Member Info for romaron

And has been corrected this morning.

11:14 am
BE
We published a note earlier incorrectly saying that there was a risk to the company's covenants, which we had wrongly identified to be 1.1x RCF/EBITDA. However, the two upcoming covenant tests (31 March, 30 June) require EnQuest to have a net RCF/EBITDA of 1.5x or less, using a trailing 12-month EBITDA. As demonstrated in exhibit 4, there is no risk of covenant breach under the updated RBC oil price deck.

They're discussing it live on Alphaville (FT) now.

I was informed this morning (6.35) by the FT that RBC corrected the note overnight. I haven't read it but would imagine the wording is sufficient for RBC to weasel their way out.

We are lucky to have some posters who are at home with figures. Insider trading means that RBC have no extra insight to what goes on and follow the rules. They [RBC] do hear gossip though and receive a certain amount of lobbying. The analysts there do not necessarily know more than our resident number crunchers and all start from more or less the same place. RBC though does have better coverage and its advice is valued. I am against the company responding to a faulty broker's note but that doesn't stop any posters here from action. I have emailed an area of influence and hope others do too. I feel a little discourteous because the analyst is a woman but I doubt she'll lose her job over a simple mistake. There is a consensus here that some of the deals EnQuest have been involved in do not make its finances easy to understand or unravel. You really have to study the latest prospectus to understand fully and even then there is some confusion over treatment of certain assets and debts. Most of us find 344 pages daunting. For this reason I have some sympathy for the analyst.
We saw a sea change here today with Fernan who is not an easy person to convince and has always explained his calculations. So, on that basis the broker's note has done us a favour because we passed a stress test. You might even argue that Fernan is over optimistic.

Blimey Fernan - have you been drinking? Of course if oil is higher then the real fun and games begin. I have little shame so I'm gonna repeat a post of mine back on 28 Nov regarding FPM v ENQ to see if you will respond. Using your estimated EBITDA and debt it is quite scary what value could apply to ENQ If it was treated like FPM, I get £1.58 We'll need a bigger room for the party!

"I know these are broad strokes and you’ll say what about the debt? My accountancy abilities aren’t high so these are wet finger in the air assumptions. For a start you can make an argument that you’re not comparing like with like. A more accurate assessment in comparison is EV divided by EBIT. This is where I get extremely flaky. I took the latest 6m figure and used EBITDAX of $77.2 (£60mio) for Faroes and EBITDA2 for EnQuest $311.9 (£244mio)hoping that they are reasonably close to EBIT. I doubled them to make it a year figure (wet finger method) and for EV Faroes got 373 mio shares at £1.52 (the bid) plus $100 bond =EV £645mio and for EnQuest 1.694bn @ .23shares and debt $1.9bio = EV £1.874bn
This attempt to simplify and read through different capital structures may be wildly inaccurate so feel free to shoot me down. I get a ratio of 5.38 for Faroes and 3.84 for EnQuest. DNO are likely to raise the bid and it is the latest NS valuation. Using a ratio for us of 5.38 would value us at 67p if my calculations are not ridiculous. I also fancy we have a more attractive tax position."

Summed up neatly Yhyh "Well that’s barely enough with no room for error". That is how RBC see it. I wouldn't rely on recent depletion rates too much as the company had very little cash and wasn't concentrating on older wells. We all know what it's like to be hard up. Some call it austerity, others an FPSO. Covenants nearly cratered Ineos but like them an aggressive and competent management can survive and flourish. We are washing our face but clearly breaching covenants is what the analysts don't like. I think the creditors act tough but the company still has plenty of bargaining chips. What is the alternative for the creditors other than to go along with the company?

*met medium sized building company CEO today. I have some very tall Leylandii that weren't a problem until they bought the land (a very large back garden) next to me for himself and his family. No problem there but got to discussing the property market. Other companies in the area are still building like crazy where I live in N. London but nothing is selling and I mean nothing. There is a bubble in London property prices.

I disagree with EnQuest issuing an RNS. It only raises speculation and suspicion. Many here know more than an analyst who covers many stocks. I cannot see RBC backtracking on a target. A better response will be to use the RBC incorrect figures and use them as a sideswipe at analysts when releasing end of year figures. A restrained and timely response is better imo. What real difference does it make atm? I am overloaded here but these prices are soooo tempting!

ON Magnus in January 2017 - Mr Armstrong also said the deal made sense for BP, given that the oil major has been reluctance to invest in mature assets.

He said: “BP is quite happy to invest in West of Shetland and in new fields that have got another 35 to 40 years of production.

“But they’re not so good at investing in fields that are getting near the end of their life. That’s what the likes of EnQuest are good at.”

Victoria McCulloch of RBC Capital Markets said the deal would provide a production boost for EnQuest, which would expect to significantly improve the field’s efficiency.

