Member Info for romaron

"Also, Magnus' 75% share of oil can't be hedged anyway, and that'll always be sold at market prices till BP is paid off."

I'll leave you and Fernan to argue that one out. Any future commitment or action can be protected against wild price swings at a price. The discussion falls apart as the percentage locked into future prices at selling at spot or close to isn't written in stone. Detail can be lost in 'totals' or 'percentages' which change.

Wish I hadn't posted now as I'm not really that interested in the minutiae of these deals (or Fernan's though I know I should) so will withdraw from the discussion.

*I'm bored. Just phoned into James O'Brien on LBC regarding putting on make up in a railway carriage. I find I smudge it.

Warren Buffet has made a lot of money from writing long-dated put options ($2.4bio 2008-2017) and don’t forget that this is a man who describes derivatives as “financial instruments of mass destruction”. He writes options European style, meaning they can only be exercised at the expiration date.
He does for two reasons. One is that he believes they are mispriced at inception. This can be subjective and is definitely unknown but the second reason cannot. He receives a premium when the option is written. He is paid at the beginning and there is (for him) no counterparty risk. He uses (invests) this money and on settlement he makes more than he pays out. Without going into the details (which I leave to cleverer people than me) it does give a possible explanation (to me) why EnQuest like options so much. A question at the next AGM might be “how much forward selling is in swaps?” which I believe is the more traditional and preferred route for oil companies.
I believe it could stem from our low credit rating. Swaps are usually for much larger amounts and there is counterparty risk but no front end payment. Perhaps our amounts are too small (doubtful) or there is a perceived risk that Enquest might not be around at settlement. In options EnQuest pays up at the beginning eliminating counterparty risk for the writer.
Whatever the answer I believe we are past tilt and some of these discussions are academic. All instruments have their advantage/disadvantage and flexibility and you always pay for insurance cover. Once deals are done it’s best to move on. My eyes are firmly on future production and the price of oil. I leave the detail to the experts at EnQuest. My only slight worry is that EnQuest are trading oil contracts. That isn’t why I invested but I suppose if it’s good enough for BP then it’s good enough for EnQuest.

I leave that stuff to you and E121. I dealt forward FX swaps and if you forget arbitrage opportunity (which is brief) all other options (in every sense of the word) have a cost and if you want to remove uncertainty and hedge to cover risk you always have to pay. That is why prop traders were held in such awe. On the bank side these were held in high esteem (until they lost) but nowadays there are probably more prop traders in companies which is why I rate individuals like AB and Jim Ratcliffe so highly. They cannot win on every deal! To me the straight forward deal would be to sell a percentage of your estimated production at an agreed price and practise prudence. Call a variation "a derivative" and you've created another industry/product which spreads the risk whilst making a lot of writers of these products rich. They're never cheap. I quite liked the Mercuria deal; very straightforward. More of those please. I don't want deals that even Fernan struggles to understand and he relishes complexity. Perhaps EnQuest like the opaqueness these deals create? I hope not. KISS has a lot going for it.

Pelle "So its still down to how much more they can produce H2 and price on oil."

In a nutshell. They have an idea on production but why nail yourself to a figure subject to factors beyond your control?
The price of oil is definitely beyond EnQuest's control.

Ineos bought in at close to the bottom imo https://www.ineos.com/news/ineos-group/ineos-buy-entire-oil-and-gas-business-from-dong-energy/
In the Good Book they state that they (Ineos) expect to buy assets at 30/40 percent of their value. Timing wise (due diligence) they would have bought Dong when oil was around $50 a barrel. You can see that oil valuations weren't high then and if it wasn't for the climb in oil would still not be over attractive.

I'm just glad that Jim Ratcliffe is following my lead. He normally gets it right.

Hi L3 - I was only trying to illuminate that BP is a far more responsible company and expects to recover its loan because EnQuest will make a success of Magnus. Their profile and importance to the UK economy and NS make this essential imo. They (BP) make much of their credit rating to be able to act as a bank and perhaps that demonstrates the gulf between them and EnQuest. They could show a profit on this deal just by issuing bonds to finance it but it's complicated enough without working out the BP book-keeping.

We are in a recovery stage and this deal will do wonders for our reserves which have an important part to play in company valuations.

