Member Info for londoner7

Tom8080, two points.

First, I agree with PRDaynes comments on the higher weighting of costs to the first half.

Second, you raise an interesting question on the price point. ENQ stated $33/Boe. That's barrels oil equivalent, which could be interpreted as the blended oil/gas price . However, at one point in the interims there is this statement, "the cash flow breakeven falls to c.$25/bbl for the remainder of the year." I interpret /bbl as referring to barrels of oil. So which is it?

You have used "the average realised oil price, after hedging" of $43.6 for H1. I had always assumed ENQ were referring to the "average realised price, BEFORE hedging" of $39.9 for H1.

Putting $39.9 into your calculation:
Difference $39.9 - $7.3 = $32.6.

Using the realised blended price:
Difference $36.5 - $7.3 = $29.2.

Which is it? A difference of $3 equates to c$65m FCF for the year, so it matters.

My guess is they are referring to the headline Brent oil price, which for H1 was $39.9 (McDaniel & Associates Consultants Ltd).

But as I said in an earlier post, the finals will clarify the relationship between the $33/Boe guidance and resultant net debt, and that's how I'll interpret guidance for 2021.

hitman1a, I take your point on the benefit of making meaningful debt repayments. Compounding interest is not a good place to be as a debtor. But, to be clear, the PIK terms on the Bonds were put in place to offer protection to ENQ, both bond and equity holders, and the terms are fixed in agreement. ENQ does not have an option to make cash payments unless the $65 oil price threshold is achieved. ENQ has no more control over this than they do over the price of oil.

I've made this point before, but others comments suggest it has been misunderstood. Bond holders receiving PIK are in a worse position than if they were receiving cash interest. A PIK coupon has a nominal value of £100 (retail) but a cash value today of c£64. If the bond holder received the cash interest they could purchase 100/64= 1.56 times as many bonds issued under the PIK.

As the saying goes we (bond and equity holders) are all in this together!

The immediate hurdle is the credit facility due Oct 2021. The PIK terms provide ENQ with an additional $140m to drag itself over that hurdle. We'll face Becher's Brook in 2023, hopefully on a better ride.

Hi L3Trader,

Net debt
As I recall, I said I was surprised that ENQ had reaffirmed their $33 FCF breakeven for the year. I also said that if I was interpreting their guidance correctly then it pointed to c$1,300m net debt if Brent held at $45 to end of year. Those are the caveats.

(41.5-33)*60,000*365 = FCF $186m. I'm confident in the '365' number, less so in the others.
Minus $70m (PIK), is $116m debt reduction. 2019 net debt $1,413m drops to c$1,300m. So c$90m FCF Nov-Dec to achieve this. As I said, it seems a big ask, but they beat my expectations over the same period last year. Why?

As you point out, there was a good Kraken premium last year, but less so this year. Perhaps, key is the completion of all expenditures, Cap Ex and maintenance costs. In H1 ENQ pointed to operating costs of $14.4. Perhaps OpEx in Nov-Dec is similar or lower. If Kraken and Magnus perform well over the remaining 5 weeks there could be some decent cash flows.

But as I say, seems a big ask. If ENQ claim to have met their $33 FCF 2020 guidance but fall short of a $1,300m net debt number then I'll know to treat FCF guidance for 2021 with caution.

Kraken
I've no idea what the Western Flank is producing. I've highlighted to you the forecast field decline numbers in an early CMD presentation. As I recall you didn't accept my interpretation of the numbers - you considered absolute numbers whereas I looked at relative numbers. We make our own calls. I now see the WF wells as part of the mix and assume they will arrest, slightly, the anticipated decline in the base field number. To use the ENQ phrase, I would expect ENQ to "continue to optimise production through improved injector-producer well management". When the 2020 Kraken numbers are in and a 2021 forecast made I'll return to the forecast decline rates and make an estimate of the WF numbers. The calculation could be meaningless, but If I've any confidence in the outcome I'll share.

