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Hi Fernan,

TA for the Schlumberger's CEO's quotes. This might cool down the heads of some speculators banking on low oil prices... But until there is proof that he is correct by having Shale production plateau in the Permian speculators will keep at it...

The Guy butler report mentions opex at Kraken of $6/bbl. But all I could find in Enq's files about this (quoting the FDP) is "Over the life of the field, operating costs are expected to average $20 per Boe, excluding the FPSO leasing costs, Including the leasing costs of the FPSO operational costs are estimated to be approximately $30 per Boe. Opex in the early years of production, or ‘plateau’ opex, will be c.$15 per barrel, including the FPSO costs. The
decommissioning costs of Kraken will be relatively low given the FPSO development solution."
So, how come Guy Butler talks about $6/bbl? Any ideas, of what opex costs the broker is leaving outside his figure?

Guy butler also mentions Magnus's OPEX to be in the low $30s/bbl. I thought they were lower. Yet, the margin per bbl would still be around $30/bbl which translates into $0.5M per day if production is around 17kboepd. Not bad, but one still the needs to deduct CAPEX. so, $180M - Capex coming in each year.

Hedging by Enquest: reading previous trading updates I believe ENQ hedges its oil not continuously (i.e., every month hedges some oil), but now and then. Often they only mention only the hedging done in the semester ahead, even if they have hedged oil production further away.
In 2018 Feb update they say "The Group has hedged c.4.4 MMbbls of oil at an average price of c.$60/bbl." So, at the start of 2018 they had about 20% of their production hedged, but did not specify the horizon of the hedging. 30 days later, March 2018, their 2017 year results release reports a lot more hedged "The Group has hedged c.7.5 MMbbls of oil at an average price of c.$62/bbl." So, they must have felt that oil was not going to increase much. Otherwise, why would they in 30 days hedge another 15% of their expected 2018 production? In their 2018 May update they write "The Group has hedged c.7.5 MMbbls of oil for 2018 at an average price of c.$62/bbl." So, in the following 65 days they hedged nothing. Then, a lot of hedging must have taken place between end of May and early September because in the 2018 H1 results, they say "Put options in place for c.5.3 MMbbls of oil for the second half of 2018 at an average price of c.$66/bbl." (It must be the case that the 7.5MMbbls mentioned in the earlier release had a huge amount of 2018 H1 hedged. On 5 December, Enq say "Collar in place for c.1.5 MMbbls of oil for the last two months of 2018 with a floor of c.$69/bbl and a cap at c$80/bbl;" This implies that out of the 5.3MMbbls hedges for oil procuced in H2 2018 mentioned in September, more than 3.8MMbbls were for the first 4 months of 2018H2 because the difference b/w the hedged prices $66/bbl and $74.5/bbl (average of $69 and $80) is quite large.

Pelle,
If you own close to 2M shares then I take my hat off to you!!! You must believe that ENQ will come good at some point. My exposure to ENQ is a fraction of that.
If you remember my prediction a few weeks ago, POO at $65 by Feb 5 and ENQ at 32p. I am on track for the former, but not dong so well on the latter (If the brokers/journalists stayed silent then it might come through...). Your belief that the POO will get to $80 will become reality at some point, but my view is that it won't happen in 2019 S1, apart from an unanticipated spike driven by some crazy event, e.g., production in Libya goes down to 0.5Mboepd, etc. There needs to be excess demand for a while for prices to go up. But there are good evidence that the imbalance will show up in the data at some point. China's imports are going up this year by a lot, ditto for other countries like Australia. Production in some non-Opec+ countries apart from the US is going down, including your Norwegian neighbors. So that is all good. Equally good news is that heavy crude's usual discount is disappearing. The discount will re-emerge again in 2020 with new refining rules, but until then, think of how much extra money ENQ could earn out of Kraken... At 30,000bopd WI is 21,000bopd times 365 days is more than 7M of bbl. With the $5 discount done that is an extra of $35M fcf in 2019. As per Tesco's motto "every little helps"...

Pelle,
how many shares does Faysal own?
have you factored in how much the shutdown of kraken in december will have on average daily prodyction in 2018? i think it will be less than 400 bbl a day.

smokinaces, no i am not.
i quoted from the broker's note. and commented on it. why do not you respond to the comments directly? e.g, do you think it is a good idea to consider selling part of magnus or kraken at the moment?
apart from that i mentioned only that sometimes takeovers happen on the cheap. as a lth of FPM, i just was on the receiving end of one.
i suggest that you stick to making your views known about the company and stop revealing your disposition attribution of others' posts.

it is actually 0.1%. the only point i was making in what i wrote is that while buys from the board are indicative of confidence that the company will do well, one has to keep an eye on the major holder, once she or he gets to 20%. no one wants a takeover on the cheap. i also prefer that to have the whole board buying considerable amounts, rather than just one of the board members. all the other board members of enquest have just token holdings, as far as i can see.

anyway, this was just a side comment. let us focus on the substance, which in my view is, among other items includes, why would you consider selling some of Magnus? i just do not get it. It was done in a way that allows ENQ to borrow money for its other operations, generating enough ebidta and fcf that allows you to pass covenants of borrowings easily.