===============

The analyst at RBC seems relatively objective and happy to change her mind ( I hope she's no relation to Neil?) and there is nothing new here. With the fall back in the oil price and Kraken missing targets it is no wonder that covenants are threatened. This company has grown production and reserves since inception. Arguably it is a growth company and the market usually likes them: however it doesn't like oil full stop. The analyst has done the right thing technically for when there is a threat of breaching covenants. Ineos went through something similar.

Hi Pelle - I'm impressed by your attention to detail and finding data in your 11.29 post. I'm no tax expert or the portability of these allowances to another company. I'll stick with the simplistic approach that they are only really valuable to EnQuest. To still be solvent with this amount of allowances is possibly quite unusual in the NS basin. I stand to be corrected but by and large bankrupt companies die with their allowances unused. You don't really see bottom feeders buying bankrupt companies for them because the outstanding debts usually outweigh the value of any unused allowances. That would not be the case with EnQuest and there may be other barriers for transferring these allowances.

Having them is part of the Magnus deal. It means that sunk costs have created these allowances and it means we can afford to pay a smidge more than competitors for certain assets. The problem is that with the low price of oil and our debt we haven't the finance. This doesn't bother a major too much as they can replace the traditional financiers and you have the creative deal that was made. The RI could have been an insistence by parties and to placate lawyers and authorities that EnQuest put up some of the money (deposit for mortgage). There are no guarantees in this business but the stewardship of this company looks pretty impressive from where I sit. Against strong headwinds we are inching forward and that alone deserves approbation. Even the best and largest have only been doing doggy-paddle for the last 5 years (ignoring dividends). A re-rating will eventually arrive and we will have lift off.

If that is it then it's not much of a report. I was hoping for a bit more depth and how they arrived at their valuation. To avoid posting twice furryboots comment on SVT is relevant to any discussion about EnQuest. It was an asset in the wrong hands and once they get below a certain level the majors look to unload. It is not a priority to keep high efficiency or spend on an asset which will hardly register on their balance sheet. For EnQuest it is a different matter. It is our raison d'être and whilst idling through some old stuff came across this video from 2014 - https://www.youtube.com/watch?v=WNCiyt_qKCA
It isn't really revelatory but it does emphasise the consistency of the man and his intellectual discipline. You can normally trip up a politician by finding a past quote which contradicts their current stance but not with AB. I notice he wore the same overcoat at different Davos forums. This is a man who understands quality. I believe he treats the company as his own and I don't really have too much a problem with that as his holding means that we are unlikely to have hostile interests and I feel sure he has unfulfilled ambitions. Remember the old Yorkshire saying "where there's muck there's brass". Oil has always been and will remain a dirty, mucky business.

gbk47 07.03 wrote "As such it doesn't take account of complexities around Hedging, Debt Repayments, Tax, CAPEX, other earnings/costs (e.g. SVT) etc. However using the same heuristics and comparing with similar companies (well as similar as you can get), e.g. Tullow, Premier Oil I do think Enquest is undervalued by a fair bit"

Neatly summed up and we might learn something from this also "The Second Response Circular (including the full GCA report) is also available on Faroe's website https://www.fp.fo/"

I can't find the GCA report so it might not be up yet but it will give some indications for current values in NS.
I thought I'd stumbled on something when in the earlier defences FPM were using the P3 reserves but I do accept the latest GCA figures: • 2. GCA estimates Faroe’s 2P Reserves as at 30 September 2018 to be c.102mmboe2
*2 The reference to GCA’s estimates of Faroe’s 2P Reserves as at 30 September 2018 of c.102mmboe is calculated using a Bscf:mmboe conversion factor of 6:1

I think ours at this time will be around 250mio 2P reserves. Our production is also ahead of theirs so a lot depends on the debt obviously. I don't get too excited about fields awaiting FDP/FID as there doesn't seem to be a big appetite for 'potential' atm (or funding).

Somebody still likes the North sea; from today's FPM RNS:

"The Board is concerned at DNO's increasing attacks on Faroe's outstanding exploration track record and its implied criticism of our technical team which boasts one of the best exploration track records on the NCS. It is a particularly puzzling criticism given that Faroe would provide DNO with a high quality, full cycle and diversified North Sea asset base that stands in stark contrast to DNO's existing business. In fact, DNO's statement that it is "not going away" demonstrates the attractiveness of Faroe to DNO. As such, Faroe would solve DNO's strategic challenges and shareholders should receive an appropriate premium which is not currently reflected in DNO's Offer."