Magnus
I've some extra info here. The 2nd tower was 'tied-in' during the recent planned shutdown, but the expectation is to have it as a back up (redundancy) to the 1st tower, rather than using it to provide additional capacity, although that option is available and may be tested. Expectation of a return to drilling in 2022. Clearly, these are changes to the intentions that supported earlier Magnus guidance. I've no doubt that water injection/tower issues have been a factor in variable production performance at Magnus. As I see it the reworks are complete and we can only hope that ENQ efforts to optimise production are effective and there are no more significant failures. But of course, we know stuff happens, and it's never good!

Malaysia
I interpret the TU comments on Malaysia pointing to a significant disruption to 2021 production, say a 2,000 - 3,000 boepd impact on the 2021 number.

I have a 50K - 55K boepd expectation for 2021, and I hope for 30-35K (gross) on Kraken and c$27 FCF breakeven guidance. We'll get

Tarmak, you ask,
"I do not really connect one thing and a straightforward question: PIK!
Is it about 40m $ to be deducted from FCF?
If not, how much and why?
As it seems, I have reduced by 70m in "BE" but I am convinced that it is wrong (too much)."

I can see why you might think the impact of PIK is c$40m per year if that is based on the net debt number reported at the interims and, or note 13 of the accounts, which show a net change after six months of c$21m.

The precise numbers are a result of accountancy standards, amortisation of arrangement fees and FX adjustments. I haven't worked the detail but I suspect the key adjustment is FX. The Retail Bond is a Sterling Bond and the High Yield Bond is a Dollar Bond. Referring to note 13 which is in US$, the principle of the High Yield Bond has increased by 3.5%, which represents the addition of the PIK. The principle of the Retail Bond has actually decreased. This is an FX adjustment which in the period exceeded the 3.5% PIK component.

Go to the Enquest investors web page, and under Retail Bonds you'll see the interest payments. The two for this year include an additional 3.5% of Bonds (PIK) added to the current number. These are compounded at 3.5% every six months, while Brent is priced below $65. If PIK is payed until Oct 2023 this represents an addition 22.9% of Bonds. At US$1.3 / £ the current dollar value of the Bonds is $1,038m. The additional PIK Bonds would represent an additional $237m of Bonds due for repayment in Oct 2023, an average of $79m p.a. If the Bond interest could be paid in cash it would have been c$69m in 2020 and for each of the next 3 years.

If the oil price had held above $65 ENQ would have been in the happy position of paying the Bond interest in cash and paying off the credit facility ahead of next Oct. But it didn't and here we are. In the circumstances I see the PIK as a means to releasing an additional $140m to the credit facility due in Oct 2021, which would otherwise have gone to the Bond holders.

Yes it comes at a cost and fingers crossed the oil price will come to Enquest's rescue ahead of 2023 (romaron's $55 in Q4 would be a good start).

My close to the last post was: I'll give them the benefit of doubt for the next two months.

Now I have another 3,000 characters to play with I'll introduce my own analogy for an investment in ENQ in place of Dr Tom's ventilator.

I picture myself standing in a muddy field with the mud above my ankles and a keen desire to leave the field, but the rain is still falling hindering my exit. I need the rain to stop and the sun to come out. Plenty of pundits are giving me a favorable forecast, but I live in Scotland and I've heard it all before. I prefer to look out of the window ahead of any walks rather than believing the latest BBC forecast. With Brent at $47, I see a break in the clouds, but I'm keeping a wary eye.

Hi gents, just following up on your posts.

I generally agree with you comments, but a few issues particularly around DrTom's comments on PIK tapeworm and oxygen ventilators.

I guess like most here I'd hoped for more in terms of production and debt reduction, but putting things in perspective, even with the issues described production for the full year is expected to be just marginally below the 57K-63K forecast, and more importantly ENQ are still maintaining their breakeven FCF on a $33 Brent price. On the lower production this is largely attributed to the the fire at PM8 and if the impact has no material impact on cash flow I guess I can ignore the production loss in the breakeven calculation. Operationally, ENQ appears to have performed well - Magnus being the exception. Stuff happens and in the oil sector it generally isn't good, particularly a gas fire, but evacuation was performed safely.