Hi E121,

Many thanks for the link to the Guybutler analysis. Very concise and to the point.
A few comments:
- They write "Following a conversation with investor relations, it is clear the company remains open to any transactions for Magnus and Kraken which could help to reduce indebtedness." If true, I am worried about Enq's managerial team's judgement. You do not sell Magnus, because the deal is structured in a way that you collect the upside if it turns out to overperform, while you owe BP hardly anything (given what you already repaid them for the $100M vendor loan and for the more recent $200M vendor loan) substantive at the moment (perhaps not more than $110M in aggregate for the two vendor loans). The profit sharing henceforth is great, because it is a provision, not debt as one of the brokers called it. So, if Magnus underperforms you do not have to pay back debt. As far as Kraken is concerned, no one will pay top dollar until Kraken is fixed. So you would not get much for it given the underperformance of Kraken at the moment. By the way we will get to know how much of the Oz capital loan was repaid in the first three months, once the 2018 full year results come out. One has to watch this closely, because the exact loan repayment details seem not to be publicly available. I hope there are no constraints on not being able to hedge production to compute cash flows, etc.
- I am surprised that opex for Kraken is so high? How can it be above $30bbl?
- Their cash flow projections are wrong. With Capex of $250M, as assumed by them, there is no way that Enq would make $210M as free cash flow at $50/bbl. we know (based on calculations posted ) that from June to October net debt only went down about $60M as a direct result of operations. The rest of the net debt reduction came through other sources. I assume the mistake comes from ignoring that the 75% deal from Magnus is a cash flow sharing agreement, and so free caash flow should not treat the part that accrues to BP as debt reduction.
- not clear how they estimate the cah position. not clear how they got the 2018 estimate. oil at $50/bbl? free cash flow of $124M just from operations...
- Reference to Kraken's performance " EnQuest does have disappointing track
record here unfortunately, as Kraken was expected to be churning out 50,000 boepd by now (guidance for 2019 is currently 30-35,000)" this is not going away and is the main reason why the sp is depressed, and that the 32p party is far away.

other matters: AB directly or indirectly seems to own about 20% of the shares. We do not want hi to have 30% so that he launches takeover on the cheap. great that he is buying shares, but let us hope that he dot not own too many. i have been on the receiving end of some ruth less takeovers, among them FPM and Ithaca.

have a good weekend.

Pearls and upside_umop,

The issue is that this is not just a game between DEB and the landlords. If that were the case, assuming that the landlords are rational and understand that once DEB goes into liquidation they can say good bye to the high rents they received in the past, they would accept a reduction of the rent, as long as it was above their best alternative option's rent.
As it was pointed out by others, in some cases the landlords use debt to buy the property, and so the banks to whom the money is owed are part of the game. Therefore, the issue gets more complicated. The banks know that a solution as above will result in the loan not be repaid. In that case, the banks, depending on the size of the loan might prefer to push the landlords into liquidation and get the property. They will then resell the property to recover part of the outstanding loan. In other words, in this case, depending on the size of the outstanding loan, a compromise might or not be found.
Of course, this is all assuming that all the parties are rational. Unfortunately, the world is made up of "difficult" people, as we have seen with Brexit process...

CHINA 2019 NET CRUDE IMPORTS MAY RISE 9.8% TO 505M TONS in 2019. YES, CLOSE TO 10%...
WHO IS GOING TO SUPPLY THEM? GENL...AMONG OTHERS..

Whitehat

Yes, I also came to a similar conclusion "Net cash of $37m so there must have been some big spending in Q4. Genel said they were already net cash positive in their October update and have received another $98m in Q4. So maybe only net cash positive before they paid all the bills."
It seems that Mr. Market did not like this. Bet cash should have been higher by the end of the year. However, the TU does not mention how much GENL is owed for Q4 2018 as there is a payment delay of 3 months. So, the higher (when compared with Q1 2018) (because of production, not price) revenues for Q4 are yet to be received.

