Member Info for londoner7

"$259m distribution."

Correction, "$250m distribution."

My qwerty keypad has the '9' too close to the '0'.
I guess that's why the number keypad is structured differently. Doh!

Chilting, you say, “the company is doing little more than paying of debt”. I see that as a good position. If Enquest was only paying off the interest on the debt I’d be concerned, but I’m expecting a c$250m reduction in net debt this year, and more next year at an average Brent of $49 (based on forecasts I use).

Whether the RCF is paid off by Oct 2021 is questionable but I take comfort in JS’s lead from the latest update that relations with the creditors are good, and no doubt discussions are in hand as to the possibility of extending the RCF payment window of what would be a modest residue at most.

In which case, Enquest would not need “an equity raise to pay down part of the debt”.

I do anticipate some form of restructure within the next year or so, but I expect it to be centred on an acquisition of some sort. Such a restructure could take many forms, but I'd expect it to be positive, assuming the deal is a good one.

Interim cash numbers were in line with my FY expectations for $390m net cash, after receipt of $300m and Senegal 2020 CapEx, and $259m distribution.

For a company of this Mkt Cap production volumes are modest. If one of those ‘package’ deals isn’t announced within the next six months then it seems to me the window has been lost and another distribution should be made to get company scale to production. A good pipe-line of tie ins across both Kraken and Catcher, but these are modest, and will not arrest decline. I expect c20Kbopd production in 2021. The NS development with Shell looks promising, but again I’d expect only modest additions and that is a 2022 event.

I don’t know this year’s LTPP incentives are, but I’d hope there is a growth component rather than simply taking rewards for the efforts of PMO and ENQ who actually manage CNE producing assets. I wouldn’t be surprised if the LTPP includes a reward for selling off SNE, albeit at a loss on the outlay over the last six years. Give me a few a hundred million dollars and I’d be happy to return 90% in six years for a lot less than management are paid.

Interesting to see the renewed interest in the Indian award. Yesterday, CNE management maintained their ‘we have confidence in the merits of our case’, but analysts seemed more excited. They even had me wondering ‘what if’. Nah, let’s stay real!

The comment was "70-100MM oil in place". On an expected 30%-40% recovery, that's still a substantial resource.

I was just reflecting on that 70-100MM number for the Western Flank.

It is much larger than anything I expected, and looking back to the CMD presentation last year ENQ pointed to 38MM of 2C for Kraken. It seems early to extrapolate anything from the Worcester wells but ....

I think I heard it right. There should be a transcript of the CNE web call out soon - I'll look out for it.

CNE (JV partner in Kraken) had their interims today’s and made a few comments on Kraken.

Another partial writeback of 2P reserves on Kraken, based on improvement in availability of FPSO from 85% to 90%.

Declines to set in on Kraken, in 2021. Not quantified but comment made that talks with operator (ENQ) soon. I took it that an outcome of those talks would be 2021 production guidance and any field activity for 2021 – see Western Flank below.

A comment on Kraken, “Gas import under consideration”. The original plan for Kraken field development included a c1,500 boepd gas import pipe, in partnership with nearby field developments, which never happened. The comment was part of the prepared text so in that sense significant. I take this to relate to Bressay development. There was significant comment around ESG, reducing carbon intensity in scope 1&2 activities, and its measure by OGA. Catcher in the top quartile and Kraken a little behind. I ran some numbers a while back that indicated Kraken fuel costs at $3-$4 per barrel oil. A source of fuel gas supply was mentioned in relation to the potential Bressay development – perhaps this ‘benefit’ carries more weight than I gave it credit.

Western Flank – the Worcester wells, just drilled, used the remaining 2 slots on DC2, and has a resource of 6MMbbls. ENQ has previously talked of further potential in the Western Flank, but today CNE added some detail in Q&A when challenged by an analyst on the specifics of Kraken decline. No info on decline rates but a resource number of 70-100MM was given to the Western Flank – I hadn’t heard it quantified before – and the need for a new drill centre. Probably not a 2021 development but perhaps 2022 if oil prices play ball.

Whitehat, you ask, "I'm not sure where you found that Cairn have spent much more than Vodafone defending their case Londoner7? I can't find anything and the full amount won't be known until the case has concluded."

