Member Info for londoner7

Correction, There are tie in options for 2022 that will slow the decline.

Enquest comment has made it clear it will not be a 2021 event.

hitman1a, on Bressay, you're looking a long way into the future. I like an analysts description at a recent update, "Bressay provides optionality", which I think is a good way to think about it.

The next step looks like this:
"The application proposes to align all four licences, and with licence duration to be dependent on the decision whether to carry out an extended well test, with this decision to be taken within the first year of the licence extension."

For $15m the transaction with Equinor includes an option to take their share if they don't wish to proceed, taking Enquest to c82%. I doubt that Harbour will figure much in the conversation.

But in the medium term I don't see Bressay as offering a solution to arresting the current decline in production. There are tie in options for 2021 that will slow the decline, but I believe the best solution is a new deal, and hopefully very soon.

Woa, there romaron.

You say, "She is disparaging imo of EnQuest and Cairn in the 6 October webcast so my senses were correct."

Really!

I set out my views in my reply to hitman1a, so clearly we disagree.

Your comment yesterday on the 17 Dec call, and in particular your comment on Cairn, prompted my post. You chose not to address my query, which is unusual for you. In response I nearly didn't bother following up, but as you seemed to enjoy the exchange I'm glad I did.

Yes, an excellent message board.

hitman1a, I'm addressing all three of your recent posts combined, thanks for the timelines and in particular the reference to 6th Oct - I would not have found it otherwise. I appreciate the detail of your justification for your interpretation of Linda B's comment. I was keen to hear the tone so thanks again for the timeline - 09:00 - 10:00.

"post transaction the combined company is in a different league altogether"

"these Norwegian companies are very well respected and trade at a premium in the market"

"we can compete in this new league and attract similar levels of investor support"

These are statements of fact and I didn't detect any derogatory tone towards the other UK listed companies. But we are free to choose our own interpretation and act/trade accordingly.

* Interesting that they had Cairn and Enquest in the 6 Oct graphic then replaced Enquest with Tullow yesterday. Looks like Tullow suffered a relegation from the mid tier, and I guess Cairn had to be included as they are a partner in Catcher.

Here's my take. The individual projects show revenue and cost of sales (COS). COS is further split to cost of sales(cos) and lease costs. (Incidentally, splitting this to project level is more than many oil companies provide, so credit where its due)

I believe 'cos' covers all of the direct costs involved in getting the oil out of the ground and delivery to the customer. This covers the guy who kicks the old girl into life on a frosty morning, the guy who greases the gudgeon pin on the thingy me bob twice a week, and the guy or girl who turns up with a big truck a couple of times a month to empty the tanks. It also covers the cost of replacing the gudgeon pin when guy 2 hasn't been doing his job.

The lease payments are made to the land owner who says 'luverly jumbly' once a month.

Now for the hard bit.

Royalties (c25%) and probably state tax (c5%) are deducted from the gross volumes listed at the front of the report, based on MSMN share of the project to get to the 'net' figure. It is the 'net' figure that goes to revenue.

The revenue probably is not the WTI price multiplied by barrels. The oil is marketed - that's a deduction on revenue - and depending on it's location to a price hub will get a premium or more likely a discount to the prevailing price, which might be the product of a daily, weekly or even monthly schedule. I said this is the hard bit.

Overheads (harder still)
A project might have local administration costs, say an office function, to schedule trucking, pay contractors etc. I doubt JB performs this role from his home in Australia, but who knows in these times of 'Zoom'. This will incur wages and office rental. I note that in 2018 these were split out for Arkoma. Internally, I'd expect this costs to be known at local project level, but in the reported accounts I believe these are now amalgamated.

We know about the big boy costs, JB and AC. The service contracts etc., supporting the group level operations. These are described in the report. These represent the main overhead.

But some key costs are often ignored on this board - Sweaty and Cheapskater sometimes mention them.

Acquisition costs (their easy) and production asset costs (less transparent) which accrue to the balance sheet in the good times and are written off in the bad times. These production asset costs can sit uneasily between capital expenditure to add growth and OpEx to maintain production - it can be a blurry divide.