IMHO, GENL should:
1) buyback some of the outstanding $300M bonds. They pay interest of 10%. By buying back $100M they would easily save some of the interest (about £7M a year) because they are trading above par.
2) buy back some shares while the SO is below £2.
3) start paying a small yearly dividend of £0.10. It would mean paying out £28M in dividends. the SP would go up because some dividend paying funds would start buying GENL shares.
It can afford all three, but it can surely do at least one of these.

Finally, G&A expenditure seems to be on the high side for such a small company...

It will be a much better company once net debt is down at $1.5B (and producing at least 75000kbopd). Once it gets there then please look for more assets. Until then use the cash flow from Catcher wisely to reduce net debt and to pay for Tolmount, and Zama's wells (why sell Zama before it is further de-risked?)

TD,

Stick to executing delivery of profit with the assets that you have (deliver Tolmount on time and under budget, Fix Solan, etc.), and stop your debt addiction. Otherwise, you should be let go.

From the RNS:
"Current operational performance remains strong with production in the first two weeks of January averaging above 90 kboepd."
This production is helping to reduce net debt even at the current POO.

Why roll the die again, if all is going well? You will end up overbidding for the Chevron assets if you win the auction.
CEOs that only think about acquisitions do so to hide their inability to manage the assets they have.

Broadland 185
Whitehat 206
Boyobach 212
JustinD 215
Bunks 218
Jandialbi 219
Klassic 220
tiger100 222
Hasiba 228
ocelot 235
L3trader 240
Hawkey 250
Kevijoh 274

I hope PMO do not win the auction. Anyone knows the expected size of the winner's curse in a common value auction with many bidders? You end up paying a lot more than the good is worth if you win the auction.
The tax credits alone are not sufficient for PMO to outbid the other bidder. No one know what the POO will be in the next couple of years. PMO has plenty of projects/production going on, so makes sense to focus on its operations at the moment. The problem is TD who is not good at executing projects so needs to roll the die again and keep his addiction to debt going on.

https://www.ft.com/content/bc0c6358-14a9-11e9-a581-4ff78404524e

takes a positive view of the results.

most positive piece of news is debt down to $2.3.B (keeping the creditors/banks at bay is key to the SP going up) regardless of how it was achieved, i.e., through the convertible bonds. covenants are no longer an issue. nevertheless, CAPEX needs to be reigned in, or at least deliver production, unlike what happened with Solan, which is no longer mentioned. Had Solan been a success net debt would be closer to $2B. Anyway, as I wrote earlier, I believe the market will eventually see the TU as positive.

"The US$390 million reduction in net debt during 2018 reflects free cash flow generation of c. US$250 million (including US$75 million of cash receipts from disposals) and a c. US$180 million reduction in accounting net debt from the conversion of the convertible bond. Offsetting this is a negative one off movement in joint venture cash balances at the beginning of 2018. "

As a long term holder (since when this was over £3 a share...) the pieces of the puzzle are finally coming together. The best piece of news is production in Nov/Dec. The ok piece of news is that the free cash flow was only $250M. This is not enough to reduce net debt at a fast pace. Remember that in 2018 average price of oil was $70 plus, even though hedging had a negative impact. Debt was reduced via the conversion of the convertible bond.

HI Pelle,

Many thanks for your forecasts for net debt at the end of 2018.
I am going to be silent for the next week and a half.
Talk to you then.

hi E121,

sorry for not replying earlier. i agree with what you say "It's probably then worth taking out cashless collars - somewhere in the low 60s floor to the mid 70s ceiling range for H2".
i proposed a different hedging procedure, which is to double up on the added percentage of the production hedged as the poo moves higher, even if you do not cashless collars. so hedge 5% of the production at a floor of 60, when the poo gets there, 10% at $65, 15% at 70, 30% at 75 . use ceiling if price stays high. paying a cost to hedge might be preferable than to wait for the poo to go up to then get the collar. anyway, they just need to hedge..

at some point the tide is going to turn and a takeover might happen. i have had a position in FPM since 2012, and it seems i will have to sell, because DNO is playing hardball. i am annoyed as my returns would be much higher if the takeover failed. i was also forced to sell ithaca energy when it was taken over.
i might add to my position in oil companies in the next week or so but for now i am sticking to smaller companies with net cash or little debt. so not adding to my enquest position. i admire the people who bought ENQ shares yesterday after the rbc note. they were rewarded with about a 5% return in one day!

after my last few days of posting there is nothing that i would want to add to the board except noise (and there is already plenty of people posting noise), so i will stay silent until the 21st.

brasonbull, wakey, wakey. please read previous posts before posting the same information. All that you posted has been posted on this board before...

Fernan10,

I am sure she did read what you sent. The price target stays the same, according to the alphaville moderator.
btw there are other convenants besides the one you delved into. Basically with Magnus on board the covenants are pretty much irrelevant.