Member Info for londoner7

It sounds to me like my bright new ESG world includes some compromise. Greta never told me about these!

Using the numbers I need 100m2 of solar panels in my garden to meet my modest electrical demands – a table lamp, a PC, and TV, oops I’d forgotten about my 1956 Wurlitzer jukebox – okay maybe not so modest, but where do I plant my carrots?

“Add a few carbon molecules to hydrogen to make synthetic fuel." Okay begs the questions where do the carbon molecules come from and how many do we need? I see note [6] has part of the answer – produced from air, and the exhaust gases of cement manufacture. The first sounds expensive but I like the 2nd as it supports my investment in Breedon Aggregates.

This too caught my eye, “unproductive grazing of animals on rough pasture. This is concentrated in Scotland.” Is he talking about grouse? Well if we don’t have grouse to shoot (speaking as a naturalised Scotsman), it will have to be the English. Be careful when you come up to escape your fields of solar panels!

L3Trader, you asked for the last 10 Kraken offloads. Here's an extract from a sheet I maintain. For fun I calculate loads from draught using formulae I developed. It only takes me about 15s to run each time, but I've now found that the interval between detachment times and assuming a 500K load - except in the odd, and usually obvious instance - gets you close enough to the OGA numbers. That's now the metric I use, a running average over 4 loads. I've noted that recently the numbers Enquest report are below the OGA number. I take this to mean Kraken is using more field oil in its two generators, which can each run on the three fuel types. Not as cheap as the prospective Bressay gas but much cheaper than diesel. It might not sound a bit deal but I estimate cost differences of >$10m p.a. (I really must get out more ;-)

Detached
Date Time
24/08/2020 16:00
09/08/2020 08:00
28/07/2020 08:00
15/07/2020 15:00
04/07/2020 15:00
20/06/2020 21:30
09/06/2020 20:30
29/05/2020 06:00
18/05/2020 14:00
04/05/2020 16:30
22/04/2020 20:00

"headline". I meant "headwind"

Hi chilting, I don’t think I’ve seen you here before – it’s a quiet board. Are you in Breedon?

Bitumen is one of Breedon’s largest commodity costs and has been a headline when oil prices rise, so Breedon can be seen as a hedge to your oil investments.

The recent oil price slide has shown up in a c16% drop in Bitumen pricing, following some decline through the latter half of 2019. Hard to quantify but this cost reduction should help margins alongside the above inflation price increases announced last month.

Odd. Had a poster appear here yesterday. One post and he’s gone, along with his post. I wasn’t sure if he was speculating on any CMA outcome. The CMA does appear to be a ‘leaky bucket’ in respect of market impacting news but in this instance CMA news was never expected to be significant.

The CMA headline, “Construction materials deal raises competition concerns” was a near certainty. It all comes down to the detail. It’s a great deal for Breedon, but remedies were expected - the closure or sale of some sites.

In the event, CMA highlighted the cement market in the East of Scotland. My take on Breedon comment is that they may have hoped the cement terminal in Leith would escape the review, but no doubt has suitable plans in place if it didn't The other areas of competition probably relate to RMC plant. When the Cemex news came out I recall thinking, the Sherburn acquisition in 2017 included a cement terminal in Dundee. The two are pretty much each side of the Forth estuary.

I guess Breedon will have already decided on an appropriate remedy. Unless the CMA really has thrown up something unexpected I expect Breedon to accept the findings within the week avoiding Phase 2.

When asked about the interim holding company, Pat said it was likely to be in place for a few months after the CMA announcement. The implementation of remedies could take the rest of the year.

Next news is expected in Sept, with an update on the market since June.

When I commented on this last week I'd forgotten about tomorrow's CMA phase 1 deadline on the Cemex acquisition. I still suspect recent weakness may be due to a share overhang from the Investec sale but there may also be nervousness around tomorrow's decision.

If there is adverse news tomorrow I'd be surprised if it was substantial - I have a value on the entire acquisition of only 6p - but there has been share prices movements recently leading up to CMA news which has been noticed by markets.

There may be a further delay but if there is CMA news tomorrow my expectations are for some closures on RMC sites.

I’ll try and help with fundamentals. I was invested here till a few months back, so I have some understanding of the financials.

A basic target valuation is straightforward. Their medium-term target is £1,300m revenue, 2% operating profit and £13m central costs. Tax is c19%. They have indicated a x3 cover on dividends. There are odd items like PPP investments, which can generate a profit or loss c£1m so can be ignored.

