Member Info for romaron

You've obviously never owned an oil company then spindok.

I'm not holding my breath here but it could be more than a distant dream. The reaction at the AGM was much more encouraging than I expected and the company could soon be left with choices; one of which is a dividend. Firstly, ignore the shuffling around of debt for lower rates. This is sleight of hand as lenders do not allow debtors to escape commitments (unless unavoidable in (say) a CVA type arrangement when our shares would be worth about 1p). So, we have split debt. Ignoring Oz and other clever stuff we have the RCF and the bonds. The retail and US HY notes are not so different and currently yield around 12%. We pay 7% ish coupon so the holders carry the loss and it is inverse to the share price. As the yield goes up the share price goes down. It was only in October that the retail bond price was 95 and heading towards par. The poo scuppered that. Today we are 88ish and heading higher imo. We'd be mugs to pay back the bonds whilst they are below par and (without looking) they have 3 years to run. So, unlikely to be an early pay off with the bonds until they reach par and the company might look at extending the length of the bonds or issuing new ones. Again, if we don't go for an asset purchase we could have an embarrassment of riches. The options are - pay off RCF, build a war chest or pay a dividend.
Most companies are not debt free and as our debt goes lower our rating will increase. The company is not aiming to be debt free and I think we should concentrate on the RCF as the bonds, for now, take care of themselves.
As ex Chairman JB says "Debt is your friend (as long as it's not too much). Explore out of equity and develop out of debt."
I suspect AB would look for new prospects but there is pressure on him from 'certain major shareholders' who I imagine want something back to repay their loyalty. As the cash position improves the credit ratings will increase which will help future manipulation of the bonds which for now can wait. A dividend would help our rating too. My guess is that it's at least 18 months away but just talking about it shows how far we've come.

Runner - it was 4.75 on LIBOR or base, I can't remember which. Still cheap compared to bonds.

Hi Londoner - you wrote "Extending this rate into 2019 (100% Magnus) would provide 12,212 bopd (oil) and 8,420 boepd (gas), or a total of 20,632 boepd."

At the AGM to offset the under performance at Kraken AB said that the CPR for Magnus was 16,000 but was outperforming at "well above" 20,000. That suggests to me that your calculation is conservative.

Jock Lennox wrote in March - "In 2019, both Helmut and I will have served as Directors of the Company for nine years. With the completion of the Magnus option and following on from the Company's financial restructuring in late 2016, the Company is positioned to pursue its strategic goals and, as is now appropriate, Helmut, as Senior Independent Director, is leading a process to identify a candidate to replace me as Chairman and take the Company forward to the next phase of its development. It is envisaged that after my succession process has completed, Helmut will retire from the Board."
further on "The Company has not declared or paid any dividends since incorporation and does not plan to pay dividends in the immediate future."

Two months later at the AGM the stance on dividends wasn't as firm and in the glossy brochure I came across this "We have instructed Spencer Stuart, a recruitment firm with no connection to the Company, to undertake the search process and following a consultation exercise with CERTAIN MAJOR SHAREHOLDERS have identified that a Chair with a background in the oil & gas industry would be in the best interests of the Company."

JL is not an oilman. He describes himself as a "strategist" and imo never filled the boots of the previous Chairman. There has clearly been some horse-trading with the large shareholders. It will be interesting who they choose. I agree with 'certain major shareholders'. The company's board is being shaken up and it is overdue imo. It is possible that the March phrase "The company is positioned to pursue its strategic goals" is now more than empty rhetoric.

Build it and they will come.

Thanks Dol03 - I was out last night and you saved me a job. There wasn't a picture of AB in the paper edition and that's probably for the better as it isn't one of his best. He is a far more impressive individual in person. What I also found most interesting was the author, Greig Cameron. He has been a Scottish business reporter for 12 years and there are few bigger businesses in Scotland than Oil. I would imagine his contacts are impeccable as he is currently the Scottish business editor of The Times. People like him value their reputation ans this (for me) adds weight to the article. Even allowing for sub-editor hyperbole we have "ridden the storm". What that means is we are now "boring" and firmly in the rebuilding phase and filling the cash coffers. Hold = boring and that in business terms is good after what we've been through.

*Still confusing myself over terminology. 2P, 2C, STOIIP which leach into each other and don't always have the clearest of barriers. Then you have the sanction, FID and FDP behaving similarly. It was mentioned in the article and almost "sotto voce" at the AGM that the company will add new UK licenses as well as drilling at existing operations. I'm still a little suspicious about the glamourising of potential reserve increases at existing operations as I'm sure it isn't as simple or guaranteed as they imply. There is often an element of subjectivity involved and you'll never meet a pessimistic geologist before drilling commences. The Eagle field might be the easiest to follow as expediency sometimes rules (in Kraken they moved power to the best producing wells when it [power] was limited). Of course, they may also be surprised on the upside with both!

Good update. View is HOLD. Cannacord predict EY debt $1.5-1.6 bn depending on poo. Jeffries say production was "encouraging".

