Member Info for romaron

As the oil majors abandon their fields, privately backed venturers believe there is money to be made, reports Rachel Millard. Title of a half page article in ST Business. Some points:
Private or private-equity backed groups now account for a fifth of NS production.
Giants such as Shell, BP and Exxon down from 65% 2005 to 40% 2017
Flurry of sales following crash 2014-16 with examples
Chrysaor Dec 2015 buys $3bn assets from Shell
2016 Siccar Energy buys $1bn assets from OMV
May 2017 Neptune buys $3.9bn assets from Engie
Between Dec 2017 - Oct 2017 (inc. Norway) $20 bn of assets sold. The trend is set to continue. Household names still there but concentrating on west of Shetland. Between 2009 and last year, about 6bn barrels were produced but only 1.2bn discovered.
The typical private investment cycle is 3 - 5 years. Many are expected to explore listings soon.

Didn't have you down as a chartist January. I'm actively looking for counter cyclical investments that are more environmentally friendly and popular than oil. I've narrowed it down to tobacco, arms manufacturing and fly-tipping.

We've survived far worse and are going into a period of low capex. Most capex now becomes sunk costs and I'm pretty confident that we can service our debt and cover opex. I can remember Jonathan Swinney telling me (either 2015 or 2016 AGM) that over $50 Kraken production was profitable. That figure will be lower now as we were into heavy capex at the time and that would have impacted that number. Without digging out the figures opex for all our fields is c.$24 and (ignoring covenant dates) there is plenty of headroom currently to reduce the debt and more importantly afford to do so. It will just take longer but whose to say what the price of oil will be in a month's time? I imagine some of the Republicans are in the oil business and (imo) I think the Saudis have leverage (blackmail) on Trump. They play a longer game than Trump.

*It might help if someone who keeps these numbers could list our covenant commitments on debt. Yes we can pay off debt but not perhaps the amount required by the debt maturities and covenants. That is what frightens the market but it also frightens the lenders. Until we repay a chunk I'm afraid these kind of days have to be accepted.

That's the answer spindok. With the volatility of spot and our level of indebtedness we have to accept the gyrations. I think fundamentally we're fine but the market is currently a traders market. When I worked in the City these were the best of times but not pleasant as an investor in an oil company. As an investor I need to wait until more stability returns and the debt is lower.

Last on the subject and I'm using Ineos again because they went through something similar. Demand for chemicals crashed in 2008, Ineos tripped a debt covenant and its bonds crashed to about 10 cents on the dollar. Net debt at the core group was more than $8bn in 2009, or seven times ebitda according to Bloomberg data (it’s now around two times) which probably explains his shopping spree.
Our ebitda for 2017 was 6.56 times and half year 2018 6.33.
Hardly likely to get the analyst's pulses racing but today's price (imo) is no reflection on the company's potential after surviving the collapse of oil in 2014 coinciding with a heavy capex spending period.
I'll leave the topic with this: "Mr Ratcliffe once ran a public company (Inspec, which he sold in 1998) but seems to have no intention of doing so again. Public markets, he reckons, are too short-termist and don’t value cyclical and commodity chemicals properly. Selling equity is dumb if you don’t have to. “Once it’s gone you never get it back,” he says. Mr Ratcliffe is dismissive of 20-something equity analysts (still “in short trousers”).
AB is much more circumspect. I wonder what he really thinks?

I find that reply dispiriting Mandrill. Is investing in the NS similar to buying biscuits or chocolate in a supermarket? Cadbury's or McVitie's just add NEW or NEW RECIPE and they fly off the shelf.

It is hype but most intelligent people see through it eventually. The 4 companies I mentioned ignore the hype and buy the unwanted assets. It's as though we're penalised for doing the same thing because we are more indebted but then you read this about the latest Ineos deal "If a deal is reached it would be the latest audacious move by Sir Jim who has built his business empire by borrowing to fund acquisitions in the last decade." Debt is OK for some but not others? I know that is simplistic and some smart-arse will say the level and ratio is important but get a deal right and later people start saying how farsighted the company was to over leverage.

I am fairly relaxed about the current events caused by a transactional US President who is causing mayhem whilst the world works out how to adapt to him. He'll move on to something else pretty soon, expediency is no way to run a country. The EnQuest update will be interesting.

*Ineos bought Innovene late 2004 from BP. In 2011 they went 50/50 on the refinery business with the Chinese state oil company Petrochina. We've not been going so long but if you use these kind of time-scales rather than the latest flavour of the month or spot oil price the world makes more sense.

Name rings no bells. I was there 1976-1980.

