Member Info for londoner7

Sweatysock, thanks for your response.

I still don't see a loan facility at the likely funding but happy to be proved wrong. It could be a good outcome for share holders, ending the placing model.

"Londoner where does the 70 pm come from?"

In my post on 'cash flow' last Oct I estimated net cash outflow in the 6 months to June 2022 at c$60k per month. I had a stab at the following 6 months with an expectation the outflow might be lower. Subsequently, Mosman announced a placing to cover higher than expected costs on completing C1, which suggests the $60k outflow per month may have continued through the month.

Deducting this $60k outflow from the C1 cash flow of c$125k inflow results in a net inflow of $65k. Rounding up, that's my $70K number. It's this net $70k monthly inflow plus the balance of the last placing that I see covering Mosman's share of the next drill, assuming some level of farm-in. IMO the sooner the drill the better - the report due in March will give a better picture of the pre C1 cash flows.

Of course, JB has these numbers in his cash flow projections and will be pursuing which ever route he see's as appropriate. I'd expect him to look at the farm-in market first, but time will tell.

Sweatysock, you say, "years ago we debated a bank loan facility with welch"

Do you mean it was debated on this board, or do you mean Mosman was in discussion with a bank? If the latter, do you have a reference?

I ask, because it's my view that there is no way that reserves supported bank debt would be raised for a Cinnabar development. Even if a bank offered a facility at something approaching an acceptable rate, which in the North Sea is 12-15% p.a. I can't image JB risking his control over Mosman. I made the point some years ago that as long as Mosman maintained positive free cash flow from producing assets Mosman would always be able to raise additional funds via a placing, regardless of whether the business was profitable at the operating level. It came down to the discount for placing against the existing share price - the warrants are the cherry on top. Clear the placing shares at any profit and there's a free ride on the warrants. If debt had been raised at any point in the past the bank would be at the door.

The placing process isn't necessarily good for LTHs but it offers trading opportunities and keeps Mosman solvent.

Fair to the say the placings process is getting a little stale - evidenced by the recent difficulty clearing the last placing at 0.07p.

* Each time there's a placing discussed there's also talk of forward selling. I don't know if that is the case, but if it is I wonder how it's done. What are the mechanics?

If a placing was done today for £1m at 0.05p, 2,000 million shares would be raised. I think posters here would notice that number of share being 'forward sold'.

**I see the choice between a farm-in on C4, a placing, or doing nothing. (Reworking G1 might add something to cash flow but I doubt it would be significant)

fordfarliane, you questioned my numbers. I used your C1 $1.5m free cash flow.

"Cash flows = $70k + 2x $125k = 320K / month, $3,840K / year. "

2x$125Kx12 = $3m

I agree that Mosman will not accrue $2m anytime soon to pay for the next Cinnabar well, but there is an option to another placing. Given the Oct placing and post C1 net positive cashflows which I estimate at c 70k/month, Mosman could accrue sufficient cash to pay 50% of C4 well costs within 6 months.

Compare a placing to a farm-in:
Placing - Say 2 wells for $4m with $3m placed @ 0.05p = 5.0 billion shares for 11.4 billion total. (Doesn’t included a c5% cost of placing, c $150k)
Cash flows = $70k + 2x $125k = 320K / month, $3,840K / year. Divide by 11.4 = 0.028p / share (converted to sterling)

Farm-in -Say 50% of one well, then 50% of 2nd well.
Cash flows = 70k + 2x 62.5 = 195k / month, $2,340k / year. Divide by 6.4 = 0.036p/ share (converted to sterling)

The closing position could be a 100% funding of C6.

There are lots of caveats to these equations but I post them in support of the point steakpie has been making on the impact of placings on valuation. I also struggle to see the long term value to LTHs. The post C1 $70K / month net inflow is based on my assessment of cash flow last Oct. The cash position might not be clear until the interims to Dec 2022 are released in March, but it’s all I have to work with.