Take the Welch project. MSMN are looking to sell it. When they do and a line is drawn under the accounts, based on what I've seen over recent years I believe there will be a large red number at the bottom line, i.e. it will have generated a negative return to shareholders. But in the meantime it did generate paid work in Texas, and support the big boy overheads.

I hope that helps.

I was invested here during the 'good' times the CMA is attempting to correct. I'm not currently invested but keep my eye in.

My take on today's news is the threat to reopen an investigation at a later date has upset the market - it doesn't like uncertainty. In the meantime the big operators, like Dignity, will be required to report their revenues in funeral services and crematorium, thereby provide a full magazine of ammunition to the CMA should they wish to look again, and this might keep the big boys in line. Meanwhile smaller funeral providers will not be under CMA observation (all crematorium providers are), allowing them to perhaps add a premium. But to be clear it was not the pricing of these 'family' business' that prompted the investigation in the first place. It was Dignity and CoOp.

After 2-3 years getting their act together my take from the recent note on strategic review was that Dignity still haven't resolved their process and there'll be further cost implications. I'm not sure what to make of the impact of the large shareholder now watching things. I'll keep my eye in but don't expect to doing much else anytime soon.

If you have an investment here, or are considering one, I think as a minimum you should read the executive summary here

https://assets.publishing.service.gov.uk/media/5fdb24dd8fa8f54d564af127/Final_report_summary.pdf

If you're a trader, flip your coin and place your bet. If it comes up heads, come and tell us all about it. Because we care. Really we do. Please don't leave us hanging. ;-)

PRDaynes, I don't disagree with the points you make on the acquisition of PMO, but I think this part is worth expanding:

" [BP is] now receiving money from Magnus the same field they were losing money on when they operated it."

That's is exactly the pitch AB will be making to the big boys looking to offload assets. As an Enquest shareholder I hope he is successful. Those deals must be closing soon.

nicktheglobe, I wasn't suggesting Linda was talking down the prospects of future developments in the Falklands, i.e. Sea Lion. PMO has a large chunk of it, so why would she?

But her comments made it very clear that she saw Harbour's key opportunities in currently producing assets, even regions - to give it scale - and was adverse to big projects "remote from supporting infrastructure". To me, and hence my comment, that sounded like a 'no' to developing Sea Lion, but no doubt they'll want to obtain value through further farm outs or a full exit.

As I said, at times it appeared Linda was not fully on message. Perhaps the old guard within Harbour (PMO) will see Sea Lion through to the end. I don't think the old 'Chrysaor' would but perhaps the new 'Harbour' will.

And as I've said, I didn't hear her playing DOWN the value of other NS producers, rather playing UP the 'Chrysaor/PMO' move to the next tier. I didn't hear the derogatory chatter of these boards in the call, but I stand to be corrected.

If you have an investment interest in Sea Lion or the Falklands then I suggest you listen to the call. Those words matter more to the market than the idle chatter of myself or other posters here.

romaron, I was trying to figure out what the Enquest ETB holding might be then I noticed your reference:

"this was the list of substantial shareholders in EnQuest at 18 March 2015"

Are you still referring to those hard copy annual reports we used to get in the post? ;-)

hitman1a, you say, "I appreciate the explanation she gave and why other larger funds won’t buy Enquest ."

Again, I missed this, 'Enquest', do you have a time stamp? I like to gauge the tone in these comments. This morning I listened to both segments of Linda's comments, was there a third? I didn't listen again to Q&A so perhaps it was there. Incidentally, I was struck by how keen a certain participant was to keep Linda on message - perhaps that was the company solicitor.

hitman1a, I didn't catch the reference to Enquest, and I guess you mean 'Harbour' moving away from the 'Enquest type oilers'. I'd like to hear the tone of the comment, so if you are able to pin point the time I'd appreciate it.

