Member Info for romaron

Disadvantages

1. Estimation of opportunity cost – fair enough but can be subjective. An exploration company only finding dusters would have done far worse than us and who’s to say that it wasn’t a wise decision to follow our strategy. Kraken could still be a great success story. It could be too early to tell and we aren’t alone regarding head winds.
2. Ignoring sunk costs – they are existential threats but surviving a downturn means that you have valuable tax credits to offset future profit taxes.
3. Difficulty of determining RRR – pretty pointless worrying too much about unless you have a working crystal ball. Too much worrying and you wouldn’t cross the road.
4. Optimistic projections – I don’t believe the company is anything but pragmatic. Would you expect any CEO to keep on about the downside? We take out insurance where needed and the surveyors (CPR) and the like (OGA, Moody’s) are always aware of negligence claims and CYA. The analysts and credit rating agencies have a role to play here and always lean towards conservatism, rarely getting excited.
5. Might not boost EPS and ROE – see point 3.
6. Difference in size of projects – We know we’re not Shell or BP and that Chrysaor has more money than us.

I think point 2 is the most important as Darwinism either leaves some companies on life support whilst others die (First Oil Expro). If you do survive then you have partial immunity in the form of tax credits which hasten the recovery after a period of convalescence. It also feeds into points 3 & 5 in a positive way.

I was just tidying up and came across the ex- chairman JB quote that “IRR’s are a really poor measure of any valuation generation”. It drew me because of the discussion here of NPV which is supposedly a better measure.
.
Google produced this regarding NPV
Advantages
1. Assumption of reinvestment
2. Accepts conventional cash flow pattern
3. Consideration of all cash flows
4. Good measure of profitability
5. Factors risks
Disadvantages
1. Estimation of opportunity cost
2. Ignoring sunk cost
3. Difficulty of determining the RRR
4. Optimistic projections
5. Might not boost EPS and ROE
6. Difference in size of projects

This board naturally prefers advantages (especially regarding Magnus) as truth-tellers are not always palatable and there is a preference for candy bars. It doesn't mean we ignore disadvantages but we prefer to be optimistic. I don't think we are wrong as the disadvantages are tackled one by one imo {next post]

Dudley said: "The U.S. is the only country that completely responds to market signals, like a market without a brain. It just responds to price signals.
"Unlike Saudi Arabia and Russia, which adjust their output in response to gluts or shortages in oil supplies, the U.S. shale market responds purely to oil prices."

Sounds American to me. Trumpenomics.

Eventually the problem has to be addressed. Here's a country that likes dumping and is also hypocritical, on the rice glut.
"Compared with the United States, China currently uses three times as much fertilizer per hectare, but rice yields are still 20 percent lower than in the US. Continuing to increase fertilizer use would have little payoff in Chinese crop yields, but big costs in environmental degradation. Government officials have indicated that measures are planned to offset the polluting effects of heavy chemical usage." Some similarities with shale. Take away the strategic factor and you either buy up the surplus (not the US way) or let the companies fail. I wonder how long until storage of C5's become a problem.

Hi January - you said you lived in a Muslim country. Was it an oil producing country as the two have become impossible to untwine imo? Nobody disputes US power but in the end you need boots on the ground and I don't see an appetite for that. Iran could make Afghanistan look like a walk in the park. We weren't so hot in Northern Ireland ourselves and there wasn't much of a language or cultural barrier there.

*possibly irrelevant to us but the Kraken oil is c.5% sulphur content which is conveniently the new maximum level for bunker fuel in IMO 2020. The recent discussions made me think about the fuel for the FPSO which I imagine has to comply with IMO 2020 too. Not looking for an answer but the next time the numbers guys go forensic they might wish to adjust their percentages by the odd fraction.

All countries practise it but some more than others. The US is firmly against cartels and practises anti-trust enforcement. It's a bit more tricky with foreign states and OPEC serves as an example of state entanglement in anticompetitive conduct. The US plays the open competition card to winnow its own companies and industries down but it does act like a cartel member in oil, imo. Placing sanctions on Venezuela and Iran produces exactly the same result as an oil cartel and the beneficiaries are largely friends of the US but mainly the US [doesn't include Russia but they seem to have a special place in the heart of Trump]. Of course the US will say they're protecting democracy and Western values but they would, wouldn't they? This leaves the way clear for shale to grow but from what I hear there are problems with shale oil and we may be seeing a glut in the wrong kind of oil as they pump to stay alive at lower prices. Perhaps other countries should freshen up their own anti-dumping laws.