Last year Mosman looked for a farm-in to C1 in the local PI market. It failed and a placing was announced. Subsequently, a PI came in for a 10% WI. With the benefit of what JB thinks will be an improved Cinnabar reserves report and the financials around the C1 drill, Mosman may be more successful with a farm-in this time round. I don’t know the cash flow position or the current cash balance but if they are supportive, I’d be surprised if JB isn’t looking at a farm-in before falling back to a placing.

That said, I admit the Mosman form guide points to a placing for C4.

*In my Oct post I proposed a more aggressive 2 well Cinnabar development ASAP, but I had $1m/well cost in mind. $2m/ well cost is a different proposition.

Hi L3Trader, you say, “keep an eye on gross debt because interest expenses are effectively taxed at 35% (as they are not an expense for EPL purposes). So huge incentive to reduce them.”

This is the 3rd time I’ve seen you post this viewpoint on this board and I haven’t seen any rebuttal, so I guess it’s just me.

A baseline for the calculation of the EPL is UK Revenue (less) hedge loss (less) Opex (excluding depreciation and interest costs).

I agree that interest costs can’t be applied to reduce the EPL, but I don’t see how the level of interest costs has any bearing on the amount of EPL paid.

What does it matter whether you are excluding $10m of interest costs or £10b of interest costs?

Can you clarify your point?

Absolutely right. There I am, writing the Bressay FDP when I know nothing about the topic.

I should have generalised it, as "in support of Bressay".

Please excuse the engineer in me. But I can do BOE to MWh conversions with corrections for efficiency.

I said, "2nd/3rd or even 4th generator on the FPSO"

I should add that I haven't a clue as to the FPSO generator requirements. Does one 32MWh module support all current requirements, with the 2nd as back-up? I don't know. But I think it's reasonable to assume that supplying a hot water feed to the Bressay field will require more generation than currently being demanded by the Kraken field.

Hi Jan, I'm expecting ENQ and partners to complete an FDP on Bressay in 2023. It will take account of the current UK fiscal regime. It's possible that a Bressay development would be based on a tie-back to Kraken. AB has referred to a staged development (my interpretation of AB comments last year).

ENQ has an incentive for Bressay to proceed - limits on routine flaring. I estimate that 25% of the associated gas produced from Kraken is flared, and by deduction assume the other 75% is utilised by the FPSO generators. This consists of two models each with a 16MWh generator. My workings indicate that one of the 16MWh generators is driven by field gas production.

Kraken has been described as near impossible to electrify. ENQ has described Bressay as a route to reducing emissions on Kraken.

What does this mean?

My assumption is that gas from Bressay would power a 2nd/3rd or even 4th generator on the FPSO.

Currently, routine flaring in the North Sea is due to end 2030. A recent paper commissioned by the government advised this date was brought forward to 2025.

I believe the original FDP for Kraken included a 1,500 boepd gas pipeline to supply gas for generation. Perhaps that is still an option, but I think it was related to Bressay/Bentley developments expected at the time. (I think a c2013 presentation covered this pipeline option)

ENQ will be aware of the various moving parts and will need to come to a conclusion sooner rather than later.

On Malaysia, I'm expecting confirmation of an exploration drill on 409 in 2023.

“Mark Wallace from GE is the opposite to Andy an energetic salesman.”

Your comment sums up the sell to potential investors. Two hundred years ago, the sell was ‘snake oil’, today it’s Helium, Lithium – pick your mineral – just sitting in the ground ripe for investment and juicy returns. Just needs some smart, sophisticated investors, with deep pockets, to fund the operations.

Fortunately, for the likes of Mark Wallace, and John Barr and David Minchin before him, there isn’t a shortage of such investors, eying the AIM market.

The AIM market offers a good opportunity for entrepreneurs to launch their business venture into a market which will provide funding for future stages of growth. But it isn’t the first call for most new business ventures.

Next month Barcelona hosts the Mobile World Congress. All the household names will be there presenting their latest gadgets and technologies, alongside hundreds of much smaller companies which few will have heard of, but which typically have advertising describing themselves as ‘world leading’ this or that – rarely a lie, but often an exaggeration. They have a story or a dream to tell and sell. Many of these companies will not exist by next year’s event, but one might be a household name of the next decade. Good luck picking it, but someone will, through a mix of vison, due diligence, and good fortune. Likely, an entrepreneur who’s been there, done that, and now has money to invest.

