Member Info for londoner7

Message for Tarmak.

Reference query on "c$70 of PIK"

First, I made a mistake, should read " approximately $70m of PIK"

To clarify:
There are conditions attached to the interest payments due on the bonds. If the Brent oil price doesn't average more than $65 over a 6 month period then instead of paying the interest due in cash, additional bonds are issued to an equivalent amount. Refer to RNS dated 30 July 2020. This is called a Payment In Kind (PIK). ENQ do not have any choice in the interest payment method. If oil is above $65 for the period then a cash interest payment is made, if oil is below $65 for the period then a PIK is made.

The reason this matters to the Break Even guidance is that this BE guidance does not take account of these PIK payments. Therefore to reach a true net debt figure you need to include an adjustment for these additional bonds. The bonds, which are due for repayment in Oct 2023 (expected date) increase by approximately 7% per year, or $70m.

If you calculate a FCF of say, $200m for 2020 using the BE guidance then you need to deduct $70m , resulting in a $130m reduction in the net debt number. You will not see this precise adjustment to the Bond valuation in accounts because an 'amortisation' calculation is presented.

My thanks to whoever has passed on my comments.

chilting, I'd guess the late activity in HUR is retail traders - the median trade is quite small - getting in ahead of a scheduled update tomorrow, an interims and investor questions presentation. It should be interesting. I'll be tuning in.

Looks like Breedon's adjustments will be accepted and the merger will move forward. Hopefully with full integration before year end - just keeps ongoing comparisons cleaner.

But the detail of the commentary is interesting (at least to me).

"These undertakings will require the divestment of a small number of ready-mixed concrete plants and an asphalt plant in England, and two quarries and a cement terminal in Scotland."

The CMA raised a competition concern with one quarry, so I assumed a simply addressing the CMAs concerns would involve the disposal of that one quarry. The fact that there are two quarries for disposal suggests to me they have decided they prefer to keep the highlighted quarry and satisfy the CMA with the disposal of two alternative quarries - perhaps quarries not even part of the Cemex acquisition, but part of their existing estate. It seems a sensible strategy to consider the bigger picture. Perhaps a similar approach was made wrt RMC locations.

Hi Pelle, thanks for your reply.

Two points:
The BE guidance applies to the full year, so I make no attempt to split the year between H1 and H2. If production or oil price was very different between the two halves then my approach would be suspect. At the latest report ENQ confirmed the BE numbers of $33 for 2020, and $27 for 2021. I took this confirmation to be both significant and very good news.

Which leads to the second point, hedging. I was confused by the commentary around hedging. The text referred to floor prices but I picked up in the Q&A that at least some of the hedging were collars - I heard $48 - and I didn't take that to mean the Oz hedges. I considered contacting IR for clarity, but my understanding is that BE guidance is based on the price of Brent at the mid point of guidance. Doesn't this exclude any other factors from the guidance, including hedging?

I occasionally look in on the Swedish board - it has some good posts.

Tarmak, has posted a link to his (assuming male gender) detailed and (compared to my sheets) well presented spreadsheet on his expectations for ENQ production and cash flows for 2020. He invites comment, so I'll post some here in the hope he picks it up.

Bottom line, is FCF number is $6m below mine. He uses BE so I wanted to examine the difference, particularly as he uses a lower oil price than my $45 for H2.

Very minor points on shutdowns. He has Malaysia in Q3 but this was completed in June (Q2). Nothing for other NS (Scolty) - I suspect there will be. Only 7 days for Kraken. I haven't rechecked but I had in mind 2 weeks, and there is a significant ramp up period getting the hot water back into the field and circulating.

Therefore, he has a higher production number than mine. I'm hopeful of 64K for 2020 barring any bits falling off the infrastructure.

I don't think he has taken the c$70 of PIK into account, but I may have missed it in the translation. This component is excluded from the $33 BE guidance.

But the big difference, and the only reason I post, is in the handling of the break even guidance. He has applied the $33 to the production number. I've taken a more aggressive approach based on the detail of ENQ commentary.

The $33 BE number is based on the mid range number of 60K. If 64K is achieved, how is this additional 4K valued?

I've assumed that the only additional costs are transport and tariff . I've allowed $5 for these, so my closing sum is:

$(45-5) x 4,000 boepd x 365 = $58m.

Open to challenge! ;-)

romaron, you say, "Tullow bonds also show on the Luxembourg Bourse and there is one there for 15/04/2022 (65.857). I don't follow TLW but their situation is quite precarious and it doesn't make sense (to me) for it to be valued higher than EnQuest?"

