Member Info for romaron

The CEO of Pioneer disagrees with you KO. For scale you need the majors and the quickest route as always to increase production is shale. They have publicly stated that they will be returning cash by buybacks and dividends instead of the growth of the last decade and the damage it did to investors. The smaller private companies (often called 'mom and pop indepenents') can do what they like to an extent but the Gas methane partnership 2.0 will put a lot of them out of business. You have flexibility as an independent but not the scale or financial resilience that the majors have.
I don't follow shale as closely as some but a lot of production has been DUCs.
Then there is Saudi Arabia and UAE. A lot of reports suggest they can't lift production to match any tick up in demand and yesterday's signals on inflation suggest it isn't the slam dunk on recession that some forewarn. It is August and headline news is a dog left in a car during this heatwave.

I'm still sticking with Warren Buffet.

Build it and they will come.

A sign you'll often see in Italy in August. The cities empty and I once struggled to get a hotel in Milan in August. There is a knock on effect throughout Europe and even if BJ and Zahawi rushed back there is little that could be done. This is a good time to ruminate before people return from their holidays. This is 'phoney war' time. I expect it to move quick once the Tories have elected a new leader.
I do detect a change in sentiment and no doubt the PR machines will have picked up on it. We even have Farage backing the O&G sector and detestable as he is he has a fine political nose and a large following.
ESG fosters delusion and suffers from three fundamental problems.
1. It lumps together a dizzying array of objectives with no coherent guide for investors and firms to make the trade-offs that are inevitable in any society.
2. It hides true costs and incentives.
3. It has a measurement problem. The various scoring systems have gaping inconsistencies and are easily gamed. Credit ratings have a 99% correlation across rating agencies. ESG ratings tally at around 50%. You can improve your ESG rating by selling assets to a different owner who keeps running them as before (source: The Economist).

I'd say that the O&G industry is one of the most ESG compliant but has had a terrible press. Let's see what Autumn and Winter bring us. The cards have largely been dealt and governments have bet extremely large on it being a mild winter. They couldn't really do much else after a decade of attacking the only industry that could save them.
Thomas Malfus was right. We all know that the world population requires huge amounts of energy for basically everything and he made his theory popular before we even started using fossil fuels to any scale and oil and gas was still in the ground. Population and immigration is the story now. Putin knows that. I imagine he is banking on "General Winter" to give him advantage and achieve his aims.

*my hedge against gas bills was Energean but Harbour fit the bill too and no doubt some of you have them in you portfolio. A wise move imo.

Be lucky

On this page: https://www.londonstockexchange.com/stock/ENQ/enquest-plc/company-page
35% of LSE Volume today. My reading is that it's the only way you'll get any size done in these thin markets
Warren Buffet saw his business drop $43.76bn in valuation. However, earnings were significantly up at $9.28bn. WB has long said that he believes Berkshire's operating earnings are a better measure of the company's performance because they exclude investment gains and losses, which can vary widely quarter to quarter. I couldn't agree more. Our FCF answers most of the questions.
Interesting comment on Bloomberg today. The US CEO of Pioneer doesn't blame ESG for poor reputation and avoidance of O&G stocks. He thinks it is more to do with the backwardation being plain wrong. Forecast of $85-65 when he sees $100+ for 5 years.
I read elsewhere that there is a front end glut. The front end is what the market follows. The physical market is not so convinced. The paper markets need turnover to make a proifit and the algo switch is turned on whether busy or not. With confused messages I'm very happy with my reading of the situation. There are genuine threats to supply and the politicians are out of their depth. Winter is coming.

Closed for holidays. Back in September but orders can be placed.

