Member Info for L3Trader

Rosewall,
I hardly ever, ever comment on these matters, but since I am seeing investment boards inundated with questions that should not be discussed here, and factually incorrect statements, let me point out to you that what you wrote is plain wrong. There is no Scottish citizenship officially, as it falls under British citizenship of the United Kingdom. Furthermore, the Scottish Independence Referendum (Franchise) Act 2013 defined those able to vote as those aged 16 or over who were registered as voters either through the existing local government voters' register or a new "young voters" register, and holding an appropriate citizenship (Commonwealth, Irish or EU member state). So, English, Welsh, Canadians, and EU citizens could also vote, as long as they lived in Scotland and were entitled to their views. Let me conclude by giving you the address of the person who would decide whether an independent Scotland would become part of the EU: Avenida Puerta de Hierro... And the odds have and will always be very poor!!!

(Cont.)
PRODUCTION HEADLINE FIGURES: ENQ and many posters use the production figure that includes Petronas's entitlement and BP's share of 75% of Magnus. In my notes I have the net figure which is c. 10Kboepd lower, as c. 7.5Kboepd of Magnus generates FCF to BP and c. 2.5Kboepd of Malaysia goes to Petronas. This is the figure, at the moment c. 60Kboepd, I use to compare w/ the production figure of other Oil companies. If we ignore Petronas entitlement, we can also see that the increase in production that accrues to ENQ b/w 2018 and 19, was 7Kboepd (from 55.5Kboepd in 2018 to 62.5Kboepd in 2019, after I subtract the 7.5Kboepd BP gets). Well, since ENQ gained 7.5Kboepd with the acquisition of (50% of) 75% of Magnus, I am inclined to say that y-o-y, the other assets are producing less, and this despite an outstanding performance from Kraken in 19H2. Needless to say, that if I used the net production figures, I deduct the corresponding OPEX and CAPEX for Magnus.

PRODUCTION GUIDANCE FOR 2020: Incomprehensible the lack of info by ENQ. Will ENQ only put out guidance by Feb 20? That is not right, and is indeed shocking. Important production hubs:
i) Magnus in CMD's slide the 2020 oil production is 18Kbopd (so 1K lower than 2018 CPR figure). We hope that water injection problems have been fixed. As this yesr's production will be below CPR's guidance, which was 16789Bopd. ENQ have been stating that production is above CPR's guidance, but the production figures tell a different story.
ii) Kraken's performance over the winter will reveal if AK is fixed. Offload #53 is on a 15 day cycle (from departure to departure). I hope they get an offload of 600K for an average of 40Kboepd, even that is lower than November's daily production. They must have had to choke production in the last few days. I was told this is not ideal for oilfields. PodOpt and others would know...

I am hoping for FY19 production of 70Kboepd (Kraken's net 25.5Kboepd, Magnus 19750Kboepd, Malaysia 8750Kboped, "the rest" 16Kboepd).

I would like to see 2020 guidance of 75Kboepd. How to get to it?
i) decline in "the rest" will be about 12 to 15% so a decrease of 2K to 2.5K boepd
ii) Magnus's production will increase by 2Kbopd (oil production will go up by 2Kbopd)
iii) Malaysia's production will go up by 0.750 Kboepd to (9.5Kboped)
iv) Thus to get the 5K boepd increase Kraken's net production has to go up by 4.25Kboepd. That means Kraken's production of 42.2Kboepd. Can Kraken deliver such production? Hope so.

POO: $65 is good but not enough to bring down net debt below $1B, unless production increases to more than 75Kboepd (the difficulty here is that there is maintenance and stuff happens, especially with old oil fields). An extra 2.5Kboepd and net debt will be below $1B. Otherwise POO at $68 will do. As I wrote a few post ago, oportunistic hedging is in order, starting with hedging Oz loan's related production of about 200K per month for the next 4 months. Get it d

Londoner7: apologies if I confused you. Also for not replying earlier, but during the week often hard to follow anything as work comes first. Reading the exchanges b/w you and E121, I think that now you have all the info you needed, and would not surprise me if you know knew even more than most of the ENQ board about their Malaysis business :) The bottom line is that the WI in PM8 and Seligi is 50%, but 70% in Tanjong. Thus the c. 8.5Kboped production reported. These are gross as they include Petronas's entitlement.
My understanding is that Fernan10 modeled this as 65% of Brent x Gross production in 2018. Costs entered the accounts on the basis of the gross i.e., 8.5Kboepd production (we can avoid modeling costs for the Malaysia production by using the $550M OPEX figure for ENQ's portfolio, as that includes Malaysia, as well). As you know this oil attract a premium of c. $7 to Brent, so the 65% of Brent, actually corresponds to c. 60-61% of the selling price. I have not looked at the formulae in detail, but my recollection is that as the R/C goes up, year after year, ENQ receives less and less.

Anyway, I was delighted to hear the news that ENQ has secured a new PSC in Malaysia, with a 80%WI. As I wrote on 24 Nov 2019 12:24, I would want to see ENQ substantially increasing its presence there to diversify its risk (Central and North Sea will see risk going up now that the UK constitutional issue is back on the table. If Scotland were to ever go its own way, then whoever is in charge will need to tax oil a lot more to reduce a budget deficit of close to 10%. You can only tax real estate and natural resources, as both cannot vote with their feet. People and capital just run...). So, I hope ENQ makes its **priority ** to increase its footprint in Malaysia to 25-30Kboepd by 2023. In fact, I believe they should borrow money there (assuming interest on borrowing attracts corporate tax relief) to expand as much as they can. In addition, they should look at transfer pricing if ENQ central office is providing planning/engineering/admin services, etc. to this subsidiary. That is fair and also lowers the tax bill.

