Member Info for romaron

No direct loans to energy companies. On CNN now.

Remember that podcast with Mark Gordon. We all enjoyed it because it was bullish for the price of oil at the end of 2020. I listened to a slightly later podcast https://www.youtube.com/watch?v=0Qe4px0oI8g but it is basically the same and is now over 3 months old.
Well the wheels fallen off with that prediction and I listened to him again with the knowledge we have today to see how wrong he was. I'm not blaming him for not anticipating CV19 but wondered how I'd react to the podcast in the knowledge that he was warning of supply shortages when what has happened is that demand has fallen off a cliff.
I still feel he will be right eventually but there are a couple of things to consider. Shale was driven by a wall of money (bubble) when Govts. around the world released a deluge to the financial institutions and called it quantative easing. With no where else to get a return junk bonds and new industries were among the beneficiaries. Shale has made the US energy independent (almost) but hasn't made investors rich. In this second wave of money now being released to individuals and hand-picked companies will the Shale companies get a second chance? Does what's happening now count in any way as a recession? There has been little appetite for conventional projects (5-7 years to production) since 2014 whilst shale still has in comparison immediacy. Expediency tells me that CV19 impact will be 3 months max. Will unlimited capital be available to shale again? Recessions are generally prededed/driven by an oil price spike. WTF happens here?
MG suggested that conventional oil production peaked in 2005. It is relatively easy and cheap to get out (average $25 b/e) and the returns are exponential if you get timing right. Well we have a massive asset called Kraken that is at the beginning of its life and higher oil is 1-2 years away.
Get through this and the future for EnQuest is extremely bright.

NO DEBT OR DERIVATIVES
NO SHORTING
NO MARKET TIMING
NO INDEX HUGGING
NO TRADING
NO HEDGING
Some of the promises of one of my better investments. Fundsmith
Some say he's the UK's Warren Buffet and I'm only mentioning the eponymous Terry Smith because most people here basically follow the above but without the success of Terry Smith. WB does write long dated put options but he also loves insurance companies because you get the money up front and only a small percentage of times is there a pay-out. WB has also called derivatives "financial instruments of mass destruction".
I traded for two banks and was a money broker together for 27 years in the days of steam and nothing has really changed. My area was forward foreign exchange which pre-dated futures but both are based off government debt in essence. Society and companies then avail themselves of the benefit of having a sound and sophisticated financial system - foreign trade, holidays, maintaining embassies, insurance etc.... Forward FX dwarfs futures and options but can be unwieldy at times and is hard to access for retail investors largely because of size requirements.
Dealing floors aren't massively different to what is discussed here but they have a massive advantage. It's their full time job and they have customers. These customers are usually predictable except the large ones and they have to be treated with respect. You cannot read them and that is why the trader who looks after Brevan Howard treats brokers and their own sales force as the enemy but is non the less dependent on them for their depth and resources. Knowledge of a large order is power.
Retail are treated in exactly the same way as Betting and Gambling companies treat punters. I expect the house to win so I won't day trade. Another essential to day trading is going short. I have no problem with shorting as it is an excellent indicator (often wrong) but have no desire to be glued to a screen and give up my free time so I largely follow a Terry Smith system. Both he and most of us still have a large advantage. We can afford to be contrarian and take the longer view.

https://www.bloomberg.com/news/videos/2020-03-31/pioneer-ceo-wants-texas-to-cut-crude-oil-output-video

I like the simplicity of this guy's explanations.
Shale:
Costs per barrel wells $5-$10
Add GNA
Debt
Operational cost per barrel ave. $10
Very little hedging for 2021

Result - very ugly for shale as Independents go to the wall.
-----------
This really is a war and we'll see destruction of assets and capital. Those around 6 months from now will have less competition and higher prices. We know AB/JS have always looked further ahead than most so I hope they have factored in a period of very low pricing. Covid was a black swan but not OPEC actions. If we can avoid forced liquidation we'll be fine.

Unintended consequences and all that. I hadn't thought of this: https://www.sfchronicle.com/bayarea/article/Exclusive-Captain-of-aircraft-carrier-with-15167883.php
At least there shouldn't be any naval conflict during the virus. Are tankers any safer?

