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Good morning E121,

An increase of $1 in the POO is multiplied by the level of net production and goes straight into the FCF.
So daily production is (67.7 - 20 x 0.375 = 60.2k bopd) x 365 x 365 days = 22 MM bbls. (I am ignored that the Mercury loan requires ENQ to hand in 0.35M bbls ( $22M debt to be repaid / $64 per bbbl = 0.35M), and I ignored that the Malaysian entitlement is about 70% of gross production, if I recall correctly ( 8000k bopd x 365 x 0.3 =. 0.8M is for the partner. If you take this into account ENQ's net production will be 21MM bbls).
So, increase in revenues (and therefore FCF) for each increase of $1 in the POO will be circa $21M.

Anyway, it would be good if AK's offload #33 were close to 600K bopd. If that were true, a few more loads like that in the next 2 months, and hello to re-rating of the SP.

E121,

Many thanks for everything.
I get > $20M change to FCF for every USD POO goes up. (67.7 - 20 x 0.375 = 60.2k bopd) x 365 days = 22 MM bbls.

the share price of this company is up by 9% and closing its "below 20p" sale. (I have nothing against DEB - in fact I bought a tiny holding at 50p a few years ago - but that is for another bboard; I have written off my DEB lottery ticket..)

Hawkeq,
Much appreciated. I will look at it. Indeed I had read that Galia well is shut-in.
As MO suggests, when they stop production "early in the next decade" per their recent statement in the Annual results release they might sell ENQ producer or oterwise need to find a new home for it. Could it replace AK at Kraken once the lease comes to the "first period" end in 2025?

Hi E121,

Excellent news.

So, if you have taken the circa $69M into account, the spare $250M FCF will pay the RCF amounts due this year, circa $210M if I am not mistaken and have $40M left to reduce "Trade and other Payables" by that amount (It went up from $367M in 20127 to $483M in 2018, but it is not the case that part of this amount is CAPEX related and if so, the payment of part of the $100 million related to deferred payments from prior periods is already being subtracted by you when you subtract CAPEX to arrive at your FCF figure, correct?).

p.s.: I find that IC mentioning "current trade and other payables" are up 32 per cent to $484M" (up from $367M in 2017) is very one sided. Did they not realize that "Trade and other receivables" also went up from $228M to $276M? The net increase is $69M. And if you take into account that Inventories (which are not bacon rolls, but oil and well supplies) went up by $22M, then yes, there is a net increase of $50M, but not what is implied in the article.

Hedges: As long as they have only bought puts I am not worried if they have already gone ahead with $65bbl puts.
BTW the effect of the hedges that were already in place is going to be asymmetric. Why?
- From 12/2017 update: three-way collar options for c.3.0 MMbbls of oil in place for the first quarter of 2019 at an average floor price of c.$70/bbl. (So 3MMbbls sold at average price of $70M this quarter)
_ From February update: " For the first quarter of 2019, EnQuest has collar options for c.3.6 MMbbls of oil in place at an average floor price of c.$68/bbl." (So doing the calculations you get that 0.6 MMbbls had a price floor of $62, since POO was higher than that for most of Q1, price floor was not binding...)
- From 2018 results: Approximately 6.5 MMbbls are hedged at an average floor price of c.$66/bbl. In accordance with the Oz Management facility agreement, the Group has a further c.1.5 MMbbls hedged across 2019 with an average floor price of c.$56/bbl. (Ignore the Oz hedges. Doing the calculations you get that the additional 2.9 MMbbls had an average price floor of slightly less than $63) (with the POO at $65 or higher since Feb 15 2019, these additional 2.9 MM bbls hedges are not binding so far)

Hi MO,

Many thanks.
Last question: Do you know where one can find Alma/Galia's FDP?
Hope you are doing well.

Hi MO,

Excellent news being headed to the US. I bet it is being sold at a premium being paid for it.
(Buena Vista Hills crude in California is selling at close to $70)

A side question: do you remember when was the last time did Enq producer offloaded its oil?

TA.
p.s.: E121 is really the one who knows all the fine print. I avoid font size smaller than 10pt...lol

Hi E121,

Many thanks. Very helpful.
Did you subtract the $69M of the BP vendor loan due this year from the $250M FCF that you get?
From what you know about the 75% Magnus vendor loan has ENQ already started to collects the $100M cash back?

The average poo of ENQ's sales this year will be higher than last year, if ENQ wants. the futures curve shows that future oil prices until the end of 2019 are above $65. I am reading that heavy crude like Kraken's is already attracting a premium as US refineries are in desperate need of it. Interesting to find out where the next Kraken offloads will head to.

Plethorus,

That is not correct. Look up Capital Markets day presentation in 2013. It states: "Expected small discount to Brent, if any."
At last it is happening, but it did not during the first 20 months of production.

