Member Info for L3Trader

Fernan,

Thanks for this info. How many millions of bopd have Algma/Galia produced since that $800M investment? I do hope many.

2K a day for Alma is laughable. I hope MO's forecast of 10K come through.... even if only 6.5K accrue to ENQ.

What about Galia MO? Any ideas of target production?

TA

gd morning E121,

Gaffney and others is owned by Baker Hughes since 2008. They were are a very competent company. They rely on highly technically trained staff. But. as always if their fees depend on the transaction going ahead, then we would know what the incentives, not that they act on them.

TA for the AK #23 load forecast. If the interval is the same, then it would be like August loads, which in the earnings call was 36kboepd per day. Not bad, but no improvement yet. I would really want to see AK reaching 40kboepd to be reassured that production issues are temporary.

DD,

all good. thanks.

DD,
I am fine with Fernan posting whichever information he wants. I can only thank him for posting very useful information.
The outlook for the SP is rosy... so let us enjoy the moment and hope that the CFO starts buying shares on the basis of a brighter future. That would surely boost the SP!
Best regards,
L3

E121,

many thanks. i know it will be b/w x and y. i was only extrapolating that given where the poo is headed it will be y, or so i hope.

your point about svt clarifies the matter. i guess they had no option but to becomethe svt operator if they wanted magnus from bp. fair enough. it is just that i do not think it is the best allocation of capital for an indebted company like ENQ.

best regards,
L3

p.s:n HK is at AK. i wonder that #23 means in terms of production...

Fernan

Many thanks for all this. It is absolutely thorough and very informative, and anybody who reads the analysis carefully can only conclude that saying it as it is not de-ramping. In this case it is all good news: you are predicting that hedging losses/cost will be $60M lower than in H1.

My next question is how much you think net debt can go down at current POO and current production (54K) and assuming payment of B/S provisions is done at the same pace as in the 1H?

10M bboel at $73 would be $730M in revenue, minus $18 = $712M, so $160M more than in H1.

If all is used to pay debt down that would be $180M net debt reduction in H2 (net debt reduction in H1 was $20M).

That would be too good to be true, wouldn't it?

best regards,
L3

Discodave, yes, 46 kboepd. Trying to post while working is far from ideal. Like you I look forward to hear all those detailed SP valuation exercises...

DD, Yes, but similar reasoning means they are also saying that 50kboepd is possible... So, not very useful. I bet they know more than that!

MO, DiscoDave 50glass and E121,

MO,

Disagree. you are THE Matrix's expert... (Nice to know the transaction has such a NPV10 due to the tax losses in the B/S. I hope there is no expiry date on using those tax losses in the future as there is with banks in many jurisdictions. And that grandfather clauses would protect the carry forward of past tax losses. In the end the deal is less about the oil to be extracted than about accounting gimmicks, which is fine, as long as we know it.)

I still do not understand how SVT is going to generate real revenue... Perhaps it will generate $5M a year? Why would you employ so much working capital to get that return, when ENQ's cost of capital is not that low.
Apologies for sounding skeptical, but healthy skepticism (Why?) is a good thing, I think.

Discodave,

Where in the transcript is "They have said they could be doing 62kboepd in H2."? I am afraid it is not there. But, 62kboepd would be the maximum production they could have in H2, without having to raise guidance, ie., in particular the upper limit of their confidence interval (to which they should attach a probability, i.e, is the 50-58boepd is a 80% confidence interval, or is a 90% confidence interval) for the whole year. I made a point yesterday about the variance of the production in H2 needing to be higher than the variance of the production in H1, as the only justification to keep the guidance for the full year the same.

I suppose that once the Magnus purchase is approved ENQ will release new guidance adding the 75% of Magnus production, which would be misleading as they are only getting 37.5% of it (and even that is "mortgaged" to a vendor loan, that apparently can be paid with more flexibility than I thought, i.e., can pay $20M per year and keep the rest of the proceeds of that year to reduce debt or use it for CAPEX elsewhere). SP will sky-rocket but not for the right reasons. Imho important compare like with like for purpose of figuring out how much net debt can be reduced.

