Member Info for romaron

Hi Brad - possibly FT. I'll try and find it but I don't make things up. It also makes sense. He's been there a long time and this isn't the drinks business. PW goes back to Grand Metropolitan days so we know where his expertise lies. I'd say a clean sweep is quite normal when new teams are bedded in. Off the top of my head only Nigel Fox remains and he was removed and replaced to the board. The reasoning behind that was never clear but might hint that he clashed with the old team. It does indicate to me that there's plenty going on in the background. In an oversupplied market the euphemism of 'consolidation' is frequently used. I cannot see this company succeeding by organic growth but that huge asset in the sky is surely worth something to somebody.

Hi Brad - I agree but not a game changing deal. I am getting interested though in the boardroom shuffles. You mentioned Chris McLaughlin who spent 12 years at Inmarsat. Alan Harper was CEO of Eaton Towers from 2008-2014 and Tony Robinson Chief of Strategy was also there for 9 years (2008-2017). These are experienced professionals who know this business. I was a little concerned about Paul Walsh making way for Alan Harper but after reflection think it's probably a good move. PW can hardly crow about success but he may have been instrumental in saving the company and feels he can now leave it in safe hands. Whatever happens it won't be for lack of experience. We have a totally different set of individuals in place now.

Hi William - not much would be my answer. It isn't worthy of an RNS. It has few employees and I imagine you'd get straight through to the CEO if you called them. There haven't been any major contracts with large companies of late although stuff is always going on. We are certainly employing industry professionals and cutting back on the old regime. Whether they are people with nowhere to go and accepting any job offer could be the reason. Over capacity in any industry also means it isn't hard to find labour. The boards strategy remains a mystery.

Weny - I think I'm right but there are also issues raised about the increased water requirement which will adversely affect the amount of capacity aboard the FPSO even with DC4. The reduced development costs are already in the mix and are unimportant in my view. We are where we are and most development costs now sit in the debt column anyway. It doesn't make me feel happier that the debt could have been even bigger.

Can we stop the pretence? Use any analogy you like. A hotel with poor occupancy rates or a superstore with poor footfall and an empty car park. They both indicate that they are not operating at anywhere near their maximum. However, if both were built on debt that still needs repaying. Staff need paying and maintenance is required, whilst depreciation is ceaseless. Nobody can be happy that Kraken has failed to reach the promised plateau. The management will know why this is the case and most problems usually get solved. I'm sure that increased production, even if it requires DC4, once achieved will change the opinions of the analysts. Not reaching expected capacity has affected our debt repaying ability. The missing barrels really are FCF as it appears Kraken is washing its face at this level of production.

KO - you have a point but we need the dough now!

Hi E121,

We'll never be told the facts behind personnel changes data protection and NDA's but I prefer stability. Hitman's speculation was from something he read on LSE (apparently) in this post end October on iii. "As far as the comments on LSE about Kraken not being able to do 50k/day… probably true… if you test the wells individually, it definitely can… because we had an RNS saying it does… but add them all together and switch on production… and it can’t … The sum of the parts is definitely not greater than the individual components… but in other walks of life… the reverse is true. The specification of oil produced has to fall within certain criteria… so there just aren’t enough hours in the day to produce 50k/day, based on the amount of water that has to be processed . shame really because they haven’t found a solution yet… and I don’t think they will. So DC4 coming online in 2019 may not make much difference to the daily output… it just means we can run near 36k/40k for a lot longer… (several years) and takes pressure off the other wells."
There is something in the RI prospectus regarding Kraken:
"Average gross production to the end of June 2018, which includes the impact of the March maintenance shutdown, was slightly below expectations. Lower water injection rates in the second quarter, due to additional maintenance of the sea water coarse filters, impacted reservoir pressure which in turn drove lower average production. Following completion of the required filter maintenance, water injection rates were significantly increased and gross production has subsequently improved."

As I said, these are niggles and a little knowledge (guilty) can be a dangerous thing. There are always problems in business and many get solved. The niggle is a design flaw which can be prohibitively expensive to correct. I'm not trying to sow uncertainty but hoping somebody more knowledgeable can add input. There is also the outside chance that somebody at EnQuest reads this board and puts something in the update.

We all suffer from cognitive dissonance at some time so I thought I'd air a few of my niggles.

Neil McCulloch resignation as COO in December 2017
Richard Hall leaving in March “Following the successful delivery of the Kraken
development, Richard Hall stepped down from
EnQuest at the end of March 2018 and was
succeeded by Andy Duncanson, who joined
EnQuest as Kraken Area Manager.”
Suggestion by hitman (occasional poster here and on iii) that even with DC4 online the Kraken FPSO couldn't handle the volume of water required.