Of course the mistake could be the other way and the success rate is 17 percent (1:6)

Help required - in my 15.00 post the 1:6 that was in my mind as I asked the AGM question may have been JB's fault. Shouldn't he have said 5:6 success rate. That's 83 per cent success rate?I

I asked a question at the AGM specifically about these points and I'm thinking they fobbed me off to an extent. My mistake was asking a question that cannot be answered in a comprehensive way during QA and was poorly presented by me. I realise these wells are not exploratory but what are they? I think they require appraisal wells but I was told they are not appraisal wells? Some form of drilling will be needed to access them! STOIIP and 2C are not guaranteed to become 2P so there must be a risk that some will not be developed for economic reasons. The promise of extra reserves is fine but not all will become reserves. Eagle is only progressing to sanction and much can happen before FDP status is reached and capex will rear its head. I really wanted to know what the likelihood really is of these reserves being added and I guess the true answer is more along the lines of they won't know until they do further work. I watched the JB video again https://www.youtube.com/watch?v=WdjTi-uhoqI (s.6.30) and am taking his figure of 83 percent success rate on appraisal wells. I'm glad I went back because 83 percent is pretty damned good in my book - better than the 1:6 I had in my mind.

Confused, Barnet

Just reading E121 posts again which reminded me. You can see how they get round the question of committing themselves to straight answers. They are not being disingenuous but adhering to good governance and stock exchange restrictions. If they said anything shattering they'd have to issue a RNS from the room. They couch it in terms such as 'analysts worked on a model suggesting ....' or as AB said 'Cairn issued a guidance' which by and large they don't disagree with.

A young woman attended who represented an organisation called something like "Climate Action Group". Her agenda was obvious from the title and she was politely listened to and respectfully answered. My view is that you have to be black (in the financial sense) to be green and it's all very well to attack the oil industry but if petrol went to £2 a litre it wouldn't be climate actionists blocking the roads and demonstrating. It would be the ordinary worker ignored by the politicians who seem to misjudge the voters on a regular basis nowadays. Poorer countries cannot indulge in expensive renewables. Something about hedging. I think they can hedge up to 75% but stick with 50%. Not sure if that is internal discipline or insisted by the lenders. AB explained that with backwardation the price is already lower than spot (I may have nodded off here). As long as they behave as an oil company and not a trading company I'm happy (remember Porsche 2008 - a hedge fund that also sold cars).
I think the company's conservatism in production targets may go back a few years when they were missing them and that was an unhappy time. I imagine this is aimed at analysts and not PI's as we are far more forgiving.
Little was said about the fluctuations of the price yesterday as the audience were all grown ups and experienced. Knee jerk reactions to one day aren't helpful and AB doesn't control the POO.
*Pub talk - in the pub another investor (he doesn't drink) from the O&G industry involved in strategy suggested that the Saudi's might have a hand in the softening of the oil price. It could be the final blow to the weaker elements of the shale industry (if a competitor's drowning, stick a hose in his mouth). Their long term strategy is not for a weaker price. E121 follows shale and it is quite scary how many have collapsed in price and an apparent glut of the 'wrong kind' of oil. My view is anything's possible with this US administration and forget Russian collusion and look at Saudi collusion. They dug Trump out in the past and they hate Iran as much as they love money and power. I believe they have leverage over him.
I forgot to say yesterday that the room consensus seemed to be solid figures and a company moving forward. There were other contributions from the floor so the company got a good idea how the PI's feel. I was very surprised by the reaction to a dividend request.

(cont) . The sell side analysts are an endangered species and it is a revolving door for individuals covering oil companies and quality is not always replaced. I followed Danny Fortson at the Sunday Times (saved me a fortune) and his reporting was usually spot on. No offence to the lass who replaced him but they are big boots to fill. I imagine some of this went on in analysis too. Basically we are off-trend along with many of our peers. We don’t attract the most scrupulous, experienced or talented of investigators.

If the above doesn’t make sense E121 will be along later.

*IMO this was the best atmosphere of all the EnQuest AGM's I've attended. Bjorn was a bit sceptical of JS. Myself and K (another investor) stuck up for him [JS] and said it was largely because no one really had a question for him.

The 'alarm bells' from Shetland News re: SVT was blamed on a slow news day and the fact that there isn't always a lot to fill the pages there.

