Member Info for L3Trader

Hi Pelle,

"L3, what do think oil price can go to highest in Q4? 50 a fair bet?
And average next year 55?"

On 11 August I wrote; " I was using an average POO in Q3 of $48 and $55 in Q4.". Obviously, I was very optimistic about Q3 as average price was below $44...As far as $55 in Q4, all signs are indicate that I was being very optimistic too. At the moment $50 in Q4 would be great! And despite me being optimistic ex-post Squif still think that I (along others) are too pessimistic.

In 2021, the average poo can be anywhere...but never higher on average than $70, even with a mini bust up in the Middle East. We are in uncharted waters because the poo is usually driven by economics (demand as driven by the natural economic cycles and supply capacity) and politics (conflict and sanctions that constrain supply), but now we have another variable that is very uncertain, the pandemic, that can shut down demand overnight w/ lockdowns. For whatever is worth my view is that Sweden is managing the situation better than most other countries.
"I currently only hold 35% here and the other % in two other oil companies."
I have stopped adding to ENq, but have also not sold a single share. The reality is that many LTHs have either sold and left and/or stopped posting altogether. That is telling. of what people think of what will happen to oil and or ENQ. You no longer read anyone predicting FCF of $500M this year, ike some people did in the past. All that was pie in the sky, which is fine as long as you do not fall for it...

I do not think ENQ will do any deal with EXXON in the UK, or even Malaysia. They were selected by Exxon to stay in the auction for strategic reasons. A deal with BP might be possible. Reason: BP said it will decrease production at a rate of 5% a year, basically the yearly decline of the production. Since they have new projects coming in, they will get rid of less profitable ones. And deals like Magnus do not count for their production, because their claim in on the cash flow not on the production. So, BP could effectively keep producing a lot, although reporting much lower production, by doing Magnus type deals. I think that would be very noble of them, lol...

GL

In short it says:
A fracking binge in the American shale industry has permanently damaged the country’s oil and gas reserves, threatening hopes for a production recovery.

In due time you will be a wealthier person, di or no di...

For you :

https://www.ft.com/content/aad9c356-b37e-4768-b39f-c22b9548b290

Hi Londoner7,

Yes, indeed, many parts of my post were not clear. The dangers of posting w/out re-reading.
Here is what I was asking:

Q1) Is CNE making a profit out of its Senegal Expedition, if we are to assume they will eventually received the full $100M contingency payments (that adds to the $300M and the 2020Capex reimbursement?
Reading one of your earlier posts, it seems you had already answered the question: "albeit at a loss on the outlay over the last six years. Give me a few a hundred million dollars and I’d be happy to return 90% in six years for a lot less than management are paid" Thus, overall return is -10%. I have not gone back to read all that was spent in Senegal over the years, that is why I had asked.

Q2) Is on 2P reserves.
The 2020H1 presentation has 2P reserves for Kraken and Catcher that will be ultimately recovered https://www.cairnenergy.com/media/2806/half-year-results-presentation-sep-2020.pdf
Kraken (slide 14). CNE assigns 99.9 MMbbls 2P to Kraken (this figure must include the Worcester 2P converted at the end of 2019). This figure is substantially lower than the 137MM bbls at FDP back in 2013 (as presented by the Operator). And Worcester would have added 6MM bbls to it. 99.9MM bbls is about 2/3 of ENQ's figure of 137+6 MM bbls.
Catcher (slide 15): CNE assigns 54.9 MM bbls 2P to Catcher. But since their slides show that 47.4MM bbls have been produced, what is left is 7.5 MM bbls. However, since the FPSO will stay in Catcher until 2025 (or later), the reserves estimate must be outdated. The FPSO would not stay in place 4.5 more years to produce less than 2MM bbls per year. This is the reason why I am puzzled about the 54.9MM bbls 2P reserves to be recovered figure.

Thank you and GL.
p.s.: Incidentally, given PMO's statement that in H1 average Catcher premium was £2/bbl, if I find Therapist's H1 production data I might try to guess Kraken's premium, mindful that it will be a wild guess.

