Member Info for londoner7

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.

steve305, I agree in part.
I too was convinced until today that it would be no deal. But there was something from today - I watched Andrew Marr this morning - that reversed my view to the point I do see a deal.

Where I differ is that I don't read it as Bojo caving in. I think both sides are equally keen on a deal, but it could go to the 31st. Heaven forbid it gets dragged into the New Year. That would require support in law through the UK parliament but I don't rule out anything these days.

Thanks for your insight in your local shop. I see another angle here. With fitters so busy, the role will attract more youngsters into the trade. Particularly with other job opportunities limited. Further up the chain I'd expect those with experience to look to break free and set up for themselves. That's typically how markets and competition develops.

Next time you chat to your man, I'd be interested if he sees the workload pushing out into the New Year.

romaron, you're right to focus on " if they can hedge production 2-3 years out at $60-$70 oil."

That is a weak element of my point. As I wrote it it occurred to me that the big players that have moved into US shale, BP, Shell and the big US independents don't as a rule hedge anyway. And you probably know more about the futures side that I do, which is very little. But I have considerable confidence in the supply demand influences which formed the core of my post.

HMHn, I agree with much of what you say except your opening point, "Shale as a business model is officially dead". I don't know what you mean as a business model. But if the price is right shale will come back with a few extra million bpd which would be a large addition to supply in a relatively short period. If the price is right, i.e. demand, the Middle East could bring on huge supply - they fear stranded assets.

For me, as someone invested across the commodity sector, through companies rather than the commodity itself, I'm excited by the degree to which spending, infrastructure, etc. will impact the commodity space. I already see it in iron ore and copper but for the reasons I gave I would not bet the house on quite the same impact on the oil price.

A nice closing line, "If there was ever a time for some really crazy things happening to the oil price and the oil market, it will be the comming years." I have a bet on 'if'. I'm in Enquest and other oilies, but I'm not betting the house. I currently have a larger bet on other commodities. But moving those commodities from the ground into a finished item also requires additional energy which in large part will be sourced by oil.

I have great faith in the ability of markets to satisfy demand and many very clever people have underestimated that ability other the years. They invest at the top of the cycle making lousy returns for their investors.

I just don't swallow the "its different this time" angle with respect to oil supply.

As investors we can make our own decisions and act accordingly. Don't you just love that freedom!

The 3,000 limit cut me off in mid flow, and the F1 highlights are about to start, so must rush to finish.

The rules in action. The price of iron-ore has just hit $150/tonne. The Australian miners, BHP, RIO and others, extract it at a cost of <$15/tonne - luverly jubbly. The big threat to this 'market anomaly' is a potential mine in Africa. If you think the cost of large oil field development is high, it is nothing compared to the cost of developing an ore site and putting in rail infrastructure to move the ore from mine to shore. You can't pump iron-ore down a pipe.

I saw a recent note that the investors in the African project were balking at the costs even at $150/tonne. The Australians developed their ore fields decades ago and have invested $Bs almost every year since to get their costs below $15/tonne.

But Africa isn't the only source of supply. When iron-ore fell to $40/tonne (you guessed it, supply exceed demand) marginal ore deposits mainly in India and China were shut down. Money will be returning to those deposits to fire them back up again. There'll be some ESG issues and costs will be >>$40/tonne, but they will get additional iron ore supplies into the market. The Australian miners will be making 'hay' for sometime.

In a way the Middle East are in a similar position in oil to the Australian miners in iron. A difference is that the world in awash with oil close to the margin cost. Hell, there's a company I follow but don't invest in (MSMN) that can drill in a farmers field in Texas below the marginal cost and make a good return if they get the timing right. The trouble is they also have significant overheads in Australia. The farmer doesn't need to trouble himself with the risk. He picks up a nice royalty.

I hope you still remember that first rule. I'll start you off, supply will ALWAYS ...

"Many years of under-investments in the sector will lead to the price going higher in 2021 & beyond."

Mr Lundin looks like he's been around the block a few times , so I guess he should know what he's talking about. His assessment has two key parts, under-investments in the sector and a price going higher.

Let's look at the easy bit first. Oil $50 today, going higher. This week the EIA posted a $48.5 average for Brent in 2021. But the oil price is volatile so I think even the EIA would concede a spike to at least $51 during 2021. That's a tick from them. Goldman Sachs has $65 at some point in Q4, so a tick from them too. I'd struggle to make a case against it, so a tick from me too. Three ticks, Mr Lundin could be onto something here.

