Member Info for londoner7

JEF_NIC, interesting news. Thanks for posting.

the_beef, I'm not clear what doesn't make sense to you but I wonder if you are conflating two very different cases. India was seeking monies from Vodafone. In Cairn's case India has the monies and Cairn wants it back.

chilting, thanks for the clarification.

Many manufacturers have large warehouse and use robots, but using tech doesn't make you tech.

I didn't know about 'Ocado Solutions'. Googling it and a brief read it looks like an e-commerce consultancy. In today's world I guess that makes you tech. But I'm reminded of the tech bubble of the late 90's when companies grasped at any association with the word 'internet'. That didn't end well for most companies though the real 'internet' stars shone through.

If I was invested in Ocado I'd check out their barriers to entry, but I'm not. I'd guess there is a lot of competition in the e-commerce world.

Barriers to entry in the oil sector are low. Dig a hole in Texas and you'll probably hit oil, so margins are tight. Returns rarely cover cost of capital over the longer term so in my book it's only investable over short time periods. I liked ENQ in early 2019, and after the latest update I like ENQ again. But I doubt I'll be around three years from now.

If I can get get into a company with high barriers to entry cheap, then I stick around a bit longer. Tough to find in the tech sector, but business's like Windows and Apple make it worth looking. I wish the UK had companies like that. If in 2030, Ocado is known to the general public for something more than a logo on the side of a grocery delivery van then you'll have made a good investment.

Good luck!

I'm not invested here (I;n in VTY for my sins) but congratulations to PSN for taking this action.

Their buildings were constructed to regulations and contract or they were not, in which case they can be sued. That is how the business world operates. The cladding issue is a very sad development with (IMO) no obvious guilty party to the more general situation and the obvious need to replace the cladding. I'd always hoped that the builders would step in. I hope others follow PSN's lead, but I wish it had come sooner. Better late than never.

roamaron, there are many options to implementation of the PO/OO but now that I understand the 2016 process - wish I'd looked at it before yesterday - I hope this one follows the same process. Retail holders can maintain their share weighting.

The prospectus and CPR should satisfy the 'detail hunters'. The RI prospectus is still the 'go to' document for me on info on Magnus and the current debt structure.

This will be my first ENQ equity event. I expect it to be my last.

Time will tell whether a facility of c$750 (may be higher) is simply to provide cash flow through the GE acquisition and the anticipated organic development, to to fund greater ambitions with near term returns. I'm hoping for the later.

* I read the Times article on the FTSE you referenced yesterday. As a value investor my investments tend to sit within the sphere, miners, producers, etc., but the point that struck me most was that the only 'tech' company that was highlighted was Ocado, who I thought delivered groceries.

Hi romaron, I thought my explanation on the placing and offer components was very clear, following the 2016 process as I understand it. I've also had bad experiences on AIM as a retail investor, but the 2016 process suggests a better outcome here for the retail investor.

I don't think I am tying myself in knots. The 2016 process is clear to me unless anyone challenges my explanation. I hope 2021 follows the same process.

I agree those involved in the book building might have a bias favorable to themselves, and there will be fees. That's all part of the process. But when I refer to arbitrage opportunity, I have in mind players (retail or investors) outside of the actual implementation who see an opportunity to game the situation at the edges. Hence my challenge to those here who think they see an opportunity.

All,
Corporate situations can make some retail investors nervy and there are posters here who play games, quick to say this and that but struggle with the how and why.

My point to 'beginner' investors reading this is don't be affected by talk that the P&OO event should influence your investment timing. Judge an investment on merits, and if you’re in ENQ have cash equivalent to c20% of your investment available for the Open Offer. If you don't receive a letter from your broker, watch for comment on timing here. Don't be in the ranks of the clueless.

The post is badly formatted. Here it is again.

Just to be clear on my recent posts. I am not ignoring the fact that an equity raise reduces the weighting of cash flows, but what I’m saying is in this case the weighting of that impact changes very little with a change in the share price. (chilting, I agree with your last post. Obviously, if the SP doubled, it would be less of an issue - 8% less of an issue)

Reading posts here on the placing and open offer structure I struggle to see how AB’s backstop would operate in such a scenario. My last involvement in a placing and open offer followed the announcement of an acquisition alongside a placing of shares representing 15% of market capital at a discount of 2.3% (it was an attractive acquisition). All of the shares had been placed overnight with favoured existing investors and management, but only ¾ were firm and ¼ under a claw-back which were then offered to new institutional investors under a book building process. As a sop to retail investors 5m shares were offered at the same price as the placing. The reason I describe the detail is to show they are many ways to skin the retail investor.

