Member Info for londoner7

A rush of interesting posts to consider.

This is the best background I've found on the Bressay oil field - dated April 2014, in the $100 oil era, so interesting to consider todays moves at c$45 oil.

https://2b1stconsulting.com/xcite-bentley-to-inspire-statoil-bressay-project-in-uk-north-sea/

Hi romaron, thanks for highlighting the explore and appraisal restrictions associated with covenants. I get the lender support for the transaction albeit on a small commitment at this stage, £2.2m to put skin in the game, and a $15m payment if an FDP is approved by OAG. I'd guess that an FDP might reference a Kraken tie-back option, but at that stage would not need to be a commitment to that option, so that would mark a reappraisal / negotiation stage with the other partners . I'd guess Enquest would only proceed if the Kraken tie in option was adopted. I don't think that Enquest Producer would be any part of this project - too lightweight based on what I understand of the Bressay project demands.

But I don't understand your reference to today's "Test reference date". What is its significance?

seeingtom, I've been an investor in Breedon for many years and feel I know the business well. However, I've been investing long enough to know that it isn't wise to get attached to any investment. SigmaRoc came onto my radar about 18 months ago. My first thought was that it could be an early stage Breedon, and it could still be, but it operates a very different structure. I was invested and followed it closely for a while but struggled to get a clear understanding, which is something I like to do, so sold out. I decided the safer option in the sector was Breedon but that isn't to say that SigmaRoc wouldn't be the better growth option. I just made the choice to limit my time researching the sector and the different business'.

Impressive same again H1 revenue numbers from SigmaRoc against Breedon's 25% down. However, two obvious differences stand out for me. Much of SigmaRoc business was newly acquired poorly performing so perhaps ripe for improvements even against Covid 19 issues - putting oomph into poorly performing facilities is the SigmaRoc business model. Also, the geographical spread between the two companies is very different.

I live in Scotland and know that the exit in the construction sector in Scotland was a long way behind England, and it still is. Sturgeon introduced several stages along the way, supervised by her Trade Union buddies, stifling the recovery. Clearly to the frustration of Breedon as demonstrated by management comments in yesterdays call. Not surprising, as by my estimate Scotland accounts for 20% of Breedon revenues. In light of that I thought 25% down a good result.

If your interest is in the sector and you've no interest or capability in assessing the company specific details then I'd recommend an investment in both Breedon and SigmaRoc. If you've the time and ability then do some research and make a choice, but I wouldn't base it on the SP movement over one day.

To give a flavour of how slow the exit is here in Scotland it was announced today that Gyms will not reopen in Scotland for at least another 3 weeks but probably 6 weeks minimum. Mum knows best!

Hi L3Trader, thanks for your comment.

Yesterday, CNE commented that they had been planning to sell the SNE asset around the time of FID, so the intention to sell was taken before any funding issues that may have arisen with the current environment. But fair to say, the price would have been better six months ago.

As I spelt out yesterday, I like CNE's current position with cash coming and no significant if any debt interest to pay prior to the Q4 close on the deal. So barring any adverse oil price or black swan events this should be a good place to sit it out until deal news is issued. I understand all 2020 drilling has also been suspended or completed. One would hope that the deal attracts a favourable market response, and so I see that as the time to reappraise the situation here.

On ENQ CapEx I note that in a recent update CNE described a reduction in some costs, which I related to Kraken, so perhaps a saving for ENQ too, which I hadn't considered in my weekend post on ENQ.

Following a recent period of uncertainty perhaps due to Fidelity reducing their holding, I sense a recovery in mood. A positive trading update yesterday and a non -exec buy this morning.

There can be many reasons for an insider to sell: tax, child needs a house deposit, relocating the mistress, etc., but generally there's only one reason to buy. The size fits a 20K ISA purchase and Keith has his finger in a few plc pies so good to see he's chosen to invest in Headlam. His first purchase since he joined the board Oct 2018.

Perhaps it has already been reported (I'm not wading through 400 posts) Petronordic on her way to Lancaster, ETA tomorrow morning.

Just an update on Egypt.

There's a piece in the FT which describes CNE as leading a consortium of bidders for Shell assets in Western Egypt, producing c100Kboeps and priced around $1B before the oil price crash. The article suggests the assets are still available so perhaps CNE is still involved in the process.

This Reuters article has more information.

https://www.reuters.com/article/us-shell-egypt-assets-bidders-idUSKCN24G1W8

Mixed news in this morning’s update.

