Member Info for londoner7

Hi Therapist (and a few others),

OGA numbers out and at 8,859 boepd for Oct, Magnus was more than ‘a bit over 6K boepd’. Such a large miss prompted me to look back at my numbers.

I soon realised my error – gas!

When I first invested in Enquest I spent some time figuring out apparent discrepancies between the OGA Magnus numbers and the Enquest Magnus numbers. IR gave me good insight into their accounting of fuel gas and reporting to OGA, and OGA corrected my interpretation of ‘mid-month’ updates.

OGA dates
Production numbers apply to the full month, i.e. the production number labelled 15/10/21 is production for the full month Oct 2021. The OGA confirmed this to me in an email. This mid-month labelling fits in with the operation of the BI Dashboard but note it isn’t used in the Spatial Dashboard.

Note too that in the OGA’s description of data usage they refer to publishing data by month, with a delay of 2 months. This fits with the publication of say, Oct 2021 data (1st-31st) on (or soon after) the 1st Jan 2022. Production numbers are reported daily but that level of detail is only released publicly after a field COP.

Magnus gas
Magnus is the largest gas producer within Enquest’s portfolio with currently c16% gas in Magnus reported production (OGA). Over the last few years Enquest has been reducing the injection of imported gas into the Magnus field, which might in part or whole account for the reduction of gas in the production mix from c28% (Jan 2019). This is further confused by a change Enquest made, 2019, in their reporting of fuel gas to the OGA. It also begs the question, how are imported gas injections into the field accounted with the OGA.

In summary, the Magnus production numbers reported to the OGA are higher than the numbers Enquest reports to shareholders. It was this mismatch between two large numbers that caused the error in my Magnus Oct prediction.

In my spreadsheets I focus on cash flows, and I’ve dropped a detailed capture of gas numbers as they are a small factor in overall revenues – or at least, they were until now.

On a related matter, to take account of shrinkage and gas in the mix I use 87% of the reported total boepd number to come to an oil sales bopd number for revenue.

Hi Therapist,

I guess the OGA is a QUANGO, so that's a unionised public sector job you're threatening with your high tech solutions. Don't you know that the public sector has 'delay' built into procedures, otherwise their activities might go unnoticed. It's the squeaky wheel that gets the oil.

Send them an alarm clock or toss an empty champagne bottle in their direction. Congrats on your 2021 Brent call (and to Romaron for the prize/organisation).

Besides, I believe the latest Enquest trading update gave us the key Oct production numbers - from memory I had a bit over 10K boepd for Golden Eagle and a bit over 6K boepd for Magnus.

Sweatysock, you say “if I read right current cash position on page 42 at bottom of page and equivalents at end of 2021 is $2.3 million dollars “.

That is the cash position 30th June 2021, end of their financial year. The last RNS cash update I see is 2nd July (2 days later) when they reported AU$2.45m (cUS$1.8m) after the receipt of AU$214K from exercised warrants. Do you see a more recent cash update?

What comparisons are you making to come to the conclusion, “it seems we are covering costs and investing in growth at same time”?

Sweatysock, thanks for your response but I think you know why I asked the question.

The current US Henry Hub forward price is $3.8 which equates to $22 boe. That is the current benchmark price for Falcon gas production. This is very different to current UK gas pricing which equates to c$350 boe and is making headline news today.

A recent post from hythe1 highlighted the price of gas. Perhaps I took it wrong, but I saw an implied link to the much higher UK pricing which would be very misleading to the less informed readers of this board. In recent weeks I’ve seen many similar misdirected posts – I’m sure you’ve noticed the same. However, having followed this board, and your posts for many years, I’ve noticed that you rarely, if ever, correct these posts. Rather you like to jump on posters presenting a critical view, attacking the messenger rather than the message.

I don’t agree with London74’s (no relation) view that ‘the end is nearing’, assuming he means MSMN as a company. I’ve said before that if Mosman don’t take on debt and maintain some level of income from production, even if it doesn’t cover expenses, then JB can keep the Mosman show on the road with further placings and the promise of Helium.

