Hi L3Trader, an interesting post. Your H2 Kraken WI cash flow number ($175m) caught my eye.
Assuming you have deducted the OZ 15% interest I get to a similar number. Here’s my maths:
38500 (bopd) x 184 (days) x 55.5% (WI) x $45 (Netback) = $177m (My biggest assumption is a continuation of current Kraken performance through Dec)
But why stop there? Taking your $1.49bn net CapEx number (does it include DC4?) and interest @ 8% for the half year leads to interest of $60m, 2019 CapEx $0, so FCF $115m. (Okay, maybe over simplified but ball-park) You’re right to highlight the production profile so we should be wary of extrapolating these numbers too far into the future. But as you say, ‘not bad’.
I don’t remember the detail of our earlier assessment of the OZ loan but (based on your number) the 15% WI cash flow covering their $175m loan plus 8% interest is ((175m/55.5%)*15*) = $47m in H2. This leaves some change for ENQ. It might come close to covering the H1 repayment deficit on the OZ loan.
Is that in accordance with your OZ workings?
Hi DiveCentre, I'm being lazy and copying from my file. Hope format is okay.
6 13/11/2019 14:45 14/11/2019 11:00 31.0625 20.5 Navion Oceania 350,633 11,288
5 12/10/2019 09:00 13/10/2019 09:30 25.66 24.5 Navion Oceania 428,631 16,704
I agree, all in-accordance with the guidance HUR provided in the 20th Sept update. The 31 days is disconnect to disconnect - generally easier to determine than hook-up times.
My draught number points to a 350K offload equal to 11,250 bopd for the last 31 days. I don't take offload duration into account but this offload took 20.5hrs against typical 24.5hrs offloads so supports a lower volume compared to recent offloads.
Spary1, of course we all hope for the break even at the corporate level alluded to at the conference in June. But the two wells in mind at the time were S3 and Falcon - S2 had already been drilled.
I don't recall the detail on numbers other than that the expected net production from the Falcon well was significantly above the level of a single Stanley well so I don't expect S4 to represent the breakeven point. The latest update guides S4 drilling before end Jan 2020, but I'm looking out for the more significant news on Falcon.
I'm not familiar with the detail on PMO's numbers but I am impressed with the headlines. Only up 3% - I must be missing something.
This comment caught my eye, 'Summer maintenance programmes were successfully completed and production has returned to previous levels'.
Sounds like the rooster crowing ahead of Enquest's update. Sad to say, Enquest can't say the same with recent Heather, Thistle and Magnus difficulties, but these issues are already in the market - I was impressed by the resilience of the SP.
Next week's news will be around progress on these issues and comment around what appears to be a step up in Kraken performance - why the improvement and can it be maintained? Not forgetting current, year end and 2020 guidance production numbers. On the latter, while 2020 production guidance would be welcome I wouldn't be surprised if Enquest passed at this point in light of the noise around current production, or at least, put out a wide range.
Sweatysock, good work with the fag packet.
I don't know how you come by 300 days but your number ((100/(300/365))= 82.2 is very close to my workings based on Q3 and Stanley 3 updates, ((6265-360)/92)+17.2= 81.4 bopd going into Q4. But note warning at the 1st Nov release, ' at Stanley 1 a new separator is required and this has caused a loss of daily production over the last few weeks. It is planned that this will occur in November 2019. '
But you seem vague on arguably the most important metric, 'money in the bank'. We had Au$825K at 30th June 2019, but it's the current cash balance that matters. I think we can all agree it will be less than the 825K in June, but what is the rate of that decline? The notes to the accounts provide useful guidance.
Hi HMNn, thanks for your reply.
I now see the point you are making with the timing of Capex. I hadn't picked up on it in your original post. Perhaps the payment of some Capex will be deferred to 2020. Otherwise I don't see how you get >$100m FCF for the last two months.
Assuming full Capex expenditure in 2019 I expect a net debt reduction for 2019 of £200-$220m for the full year so yes, $80m for H2 sounds about right if Scolty comes good.
hitman1a, you say, 'Some people might think the 2h average realised price might be lower than 1H, and they might also think production might be lower in 2h'
I do, with one caveat, Scolty. I'm looking forward to the update on Scolty Sept production either from ENQ at the CMD or the OAG number early Dec.
In addition, H2 capex, opex and interest has been guided higher - I estimate $25m of H1 interest was deferred to H2. For these reasons I struggle to see how H2 FCF will be higher than H1 but I'd love to be wrong.
I expect the year end net debt number to be close to the number reported for end Oct, which is why I question HMNn's >$100m additional reduction in net debt.
romaron, no doubt Jim knew his stuff!