Hi Brad - I have no connection to any company involved in messing up driveways. I did though once work for Banco di Roma London branch and was referred to by some as Roma Ron (also Rottweiler Ron, Ron in a rage etc....) Resorting to alliterations kinda sums up the imagination of the City.

This has puzzled me and I'm hoping some of you can throw some more light on the puzzle or perhaps there isn't one and I'm imagining it. Using the hyperbole of journalists and PR companies who place stories and help with websites you'd imagine that for some the North Sea is the new Eldorado. I'm talking about: Ineos, Neptune Energy, Chrysaor and Spirit. They are gung-ho about their chances and all expect to become major players in the NS.

Ineos - with Conoco's assets will become a major operator in NS building on other acquisitions.
Neptune Energy -with a regional focus on the NS,N Africa & S.Asia with the aim to build an E&P company with material scale.
Chrysaor - UK NS leading independent E&P company.
Spirit - one of Europe's top independent oil and gas operators.
From their websites.

This link helps https://www.ft.com/content/8889f664-eb3f-11e8-8180-9cf212677a57

All four are private and pretty new on the scene. Some might call them bargain hunters or carrion feeders but none seem to be run by idiots. There arrival and deals are trumpeted whilst EnQuest and existing companies (non-major) are seen as basket-cases by comparison (if you judge by market price and share performance).

I don't really see that they will be doing anything that different to us but they seem to get a better press. Whilst thinking this through I thought I'd go on the OGA production site to see what their production figures are. They are pretty much non-existent or low compared to our production. It could be that they are not operators and I'd have to investigate every field to get an idea but I haven't the inclination. What does stare out at me is that being an 'operator' of a field might be an onerous task and the secret is to get some other mug to do the graft.

Discuss.

Hi Brad - perhaps you shouldn't have bothered with adding 'off topic'. You've been wandering a bit lately but I'm guilty of the same. Interesting background you have. I got the ECDL certification which is pretty basic so I am inordinately impressed by your computer skills but why not just update? Whenever I do, after the usual swearing and complaining, I am always happily surprised at the increased speed and functionality of the new one. They are nowhere as expensive as they once were. I can remember us spending £6 on a laptop c.early 90's for a whizz kid we had hired.

I never worked for a bookies but played football for the firm Jennings based in Harlow. They used to pay for our travel, boots and drinks after and they did offer me a job. I never imagined how big the bookies would become and their turnover is massive.
Avanti is for now in my book a punt but indications won't come from the tiny turnover or current price. We are currently unloved by the market but if you take a longer view somebody has to invest in Africa. It will be the only way to control immigration by giving their young unemployed a reason and future to stay there.

I think I may have caught a virus or joined the fairies. I usually ignore conspiracists but in this time of Trump, Rees-Mogg and Farage is it any surprise that sometimes the ravers make sense. I haven't yet, wide eyed grabbed people like the Ancient Mariner or had people move away from me on the bus but it may only be a matter of time. I had a starange 'What if! thought yesterday.

What if the Rights Issue was an attempt by AB to increase his holding at what he perceives to be the bottom? I doubt he could have got the Magnus deal through because the debt holders wouldn't play ball so he dressed it up as a RI. The ex-Chairman Jim Buckee did say that "debt is your friend. Explore out of Equity, develop out of Debt"
and I doubt AB is too far away from that view either. He is not frightened of debt in the way analysts are. They do their job, he does his.

The RI had the advantage of closing the deal and increasing AB's personal profit. I doubt AB tries to guess the future price of oil. He probably leaves that to experts like us. Something made him increase his exposure when he could have just obeyed the debt holders and paid down debt. We look at the sp too often but then we don't know what is said at the board meetings or production levels. We certainly don't know how well fields perform because to admit they were failing wouldn't help anybody.

Back later.

Hi SmokinAces - I know hitman off the boards and he is a clever guy and a large shareholder. He does have a tendency to stress test his investments but so too does George Soros. I think he has a point about water pressure but it doesn't mean it is unsolveable. The benefit of these boards is that you can post your ignorance in the hope that somebody can advise or has industry/financial experience and advice. Hitman is one of the good guys and looks forward to debate and disagreement. That's healthy. Having a secret agenda isn't. My agenda is to make money.

Hi DD - that's a bit below the belt going back to 1983. We've only been going since 2010. I'm clearly not a chartist and some charts roll up dividends. My point was though that using charts available on LSE for Shell A (only goes back to May 2015 though you hit 5 years) the price is flat or the same if you prefer. Use the google graph and go back 5 years, it's flat again: see AMS.RDSA
To illustrate maybe the better comparison is Shell against Apple or if you like Shell against London house prices over the past 5 years. My point is that if people aren't getting capital appreciation even in the blue chip oil majors (ignoring the divi effect). If that's the case then what chance companies our size when the majors are being beaten back by headwinds? It's as though it is all over for oil which I don't believe. EnQuest is a contrarian bet in some ways and has the potential for some spectacular uplift, much greater than a major.