Let's get serious on the other part, under-investment in the sector. The old supply-demand consideration.

There is one rule that you can take to the bank. Supply will ALWAYS meet demand. Capital markets are very good at ensuring this always happens. But there are at least two key factors that influence a maximum price in the cycle and that is the time lag in closing any gap, and the marginal cost of production.

In 2013 Enquest were costing Kraken production at $27/ bbl CapEx and $20 / bbl OpEx for a total marginal cost of $47. That's for a c25 year field life in the North Sea. US on shore shale was attracting a lot of investment around the same time (oil was @ $100). Shale has the advantage of shorter time to production and a very large volume of the field produced within three years. Get some hedging in @ c$100 and it was an easy sell to the banks and every big independent producer rushing in to participate. What's the marginal cost of US shale today? I'd go with <$40 in the better plays. Politics can add $$ to the marginal cost. Biden say's no new drilling on Federal land. That still leaves a lot of land to be drilled. This isn't the shale patch of c2014. There are now some big serious players there who will "drill, baby, drill" if they can hedge production 2-3 years out at $60-$70 oil. There's an argument that the shale patch could be exhausted in few years. Yes, but that's all it would take to see through any near term shortage before other plays (probably deep sea) fills the gap. Never forget the rule, supply will ALWAYS meet demand.

If the price of oil hit $200 for a day and fell back proto it would barely register in Enquest's year end cash number. It is longer term averages that matter. I'm hoping for a 2021 oil average with a '5' handle. I can see Goldman Sachs trading desk closing their bet one in Q4 at $65. But I do not expect a '6' handle on the average.

However, I could envisage a '7', '8' or (now I'm getting a nose bleed) average handle within five years but it wouldn't stay there. The price will return to (often below) the marginal cost of production c$50. That's the 2nd rule of commodities.

Pelle, a fair point. I'd forgotten about the hedging debate.

I'm split on the issue. I remember when I was invested in Ithaca, they had hedging in place c$104. Posters were up in arms when the oil price touched $110 - GS had probably forecast $200, and every poster likes a bullish oil forecast. We know what happened next and the $104 hedging in place saw them through a $50 oil price environment. I don't recall posters saying much about that.

Looking at this year it appears Ithaca has followed a similar cautious approach to hedging which again has seen them through a rough period. But looking ahead to their positions in 2021 and (I think I saw) 2022 the numbers appear very cautious, but who knows. That's why they hedge. Like any insurance it costs a premium, and their history has shown limiting the top end has preserved the bottom end.

I believe the OZ loan carries an obligation on hedging. The rest? We'll find out in Feb, but I prefer a consistency in strategy. It's then my decision as an investor which strategy I prefer. I still think hindsight plays a large part in some criticism here on the board. But of course, not yours.

Due to the nature of Headlam's supply chain I thought there might have been greater volatility in the share price reflecting the will they, won't they, Brexit mood. I have a limit order in place in anticipation of a drop but it hasn't been triggered. I'll leave it in place until after 31st Dec.

I think the lack of volatility is down to a view, which I share, that the impact of a 'hard' exit would be modest on Headlam. Headlam stated in their recent update that they were building up stock ahead of the deadline. Their earlier comments on Gold, Silver and Bronze products in relation to stock levels points suggests they will always have the beige carpet in stock, demanded by most 'buy-to-let' purchases, but if you want red you may have to wait a few more days. But there's always a trade off. As a resident I may be happy to wait a week for my red carpet, but the trade perhaps wanting to get the job done today, or being poor at there own scheduling, might go somewhere else where red is in stock even if it means paying more, which is probably picked up by the customer anyway.

I'd guess a consequence of a no deal will be port or import delays. But this isn't fresh fruit, carpets can sit around a couple of weeks if the worst happens. Working capital goes up but this should normalise over time.

We know that residential trade peaks ahead of Christmas - you want your house looking its best when the in-laws are visiting for Christmas dinner, so the 10% like for like increase probably isn't a surprise after the lockdown, but Headlam are pointing to a possible lack of fitters impacting December. Again, not a surprise. A few weeks back I was sounding out a BT Outreach engineer , who was fixing my BB, on the Covid impact. He told me that many of his older colleagues were not happy doing home visits. I guess the carpet fitting trade will see similar.

