Member Info for londoner7

Hi Tigar, thanks for your comments.

To be clear, I posted my working assumptions on debt repayment. JB offers guidance on outcomes but given the variables I will have my own expectations. Others will see a different profile. I see a refinance of the HY as a key goal this year. Isee the repayment of the RB as secondary. Reasons: bond repayment references are specifically to HY; significant RB purchase at 100.2 last month (why if you expect repurchase this year); RB at 7% is competitive, contrary to some views I'm not as sure as some that HY refinance will be below current 7%. If it is, then not by much.

Hi Botham, thanks for your detailed response.

We've communicated previously so you know I am familiar with the details and nature of early investments in GE, and you confirmed you are an early investor via Convertible Bonds, which I note are due for repayment this June. But expectations at the time was that shares would be admitted to the main market of the LSE.

I guess GE must go before June, hence the switch to AIM and less rigorous admittance.

It's hard for me to see this as anything other than an opportunistic move in a hyped market.

But GE accounts are available on their site for anyone giving this serious consideration.

Sorry, auto complete on my phone.

Tarmak

Tiger prospect

Hi Tarmac, who did you contact about the Tiger prospectus.

Hi Botham, the reports imply the Helium is just waiting to be extracted but given the Proactive disclaimers, they can say anything. No doubt this will induce some buyers.

The prospectus will be a more rigorous document.

I note the documentation which will include the prospectus, has been submitted to AIM.

Do you have any guidance dates for the public release.

Interesting comments. I think we've enough fag packets to have a good stab at an fcf / debt number. Interesting the differences around Capex expectations. We'll soon know and I've ready posted my views. I just came on to add support to Jan2 comment.

Spurs forever!

That 3000 Chr buffer again!

Spurs for life. Enquest?

Hi romaron, ‘AR 2021’, haven’t you got your copy? It’s who you know.

Yes, I’ve taken the commentary from the 2020 annual report, and you know that. The commentary is from March 2021, but I accept my reference to AR 2021 could be misleading to anyone reading this post in 6 months’ time.

I referred to the turbulence in the market and the need to adapt plans to available capital and prospective capital, so we agree on that point.

But I disagree with the idea that you or your friend could run Enquest with oil at $90. The business, as it’s currently structured would generate plenty of cash with oil at $90, as would most (all?) other oil companies. Yes, the price of crude and how long it stays at current levels, is highly correlated with near term returns, but what you refer to as the ‘entrails’ I consider to be the vital management actions that need to be taken to maximise future returns to the business, whether oil remains at $90 or not.

To assess the merits of an investment I write posts in a format that I can post to a forum, but I do it to explore the issues I have in mind in a structured documented way that I can review and return to later given new information. I ‘post’ very few. In deciding to post I consider is it helpful to others and will it generate a response that adds to my knowledge. As a regular contributor (okay not as regular as some) I also attempt to help with sincere questions from other posters. When I started to invest in Enquest in early 2019 I was all over this board like a rash, and I appreciated the informed replies I received to my many questions. A few of those posters have moved, but I recall E121 and L3 as being particularly helpful – at least once E121 had got over my ‘beginner’ status. In following Enquest today, outside of updates like the one due next week, I’m very much in idle mode. For investment purpose I now have a very good handle on Enquest’s activities.

But no. I could not run Enquest.

Back to the important stuff. In recent posts I’ve highlighted some of the development opportunities and presented my working assumptions on how the debt structure might play out to support that development. I’ve also referred to my concerns around Magnus operations, hopefully in a manner that doesn’t scare the horses, but it is a real concern given how much stock Enquest places in Magnus. I think we largely make our own luck, and AB (or whoever was involved) played a blinder with the GE acquisition. But the evidence from Magnus suggests someone has dropped the ball, or the problems are beyond solvable. I’m hoping it will be sorted soon.

