Member Info for londoner7

Tamark,

There is an English phrase, “getting the run around”.

That is how I would describe your exchange with Jon.

This is from Enquest’s annual report last March – page 19 under the heading ‘Magnus’:
“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.”

Ten years ago, Elixir named this block as ‘Tiger prospect’, which is described in the link you posted. I haven’t seen Enquest reference the 211/12b block as Tiger. Perhaps in the current ESG climate ‘Tiger’ is seen as intimidating and it’s been renamed internally as ‘Pussy Cat’.

Let’s stick with 211/12b

Look at this licencing map:

Offshore Oil and Gas Activity (arcgis.com)

Zoom into the Magnus field (NE of Shetland) and you’ll see block 211/12b approx. 5Km south of Magnus.

Thanks for your comments on spare Magnus slots - means I wasn't dreaming.

Interesting term, 'expand slots for further drilling'. That's the same term I recall.

I'm sure that previously, used well slots were freed up to accommodate the new drills in 2020. I'd guess the same will be true for 2022 drilling and it appears that work has already been completed. Does 'expand slots for further drilling' mean more of the same, or a new sub-sea structure? I suspect the former, but I'm not a geologist.

My interest as an investor is that it lends support to Barclay's expectations of increased Magnus production in 2023.

* L(00)7. Is there a free slot?

Hi Therapist,

Thanks for looking. I just checked back to your earlier post on Eagle. Unsure how it might play out. If ENQ drop it entirely got to wonder what changed their original development plans with Brent now higher.

The Anasuria FPSO "critical component" failed in May and reported in Sept in their trading update - as it should be ;-)

You ask, "Is this adding more shares to the market to increase cash?"

Yes, that is exactly what it does. But there are at least two negative impacts.

The first is that placings are made at discount to the associates of the broker, in this case Monecor. The last placing was at a more reasonable discount than previous placings, but the cherry on top for subscribers are the warrants. 'Monecor' still hold a sizable share of the original placing plus a few shares from exercised warrants, but I think it is wrong to view Monecor as a single entity. My understanding is that the Monecor holding is an amalgamation of several trader holdings each free to act as they wish.

A second impact is on the dilution of any future free cash flows. Three years ago I attended a presentation in which Mosman said they expected the next two drills (S2&S3, from memory) to make Mosman profitable at a corporate level rather than just at a project level. This would have allowed a valuation based on free cash flows. The drills were delayed and losses continued. Today, corporate profitability should be in sight. But in 2018 Mosman had 0.5 Billion shares in issue, today it has 3.5 Billion.

The cash from placings can buy addition production and drilling but the hurdle to valuation gets higher with each placing.

* I am not currently invested, but as some here know, I've followed the Mosman story since Feb 2017.

For clarity, I should add that Bumi are the owners of the Kraken FPSO so will be part of any discussions around Bressay.

I first invested in Enquest early 2019 when CNE was writing down it’s Kraken resource numbers and Kraken production was at its nadir, c22Kbopd - apart from a weather related (Beast from the East) impact March 2018.

During those early days of Kraken operations, reservoir performance was described as good, with the issues being top-side FPSO related. As an engineer I considered those issues to be fixable and so it turned out. If you can see it and hit it, then its fixable!

Other than a slightly longer than usual maintenance window, summer 2019, Kraken operations have had a good run over two and half years. I understand from posts here the current issue is a problem with one of the two trains and “production is running >50% from the single train”. That phase sounds familiar from those troubled early days.

I’ve no doubt there is an engineer clubbing part of the train mechanism as I write and will fix the problem. Tomorrow, next week? I don’t know. But it will be fixed. We might even see some of the H1 FPSO performance credit returned.

I expect the current Kraken issues to soon be a distant memory, yes, with a real and significant impact on the YE net debt level, but unlikely to warrant more than small reduction in valuation over time, and the drop over recent days will soon be forgotten.