The Lebanese are renowned throuhout the Levant and surrounding areas for their business acumen. The geopolitics of the area are Byzantine and I would (optimistically) opine that the Hezbollah aggression is to establish bargaining position. Few would support Lebanon not having territorial sovereignty but they are weak compared to the powers surrounding them. I wish them well and they are adept at playing a weak hand. It is in everyone's interest to make the Eastern Med a success as an energy hub.
Even if you reduce Hezbollah leaders to war lords they still require finance. Lebanon is a beautiful country with war damage still visible and round the corner a Ferrari garage. Power outages are regular and daily. Extremists have aims but civilians just want the same as us. I am very hopeful that the way out of the current mess will be improved with cheap and reliable forms of energy that are in everyone's interest. That's why I'm invested. Roughly speaking Lebanon is a 3 way split between Shia, Sunni and Christian. It cannot exist as a state without compromise.

https://www.reuters.com/business/energy/exclusive-saudi-uae-save-oil-firepower-case-winter-supply-crisis-2022-08-04/

Clarifying the OPEC communique or pressure from abroad? I don't trust anything out of Saudi arabia or the UAE.

and this: https://www.reuters.com/business/energy/european-gas-storage-track-meet-target-cost-2022-08-04/

Plenty of gas storage but at 10 X the historical average. What are they scared of?

This is old. March 14 2022 but still germane: https://www.bloomberg.com/news/articles/2022-03-14/oil-companies-hedging-less-future-output-as-crude-prices-rise
Theses 2 paras. are helpful:
"To be sure, not all producer hedging is likely to disappear as smaller private companies that have high levels of debt will almost certainly be required to hedge by the banks that lend to them. And as volatility in the immediate months rise, producers are also expected to lock in some protection short term or use more nuanced hedging to mitigate risk. " and
"One of the biggest signs oil producers are throwing in the towel on hedging can be seen in the options market. The number of bullish call options traded outnumbered the number of put options—used by oil producers to lock in future selling prices—for 13 months in a row as of February. That is the longest such streak on record, based on Bloomberg data going back to 1996."

My view is that we may be grateful that we were forced to hedge when we did. If in 2023/2024 the price stays above (say) $120 we may be patting ourselves on the back about our timing. I suppose you could make an argument the other way that if the price drops we have a hedge with the EPL possibly being removed.

https://www.bnnbloomberg.ca/the-close/not-seeing-solid-evidence-of-demand-destruction-in-gasoline-market-energy-strategist~2495474 Interesting video and commentary.

Of course there may be other sources that are non-OPEC. Here's the result of the meeting: https://www.opec.org/opec_web/en/press_room/6984.htm

and there's no getting away from this - "The Meeting highlighted with particular concern that insufficient investment into the upstream sector will impact the availability of adequate supply in a timely manner to meet growing demand beyond 2023 from non-participating non-OPEC oil-producing countries, some OPEC Member Countries and participating non-OPEC oil-producing countries." Meanwhile Western media and ESG activists continue to attck the O&G industry which is the only body that can stop this drift back towards the 18th Century. Hardly encouraging investment!

Maybe perpetual motion or sunbeams from cucumbers is only a heartbeat away but I wouldn't hold your breath.

No problem bbk. I like posts where people back up their points and dig deeper. I'm guessing you and L7 enjoy playing with figures and are better at it than me. I wonder how EnQuest would handle their sales of production if they didn't have the covenants? Hedges aren't free and cannot handle every trade (Saudi Arabia contracts, Mexico auctions etc..). It doesn't really concern me and may be commercially sensitive but we don't know how they sell the non-hedged portion. I think EnQuest would enjoy the freedom of not being forced to hedge but needs must. I remember the swap around $40 (from memory) in 2020. It was imo a panic move but I would probably have done something similar; after all, everybody else was panicking at the time.
More worried about depth of the recession outrunning natural declines. Here's another thought. What would you do if you were an airline regarding fuel prices?
I think the company would like to be free of hedging covenants or maybe they'll propose a lower level that they're happier with? We'll still need some form of finance if we're intending to grow and whatever shape it is the lenders are entitled to demand protection.