PRODUCTION HEADLINE FIGURES: ENQ and many posters use the production figure that includes Petronas's entitlement and BP's share of 75% of Magnus. In my notes I have the net figure which is c. 10Kboepd lower, as c. 7.5Kboepd of Magnus generates FCF to BP and c. 2.5Kboepd of Malaysia goes to Petronas. This is the figure, at the moment c. 60Kboepd, I use to compare w/ the production figure of other Oil companies. If we ignore Petronas entitlement, we can also see that the increase in production that accrues to ENQ b/w 2018 and 19, was 7Kboepd (from 55.5Kboepd in 2018 to 62.5Kboepd in 2019, after I subtract the 7.5Kboepd BP gets). Well, since ENQ gained 7.5Kboepd with the acquisition of (50% of) 75% of Magnus, I am inclined to say that y-o-y, the other assets are producing less.

TBC

GLA

I know you can

the re-arranging was for the readers who thought it would make a difference if it was Q rather than P. some old file was a reference to Malaysia OPEX, but i cannot find it.

wrt Pelle, i am afraid i have just called a shrink in Sweden to see if she can treat his fixation on enq dividends, which have never ever existed.

ATB

Hi gkb47,

please see pages 70 and 71 in
https://www.enquest.com/fileadmin/content/statements_reports_presentations_and_general_PDFs/151208CapitalMarketsDay.pdf

production is reported gross.

using the law of decreasing marginal return i use Ferna's rule of thumb, 65% of realized price as in his posted calculations.

why? because (0.65 x P) x Q = P x (0.65 x Q)
so whether it is 65% of P or 65% of Quantity revenue comes out the same.
OPEX in Malaysia is for sure not higher than $15/bbl

Have a great week

hitman1a: Agree w/ you on ENQ dictating the terms of hedging to Oz. However, the terms of the loan have not been disclosed, and I suspect the terms are that the production is hedged at least one quarter ahead. It is also unclear what interest rate is paid on the capitalized interest (at 30/06 there was $7.5M capitalized interest). It could be as high as 10%! Your point about lack of disclosure on individual production by ENQ is well taken. ENQ's lack of guidance for Kraken in H1 2020 will not reassure the analysts. CNE have made no comment on it either.

Londoner 7: The last line of my Oz loan calculation has a typo. The balance should read $131M as the balance on 30/06 was $165M.

Pelle: I did not write that net debt will not get down to below $1B, if the POO increases and or production get above 75 Kboepd.
As I wrote I want ENQ to come out with that net debt target. The financing of O&G companies by banks is going to get more expansive because of the pressure of interest groups lobbying against fossil fuels. In the past the World Bank, the ADB, the ERBD and other similar institutions were willing to lend and provide different kinds of investment finance for such projects in less developed countries. That is coming to an end.

In short, anyone who thinks that there is a future for highly leveraged publicly quoted O&G companies should reflect on the implications of the current and future backlash against fossil fuels.

The good news is that less financing will mean less production...

Pelle, let me ask you two things about your FCF calculations:
i) Did you take into account that about 4Kboepd is gas, which is sold at about $30/bbl (this is E121's figure)?
ii) Did you use the effective selling price of the Malaysia production? Fernan10 used 65% of Brent price to convert Malaysia production to revenue. And he was always spot on. There is a formula for it. Others who know better can explain, if they wish.
iii) Decommissioning: Alma/Galia is going to happening soon. The project was a major disaster and OPEX must be well above $30/bbl at the moment, given how low the production is.

PRODUCTION and OPERATING MARGINS: Total production is a good headline figure, but what matters for FCF are the margins on oil from the different fields. As Londoner7 explainmed these are highest for Kraken, Magnus and Malaysia. Perhaps high margins on Scolty/Crathes at the moment. Ditto for other old oilfields. So, if the production in 2020 were to be b/w 72.5 and 75Kboepd, but the mix involved a lot more from Kraken than in 2019, FCF will be higher.

MAGNUS CONTINGENCY CONSIDERATION: In 19H2 cash payment to BP (including the vendor loan repayments) will be at least $50M. Would be more if Magnus in 19 produced as projected in the GCA mid-case, but that is not the case, if I recall correctly.

GLA.

Therapist: Thank you for the table. Could you please post the set of graphs, as well?
Can I ask what is the reason behind the difference b/w your and Londoner's October's produtcion, i.e., 86,206 vs. 82,777?

The good news is that a strong November and December, i.e., 77500 in both months, is all that is needed for FY daily production to be above 70Kboepd, thus, above guidance. Ditto for Kraken. If all goes well, i.e., November and December average 47500, FY daily production would be 36.5Kboepd, thus above guidance. Speaking of Kraken, a very strong performance in 2020, i.e., reaching 85 loads, (so 42.5MMbbls) would get it really close to reaching break even (ignoring financing costs) of the investment made up to and including 2019.

gkb47: Which energy companies in Fuel Cells and in Energy Storage using VRFBs have caught your eye, if I may ask?
I agree w/ you on Drax not being a true green energy producer, given that pellets have to come all the way from the US.
But, at some point they had ambitious plans for CC.

