Member Info for romaron

"Buy land, they're not making it anymore." Mark Twain

Could also apply to Oil.

Hi E - I think the August contract is part of cash and in technical terms it is a "mishmash". With the SPR release and governments bringing back coal I think the position is dire. Companies and countries are doing their best to hoard oil whilst keeping the headline price lower than it should be. My theory is that people are lulled into thinking that the governments have the energy shortage under control. They think that shale, LNG and OPEC can do what they've done in the past. They can but it is years away. Others are convinced that renewables will part the seas and bring us a new Nirvana. They won't.
My point is we should be in contango but we're NOT. I don't believe we'll see the Brent futures below $100 until at least H2 2023.
It is smoke and mirrors.

Looking around. Harbour, paying dividend and buybacks - down 3.13%
BP, paying dividends, buybacks and heavy into renewables + raking it in - down 2.36%

conclusion - recession I suppose?

careful what you wish for. It is much more simple for me - there has been little encouragement to open new fields or spend capex so natural declines mean that the calculation is between natural declines and reduced demand for oil.
That guarantees a decline of production whilst the other side is financial and psycho(logical).

I put 'logical' in brackets because it is far from that. The world wants GDP to steady and grow. Governments know the importance of energy and lucky for them they can pass the blame onto China, Covid and Russia. I think ESG should be included and that is their fault.

....and I use this site for "cash": https://tradingeconomics.com/commodity/crude-oil

Hi E - I like that format. Am I right in reading that the first item "cash" is yesterday's price? I've been using this site;
https://www.cmegroup.com/markets/energy/crude-oil/brent-crude-oil-last-day.quotes.html
and the first future it gives is September. I've tried to nail down "cash" but it is a different price in different grades and other parts of the world. A bit like trying to pick an average stock market index and using emerging markets.
When you say 'bearish' are you saying that it indicates higher prices further out and that is generally not good for stocks or are you saying bearish for oil? I've lost the will to live with opinions on oil. The market acts as if we can do without it and it'll be gone by the end of the decade. I disagree.
The front end wags the dog in oil and that is great for day traders but not the long term requirements and we know that long term is generally longer than election cycles.

I wonder if we'll see it? The September contract could indicate it - it is close. I know my car is pretty much topped up but eventually you have to refill. I suppose we've all become a little more fuel conscious but it is a bit like a diet. You can easily find excuses to break it. The shortage hasn't yet arrived imo. People don't change habits that easily.
Contango is a message easily misunderstood. Shortages follow gluts. It is more severe in other parts of the world (Sri Lanka). Oil is fungible (favourite word of AB).

*India introduced a windfall tax on oil producers.

Briefly listened to Tim Craighead of Bloomberg Intelligence this morning. Described investment life cycle as value-growth-excitement-recession. We kinda missed out on growth but value in energy stocks is increasingly obvious. he pointed out that the energy sector is not all UK reliant and supply problems remain. FTSE has 10xvalue and 4% dividend. Combined with a weaker pound that is a good position to be in and makes us very attractive. He sees a higher equity market at year end. Best sector energy and materials. The UK has best macro story and best discounts in his opinion, a veritable safe haven in these stormy times. Energy and materials are 20% of the UK market. Once valuations centre on year end (could be soon - they say the market looks 3-6 months ahead) I expect a rerate. Combined with our FCF the future is looking better but we have to weather this part of the cycle.

Be Lucky

*I put Hold as my opinion because that is what I'm doing. For sideliners I'd say it's a Strong Buy.

With a US holiday Monday I'm guessing that many are taking a long weekend break so expect tomorrow to be flat. Then we've got the leaders of G7 and NATO returning home and no doubt reporting back and fine-tuning their economies after a bit of reflection.
I'm far from convinced that gas and oil prices will soften. Interesting article here about how energy intensity declines over time:
https://newslink.reuters.com/view/62a72f2154fbf111db05a8aagt12h.eqf/34e34fb8

Which I think is b*llks. All I've learned is that the cheaper something gets the more you use. We've got used to cheap energy on demand and it ain't there going forward. Maybe inflation and recession will bite but at Casa Roma I'm not seeing any change in behaviour.

