Member Info for L3Trader

Hi Fernan

I read somewhere they earned $5M(?) in 2018 H1. But they will now have a bigger share of the revenues. Verus Petroleum is buying the interests of some other oil company in the area, and they will also buy that company's interests in SVT.

Hi MO,

Almost there at SVT.

Hi E121,

Regardless of who wins the elections the POO is staying up. Neither the Democrats nor the Republicans can open the oil tap.
And for ENQers all we need is tanker visits to AK and ENQ PROD and oil from Magnus flowing to SVT.

Hi MO and E121,

hopeful for the 23rd. ENQ Producer FPSO hopefully offloading a cargo soon?

Do you think that any of the west of Shetland fields might use SVT?

Best.

Hi MO, E121, Fernan10 and others,

MO: Your thoughts on the work underway at Kraken is very helpful. Particularly reassuring to know that the work might only reduce output by up to 20%. CNE said they were expecting Kraken production to stay around 36k in H2.

E121: thanks for info on the use of derivatives. I would like to point out to others, not to you as you know it all, that the impossibility of hedging the production from Magnus is no problem whatsoever, under a no claw back clause assumption. ENQ should decide on its hedging strategy for its aggregate production, not for each producing asset separately. In other words, if ENQ wants to hedge 50% of their oil production, it can do it, as long as the production that accrues from the 75% of Magnus it is acquiring is less than 50% of the total production. (From BP's point of view the oil output (and cash flow) they will get from Magnus is peanuts. So, they are happy to not reduce the variance of the financial outcomes they will derive from Magnus.)
I have not read the prospectus in detail, but I think that this would not be a problem for ENQ, as long as there is no clause that would allow BP to recover the asset if the cash flow that it receives from Magnus were to be below some threshold over some interval of time.

MO, E121 and Fernan10: From what you have written it is now very clear how the cash flows from Magnus will be apportioned. Many thanks to Fernan10.

E121: My projections for net debt reduction in H2 are smaller than the ones you have posted. I do not understand why many people posting are focusing on 2019 debt. 2018 H2 net debt figures will dictate the direction of travel of the SP. any ideas of how the AK lease will affect the cash flow in H2? Which other provisions will lead to out flows of cash?

On Barclays: their reasoning is reasonable. if after one semester of high oil prices debt decreased by only $20M, why bother looking at the details of a complicated deal to figure out what will happen. the team, that covers ENQ have a lot of other companies they cover, i suppose, and it would take them days figuring out how all the pieces move together. And some of them might not even have the expertise to do so. So the attitude is, if it is that complex is for a reason: debt is proving more difficult to manage than anticipated. Were ENQ to reduce net debt to $1800M by the end of 2018 H2, and i am sure Barclays will increase its TP back to 60p.

In short, let us see what JS can do...

Is it true that KUFPEC will be receiving an increased portion of Alma's production increase?

Many thanks.
Best,

Hi MO,

Given the weather at the moment how is AK doing? Does it need to shut down production, etc?

“EnQuest is a debt-levered North Sea oil producer that should be quickly paying down debt in the current macro environment. In reality, we forecast end-2018 net debt being flat year on year at around $2.0bn as annual Ebitdar growth of around 160 per cent fails to translate into free cash flow.”

romaron,

Many thanks for this. Is it not great to be a shareholder of a company that has accumulated losses over the years...
I am glad i only came in within the last 2 years.

I am afraid I do not comprehend that part about BHS. Is this the same kid of deal? I do not think so,.

"I stick with my view that BP has given EnQuest its seal of approval because they are unlikely to welcome the kind of backlash that Philip Green got for selling BHS for a £1.
I'm sure this is not the last of AB's purchases but hope he lets the coffers fill up a little before the next venture."

Tell him to calm down, and just reduce net debt for a while...

Irony at is best. Well spotted. We hope it is BP being CON ned.
*perhaps it's just me but I'm a bit worried about the wording regarding the Magnus option. Apparently it's triggered by a 'call option notice' to BPEOC; or CON as they like to call it.

Hi Fernan10,

Many thanks.
Is the following passage from your port the answer to "why"?
"EnQuest’s development plans for the field are based on drilling new wells and recompleting
existing wells to target areas that will have already been partially swept. There is some risk
in this philosophy in that the success of any new wells will depend on the degree that the
reservoir has been swept and the initial oil rates."

Hopefully the 60Mboe would still come through but no more than that. Is that your opinion?

