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Hi Therapist,

My calculations are also yours since I use your charts and posted figures. W/out them they would not exist. Thus, much appreciated all you post.
I am with you, Magnus has to prove itself. It has not done so in 2020. It doing so this year, is a key entry in my optimistic production projection. For the ones that like numbers, HY results tell us that Q2 in 2020 was bad for Magnus. Clearly the quarterly sweep led ENQ not to repay the amount due every quarter on the 75% BP vendor loan. In H1, only c. $5M of that loan was repaid, and I believe that was for Q1. In Q2 CF of Magnus was so bad, that it led to zero payment. We will find the Q3 and Q4 figures in March. The numbers are posted are an optimistic projection in terms of production across all oil fields. But, if we keep track of the offload cycles (from departure of a tanker from AK until the next one departs), and they average 12.5 days over Q1, my traffic light might start flashing, especially if POO stays high (and depending on the hedges in place), and get indication of a high Kraken premium. We shall see.

Hedges: It is possible some production for Q1 was already hedged. Oz/Sculptor are in charge of the production related to their loan, and the banks that extened the RCF might have also asked ENQ to hedge some back in November/December. I know we all have different views, but w/ oil approaching $55, ENQ if it was up to me I would use collars to hedge a lot of Q1 production. Note that the Kraken premium is always a top up to those hedges.

Tom8080: I beg to differ, but my calculations were done on textpad (no calculators!) not on the back of a fag-packet -:). The question you ask is one I also have, but to be honest I have no idea of 2P reserves at the moment. I have to wait until the year end report / results are announced. Too many moving parts w/ fields being abandoned, and unclear what has been added to the reserves. For example, Scolty/Crathes 2P reserves might have been upped. Could Kraken 2P reserves be upped? Last Autumn, Londoner7 posted that Mr. Market was assigning $15M per 1M 2P reserves given stock prices. Clearly with POO going up that number might increase some.

I actually would like to see ENQ press ahead with its new field in Malaysia, and up production in its current field there. Its subsidiary there could issue sukuks to get the funds that it needs to press ahead.

GL

There is not much new here, given what hitman1a, Pelle, Londoner7, tarmak, therapist and a few others (PRDaynes? Tom8080?) have posted, but I am going to post an abbreviated version of what I inted to post for my own record!

I am basically going to zoom in on the RCF and its re-payment, as to me that is the traffic light that needs to turn green for the sp to move Up!
I assume ENQ will stay an independend oil company in 2021. So no merger and not acquired by another entity.
Unless a deal is made, my (optimistic) projections for production in 2021 are:

i) Kraken: gross 35Kboepd (optimist projection assuming small decline driven by unverified good performance of the 2 Western flank wells)
Net to ENQ is c. 24.5Kboepd, of which 5.25Kboepd is linked to the Sculptor loan. FCF from 19.25Kboepd available to repay the RCF.
ii) Magnus: 20Kboepd (lower figure than in the CMD 2019 presentation), of which the FCF corresponding to 7.5Kboepd is BP's. FCF from 12.5Kboepd available to repay RCF.
iii) Malaysia: 6Kboepd due to fire shutting down production, of which ENQ usually receives about 2/3 through the PSC.
FCF from 4Kboepd available to repay the RCF.
iv) GKA (1Kboepd) & Scolty and Crathes (4Kboepd) & Alba (0.5Kboepd) & Dons will stop producing at end of 2Q (0.4Kboepd average production in 2021). Total of 5.9Kboepd. FCF of these assets available to repay the RCF.

A 2021 optimistic production projection is 56.4Kboepd, of which 41.65Kboepd can be used to repay the RCF, due on 1 Oct. So 9 months of production at such level. Ignoring some production being gas, but taking into account shrinkage, make it, 96.2% of 41.65Kboepd = c. 40Kboepd. This is the production whose FCF can be used to repay the RCF.

9M revenues of 40K x 273 x $Brent = 10.92M X $Brent.

Assume OPEX&Transportation costs of $15/bbl, $163.8M.