I get your faith in AB, but I’m not the sort that goes down with the ship. Given a favourable oil price I see excellent prospects for Enquest’s share price through 2022. However, I’m watching how Enquest plays their development options (entrails). If I don’t like it I will jump ship. There are other UK listed oil companies I follow with their own opportunity set.

Spurs for

I lost the thread with my last post.

The point I wanted to make is that Enquest has plenty of development opportunities, but the need to pay down the RCF and re-finance the HY Bonds is their #1 priority. (Incidentally, I expect the Retail Bonds to run to expiry in Oct 2023).

I expect Enquest to carry debt into 2023, say $500m bonds and a $600m credit facility to support those development opportunities in 2023 and beyond, with optionality on the repayment of the c. $250m Retail Bond.

Following on from my previous post. I wonder if the OGA’s rejection of the Eagle farm-out is a slap on the wrist for Enquest for not fulfilling the terms of the award after the work done with the OGA to date. Has the OGA given them a use it or lose it ultimatum or playing hardball, with a tough ‘you blew it’ now hand the licence to Hibiscus.

Is there more churn in prospect? Does Enquest now see capital available for their own Eagle development – 6 months is a long time in the oil market – if so, could a ‘Get out of jail free’ card now be on offer from the OGA?

Hi hitman1a, I guess we’ll get confirmation on the headline numbers for Opex, Capex and decom this week. But it was your comment, “I’m expecting Kraken Western front drilling in 2024, so 2024 could be the start of a higher capex/decom period, but with no debt interest, it’s all very affordable.” which prompted me to review what Enquest has guided.

As I understand it the current plans include:
AR 2021 Kraken outlook - “The Group is not currently planning to return to drilling until 2023. However, the Group plans to carry out a 3D seismic campaign in the second half of 2021 to support ongoing evaluation work to identify and prioritise near-field drilling and sub-sea tie-back opportunities within the Pembroke, Antrim and Maureen sands discoveries and prospects in the western area.”

AR 2021 Magnus outlook – “Preparatory works will be undertaken in 2021 ahead of the planned development drilling programme in 2022. In addition, following the award of block 211/12b as part of the 32nd licensing round, the Group will commence subsurface studies to assess the block for future opportunities.”

AR 2021 Bressay outlook – “During 2021, detailed analysis of existing reservoir data and an assessment of potential development options will be undertaken.” (IR - Licence extension requires an FDP submitted before end 2024)

AR 2021 notes, “On 25 February 2021, EnQuest announced it had signed an agreement to farm-down an 85% working interest in, and transfer operatorship of, the Eagle discovery. EnQuest will retain a 15% non-operating working interest”

Malaysia PM409 – one drill within 4 years. We are now into the 3rd year.

It has been variously reported that the current HY Bond will be re-financed, with an amount of $500m indicated. But the near-term goal is to pay down the RBL ahead of the Oct 2022 schedule.

This is not a complete list – just the stuff I have in mind.

Now I am expecting Kraken drilling in 2023 and a refinanced bond for c. $500m through to about 2025/26, which means Enquest will be paying c. $35m interest in 2024.

In my communications with IR, I find them to be helpful on explanation but tight lipped on any plans which have not been officially communicated. But that’s not to say something hasn’t slipped out.

The only updates I know are that IR gave Tarmak the run around when he asked about the Tiger prospect (211/12b), and the OGA rejected the initial application to transfer the Eagle prospect. I was surprised by IR’s reluctance to acknowledge Tiger and the decision to farm-out Eagle.

The Kittiwake Hub has long been a development option, so why farm out Eagle to another hub, when they had development plans for a Kittiwake tie-in submitted to the OGA and c.8K boepd in prospect?

No doubt Enquest review their development plans considering capital available or in prospect. I wonder if the financial turbulence over the last couple of years is behind the apparent churn.

Hi L3Trader, of course you know I'm jesting with you. Your comments on Magnus have been fair, but I'm still an optimist. I get the impression that Enquest puts great stock in Magnus as a growth asset over the next few years.