*in 1983 I lived in Chelmsford and sold a house for £32k. Same house today on Zoopla est. £407k. I leave the minutiae to Fernan and others. I can only do broad strokes. I've something to add about the current NS landscape that you might be able to help with but I'll post it tomorrow. I'm getting brain fade.

Ooops - the shell graph is in Euros on google (AMS: RDSA) but argument stays the same.

Hi members - they are majors and we are small fry. We don't pay dividend, they do. What I was suggesting is that the direction over the past 5 years is flat for the oil majors. There are other stocks and industries that have done well. My Fundsmith for example has more than doubled over a similar period and I've had similar results with BATS (now out), Smith & Nephew doubling etc, and they pay dividends. They have outperformed oil and my point was that although dividends are important the holy grail (for some of us) is capital gains, with dividends a nice bonus. You haven't got significant capital gains with BP or Shell. Dealing backwards would I rather have kept my Shell and BP instead of holding more speculative oil companies? Bit of a silly question or statement I would have thought. I've just googled Shell & the max graph they show goes back to 2006 where it was c.£25. Plenty of ups and downs and today £27. It hardly broke £30 so I don't see that as outperformance though for an income stock this is acceptable. I am in EnQuest for capital appreciation and I haven't lost anywhere near 90%. On EnQuest I am down c.18% but it would be higher if I counted missed dividends had I stayed in BP/Shell. Don't rub it in.

That was why I said in my post 'apart from dividends'. Most of the readers here got the gist of what I meant. In fact I am probably more aware of dividends than most and the impact they have. Even Einstein called compounding the eighth wonder of the world. Why are you looking at EnQuest? No dividends here.

*Costco and Liberty Media pay small dividends but have been stellar performers for me.

I've been giving some thought to our stock movement and we shouldn't really be surprised if we look at EnQuest through their peers and the majors. Most oil stocks are currently unloved and both Shell and BP are at roughly where they were 5 years ago (ignoring dividends). Most here understand the aglobots effect. They come from the same family as betting odds and they are mathematically predictable. The more people playing the bigger the profit for the bookmaker. They (bookmakers) never take a holiday during Cheltenham, Grand National or the flat festivals; algobots just never take holidays. My point is that the buying side has more often been the weaker side and this is the side they test. When the time is right they will test the selling side. 'The trends your friend' cliche has been overused but it is usually true. It can be self perpetuating to a point and reversals only happen with the rare RNS or a swing in POO which is often telegraphed. The algobot knows that investor inertia or as we call it, us or LTHs, do not protect the buying side, some whinge on bulletin boards about life being unfair but nobody forces you to invest. The Rights Issue was perfectly timed to get us on board (AB is a lucky general) but the algobots only see it as an opportunity to test the buying side again. It is generally accepted that RIs are not a sign of strength so probably ticks another box on the algobot sell program. I don't follow other oil stocks closely but our closer peers have moved in the same direction as us imo.

I once traded for a living by working in dealing rooms and unless you have all the ammunition or an interest (advantage) you are just another punter. It is impossible to keep abreast of everything and even with the latest information you are always searching for the missing piece of the puzzle to explain a movement. Algobots work on probability (as do betting odds) but the punter in all of us thinks our longer term strategy can beat them. If you follow them up and down you will eventually lose but if you make the right choice and hold you'll win. [Warren Buffet is a self-declared poor day trader] We should all look at shorting because then we'd have a healthier and less dogmatic view of our choices. There are basically only 3 choices; Buy, Sell, Hold. Most here (me included) tend to only choose Buy and Hold; but then, so does Warren Buffet mainly, along with many successful stock pickers.
The Ineos approach to Conoco is a serious punt that algobots wouldn't understand. It is possible that 'Lucky Jim' will get this strategy wrong but I'd much rather have his vote of approval than worry about the algobots. In The Black Swan, Nicolas Taleb the author excoriates the Black Scholes Theorem which is beyond me anyway but if enough believe in something it works for a time it, until superceded. We are each proprietary traders in our own right and algobots still cannot read the future. It will always remain unknown.

Be Lucky

In Saudi Arabia putting your neck on the line has a totally different meaning to over here.