Reuters reported on the Vodafone award, "It also directed India to pay 4.3 million pounds ($5.47 million) to the company as compensation for its legal costs, one of the sources added."

Annual reports are a good place to look for Cairn's costs.
Cairn report the 'Indian Tax arbitration costs' under Admin costs note 4.3.
$7.2m 2016
$8.1m 2017
$22.9m 2018
$3.0m 2019
-----------
$41.2m

In my book $41.2m (CNE)is much more than $5.5m (VOD).

Hi Pelle, yes that BP link has a wealth of numbers. I can't believe I'd never seen it before - I now have it bookmarked as a reference point.

You highlight a very good point on manufacture and consumption. Considering the degree to which say, UK manufacturing has been 'exported' to China, the resultant drops in energy consumption and oil in particular are very modest and not something to boast about.

Something that struck me about the BP stats is the variability from one year to the next - perhaps the regions are too small or measurements imprecise. Which leads me to focus on the non OECD and OECD totals. Non OECD averaged over 10 years accounts for 53% of total oil consumption and is growing at 3.2% p.a. The future will be largely influenced by policy but those numbers indicate to me the possibility of a surprise to the upside in near term (5 year) oil demand.

I understand 'district heating' is a big thing in your part of the world. It makes a lot of sense and I know the gree lobby here is pushing for it with government funded (tax payer) support. But Englishmen live in castles, and they are hard to connect.

Hi squif, whether I seed doubt in the minds of Enquest shareholders depends on where their minds are.

I try to be realistic in my views focused primarily on the company’s activities and prospects, and avoid what might be termed blatant ramping or de-ramping, because frankly I have little or no view on the short term price movements. I appreciate others feel better qualified to express those views – the board is a broad church.

You say, “you are advocating is potentially a complete wipe-out of existing shareholders by doing one or all of the deals (!) without impacting the target debt levels v leverage.”

In supporting a Rights Issue if management propose it (I’m assuming this is your concern) I seek the complete opposite of what you are saying. The existing shareholders would maintain their full equity share. In retaining sensible limits on leverage I’m advocating that we do not put ourselves into the disastrous position PMO now finds itself if events do not play out as hoped.

That would mean maintaining the existing equity / debt ratio. If the business expands through acquisition of any of these assets, with a resultant increase in FCF, this would support current or perhaps higher debt levels – I don’t know the numbers – but I have no issue with participating in an equity raise if Enquest management make a good case.

I can only assure you that I have a significant stake in Enquest – it is my 3rd largest individual share-holding – and it is full in the sense that I have no plans to increase it beyond a modest equity raise if required. But that’s just my word. You should maintain your scepticism of comments made on these boards.

By investing in Enquest – my last purchase was two weeks ago – I am supporting management in their current endeavour to profit from ‘end of life’ assets. If they were proposing a new field development I’d run a mile!

I only saw an investment case in Enquest in April 2019, until then I’d considered Enquest a basket case. I appreciate posters here will have differing Enquest experiences which will influence their views on prospects and route to success. As I said, the board is a broad church.

If you see a realistic path to 60p, or whatever you have as a target without acquisitions, I’d like to see it. But I appreciate not everyone does numbers or wants to share them.

January2, you say, "This means getting the SP back up to 60p and having a party."

We'd all like to see Enquest back up to 60p, but what are the "means"?

Can you lay out a oil production and price profiles over say the next three years (2021-2023) that provide those means?

An interesting mix of opinions. I'm inclined to romaron's view, except I don't understand the comment, "Raising money from shareholders would be a disaster but that doesn't rule out a placing but the usual discounts must be avoided."

romaron, what sort of placing do you have in mind if it doesn't involve raising money from shareholders?

I am very much in favour of any and all of the three deals mentioned, assuming they are funded within current / target debt levels c 1-2x leverage. We should trust management to price the deals right, and I'd rather be buying today in the year of Covid and $40 oil, than next year or the year after. A Magnus style deal (or three) would be great and I would not be adverse to a full Rights Issue. If there is an equity raise I would like to retain my full pre-emptive rights and not be diluted by preferred institutional shareholders.