Then again, I could be wrong. The engineer has hit the wrong part, the FPSO is now sinking, so next year’s decom will be four figures. The market heard the Mayday and that’s why the SP still struggles. (Thought I’d throw that in for those here that like a bit of gristle with their meal)

As someone once said, “Stuff happens!”

My thanks to Pelle and his mate for posting the forecasts from Barclays. I noted that the forecast has a 2021 H1 split and given the interim outcome the analyst could be forgiven any tantrums. But it was the Magnus 2023 production forecast that caught my eye. I too have c54Kboepd for 2022 but I expected a fall in 2023. The Barclays graph shows higher production in 2023 versus 2022 and this is attributed to higher Magnus production c.22K. Though, even Kraken gets an uptick in 2023.

Where does that come from?

At the last update I detected some enthusiasm for additional Magnus drilling and the 2019 CMD did present Magnus as growing production. Better late than never, and maybe with a higher oil price. I also recall talk of additional slots, but maybe I dreamt that bit. Is the Barclay’s analyst still plugged into the 2019 CMD or has he been given a nod? Which reminds me, Tarmak, there is a beast called ‘Tiger’ in those waters, but in the current environment NS operators are keeping their heads down on any potential developments.

Talking of which. I recall news of the proposed Eagle (not Golden) sale being rejected by OGA. Therapist, any updates? The license terms for Bressay requires an FDP submission before the end of 2024. Interesting to hear (from himmatsi) Bressay got a mention from Bumi recently.

Correction, $200k is still owed on a recent acquisition.

That's $K not $m.

I'm used to companies on a different scale.

Hi L3Trader, I think energy costs across the business, but particularly in cement, are a key factor in the recent weakness (post the interims) in the share price, which is whey I found the open nature of your query unusual for you.

Since the interims in July the spot price for gas has more than doubled. The international price of coal has taken a similar path though has dropped back recently. However, I don't follow the UK pricing of coal so I've no idea what Breedon pay or the nature of their contracts or hedging activities - they did say that their carbon costs were covered for year (2021).

I said that I had looked at cost deltas for energy in H2. A tricky exercise given the lack of price visibility but for a numbers guy like me an interesting exercise given the level of detail on energy usage and emission now provided in the AR. Breedon frequently refer to the 71% of alternative (to coal) energy supplying the Irish cement plant. But nothing on the larger and much older Hope cement plant.

No doubt energy costs are up on July expectations. The unknown is the degree to which Breedon can implement price rises. In my conversations with Breedon over the years its clear than costs get priced in but with a lag. For that reason I think the guidance provided at the interims of high end of the analysts at £109m - £128m EBIT would be a good outcome for the full year. (Incidentally, there is a one off deferred tax charge impacting EPS by c0.85p for 2021 which some analysts numbers might mot include)

Given the degree to which pricing and costs are such significant variables in determining margin I tend to focus on revenue and over the years I've been pretty close in my estimates. Based on a single revenue number in the AGM update and considerable noise around the impact of Covid particularly in the ROI market I had a stab at a full year revenue number and came out at £1,236m (workings posted below). That was well ahead of consensus at the time, but I note that current consensus (FT) is £1,190m with a high of £1,240. so the market is now at my estimate. I haven't reviewed it since but expect Breedon to beat it marginally.

Which brings us to your estimate of £150m EBIT and, based on margin, £1,500m revenue. Some way above others estimates, so I wonder how you came to that estimate.

My workings from the AGM update:

Breedon AGM Update 20/04/21
Q1 264
2020 Q1 207.8740157
Lfl Q1 222.4251969 Based on good 2019 Q1
Cemex 41.57480315
Cemex H1 88.08221006
Cemwx 2021 182.9467503 Close to FY 2018
LfL 2021 978.7651141
2021 total 1161.711864
Concensus 1089 High £1,130m
Ireland 10% 74.87553123 Suspect overly conservative
Expect 1236.587396 13.6%

L3Trader, in a Q3 update Ibstock said, "Strong Q3 performance supported by continued robust demand in core markets"

I take that as a positive.

