Member Info for londoner7

Romaron, tongue in cheek?

When I saw this, ‘If you want a more rousing endorsement of oil then note they {BP] have used a chunk of this debt to buy back their own shares over the past years.’ I thought someone’s hit the wine early – good lunch?

Then the EBITDA comparison with BP. I thought, that’s a 2nd bottle opened.

I’m guessing you’ve sobered up now. ??

Buy backs are made when the company has nothing better to do with the money – hardly a rousing endorsement of oil. Shareholders would prefer a dividend but management prefers a buyback because it super charges their LLP awards.

Forget the EBITDA comparison. You’re closer to the mark with the interest cover metric. I’ll take your word that BP has EBIT interest cover of 9.1. What’s interest cover for Enquest?

At the interims EBIT was $265m, pre-exceptions. For the purpose of this exercise let’s be generous and use that number and double it for the full year - $530m.

Going into 2020 net debt is expected to be $1500m so gross debt will be close to $1700m. At 7.5% that’s $130m in interest.
Interest cover 530/130 = 4.1. Someway short of 9.1 but that’s not the full picture. A more significant risk is that Enquest has approx. $600m of debt to repay in the next 24 months.

If you ask questions of the ‘numbers guys’ then try it without your tongue in cheek.

Sorry for the smackdown, but I’m now on the wine, albeit much later in the day. ??

The CNS area has two hubs: Kittiwake supporting various fields including Scolty/Crathes and the Eagle development, and Enquest Producer supporting Alma/Galia. The briefing at the CMD was that in the current Brent price environment no further development was planned at Alma/Galia. At some point production will become uneconomical and these fields will be decommissioned. At the moment these fields are economical (okay only Alma producing but I'd guess decom will be a combined affair). The Scolty/Crathes rework provides a boost to the Kittiwake platform which maintains the economical performance of various attached fields. In 2021 Eagle will be brought on line, however this comment from the Eagle development document, 'Reservoir fluids from the Eagle well will be flowed back to Kittiwake via the existing Gadwall/ Mallard pipeline and riser system.' indicates that Gadwall and Mallard will make room for Eagle.

In effect Enquest are managing declining fields for the maximum economical benefit.

I suspect that awards under the 32nd licence will also be a factor in the future of these hubs. That's the attraction Enquest offers to the OAG decision process - infrastructure in place!

CMD slide 20 has PM8/Seligi OpEx at $18.

Pelle, I agree.

I guess that was the purpose of the CMD. To communicate current Enquest performance and the near term plan of fast payback drilling alongside further deleverage to a sceptical market. I suspect it will take actual numbers rather than forecasts to convince them. If, as I expect, Enquest report 2019 production levels near the top of the range it adds substance to the forecasts they will make for 2020, probably at the Feb update. There's a lot of noise around current production levels with Thistle, Kraken improvements and S/C steady flow rates. I'm sure there will be more clarity by Feb, so I was relaxed that a forecast was not provided with the latest update.

Hi Pelle, you say, 'Guess 80k Oct will be big surpise for many, specially those with 63k assumption'.

80K in Oct may come as a surprise to some but it shouldn't to anybody who took note of the recent trading update. Therapist and I may have slightly different numbers for Oct but we've arrived at 80K+ in a similar fashion - Enquest told us the average production to end on Oct was 68,501 boepd. We have OAG numbers to end of Sept so it's simply an exercise in addition and subtraction, with some tweaking around the gas numbers.

CapEx investment to maintain current production.

Just for clarity I want to add that in addition to CapEx to maintain current production I also include a level of CapEx to maintain existing 2p resource. If 'FCF' is generated by running resources down to zero then it isn't FCF in my book. Like Moody's I like to see a maintenance of resource around 10 times yearly production.

MarketScreener presents an interesting and detailed picture of Enquest's financials and broker forecasts, but I'm wary of two aspects: the transition from 2019e to 2020e, and the definition of FCF.

The transition from 2019e to 2020e - I believe the general consensus of this board is that FCF will increase (or net debt reduction will accelerate) next year. The MarketScreener data suggests the opposite. Why? I don't know if anyone has a snapshot of the earlier estimates but I'm guessing that this apparent 'divergence' of opinion is due to the 2019e being updated positively following the recent trading update while the 2020e and 2021e still reflect old forecasts. Hence the delta between the 2019e and 2020e numbers has reduced, and does not reflect broker consensus. At least that's my hope - see below.

Definition of FCF - in my book FCF is the cash left over to pay down debt, invest in growth and return to shareholders. The MarketScreener data shows a significant difference between FCF and reduction in debt. While things may be different through a large investment cycle like Kraken a few years back, I see the current phase of Enquest's investment cycle as being essentially flat, with the focus on deleverage while maintaining production through CapEx levels of $150m - $200m p.a. That isn't to say that I don't anticipate production growth in 2020, I do, but that growth is due to operational improvements primarily in Kraken and Magnus out weighing field declines elsewhere, rather than the result of CapEx.