I arrived in good time and checked out some of the other PI’s. It looks like squif and Kraken Oil didn’t make it as there were no pasty faced individuals in stained trackie bottoms blinking in the daylight; perhaps their mum’s wouldn’t give them the train fare? No L3 or Ponzi but they never said they were coming as they prefer to pick the brains of actual investors who make the effort. No sign of hitman but I understand there was a warehouse fire (I thought it was next Thursday?).
Firstly I made a mistake saying that the regular dividend question would arise and be gently rebuffed. It wasn’t. E121 might remember better than me but we could be 18 months away. I think maybe Mrs AB wants a new outfit or yacht? It was emphasised several times that debt repayment was the priority. (However I have a note that ‘growth in portfolio’ is the next thing) I think it will be by organic development of existing fields where infrastructure is already there. We’ll have a new Chairman next year. The 63-70k 2019 forecast was kept and as AB pointed out (common senses) a shutdown for maintenance can be easily mathematically calculated. Better availability of spares and this is the first time that all 4 engines on Kraken have been working simultaneously. The monthly production is irrelevant in someways because of this although Kraken has produced 45,000 plus in May but not qualified by number of days. Same with lease cost for Kraken; c. $10 a barrel but vague on what production you can use it for. However, it is a wet finger in the air number to use. Lease cost not in Opex. Kraken oil is selling at a small premium to Brent. The Cairn impairment was explained in greater detail but is basically they say tomato whilst we say tomaato due to different modelling. It really is splitting hairs. New wells to be drilled at c.$5 a barrel. The company trades oil without a premium and I took this as a good sign. In FX swaps there is a credit risk and you need a good credit rating to get best prices. Magnus CPR 16k but producing ‘well above’ at 20k plus.
They have the best drilling team in the industry. Unequivocally committed to debt/EBITDA of below 2 by end year. They want to reduce debt to a level where people ‘stop talking about it’. 3/4 week shutdown Kraken =7% adjustment to production (guide 33-40k) but I may have misheard.
Four of us investors then decided to find a venue for a debrief. Bjorn, a cultivated Swede wanted a drink so I chose an upmarket hostelry, Lord Moon of The Mall a Wetherspoons (that’ll teach him, us Trinovantes [mum’s side] have a long memory). Between us we hold 7m plus shares and we had a private and open discussion.
A couple of times mention was made of the apparent unpopularity of EnQuest, noticeable even in an industry that isn’t fashionable. I liked AB’s reply. The sell side analysts are an endangered species and it is a revolving door for individuals covering oil companies and quality is not always replaced. I f

I notice that PMO is suffering today and I wonder if the connection is perceived high levels of debt? I don't know a lot about PMO other than what I read on here so cannot comment but if today is about debt then they've got it wrong with EnQuest. I'd be fearful if we needed a fund raise but we are earning FCF now and it is likely to accelerate. There are other things weighing on the market that are being ignored here today. Iran, Trade wars, Trump impeachment, Brexit, collapse of Tory party etc....The POO is impossible to predict and that also is not helping today either.

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.”

He would probably invest in EnQuest as this is just the beginning. FCF going up and debt down. Compounding takes effect.

F-AHL - you'd have to be a weirdo to turn up at AGM's that you don't have an interest in. I'm almost certain they'll allow you in but you won't be able to vote. That is unimportant anyway as proxy and nominee votes mean that most resolutions are passed with high 90 per cent votes. If you can get some evidence that will make it easier and more definite.

Hitma- think about it. What was he expected to say? With the head winds and high debt they were happy to have reached safe harbour. The RI was possibly on the insistence of BP and lenders. I imagine that our true position was pretty dire at the time and he couldn't say that. Bit like the Ineos story; you can say the banks were close to seeking foreclosure and the debt was trading at 10 cents to the dollar ten years later. It is to soon for the true story about 2017/18 to be told imo.

I'm aiming for 1.30. I stopped rushing years ago, just in time doesn't work for me. The Directors are helpful and open. You have to understand that they won't whisper company secrets to you one on one. If you have a curved ball question they may not be able to answer because it isn't in the public domain. On most questions they will happily expand and fill in the gaps in your knowledge. A few years ago I asked JS a question about decommissioning and he actually went through the computer run out in front of me. This might interest you and hitman - most sails over my head anyway. They do look at bulletin boards before the AGM and I see nothing wrong in this as it helps them keep in touch with small shareholder sentiment and the flip side of this is they cannot say they don't have the information for a question discussed here unless it could affect the sp (RNS level). I don't think that AGM's are as revelatory as people imagine as the weighty stuff will be in the earlier RNS but it does give you a chance to open other lines of communication with fellow shareholders who aren't as 'happy clappy' as some of the detractors would like to make out. Possibility of moving to a hostelry after if you have time.

*Enjoying the rise today. Reached highest this year. Maybe a small leak ahead of the RNS.

What you probably can ask there is questions about Sea Pulse and the SVT 'alarm bells' newspaper report as I doubt anything is set in stone and you do get more colour and granularity. You can also ask for more information on e.g. waterfall payments with Magnus. These aren't secret but often need more than one reading to understand. It is a waste of time to ask a question that you know they cannot legally answer or has already been asked in March by an analyst and answered. That is why it is worth listening to the March audio again. You don't want to be like the last questioner who was clearly getting on AB's nerves. The Company is also restrained by confidentiality clause with partners. They may like to answer but legally cannot. In the last Audio EnQuest were in the dark as to what exactly was behind the Cairn impairment.

*Kraken oil will get a boost from IMO on Jan 1 2020