Pelle: If you read Londoner7's post on FCF you will see that on the basis of his assumptions FCF in 2020 will not reach the
close to $500M needed to bring net debt below $1B. My views informed by his posts are very similar to his. Unless the POO
gets well above $65 it will be difficult for the net debt goal of less than $1B to be achieved. But it should remain a goal.
You are getting fined a lot again...gkb47 is doing a superb job keeping track of the fines.

GLA

Hitman1a: I was going to post more on my hedging analysis for H2/19, but there seems to be little interest among posters
apart from you, so I only add that in the end only 5MMbbls were not hedged in H2. I hope ENQ hedges the Oz loan production for H1/20 right away if Oz allows it to go ahead. Guaranteeing a floor price of $60 for the Oz loan linked production is a priority. ENQ should also buy a put at $62/bbl for Q1/20 for the 25% Magnus production right away. The 6 to 12 month section of the term structure of the POO is not going to rise above $70 in the next few months, so ENQ needs to engage in opportunistic downside protection hedges.

Pelle: W/out guidance from ENQ on Kraken there is little I can say at the moment on 2020 production. On revenue, ENQ has no hedges for 2020, so revenue will much depend on spot POO. My view on POO is the same as E121. The moment 12 months ahead POO goes above $70 shale producers first hedge 12 month forward production at that price and next call the rig operators!
I am counting on CAPEX being $150M + the shortfall from the 2019 CAPEX budget of $275M. Decommissioning expenses will increase to $25/30M.
Here is something for you: there are 8 recommendations on ENQ as follows: Outperform 1, Hold 4, Underperform 2, Sell 1.

Oz loan: Londoner7, as promised some time ago:
Net bopd Revenue
Jul 19500 40.1388
Aug 25000 47.6625
Sept 28200 57.08526
Oct 30315 61.5546075
Nov 33840 65.4804
Dec 31725 64.4176125
Total 5163940 $336.33918

Revenue of 15%WI: $71.56M

OPEX ($10/bbl) -10.99
Oz loan interest (8.8%)  -7.26
Oil transportation cost ($4 bbl)  -4.39
Lease (FPSO) ($90M per year) -9.57
Kraken FPSO leasing interest -5.32

FCF $34.03M

So, Oz loan balance on 31/12 ci. $135M

Assumptions: $0M H2 Capex, Cash sweep on 31/12. If last cash sweep of 2019 was on 01/10, then Oz loan balance will be close to $150M.

gkb47: I understood Londoner7's point. And I like both apples and oranges. CC: Have you looked at Drax. A few months I got back into it. I has a small holding back a few years ago when they had a CC project.

ENQ's LT strategy: Malaysia expansion is excellent idea. I posted about it before the announcement. Hope they can continue to add to their Malaysia operation. No more old platforms in the North Sea. High OPEX, which means small margins, and lots of headaches. Not worth it!

SP: Baffling. At the moment FCF > $1M per day.

Projects not mentioned in the CMD: Eagle and Dons.
SVT: Can ENQ convince BP to use SVT in the foreseeable future? Hope so. Can SVT offload to VLCCs?

GLA

All,

Therapist: If you could please post your updated file with pictures and the excel table that would be much appreciated.
Your forward rolling 4-month moving averages are very helpful to inform my thinking about production.

Kraken: Like Londoner7 I am surprised that it is doing so well. I hope it continues to do well, and that ENQ puts out production guidance b/w 40 and 45Kboepd for 2020. Note that in the FDP the 4th year of production guidance was 52.4K,
and 39.7K, 28.8K, and 23.5K in the following 3 years. Kraken is ENQ's major project and thus it is key to ENQ's re-rating. Note that if production had tracked the FDP by the date Kraken crossed the 25MMbbls it should have produced 37.5MMbbls. Given ENQ's WI, ENQ should have sold 8.8MMbbls. Multiply this by $55/bbl as marginal cost of production was low, and you have close to $500M net debt reduction that would have brought net debt to $1B by now, along with the Pelle divi! I am still interested in figuring out when CAPEX was reduced to $2.1B, as the reports do not give me enough info for me to arrive at this figure. If anyone knows please do post. Thank you.

gkb47/therapist(?) forecasted offload #75 would take place on 19/09/20. That would be very good indeed. I also bet on offload #75 being in September, but I am betting on 30/09.

Scolty/Crathes: Londoner7, I have gross reserves as 10.3MMbbls (ENQ and MOL), being unaware if they were revised. This puts a cap on production. 4Kboepd net to ENQ should be doable in 2020, but the decline given the reserves would be quite high in 2021. I have also tried to get a CAPEX figure for this project, but could only find reference to $58M in FY16 ad $30M in H117. I bet it was more. Does anyone know?

Londoner7: How do you get 15% depletion in the set of fields that excludes Kraken, PM8/Seligi and Magnus? I agree w/ you that OPEX on such fields is above $30/bbl, given that the average across the portfolio is $22/bbl, and that Kraken's OPEX is below $10/bbl for sure.

On Magnus, the underperformance (in relation to GCA's projection) at 16Kbopd will lower the amount of the contingency
consideration paid to BP in H2 19. But, in 2020 ENQ should receive a larger amount of FCF from Magnus than in 2019, even taking into account the $100M cash back received this year. The reason is that under the 50/50 split it would receive $50M of those $100M of FCF anyway. In addition in 2019 ENQ paid to BP $34.7M of the vendor loan related to the acquisition of 25% of Magnus. This will not have to be repaid in 2020. Ditto for the 5% interest on that loan (so another $1M saved). Since the vendor loan related to acquisition of the 75% will decrease by $24M or so, the interest (at 7.5%), so close to $2M, will also no longer be paid. In short, it is close to $37.5M that won't have to be paid to BP. That almost makes up the other $50M of the cash back received this year.

