i had asked that. ok, so shrinkage would be applied to those values. you had posted a file w/ different shrinkage coefficients for different fields, but i cannot find it...

gas: gas purchased for magnus is sold as you know, but there has never been any reference to whether the purchasing contract uses spot prices or a pre-agreed price. doubt sales of this gas genrate any profit over the cycle. what about gas production? it boils down to Magnus. Kraken produces some gas, but it is not sold, i believe. do they used to power AK's kit?
any other gas production elsewhere, i.e., GKA?

gkb47: nothing we can do will stop the stampede. keep an eye on pelle, he might try to sneak in the forbidden word in the middle of the tsunami of posts.

ProdoOpt: I would hope you would tell us your views on Bressay and how it could be developed.

tarmak: the underlift might be kraken's crude, as per londoner7's observation.

GLA

Hi Therapist,
It is hedged separately. ENQ has not mentioned gas hedges in the last few years. I doubt they hedge gas given the small production volume. Gas prices have been high. Epihany121 (MIAction) used to post the price conversion to Boe regularly.
Hopefully others will do that job.

I have a favour to ask you. This bb has become a madhouse since lots of day traders and followers of investment gurus joined the fray. Can you please keep them in check!
Pages and pages of chat appear in green now for me.

The big opportunity here is a party we have been planning for some time to be held when the SP gets to 60p. DYOR.

londoner7,

My expectation is for this and other plays I have (Forterra, Michelmersh) to be weak plays for a long period of time. Shutdowns slow down construction and public works.
GL

Pelle, Remember 60 is still fine for me. it is 60.01 that is yours... I would be happy with that because my oil holdings surely would go up in price...

I take the chance to revisit Chilting and Londoner7's tanker observations. FromH1 report"This decrease was primarily driven by the material reduction in the oil price and moving from a net overlift to a net underlift position at the end of 30 June. Change in lifting position and inventory (48.5) in 2020H1." Does this help?

Feedback appreciated.
GL

hi hitman1a,
I now recall the figure. If I recall correctly Londoner7 came up with a higher figure (was it c.170M?), very likely more accurate than mine.
Please note that perhaps next yeat w/ production around 50+Kboepd per day, production would be 18MMbbls, so at this pace it would last 18 years. Let me dream like londoner7 and chilting's carrgoes to the Far East. What if Scolty and Crathes 2P reserves were upped a bit at the the end of this year, and Kraken's too (as a result of very productive western flank wells)? That would come in very handy. ENQ needs to move ahead with the Malaysia exploration.
i agree with you: 3.5 years for debt repayment would be nice with the other 4.5 for equity holders

Onto other topic: Gas prices. ENQ produces some gas, and at the moment there is a cold spell in several parts of the northern hemisphere. So, gas prices must be increasing. Does anyone have any ideas howm much such increases would affect Kraken's finances?

GL

Hi hitman1a,

Yiou are onto an important issue, 2P reserves. We have discussed this before. I even posted some numbers. Others, such as Londoner7 posted their figures. I have no idea if 150M 2P is too much or too little. I forgot. Multiply 150M by $15/bbl and you get EV = $2250M. What is the EV at the moment (gross debt - cash + Market cap; ignore options...)? Lower than the value of the 2P reserves if you exclude contingency consideration of the BP loan and decomissioning expenses. But, if you do not engage in such exclusions, and subtract 37.5% of 2P reserves for Magnus, the calculation results in a different figure. Hopefully, Londoner7 and others such as Kamrat, Tom8080, gkb47 will post follow ups. The issue is that we are unsure how much of the 2C reserves were converted to 2P reserves this year.

Londoner7,
HNyear. I enjoyed reading about your epyphany moment. If indeed 2Mbbls are headed to the far east and sold at current prices w/ Kraken premium, that is akin to a useful vaccine shot that Enq just got. How nice that would be.

SP: I see a lot of day traders here. Hope they push the SP up, given so much posting. Keep buying!