Fracking will not happen in the UK.
Cost of energy to extract energy ….
Shale production / well falls off rapidly
Shale equity holders will not make money
and some stuff he didn't see, 'Eagle Ford is the poster child'. Guess he didn't see the Permian coming.
My point is that you can be very smart and knowledgeable and still make duff investment predictions. It's a while since I saw the full video but as I recall Jim did not anticipate the volume of US shale production or its impact on world markets.
Hence I take current 'knowledgeable' forecasts on the demise of US shale with some skepticism. As an investor in conventional oil I hope for the best but plan for the worst.- or at least tune my spreadsheets accordingly. ;-)
Hi HMNN, you say, 'I don't expect fireworks for the 4 months ending October. My model is spitting out Net Debt of $1.460bn, but due to scewness in the Capex/Opex spending during maintenance season and Scolty/Crathes + PM8/Seligi I would be happy if we'd end up in the $1.5-1.525bn range. '
What are you referring to? ENQ guided on Capex and Opex, are you now expecting something different?
I haven't seen any material comment on PM8/Seligi. What are you referring to?
Working your numbers it appears you expect a >$100m ($1.5bn minus 1.399bn) reduction in net debt between end Oct and year end. Why do you expect debt reduction to accelerate over the final two months?
L3Trader, in answer to your questions on Magnus voidage I'll point you to pg170 of the RI document.
'EnQuest is planning to increase water injection capacity from the current 150 Mbwpd to about 200 Mbwpd by re-activating a de-aeration tower and water injection pumps during 2019. This will improve the voidage replacement and oil production from the field. EnQuest has not presented any reservoir studies that support the estimated incremental recovery of 2.6 MMBbl (Mid Case, no incremental is attributed in the Low Case). The forecast is based on an assumed reduced decline rate, resulting in an incremental forecast that increases with time. In reality, any benefits would be expected to be in the short to medium term, rather than in later field life. GCA has accepted, however, that there would be an overall reduction in field decline and that the estimated additional recovery should be achievable.'
In simple terms I interpret this as, increased water injection and improved voidage as GOOD, reduced water injection as BAD. 2.6Mbo over 11 years equates to 650 bopd, but if the water injection is expected to have a greater benefit in the short to medium term then then I'd guess the short term benefits would be >>650bopd. On this basis the current problems (to Oct minimum) with water injection should have (are having) a detrimental impact on production, so I was relieved by the Aug number. I don't know where this goes over the coming months but ENQ still intend to get both towers into operation in the medium term. As I said, I'd expect an update at the CMD.
On my Kraken number over 50K bopd across two offloads, I hope I got the message across that it surprises me so I wonder if my calculations are correct. Following MO's update on his 527K calculation, even a more conservative estimate around a 500K for NO and 450K for the possibly 'light' AS offload leads to 46.5Kbopd. Still very impressive and a record to date for Kraken. Again, I hope for an update at the CMD. It should be an interesting update albeit one tempered by news on Thistle, Heather and Magnus.
On the OZ loan, it isn't something I'm paying much attention to. I took an interest in it earlier in the year when I wanted to understand its operation. Now I treat it as another debt component reduced by FCF albeit a a slightly higher interest rate than the other loans.
Again, vendor loan payments 'come out in the wash' in my FCF calculations. The $100m loan on 75% Magnus is slightly different. Enquest expected it to be repaid by year end. I wonder how a reduction in Magnus production impacts this expectation.
One for the tanker nerds.
I understand and agree with MO’s comments on using draught to gauge production rates but I still see it as a useful check. For me the primary input is the turnaround between offloads and like most I use disconnect to disconnect because it is less affected by the loss of AIS data around hookup time. To date I’ve used a standard 500K offload irrespective of my draught calculation which worked April thro July but was 7% short on the Aug number. My conclusion is that loads 43 and 44 were 550K offloads – both spirit class tankers which I may have underestimated. I believe my estimates on the larger Navion Oceania are more accurate.
All seems reasonable until I consider the latest loads, 49 (AS) & 50 (NO). I too thought the AS load was light but the Aug data suggests a normal 500K offload. I’m inclined to go with 550K for the recent NO offload. Against the offload timings these numbers point to a 51.4Kbopd average over the two loads.
Those following this stuff know that is an exceptional number for Kraken. I have some doubts, but as an investor I hope that OAG or ENQ confirm these numbers over the coming months and perhaps at the CMD.
The question I ask myself is how such an improvement in Kraken production might come about. The OAG numbers indicate an improvement in water injection at Kraken and resultant an improvement in voidage. Perhaps that is helping to beat the >47K bopd max achieved in the Q2 well tests, and reported by Cairn in Sept.