Much of this is hidden behind RNS speak and we wouldn't welcome a company spokesperson saying bluntly that major projects failed to live up to the hype but I think we have two that clearly haven't performed (AG & Kraken). We are unlikely to get an admission of this from the company. (BP and Shell also use PR companies and RNS speak).

The other side is that I believe AB and team have the ability and commitment (every penny movement of the share affects AB & family by £1.5mio) to grow this company. The costs of AG and Kraken are sunk costs and now firmly in the outstanding debt column. In a way the capex costs are written off but the compensation is in the current market price of EnQuest. With the still decent poo and rising (from here) we will start reducing debt whilst keeping capex low. To paraphrase that old Irish quote. I would start from here.

Comments welcome.

The Mcdan figures were effective October 1 2018

The futures are heavily traded in the one to three month periods as are most futures:
https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html
and this is certainly hurting us at present. It is more a reflection of the next few months not the one year. I know they do a one year price but that is more an extrapolation of the near end and is higher but you can see the amount traded is small compared to one month. However, for balance the oil companies have to take a much longer view. If you go on the mcdan.com site you can read their forecasts for Brent crude 2019 - 2025 range from $74.00 bbl to $78.30 bbl
Torture any set of figures long enough and you can make them say almost anything but you could probably use something similar on (say) oranges, using the front end to say what future prices will be. There is certainly an oversupply of oil at the moment but there is more safety and less political maneuvering in the orange business; and much less money!
It ain't over for oil yet but this is painful. Everything in this business takes time to turn around. Provided Kraken can wash its face we should be fine.

2nd US President made a famous quote ""May none but honest and wise men ever rule under this roof." Well that's been doubly blown imo but credit where it's due; Trump amended the full quote so perhaps there is a little bit of conscience and humanity left beneath the coiffure?

https://eu.usatoday.com/story/news/politics/onpolitics/2018/08/27/trump-john-adams-white-house-blessing/1117666002/

For an individual like Donald Trump this was all his Christmases in one. The 'master of the deal' is the biggest dog in any fight; not because of him but the power of the US. The US Empire (I know they profess to be anti-colonial but it's hard for me to see the difference between a bellicose 'democratic' controller of world finance which has never been slow to respond to a (perceived) threat both financially and militarily; isn't that how empires behave? He could not resist the killing of the Saudi journalist getting him out of a hole he had dug with sanctions on Iran. For now SA is in a weak position but they also know that the Trump administration is not for ever and US expediency is likely to produce unforeseen consequences. The escalation of the Yemen war could bring a solution which Trump will take credit for. Iran may have unofficially reduced their support of Yemen rebels in exchange for sanction waivers. What do I know? What I do suspect is that both Russia and Saudi Arabia have personal leverage on Trump and his own 'personal' empire. For now we are in the caca but Trump's attention span and need for headlines should eventually turn in our favour. The actions of SA seem short term imo and the timing is suspicious. Countries self-interest always trumps commercial drivers and for now we are toeing the US line. It will change once short term debts and agreements have been honoured.

*I bought a new theosaurus to improve my posts. It's nothing to write house about.

Hi PR - I tried google translator and am still none the wiser. I do believe you're on to something though. We will get an EnQuest update later this month which means there'll be something of a reset regarding the latest machinations. As a rule you are advised not to make purchases just on tax advantages/benefits but on fundamental factors. However the NS oil industry is riven with tax legislation making it harder to see the reasoning behind the deals. We have survived the worst of times and many companies have made a success through buying supposedly worn out assets. Personally it seems that the obsession with minutiae misses the bleedin' obvious. Declines in fields are unavoidable and the unpredictability of current influencers (Trump, Iran, Saudi, Russia) means the safest thing to do is sit on the sidelines. Mid terms are out of the way and we will see what the US reaction to Saudi Arabia is. Trump is taking credit for the current lowering of POO. I also have a slightly different view on inventories. Oil demand is seasonal to a point but production is much steadier and planning takes years. Increased inventories could be users taking advantage of over supply today for a shortage in the future. Some producers have stalled plans for balance sheet reasons and the replacements for natural declines (can be up to 20%) are just not there. Fracking may take up some of the slack but their declines are even higher.

Scotland to be the global hub for decommissioning. Said by the Tory Chancellor and unlikely to be changed by any other UK Govt. Good news for EnQuest.