Key is current trading with July trading to date ahead of July 2019. From a mid-June standing start that is much better than I expected. There may be an element of catch up, hence Headlam caution on providing guidance, but even so I like it.

I don’t think the stock gets much coverage by the analysts, so I’m not surprised by the erratic share price response. Some recent analyst numbers have come in extremely low. One has 2020 revenues at £490m, which is 32% down on 2019. Today Headlam said that H1 revenues are down by 34% on 2019 H1. With current revenues at or above 2019 H2 comparatives, I think that analyst will be scrambling to revise their 2020 full year number.

A c£50m swing in the cash position – I had no idea what to expect – suggests Headlam could finish the year with relatively little debt, albeit from a £27m starting cash position. That would be a great outcome for this year going into 2021, if next year comes even close to 2019 trading numbers.

Then we come to Domus. Over two years ago I posted my exit from Headlam, in part based on the Domus acquisition. Sadly, it was an early action by the new management. I felt it was completely at odds with the established Headlam business model of high-volume low-price transactions. This ‘error’ became apparent long before Covid entered the scene. I hope the management team has learnt a lesson – don’t mess with what works – but an expensive lesson at £35m acquisition cost. It ends with a £20m goodwill write-down and a review of Domus. I suspect it will be sold back to the management team for a small fraction of the £35m they were paid.

Headlam are taking the opportunity to restructure other parts of the business, which will result in ‘exceptional’ cash charges. I’m okay with that if they enter 2021 with relatively low debt, i.e. low interest charges.

Not the news I was expecting. I invested in CNE based on the cash flow from two stable producing assets, Catcher and Kraken, and Senegal production from 2023. I did not realise Senegal had a For Sale sign on it. Doh - I must work on my research!

I look on this transaction as neutral at best. Lukoil seem to like the terms of the Senegal acquisition. They’ve paid roughly the transfer on intangible exploration associated with Senegal, but we have had the oil price shock since, so I guess a fair price all round. But it seems to me a lot of activity in Senegal over recent years for little reward to shareholders. The special dividend is really the result of FCF over recent years from the North Sea producing assets. The question now is, what will CNE do with their net cash position of c$600m end 2020, before the $250m distribution? Lately, CNE has been largely unsuccessful with the drill bit so I hope they favour producing assets with a bit of exploration attached (an option expressed today) rather than a pure exploration play.

If the price were right, I’d be happy to see them increase their exposure in Catcher or Kraken, but I don’t think expansion in the North Sea is their style. I’d guess more international, and in the current environment perhaps they’ll find a good deal, although it was also revealed today that they missed out on a recent deal in Egypt.

Some success with the drill bit leaves CNE with a 15% WI holding Sureste Basin, Offshore Mexico, which has development value. End 2019 CNE had a book value of c$250m for their exploration.

Backing out the cash numbers: 600 – 255 (pro-forma Norway sale) – 300 (Senegal cash) + 100 (exploration) + 45 (NS CapEx) = $190m for the producing assets in 2020.

c$50m from an excellent hedging strategy leaves $140m attributed FCF to production. I think that’s $30-$50m light, so the $600m year-end net cash is probably a conservative estimate and could support the ‘at least’ element of the $250m special dividend.

In 2021 I can see c$200m of FCF from Catcher and Kraken, with only $20m of CapEx committed to Catcher in 2021. That’s a nice (and relatively safe) return on $1B market cap.

I started out this note expecting to reach a conclusion to sell, but now feel confident in holding. These CNE boys strike me as flash and will not sit on their hands for long. Last year it looked like a kitchen sink exercise with the Kraken reserves write-down and write-off of any potential Indian award, for the benefit of their LTIP due in 2022 – financial year 2021 - although the recent oil sector debacle probably provides a good LTIP bonus a further year out. That sets out my timeframe and I’ll assess any deals or other news as it comes in. Safe in the knowledge that those producing assets are chucking out cash and, for now, there are no plans to spend it.

Something strange happening with the offload. I doubt it's weather related.

HK disconnected after about 12 hours and is now sitting a few miles away.

Look like she hooked up around 4pm.

Stuart, blogging for Motley Fool, says, ‘many analysts believe that it (PMO) will have to raise funds from shareholders in order to complete the deal.’

ARCM, the Group's largest creditor, says, ‘ARCM have undertaken to support the BP Acquisitions and the Stable Platform Agreement through the lender consent process’

Tony Durrant says, ‘The terms of the equity funding for the BP acquisition will be announced following creditor approval of the refinancing terms.’