Also, if Dec is always the peak then an additional 10% call is huge pressure on the trade. Bit like the NHS over the winter. I'd guess that if a householder wants a carpet for Christmas but isn't getting it, most will leave the order in place for fitting in the New Year.

These are the ramblings of someone not in the trade. I know some posters here are in the trade so I'd be interested in your comments. Particularly, in relation to any overflow of business into the New Year.

Incidentally. I live in Scotland, and a little reported fact is that during the three week period of 'Phase 4' on most of the Central Belt, say 35% of population, tradesmen were NOT allowed to visit homes unless it was an emergency. I'd guess that doesn't cover a new carpet. That could have had a 2-3% impact on Headlam's Nov revenue, and it means the Scottish carpet trade will be seeing an exceptional Dec. Surely that has to run into the New Year!

"Ok, does the larger one also come twice per year so April/Oct?"

Yes.

From prospectus:
Interest on the Notes will accrue at the rate of 7.000 per cent per annum and will be payable semi-annually in arrears on 15 April and 15 October commencing on 15 October 2014. Interest on overdue principal and interest, if any, will accrue at a rate that is 1.0 per cent higher than the then applicable interest rate on the Notes. The Company will make each interest payment to the holders of record on the immediately preceding 1 April and 1 October.

Hi Pelle, referring to your comment on FCF.

I'm inclined to agree that ENQ might slightly beat the Nov-Dec number I presented. They surprised over the same period last year and similar conditions may be in place this year.

But I'd like to emphasis two key parts from my post.

The first is that I had missed the relevance of the Magnus cash flows going to BP, and the slight reduction on sold volumes against produced volumes. I had these adjustments in my previous models but in following the fresh guidance with a breakeven number, which I think is the right approach, I have been lazy in my interpretation thereby missing the BP component. That is the correction I've made.

Second, and perhaps most important. Having put out a $33 breakeven FCF number I think it is important that ENQ meet or beat it. It would give me confidence in the guidance they provide for 2020. I know they have stated $27 previously, but I thought it was interesting they didn't confirm it in the latest update. Much has changed since last Spring when $27 was first mentioned. I'm 50:50 on whether it will be higher or lower. I have confidence in the production volume forecasts. In each of the last two years there has been a significant operations failure but they still hit or come close to the mid point number. I've said before that I think the number carries a good margin for error because it is a component of their annual bonus.

I note your 55K number for 2021. I'm on 52.5K mid point so not far away, but remember to make those adjustments when extrapolating the FCF breakeven number.

Reading a couple of recent posts, I want to remind posters that ENQ came into 2020 on a roll. I had built my position through 2019 resulting in an average below 20p and the share price hit 30p mid Jan 2020. The oil price was showing signs of an Opec induced wobble but no one foresaw the impact of Covid. I think it is to Enquest's credit how they responded and the guidance they provided.

Bottom line. I'm happy with my investment in ENQ and looking forward to the Feb update.

Hi Pelle,

HM's dates are correct for the Retail Bond but there is also the larger High Yield Bond. It has different dates to the Retail Bond. The 2nd and last payment for the High Yield Bond each year is 15th Oct.

Therefore, the latest trading update to end Oct includes all of this years PIK payments within the net debt number.

gkb47, I missed the licences.

From memory one was close to Dons so that is now out of the picture.

One was close to the GKA hub - so possible tie in candidate

One was a prospect close to Magnus

I couldn't figure out the other one (two?) It would be good if ENQ provided info on their intentions.

Earlier chilting posted the comment, "“At some stage the market will balance out and stocks that haven't recovered will catch up.” Which had me thinking, why should it, and why will they?

After a very long examination, which I'll spare you, I came around to Enquest's position.

I concluded that Enquest will never do another Kraken type development. If they did, I'd run for the hills. They have the option on Bressay, which would be a tie back to an existing FPSO - we hope Kraken - but I think it needs minimum of $10 on the current oil price and it's a 2023 event earliest. I think tie backs in 2022 on Magnus, Eagle and Kraken WF are more likely, and then there's that new block in Malaysia.

But what about those 'end of life' deals that were in the pipeline earlier tis year? I think it was at the interims that AB said there was still a large disconnect between the oil price sellers were basing their numbers on and the prices Enquest were looking at. I've no doubt that the larger companies want to offload those assets and the smaller companies like Enquest need to acquire them. With the vaccine being rolled out and Opec+ coming to a short term agreement (I understand it only covers Q1) I suspect both sides will be getting closer to agreement on an expected medium term price for oil so other elements of the deal might fall into place.

