Member Info for romaron

Pelle - For clarification. I suggested that having cash was more important than having a put option that was in the money if a debt covenant payment was due and the cupboard was bare. That was the first para. The second para. was about the "Leverage ratio". Both important but the first is far more important and the LR is indicative but not as rigorously enforced as a missed loan repayment.

Pelle - I'm talking about the Net debt to EBITDA ratio. Page 1 on press release EnQuest.com and P.281 of RI Prospectus. Net debt at EY was $1,774.50 million.
Whilst on it's clear that the wheel fell off between the RI and the YE due to the oil collapse. The manifesto in the RI wasn't achieved.

All this talk about call, puts, collars is great for BB pontificating or dealing backwards but could be masking a past situation. A lot is supposition because we only get info twice a year with a couple of months of the next period so a lot off detail has to be filled in (subjectively?). This isn't because of skulduggery but the executive are not reporting to us on a daily basis and neither should they. I believe we were in an existential situation (First Oil failed) and without nimble footwork we were heading in the same direction.
We were metaphorically going down the back of the sofa and visiting pawnbrokers. Missing a debt payment could have been fatal and an existing option at a winning price could have been cashed out to realise cash for the debt payment. I'm not saying this was the case but it is possible. We'll never know but we survived and this is really the point of my post and gives some background.
The March update (P1 of 81) says a lot but I find it clashes with P.281 of the RI prospectus imo. I'm no Accountant but unless oil collapses we should be within the "Leverage Ratio" (LR) standing on our head and not the extremely prudent "End 2019 Net debt to EBITDA ratio expected to be approaching 2x; EnQuest’s target is between 1x and 2x". This seems to me that the board have been extremely conservative and I'll be disappointed if we aren't around the 1.50 ratio at end 2019. My reading is that the analysts hear stuff and do like statistics like the LR which we missed at YE. I cannot get my head around the target of 31 March 2019 1.50:1.00 extending to the 30 June 2021. Its almost like a penalty and a restriction on future deals (probation?). Debt is not the enemy; too much is! I also wonder if we have to report in on Scheduled Test Dates which gives a possibility of figures leaking? I get the feeling that currently EnQuest is on the naughty step. I think the board are quietly confident and quite happy to predict low targets that they expect to smash. Meanwhile the analysts (who were right btw) are wary of EnQuest missing targets as they have in the past. The ball is firmly in EnQuest's court to prove them wrong.

Be Lucky

Hi Auson, I can imagine. I met Mike Ashely once in Spizzico, Barnet. He knew my pal and came over to our table. He was treating his daughter and friends to a pizza for her birthday. He was good company and not at all arrogant. I did hold SPD stock once and did OK. He (MA) loves a punt and I decided to leave him alone; too risky for me.
I've got a holding in Avanti which could easily be for the chop. If they go down my life is unchanged but I'll party if they survive the next big bond maturity.
The only retail I've got now is Costco, AB Foods and Qurate which have performed well.

There are two ways to slide easily through life: to believe everything or to doubt everything; both ways save us from thinking. -Theodore Rubin, psychiatrist and writer (11 Apr 1923-2019)

The amounts are tiny and I think looking at the sp is a waste of time. This company is run at the gift of the bond holders who converted to shares. Impossible to get inside their heads but Debenham's may give a clue. The only positive is that the company still has a pulse. If it makes sense to them to keep a share quote alive then there may be a future. I've a forlorn hope but it ain't over till it's over. Bit like Brexit.

Afterthought. Was it AB's buy or a leak from Cannacord that moved us yesterday. I'm happy with what we know. The analysts require evidence and on balance have a CYA stance.

Hi guys - it was a "sector review" and covered what the FT calls (accurately or dismissively?) "small oil". Here's more:

