Member Info for londoner7

Whitehall, I understand the point you make. That was my initial read too, till I saw the scaling component.

It's 100% or 73% of valid tender. Not a big difference, just messy until we have clarity. We should have it confirmed tomorrow.

"59% under the scaling"

I should have said 59% of the balance under the scaling

Whitehat, you say, "I tendered one third of the shares in my ISA and SIPP so all of them should be taken up. "

My understanding is that, assuming your tender is at the strike price, therefore valid, 34.5% of the tender is accepted under the guarantee element and 59% under the scaling, making a total c74%. (I might be treating the 59% number wrong and the scale is 41%). Crest holders should see confirmation tomorrow, with payment on the 11th.

Nov 2021 - Production remains below expectations, averaging 12,640 Boepd for the ten months to end October 2021. The Group has concluded the production enhancement programme along with the coiled tubing campaign, which has returned three wells to service. Following the planned annual shutdown to address maintenance activities, a compressor gear box failure occurred which required repairs. This has resulted in single compressor operations. The Group remains focused on optimising existing facilities performance and anticipates resuming dual compressor operations during November.

24th Mar 2022
2021 performance summary
Production in 2021 was lower than expected at 11,870 Boepd. Performance was impacted by well integrity issues, topside power and compression failures, third-party infrastructure outages and natural decline. A production enhancement programme was undertaken in the second quarter, including a coil tubing campaign, returning four wells to service. Repairs to a compressor gearbox failure which resulted in single train operations during much of the fourth quarter of 2021 were completed, bringing both trains back into operation.

2022 outlook
A shutdown of around three to four weeks is planned in the third quarter to complete scheduled safety-critical activities along with plant equipment upgrades, while further asset integrity maintenance and plant opportunities will continue to be assessed and implemented throughout the year.

It is anticipated that three wells will be drilled in 2022, largely mitigating natural decline at the field, with a further two wells expected to be drilled during 2023. With 2C resources of c.35 MMboe, Magnus offers the Group significant low-cost, quick pay-back drilling opportunities in the medium term.
(In a recent post I was critical of Bob (Opps guy) for not answering a question on the timeline for the 2022 wells. When I watched the recording of the presentation, Bob had stated earlier, wells drilled in Q2 with production coming on line in the summer. In fairness to Bob, perhaps he isn’t a guy who likes to repeat himself. But the info had been coming in hard and fast and I had missed his comment on the Magnus well timelines. IMO Bob should have directly answered the question in Q&A, rather than the non-answer he gave.)

Romaron, thanks for your comment. I found this a useful exercise in collating my thoughts on Magnus. Now I just need to clear my cornflakes off the carpet.

L3Trader, I plan to address your questions later this week. Just waiting on some info.

Feb 2021 - Average production in 2020 was 17,416 Boepd, 5% lower than 2019. This decrease reflected gas compressor and seawater lift pump availability, combined with natural declines, partially offset by two new wells which came onstream during March and good production and water injection efficiency, which both averaged around 80%.
(No new information in this update. It is a summary of reports made during 2020)

Mar 2021 - Production performance to the end of February has been slightly behind schedule. An unplanned third-party outage, power related failures and ongoing well repair activities at Magnus, along with a short duration shutdown at Kraken for a riser tether repair have been partially offset by PM8/Seligi wells coming back online ahead of schedule. Repairs are now complete on the Kraken tether and Magnus power systems. In addition, a successful Magnus well intervention and early commissioning of gas lift at Kittiwake have further increased production from the end of February.
(Bit long that one, but it was hard to extract Magnus specifics from the general tone of the update. However, as we come up todate I’ll capture more of the detail in following extracts)

May 2021 - Average production for the first four months of 2021 was 14,250 Boepd, reflecting an unplanned third-party outage and power related failures in the first quarter, which have been rectified, and slower execution of the well intervention program. The Group remains focused on improving production through a well intervention programme, increased water injection and facility optimisation.

