Member Info for Stevo12

I recall a couple of years ago the NSTA stated that the charge for transporting and processing gas was equivalent to $5 barrel equivalent.

Does anyone have any more update understanding of gas processing charges? The facility has approx 30m barrels equivalent capacity and i would expect for a $1b+ original investment the investors would have been expecting a $100m pa return. Accordingly $150m annual revenue if fully utilised does not look unreasonable.

Serica’s 40% share could be generating $40m FCF and would not be subject to EPL and there are sufficient tax losses to cover standard UK taxation.

Anywhere close to the above and the facility will be a significant contributor to FCF and the opening of Shell’s victorY field will require25k BOPD (about a third) of capacity.

The deal is looking better and better.

Bondsan

The world before EPL was very different one and, in conjunction with higher oil prices in 2022 and 2023, Enq was generating several hundred million of FCF per year.

Enq bond debt is over $600m and it is this that will need to be refinanced. If you think bond holders are kind and cuddly, speak to Premier shareholders who were shafted by aggressive bond holders and diluted out of existence. They are under no obligation to go easy on Enquest on maturity of bonds and while Kraken is correct there are more banks willing to lend to O&G, Enq will have to demonstrate a pathway to FCF and debt repayment. For this to happen Enquest needs either oil prices to materially recover, EPL to be scrapped or a transformational acquisition.

Anyway I have said no more posts from me and this is my last one. Unfortunately this board which used to be a forum for open and honest sharing of thoughts and information has degenerated into mudslinging against any views that does not align with the ultra-pro community.

Kraken

What I have I said that is untrue? Enquest averaged realised oil price in 2024 was a little over $80 and they generated zero FCF - Fact. I projected based on the guidance provided by management that FCF breakeven has fallen in 2025 to a little over $70/barrel and with oil most likely averaging below $70 on 2025 there will be no or minimal FCF in 2025 - all this guidance is provided by management if you bother to look. Management have guided on 35-40k BOPD excluding Vietnam and they were on the upper side of this in H1. I have no idea how much FCF Vietnam will kick in for the 1/2 year but OPEX, CAPEX and UK and Vietnamese tax are all back half loaded.

I am very happy to have a bet with you for say £100 to a charity of the winner’s choice that FCF in 2025 will be zero and debt will not fall in 2025 (excluding asset purchases, sales or other non trading items). If you think the cost per barrel is going to fall in 2026 you are delusional as UK production continues to naturally decline with inflationary cost increases. Even lease costs are project by management to remain at 2026 levels.

I appreciated you are ultra-pro Enquest but it is dangerous to not look at investments in a dispassionate way. I want Enq to be successful and I have always stated that Enq has the most upside potential to rising oil prices, but equally they have the highest downside risk. Your belief that there are people posting on BB’s to manipulate the share price is truly comical. Enquest share price underperformance over the last 6 months compared to Serica and others NS O&G’s is driven by commodity price not BB posts.

Kraken

How is the bond market different? Despite short term interest rates falling from when the bonds were issued, they are still trading at par (although this is more to do with their short duration). The big difference is that when the US and UK bonds were issued Enq was paying down debt quite rapidly. Leading into the 2026 refinancing it is highly probable that there will have been no FCF generation for 2024 or 2025 and likely 2026 if oil prices stay in the $60s.

Enq needs to make an acquisition to use tax losses and generate FCF which will be taken positively by Bond and equity market. Without it Enq is treading water.

Romeron

I am not saying there is any stress with the bonds and the UK and US bond holders are collectively confident that, even in the worst case scenario, they would get repaid - that is a vote of confidence in the value of the underlying assets. If this was not the case the bonds would not be trading at par. This is why I have invested more in Enquest’s UK bonds on the belief that when they are refinanced next year, Enquest will offer more generous terms to the UK bond holders to match the US bonds in order to secure new loans.

What I am saying is that the bond market is very cut throat and the big holders (particularly in the US) will look to use their leverage in 2026 to get a better deal and or reduce the risk.

Kraken - i said that I would not comment on the board until i was looking to reinvest in Enquest equity (as opposed to bonds). I was considering reinvesting prior to the trading update but have decided to defer until oil price is looking more positive (heading into $80s). I don’t see this happening until second half of 2026 and so will stand down from posting on Enquest again until actively reconsidering reinvesting.