No doubt you understand these bonds better than me. Also, I don't follow TLW, but I do know that as long as companies produce cash flows that can support the credit lines, those credit lines will be provided albeit at perhaps higher cost and a reducing cut for the equity holders. I doubt that TLW is going bust - perhaps a refinancing along the lines of PMO.

Back to your comment about a price disparity between ENQ bonds and TLW bonds. I can see two factors that could support a higher TLW bond price.

1) The coupon. ENQ pays their 7% coupon in the form of a PIK, which is additional bonds currently priced at c60p, so the equivalent coupon rate today is 7% x 0.6 = 4.2%. At expiry the full 7% is realised on bond repayment. But the additional bond is compounded per annum.
TLW pays (I don't think they have a PIK clause) a 6.5% cash coupon. If the holder uses that to buy additional TLW bonds at todays price of 66 and holds to repayment he has an effective return on the coupon of 9.8% (that's before compounding).

2) The expiry date. A large part of the return is the difference between today's bond price and the repayment price (100) on expiry. In the case of the TLW bond that occurs April 2022 - 20 months from now. In the case of the ENQ bond that occurs Oct 2023 - 37 months from now.

Both of these factors support a higher TLW bond price. Of course there are other considerations, not least the likelihood of an extension and probable change in coupon, but these factors are less certain and hard to quantify.

As these bonds get extended they start to resemble 'Hybrid bonds'. Some of the larger companies are securing very good rates on what are effectively a perpetual loan, subject to certain withdrawal clauses. If ENQ could get a good coupon rate that would be an interesting consideration - it would remove the bank fees paid at every restructuring.

Sweatysock, you highlight "43K out of hours buys".

I wonder if your are interpreting these trades correctly. Perhaps you have access to Tuesday's pricing action, I don't.

The 15.5m trade went through on Tuesday @0.18p.

08-Sep-20 13:26:28 0.18 15,565,471 Buy* 0.17 0.18 28.02k O

It's reporting is delayed to a time, after hours yesterday, when 0.018p is flagged as a buy. Was it a buy?

One thing we know with certainty is that 56m warrants were exercised, which strongly indicates that the holder(s) has sold 56m associated shares for >0.15p. No doubt this results in additional cash for MSMN but existing shareholdings are diluted. If this additional cash is funding productive and profitable development then there is a return on the additional cash. But you know as well as I do, that MSMN are not covering their overheads, so much of this additional cash is not getting a return, other than as a means of delaying the next equity call when ever that might be. Perhaps not for some time if the price holds above 0.15p - there's still plenty of warrants in the pipeline, with more priced at 0.23p.

This isn't necessarily bad for MSMN shareholders providing one or both of two possibilities occur.

1) US production reaches a level that covers overheads and produces a return to shareholders. Accounts are available, which alongside the ongoing production reports and drilling news, permit investors to make this judgement for themselves.

2) A successful Farm in of the Oz asset(s) occur. The wild card, and something impossible for investors to assess.

An issue I have is with the opaque nature of trades being reported. Perhaps the mms are playing games - many of the larger trades are delayed or deleted - but I wonder to who's benefit.

This is the picture I see, and I'll be interested to see how it plays out.

If any posters here see a different picture, then please present it.

Hi Pelle, you welcome. I just hope you have change after gbk's deductions.

I'll skip on a comment on hedging, but your comment on CapEx intrigued me. What should they have cut this year? Magnus and Kraken were already in progress. I see nothing beyond a c$50m licensing cost for 2021, but with production and 2P reserves in decline I have ENQ hitting the GO button on just about everything in 2022, assuming the oil price plays ball.

Yes, I think AB and ENQ had a good H1. The resilience of the share price in the face of $5 off the oil price suggest support coming from somewhere in the market.

Hi Squif,

1. "Enquest declared that they will receive $50M from Petronas in 3 installments". Yes they did, but how do you get to a $17.1m credit with the loan paid off. My workings are $31.7m debt plus c$50m to be prepaid gets me close enough to the 17.1m credit. If they know that the 2nd and 3rd payments are due in H2 how do you think it has been accounted for their accounts. An open question. They're your numbers.

2. I agree with your $50m number. But now wonder how you might account for this. All in H2 or spread over the year. Another open question.

3. Okay. I just wondered if you had a reference. On Kraken, I revisited the Oz cash flows as I was impressed by the numbers ENQ posted last week. I didn't post my workings, but here's an extract, "Cost adjustment is sum of OpEx ($12.5/$10.5) plus FPSO ($8) minus Kraken premium ($5). In () I have example numbers, but the only one I’m sure off is the FPSO $8." So I have the FSPO $2 below your number. CNE report more detail on FPSO costing and I think it was there I saw a reference to fixed and variable FPSO lease costs.