Back to Enquest placing and open offer. The detail of the 2016 equity raise is interesting. If I understand the mechanism correctly and it’s applied here, I see it as fully supportive of retail investors and I understand how AB provides the back-stop. There will be an announcement of the placing and the discounted price, completed ahead of the RNS or via a book building process during the day. The number of shares will be the number required for $50m less the 10% AB will be taking up in the open offer. All of the placement shares are subject to claw back to satisfy the open offer. In 2016 AB took up 28% of the placing shares. Shares will then be available in the open offer to existing share holders in proportion to their holding at the discounted price, number of shares x price = $50m. In 2016 this process took 5 weeks. AB has already said he will take up his holding under the open offer. If all remaining investors (100%) take up their weighting, then all shares are clawed back from the placing. In 2016 there were c66% in total (including AB) taken up so the balance c34% remained in the placement.

If this is the mechanism this time round, I like it. I will take up my full offer and retain my existing weighting in Enquest. Any given up by non-participants remain with the placement offer at the discount price. That is their incentive to participate.

The level of price discount determines the additional shares issued, but again if I were to work the numbers, I’d expect to see the same relatively low impact in relation to the nominal share price level. Yes, some, but of little consequence.

Can anyone explain to me how a retail or institutional investor could arbitrage this mechanism to their advantage. I don't see it.

Just to be clear on my recent posts. I am not ignoring the fact that an equity raise reduces the weighting of cash flows, but what I’m saying is in this case the weighting of that impact changes very little with a change in the share price. (chilting, I agree with your last post. Obviously, if the SP doubled, it would be less of an issue - 8% less of an issue)Reading posts here on the placing and open offer structure I struggle to see how AB’s backstop would operate in such a scenario. My last involvement in a placing and open offer followed the announcement of an acquisition alongside a placing of shares representing 15% of market capital at a discount of 2.3% (it was an attractive acquisition). All of the shares had been placed overnight with favoured existing investors and management, but only ¾ were firm and ¼ under a claw-back which were then offered to new institutional investors under a book building process. As a sop to retail investors 5m shares were offered at the same price as the placing. The reason I describe the detail is to show they are many ways to skin the retail investor. Back to Enquest placing and open offer. The detail of the 2016 equity raise is interesting. If I understand the mechanism correctly and it’s applied here, I see it as fully supportive of retail investors and I understand how AB provides the back-stop. There will be an announcement of the placing and the discounted price, completed ahead of the RNS or via a book building process during the day. The number of shares will be the number required for $50m less the 10% AB will be taking up in the open offer. All of the placement shares are subject to claw back to satisfy the open offer. In 2016 AB took up 28% of the placing shares. Shares will then be available in the open offer to existing share holders in proportion to their holding at the discounted price, number of shares x price = $50m. In 2016 this process took 5 weeks. AB has already said he will take up his holding under the open offer. If all remaining investors (100%) take up their weighting, then all shares are clawed back from the placing. In 2016 there were c66% in total (including AB) taken up so the balance c34% remained in the placement.If this is the mechanism this time round, I like it. I will take up my full offer and retain my existing weighting in Enquest. Any given up by non-participants remain with the placement offer at the discount price. That is their incentive to participate. The level of price discount determines the additional shares issued, but again if I were to work the numbers, I’d expect to see the same relatively low impact in relation to the nominal share price level. Yes, some, but of little consequence. Can anyone explain to me how a retail or institutional investor could arbitrage this mechanism to their advantage. I don't see it.

chilting, is that it?

Your comments infer there is a significant effect. My numbers suggest it is insignificant.

Your 11:54 post on the equity raise itself raises a few questions. I'll come back on this later.

Chilting, you say, “The SP does need to be substantially higher before the open offer though, to reduce the dilution effect.”

Try as I might, I don’t get the significance of the point you keep making. Please help.

The way I see it the expectation of a $50m equity raise is now baked into the current share price. In measuring its impact, I consider the dilution in equity holding in relation to any future returns. Let’s suppose Enquest announce a ‘Pelle dividend’ in 2025 of $50m (pre-equity raise value) to shareholders. The dilution effect of an additional $50m equity at the current price means that the value of the future ‘Pelle Dividend’ is now $42.8m (300/350). If the share price were to double to 26p between now and the equity date, say April, two months from now, the reduced dilution effect would result in a ‘Pelle dividend’ of $46.2m (600/650).

