Member Info for romaron

It could be fortunate that we have Swedes on this bulletin board. A popular Scandi-Noir had as the basic of its first plot a body found exactly in the middle of a bridge between Sweden and Denmark. There is a chance that the border between the UK (excluding Northern Ireland) and Ireland will be in the middle of the Irish Sea, connected by a bridge. There are a few irrelevant problems and expenses to overcome what with depth, weather and unexploded WW2 munitions but economics and common sense have long left the Brexit discussions. Our zeal to become 'sovereign' and convert to nativism trumps all other arguments.

Hang around F_ahl, Pelle and others, we may need your insight!

*I used £1.75 for Faroes market cap as this is around the mooted figure required for holders to consider selling. The bid is £1.52 ffom DNO and some holders saying they'd consider selling at £2. As I said - Faroe is not necessarily a good choice for comparisons but we aren't exactly overrun with public mergers/buy outs so I 'm taking advantage of this rarity.
The private deals tend to remain just that, private!

Hi F_AHL - thanks for having a look. When you said you use a ROM calculation I first thought it was a ROMaron calc. but googled it and got "A Rough Order of Magnitude Estimate (ROM estimate)". Glad I'm not the only one using a wet finger in the air method as I have to ignore/avoid the trimmings because I get lost in legalese and accountancy debates where I can only be a bystander. I enjoy Fernan's and others posts but sometimes questioning the polish used on the FPSO railings is not so important if water is coming over the deck.
I am not a million miles away from your calculations and I purposely was conservative in mine but happy with your calcs. and using the Faroe value I get us at c. 83p. Which ever way you cut it 23.5p is plain wrong imo.
I didn't realise there were so may Swedish investors aboard and can claim a connection. My DNA report said I was 4.7% Scandinavian and 0.50 Finnish (I thought Scandinavian and Finnish were the same?).
For this bulletin board to be of use it requires all types and your post was more than welcome. I would rather be shot down than bask in ignorance. I speak to others away from the board, one is ex-Shell and another was in Investment banking. Both say that from contacts they have AB is an exceptional talent. From my view he is an impressive individual and has a family charity. I think he is a proud individual and certainly not a quitter. I imagine he is a nightmare to work for and very demanding.
We are not at the trendy end of the oil industry and certainly not fashionable but the numbers, when they arrive, won't need fancy trimmings.
One last thing. Faroe is AIM quoted and under less strict governance than EnQuest. I'm using Faroe as a marker but I think that EnQuest is the more solid company with greater potential.

Build it and they will come.

Still confusing myself trying to compare the bid for Faroe to calculate a hypothetical price for EnQuest using EV divided by EBIT. This time I used as best I could - production and deducted opex costs as best I could for H1 2018, using achieved barrel price and published opex per barrel and doubled them. I included office expenses etc .Small piece in ST says that the DNO bid for Faroe is thought to be the first hostile takeover in the NS since KNOC took control of Dana in 2010. Usual response from the incumbent management that the bid is opportunistic and undervalues the company.
At today's price for Faroe I estimate we are worth .56 and assuming this is an opening shot an increased price of £1.75 for Faroe would make us worth 70p. I think that is a conservative estimate for us compared to OUR production and reserves and where the price should be at a minimum.

The market is demonising EnQuest because of its debt which will fall quickly in 2019. Because of the RI the LTH's will struggle to fund or justify further buying. One thing for sure is most aren't sellers down here and if sentiment changes there's gonna be a shortage of stock.

Be Lucky

I should add in mitigation it does appear that a negative pressure is baked in with this PIK. A quick glance would suggest that EnQuest must struggle to repay the bond below $65. Not a good look as my wife would say. However, it is far more complex than that and today's conditions are a lot different to when the original PIK was set up.

KO - that argument fails just on PMO Bond. EnQuest returns c.15% whilst PMO returns around half that. We are clearly not out of the woods yet. A 15 percent return should be a no-brainer but the risk is clearly there.

This company is basically owned by the bond holders who converted a lot of their debt to equity. Probably encouraged by the gun Paul Walsh held to their head.. Private Investors are a tiny percentage. Shareholders are here on sufferance and the only reason it is still quoted is because it is a useful vehicle when (and if) the ex-bondholders get a decent price for the company. This may or may not happen. Funds are unlikely to be interested in buying in and the market is illiquid. PI's can buy and sell because their amounts are tiny but any amount of significance would be by negotiation and not through building up through the market. The market wouldn't be able to handle a trade of any decent size imo. I agree there are not many free shares about but enough to keep this price window open which could well be a false price. We could be basically worth zero or x amount to another company that has a strategy for Africa. There is a lot of potential in Africa but how long have they been saying that?

I'm a holder but have you noticed that old technology (vinyl, cassettes, VHS etc..) ends up worthless junk but we still have them taking up space in cupboards and lofts. It really is binary but today's RNS does give a little encouragement.