I understand the view of focusing on existing assets, say to wring down debt below a 1x leverage, but I suspect that production levels within the existing portfolio are dropping faster than many posters here believe, at >10% p.a. and tie-ins will do little to slow that decline - I also believe many here wants to defer those tie-ins to 2022. Enquest would quickly reach a point where the focus moved from this year's or next's FCF projections to where FCF comes from in later years, impacting the share price.

On the macro level I envisage a significant recovery in oil price over the next 3-5 years. That is my time horizon and anything beyond that would be assessed after the spike - waiting for the whisper from GS.

I'd like Enquest to be well primed with production through this period.

That's my Enquest investment thesis.

Hi Frac, thanks for your insight.

Finland is one of those countries that has dropped off my radar. I used to be a frequent visitor to Helsinki at a time when Nokia was in it's heyday - the Apple of the time. Nokia's fall will have had a significant impact on the fortunes of the Capital Region, so I wouldn't be surprised if that greatly impacted the country's growth. But you rightly highlight the wider economy, and in a region towards the northern end of Scandinavia power and heat will constitute a larger share of the economy so adjustments in policy, as you describe, would be expected to have a greater impact on oil consumption, particularly if oil, rather than say coal was their 'dirty fuel'.

I'm unclear on your last point. When you refer to "Suzuki , Hyundai etc as a major growth area for their traditional output", do you mean traditional gas guzzlers as "traditional product" or have I missed the point entirely?

All,
Returning to the latest BP stats, and page 21 (oil) rather than the page I mistakenly referred too in my last post, page 20 (liquids), I see Sweden appears to be something of a standout -1.9% p.a. (2008-2018), but when I adjust it to (2009 - 2019) the average fall drops to -1.1% p.a. and if I wanted to use a stat to go with a specious article I could legitimately claim that oil consumption in Sweden has increased between 2015 and 2019.

"Lies, damned lies, and statistics"

Hi Pelle, I'm responding to the link in your post 17:45. I tried your earlier links. Trump popped up in the first and the 2nd asked for a registration, which I don't do.

Pleased to see the full story in the link at 17.45, but hugely disappointed in the analysis. The relevance of the linkage between growth in EV and a non correlated increase in oil consumption is specious.

This extract includes the statistics which support the article:
"In 2005, there were 167 electric vehicles on Norway’s roads. By 2015, that number had exploded to just under 40,000. Yet according to the 2017 BP Statistical Review of World Energy, Norway’s oil consumption in 2015 was 6% higher than it was in 2005."

There are 5.5m vehicles registered in Norway. In 2015, according to this article, 0.7% of these vehicles were EV. An 'explosion' from 0.0027% in 2005. Incredibly, (yes, I'm being sarcastic) oil consumption increased by 0.58% p.a. over the same period.

Here's a longshot. The 99.3 of Norwegians, who were still driving driving gas guzzlers in 2015, had a bit more money in their pockets than they did in 2005, and splashed their cash on a four-by-four or two.

The story for me isn't why Norway oil consumption went up by 0.6% p.a. but why Finland oil consumption fell by 2.2% p.a. between 2005 and 2015. OECD oil consumption is only falling by 0.5% p.a. today, so that is the story!

Incidentally, the Finish number of -2.2% p.a. isn't supported by the latest BP stats (page 20) which shows -0.4% between 2008 and 2018. All year on year numbers are noisy so a 10 year average is a good metric.

https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2020-full-report.pdf

Incidentally, Norway is an outlier amongst northern European countries in having a growth in oil consumption 2008-2018, so the author has constructed a specious story tied to EVs. Congrats to him for making a buck, but the editor should be fired. Oh, it's social media. There isn't an editor to fire.

Caveat emptor!

Hi Pelle,

I get the argument for oil in terms of new additional supply required even if demand falls, although I expect demand to recover and grow once the impact of the pandemic passes, but perhaps not at the earlier pace of c1MM bopd. Non OECD countries were in decline, but this was more than made up by growth in non OECD countries (I'm referring back to the EIA monthly report.)