GLA

Hi Pelle and all,

1H earnings:
"For full year 2019, the Group’s hedge programme covers c.12.5 MMbbls. For the second half of 2019, the Group has c.4.6 MMbbls of oil hedges in place. Approximately 3.9 MMbbls are hedged at an average floor price of c.$66/bbl, with a further c.0.7 MMbbls hedged with an average floor price of c.$56/bbl in accordance with the Oz Management facility agreement."

TU 21/11
"By the end of October, c.13.4 MMbbls of oil hedges had been settled, with c.12.1 MMbbls achieving an average floor price of c.$66/bbl. For the remaining two months of 2019, c.2.4 MMbbls of oil hedges are in place, with c.2.2 MMbbls hedged at an average floor price of c.$64/bbl."

So total of 15.8 MMbbls hedged in 2019. But in early September only 12.5 MMbbls were hedged. Thus, hedges since early September were 3.3 MMbbls. Perhaps they did read what I wrote (-:) once and hedged in the immediate aftermath of the Abqaiq/Kurais attack.

The c.0.2 MMbbls for which no price floor is mentioned must be related to the Oz loan.

7.9 MMbbls hedged in H1. 7.9 MMbbls hedged in H2. Of these, we know that 3.9MMbbls had an avg floor price of $66/bbl.

KRAKEN PREMIUM: a lot of people are mentioning $3 to $5, but thr recent TU states that only some cargoes have attracted a
premium. Thus, it is better to assume it is no higher than $2! On the other hand if hedges are settled financially the Krak premium (suppose it is $2) will always be cashed in on top of the hedge-realized price.

Suppose you use a 2-way collar w/ a floor of $60 and a ceiling of $65 (via buying put and selling call). If the price is $56, you get $60 plus $2. If the price is in b/w $60 and $65 you get that price plus $2. If price is $68, you get $65 plus $2. In other words, the Krak premium does not distort the hedging strategy.

Hi Londoner7,

First all, my apologies as I clearly misinterpreted your statement on the contingent consideration. I overlooked the last bit of your sentence where you clearly mention a longer time horizon than 19H2. I was referring to only that 19H2's final balance could potentially be higher than 19H1's balance.

I have a few questions about your posts today:

"On the 75% share, a consideration of $116m (the balance of the original $200m after adjustments), was due at 1st Dec 2018.
This represents the Vendor Loan repayments which I understand are to be repaid at circa $34m p.a. over five years."

I believe that if you pay the sam amount every year, $28M (inclusive of interest payments) will do. But my subjective view is
that they arerepaying 1/5 of the balance of the vendor loan at 31/12/2018 every year plus interest. Thus, the outflows of cash
will decrease in time.

Interesting information I had overlooked: "If free cash flow turned negative then these would be 'absorbed' into the Vendor Loan agreement to a maximum of $500m." Q: How would this be 'absorbed' into the Vendor loan?

GLA

Hi Squif:

$100M vendor loan to buy 25% of Magnus is now fully repaid. I believe repayment finished in August. FCF from 25% of Magnus now goes fully to ENQ. These 25% of Magnus can be used as reserve-based lending. ENQ can also hedge this portion of the production freely.

Acquisition of 75% of Magnus:
$200M vendor loan from BP plus ENQ paid $100M in cash. The latter would then be repaid to ENQ out of the FCF of the 75% plus interest at 7.5%. ENQ has now, as at the end of September, been fully repaid. This means that the FCF of 75% of Magnus goes towards repaying the $200M vendor loan (in 5 years and interest of 7.5%) with the rest being split 50/50 until further notice (i.e., until BP gets $1B).
Now the vendor loan was not $200M, because it was backdated to 1/1/17 with any FCF since then deducted from $200M. At the end of 2018 this vendor loan was down to circa $120M (if I recall correctly). So, every year for 5 years $24M + interest have to be repaid with the rest being split 50/50 b/w BP and ENQ.

Since we are talking about Magnus, let me add that the NPV figures in the CMD 2019 slides are not in the RI prospectus, as claimed. I could not find the same figure there, and the figures in the prospectus were based on POO at higher prices than $60... typo?

Going back to my points yesterday: - we really need to het detailed info on 2p reserves, namely for Kraken. WI in Kraken represents 40% of ENQ's production. So, unless there is clarity on the future ahead, ENQ is very hard to value. Lots of us are optimistic about the near future ahead because Chilting is now busier than ever keeping track of the offloads... Thank you Chilting.
- Scolty/Crathes: what are the 2P reserves? How much was spent in CAPEX? (Squif any info you have here? Ditto for Kraken Capex)
- I am going to write something some of you might object to: Heather/Thistle's stoppage time is not bad at all. Turn off the tap with POO in the low $60s. Probably by the time production restarts POO might be in the high $60s. So, that is a 20% annualized return on a production delay of 6 months.
- Net debt: Want to hear ENQ come out with a target of $999M by the end of 2020. re-finance debt by 3Q of 2020. RCF will be around $500M by the end of Dec19.
- Malaysia: ENQ should expand its presence there. Stable tax regime. Exxon is divesting there, but they want to sell for cash today, not cash tomorrow. So, no Magnus type of deal can be done with them.

Fernan10: welcome back. You might want to reinvest again. SP did not move in the last year you were away. But it might move up very fast now.