The latest events show POG continues to be the same old company. Surprises at every single turn... There should be a warning for PIs owning this share; "Stay away if you have a heart condition..."

I highlight an interesting part of the RNS:" In addition, the validity of the authority of the Interim CEO to act on behalf of the Group has been challenged in local Russian courts and negative and inaccurate information has been published on social media platforms in Russia regarding the Interim CEO, the Board and certain of the Parent's shareholders. The Board is working to resolve these issues in the best interests of all stakeholders.
Since its appointment at the RGM, the Board has continued to address the question of Board composition and it has engaged an external search consultancy to assist it in making further appointments of independent non-executive directors. The Board remains committed to ensuring it has the necessary strength and breadth, with a transparent governance structure that will command the trust and support of all stakeholders."

I am also waiting to hear what is going with IRC. Surely Hambro will be deposed. In the meantime, I reply to a post by Kenj on 26 Aug. He presented a great analysis of IRC's margins in response to my comment that IRC should be repaying its loans faster than in the repayment plan.
He pointed out that during H1 IRC sold iron ore 65% fe at a discount of roughly $20/mt. There is now publi available data for Q3 iron ore 65% fe ( http://www.custeel.com/en/csi.jsp). Computing average price for Jul, Aug and Sept one gets $120, $131 and $136. Using the $20/mt discount. that leaves us with an average of $109/mt. If the cost stayed the same as in H1, i.e., $49/mt, and production was ) 0.7 million tones, the income would be $42M. I see no reason why repayment of the loan should not be faster than C. $5/6M per quarter given the income.

GLA

Hi Londoner7,

Thank you for sharing your views.

Quite busy at the moment, so a more detailed comment from me will have to wait. But here are some superficial thoughts. I like ST and JS, along with PM and EH. They all did very well and answered the questions. I wished some questions had been different, but for that you w'd need PIs on the call.
So, here is my 1st question: suppose the Senegal $100 contingency payment comes through in the end. What is going to be the "profit" of the Senegal expedition?
2nd question: What is the Kraken premium? We know Catcher's premium was $2/bbl (as per PMO's earnings. PMO tell you everything you need to know.)
3rd question: what are the 2P reserves now?
i) Have they revised the Catcher 2P up? Their slides show there are only 6M 2P left in Catcher, but given FPSO will stay in place until 2025 (or later), something does not add up... Would have to read past reports/etc.
ii) CNE assigns 99MMbbls 2P to Kraken (including the Worcester 2P converted at the end of 2019), that is way below 137MM bbls at FDP w/out Worcester. So, something must have been lost along the way.

A comment, rather than a question: I hope ST and JS do not overpay for assets. It is their excellent past financial discipline that has kept CNE in a strong financial situation. Seems no M&A, which is probably a good thing, but if CNE could nick PMO at a good price, CNE has the financial strength to get PMO's debt down quickly. They would have to use the proceeds from India's tax office. I hope all is left to do is for CNE to send them their account number and Swift code...

I hope this bb does not get invaded by the one-line moniker poster, or by any of the accounts he uses occasionally to abuse others...

GL

smokinaces, it depends on the price isn't it? That is the way companies buy or sell assets. Or at least that is the way I do it when managing real assets. What is not very bright is to say, "I am not selling at any price..."
I will write what I want. You do not need to read my posts. If your numbers go against my views then post them rather than just saying I am wrong.

I have not written that ENQ is any danger now or in 1 year from now. It is not. (Let me repeat: It is not.) What I wrote a few times is that there is no path to full repayment of the RCF by Oct21 w/ the poo below $50, w/out some borrowing/presale of oil/ etc., which is all fine but makes the point that debt repayment is much slower than anticipated. But given that a deal is in the making, ENQ will be a very different company by then.

As for: "Just because someone says they own shares doesn't make it true." But would make me a liar, which is what you are insinuating.

As I wrote before, I post as if people knew my identity.