I don’t believe in the Helium prospect, as I’ve often posted here without reply, and the placings and resultant share dilution are not a recipe for good shareholder returns, which is why I’m not invested, but I enjoy following the story. I thought JB played a blinder last March pulling in £1.5m on the pretext of EP145 development alongside the meme theme of Helium. Monies now being spent in Texas. How much he spent will be revealed in H1 to Dec 2021 numbers due in March 2022. FY numbers to Jun 2021, now overdue, will show little other than the cash margin on Falcon, but I’m keen to see the numbers anyway.

Sweatysock, you say, "We know Falcon has been producing steadily with High Gas Prices"

What gas price do you have for Falcon?

I looked for a similar metric to compare with ENQ.

This seemed relevant - "The acquisition, which includes stakes in seven producing fields and several potential developments, will boost Sval's production by around 40,000 barrels of oil equivalent per day (boepd) to 60,000 boepd by 2023, Sval added."

Not 40K boepd today but potentially by 2023, which would have some development cost.

Ignoring the development costs and gas :oil mix:

ENQ 54K in 2022 boepd

(54/40)*$1.1B = $1.5B.

Current enterprise value for Enquest (£356m*1.35)+$1280m = $1.76B

Valuations not so far apart.

Or have I missed something?

Hi Botham, thanks for confirming.

Hi Botham, last month you said, "I'm invested in the pre IPO through Charles Street Securities"

Having seen the 2021 accounts posted to the GE website, may I ask if you invested via the Convertible Loan Notes issued in May?

Hi Dumbly, the process of marketing Enquest’s oil and resultant price achieved is separate from the hedging activities, although the hedging strategy will take anticipated marketed oil volumes into account.

The hedging activities are conducted through financial instruments, which have defined expiry dates. Enquest enact costless collars which essentially means balanced put and call contracts around the prevailing option price. The strike price for the contract sets the premium, the further the strike price is from the option price the higher the premium but in practice Enquest seem to go for +/-c.$5* around the option price. At expiry the difference between the strike price and the oil price determines the gain if the floor contract is triggered or a loss if the ceiling contract is triggered. Brent oil contracts do not require oil to be delivered. (*Terms in the RCF limits Enquest’s pricing range to ensure the bankers loans are effectively insured)

Once purchased the expiry date of the hedging contracts is fixed. Hedging can be ‘delayed’ only in the sense that a near term contract may be closed at the prevailing price and a later one established. That could be speculating on future oil prices or may be a response to a change in expected future marketed oil volumes.

A contract can be closed at the prevailing premium during trading hours or settled on the expiry date. Although contracts can expire at no additional cost beyond the premium.

Upon the contract’s expiry date, the contract is effectively “used”.

It is worth pointing out, given the oil price volatility, the average marketed oil price over the month could be dollars different to the oil price on the expiry of the hedge contracts. The two activities are financially separate from each other.

Hi hitman1a, thanks for your response and pointing me to the appropriate reference.

I see the Deferred Tax adjustment is a pro-forma adjustment of the GE acquisition on the Dec 2020 balance sheet of +$300m. Just as well, as the net asset value was only just positive at $5m. Obviously a substantive part of the argument for Suncor selling and Enquest buying. The other big adjustment to pro-forma is the net $45m from the capital raise, which brings the total improvement in the pro-forma 2020 to your $343m number.

But that then begs the question, what about an addition GE deferred tax component for 2021. With the higher oil price that seems likely.

You've referred to a 'restatement' of the Magnus deferred tax component. Again, I can't work the detail, a reversal on 2020 seems a good ball park guide. But if that is the case, couldn't we see a similar level of adjustment for GE at the 2021 YE balance sheet date?

I wouldn't assume Enquest would have written off the EP, particularly as they've put it into 'warm stack' (I think that was the term) at an ongoing cost. Yes, I had a similar number ($100k/mth). I think converting a $150m asset (if that is what it is) to cash would be a good outcome.

Hi hitman1a,

I understand the case for adding Deferred tax on the basis of increased profit expectations due to oil price expectation, etc. But predicting the levels is beyond me. Can you expand on the $347m adjustment you have for GE? That looks like a very healthy adjustment.