You missed the First Oil mention. EnQuest couldn't let it be orphaned with nowhere to go. They were in enough trouble with Kraken and if it was picked up by a bottom feeder vulture fund would have likely reflected on EnQuest's value. Close to ZERO which brings me once again to the Good Book (no, not that one, I mean The Alchemists).
During their travails with bonds at $10c. on the dollar Ineos still played hardball with the banks. Their ace was that none of the hedge funds (most aggressive) or large banks had any illusion about running a huge petro-chemical business at the bottom of the cyclical curve. The best people to run it were the incumbents.

I believe that was the case with EnQuest because the NS is ageing gracefully now and there are plenty of jobs and oil still to come. The niche that EnQuest occupies is integral to this and I'd imagine that there was plenty of hidden pressure applied on all sides, most of it self-interest, to make EnQuest a success.

Be Lucky

I don't think any of us should be surprised that BP are unloadiing the Magnus field. The Majors have a different outlook on legacy fields and the market for them is as cyclical as the oil industry. The CRP talk and valuing of STOIIP and its recovery is subjective so confirmation that estimates are reasonable by GCA is important. I'd imagine that BP are relatively happy with the deal as it detracts from their main strategy and better use of resources (that's why they're selling it). I more or less follow the deal but don't wish to second guess the highly paid lawyers, surveyors or experienced directors involved.
My only remaining confusion is the EnQuest tax position. If (as I think) the past losses built up through expansion and a low oil price are basically only valuable to EnQuest. Another company couldn't buy EnQuest for the losses because they cannot transfer pre-owned losses into their books. The fact that First Oil was taken over by EnQuest was not for the losses but the fact that nobody else wanted them. My logic here does mean that as long as we are a going concern we can undercut competitors on legacy/end of life fields because for the foreseeable future everything produced goes straight to the bottom line tax free. That does of course depend on us remaining solvent and the oil price. It is an advantage to us and BP may actually factor in that we can pay a little more because of this. The NS oil industry has a mutualistic interest in EnQuest succeeding. I stick with my view that BP has given EnQuest its seal of approval because they are unlikely to welcome the kind of backlash that Philip Green got for selling BHS for a £1.
I'm sure this is not the last of AB's purchases but hope he lets the coffers fill up a little before the next venture.

*perhaps it's just me but I'm a bit worried about the wording regarding the Magnus option. Apparently it's triggered by a 'call option notice' to BPEOC; or CON as they like to call it.

I was thinking about the under-utilisation of Kraken and Alma/Galia. To make a decent profit plant/rigs/FPSOs have to be running close to capacity (that's what FDPs are for). I'll leave the numbers to those that are better at them than me. What I will say is that Kraken was running at below half the forecast plateau rate for H1 2018 whilst Alma/Galia was even worse. We know the three Alma/Galia workovers were completed in August and aggregate production increased as planned from the update. I am even more hopeful for Kraken. Even if they were over ambitious or problems take longer to correct we will have DC4 to (hopefully) run the FPSO at high capacity. The fixed costs are still/a;ways there but these barrels have a much higher profit margin. The best is yet to come for these fields.

I should have added that we don't know the price. There is always a market for size and creativity is the name of the game. Speculation probably won't help but the NSF trade is significant imo.

Sorry for the typo, thanks tinlid but it looks as though velo worked that out himself. Being kind Woodford has parked the sale with Deutsche but that would possibly contravene rules or would it? Derivatives are mystical but the sale of NSF looked straight forward. You can over think these things.

Typo-

‘You can be right conventionally
You can be wrong conventionally **
You can be right unconventionally
You cannot be wrong unconventionally.’

