Member Info for londoner7

PRDaynes, I understand your first sentence, but I don't understand your 2nd sentence, 'So FCF will include 100% of Magnus till Capex we make on it is recouped.'

Re: drilling at Magnus

Last year I wondered about the impact of development drilling on the agreement with BP. The conclusion I came to is that ENQ is the operator and free to develop the field as they see fit, while retaining liabilities to BP, including the repayment of the vendor loans and a profit share up to $1B pre-tax ($600m post tax).

Cash flows for profit sharing are after all costs, operating and capital costs. The benefits of maintain or accelerating cash flows through development accrue to both parties. The more effective that ENQ manage Magnus the quicker BP gets repaid, and the sooner ENQ accrues 100% of cash flows. The flip side is that while BP are responsible for decommission costs up to and including the two wells drilled in 2018, Enquest is responsible for the full decommission costs of subsequent development.

Pelle, e121, Ajes,

Thanks for you replies. I understand your views but something still bugs me about the arrangement and its accounting. Perhaps the 2019 accounts will clarify things for me.

Ajes, this component is interesting '-no repayment on Magnus 100MUSD consideration'

You rate it as a negative to 2020 cash flow.

In 2019 $100m of Magnus cashflow, before the profit share, was used to reduce the contingent liability for the acquisition of the 75% interest in Magnus. This did not contribute to FCF or reduction in net debt.

In 2020 this $100m component of Magnus cash flow will be shared with BP. Enquest's share will contribute $50m to FCF thereby reducing debt, rather than the contingent liability.

Is this interpretation correct?

Hi HMH,

Thank you for your intervention.

I've looked at this a couple of ways and reached the same conclusion as you. FCF, which as far as I am concerned is the most important metric is $411m for 2019 (excluding WC movements). I'd be interested if any posters here see it differently.

But looking at 2020 I think we see the same outcome, all other things being equal.

I stated $311m + $110m = $421m.
You see it as $411 + (($290m - $100m) - ($230m - $50m)) = $421m
Or correct me if you I've presented it wrong.

Of course there are other factors and we'll get a better handle on these with the accounts.

A key thing for me is that I'm still bugged by a comment the Barclays guy made about 2020 cash flows compared to 2019. However, if it is off a higher 2019 FCF base then I'm less concerned.

HMH,

I take your point about the phasing and deferment from previous years. I have considered this. The conclusion I came to was that I needed to put a stake in the ground and work from there. I came to ENQ in early 2019 and the closing net debt for 2018 was $1,774m so that was my starting point. My forecast of 2019 cash flows took account of the forecast for $275m CapEx. If I was coming to the party today I'd put a new stake in the ground.

That said, I don't see how you can claim $411m debt reduction in 2019. But at the moment I do agree with your view that FCF should be higher in 2020 - I'm waiting for a look at the closing accounts.

Talking of a party, I'm off out for a beer.

Cheers, Londoner7

Oops, my mental arithmetic isn't what it used to be.

$170m (230-50) in 2020, equal to a reduction of $120m
Should be, $180m (230-50) in 2020, equal to a reduction of $110m.

60pPARTY, thanks for your comment.

Some good closing numbers with a better, than I expected, reduction in net debt by $361m. But a couple of items stood out for me that I don’t think have been commented on here – apologies if I’ve missed it.

Cap Ex for 2019 is $35m below forecast ‘primarily due to phasing from 2019 in to 2020’ but the CapEx forecast for 2020 is $230m, ‘with approximately $50 million of 2020 cash capital expenditure relating to a combination of deferred payments agreed with suppliers in prior periods and phasing of cash payments from 2019 to 2020.

I take a number of things from these statements:
The $50m is effectively 2019 CapEx so my debt reduction number is 361-50 = $311m for 2019 – beating my $210m forecast last May substantially.
Balance the $35m against the $50m indicates that Capex, excluding deferments and phasing, was $15m higher in 2019 than forecast.

However, my expectations for a greater debt reduction in 2020 were centered on a reduction in CapEx from $275m in 2019 to $150m (my forecast) in 2020, equal to a reduction of $125m. Taking the revised numbers I have $290m (275+15) in 2019 and $170m (230-50) in 2020, equal to a reduction of $120m – not far off my original expectations. But to be clear this is an additional debt reduction to the $311m ‘real’ debt reduction number not the $361m posted.

Of course, key will be the production volumes and oil price – I’m still on same again as 2019 until I see more detail in next months update and the impact of the bug on oil price. Other moving parts in the cash flow number won’t be clear until the 2019 accounts are posted.

The 2nd item that stood out was this comment, ‘a continued strong performance from Magnus’. Very few posters, L3Trader is one, has highlighted the miss against the RI forecasts for oil production in 2019. 16,789 bopd forecast against 14,607 bopd achieved, assuming an optimistic 16K bopd for Dec. Equivalent to approx.. $25m cash net to Enquest. The RI forecast for 2020 was 19,094 bopd – let’s see if there’s any clarity at the March update. Tower one fixed, tower two and new wells?