You've added an EP disposal value of $150m. I've seen discussion here on a possible sale or utilisation, but I've no opinion on what that valuation might be. However, the EP will already have an asset valuation on the balance sheet under PPE. Is it your expectation that the EP will be sold for $150m above the current asset valuation?

romaron, my understanding is that there is a lifting schedule weighted to each partners holding, and if Enquest decides to market their own loading when available then it means lumpy cash flows. But at 10K nominal that's 6 cargos per year, which leaves them open to price volatility. I guess if their last cargo slips in just before year end, then it will be close to end of Feb before the next cargo for Enquest. But all partners are exposed to the same ebbs and flows of production, the variation simply moves the timing of the schedule.

But to your question, I'd say two cargos to Enquest in 2021Q4 and one cargo in 2022Q1 assuming production continues at approx. 10K bopd.

Incidentally, this lifting schedule would answer a query I had on Suncor's low 2021 Q1 reported cash flows.

Pelle, I say yes. The two cargos referenced will be marketed by Enquest and the full cash accrue to Enquest. Of course, there could be a balancing over-lift on the balance sheet, but retail eyes are on the net debt number.

That's 120 day's of nominal production, which may point to why they mentioned it in the update

Hi Therapist,

Thanks for the link, though on opening I performed an instant time/benefit analysis, and returned to your extract.

Interesting the common cargo referenced is 600K when we know the FPSO offloads are nominally 500K. But the key point you've answered is that the Flotta cargos are a standard measure so for those in the know 'two cargos' will translate to a cash $ amount, which beats a current asset entry on the balance sheet.

Hopefully a risk assessed 'profit making holding tank'. A hedge against the hedging.

Incidentally, I'm still not convinced the GE transaction numbers have been ruled off. That $75m number came out too quick considering these cargo offload schedules.

Hi Tigar,

The reference to two cargos under Golden Eagle jumped out at me too. I was pretty sure the reference was in relation to GE rather than Kraken, but thanks for confirmation. However, I wondered why they mentioned it.

This extract from the prospectus provides some background:
"Furthermore, in relation to
crude oil, each field temporarily stores production either at the field (such as through an FPSO) or at a
terminal (such as the SVT). This gives each field owner the ability to accumulate a marketable volume of
cargo which is allocated in full to the field owner with the highest proportionate share of the total stored
volume at the time a full cargo accumulates. By mutual agreement, field owners may pool their production
under a joint operating agreement in order to share in cargoes. As such, the EnQuest Group has full discretion
over the marketing of its attributable volumes across its portfolio and, in relation to assets in which the
EnQuest Group holds a minority, non-operated stake such as Alba and, on Completion, the Golden Eagle
Asset, the Company markets its attributable volumes independently of its partners in each field."

I think it was romaron who suggested the 'two cargo' reference would have meaning to those in industry (and analysts) rather than retail investors and I think he's right. If cargos don't have an industry standard volume measure, as was also suggested on this board, then there's a good chance those in the industry know the contract terms anyway.

I'd speculate that Enquest want it to be known that there is still substantial cash accruing from GE towards to the YE net debt figure rather than the balance sheet, as an under-lift current asset at cost. Previously, I referred to what looked like a substantial under-lift at the interims in relation to Magnus.

Raising the level of speculation, Enquest may have been utilising SVT storage beyond normal timescales to benefit from the rising price during H1. The SVT has c.8 mbbls crude storage, though a portion of this is reserved for BP's Clair field.

To be clear. Although Enquest controls 100% of Magnus production it is blended in the piped shipments to the SVT and Enquest can take out (store) and market their own cargos (as per the extract above).

Sometimes a little knowledge and a vivid mind can be a dangerous combination! ;-)

Be careful out there!

L3Trader, you say, "Thinking of your estimate, it might be that revenue for the first 10 months will this year be lower than that c.86% of yearly revenues. There were shutdowns early in the year, so that might have an impact of a few percentage points."

I agree, but I tend to a conservative outlook, which is why I stuck with 86% (as I recall from 2018&2019 numbers). Life's better with pleasant surprises. ;-) I considered an adjustment for the Covid impacted start in Ireland, but decided against it. I do now see a route to a better calculation, which I might look at, but it's somewhat academic, the EBIT guidance is crystal clear.

I might struggle to make the live webcast too, but as it isn't taking questions from retail, I'll be happy to catch a recording later.