*I'm no scientist but oil is dense energy and all types will have a value but some less than others. During WW2 didn't the Germans produce oil from coal?

Hi MO - the fine detail of the accounts escapes me but I generally get the gist. I agree with you about Captain and Kraken. It is far too early to write off the Kraken performance though some try. It's fine talking about debt but the other side of the coin is we have a new FPSO and a very promising field with huge potential; we couldn't have done it without debt! I was being a bit flippant about the amount of fuel needed for the FPSO a sit won't work without power and is essential. That doesn't mean you don'tb try to find the most efficient and economic way to go about it. I'm happy to sherpa around and see what others can do with odd pieces of info and opinions. This is a good board with some excellent contributors. You mentioning a future gas tie up is just another example.

E121 15.04 - I vaguely remember but switched off. K can't recall the number either. Basically it's a zero sum game (oil necessary for FPSO so either organic or purchased) but I can see it would interest the likes of you and Londoner as it's accounting minutiae [advanced level]. Maybe Pelle has a note. If it is that important (I'm not convinced) I'm sure that IR could help as it is in the public domain.

is a fact of life and facts have to be accepted as does the world economy. It's not in our gift to remove him; that belongs to the American people whilst economies go up and down. As much as Trump affects us here it would also impact on Delek who have just won a competitive tender to buy Chevron NS assets. Delek are based in Israel which is a near neighbour of Saudi Arabia and Iran. I'd imagine that their 'intelligence' is pretty good (ever been through Israeli airport customs?). Behind them we have had the likes of Chrysaor and Ineos investing in the NS. Trump has been in power almost 3 years and this would have been taken into account by these three companies among others. I don't like Trump being in power either but it hasn't stopped investment (and disinvestment) in the NS. From recent deals we can make comparative valuations for EnQuest which are encouraging but there is no denying that our debt reduction is related to the POO. Even Trump's power has its limitations with the POO as previous US administrations have found. If we fall into a deep recession then all bets are off but I can't see the Republican party voting for that. The market is definitely spooked at the moment and I'm waiting to see if Trump takes credit for that! The US shale industry can't be happy or the US pension funds.

*I did try and winkle something out of a director at the AGM by asking an opinion on Chrysaor. The only thing I got, accompanied by a wishful look, was the comment that "they have a lot of financial backing". I've found that people with a lot of money tend not to make it by accident and are often called 'smart money'. They don't get it right all the time but we seem to be in good company.

Hi Pelle - I forgot hitman. He's pretty good at financial analysis too. Over a period of time you do begin to trust certain individuals talents and integrity. Like MO and chilting for their tanker tracking and production among other things. Therapist always has something interesting and Soder seems to know about debt. There are others I've probably missed but you know what I mean.

Western Flank has c.100 MMbbls STOIIP
? Worcestershire area high-graded
? seismically identical to main-field area
? spare producer and injector slots at DC2
? 11-19 MMstb STOIIP
? Pembroke trend under review
? potential side-track of DC2 producer and spare DC4
injector slot
? c.16 MMstb STOIIP
? Longer-term EOR through polymer flood
? c.30MMbbls STOIIP

From the Research Analysts presentation in May. It's P.8 and about Kraken. It was the mention of Captain which has been a bit of a star in the Chevron portfolio and is still producing using EOR which drew me to it. That sounds like a guaranteed 30MMbbls STOIIP in Kraken to me.

Hi E - you've got the weather for it. I suspect that many were expecting a fire-sale (I'm not having a go hitman) and AB wouldn't play ball. The caravan which is "oil analysts" have moved on as the public lose interest. One group who will never ignore O&G are the M&A guys and they don't make money unless there is some movement and deals. Eventually this stuff moves across their [analysts] desks and they'll get a bollocking for missing opportunities and backing only the safest bets. Would you sell EnQuest and buy BO or Shell? that's rhetorical but then our job's don't depend on the safety first approach.