Updates to year end June 2019 have been issued. Loss and cash balance down, no surprise considering so draw a line under the numbers, but the full announcement next month (?) might still have something to chew over. If anyone here points to the cash position for reassurance then I'd guess they don't know much about this business.

Drawing out the medium-term targets gives us:

((£1300 x 2%) - £13) x 81% = £10.5m Shares in issue 111m. EPS 9.4p, Div yield 3.5% @ 88p

That’s the medium-term target, say another year or two out. For the current year consensus is 6.14p EPS, with 3.21p low, representing 1.6% and 1.3% operating margins respectively.

Prior to demerger the 2% margin had been a construction goal for five years. The best achieved was 0.9% and that was before exceptions. When I reviewed the numbers a few months back I wasn’t optimistic of even 1% being achieved this current year so I sold.

For the investor, the margins are so small that I guess it wouldn’t take much improvement in the quality of their contracts to surprise to the upside. Extra contracts (revenue) can help, but the most important metric is margin.

For the traders, the pullback has been strong and in the absence of bad news could spring back. Whether a spring back is from here or a lower point is the trader’s call. Traders here have been calling the turn since 130p - they need a 50% recovery to get back to those levels. Who knows?

I’m not a trader. Good luck.

But I hope you now understand the fundamentals.

chilting, it would be a nice outcome for everyone. Swap the lipstick for sun lotion, good money in the ENQ account, and well out of JS's eye line.

I'll leave you to write the postscript ;-)

Da_Gee, last I heard JB was still interim CEO and Chairman of Norseman. If I was a shareholder in Norseman I would hope that he knows exactly what is going on in the company. He recused himself from a decision on Mosman's stake, hence my question, who took the decision? AC alone?

In investment banking they call such divides "Chinese Walls". Well named!

The question was asked (not by me), and as I recall the answer was something like, “all options are being considered”.

EP is an old girl, I think originally built in 1995, but a full refurb as an FPSO was completed only five years ago with an expected field life of fifteen years, so who knows

My understanding is that several FPSOs have come onto the market recently so perhaps supply exceeds demand. However, Enquest will have assessed the market so if they are putting on lipstick and readying for a dance, perhaps there is a chance the girl will have a productive life in our village or the next.

Stand her in the corner and see if anyone shows an interest, but I doubt if Uncle Bressay will be dabbling. Jeez, I go too far sometimes!

As scrap the hull value might make c$5m, the question is, does the associated FPSO kit have any significant additional value? Where are the ship engineers on this board when you need them? (romaron - I suspect they are counting their Amazon shares)

In my mind I keep coming back to the 32nd licencing round without a clue as to whether it will throw up any opportunities, but perhaps until the market picture is clearer, she’ll keep her place at the dance. If the specs marry up, a bit of surgery, a new name, and, as I said, who knows. Putting her back out as “Enquest Producer” would be the kiss of death. Mariners are a suspicious bunch.

Otherwise, it’s a one-way trip to Alang – with or without lipstick.

She was an early love for JS, but recent years have been a nightmare. Breaking up is hard but it’s usually for the best.

THE END

Pitch inspection at 3pm.

I struggle to see this as anything other than good news for Mosman investors, but it raises some questions.

JB recused himself from the decision to sell the Norseman stake. So, who took the decision?

There may be good reasons to retain a stake but what are they? Mosman should make it clear. I believe it is wrong to retain the stake with JB's involvement. They should sell the stake. If JB wants to stay involved in Norseman then fine, but not behind a Mosman holding - is it this that supports his position? Perhaps legal, but in my book dodgy.

Yet again, another mid morning RNS. No doubt again hoping to prompt a short term spike and trader interest. But on this occasion a fairly obvious stand out buy of 5 mil shares before the news. Insider information?

As always, I watch this story play out from a safe distance. I'm sure there are many twists and turns to come.

chilting, I hope you're right. The direction of travel looked odd but I'm inclined to agree. I'm not sure about the AIS coverage being the issue. For two days its been fine then, not unusually, come hook up it isn't - I think a switch is involved.

That's why I use the detachment times to determine offload cycles.