Other expenses (pro-rated to 9 Months, so 0.75 of annual values):
- CAPEX of $50M + Decomission $40M + G&A $10M + Inc. taxes $10M + Re-payment of BP vendor loan $15 + Exceptional expenses $7M = $132M x 0.75 = $99M
- Kraken's (lease+interest) of $120M x 0.75 = $90M x 0.55/0.705 (to exclude Sculptor share) = $70M
- Interest related to BP's vendor loan = ($90Mx7.5% interest)x0.75= $5.6M
Total $175 M
Sum of expenses (inc. OPEX above) = $338.8M

So, 10.92M x $Brent - $338.8M = Balance of RCF (to fully clear RCF)

Assume Balance of RCF at the end of 2020 is $350 M + PIK of $16M = $366M. Add interest of RCF over 9M in 2021 of 6% x $350M x 0.75 = $16M. Balance of RCF is $382M

Solve equation for $Brent: $Brent = $66/bbl over the first 9 months of 2021. Now, Kraken premium applies to half of the production. Assume it is $10/bbl. $Brent averages $61.

Now assume ENQ can refinance $150M of the RCF balance through cash-in-advance oil sales, etc. To repay $232M, Brent has $Brent = 52.27. Easy even w/out Kraken premium!

In short, numbers are fun!
GL and adjö

Hi Therapist,
BE does not include any PIK of interest, i.e., the PIK interest of the two bonds, and PIK of the RCF (when it is no paid in cash, which must have been the case in 2020) . And that is plenty of stuff left out... The BE will include the finance costs that are part of the lease, th interest of the SVT loan, the interest on BP's vendor loan, and the interest of the Oz?sculptor loan, plus other miscellaneois finance costs (ENQ seems to pay finace fees every semester), as these are all paid in cash.
Can you please post your Excel table for ENQ's 2020 known production? Are the numbers in your Excel spreadsheet net after shrinkage?

Hi Chilting, thank you for the info on the offloads.

A long discussion going on about the Kraken premium. Both CNE and ENQ in their H1 results did not claim the premium in 2020H1 was in any way large at all. In fact one of them mentioned Kraken oil had sold at a discount for a while. One can get an idea of the premium by inferring it from the Oz/Sculptor loan figures. I might have posted it, not sure. Londoner7 might also have posted it. This shuld bring pie in the sky figures down to earth. Perhaps in 2021 the premium will be 2 digits again as in late 2019, but to early to know. For H2 2020, Oz loan figures will allow us to get an idea.
Speaking of VLSFO, there seems to be a campaign against its use:
https://www.forbes.com/sites/nishandegnarain/2020/12/21/shipping-gate-explained-how-the-global-ship-fuel-scandal-came-about/?sh=7c7c63b71428

https://www.forbes.com/sites/nishandegnarain/2020/12/21/shipping-gate-why-toxic-vlsfo-fuel-is-such-a-danger-for-global-shipping/?sh=44bb981178fd

So, in the medium term if this campaign pervails, you will see demand for VLSFO contract. Who knows...

I know the Kraken premium is the only way to fully repay the RCF. From the end of Oct20 to maturity date, there are 11 months. Assume in 2020Q2&Q3, POO is on average $10 higher than the average price in Nov/Dec20 and 2021Q1. This means that roughly you would get an extra FCF of $12/month in Q2 and Q£ in relation to the the previous 5 months.
Since at the end of October RCF balance was $385M+$16M PIK = $401M (but perhaps more as PIK interest was added in Q3; see my post on 30 Nov, saying the added PIK interest was b/w $12M to $25M; but lets ignore it). Now there will be intrest on the $401M balance. Suppose you end up paying interest on an average balance of $250M, but at 7%, that is c. $17M in 11 months. So need to clear at least $418M in 11 months.
Now, make the FCF per month equal to Y for the first 5 months and (Y+12) for the last 6 months. So, you get
5 x Y + 6 (Y + 12) = $418M ; Solve for Y; it equals c . $31M. Did ENQ in Nov & Dec ENQ repay $60M of the RCF? I bet not... So, I go to the value that hitman noticed in my posts, everything but $150M will be repaid. Redo the calculation with the rhs being $268M, and not you get Y c. $17.8M. I bet that in Nov and Dec ENQ repaid c. $35M of the RCF...