Londoner7 says, ‘Stuart doesn’t seem to be up with events’.

I’m reminded of a paper BHP published on a device to remove CO2 from the atmosphere. By the end of the paper it occurred to me that BHP had invented a tree.

gkb47, welcome back!

Hydrogen is a something that's only recently come to my notice. I hadn't realised it came in so many different colours. I like the idea of it solving the problem of storing excess wind/solar power by diverting the excess energy to the production of (green) Hydrogen. But at the moment I think it needs $200 oil to be competitive. That would do wonders for Enquest FCF.

However, I think we can only dream of such an outcome - $200 oil that is. One thing the Covid episode has taught me is that where there's a will there's a way, and the money. If the public truly gets behind the climate change argument then the costs of the energy transition will be met. What's a couple of trillion dollars cost when the Fed can just print it.

flundra, maybe it's the cynic in me but this part of your comment made me smile, " and won't want to be seen to be mistreating foreign investors/making India seem uninvestable by ignoring the Tribunal and refusing to pay CNE."

I'm invested here but not for the award. CNE state that it has a high level of confidence in the award. But of course they have to say that - you must have full belief in your case until you win or lose. If an award is made in CNE's favour I expect it to be for the full $1.4B. If India is found to have taken the assets illegally how can they possibly be rewarded by not having to repay the full amount?

India is already well known for this behavior. CEOs will still do business with India if it is in their interest. I doubt the arbitration process gives them any confidence anyway.

If CNE gets the award, at best I see a token amount as settlement many years down the road. Is that being cynical, or realistic?

Hi Sweatysock,

I ask the question because in my experience the presentation will focus on the areas that portray the company in the best light and the presenter feels most comfortable discussing. If you want to hear about EP145 and JVs then a question guarantees it is on the agenda.

An email to the BOD is a good practice, every serious investor should do it. I guess I contacted JB half a dozen times while I was invested. The simple rules are be polite and be clear what it is you are trying to achieve. JP always replied, but as you know he is a man of few words so good to be very clear in the question. However, I see this event as a very different medium to email, Andy will not have time to consider the response - at least I hope that's how the questions are presented - and a lot can be read from the manner of the reply as much as the content itself, which is missing from an email.

I framed my questions is a specific way. But this is a webinar and I suspect similar questions will be consolidated, so may lose some impact. It will be interesting to see tomorrow. I believe the interface includes some sort of comment section but I'm not sure of the detail, or level of interaction with Andy

Contrary to your view that this event is targeted at 'bigger' investors I see this as an opportunity for Andy to sell Mosman to the typical retail investor. If the posts I've read of averaging down after every placing that has occurred over the last few years is true then the biggest investors in Mosman are probably reading this board. The Mkt Cap is only £1.75m.

Hi romaron, I’ve just picked up your reply on Vitol.

As a large oil trader Vitol’s revenue will be huge, but your Mkt Cap numbers point to FCF of $1-2B, not exceptional.

As you point out, Vitol are not reliant on the absolute price of oil. They are a go between but also trade on differences, arbitrage, to use the parlance. Whether it’s oil, ship brokerage or carpets, if you are established as a middleman it can be a very lucrative position. It should come as no surprise that many of these business’ are privately owned. I remember Shell made big numbers in their LNG distribution segment regardless of how the upstream segment performed.

But why are Vitol increasing their exposure to producing assets? Because there is a fire sale on, in oil and other sectors across the world. Going back to another point I made, a vital part of being a successful business is down to investment decisions, a key component being timing. What we are seeing now is an extraordinary event. If you have capital to put to work, now is the time to do it. Perhaps there isn’t space in Vitol’s trading environment for additional capital, so they see producing assets as close enough to home, familiar.

Any adverse reaction to your post was, why pick Vitol or see them as a marker to higher pricing. Every man and his dog anticipate higher pricing a year or more out. I don’t think you were inferring pricing next month.

I don’t think our views differ in the sense that AB, with skin in the game, will be looking towards the longer-term play. I hope he is – that was the basis of my follow up piece. If repayment of the credit facility is as close as I suspect it might be, I hope that AB moves on from the apparent fear that came out of the May commentary, with a return to planned CapEx, sooner rather than later, while others still have their horns retracted, and supplier prices are good – the rig that just completed the drilling on Worcester is now sitting idle.

