Member Info for Plethorus

The market's reaction to Tullow oil's reduced production profile shows that Enquest will be deemed risky until debt falls below $500m

I dont see a dividend until end 2021 or end 2022

They are highly unlikely to pay a dividend in 2020 even if it is allowed. If they have spare cash they will buy another Magnus when valuations for oil and gas assets is at historic dislocation

Because thats when debt is expected to fall below $1b

I hope you are right. I am assuming the worst and preparing for a late 2020 rerate.

In other words the rate of increase in undervaluation of Enquest gets more acute each year. So the longer it persists the more Enquest becomes a bargain. The years 2021-2022 and 2022-2023 are highly significant for Enquest. IMO the best time to invest is sometime at the end of 2020 if the stock hasnt rerated by then

If Enquest pays off its debt by the end or 2022 and then builds up cash on the balance sheet sometime in 2023, then the EV would be negative or assuming the EV is 10 and EBITDA is 1000 our EV/EBITDA would be 0.01. So the valuation discrepancy gets extreme between 2022 and 2023

What do Enquest need to get that gas in Malaysia out of the ground?

I think given the type of company Enquest is and the nature of the late life assets it owns with higher than conventional decline rates, a Net debt/EBITDA of 0.5 is needed to get a good credit rating from Moody’s. I believe that Enquest will start to rerate at the end of 2020 and into 2021 and the rerating will be peak when net debt is under $500m by the end of 2021. $1.5bn debt is way too high for a mid cap oiler like enquest.

Regarding Malaysia I seem to remember Enquest paying around $6m per month until the end of Q1 2019. I might be wrong on the exact timing but maybe others can confirm.
Regarding Kraken i assume 2019 production of 35k for the year and 2020 production of 12.5k higher (Worcester field additions) gross so around 8.8k higher net. I assume a brent price of $63 a Kraken premium of around $3-$4. I assume Opex on Kraken of just below $10. Thats how i get a figure around $175m FCF for 2020.

At the end of 2018, net debt was $1775m. If at the end of 2019, net debt ends up at $1475m, then enquest would have reduced debt by $300m in 2019.
What are the factors that will lead to higher FCF in 2020 vs 2019?
-lower interest expense ($25m)
-lower capex ($100m-$125m)
-higher kraken output ($175m)
-no more Malaysia oil prepayment ($20m)
-favourable working capital movement ($50m)
-SVT terminal (?)
-Magnus (anyone?)
-thistle and Heather (-$40m)depending on how soon they can be fixed)
If anyone has other suggestions or can better quantify the difference in FCF between 2019 and 2020, please add
Its not hard to imagine that FCF can reach $600m in 2020 at current Brent prices and that if Enquest performs operationally and Brent cooperates then $700m FCF is very feasible.

Given the Kraken premium and the low opex there we are better off with Kraken at max capacity and thistle and Heather down than the other way round.

Thanks Pelle

Pelle do you have an updated Enquest spreadsheet based after the operations update and the CMD?
Also what kind of premium is Kraken oil getting over Brent?
Thanks

*saved interest expenses

I was thinking yesterday that if Kraken ramped up properly 2 years ago with opex being $10 we would have produced an extra 10000 barrels in each year net. So 20k barrels of oil. We would have avoided rhe rights issue, we would have saved interested expenses and we would be close to $1 billion of debt now. So enquest would have been a stronger player in a still weak oil market. That is they would have been able to take advantage of a deal now. Its obviously not as straightforward as i suggested because enquest made bumi pay some money but we would definitely be stronger than today.

What is the OPEX at the Kraken field?

Enquest is becoming a boring company, which is a good thing. Steady as she goes. I think 2020 will be a boring transitional year and debt will fall below $1b. It will start getting exciting when the results for 2020 are released the following year. I expect a couple of Moody’s upgrades to the debt by then. The fact is that today with a debt of $1.55b, Enquest is very risky for institutional investors. At the moment, Enquest’s shares are not pledgeable, that is to say institutional and private investors cannot borrow against them because they are deemed too risky. Investors can borrow against Tullow Oil, Petrofac, Royal Dutch Shell etc. So until Enquest reduces its debt significantly below $1b, I dont expect institutional investors to jump in. I think Enquest AGM in May 2021 is the turning point. So we have another boring 18 months.

Interesting read. What is everyone's Opex and capex projections for 2020?

Does anyone know how much each engineer in Sullom Voe earns and what are Enquest looking to save by eliminating 60 full time workers and 20 contractors?