Member Info for Squif

Hi Londoner,
I will take your points one by one.

1. Enquest declared that they will receive $50M from Petronas in 3 installments, the first in H1 (the 17.1 that you picked up) and the remainder during H2. So this should be $32.9M.
2. I would love it to be $30M but I tried to calculate conservatively
3. I could go with $56M during H2 but I have read that Enquest pays $10 a barrel and I have calculated on average production of 34K in H2 as compared with 39K in H1
4. I could also see production dip next year but I think it will hold up better than previous years as we have let go off the really old fields. If we hit 63K this year I could imagine a guidance of 53 - 58K next year and that AB will try and hit 58K.
5. I was also pleased with the Bressay update. I think the market hasn't taken regard to this at all

I am also interested to see how Tullow and PMO have fared in comparison. Enquest has done much better.

Agree Jan that is beyond control. I am not sure what is happening with demand but to be honest I don't trust the media any longer. I expect some unexpected things to happen but let's see what that is.

Of course still a long way off being a sensible price target but I can at least feel that the latest report hopefully allayed the analysts fears and put a stop under the price attack. I have been doing some reflecting on the H1 report and started looking into the H2. We have an annual opex of $335 of which $174 was allocated to H1 so I assume $161M. Capex will be $20M, Kraken lease I calculate on our share of 35k barrels a day giving me $45M and I assume the same amount to Magnus of $26M and Decommissioning of $50M. I assume 60k barrels a day putting production at the top end of the range of 57 - 63 and an average realised price of $42 allowing for some Kraken premium and the hedges. This means turnover of $460M and fcf of $200M. Together with the $34M from petronas this could enable a net debt movement of $230M leaving a Year end net debt of $1120M and an EBITDA of ($460M- $161M = $300M) and a 4 rolling quarters EBITDA of $574M ($274M + $300M). This would leave a Net Debt: EBITDA ratio of 1.95 which is the above was to happen would be very acceptable.

Someone please let me know if I have missed or misinterpreted something. I think the accounts are very much easier to read now and by the year end the debt would be Bonds $1011M, Sculptor $75M and SFA + Cash on hand the remainder being $34M. That may seem strange given that the SFA currently stands at $440M howevere cash on hand is $183M so net it is $257M.

I think that operationally Enquest has done incredibly well to adapt to the low cost environment. If Oil can pick up next year with BE at $27 it will be great times. If we stick around $40 I can still see Enquest being able to pay down the SFA or at least have a low number remaining to be refinanced without a NE.

In terms of Bressay reading the H1 report the initial plan seems to be tie-backs and focused capex which would be manageable.

Hi Jan. Good summary. I agree with your sentiments. Enquest should have been able to draw a line in the sand as long as Brent behaves from here on. They have been very clear that they see no problem with refinancing and should be able to handle out of fcf. Indeed it does not appear to be a new Kraken or Alma/Galia capital investment with Bressay - the thinking seems to be tie backs and focused capex.

Hi Tom. Yes in agreement with you. I felt that js put that topic to bed. They have supportive bankers. I think of poo stays above current levels then enquest could repay out of fcf even

Hi Chilts. Agree that refinancing normally involves an equity call however I think given the size remaining that is not a given here

Interesting reading through the Annual Report of PMO again last night. I was worried that we might endure the same fate but thankfully no. Interestingly, in PMOs going concern section their base case forecast assumed an oil price of US$65/bbl in 2020 and 2021. This was released on the 22nd April!!! That is pie in the sky stuff. I think that Enquest's oil price assumptions are conservative and reliable.

Difficult to draw a conclusive reflection in my opinion. Good that net debt has been reduced to 1.35BN. Good that Tamjong is paid off and sculptor reduced to 91.1. I was hoping for a further reduction in SFA and information regarding monies forthcoming for the FPSO. Thankfully no mention of a merger with Ithaca which was speculated upon in this forum. Disappointing with the large size of the write-offs and now the net equity is negative. This will be reversed in time as oil price expectations change. Good that they got the waiver which shows that they have supportive lenders as JS has often said.