G

Chilting,
did you see the info that the offloads are no longer split b/w cne and enq, but marketed jointly?

Pelle,

"If we ever hits the jackpot here I could imagine buying some small hotel in the Alps and post less here." We would not want that. We lke to read all of the words in your posts but one. If you are desperate for sun, I have a job for you. Londoner7 mentioned he had a book somehwere in Southern Europe. Could you please get it for him, if he so wishes?
I agree w/ your comments on hedging. Sopt on. In fact there are 3 instances when they shortened their hedge horizons, not just two. But the two you mention are the ones that would make a material difference.
Had AB kept the hedges with same horizon along the cycle and he would be in predatory mode, not worried about beng the prey. BTW, I would not discount the possibility that some hedge fund is shortinf ENQ and has not declared the shorting. PMO's HongKong-based shorter did that and paid a small fine. Here, unlike w/ PMO it will get burned.

Chilting,

Ironic that Kraken production volumes are negatively correlated with oil prices. That was also the case during some of the hiccups in previous years. Luck is not on ENQ's side. Basically this yeat ENQ will have sold 8 to 9Mbbls of its 2P reserves in Kraken for an average price that is no greater than full price (CAPEX & OPEX & FPSO) Lease /bbl...

An aside point related to a comment of your a few weeks ago: ENQ and CNE no longer split Kraken cargoes. They sell it jointly. CNE announced this over the Summer.

Hitman1a, my FCF numbers are significantly lower than yours.

the troubles of PMO and ENQ can both be traced to a project that went wrong, Solan and Alma/Galia respectively. They both should have responded by cutting debt aggressively, because luck is not guarannteed to be on your side. PMO's timing for debt renegotiation was a killer. Had it happened in March/April 2019, PMO would still be independent today.

GL (and back to work for me...)

Hi gkb47,

Yes, that is the formula i had in mind.

Yes, if Pelle is fine w/ it, you should get a cut.
You are right on the rules that apply to the fine. What I had agreed was that until $55 Pelle would not even mention the forbidden word. After that he could but fines would apply. I had forgotten about that and was being very forgiving.

As an aside I have no idea how anyone could think ENQ would pay any div until 2022H2 if Brent stayed below $65 in the next 18 months...

ATB and happy new year to you.

Hi Pelle (cc gkb47),

With so many filtered posts (and I only filter and handful of posters, i.e., the disruptors, the ENQ's PR rep here, etc.), it is not easy to find your posts...

Our bet is on:
You pay me 1K SEK if BRENT averages up to $60 in 2021.
I pay you 15K SEK if BRENT averages above $60 in 2021.

Now let us agree on how to compute the average price. My suggestion is that we average the monthly averages, as per the
information reported by the EIA.
https://www.eia.gov/dnav/pet/hist/rbrteM.htm

May I suggest we invite gkb47 to be the "referee" of the bet, assuming he agrees.

One last thing: you seem to have relapsed, and are back to your old ways, i.e., uttering the forbidden word way too much (remember the deal is you get fined until Brent averages $55/bbl for a while...), gkb47 will withhold the amount of the fines you accumulated in case you win the bet. That will be handed to you at the 60p party for you to settle the drinks bill w/ January2.

Let me sincere: I hope you win the bet. The SP gains on the oil shares I own or I am the ultimate beneficiary of would easily pay the bet many times. (I might partially hedge the bet by buying a warrant)

I leave you with the link from the Dallas Fed survey released yesterday:
https://www.dallasfed.org/research/surveys/des/2020/2004.aspx
(the main message is that like I have posted all along over the last few months, the shalers are back to their old ways, drilling more and increasing CAPEX in 2021.)