Selling 15% of Kraken would depend on getting a good price given reserves. CNE has cash but low 2P reserves as explained by Londoner7. Only useful as a way to pay down RCF and to share more of the CAPEX costs of future tie-ins in the Kraken field. Also, diversify risk, if that money can be used to do more deals in Malaysia.

My reference to CNE is clear. They are the company with the best financial situation at the moment. Given that it was mentioned on this board by londoner7, would be very pretentious of anyone to dismiss all other north sea operators of being in a mess.
But hey let us keep believing the PR one line moniker poster. He know when they are coming, but has yet to tell us...

Squif,
Thank you for a very helpful summary of the situation. I was going to post something on debt and financing and enlisting CNE as a partner or selling 15% more of Kraken to it to out to rest the perceived financial constraints 1 year from now, but this week's news have led me to change my plans. It is very clear that AB is going to do some deal. The new show he is desperate to so something. However, sometimes the best of course of action is to let it go. No one is going to give anything for free to ENQ. What is AB going to do? The only person who might know is ENQ's PR representative on the board. He ends his messages w/ a one line moniker. The problem is that for him ENQ has always gone from strength to strength, so the reasons for the deal will be portrayed in PR spin.

January2, I fully agree with you. But EGO trips is what people with big EGOs embark on. And sometimes they sail to close to the wind. Paying debt back will be the best way forward unless they can get a vendor loan (or a 3rd party Oz like loan) for good assets, not aging assets with high OPEX, or assets operated by others (Exxon's assets in the North Sea), etc. But hey, there are people who believe ENQ is the company in the North Sea operator with best financial situation at the moment. I have no idea how someone can say something so outrageous. Just a few days ago CNE was mentioned in a quiz by Londoner7. Now, if financial statements are irrelevant, then anything goes...

Lomdoner7, I will write a long post to reply to your questions and will follow up with a few more. My earlier thought have been superseded by AB's impulsiveness.

All; as a LTH who has never sold a single ENQ share I bought over the years I am against deals that dilute existing shareholders. I hope that is clear to everybody. Thus, I am not keen on any deal that would result in that. Listen to chilting (who does not suffer from share_ownershipitis, as he told us he had sold his shares, who sees little or no value in any of the assets being "offered" to ENQ, apart from one.

GLA

A few quick questions:
- Are the $233M being repurchased at par? The RNS does not say anything about it.
- The bonds were going to mature in 2022. Why the hurry? Once the poo goes up, GENL will receive money owed by KRG. So, on a more solid footing, could lower the interest rate from 10% to something substantially lower than what it got 9.25%. My view has not changed. This is not about GENL being risky. It is all about deals being made that destroy shareholder value, for those of us who do not own the bonds.
- The justification on having to pay 9.25% because GENL is a risky company, only reinforces my view that GENL should acquire a portfolio in a neighborhood that is not so rough (...), as DNO did when it took over FPM.
After all Genel had cash in excess of $350 million at 30 August 2020, and net cash of $55 million. W/ lots of small E&P in financial distress now should be the time to diversify to lower risk. If GENL only has producing assets in Iraqi Kurdstan, KRG will keep on playing hard ball.

Finally a question: are the monthly payments currently being received from KRG the full amount that corresponds to the corresponding monthly production, or are KRG withholding some?

GLA

Pelle, your account hijacked again?
gkb47 please send him the invoice...

Pelle (or whoever has hijacked your account),
Read it here
https://www.theedgemarkets.com/article/exxon-narrows-bidders-us3b-malaysian-assets

They are bidding for everything. I do hope Mr. Market gets fooled by their tactics, sP shoots up and I alight half of my holdings...