Sept 2021 - Production of 13,847 Boepd was 26.4% lower than in 2020, primarily reflecting slower execution and an increase in scope of the well intervention programme, combined with an unplanned third-party outage, power related failures and natural declines associated with the new wells that were brought onstream in early 2020. Given the challenges that have been presented during the first half of the year, a proactive production enhancement programme was initiated comprising various well intervention techniques, including a coiled tubing campaign, alongside additional topside maintenance activities. Since June, three wells have been returned to service and production performance has improved. The coiled tubing campaign is expected to continue during the second half of the year, with the Group expecting production performance to improve further in the fourth quarter, with a two-well drilling campaign anticipated in 2022.

Feb 2019 - Strong performance at Magnus, with 100% interest delivering 21,528 Boepd in December, above expectations; high uptime, additional gas export and successful well interventions

May 2019 - Magnus continues to perform above expectations, reflecting high production efficiency, reservoir management, well interventions and plant debottlenecking

Sept 2019 - Magnus performance in line with expectations.

Nov 2019 CMD – (The presentation acknowledged a shortfall on the 2018 CPR but predicted a ramp up of c4Kboepd out to 2023. This was based on new wells from a target list of 9/10 sites. Given the impact of Covid I’d push the peak of any ramp up out to 2024/5)

Nov 2019 - At Magnus, production performance was in line with expectations with production efficiency to the end of October remaining at around 80%. The planned two-well drilling programme has commenced with well slot recovery activity. First oil is expected in the first quarter of 2020.

Feb 2020 - continued strong performance from Magnus, where production efficiency was over 80%

April 2020 – Magnus continued to perform strongly throughout 2019, achieving production efficiency of 81%, driven by enhanced reservoir management, well interventions and plant debottlenecking. During the year, the Group also further improved the facility's water handling capabilities, a key enabler to the field's revised reservoir management strategy, which itself has driven a material reduction in operating costs. In the first quarter of 2020, new production wells on Magnus were completed and came onstream, with further production optimisation activities underway.
(Following the start-up of two new wells, April 2020 marked peak oil production under Enquest’s operatorship at 19.1 bopd. The oil price was <$40 ?. The mix was 83% oil which became the norm. Recently 80%, targeting more gas?)

May 2020 - Magnus production was impacted by gas compressor performance, although this was partially offset by good production efficiency. The two new Magnus wells came onstream in late March and are performing in line with expectations.
(This issue with gas compressor performance marked the first problem with Magnus mentioned in reports. Now 2.5 years into Magnus operatorship and one month into Covid restrictions)

Sept 2020 - Average production in the six months to end June was 18,806 Boepd, 5.8% higher than the same period in 2019. This increase was driven by high production efficiency of 86% and also high water injection efficiency of 91%. Combined with two new wells coming onstream in March, which are performing in line with expectations, this has partially offset gas compressor performance issues experienced in the first quarter.

Nov 2020 - Production has been slightly lower than last year due to natural declines and sea water lift pump system issues, which have now been resolved.

When romaron said, “Many here were singing praises of AB and team when Magnus was firing on all cylinders.”, I spat out my breakfast cornflakes! Figuratively speaking.

My immediate thought was, did I blink and miss it!

It prompted me to review updates on Magnus, and low and behold there was a golden period in Magnus. It was 2020 H1 but unfortunately coincided with <$40 oil, which might be why romaron went on to say, “I was pleased but not one of them”. So temporarily lost his (singing) voice.

While carrying out this review, I had Grant Shapps on pause. He’d been talking about a ‘cost of living crises’, and from time to time I looked up at his frozen image. He had the look of someone who wanted to talk about a lack of investment in energy and something about chickens coming home to roost. Truth, politics, which would win out? I could guess the answer.

Anyway, having done the legwork, I decided to share my findings. Might be useful for the newbies. Pour a cuppa and enjoy.

This might take several posts, so I’ll start this one at Magnus #1. My comments are in (), the rest is verbatim from updates.

Jan 2017 (Enquest announced acquisition of 25% Magnus from BP, option on remaining 75%, and assume operatorship on completion.)
Dec 2017 – (Acquisition completed. Enquest now operator of Magnus.)

Feb 2018 - Following an upgrade of the Magnus drilling rig, EnQuest expects to drill three wells to come onstream later in 2018, as well as undertake logging and well interventions to improve performance.