GL and Happy New Year

Hi Londoner7,

Likewise, this is annoying, because of the way I record my portfolio transactions. It is tottally unnecessary. Only for the purpose of management cashing in thir awards. The part I do not like about CNE is the way management put their bonus benchmarks ahead of shareholders. Not nice!
ATB

lavenonews,

I fully agree w/ you: "Tasman is geographically in the right part of the world and Crestchic has some real growth opportunities opening up. Not sure what £1.5m of head office costs and, 3 execs and 4 non execs are really bringing to the party for these two businesses."

There are probably people inside the company w/ the skills to take it forward. There is no reason why the SP would not double in the short term. I have a small punt in here: fewer than 10,000 shares.
ATB

pmo should get a better deal from these PE people than the one they negotiated.

I was going to post ENQ's 2021, 2021 World Oil Production & Consumption, Stocks (part II), which focused on ENQ, but work got on the day, and posters like Londoner7, hitman1a, tarmak, Therapist, Pelle, gkb47 and others have posted plenty of info that due to time constraints lead me to be brief for now.

I like the calculations posted by Londoner7, on 12 Dec, namely net debt to drop to c.net drops to c$1,323m. but i belive that due to poor hefge for nov-dec net debt will come slighly above c.$1335m. i expect ENQ to use nov/dec FCF to reduce RCF's principal to $350m. RCF's balance will be higher by $28m to $41m because of PIK interest (see my post Debt, gross and net (can we get the LHS=RHS?)30 Nov 2020 16:54). Oz loan balance at year end will not get down to $60m. note that it is possible balance increased due to renegotiated loan w/ Oz. as i explained on 30 Nov, there is some new debt somewhere.

what about 2021? until the date the RCF repayment is due there is less than 1% chance ENQ will generate enough FCF to repay RCF's balance in full. I would ike it to be able to pay down all but $150m , so that it makes a deal for the remainder w/ Mercury/Vitol for cash in advance for production, and perhaps with CNE getting some Kraken cargoes in Q4 (as suggested by hitman1a), (apart from the part linked to Oz loan) paying to ENQ for them in advance. the talk that the banks will be supportive is all cheap-talk. there would be a huge fee to pay. the best way is to repay and then negotiate a new RCF w/ the banks that will offer the best terms.

why do i write 1% chance?
i) because the vlsfo prices are sill low, and thus at the moment the Kraken premium is negligible. Things would improve dramatically if the premium was above $10.
ii) price of oil will average below $57.5 in the first 9 months of 2021. (look at shale activity picking up. for the third time it will ramp up, even if at a slower pace than last time.) Pelle, [42.5,60} 1K ESK for me if BRENT averages below $60, 15K SEK for you, if above?
iii) hedges at low prices: the fact that in the NovTU ENQ did not mention 2021 hedges does not mean they do not exist. my conjecture is that they had to hedge some of the production as required by the Oz loan, and the FCF report sent to the RCF banks, and they might have to hedge some production at prices in the $40s.

I am expecting ENQ to announce some deal by the end of 2021Q1. that might change things.

My horizon here is the same as Londoner7, 2-3 years (unless ENQ's board changes and stops being ineffective and uninspiring), but shorter, if the 60p party comes first.

GL and thank you for the informative posts. enjoy the "festivus" season.

IRC's share price continues to increase and its current market cap is £110M. 31% of that is £34M. Iron ore prices, i.e., Seaborne index 65% Fe fines, are now $168/Metric ton. So, It is time to hedge monthly production of 75K tonnes over a 2-year horizon 2021 and 22). This would guarantee enough margin over the cost of production ( 75K x 12 x2 x $90/t margin = US$162m ) going forward to repay the balance of the Gazprom loan of US$160m (c. $135m at the moment) (LIBOR + 5.7%, anticipating the quarterly repayments) within that timeframe. The hedging would de-risk POG's loan guarantee, and would have an immediate impact on its own share price.

