Member Info for londoner7

I think you guys are reading too much into these twitter posts.

As far as I can tell they are all extracts from the Mosman web site. I know little to nothing about Twitter but based on a comment another poster made about the Twitter service Mosman are using I wonder if part of the service includes some sort of periodic automatic Twitter output to present the account as active.

Just a thought.

Isn't that a 6 month EBITDA number?

Genghis15, when I raised the prospect of an OAG update for June I cautioned that there may be some reason for a delay due to first oil after month start. However, I've just looked back at OAG data for the Catcher and Kraken fields and I see that there are OAG numbers for the month of first oil. It could be that next month we'll see Lancaster numbers for both June and July.

The field operators are responsible for filing production numbers, which according to COP data releases are daily production numbers, so not sure why this would be related to offload timing.

That said, this mornings RNS provides us with more up to date data that a June OAG update would have provided.

Nothing for Lancaster. Perhaps they forgot to file the numbers - they are newbies after all. A timely RNS update.

Pelle, good spot. I hadn't noticed the 2C targets identified in the Magnus map on slide 18. Obviously these are additional volumes to the 2P numbers tabulated in the RI document.

If they schedule 2 of these targets per year then that will go a long way to maintaining good production levels over the next five years. JS guided to $50m Capex, excluding drills, 2020 and beyond. With Eagle and Kraken also in prospect it looks like there's no shortage of drilling opportunities.

Hi Pelle, I agree, Magnus numbers should be up next year due to the two new wells being drilled later this year. But that doesn't change the general field decline. It's the rate of that decline that I'm looking at. To meet their mid case expectations for 2019 of 16,789 bopd requires approx. 17,750 bopd outside maintenance. The year started well but production has tailed off a bit more than I expected - hence my comment. The mid case expectation may be met but at the moment it looks like it will require the two new wells to be in production over the last two/three months. On Thursday we should get an update on timing alongside other news I'm hoping for on further drills, e.g. Eagle.

On Kraken, I'm confident that the operational team have identified activities that can be enacted in the upcoming maintenance which will fix or improve on many of the current issues. Over time that is what engineers do. As was pointed out all of the kit in use is in common usage across the industry - it's fixable.

The timing of the RNS was very strange. It isn't unusual for Mosman to release an RNS during trading hours. When most companies release them at 7am, Mosman have a habit of releasing them an hour or two into trading. There will be a reason. I suspect they are looking for impact. Perhaps the Friday PM release follows this pattern.

That said, I don't think it was primarily related to S3 - I thought the news on S3 was pointless. Pure speculation from me (and others) but I think the Houston meeting is more relevant.

Baja are the now technical brains behind Mosman WRT Stanley, Falcon etc. I don't think 'Mosman execs' need to visit to discuss activities in those areas. Talk here is of 'breakeven at a corporate level'. The Baja technical services agreement is expensive - look at the interims - in my mind something has to give on overheads.

I can imagine a couple of different outcomes in relation to overheads. Or there might be an OZ update to communicate. Then again it could be a big load of nothing!

Kraken - last month I posted, 'For June I'm staying on 500K parcel and a resultant 42.4Kbopd. If it's close to 45Kbopd then I'd revise the parcel size higher into H2.'
The OAG number is 43,114 bopd. June was an unusual month in that tanker offloads largely fell within the month, i.e. clean numbers. If I tweak my data to hours rather than nearest day I come out at 43,085 bopd. Almost bang on, so I'm sticking with the 500K parcel offload. Since offload #38 (June-Aug) my individual offload assessments based on draught have been between 504K-520K, so from here on I'm using this range as conformation of 500K offloads. Based on this I'm expecting 27.4K-28.2Kbopd (gross) for July.

Magnus - perhaps we are back to full production following maintenance in May. If we are then the June number is confirmation of a steady decline since the 18,602 bopd achieved in Jan 2019. The additional water injection capacity installed in May is expected to reduce the rate of field decline but I'd hoped there might be some current benefit. The May production data was unusual enough for me to believe July Magnus production might be higher due to maintenance impacts extending into June.

Other UK fields - there was another month on month production decline. A significant 1,363 bopd decline. But the Kittiwake fields held up, with declines in CNS. Perhaps maintenance in CNS - SVT?

Overall Q3 production numbers will be poor largely due to Kraken and summer maintenance, but reading between the lines I sense that Cairn (Kraken partner) has expectations of good improvement following the Kraken maintenance due this quarter.

I include gas production (less fuel/flare) in my totals and have 69K boepd for H1, assuming Malaysia is flat. I have gas accounting for 8% of the total. Most of this gas revenue is deducted under 'cost of sales' for 3rd party gas imports to Magnus.