Applying this cost adjustment, Jan-Feb $12.5 and Mar -Jun $10.5, fitted the data ENQ supplied. Incidentally, it gets me to a net Oz debt of $56m for year end, at a $45 Brent price for H2. Not a biggie but something I'll look out for year end.

4. On next years production number. 4K down is due to the loss of old fields, A/G and Dons. The bulk of the rest is due to my expectation that Kraken will come off plateau into significant decline within the next 12 months - based on 2015 CMD info. Worcester negates some of the impact but this is largely timing. Interesting to see if c40K gross is maintained to end of year.

5. I wouldn't expect the market to add a value for Bressay until it becomes a 2P contribution.

I don't know TLW, but I think PMO was unlucky with the timing of their planned debt extension. Tough on investors there. I was never a fan because I couldn't value all the moving parts and too much gas, but I am considering a trade around the placing.

As I pointed out in a post 20th Aug, these warrants were always in the pipeline once the price went above 0.15p. I also said, "In practice, I don’t see the sense in exercising these warrants until a sale of associated shares is in place – why take the risk?"

I enjoyed the first RNS.

"At Stanley-1, the first workover rig and crew did not meet the Operator's stipulated criteria"

Gotta wonder what turned up on site.

Squif, I’ve chosen to work with the BE numbers ($33 for 2020) but maintain a watch on the component parts in case ENQ move away from this guidance.

A few of your line items caught my eye:
$34m from Petronas – are you double counting this component? Page 10 of the interim report has this item, ‘Net cash received on termination of Tanjong Baram risk service contract 17.1’. I assumed from this that ENQ has already taken account of the scheduled repayment in their H1 net debt.

Decommissioning of $50M. I played back JS’s comment a couple of times. Did he say $30m or $50m? I too heard $50m but I’m sure only a few months ago he guided to $30m p.a. over the near term. I think some inflation here. $20m might not sound much in the greater scheme of things but it’s Pelle’s dividend we’re talking about!

You say, "Kraken lease I calculate on our share of 35k barrels a day giving me $45M" – this seems very precise, so I wondered if you have a reference. In 2019 accounts, Enq said, “undiscounted contractual cash flows of $115.5 million payable within one year” in relation to the FPSO lease in 2020. Is this just the fixed cost required to be identified under IFRS 16, or does it include the variable cost? Again, on page 10 ENQ has $56m for lease payments. Is this just the FPSO or does it include contractual rent payments for offices? If I was itemising this component for H2 I’d go with another $56m.

This reminds me why I like the new BE metric so much more. ;-)

To the wider picture I’ve crunched the BE numbers through to 2022, with my own assumptions, and like the outcome. However, I suspect next year’s production forecasts might surprise a few to the downside. I’m around 55K boepd top end.

I didn’t like the uncertainty that the Bressay news introduced so was relieved by the updates at the interims on probable tie-ins and some clarity on the near-term credit structure. Also, good to understand that Oct 2021 isn’t a make or break event - no equity raise in the picture.

romaron, you make two comments that make little sense to me.

You say, “I can't see why you're upset that Institutions will be allowed in at a placing price.”

What does that mean?

The institutions will attempt to get the best price available to them. That is exactly what they should do for themselves and their clients, and I didn’t think I’d made any suggestion that I’m upset by that.

Your post doesn’t exhibit any understanding of the point I was making. The CEO has concerns, rightly, that the equity raise is too large to push through without the full support of institutions. To get that support, his comments today indicate that he has structured the offerings to greatly favour institutions over retail investors – that is my beef. I’m not invested here, yet, but the treatment of retail investors does annoy me. In fact, I believe he has structured it in a way that guarantees its success. My issue is that it does not demonstrate any support for the retail investor beyond the segment that has full underwriting from the creditors. The retail investor has lost c60% of his pre-emptive rights. The institutions have gained those rights and have their rights, if they are shareholders, under the open offer too. Tails you lose, heads I win.

You also say, “I fancy that the RI may surprise.”

In what way do you expect it to surprise? If it is an RI it will be a huge surprise to all as the CEO today described a firm placing aimed at institutions, whether shareholders or not, although I guess they’ll favour institutional shareholders, and an open offer at the same price to shareholders. The share price might rise from here and with it the placing price. The bottom may have been found, but it’s finger in the air stuff. Is that what you mean by surprise? You are making a trader’s prediction?

Fine, but be clear, the offer is not an RI.