Came across this dated 16 Nov https://www.energyvoice.com/oilandgas/north-sea/186263/conocophillips-confirms-unsolicited-offer-for-north-sea-portfolio/
which means that the Sunday Times journalist either put two and two together or has better contacts so I read the article again. There were joint authors of the article and one jumped out and surprised me. Danny Fortson is something of a heavyweight and is based on the US West coast covering technology mainly. He was ex-energy and City editor at ST and moved to the US about 2 years ago. He once saved me a lot of money when he put the wooden stake through the corpse of Xcite oil and I bailed out (at a substantial loss). He obviously keeps in touch with his old contacts and is always worth following. Unfortunately this time he hasn't been controversial but it made me forensically read the short article again. The first sentence reads "Britain's richest man is in talks over an audacious deal to expand his growing oil and gas empire".

At least I found something out (probably irrelevant) but I have to confess that I was trying to estimate existing Conoco figures to get an idea what production/reserves are currently worth. In the article it says the figure is $3bn.
I was wondering if I could get a wet finger in the air idea of what current valuations are like. I soon gave up because it's probably not as simple as using OGA production because it grosses under producers and I'd have to go through each field and maybe find fields where (like Clair) Conoco has a small percentage. One thing I'd never noticed before was that the OGA page also has 'water injection' which will only cause me another headache as it's probably important but beyond my abilities to understand. They seem to fluctuate a lot and something weird happened in April with Kraken. At first glance it suggests it can handle an awful lot of water but what do I know? Over to anybody who can throw some colour on this.

Ooops, when I said front page news I should have said front page of the 20 page Business supplement.

"Conoco's sale comes amid an accelerating change of guard in the North Sea, with bigger companies selling out to smaller players more willing to eke out what is left in dwindling basins. US giant Chevron and its French rival Total are also putting assets worth billions of dollars up for sale, sparking potentially fierce competition among buyers".

Front page Sunday Times. The buyer of Conoco's NS assets? Britain's richest man, Jim Ratcliffe of Ineos. (He is actually in exclusive talks (which he paid for) to purchase $3 bbc of assets).

If the Ineos talks fall through private equity firms are on the sidelines including Neptune and Chrysaor.

We are getting more popular! My immediate thoughts are that these people know a bargain and are using their advantage over cash stretched existing players like EnQuest. They are eating our dinner. I wonder if Ineos looked at Magnus or whether there is friction between (historical) BP and Ineos? Clearly, with their deep pockets Ineos probably plays hard ball and try the take it or leave it approach. JR tried a cheaper bid in 2016 and Conoco describe this second approach as unsolicited.

I cannot see this move any way other than positive.

Build it and they will come.

I know EnQuest pay attention to Moody's ratings and I am cursing my memory. At the last AGM one of the executives said to me that the small upgrade by Moody's was to be welcome so I assumed it was a published upgrade. Thinking about it why would he have mentioned the Sept 2017 upgrade? The previous upgrade was 14 June 2018 and I wonder how much forewarning they have. The AGM was 24 May.
I spoke to a friend this morning who worked for Moody's in sales a long time ago (everything was a long time ago where I'm concerned). In his time there were fee paying customers and those who refused. An example was Fiat who assumed they were far better run than the Italian banks. For peer comparisons the non-fee payers were still researched but obviously not as deeply. I asked if the research people called the companies for clarity and this was confirmed. On that basis I'd take the Moody's analysis as correct. The only caveat I have is that reporting of transactions can be subjective (Enron & Arthur Anderson anybody?) and even people who live for numbers can make mistakes. One thing for sure is that the rating agencies are less likely to behave like auditors who can never be truly independent imo.
The rating Agencies live and die by their ratings and aim for impartiality so the upgrade is to be welcome and I'm sure EnQuest waited for this before the update. I also asked about release of upgrades as I know stock brokers release info to their clients first. I was told that with Moody's it is simultaneous (like RNS).
On a more prosaic level I normally record the closing of the retail bond. Since the RI it has dropped from 95ish to 88.83 on 15 Nov but did increase to 89.10 at last nights closing. This has bothered me because if nothing changes then it should imperceptibly inch upwards until interest payment dates.
I don't know if anyone here has a pal who can access the price of the US$ high yield bond as I think that could be indicative and useful. I've some contacts but they are really FX people and although they can access most things I failed miserably last time I tried.

*The retail bond is paying better than 10 per cent. Just think, the bigger risk is in the stock price so once the retail bond goes through par (I believe it will) the share will rocket. We're just ahead of the curve. The market doesn't like oil, full stop. Even BP and Shell have flat-lined over the past 5 years and only held because of dividend. Our final destination is a boring company that is valued by the reserves and contracts it has for decommissioning paying dividends (and whatever SVT is doing). It's taking a bloody awful long time but my bet is on us reaching it.