Be Lucky

I don't know if that's aimed at me ukb but I don't think hedging is trivial just boring. It is a contractual obligation and at different times it can work in your favour. You call it a hedging loss. I'd call it a reduced profit or an insurance expense. We sold at higher than our costs. Harbour did something similar with gas hedging I believe. I don't blame their management for not reading the future correctly. Telling the future belongs in the fairground. Companies have to do the best and it has certainly been a roller coaster for all those involved.
I imagine that Enquest management work within the rules and their business is to make a profit and exercise prudence. I don't expect them to hit tops and bottoms with hedging.

The good news M is that you never got a debate going. The market is (as usual) following predictable headlines and miss out on insight. I have thought for some weeks that oil was too high. Releasing the SPR into a market that wasn't struggling overall but just had oil in the wrong places and an embattled President who just wanted pump prices down. It should have collapsed the price but you have to factor Putin in and the back door deliveries to India and China. I'm not sure I've got my head around it all but I'm trying to follow the physical rather than the paper. Countries have filled every can and tank because the shortage isn't now. It is 3 months ahead is my guess. It isn't an exact science so you are likely to run out of inventory space so that will go to the spot market and create a mirage of abundance. Will that be the position in October?
Germany in WW2 distilled coal into petrol because of necessity and survival. It didn't work then and it won't now. Algorithms follow the paper movements and I just don't trust them. Neither BTW doe Warren Buffet. Are Saudi Arabia bluffing or are they really close to maximum output? I think they did the same as the r.o.w. and cut back on Capex in recent years. The oil industry cannot turn on a sixpence. I also believe that governments are keeping the fragility of energy for the coming months secret whist praying for a mild winter. Sad to say but only a deep recession will save them.
Your find is intriguing because although gas & oil are to some extent apples and oranges they do follow the same path. Like coal into oil you might have to resort to Vodka and Apple if orange isn't available. I read posts where people say things like "at this level of natural gas oil should be $180". It isn't that simple but there comes a point where you use whatever comes to hand. I checked tail end of 2021 into 2022 and oil was abouy $80. Gas was $4. I don't know enough but at the extremes they pull each other in.
I learned a lesson decades ago. Liquidity, unless you understand it is a suckers game. It isn't easy to get it exact and it can mask the underlying real state of affairs. Biden threw everything at oil including a visit to SA. The physical market doesn't want to be short but I sense that we already are; it can only get worse.

My Negroni supply is safe and I quite like Aperol/Campari with soda (prefer orange).

Hi L7 - for clarity. I consider EnQuest a BUY even if all we do is tie-backs and infills with a dash of renewable window dressing and let nature (physics) take its course. That is based on a hypothetical rundown of the UK operations. BP and Shell have abandoned the NS to a large extent although nearly all discussions on the energy crisis centre around them. They are global majors who can shrug off the windfall tax so they attack and bully the next level down. We are unloved but I'm not seeing any politicians coming out in support of us so we may just become collateral damage. We need to remind government of our importance. The investment allowance are encouraging but not if a hostile government is in place when the cash returns start. This country used to be a welcoming destination for investment. Investing in ideology by destroying the lifeblood of the country needs to be addressed. Liz Truss is making some long overdue commitments towards O&G but she might not be in power in 28 months time.

I agree that we have organic options and EnQuest is a BUY if you follow this option and open no NEW fields. You could please the environmentalists by not developing Bressay. I suggested this to AB at the AGM that just run the company into the ground. He replied that it doesn't "work that way" but you kinda have to suggest to the government that the incessant attacks might make you choose this path. Another downside to this route is that it would signal that the company is firmly ex-growth. This would damage an already battered share price which does not reflect the potential or even current FCF.
These dog days of summer will soon be in the rear view mirror and then things will liven up. I enjoy your posts L7, especially your attention to detail which shames me. I have little interest in hedging and treat it as insurance and enforced lender covenants. Whatever the driver they all cost. Anothe insurance is employing Tulchan Communications. It is hard to see the benefit but they are also lobbyists and introducers. We need representation at the top level of government and the likes of Andrew Feldman are essential. I think there are two stories at present. The media with demonising BP and unearthing the 'fact' that they're not really producing O&G from the NS and at the same time appeasing the green evangelists and then the true situation which if we're gonna get through it needs the cooperation of companies like EnQuest, Harbour and Centrica.