May – 2018 At Magnus, production performance has been strong and the planned maintenance shutdown was successfully completed ahead of schedule.

Sept – 2018 Performance at Magnus in the period has been strong following successful plant de-bottlenecking, completion of the planned maintenance shutdown ahead of schedule and first production from the M-62 well delivered in May. The Group has also successfully completed the M-63 well below budget and ahead of schedule, having applied key lessons learned from the drilling of M-62. Production is expected to commence in the coming days. Water injection performance has been strong, with high levels of uptime in the first half of 2018 reflecting the Group's analysis of historical power generation reliability and focus on alleviating downtime issues. There are clear plans in place to increase injection capacity within the water system by returning to service the second of two Deaeration towers on the asset and improve pump operations in 2019.
(This was a full and detailed assessment of Magnus because it coincided with acquisition of remaining 75% Magnus and announcement of Rights Issue to pay for it.)
Jan 2019 – (This month marked peak production (boe) under Enquest’s operatorship at 25.7 boepd , 72% oil. Oil peaked in April 2020 – the golden period)

Hi L3Trader,

I always find the detail you bring interesting, but I hope you’ll forgive me if I reply in broader terms.

I expanded on the $132m FCF presented for Jan/Feb to develop a view I have that the new debt structure might consist of just the new RB and the existing RBL, with the latter boosted back to $600m with the refinance of the HYB through a combination of a higher RB (I indicated a $100m addition), further good free cash flows through the rest of H1 (ahead of the main Capex and Abex expenditure in H2) with the balance coming from the RBL facility.

This wasn’t a debt structure I anticipated ahead of the RNS on the new RB but that is how I now see it. I see the HYB retired. If you see an emergence of the HYB in some form, at a lower yield, or whatever, I’d be interested to know why. Repeating my point, if the RB is of sufficient size (c$350m) then that alongside the RBL would support the ‘new’ Debt/EBITDA target of 0.5.

I take the point you make on the detail of working capital and the scale of hedging through the early part of the year. On the latter, front loading of hedging could take the form of volumes and cap price, both to the benefit of ongoing FCF. The AGM update next month should clarify the current hedge position (to end April).

Last week Ithaca reported their finals. I wrote a note to myself translating Ithaca’s debt structure to what I now envisage for Enquest. Ithaca has a 9% coupon on their senior debt issued last July. I thought Enquest’s current 7% coupon a good one in the current environment, so I was surprised by the timing of the new RB issue and, as a result, give it greater significance. I hope Enquest achieve their target size on the RB.

In a previous post you highlighted the change in contingent provisions relating to Magnus. I have no expectations of the contingent ever being paid down, but I did note the current provision, which you now highlight. I came to similar conclusions as you on Magnus Opex. Support is provided in slide 27 of the Credit Update. A simple weighted volume calculation added to the additional Opex $25m highlighted in the 2022 outlook, gets you to a similar Opex number to the current contingent calculation.

There’s no puzzle. Magnus is the problem child. But the new wells should help volumes and perhaps the additional spending will help reliability. I’m the eternal optimist on Magnus.

Regardless, I expect a good year as an investor. Up 66% YTD is a great start.

* steelwatch1, thanks for the heads up. Looks like Kraken is top of the (Enquest) class.

e121, thanks for the clarification.

Tigar, fill your boots.

The size of the allocation is expected to be announced on the 21st April. Obviously the ultimate size is limited by the response, but Enquest will have a target in mind that meets their objectives. I guess the higher the response the more options Enquest will have with regard to HYB refinancing. As equity investors, let's hope they achieve their target. Will we know? I guess we'll get some clues. Look for the market response.

This is nicely timed ahead of the AGM in May, when I'd expect some clarity on the new debt structure. Q&A should be interesting.

Hi e121,

Thanks for your reply, but if I interpret your response correctly you see the RBL ending, with the HYB being financed by other means. Another bond?

Based on commentary last week about the RBL, I thought JS implied the RBL facility would return to $600m on refinancing the HYB, subject to terms. This is why I believe the RBL facility will remain in place for a few years yet. I'm not aware of any reason why the facility can't be used towards paying off the HYB.