L3Trader, you asked me about current status. I held off responding because I wanted to see the impact on the Aug production number first – I was cautious about the impact but I didn’t want to introduce unnecessarily alarmist comment. In the event I thought the 16K bopd oil number was a good result in spite of continuing issues with water injection. The OAG August number indicates only 16% of normal water injection. I understand the restrictions on water injection extended into at least Oct. With water production continuing at normal rates (speaking as a layman) I would expect voidage to become an issue but I know from the RI report that the Magnus wells are produced in a variety of ways so who knows, outside of Enquest, what the ongoing impact will be on oil production.
However, Enquest are below their stated goal of 200K bpd water injection on Magnus following the introduction of the 2nd tower so I’d expect an update at the CMD.
Interesting posts around the measure of gas volumes. I'm in the gbk47 camp, in that we each have our own measures to reach our forecasts and we clearly interpret the gas data differently - whatever works for you.
On shrinkage I apply it at the point I'm calculating cash flows and in spite of putting in a lot of time to determine gas numbers I found the net cash impact of gas sales to be minimal. However, the work wasn't wasted because I've found that adding my gas calculations to the OAG oil numbers gets me close enough to ENQ reported boepd numbers.
It's clear that adding OAG oil and gas numbers results in a much higher number than the ENQ reported number, so there are adjustments. Rightly or wrongly the conclusion I came to is 1) OAG subtract gas injection from gas produced (Magnus), 2) flared gas is counted by OAG but not ENQ, and 3) fuel gas/oil used at the field is not counted by ENQ but fuel gas/oil used further down the line e.g. terminals, is counted by ENQ as production but lost to sales (shrinkage).
For each field I determined a flared, fuel gas or exported gas volume number, which is now factored in my spreadsheet around the oil number, because I can only be bothered to enter the oil numbers from the OAG data. Less precise than entering the actual gas numbers but I've found the end result has been within a whisker of the ENQ number. As I recall I posted these factors a few months back.
For the record my calculation of net Magnus production for August (or my guesstimate of the ENQ number) is 18,157boepd, just over a number I saw attributed to Therapist of 17,662 boepd, and well below the OAG number of 20,225 boepd.
Hi HMHn, in an earlier 2019 forecast (around May?) you had free cash flow of $663m which would lead to year end net debt of $1,111m. Following your adjustments at the H1 report you had Enquest closing 2019 with $1,285m net debt.
Now your 2020 starting forecast appears to be $1,330m + $85m = $1,415m.
These are large revisions. What factors are driving these revisions?
You say, 'I sincerely believe my numbers to be correct'. As I recall you had similar strong beliefs in your original forecast, so I'd be interested to know why it should be different this time. Back testing is an important tool in forecasting.
While the speculation on this board on the likely impact of the incident at Thistle is understandable, the fact is that IR will have been fielding calls from their institutional investors wanting updates and clarification. That news is now in the market. Perhaps we'll get an RNS, but I believe the SP reaction is as good a guide as any to the impact on ENQ.
When I saw the news last night I thought there would be a more severe reaction. I'm happy there wasn't.
Hi L3Trader, My thinking at the time of writing was that Enquest put out a 2019 target of 63K-70K in light of all available knowledge at the time anticipating 'stuff happens' and I listed stuff that I'm aware has happened year to date. You say Dons occurred in Q1. If your point is that it has been fixed and doesn't impact H2 then I agree - stuff happens, some gets fixed easily, but some doesn't and more may occur in Q4. That's the oil business and I state it just to negate my (and others) early year optimism in the numbers when 70K plus production and $65 oil looked a reasonable outcome for 2019. I'm expecting lower production in H2 compared to H1, but the largest unknown (outside black swan events) is the positive impact of Scolty/Crathes. I'd expect a numbers update at the CMD. If not we only have to wait a week for the OAG data.
You ask, 'Are the water injection problems at Magnus something recent and related to the decrease in production in July?
You go on to say, 'If so, I had not seen a reference to it.'
When the OAG data was published showing Magnus July oil production 0f 13K bopd I referred to a comment in the H1 trading statement and copied it to this board. My assessment was that it highlighted a problem on Magnus. No one here picked up. I dug deeper. The OAG data revealed a possible problem. I contacted IR and they confirmed my suspicions.
Sometimes sweating the detail gives you an edge - I just like to be informed.
AB knows more about the current status than anybody here and he's just bought at 18.5p. An 'expert' credit analysist has ENQ at $400m FCF for 2019 at 63K production and $60 oil.
What's that, AB is growing a beard!