Overall, I’m happy with my Enquest investment and the fact that the SP has held up so well against the current oil price suggests the market is warming too.

If a key issue is the internal combustion engine why is nobody (at least I'm not hearing it) talking about increasing fuel duty?

If as some here expect, oil prices will be significantly higher 3-5 years out due to under investment, why doesn't the government get ahead of the game and grab some revenue from the polluters now rather than waiting until the Middle East cashes in? It will impact demand so should also constrain price in the medium term. Okay perhaps not what Enquest shareholders want, but the discussion here is about Climate Change. Personally, if mankind ultimately joins the 99.9% of species which have become extinct since first life on earth I'm not too fussed. Put that in your ER pipe and smoke it!

I actually think that if such an extinction happens the earth will cough up the baggage like a lump of phlegm and be back to its full beauty in the effective blink of an eye. Still with another few billion years for a smarter species to develop.

But I digress. Back to the fuel duty. I recall fuel riots when Blair tried to increase it 20 years ago, and the same in France more recently. In today's 'climate' (pun intended) I wonder what the UK reaction would be today. An extra 50p on the litre should test the faith.

"The whole Blackstone thing is really murky. Nothing on the website about this litigation or even (from what I can see) in any Google search."

It was reported in their latest annual report.

I interpreted as 'click bait' for punters will little substance on Enquest.

They were selling, 'A top stock with enormous growth potential'
Click here to claim your copy of this special report now
Free of charge!

Except for the personal information you were willing to provide.

Petroatlantic has just emerged from the customary AIS blackout to the rear. Looking good for a hook up soon,

ps I feel very sorry for steakpie.

I attended last summer and would have been very disappointed if Mosman didn't show up.

When the BOD creates a void of course we should speculate. After all, why are we here if not as speculators, with a few pounds invested to spice the ride. Good to see oxime playing the game.

Let’s be honest this share should not form the backbone of anybody’s portfolio – if it does, I’d urge you to rethink your investment strategy. At the very least employ a professional to manage your funds.

That’s the health warning out of the way.

Near term expectations include (in no order):
News on a possible JV in Australia (with Chinese investors)
Start of S4 drilling imminent (BOD said Feb)
Funding being arranged for Falcon
Placing for working capital (I’d guess there is still a healthy burn rate, unless the BOD has cut-back their renumerations)
Production numbers for the last six months

I think that’s the main list, so my list of speculations (in no order)
I was surprised when a placing wasn’t announced just prior to half year end (Dec 2019) and I took that to mean the BOD were holding out for possible funds from the JV to fund Falcon and working capital.
The wording on Mosman’s working interest in S4 suggested to me that they were willing to lower their interest if another party came forward – that isn’t a ringing endorsement of their own investment decision. I’d guess they are subject to contract with Baja on Stanley development.
While in the UK Mosman are meeting advisors etc. Something has occurred that has made it difficult for AC to proceed with his prepared slides (I don’t think he has a dog)
Something has come up with the Mosman and Baja relationship (I’ve long thought that if it wasn’t for the distraction in OZ that Baja could see value in Mosman’s AIM listing – that’s could be a positive outcome, but I can think of others less positive.
The JV has come through at the last moment and JB is worried that AC let’s the cat out of the bag during Q&A (JB knew steakpie was in the room with prepared questions)

Well we have HS2 confirmed and I'm already enjoying the ride.

I wonder if the current run up is due to talk of an accelerated east - west northern project? That's certainly in the heart of Breedon territory.

romaron, I generally agree with your comments on the challenge of financing oil developments, but this caught my eye, ' Earn-out arrangements help but these are for existing ageing fields and even private finance is more attracted to these.'

I guess you are referring to the Magnus deal, but even then I don't think private finance had much of a part. BP provided vendor loans and a rights issue covered $130m. Oz provided private finance to cover the RCF repayments but at high cost and ring fenced by 15% of Kraken.

At the CMD ENQ outlined (IMO) a very good strategy for development of Malaysian, Magnus and Kraken assets over the next five years. But I suspect against other field declines these will struggle to maintain circa 70K production. We have Eagle potentially adding circa 8K bopd mid 2021 for approx. one year before significant decline. 8K would be great but the ENQ record on these predictions isn't good, I'm thinking A/G and S/C.

Therefore, I think another earn-out deal like Magnus is necessary for the next big step up - not to say we don't have further to run on existing assets if Brent plays along. But my reading of the recent update is debt reduction is still a key focus going into 2020, and agree that we seem to be past the worst.

So, perhaps the next earn out deal will attract private finance at better rates than 7-8%.

I'm invested in a number of energy companies including HUR but I don't post here often, as for large periods of time nothing happens. However I do post frequently to the ENQ board where operational activities are a weekly if not daily occurrence. Of late there's been an element of schadenfreude towards HUR from I believe SXX investors who it seems can't accept their own investment decisions. I made the case for HUR on the ENQ board and felt it was appropriate to copy it here as I'd be interested in others view of my assessment of the bigger HUR picture.
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The Lancaster field has huge potential and with the nation's financial interests at heart the OAG has a responsibility to ensure that potential is realised.