Yes, there are covenants, particularly on hedging, but the terms may be negotiated to a less onerous level given the better credit position. HBR commented on revised hedging requirements on their debt facility.

Over the next few years -including any Bressay development - I anticipate only incremental expenditures from cash flows, within their new 0.5 Debt:EBITDA ratio.

Hi romaron, I know it wasn’t directed at me. I was just enjoying the craic. Enjoy your lunch.

As a bond holder I appreciate you are keen to examine the coupon levels, old and new. I’m not a bond holder and don’t plan to be, so less interested in that detail. I’m interested in the equity and the structure of the ongoing finance.

I liked PYUECK’s 11:49 appraisal as a bond holder. I hope that all bond holders are in tune with events and take up of the exchange is strong.

On review, my numbers are conservative if $100 oil holds this year. But more importantly, if Enquest are structuring their debt to an RB and RBL mix - and I’d be interested to hear the case for something else – then I take that to mean they have confidence in their cash flows to allow them to offer the RB now. I look forward to finding out the size next month.

I was expecting a refinance of the HBY and a runoff of the RB. But if RB/RBL is the debt strategy then it looks cleaner and probably cheaper than the route I had in mind.

“I leave that to the number crunchers who know the price of everything but the value of F*all.”

A call to arms. ;-)

What’s the plan?

I don’t know. But I can speculate.

Enquest has the option to assess the response to the retail bond offer (exchange and new). The offer to exchange is attractive so that should only leave a small rump of the current RB, and I’ll discount it.

The bond level is in accordance with ORB benchmark. The ORB page describes a range £20m - £300m. Working in US$ I going to assume that the outcome is a new RB offer c$350m, leaving Enquest with $100m cash.
End of Feb RBL was $330m, after two months debt reduction of $132m, but I assume little CapEx.

Given oil prices have increased I can see an additional $10m / month compared to Jan/Feb. Over 4 months to June that would cover $40m Magnus CapEx (3 wells) in Q2, so still 2x $132m debt reduction by June, excluding $30m interest due on the HYB.

I don’t anticipate any acquisitions that require significant cash up front.

Adding up:
RBL = 330 – 100 – (2x132) + 30 = -$4m

The RBL is effectively zero, leaving the HYB to be refinanced.

The RBL facility ($600m) plus another $230m from cash flows would pay off the HBY.

Additional CapEx and Abex spending will be hitting through H2 with the balance of $200m. New RB interest to YE c$20m. Existing HYB interest, another $30.

Adding up:
(3x132) – 200 – 20 – 30 = $146m.

Short of the $230m, but not far off. Might need a few more months of $100 oil going into 2023. A higher RB would speed things along.

Could the new finance strategy be a Retail Bond c$350m alongside an RBL facility of $600m (I’ve ignored the additional $150m LC component).

News at the end of April on the size of the new RB will add flesh to these bones. But feel free to pick away.

(I’m sure I’ve missed elements. Just my initial thoughts on this morning’s surprising news – at least to me. Also, I’ve no issues with the 9% coupon.)

Hi Jan2, just consider the 10% hedging requirement for 24m - 36 m out. While they might exclude 2024 hedging from a trading update it would not be excluded from the ARA to Dec 2021. There was no hedging for 2024.

Even the most pessimistic view of Enquest would have 'net production entitlement' in 2024 above zero.

As for GE. I take your point on the timing of the GE acquisition, but by my measure I have 2022 hedging at about 60% including GE production.

My working assumption for net 'oil' entitlement is c86% of the boepd number. The low end forecast for 2022 is 44,000 boepd.

86% x 44,000 x 365 x 60% = 8.3m.

romaron 09:32

I think you’re warm and in terms of Dated Brent, or rather the price Enquest receives for their offloads, I go with my gut too.

I posted previously that over the later part of 2021 there seemed to be a step up in the price Enquest was achieving versus the often-quoted front month price.

The very large degree of backwardation would suggest that prices for delivery today are likely to be higher than prices say, next month.