...should have mentioned that it was the 9% Oct 2027 I dealt in at 97.05 (sale - I needed some cash 5,000).. The old RB has a YTM of c. 9 3/8% which suggests the retail holders are more or less happy to run it to maturity. The sharks in the $ Bond aren't so easy-going.

I was talking to the German pilot at the AGM (keeping my eye on him after what happened to romaron's ancestral home in 1940) and I could only hear snippets from a group adjacent talking to JS. Pretty sure Juan was one of them. I thought JS was talking about the deadline for the debt and that they would have a window before October with the 6 monthly figures out and an update giving a better option to negotiate because we would be looking at a smaller figure and use H1 as part of the negotiations (suggest they think H2 should be pretty good too as they'd have 2/3 months covered by production close to guidance). Have I jogged any memories?

*Dealt in the RB today @ 97.05 and checked up on the HYN.
Fixed at 90.581 which is a YTM of a tad over 15% but we pay the 7% coupon.
Checked Tullow HYN (only because they're the only other one I can find). Their 10.25% 15/05/26 fixed at 96.573 (YTM of c.11.25%) whilst their 01/03/25 @y fixed @ 82 & 84 (YTM c.15%)

You probably can't get aboard but the existing HYN looks a no brainer. Maybe they told the truth at the AGM and are behaving themselves and concentrating on getting debt down. That would be good news.

(cont)
Our timing for once is good. Providing the price holds for a few months we will be debt free and recipients of high FCF. We don’t have to sanction new fields and that is a strong negotiating position to be in. I said to AB at the AGM that we could run the company into the ground and still walk away with 3 X our current value. He replied that companies aren’t run this way and are always judged as “going concerns”. I disagree. Why play the accountants game. I say take the money and run. Use up the tax credits as quickly as we can and worry about the future of oil in 2 or 3 years. The EPS will be close to our current MC and dividends beckon. At EnQuest we don’t have to worry about the future beyond 2/3 years. It would be a shame to label our company and the Industry as having no future but if that is what voters want then in a democracy they should be granted their wish. We already have Scotland going for Independence again and they are even more anti-fossil than the UK.
I think we should throw it back in the government’s face. Fulfil our contracts and top up reserves by new drill on existing fields or taking over end-of-life fields from majors. If the government wants a new FDP then they should fund it or provide guarantees.

Build it and they will come (closed for refurbishment)

I don't follow bitcoin or Tesla. Some people have made fortunes by investing in these two stocks but they really don't affect me. I suggest that oil and gas are in the same category for many investors reinforced by the steady drumbeat of negativity from renewable lobbyists and green activists. Unless I'm on here or talking to another EnQuest investor the subject rarely crops up. I can't really see a swathe of new investors arriving and lifting us higher even if we get the right signals/news and decent production at a healthy price.
Unlike Tesla and bitcoin energy does affect all of us but it doesn't mean we should understand it or invest in it. In fact its volatility and recent performance means an AVOID opinion is understandable and I'm not going to argue but that isn't why I remain a holder.
I am here because the price of oil will hold imo whatever happens to inflation and recession worries. It is a commodity the world needs and cannot function without. I expect oil to be above $100 for a year (let's say) and stay relatively high for longer because of the structural deficit caused by the ESG movement. I think ESG is a rip-off but it's a free market. They have ensured that there is a reluctance for any expansion or new investment due to government tax raids when it goes well and indifference the rest of the time. The behaviour of World leaders towards energy shows the hole they have dug for themselves but elections always trump longer term considerations. Today Biden says he isn't going to ask Saudi Arabia to increase production but is meeting a group of producers and hope they do the right thing? The release of SPR is as good an indication that they are fire-fighting rather than looking for longer term solutions. The US is giving/lending $2bn to Angola for solar investment. How is that going to help Europe this winter? It is a reminder that renewables are still part of the hopium strategy and remain high on the agenda. That stops any potential oil investor in their tracks. Not because they don't acknowledge there is a fundamental shortage but they keep getting told that renewables will stick a stake through the heart of fossil fuels at any moment. Hardly likely but religions around the world have lived off these kind of promises for centuries. Anyway, I have quite a short term view on EnQuest.