GLA

(CONT.)
- Net debt: very good figure. However, I still believe that my figure of $1525M will be off mostly by the amount CAPEX is going to come in below $275M (which I used in my projections many months ago) and movements in working capital.
I expect CAPEX to come in below $250M with the two-well drilling in Magnus being delayed.
- Kraken: we know it is doing quite well this year, averaging in the low 40Ks boepd some months. Unfortunately, no info about future production. W/out it it is impossible to value Kraken if a third party was to offer to buy part of ENQ's WI. Funnily enough, there was no discussion of Kraken's NPV (in addition to Magnus and Malaysis).
We have now been told that Total Kraken CAPEX came in at $2.1B. Thas is quite welcome, at it brings forward the date of the
notional break-even. However, until recently the CAPEX figure was $2.3B. And from what I remember the DC4 CAPEX remaining at the end of 2018 was less than $100M. So, why did we not hear the Kraken CAPEX downward revision from $2.3B to a lower value at the end of 2018?
You cannot save $200M in CAPEX when your estimate of what you still needed to spend is less than that figure.
Does anyone have any ideas why only now we were told the revised figure of $2.1B?

We have also learned that the Kraken premium has ups and downs and that all the offloads have been sold at a premium.
I would have liked that they told us the average premium so far in H2.

- Magnus: The good news is that the $100M repayment came to an end after 10 months. That means the end of September. So, the FCF of the last 3 months in 2019 will be split 50/50 w/ BP. But, I am suprised that 75% of Magnus only generated
$100M plus Interest of $7.5M plus whatever was paid to BP as part of the vendor loan $34M (which would have been $9M in interest plus $25M loan repayment), i.e. a total of c. $140M in 10 months. I was expecting the 75% of Magnus to top $210M in 2019 if there are hardly any CAPEX expenses. I had hoped for a payment to BP of at least $40M of the profit share contingent consideration in 2019. But I now think it will be lower.

Londoner7, E121, Squif, Gkb47 are you figures similar?

Londoner7 you mentioned "A few days ago I ran some numbers on Magnus accruals, a mix of cash and reductions in balance sheet provisions." Unlike you, I expect the contingent consideration of 75% of Magnus to go up at the end of 2019. And all has to do with the value of time given the discount rate used, close to 10%. Basically the PV of the stream of payments that have yet to start (at it was the case at the end of H12019) is smaller than the PV of the same stream of payments minus the first payment (a small one) one semester later given that the discount rate used is close to 9%, if I recall correctly.

Londoner7: Oz: My workings are slightly different from yours from what I recall. I will post them.
BananaJoe: I agree with all you wrote about sunk costs. Many thanks for your posts.

GLA

Let me start by saying that I have added 68000 shares to my holding since H1 results were released. Most recently bought close to 10500 shares Thursday afternoon just on the basis of a quick glance at the TU and during a 5 min break from work!

I have not had the chance to read the TU in detail, but read the CMD slides and listened to the presentation while doing something else.

Neither provided much new information. Both basically reinforce the view the company is doing fine as expected.
No surprises one way or the other. No blue sky thinking involving carbon capture, or even any new projects like Eagle.

For me the 41 2019 CMD slides are a disappointment, in terms of new information I can feed into my spreadsheets :) (Ok, now I know OPEX in 2019 will come in at $22/boe!)

The company shows little interest in getting the SP to move up by providing very detailed information about its projected production, OPEX and CAPEX in 2020... I am puzzled, because in 2019 ENQ has had 3 events: Research analysts meeting, Investor Meeting and CMD. So, it is trying to convince the Market. At the same time, it is not giving it the info it needs to price it up! So, the SP stays down, and investors can keep adding at a low SP if their intuition tells them to do so...

The most important piece of info I learned is that ENQ now wants Netdebt/Ebidta to range b/w 1 and 1.5. A more precise figure and a victory for Pelle who posted repeatedly that the guidance on Netdebt/Ebidta had been all over the place. Well done Pelle. They listened to you. This is of course good news. Do not mention the D word...

The CMD presentation in 2013 had 57 slides, and in 2015 88 slides. Not only were the slide decks fatter, the info in there was
also much more detailed. As an example, in 2013 there was a table w/ Kraken's estimated production. This time the most relevant piece of info is the graph with Magnus's projected production. But the graph makes it impossible to pin down the production exactly...

The reason behind my purchase on Thursday is quite simple: The current SP undervalues the company. However, my understanding of the company is mostly informed by the discussions on this board, not by the info the company has posted recently. Thus, I take the opportunity to express my gratitude to all the posters who write factual and informative posts.

Some comments:
- Production guidance. They should really have upped the lower limit from 63k to 65k. With 10 of the 12 months in, and given that the date of the CMD was the 21th of November, and so only 40 days to go until the end of the year, and given that ENQ will know the tanker trackers know how much has been produced in November up to the most recent offload, upping the lower limit would be the right thing to do. Even with production down to 50K in the last 2 months, average production for the year would still be above 65K.

(TBC)

Hi Squif,

Many, many thanks for the info. I 1st bought at the end of 11/2016, and did not follow the news until mid 2017, when I increased my position.

I would subtract the First oil $130M "gift" from 0.705 x $2.3B Capex, and would get $1.49B. So higher than your $1.4B. Next, I would apply the proportional rule. Thus, a 15% WI in Kraken corresponds to $317M CAPEX. I would then feed this through the rest of my calculations. The revised rate of return on investment of a sale of 15% of Kraken at $345M would now generate a total return of 28%, and a 7.3% annualized rate of return.