The point of my post was to highlight how the worlds reaction to Covid could translate to a world united reaction to Climate Change, and if everyone agrees to throw money at it, an energy transition could occur very quickly. The largest use of oil is in US transportation. This is the key market. The bull case is that as the middle class ranks swell in places like India and Africa, a similar transportation demand will develop. But I've been hearing this story for a long time.

I'd seen the resource limitation on electric power before, and it is an excellent point - I have Copper and Nickel in my portfolio, but does Hydrogen power have similar resource limitations? I don't know.

Two points you make confuse me. You say, "Not even Norway managed decrease oil demand with a Tesla in every house.
Here in south Sweden it’s electric shortage so this summer they had to re-start oil power plant."

If every house in Norway has a Tesla, what is holding up oil demand?
I'm surprised Sweden burns oil for power generation. I thought only the Middle East used oil as a main stream fuel for power generation. Why not use gas?

That said, I know that a poorly specified UK plan for emergency power supply in high demand periods - when the it's cold and the wind isn't blowing - resulted in a large number of diesel powered plants being awarded stand-by contracts, because they could get up to speed within 5-20 minutes. I guess the national grid authorities don't trust the weather forecasts beyond 5 minutes. Does Sweden employ the same weather forecasters?

It's been a beautiful day in Scotland, so I have been out of the cabin. I rely on a 'look out of the window' forecast. Always reliable for a 45 minute walk around the loch. Perhaps I should offer my services to the National Grid.

Aren't the two claims very different in the sense that VOD has been asked to pay an alleged tax demand, which has been rejected, while CNE has had c$1B confiscated to meet a demand and are appealing for its return?

I'm happy to be corrected.

I note VOD spent c$5m on their defense, while CNE has spent 10s of $millions. on theirs. Comparatively, a much bigger expense for CNE.

As a shareholder in CNE I'd like the claim to be awarded in CNE's favour, although I don't expect the Indian government to pay. Frankly I'm more concerned that CNE lose and need to cover legal costs to India, which CNE would be obliged to pay

The FT has an interesting piece on the impact of a Biden presidency, mainly related to his pledge to ban drilling on federal land. Hard to see how a ban wouldn’t reduce US oil production and increase oil imports, which I guess would tend to increase oil prices. Would the pledge take effect in year one or year four? Makes a difference.

But the pledge would also accelerate the move from the internal combustion engine to electric. Currently, cost is a significant deterrent to the transition to electric. One hurdle is the price differential between comparable units, another is the decision to replace what might be a perfectly functioning gas guzzler.

In recessionary times, which I see as unavoidable in the near to medium term, consumers tend to hang on to their old stuff for longer.

But I think one lesson from the handling of the current pandemic, is the relative safety in numbers across nations when it comes to throwing money at the problem. If the UK faced the pandemic alone there is no way that the markets would tolerate their level of expenditure.

It makes me wonder that if the world collectively believed that a solution to climate change was in their hands, and that solution included a dramatic reduction in the use of fossil fuels, then the money would become available to facilitate that transition. The US and China are hold outs against an accord on climate change. Under pressure from their populations they are now at least playing lip service to an accord. If their support were wholehearted a transition could be accelerated.

Another outcome is that ‘hostilities’ between China and the West in general increase to a level that makes climate change a secondary consideration (I’m very suspicious of China’s actions). There were concerns about China within the US long before Trump. I’m watching ‘House of Cards’, which long predates the Trump presidency and China is a key theme. At times I wonder if the series has been a script for the Trump presidency! I’ll bet he is a fan.

If you’re a forever Enquest holder, then watch those climate change summits. Me, I’m looking to an exit from the sector at the next oil price spike. Goldman Sachs has promised to whisper in my ear at the right moment. I just hope I’m invested in the oil company that gets its timing right – most will not.

romaron, I accept a level of ambiguity could be read into the rule.

But your comment on posting, "Trust you to read the small print." implies you understood a particular interpretation at the time.

Again, interesting stuff for the sociologists. I understand they play these games frequently and some get a Phd for their efforts.

But my focus is on Enquest's stated purpose and how it relates to current activities. My rules were an after thought of little consequence, or so I thought.

Thank you for playing the game.

Congratulations!