*you and Pelle have some serious competition in the numbers game.

The accounts are due to be published on or around the 7th June and the AGM is on 24th at the company's office.

Ooops - wrong board

The accounts are due to be published on or around the 7th June and the AGM is on 24th at the company's office.

NSeaOG & Londoner7 - thank you for your posts. You seem knowledgeable about figures and seeing through the fog and whilst not in your league here are a few nuggets that might get overlooked. We quickly forget that back in 2016 the Kraken reserves of 147m of which 20% were being touted for sale at c.$13.60 using the $400 mio that was bandied about. The POO didn't rise above $50 for 2016 until the aborted Delek deal in Sept 16. Today it is some 35% higher. There was another Kraken deal that didn't reach the finishing line in mid 2018 from Lotos, a Polish state backed O&G company. A private company was allegedly sniffing around too. I believe the tax/credit breaks we still have are valuable. The fact that AB and his team held out against low bids and went for the OZ deal instead was a clever move and should the company now get a decent price for the 20% Kraken they could unwind the OZ deal (or adjust it) and still make another asset purchase. It is also clear that several companies have evaluated Kraken and could bid in a few days if EnQuest want to diversify their reserve portfolio. Exciting time and heavy oil is quite glamorous at the moment.

*I don't know if the cost of the lease has ever been confirmed but a slip at the AGM when they stated that the lease was $10 a barrel for fag packet calculations actually means my stab is - production 35,000 so 35,000 a day so $128 mio. I'm pretty sure they don't release the actual costs; commercially sensitive and all that.

Snap - from FT "Following the deal, Ithaca will have proven and probable reserves of 225m barrels of oil equivalent. It expects to have a daily output of around 80,000 boe in 2019, making it the second-largest independent producer in the UK portion of the North Sea after Chrysaor on around 180,000 boepd." Ithaca had 91m 2P at end 2018.

These are the fields purchased by Delek;
https://www.energyvoice.com/oilandgas/north-sea/200390/delek-group-snaps-up-chevron-north-sea-assets/

10 fields - 4 oil and 6 gas condensate. They didn't get the Clair interest. Interestingly they run Captain now which is similar oil to Kraken and currently under polymer EOR. From a presentation by Ithaca their production in 2018 was 16.1kboe/d http://www.ithacaenergy.com/sites/default/files/wysiwyg/20190415-ithaca-energy-corporate-presentation-website.pdf

Remember that in July 16 Delek were in discussions with EnQuest for 20% of Kraken and it fell apart in Sept 16. The culprit there was probably the POO. I imagine as more information comes out the numbers guys will be all over this deal to get a valuation comparison for EnQuest. I said two items of interest but it may even be the oil price, draw down or geopolitical. Interesting times.

Marvellous, two items of news so which one has the biggest effect? It has to be the Delek deal I suppose although the block listing doesn't appear to be a negative. From FCA guide: "The ‘very onerous’ condition
In practice, the ‘very onerous’ condition makes it unlikely that an issuer that is, for example,
contemplating infrequent allotments, seeking flexibility for procedural convenience, seeking
to limit fees or acting speculatively (e.g. anticipating future events/demand), would be able to
meet this condition and therefore justify a block listing.
Transparency around block listing applications
Block listing applications usually relate to the admission of securities that benefit from an
exemption under the Prospectus Directive (PR1.2.2R and PR1.2.3R/s.85 and 86 of FSMA) or
where listing particulars are not required.
With block listings we have much less visibility over the future allotments made under the
issue. For this reason we require issuers to be entirely transparent about the precise nature and
purpose of the block listing, for us to be able to assess the appropriateness of the case and to
establish that the regulatory risk has been suitably contained.

I doubt the company would release more detail so will file under 'arcane'.

A story about the dangerous work deep sea divers do in the North Sea. I was surprised at how many crew were aboard this vessel (127) and appear to be mainly back up to the divers (two teams). I suppose it's a bit like the support an astronaut needs.

https://www.bbc.co.uk/programmes/p07803ks