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Yhyh,

Yes, but rmember that even 20k bopd is 3k above the competent person's (CGA) report's mid prediction for 2019. so, I would be weary of assuming a higher production for Magnus this year.

The main message I take from the numbers that Fernan, E121, Pelle and others have been posting is that w/out Kraken at full trot there won't ever be a 60p party. They have not said this. It is my personal view of the numbers I read...

Whether ENQ can fix Kraken remains to be seen. They have not indicated they can o it in the short term. Otherwise their Kraken guidance for this year would be at least 40k.

HI E121,

Many thanks.
My post actually assumes takes a more optimistic view of the production of 75% of Magnus (20k bopd, which I think is feasible) and lower OPEX, but a price of $62 (today's price). Thus, I got a higher FCF accruing to ENQ from this working interest than you, $135M. (The need to focus on the current POO relates to the idea that ENQ should e valued on its own merit, not on the POO; you can play the POO story with any other oil company).

I have not gone over the rest of the portfolio.

There is however, something that is puzzling. OPEX is supposed to go up from $470M to $600M, 27.7%. But if production went up from 54k to 70k, that would mean in increase in production of 29.6%. What is larger? The latter. This means than in this scenario OPEX per bbl would actually decrease (rather than increase) a couple of percentage points. It is only when production is below the mid range of the guidance tat ENQ gave that OPEX per bbl goes up in a way that matters.

TA

Pelle,

you are spot on on your quarter by quarter analysis. so, the question is: will Mr. Market be happy after seeing a fantastic Q1, and will it ignore that the following quarters will not be as rosy?

acchi,

you are right.
yes, the $30/bbl opex for magnus has been quoted, and indeed that is a reason why i first said that opex $600M . but if you look at the midpoint of the production range forecast provided, production across the portfolio of WIs is going up by 20% in 2019, and opex is going up by 27.7%, and that reflects the higher Magnus opex per bbl. but to simplify matters i used an across the board opex. w/ production at 20k bopd, i susect that Magnus opex per bbl. will be lower than $30 by a tiny bit. if you use$30/bbl then ENQ's fcf from 75% of Magnus would be about $18M lower than the figure I quoted.

Hi E121,

I do not dispute that ENQ can't definitely sell Magnus production through forward swaps for the purpose of determining what BP earns from Magnus - that's contractual in the SPA. However, it can hedge bbls to hedge its profit from Magnus.
I know you know all this, so there is no need for my to add to this sentence.

E121 and Pelle,

Having been busy at work, I have just realized that Fernan has given up on ENQ. He, like MO are irreplaceable losses to this bb. Anyone with a brain should realize that such departures is bad news for ENQ's PIs, I have not had time to run the numbers, but my hunch is that Fernan is spot on, as always. If we put aside the effect of the poo, from which all other oil producing companies would also benefit, ENQ is going to earn most of its living from Magnus, as several of the rest of the operations (Alma/Galia, Heather and Kraken) are not doing brilliantly.

So, let me start by Magnus. I am going to be optimistic, and assume that it will produce 20kbopd in 2019. At an average price of $62, such production will generate $135M of fcf to ENQ and $35M to BP, after subtracting the CAPEX of the wells to be drilled, and assuming opex of $25/bbl. This $135M are helpful to pay down the RCF, but they will not be enough to lower the debt substantially, and get ENQ in a better position to refinance its debt in a couple of years. Bear in mind that the same production in 2020 at the same price would generate a much smaller amount of FCF to ENQ, because in 2020 the 50/50 cash flow sharing with BP would apply to the whole FCF from 75% of Magnus. So, in 2020, ENQ would get $85.75 M instead of $135M (the $0.75M comes from the interest on the $80M outstanding balance of the vendor loan at that time saving ENQ $1.5M). Not very promising.

I still want to run my numbers on the rest of ENQ's portfolio, but deep down I know that Fernan is correct. W/out Kraken producing 40kbopd or more, it will be difficult to get a meaningful contribution, (of at least $150M) to reduce debt. So, in my view when ENQ releases its annual report, it should be very clear of what the possibilities are for Kraken to get to that production level. If it does not, I fear Mr. Market will not re-rate ENQ for several years. Another useful piece of information is to what extent has the discount from Brent be eliminated? With Kraken's ENQ WI giving it at least 7.5M bbls, eliminating the discount would bring an additional $35M per year of FCF to ENQ.

BTW, it should be clear that if the poo stays at the current level, a big chunk of the 2019 debt reduction from the rest of the portfolio will come in 2019 1Q due to 3.0M bbls hedged at an average floor price of $70. (the other 0.6M bbls hedged in 2019 1Q must have an average floor price of $58).

E121,

I had noticed that but did not write about it. It is a good point. Once we have the accounts we will know more. TA.

