Member Info for L3Trader

MO,

I will write more in detail about my post yesterday, as I was on the train and have had no chance to write anything else, but I had forgotten that the Magnus deal involved increased the stake in Thistle, not just the decommissioning part. ENQ's IR could have worded it better. I have today's The Times in front of me, and is clear from how they wrote a story based on ENQ'S IR RNS release that people who read The Times would perceive the Thistle part of the deal inaccurately like I did, if they had forgotten about it.

Discodave,

What you wrote about Fernan is just improper and plain wrong. Criticize his opinions and views and argue against them but do it in a civil manner.

How is the following good for ENQ?

"Exercising the Thistle option results in EnQuest receiving $20 million in cash in exchange for increasing its total payment obligation of BP's decommissioning costs of the Thistle and Deveron fields to 7.5% from 4.5% previously. The cap on EnQuests total payment obligation also increases by £42 million to £99 million. The funds are expected to be received from BP within 10 business days."

You get $20M for something that might end up costing £42M?....

EnQuest PLC ('EnQuest'), an independent oil and gas production and development company listed on the London and Stockholm stock exchanges (ENQ.L and ENQ.ST), is pleased to announce that following Shareholder approval at the Company's General Meeting on 1 October 2018, it has exercised its options with BP relating to the Magnus field and associated infrastructure and the Thistle and Deveron fields.

The Magnus acquisition, which is targeted for completion by year-end 2018, subject to requisite regulatory and third party consents, is expected to add approximately $500 million of net present value to the Group with a significant increase to both existing 2P reserves and annual production.

Exercising the Thistle option results in EnQuest receiving $20 million in cash in exchange for increasing its total payment obligation of BP's decommissioning costs of the Thistle and Deveron fields to 7.5% from 4.5% previously. The cap on EnQuests total payment obligation also increases by £42 million to £99 million. The funds are expected to be received from BP within 10 business days.

Hi E121, MO and Fernan10,

I have not checked Brent futures for 2019 H1, but suspect they are well above $80. ENQ might want to hedge but keep the upside.
The weekly build once every few weeks is not going to affect the direction of travel of the oil price. Spare capacity is minimal at the moment, and if you think of all the places around the world where a shock to production can occur, tomorrow, the day after, and in each day after in the foreseeable future while there is no spare capacity, you almost get the conditions in place to be sure that a spike will happen at some point (this is related to a result in math). So, the market is reacting to that "yet to happen kind of sure event". Until spare capacity becomes available with increase in supply or demand contraction there is a bright future in the short term for any oil company that CAN pump serious amounts of oil!!!

Hi MO,

Commenting on your reply to my observation about KUPFEC deal, and increased A/G production copied below.
"Yes aware of KUFPEC deal, hope will be a little happier and contented now A/G seemingly performing 500% up on 12 month average (need to see offload size first to confirm, even then have the ballast conundrum).
Can also look at 65% of 2.2k barrels or potentially 45% of 12.5k barrels, is obvious which is better, also have barrels deferred that could have been sold @ $50 per barrel, can now achieve > $80."

What I meant to say is that we cannot get carried away with increase in production going all to the bottom line. KUFPEC deal led to what I call "sunny-day" contingent debt, i.e., if things turn out well you have to pay the full amount that underlies the provision you had made. It will not show up in the figures that the press pays attention to, such as net debt, because it is a provision, but will help to reduce the liabilities on the B/S, and thus increase Equity. So that is fine. However, we have to bear in mind that often the provision understates the amount you eventually have to pay/lose. In this case, I could not find enough info on the accounts to check if that is the case here (cost recovery provisions amount to $24M)

In any case, provisions are not always enough: see the reference to $6.2M in the passage below for a contingent consideration provision (the $6.2M cannot all be interest, because 0.05/2 x $85M is about a third of that figure). What it is, I have no idea. There seems to be a lot of small print items on the BP deal for Magnus.

"On 1 December 2017, the acquisition of the Magnus oil field and other interests was funded through a vendor loan from BP. The loan is repayable solely out of the cash flows of the asset which are achieved above operating cash flows from the Transaction assets and is secured over the interests in the Transaction assets. A fair value adjustment relating to the unwinding of the liability of $6.2 million is included within finance expense for the six months ended 30 June 2018. EnQuest repaid $27.2 million in the six months ended 30 June 2018."

Finally, I like inequalities, so knows which is larger the left-hand side or the right hand side. But L3 also thinks that were Alma/Galia to have been fixed earlier, say last Autumn, even at a lower oil price enough money would have been earned to not borrow so much from Oz capital now. In my view Mercury deal and Oz deal do not look good in EnQ's B/S, even if they were necessary.

Bottom line is: keep AB and JS on a tight leash so that they do not do more deals before fixing the B/S.

Best.

Hi E121,

Production of Magnus went up from June to July. I hope that August data shows increase from July in order to approach 20k before year end.

Other fields' production performance was mixed. We already knew about Kraken, so I am commenting ignoring it.
I was looking for increases in production in smaller fields. Some did very well, Don South West and Thistle.

Anyway as MO observed 55k for July. That is fine and above 54k H1 average.

production data for july is out. magnus good news. other news not so good.

