Member Info for londoner7

Hi Therapist,

You've seeded a doubt in my mind. I've had Newsnight on pause for the last 15 mins looking at it from a different direction and see a less certain result. Not good. But worst case we can talk gas.

I'll look afresh tomorrow.

Hi Therapist,

I saw a useful number on gas in the 2019 report. I think I've taken the gas number into account in this year's numbers. We'll see.

I'll post numbers for you tomorrow. Between us I'm sure we'll work it out. I also have a comment on your production forecast for Kraken.

Time to mark my homework on last weekend’s predictions for today’s trading update.

First a word on hedging. A while back I referred to a type of hedging ‘not as we know it’ using futures against Dated Brent. Well, clearly the technicalities of hedging is a topic to add to a growing list of topics I should avoid, including predicting tomorrow’s ENQ share price, next week’s price of Brent and the ability to perfectly call market tops and bottoms. I should leave it to the experts - trouble is, I have them all on filter. Nah, I’ll leave the sages where they are!

Okay. AB deployed conventional hedging to nudge out perhaps $15m of additional cash over the period. The numbers raise some questions in my mind, such as what happened to the other 0.6M @ $52. But I’m happy with the package of measures, so I’ll move on to net debt.

My headline forecast was net debt $1425m. but a better starting point is my summary, “if a number below £1,400m comes in and the $50m of due CapEx has been paid I’d see that as a great result.”

The result was £1364m, so far so good, but what about the CapEx?

“Cash capital expenditure for 2020 remains around $120 million, with this broadly spilt between the concluded drilling programme at Magnus, the ongoing two-well drilling programme at Kraken and the phasing of cash payments into 2020.”

Clear as mud on timing.

Has AB written a CapEX cheque in 2020? If he hasn’t adding $50m to $1354m equals $1404m.Include the $15m hedging gain (my estimate) and we’re at $1419 – sage territory.

If AB has written a $50m CapEx cheque and achieved a $1364m net debt number, then, great result!
Is that what got the market so excited, albeit Squif had to eat his socks – almost call of the day. Almost.

I don’t think so.

I missed on my production forecast. Across the portfolio I was too down on Magnus. I knew about the problem with the gas compressor and may have attached too much weighting to February’s weak Magnus 13k bopd number, and extrapolating that through Mar and April. In the event, the NNS number of 21,106 boepd, is well above my expectations, and it seems to me Magnus is the only candidate. If I’m correct the market may have spotted the long-awaited recovery in Magnus production. This bit got me interested and perhaps L3 too, who I know follows field production closely. The first confirmation will be the OGA numbers for March.

This could be significant so I’ll take my workings to Miss for checking - post for tomorrow. I’d be interested if anyone else has a handle on the NNS number - barrow boys exempted

* I’ve just found 75% of Enquest’s Retail Bonds stuffed down the back of my sofa. They were dated 2017, but that's been crossed out. Now 2022 or is it 2023. Could be an 8, 2028. The bond has a string of PIKs attached. Worth anything? ;-)

This provides good insight into current activity.

https://www.theconstructionindex.co.uk/news/view/major-contractors-86-open-75-effective

The ROI opened to construction on Monday. NI activity has been similar to Scottish levels but likely to open up further ahead of Scotland.

Navion Oceania has just arrived at Lancaster.

L3, it's just occurred to me that a gross debt repayment could be due to a release of ring fenced funds.

You say, ‘Sculptor Capital facility $122.9M (Enq repaid $55.6M during H2 2019 ) 165 on 30/06/19’, so to the second part of your post, isn’t the H2 repayment 165-122.9 = $42.1m, and not $55.6m? Just taking this $13.5m difference and attributing it to the Sculptor 15% interest equates to $13 per barrel.

But there’s more. In 2019 Kraken gross was 35,704, so Sculptor 15% interest is 1.95m bbls for the year. If cash flows are Brent Price ($64) minus operating costs (say $20), multiplied by interest the that’s (64-20)*1.95m = $86m. But the capital repayment on the Sculptor facility in 2019 was $55.6m. Why the difference? We don’t know the terms of the facility but perhaps ENQ are not required to repay all cash flows as they accrue, and the difference is one of the components of the $79.1m that is described as ring fenced cash at year end.

Bottom line – I don’t see how you can possibly calculate a Kraken premium for H2. Can you share your workings?

Back to the $20m or so, you attribute to the Sculptor interest in Jan/Feb. I can see that to attribute much more, say just another $5m, would put the premium close to $30. So still leaves a chunk of repayment to explain.