I have started to study the going concern statement and I can see a positive line "The quarterly liquidity covenant in the facility (the 'Liquidity Test') requires that the Group shows it has sufficient funds available to meet all liabilities when due and payable for the period commencing on each quarter and ending on the date falling 12 months after the final maturity date which is 1 October 2021. The Liquidity Test assumptions include a price deck of the average forward curve oil price, minus a 10% discount, of 15 consecutive business days starting from approximately the middle of the previous quarter.
Under these prices the Group forecasts no breaches in the Base case for the Liquidity Test." The base case assumes $40/bbl for the remainder of 2020 and $47/bbl for 2021 and these don't seem to be unreasonable. I take the above to mean that under the above conditions the board forecasts that they will be able to repay the SFA.

A lot of it is psychology and manipulation. I fully agree Krak. I think we have simply hoped on the wrong investment case or simply too early. The trend is now Cloud companies, green energy and magic mushrooms. There is talk of delay in economic recovery so down goes Brent. At the end of the day if Brent goes under $45 it matters little. What matters for Enquest in the immediate term is what AB presents tomorrow. My fingers are crossed hard and they are bleeding.

Haha Jan. I feel like a dead investor in Enquest. My wife has written off the investment and to be honest I have almost as well. I assume that AB has a cunning plan to get his money back but sadly that may entail throwing you and I under the bus. We are the healthy men who sat down next to the vagrant and he gave us his cardboard bed and took our money.

I remember L3 or L7 I think it was writing how good Ithaca had been at hedging and delivering results. I was literally shocked as I read the article regarding their financial situation. They are in a worse situation than PMO and that says a lot. Something about Citibank calling in £46M and them not being able to pay. I can't imagine AB jumping into bed with them. That would surely be the final nail in Enquest's coffin?

Tarred by the brush that is used to wipe s**t off the unde*****s of my shoes. E&P companies are worthless. Even if they are profitable and have done an awful lot to reduce costs and drive efficiencies the market doesn't give a toss and these are all destined for the dustbin because we will all soon be flying around on our flying saucers and living off magic mushrooms!

I am in agreement with you Pelle.

This week is very interesting for Enquest of course. Can be a number of outcomes. 1. They are performing as expected, production as specified and average realised price somewhere around $45 for H1 and net debt around $1350. 2. Above expectations. Financial deal in place for Enquest Producer, debt lower than $1350 3. Debt reconstruction and Rights Issue. I have tried to run the numbers and from my perspective option 1 is the more likely but as we have learnt anything can happen with Enquest. Crossing toes and fingers ahead of thursday's report.

Agreed L7 re Magnus. If Magnus was included it would be a different net debt obviously but it is quite like the provision for Kraken lease - dependent on future factors. I think if Enquest can show a net debt reduction during H1 of 60-70m that would be a sign of strength during these turbulent times. Not sure if there will be any writedowns but I think that they took the big hit in April and adjusted for price forecasts then. Let's see on thursday next week. of course anything can happen and as has been communicated as long as SFA is not touched before october they can extend the bonds to October 2023 but maybe something is already in motion.

Hi L7. Which debt metrics are you referring to? The debt measure that is relevant for Enquest is EBITDA:Net Debt. H1 Enquest was at 1.4 so well within covenants. On a rolling 12 month basis, H2 2019 was $480.6M and H1 will likely land around $350M giving an EBITDA ratio of around 1.6 which is well within covenants. Even next rolling 12 should land well under 2.0.

Hi L3,
I do not dispute your views particularly if Brent is sub $50 for an extended period. What I thought was good at least was the position on covenants and that Enquest saw themselves not to breach as long as $40 holds to march 2021 and thereafter $45 which are very conservative estimates in my opinion. I don't dispute $1,350M by end of H1 but I think I wrote $1,340 so somewhere thereabouts. I would also hope and expect further payments on the SFA which is ABs priority. I think that the way the set-up with PiK and $65 threshold in 2016 was long-term and well thought through and having bonds maturity automatically extended avoids what PMO has had to go through. Anything can happen but to me it feels at least they have got things in order whilst low prices prevail. Operationally things can happen and there was a longer time now between offloads but they also talked about the maintenance window being in summer which it is now.

Thanks Romaron. I felt that Enquest was trying to be open and communicative and therefore I would try and put some brain power into it. When they write that they only need $25 for the rest of the year and that they need $33 for the whole year and have produced 65983 - well we have what we need. I understand also why we had a rights issue in 2016 and 2018. In 2018 there was the hope to sell 25% of Kraken which never materialised. Enquest had capex commitments, Kraken was not working fully as planned and they had to buy Magnus. As I see it now we are not in that same situation. There are no more interest payments required until April 2021.