Jan,

How do you get your production forecast? where does the 6k from Magnus comes from?
bear in mind that a non-negligible portion of the oil produced is to deal with provisions, so will not show up in the profit figures, or even as cash flow, although it repairs the balance sheet, which has a lot of new provisions added to it with Oz capital loan and BP vendor loan for 75% of Magnus.

if all the oil being pumped were ENQ's the story would be different: sp would be twice as high as at the moment.

the market will not react until it sees a much healthier balance sheet. that is why i harp on 2018 H2 being critical. i am hopeful enq's management will realise this.

for that price buy all you can...

mornng MO and E121,

still confused about MO's wells/pumps explanation,
so, will comment on the financials.

there is a provision of $24M that needs to be paid. see below. i belive it means that only 45% of alma/galia production go to ENQ's bottom line.

Cost recovery provision
As part of the KUFPEC farm-in agreement, a cost recovery protection mechanism was agreed with KUFPEC to enable KUFPEC to recoup its investment to the date of first production. If on 1 January 2017, KUFPEC’s costs to first production had not been recovered or deemed to have been recovered, EnQuest would pay KUFPEC an additional 20% share of net revenue. This additional revenue is to be paid until the capital costs to first production have been recovered.
A provision has been made for the expected payments that the Group will make to KUFPEC. In establishing when
KUFPEC has recovered its capital cost to first oil, the farm-in agreement requires the use of the higher of the actual oil price, or $90/bbl real, inflated at 2.0% per annum from 2012.

kkoil,

after all you are a day trader.... enjoy the sp swings.

Pelle,

TA.

in the 2017 accounts:
(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 contingent consideration of $66.6 million.)

On June 30, $27.2M had been paid. so, $39.4M owed (but recorded as a Provision). So, it could all be cleared by dec 31 2018, easily with POO as high as at the moment. but agreement might me more intricate than $85M. otherwise why would they have stated the loan was expected to take 3 years to pay.

Good evening E121,

DTrump has others doing the work for him. Some WH numpty mentioned yesterday the possibility of a naval blockade of Russia. This can only push the POO up. I am surprised that gold is not moving up as well.

Yes, I was only thinking about 2018 production. do you know how much of the $85M BP vendor loan for 25% of Magnus was still outstanding at the end of H1?

TA

Therapist,

TA
That is precisely the therapy we needed. It is a big tanker. This is great news. When we have evidence that Alma/Galia have been rehabilitated, the SP should react up by a couple of pence.

Krakenoil,

Yes, I have never posted on PMO. I have also never posted on CNE, FPM, TLW, RDSA, BP, and a few others I own.
I like BP and RDSA, where I have my largest holdings as every 3 months I get a big fat dividend. No need to post there. I bought BP shares well after Macondo. Its SP is now close to £6, and will be at £7 before the end of 2018. BP gets a huge paycheck from Rosneft every so often. Rosneft is pumping massive amounts of oil at low cost. So BP is bound to do well. No reasons for concern. If ENQ had its production issues fixed, I would not be posting here...I would just be waiting for the dividend to be credited into my account...

Hi MO,

If you have the time could you please try again. I do not understand the details of your answer in response to Fernan's question about the water.

Hi E121,

I am updating my last week's Magnus calculations... Magnus at 16K, 75% of it is 12K. In the last 100 days of 2018 it would produce 1.2M beopd, which would result in cash flow in excess of $72M, using a margin of $60 (POO - Opex). The advantages of not hedging production, as dictated by BP). If there is no CAPEX loan of $200M will be down to below $75M on Jan 1st 2019.
Hopefully they will not have hedged the other 25%, which means $24M of cash flow from it in the last 100 days of 2018. So, the $85M vendor loan from BP would be down below $25M by the end of 2018.

We need Alma/Galia to offload their oil. I keep on looking East but so far cannot see any tanker headed there. We need a tanker there by the weekend. It will have been 41 days since the last cargo. If producing 12K a day then 500K waiting.

Best.

Malafuster,

Is there a transcript of the EGM somewhere? Were there any questions about current production and work being done at the different assets?
TA

Krakenoil,

I am no deramper or ramper (see my post on the day the RI was announced when I wrote that the SP would bounce, and so it did). I cannot move markets, contrary to what you imply. Barclays Capital and Trump might be able to do that...

I am not a smug PMO investor. PMO has had its misses too (Solan). Thank you for your advice on selling ENQ and moving on. Since the RI was announced I have neither bought nor sold ENQ, and I do not intend to buy or sell until we know more about the oil field named after you, or the SP rises like a rocket...

That is why I ask questions about what is going on. Extracting oil in the North Sea is not as easy and predictable as in Saudi Arabia and Iraq...

Hi E121,

Agreed. A load does not make a trend, but we also need ENQ to be upfront about Kraken's issues. I point out that we learned more about Kraken from Cairn's update than from Enq's update. That is not right. Even Barclays waited for Cairn's update before making a new recommendation. That says it all. I would be a lot less skeptical if ENQ was more forthcoming. That is why I hope someone grills the ENQ board at today's EGM.

On the other hand, Magnus might compensate for some of Kraken's low production.

Best.