Are you suggesting that a potential investor should hold off buying ENQ in the hope the share price has risen to 26p by April to get future dividends 8% higher per share, when your shares are then twice the current price? (I wonder if I’ve missed something, but believe my assumptions are correct)

As an existing investor I’d take any reduction in dilution but the scale of reduction in dilution relative to share price change seems too small to fuss over.

Looking back at my comment on any hedging wrt Suncor's ownership of GE. It isn't even a question that comes up. Hedging programs are company specific rather than field specific.

Hi L3Trader, just a quick response to some of your points directed towards me.

Kraken decline
I've been looking at water cut and think I've a handle of decline rates. My reference is the 2013 CMD slide you've seen before. I initially looked at only the North Kraken (smaller) field and was a bit alarmed - it influenced some of my comments late last year. Following the latest OGA data I looked at the main field and its decline rate look 12-18 months behind the North Kraken field. At the start of 2020 I'd describe it as a nominal 40K field in a good month. At the end of 2020 I'd give it a 38K gross number. Remember there's a maintenance window and recovery period that impacts full year number. In 2020 we saw 3 months with >40K gross. I don't expect any such months in 2021 but could be close. I was pleased to see the 30-35K guidance for 2021, and hopeful that it could come in at the top end of that range, but I expect the greater decline to kick in in 2022.

I don't know how the earlier price panic impacted any Kraken premium but the AR for 2019 (back pages) tells its story.

I did address the $50m contingency payment in a post. If price holds c$55, and production holds c8,500 I see it as a very good deal, but still essentially a facilitator to the new RCF and I hope another producing asset acquisition before end 2021. Pelle, link covered the interest level and in particular Suncor' s desire to get out of the NS/ Norway region.

Until the deal closes the GE asset belongs to Suncor and Enquest should have no influence over hedging though I'd hope the small print includes a 'stuff happens' exit clause. But now the question is, how would hedging impact? I'd guess the contract excludes any hedging effect, for better or worse.

Hi Therapist, I'm just focused on your headline numbers page 1 for 2020. I took a brief look at the detail, and it seems we handle gas and presumably fuel use differently but interestingly we came out with similar Nov 2020 total 47,696 boeps yours and 47,470 boepd mine. We obviously use the same NS oil from the OGA data, our gas and Malaysian numbers differ to mine, but essentially cancel each other in Nov.

Assuming I interpret your Dec numbers correctly you have 49,701 boepd total for Dec. I think this is too low, I have 54,152 boepd for Dec.

We know the 10 month number, 60,777, and the 12 month number, 59,116, so we can calculate the average for Nov - Dec.

((12*59,116)-(10*60,777))/2 = 50,811 boepd for Nov-Dec period.

I have 47,470 for Nov, leaving 54,152 for Dec.

The same formula can be used to determine the Nov-Dec numbers for Kraken, Magnus and Malaysia.

For Dec, I have Kraken at 26,432 bopd, which matches my tanker estimate of c38K gross; 19,393 boepd for Magnus, including oil c16.400 bopd.

I'll leave your 2021 forecasts for the moment in case I've messed up with my interpretation of your charts.

Hi January 2, I recall comments on the structure that will incorporate Golden Eagle to utilise the tax benefits, but I see that as relating to the legal framework between Enquest and the Tax office. Unless I missed something, the debate here is on what level of the cash flows generated by Golden Eagle between Jan 1st and the closing date accrue to Enquest. One camp, and I now assume you and HMHn are is this camp believe that all cash flow (untaxed) accrues to Enquest. I'm now in the camp that the cash flow in this period will be taxed, but the balance will be deducted from the initial consideration $325m. I doubt we'll resolve the question on this board. We're each free to put our respective numbers into calculations. The 2021 accounts will be the arbitrator.

I thought Pelle made a good point, but we might have interpreted it differently. My interpretation was that if all cash flows accrue to Enquest untaxed, then what is the incentive to close the deal and start incurring interest on the payment. Meaning there is an incentive to close soonest because the benefit of moving cash flows from a taxed to untaxed status exceeds the interest costs on the payment.

HMHn, now I understand your point of reference. I thought the same, but I've now come round to the camp that says that the earnings between the economic date 1st Jan and the closing date will be subject to tax under Suncor's ownership.

I've emailed IR with the query, though in hindsight I'd have worded it differently. If the response clarifies the position I'll post, but I try to be discrete in how I report my communications with IR.

HMHn, you say, "Also, taxes are paid the next year. So you've just wasted hours coming up with numbers that won't apply as Enquest will be the owner when the tax-bill for 2021 is determined."

I don't understand the relevance of when taxes are repaid with respect to the reduction in the $325m initial payment. Can you explain?

hitman1a, the "net debt" figure quoted by the company doesn't include the Magnus vendor loan.