Exactly Modestus but companies have to manage the risk and retain cash and their credit ratings. There is also the small concern of bankruptcy. For the survivors there will be future riches for sure. Everything will remain in a state of flux for some months. Take this for example. I wouldn't try to predict what happens because I haven't a clue.
https://www.bbc.co.uk/news/uk-scotland-north-east-orkney-shetland-52096957

Just two months ago things were relatively hunky-dory:
https://www.worldoil.com/news/2020/1/21/north-sea-producer-siccar-point-receives-multiple-buyout-offers

If EnQuest survives (there is a risk) the shareholders will do extremely well in a year or so.

It didn't take long for a few to get restless and take the Trump line that the cure should not be worse than the disease. Perfectly understandable and I don't wish to join the debate because I see sense in both sides of the argument. Instead I thought of what we can do to help and inform each other or brighten up the day.
Some of my friends are running a moustache competition and will post a pic in a month's time and declare a winner. They have thoughtfully allowed the men to join in too.
I've run out of toilet paper and have found a replacement. Use lettuce leaves. Today was the tip of the iceberg.
Those who've come out of isolation can play 5 aside football. Playing in the road is safe again.
My friend's 80 year old brother who tested positive on 20th for the virus is leaving hospital today. They eventually put together a care package. Threats were used. She is still in quarantine for another 4 days.
My best mate's daughter is a sister at Princess Alexandra Hospital and says that some nurses are skiving and self-isolating saying they don't feel too good. I asked how she would know and he said "she bumps into them in Sainsbury's taking advantage of their NHS badge". Not everybody is a hero.
The winners here are the UKIP ers who wanted to take us back to an earlier time. We'll soon run out of that foreign muck and start eating real food again. Liver, swede and potatoes if we can find anybody to harvest the food.

Nature always wins in the end and this is in some ways a natural cull. Accusing nature of being cruel is as useful as a drowning seaman screaming at the sea. We can only mitigate; we can't win.

Be Lucky

Hi L7 - Trump was on TV tonight suggesting a potential death toll of 2.2 mio in the US if he hadn't acted decisively. As provisional cover he blames the Obama administration for systemic problems. The spread now is 50k - 2.2mio deaths. Dr. Fauci is around 100k.
Trump lies through his teeth but eventually the truth comes out when he backtracks towards the facts a day or so later. He quite blatantly denies things he's written or said on TV.
I think your view on the virus is quite close to mine and I am a rabid supporter of the NHS.

You left London just in time. The virus has caused a run on essential foods. I eventually found an avocado but sadly no harissa. As for quinoa - dream on! To top it all us "boomers" have to listen to even older people go on about how tough it was in the war. It really is getting desperate now. Some people round here even have to walk their own dogs now.

Nick, there are so many holes in that argument lets leave it at hypothetical until 2 years from now. To buy a strategic share holding or a bond holding would push the price away from you but I'll concede that it might be easier in the current market. You've then gotta sit on the holding if you went down the bond route for a couple of years. I think you've just laid out an argument why EnQuest is such a screaming BUY if the market returns to anywhere near normal. I've topped up on the RB on Thursday 45,250 at 31.87. I wouldn't know how to buy the $ HYN and they're probably in bigger amounts.

If only it were that simple. We operate SVT but only have a small shareholding. Still interesting though. The cataclysmic effect of CV and demand collapse can change asset values overnight - some go up. I've always had a sneaky feeling that SVT has benefits. A land based workforce and infrastructure. If hospitals can be built in a matter of weeks it shouldn't be beyond the capabilities to quickly build what is basically a big oil barrel.

Hi Squif your post made me think. If a company has good news they're rarely shy in putting it out there. Like many here I have been a tad disappointed at the percentage of hedges at a higher price but could we missing something? Do EnQuest have some fixed forward deals that are commercially sensitive and may mitigate what seems to be hedges on the lower side. I may be straw clutching but I wonder if there are other sales that we do not know about. I just don't know enough about how oil companies sell their production. I know oil swaps exist and that Mexico used to tender for their production but I'm woefully ignorant about this area.

Really for HMH. I go here to check the HYN rate: https://www.bourse.lu/search . I don't do it regularly but was annoyed when it stopped updating on 6 Mar. I assumed I'd exceeded my freebie limit or something but was still able to access Tullow prices daily. It refreshed on 26 Mar at $29.86 and on 27 Mar $30.591. I'm thinking that this isn't traded very regularly and something has definitely happened between 6 and 26 march. Of course I may be reliant on some manual updating and the movement is to be expected with what is happening in the world. Just thought I'd mention it.

