Member Info for romaron

I don't think that is an outrageous comment and could apply to practically every oil company outside the majors (and they ain't doing brilliantly). Many other industries are going through similar travails (retail, hotels, airlines etc..) so is this the end of civilisation? Those that see no future in oil must also sell stock in industries associated with the use of this form of energy. This would take us back to the 50's and a few would be happy with that - from Little Englanders to Extinction Rebellion and they would realise the phrase "be careful what you wish for". It ain't gonna happen and the world will get over Covid which is by far the bigger problem.
I think that Trump is actually right when he says oil production will be down by 20 per cent. No centralised directives beyond the OPEC agreements but pure economics and commercial imperatives. To placate the equity and debt holders ALL oil producers are showing reductions in capex and closing of marginal fields. We might even have a 50 per cent glut at present as much is wet finger in the air calculations. Once the cuts kick in there is the delayed wait for demand to ramp up as the world awakes. That is the calculation. We know oil production will be down and stay down because there has been less capital deployed to conventional since 2014 and that the shale phenomena is a busted flush.
The gamble is that some companies won't make it whilst others are going to make exceptional returns. A safer bet here might be to follow the hedge funds and sell (say) TLW and PMO and buy Majors. What I'm suggesting is that smart money will be looking for undervalued oil companies, they always do. There is a lot of rubbish out there so it isn't easy. Does RKH ever get FID or will HUR grow? I only really follow one company and it ticks all my boxes - management, debt structure, vision, governance etc.. which is why I continue to hold.
The glut will take months to disappear but I think 80 mio bopd will be the other side of demand which will not be clear for some months but only has to be 85+ to lift oil shares. We can all guess but I think a glut of maximum 100mio barrels would take 6/7 months to clear with the enforced cuts whether willingly or by diktat. That writes off 2020 to an extent but as the picture clears there will be rising prices. I think it's time for good news to appear in the media. We've seen the way propaganda assisted lockdown and isolation. It works just as effectively the other way.

Be Lucky

Ooops, you'd get £7k a year not £14k.

Damn you oiluser. I was gonna read the paper but you've got me thinking. Using a nominal 100,000 EnQuest shares/bonds would cost you (lets say £50k). So for the next 3 years you could earn £14k gross which beats the Govt pension. The return is irrelevant whether PIK or not as if you want the cash, sell them. That is a good base for a mixed portfolio I'd suggest. Providing the company stays solvent you'll get back a £100k which is a 100 per cent return on your capital outlay. But that isn't why you ruined my Sunday.
I had to research the Premier Oil RB. They haven't yet refinanced but it was in the bag until the oil world imploded. They had agreement to move the RB maturity from 31 May 2021 until 30 November 2023 at a rate of 8.85% agreed on 7 January 2020. Along with fees and small print call it 10%. It is conditional on a number of factors and there is a court decision due. I wouldn't be surprised if various creditors who agreed might be tasking their lawyers with going through the documents looking for get out clauses http://premieroil.prod-mid-euw3.investis.com/sites/default/files/press/200212-result-of-scheme-meetings.pdf

It's only us and PMO that have Retail Bonds in the oil sector so there is an element of being tarred with the same brush but we are several years ahead of them and they still have the Rights Issue to steer through. Nothing is simple when you try and make comparisons in oil companies but I will try and follow through the mechanics of the PMO as it extends the RB. With what's gone on in the past months I wouldn't be surprised if some of the more nervous holders of PMO debt aren't already looking at force majeure as an excuse to pull out. The EnQuest team have outperformed PMO in the financial rectitude stakes or maybe they're just luckier!

To be pedantic they call it "Bonus Issue" on EQi but they are added to the total RBs you have so there is nothing to stop you selling them. It is the company that is holding on to cash the investor can do what they like. Good question in that it made me think. I hang on to them but an unknown number may sell so that may act as a built in deflator to the RBs and the HYNs. Because a PIK is a defensive mechanism it doesn't flatter the bonds but who's going for looks!

The Retail Bond is due 15/ 04/2022 with an option by EnQuest to rollover to 15/04/2023. They are talking 2023 anyway so I'm taking that as a given. Bonds are often rolled over as debt isn't your enemy except when the business it funds is failing. The company will choose an opportune time to gear the debt and extend the repayment. For the time being time is on our side. I think we have between now and early 2022 to make plans. Hopefully the market conditions them will be much more favourable. I think the current price is ridiculous and more a case of being dragged down by other companies debt that looks like they'll either choose bankruptcy or restructuring. We aren't in much danger but the market isn't always that selective when assessing risk so we are judged along with the no-hopers.
The current yield to maturity on the RB is c. 42%

....and compounding interest separates the rich from the broke. The great Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”

Providing EnQuest are here in 2023 there aren't many safer and better bets around.

p.s. those desperate for income can always sell the shares they receive.

