RE: Surprised at interest rate13 Oct 2022 22:21
Hi PYUECK,
Until ENQ tells us the interest rate of the RBL, it is difficult to compute the cost of the gross debt.
But, we know a few things. the new RB pays 9%, and the $305M of the new HYB, pays c. 12%.
The old RBL was 4.5% + 12 months LIBOR, i.e. 4.5% + c . 5% =9.5%. I doubt the new RBL will have a lower spread than 4.5%. So, effectively the weighted average interest rate on gross debt is going to be >10%. Assume it is 10%.
And ENQ pays interest on gross debt, which will be $305M + $450M + $160M (new RB. Sterling will appreciate a bit) = $915M. So, every year ENQ will pay $90M in interest. This is not much less than the amount it was paying in interest in the last few years. So, while the amount of debt has decreased a lot, the cost of debt has not decreased. In my book, this averages about $7/bbl of ENQ's yearly net WI (i.e., after BP's "WI" and Petronas's WI from the PDC agreement).
The good news is that this bb is a broad curch, with people who have different views.
AB+Malik run the show, and AB even had to lend $15M from his family's cash. This shows that the cash balance was not quite enough to seal the deal at this stage, because some of the cash it has, about $200M, is ring-fenced to run the operations with its partners.
However, I would have preferred that ENQ didn't issue debt in the middle of the current turmoil in the credit markets. They could have waited and used the FCF to keep buying back the HYB, to eventually owe less than $600M, and just used the RBL facility that was available to them.
We have to wait and see until we find out what the new T&Cs. But with poo at current levels ENQ will not pay dividends in 2023. Blame it on the EPL, and the need to pay down debt to get down to their Debt/EBIDTA target.
Londoner7, when I first wrote about the EPL I said that those low ball figures of $10M/14M were incorrect. If the POO stays as it is c. $40M, a figure not very dissimilar to the one Tarmak has in his calculations is probably a very accurate figure. Neither ABEX nor interest expenses are considered a cost in the adjusted profit measure used to compute the EPL. CAPEX in the UK this year is quite low. One of the new wells planned for Magnus didn't go ahead.
L7, have you looked at the august OGA data? the problem child shows no improvement, still under 11Kboepd. But there is hope that the new well / and the one that broke down. I wrote in early 2021, that Magnus had serious problems. Almost 2 years later, there has been 0 improvement.
I still "expect ENQ to be very cautious about spending on CAPEX until Q3 in 2023.” (This means no Eagle, Magnus south or even Western flank in Kraken
I am afraid nothing I have seen written leads me to change my expectation for 2023. ENQ has to pay $50M in July to Suncor and > $130M of the old RB before October. That is $180M in 9 months. ENQ has never had one year with FCF> $40M/month over 12 months. Perhaps in 2022 can achieve $45M/month. We shall see.
ATB
Sign In
Follow the stocks