Been good to reconnect again with the ENq board and best of luck to you all.

Tam

There must be a positive relationship with harbour as reflected in the Vietnam deal and Beryl would be a possibility with Apache as the operator. (Who also want out of NS).

I agree a Serica deal is going to be politically difficult with Serica up 40% and Enquest down 30% since the merger was aborted, but Enq may be strong armed by bond holders to merge. Enq did not generate any FCF in 2024 with oil at $80, probably negative FCF in 2025 with oil averaging high $60s and 2026 looking to be very challenging if oil settles in low to mid 60s. Effectively Enq is running hard to pay the $70m interest bill without reducing debt since 2023, excluding the Bressay investment/loan by Rockrose. The bond holder are holding all the cards and they will want their pound of flesh when negotiations start in mid 2026.

Tam

From a financial reporting and tax perspective an acquirer only recognises revenue/profit from the actual completion date. While many O&G deals agree an earlier effective date this is to enable an adjustment to the acquisition price for cash generated from the agreed effective date. However this earlier effective does not impacted reported or taxable profits.

AImoil

Enquest should be in the driving seat for Waldorf upstream assets. They would be putting more eggs in the Kraken basket, but at least they have a deep understanding of the field.

Most of the NS consolidation has now been done and Waldorf is one of the few remaining deals left on the table.

AImoil

The CEO and CFO have been around the block and while they were clearly delighted with the Prax Deal, they did not gloat.

The actual purchase price is not actually $26m but they are being paid a net $74m to take the Prax upstream business which includes the most recently constructed gas processing facility which the new Shell victory field will use. Serica are only taking over 30 seasoned O&G employees so not a significant uplift in headcount.

i assume Enq were in the race as it would fit very nicely into the Enq portfolio. Serica management emphasised that speed was essential to close the deal and Enq may not have been able to move as fast.

Aimoil

Prax comes with over £500m of EPL tax losses as opposed to an EPL liability. Decom liabilities of $60m on Hurricane (before government contribution) to pay in 2-3 years time. Other decom into 2030 and well beyond. $75m cash positive on day 1 and $50m pa FCF. Also significant additional non EPL tax losses.

This transaction has added close to £100m to Serica market cap and would have done the same for Enquest.

I have bought some more Enq bonds today at very close to par with 9% yield. I am expecting Enq UK yield to be more closely harmonised with higher US yields when refinancing occurs in 2026. Some warrants would also be nice to secure agreement to roll over debt.

I still think a merger with Serica is likely in 2026 but on what terms?

Ukbbbbbb

I have not factored in Vietnam as I do not understand the PSC arrangements and tax rates of Vietnam. Given Enq paid a little over $20m for the business I can’t see the current Vietnamese business being a major cash contributor or reducing the average group FCF break even.

UKbbbbb

Lease costs are projected to reduce by $70m in 2025 which I believe translates to roughly $100m annual saving.

I have assumed UK production of approx 11m barrels and so a reduction of approx $9/barrel once annualised. My $72-75 /barrel FCF break even forecast is for the full year and factors in the 2025 $70m lease savings.

The inconvenient truth is that Enquest needs higher oil prices ($80+) which is more than likely in 2027 onwards due to lack of global O&G investment over the last 10 years. Removal of EPL (£80m) would reduce FCF break even by approx $7/barrel which would greatly help but oil price is the key. $85 oil would add $125m to FCF cash flow even with EPL still in place.

Rom

I believe the Bressay and Bentley licenses are not impacted by the labour pledge to not issue new licenses. These licenses have been issued and exploration and appraisal work performed. The challenge is more the commercial return with EPL or its successor and Enq ability to fund. I would hope a partner could be found if fiscal environment is radically altered.

Had a quick read through and it looks like management have massaged the 1/2 year net debt and FCF by deferring the EPL payment from June (as previously reported) to July, deferred CAPEX payments to second half of the year (previously stated that CAPEX would be front half loaded) and no payments to BP for Magnus were made in the first half of the year. Interestingly management did not give for the first time that i can remember a latest net debt position -i think we know why.