The narrowing of the discount is obviously good news. A $0 discount versus a $5 discount is worth $40M a year on a net entitlement of 8M bopd, i.e., net 22K bopd.

Hi E121,

Many thanks.

So, the question is how much net debt reduction will be seen in 2019 if POO stays at $65 and ENQ ends up producing according to your estimate, 66k bopd, or let us be optimistic and go for the upper limit, 70K bopd.

Onto the BP vendor loans. What is wrong with my assumption that the $200M of the 75% Magnus vendor loan is split in two parts?

Oil curve in serious backwardation, but a the moment the futures point at a price greater than or equal to $65 all the way to about 1 year from now.

TA

Squif,

Two things:
i) There is no attempt by ENQ to delay repaying the BP vendor loans. The conditions were set in advance, and as Magnus generates FCF repayment happens. The vendor loan for 25% of Magnus will be repaid this year. The rest of the 75% Magnus vendor loan will be repaid in equal amounts over 5 years, starting in 2019.
ii) ENQ will get the next $100M of FCF from Magnus once the first part (i.e., $100M) of the $200M vendor loan for 75% of Magnus is repaid. I thought that it was this way, but E121 says the details are slightly different. Hopefully, he will tells us when ENQ will become a pachinko parlour... and starts collecting the $100M.

KVZR,
You are not optimistic about IRC's prospects... So, what should POG do?

If you promise to behave well on this BB I will tell you!

You may have it!!!

I am going to stick my neck out and say that the POO will touch $70 this week. I have no idea if it will end March at $70, but I believe it will at least touch it, even if it end lower.

Why? Rig count going down, OECD crude oil inventories appear to be moving in the right direction. Slower demand growth news are exaggerated.

I am also predicting that Kraken's crude will start to attract a premium to Brent by the end of H1.

Gd morning E121,

Many, many thanks for your explanation.
I was under the impression that the $200M vendor loan for 75% of Magnus was split into two tranches:
- $100M to be repaid asap (I was assuming that it was almost repaid except the $16.5 outstanding)
plus
- $100M (plus adjustments to capital) to be repaid in 5 years (so ($20M per year).
My calculations are driven by this assumption, and the figures in current provisions match this. But you say that is not the case. The reason why this matters is that I am trying to pin down the time when ENQ starts collecting all the FCF from 75% of Magnus until it has received $100M.

I have missed the data from the last Alma/Galia offload. Is not one due now or shortly?

If you know where the FDP for Alma/Galia is posted could you please send me a link?

ATBest

"I am pleased to inform shareholders that the Company is in receipt of c.US$57 million, comprising the full repayment of the bridge loans. I would like to take this opportunity to thank all sides involved in bringing the refinancing to a successful conclusion.



We also note the announcement made by IRC on 21 March, stating that although the anticipated 2018 headline profit has been affected by a non-cash adjustment, the underlying performance of the business improved significantly in 2018, resulting in increases in both IRC's revenue (+39% year-on-year) and EBITDA (+42% year-on-year). The improvement in the performance of IRC is attributable to the ongoing successful ramp up at the K&S iron ore mine, which, in the second half of February 2019, operated at an average production capacity of 86%, up from an average of 70% achieved during the final quarter and the year 2018."

Kenj,
Many thanks for the extended explanation.
In commodity producing listed companies impairments and impairment reversals are their bread and butter.
Still, IRC will do better this year than last year. Will any company want to buy POG's position in IRC? Why not? If the acquiring company paid $100M and became the guarantors for the Gazprombank to IRC, then that would be a sensible deal for POG... Would it not?
With the price of iron ore on the up, the Amur river bridge opening in the 3Q 2019, IRC will have to improve its profitability, I presume.
I see POG's finances improving substantially this year. The price of gold will go up, as the yield curve has inverted...
Many thanks again.

Hi Pelle,

Yes, you correct. In the 2017 year end report, I read what you wrote:
" The loan accrues interest at a rate of 5.0% per annum on the base consideration. The base consideration was $85 million, which was adjusted for interim period and working capital adjustments since the economic date of 1 January 2017, resulting in contingent consideration of $66.6 million."
So, $66.6M was what is owed. Kind of. Because the report also adds:
" The present value of the contingent consideration was calculated from the future expected cash flows, at a discount rate of 10.0% and assumed repayment of around three years."
So, $66.6M was the discounted value in 31/12/2017. And indeed they are reapaying what is left this year.
TA

HI Pelle,

You are correct about 2018 H1 payment of the vendor loan:
Vendor loan payments on Magnus financing ($27.2M)
But, I do not remember if $39M was what was the amount of the loan that had yet to be repaid. Bear in mind they would have had to pay interest at the end of the year, and the cost of the Magnus wells lowered the 25% Magnus's free cash flow in H2.
I do not remember how much was still to pay at the end of 2018H1. Was it indicated somewhere in the accounts?