Kraken
Knock off the DC1 riser problem in August and the 7 day shutdown in September and H1 Kraken production has been maintained over the last 4 months. Yes, we had western flank wells come on line mid year, which might raise expectations, but I've expressed my view before that without additional water handling and the field decline which was anticipated this year I see some extension of plateau production a good outcome. I would be very happy if 30K-35K (gross) is guided for 2021 but rate it less than evens.

Magnus
Here I have an issue. As L3 has pointed out, ENQ has been guiding higher production. As recently as the CMD in 2019 ENQ were guiding to increased production through additional wells. Two wells went into production last winter. An additional well due this winter has been cancelled but that would not yet have come on stream. So, I'm surprised that in the update ENQ say that the lower performance at Magnus is due to field decline. No mention of a second water tower that was expected Q4 and I suspect is the primary factor affecting Magnus production.

PM8 - Malaysia
As I said, stuff happens. Glad it ended safely. My interpretation of the 'no material impact on cash flow' comment WRT the PSC suggests to me that ENQ make little cash flow at current oil prices regardless of production numbers. Perhaps an example of what L3 was looking for in terms of locking in production till the oil price increases.

Other fields
I hope Kwittwake can remain viable until oil prices permit the Eagle tie in.

PIK on Bonds
I see this arrangement as a good thing - tapeworm sounds nasty. This year and next a total of $140m deferred to Oct 2023 and available to pay towards next October's RCF.

Net Debt
ENQ are still holding onto the $33 breakeven. It surprised me. If my assessment of this guidance is correct and Brent now holds $45 through to year end then that's an additional $90m FCF through Nov-Dec, for c$1,300 net debt. Seems a tough ask but ENQ did $148m FCF over the same period last year.

I'll give them the benefit of doubt for the n

A key difference between Vodafone's case and CNE is that in Vodafone's case it was a tax DEMAND - Vodafone had not paid anything. Here are the key points from the Vodafone ruling:

The Permanent Court of Arbitration in the Netherlands in its order, which was passed on September 25, 2020, found merit in the telecom operator’s arguments and directed the Indian government to withdraw the tax demand, interest and penalty against the company.

• The Permanent Court of Arbitration in Hague directed the Indian government to reimburse 60 percent of Vodafone’s legal costs and 50 percent of the fees paid by the company to the appointing authority.

• The court had stated that the Indian Government's conduct in respect of the tax imposition on Vodafone is in breach of the guarantee of fair and equitable treatment, which is stated under Article 4(1) of the Agreement. The court further held that the Indian government's imposition of interest on the sums in questions and the imposition of penalties for non-payment of the sums in question was also a breach of the code.

• The tribunal held that any attempt by India to enforce the tax demand or any failure to comply with these directions would be a violation of India’s international law obligations.

• The arbitration award to Vodafone was a unanimous decision. The Vodafone Group in a statement informed that India’s appointed arbitrator Rodrigo Oreamuno also ruled in favour.

If India chooses not to appeal the decision, then the centre will have to pay Vodafone almost Rs 85 crore-Rs 45 crore in taxes and Rs 40 crore in costs, as per sources.
------------------------------------------------------------------------------------
To put that sum in perspective, Rs 85 crone is <1% of the Rs 20,000 crone tax demand.

In CNE's case, CNE had cUS$1B withheld by India through the confiscation and sale of a CNE holding in an Indian company. The CNE claim is for the RETURN of US$1.4B. India has a counter claim for additional sums, but CNE do not consider those amounts material.

One day, we will wake up to a ruling (RNS) one way or the other. If the ruling goes in CNE's favour there will be a positive SP reaction. The US$1.4B question is what happens next? But I doubt there'll be a credit to CNE's bank account anytime soon.

jax05, I’m invested here and inclined to agree with your timescale.

Last July I outlined my experience as an investor in SNR following the 2008 financial crisis and the degree to which we might see a similar multi-bag outcome this time round.

My view hasn’t changed but the intervening period has reminded me how difficult it is to stay the course. I felt the recent trading update painted a bleak picture over the near term and through 2021. Production profiles involve the alignment of many suppliers plans, so it was clear from the commentary that much of 2021 is ‘baked in’. But I was satisfied that SNR is a viable business which will in time come through the current problems.

So, what is the time horizon?