Protection of the herd

Sorry to bring up Ineos and the book again but it is germane regarding the Rights Issue (RI). “In our early days, commodity chemicals (mostly petrochemicals) were generically unpopular in the public markets because of their cyclicality and the analysts’ inability to forecast quarterly results. Which meant they (analysts) didn’t look good! In reality, commodity chemicals give a good return over the cycle. But sometimes you have to wait a bit.”
They were buying unfashionable businesses and eventually swallowed a whale. That was Innovene from BP for $9 billion (2005). That included Grangemouth , (Enquest Magnus with SVT as an add on?). They went partly blind into this deal. The Grangemouth was added late “We were now all of a sudden buying two huge refineries, and we knew f*** all about refineries”. If that wasn’t enough everything had to be done in total secrecy and within two months. The reason was that BP were in parallel negotiating an MBO with existing Innovene Directors. In fact Jim Ratcliffe didn’t meet Lord Browne until 10 years later. The confidentiality clause meant that normal due diligence was close to impossible. However, because of the MBO a lot of information was available due to prospectus and other necessary legal documents which they used instead. This brings me to the EnQuest RI which has given us a lot more granularity because of the prospectus and CPR on Magnus. It also gave me a lot of confidence because what I suspected was true (austerity) and only immediate and necessary maintenance was done until Kraken was producing (priorities). Through all this the company was under pressure from creditors. Some understanding, others not. It also never brought new problems to light despite Fernan's best efforts!
The dichotomy between bankers and industrialists is obvious and luckily there are individuals who can see it from both sides otherwise it would be stalemate. There are risks on both sides but the larger risk is always taken by the company and shareholders. Barclays’ analyst comes to his/her conclusion in the same way that Fernan does. It doesn’t make either wrong but I’d be surprised to see an analyst suddenly give a target of £1 for EnQuest presently. An analyst is a realist and has to be pragmatic. Their job depends on it and I remind you of the old stock market adage.
‘You can be right conventionally
You can be wrong unconventionally
You can be right unconventionally
You cannot be wrong unconventionally.’
Or ‘nobody ever got sacked for buying IBM’

However, I’ve found that past performance isn’t always a good guide for the future. Those of a lower risk tolerance should perhaps think twice before investing in EnQuest.

I bet the Eeyore’s eyes lit up at that subject. It’s actually the title of chapter 5 of The Alchemists, the Ineos story. After the financial crisis of 2008 and the collapse of oil Ineos the petro-chemical company was staring down the barrel of insolvency. Covenants were being broken and the Jan 2009 EBITDA was zero. At the time the banks were demanding financial forecasts for the upcoming months. That was impossible, “We couldn’t see forward more than a couple of weeks” wrote John Reece CFO (billionaire). It goes on to explain how aggressive hedge funds and CYA banks went for their pound of flesh. The CEO, Jim Ratcliffe (richest man in Britain) still bristles at how the bank’s ‘gouged’ the company. None of this should surprise us as Ineos had made extraordinary growth using leveraged finance (debt). The book does highlight how investors and banks interreact with sometimes competing interests and responsibilities. It was probably harder for Ineos than EnQuest because the banks were themselves in a distressed situation.
Which brings me to Barclays. They are reputable and basically impartial. They are though looking at EnQuest in the round and one must always remember that banks make their money from lending and derivatives from that. I dare say there are areas in Barclays that would buy the stock (e.g. prop trader) in a division that is prepared for higher risk. I’ll take 45p for now. It is the blended price post Rights Issue.

*at one stage you could buy Ineos debt for 10 cents on the dollar. Ineos EBITDA for 2017 Euro 6 billion.

PFG also reduced in NSF on 6 September. Maybe some media speculation on the PFG move. With a holding the size of Woodford (and Invesco) trading the stock is like maneuvering an oil tanker. This is some form of derivative which suits both companies no doubt. Almost indecipherable and missing the all important factor, the price. This was done directly so we are in the dark but it is a reduction imo. From a Woodford perspective it does suggest to me that he has the same misgivings about Home Credit and doorstep collections. Thankfully that is not the only thing PFG does. It's almost the same problem that retail have with the internet. The mighty John Lewis is struggling to adapt.
It means that clever IT start ups can muscle in and challenge old (figuratively speaking) smoke stack industries. The adjustment will be slow and painful. The bet is who will be left as non-prime lenders when it settles because the borrowers won't be disappearing.

There are two. The other is Deutsche Bank entering into an equity swap maturing 20/08/2024 for an identical amount and is a buyer.

Looks like that Barclays was an August increase (29th). I'm not very good on whatsapp so sticking with 42p 15.37 21 November.

Possibly 42p before the end of the week but not the blended price which we won't have until late October. My charts actually say 15.37 on 21 November. It's formed by a triple salchow bouncing off a kettled delta.

That this is the ring tone on MO's phone

https://www.youtube.com/watch?v=5y3xfyq6eo0

Alcohol (includes Rosé) is not calorie free either! Not conclusive proof but suspicious all the same.

*I hear Barclays have raised target to 60p (from 58p) today but cannot find confirmation.

Mind you, Fisher is still there. Perhaps he knows where the bodies are buried? Be nice to see him gone too then the stables really will be cleaned.

Is this the same Ken Mullen who sold all his shares in 2015 at £27.30. Do you reckon he knew anything?

Good riddance.