There is a cult of ignorance in the United States, and there always has been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "my ignorance is just as good as your knowledge." -Isaac Asimov, scientist and writer (2 Jan 1920-1992)

*mind you - it could be said about bulletin boards too. Happy New Year.

correction: shale is almost a manufacturing "process".
I was thinking that shale is an imperfect solution for the US energy needs but I was wondering why I read that some of the majors have got more involved. The sentiment/reason here makes sense:
https://www.rigzone.com/news/why_majors_will_take_a_bigger_role_in_us_shale-29-oct-2018-157327-article/
The US feels it has less risk of being held to ransom by the ME and nurtured shale. With no geopolitical risk and a friendly tax regime I suppose it is no wonder that the majors are investing in US shale. A bit like tobacco companies moving into vaping. The majors have deep financial resources and to an extent you can cancel out the banks.
" new production can be brought on within months after investment decisions are made.
That’s a highly attractive feature to majors, which must not only manage today’s volatile prices but also consider the long-term demand outlook for new “long-cycle” megaprojects. Would majors greenlight a $55-billion project like Kashagan again? Probably not."
I think the majors will integrate shale projects with their existing portfolio of reserves and do exactly what the independent shale producers do. Dip in and out when prices permit. Use shale as an ON/OFF button. That is not good news for SA or Russia I would imagine but as always "There's many a slip 'twixt the cup and the lip". Maintenance and declines are part of any mining operation so it remains to be seen how the majors combine shale with their more traditional methods.
I'm not overly excited by the current low oil price caused by the glut. I always read these as a harbinger of future shortages. Most oil is contracted so the oil looking for a home is friendless to an extent. The surprise is that the price isn't lower imo. At this level people see bargains and are possibly storing it at sea or building up strategic reserves?
If you had a glut of oranges you wouldn't assume that next year would be the same. Frosts and digging up orchards for a more reliable crop would ensure that. Throw in a few trade wars and geopolitical upheaval and things change quickly.

This is the link to the article 50glass refers to:https://www.ft.com/content/b01442e6-06b7-11e9-9fe8-acdb36967cfc

Not sure what I think about it? It is kinda accepted that shale is almost a manufacturing industry and can respond much quicker to the oil price movement than traditional methods. Shale producers go to the bank and get finance provided they buy a put option. The business plan practically guarantees a profit. The bank like it because it may write the option as well as lend money. Oil price goes down so options get exercised. If too much production all get exercised and I'd imagine losses are made by some of the writers of the options as these things are self reinforcing. Oil steadies but until there is a positive climb the banks lick their wounds and a few shale E&P go bust. The lead/lag between the POO and shale operations exists and I think this is possibly where salvation lays for the likes of EnQuest.
Working in US shale must be like what it was once working in the docks 50 years ago. No work for weeks and then all of a sudden 3 ships turn up at once. You jump from idleness to high wages in an instant. Casual labour is essential and funds to weather the financial losses from idle wharfs and crane. This is not an ideal situation and working in shale is more precarious than more traditional methods and trades. It's bad news for riggers and they need increased incentives to hang around instead of getting regular less well paid work. Then there are the options. They must get more expensive to write which raises costs (once bitten, twice shy!). Shale has its strengths but also its weaknesses. It can react quickly but it relies on the cooperation of the banks who might be having a rethink for the next cycle. If you had a mortgage and a family to feed working in shale is not the ideal business to be in. Then there is the oil it produced which isn't in highest demand. Throw in transportation and a few other variables and it is not the panacea to the US energy needs but it is a mighty useful negotiation tool.
What we do now have is a cap on how high oil can go imo. OPEC and friends can manipulate it downwards and force a few smaller shale companies to the wall but the US would increase shale production once production curbs by OPEC and pals has the required effect.
I wouldn't be surprised if Trump has been involved in getting ROPEC to acquiesce to lower prices in the short term. He somehow believes he can please all of the people all of the time if they are US Republicans. The world is much more complicated than that. The visceral hatred the US has for Iran means that shortages are almost guaranteed next year.

http://longnow.org/seminars/02008/feb/04/the-future-has-always-been-crazier-than-we-thought/

I find it fascinating. The positives I take from it are: heuristics work, experts are self-appointed and self perpetuating, ignore predictions, forecasting and astrology are the same, Govt war bonds did not predict WW1.