The vendor loan is an element of contingent liabilities.

Hi e121, your right on the Golden Eagle earnings, and your 16:01 post is crystal clear.

It was only when I read AimSurfer's post this morning that the penny dropped, and reading your post again I now wonder how I missed your point. Of course, as far as the tax man is concerned Golden Eagle belongs to Suncor until the closing date, he will want his bit, and the balance is the 'economic benefit' that will accrue to Enquest.

I know a lot about tax, but you could write a book on what I don't know about tax in the oil sector, but here goes anyway. For closure on this I'm trying to get a rough figure for the cash benefit to Enquest in 2021.

I'll use that $13m / month of operating cash and a closing date of 1st Sept, so 8 months under Suncor and 4 months under Enquest. Cairn has similar assets to GE so I'll use their D&A pro rata numbers, and a 40% tax charge.

Suncor
8 months operating cash (8*13) = $104m
D&A = Caine (217/533) x GE 8 months Rev , 8,500 bopd, $55 ($114m) = $46m
Tax = (104 - 46) x 40% = $23m
Post cash (Economic benefit to Enquest) = 104 - 23 = $81m

2021 GE cash flow to Enquest = (4*13) + 81 = $133m

Anyone, any corrections to my sums?

hitman1a, I accept whether or not to include FPSO lease costs within operating costs is debatable, I flip flopped when I first encountered it, but the way I now look at it is that if the cost of the infrastructure hasn't accrued to the CapEx account, then the cost of the FPSO lease should be included in OpEx.

CNE's headline operating costs include the FPSO lease. Further down they split out the FPSO lease, and split it further into fixed and variable lease costs. Unfortunately, they don't separate the FPSO costs between Kraken and Catcher.

....it.

The guys at LSE are toying with me. The buffer count showed 15 characters lef

Thanks to a link posted by Pelle we have some background to the Suncor deal.

“Suncor is studying divesting the 30,000-barrel-a-day Golden Eagle Area on the UK side of the sea, the people said. Its 26.69% stake could be valued at about $400 million, one of them said.”

“Suncor hasn’t started a formal sales process, but is engaging with potential buyers that have shown interest in the fields, one of the people said.”

So, contrary to my idle speculation the other night Suncor were in the market as sellers, and AB followed up.

That said, what are these boards for if not idle speculation, so I’ll add more.

Article dated 21st Oct. As e121 points out, the $325 agreed price is well below the ‘indicated’ price of $400m. Brent had been in the $40 - $45 doldrums, only moving above $50 mid Dec, which might have helped AB’s price negotiations. At a $55 average through 2021 it looks a great deal by AB, with a reference date of 1st Jan 2021 that’s c$155m FCF in 2021.

Imagine the negotiations if the deal hadn’t been closed as Brent passed $55. Suncor asking for more while ENQ described the oil price movement as a temporary blip. (Remember EIA were forecasting $52.7 average for 2021 as recently as last month.) JS looking at his cash flow spreadsheet would have been reluctant to raise the $325m initial consideration, but willing to accept a contingent consideration payable in 2023. The numbers suggest to me that the ENQ focus was on that $325m headline number, because the contingent Sunsor secured isn’t to be sniffed at. Using my working number of 8,500* boepd, over the 2-year period, the contingent payment equates to $4 boepd payable if the average over the measured period is =>$55, and an additional $4 boepd payable if it is =>$65. That is a good share of any oil price gain.

If a $55 average holds during 2021 then I’m quite sure the potential $155m FCF for 2021 belongs to ENQ as I expect the ‘subject to working capital and other adjustments’ condition to relate to minor cost variations that occur in the interim.

To the bigger picture I think it’s worth highlighting that the new RCF is a debt facility. It doesn’t become debt until it is spent, and that, for me, is a key aspect of the deal and the RCF repayment schedule – fully repaid by Oct 2023.

Ahead of this deal I saw ENQ stalling on low production volumes, and even with the extra GE barrels, I think ENQ should want more ahead of Oct 2023. ENQ now has a ‘war chest’ to add barrels with payback ahead of Oct 2023. Tie ins at Magnus and Malaysia, and development of Eagle, summer of 2022 latest, fit that brief, I don’t think any near-term work on Kraken does, leaving a good chuck for an acquisition. Once the facility is in place, I can see news of a producing asset acquisition close behind.

As I said, just idle speculation.

* I’m on 8,500 boeps for GE based on OGA data for Nov. Great if the 4-drill campaign gets it to Enquest’s 10,000 boepd forecast, but I’ll believe it when I see