Member Info for londoner7

"Not sure if they'll still need an equity raise as the purchase price is now 1/3 of original price"

A good question, but they still expect to make a cash payment of $210m with, last reported, c$160m cash in the bank and expected to be cash neutral in the near term. They need headroom, not withstanding the possibility of an additional c$155m (from memory) cash payment if oil breaches $55, although I gather the detail of this option is unknown on this board - I've asked about this before. Anyone know?

I'm invested in the oil sector, but not PMO, so watch developments here with interest as they can reflect on my oil investments.

The Rights Issue has been well flagged so is largely priced into the market. By this mechanism you are offered a fair opportunity to invest/support this acquisition. Far better than a pre-emptive placing at a large discount. Personally, I think it's a good deal in the sector, provided the oil price stages the recovery all oil investors hope for and 3rd party factors don't impact. I haven't looked at the 3rd party factors, but always worth considering where an investment fits into the overall NS infrastructure and it's moving parts.

But I'm not invested here because there are too many other elements to PMO that I'm not able to value - way beyond my abilities.

I'll watch the outcome with interest. A good outcome in the credit revisions will reflect well on the NS sector generally.

Hi L3Trader,

First things first. Meow!

Moving on. I agree with your general comments on a tendency to follow momentum, at least that appears to be the recent pattern. But judging from posts here I think the momentum trait is endemic in the oil community.

Earlier this year I highlighted Ithaca as having an exceptionally good hedge position into 2020. Currently, they have 80% of production hedged including oil @ $63, and this follows a reset which produced $150m of cash flow in April. However, a consequence of their strategy is 50% hedged in 2021 including oil @ $44, which might be too conservative for some here. The point I made at the time was their status as a private company allow them a longer-term outlook which may be at odds with the more immediate aims of stock investors.

I make no pretence to have any ability in predicting short term oil price movements, so I’m not inclined to be critical of Enquest’s hedging ability. However, I am inclined to be critical of decisions in relation to development and operations: Alma/Galia – reserves estimate; Scolty/Crathes- daisy chain layout; Kraken through 2018. Some might also question the timing of those developments. But if ENQ had not got it so wrong I wouldn’t have had the buy in opportunity I saw in 2019.
I liked Pelle’s term ‘nailed it’. I thought I’d done well through my patience in building a position in ENQ through 2019 @ <20p.
But that’s only ever at best half the job. If ‘I nailed it’ I’d have bailed @30p and bought back in @7p. I give myself a B- but I don’t blame Enquest for missing out on an A+.

My point is, rather than blaming Enquest for their hedging decisions we should focus on our own investment decisions. One thing I love about the stock market is that I can invest anywhere I like at any time I like, with no allegiance.

hitman1a, you say, "JS always believed that a RBL could be obtained on Magnus, so that provides a cash flow option"

A good point, but I think JS indicated that was only an option after the BP vendor loan had been repaid. I don't why that should be a restriction but that was my recollection of the discussion.

If there is a movie I want to see I will try to see it at the cinema. No other media can match it. The last movie I caught was '1917' in IMAX. Fantastic!

But there may be another customer effect. I live in Scotland. A few years back I got my old fishing gear out of storage - I hadn't fished in a while - and planned to fish locally. However, I'm a course fisherman and the fishing in the area is predominatly game/fly fishing. For two years I planned to go fishing but never did. In lockdown, I wasn't allowed to fish. When it was reoppened to me last month, I was fishing the following day.

Perhaps we'll see similar behaviour in cinema attendances. For many people, having been denied the option to go, lifting the restriction might enhance the desire to go.

The email that posters refer to is covered by the an update available on the customer home page for Cineworld and Regal (US).

As has been posted, the ability of the US states to handle the pandemic, and their resulting measures will have the greatest impact on Cineworld. The UK schedule looks okay, but if the US market did take a turn for the worse it could impact other markets through a change in film release dates.

The decison on face masks is interesting:
"Where required by local governance, all employees and guests will wear masks."

Like many I think patrons will rush back to the cinema when opened. I'll be one. But at the margin there will be some who will not feel comfortable with masks being an option. As we know, the mask's function is to protest others rather than ourselves. I don't think wearing a mask would be a deterrent to many people going to the cinema. (Yesterday, I had to waer one for the first time. No big deal). But going indoors and sitting within a few meters of people not wearing a mask could be a deterrent for many potential customers.

