Member Info for londoner7

Hi January2, given your 50K production number and oil price expectation, I’m with you on your $650m number.

But that would lead me to $1,222m - $650m = $572m year-end net debt (I don’t see restructuring affecting this metric)

Following Pelle’s post, I see Marketscanner has $306m FCF in 2022 and year-end net debt $916m. Are we playing draughts when everyone else is playing chess? Or perhaps AB has been spotted in the shops.

Pelle, do you have those numbers in your Excel spreadsheet?

Hi Tigar, where do I start?

Oops! I focused on $70m additional bonds sold, but all the net proceeds are available ahead of Oct 2023. That’s $170m. I’ll come back to this later.

I misinterpreted your timeline. Sounds like you’re on the same page as me with a refinance this year rather than next. It was the ‘in time’ bit that threw me.

In your refinance sums you say, “they had $230m available from the RBL in Feb”. I’m unclear on this point. I had earlier assumed that monies are available from the RBL, but I’d since revised this. My understanding is only the reducing (amortisation) facility is available, not the full $600m, until AFTER the HYB refinance. Payment down to $330m reported end Feb keeps it under the $340m available till 31st March, but if I use 30th Sept as the refinance end date, when $220m is available, then Enquest need to repay a further $110m towards the RBL before 30th June.

Taking end Feb as a start point, I have:
Cash (end Feb) ((830+250+330)-1,090) = $320m
$110m RBL repayment by 30th June leaves $220m
Add $170m net proceeds from the RB = $390m
New HYB, say, $400m, requires 827-400= $427m repayment
Let’s say they maintain $200m working capital (including ring fenced monies)
390-200-427= -$237m. This is $237m of FCF required from operations between end Feb and end June, the interim accounts date.

Seems doable, given $132m generated in Jan/Feb. Higher oil price with continuing good performance from Kraken, though other production unknown and Magnus CapEx kicking in. Next months update will give us a good clue on progress.

I guess they could go ahead of the 6th Sept interims, but I’d be surprised if HYB refinance doesn’t complete by end Sept 2022. Perhaps a $300m HYB is the target.

Finally, this from the RBL prospectus:
If the Bond Refinancing has not been achieved by 1 October 2023, the RBL will mature on 1 October 2023; moreover, the final maturity date of the RBL will only be extended to seven years after the date of signing the RBL (the “Signing Date”) (or when the reserves are forecast to be 25 per cent. of the original reserves, if earlier) if the Bond Refinancing has been achieved prior to 1 October 2023.

* Please don't assume my sums or interpretations are correct. I've made errors in the past that I only spotted much later. Too late to be worth a correction. I appreciate anybody checking and highlighting any errors.

Hi romaron, you make an interesting point on the RB, perhaps it is easier to stay in, at least in this instance. On the HYB I wonder If JB needs to be so generous. As I recall Enquest is now within the timeframe when it can fully redeem the HYB for accrued interest only. Hence my somewhat academic interest in the process. But like you I feel that with the RB done completion of the HYB refinance shouldn’t’ be a big deal.

AGMs! I’m sure you have a better question than one on HYBs lined up. When the microphone is in your hand you must seize your ‘Gekko moment’. I remember a Q&A event in London, 2019, when I opened my questioning of the BHP Chairman, Ken MacKenzie, with the line, “Are your board, party animals?” That woke up the room. Long story.

Hi Tigar, you make an interesting point on any dividend restrictions under the 2023 RB, though any level of outstanding 2023 RB would maintain the restriction (I assume). Can you (or anyone) point to the relevant clause in the conditions. I know dividends are an important factor for many investors, and no doubt add to the stock’s marketability, but it isn’t a biggie for me, so not an area I’ve investigated. I have more of any issue around the hedging requirements associated with the RBL.

You say, “I think they can now do a $370m HYN refinance in time to extend the Bank loan.” I’d put it stronger than that.

Enquest has until 1st Oct 2023 to extend the RBL. Provided cash flows exceed the rate of reduction in the facility (amortisation), which they do at current oil prices, the shortfall on the HBY falls over time. My question to you is, do you think they could do a c$400m HYB refinance during Sept, say, announced on or following the 6th Sept interims, but closing before the facility drops from $220m to $160m on 30th Sept?

Hi romaron, you present several good reasons why an existing holder of the RB might not want to exchange. I was viewing the exchange through my own prism, but as I’m not a bond holder perhaps that wasn’t a good idea. The surprising thing for me wasn’t that many investors would stick with the 2023 issue but that 58% chose that option (or didn’t get the email). However, I see it as a good outcome – delivers $70m new cash with a minimal new RB issuance.