At any rate, CAPEX is a sunk cost. Future is what matters. W/out knowing the new predicted production profile it is hard to know what a good price would be. You can get a deal that is good for both ENQ and the buyer on the basis of different costs of capital and risk diversification for ENQ. I hope ENQ will anounce a revised production profile for Kraken in the CMD, so that we can express a more informed opinion.

Like you, I firmly believe that reducing gross debt is the priority, in order to renegotiate what is left and bring down the
weighted interest rate on borrowing below 6%. Gross debt w/ a servicing cost of $60M per year and production (after subtracting BP's 37.5% interest in Magnus) of 60Kboepd would be enough to guarantee the Pelle dividend every year.

As you are versed on CAPEX: Do you have any idea of the total CAPEX on Scolty/Crathes, pls? ENQ stated this project has reached break-even. But I do not see how that is the case, since only 3.7Mbbls has been produced so far, and MOL has a 50% WI.

Going back to your last weekend's query about Kraken, my projections ahead of H1 results were posted on 09 Aug 2019 16:50. If you read my post then I estimated a reduction of $11.81M, when in fact it came in at $13.5M. I only got close because Londoner7 brought a few points to my attention which helped me to sharpen my estimate. Many TA to him. I am sure the different expenses had different figures than the ones I estimated, but those deviations ended up cancelling each other ( => I am unbiased!).

I believe that in H2 ENQ's Kraken WI will generate $175M of operational cash flow (ie. before finance costs and CAPEX which I assume is $0M). Not bad I would say. I assume Kraken premium is $2.5/bbl.

Hi Gkb47: I like your post on carbon capture. Indeed in part (II) of my post 2015 CMD: Goals and Achievements I had planned to write about that as well. SVT and ENQ's interests in the North Sea could be a good staging point to bury carbon, assuming it is technically feasible. At any rate, since my 2015 CMD: Goals and Achievements: Part I generated no interest, I am not going to write Part (II). The overall message is that ENQ's record on embarking on new projects is mixed.

Hi Therapist: I am sorry but I cannot find any info on the pricing of the Malaysia oil. I know that the difference b/w $5 and a $10 premium means a difference of $15M in FCF.

GLA

A good idea?

Capex of 15% of Kraken was $345M (0.15x$2.3B). 15% of Kraken has already produced 3.75MMbbls (0.15 x 25MMbbls ). Assuming OPEX (including FPSO lease) and transportation costs of $25/bbl, and average selling POO of $65, cash flow from production so far of $150M. This excludes finance costs of borrowing of $345M CAPEX . Suppose finance costs were incurred in the last 3.5 years at a rate of 8% (Simplifying matters; correct requires apportioning CAPEX over the earlier years of the project ). Finance costs of $96.6M so far.

So a sale of 15% of Kraken at $345M would still generate a total return of 15.5%, which annualized is not so good, just 4.07%.
That would be the return we would get as shareholders.
So, a price of $345M might not be such a good deal.

However, this not the proper way to make such a decision. Past CAPEX is a sunk cost. Bygones are bygones. So, focus on the future!

Would anyone pay $345M for a 15% stake on a field that has according to the estimates 112Mbbbls of 2P reserves (assuming they have not been revised) that in the next 4 years are expected to produce X, Y, Z and W Kboepd per day, after which production is supposed to decline to below 20Kboepd?
The answer depends on what X, Y, Z and W are (and only ENQ and CNE have a good guess about it! They should have a better estimate now than when they wrote down the FDP).
We know that in the FDP the first 6 years of production were supposed to produce 12.5, 45, 54.9, 52.4, 39.7, 28.8 and 23.5Kboepd, respectively. But what are the figures not predicted for the next 4 years? Do they still give you an average of 36Kboepd (which would correspond to the 52.4, 39.7, 28.8, and 23.5 Kboepd figures in the FDP)? If that is the case and if the POO in the 4 years ahead were high enough, let us say $70 (including the Kraken premium), then that would lead to a decent return on a $345M investment. Investment would be paid back in 4 years, if you ignore finance costs. If you include finance costs at 8% in the 1st year and 6% in the following years you would still be out by $56M. But there would be production for perhaps another 5 years above 10Kboepd according to the FDP.

If it makes sense for someone else to pay $345M if you only consider expected returns, it makes sense for ENQ to not sell.

The rationale for a sale is risk diversification - the variance of production (stuff happens) might be large.
And so, risk diversification might justify selling the 15% even if expected returns are good. In addition, reducing net debt by $345M means ENQ might be able to renegotiate its gross (not net!) debt 1 year earlier than otherwise. If that lowers the cost of the borrowing by 2pp one year ahead => $25M of finance cost savings.

So, the "implicit" selling price would be $370M!

Conclusion: $345M might be a decent price for buyer and ENQ. But w/out having Kraken's revised estimated production profile it is impossible to argue one way or the other.

GLA

Hi Londoner7, E121, hitman1 and Others,

A few questions for you.
Given the posts about Scolty/Crathes I am returning to questions I posted a few weeks ago.
Crathes/Scolty: In 2015 the 2P reserves were 14MMbbls. Does anyone have any idea if these 2P reserves have been revised up or down?
These two fields have produced 3.7MMbbls so far. 10.3MMbbls are left (if estimates have not been revised) of which 50% belong to ENQ, for how many more years will they be producing? Does anyone have a link to the FDP? (E121 you mentioned the FDP. Is there a file where one can one find the FDP's profile of rates of production?).