The advantages of moving up in scale were very clear, and I got the strong sense that they were looking to move up the scale on the Enquest model (taking on producing assets with organic growth options), rather than the PMO model, which includes large scale development. As Linda spoke of the importance of capital discipline I felt "fat chance of them shoveling cash into Sea Lion", particularly with a focus on a conservative balance sheet. But the cynic in me came to the surface. These execs talk the talk but when the sh.. hits the fan and their bonus or prospects are in danger they can be prone to doubling down on a bad position. Few has assets in play, their focus is on this year's bonus and this next year's salary - all are on 12 months notice. AB is one of the few exceptions in this arena.

As romaron said, worth a listen even if you've no interest in PMO or Harbour.

Tit bits from the Harbour presentation and prospectus.

I picked up some interesting stuff from the presentation, some fleeting while other bits stuck. I liked some of the metrics. But here are two bits directly relevant to Enquest.

Bressay
“The Bressay JV is in the process of applying for a licence extension as two of the licences expire at the end of the year. The application proposes to align all four licences, and with licence duration to be dependent on the decision whether to carry out an extended well test, with this decision to be taken within the first year of the licence extension. (After the Effective Date, Equinor announced in July 2020 that, conditional on obtaining a licence extension, EnQuest would purchase a 40.81% interest and takeover operatorship. This would allow the JV to explore options to develop Bressay via its Kraken field facility.)” Note the timing, and the direct reference to Kraken – a stronger reference than Enquest made at the last update, “phased sub-sea tie back project, potentially to the Kraken field”. (AB is a tease!)

Deferred maintenance
Harbour anticipate a drop in NS production numbers in 2021 due to Covid related deferred maintenance. I haven’t heard ENQ make similar comment but perhaps I missed it. The primary issue for Harbour is the deferred work on the Forties pipeline that was planned for 2020. This has less of an impact on Enquest. Enquest’s Kittiwake hub is impacted - expect 25-35 days offline – but that hub now only produces c7K bopd with A/G and Dons out of the frame. That’s of the order of 500 bopd on the annual production forecast. Shame Eagle has been postponed, a tie back to the KW hub would have slotted in nicely.

romaron, I listened to the webcast but I was disappointed not to hear anything on Cairn.

Tullow and Cairn are not mentioned by name but are presented in a graph as belonging to the UK listed peer group. The purpose of the slide (#31) is to present the combined new group 'Harbour' as now entering a new larger peer group which includes Norwegian companies, Lundin and Aker BP, and North American companies such as Apache and Hess. Nothing derogatory was implied about the UK listed peer group.

Comments on sub-scale were made in relation to assets for sale rather than specific companies. This I find interesting and might explain Chrysaor’s decision to abandon the BP acquisitions that PMO had in the pipeline – the assets don’t have sufficient scale. My assessment of the BP assets at the time of the revised pricing was that those assets would sit well within Enquest if AB can pull off a good deal on financing the package. Another deterrent for Chrysaor is that they are up to their eyeballs in decommissioning ($200m for the next five years), even though, after revision to terms, the obligations on the BP assets are modest.

You highlighted the absence of Enquest from the UK peer group. It is odd, and I noticed that the numbers for Cairn don’t fit. At first, I thought perhaps that was Enquest’s data but now I think they have the Cairn and Tullow labels swapped. All the signs of a last-minute adjustment (one of the presenters even admitted that he was having numbers removed from his material last night). Maybe Enquest was in the peer group yesterday, perhaps alongside the ‘old’ PMO. An exec did a last-minute review, and, in the rehash, mistakes were made. I’ve sent their IR a heads up. Amateurs – don’t invest, whatever considerations you had in mind. Besides, numbers are sketchy while they figure out their anticipated cash flows, and who would consider investing without numbers.

Enough on PMO/Harbour. I’ll follow up with read across to Enquest,

Thanks Steve305, that fits in with my expectations. Particularly, the caution of the older buyer, which is understandable and sensible. Yes, commercial is down like for like but as you say it is a lower margin business. I'd expect some guidance from Headlam in their next update. Also, I think it's safe to say that retail like for like through Jan and Feb will be up on last year but that will not be confirmed till the finals in Mar.