Nearly forgot. The 19 March update was ahead of the meeting due on 26th. On the 26th the FCA, FRC and PRA announced a series of actions regarding financial reporting. Prior to this in the week before there were rumours that this would happen. I think it timely that EnQuest issued the OU as a precursor to the 26th. They had what in these times was quite good news and wanted it out there. RNS's are expensive and EnQuest have been positively parsimonious in issuing them in the past.
I believe the OU was a hedge on the Full Year Results event being cancelled. Judging from the Financial Calendar they still have to have one if TBC means anything. I spoke to IR early on the 24 March and they'd have to be bloody good actors because I genuinely believe that they felt the meeting was still a possibility but naturally everything was (and is) in a state of flux.

*Possibly all the above is garbage but some of you have quite cunning minds and it may stimulate.

No it doesn't. If it did we would not have the ventilators and PPE shortages that exist. The world have been regularly riven by disease and plagues since time immemorial and financial crises are just as common. Experts agree with other experts whilst the outlier is seen as a worrier and out of touch. You cannot predict a black swan event and preparing for every eventuality is cost prohibitive. I reread the 19 March OU and had missed this: " in accordance with the Sculptor Capital facility agreement (previously known as the Oz Management facility" and my heart missed a beat. My worry was that we'd sold on the debt but Oz is now Sculptor and it is a name change. When debt is passed around it never ends up in the kindliest hands. Who knows who's holding our HYNs now? [$30.591 27Mar] The RB is more hybrid [30.25p]as retail investors are involved as well.
My point in mentioning this is that OZ did anticipate "an event" and insisted on the protection on the downside that few ever imagined would be called upon on. It was a handicap when demanded but has turned to be a protection with the collapse of oil. I think this clause indicated the parlous state of our finances in 2018 as most companies want as much freedom as they can squeeze out of a lender. Going forward might we expect more of these with the SFA?
I am still pretty relaxed because I see the pandemic being of short duration and whilst HMH is right about the Darwinism of capitalism the real test for EnQuest cannot be measured for a few months. The glut may be gone in less than a year but as it gurgles down the plug-hole I think you'll get a surprise at what the futures are indicating for oil. AB and his team just have to make sure we're there when it happens.
Don't assume that credit markets are controlled by experts. They may have actuaries coming out of their ears but ignorance really can be bliss. They are though populated by opportunists without morals and vultures really is too kind a word. They really are wheel-clampers in suits. They just follow the script and existing rules. For a few months the financial ambience may be benign but it won't last long. Testing times ahead but I believe our team are up to it.

Good post HMH. I think the pandemic has made countries aware that you have to make your own luck and selfishness is the underlying major concern presently. I think the next stage will be a reaction towards hardship (no avocados, cleaning your own house and car, maintaining your property and gardening) and not being able to go on holiday. The spoilt "boomers" (I'm one) are part of the problem. Eventually resentment will begin to fester and people will begin to say "I'm young or not at risk so why am I suffering? They're old and have had their time; let them take their chances." Countries are hoping it is over before we reach that stage. Nature ensures that this element is instinctive whilst one thing I've learned is that expediency rules.
There will be upheavals and consequences we haven't imagined yet I'm sure but one thing that has already come out of it is the need for military assistance. With that comes essential oil supplies because nobody knows how this will turn out for sure. The real consequences may be a year or more away. KSA need to be very careful as they don't have the military prowess to back up their economic power whilst mercenaries may be skilled the fact remains that lots of good soldiers will always beat a few excellent soldiers.
It hurts me to write this but Trump may be right. The cure mustn't be worse than the disease which effectively attacks the less productive sections of society anyway. He'll continue spinning to the end and if US deaths reach (say) 50k he'll just say that without his timely actions and foresight it would have been greater; 500k, 5mio, 50mio. We know the narrative by now. I think the pandemic will be of a short duration. The impact remains to be seen.

If needed the SFA will be extended with payment holidays. Do your sums and use PIK for SFA repayments. Last night Trump was using Boeing as an example. He said that Boeing is 1% of US GDP (warning: his figures) but without planes the hotel and tourist business dies. In turn It affects millions and millions of jobs. Planes will fly again. Everybody is in the same boat and criteria will be relaxed or extended unless the company is beyond help.

p.s. does anybody know where I can buy a cheap ox and cart?