I accept I may have got this completely wrong, but I’m happy to get clarity. Regardless, you’ve set me on one of the more interesting examinations of ENQ accounts I’ve had in a while.

All the best,
Londoner7

L3, thanks for your condolences and welcome back.

As always you offer an interesting perspective on the accounts. I must admit I haven’t spent much time assessing the gross debt number, so I was interested to read your interpretation.

The gist of your post points to a significant premium for Kraken. While ENQ don’t say much about the premium, a recent comment by CNE shed some light on it. They said that both Catcher and Kraken were attracting a premium to Brent, particularly Kraken. But I still took this to be a few $$ and < <$10.

The first part of your post refers to the change in gross debt between Dec 2019 and Feb 2020. As presented I agree with a c$65m reduction in gross debt but I’d add a 4th possible influence, the open drawdown facility itself. Listing all 4:
Tanjong – as you point out this facility was still in place
SVT – this is a working capital facility at very low interest rates (I have 2% in mind), so is unlikely to have been reduced through choice but perhaps this simply reflects the capital demands of the SVT and ENQ has no choice in the matter. During 2019 it doubled to the year end $31.9m. It could have gone either way in the first 2 months of 2020, but I’d guess it isn’t material to the $65m number.
Open draw down facility – you have assumed that this is unchanged at c$70m, but if it has reduced post 2019 it will raise the gross debt number at Feb, reducing the $65m change in gross debt (I doubt the facility has increased). This is an unknown and could have a significant impact on your assessment.
Finally, the Sculptor (OZ) facility – the focus of your post.
After netting off the $35m repaid you ask, where did the remaining $30m go? You go on to say, Oz/Sculptor loan might have decreased by another $20M or so. Why not the whole $30m? Why $20m or so? (I’ll come back to this.)

There was also a c$8m PIK addition to gross debt, so the remaining (uncounted) repayment comes to $38m. (I managed to convince myself that this $8m is an addition, not a subtraction, but would be delighted for someone to show me otherwise)

gkb47, welcome back.

Spirited as always, and I've never had you down as 'a has been well past his best'. I'm sure there's still life in the old dog. But you might want to tune into whatever media you follow - short wave radio? ;-). I understand you are now permitted to lie down in parks, or even hide in the bushes in ambush of Frenches, whatever your want.

Unlike me, one of Sturgeon's lab rats, north of the border. You hit a raw nerve there!

Hi Squif, I'd forgotten about the Tanjong repayment, yes $50m, so I took a look at the detail (copied below).

It doesn't impact the end April number but a useful sum for later in the year. $32m will be allocated to repayment of the Tanjong facility, leaving $18m, but it will still be $50m off the net debt number. However, I'm now wondering if that $50m was taken into account when the breakeven number was determined. I suspect it would have been as the visibility on repayment is clear.

In December, this notice was
issued to PETRONAS and the SFRSC
was terminated on 3 March 2020.
As a result, 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.

extrader, you say, 'Maybe they didn't expect to find as much water ?'

Perhaps not, but now we know it's there I think its a good thing that it was discovered. My interpretation of comments made at the CMD is that it is well 7 that has drawn water into the 'common' zone with well 6, and hence is also now seen at 6. The implication being that if only well 6 had been drilled and was producing they might not have see the perched water, at least not yet.

I guess the chances of the next 'independent' well being a '6' or a '7' with regard to perched water in unknown. But at least Dr T has outlined a strategy for isolating those zones in future developments.

romaron, in essence you capture that quote by John Stuart Mill.

At an individual level the pandemic has brought considerable pain and the consequence will be felt disproportionately coming out. One way of looking at it is what you didn't have going into it you can't lose. But at a more general level it may prove to have corrected some ills.

On reflection we may decide that for all the waffle, indecision and manoeuvring of politician's and commentators their impacts were marginal on the course of the pandemic. As carriers came out of China, following the Spring Festival, it was their distribution across the globe, centred on cities like London and New York, and the speed to react with convectional measures such as isolation and sensible hygiene, that largely governed its course.

Once the pandemic has run its course we'll be left with the economic consequences, much of which will be seen as self inflicted.

Zombie companies will still exist due to the measures taken but perhaps not to the extent following 2008.

You're a bit late on the new religion - the NHS . That's been a feature for sometime and to some extent part of the problem. Perhaps, as people come to realise that even the NHS can't withstand nature, they might reconsider that extra jam doughnut, or glass of red wine. They may even visit the gym more often and keep the bike handy for those short excursions. Nah, I'm moving into fantasy now.