No doubt, Cineworld will have balanced the pros and cons of the decison.

Just occured to me that avid Trump supporters may be a group that wouldn't go to the cinema if a mask was manatory. Jez, tough call.

I'm listening to the debate on the defininitions of bonds and credit notes (oops now I done it), and assusme that romaron's desire for a more precise definition comes from the fact that he holds bonds. In which case the terms and conditions are important.

But I'm an enquity only holder here so the only terms I'm currently looking at is the interest rate due, the PIK option and the expiry date(s).

On that last point I note the title of the thread, "Bond maturity extension clause to April 2023". Enquest has this option, which has a value, but I think the more relevant clause is the manatory extention to 15 Oct 2023 on both bond types, if the SFA due for repayment in Oct 2021 isn't repaid or refinanced in full by 15 Oct 2020 - 4 months from now.

I don't know the pros and cons that ENQ has in enacting any refinancing of the SFA ahead of this Oct but I consider it a possibility.

We can argue about whether ENQ will be able to repay the SFA by Oct 2021. Moody's think ENQ will come up short, based on their $35 Brent price assumption, but most investors here has a higher prediction on oil price and expect the SFA repayment schedule to be met. (Incidentally, Moody's initiated their review in March which may be why they worked off a lower Brent price than it is currently, or forecast by futures.)

But I think there is a another consideration. I would not be surprised if ENQ announce at the interims in Sept that the $65m due Apr 2021 on the SFA has been repaid. However, I would be surprised if ENQ entered 2021 without greater certainty over the final payment due in Oct 2021, because they are vunerable to Brent pricing and to any failure in their infrastructure or production. For this reason I'm inclined to think there will be a refinancing in the near term.

Might it be for $100m - $200m term note to give them some headroom, or a credit note (like an overdraft) to cover any shortfall, perhaps. But I'm open to the possibility that if one of those deals we've speculated on comes to fruition it may be wrapped up in a larger refinancing package. Speculative, but AB has shown he can surprise.

That all said, the terms of the bonds are relatively attractive to ENQ out to 2023, and if ENQ does go into 2021 without refinancing the SFA that suggests they are comfortable with meeting the current SFA schedule by some means or another.

Art produces interesting charts to support a substantial decline in shale but his 8.7mm b/d prediction for total oil includes non shale.

He extrapolates the decline in tight oil to a decline in totail oil production with this assunption:

"This approach suggests that 2020 tight oil production will be about 30% less than in 2019 (Figure 4). Since tight oil represented 56% of total U.S. output in 2019, we may then estimate that U.S. production will average about 8.7 mmb/d in 2020."

I get the idea that tight oil might decline by 30% but why should other production, conventional i.e. GOM, decline by the same amount?

If say a 5% decline rate is applied to 45% that isn't tight oil the the resultant number is 10mm b/d. Also, I know that there is at least one large GOM expansion due to come onstream in 2020. The EIA would include that in their forecasts. It isn't clear to me that Art does.

Or am I missung something?

Tornadotony, thanks for your response - I've just picked it up - but we're looking at this from different perspectives. You're ponting out how wind farms have reduced costs but I took the original thread to be about the investment case in renewaibles as oppossed to oil and gas.

A while back I heard a big oil exec (I think Shell) saying that the investment returns in renewables are not as good as they are in oil and gas. As I was holding Shell at the time I looked into this and my investigations seemed to back that up. I decided I didn't want to be invested in a renewable company so when Shell recently reduced their dividend I interepreted this as a firm committment towards renewables - they need the dividend cash for investment. I sold Shell. The recent announcment from BP suggests they are moving the same way. Hence my interest in your post here.

It may well be that wind is cheaper than gas in the production of electricity. But gas has others uses as does oil, which hasn't featured in electricity production for some time, outside of the Middle East.

Oil and gas will be a key component of the mix for decades so as an investor, if the returns justify it, I want to have a part of it my portfolio in the sector. Big oil, such as Shell and BP are under pressure from many quarters to move away from fossil fuels so I'm moving towards mid sized companies who can play the sector without attracting the attention of climate activists.

That's not to say there aren't trading opportunities here or in Shell. I don't know. That isn't my game. If it's yours, goodluck.