I'd written a follow up on Indy's fag packet calculation but it went over 3,000 characters and I don't have the patience to edit so it will be another unpublished post for the bin. However, you've touched on a couple of the key points.

You say $220m -$240m for capex & decom. I only added $10m for decom and $70m for capex covering the Magnus and Malaysian drills, $200m total. Are you expecting more drills or just higher costs?

Your $370m Opex is a step up from the $300m in 2021. I see a significant step up too but struggle to quantify it. My increase is largely due to higher fuel costs. Am I right to also anticipate a removal of the exception on marine fuel duty in April 2022?

In which case, you need to revise your top line revenue numbers.

7mbls @ $76 = 532 mil
11.25mbls @ $80 = 900 mil
Total = 1,432 mil

And include a deduction from cash for BP's profit share.

Jan2, our posts crossed, but my point remains. Crude sales versus published production numbers.

Hi Jan2, you say, "I have production Figures @ 50k bpd = 18.25 mbls"

Could you clarify your numbers.

I read your breakout as crude oil sales, but typically, crude oil sales represent 86% of the published boe production number, which means that your 50bopd sales equates to 58K boepd. Is that your forecast for 2022?

Indy0105, I’m halfway between the views of L3Trader, “Doomed, I tell you, we’re doomed!” and Therapist “oilier than a grease wrestlers guiche at the end of Ramadan”, but less than half as entertaining.

Your uncertainty on Magnus production reflects the views of many posters here. I see Magnus as the marginal player between forecasts like yours around 50K and others closer to 54K for 2022.

Whether water injection is as efficient as gas injection is mute while Enquest are unable to maintain the water injection and other top-side functions. But alongside each tale of woe of another top-side failure we are assured that reservoir performance remains good.

As an engineer I’m inclined to be optimistic that these top-side problems will be fixed but after 3-4 years I begin to wonder. Are the engineering crew in tune with the old girl’s turns and mishaps?

I’m reminded of the Chief Engineer on ‘Das Boot’. Perhaps Magnus had a couple of these old but capable hands-on board when they took over Magnus operations in 2018 but they’ve since moved on. Casualties of the ‘Lean operating model, with a right sized workforce’.

I wonder if John Penrose can fire up a waterlogged diesel engine while under enemy fire - and a don’t rank a strongly worded memo from AB.

At the CMD in Nov 2019 Enquest were confident that Magnus was capable of volume growth, reaching a peak of c22K bopd by 2025 (bopd is oil!). A forecast which included the switch to water injection. But Enquest has since struggled to maintain the declining 2018 CPR forecast, which didn’t include the two new wells brought online in 2020.

The CMD plan anticipated another couple of wells in 2021 which were postponed for obvious reasons. We should see them on-stream this year, perhaps H1. And I’ve no doubt Enquest management are focused on the top-side issues, but maybe it needs some of AB’s bonus redirected towards the Magnus engineers to affect a solution. Cash is a good lubricant.

Whether we get specific commentary on Magnus production forecasts in the next update, or not, the overall production guidance for 2022 will be telling on expectations for Magnus.

Will it be 50K or 54K?

Good finds guys,

It’s important to debate the issues of our time.

Greenpeace UK’s executive director, John Sauven, said, “fossil fuel companies (are) lining up to drill for more planet-wrecking oil and gas like there’s no tomorrow”

The Saxo Bank CIO said, “The critical chokepoint for real economic growth from here is the de facto energy crisis we are experiencing—one that will only continue due to decades of underinvestment in the space and the continued lack of financing for the fossil fuel energy that still drives the bulk of energy inputs into our economy. This lies at the centre of our “world is too small” theme. In 2021, we saw rises in energy and electricity prices that have not been seen since the 1970s. Electricity prices in Europe rose to ten times the long-term average, in part on supply disruptions from abroad, but also aggravated by the lack of baseload as Germany shutters nuclear plants and the new alternative energy sources are unable to replace critical baseload.
In short, we have created a monster in which the policy priority—going green—is fuelling the energy crisis.”