Essentially, it will come down to the speed and level of any return to normality for air travel. Posters and investors here will have a view on this and invest accordingly, but frankly nobody knows the future outcome. I’ve decided that there will be a high degree of a return to normality with a higher level of uncertainty about how that effects the new aircraft production profile, which is what matters most to SNR.

We approach an exit of a very different crisis to 2008 which, I think, throws up greater challenges to SNR than 2008. But in reviewing SNR in 2009 and SNR in 2020, it is clear to me that SNR is a larger business with a greater distribution of valuable assets in the right regions – US and Asia – than it had in 2009 and its balance sheet is equally secure with a modest level of debt weighted against those assets.

Bottom line. This investment is in the ‘hold for 2025’ category. Unlike the post 2008 period I will resist any temptation to take short term profits or trade patterns. I tried it last time and on review a better policy would have been to add on pull backs, rather than somehow managing to sell ahead of them and buying back cheaper. Over the next five years each year is likely to provide at least one such ‘opportunity’. I might get one right but my experience has taught me that I will not get them all right, and if SNR does multi-bag over the next five years then an ‘hold and add’ strategy will prove best.

I’ve other investments on shorter investment cycles, to occupy my trigger finger.

"monthly gross of 8,700 bopd."

Correction - monthly gross of 8,700 bo.

Soulac, you say, “Correct me if l am wrong.” Okay.

Where do you get 333 boepd? Even if you assume today’s Falcon headline number of “rates up to c543boepd” is the production number that is 543*50%*75% = 203 boepd net attributable to Mosman.

I’m assuming you are using 200*16.5% = 33 bopd for S4. (and ignoring depletion rates)

Where’s the other 97 boepd (333-203-33)? In H1 average Mosman production was 54 boepd (net). At it’s best 2019 H2 total production was 72 boepd (net). Okay, these may not appear big differences, but the production breakdown highlights the high depletion rate for the Stanley wells.

Last Nov the headline news on Stanley production was ‘S2’ 50 bopd (gross), ‘S3’ 200 bopd gross, and an end Nov run rate of 290 bopd (gross) for the Stanley project, S1, S2 & S3, which equates to a monthly gross of 8,700 bopd.

But everyone should know that oil production levels deplete over time, the issue is at what rate? The frequent commentary on workovers tells you something but let’s look at the gross numbers for just Stanley. In March 2020 Mosman reported Jan production of 6,225 bo and February production of 6,125 bo. In H1 Stanley production was 28,540 bo (gross), therefore Mar-Jun averaged 4,047 bo, 54% down on the Nov number, at135 bopd (gross), approx. 22bopd (net). Even if that is only S3, it’s a long way down from 200 bopd (gross) in just six months. So, if S4 was producing 200 bopd(gross) end Sept, how much will it be down to, say by March 2021?

The depletion rate on the Stanley wells is very-high, so it is reckless to extrapolate initial production numbers. Perhaps Falcon will be different, but it’s 85% gas which sells at c$17 rather than the $40 in your revenue calculation. The initial Falcon numbers look good, if a bit too gassy. Cheapskater had the gas price right, but also seems to have missed the probability of high depletion rates on Falcon.

There’s no shortage of oil in Texas, but the returns on capital at the current oil price are poor. When the Annual Report to Jun 2020 is released, I suggest posters in here beyond a day trade, look below the headline numbers at all of the costs involved in extraction.

Thanks to 'Malu' on the Swedish board for the link.

https://www.spglobal.com/platts/en/market-insights/latest-news/coal/110920-enquest-positioning-for-kraken-sequel-green-investment-ceo

The only news that I picked out was a comment on in-fill drilling from 2022, so nothing planned for next year. Perhaps not a surprise to many.

I'm good thanks L3.

Focused on opportunities outside of oil.

Based on previous years I'm expecting a trading update from ENQ this month. I believe Magnus maintenance completed last month so confirmation of a successful installation of the 2nd water tower would be good. I hope something comes out of the M&A activities, but any development is likely to be reported outside a trading update, unless it is the trigger. Otherwise, all quiet on the ENQ front.