On top of that, we have the Kraken premium. Over the last year or two offload destinations have bounced between Rotterdam and Singapore. I don’t know if there are any contracts or agreements in place, but I’ve assumed Enquest simply go for the best price at appropriate time of offload. I’ve noticed that since the war started loads have gone to a storage facility in Denmark that has previously been supplied by Urals, with the latest load heading to Spain. Presumably, better pricing than either Rotterdam or Singapore currently offer.

But to be honest, I don’t follow the oil price closely. While it sits >$100 I consider my Enquest investment to be a good one and look forward to the next Enquest update on cash flows in May.

I’ve been giving some thought to the hedging, or rather the lack of it recently. We know that there is a creditor requirement to maintain hedges at 60%/40% and 10%, 1 year, 2 year and 3 years out respectively, for ‘net entitlement’ barrels. An understanding of ‘net entitlement’ was missed by a questioner in the recent call. However, I got the point he was making, that hedging appears below creditor requirements. JS simply responded that they are meeting requirements.

I take this to mean one of two possibilities:
The hedging requirement has been temporarily relaxed (the HBR CFO recently stated that a 4-year requirement on HBR had been removed by their creditor)

Or this condition is a factor (copied from the recent rights prospectus):
“In all cases, minimum floor protection will be equal to or above the lower of 90% of the prevailing bank price deck and 90% of the forward price curve at the time of hedge execution.”

AIM rules require interims to be released within 3 months of period end date. Assuming the Covid relaxation of this rule has ended means I’d expect publication of Mosman interims to 31st Dec 2021 to be released by Thursday.

I’m not invested here but know the Mosman story well so keep up with developments. The key elements I’ll be looking for are the breakdown of the project’s financials and breakdown of US/Aus capital expenditures. I don’t expect any change in the basic overhead charges, cUS$500K for the six months.

Guidance on the cash position was cUS$750K at the start of the year. An update would be useful.
I work with US$ because the US is the source of most of their income and capital expenditures, but Mosman report in AU$ which can be confusing.

3 month production numbers should be released in April. My focus there is the Stanley gross numbers because they give a better handle on the balance of new production (S5) versus decline rates.

Tarmak, an article said there was a design life limitation of the FPSO. I'm sure there were a combination of factors that went into the decision to shut production. But a key factor may have been the c$60 price of Brent at the time.

Reuters also reported, "The field still holds 200 million barrels of oil reserves, which can be tapped in a relatively short period with limited investments." Such a comment would have been sourced by BP.

I suspect this asset and other NS assets are being dusted off following the recent 'call to arms' - the meeting between the Britsh PM and oil company execs to review domestic production.

Yesterday, I asked the question on Eagle. AB's answer - option of tie-in, no current plans - no clarification on the mooted farm in. Related to this I wonder about the longer term viability of the GKA hub. Given the 'call to arms' I'd expect the OGA to be following up on some of these near term North Sea opportunities.

Another questioner asked directly when the Magnus drilling will happen, Bob, the Ops guy, piped up, "I can answer that", then simply regurgitated the RNS. Why the secrecy on the drilling timetable? I appreciate the Q&A access to management but I thought many of the answers were poor.

MSM, 12Kboepd (93% oil) through March 2021.

The right price is $0 up front.

BP will be looking to reduce their decom costs, initially by delaying them and secondly by a partner paying a percentage. At yesterday's call AB reminded us that Enquest acquired several fields based on this 'late asset' model. A model not without risk, as we've seen with Thistle. But other parties could be interested. HBR operates a similar model.

Found a bit more info on the FPSO. No doubt related to Aloj's reference to the EP.

'The company discontinued production at the Foinaven field as the long-serving FPSO Petrojarl Foinaven, through which the fields were producing oil, reached the end of its 25-year design life. The company expects Britain's growing interest in domestic production to attract buyers interested to exploit the field's remaining reserves.'

Someone will need to check under the old girl's skirt. AB must be looking.

Looks like she's still in place. Judging by the pictures 25 years operating WOS has taken her prime years, so definitely qualifies as a late life asset.

https://www.marinetraffic.com/en/ais/details/ships/shipid:370137/mmsi:309499000/imo:8887595/vessel:PETROJARL_FOINAVEN

Aloj, was the producing facility (FPSO?) removed from the Foinaven field?

I assumed the facility was still intact.