The MPA said this:

https://www.mineralproducts.org/News-CEO-Blog/2021/release37.aspx

At first sight disappointing but dig deeper and it appears materials, except concrete, are up on 2019. Concrete is down largely due to London. Breedon has acquired a small interest there, but they are mainly further north.

We'll know more later this month when they will certainly give a revenue number and I look forward to what comes out of the Capital Markets day - they may talk about the energy demands of cement production.

In a previous post you asked if there was anything specific to Breedon. Knowing you, I'd guess you are well aware of the significance of Breedon's cement business so I was surprised by the open nature of the question and chose not to respond.

Breedon's AR has considerable detail on energy usage. I've worked the numbers for an H2 v H1 energy cost delta, but there are some unknows. The delta is significant but the question is to what degree this can this be negated by price rises.

From memory I think Ibstock recently increased their prices, which held. I'd guess cement will be similar, but hopefully we'll know more later this month.

A key area of construction activity for Breedon is housebuilding and infrastructure. There are supply issues which largely affect the smaller operations. The word I've heard from the big builders is that they are few constraints. A key element will be how effectively Breedon are managing deliveries, e.g. the HGV issues.

Bottom line, it comes down to the ability of material suppliers to force through price increases. I believe the volumes are there.

Hi Whitehat, I'd don't claim to be able to interpret the whys and wants of share consolidations. But at the time of the Senegal transaction I took it as a move to negate the impact of the distribution on the share price wrt the price of bonus llp awards in place. Don't worry about the board looking after their own interests.

As far as I'm concerned the Senegal event, NS sales and Egypt acquisitions are history. I tend not to look back.

As for the upcoming award. I agree with a comment that the CFO sale tends to confirm likelihood of the award going through. There's no talk of share consolidation this time round - I think it would have been mentioned within the guidance. This differs from Senegal because distribution of the award is more balanced with the buyback and use of the remaining funds for growth very much in the interests of the directors awards, vested or unvested.

I hope that helps. That's about as deep as I want to go.

L3Trader, I said, "the H1 numbers indicated a significant under-lift in Magnus production."

The BP profit share on Magnus in H1 was only $1m. which indicates a significant under-lift of Magnus production.

Some clarification on my final GE cash flows.

I haven't specifically identified a sum that comes off the net payment to Suncor, but simply focused on the impact for the full year.

We're expecting closure on the GE deal within a month or so, but I don't expect detail on net payments to Suncor until much later, perhaps not until the finals published in March and we may have to dig for those numbers. It's academic to most.

Also, I guess Enquest don't make that net payment to Suncor until Suncor produce their closing accounts on GE, perhaps a few months after closure.

Hi L3Trader, there’s nothing wrong with Enquest’s calculator. It’s just that JS presses different buttons to me. ;-)

I refer you to the recent Roadshow presentation (30th June 2021) Page 7. JS is using the GCA CPR estimates:

9.9Kboepd, 2021 - oil price $51, CapEx $25m, Opex $25m (equates to $7 boe), and completion end Sept.

Also, I guess you are referring to calculations I posted a few months back using Cairn’s DD&A numbers as a proxy for Suncor’s tax obligations.

If I plug the GCA numbers into my calculations I get:

Operation cash (9M) = revenue – Capex (full amount) – Opex (@$7 boe)
= (9,900*$51*273) - $25m – (9,900*$7*273) = $94m
DD&A on revenue, using CNE numbers = (217/533)*9,900*$51*273 = $56m
Suncor tax = ($94m - $56m)* 40% = $15.2m
Cash adjustment to offer = $94m - $15.2m = $78.8m.

The prospectus referred to $75m, so I think their calculator works fine.

You mention $90m. I recall hearing that number too. Perhaps it came out in questions later and JS accepted $51 oil for 2021 was starting to look on the low side.

Turning to your query, will YE net debt come in below the H1 net debt number.

