Member Info for romaron

Hi Pelle - who's squealing like a stuck pig? It's the shalers. When you tease somebody bigger than you in industry terms its best not to overstep the mark. Shale did this and even worse believed the rubbish spouted by Donald Trump. Roughly half of US is Democrat and Trump will need their support to attempt to bale out shale. He won't get it imo because there are higher priorities than shale at the moment. They will hang on but be severely reduced in size when this is over.

Agree Dol03 - Countries will bunker down and when the damage of doing nothing exceeds the virus impact they will get people back to work as the risk of them remaining idle is worse for all. Nobody will say it but it is mostly the old that will die from the virus and the world has mixed views about them: just look at what we pay carers in the UK.

When this is over the banks will contribute to the common good; there'll be laws making them. After 2008 it's only fair. What goes round, comes round. If their are no industries left what do they do?
Is it time to dig up our lawns and sow vegetables?

*our MC is higher than PMO and probably TLW by end of day but what happens at zero? EV now means that the only component seems to be debt! I think we might have to wait a tad longer for dividends and no party this year.

Whilst the world goes into shutdown and merely ticks over I wonder what happens to the debt? Fair enough there'll be a payment holiday but what about maturities? They'll creep forward or will they be extended? I'm also suspecting (hoping) that the result of inactivity supercedes the impact of the virus. We are entering a potential period of martial law. Businesses won't be allowed to sink because the world is now global and letting one go will do a domino on others. The real clincher will be US fears that China come out of it before them and take over what they consider their space.

*OPEC dumping oil? What was shale doing off the back of OPEC?

"In exceptional moments of volatility, a lot of market players are turning to us to make sure that we continue to provide liquidity", Mr. Breteau CEO of TP Icap said. "When prices are moving brutally, they tend to reverse to voice trading, so we're really playing a central roll in these erratic movements of the market."
TP Icap - the T is for Tullett; my boss took me to my first lunch in the City hosted by Derek Tullett in 1972. I ordered smoked salmon because it was the only thing I recognised on the menu. When it turned up I found it was nothing like the tinned salmon I was used to and they hadn't even cooked it. Of course I ordered it again and again on future lunches to avoid embarrassment.
The P is for Prebon. My last job was with Prebon Yamane. Icap was earlier Harlow's and my nextdoor neighbour works for them. Companies always morph and merge. I wonder what the North Sea will look like in a few years?

Some things never change.

Hi Pelle - well there's certainly never been anywhere near 500 people at an EnQuest AGM. Nearer 50 I'd think. It's over 2 months away and a lot can change by then. I'm hoping for CV numbers pointing downwards by then so it may be fine. It is a legal requirement to have an AGM and I don't think it's that expensive, you won't get a shrimp sandwich that's for sure. More like a small hard biscuit and a lukewarm coffee. I was thinking more about the potential disruption of green activists actually for a bit of entertainment. The new Chairman will make his debut as well and could be interesting.

Hi hitman - I bet your rubbing your hands with all the extra dosh you're making!

Hi Pelle, don't they generally hedge a fairly regular percentage? I don't expect any oil company management to be able to read the future and you've seen this week how wrong Shell and BP have got their forecasts wrong too.
In the CNE webcast QA yesterday they said that they would be comfortable with $40 for the rest of the year. Now I assumed that included the first 2 months at $60 and a few hedges so was a little disingenuous, maybe unintentionally but I think we are in the same position. Sentiment is moving over here and if the experts are right Covid19 has a max of 6 months on a bell curve. To me that means within 3 months we'll see a rising oil price as people go back to work. We've already seen President Xi visit Wuhan and their numbers if true are encouraging. I hope the Saudi's stick to their guns but expect a compromise within 2 months. I think their move has frightened the life out of the shale backers and lenders for at least a few years. The future does look promising. If you come to the AGM I'll buy you a drink!