"We make small adjustments to our commodity price and exchange rate assumptions which result in an average 2% reduction in target prices across our coverage. We raise our Brent price assumption to $64.6/bbl FY19 (from $60/bbl) but maintain $65/bbl from 2020, and we adjust our sterling exchange rate to US$1.30 from $1.25. Combined these result in an average 2% reduction to our target prices. There are two target price change outliers: ENQ (+10%), reflecting the gearing to oil prices and post FY18 results; and OPHR where the agreed PT Medco cash offer is 12% below our previous target price.
We make three rating changes:
DNO: reduce to HOLD (from Buy) after positive market performance recently. We maintain our NOK 18/sh target price.
HUR: reduce to SPEC BUY (from Buy) as we believe the share price could be more volatile around the Lancaster field start-up in the next couple of months. We trim our target price to 110 p/sh (from 115 p/sh).
OPHR: reduce to HOLD (from Speculative Buy) as the agreed PT Medco cash offer of 57.5 p/sh awaits completion.
So far this year the oil price has been strong, improving from $55/bbl Brent at YE18 to a trading range between $60-65/bbl for much of the quarter and a late run to over $70/bbl currently. Unsurprisingly, this has resulted in generally strong market performance for our coverage list in Q1, helped by corporate activity (FPM early 2019 and OPHR). Certainly, the gloom of Q4 18 appears to have been replaced by cautious optimism in Q1 19. However, our unchanged LT $65/bbl Brent assumption shows that we remain cautious on the sustained longevity of the most recent oil price uptick to $70/bbl, preferring to take a (very moderately) bearish view compared with the current commodity market. Continued US production gains in Q1 and the now long running saga of demand concerns suggest to us that Brent at $65/bbl is still a good working basis.
Top picks
GKP: Continued strong Shaikan delivery and a cost-effective, rapid timeline to c.70% production growth by early 2020, easily self-funded, and a meaty dividend of c.6.5% at present, make a very appealing combination.
PMO: Oil price gearing and inroads into the admittedly still high net debt are providing a strong rationale for investor interest, supported by the potential for positive Zama and Sea Lion news.
RKH: Very much the geared play on Sea Lion and there should be indications of senior debt availability by this summer. We see an upside skewed investment opportunity on that catalyst alone, and scope for further news in the autumn on the Italian arbitration.
TLW: More limited upside than our other top picks but the summer exploration drilling potential in Guyana adds significant upside with, arguably, no valuation downside at current market levels."

Not really following it but surely his advisors would have pointed out that holding bonds is another way to take over a company. I did buy some EnQuest retail in the low 30's but it was peanuts compared to my equity holding.

Hi Auson - I only have the retail bond and they're hovering around £84 so some distance from the £95 in October but better than the £69 when oil collapsed in Dec 2018. I don't have the HYN s and doubt any PI's do directly. I have to assume they follow the Retail bond but you know I'll remind you that Ineos bonds were worth only 10 cents in the dollar in 2008. I even had a contact, who is reasonably well informed, ask me if I'd heard anything regarding AB taking the company private. I'm sure he's considered it but have no real preference as long as I can stay aboard.

*PMO retail bond is 101

Blame mbingo for this post. His asking a deceptively simple question (I'm considering filtering him) took me down a path where I easily get lost. On the IR prospectus there is on P.281 the 'Leverage Ratio' required by the SFA (more important than analysts). On 31 Dec it was 1.75:1.00 (missed 2.48) and 31 Mar 2019 1.50:10. (no idea but likely missed). From then on until June 2021 the ratio is 1.50:1.00. That explains to an extent the analysts' view.
In the FYR 21 March RNS they said this: "Net debt to EBITDA ratio expected to be approaching 2x; EnQuest's target is between 1x and 2x" so it looks like we are technically in breach of those requirements at the moment.

It sounds to me as though those 'ratios' are more lender driven and quite draconian for a company pursuing growth. I'd actually be a bit upset if the ratio got close to 1.00 because it would indicate we were ex-growth. AB always gives a spread on future production because unlike a number of posters he finds that events and problems make a mockery of projections, both up and down, but he does say production will improve by c.20% in 2019, say 11,000 bpd (conservative imo) So, in 2019 an extra (using oil $65?) EBITDA up by $156m (using 60% of sales) so I very roughly get EBITDA of $872m and debt of sub $1.5bn. Still not within the ratio. However, if we break $1bn EBITDA we smash it. Proactive investors forecast 0.90 but I ignore them. I think we'll be comfortably under the 2.00 ratio by half-year and if we beat 1.50 there will be a massive re-rate because we'll be making money hand over fist.

Build it and they will come.

mbingo - don't be silly, this is EnQuest we're talking about. Nothing is that simple. I got the option percentages from the IR prospectus P.233 and there are 3 share plans. If you go to the last in depth full report for 2017 you'll find stuff under Directors remuneration from P. 76 onwards. I suppose it's interesting reading to some (I'm already regretting my post) but will relate to the price at the time of vesting. The September 2017 PSP award grant for AB & JS for example was c. 26p. I'm ducking out of this thread as not my area of expertise (little is really, I can only do broad sweeps and clever people fill in the gaps if I've found anything of interest).