In Sunday Times. "The NS is set to benefit from tax changes to be introduced this week which will allow tax relief on oil-field decommissioning costs to be transferred by sellers to buyers. There are hopes this will accelerate the trend of smaller companies taking on declining fields that are of less interest to the majors". This is not, new news and I believe has been mentioned here before but is an incentive that will make make EnQuest more attractive to investors imo. I still think that AB has future ideas for SVT. It also commented that Shell and BP are having a bumper time and report next week. The talk is of share buybacks and increased dividends by them. We should see a better week for oil shares.

Further on there was another article about SA and Russia cosying up on a deal with a Russian company, Novatek, in a liquified natural gas (LNG) project. What interested me was this paragraph "In part, Riyadh's interest in the project is driven by a desire to get its hand on more gas to meet its own needs. It wants to generate power for its people and free up oil for more profitable uses such as selling abroad."

My take from this is that oil is more valuable than LNG but for how long? If the things that run on oil or oil products could be converted to run on or use LNG easily then the answer would be 'not for much longer'. In reality that future is decades away and that change may never arrive, or both might be superceded by another form of energy. I've said before that oil has similarities with tobacco and there is a moat around it which discourages new entrants. The costs are high and the cycle can be lethal (don't we know it!). Supposedly, a number of pundits go along with a commodity with falling demand and a limited future. Throw in a company like EnQuest that manages end-of-life fields and it isn't surprising that we are where we are; forgetting our debt we still wouldn't win a beauty contest.

However, I think that is our strength. I think oil has a great future for those that are positioned correctly. I think we'll see more managed decline and majors only sanctioning big fields that have costs beyond the mid-market cap oil fields. I wouldn't want to be a smaller oil company going to the banks for funds. Fracking in the US is closer to farming imo and depends to a large extent on POO in the same way farmers rely on the weather. There is also the quick turn around on fracking which brings in manufacturing type time-scales (6 months in some cases). You don't have this luxury in a large off-shore oil field. I think we are in a good place.

Build it and they will come.

Auson 12.53 - No, only EnQuest and some of the retail bond (if Enq was the basket case some like to promulgate the bond is holding up rather well). Held RKH for a while but gave up on Sea Lion ever happening. Bought CNE for punt on India dispute but sold out (flat) for RI funds. Never held PMO on account of their CEO being spotted regularly spending loud Friday afternoons in Santini's (it ain't cheap) quaffing champagne when the price was suffering.
I'm no prude but there are standards that I look for in Directors. I mentioned to AB that my daughter was working with the Palestinian Youth Orchestra tour of Britain in 2016. He immediately said if she needed any assistance she was to contact him as he was a trustee involved in the tour. Muslims take charity very seriously (as do we British) and he seems to have excellent contacts. Jonathan Swinney slept among the homeless one night to raise funds. Raising money has not seemed to faze AB and his taking up of shares (good spot E121) is another example. I see us heading towards boring. I like it when bulletin boards have little traffic. You can make a case for regular dividends (Shell & BP) based on reserves and forward prices which means funds will look to invest. I'm not pretending we're anywhere near to them but I do see similarities. This is a simple company in many ways with characteristics of a private company (which can be a turn off for some funds/investors). With some fair winds we have a lot going for us.

Amjad Bseisu proving he's still a lucky general. I wouldn't fancy the Rights Issue in this environment. We beat it by a matter of days. A few months down the road the Rights Issue will be almost forgotten but the company restructured and firing on all cylinders. What doesn't kill you makes you stronger.

spindok - you can't anyway;they're closed. Well, Ilford Palais and Tottenham Royal are.

Agree January but you are always at risk of expediency by the US, Russia,and Saudi Arabia in the oil business. The executives at Shell and BP were unaware of current developments when they sanctioned Alligin, due to start in 2020 (see my earlier post). Admittedly SA has a weak hand currently but expediency always wins. There is too much going on at the moment to get a clear picture so retiring to the bunker is what the market does. I still think that oil is the new tobacco. Unloved but hard for many to live without. It's enough to stop new competitors entering (the moat) but provides a regular income for those that can survive the volatility. We're nearly there.

More projects given the go-ahead this year than in the previous three years combined, demonstrating "an improved landscape for the sector after one of the most testing and prolonged downturns in its history" says Mike Tholen of Oil & Gas UK in today's Times.

With low, low capex and increased production EnQuest will be playing a numbers game. As long as the oil price holds it becomes a matter of time as the company assumes on many of the characteristics that the pension funds find so irresistible. Steady and reliable income forecasts for a set number of years.

Build it and they will come!