Member Info for Plethorus

You are right that AB will attempt to buy another field probably by end 2019 or early 2020. is your assumption for net debt at the end of 2020 of 900 million in dollars or pounds. With Brent at $70 for 2020, is EBITDA of $1.2 BILLION realistic?

Assuming Brent at $70 for the remainder of 2019 and 2020, and assuming production within the guided range, what will Net debt be at the end of 2020 and what will Ebitda be for 2020?
Anyone have a base case idea?

Every day that Brent is above $65 Enquest is paying off debt. I still expect Brent to average above $70 for 2019 and for there to be upward spikes to the high $70s (which is when Enquest should hedge for a year). Longer term i still expect enquest to add another magnus at some point in 2019 and for Kraken to get close to 40Kb/d and Magnus to outperform the expected production. The road to recovery will be long but at some point Enquest won't be as choked by debt as it is now. This time next year Enquest will be in a much better position.

It would be stupid for Enquest not to consider more deals given the tax losses they have.

At the moment, in every earning’s call AB has to field questions about Kraken mainly (which isnt ideal), then magnus then the rest of the portfolio. If we say that the company’s success depends 60% on Kraken, 25% on magnus and 15% on the rest of the portfolio then AB wants to reduce how the company’s success is judged and how much enquest depends on Kraken and thats why he will want to add fields with the objective of making enquest only say 20%-25% determined, dependent and judged on Kraken.

Success is something that goes according to plan, failure is something that doesnt go according to plan. If the word failure is too strong to describe Kraken let’s agree to call it not a success but something in the middle.

AB knows that Kraken is a failure and likely wont sustainably produce more than 40k b/d and magnus was (almost a success if it was funded without a RI). So he will try and do more magnus type deals (without Rights issue in future) and less Kraken type oil field developments

I would not be surprised if Enquest is negotiating or trying to buy an oil field similar to magnus right now. Remember during 2016 when Enquest was on the verge of going under AB was negotiation a deal to buy magnus from BP. So now fast forward to 2019 when Enquest isnt under as much financial pressure, we would be naive to think that AB will not try and buy another field. He has said over the last year that enquest is open to good deals and that they are constantly on the lookout for ways to add fields. Enquest might be trying to buy more fields from BP or from Total. If Serica energy can string together a portfolio producing 25k then enquest can easily buy several small fields over the next few years maybe even starting this year.

i think shareholders need a signal from management that all these downgrades are based on flawed assumptions. Managements buys give shareholders confidence to stay put or to invest

I think AB is laughing when he sees Jefferies and Barclays donwgrade his company. He thinks he can add 1.9 million shares sub 20p. He obviously knows what shape his company is in and in the absence of a trading statement the only bullish signal that a CEO can send is to put his money and buy more shares. That is a much more powerful signal than issuing an RNS refuting this claim or that claim from the banks. He has now added over 3 million shares over the last 2 months.

i remember AB said on a call that a level of debt around $1 billion is ok but sub that figure is good. so a Debt/EBITDA ratio of 1 or below is respectable.

Problem with enquest is that debt is too high and EBITDA is still much lower than it should be because production isnt as high as should be and realised oil prices arent as high because enquest didnt hedge that much production when brent was $86

If enquest lowered their debt to a respectable level and grew production in line with a tullow oil, they would get an EV/EBITDA multiple of 5.

Depending on which source you use, Faroe Petroleum is being taken over at an EV/EBITDA multiple of 4.7 (2018 which is trailing) or 4.9 (current) based on morningstar (https://www.morningstar.com/stocks/pinx/ffrrf/quote.html) (go to the valuation section in the link). another source says the EV/EBITDA multiple of Faroe is 3.94 (https://www.marketscreener.com/FAROE-PETROLEUM-PLC-4004153/financials/). Note that Faroe produces 12000 boe/d so it is a small cap oil producer,

I would be the first to admit that Kraken was a massive mistake especially if production stays stuck at 35k. Enquest had to buy magnus to make up for not being able to reach full production capacity at Kraken. Kraken taught enquest’s management that Enquest is better at buying old oil fields from majors and trying to maximise value out of those fields than developing their own oil fields. Having learnt their lesson, enquest needs to grow in a smart way and the best way to do that is to string together a portfolio of small oil fields cheaply like Serica or like enquest did with magnus.

Most oil companies in the US are valued on an EV/EBITDA basis with small cap oil companies getting an EV/EBITDA multiple of 3, mid cap oil companies a multiple of 5 and large cap a multiple of 7 roughly. At the moment we are trading at a multiple of 3 with a forecast of around 1.8 for next year. Based on enquest’s market cap its a small cap company but based on its production its a mid cap oil company. Anything less than 15kboe/d is small cap. Between 20k/boe/d is mid cap and over 100k/boed is large cap. So enquest should be trading at an EV/EBITDA of 5. So a target of 60p next year isnt unrealistic. But as enquest pays down its debt over the next few years, enquest could be worth more than £1, maybe even £2. I see enquest adding two magnuses over the next 3 years to try and get production as close to 100k as possible to 100k. AB might even be negotiating a deal or eyeing up assets from BP and Total who are looking at selling a lot of their assets in the North sea. If serica energy can string together a few assets and reach production of 25kboe/d, i see no reason why enquest cant add two fields with production of 15k-20k each especially if payment terms can be like magnus. This year enquest had to raise the £100m cash, but over the next 3 years they will be able to pay that out of cash flow.