*mind you on P.79 I did note that Neil McCulloch failed on "Delivery of discreet production targets across the Group’s
asset base". Might explain his departure.

....and don't forget the Jock Lennox purchase which was misunderstood by some. It isn't the size that counts and the Chairman is effectively a NED. His post has various responsibilities and one is impartiality and balancing closeness to the executive but also to protect the shareholders. He needs a higher level of independence than a CEO does. Jim Buckee had a lot when he was the Chairman but he was also a founder. JL buying spoke volumes to me even if it was tokenism to some. I have many shareholdings where the Chairman has a very small amount and it is to an extent, tokenism. It's what it says. To have a very large holding does give rise to a Chairman being under the influence of their holding or accused of it. That is not the case with AB who clearly makes his view known. EnQuest has always been high on governance.

*JL doesn't hold any options either. AB has options of c. 15m, JS 9m, SR 3.6m, FH 4.2m, BD 1.7m,IM 2.4m, SM 1.8m

Hi E121 - Funnily enough the post was stimulated by your Sunday 21.16 post. I did follow the link but it was written in Swahili and really only for those who understand accountancy. Those that do (like you) will put in caveats and nailing down variables (or unknowns) makes it something of a guessing game not that it doesn't have its uses. I think you really need a mixture and concentrating on minutiae must have an attached warning. In the past I asked an ex-partner of a Big 4 accounting firm to work out FCF or NPV and he admitted that it was subjective especially if you don't have current figures. Basically, it was a guess but you have to start somewhere. You understand figures and I confess to following your reasoning because you don't profess to be all-knowing but can give a better interpretation than I can manage alone. What did jump out at me is that arguing over EnQuest's production misses the point that it is now a highly profitable company whilst others that haven't upset the analysts or have less coverage are given a pass. There is a blindness towards EnQuest and a very brief foray onto the Serica board, although too small for real polling, did show that people become very attached to "their" share and have a tin ear towards others. It isn't possible to cover all oil stocks and my ventures into other NS oil stocks invariably brings me back to EnQuest as the best prospect around. I do hear from other investors away from this board and they have been accumulating over the past weeks so I'm not alone.

Be Lucky

It is almost impossible to compare one medium NS oilie against another because variables always pop up. I had a go when DNO bought Faroe (28 November post) using the EV/EBIT and got a price for ENQ of 67p. Since then we've had the Cairn impairment (I doubt they'll get the Indian money and the impairment was kitchen sink accounting imo) which was jumped on with alacrity by the analysts who got it completely wrong anyway with reference to EnQuest.. I have done a bit more digging with Serica and can make a rough comparison. SQZ have no debt so we can say that their EV = their MC. I doubt you'll get a decent EBIT figure as they are at the moment promising a lot and production to H1 2018 is negligible so that isn't a very good comparison. So I just pretended that EnQuest had paid its debt down and got its MC @ c. £1.506bn. The obvious difference is that SQZ has potential whilst ENQ has to pay down the debt. SQZ have yet to deliver with production whilst ENQ are increasing production, fast. Where do the 2 companies meet and can be compared? It is a few years away but I would argue that the analysts obsession with debt and covenants pushes a company like ENQ into the wilderness and they become a kinda pariah whilst a company with no debt on AIM can become a darling? Serica have done a deal similar to our Magnus deal but with little production and vendor sharing so they will probably have to start borrowing. I am intrigued by the Rhum deal though?

If you fancied that oil will hold and that demand isn't falling off a cliff you'd probably look for a candidate to invest in that is well run and unpopular because of a high level of debt with decent production meaning that debt will fall rapidly. If you're reading this post you've found one. It's called En!Quest.

Build it and they will come.

Apologies to this SQZ board and we'll soon be finished but some of this is relevant to any NS oilie. Rellim, I'm not sure we know the rate on the OZ loan but it isn't 15%. Once you unravel the details it's more like half that. It is $175m against a ring-fenced 15 percent of Kraken's cash flow to be paid back within 5 years. It will have lawyers footprints all over it. There have been bedding in problems with the FPSO which will be solved. This is not unusual with large projects and new equipment. The OZ loan is a kinda charge against the field but as long as oil holds up and production doesn't collapse EnQuest can repay the loan standing on its head. Having said that 5 years can be a long time but is a short time span in the life of a field. The loan was taken because of the FPSO problems (I believe) cratering a farm out of 20 percent of the field. Since that time conditions have greatly improved so it may have been serendipitous. It is enlightening to realise that some half-truths out there become accepted truths and are plain wrong but it also gives opportunities to pick up bargains.