I'm looking forward to the commentary on Thursday, but I'm not expecting any surprises on the numbers.

That's good. It means we had some 'noticeable' credits in the first quarter.

Biffadog, OAG numbers are normally supplied 2 months after the end of production month, so we we'll get North Sea updates for June early next week.

Operators supply daily numbers, but only an average for the month is released by the OAG. The daily numbers are only made available to industry after 'cease of production (COP) - hopefully that's many years away.

As Lancaster is a new field and 'first oil' occurred on the 4th June, i.e. after the start of June there may be a delay in publishing first figures. Should know Monday/Tuesday.

Hi L3Trader,
You ask, 'If the cutoff date was 15 July, then the next one will be 15 Jan, not 15 Dec as you wrote, correct? (W/ 45 days at a price averaging $60, you will need 45 days at a price around $70 to avoid interest to be paid as PIK in the current six month cycle.'

I originally thought 15 Jan based on romaron's mid Aug interest payment date, but following his link to the detail on the bond showed a coupon date of 15 July. If the cut off is one month ahead of this date the that's how I get to the nest cut off 15 Dec. However, I accept there's some ambiguity around the interest date so I'm not certain.

45 days plus 45 days equals a 3 month cycle. There's time yet for Brent to come good ($65 average over 6 months). But too many moving parts for me to determine future Brent movements. Big oil is investing in the Permiam. There's no money to be made in shale oil. Something doesn't square.

Hi L3Trader,
You ask, ‘So, we agree that ENQ made a payment of $144.8M in 2018.’ YES

You seem to misunderstand my comments on the $600m OpEx guidance number. I might come back to this in a follow up email but I’m inclined to wait for the 5th Sept update. Just one point to add – JS in webcast audio confirmed the works on Scolty and Dunlin are CapEx items.

In relation to the components of the $144.8m number I didn’t point to the balance sheet, I pointed to the audio. Listen to 2018 finals webcast audio time 28:05 – JS refers to first payment under the FSPO lease of $145m, ‘including $59m relating to 2017’.

This means that FSPO lease payments for 2018 were $86m (145-59). If the line item ‘Repayment of obligations under finance leases’ isn’t broken down between 2017 and 2018 then I’m not surprised that a breakdown of nominal payments minus credits hasn’t been provided. If there had been a note attached to that line we wouldn’t be having this discussion – the breakdown would have been clear. Here’s my interpretation:
Enquest share of FSPO lease (450K*365*70.5%) $115.8m
Under the 2016 agreement (note 20) amount paid in 2018. $9.1m
Credit payments for non-performance in 2018 $20.7m
Net repayment of obligations under finance leases $86m
If you don’t concur with this breakdown please contact IR for clarification. It fits my needs.

But let’s get back to what started this discussion, which incidentally I have found very useful in understanding the lease.
In a breakdown of the OZ repayment you had two items, lease and leasing interest. It was when I reviewed this I came to the conclusion that the lease interest component was bogus as a cash item. I should add that in my original cash flow projection posted sometime ago I had a similar component. But I now understand that the ‘lease interest’ is an accounting item for the treatment of the lease payment, and not an additional cash payment. The cash cost of the lease is $115m less any penalty credits. Roughly half of this cash cost is treated as a ‘lease interest’ within accounts and the balance as a principle, reducing the obligation on the balance sheet.

The interims should make this clearer. It depends on how JS splits out or describes the additional lease obligation for the office rent contract now required under IFRS 16.

I’ll come back to you on the PIK.

Best, Londoner7

Hi romaron, it looks hard to me to decipher which moved first, the bond or the share. What's more relevant to the share is that I notice the coupon date is 15 July so the next '$65 determination date' is mid Dec. Maybe a PIK will become due in 2019.

You made the point previously that the debt stock greatly exceeds the equity stock, but the liquidity is in the equity so I'm inclined to believe that RB pricing follows the equity.

L3, e121,

The basis for my point was that I didn't believe that the 'lease interest' component was a cash payment. It isn't but I couldn't figure out why a payment of $144.8m was shown in the cash flow statement, way above the payment I expected. It made me question my understanding of the cash statement, e121 held firm, so I went back to the audio. The specific detail was hard to catch but after a couple of rewinds I have it.

A cash payment of $144.8m was made towards the FSPO lease in 2018, but $59m of this sum was due for 2017. I guess the lease day rate ($450K gross), has been accruing since first oil but only became payable on closure of the 'commissioning' late 2018. If $59 was due for 2017, then $86m net was paid for 2018. Agreed penalty payments reduced both yearly amounts and I believe further (smaller) reductions for past issues are due in future years as well as any further reduction for ongoing issues.