Overall production at 6.98m barrels was what i was expecting and 14m barrels for the year excluding Vietnam is a reasonable target (38.3k BOPD compared to 40.7BOPD in 2024).

Adjusting for $50m of the $100m EPL payment, $20m for Magnus payments and $12m for CAPEX deferral (based on even spreading of capex between first and second half) FCF would have been approximately $50m negative. OPEX is also targeted by management to be $90m higher in second half of year.

My conclusion is that at realised $70/ barrel oil in first half , Enquest can not generate positive FCF and has a cash break even of $72-75/barrel which is a reduction of $10/barrel on 2024 mainly due to lease cost reductions.

I realise these factual observations will not sit well with many on this board and i think H2 is going to be uglier due to oil price and second half loading of OPEX, CAPEX, TAX and Magnus payments. Enq desperately needs to do a UK deal that adds 20k BOPD of production with OPEX in the $20/barrel range. It does not appear that there is an imminent deal based on the narrative.

I was hoping for better news and in particular a more material reduction in FCF break even oil price and for that reason i am staying out until i see a material reduction in cash cost per barrel which they can only really deliver with an acquisition

Tamovv

Great analysis. A couple of comments as follows.

1. Your have not included the PSC, Royalty and tax payments to Malaysia on approx 1.5m barrels for the half year. The annual payments to Malaysia was $81m in 2024. I have no idea on timings but reasonable to assume approx $40m for the half year.

2. The company’s current guidance is 35,000-40,000 barrels per day excluding Vietnam which translates to 12.8m to 14.6m for 2025. The first half is normally stronger from a production perspective and your 7.5m barrels may not be too far away (41k BOPD) but equally OPEX has historically been front half loaded. Not sure what FCF vietnam will generate for 2025.

3. I think lease costs will be slightly higher than you project, but probably only $5m higher.

However we only have a few days to wait to see 1/2 year results and updated years end guidance.

kraken

brent has averaged $72/barrels the first 6 months of 2025. if cash costs is $58 per barrel as you project then fcf of $14 per barrel for 7m barrels should give $100m fcf for the half year, before the additional $50m epl payment re bressay sale. so debt should be down approx $50m at the half year subject to timings of capex payments.

if this is what enq reports it is a great buying sign and i will be “in like *****”. however my fear is that enquest will report a $50-100m increase in debt at the half year but not long to wait to see who is right. i do think there is something else going on which has driven the delay in reporting. an acquisition is the most likely and feeling a bit of fomo ahead of announcement. however i am going to sit this dance out as i think underlying trading may disappoint.

Not yet Kraken. Want to see the $58/ barrel FCF break even first.

Next week!

If the interim results show that Enq has reduced its FCF breakeven to $58-60 for FY25 then I will be straight back in with a big buy.

Very much looking forward to the Interim results in a few days time and management’s full year guidance for confirmation. If management have been able to drive down cash costs (inc tax, interest and leases) to $58 per barrel they should be guiding to at $100m debt reduction for the year, with Brent forecast to average $67/barrel for 2025 and the respective hedges.

That will be a fantastic result and i will be on-board.

Kraken

Could you provide a breakdown of how you arrive at your $58 FCF breakeven. I am not being provocative, I would really like to compare your calc with mine of 6 months ago. However 1/2 year results will enable an updated FCF per barrel analysis and this will be the driver of whether i jump back into equity. If ENQ demonstrate they have a FCF breakeven at $60 per barrel or lower or can get there by year end, i am back in.

My FOMO is the delayed announcement of half year results is due to an acquisition being finalised.

Rom

I am holding UK retail bonds and I agree that the US Bonds are a better indicator of any concerns, although UK retail bonds will move in tandem. The bond market is always the “canary in the coal mine” as you have previously noted. I take the stable bond price as a positive sign. The remaining duration of the notes, which is effectively 12 months, indicates the bond holders have confidence that Enquest will be able to successfully refinance.

As i have noted, I do not see a debt equity swap or a rights issue as likely but i do not dismiss it as zero risk if oil falls into the $50’s in 2026. I think that bond holders might push for a merger with likes of Serica first.

As i noted, I am very happy with my Enq bond holding although i would prefer the US 13% to UK 9%