Each bond restructure will have unique characteristics, but I’d guess there are many common themes too, which is why I speculate JB may have got pretty much what he was looking for. I’d expect him to say I want ‘X’ new money and a new bond issuance of ‘Y’. It is then the job of his advisors and brokers marketing the offer to deliver on his wishes. Isn’t that why they are paid the big bucks?

I now see the HYB refinance as a formality, but I don’t know the mechanics, i.e., how the old HYB is closed while a new HYB is initiated. Unlike the 2023 RB I’d expect the 2023 HYB to be fully retired. Any thoughts on the process?

Academic but interesting.

Hi Jan2, the AGM is 19th May.

I saw your breakdown of FCF estimates, which followed my expectation of $750M (RB + HYB) restructured bond. Given that level of bond and your FCF expectations for 2022 I took it as a rap on the knuckles for my estimate. I thought, fair enough.

We've since had the RB resizing. My initial response was, that's not good. Five minutes later, after considering the breakdown I was happier. The market seemed happy with it too.

You might be pleased to know that I have reduced my expectations for the bond total dramatically. I had wrongly assumed a much larger take up in the exchange, but the important point was the c$70m of new cash. It's that which assists the HYB refinance and which I have in my calculations. I was looking for $50-$100m of new cash.

The lower level of RB at £133m I see as a bonus. The balance of £111 on the old bond due Oct 2023 will be easily dealt with. I would be surprised if JB's advisors had not correctly guided him on the take up, and the end result if close to what he wanted. (I'd be interested to hear different views).

Anyway, I've reworked my numbers around a HYB refinance post the 6th Sept interims. (I might post more at the weekend).

Back to your 2022 FCF estimates. I'm still on the mid guidance production number (awaiting support from magnus) but if I put your 50K into my spreadsheet I come out with a similar revenue number. However, I differ on costs.

I don't see deductions for the Kraken FPSO lease, BP profit share of Malaysian taxation in your numbers.

I have c$120m for the FPSO lease, $58m for BP and a $10m Malaysia tax charge.

Hi Therapist,

I picked up your post late. I saw the reference to the donor well M57Z and wanted to follow it up but forgot. Till now.

I remembered seeing a breakdown of well performance for individual wells In the rights prospectus, so took another look.

The headings in the table (page 168) are illegible, but as far as I can make out well M57Z produced 699 boepd (oil/gas?) in June 2018, but the reason I looked back was to see its ranking. it was the 11th largest producer in 16 wells listed , so on the basis they will 'cement' the lowest producing donor well, it was (roughly) next in line.

The two wells drilled in 2019 produced a decent uplift in production, but nothing is guaranteed. Note this warning from Enquest in 2018. "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.

Given a 15-20% yearly decline the M57Z well production may be down to 250-350 boepd, so that would be lost production to be made up by the replacement well. Of course, it is also possible a bit of Magnus has dropped off into the well and it isn't currently producing anything. If it has they've probably already given it a wack with the hammer. ;-)

A good find. I'd guess these applications are pretty much a cut and paste given the drilling capability is onboard the platform. Is this the 1st, 2nd or 3rd or the 3? About 2 months duration per well fits with the 2019/2020 activity for 2 wells. I wouldn't be surprised if Enquest announce commencement of drilling in the AGM update.

?

Typo

Threshold crossed 9/7 16/9 17/9
Issuer notified 12/7 17/9 20/9

Sweatysock, you say, "Just for reference 3 rns 29th sept 2021 holding tr-1 monecor , unreal they got away with that, I reckon we will see something similar soon! Sickening!"

On the 21st Sept MSMN said their office is closed due to Covid restrictions and staff restricted to working from home.

A week later, on the 29th Sept the 3 RNSs come out with the change to holdings. MSMN issue the RNSs. Read the detail.

Threshold crossed 9/7 16/9 17/9
Issuer notified 12/7 12/9 20/9

Why do you blame monecor for the delay issuing an RNS ?

Hi L3Trader, you make a good point on the relevance of gross debt and net debt to the 0.5 net debt target ratio. A total fixed debt level c$750m fits guidance.

I’ve come round to an HYB refinancing – an RB alone doesn’t cut it.

The RB first strategy threw me, but I now see a logic to it. I think the RB sizing is important, but the ORB market size is a factor. Once the RB size is known we can make a good stab at the total bond issuance (RB + HYB) and likely timing. The larger the RB the sooner a potential HYB refinance.