Very bad news: Rigs are up by more than 10... Permian is back. Dallas Fed survey shows shale E&Ps main goal for 50% of them is still to maintain or increase production. They will never change. They have no interest in ever returning capital to shareholders.
This caps the upswing of the poo. Very bad times to be investing in oil.
Also note news about IMHO compliant oil crudes: premiums are way done from early 2020. So Kraken premium is now for sure not more than $5/bbl.
https://shipandbunker.com/news/apac/737931-woodside-petroleum-to-alter-vincent-crude-to-target-vlsfo-market
https://mfame.guru/global-marine-fuel-demand-to-fall-by-17-due-to-the-pandemic/
there was another link i lost w/ more detailed info

Finally, here is the info on treating tax losses:
https://www.gov.uk/hmrc-internal-manuals/oil-taxation-manual/ot60000
https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Energy-and-Resources/dttl-er-UK-oilandgas-guide.pdf
Better reading it before spinning this as ENQ's saviour and finishing the comment w/ a 1 line moniker...

hitman1a: you are right. better having no new asset than one with a negative NPV.

GLA

A-RDS
B-CNE
C- ENQ

PMO's: Regardless of what they write in the AR I have learned their purpose the hard way as a shareholder: "our business model is to dilute shareholders every now and then until they have been put out of their misery..."

The coupon is 9.25% for a company that is in a positive cash net balance. This is a terrible deal. I wonder who got such a nice steady stream of income.
Previous coupon was 10% when interest rates were higher and the cash balance was not positive.
Management doing deals we do not know?
There should have been an explanation why the interest rate is so high.
This is becoming an uninspiring company.

gkb47,
The prize will be announced at Jan's 60p party. Perhaps we should not wait until that and announce at the 30/35/40p party I mentioned at some point. Pelle will bring the SEKS x 2 to pay for the drinks. Therapist will organize the entertainment.

Just for the investors who like numbers... Kraken premium related findings (Vincent is one of the best crudes):
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/073020-australian-vincent-crude-quality-improvement-bears-fruit-as-price-differentials-surge
This means premium for Kraken will at the moment be lower than $8/bbl. there is also the difference of transportation costs. So perhaps max premium atm is $5/bbl.

Exxon sale: Pls read Exxon's news. They want cash when they divest to keep their dividend going. Vendor loan is not going to work for Enq. Enq would have to find financing from elsewhere. But the question is: why would you spend $6M laying people off to then acquiring Exxon's assets and have to hire people back? Seems like there is no LT strategy. We shall see how much knot theory AB learned as an UG...

Kraken: I think ENQ should try to sell 15% of Enq to CNE if it can get a good price. W/ the Oz loan to be repaid by 1/10/21, a sale of 15% to CNE, would keep the effective WI at 55%. Otherwise get a $100M loan like the Oz loan on a much lower interest rate...

GLA

Safi, Could you please elaborate further on how you see the Q3 update? (Agree the H1 numbers were uninspiring)
You seems to have a lot of expertise about this industry. Can Tremor outcompete its rivals given the new mix of services it now offers? I ask this because it seems they are changing their mix all the time. Is the Unruly acquisition any good, give the price paid (in shares)? I.e., does it have the potential to deliver meaningful profit going forward?
Any others who can comment on these issues pls do.
TA

The refinancing is on better terms than before. However, note that $13M have now been borrowed to replace previous loans. All of them, or just part? (Note that as of July 22 "The Company owes approximately US$15.45m to the Secured Lenders.". This was lower than at the 2019YE results, i.e., May 2020, "As the Group has Term Loan Notes of
$18,177,209 due for repayment on 1 July 2020")

The interest rate of the new facility is also much lower: " interest rate swap transaction to fix the interest rate at 3.99% throughout the 7-year term of US$7m in principal". The rest has an interest of at least 3.5% (2.5% + the max of {Libor, 1%). So, interest expenses on the $13M borrowed per year will be $0.5/$0.6M per year until Libor shoots up. Finance expenses (which included all kinds of stuff related to the convertible notes) were running at more than $2.5M per year. One expect that this will make a huge difference to IOF's SP. With iodine prices now at $35/kg or above H2 should be very good. Let us hope that the weakness of the hemp business does not affect the results too much.
Conclusion: The company is is much better shape now. Can its SP reach its recent previous highs of 30+p? The current market cap is £25M, but this could easily double.
GLA

Hi Londoner7,
As a follow up on my earlier post, I do find it surprising that 2P are being valued at $15/bbl, which is also the often talked about cost of developing and putting into production 2C into 2P, unless for a coincidence. I am in no way questioning your calculations. In fact, I am grateful for you having posted them. I am just baffled by the kind of figures Mr. Market can throw at us.