If you’re a politician in government facing an electorate looking at a doubling of their energy bills what you going to do?

Bluff and bluster of course. They only must get through five years then it’s off to the sunlit uplands of a cushy number in the private sector, public sector or third sector – depending on the contacts they’ve made in office.

I say, Go to Jail. Go directly to Jail, do not pass Go, do not collect $200.

Hi L3Trader, looks to me like a good summary of Enquest production going into 2022, and I agree with hitman1a’s assessment of the Magnus issue. I’m not in need of any reassurance on the guidance provided at the last update. For all I know the 2nd compressor failed a day later – oops, now I’ve done it!

All will be clearer, if not crystal, in a couple of weeks. The Feb TU is arguably the most important of the year in terms of fresh guidance.

On your question to me about profit of the third-party gas, I don’t have any insight into the pricing of the contract. However, given comments from Enquest in 2019 about these gas supply agreements to Magnus winding down it is interesting to note the percentage of gas revenues versus total revenues over recent years.

2019 – 7.2%
2020 – 7.1%
10 months to Oct 2021 – 11.6%

That is a significant step up, and the implied positive from the TU comment ‘Magnus crossover gas’ supports the idea that Enquest is benefiting in its third-party transactions from current high gas prices.

I guess we’ll never know the contract pricing but your reference to Brent based pricing formulae suggests you know more about this stuff than I do. I’ll settle for a Monopoly Community Chest assessment:

‘Gas price in your favour – collect $200’

On Friday the ONS released two updates which were positive on November construction activity. In the GDP release the Nov number was the strongest since Sept 2019, after a weak Oct number, the weakest since last Feb.

In the second release, GB construction output release for Nov, the main points were:
• Monthly construction output increased by 3.5% in volume terms in November 2021, which is the largest monthly rise seen in construction output growth since March 2021; anecdotal evidence from survey returns suggested the strong demand for work, in combination with supply chain bottlenecks for certain products easing and the unseasonal mild and dry weather were the main reasons for the increase.
• Monthly construction output increased 3.5% in volume terms in November 2021 compared with October 2021, to £14,676 million. This is the highest level of construction output since September 2019.

Breedon management has frequently highlighted infrastructure and new housing as their key markets within the construction sector. One of the consequences of Covid is a significant reduction in ‘private commercial’, office space to you and me. Alongside a jump in infrastructure (HS2 will be a significant component) the proportion of infrastructure and new housing in the ‘new work’ mix has increased from 59% in Nov 2019 to 67% in Nov 2021. Not only is construction activity improving but the mix is also moving in Breedon’s favour. Which supports Trencherpilot’s recent post, “I work for Breedon, and if I tell you that our main quarry can't keep production in pace with demand from customers and concrete plants, so we are buying gravel off the nearby Cemex quarry to keep plants going, does that tell you how busy Breedon are in the East Mids?”

Ahead of the merger Woodside are applying for a Secondary listing on the London Stock Exchange. Assuming this goes ahead, there shouldn't be any problem holding Woodside within a UK broker account.

Hi TimTimebomb,

You raise a good point. It's always worth paying attention when a company highlights an aspect of it's business as Enquest did with their reference to revenues from 'Magnus crossover gas', and I agree the benefits should continue, at least for a while.

In describing gas revenues Enquest says, 'includes volumes related to onward sale of third-party gas purchases not required for injection activities at Magnus'. L3 makes the point about switching away from gas injection, and asks, is the switch complete?

I don't know if the switch is complete but I know that there were several contracts around the supply of 3rd party gas for injection which (in 2019) extended over several years. I guess some of these contracts are still running.

An interesting question is, are the gas supply contracts on fixed price terms? In which case, given the spot gas price Enquest may be gaining a nice profit on the resale.

If the switch from gas injection hadn't completed ahead of the recent price rise Enquest has an incentive accelerate the process. Also, I wonder if Enquest is able to switch from fuel gas to diesel.

Just speculation. Perhaps the final results will provide some insight.