Given current oil pricing, the additional information on CapEx, and a revised completion of 10 months, I want to look at the full year picture, but I do need to recalculate Suncor tax for the new numbers first. On oil price, I’m using $68 average for 10 months and $70 for full year.

DD&A = (217/533) *10,000*$68*300 = $83m.
Tax @ 40% = $33m.

Operating cash (12m) – tax = (10,000*$70*365) - $25m – $25m - $33m = $172m

Addition to net debt due to GE acquisition = $325m - $172m = $153m.

You referenced additions to debt: $60m BP loan, $30m fees (I have $35m), but don’t forget $47m from the capital raise.

Totting up those, 153+60+35-47 = $201m debt additions in H2.

Let’s say a same again (H1) $97m is a given - Capex, Opex and production guidance similar between half years - that would leave 201-97 = $104m.

$10 on the H2 oil price average adds a nice wedge (I’ve put away my calculator).
Production at Malaysia and Magnus is expected to be higher in H2.
Golden Eagle looks likely to beat 10K boepd for the year (as per Therapist’s numbers)
Gas now has an appreciable value.
But key, can Kraken maintain it’s good H1 performance? Stuff happens, but hopefully not to the risers after earlier preventative maintenance.

You mention under-lift and working capital adjustments. Of course, these will play a part in the 31st Dec net debt number and probably to it’s benefit, but I’m not so focused on a net debt number on a specific day. I have my own prediction, and if it’s out but I can rationalise the adjustment then I’m happy.

Incidentally, the H1 numbers indicated a significant under-lift in Magnus production.

Best, Londoner7

"Relying on homegrown power generation will protect consumers from gas price fluctuations. And it will, in the long run, bring down bills, we will use the wealth of Britain's natural resources to deliver cleaner, cheaper power," Mr Kwarteng said.

Or does he mean, Blow, Baby, Blow!

I suspect he's being all things to all people.

This Politian will go far! Watch out Rishi, you have competition.

within an hour of me making an enquiring. Could be a coincidence, but I'll go with a prompt response to polite enquiry.

I have to dash, so I'll check it out later.

From their last annual report:

"The Group has not entered into any derivative or other hedging instrument."

Thanks Trencherpilot. Very clear.

Hi E121, thanks for checking my numbers.

You highlight HBR hedging losses. I pointed out the 30% requirement FORCED on HBR for their 24-36M production, while ENQ has been politely requested to hedge only 10% of their production over the same period. Given the backwardation in the current market this is a handicap to HBR. The hedges are largely legacy issues and I'd say priced into the market. In fact I found much in the the recent HBR update positive from here on. But my focus isn't on HBR.

I agree that I was less bullish on the oil price than most, but I'd argue my concerns were more on the level achievable than the duration. If, say, I anticipated a pull back below $60 I wouldn't have remained invested in ENQ. I'm still here and happy to be invested, and fair to say a bit more bullish on oil than I was at the start on the year. GE was a great move by AB and good cover for the RBL refinance. L3 correctly highlighted my observations on Suncor taking a significant chuck (30-40% from memory) of the price rise to $65 in contingent, if it that price holds the next two years. But that was in a time of c$60 oil. With GE performing ahead of expectation and oil @$78 this is the time to milk it. At these levels the contingent isn't as significant. A happy place for ENQ holders.

I've made my comments on hedging and repeat that my views on future strategy are irrelevant. It's the decision makers that matter. You've pointed to the Malik brothers and reading their bios it looks like your right. They have the finger on the trading button. But given the scale of the potential gains and losses in the hedging activity I'd hope they are taking outside advise. The in-house view is a bit too close to the last years damage to the company's employee base, potentially leading to a conservative bias. At such times an outside perspective can be beneficial.

Yep, those guys in the big hats are likely to turn on the shale taps, but my reading of commentary suggests the market sees this. The sounds coming out of China make me think they now have concerns about oil supplies. I'm inclined to think the Chinese leaders have a better insight into such matters than 5-year term western politicians. Which I suspect will be good news for long term oil bulls.