Private equity is the primary source of investment for a new enterprise – I’m excluding tradesmen and sandwich shops.

The value of a successful private equity investment is often realised via a stock market listing on AIM or the Main market. It’s a long route to market for most business ventures, particularly those in technology, but not it seems if you dig stuff out of the ground.

A$15,000 paid to Mosman for a farmout of the EP 155 permit application in Australia and you’re halfway (not forgetting Hussar) to a £8.5m IPO listing on AIM. Or is it a £127m ‘base case’ valuation if compared to HE1. Even the base case seems cheap against a $102.09 billion valuation of the un-risked resource.

Heady numbers! I’d settle for the bit after the decimal $0.09 billion. A ten-bagger on the IPO pricing. Easy money.

Good luck!

From the RNS – 31st July 2020.

“ EnQuest will also make a contingent payment of $15 million following OGA approval of a Bressay field development plan.*”

“* The contingent payment increases to $30 million in the event that EnQuest sole risks Equinor in the submission of the field development plan.”

IR clarified ‘sole risk’.

The “sole risk” element relates to EnQuest sole risking development rather than Equinor. If we were to do this, we would effectively be buying the remaining Equinor interest (and reserves) in the field (so our equity could go to 81.6%) and Equinor would then want an additional c.$15m in consideration/compensation for that purchase.

The revised licence terms for Bressay require an FDP submission by end 2024. In commentary last year Enquest said work was in progress with partners, and it was my interpretation that an FDP would be submitted in 2023. AB also guided that any development of Bressay would be phased. I took this to mean, likely to be an extension to the Kraken field. I'd guess that would be Enquest's preferred path and it will be for the other partners to agree that path is also in their interests.

I would be surprised in Enquest doesn't provide an update on the Bressay FDP by latest, the final results in March.

However, primary my interest is in the Capex plans for this year, 2023.

Hi Therapist, perhaps I'm misreading your graph, but your Magnus BOEPD numbers for Oct and Nov 2022 seem to missing gas. NSTA has 19,234 boepd for Nov.

On the 10th Aug when Brent was @ $97, Jim Kramer (CNBC) said, “those predicting oil back to previous highs c$120 by year end are wrong".

At the time his call seemed far from consensus, with Russian oil sanctions etc in prospect, so I put it into my diary to review year end.

The outcome doesn’t make me a follower of Jim Kramer’s predictions, just more cynical of those often-quoted oil bulls spewing ‘click bait’.

I can imagine my closing comment seeding more doubt and confusion, so to be crystal:

If Enquest pay BP $52m in 'profit share' the $52m is fully deducted from the $1b cap.

Net cash flows from Magnus accruing to BP and Enquest will be subject to EPL, but the introduction of EPL doesn't have any impact on the operation (paydown) of the Magnus profit cap.

Hi Tigar,

This is the relevant section from the prospectus:
…. will automatically terminate on the earlier of: (a) the date on which the aggregate amount received by BPEOC under the profit share arrangements equals $600,000,000/(1-TR), where TR is the rate of Corporation Tax in force on date of completion under the Magnus Call Option Deed (not to exceed 40 per cent.) (the “Profit Share Cap”);

The sum is $600m/(1-0.4) = $1b

My understanding at the time was: there is a tax advantage to operating Magnus under Enquest ownership rather than BP, and the benefit of this advantage was shared between Enquest and BP with an adjustment in the terms of acquisition.

In a previous post I said, “To be clear, this is the FCF after all costs including capex, but before any taxes.”
On reflection, my comment isn’t as clear as intended, “any taxes” should read ‘the EPL’.

Stevo12, I’d approach it from a different direction.

$52m accruing to BP, represents FCF / boe of (52m/((11,493*37.5%)*365)) = $33/boe FCF.

To be clear, this is the FCF after all costs including capex, but before any taxes.

I think it was the 2021 results presentation that highlighted an increase in Magnus costs in 2022. Enquest doesn’t breakout the Opex of the different fields, but in 2021 I concluded that Magnus Opex was much higher than consensus.
Now, adding the higher 2022 costs, $33 isn’t far from my expectations.