!rekamelbourt, uoy, sey, elleP
....senif eht rof tuo hctaw

[42.5,60] is lavretni eht

? aedi eht teg, 74bkg

2021 World Oil Production & Consumption, Stocks: If you read the more reliable sources out there, you might or might not conclude that the level of uncertainty about any of these variables is just unusually high given historical records. Starting w/ stocks. No one actually knows what is going on. Outside OECD countries data quality is an issue. OECD stocks seems to be running probably 300M above the moving average of recent years, and the rate of decline month-on-month is lower than some expected. For some perspective you can read:
https://www.oxfordenergy.org/publications/the-covid-19-shock-and-the-curious-case-of-missing-barrels/
(better yet, read the long file)

What about production now and in 2021? Lots of uncertainty still. Unsurprisingly, the US has been adding rigs and fracs for weeks in a row. Capital is cheap and bankruptcy procedures wipe out shareholders, but keep the treadmill going, even at a lower pace than before. What about elsewhere? Who knows to what extent OPEC+ countries will comply w/ the agreement. I expect them to comply less and less as the oil price rises, because that is what is predicted as the net margin increases. Outside OPEC+, expect production to decrease. Companies like ENQ are losing some of their production as CAPEX decreases and high cost production is shut down. Overall, I would not be surprised if production surges up to close 100Mb/d by the end of 2021.

What about consumption now and in 2021? The data on consumption now is not reliable. What wer know is that jet fuel is down considerably, gasoline/diesel down by some. But, we also know that imports and/or consumption (the two are different!) are up y-o-y in China, India and Brazil. These are 3 economies where oil consumption is going to increase throughout this decade. I expect these and other large developing economies to make up for the decline in consumption in North America (c. 1M/d consumption decrease due to increased WFHome?) and in Europe (another c. 1M/b consumption decrease due to increased WFHome?). So hopefully by H2_2021 demand is up there at 101M/d, as it was in 2019, apparently.
If you like detail on how oil consumption reacts to price changes and income levels, ther are a lot of interesting works out there you can find. The bottom line is that demand decreases little to increases in price, and increases plenty in response to increases in come at levels of income that correspond to the current levels in India, Indonesia, Nigeria, etc.

Where does this leave the POO? I am sticking to the wide, i.e., 95%CInterval, [52.5,60] I posted earlier, for the average price in 2021. Note recent estimates indicate b/w 2016 and 2019 OPEC's actions propped up the POO by only $4 to $6. It surely propped up by at least $20 b/w Q2 and Q3 in2020.

What about ENQ? Here my views are informed by the data and analyses posted by Londoner7, Therapist, hitman1a, Pelle, tarmak, gkb47, and a few others.

TBC probably at the weekend.

GLA

RetiredBanker,
If I could put together a syndicate and have an offer of $11m for POG's 31% stake in IRC accepted I would do it in a flash, knowing that the syndicate would in the short run re-sell the stake for many times that amount.
Check iron ore 65% fe 's prices per metric ton in Q4 (discount $20M/t for the "special customer"), and you will still have enough left for IRC to be a money printing machine a the moment. Problem is, and always has been, leakage somewhere (even with the helicopter gone!), because cash holdings are always low, and repayment of debt progresses at slow pace, when in fact they could clear the $20M principal due to Gazprombank every year every trimester. Yet, they do not do it.
I bet POG will not sell the 31% it has for less than $50M. As Shedulike reminded everyone, the Amur bridge brings cost savings that are not negligible, 2.6Mt x $5 cost saving per ton = $13M (well that is the interest bill every semester).

chilting, norway will not cancel its future licensing rounds, and the UK will not do it either. it would be reckless for all of Europe to become fully dependent of oil and gas coming from very far away.
denmark did it because they produce about 100kbopd, so like 2 ENQs. and the whole of the EU produces less than 0.5Mbopd.
European oil consumption is about 15Mbday
I am sure you have noticed that the refining capacity is shifting to Asia very quickly. it now has 45Mbopd a day.

hitman1a and tarmak, your numbers on production are slightly different. any ideas of how much Kraken's western flank wells are producing?

2021 BE for ENQ is very much unknown. most of the expenses in there are hard to be cut further, but production could swing up or down.

OPEC deal: it is not a good development, in part because the countries that do not comply keep getting away with it. that would be key to keep the credibility. also, Iran and Venezuela will increaase production, and shalers are already hedging production. ENQ's oz loan's corresponding production might already have been hedged for 2021.