Be Lucky

The author Bethany McLean has an impeccable background and is no fool. She is confirming what some on this board have been saying for some time, especially epiphany121. I found this bit particularly interesting : "It’s still unclear where most of this debt is held. Some of it has been packaged into so-called collateralized loan obligations, pieces of which are held by hedge funds. Some of it may be on bank balance sheets. Investors in the equity of these companies have already seen the value of their holdings decimated. Pension funds that have poured money into private equity firms may take a hit soon, too. All we know for sure is that fracking company executives and private equity financiers have made a fortune by touting the myth of energy independence — and they won’t be the ones who have to pick up the pieces."

These bonds really are junk but as usual the market hides behind the euphemism High Yield. The EnQuest debt is as different to shale debt as silk is to cement but the market likes to pigeonhole and dumb down because sad to say it is composed of a lot of dumb people. You even see it on here when posters give undue respect and powers to those who work in the City or for a hedge fund. They aren't anything special and have no prescient powers. I'd add that imo investors in the US are even dumber than in the UK.

Excellent find Modestus.
Usually the bondholders sweep up the equity at close to zero when a company goes bust but in the case of shale both lose. The winners were those that sold the debt either because of the commission or they were exceptional snake oil salesmen.

Another consideration is that we do not know the level that holders of the HYNs are in at. They don't appear to be playing with the equity (unlike ARCM with PMO). Initial buyers are probably long gone but there must be a few that are in at close to the 30 mark and are actually willing the company to do well and exit either at maturity or close to par. Most funds will have triggers that mean they bale out of debt when certain points are reached. They are far less risk tolerant and once they're gone you are left with the more aggressive institutions who thrive on picking out the weakest. We are a long way from that situation but that wasn't the case in 2016 when some would have become debt holders. They may have exited in the increase from 2016 so we may be going through a "rinse and repeat" sequence. I can't access the HYN but have had good success with the Retail Bond over the years. There are many equations for valuing a company's equity but the bond's are far easier; if solvent to maturity the bond should trade around par.

We don't know who is holding our debt. The company probably does. Like equity it can be passed on and after 2016 I imagine the original holders are few. It probably means that a significant percentage is in potentially less friendly hands but as the INEOS story tells us the world of debt is not your best friend in times of stress and is a mixture of the top banks and the greediest vulture funds.
I follow the debt and annoyingly the HYNs weren't updated yesterday and the last close was 8 April $33.048 (2 April $25.94) because the Retail Bond closed at 43.332.5 (8 April 34.50). I'm assuming the HYNs traded yesterday but you know what they say about assuming. When I next get a HYN price I expect it to be broadly in line with the RB. I'd imagine that a chunk of the HYNs are in the hands of those that deal in "junk bonds" and that doesn't augur well for refinancing if things aren't going well. These guys like to deal with a gun to the head of the borrower but we still have plenty of time on our side and these guys won't be the ones that we go to for refinancing.
The current cost of our debt isn't in anyway expensive and comfortably lower than the JB 10 per cent. I imagine there are time scales for renewing loans and other contracts and 1 year is commonly used but the world of bonds may be different but it is only when you breach covenants that you're really in trouble so we need to really only concern ourselves with the SFA for now which is dependent on a modest rise in the price of oil.
Debt wise we are more or less in control of our own future. The equity market acts as though we are in the grip of death spiral financiers. That is not the case and all credit to the EnQuest management team who don't need to be pushed around by capital markets at this difficult time. Headwinds are one thing but these are bleedin' cyclones!

Build it and they will come.

Hi squif - you're gonna regret asking my opinion on debt, waivers and covenants. I'm no expert but credit limits have been the bane of my life and in my City times you were never far from them. Forget buying back bonds. Where would the company get the money from and what restrictions are already in place?
The world is run by money and even Forex is dictated to by bank rates and Government borrowing. These boards almost always ignore the impact of debt and whilst I'm not an expert I know more than most (in the land of the blind the one eyed man is king).
Equity is subordinated always to debt which is why analysts love companies with low levels of debt. This conveniently misses the point that if you can make 20% profits and borrow at 7% then why not? As Jim Buckee said "debt is your friend, explore out of equity, develop out of debt". he also said make sure your cost of capital is less than 10 per cent.
Rather than pontificate I went back to a well documented instance of an even worse situation faced by INEOS in 2008. They were being held to ransom by a group of banks and hedge funds (15%) when they tried to refinance. Their bonds were quoted at 10 cents in the dollar. In 2008 oil had moved from $145 a barrel in July to $30 in December. They held large stocks of oil and suddenly had no market. INEOS wanted debt holders to temporarily suspend covenants and battle lines were drawn. Eventually INEOS prevailed but at some cost, Euro 800 million in additional fees and interest over the next 3/4 years. In July 2009 INEOS went back to the credit rating agencies with the new deal and asked them if they could rerate the company's debt as they had Euro 750 mio to repay within eighteen months. Credit markets improved and they sold a new bond and used the proceeds to pay down some of the bank debt. Today INEOS is covenant-lite after the gouging it received from the debt holders.
I mention this as background because I'll do another post and this time I am pontificating.