Hi Squif, I agree the breakeven price includes everything except PIK, but disagree on timing.

The net debt $1367m was for the end Feb. I'd expect this to include the first and smaller PIK of c$8m, but not the second one of c$26m , which had an assessment date 15th Mar. The end Apr reporting period includes a disproportionate level of PIK payments and I suspect also a disproportionate level of Cap Ex payments, which is why I highlighted them. That said, I have no idea of the level of CapEx in the £1367 net debt number, just a cautious outlook that if the deferred $50m has been paid it may have been after the end Feb. Clarity on the CapEx position this Thursday would be helpful.

I’m not expecting any change in production forecast for 2020 (57K-63Kboepd), or in the FCF breakeven point of $33 for 2020 or, $25 for Q2-Q4 as presented in Q&A. Although, I’m hoping we get stronger support for the FCF breakeven point, which was subject to achieving savings.

Also, no change to CapEx guidance, but we might get info on expenditure to-date. $50m from 2019 activity paid, and a balance of $70m to be spent later in the year, essentially on Kraken – perhaps some up front payments have been made which would impact the current net debt number (more later).

Production to end of Feb was 65,500 boepd. I’m expecting c64K boepd to end April.
We know from tanker movements that Kraken has been stable throughout the period at a very good level of c39K bopd (gross). Already ENQ guided that new production in H2 only partially offsets maintenance in Q3 and field decline starting soon if not now.
Magnus was below par in Feb at c13K bopd and I understand the cause was not fully resolved through April, but new production beginning April helps. I'm hopeful of a better H2 performance at Magnus.
The combined performance at Scolty/Crathes has held up well since rework but the relative performance between each has been erratic. Looking across the portfolio ENQ guidance points to field declines in 2020 - if not largely here, where?
The Kittywake, and Dons fields are an unknown, and generally problems don’t get a mention until after they’ve been fixed. But in scale the impact on overall production numbers is less dramatic.
PM8 has been a reliable producer.
While I’m happy with the 2020 guidance I list these factors to highlight the potential noise is coming to an end April number.

Net debt at the end Feb was $1,367m. Finger in the air job here, but I’m expecting any positive FCF achieved in March to have been largely lost in April. The $50m of overdue Capex spending didn’t get a mention at the last update, but I’m guessing it’s gone through since then. Add $26m of PIK and I’m at a net debt number of c$1,425m for end April – higher if any pre-payments on Kraken have been made. I could be very wide of the mark with this estimate, but if a number below £1,400m comes in and the $50m of due CapEx has been paid I’d see that as a great result.

Squif, thanks for your numbers.

I was just about to post when I saw your numbers. My predictions are to end April which is the period I believe ENQ will report on Thursday. If I take a pro rata on your April 1st to May 17th number I get $6m. Add $35m for March, are you expecting a net debt to end April of 1368-35-6= $1,327m?

Do you account for PIK and CapEx to date payments?

I don't have room to add my post here so I'll post separately.

Having watched, or rather endured Question Time during the week, I have to come back in support of Luke Johnson – ENQ can wait.

Two highlights for me were:
First, a questioner pointed to the mixed message from the revised slogan, ‘Stay Alert’ - she felt it was confusing. After a lengthy debate the chairwomen returned to the questioner and asked how she was handling the mixed messaging. The timid and barely discernible response was, ‘I’m in shielding’. My reaction had my dog running for cover!

Second, having realised he was alone in representing one side of all discussion around CV19, Luke pointed out the fact that no one on the panel was in danger of losing their job. You might not appreciate his performance as a business man but for some of us he stood up against the forces of evil: politicians; trade unionists; BBC and academics; all one way or another feeding off the sweat and labour of another community, one they appear to have lost touch with! Following Luke’s intervention, the panel went quiet and chairwoman Fiona Bruce swallowed hard, moving on to the next question. Classic moment!

* Now where did I put my ENQ cash flow predictions? AGM on Thursday, and it usually comes with a detailed update on trading. Any guesses?

Beerbull, you're attempting to introduce logic? Good luck with that!

romaron, I'm with you on that.

Talk today is of R numbers and the question, 'is it safe?'.