Lets just say Xcite was a learning experience. I actually went to my first EnQuest AGM to pick up info about heavy oil c.2015. I liked what I saw and then watched oil collapse and debts grow. Few foresaw that and it says something about the survivors. Have another look at EnQuest as (for me) these are bargain prices. The debt is coming down and I have a suspicion (tanker plotting) that Kraken FPSO problems have been largely solved. If you like numbers then look at Epiphany121 or hitman1a's posts. I met hitman at their last AGM. Michaelhighbar is also in ENQ.

Good luck

First time on this board. I am heavily invested in EnQuest and yesterday bought a modest amount (4,000) of Serica shares and would like to impress people that I understand why one should diversify. Sadly that isn't the case and I must confess it is much more prosaic and I have a manipulative motive. I had dinner with some other investors Wednesday and one whose judgement I respect is invested in Serica. There are commonalities in that both companies bought ageing assets from BP and the structure of the deals have similarities which only the number guys can understand. The difference between us is that Serica has NO DEBT whilst EnQuest was up to its gills and is only slowly paying it down. My pal has a very idiosyncratic way of researching and is a computer expert. He finds stuff that is hidden and it is borderline hacking imo. I was quite open with him and said I'd buy some SQZ if he bought some ENQ. It was a blatant attempt by me to get him to use his skills with ENQ. I don't know if he posts here or will buy any ENQ because I find that the only way I can research a share is if I have a holding. You LTHs here will understand the dynamics of buying ageing fields and we are in good company (Chrysaor, Ineos, Spirit) with private companies that are more adventurous or have big backers and finance. I think ENQ is trailing SQZ and its unpopularity is because of the debt and teething problems with Kraken. Both are being quickly resolved but the analysts don't really like any oil company and ENQ in particular. I think both are good buys but ENQ is more undervalued. Worth running the slide rule over ENQ knowing what you know. I didn't sell any ENQ to buy SQZ.

Be Lucky

Totally agree. Under polite but subtly hostile question by analysts AB followed rule number one and refused to be drawn into giving specific figures. He is not the only CEO to do this; in fact I'd go as far as to say that most of the good one's do the same. You're on a hiding to nothing and restrict your flexibility. He gave honest replies and that is good enough for me. The Kraken problems were well known to industry insiders rather than us PI's. By this I mean information that could be gleaned from repair crew, tanker crew etc.. Maybe all calls from the FPSO are monitored but we've all heard of codes and commercial espionage is not unknown. Good money or return favours can be earned for passing info. To pretend it doesn't happen is naive. We've all seen how leak free our own Government's cabinet is and they are involved with much more important matters. Once the early movers have dealt off the leak then why not pass it on second-hand; it can only help your position! I fancy that AB will announce better figures around the time of the AGM.

In another post I wrote that AB doesn't play to the crowd. He has more invested here than anyone but is taking care of priorities. If you think PI's are high up the list you are deluded. I had reason to contact EnQuest IR earlier this month and got this reply: "Apologies – I have now come up for air post results and saw I missed your note.I don’t have the precise analysis to hand, but having met many credit investors over recent days since results I understand they bonds did react negatively over the initial few days post Cairn’s result (although not immediately, it was a slightly delayed reaction). I believe they have since recovered, particularly post our results announcement last week, similar to the equity." A corporate non-answer could be read into this but I think it was telling.
What was worrying the analysts? They are obsessed with covenants and ratings. They don't use imagination and perhaps that is wise. Who do EnQuest have to satisfy first (priority)? Yep, you got it. The bond holders, banks and corporate lenders.
Who were the Directors and senior management involved with? Credit Investors.
For the past few years who have been most important? Credit Investors.
Who disappears as debt is reduced? Credit Investors.
I'm happy to wait along with other equity holders, especially Double A Ltd and EnQuest Employee Benefit Trust who are showing the patience that LTH's show. Once debt is reduced there isn't much we need to do other than let the management get on with running an oil company and watch the MC rise.

Build it and they will come.

https://www.serica-energy.com/downloads/presentations/Jan%2019%20Corporate%20Update%20Final.pdf

Pages 9,10 and 11 have interesting graphs. I had a meal with some other investors yesterday and a guy whose opinion I value is in Serica. They've recently done deals with BP and others which are similar to the Magnus deal. Their price reacted very favourably and stayed up. The major difference between us and them is they have NO DEBT.