Hi romaron, I'd forgotten about this so will tune in to the replay, particularly to understand why PMO "don't like" CNE, which is one of my investments.

But the reason I'm posting is to ask you why you considered selling some Enquest to buy more PMO. What is your thinking behind this consideration?

Hi Tarmak, I've looked at your link.

You have calculated the Magnus (100%) FCF at c$64m.
You have calculated BP's share of the Magnus revenue at c$104m.
You have deducted $104m from $64m to get a result -$40m.

I don't understand the purpose of your calculation, which I guess is why you raised the question on 'gross'.

BP only receives 37.5% (50% x 75%) of the free cash flow from the Magnus asset. Not the revenue.
ENQ owns and manages 100% of the asset. But the most significant element of the payment to BP, which is still due, is a 37.5% share of free cash flows to a limit of $1B. This obligation is recorded in ENQ balance sheet as a provision not debt.

The resultant Magnus FCF is after the deduction of any expense, including OpEx and CapEx. ENQ can drill additional wells to increase revenues and hopefully accelerate the repayment of the $1B, while increasing their own FCF returns, but it isn't a free-ride for BP. The cost of those drills will reduce the FCF returns to BP in the month/year the CapEx in incurred.

If your investment (or knowledge) in ENQ predates the Magnus acquisition then I can understand any confusion around the FCF payments. It was a very unusual transaction, but IMO clever in that it incurred a much reduced upfront payment. The payment terms includes a Vendor loan facility which as I recall started with a debit of c$200m and had been reduced to c$100m by the time the transaction closed. The plan is to pay off the balance over a five year period, however, the debt within the Vendor facility could also increase if say Magnus FCF was negative. Not an ENQ expectation but BP put in a provision for an operating failure by ENQ. ENQ owns and carries the operating risk. BP still holds a very large part of the decommissioning cost. Having ENQ put money in up front balances the interests of both parties in an eventual decision to move from production to decommission.

Hi Tarmak, your reference to gross confuses me. For me, the question is, what is the FCF accruing to ENQ based on the $33 BE guidance? I think taking account of Magnus cash flows in the way I have is valid, but it equates all producing assets as having the same FCF breakeven, so you are right to query the detail. If Magnus has a lower FCF BE point than the average of all assets, then a higher proportion of the FCF will accrue to BP.

Going back to my calculation:
(60,000 -(37.5%*17,740))*96.2% = 51,320 bopd

I have used BP’s share of production as a guide to estimating BP’s share of FCF above the $33 breakeven guidance. Given more detail on OpEx and CapEx spent on Magnus I could expand the calculation, but I’m judging that the result would be similar. I believe Magnus OpEx is lower than the average across all assets, for one it doesn’t have the Kraken FPSO lease, but on the other side Magnus production includes a higher proportion of gas, which definitely generates lower revenue and I believe lower FCF boe.

My calculation is an ‘approximation’ to get me from a FCF BE number to a net to ENQ cash number, using gross production, Magnus production, shrinkage, and an average Brent price. There are many variables I’m ignoring. The test is how close it gets me to the year-end FCF number ENQ post, assuming an unchanged FCF BE.

If I’m out by much I’ll look at the 2020 accounts and try and understand why. I’ve already thought of one material tweak (deduction) – the Magnus vendor loan repayment.

If I haven’t answered you question, please ask it again.

romaron, Bakken has a more significant problem over most shales because of limitations on transportation, pipes or rail, therefore a discount of c$10 to WTI isn't unusual. The discount has been much higher.

The Permian was similar but the discount has eased with new build in pipes. In fact there is now a significant overbuild of pipes in prospect. Another factor is the location of refineries. Operators do their own deals and premiums to WTI are not unknown, but these are not significant. I think a slight discount to WTI is still the general rule. Some refineries were advantaged by the shortage of transportation out of the Permian, but now the producers have better options. Pipeline issues are now less of a restriction on the build out of Permian - 2-3mbpd could be added without constraint once new pipes are completed - but it appears still at issue for Bakken even with reduced production.

hitman1a - you refer to a supply deficit in 2H 2021. I wonder if this is a misunderstanding of terms around stock balance. I understand current world stocks will return to 5 -year average during H2 (considered a balance) given current demand expectations and Opec supply plans. But this doesn't mean producers like SA are running at full supply capacity.