Be Lucky

Hi E - I had a read and get the gist of it. I am unimpressed because the employment of jargon and clever maths doesn't change anything. You have what should essentially be an oil company selling oil and the bankers should facilitate the business. They both lose their way and shale is such a young industry doesn't have the strength in depth that boring old conventional does. A classic case of overtrading will mean that the actual amount of oil is small in the amount of trades that are moved/passed on. Most people understand a credit limit but there are also limits on trading. For example the limits between Goldmans and Morgan will be huge but to the individual shale companies will be limited. The banks net out a lot of their trades so Goldmans/Morgan will be unaffected but you can bet that their Risk dept. has asked for an up to date of exposure to shale producers. They will be cut, both loans and option trading limits so it's not just the shale companies cutting back. Better to say that it's a board decision rather than their banks cutting credit lines. If one big shaler goes down it will pull others with it and the banks will go into protection mode and grab the nearest lifeboats. Then there is the fact that the shalers are all in the US and (I'm speculating) although there is a spread of sizes the numbers aren't massive. They all know each other and the herd tends to move in one direction.

*Big article in Times "Premier may be out of its league". Looked at PMO board not a mention. Maybe a few of our trolls will go over there and spread the news, it ain't good. Finally their bond is heading lower than ours and the world is beginning to make sense. The tide is now going out and quite a few have been skinny dipping. From a banking view EnQuest has practised financial rectitude of a high order. We are ideally placed for the difficult months ahead. You can thank AB and JS at the AGM.

Hi E - don't confuse me. I said in another post that I doubted there was much past the tables you linked to. If there is another table for 2021 I'd like to see it. The table actually covers only 9/10 months forward as it is at 6 March 2020. I'm not qualified to argue options but will read up 3 way collars. What I do know is that the risk increases the further out you go and if shale is taking a lion's share of the options then this is what often creates bubbles. Those options rely on the counterparty being around to settle. I dealt in forward FX for 27 years and like physics some things are fixed and don't change. We've seen so many financial schemes fail in the US that nothing should surprise us. Shale is based on a parasitical gravy train that cannot fail. they are likely rethinking this. These options involve the investment banks so I don't see a failure but when things are going well there is enough fat to share around. Amazing that the futures market tells us that there is reduced volume further out but shale producers can access them quite easily. Perhaps it's the 3 way collar which I don't understand (I'm thinking about it from the price maker perspective, not the shaler). It doesn't matter how clever a derivative is they still have to link back at some time to the physical product they're based on whether its a mortgage or oil.

TGF - are you referring to EnQuest bonds? Assuming you are why would you wish to shift them in a hurry? They are running at 7% and have 3 years to run. The market in them is definitely illiquid but they have been paying a dividend (or PIK) every 6 months and would pay out what's left before equity holders. Come back with this argument in 2 years time.

Hi E - hedges are insurance and there is always something to pay. You know more than me about options but the fundamental weakness is that shale cannot lock in profits (arbitrage) ad infinitum or completely. They thought they could but MBS and Putin have given them a rude wake up call. There are plenty of oil futures (options are linked) for May and June 2020 but they fall off a cliff afterwards. When you say 50%, 75% hedged a lot (most) of it will be front loaded. I know the same applies to conventional for access to swaps, futures, options and I believe Mexico does a lot of fixed deals. However, shale can only completely arbitrage a proportion of their production but it is still a hell of a lot more than conventional with its long cycle and the complications of surviving even longer economic and commodity cycles. Shale would exist without conventional but because of costs has to share the space with conventional; shale removes a lot of risk by parasitical attachment to conventional and the financial markets which were created to faciltate conventional; we know shale cannot compete with conventional on a basic cost level but some smart entrepreneurs in the US spotted an opportunity.
Conventional supplies (lets say) 85% of the world's energy requirements but was being dictated to by the smaller supplier.
Back to options. Shale is one to two years and very much like a harvest to me. Most plants fall into annual and biennial so not a ridiculous comparison. The shalers thought that with a financial market that took much of the risk out of their operations (well 6 months) and was copper-bottomed because the likes of Saudi Arabia were trapped by their budget requirements and would never over produce. Well that has changed.
OK some shalers will say lets lick our wounds and return when the market returns to 'normal'. I doubt the banks will agree so easily. They know that the shalers were there at the pleasure of the conventional producers. That is no longer the case. If shale gets back in its box and behaves it has a future. It should always have been there as extra supply when the market is short but it tried to run the market as a minority supplier. Shale acreage is moving back towards the majors who know how this works and have a vested interest in protecting their larger conventional interests.