PM8/Seligi: does anyone have any information of the reserves being targeted and initial production of the two wells being drilled this year? I am talking about the reserves targeted by the wells, not the overall reserves of PM8/Seligi to be targeted.

As someone who has a few thousand Tullow shares, I am feeling the hit today... What Tullow's update suggests to me is that it is not shale companies that should focus on net debt reduction. Tullow and a few others should prioritize that, and care less about production levels.

Some posters have asked for us to post predictions about 5 topics. Let me just say that my thinking is that ENQ should focus on net debt reduction in 2020, at a cost of lower production, if that saves a lot of money in CAPEX. I would like the CEO to be bold ans say that ENQ is targeting net debt at no more than $1B by the end of 2020. If that means Eagle and some other CAPEX gets delayed that is fine. Apart from the Western Flank, and perhaps Malaysia, I would rather prefer to see other CAPEX projects delayed until Net debt is below $1B. There is no point in increasing production and be selling your reserves at low POO.

Having read the exchanges b/w E121 and Londoner7, I am mostly in agreement with both, and perhaps in between the estimates of the two, in the sense that I still think net debt at 2019 year end will be at most $1525M. Given most people's estimates (at least the ones i have read) I doubt the majority of us would be wrong and that net debt will come in below $1475M by year end.

GLA
p.s.: Londoner7: You mentioned you do not care much about the Oz loan debt reduction. The main reason why I care is that it allows me to have a rough idea of how much cash ENQ's Kraken's position is generating. I add the interest paid to Oz and get an estimate of operational cash flow - capex for that 15%. Easy then to obtain a rough estimate of operational cash flow - capex for ENQ's 70.5% WI.
p.s.: Pelle, no fines this week so far...and very good posts.

Hi Londoner7:

I had forgotten I had read that passage in the RI. The only part I remembered was that CGA was not fully convinced ENQ's plan was going to be a good one, as conveyed in the passage you quote. Let us hope that ENQ can deal with the problem and get production up again. We know that the two wells being drilled are not going to increase production by a lot, 2Kboepd and 1.5Kboepd at the start of production.
Is moving from gas to only water injection the optimal plan? I have no idea. Other posters might know.
I am only trying to use production figures to deal with Magnus's FCF. I do not particularly like that the vendor loan for the 75% pays 7.5% interest. Also, the contingency consideration from the cash waterfall will not decrease much every semester because the rate used to discount is quite high. Funnily enough it will move up and down with the changes of the POO and the changes to production rates. A decrease of the production rate will lower it, and so will a decrease of the POO, as it means delaying payment.

Let us hope for a good two months of Kraken offloads to end the year on a high. The figures you post about Kraken's production leave ENQ no option but to up Kraken's guidance in two weeks time.

et observet somnia vulvam:
your tanker tracking is very useful. Like others I though that offload #49 might have been a light one. It took 869 days from first oil for Kraken to reach 50 offloads. I hope for much less time to get to offload #100. I will settle for 31/08/2021. If that were to happen Pelle might collect his first dividend by then. And gkb47 and I won't be issuing double fines (Pelle pays to gkb47 and to me as well), which Pelle better pay, because he cannot escape: gkb47 is a strong chap that pumps iron, and I can still move forward at a fast pace...

Hi E121: i read that you follow GENL. I am glad you do. It is a company in which Pelle would like to buy some shares to collect dividends. I have been very happy with my investment there, even though the potential to re-rate is limited.

Hi gkb47: At the moment I have no Brent call options. Cashed in when the POO had a surge. Made some profit. If POO drops will buy more. I do not dare do this with ENQ, unlike BIFATH1, because I do not want to miss the re-rate. It is coming sooner than we think, I believe.

GLA
p.s: My screen is showing just 3 filtered messages today. very good!

Part (II) to be continued featuring Alma/Galia & Kraken & Scotlty/Crathes, and SVT too.

Lomdoner7, Thank you for the reply. I am not an oil&gas professional, so your reply is going to lead me to ask you more questions.
You write: "The OAG August number indicates only 16% of normal water injection. I understand the restrictions on water injection extended into at least Oct. With water production continuing at normal rates (speaking as a layman) I would expect voidage to become an issue."
Q1: Why would voidage be an issue? And what would be the short and/or long term effects of voidage?
You write: "However, Enquest are below their stated goal of 200K bpd water injection on Magnus following the introduction of the 2nd tower so I’d expect an update at the CMD."
Q2: What is the role that the 2nd tower plays in the water injection?

Speaking of Magnus, and now going into FCF matters, the H1 presentation I note the following: "Accelerated repayment of BP Vendor loans: i) 25% vendor loan fully repaid in August. My comment: That gives 4 months of 25% of Magnus until year end all to ENQ;
ii) EnQuest $100 million cash consideration plus interest repaid ahead of expectations - Paid back in c.12 months - Profit share with BP increased and commencing earlier than planned. My comment: the c.12 months does not have a clear time stamp, but using the time the option was exercised, I assume this means Dec18. So, I assume that in the first 5 months of H2 the FCF of 75% of Magnus, will accrue all to ENQ. Not clear if there is another interpretation for the "c. 12 months" ENQ refers to.

The Kraken production rates if they are to continue, as you describe - having a month above 50Kboepd would be wonderful), will lead me to lower the balance of the Oz loan at year end (assuming the cash sweeps are quarterly, and that there will be one just at the end of December) to less than $135M. I really would like to know the exact dates of the cash sweeps.
If I may ask what figure are your calculations showing for end year balance of the Oz loan?