Every player won. You all know your company, Enquest = C.

I’ve no doubt most understood the intent of the game. Earlier in the week, we heard news that Enquest is involved in the bidding for two producing assets in the North Sea, followed by yesterday’s news that Enquest is bidding for Exxon producing assets in Malaysia.

The news reenergised a debate about the wisdom of Enquest pursuing ‘end of life assets’.

This is the key phrase from Enquest purpose statement:

"Enquest is focused on enhancing hydrocarbon recovery and extending the useful lives of assets in a profitable and responsible manner."

I am pleased to see Enquest acting out, “what they say on the tin”! Time will prove their effectiveness. In the meantime, this board is a good place to share views, fair but critical. No harm too in criticizing their purpose, but if you disagree entirely. Well!

Incidentally, this is Enquest’s first ‘purpose’ statement from 2010. “EnQuest intends to deliver sustainable growth in shareholder value by focusing on exploiting its existing reserves, commercialising and developing discoveries, converting contingent resources into reserves and pursuing selective acquisitions.

Well they tried the ‘shiny new things’ route to success – Alma/Galia, Scotly/Crathes & Kraken. To date they have not been successful ventures, but time still for Kraken to be redeemed.

My investment in Enquest is based on today’s purpose statement, not 2010.

For anyone wishing to check their answers, I listed the companies in order:

A - Premier Oil
B - Cairn Energy
C - Enquest
The wild card - Royal Dutch Shell

I don’t believe in making things more difficult for myself than they need to be. But I wonder how many were influenced by the order in choosing Royal Dutch Shell for A. . Every player picked it. Or did you follow others in that selection. Only you know.

Frankly, ‘A’ could have been any oil company. Congratulations to Enquest and Cairn Energy for clarity of purpose.

If I posted Shell’s statement, “We aim to meet the world’s growing need for more and cleaner energy solutions in ways that are economically, environmentally and socially responsible”, I would have added Saint Theresa to the list of possible answers. (Check out Shell’s 2014 statement to see how times have changed.)

Rules: As to the breakage of the first rule – a positive stampede once released ‘from the gate’ by January2. Safety in numbers? A special shoutout to Therapist for showing restraint.

One for the sociologists to assess.

But in these Covid times with government rules on ‘self-isolation’ . Well!

This game is called, ‘Do you know your company?’

Below are extracts from the latest annual reports of three oil companies, which describe their purpose. Most posters on this board are familiar with these companies, but to make the game a little more challenging than a typical GCSE exam question, I’ll list four company names.

Premier Oil
Cairn Energy
Enquest
Royal Dutch Shell

Match a company to each statement ‘A’, ‘B’ and ‘C’

Company A
To play our role in meeting the world’s energy needs through the safe, reliable and sustainable development of hydrocarbons whilst meeting the needs of society for effective governance and delivering value for our shareholders.

Company B
‘Our’ business model is to hold assets within the oil and gas life cycle in order to create, add and deliver value for stakeholders. The cash flow from production assets funds exploration, appraisal and development activity, making the business model largely self-funding. Assets can be monetised at different points of the life cycle in order to optimise the portfolio.

Company C
With hydrocarbons expected to remain a key element of the global energy mix for many years, ‘We are’ focused on enhancing hydrocarbon recovery and extending the useful lives of assets in a profitable and responsible manner, helping to fulfil energy demand requirements as part of the transition to a sustainable lower-carbon world

The rules:
No replies to this post until after 6pm tonight
No peeking or ‘search engines’ – this is not a test of your ability to use google. It is a test on whether you know your oil company.

Here's a list of the assets being disposed (Appendix) to satisfy the CMA.

https://assets.publishing.service.gov.uk/media/5f6350e98fa8f5106ef9be45/Decision_that_UIL_offer_may_be_acceptable.pdf

The interesting takeout for me is the decision on the East of Scotland cement terminals.

The Cemex cement terminal is in Leith, very close to Breedon's terminal in Dundee. Breedon must see a better business case for the Leith terminal because they offered up the Dundee terminal they acquired a few years ago through the Sherburn acquisition.

Looks like Breedon has taken the opportunity to high grade some assets.