* It's my expectation that FCF will increase in 2020 primarily due to a significant reduction in CapEx. But a comment in the Q&A section of the CMD presentation caught my attention. The Barclays analyst talking about FCF seemed to say, 'very strong this year (2019) but I think it's light again next year'. If this is his assessment then I look forward to Enquest guidance on production and EBITDA at the Feb update.

Hi Pelle, I've just referred to my original spreadsheet (circa Apr 19) which I posted to you on this board. I'll copy the bottom lines:

2019 Free Cash Flow $194m (or $8 boe price margin on $65 oil). Revised int $132m leads to FCF $227
2019 increase in free cash flow = $187m, add $194m, total for 2020 $381m. (Assume same again prod & oil price)

More than 6 months on I don't recall the point I was making with the 'revised int' adjustment, but suffice to say at the interim stage I referred to a more vague $200m- $220m FCF (based on 2019 CapEx of $275m).

10 months in the CMD slide 33 states FCF $210m, without reference to CapEx. We'll get a fuller picture in early Feb.

On 2020
i) For reasons I've pointed to in recent posts I'm now expecting higher production in 2020, which is a bonus, but I'll wait for the Feb guidance before working my numbers.
ii) I've since learnt a lot about the cash components and Magnus contributions. I'll add more detail to my numbers after the accounts in Mar. But directly to your question, on same again production and oil price, using my current crude methods, I'm still around an additional $200m above the 2019 number.

gkb47, point of order granted.

When I refer to decline rates, and most other rates of change, I have p.a. in mind.

Hi L3Trader, you ask, 'How do you get 15% depletion in the set of fields that excludes Kraken, PM8/Seligi and Magnus?'

It's a back of a fag pack calculation, but add Scolty/Crathes to the exclusion list. Ignoring the revival in SC production from these fields the decline over the six months prior to the summer maintenance was >>15% however we know there has been operational issues, Heather, Dons, etc. In my previous post I highlighted the poor performance at Thistle in Sept. It was a mixed bag across the other fields. That's why I'm hopeful that the Oct numbers will show a better performance at these fields in spite of the Thistle/ Heather shutdowns. Otherwise, we might be looking at worse than a 15% decline projecting into 2020.

The detail of your comments on Magnus look interesting. I'll take a closer look later. I have Johnson and Corbyn on hold, patiently awaiting my full attention.

Best,
londoner7

Hi Therapist, when the latest trading update (68,501 boped to end Oct) came out I posted here that it pointed to an average of 78Kboepd over Sept/Oct. Using my calculations for gas I have 73,647 boepd based on the OAG Sept number. This was so far off the 78K average I thought I'd miscalculated but I don't think I did, so I have 82,777 boepd for Oct, which is c 9,000K boped above Sept.

Where does that 9K come from?

Kraken adds 3K.
Scolty/Crathes adds noise but I'm hoping the bulk of the remaining 6K came from other fields, which have been slow to recover since the maintenance window. Thistle only produced 1,659 bopd in Sept when it had been producing over 4K bopd earlier in the year. Enquest will need these fields performing to move decisively above 70K boepd in 2020, which is my now expectation.

These are my numbers since H1:
July 52,887 boepd
Aug 64,584 boepd
Sep 73,647 boepd
Oct 82,777 boepd.

Therapist, you ask how long does the Crathes gush last?

I don't know but I think it's one of three factors that could support decent production volumes in 2020. Even if it's 4K plus, as hitman1a puts it, it's significant, and hardly minor IMO. As you say, Crathes been producing about 1K YTD, so a Sept gush of 7.5K is worthy of notice.

The Sept OAG data didn't make sense to me so I contacted IR. The S/C field is being brought up in phases. First gush Crathes - that was the Sept number. Next gush Scolty - expect to see that reflected in the Oct number. Next bring on both Crathes and Scolty. The late Nov update was, 'Both Scolty and Crathes wells are now online and performance remains strong.' That sounds good to me.

Kraken - frankly I am astonished at the current performance at Kraken. I have at least 48K gross for Nov. I've said it before, I think they have improved the water injection. If and it's a big IF, they can maintain this production through to Q2 when I anticipate at least a month of maintenance, deferred and to accommodate the new wells, then 2020 Kraken numbers could be very good - the guidance update in Feb is key.

Thirdly, Magnus is currently running at around 16K bopd with major water injection problems. These may have been partially resolved in Oct with a step up expected in 2020 H1. With the new wells on line and a fix to the water injection H2 should see a significant step up in Magnus numbers.