POO: We are going into the 5th consecutive month of a POO below $65 (July - $63.92, Aug - $59.04, Sep - $62.83; Oct - $59.71; Source EIA+site). It seems it will be impossible to avoid a PIK for the bonds, next time interest is due.

I will come back to the gas figures that all of you (gkb47, Therapist, E121) posted, as I rely on them to use my toes and fingers (who needs a spreadsheet gkn47?) to add and subtract millions to arrive at a FCF number. I really dislike ENQ's gas line of business. It just messes up my calculations.

Scolty and Crathes: Do you have any info of what I asked? I am trying to figure out why ENQ claims they reached break-even of this project in H1.

And yet another question: i never understood the value of Tanjong Baram. It is developed under a Developed under a risk services contract. So, how much money does ENQ make out of it? Little for sure.

gkb47: please keep track of the fines on Pelle. He needs reminding that he owes the balance to you and me. In other words he pays a

In anticipation of the upcoming CMD, I read 2015 CMD's presentation and reflected on what was stated at the time and how
events unfolded.

2015 CMD was about its role as a scavanger (squeezing oil out of mature fields & bringing back to production fields that had ceased production) and the 3 new projects being developed (Alma/Galia, Scolty/Crathes and Kraken).

i) Scavanger operations: In 2015 these assets were producing c. 35Kboepd. In 2019 they are producing 42Kboepd out of such assets (from 19H1 production I subtract Kraken, Alma/Galia and Scolty/Crathes). An increase of 7Kboepd, but this is due to Magnus having been added to this set of assets. If we subtract Magnus we end up with c. 23K boepd. Assets producing c. 35K boepd were producing c. 23K boepd 4 years later. This shows that ENQ needs to add mature assets to prevent this part of its production from declining too much. This is exactly why Magnus was so useful. Most likely the best mature field that ENQ explores at the moment. Did not feature in the 2015 CMD presentation. Yet 14 months later had been added to this set of assets.
Veredict: Scavanger operations were a success in the last 4 years.
2019 CMD: These mature assets will be showcased again the upcoming CMD. Do not expect to be told which mature assets ENQ is looking at to add to the portfolio.
An interesting question is to what extent ENQ's reputation as a good operator will be affected by the issues with Thistle's platform. On the one hand some might say that this affects ENQ negatively, and this means more frequent maintenance checks of old platforms (this means expenditure next year will go up). On the other hand, if ENQ can solve the Thistle's platform issue in a way that keeps production going that will only cement its reputation as a scavenger.

ii ) TBAdded...

iii) TBAdded...
Therapist, gkb47 many TA for your posts I will come back to them. E121, I understood that your FCF $150/200M in H2 is before debt is paid down. I have to run my numbers again. But using all the info I have, I believe H2 production will be just close to, but not all the way up to 70Kboepd . And the POO in the months so far has been 63.92 59.04 62.83

GLA

Hi Therapist: Many TA for your file. Such outstanding work. Your work really helps many of us understand the changes in production in the different fields better. I like the last page with numbers on production of OIL only, and the GAS figures on a separate page.
If I understand correctly your GAS figures have the shrinkage/correction as per column labeled "Gas%", correct?
(If so, the shrinkage number might explain why your gas figures for magnus differ from the ones posted by E121 and Gkb47, correct?)
But, I have a question as your numbers are different from E121's, I believe. I am talking about your Magnus graph. It shows
for August a boepd production of 17,662Boepd. But if i add up your numbers in the other file I get 19957boep. So, the points
in the graph might need to be upped to make us smile a bit more!

Your Kraken graph shows how much its performance has improved. August, dismissed by many posters including me as not such a great month, still came in as the 7th best month ever since production started. Furthermore, we can say that only 3 of the previous months had substantially higher production. This shows how our reference points have changed... We now expect higher production than 6 months ago.

In your post last weekend you wrote it does not pay to be polite. That might be true. But nothing is gained by reading posts of people who abuse others repeatedly and randomly. That is why I filtered HMHn and will not read his posts again, and I expect that he does not read mine either.

Hi gkb47: I am sorry but I cannot understand why your figures are different from Trepapist's ("Following on from the discussion yesterday I did a bit more analysis and so far this year the Associated Gas Produced over the first 8 months was 39.1907 MMSCF/d which equates to 6,980 BOEPD. As we know the major contributor is Magnus which is averaging 26.6435 MMSCF/d and 4,475 BOEPD. The rest of the fields contributing the other circa 2,000 BOEPD.") Therapists's figures show lower gas production. Is it because of his shrinkage/correction column "Gas%".

I want to have a go at using these figures on my handwritten calculations at some point. Diminishing marginal returns apply to virtually all activities humans engage in, not just here...

KO: my goal is not to ramp or de-ramp, but instead post predictions that prove to be accurate as possible ex-post. Thus, i try not post SP predictions, apart from the direction of travel, which is up. ENQ's SP is like the ketch-up in a bottle. you keep trying to get it out, and it does not come out. but once it comes out it is a lot of it. That is how the rise will be. 6 months ago i wrote that a re-rate would occur only after a long period of consistent production by Kraken. I wrote about reaching 50 offloads this year before a re-rate. That mark happened today.

Hi E121: many TA for your fcf answer. i will reply tomorrow. also, many TA for all the shale-related posts.

GLA