An interesting week ahead.

Last night I listened again to the finals call. JB said the cost base is c£1B and he expected this to rise by £100m (10%) in 2022. He also said pricing would meet those cost increases. I heard a reference to low double-digit price increases this year. He was also expecting c3% growth in the market – Breedon typically exceeds market growth numbers.

In my 16th March estimate, I expect a revenue of £308m in Q1, 17% up on 2021 Q1, because of the Covid impact on ROI. I may be overestimating the 2021 impact, particularly as the ROI market is mainly about tendering in Q1 with the bulk of the work done through the rest of the year. But I’ll stick with it and won’t be too bothered by a small miss. I’ll also be listening for updated commentary on costs and pricing.

Q1 update is in two weeks, 28th April (AGM).

2014? Did you mean 2017 or have I misunderstood your post?

One of my first posts on LSE (10 Sept 2015) was on Breedon and under a title, ‘Below 50p’ , I said, “You beauty! After the interims I never expected to be able to add to Breedon below 50p. The analyst call was one of the most upbeat assessments of a business I’ve heard since the dot com bubble. But nobody could call Breedon ‘vapourware’ – ‘gritware maybe.”

I was clearly excited by the opportunity to complete my holding, though I’ve traded chunks of it many times since.

In another post the same day, I said, “For what it’s worth my expectation is 2.7p earnings versus consensus broker forecasts of 2.3p.”

Breedon posted 2.68p earnings for 2015 – close enough!

Breedon closed 2015 at 67p. A P/E of x24.

But that’s history. What’s happening today?

Either the market doesn’t expect Breedon to meet expectation or today’s market doesn’t attach a high valuation to those earnings. Or both. I think energy costs are a big concern.

Current consensus analyst estimates are for 6.34p EPS in 2022. A P/E of x12.3 @ today’s 78p. On a 2015 market valuation the SP would be 152p.

This is my personal log on Breedon since the results last month.

--------------

16/3/22

2022

Given expected demand to continue Breedon expects to more than cover costs by pricing. I take this to mean an increase in margin from 10.8% in 2021 (2021 H2 margin was 12.2% - margins traditionally weighted to H2).

I expect revenue growth of c10% largely due to pricing, and a 12.0% to 12.5% EBIT margin.

Based on £13m interest and 16% tax guidance for 2022, I get EPS 7.4p – 7.7p.

Consensus broker estimates are much lower @ £1,286m rev and 6.18p EPS.
Highest broker on £1.3b rev and EPS @ 6.63p.

The next update is the AGM. £308 Q1 revenue (+17%) would support my FY £1,355m.

I expect 19% EBITDA margin for £255m, and net debt £70m-£90m (excl. IFRS 16)

This assumes no M&A but I’m expecting some activity this year – this is based on an expectation at the 2021 interims (CEO comment) that there would news ahead of the March finals. Didn’t happen, but perhaps interest still alive.

Like last year, I was struck by how coy the CFO was about 2022 forecast numbers. With PSP awards last year only requiring 6.5p EPS for next year (2023) and this year’s awards now under discussion, I understand why. The renumerations committee typically set low bar targets for CEO and CFO awards. Guess who guides them. Not unique to Breedon, but of all the companies I follow PCP award targets at Breedon seem particularly easy to achieve.

Update 12/4/22

EPS target for 2024 FY posted. 6.65p (25% -) to 7.4p (- 100%), over 3.5m awards (0.2% of mkt cap)– 9 participants. Current analysts’ highs, 6.8p (2022) and 7.07p (2023). Analysts now within 10% of my low-end EPS number for 2022.
-------
* To be clear, I don't expect a 152p SP today. Breedon are in a different phase of their growth.

e121, I make it a bit more.

Have you done a £ to $ conversion?

Hi Aloj, you say, "Note that 0.5x EBITDA implies debt can, and probably will, be part of financing any aquisition of a producing asset. To some extent the same goes for development of new fields."

I agree. But on a 2nd look my phrase "Acquisitions would be self funding" could mean almost anything. To be clear, my assessment of AB's commentary at the recent update is that any (near term) acquisitions would not require upfront funding. Rather they would be late life producing assets which offer sufficient near term cash flows to compensate for the cost component, which will be Enquest's involvement in the decom stage. It would not be another Golden Eagle with at c$325m.