Best.

e121, I agree that carbon taxes are not likely to be implemented any time soon - no country is keen to tax their consumers and business putting them at an international disadvantage. But if Biden is elected I would expect him to put the US back onboard the Paris accord. That would bring cleaner energy back on to the agenda and when associated transportation is cost competitive with oil, perhaps dominating the market, then carbon taxes may be implemented on the consumer to kill of the last remnants of the combustion engine. By 2025? Probably not. By 2030? I think so.

* I saw a comment somewhere, but don't recal where, which went something like, 'who would bet on oil staying below $80 till 2025, when nobody is investing in it, and the world runs on it'.

romaron, I'm sure you will.

My 38p number is just to give some meaning to the BP estimate on carbon pricing. In parctice, I agree we are a long way from that - one, it would be phased in, two, its introduction into places like India will be resisted, and three, estimate of ten times where we are today means it as likely to be closer to 5x or 50x. But in the near to medium term it doesn't have much bearing on ENQ. The supply / demand sum matters more to oil price and that's subject to policies and politics we can only begin to imagine - I expect many more black swan events ahead.

I think having BP tied into Magnus through the profit share should help Enquest's dealings with them, provided Enquest are impressing WRT their operational performance. I've made in clear that I'm less than impressed so far by Magnus, but hopeful of good signs soon. But that said, who's to say there isn't a operations guy in BP saying, "I can't believe the old girl's still afloat". AB must be a magician!"

I should add that even renewables will have a carbon cost so it isn't a 38p versus 0p sum.

Not wanting romaron to have a free run at the nerd post of the week prize ??, here's my contender.

Pelle's post from Art interested me,
"Art Bergman regarding BP :Disagree. In depression, people choose cheapest, most productive forms of energy--oil, gas, coal
"The UK energy major said coronavirus would...accelerate the transition towards cleaner forms of energy."

It had me wondering what choice people have in their use of fuel. Ultimately, people will go to the cheapest offering, but fuel is priced at the end user level, and not the raw cost level. I guess Art comes from the point of energy intensity per $, but we know that government policy through fuel duty, VAT etc adds considerably to the raw component cost of the petrol we put into our cars.

BP, in their assessment of the move to cleaner energy, are considering the impact of carbon pricing, and suggested a level of $100/teCO2 in 2030 at todays real price. Which begs the question, what cost does that represent on a litre of petrol?

I used Shell data. Scope 1,2&3 emission c700 million Tonnes CO2, and c1,300 million Boe produced. (Right away, I realise there will be an imbalance between Shell production and refining volumes, but this nerd has his limits)

Assuming 70% barrel oil refined to fuel product (diesel or petrol). $1.25/ £.

If as a a result of government policy scope 1,2&3 carbon tax is applied @$100teCO2, it would add 38p to a litre of Petrol/diesel.

This shows the pricing margin electric vehicles have if BP’s forecast for carbon pricing is fully applied to the polluter (petrol vehicles) in 2030.

Current EU carbon pricing is approx. One tenth of BP’s 2030 forecast, so currently c4p per litre if charged.

(I believe my methodology and calculation are correct but no guarantees)

Tornadotony, you say, "The return on wind farms has changed massively in the last 3 years. "

What evidence do you have for this comparison?

Generally, I see BP's statement as positive for the likes of Enquest. I don't know the structure of BP's North Sea assets but my reading is that BP will be looking for lower prices for any sale assets than they might have been looking for just a few months back. AB commented on this recentley, pointing to a reset of asset prices. How BP handles disinvestment of assets will be key to Enquest involvment. Will it be a pick and mix sell off which might offer some opportunities for ENQ but at a more competive price or one big lump with a discount which EMQ might find tough to digest.

The new green agenda has been the matra of Sturgeon here in Scotland. Last week she announced a $60m investment in the transistion of the NS companies towards renewables utilising their subsea skill set. I don't know what techmology she had in mind and of course $60m is peanuts, but it highlight policy intent. She dodged a question on her support from a mischievous reporter on whether she supported new field development in the North Sea. However, worth pointing out that the NS is an OGA controlled activity and not yet under the remit of devolution powers.