(continuation)

I can be brief on the PMO executive. Their primary focus is themselves, including a successful continuation of the business – money and their CV. The top three executives have share holdings <25% of their 2019 salaries. This restructuring resets the share price nicely for their future awards. PMO employees can have greater confidence in their future job prospects and hopefully they have not been investing in the business paying their wages.

Over the years I’ve come to know a few of these CEO types, and I have great respect for their abilities and dedication, but they are also very ambitious and want their pound of flesh. Unfortunately, the system allows some to extract huge fortunes in fast time for relatively little effort if they find themselves in the right place at the right time, i.e. largely down to luck. In today’s system most are typically overpaid managers, unlike entrepreneurs such as Elon Musk, who I think more deserving of their fortunes.

Past share prices are an irrelevance. Whether it is the 100p plus for PMO last Jan on the news of the BP acquisition and the prospect of >$65 oil, or ENQ, with similar debt reduction prospects, at 30p. Remember ENQ launched at 100p over ten years ago.

The cricket is back on with the football later. I plan to come back with my view on implications for ENQ in a day or two but would appreciate any criticism of my comments so far.

Over the last few days I’ve looked closer at the PMO restructuring, its history and the last restructure in 2017 in an attempt to gain better insight into Enquest’s position.

My assessment is geared to what I can learn with respect to my investment in ENQ rather than any consideration of the investment case in PMO.

First some correction/clarification of comments I made a couple of days ago concerning expectations for the structuring and the outcome. I hadn’t appreciated that the original expectations from Jan 7th were centred on an extension of the existing agreement to Nov 2023, with the expectation that a full restructuring would be completed during 2022. Clearly, the events of last Spring around Covid and the oil price have overtaken that plan and a full/fuller restructuring is now the order of the day, out to Mar 2025. Unfortunately for PMO equity holders, from a very weak position.

The three key stakeholders in PMO (in no order) are the equity investors, the credit investors, and the executive. The position of the equity investors and their objectives are familiar to readers, so I’ll expand on the other two stakeholders.
The credit investors objectives are little different from those of equity investors, but I’d argue they are a more sophisticated group in terms of their analysis and the financial structures available to them. In brief, they want investment returns as much as equity investors but within a tighter range, i.e. a primary goal is to preserve capital, an expectation is for 7%-10% p.a. return, with the bulk of the speculative froth left to equity investors – credit investors may include a warrant or convertible bond element to play some of the upside.

Against those considerations I think the 8.34% interest level is reasonable – unlike 2017 creditors are not participating in any additional upside. They are forcing an additional equity component to give them better security out to the next restructuring expected in 2024. The forecasts are interesting, 18 months forward curve then $55, points to 2.2x leverage, and 18 months forward curve then $65, points to <1x leverage. These price profiles sit either side of the McDaniel forecasts (my thanks to romaron for introducing me to this, which is now my key tool on oil prices).

Over the last few months, the creditors will have seen a more detailed picture of PMO going forward than presented last week. Negotiation will have been tough and ultimately, I suspect the 2.2x leverage price point will have formed the basis of the agreement. Purely my hunch, but perhaps with an equivalent outcome for credit and equity holders. If so, this might equate to a 35p starting point with an 8.34% return to end 2024 for 50p, and a wild ride along the way. Remember this oil price profile is below the McDaniel forecast and most oil bulls.

To be continued

hitman1a, you say, "we have 2 debts becoming payable in Dec 20

1. $32m: TB : contracted ended in March 2020, so now payable.
2. $32m SVT : BP loan:

On the Tanjong loan - it is now repayable, but I recall a comment by JS that monies to be returned following the end of the agreement more than covered the $32m due. This from the latest accounts. " EnQuest will receive the outstanding capital expenditure of around $50 million over a period of three quarters, with the first repayment due in June 2020."

On the SVT/BP facility - I mentioned this a while back and L3Trader responded with the view that the facility would be extended. At the time I wondered about this, but a comment alongside this facility backs up the option.

"BP has agreed to continue to provide its guarantee of such a working capital facility for EnQuest NNS Limited until the earlier to occur of:

the date on which production from Magnus permanently ceases; or
if the operating agreements for both SVT and the NPS are amended to allow for cash calling, the effective date of such amendment"

Hi Pelle, I've changed the header just for you.

I think you’re young enough to see an Enquest dividend one day ;-)

Whether that occurs in 2022 is another matter.

In the greater scheme of things, a dividend isn’t a big item, $20m would represent a 7% yield, but we know there are credit restrictions in place preventing one.