As others have said here, I expect news on a deal, with an associated restructure of debt/equity before the credit facility becomes due in Oct 2021. Actually, to be precise, I expect deals to close soon and hope Enquest is involved in at least one of them.

L3Trader, in my post 30/11 20:53 I responded to a question you asked on FCF. I gave a few caveats to my number but key was whether I was interpreting the breakeven threshold correctly. I now realise I wasn't. I know that ENQ has guided to just below 60k for 2019 and I was sticking with 60K - I don't think the difference is significant - but I missed a couple of items that are significant. 37.5% of Magnus cash flow accrues to BP and crude oil sales in 2019 accounted for 96.2% of the production number. I'm ignoring gas because most of the gas sales related to the resale of $72m of purchased gas for Magnus uplift but not used.

Reworking, I have:
(60,000 -(37.5%*17,740))*96.2% = 51,320 bopd
(41.5-33)*51,320*365 = FCF $159m.
Minus $70m (PIK), is $89m debt reduction. 2019 net debt $1,413m drops to c$1,323m. So c$63m FCF Nov-Dec to achieve this.

I'm keen to get this right. If ENQ meet or beat their $33 breakeven guidance in 2019, then I'll have confidence in the number they provide for 2020.

Looking at 2021, going with a mid point of a 50k-55k production forecast, $27 breakeven guidance and $50 oil.
((52,500 - (37.5% *17,740)* (50-27) * 365 = $370m, minus PIK $70m.
Year end net debt $1,323m - $300m = $1,023m.
Bonds c$1,112m leaving cash c$89m PLUS loans owing on OZ and SVT say c$50m, for cash c$140m.

Tight for year end working capital, so need more than a 3 month delay on credit repayment, but not much more. The guidance we get in Feb will be key, but I like the position given my $50 oil forecast.

Caveat Emptor

I sympathise with the last paragraph of romaron's recent post, “Personally, because my timing is so poor I expect the price to go against me when opening a trade and I take it as a good sign actually. Getting it right immediately angers the good luck Gods."

I guess most 'investors' start out as traders. It seems so easy, move in grab a point and move on to the next trade. Make 1% a day and you can make 3,700% in a year - bish, bash, bosh, a Maclaren in the drive and a trophy wife on the arm.

Very few achieve the dream. IMO successful trading is a science rather than art and demands strict adherence to rules. Expertise and discipline that most traders lack. Those with no regard for trading size will eventually hit a bump - it is the law of averages. These boards are littered with the fallout. "Average down", "In it for the long term", "It can only recover", the list of justifications for the wrong call is a long one, and the worst fault of all, a refusal to take a lose!

In my trading days I sometimes hit the sell button instead of the buy and watched as the trade still came good. Good for the bank balance but does little for the trader confidence.

These days I consider myself a value investor. I maintain a core holding and use limit orders to trade around that position. Lock and load, then do something more enjoyable while the position plays out.

But the purpose of this post isn't to wax lyrical with words of wisdom from londoner7. It is to recommend a publication with a much smarter analysis of trader and market behavior than I could ever muster.

The book starts with the claim that even the professionals get the original call wrong (I don't have the book to hand - it's in Portugal and I'm not - but I have 47% in mind as the percentage making the right call). The bigger call, is what they do next.

I'll leave it to the book to explain more:
The Art of Execution: How the world's best investors get it wrong and still make millions in the markets
By Lee Freeman-Shor.

Tarmak, mark those wise words from gkb47.

“Don’t forget to include the gas”, and I'll add, keep an eye on shrinkage - Therapist’s speciality!

Hi Tarmak, as an engineer I understand the desire to understand the detail. My own efforts are rewarded in the sense that I can now devote less time to monitoring my investment in Enquest, while maintaining a very good understanding of the impact of any relevant news.

Returning to your next point.
“The OGA of 15/8 is 21,9m and after deduction (the load was 12/8) with 35k/d (0,105) 21,795m.”

Yesterday, I couldn’t make the link between 15/8 and 21,9m. But I now see that your date reference is 12/8 and understand the OGA reference to be 15/8. I also see you have removed my data. No matter. I don’t total my numbers. They are a guide to progress until the next update from ENQ or OGA.