Waldorf has a purchase strategy that might also fit AB's plans. Waldorf pay a minimal amount for a producing asset based on $65 oil, with contingent payments over subsequent years for prices over a fixed oil price. They effectively share the future POO risk with the seller - typically a cash rich seller. They did this when acquiring CNE's Kraken and Catcher assets. In a recent call CNE indicated they might follow the same strategy in their acquisitions.

Organically, I see a focus by Enquest developing the 2C resource of existing producers. Plus expansion of the Western Flank at Kraken.

Next in line I see Malaysian development.

The Bressay licence requires submission of an FDP by the end 2024. Enquest stated that work would begin this year so perhaps we'll see something in 2023. AB was clear that any development plan would use existing infrastructure and not new kit. I don't know what that points to beyond the Kraken FPSO but he seemed to have other options in mind.

However, Bressay development is only an option. Just because utilisation of the Kraken FPSO might give the appearance of a neat solution tied up in a bow, I would hope and expect that the ultimate factor is best return on cash flows.

If that means leaving Bressay undeveloped, so be it.

L3,

On the HYB I asked you, “If you see an emergence of the HYB in some form, at a lower yield, or whatever, I’d be interested to know why.”

You replied, “I see a new HYB, and the RBL being used for a new acquisition and/or to increase CAPEX over the next 2 years (Malaysia, GKA (as otherwise it will go into CoP - you will have seen https://www.oedigital.com/news/495288-hungary-s-mol-sells-uk-north-sea-assets-to-waldorf ), and the refitting of EP for a 3rd party as part of a farm-in).”

In the recent call AB made it very clear that additional expenditures would targeting 2C and any development of Bressay would be phased, which I took to be, no big projects. Acquisitions would be self-funding, and he announced the new 0.5x EBITDA debt target. When posters here, including me, were speculating on a $600m replacement for the bonds alongside the $600m RBL, it was with a 1-1.5x debt target in a $75 oil price environment.

Another ‘new normal’.

Repeating myself, I think the sizing of the RB will be a key pointer to what happens on the HYB.

I had not seen your link. I was surprised to see Waldorf, who are getting busy in the NS arena, picking up 50% of Scolty and Crathes. Was it just part of a job lot, or is their still life in the GKA? Last June Petrobras were awarded a one-year extension on their previous 5-year contract as Duty Holder on Kittiwake. Guess it’s coming up for renewal.

To close. It was this comment from you I found most intriguing, “refitting of EP for a 3rd party as part of a farm-in”. I don’t see any link to Waldorf.

At the recent call AB simply said, they are considering offers. Do you know more?

* A new normal. Will the recent review on energy policy alter Enquest's plans? I'm sceptical of the durability of any government conversion on NS oil and gas. There are plenty of licences already in the market - Enquest are sitting on a few. I'd rather the OGA kicked ars-e and progressed them. If Enquest don't want to develop Eagle transfer it to a company that will. Has the OGA been holding back you juiciest licences for later - finish off the broccoli before the steak - I doubt it.

Hi L3, you asked, “your optimist is for sure based on something tangible. could you please elaborate further?”
The November update highlighted a problem with a compressor gear box which resulted in single train operation. Enquest said they anticipate resuming dual compressor operations during November.

As I recall, early Dec you were upset that Enquest hadn’t put out an RNS to confirm Magnus operations had been returned to normal. This turned to comment around production levels not returning to normal levels so speculation that Magnus had not been repaired as guided. I recall a comment where you conflated my hopes for a Magnus fix with an expectation for a return to 20Kboepd production.

Let me be clear. I am a long way from expecting Magnus to return to 20K production following any current fix. In a recent comment on the 2019 CMD I highlighted the potential to ramp up existing production by c4K without reference to (then) published expectations and given the Covid delays to development I expected the peak of production from those operations to be around 2024/5. 3 wells are due this quarter and 2 more in 2023. I think that leaves 4 more over the following years based on the 9-10 targets identified in the CMD.

We are in a ‘new normal’. Time to leave 2018 CPR expectations for Magnus production in the history basket, along with Alba/Galia, and any other frustrations from the past. The market has, and in my book, that’s what counts.
Key for me is, what is the new production base ahead of the new wells, assuming any fix holds. I expressed my thoughts on Magnus maintenance in a post 28th Jan (20:50). It seemed to me an area in need of attention, so I wasn’t surprised by the recent announcement on increased spend. We’ve already agreed that this ‘attention’ will have an adverse impact on Magnus Opex. Memories of $15-$20 boe Opex can also be consigned to the history basket.
Recently, I expressed a target for 12kbopd. I don’t remember the context, but you misquoted me with 12Kboepd - I was counting oil.