Okay. If your looking at level 2 data then you will see a busier book with SETS. I guess that has been the change.

dazzag, for my part, I noted your comments on this trading change, but I'm not a trader so don't take much note of this area. Although, I think there was a change with the addition of AT trades - I don't remember seeing them here before.

I'm generally in favour of more trades AT or otherwise on the basis that they improve liquidity. When a Breedon director exits and puts their shares onto the market it often hits the SP for several days. But this has typically been founder shareholders with c5m or more shares. I note Pat Ward has c1m so think the market can easily absorb those if he chose to sell.

What do you see as the implications of the changes you see, SETS or otherwise?

Incidentally, I'm happy with Rob Wood taking over the CEO position. An outsider would have been an unknown quantity, and at this time I prefer continuity in the business. My longer term concern has been talk of international expansion, when I'd like to see the still recent acquisitions, Hope, Lagan and Cemex integrated with 15% EBIT margins. If say, a dutch man had been hired as CEO I'd have been on international expansion alert.

Dave_1, Breedon said this on dividends last March:

"One of the most common questions I have been asked since becoming Chairman is when Breedon will begin paying a dividend. I am delighted to be able to confirm that we intend to adopt a progressive distribution policy from next year, commencing with a maiden dividend to be declared with our 2021 interim results."

I wouldn't expect any comment, confirmation or otherwise, before that date, typically July. It isn't a question of affordability, rather intention, so I'd be surprised if a nominal dividend wasn't declared. A dividend and a potential move to the main market have been policy considerations for the last few years.

When you say, "The two quarries at Breedon are unbelievably busy", which quarries are you referring to?

A benefit I see for CNE is that the Catcher development should get the appropriate level of funding. Still a question around whether the two wells deferred from 2020 will get the go ahead in 2021, as the merger isn't expected to close till next Q1. But might get the nod through. Ongoing, the Catcher development will not be held back by the operator's debt concerns.

Hi L3Trader,

Q1, I don't have the numbers to hand. This was a brief exercise I did last week, which indicated a loss even if the $100m contingent is repaid. As I recall write-downs and impairments after the $300m exceeded the $100m contingent.

Q2, Add the two numbers for gross ultimate recovery.

Kraken 99.9 + 33.6 = 133.5MM

Catcher 54.9 + 47.4 = 102.3MM

Current 2P net c40MM to CNE.

I haven't looked at the detail of premiums but I was confused by CNE statement which I may have wrong but as I recall had realised prices below Brent (????), which they had price averaged different to ENQ in H1. I might take another look later.

Hi Therapist, thanks for your numbers.

I'd been looking out for them but you clearly know your way around the OGA site better than I do.

On Magnus maintenance, ENQ said this at the interims, "the Group expects to complete a one-week maintenance shutdown in the fourth quarter to carry out essential works,", so not 2 weeks in August unless you have more recent news - are you thinking about your hols! ;-)

The web site is up to date, with the latest warrant RNS 23rd Sept. Balance of c311m warrants @ 0.15p still to be executed/reported.

I'd add that reading the annual report and latest interim report is the minimum DYOR.

The interim report is particularly interesting because it states the difference between the half year outcome and corporate profitability. Five minutes with a calculator and you'd have a pretty good idea of the net production levels required against forecast oil prices for 2021 to achieve corporate profitability , that's before capital expenditure on further wells. Also, the 2nd July RNS cash number is a good starting point to the current cash position. The exercise of the warrants has added significantly to the cash position - key is whether the price holds up for the remaining warrants at 0.15p to be executed - they expire next July.

Hi L3Trader, reading your post I felt a sense of frustration. If you post your 'superficial thoughts' in the hope that I will answer the questions you raise then I'd like to see better clarity.

These questions may be clear in your head but they appear to me in print as very confused.

Take this extract, you say, "CNE assigns 99MMbbls 2P to Kraken"

I have no idea where you come by this number. At the end on 2019 CNE reported 142MM 2P, (2019 annual report). I understand that 99MM applied to Senegal( SNE presentation last year), leaving 43MM between Catcher and Kraken. Perhaps my detail is incorrect, but I don't know the source of yours.

Rather than reeling off a series of questions, perhaps you should focus on one at a time.