This from the debt page, “Borrowings subject to mandatory repayment out of excess cash flow (excluding amounts required for approved capital expenditure), assessed on a six-monthly basis”, sums up the current position (thanks to hitman1a for highlighting the new links).

I suspect the biggest key to a 2022 payment will be any revised credit terms, which I expect in 2021. I’d guess new credit terms will need to be agreed with the bond holders. As I’ve said previously, I have no idea what the make-up of the new capital structure might be. Of course, we hope that it doesn’t require additional equity, but as the PMO experience shows, the creditors can be tough negotiators.

We have a potential Bressay development in the headlights, but who knows what might be lurking in the shadows.

But I’m more focused on the here and now than 2022.

I want to see a steady improvement in the oil price without the volatility we typically see. The spikes allow shale to hedge future production, and the traders to arbitrage regional differences – those earnings ultimately come out of the income of the bread and butter producers like Enquest.

If the oil price averages low 50s in 2021 I think Enquest will do well provided the stuff they control performs as expected and they can achieve their cost targets.

Operationally, stuff happens, and its normally bad. We observe Kraken offloads on typically a 12-day cycle, and we’re now looking at a 14-day one. The Worcester wells came on stream a few weeks back. No real worries, there’s probably a level of optimisation with the injection facilities, and worst case there’s a maintenance window due in the next month or so.

On cost targets, Enquest stated $15 barrel, before leasing, and $12 next year. Yesterday, PMO were very clear that they saw little to extract from the current OpEx service agreements (CapEx reductions, yes). How do Enquest get down to $12 on what are expected to be lower production volumes? I’m sure they have a cunning plan, let’s hope they can execute it.

I’m hopeful of a reassuring update in two weeks, but as I said, stuff happens.

January2, I believe investors should have rules. If that was one of your late father's investment rules, then I'd say it isn't a bad one to have.

But I'd like to expand, particularly within the oil sector and Enquest specifically.

I start with the oil sector rather than the market more generally because, let's face it, the oil sector has been a tough place to invest over the last decade or two. With that in mind, an oil executive might follow another rule. 'Don't invest in the company that pays your wages'. During my career that was a rule I stuck to.

If an oil executive consulted a financial advisor about where he or she should be investing for their retirement. What do you think would be the advice? I would hope that it is to invest across a broad range of asset classes, and doubt it would be to invest in the company paying their wage.

The self employed business man or entrepreneur is likely to invest a substantial part of their returns back into the business they run assuming they have confidence in the market and their abilities. The same can't be said for the typical oil executive. Let's take JS as an example - CFO at Enquest. JS is set annual bonus targets that are substantially within his power to influence and long term plans (3 year cycle) over which he has less influence and is largely at the mercy of the price of oil - commodity producers are price takers, unlike many other business'. I don't know the relationship between JS and AB but I guess AB largely runs the show so to an extent JS is also a decision taker within Enquest. Therefore, I am not surprised that JS only has a nominal holding of <£100K in Enquest.

The only substantial director holding within Enquest is ABs. He is the founder, Enquest is his baby. He is not going to sell up in Enquest and go to another company, of that we can be certain. What are his plans for Enquest? I believe they are aligned with Pelle, in that he would like his foundation to receive a dividend stream from the investment in Enquest. I suspect selling capital to generate 'income' would hurt. I hope he gets his wish - AB and Pelle.

Within the companies I follow I watch director buys very carefully. The typical executive is well rewarded with annual and long term bonus so significant cash buys are rare. On rules, I have a simple one here. 'There can be many reasons for a director to sell, but there's only one reason to buy'.

Hi romaron, you say, “I'm not invested in PMO but this is the first time I've thought that they might be worth a tickle.”
I think any oil investor, in Enquest or elsewhere, should be looking at PMO, so I’m using your comment as an excuse to post some valuations on PMO here. I hope other ENQers will excuse the post.

Before yesterday’s news the market had expectations baked into a price of 34p and a market cap of c$400m. Essentially, a $230m equity raise, and restructuring at 8.85% to Nov 2023.

Yesterday’s news was good, 8.34% out to Mar 2025, and awfully bad, an additional $300m equity raise.
It seems to me that the market has adjusted accordingly:
Prior: mtk cap $400m plus equity $230m = new mkt cap $630m
Today: mtk cap $275m plus equity $530m = new mkt cap $805m, a difference on mkt cap of $175m

$300m on new equity, reducing debt, at 8.85% (expected interest rate) equates to c$26m of additional FCF p.a. which equates to a 15% yield on the additional mkt cap. I think 15% is a reasonable valuation in the high debt NS oil sector for this FCF metric.