Hi hitman - I hope that they keep the pressure on shale but we don't know what is happening at a higher level. The Saudi action caught practically the whole world by surprise. Whether it was orchestrated or not I believe both MBS and Putin will be analysing the results and although some may suggest that they are "cutting their nose to spite their face" it has finally driven home the fragility of shale and in all battles you have to be prepared to take casualties. Looking at world players in oil MBS and Trump are both inexperienced and quite impetuous. Not something you can say about Putin. It is possible that Putin goaded MBS into this move but there will be some satisfaction in the effect and countries usually unite behind strong men who stand up to US hegemony. I don't think they'll capitulate this soon by agreeing to reduce output.

*President Xi has been to Wuhan. Can't wait to see Trump do the same when reality arrives in the US. Lets see how quick he is to play doctors and nurses then.

I've come back to this because of CNE. They were on 2 March part of FTSE250 https://en.wikipedia.org/wiki/FTSE_250_Index#Constituents so the subject should have been "and then there were two" but ignoring the 2 majors and Centrica who are trying to escape oil there are now likely to be NONE if the current MC levels are maintained in the next shuffle of the 250 constituents.
I was surprised that CNE was treated so harshly after their figures but agree with L7 that having large future capex is the "Mark of Cain" on an oil stock and the likelihood of removal from FTSE 250 excacerbated the fall as some funds will be mandated to SELL. Unless things have changed by the next reconstitution of the FTSE250 then it looks like both CNE and ENOG are out of the FTSE250 and maybe this is why both suffered bigger drops than deserved imo.
I loosely follow the constituents and rankings because although all oil stocks have fallen we have actually moved up the rankings. We are doing a lot of things right and once the world settles down again we'll be looking for promotion to the FTSE 250.

Crispin Odey said "Tullow is an easy short position. Production problems, leverage, its got everything really."
BP needs oil at between $50 and $55 to break even on current plans.
Shell has slowed pace of a $25bn share buyback which was originally based on Brent averaging $66 a barrel this year.
RBC believes US sanctions on Rosneft played a part. Their boss Igor Sechin appeared to have persuaded Putin to prioritise "eviscerating the US shale industry over maintaining lucrative financial relations with the Gulf states."
28 investment banks got the Aramco float away and none of them mentioned the key risk factor that MBS might pick a fight with Russia and trash the global oil price.
Saudi production costs $7.50 including capex versus $30 plus for Russia.
Shell's costs $22.90, BP's $28.70, Exxon $29.20.
Energy companies account for 14 percent of the US junk bond or high yield market; as the spreads on their debt blow out or companies default, investors will be called into margin calls elsewhere: a spiral that feeds into other sectors, triggering a more extensive sell-off.
Nothing Trump can't handle after all he's the ultimate artist in deal making. That's if he can pull himself away from playing Doctor's.
Personally I'm not convinced that MBS and Vlad haven't concocted this between them. They'll both be winners if it works.
I like the sound of Sechin.

*Putin is a judoka and one of the best ways of handling an opponent/attacker is to use their attack/weight against them, often with the same throw. I'm not sure MBS could have thought this move up alone. It is beautiful in its simplicity.

Hi Squif - The webcast will be up on their site shortly but I can't do shorthand and wondered whether the switch from FCF to operating cash flow was a play with semantics. I think I got it right and the question was about NS cash flow. Only 2 questions. One from Morgan Stanley and one from RBC.

I'm just popping out. I may be some time. Wish me luck.

As the UK is hit with a pasta shortage, No 10 urges public not to panic buy based on the actions of a fusilli individuals.

sorry. last post was regarding CNE NS production only.

webcast: at $60 Brent 300m FCF (didn't catch dollar or sterling but assume dollar)
at $40 Brent 200m operating cash flow

It's over. We live in interesting times.

webcast: That was quick. On to QA now.