50glass - talk of dividends? How? At what level of net debt do you think ENQ would start to pay dividends? Once it is below 1B. Bear in mind that ENQ just "mortgaged" 15% of Kraken, with a repayment period of 5 years. Until that loan is repaid why would any sensible CFO start paying dividends?

E121, Many thanks for the detailed information on the derivatives. If they have a collar in place then the price for those 5M bboel will effectively be b/w $66 and current POO ($75ish). $50M of additional revenue in relation to those same $5m in H1 would really help.

Finally, the weekend newspapers were all over the place about ENQ's results.

Have a great afternoon ladies and gents.

Hi E121 and MO,

ENQ manage the SVT terminal, not the port, SVS, so why is this change so relevant from a business point of view? is this a material event?
TA

squif, it is everywhere on google. their previous target from some time ago was much higher.

let me harp again on the hedging: the good news is that the 5M bbeol hedged in H2 are at a higher price that will add at least $30M to the revenues, and as E121 pointed out it was done with put options, so if prices stay high the revenue of these $5m bbeol will be even higher.

I am still puzzled by the lack of narrower guidance for the yearly production. are they expecting the possibility of more downtime than in H1.

ta

Correction: ( i had expected narrower guidance on 2018 production, because the range for the year production can only be the same if the variance is much larger now than what it was at the start of the year, which is not very reassuring, is it?), so what you get is a larger variance in people's views about ENQ.

Discodave,

Fernan is right to be skeptical about production levels.
I quote from the May 2018 Operation Update:
"Kraken
The FPSO has performed well during three major storms, although extreme cold weather in early March resulted in Kraken being shut down. During this period, the Group undertook much of the previously planned April shutdown maintenance workscope, meaning the planned shutdown was no longer required.
The subsurface continues to deliver in line with expectations. Modelling shows a clear indication of pressure support from injector wells to producer wells, while chemical tracers have confirmed uniform production across the entire length of the wells and no tracers from the injected water have been observed.
Average gross production in the four months to end April, which includes the impact of the March maintenance shutdown, was in line with expectations. Excluding the impact of the shutdown, gross production averaged over 36,000 Bopd."

Now, in the 2018H1 earnings release ENQ informed us that there were issues at the time with Kraken's production which are not AK related. So, why was ENQ economical with the truth at the time? Credibility is as much an asset as their oil fields. No one is going to assign value to something when management is not forthcoming.

Another one. The Trading update in May 2018 did not mention a figure for net debt (instead it stated "The improving cash flow generating capacity of the Group is enabling early cancellation of $50 million of bank debt and we remain on plan for a further reduction in debt during the year.", which some people might have interpreted as indicating that net debt was coming down). But all previous operation updates (February 2018, November 2017, May 2017) had a figure for net debt. I compared the trading updates in early August, and that is when I figured something was up! Checked accounts for loans to be repaid and that is what led me me to post for the first time (after having followed the board for 18 months) on Monday alerting to the large repayment due shortly. Unfortunately, I did not liquidate my modest position before the results release to buy again. Otherwise, I would have earned a few quid.... Anyway, I am Long term holder, as I cannot predict next day's SP...

Anyway, my point is that ENQ IR are not usually very forthcoming ( i had expected narrower guidance on 2018 production, because the range for the year production can only be if the variance is much larger now than what it was at the start of the year, which is not very reassuring, is it?), so what you get is a larger variance in people's views about ENQ.

Cheers,

Discodave,
Fernan is doing a service here, posting a lot of well-researched and through information, which a lot of us enjoy reading. We need people who post different perspectives, otherwise this would be more of a North Korean investor chat room, which would require nominating someone to be the "Dear Leader", and we do not want that.
What is reprehensible is to engage in name calling, which is not what Fernan does or you do.
So let us not try to surpress different views from ours.
Anyway, apologies for writing something that you might interpret as criticism of your bashing of Fernan, but we need him to cross check our investment hypotheses.
Bestregards.