Squif,

Relax. There is nothing wrong with mentioning opex expenditure the way they did it. It just reflects the fact that a large part of OPEX is not made up of avoidable costs> I am not going to go into detail here: e.g., you pay BUMI per day a certain amount regardless of where you produce X or X+1K bbls. That is the kind of costs you have. The marginal cost of production of a bbl is actually close to 0 in addition to the transportation costs through a pipeline, when the production is offloaded that way. Why will the Avg. cost go up? Because Magnus has higher costs than the rest of the portfolio. This is all known. In the last 6 months I have usually been a half-empty glass kind of person (a realist, I would add) in relation to ENQ, and if I am relaxed about this, there is no reason for you to worry!!!

That is all folks. I am going to shut up my mouth until the weekend.

Hi E121,

Apologies for simplifying things. I just wanted to give a broad picture of the moving parts of the cash to Squif, as the $6.5M per quarter is pocket change given Magnus's production... I meant the initial $100M of the $200M vendor loan in addition to the $100 million paid to BP to close the transaction in December. That initial $100M of the vendor loan was expected to have been repaid around now out of the cash flow of Magnus's 75% stake that was generated since 1/1/2017. It is possible that the $100M has now been all repaid. W/ regard to the $100M that ENQ will collect, it is possible it could all be collected this year, if production stays above $20K bopd. I assume you would agree. Anyway, much appreciated that you post the exact and accurate details.

I agree with all you write about CAPEX. My comment was not be seen as dismissing your net debt prediction success. Bills get paid with delay. In fact, if we were to look at 2018 revenue and expenditure, free cash flow would be higher as you say.

I know that ENQ is stuck with BUMI's AK. I just hope they get compensated for the FPSO issues. I am now relieved this has nothing to do with Kraken itself, and that the booked reserves are still there. It would be good to have those tankers coming miore frequently. The question is why cannot it go over 35k bopd a day when DC4 is operational? can not the FPSO take so much crude? But in Feb 2017 it was processing above 40K bopd...

TA

Squif,

E121 gave us the details last week. I had forgotten those. Basically ENQ will get $100M cash back once it finishes paying he first $100M of the $200M vendor loand for 75% of Magnus. By cash back, I actually mean that whatever cashflow you get out of Magnus after the first $100M of the vendor loan has been repaid goes all to ENQ. This is fantastic, because ENQ can these $100M will come handy to lower the RCF debt faster. And with Magnus producing above the mid case prediction by CGA, by 3k bopd, we are talking about a good amount of money here. By my counts this is at least another $3M a month that is being generated by Magnus. In fact it could be even higher, because the marginal cost of the extra 3k bopd might be close to the pipeline transportation cost. If that were the case we are talking about $5M...Even Scrooge McDuck would be delighted with that cash.

I am very disappointed with the hedging. Whoever was in charge should be FIRED! That person should have at least bought a put at $75 for 30% production for all 2019 when the oil was in the $80s. The cost would have been low. Hedging is a mathematics problem and there is no need to gamble. Just feed past poo data make some additional assumptions, analyse the costs and benefits, bearing in mind that the downside has huge costs to the balance sheet, i.e., use some constraints, and solve the bloody thing. PMO seems to have competent people doing this task. That is why they are going to get a lot of operational cash flow this year.

E121, Pelle and Fernan,

Like-for-like production in 2018 is 55.447 - (0.75 x 21,528 x 30)/360 = 54101.5 (I am subtracting the part that corresponds to 75% of Magnus; Back in October I had predicted 54K. So, my prediction was very accurate. Better than i expected.

Looking at the CGA's competent person report on Magnus, their Mid Case Oil Production Forecast has around 17Kish bopd in 2019 and 20kish bopd in 2020, decreasing after that. Recent production data indicates that it might be possible to get more than forecasted in 2019, with the extra production going towards; i) finishing repaying the vendor loan for the 25% purchase of Magnus (it must be very close to have been all paid by the end of Q1 2019. do you agree?); ii) repaying the $100M out of the $200M vendor loan very quickly (it must be now very close to being repaid), so that ENQ can get its $100M from Magnus quickly, which would help paying down the RCF ahead of the schedule; repaying bits and bob ahead of the schedule send a good signal to the market); iii) making a contribution towards the other $100M of the loan that can be reapaid in 5 years. It would be good to model this.

It would be useful to know other bits of debt items. A cleaner balance sheet is always a plus. I think some of the interest that is due shortly will still be paid in cash, as the poo is holding up very close to $60, so the average might just get it above $65.

It is important to get the figures for these different parts of the debt as well as for the payment delay of CAPEX related expenses to better assess debt. But, the market often focuses on figures w/out understanding the details, so it was a good idea to defer $30M of 2018 capex to 2019 (w/out that net debt would be $1804M). For 2019 CAPEX at $175M, even if payments will be $275M to repay bills due in earlier years.

Kraken: Great that the problems are not field related. But the update does not indicate that we will ever ee 40kbopd even with DC4. It must be that the FPSO is useless. I would assume that this would mean that the daily rate paid to BUMI would have to be lowered. ENQ needs to be compensated by BUMI if AK cannot deliver. What do you think about that? (Tanker spotting would be key here for us to see how it is performing).