Today, I saw an image posted to my facebook page of five young boys with distended stomachs, from early 1900s Britain, which in an instant put into context current challenges. Now I'm looking at a photograph of my grandfather on horseback with a rifle and bandolier strapped across this chest from the Second Boer War (1899-1902), and a photograph of my mother, aged 18, alongside her adoptive mother (her own mother died giving birth and her father - different grandfather - died in a motorbike accident two years later). It was taken just before my mother left Ireland to work in post war England (1947). Before I was born my father was isolated in the mid 1950s for nearly a year with TB.

I'm sure many of us have similar stories to reflect on. Thankfully, few of us in the West today are familiar with war. But nature throws up a challenge and leaves us afraid to come out of lockdown.

Although it isn't so long ago, a comment in Readers' Forum in today's Times reminded me of a 'contract' presented to us in March.

'Lockdown was a contract with the people to flatten the curve and build capacity. It was not to wipe out the coronavirus and then end lockdown.'

Health practices have come a long way so I wonder about people's answer today to the question, 'is it safe?'.

* That's more than my usual quota of OT. I'll try and put together something related to ENQ.

Pelle, interesting to read your comments on Sweden’s handling of CV19.

I hadn’t realised your government had provided that level of financial support, but I’d guess it’s still relatively small compared to UK interventions.

A key difference in impact is highlighted by your comment, “For me life is quite normal, except that almost all the office work from home.” Here, for many people life is very different to normal, and public surveys suggest people are afraid to come out of lock down. Normality will be slow to return to the UK and the economic impact will run on much longer and deeper than you’ll see in Sweden. In the UK the debate is driven largely by public sector and media types, who are a cautious bunch at the best of times.

Romaron, points to comparisons between western countries which I think is fair. The Far East is experienced in dealing with these pandemics, and it seems both the high tech South Korean approach and the very tough China lockdown can be effective. But I think comparisons between the UK and other European countries is unfair. London is THE world city and was always going to be a ‘hot spot’. A fairer comparison is between London and New York, but at a country level London’s weighting on the UK is six times NY weighting on the US, so perhaps the UK hasn’t done so bad.

I live in Scotland so I’m one of Sturgeon’s lab rats in her political manoeuvrings. It’s a fringe event, of little relevance even in the UK, but if you live in Scotland @@@$%$!

This is apt from the Finsbury investment manager.
Train quotes 19th century philosopher, John Stuart Mill, who wrote: ‘What has so often excited wonder is the great rapidity with which countries recover from a state of devastation, the disappearance in a short time of all traces of mischief done by earthquakes, floods, hurricanes and the ravages of war.
‘An enemy lays waste to a country by fire and sword and destroys or carries away nearly all moveable wealth existing in it: all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.’

Wake me up in a year or two, gone fishing …. arghhh … I can’t even do that!

If you don't ask you don't get!

I've no doubt there will have been some tough negotiations with landlords on a site by site basis, with many factors taken into consideration, length of outstanding lease, refurb plans, importance to site, etc.

Additional support from the government opens up a moral maze but I guess the justification of the case for more support to cinema and hospitality is that they are being forced to remained closed for another month beyond retail generally.

I think the request has merit.

Further pressure on Sturgeon to give greater consideration to the economic impacts:

Last month Marshalls, the paving and concrete specialist said, “To comply with Scottish law, we shut down all our operations in Scotland last Friday (3rd April) and we are not taking any new orders for delivery in Scotland. We remain focused on following the latest advice that comes from Government, whilst enabling our customers to access a steady product supply for their critical work.”

On Monday Marshalls revealed plans to shut down their Falkirk (Scotland) facility – 95 jobs lost - and move production to other parts of the UK. I'm sure that news will have crossed Sturgeon's desk.

Today, Marshalls has gone further, “We have entered into consultations with employees across the Group as part of a series of restructuring proposals that cover all parts the business. These proposals include selective site closures, changes in shift patterns and proposed changes to the size of and structure of support functions. There are potentially up to 400 positions representing 15 per cent of Marshalls total workforce, that may be impacted as a result of these proposed changes.”

Other business’ with UK wide operations will be looking closely at their Scottish sites, meanwhile Sturgeon hesitates in opening up the Scottish economy.

The business of extracting and supplying aggregate is a local activity due to the cost of transporting a relatively low cost product over longer distances, so while a market exists in Scotland I’d expect Breedon Northern sites to fully come back to operation. But Breedon should be running a rule over any marginal activity, so who knows.

Marshalls also said they are currently running at 50% revenues compared to last year. I'd be pleased if next week BREE report something similar in their AGM statement .