* On your follow up. I did understand the point you were making.

By my reckoning the £1,045m points to c.£1215m for the full year. Half way between broker consensus £1.190m and my prediction £1,240m, but I was delighted to see a raise on EBIT guidance to above current guidance, which itself had gone up since the interims.

Seems I have been too negative in my concerns of the well publicised energy costs. Breedon seem to have dealt with them very well. Guidance now, "slightly above the upper end of the range of market expectations". I had to read it twice to believe it.

Assuming no "adverse weather event", looks like we'll see at least £131m EBIT. A good update!

Hi L3Trader,

Thanks for your breakdown. I see you've used the like for like breakout from the interims which looks like a good strategy, but £1,300m is some way below your original £1,500 (using your original 10% margin), hence my query.

Looking at the breakout I think you're looking for a lot from Ireland and Cement, but perhaps Cement will surprise. I noted a US cement supplier pushed through a 8% cement price price in the US for the year to 2021 Q3. If Breedon can do something similar then that will certainly help Cement revenues but as that's to address increasing energy costs it probably doesn't add to EBIT.

We'll have some clarity in a couple of days. The revenue number to end of Oct typically represents c86% of full year revenue so that's £1,066m for a £1,240m full year outcome and £1,118m for a £1,300m outcome. Broker consensus is £1,190m FY, which requires a £1,023m Oct number, but focus will be on the EBIT guidance.

Guidance in July was higher end of the £109m - £128m range. I'd be very happy to see this guidance repeated but prepared for a revision down to mid range c.£118.

I hope we get a timely view of the presentation slides for the Capital Markets Event later in the afternoon. Ideally, a simultaneous web cast. What's that about? I'm expecting something more than ESG plans but hope it doesn't include a steer towards European expansion. Breedon has added sizable debt facilities and I can't figure out why.

Hi Therapist,

Good find on the advert.

You say, "You don't need a free slot at Magnus."

As I said, I'm not a geologist, so perhaps my usage of 'slots' was wrong. I'll talk in layman's terms. First some background.

From 2018 referring to Magnus
"Future development activity on the field is limited to well work, utilizing existing wells and well slots and using the existing platform drilling rig. There are no plans for significant additions or modifications to the facilities other than what is planned to improve PE. In addition, gas imports and gas injection are planned to cease in 2023, relying on produced gas for fuel gas thereafter."

"Production commenced in August, 1983 via a single platform with a total of 28 platform slots."

"At 30th June 2018, there were 15 active production wells, 2 shut-in producers, 8 platform injectors, 5 of which are WAG-enabled, and three subsea injectors, one of which is active. One additional production well is currently drilling at 211/12a-M63."

As a layman these comments imply to me the sub-sea infrastructure supports a finite number of producer and injector wells, and this limit is the 28 platform slots.

Your comment, "I discovered "slot recovery" is abandoning the well bore at a certain point and then drilling out the side of it towards a new location.", supports the point that to drill an infill means abandoning an existing well bore. The new one replaces an old one. Hence my reference to freeing up a slot. If I find myself in conversation in an Aberdeen bar I'll throw in an occasional "slot recovery" to try and fit in, and hope my timing doesn't get me into trouble.

Going back to the advert. Interesting to see, "completion of a minimum of 3 sidetracks". Lots of comment and news is pointing to a near term focus on Magnus.

In the interim report Q&A AB said, "May look beyond existing slots" pause then ... Magnus and Kraken.

I take that to mean a possibility of new infrastructure for tie-backs.

At Magnus the target could be the 250MM bbls 'mobile oil' in the Magnus field, and, or a tie-back to 211/12b (Pussycat prospect).
At Kraken the target could be the Western Flank and, or Bressay.

Hi Tarmak, I agree there appears some inconsistency in 2C classification. I think the 35MM boe of 2C resource at Magnus only relates to c.10 prospective wells previously identified on the Magnus field, including those planned for drilling in 2022.

The OGA link isn't showing, I'll try again, otherwise google OGA licencing map.

https://ogauthority.maps.arcgis.com/apps/webappviewer/index.html?id=adbe5a796f5c41c68fc762ea137a682e