GLA

Londoner7: If you ever get bored I have tons of data on the most different issues that you could sift through.
Very impressive stuff what you posted I would say. I think Jan has to reserve the chair at the head of the table for you at the 60p party.

Kamrat tarmak, you now see that this is a wonderful board. As far as you not remembering English so well, you can post in Swedish. We can translate. And I see the Therapist has been learning Swedish. That is why he does not have time to post his updated nice graphs and production figures by field.

good evening Pelle,

no, i not need to have 2.5% below the lower limit. that is the default way how people think of 95%CIs, but a 95% CI needs not be centered on the 50% percentile and have 47.5% probability mass above and below it, all it requires is to contain 95% of the probability mass.
Anyway, if you are lucky you will get enough drinks, but 1st Jan needs to confirm i am invited to the 60p party.

Next time oil and SP runs high, do hedge the downside of your ENQ position because JS won't do it for you. Today Londoner7 stated that next time "If oil hits $80 feel free to kick my ar** if I'm still invested." I also hope to alight of my ENQ ISA holding if oil hits $80 and move it, part to a different oil&gas company, one that hedges the downside; the rest to other sectors. i love bricks. i have a position in a high end brick maker, MICHELMERSH.

GLA

chilting, i read that you are back on board having bought back into ENQ. Well done. I can only hope that lots of PIs follow you.

GLA

Hi Tom8080,
I agree w/ all you wrote. Obviously FCF is as you describe, and is what it is (so, in agreement w/ PRDaynes as well). My commment was about that such FCF is cash that can go towards payment of the principal of RCF, because it is possible that the RCF does not decrease by the amount of the FCF, as PIK interest is added to the RCF balance whenever it is not paid in cash. My girations w/ the debt posted at the top of this thread tell me that is what happened in September/October. And so the RCF balance due did not decrease by $40M, i.e., the repayment of the principal that was made.

Incidentally, my debt girations also suiggest there is something new yet to be disclosed in the debt (a renegotiated SVT loan, an increase line of credit with oz/Sculptor, etc.) It won't be much, but I bet with show up there in the next set of accounts. Let us wait and see if I am wrong.

Working capital: Yes, it won'r break the bank.

Hi Pelle,
"L3, I would like play that bet 1000 SEK.
If oil average more then 60 you pay me 20k"
Not a fair bet my friend. I did not say that my confidence interval was centered around the 50th percentile. So, for all purposes all I have revealed is that 19 out of 20 chances the average price of oil in 2021 w/ be b/w 42.5 and 60, and 1 change out of 20 it will be outside, so for example above 60, which is the strike value for your bet.
The bet you offer me is that I get paid 1K SEK x 19/20 and I pay you 20K SEX x 1/20. It is obvious 19/20 is < 1. So the bet you offer me (given my subjective probabilities as revealed by my 95% confidence interval) is not fair, i.e., in expected terms I will lose money. Well, I am already losing money with ENQ -:)
What I want is someone who would help me to hedge, i.e., offer me odds I can accept to give me downside protection that are better than what I can achieve by buying oil options that mature next year.

Anyway, as you are a poster friend, I will buy you the drinks if the POO averages above $60/bbl in 2021 at the Jan 60p party, if he invites me. Now, do not count your drinks yet... Since (and including) 2015 Brent has only averaged above $60/bbl 2 out of 6 years. So, no guarantee of free drinks. -:) (Listen to what Chilting writes about the POO and you won't go wrong.)

Hi Therapist: With gas and machinations I make that 54270 boepd. Malaysia out. But may be easing these figures and the TU one can figure out Malaysia production in the 4 months in question. Is Alba taking a breather?

Hi Krakenoil, one cannot compare CNE and ENQ. The former has no debt, it has a lot of cash, so EV is what it is. ENQ's EV has not changed that much, as only Market Cap has changed. In addition, CNE hedged a good portion of its 2020 production at $60+/bbl and also some good hedges in 2021 (CNE has James Smith and that is a big plus). Pelle can tell you more about that.

Hi Londoner, Let us hope Magnus is ready to produce above 20Kbopd 2021.

GLA