E121 and MO,

E121,

What Fernan10 wrote first and you emphasized again (copied below) is most relevant. Having rights to the first $100M cash flow after the vendor loan is cleared will be very hand to reduce debt (assuming AB does not embark on a crackpot acquisition). It might come at a critical time, namely when the RCF was to be paid down by a lot.

Your words;"So, ENQ will have rights first to the $100 mill cash, after the vendor loan is cleared and then the 50-50% cash flow sharing will kick in. In the earnings call, JS indicated this as well, but it wasn't very clear.

MO, you are a polyglot. L3 is not. Can only speak proper .... L3 language. So, no Greek words from L3.
L3 does not like to know ENQ will pay 7.5% interest to BP. Imagine POO had stayed low. BP vendor loan would have never ever be paid back.

Best,

Hi Fernan10,

Many thanks for all the detailed analysis. It now all makes sense. The question that remains is "why"?
Why would BP give away the asset for free?
What is it that their geologists know that ENQ's don't?
Best,

Hi MO,

Thanks a lot for all the info (thanks to E121 as well). Ultimately, as long as POO is high, regardless of whether repayment to BP is upfront or staggered will not matter much, as high POO will be enough to reduce the other debt.
What still puzzles me is the "(grossed up for the tax rate which is capped at 40%)", which means ENQ only stops paying at $1B...this makes a huge difference to shareholders pockets...

Monsieur MO,

répondre...

No clue what availability means either. A lot of mumbo jumbo in the CPR que je ne comprends pas...

Merci.

A bientot,
L3

Ladies and Gents,
Bear in mind that CAPEX is subtracted from cash flow for purpose of repaying BP, and two wells were drilled in 2018. So that will slow down payment H22018.
L3

Morning MO,

E121 is correct in all he wrote, as that is all based on signed agreements. A cozy relationship b/w BP and ENQ opens the possibility for the deal to be more flexible to help ENQ divert cash flows to pay down its other debts, I think, paying interest for that. That must be what JS was giving away in the earnings call, I suppose.

What does MO think about all the rambling about grossing up taxes/ taxes blabla in the documents?

I read more about SVT and SVP. Thanks for spotting all the benefits that might accrue from the enhanced activity, even if it will not mean much cash coming through the door.

Best,
L3

Pelle you have o look at the 2017 year end report. The H1 2018 will not have that level of detail.

E121,

Many thanks. Yes with oil in the $50s, and Magnus OPEX at $20s, the cash flow was $30 per boepd.
With 16Kboepd, 25% would be $4Kboepd. So, $30x$4KX365= $43M cash flow before CAPEX, $19M debt reduction in 2017, but if you add interest it brings you up to $24M that had to be paid out of the $43M cash flow, so $20M CAPEX at Magnus in 2017....
Best,

Hi E121,

What is all about the tax creativity in the decommissioning and so forth?

As you state "As of 31/12/17, the vendor loan balance (Provision, not debt and payable from future cash flows) for the 25% stake was $66 mill on the balance sheet." This means the cash flow in 2017 was only $19M, which is rather low. It must be because the payout is done after subtracting CAPEX from the cash flow. Not sure what CAPEX took place in 2017. BP must have been working on the upgrade of Magnus in 2017, and thus this would have had an impact.
Best,

E121,

Many thanks. This makes a lot more sense. So, no idea why they would say in the earnings call that they would pay $20M per year for 5 years. 75% of Magnus will generate a lot more than $20M per year....
The $600M figure makes sense, because BP will stop when it reaches 1B, since it is selling for $400M ($100M for the 25% already sold + $300M for the 75% left).

The next bit "US$600 MM (grossed up for tax at a maximum of 40%). BP will remain responsible for almost all of the abandonment costs, but EnQuest must pay BP 22.5% of the after-tax value of these costs." that deals with taxes, perhaps MO before having rose or after having rose can make sense of it, and translate it for us...

if the grossed up means you have to pay BP an amount so that it needs to account for tax at 40%, we are back to $1B... That would be really bad.

So BP is responsible for the abandonment costs, but ENQ has to pay 22.5% of these to BP (after some tax gimmick once again... where is the rose'?). This is a mess. Would it not be easier to say that BP is responsible for 77.5% of the abandonment costs and ENQ te 22.5% left after some tax magic?

Best,

Best,
MO
p.s.: SPV, I understand E121's explanation, but whenever I have dealt with SPVs, they stay off the B/S, so debt is not consolidated.