Producing 2P reserves should be valued at the present value of (Poo - Cost) /bbl given the profile of production. If that is $15/bbl at the moment, so be it. But it tells us that Mr. Market is expecting the poo to stay low, because as we know for ENQ
Opex + Others costs (including servicing debt)/ bbl might be leaving on the table $15/bbl at the moment, but w/ higher prices would leave more (so perhaps the % increase of the poo expected in future years just equals the % used in the discounting of future streams). Until the valuation of 2P producing reserves goes up it is hard to see Mr. Market changing its view about Enq.
Your comparative valuation of ENQ, PMO and CNE has prompted me to look at a couple oil companies more closely, namely CNE, and i will post about it there at some point soon, when I find the time to review my brief notes. But one thing that I would add here, and in light of your comment that CNE is a cash shell is that ENQ might want to find a mutually beneficial deal with CNE that lowers its net debt.

All,
Where is E121 when you need him? Rigs down by 1. Shell slowing Permian drilling. Frac crews at 89. Impressive wave of weather events in the Gulf of M.
All this is good news to the drawdown of crude stocks, but OECD stocks still need to come down by 200MM bbls and we have no idea of the aggregate stocks of non-OECD countries. The latter could have a huge impact on the term structure of the poo.

Jet fuel is now being blended w/ other stuff for shipping fuel. Not good news for that Kraken premium.

Finally, gkb47 takes the prize for long term forecasting of Kraken's offload #85, and do not believe anything Pelle writes as he claims his account has been hijacked.
GLA

https://twitter.com/OilGasTracker/status/1306883946957996034/photo/1

Londoner7, Thank you for your detailed replies. Much appreciated. I will get back to you. Just a quick note: my mentioning of the payables was not related to Magnus, but an implicit partial observation about working capital movements.
Magnus's contingence payments: Last year E121 misinterpreted what I wrote about this subject. I followed up on this matter again in 15/12/2019. It referred to the accounts at the time, but the key part of the post was to convey m understanding on how it changes as the input variables (poo, production profile, costs (OPEX and CAPEX), holding the discount factor constant) change:
2019 EARNINGS: A pointless headline figure. Why? Because this semester there will be plenty of remeasurement and exceptional items, many of which are non-cash charges.
We have:
- Unrealised mark to market movements on derivative contracts and other financial instruments. Who knows how much has been hedged ahead of 2020. With the POO going up, the derivatives that protect the downside are worth less.
- Next, you have items related to Magnus's contingency consideration. Here you have (i) and (ii):
(i) the unwinding of the (time) discount of $28M
(ii) the change to the fair value, which has the following components (1,2 and 3):
1)if the POO is up, payments to BP in the next few years will be higher than estimated in H1 - thus fair value goes up - and that is surely the case in H2 as the POO at 31/12 will be higher than it was on 30/06;
2) if the production profile for the next few years is higher than it was projected in H1, payments to BP in the next few years will be higher than estimated in H1 - thus fair value goes up). Since I do not know if the production profile had already been used in H1, I do not know if the increase in the fair value had already been recorded then;
3) if the cost of production (OPEX) (and CAPEX as well) in the next few years goes down, payments to BP in the next few years will be higher than estimated in H1 - thus fair value goes up.
(1+2+3): I expect the change to the fair value to be positive, but hopefully lower than in H1, i.e., $27M.

Valuation of 2P and 2C reserves: 2C reserves are close to worthless in a world where Mr. Market believes they are stranded assets. Your calculation of 2P reserves reveals some intriguing elements. Why would they be valued at the Capex/bbl, (which as you say is $15/bbl) if they are in production?
More later.
GLA (w/ a one line moniker)
p.s.: Pelle: we had agreed you would not utter the forbidden word until the poo gets back to $55.