Hi Jan - you may be right but to be on the safe side I've filtered him as there are indicators. I have no problem with negatives or stress testing an investment but new arrivals are always suspect with no history. They profess a scintilla of concern to make posters think they are a holder. It is sad that all boards have people who have nothing else in life other than to anonymously sow poison; I thought that was what twitter and facebook were for? Oh, now I remember - they both require a level of public ownership or work best when the poster is brave enough to use their own name. Not a requirement on bulletin boards.
============
This market is thin and for the day traders. I've given up paying attention to the day to day stuff. All markets and sectors down. Maybe a full blown recession or a 'correction'. Both hurt if you are long of stocks. They haven't invented a cheap replacement for oil yet and if you've driven in central London lately the official speed is now around 8 mph but that must have been on a good day. Bethnal Green to Bank took me 35 minutes and I was on a bus!
I suspect that Trump and MBS agreed to keep oil down for year end. We know Trump is transactional and pays more attention to the news cycle and personal interests. I think 2019 will be good for oil unless there is a full blown recession or we start using ox carts.

bon Noël

Part of today's response by Faroe Petroleum to DNO:

· Premium of only 1% to the undisturbed three month volume weighted average share price (VWAP)¹

· Premium of only 21% to the closing share price prior to the Offer announcement - about half the average premium paid on all UK takeovers over the last 10 years²

· Discount of c.45% to the average price paid recently for comparable North Sea (in particular, Norwegian Continental Shelf ("NCS")) portfolios measured on a per barrel of 2P reserves basis³

· DNO's opportunistic Offer seeks to exploit the recent oil price fall - timing its Offer announcement after the oil price fell to a 12 month low4 - to acquire Faroe on the cheap.

Further down the FPM Chairman states: "“We have an excellent track record of actively managing our portfolio as demonstrated most recently by the Equinor asset swap which will add £96 million6 incremental cash flow in the next two years. DNO were not aware of this transaction when they announced their Offer and have since then failed to revise their Offer to reflect the significant benefits created by it.
“As a result of the Equinor asset swap, we are now able to give careful consideration to the optimal mix of:
reinvestment into the existing portfolio given the significant growth opportunities therein; pursuing value
accretive M&A opportunities leveraging our reputation as a credible and reliable counterparty; and
returning capital to shareholders.
“Your Board unanimously recommends that you should reject the Offer.”

It depends on how much is in your glass to how you read this information into EnQuest's current price. I see echoes of Magnus in the Equinor deal.

I'm not criticising it because it's a fact and we should learn to live with them. I worked for public companies and the share price was almost irrelevant because I was too busy. If it didn't affect my work it was basically ignored. I'd suggest this applies to the EnQuest teams whether they're board, services or on a rig/ship. This isn't negligence but whilst we're worrying about Kraken production they know the problems. It is an intellectual and physical challenge to those involved but still a better position imo than being in the dark as most investors are apart from production updates, financial returns and RNS's. Knowing the situation removes imaginary 'what ifs' and additional stress. True, the position may be dire but most people are happier with facts. For many reasons we are not privvy to these delectations. So we are driven to watching the share price, tankers and the price of oil because there is sod all else to go on. Being scared of the dark doesn't only apply to children.
In 1972 The Chinese premier Zhou Enlai was asked about the effects of the French Revolution. He replied 'it was too early to say'. The House of Saud has been around for close to three centuries I mention this because they tend not to base strategy on tweets or the news cycle but have long term ambitions that are the opposite of short termism.
I thank hitman on iii for this: https://www.bloomberg.com/news/articles/2018-12-18/saudi-arabia-makes-rare-bullish-call-on-oil-in-its-2019-budget
My point is that SA have a better idea of what is happening and the journalist behind this story, Ziad Daoud, would not jeopardise his reputation or future stories by printing fake news. The Saudi's aren't overexcited by the current price. It does help that they know what is happening behind the scenes and have the resources and patience to stick to a strategy. Money talks; it always has.

Hi Pelle - 19.47

You are asking the wrong person if you want accountancy or legal opinion. I did a longer post re Faroe on 28 November and we are considerably larger in production and reserves but of course with much more debt. Our tax position means we don't have to pay tax on profit for many years. I'm not sure about how the tax credits work but somebody here will probably have a better idea. I imagine with clever deals the rebates and credits can be protected but doubt that is being considered. Many companies go through difficult times and EnQuest is no exception.

My mentioning Faroe is because there is a lack of NS public oil companies to compare ourselves with or make comparisons. Recent purchases have been by private companies from large public companies where it is more a house-keeping tidy up for the large company. Faroe are current and gives us something to use for valuation purposes. The EV is fairly easy to ascertain for both companies whilst the EBITDA needs more knowledgeable input and can be pretty subjective within the accountancy tolerances that exist. Creative and reverse mergers are always being thought up by Investment bankers who earn money through them so nothing would surprise me but I fancy that AB and his team would prefer to weather the conditions and keep their flexibility and independence. Sorry I can't help you, I'm just using the paucity of current data/news in the NS to get a better feeling for EnQuest's true value.

*The analyst was also fairly dismissive of DCF too. I didn't mention it; he just threw it in as another rough measuring tool. He is also a qualified Accountant. He seemed pretty resigned that you could create all these finely detailed business models and then they get smashed by a toxic tweet or political manoeuvering (trade wars/Brexit).