Wait until October. The public will be being manipulated into preparing for rationing and power cuts. They'll wonder why a country such as ours that could be energy independent and is surrounded by oil and gas is in such deep caca. The public don't like being misled. Government will need to make friends and speed up NEW fields. We can help but like everything else; it is subject to negotiations.

or VoR the fact thaty they are buying HYNs increases their leverage at the negotiating table with existing holders and sends a strong signal. Then there is the argument that it is a kinda buyback but not shares as they cannot do that presently. Repaying the RBL gives them freedom from mandated hedging so is useful if you see oil holding or going higher. I think they are sending messages to both lenders and shareholders.
Regarding flipping the HYN (in at 7% - taking profit between 11-17% ) it is probably more tokenism though a profit of nearly $1.5m is not to be sneezed at the returns in oil production are even better. I don't think the current level of 96.487 is deserved as it looks nailed on that it will be repaid/rolled over and is lock-up paper for current holders. They probably bought below 50 anyway. Best not to read too much into it imo. The old RB is practically at Par now and has the same rate and maturity.
I also think that Barclays model spun out the reiteration automatically today after the update.

L7 - I think you may have overthought it. For this round of negotiations EnQuest hold a strong hand. I think the government are petrified of the consequences of abandoning fossil fuels too early. Note the increased hardline from Liz Truss towards environmental evangelism and 'green levies'. She knows what the public will choose when reality spoils the party.
https://www.businessgreen.com/news/4054209/fields-shouldnt-solar-panels-truss-vows-crackdown-renewables-development (LS8 Tue 22:15)

That's why I'm ambivalent. The country needs what we can provide yet the Labour opposition is saying, "you take the risk and we'll take the profit". The Tories can't give a straight answer or a joined up strategy/commitment to the NS either. I'd love to see BBK developed. Let's start with saying both fields are tie-backs and are required as a strategic reserve.
I suspect Equinor will play a big part in any development if one goes ahead.

mrc - this worries me and why would you go for growth when there is a high chance that a hostile government gains power and the current incumbents are hardly helpful or understanding.
Ed Milliband, Labour Energy Minister speaking at Unison Energy Conference in June:
“The Tories mouth the words but don’t deliver.
I think it’s ideology not incompetence that stops them delivering [for public services].” Asking a simple question, “do you judge your country based on the balance sheets of BP or Shell or do you judge it on the household bills of working families?”
When Labour ideology goes agaisnst economics, facts and physics you have to question the future of the North Sea for O&G producers. Shell & BP don't treat the North Sea as strategic and are exiting. That leaves smaller companies like ourselves and Harbour who will always come second to populist governments looking for scapegoats or tax receipts. Not a healthy investment environment for them and Linda Cook says they won't be doing renewables.

Without guarantees (and I don't think they're available) it could be foolhardy to ignore the Labour threats.

Hi Papegoja - You make a good point about AB's personal plans and perhaps someone should have asked. He comes over (to me) as a deep thinker and enjoys difficult questions but British reticence stops us asking personal questions. He is pretty accomodating but always with an eye on governance. He has never engaged with the likes of Malcy since I've been invested and never makes rash promises. In fact he edges towards caution and is that necessarily a bad thing?
Asking that question directly could be considered rude but I believe he intends to leave a legacy and that requires EnQuest being a success. I'd imagine after his time in the industry he is long past the short view although they still have to be managed. I'm on the fence regarding another big investment. I doubt we'll see as big an open goal as this again for a long time and we could make a fortune by seizing opportunities now. I cannot believe the oil price. Countries are desperate for energy security and even if we get a recession it is unlikely to reduce world GDP requirements more than natural declines. I say this because the ignorant cannot understand that if you want the same quality of life then fossils need to be burned for longer and at a similar level. The unintended consequence of climate lobbying has more or less ensured that no NEW fields will be brought online to increase production or even hold present levels. Not because OPEC are being awkward but a fact of life. No new energy for 3 years (let's say). They tried to ban tobacco and alcohol too without understanding O&G is a different kettle of fish and impacts on ALL other industries (fertilizer, cement and renewables for instance) and I think we've all given up on world peace.
I chatted with Rani Koya (NED) at the AGM together with AB. She went to Durham the same as my daughter. AB merely commented that his son has been accepted by Yale. He'll need to earn a few quid to pay those fees (something to do with Maths). All it meant to me was that he was a "proud dad" and that's as close as I've got to personal issues but the question could be asked and he might surprise us.