To date SA has followed a price led strategy. Last March, before Covid, this position was presented:

"Assuming required capital expenditure of $25-$30bn per 1m barrels a day of extra capacity, as estimated by UBS, it would cost Saudi Arabia in the region of $200bn to add 7.5m b/d of extra production over the next decade, which in turn would raise its total potential output to 20m b/d (the kingdom currently produces about 10m b/d but sits on about 2.5m b/d of spare capacity). "

The idea of building out SA to 20m b/d is a volume led strategy, as a 'part' solution to the prospect of stranded assets. An extension of the idea is to supply long term fixed contracts with the likes of China and India. This would have the effect of an overall reduction in oil prices so not currently attractive to any producer. But if the alternative was stranded assets producers like SA might consider it.

My time horizon is 2-3 years here. The supply considerations say 10 years from now will be determined by the lowest margin producers, based on their view of the world and the political situation.

I know other posters have commentated recently on the current low liquidity in Enquest stock, i.e. low interest, but I’ll add my penny worth anyway.

I’m always conscious of the relevance of liquidity, spread and volumes in my share dealings. For example, the stock spread can be particularly wide in the first 10 minutes or so after opening, so best avoided. If I want to open a significant position in a low liquidity stock, I often find that breaking the purchase down into say 2,3 or 4 tranches, can save me a £100 or more on the purchase – in my book that’s worth taking a few minutes over the deal.

At home I often have CNBC on in the background – muted. I’ll glance up occasionally. The channel has a ticker tap showing the more ‘significant’ trades going through real-time. They are weighted on volume so often trades on penny shares can be quite modest but still get posted.

Today, I happened to catch an Enquest trade going through at 14:58, 648K Enquest @ 11.98. A decent but not huge value of £77K. I acknowledged it because the price was higher than I’d noticed that day so looked at real-time pricing and saw 11.7p to buy.

I’d guess the 648K trade was retail because I believe institutional orders are largely conducted through the AT mechanism, with the objective of filling a large order close to the ‘spot’ market pricing.

MMs will be alert to position building above the normal market size, but in this instance, if the trade were mine, I’d expect to get a couple of tranches through at 11.7 before getting noticed. Then I’d back off or use limit orders. The difference between 11.7p and 11.98p on this trade was £1,800. Again, in my book worth a few minutes’ extra effort.

This may be an observation of narrow interest, but to the wider picture it suggests to me, considering the current liquidity or lack of it, it wouldn’t take much buy-side interest in Enquest stock to add some oomph to the share price.

The 648K trade was the largest today outside the UT, and total trade value for the day was only c£430K. We’re in the dog days of the run up to Xmas, which I see as a last opportunity to tune my portfolio AHEAD of the New Year. Like the New Year rush to the gym, which quietly fades over the following weeks, we often see a similar interest in the stock market. Maybe it’s the share tipsters leading the pack.

Enquest has participated in a ‘Santa rally’ in 3 of the last 4 periods. If oil holds $50 over the next few weeks, and there’s a favourable broker comment, I’d be surprised if don’t get to 4 for 5 on the ‘Santa rally’ count.

80 days from spud to production for F1 is a very good result.

I'm pleased that MSMN didn't release the initial production flow rates because they can be a poor guide to flow rates over the longer term. They have provided the inital test results which provide some guidance. Even if a production flow rate was provided this week, which would be too soon in my book, we will now see the 20 day average in the mid Feb production update. We'll also get an update on the Stanley fields. which will provide insight into continued flow rates from S3 but in particular S4 which will then be 3 months into production. The Stanley numbers will be added into a single number, but we can do some maths. Welch is expected to be sold but as long as it isn't those numbers help the bottom line too.

The Feb production update will provide a better guide on progress than guestimates here.

Questions on G1 timing might get resolved at the AGM.