As far as the creditors are concerned. I didn't mention them in my post, but I've said previously that I felt they had rightly acted in a manner to reduce their risk. The PMO stakeholders include equity holders and debt holders. Each has a part to play in PMO getting through what has largely been unfortunate timing wrt debt levels and the onset of Covid and the oil price crash.

The point of my post was to provide a measure of how the placing price might impact on an investor buying into PMO ahead of the placing. Numbers!

A response to what I think have been many ill-informed posts on the subject – intentional or otherwise.

Malcy says, he “would be a huge supporter from these levels if I was a holder or even considering it.”

I tend to agree. But If I had been a PMO shareholder prior to the announcement 20th Aug at >34p I’d be very annoyed at today’s disclosure that perhaps $325m of the $530 being sought will come from the ‘firm placing’ to institutions. PMO is limiting the open offer to only $205m, the amount covered by the creditor underwriting,

If the retail investor who bought at >34p had the ability to take up their full rights I’d call it a fair result, but 60% of their rights will not be available to them – those rights are being offered to institutions instead.

To be clear, I don’t mean that an investment at 34p was a good investment. Simply that the investor, limited to the open offer, has effectively been forced to sell 41.7% of their investment at 50% loss (assumes 17p placing price) to institutional investors. This retail investor hasn’t been allowed the option to ride out the storm.

My numbers:

Current market Cap $250m, represents 100% holding
Not taking up rights $250m, against new Mkt Cap $780m, represents 32% holding
Taking up rights ($250m + $205m), against new Mkt Cap $780m, represents 58.3% holding.

A similar discount impacts a buyer today at 20p. Assuming a 17p placing price, the outcome is an effective forced sale of 41.7% of their investment at a 15% loss. Why would a retail investor buy today at 20p? Because they have an expectation that a higher price post rights will more than make up that loss.

I expect that to be the outcome, but not guaranteed. If my numbers are correct it’s easy to work out a price target for profit.

I post my calculation in the hope someone can spot an error, in fact happy to be proved wrong – otherwise it confirms the typical poor treatment of the retail investor. (I can see a small error in my assessment, depends how you weigh additional investment or averaging down, so not precise, but I think close enough to get a handle on it.)

captaincarpet, I’d be interested to know to what extent you use Headlam’s distribution network and to what extent Headlam’s distribution is subject to the lack of stock you’re experiencing?

In their H1 presentation Headlam discussed factors around stocking, key being the variable demand across say, the colour range – a stronger demand for beige rather than red. They broke these down into Gold, Silver and Bronze product. Gold flew off the shelf, Silver less so, and the Bronze stock hung around much longer. Although not stated, my take is that one solution is to ensure that all distribution hubs had a good level of Gold product, but Bronze product was held by fewer hubs. For you as the customer (B2B model) looking for a red carpet for your client the impact would be a slightly longer delay in supply due to longer transportation and/or an extra cost.

I’d be interested to know if you are charged more by Headlam for say red rather than beige, give the same product type, i.e. is the impact on margins of the G/S/B strategy taken by Head or transferred to you and your client?

romaron, as far as I know there are three distinct types on algos operating on the markets.

High frequency, which get between you finger hitting the order button and your broker enacting the order, to skim a little off. Oh, how times change. I can remember phoning my broker to get a price for xy - the closest idea I had of the price was the latest teletext update an hour or more old – and the broker coming back a minute or more later asking for my instruction. Of course, having picked up the phone to trade, I was taking whatever price was offered. Mind, I think limit orders were available.

Order fillers, which are used to enact a large trade without creating an illiquidity issue that would work against the trade.

And ‘work or phrase detectors’, which are the type you describe. I’m now picturing such an algo scanning yesterdays update at 07:00:01 for word counts on ‘impairment’ and ‘delighted’, coming up with a 5:5 draw, then turning to a sub-routine for a decider, before initiating a trade at 07:00:02. Meanwhile we have an hour to digest the meaning behind AB’s opening remarks. I know which route I prefer. I wonder if the algos are configured for English and American gramma. Well I don’t wonder. I know they are.

In the longer run it’s cash flows that move markets. We might call it value investing. But in the short term it is algos, momentum and a myriad of other things.

I’m struck by the similarities of today’s market, particularly in the US with the technology boom of the late 90s. The professionals in the market know it isn’t rational but its more than their jobs worth to be behind the curve. Many investors are now playing with the ‘house money’ – a freebie if you will – and will take chances they never would with their seed capital. Parts of the market will roar ahead to unexpected heights and then it will stop. Nerves will jangle, but if you still have the house money in your account, what’s to lose. Many will step off the train before it hits the stops. Others will not, and cry ‘conspiracy’ as they work through their seed capital, just for the chance to exit with a profit. “Just a little please, I’m not greedy.”