The challenge for HUR is to develop the potential at Lancaster in a manner that satisfies both their shareholders and the OAG. Hence the recent revisions to licence requirements, and their request to extend the June date for P&A of the Lincoln Crestal well for data gathering if it 'connects' to the planned Lincoln well for 2020. In addition, another Lancaster well is planned for 2020, which if successful would be tied back increasing gross production towards 40K. That represents very significant cash flows against roughly zero net debt - current cash balance offset by the convertible bond.

On GWA similar risk/opportunity exists in relation to progress against OAG wishes.

That is the high risk/ potentially high reward that HUR shareholders face. But to make any comparison with ENQ (and particularly SXX) is a stretch.

The Lancaster field has huge potential and with the nation's financial interests at heart the OAG has a responsibility to ensure that potential is realised.

The challenge for HUR is to develop the potential at Lancaster in a manner that satisfies both their shareholders and the OAG. Hence the recent revisions to licence requirements, and their request to extend the June date for P&A of the Lincoln Crestal well for data gathering if it 'connects' to the planned Lincoln well for 2020. In addition, another Lancaster well is planned for 2020, which if successful would be tied back increasing gross production towards 40K. That represents very significant cash flows against roughly zero net debt - current cash balance offset by the convertible bond.

On GWA similar risk/opportunity exists in relation to progress against OAG wishes.

That is the high risk/ potentially high reward that HUR shareholders face. But to make any comparison with ENQ (and particularly SXX) is a stretch.

I find it a stretch to assess ENQ against the likes of PMO and CNE, unless you live in the world of that oversimplified analysis posted here recently. For that reason I'm invested in several oil companies with my weighting balanced to my assessment of risk. But combined my energy investments only account for a modest part of my portfolio, which leaves me more relaxed that most here about daily movements in Brent. I find some of the hysterics here around the oil price amusing and that's before I dive into my large and growing green filter pond.

Therapist, your comment, ‘In summary looking at year end 19 boepd numbers and trying to predict December I struggle to get a believable number for December’, intrigued me.

Also, I was confused by your use of the word shrinkage to cover your adjustments between OAG and company data. In an earlier post you clearly defined shrinkage as the difference between the production number and the sales number.

In my book the OAG number reported for oil is the same as the company production number. The challenge is determining the company boepd number for gas. The OAG gas number includes all produced gas, but the company does not include flared gas in their production number. They have now confirmed that fuel gas (or oil) is counted as production, although this was not the case for Magnus fuel gas earlier in the year. This omission was corrected in their Oct update.

A while back I assessed the various gas activities, flared, fuel, export, and posted my finding here. That said, I only had Magnus as using fuel gas. A comment by Enquest indicates other fields using fuel gas which could be my ‘unknowns’, Gadwall, Mallard and S/C, but as I count their gas as export it's academic.

Bottom line my gas (boepd) additions fit quite well with company reported numbers.

In response to your comment I looked at the expected Dec number. Given production numbers to Oct, OAG data for Nov, and now FY numbers broken down across fields there is a lot of supporting data.

In a post last week, I offered 69,611 boepd as my estimate for Nov production. But I’ve been using the same number for Malaysia all year and one standout from the recent update was the Malaysian number which points to 9,968 boepd averaged over Nov/Dec. Using this number, I now have 70,090 boepd for Nov. Using this number with the Oct and FY updates I estimate 67,287 boepd for Dec 2019, which IMO is believable.

It looks like the two new Malaysian wells came on stream in Q4, no doubt with a surge component.

Breaking down the field data for a Dec estimate I have:
CNS down 2,086 boepd in Dec compared to Nov. I’d guess in large part due to a further pullback from the S/C surge numbers.
NNS up 1,608 boepd. The biggest component here is likely to be improvement at Magnus.
Kraken down 3,014 bopd (net). No surprise here. Nov was exceptional and 40,660 bopd (gross) for Dec would fit with my tanker observations, which also point to 40K (gross) for Jan 2020. (I’m assuming no fuel gas usage at Kraken)

Next month we should get production numbers for the first two months of the year. Last year it was 67,700 boepd. I suspect this year's update for the first two months will be a similar number. What happens over the remaining 10 months is in the lap of the gods but barring another Thistle type incident I think Enquest will achieve top end of guidance. That's the number going into my 2020 forecasts.

A recent update from CNE gave wide production guidance for 2020 and didn't breakout the Kraken number directly but a footnote on FlowStream's share (4.5%) does provide a number.

'FlowStream's production entitlement in 2019 averaged ~1,600 bopd and is expected to be 1,350 to 1,700 bopd in 2020'

This points to a 2020 forecast for Kraken of 30K - 38K bopd (gross).

Assuming a 3 week shutdown for maintenance and tie back that points to a top end 40K bopd average over the other 49 weeks. By my estimate we close Jan 2020 at about that level.