(cont)

As they say - "the truth is out there" somewhere amid the lobbying and fear mongering. The area (ME) is not noted for its political stability and I suppose even these giant fields suffer declines. Thanks to ProdOpt and Auson.

I do occasionally look at other O&G investments but none have the $3bn tax dowry of EnQuest. Confusion seems to reign in all areas associated with energy and casual promises and actions in a different decade are now coming home to roost. They have been exacerbated by the pandemic, shale and Russia's invasion of Ukraine but the strains were beginning to show anyway. The US imploding politically when it had energy independence now seems to be thinking that isolationism isn't such a good idea after all.

So much going on and we still don't know the final outcome of the EPL. It'll happen but has there been any watering down of its impact on us? A headline of us fast tracking Bressay would help us, the government and the country. We are flat but that is because there is a lot of uncertainty at present which the government has done little to discourage and still appears to be on the side of the demonstrators who disrupted UKOG's AGM.
We aren't in a bad position with plenty of flexibility as debt reduces at pace.

Maybe scrap 2.

"If the oil market was a religion, its central article of faith would be the maximum production capacity of Saudi Aramco, a tenet based on confidence in what we hope to be true and belief in properties we have not yet witnessed. The market is about to have its epiphany. Aramco, the state-owned Saudi Arabian oil giant, claims it can sustainably pump 12 million barrels a day, well above the kingdom’s OPEC+ August target of 11 million barrels. For the global economy, Saudi spare capacity is the last line of defense against more energy inflation. But apart from a few top company executives and a handful of Saudi royals, no one knows for sure whether Aramco can deliver. The rest either have blind faith in Aramco — or simply don’t believe." Bloomberg today.

There are plenty of skeptics who doubt Saudi claims but we shouldn't judge too harshly. Renewable believers have been saying something similar for the past decade.

* Trump suggests that Putin should just claim he won and concentrate on helping him win in 2024

https://drillordrop.com/2022/06/28/protests-disrupt-ukog-agm/

Bit more dramatic than ours. Fossil fuels kill? Maybe, but poverty, starvation and hypothermia certainly does. I know what I'd choose.

Meanwhile the stasis continues whilst we await deliberations by government and the ever changing landscape. It seems to me that the alternative to the UK taking control of its own energy future are:
1. Surrender to Russia
2. Beg Saudia Arabia and the UAE to increase production.
3. Show Iran that terrorism works.
4. Rely on renewables.

1-3 aren't easy to stomach whilst No.4 is fairy story reading for kids.

Build it and they will come (current extensions on hold, held up by planning department and confused future regulations)

Seems that BP are changing their tune. They said that a windfall tax wouldn’t change their UK investment plans. However they now say the new levy isn’t a WF tax but rather a multi-year change and that it is reviewing the impact on its NS investment plans (whatever that means). Nothing then to do with the threat of a WF tax on Lightsource BP, Europe’s largest solar developer who are also making extraordinary profits. They are joined by RWE, the second biggest electricity generator in Britain, threatening to “reconsider” its £15bn investment plans if the chancellor imposes a WF tax. They are joined a host of other on the renewable gravy train.
I mean that’s fair enough isn’t it? It is the dirty fossil fuel producers who have to pay. The renewable investment will save us from an energy crisis/shortage won’t they? They’ve been promising us energy independence is just round the corner for years. The renewable industry defend their untouchability because they’ve had ten years of not making enough money and they’re entitled to a bit of bunce (RWE). They also point out that a WF tax would lead to less renewable investment (funny, I thought they lived off subsidies?). Talk about having your cake and eating it.

Still we can relax. We can sit on the sidelines counting our money whilst the renewable industry take care of the country’s energy needs. Any problems there's always those nice ME guys and Iran - or Venezuala at a push.