The issue for current or new investors, who can better be described as traders until after the RI is closed, is the ratio between the current equity and the post RI equity, $275m : $805m.

Put simply, excluding RI risk, sentiment etc., any change in the markets view of a valuation for PMO post RI is reflected at a 3x adjustment in the current equity.
o put it another way, all other things being equal, any change in market sentiment, be it Covid, or oil price related will be amplified 3x in PMO as opposed to say, ENQ.

In the short term PMO is a trader’s stock. Whether this is a good opportunity for an LTH to get in requires a tougher valuation exercise. While there is doubt over the completion of the refinancing an LTH with a low risk profile should sit it out regardless of any long-term valuation.

My personal view is that I have always found it difficult to value PMO because of the exploration and development activities – within those lie the opportunities and the risk. Valuing ENQ is considerably easier, at least until a Bressay FID enters the equation.

Correction, COP on Catcher is 2019.

I found this, "The re-measurement above represents the revision to the lease liability for the Catcher FPSO due to the assumed Cessation of Production date being extended by two years to 2029, given positive field performance. "

A positive update today from the operator PMO.

The bits I picked up:
Catcher oil selling at average >$2 above Brent during H1.
Two week maintenance period just finished and production ramping back up.
Additional well due on stream Sept, at c3-4Kbopd gross.
Plateau production c66Kbopd expected to last to end 2020 / 2021 Q1, beyond previous expectation
Results of trial on gas injection point to an additional 4MM 2P (gross) if implemented
At least 4 additional wells each expected to add c 1-2MM 2P (gross) - two wells postponed this year might get go ahead in 2021 but most likely 2022 - I guess it comes down to Brent pricing at turn of year.
FPSO lease liability increased to reflect a two year extension to Catcher field life at reduced cost - from memory the field life was 7 years so now expected to be 9 years.

(romaron - I was just about to post this when I saw your last post. Yes, I agree with your assessment that Enquest is in the driving seat. Also, I suspect the OGA has a hand in this considering their remit to maximize UK infrastructure and resource)

My take from you post on PMO is that you feel they got a good deal with the financing – leaving aside the additional $300m equity raise.

When I saw the 8.34% interest number my first thought was ouch! But then I noted that the heads up earlier in the year was for 8.85%, extended to Nov 2023. Today’s news is a significant improvement on interest and a further extension out to Mar 2025. And no amortisation payments.

For the record, I note the PMO Retail Bonds have gone from the original 5%, to 6.5% in 2017, to 8.34% this year. Enquest Retail Bonds have gone from the original 5.5% to 7% in 2018 – lets hope this series is broken.

I wasn’t around Enquest in 2018, so today was a wakeup for me just how tough the creditors can be. Today would have been good news for PMO investors but for the additional $300m equity raise – clearly this was forced on PMO by the creditors to give added cover to their credit to the detriment of the equity holders. (For my own interest I’m trying to work out the relative PMO valuation to this news)

Back to Enquest. I had toyed with the possibility that a refinancing might have been done by the Oct 2020 option deadline, that’s before news of Bressay broke. As I said, today was a wakeup call. We don’t want to be looking for a restructuring other than from a position of strength. I don’t think the Oct optionality is worth it so I’m expecting a 2021 refinancing event, including funding for Bressay if it’s a goer. (Watch JS make a fool of me with next month’s update). A position of strength means an announcement next month that the c$60m due in April has been paid, and a clear glide path to the full repayment of the credit by Oct 2021. However, I still expect the refinancing to be arranged prior to Oct 2021– I expect Enquest to want an ongoing credit facility in place - getting same again rates of 4.75% + libor would be an achievement. I guess a new facility will be linked into the Bonds, but I’d struggle to speculate on what the new arrangements might look like. However, a 0.75% repayment fee on the PMO Retail Bonds caught my attention. I know that ENQ can't consider a repayment of the Retail Bond until the credit line is paid off or refinanced, but I'd guess a repayment would be a goal over the coming years.

I suspect that over recent days the Enquest share price has been caught up in the PMO sentiment, and I don’t think we should be surprised.