Much appreciated by this investor. They didn't have to do it and it does set them apart from some other companies. It wasn't a show of weakness but does show an understanding of what the wider community is suffering.

Ooopa, not BS but BD (Bob Davenport). There is usually plenty of BS at presentations but not this time.

Up over 20% this morning. The $ HYN's usually moves in lockstep with the RB and it'll be interesting to get their closing price. Bond holders are usually more risk averse than kamikaze day traders so that's another good sign. I think we can say the market liked today's presentation. There was an air of confidence from AB, JS and BS.

Yes hitman $25 and $27. We've transformed from a high cost company concentrating on end of life fields to a slimmer company with world class assets. We may be a tad smaller but a much more nimble company able to take advantage in a fast changing market. I didn't really understand all the talk of physical v dated oil sales ($10 differential) and the paper (published) price but AB did say the next 3 months are fully hedged. I sense that the low hedging compared to others might be because the company think oil prices are gonna jump.

Very encouraging. JP Morgan positively enthusiastic. Totally different company to 2014 and the 2016 restructuring. Many more analyst questions than at CNE. There is a lot of interest in EnQuest it seems. The company is well set up debt wise and very flexible compared to many competitors. JPM pushed AB about opportunities thrown up by current conditions and distressed companies. This is a company that is behaving like a mini-major. As for debt and EV I know quite a bit about debt as a boomer and it does upset a lot of younger people about our mortgages (when we had them) related to our property values. The debt is largely related to Kraken and people concentrate on what the field is valued at under current market conditions and the price of oil. There is nothing wrong with debt if the trajectory of the asset is much higher and the interest rates are low. These are the worst of times and in a few months the industry will be transformed but some will not survive. The company is very strong, resilient and flexible with a tried and tested management team. If you haven't listened to the webcast i suggest you do.

Another Stanley Green. Harmless but better off in the isolation area; filtered.

Thanks oxygen for spotting that. I misplaced my quotation mark. "The boosted by losses" was written by the Times correspondent. I wouldn't wish to malign their CEO. Mind you, how else can bookies make a profit unless they have more losers than winners?

That's Plus500 who are making bumper profits in this market. I noted this comment by their CEO on their Q1 figures: "it was on course to generate full-year profits "substantially ahead" of City expectations boosted by the trading losses suffered by Plus500 customers during the extreme volatility in recent weeks". It can't be the heroes who blight bulletin boards because they crow about their winnings. What did intrigue me more is that City dealers and Fund managers are going to the daily auctions (pre market, mid-day, closing) to move amounts as the market cannot manage their amounts during the day. In the last week about a quarter of all daily share trading has been taking place at these auctions. On the busiest day (March 20) it was 50 per cent. It might surprise the day traders but you can learn an awful lot from auctions but of course they're not involved. They're being picked off by the professionals who have inbuilt advantages. These are tail wagging dog times with settlement difficulties that f... up a lot of systems and unless you're a habitual gambler (many are) it is better to sit on the sidelines with the occasional top up or sale.
"Fund managers welcome the greater use of auctions because it has helped to prevent deliberate market distortions taking place" Yeah right!

The reduction from .20 to .10 looks the likely suspect for the TLW move rather than over half per cent reported. Not my area really but one thing I do know is that under stress the management of banks instruct their dealers to be square overnight and to ensure compliance is religiously adhered to. It's sometimes refereed to as CYA .

The FCA are updating on my tablet so maybe I need to clear my cache or something on the desk top. TLW reported shorts are the same as 3 April.

Came across this whilst messing about:
"Regulators have several different objectives in overseeing markets – they want liquidity, market efficiency, price discovery and fair markets. Their tools to meet these objectives include rule-setting, disclosure and constraints and they use these tools to monitor, control and punish. Increased disclosure, such as EMSA’s move last month to drop the short-selling reporting threshold to 0.10% of a company’s shares in issue is one example of regulators deploying that toolkit. Anecdotally I can say that some short sellers I have spoken with always stay below the 0.20% threshold to avoid any potential damage for future engagement with target companies. The lowering of the reporting level will therefore likely have some impact while also enhancing ESMA’s visibility into market activity."