Before any penalty deduction the net FSPO lease cash payment is $115m p.a. (450K*365*70.5%).

romaron, thanks for the update. That helps clear up some details.

This is from the accounts:
'The interest will only be payable in cash if the ‘Cash Payment Condition’ is satisfied, being the average of the Daily Brent Oil Prices during the period of six calendar months immediately preceding the ‘Cash Payment Condition Determination Date’ is equal to or above $65/bbl. The ‘Cash Payment Condition Determination Date’ is the date falling one calendar month prior to the relevant interest payment date'.

The condition is determined by Brent pricing and not hedging. Based on your interest date, the ‘Cash Payment Condition Determination Date’ is mid July, and the next will be mid Jan 2020, so any additional PIK will not be a factor in 2019.

L3, BUMI payment is under 'other receivables' note 20.

MO, you're right to highlight those costs. As I say, I'm open to argument. I've struggled to figure it out so now inclined to wait for the H1 update.

Hi L3, I was about to respond to e121 when I saw your follow up. I agree with your reasoning on the $600m Opex number, but I was briefly on the same page as e121 last week so open to argument. However, I see e121's comment as an alternative opinion rather than fact. It doesn't dissuade me from my current view that the costs of production is the sum of operating costs and FSPO lease costs. I'm inclined to wait for H1 numbers and expect them to show 69K-70K production and an average cost per bbl of $24, equating to $300m production costs if guidance is achieved and less if it's beaten.

e121, welcome to the discussion. Good to see you and L3 on the same page wrt the $144.8m component, 'Repayment of obligations under finance leases'.

Dig a little deeper. Note 6, Finance charges, has a $55.8m component 'Finance charges payable under finance leases'.

These finance charges are ADDED to 'cash generated from operations' note 28.

Cash generated from operations is the first line of the 'cash flow statement'. The $144.8m component, 'Repayment of obligations under finance leases' is DEDUCTED.

How do you square the $144.8m and $55.8m lease components?

I maintain that cash payments to BUMI are $115m less performance penalties.

Hi romaron, now I understand your point. It wasn't immediately clear to me in your original reference to retail bonds.

Yes, a rerating from the credit companies would certainly boost the share price if ENQ are able to refinance their RCF and bonds on the back of it.

Many of the terms are onerous, such as the PIK discussed earlier. If Brent averages below $65 in the 6 month period, interest due at 7% is capitalised and then charged at 9%. Another $19m step up p.a. (if Brent <$65 lasts). This on top of the c165m interest currently being paid. To put it in perspective that 19m is equivalent to the savings due on a one year early repayment of $285m on the RCF. As you say, terms agreed in difficult times.

My reading of the credit agency assessments is that there are three key areas of focus, aside from the debt level itself.

1) The price of oil - ENQ can't control this (who mentioned hedges? ;-))
2) Costs - Opex and Capex. No doubt ENQ are working hard on these.
3) 2P reserves - it seems they like to see 10 years of reserves against current production. Which is roughly Enquest's current position.

At the end of the year, other things being equal, 2P reserves will equate to 9 years production. How are those 25Mboe replenished?

The two wells at Magnus adds c6m to 2P. Perhaps there will be revisions on existing production but they tend to be Brent price related. Revisions tend to come at the full year but perhaps Enquest will have news on this at the interims. Eagle, or Kraken infill?

Hi L3Trader,

It looks like I may get a last taste of the summer this weekend so I've a couple of new local walks in mind.

You say, 'I Believe that the $600M OPEX includes the part of the lease that does not correspond to interest. ' I'm inclined to agree. As I said, I think ENQ put out that number as simple all inclusive OpEx guidance. I complicated it while assessing Squif's post, but in doing so I think I now understand the FSPO lease accounting.

On the accounting of the FSPO lease, I don't think I can explain it any better than I did in my previous post. You are touching on key elements but come to a different conclusion. I can't say you are wrong, I just believe my assessment is the correct one.

In 2019 ENQ will pay $115m cash (less the performance penalties) to BUMI. If ENQ are paying an additional cash payment which you refer to as lease interest who is it paid to?

There is no cash interest item on future payments to BUMI, but these future payments do have to be accounted for as a liability in the balance sheet against the 'right of use' credit under non current assets. The 8.12% 'interest' is determine by ENQ to be their marginal interest rate - the level that would be charged if the 'right of use' was actually purchased via debt.

The $144.8m is an accounting item, split between payment of lease principle and payment of lease interest reducing the accounting liability. The corresponding 'right of use' asset will be depreciated.

In yesterday's interims PMO used the term 'accounting net debt'. Look out for this term or something similar in Enquest's update when $82m is added to debt for the liability applied to future office rent payments due under a long term lease agreement. Cash payments to the landlord will be the same.