A couple of points on the OGA data:
The reference to the 15th of the month is a charting item, e.g. the latest data date is 15/09/2020 but the numbers relate to production for the whole of September, 1st – 30th. I contacted the OGA last year with a couple of queries and this was something they confirmed to me. The operator gives the OGA its daily production numbers, which the OGA make public as a monthly number, typically on the 1st, two months later, so 1st Dec for Sept data. I’ve seen daily numbers released by some producers within a presentation. PMO did this with early Catcher production data – it’s interesting and provides insight into what production efficiency means. But the OGA only releases daily numbers on Cease of Production (COP). The OGA publish the returns of the operators but these are sometimes corrected. Last year ENQ corrected Magnus gas numbers, which indicated an unexpected uplift in the production number reported in an update. My attention to detail flagged the anomaly and ENQ IR confirmed my suspicions. Whether OGA corrected their numbers is another matter.

On the offloading pump – I suspect the original pump is still in use. I haven’t worked the numbers but your 700K max looks reasonable, if we consider that a 500K offload typically takes 25-27 hours. We can only estimate the times the shuttle tanker is in position but we can’t know when the pump is turned on - there'll be some preparation - I’d guess it has a variable flow control, and the tanker and FPSO each has perhaps a dozen separate tanks so there may be a dwell time between each. Chilting, often refers to the hook up period. It’s a good sanity check. If the tanker detaches after say, 12 hours, we know that she doesn’t have a 500K cargo.

Don't knock it. Someone may have just reduced their average from 40p to 30p.

Cheapskater, I have my decimals right this time. Thanks for your reply on G1.

Q. If a bucket holds 2.000Lts of sand and a skip is 3.2m*2.7m*1.5m, how many buckets of sand in the skip?

A. One. It's all I could manage.

romaron, the game early last year was to monitor the Kraken offloads because they were irregular and Enquest's share performance reflected significant Kraken issues.

The game is very different today. I don't now use that level of detail but I'm happy to support someone else that wants to. He may come to realise that the detail isn't needed, but that's his call, not mine and not yours. But of course you're free to express an opinion.

You say, "I think the regularity of loads is the most important indicator that all is well."

I fully agree and that is now my measure, but that doesn't exclude a sanity check, which takes me a couple of minutes roughly three times a month.

Hi Tarmak,

I ‘ll address each line as best I can. Apologies if I misinterpret your comments.

I take your first point to be in reference to my statement that each offload is typically 500K, but you qualify it with OAG data and ship size. I don’t see the relevance of this qualification. In my opinion all of the tankers that regularly service Kraken, including the smallest Navion Oslo, are capable of offloading 500K, and even Navion Oslo could offload a ‘full’ Kraken FPSO @ 600K. (Betty Knutsen is an outlier. There was some discussion here at the time about what she might be doing wrt the Alma field.)

When I first looked at this area, another poster MO helped me with my understanding of limitations on tanker volume, but I chose a more pragmatic assessment. If a tanker, offloads the typical 500K load and reports a draught of 13m, when she has a max draught of say 15m, then I interpret this to mean she has space for more than 500K. After all, it’s an OIL tanker - only oil goes into her hold. I appreciate oil has different API (density) but the volume variation on density is modest. Incidentally, I used the Kraken API in my draught calculations.

As an example I’ve just taken a real-time look at Navion Oslo. She is reporting 13m. I don’t know her pre-load draught but if it was the same as her offload #80 from Kraken (8.6m) my calculation gives 500,775. I don’t claim that level of precision for my calculation, but I’d bet 500K is the nominal load. If I put her max draught (15.1m) into my calculation I get 632K.

Looking at it another way. Over the last couple of years I’ve observed offloads from 4-5 different NS fields and >90% of them appear to be 500K. Navion Oslo operates in the NS. If she can’t handle 500K she’s missing out on a lot of opportunities.

Going back to #80. A draught of 12m was reported resulting in a calculated load of 438K. What’s that about? The draught reported in the AIS is a manual entry. Was it an error? Was it the bow or the stern, or and average of the two. I recall a poster reporting a laden tanker arriving at Rotterdam with a 2m difference between the bow and stern draught line – although I only have his word for it. Stuff happens. In my book it’s another 500K offload. If wrong, I’m out by 2Kbopd for the month. The OGA update will have me back in line.

Well, I think I’ve laboured that point. ;-)

I’ll return to the other points in a follow up post.