The BP statement also highlights the challenge for oil pricing in the longer term with the additional impact of carbon pricing, i.e. the price of oil in the energy mix will be the sum of Brent oil plus carbon tax, the latter only going up. But that's probably some time beyond my involvment in ENQ. ENQ was never a hold forever stock.

I’d expect an RNS tomorrow, but I doubt there’ll be much clarity on the legal arguments beyond what has already been outlined in Friday’s communications. The complete closure of cinemas was not anticipated when the agreement was made, and the break clauses defined. Cineworld’s legal council will have instructed the board to say little beyond, “the agreement has been terminated and it’s the other side’s fault”. Individual members of the board have a personal liability c$28m and the company a similar liability c$28m in the event of an at fault termination.

This episode will now play out in the courts over several months, perhaps longer. If $28m is the limit of Cineworld’s liability then it is peanuts in the greater scheme of things, and a great deal of uncertainty will have been removed. If Cineplex has a case for damages beyond $28m then uncertainty will continue.

The big players in the market will have been advised by their own legal council which is the most likely outcome and will already have come to a judgement. I’d expect tomorrow’s opening price to reflect their judgement.

Thanks guys, priced at par, or as I put it, the coupon.

Phew! If priced at fair value that would have been a terrible deal for ENQ. Consider a PIK issued at fair value in March when price was 30 ish. A $26m interestment would have been deferred to 2023 when c98m would have been due! Hence my sudden interest.

Bond holders should prefer a 7% cash interest payment over the PIK arrangement, while the fair value is below the 100p coupon. Take the March period, instead of the 3.5% bi annual cash payment they received the equivalent in bonds which if priced at 30p and sold would equate to 1.05% interest - that's before spread and dealing costs.

Go JS!

Clearly, a bond investor should not hold these bonds in the short term for the interest alone while the PIK mechanism is in play. With an uncertain maturity date, 2022 or 2023, assuming repayment - it could be extended on revised but improved terms, many bond investors wouldn't touch it. But as romaron says, if you understand and can tolerate the conditions it might be the bond priced for you.

I don't think this is news. Cineworld previously announced their intention to complete the deal. They intend to complete until they do, or walk away - assuming walking away is an option. That is an option based on Cineplex debt but I don't know if it's been triggered.

As I recall, this was not an agressive move on Cineplex by Cineworld, rather Cineplex were inviting bidders. Therefore, in light of the new world WRT the virus it is likely that Cineplex would be open to an offer below the original $34. As I've posted before, with Cineplex @ c$16, the market does not expect Cineworld to pay the full price.

Using Cinemark as a benchmark, it's price has dropped 50% from the time of the bid for Cineplex, so if Cineworld wasn't sniffing around the relative price of Cineplex now would be c$12. This imples that the current $16 includes a $4 for the bid attention. This might represent the price the market expects Cineworld to offer or perhaps a couple of bucks higher.

Much higher and the market might mark down Cineworld's price. But I think that if Cineworld proceeds it would be a good sign for shareholders in the longer term. The boys know their business.

Incdentally, unlike Regal which was run down, and needed CapEx, Cineplex theatres are up to high standards so little or no CapEx required.

It should be an interesting run up to the 29th. Although I haven't heard from the Canadian regulators so that could still stall the bid.

mytton, Berenberg has had a generally positive outlook on Breedon for several years. But I'm less interested in any target price they post than the detail of their analysis. They used to be one of a few brokers that made their analysis available to private investors but stopped, for some reason, a couple of years ago. That said, a serious long term investor, in any company, should establish direct contact with the company and if they express a sensible articulate and polite engagement they may be surprised at the depth of information made available. That is my experience.

Breedon is one of a few companies I follow on this LSE site where the headline pricing is erratic. This generally affects compnies with a relatively low level of liquidity and few or no automatic trades. I suspect it allows dereivatice brokers, CFD, Spreadbet, etc, who work off the same prices to maintain wide spreads and protect themselves from a sharp movement - dangerous for such brokers in an illiquid market so IMO not unreasonable. Most sites, including LSE then assign a sell or buy attribute to the trade depending on where the price falls within the spread. Above the mid point buy, and below the mid point sell.

It isn't difficult for amyone to assess the true buy and sell price. It appears to me that for much of the day the spread was only 0.2p and a significant number of trades marked as sells were actually buys. That seems to be your own experience.