Ramp over. The other fields outside of Malaysia accounting for 25% of 2019 production are in a circa 15% decline, with operating costs >> $30 bbl.

Hi Boschybear, I've worked out a valuation and was about to post it here when I saw your post. I too have BVS share currently 1200p valued at 1115p for GFRD holders. But I don't think you include the additional dilution due to outstanding share options. Here's my post:

As a shareholder I’ve been involved in many bids over the years but this has been one of the hardest to value. The difficulty is the valuation attached to the construction business remaining in GFRD.

I’ve tried to break it down based on closing prices 3/12/19 (BVS 1,200p and GFRD 720p). These are my best endeavors so DYOR.

I’ve noticed that there are two adjustments from the original bid presentation which negatively impact GFRD shareholders. The most significant is that the fixed number of BVS consideration shares are diluted by the closure of LLP share options, which increases the number of qualifying GFRD shares. The impact is approx. 2% reducing the allocation of BVS shares to 0.56362 per GFRD share. A recent BVS placing increases the capital repayment to £66m, which added to the final dividend equates to a deduction of 85.5p from the current BVS share, i.e. not due to GFRD consideration shares. Fortunately, these activities are netted off by 2nd Jan 2020 so there’s equalization of entitlement from the start of dealings in the new shares 3rd Jan.

Crunching the numbers I come to a current valuation of the new construction business at £104m, and a share price of 92p.
The prospectus has an adjusted balance sheet (30th June 2019) for the construction business with the debt and cash adjustments showing:
Net asset value £237m.
Tangible net asset value £151m
Therefore, a £104m current valuation represents a 31% discount to tangible net asset value.

I’m not attempting to forecast the H1 P&L construction numbers due in Feb 2020. Way beyond my pay grade.

Still moving towards a FID decision by year end

https://www.morningstar.com/news/dow-jones/201912029718/woodside-nears-final-investment-decision-on-senegal-oil-project

I don't know if this has been posted here but the OAG is now publishing production numbers for Lancaster. The numbers are oil bopd, 2 months in arears.

May 5,952
June 11,457
July 14,294
August 14,803
September 17,233

Hi MO, '~10m barrels of Kraken crude', is a lot of crude. Thanks for clarifying my reference to the gas pipe - yes an 'import' pipe which I didn't make clear in my post.

But this begs the question which is the supply source (both are referenced at the time), crude oil or imported gas? 10M bbls over the life of the field is 1,200 bopd, so not quite the 2Kbopd I indicated assuming produced gas is also used - this gas is being flared so I'd like to think it gets into the mix.

Suffice to say that we are talking large numbers and ENQ has the fuel options to reduce costs. As I said, perhaps an area they are now looking at more closely.

Hi MO, I wouldn't assume they are using crude, unless confirmed or we see a discrepancy in the OAG v Enquest oil numbers.

In July the IR response was, 'At present the Kraken facility is generally being run on purchased diesel'. Also, it was my understanding that the use of crude fuel had been commissioned but in small volumes.

I'd looked into this in some depth before contacting IR. There was a development plan to install a 15MMscfpd pipeline - to date this hasn't happened. I estimated that 20MMscfpd of gas was required to fuel the Kraken FSPO's 62MW generator. 20 MMscfpd is equivalent to approx. 3K boepd. Produced gas is currently about 1Kboepd so if crude is also being used that would account for another 2 Kbopd.

I'm sure the medium to longer term plan is to self fuel, as you put it. It has been a lower priority but if system issues have been sorted perhaps this is an area now being addressed. Hence my interest in your comment.

If crude is used for fuel then look out for a differential between the OAG and Enquest numbers for Kraken oil production of 2-3Kbopd. It's my understand that operators do not include oil or gas used as fuel within their production numbers.

This assumes full power usage. My last reading of water injection rates (Aug) was that this was running approx. 50% capacity, but increasing. This might explain the recent improved production, which was attributed to optimisation of water injection, but I'd guess improved water volume also helps.

Hi Mo, tanker offloads looking good. But where do you get 'AK now also self-fuelling'?

'it's counted in the 2018 number'
Correction. I meant the 2019 number.

Plethorus, thanks for your clarification.

Okay, it looks like the Mercuria Prepayment Facility. I agree with Pelle that it is a pay down of debt so doesn't qualify as an addition to 2020 FCF - it's counted in the 2018 number. I'll total all debt reduction to get my change in interest payment.

I have a different take on the additional benefit of the new Kraken wells seeing a plateau extension rather than any significant increase in bopd - much will depend on any additional water injection volumes and optimisation. The update in Feb should provide a welcome refresh to spreadsheets but I'm looking to the detail of the 2019 accounts due in Mar before firming my 2020 number.