Thanks Pelle. You say, "Hedging is not good in upwards oil market as it will cost or cause some loss."

I agree, but the hedging requirements of the RBL are clear. The question becomes, which option type to utilise.

I've tried to describe the merits of each. Enquest appear to favour costless collars and the environment I described in my last post best suits that type of hedge. As I said, I can't influence the decision. I can only observe and trade accordingly.

I also agree with your point about a continuous roll out. The hedging payback comes when the oil price goes into decline, as it will periodically, and I'm not referring to monthly fluctuations. I'd appreciate any heads up you can give me ahead of the turning point. ;-)

On your follow up post. Again, I agree. A c$72.5 swap for July 2022 is available. Perhaps Enquest are taking these up, but there is a limit to the hedging level. Enquest has it's own maximum remit of 75% on the next 12 months. Perhaps they want to keep the power dry for better future pricing. It's the advisors job to align the option timings with JS's briefing on production, expenditure and refinancing profiles.

Enquest's bond refinancing options are interesting. I noted the exchange between you and E121. I've no doubt the current focus is paying off the RBL ASAP. The sooner that happens the more options available to Enquest. A good outcome would be repaying some of the existing bonds ahead of refinancing new HY Bonds. For me, closing 2023 with a c$500m Bond and c$500m RBL would be a good result.

Hi Therapist,

as always, I enjoy your vivid imagery.

The bottom line on my ramblings is that a slowly rising oil price with relatively low volatility is a good environment for costless collars. An environment that seems to suit OPEC+ too, so here's hoping.

Best, Londoner7

In the downward direction there’s negligible difference between the collar and Put floor prices. For the Put, I deduct the premium from the strike, 77-10=$67.

Put prices with lower premiums are available, but this also lowers the strike and the resulting net floor. I believe you need to be strongly bullish on oil prices to follow a Put only strategy. Over a year, based on 60% of Enquest expected volumes the premium cost would be c$100m.

Ithaca publish the detail of their hedging in their 2021 H2 report. They have a mix of Swaps, Puts and Collars, but for the 2022 Puts:

Ithaca has 2022 oil Puts at an average Put strike of $64 and average premiums of $7/bbl, for a net floor of $57. As far as I can judge these puts were placed during 2021 Q2 somewhere between an oil price of $63 and $70. I guess at the time they anticipated a higher price. At the current price of $78 they are in the money with strike plus premium = 64+7 = $73. If that price holds thro 2022 the Puts were a better call that collars are the time the hedge was placed.

But I wonder if they would make that call today at Brent $78. I look forward to their Q3 update.

Given the numbers we can all have a personal view on Enquest’s hedging strategy but none of us have any influence.

Enquest had a $30m hedging loss in H1 and I’m expecting something similar in H2. These are significant numbers so I’ve no doubt that they have specialist advisors on hedging. Like say a financial advisor assessing your retirement plans, wanting to know your circumstances and plans, these hedging advisors will have a clear brief on EnQuest’s future production expectations, capital expenditures, decom costs and, not least, their Bond refinance schedule. (This is the second consideration on option strategies I referred to earlier)

I have to trust the advisors do a decent job, but hedging is like the casino. Visit once and you might walk away with a significant gain but visit every night and the ‘house’ will take a percentage.

I like Aloj’s reference to a “perfect storm”. Focus on the operational side and any gains over expectations are unhedged and leveraged to the full oil price.

I don’t know if it was a stroke of genius or a stroke of luck, that JS avoided the 50%/40%/30% minimum hedging requirement placed on HBR. The oil price would have to fall significantly to make that 30% of production hedged out 2-3 years come into the money.

I picked out those numbers for HBR from the call. I think I heard them correctly.

I'd be very happy for E121, L3 or anyone else, to check my maths, just in case I have this wrong. Though it's academic. The important thing is that Enquest's advisors get their maths right.