In addition, in the AR under the going concern statement they state the following. "The quarterly liquidity covenant in the facility (the ‘Liquidity Test’) requires that the Group has sufficient funds available to meet all liabilities of the Group when due and payable for the period commencing on each quarter and ending on the date falling 12 months after the final maturity date which is 1 October 2021. The Liquidity Test assumptions include a price deck of the average forward curve oil price, minus a 10% discount, of 15 consecutive business days starting from approximately in the middle of the previous
quarter. The Base case uses $45/bbl for the remainder of 2021, with a longer-term price assumption of $60/bbl. Under these prices the Group forecasts no breaches in the Liquidity Test. " The Base case uses an oil price assumption of $40/bbl
from March 2020 through to the end of the first quarter 2021.

We are in line with the above cases so it does not appear (at this point in time) that we need to renegotiate the loans. Finally, The maturity of the new retail notes was extended to 15 April 2022 and the Company has the option to extend the maturity date to 15 April 2023. Further, the maturity date of the new retail notes will be automatically extended to 15 October 2023 if the credit facility is not repaid or refinanced in full prior to 15 October 2020.

I believe that the SFA will not be renegotiated ahead of 15 October meaning that we then have the Bonds maturity extended automatically by 1,5 years.

I did some reverse calculations on the operational update from april. Therein the comment was made that they needed $25 for the remainder of the year to be cash flow neutral. They had produced 65,938 barrels a day. I am assuming that they are working on 63k barrels a day which would mean that they had an average price of $48.1 a barrel which assuming a break even price of $33 and $3 for finance costs would mean a fcf of about $100M for the first 4 months.

I then looked at the net debt of $1,364m and the cash available of $289 which was the same as dec 31 when ready cash was $230m. I assume the bonds were $1,010m (971 + 38 PiK) and the Tamjong and pre-paid were still $64M. This gives remaining $510M for sculptor and RCF. Sculptor was 122 at the start of the year and RCF was 475 of which 35 was paid off at end january. There would have been PiK on the $440 of about $18m. This leads me to conclude that $105M has been paid off which is in line with my above calculations with Sculptor at $100M and RCF at $410M. During May and June the oil price hovered around $36 so even with Kraken premium it was about break even and then they have got back $17M from the malaysian government to pay off on the Tamjong loan. My prediction is that net debt should land around $1,340M which would represent a net debt reduction of $74.4 which is very respectable. The RCF is to be paid off by the 1st October 2021 which means that $15 premium is required which I believe is achievable given that break-even drops to $27 next year.

I am calculating that Enquest has an average price of $42, revenue of $480 - $490M and FCF of $55 - 60M. I assume that production has averaged around 64k given what was released in the april ops update. For the remainder of the year I assume average production of 58k and realised price of $45 which would give FCF for the year $150M - $160M and net debt of $1,265M at year end. Enquest has cash on hand of $230M and the RCF could potentially be down towards $350M by year end. Enquest can extend the bonds to 2023 which they will most likely do so then they need to generate cash to pay down the RCF next year. With BE of $27 + 3 (Interest) and production around 58k would require a price of $52 per barrel.

Interestingly they are not writing down the value of assets. They are writing off exploration costs that were capitalised, deferred tax assets and impairment of PP&E assets.

"Loss after tax for the period was US$671.5 million (2019 1H: profit of US$120.6 million), due to significant non-cash charges in relation to exploration write-off's (US$222.2 million), the partial derecognition of the Group's UK deferred tax asset (US$369.1 million) and impairment of PP&E assets (US$47.8 million, post-tax). Excluding the effect of these non-cash charges, the loss after tax would have been US$32.4 million."

Capex was 140 and I believe 340 for the year so 200m to come H2. I guess all told there were significant upcoming cash commitments in the near future that needed to be satisfied with only cash in the bank of 140m.
Interestingly they assume $35 for the remainder of 2020 and $55 for 2021.

Certainly they were at a point of stress where something needed to be done. "The uncertainties regarding (1) the Proposed Refinancing not completing before the debt becomes payable, and (2) the risk that the Group is unable to obtain a further deferral or waiver of the financial covenant testing in the event that the Proposed Refinancing does not complete before 30 September 2020, or, in the event the Proposed Refinancing does complete, the revised covenants are subsequently breached in downside commodity price and production scenarios; and the impact these could have on the Group's debt facilities becoming repayable on demand in the next 12 months creates material uncertainties which, therefore may cast significant doubt on the Company's ability to continue as a going concern."