Looking at recent posts I think its worth clarifying this balance sheet item.

The main component is the Magnus contingency.

The 75% Magnus contingency is a consideration agreed with BP for the acquisition of the 75% holding in Magnus. (A 25% holding had been acquired earlier on different terms), On the 75% holding, 50% of profits, after all costs, accrue to BP up to a cap of $1b. For ease I prefer to think of it as 37.5% of all Magnus FCF, accrues to BP.

I’ll go back to 2019 to help explain the variations in the valuation of this contingency and the relevance of the $1b cap. In 2019 it was expected that BP would be repaid the full $1b over the ‘lifetime’ of the Magnus project. However, when a profit share of c.$37m was paid to BP in 2019 H1 there was surprise on this board that the contingency owed to BP had increased rather that fallen following the $37m payment. The contingency increased from $660m in Dec 2018, to $678m in June 2019. This ‘financial quirk’ was discussed on this board and resolved at the time. Simply, the $660m in Dec 2018 was the ‘time discounted’ value of the $1b being repaid over many years. However, when the repayment profile was reassessed in June 2019, it was judged that a larger payment would be made in the early years and this acceleration of payment reduced the impact of the discount rate and thus increased the discounted value in spite of the $37m payment to BP.

In 2022 the interim account notes to the Magnus contingency stated there isn’t an expectation that the $1b owed to BP will be fully repaid. Further, the value of the discounted contingency payment is now $392m. However, there are two interesting elements in the change in contingency from Dec 2021 to June 2022.

1) the contingency increased from $344m Dec 2021 to $392m June 2022 on nil payment to BP. This implies that although the full $1b is still not expected to be paid, now, given changes in the valuation, there is an expectation that a larger or accelerated payment will be made to BP – similar to what we saw in 2019.

2) the current value of the contingency is $52m, which means there is an expectation that a $52m share of Magnus FCF will accrue to BP over the 12 months following June 2022. Note, this means that over the same period (($52m/37.5%) -$52m) = $87m, is expected to accrue to Enquest.

Therefore, somewhat perversely, an increase in the Magnus contingency implies higher future FCF returns to Enquest.

The level of the contingency will change with the impact of discounting effects and the $1b cap. In the longer term, either the contingency component will remain for the life of the Magnus field, or $1b is paid to BP and then all Magnus FCF accrues to Enquest. Either outcome will result in a contingency of $0.

It would be good to see the removal of the qualification, ‘$1b repayment not expected to be met’.

For clarity, my measure of EV using last reported net debt:
Net debt = $750m
Current MC = 1,886m x 0.218 x 1.2 = $493m
EV = $750m + $493m = $1,243m

Stevo12, you say, "The intent of EV is to determine a businesses operating asset value less operating liabilities and to compare to EBITDA to derive multiple."

You seem to have moved from EV to metrics, Can we stay on point?

This is an Enquest board. Could you reference components relative to Enquest. I'm not aware Enquest has 'unfunded defined benefit pension net deficits'., so I don't understand the relevance.

You seem to consider the 'contingent consideration' - presumably the 75% Magnus contingency - as a liability which falls outside the market capitalisation component. Could you explain why?

If we want to get some clarity here let's talk Enquest specifics, otherwise it's just a talking shop of little value to anyone.

Stevo12, I find your argument hard to follow, but you appear to be describing the situation before the implementation of IFRS 16, when a company which, say, had purchased an FSPO would carry the impact of that purchase on its balance sheet, while another company which has simply leased the FSPO would have a reduced impact on its balance sheet.

Clearly, to equate valuations it was necessary to take account of future lease payments on cash flows.

The introduction of IFRS 16 simplified the comparative valuation.

Considering the Kraken FSPO lease. The cost of the lease over the duration of the lease contract is now carried on the balance sheet as a lease liability. Under PPE, there is an (approximate) balancing asset, refereed to a ‘right of use’ asset.

However, which even means of funding a business is used, the Market Capitalisation – share price x number of shares – values the business accordingly.

For EV, just add net debt to MC.