I’m with you Bro. Let the other children play on their rollercoasters, while we make castles in the sand. What’s the worst that can happen? We get grit between our toes.

Our time will come. Maybe!

Jan, that is a sad story. It doesn’t even sound appetising. What were the marketing people thinking of?

KFC – that’s the connection. I don't know if that makes dyslectic, or just hungry. But the idea of a deep-fried Mars bar has dulled my appetite.

gkb, since Monday miss has allowed me to go to the gym. It won’t be long before I’m running free through fields of scotch thistle. There’s a rumour doing the rounds up here that if the sacred Nicola doesn’t get her wish for an independence vote, she’ll run for Westminster. Nicola as your PM. Imagine it.

https://www.theconstructionindex.co.uk/news/view/d-day-for-hs2

and every hole needs filling!

Yep, I can see AB as old school. But, now you mention it, on the legal side, I hope they are paying their bit of the c$150K per month hot stack charge.

I don't know why but every time I see 'KUFPEC ', I think , '2-piece variety meal with extra fries, please!'.

Hitman1a, you say, “ KUFPEC now settled in full”. But further on your extract points to a further payment to be made in H2 of $5.6m.

“A total of $5.6 million was paid by June 2020, with $5.6 million disclosed within current provision as scheduled for repayment (31 December 2019: $11.3 million).”

It’s a minor point, and I may have misinterpreted your post, but I make it to highlight the challenges of working through Enquest accounts to forecast say, a year end net debt number. A task we faced until Enquest introduced the break-even metric, $33 for 2020.

Looking through the detail a few things caught my eye. We have this, “The remaining two reimbursement instalments are due from PETRONAS in the second half of the year.”. But when you look at the net debt to end June 2020, we find that the due payments have already been taken into account with a resulting credit on the Tanjong ‘loan’ (now called a service contract) of $17.1m.

A cash payment of $25.8m was made to BP in consideration of their interest in 75% of Magnus. A profit share of £21m and a payment to the Vendor loan of c$5m. I thought the payment of the vendor loan came ahead of PF, but perhaps my memory of this detail is wrong.

On the balance sheet side. Much has been said of impairments due to the lower oil price, but there are benefits too. Because of lower price forecasts for oil, payments towards BP’s consideration in Magnus have been pushed further into the future. Discounting these reduces their value today to $505m from $657m Dec 2019. A reduction of $152m in the provision, when only $26m of cash was paid. The proverbial ‘magic money tree’. Perhaps Jan is right. A different accountant might have turned -$57m into +$1m. But I’m old school and work in cash, rather than impairments, contingencies and re-adjustments. Life’s too short.

JS – thanks for the $33 break-even metric.

Therapist, as rants go, well balanced. Bits I agree with, some less so.

Although the Q&A got messy I felt I leant a lot more as a result - but I felt I had a good overall view already, A- ;-)

I don't think AB brought his best game. The question on Kraken production forecasts was an obvious one to ask given the excellent H1 performance. I don't know what AB heard, but I don't think it was the question. Credit to the questioner that he asked it again, and as a result got an illuminating response, which I commented on earlier.

But to be honest, the report and call didn't take up too much of my time today. Like you I appreciated Oilers heads up on the licensing round and I felt that was better use of my time.

Yes, one near Magnus.

211/12b (exploration) - Tiger prospect east of Magnus

Conclusion on relinquishment March 2013

Elixir has fulfilled the PART I work commitments by obtaining and reprocessing 633 km2 of 3D seismic data. On the basis of this data and new biostratigraphic and fluid inclusion studies, Elixir has mapped the Tiger Prospect, which whilst economically attractive, required a farm-in partner to commit to drilling the contingent exploration well. Elixir has not been able to find such a partner and has elected to relinquish the Licence.

21/18c (exploration) – Block is just south of GKA hub

No info found. But I guess Enquest has seen something that might lead to a tie in.

211/23a, 211/24a – Dunlin development

This field is being decommissioned by Fairfield. Viability was impacted by the 2014 oil price crash and infrastructure failures. The Dunlin bypass was constructed last year.
This one has me confused, unless I'm completely off on the block. What are they looking at here?

211/18j (development) - near to the Dons. Yesterday's news?

I don't see this as big news - I just had to check it out. It adds to future options. Time will tell if it adds cash flows. I just hope there are no Alma/Galia developments amongst them!