Another consideration is the declines. Although there hasn't been a moratorium on new fields/developments the activity has been curtailed from everything I read. Depletions haven't been replaced and if the world hits a supply bottleneck for any of a variety of reasons then the upside breakout would be exaggerated. The gyrations of the oil price has put many off ever investing in the commodity and industry again. Producing oil ain't cheap and whilst capex is a big headache opex isn't free. There is a price where it isn't viable to produce. Yes, it can overshoot but eventually economics takes control.
Recent activity in the North Sea indicates it's not over yet by a long chalk.

Or better still. They decouple and the bond going lower is the effect of breaking $65 (which would have affected the share price anyway) and not necessarily a reflection on the oil production etc....

Hi Nick - interesting thought. The Retail Bond has an added inbuilt negative influence on the share price when oil drops below $65. It's actually kinda reassuring in a funny way. At least we know it's not Kraken Armada sinking.

Ooops - I said dividend when I meant interest payments but you probably got the gist.

Thanks lads. That makes sense. Possibly not paying dividend & resorting to PIK might breach mandates/covenants of dividend funds and they are forced sellers. If you have faith that Brent will be above $70 in 2019 (Goldman's do) then the retail bond is a raging BUY imo.

98.95 On September 10 was 102.93 Similar trajectory but not as steep.

Retail Bond closing at 76.65. Doesn't make sense to me. Any explanation welcome. The only thing I can think of is profit taking or even Brexit (which I don't understand either). Sometimes the Bond market hears stuff we don't and I suppose it could be a belated move following the share price. Nice return if you have spare cash.

Squif - it's an oil company not a premiership football team. AB has my vote.

I'll admit to not being able to read a balance sheet that well but having said that the numbers guys here often disagree among themselves. I was drawn to the DNO bid for Faroes by hitman and thought it a useful marker for the latest North Sea valuations. Faroe is half our size but with a higher market cap. Their debt position is though much lower. The ex-chairman of EnQuest, Jim Buckee, said "debt is your friend, explore out of equity, develop out of debt". Perhaps the market has got us wrong?

https://www.investopedia.com/articles/fundamental/04/031004.asp explains why using EBIT into EV is a better measure. Because I doubt I'd be able to accurately assess EBIT I used the numbers that Faroe and Enquest used on their 2018 H1 releases. Faroe used EBITDAX and EnQuest used EBITDA2 so I may be completely wrong but this is what I posted on iii.

"Hi Hitman, re your post with point 4 ‘Faroe Pet bid helps sector sentiment.’ I 'm surprised you didn’t take it further. I’d suggest it shows Enquest as seriously undervalued by comparison. I know the finances of Enquest are complicated but we are more than twice Faroe’s size on production and reserves. With DC4 and Magnus our production and reserves will take another leap next year. The H1 2018 production figures compared are:
Faroe 12,402 boepd
EnQuest 53,990 boepd
Reserves:
Faroes - 98mmboe
EnQuest - 210 mmboe (with Magnus c.250mmboe ?)

Faroe’s get a better price for their oil it seems but their opex is higher $27 v $24

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."

Yeah, me neither! Another investor I met at the last AGM sent me this link.

https://www.cnbc.com/2018/11/26/goldman-sachs-contradicts-trump-50-oil-is-bad-for-the-us.html?&qsearchterm=goldman%20sachs%20contradicts%20trump

Goldmans suggesting $70-75 for next year WTI. I'll take that.
Interesting 6 minute video.

With end of the year figures not far off the Directors are entering a closed period. Probably his last chance for a while of getting a bargain and it was Black Friday after all. An excellent signal and also a pointer that there is nothing to distract in the offing such as a new purchase, merger or sale. Focus on paying down debt seems to be the message and the shares are undervalued.

I'm fine MO. I've always thought that AB had other ambitions for SVT and if nothing else having a kinda aircraft carrier in the area will always have strategic value. To paraphrase Mark Twain 'buy islands, they're not making 'em anymore'.
Impressed as always by your discoveries and hopefully we'll enter a period of stability and the company can start attracting investment and the market appreciating what has been achieved by AB and his team.
I am confused by the praise that the likes of Ineos and Chrysaor are attracting when they're only copying something Enquest has been doing for years. We have the experience that these new boys crave. No wonder NM was poached by Spirit.
Trump doesn't help stability but I fancy Saudi Arabia have his measure. They've been dealing with him for years and they've helped him stave of bankruptcy. I doubt SA would call it blackmail more leverage. It is in their interest to make it appear that Trump is in control. He can have the headlines whilst they work at security and spreading their branch of Islam. Trump is however a man of principles; and if they don't work he has others.

We are difficult to pigeon-hole so I'm not surprised we weren't mentioned. We are a mixture of past purchases/ developments and joining in the latest (Magnus) transfers. Magnus 25% was early 2017 so the deal was arranged in 2016. I'd say that puts us in as an 'early mover' in relation to the article. I haven't read anywhere that the likes of Ineos and Chrysaor are mugs so I'd suggest our board have been very astute in buying old fields. It looks as though 'clever money' (private equity) has bought in and expect to float or sell on starting in a year or so.
The new entrants are very well aware that the poo is cyclical but they take a longer view. Like us they probably don't like the current price of oil but the industry does not, and cannot operate on the spot price of oil.
I'd say that the board has steered us through difficult times and repositioned us to take advantage of the next upward cycle.