Hi L7 - I realised you were joshing but it made me aware that others might get the wrong end of the stick. Some are infrequent readers and may never post and I'd never want to trivialise their concerns or fears over the virus. Their personal situations could be dire and a loved one close to death. I am not a callous individual nor do I seek confrontation but some post with a confidence that is belied by their ignorance or lack of experience; they usually go straight to Filter. The post by Nick about Sweden 22.46 is quite illuminating and as they say, "life goes on." Most here post with considered opinion and have skills that I do not possess. That's why I'm here and if I can contribute in return then why not. I have made it quite clear that I am a LTH and am not completely anonymous or have an agenda other than to see EnQuest succeed.
Therapist - I think the narrative that certain individuals brought and some still bring to this board is unhelpful and frankly a waste of time. This is an unprecedented financial meltdown and all concentration should be on beating the virus. Nothing can be done until it shows we are winning. I agree with your summing up. You missed hitman who has a pragmatic approach and doesn't always write what I want to hear but I know he is genuine.
I mentioned 3 doctor friends of my daughter. One is Greek/Italian. One is Maltese/Jewish. One is of Indian heritage. How lucky she is and we are to have such resourceful and committed individuals on our side and if nothing else this illustrates that we are all in this together. The virus doesn't care whether you're long or short, what religion you are or your ethnicity. I don't want us to go lovey-dovey towards each other but I feel the majority here share these sentiments. The priority is the virus and petty squabbles are just plain unnecessary.

Sorry for the sentimentality but I'm a bit down anyway. We lost our 14 year old Yorkie "Bubbles" on Sunday and it broke our hearts.

YOY - don't take this the wrong way but are you from Yorkshire or Scotland?

Hi L7 - You are right to correct me and I would like to apologise to anybody that thinks I may have trivialised what is a very serious disease. The comment I paraphrased was "Those who die may have died from something else in the not too distant future." In the same article it quoted a certain Boris Johnson who said "many of you will lose loved ones before their time" so I'm not the only one being casual with terminology but there is good intent in trying to get the message through by both of us. My source is the current edition of Private Eye which is trusted by fellow journalists and the BBC (p.8).
What really brought it home to me was the news from Italy tonight. 9,134 deaths so far including 46 DOCTORS. These are the true heroes along with nurses and other public servants. I include check-out operators at supermarkets, delivery drivers etc.. who aren't paid a fortune but plough on. My sister works for the NHS and suffers from COPD. They had to force her to isolate but she wants to get back on the front line. My daughters best friend qualified today as a doctor. I hope she has a better survival rate than the young lieutenants in WW1. Another 2 recently qualified male friends of hers didn't hesitate for one minute to volunteer. No bone-spur excuses there. It does make you proud!

*The Private Eye edition is the one with this front page:
48 SHEETS OF
TOILET
PAPER
FREE
WITH THIS ISSUE

*Which isn't technically correct as they number both side of a page. It should really have read 24 sheets so maybe I have been too trusting of this fine publication.

I'm not talking about the virus where we should all be concerned but about the SFA final payment due 30 September 2021.
The combined impact of the virus, weak demand and the OPEC action has put practically all businesses and industries into a similar position. If landlords insist on rent then they'll need a new tenant if the existing one cannot temporarily pay. Yes the tenant broken a covenant/contract but so has practically every other tenant too. In fact some might welcome an eviction and let the landlord chase the money. If we don't pay the lease on the Armada Kraken does anybody really think that Bumi will sail it away? The same with the SFA. Close down a company or enter discussions and negotiate a fair deal due to developments beyond the control of any management in the world.
If you ignore the SFA payments next year because they are rolled forward 3/9 months and with judicious cost cutting the company should survive easily and benefit from the increase in the oil price which has to come otherwise economics died in the Spring of 2020.
This is without leverage and pressure from Governments around the world and if there is any justice the banks have little defence. They were saved with public funds because it was for the greater good. This is where we are now. I would imagine that we are already in discussions and if you take away the SFA deadline things look a lot rosier.

*ignore talk about "junk bonds". HYN & junk are the same thing. You can still be in trouble if you're AAA but the panic selling of anything that is not of "investable quality" always suffers in the flight for "quality". A lot of that flight landed in quite stressed businesses anyway and the only safe harbour really is cash. We've never been Prime and always Non-investment grade speculative (highest Moody's rating B1). You see how difficult it is to value ENQ against PMO, TLW, HUR, CNE etc.. Debt is the same. Rating agencies do broad strokes and with companies like BP and Shell getting concerned about dividend it is time have some perspective.
It will be a completely different picture in 3 months.