MO,
Many thanks. link works fine if you select UK and are in the UK. From the Matrix it will not work...
Loads from Alma/Galia will happen on average once a month, correct?
TA

E121 and MO,

So where did the other two cargoes go? Has there been double counting or is it ENQ not being accurate. I would suggest the latter, given that there were a few inconsistencies b/w what they said during the earning call as per the transcript and what the official propspectus says, as mentioned by Fernan,
e.g., in the earnings call you will read "The group has entered into a financing agreement for $175 million with a wholly owned subsidiary of Och-Ziff Management. The financing is ring-fenced on 15% interest in the Kraken oil field, which is being transferred to a special purpose vehicle. The financing will be paid out of the cash flows of this SPV over a maximum of up to 5 years, and is at a lower cost in the current interest on our existing senior credit facility."
Thus the SPV option I mentioned, as typically SPVs account stay out the B/S, but in the passage Fernan quoted, something else is stated. Although this is all minutiae, it is very relevant for the net debt figures that are released in the media. So, not clear what is going on.

Tanker watching at Alma/Galia as you say is going to be key to understand the success of the work done there. (foe the rest of the assets, unless MO is Bond, James Bond, and can fit a device in the pipelines we will not get the production data in real time...

E121, I have a different opinion from what you stated " I agree that this could've been funded through FCF before the options expiry date of 15/1/19." It might have, but since debt is an issue, why not try to make it less a concern, to see if it can turn the corner. If the deal is as good as ENQ states would not most shareholders be delighted with the return on their investment? I would. (The RI reduces my concerns bout debt at least in the short run.

The results release and the earnings call milks the yearly $50M savings on running SVT. Why is it so good? I understand that it reduces transportation costs for ENQ's own production. But should ENQ not get a lot more income from the others users of SVT? Nothing is stated on this.

TA

Discodave,

Thanks for the link and quote. I find Fernan's posts, like yours, very helpful (unlike others who post messages with zero information content). It it ok to interpret facts and figures from different perspectives. Let us not question each other's motives. I doubt the market is made by the people posting here.
bregards

Good Morning Fernan,

I have slightly different interest rates for some of the borrowing:
High yield bond, 720M at 7%
Retail bond, 224M at 5%
RCF (890M at (USD Libor + 4.75%=7.6%)
RCF (another 205M at (USD Libor + 5.25%=8.1%)
But, let us ignore all thse minor differences. You are figures are more likely to be correct.t

The $12M waiver fee must be what they paid to postpone the $140M payment due in April 2018 to October 2018, correct?

Any clue how the finance lease charges are computed?

On the covenants, your updated information, is a big relief. It is clear that ENQ is fine until early 2019.

I had read in passing that the OZ deal was through a SPV. I should have looked at the detail. As you describe it would be consolidated in the B/S. But that is not a problem as long as ENQ finds a way to reduce cash outflow on finance charges and exceptional items (there are so many of them, that they are no longer exceptional).

Best regards.

Fernan,

It is not good afternoon, but a very bad evening, with the figures you laid out.
If what you write is true, why would they do the rights issue now, and also why not a larger rights issue?
I suppose that Magnus Opus is going to save the day. However, for 30 June 2018, the consolidated net financial debt (for the purpose of the covenant) does not include PIK, which at 30 June 2018 was $127.6M . So, instead of $1973M, you have $1846M. Because EBIDTA was $464.5M for the previous 12 months, 3.5 times 464.5 is $1626. So, you need $220M EBIDTA from 75% of Magnus over the last year... I have no idea whether Magnus pumps out so much EDIBTA. If the covenant was not breached at June 30, then at 30 September how are they going to get a ratio of 2? Impossible. Something is not right.

Squif,
Yes, I suppose he prefers to swing up and down as much as he can.... They should really have narrowed down the production guidance.