To be clear, LSE is supplied the headline spread price, they do not set it.

If you are a serious trader you should be using L2 data, which shows the weighting and pricing of orders either side of the spread, rather than relying on any pricing on this site. L2 costs peanuts in comparison to any trading profits you hope to achieve. Some sites probably offer it 'free' in exchange for your inside leg measurement or such.

Hi L3, yes, swaps taken @ $31. I guess March was a nervious time in the Enquest hedging dept - your dog may be over qualified. And thanks for the heads up on the transcript. I'm always suprised at how much I miss from the audio. I see the c$16m off the OZ loan, which I scale up to $75m Jan/Feb for the 70.5% interest. I also saw a refernce to $280m for Q1. I assume this is operating cash. A great start to the year - if only.

Hi Pelle, thanks to the info on the hedging and the link to your Swedish forum. I don't agree that all hedging ends in Sept. Adding this info to the transcript and other info completes a jigsaw.

This is how I see it.

The 4m hedge is as of the end April trading update, split as you describe. However, I believe the 0.6m $52-$70 (Oz) hedge runs to the end of the year, and the 3.4m $31 swap ends in Sept. This is what IR mean by "All Enquest's events close on the last of September". The OZ is not an "Enquest event".

At a couple of points in the transcript a reference is made to "all Q2 hedged", but there is also a reference to "except Kraken". My conclusion is that effectively all Brent (excluding Kraken which has premium pricing) was hedged in the $31 swap over 6 months, April - Sept, at c22.8K bopd. This fits with the c0.5m $31 swaps used up in April. Kraken and Malaysia, both premium products, are not hedged.

Working the April/May oil prices and using romaron's $41 to end Sept, I have +2.5-1.1-25= $24m loss on the $31 swap.

Hindsight is a wonderful thing as we sit basking in $42 Brent. The swap contract was entered in the troubling days of Mar/Apr when even L3's dog might bitten his arm off for $31.

I don't think what OPEC wants or what Goldman thinks really has much bearing on the future price of oil, say 6 months or more out.

Last I heard Goldman expected prices to rally from their lows to cash cost levels c$30 WTI. The price overshot their forecasts so I guess its no surprise for them to say it will come back from current levels. Next month, who knows.

What changed from last month? Renewed optimism on CV recovery helped demand. OPEC+ recognised that if they want to achieve balance anytime soon they needed to extend their c9m cut from end June to end July. Both positive for oil, but it's a momentum trade - overshoots in both directions.

I understand current expectation is that OPEC+ next step is to reduce cut to c7m after July - maybe they will maybe they won't. They have two ambitions, one higher oil prices for their own budgets and two backwardation to negate the hedging opportunities for the likes of shale. The unknow is demand, which currently is driven by economic recovery from CV. 2nd wave, vaccine, all part of the mix.

In the near term, the like of Goldman should have a good stab at it and with enough punters following their utterances they'll get direction right more often than not. For a trader that's what matters. If you're a trader join the herd. If I was a trader I'd bet on Goldman over any BB punters.

All oil company shares are priced off the oil price so offer traders a less risky way to play oil. I'm currently invested across a mix of oil companies on the basis that I expect oil to be higher next year than currently, and to maintain those levels forever. That's the basics I work from and adjust as I go along, but not on a daily or weekly basis - monthly maybe.

One of my long term holdings was Shell. In cutting their dividend they have signalled the path they will follow. If they were to move into renewables in any significant way they needed capital for investment - cutting the dividend points in that direction. The general view is that renewables are a poor investment so I sold. Shell are looking out 20-50 years. If other majors follow that leaves the oil/gas field open for the mid size companies looking short term, <10 years.

We know the argument for oil long term. Oil holds massive energy / $. Growing 3rd world markets will look to the cheapest energy. Fields decline, so new fields will be required, etc. etc. But if the majors redirect their powerful, influential and well financed lobbyists from oil and gas towards renewables, that will impact policy.

But my interest here is how ENQ navigate the Oct 2021 call - my geared play in the near term - and what if any strategy they unveil for growth. By my estimate Kraken base declines from 2021 exceed any infills at Magnus or anywhere else, so I'm all ears on the next deal. That said, I've other oil companies targeting mid decade oil. Let's see if ENQ stays the course.

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