I'm speculating but releasing the update today was to avoid any adverse publicity. Let BP fill the financial pages. It has AB's footprint all over it. The $HYN fixed higher by 1 1/8th percent today (96.305)and is another good sign. The bond market doesn't do frivolity.

The Lionesses success and now this!

"EnQuest has executed $14.4 million (1.7%) of buy backs of the 2023 7% high yield bonds" - not really my area but they are also at the negotiating table on both sides regarding rollover or some other debt rescheduling.
Following what we were told at the AGM and confirmed by IR -
" I think what Jonathan would be alluding too would be that the next window in which we can undertake a HYB issuance/refinancing would be after our half year results – this is driven by US regulations regarding having “live financials” upon which investors can make judgements on the Company and instrument. We are certainly getting ourselves ready to do something at the time so we can act should market conditions etc. be suitable. We are also considering a number of other financing options that means we may not do a HYB but still bridge the gap between our cash generation, a re-sized RBL and the repayment required on the existing HYB. Essentially we are running multiple opportunities so we have choices on which we can act should favourable conditions/pricing etc. present itself."

My take is that they want to move ahead and tidy up the balance sheet and debt. Don't rule out another deal adding further complications. The September (expected) update was delaying them and they wanted to move on. This is an exciting space. If you put on a longer view hat this is all making sense and coming together. The near macro (energy) could not be more positive or pressing imo.

we were effectively run by credit agencies, ESG lo0bbyists and debt holders.

Definitely under fresh management. Prepeare for a sea-change. I predict something big.

Build it right and they'll form a queue.

It says what it is in the RNS. From the PSP awards of 2018/19 being exercised. Probably pretty complicated from a tax point of view but a resounding confidence signal from AB. The fact that he was buying when he had these to look forward to says a lot imo. It is a "sum up" but the PSP award needs to be added to his recent buys.
If the bears were anywhere near right them oil should now be closer to $60. If it tight now what will it be like in October?

AB is making his view crystal clear imo.

Build it and they will come. Nowhere close has any stock and next delivery is not expected until 2025.

Now you've got me worried monkey - could he be B.J. Ectoplasm referred to in the video. Stalkers are harmless - aren't they?

*coincidentally off to Westo-super-Mare to visit family this weekend. It is the childhood home of John Cleese. Wish I had your money and could afford to escape the heat by going abroad. You've done well when you look back at your childhood. Shoe-box home and a diet of gravel.

Be Lucky

*In 1948 when Al Gore was born, earth had 130,000 glaciers. Today, just 74 years later, only 130,000 remain.

No matey - it is a linear bet whether we're allowed to make money or the country agrees to go back to the stone age for the next decade. Seems like companies in O&G are not allowed to make profits. That makes them a target and investors steer clear. Thye don't have the same problem in other parts of the world. It will be gradual though. First we go back to coal and then to oxen. BTW - if you're interested in a team of oxen I could be your man.

O/T An anonymous source sent me rare archive footage of a stalker/troll. I can't check its veracity but it does seem to behave like those attracted to this board. He's the one in the bowler hat: https://www.youtube.com/watch?v=xsxkHfbbApk