Some of my oil investments are geared to building out now, hopefully having got the expenditure agreed just ahead of the pandemic, and associated banker palpitations, with production coming on stream 2023. Sadly, most oil companies have a history of acting at the wrong point in the cycle. For the sake of my investment in Enquest I hope AB gets and sees the same opportunity.

Drill baby, drill!

A successful business is dependent on the quality of the decision in reinvesting capital – within the scope of what a business can control it is all that counts. I trust that the AB of today is a better decision maker than the AB of ten years ago.

Go on gkb47, share some analysis, and why worry about abuse. I’ve a very long filter list and you are not close to being on it. Just don’t try and predict next week’s price of oil.

Within Enquest management I’ve no doubt of AB’s autocratic influence. JS has only a nominal holding. Perhaps he’s good at finance and an even better judge of investment in oil companies. ;-)

But there are wider forces at play impacting AB’s judgments. I talk of the credit market.

Perhaps some here remember the heady days of $100 oil and wide-eyed bankers. “You want $3.2B and you will pay me back in seven years. Of course, my friend, and thanks for lunch. I’ll complete the bank transfer this afternoon.”

It say’s something for their largesse that a (not unforeseen) change in oil supply results in a project outcome closer to $2.3B.

It is a well-known fact that commodity companies always splash the cash at the top of their relevant cycle. In an open forum, with this fact in mind, I asked the chairman of BHP if he had any party animals on the board. A long story, but I like to think that the next time he considers opening the BHP cheque book that exchange will come to mind.

I maintain that Enquest’s future isn’t another shiny new Kaken or Alma/Galia, but an old gal like a Magnus or Andrews, who can still put lead in your pencil and leave change in your pocket.

I trust that AB has learnt where to spend Enquest money. I would be concerned if a new boy (or gal) rose to the throne. Long may AB rule!

At the weekend I wrote a post to myself expanding on a recent piece by Moodys. (I don’t post everything I write). I concluded that if the Mcdaniels oil price forecast holds, and Magnus doesn’t lose a leg, or any other limb, then Enquest just might be close to paying off the credit facility by the end of Q1 2021.

Perhaps a long shot to some, but in my book if it’s a possibility then I like to consider the implications. Here’s something to consider.

Talk last year was of refinancing – I recall JS talking of Magnus as a suitable asset. With the credit facility paid off, it was not Enquest’s intension to immediately move to paying off the bond. They planned to maintain a debt level c1x EBITDA.

Projects in the pipeline were another well at Magnus later this year, three workovers at PM8 and the Eagle development in 2021. Longer term there are additional substantial growth opportunities in Malaysia. Also, news is due on the 32nd licence round.

With WTI @ minus $30, fair to say there was panic in the air. The Enquest response was to slash CapEx, call time on two (three, four?) fields, and as we learnt later buy 4MM oil swaps at $31. Ouch!

Time has moved on and the oil price is up with talk of a vaccine, and it seems the sound of gun fire – normality returns.
If, big IF, the credit facility is paid off in the timeframe I indicate, then there will be cash to spend. An Eagle development would lengthen the life of Kittiwake – Scolty/Crathes has a very limited life at current production rates. Perhaps, even the Dons will get a reprieve, with a Ythan well – okay perhaps that’s a very long shot.

romaron, you break the silence with (IMO) an irrelevant piece on Vitol but an interesting observation on AB’s influence and by implication the future direction of Enquest, so thanks for breaking the silence.

First Vitol, “the worlld’s largest independent oil trader” – I guess after the likes of a Shell or BP, a quoted oil trader. I remember attending the World Mobile Congress in Barcelona a few years back where out PR company had badged our stand as “The world’s leading (something or other) in Location Technology”. As I looked at the other stands, I saw similar badging and realised I was surrounded by “World Leaders”. I guess we’re all special!

But I digress. Vitol has a huge presence in the oil trading community, but they are small in terms of oil production, currently producing 32K boepd , less than Enquest (I've got my ENQ reference in). The Vitol name carries clout but there is nothing in the news release that looks substantial. The new enterprise is led by led by Don Dotson, the former CEO of Sable Bay Energy. Who? Without the Vitol headline, the story might make it as a footnote on page 17 of the Houston Gazette.

You say Vitol is expecting a higher oil price. Tomorrow? Next week? Some traders would bet against that. But one year from now, five years from now, even I’d take that bet. In terms of oil price forecasts, I’d stick with your boys and gals from McDaniel.