With the arranged meeting in Aberdeen last Thursday you could arguably suggest that there was "inside info" being bandied about and could give unfair advantage to participants. That would apply to us possibly but not companies already engaged in buybacks. Harbour and BP both continued their buying. They could have stopped to make a point I suppose but I imagine no agreements were struck anyway. I think it's early July when the EPL Bill is given more detail and energy companies still have until 28 June to respond to 'the consultation'. Then you have BJ returning from the G7 where he may have have made some rash promises. The good news is that he couldn't damage the O&G sector anymore then he has done already.

Germany – economy minister Robert Habeck, a member of the Green party said “From now on, gas is a scarce commodity” and he added there were “no taboos”. Old nuclear plants could continue past their shut-off this year.
Holland – scrapped limits on power production from coal-fired plants until 2024.
Austria – ordered a reserve gas plant to switch to burning coal.
UK – business secretary Kwasi Kwarteng ordered ESO the manager of the grid to open talks with the owners of three coal plants – EDF, Drax and Uniper – to “bolster” energy security this winter.

Gas is too expensive so coal moves up the pecking order. Coal has doubled this year to $400 a tonne and some are suggesting $600 a tonne which will still be cheaper than LNG.
Most seem to believe the sudden revival of coal is only a temporary, if damaging, setback. “We thought Europe’s exit from coal was a five to ten-year story” said Tom Price at investment bank Liberum. “It’s probably now a ten to 15-year story.”
“As interest rates rise and free money ends, we’re moving from a period of wealth creation to one of wealth erosion. You need to decide what you’re going to do about it.” James Coney
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I like the time line move forward by five years. That’ll do me. We’ll use up all our tax credits in short order and this company becomes a cash cow. And, we don’t even know if any positives have come from the Rishi Sunak meeting with NS oil companies last Thursday (were we there?). I imagine RS received a few home truths and this company has only to engage in tokenism to reap benefits. The government can’t make us sanction new fields nor BP nor Harbour. We should and I think will but we aren’t without leverage or other options.

Depressed as PE ratios are for O&G we will move higher towards the BP PE if only because of a better credit rating, lower/zero debt and FCF if things remain the same. They won’t remain the same (they never do) but it is a firm base we work from.

Coal and cash are king.

Hi KO - there has been some Damascene conversion in your posting since the AGM. You should have said hello (I'm assuming you were there). One corrrection - if the post is aimed at me because of me being anti-climate concerns that is inaccurate. I am anti too-fast an abandonment of fossil fuels which causes damage and increases poverty and misery for milions. I have worked in the energy saving industry and I've seen glaciers move faster.
Your find is potentially a game changer. Not a handbrake turn but a pause. If carried through it will be a massive boost for fossil fuels in Europe. They will conflate security of supply and increasing domestic production of fossils. The Ukranian war will enable this. It will be presented as interim and that is fine by me. Realists will accept that. Sometimes the bleedin' obvious is staring you in the face and this announcement feeds straight back into what AB & JS said about the industry needing to be self-financing. If they were banning financing of of overseas fossil fuel projects in 6 months time who is to say it wouldn't be domestic projects a few years later. This is a major reason investors fled the sector. It could be an interesting start to next week. The market likes predictability and gradual change. It will upset the green activists but markets will love it. Depending on if it goes through. The Germans do have home advantage in this round of the G7.

I read that some furnaces in Germany have been operating for decades and they are world renowned for their engineering prowess. In WW2 they used coal to make petrol for their tanks as oil supplies ran out. I think they have a closer relationship to energy than we do. They know it doesn't come out of a socket in the wall.

Good find.

Eric Nuttall, talking his book but I like the Baytex (BTE) chart (0.5:30) Not that different to ours and an observation (03:40) he made "energy stocks have fallen, you know what hasn't fallen? Their Free Cash Flow, it's hitting their bank accounts every day." He met the head of OPEC earlier this month where his position was validated.

https://www.bnnbloomberg.ca/video/we-ve-had-a-panic-induced-selloff-but-nothing-has-changed-in-energy-stocks-nuttall~2472295

But do they have our tax credits? That will turbo-charge our advance when the obsession with debt is in the rear mirror. Not many quarters away.