I hope people do not engage with Miser B and that the usual rambleron stops posting the lessons
he learned earlier in life, because they have zero informational content for ENQ (who would know that a bus/coach runs on fuel and that many of its parts are materials that were partly made out of oil? really?), so that this BB becomes a better one. And we need MO back!

no, no, production figures now inclde 100% of magnus, so production was not 55K. this is not like-for-like...
1 Includes net production related to 25% interest in Magnus until 30 November 2018 and 100% interest of Magnus from 1 December 2018, averaged over the 12 months to the end of December 2018.

poor hedging.
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 and an average cap at $76/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 and an average cap at $68/bbl.
they botched the hedging.

this has to go over 20 p today, and will move towards my 32p party threshold at some point. go away Miser...

E121,

Very good news, assuming this is like-fo-like you were spot on, and I am delighted that you guessed it right:
At 31 December 2018, net debt including PIK was approximately $1,774 million with cash and available bank facilities of around $309 million.

Magnus saved the day:
Average Group production up 48% at 55,447 Boepd compared to 2017; above the mid-point of revised guidance

§ Strong performance at Magnus, with 100% interest delivering 21,528 Boepd in December, above expectations; high uptime, additional gas export and successful well interventions

§ Kraken average gross production of 30,310 Bopd was below expectations; reservoir performance remains on track with production limited by a combination of FPSO and weather related outages

That is all folks. Please do not engage with Miser B further.

Pelle,
A miser is a person who is reluctant to spend, sometimes to the point of forgoing even basic comforts and some necessities, in order to hoard money or other possessions.

Pelle, The trick was to spell his name correctly! He is a miser not a miner!

E121, Fernan and Pelle,

At 31 October 2018, net debt including PIK and the net proceeds from the rights issue was $1,771.8 million. So, given that $100M were to pay BP to acquire the 75% of Magnus, net debt was $1.871.8M.
My prediction is that the like for like figure for 21 December will be $1850M. This is a number in the range that many people have indicated. So, I believe the consensus prediction of the bb posters is in the $1800Ms. It is however key that the like-for-like net debt does not go up. That would crash the SP.
How the market will take a small decrease in net debt I do not know, bearing in mind that even oil companies w/ net cash have seen their SP go down.
As someone pointed out earlier Heather's production dropped a lot, thus canceling some positive news from Alma. Let us hope that ENQ can fix one of its execution issues w/out finding an issue elsewhere going forward. Fixing Kraken would be great. I have now listened to AB's interview. but I am also mindful that there is enough empirical evidence that the most overconfident CEOs are the ones who run the most leveraged companies... So, his enthusiasm is what you would expect.
On Jan 6 I predicted that by Feb 4, POO would be $65 and ENQ sp 32p. By the end of the day tomorrow I hope not to be far away w/ regard to the former. On the latter, the Calum Miser B guy's prediction has proved better than mine.
That is all. I will be silent until the TU.

Fernan,

Sorry, I had to go out. just got back. Hopefully you can access the link.

E121,
Yes, if you can choose when to underperform Nov/Dec was the right time. So, let us revert to overperformance now...
What I like about Alma's increased production, is that the likes of RBC/Barclays' salaried workers need to see that some of the execution issues are being dealt with. IF Alma could go up to 6k and stay there that would be a start. And now we need a tanker heading towards AK.
I wonder if there will be a surprise with the hedging done past 2019 Q1 (PMO was very clever in hedging 30% of its 2019 production at $70).

Maduro is not going to be in power by the end of the week.

Alma's production up to 5300+, last time was this good was early in 2017. But Kraken's production still declining 26,400bopd, and Magnus at 16k.
my prediction in October for full year production is spot on: 54k bopd, that is what the results release is going to say.

E121 and Pelle,

Many thanks for all your data about these two issues.
I am not increasing ENQ position until Kraken goes back to 40kbopd and even then the additional stake would be a trading one. Have to manage risk. I had two minor punt size stakes in DEB and UTW, and those have gone to pots.
I have instead increased my PMO by 20% as Catcher is doing very well, and started a position in JOUL.
Pelle many thanks for the two suggestions. I will look at them, but if they are not listed in the LSE, I would have to open an account in Swedish Krona.

It is good to see MO back. May by this means Kraken is going to start performing better. All oil companies are doing poorly. Maduro is going to be removed from power, and the question is how soon can US companies get Venezuela production up to 2-3Mbopd.

That Calum Miser B person does not go away...

E121,

Many thanks.

I added all that you describe plus the interest on the $100M BP vendor loan, plus the Mercury loan and the Kraken FPSO interest. I do not disagree with your figures.

Early in January I predicted brent at $65 at a date that is quite soon, but also ENQ 32p. I got the latter wrong for sure. But every little increase of the poo helps.

I have spare cash from getting pushed out of FPM...but I am not adding to my ENQ position. That is not to deny that ENQ might be at a good price. I just do not want to add to my position.

p.s.: What is up with the MISER B person?