I was waiting for an OGA update on Magnus Feb production and water injection. Nothing yet so I suspect the updates have returned to the 2-month delay.

I’ve said before that sustained water injection is key to maintaining optimal oil/gas production. If Magnus can sustain 160K water injection over a 3-month period, which is now my definition of a fix, then alongside the benefit of well work overs, we’ll get a handle on the new production base ahead of the new wells coming online in the summer. I believe that could be a 12Kbopd (oil) base and perhaps 3Kbopd from the new wells. Not 20K bopd, but substantially above the 9K bopd produced in Jan 22.

Enquest reported 50,408 Boepd for the first two months of 2022 but against a backdrop of field declines and summer maintenance reiterated a 51K boeps top line target. I can only see significant uplift coming from Magnus, which suggests Enquest are guiding to improvements in Magnus production.

Hi Therapist, my hammer reference was in honour to your recent post on seismic activity around Magnus. I don’t know how you find those stories, but I enjoy them alongside your commentary.

As I recall, you suggested Magnus might benefit from a good shaking. My own take was that at least we know that Magnus was still manned up to the Monday (?) night. No bits dropping off the platform or fires that hadn’t been reported beyond the bars of Aberdeen. In part, homage to L3’s frequent laments on not getting up to the minute news.

I let the idea pass, without a post, for fear of upsetting some of our more nervous investors.

Best L7

Lochnagary, thanks for the update. Interesting times indeed.

I was an investor in Ithaca until they were taken private, but watched their updates for crossover info to my NS holdings, mainly Enquest.

They reported last week and I gave them a mention in a reply to L3. As a discipline I record my random thoughts on holdings. Last week I compiled a note on Ithaca and Enquest which I didn't post, as I didn't think the relevance to Enquest was sufficiently strong. But this bid news prompted me to look at it again.

I mention Ithaca's appetite for a sizable acquisition, but the last paragraph has relevance on the sizing of the RB. However, my comment seemed familiar. I'd said something similar yesterday in a reply to L3 on Magnus. But then remembered I'd pulled that post too when it went over the 3,000 chr buffer. (L3, my reply referred to a new normal, which I'm already revising. It's an interesting and changing arena).

Anyway, here's the post I didn't post last week.
---------
A picture paints a thousand words – 31/03/2021 not posted.

This morning Ithaca Energy, a private company operating in the North Sea, published their 2021 numbers. Slide 12 from the presentation shows their liquidity position.

2021 Full Year Financial Results (ithacaenergy.com)
Ithaca’s senior notes of $625m were raised last summer (also a 9% coupon), with an RBL of $925m (excl. LCs) sitting on top. At YE 2021 the RBL was $305m and they reported it at c$100m end of 2022 Q1 and expect it to be cleared by end of April (if I heard the commentary correctly). Obviously, gross debt can’t fall below the $650m Senior Notes level so cash builds up. But they expect to spend up to $1B on acquisitions this year, bringing their RBL facility back into play.

This yo-yoing of debt between the Senior Note level ($650m) and total facility level ($1,550m) is how I envisage Enquest operating once their new structure is finalised. Albeit at a slightly lower debt level. Yesterday, I speculated on a $350m base (new RB facility) up to a total facility level ($950m).

Thinking back to AB’s emphasis on small scale capital expenditures with an EBITDA/ Debt target of 0.5, lends support to this structure. However, I’d struggle to see the numbers work for prompt HYB repayment if the new RB is for <$250m.
--------------

I anticipate Ithaca, and possibly Waldolf, targeting a UK listing in the next year or so. I suspect they'll be fully valued, but worth a look anyway.

I'm happy with my investment in Enquest, but for a while I've had the impression that AB has lost his mojo. The likes of Ithaca and Waldorf have been more dynamic in the NS.

That could prove to be a positive for Enquest investors, if it means he avoids the big project risks. I was encouraged by the restraint he put on Bressay development.

More to say but only 177 chrs left. Time for Tiger and the US golf.

"Bespoke support?"

The politicians will swap their high-viz jackets for overalls and will be tooled up with a spanner. Unless Therapist is working ordnance, in which case it will be a hammer!

Whitehat, your post 14:06 looks straightforward and supports your point, so my interpretation might be wrong. I can now see it both ways.

Either way, we should know tomorrow.

I'm assessing my moves from here and in that sense, for me, the 100% or 73% of tender acceptance isn't big in my thinking.

All the best