The advantages of CEOs eating what they cook and AB having a significant portion of his net worth tied up in ENQ came to light in the recent RNS. This company will survive. It has been unlucky and lucky at the same time, having the bulk of its maturities pushed out. Anyone who understands basic commodity cycles will know, POO in 2021 onwards will look rosey. I have been investing a long long time and admittedly got caught out with the virus. I still sleep easy at night, and ENQ SP is likely to be a great return for me over the next 2-5 years
It doesnt appear that way. Just as a refresher. If all companies were expected to repay their debt at maturity with cash and refinancing was not an option, which is what you are implying.....you are effectively saying corporate debt will cease to exist by 2023.
The maturity of the bonds being April 2023, is lucky timing and great news for the equity. There is a high probability net debt to EBIT and DSCR conditions in 2023, three years from now, are substantially better based price of oil improvement, disciplined run-rate maintenance capex and credit providers looking for yield given real interest rates are negative. Bonds have a great chance of being re-financed that far out.
The RCF can be refinanced in October 2021 and does not have to be repaid if you read the prospectus. Refinancing is basic to get your head around. Just like you don't have to pay a mortgage back after a 5 year term. There is a strong chance POO will look a lot different in H2 2021 improving the financing capability of the company. The bond maturities can be pushed back to April 2023 (3 years away from now). Assuming we free up cash via trimming capex, PIK interest on the bonds and pay at least 50% of the RCF, our DSCR at POO conditions in H2 to 2021 will be very attractive to lenders again when interest rates remain close to 0%.
Premier and Tullow in very different situations.
Combed through bond prospectus again in detail this morning. Retail and HY bonds are the bulk of our net debt and maturity/re-fi can be pushed out until April 2023, three years away. Cash interest does not need to be paid on bonds in the meantime and can be PIK'd (they have being paying cash in 2019). The free cash be re-directed into RCF paydown. The scheduled capex of $230m in 2020 and 2021 can also be trimmed. Along with our cash balance as at 31st of December 2019 (ex-restricted). RCF outstanding balance of $450m (inc. PIK) as at 31st of December 2019 can be repaid comfortably by 1st of October 2021 with oil taking a beating. The RCF cam can also be refinanced per the terms in the restructuring (so no Neil, it doesnt need to come from shareholders or asset sales). There are no other maturities or required until April 2023 save for small SVT loan of $17m in November 2020. Neil, your crude on free cash flow per your earlier posts makes no sense. Sorry.
I expect the company to have purchased a big block of shares back of Sun Capital in the placing that occurred overnight. If not, as a shareholder I want to know why and there better be a good reason. The company is way overcapitalised and should return the cash pile back to shareholders immediately.
from WSJ an hour ago.
VIENNA—Russia has rejected a Saudi-led effort to deepen OPEC’s oil production cuts in response to the deadly coronavirus in China, cartel delegates said Thursday.
The group’s failure to reach a consensus is a setback for OPEC’s de facto leader, Saudi Arabia, and its burgeoning alliance with Moscow.
Delegates from the Organization of the Petroleum Exporting Countries and allies including Russia met for three days this week to debate how to respond to data that showed China’s demand for crude falling as it deals with the coronavirus crisis.
The virus, which originated in China, has already contributed to a sharp decrease in demand for crude, driving oil prices to bear-market territory on Monday.
Saudi Arabia had initially backed output cuts of 800,000 to 1 million barrels a day to balance oil markets.
The gathering collapsed without an agreement, after the Saudis proposed a compromise cut of 600,000 barrels a day. The Saudi proposal had broad support, but the Russian delegation rejected it on the grounds that it was too early to assess the impact of the virus on global oil demand."
If the market capitalisation stays the same today, the financial community is effectively attributing zero value to the transfer of $360m from debt holders to equity holders that occurred in 2019. To be more pointed the market is effectively saying 'even though you have paid off $360m, i am shrinking your enterprise value by $360m. This irrational thinking can only happen for so long.
Pleased! Net debt down by $361m is a great achievement. No criticism on the hedging front. The oil price is all over the place for obvious reasons and nobody can reasonably forecast even a range. Oz barrels account for 16 production - big deal. The leverage is moving back towards the equity, which is great to see. We have to watch depletion and require new acquisitions. in FY21, which i have no doubt will happen. Refinancing will happen soon.
I havent looked at the cash flow sharing deed which will have specifics on cost. It was just an estimate - fair enough with leasing. Across the group enquest do not have costs per barrel of $20p/bbl though - irritates me when managements refer to EBITDA or pre-capex costs in a capital intensive biz. The higher the profit the bigger the payout to BP, as our cash already included in top-line. Will see if i can take a look. Couldnt find in prospectus last time i checked.
Re the Magnus profit calc ENQ don't absorb capex or lease costs in their $20 p/bbl number so I have added back a few dollars based on the global capex and leasing costs. I assume the BP cash sharing deed will not exclude capex for Magnus. My estimate is conservative though...granted. I think we are very well positioned and wish everyone good luck. Magnus and Kraken are great assets when you compare to asset extensions specialists like Serica, who are exposed to gas oversupply and have way less 2P.....that stock is still cheap though - i am taking a closer look
Kraken increase offset by depletion in other fields. Magnus continuing on current trend. I will be happy with sustained production in 2020, de-levering $300-400m and re-starting hunt for new Malaysian or North Sea marginals with max capital discipline.
I am not getting near $50m a month of FCF as has been suggested on this board unless Kraken premium surprises me. My fag packet prediction for FCF available to pay down debt principal in 2020 is $360m. The Tanjong Baram Project Finance Facility is L+8.5% and the BP seller note is L+7.5% so I would hope they can aim to wipe these whilst still paying the PIK and principal scheduled payments for RCF next April. $360m FCF calculation below:
EBITDA = (66,500*$62*365)*60% EBITDA margin: c.$900m. Cash deductions as follows
-$50m (repayment of 75% seller note to BP)
-$60m (Magnus cash flow share paid to BP, 6,500bodp*$25profit/bbl)
-$120m (lease obligation)
-$100m (interest charges, these could be lower but assume RCF paydown offset by PIK on bonds will mean same as 2019)
-$12m (Malaysia corporate tax)
Thanks Krakenoil. I think management are correct to let the numbers do the talking on the premium when accounts released. Providing a specific premium number changes forecasts and expectations which means potential disappointment if ENQ unsure whether they can consistently achieve it. As a positive undercurrent - good for me.
** i meant assumed Magnus profit per barrel of $29 sorry.
** just to clarify they have only paid $12.5m in H1 regarding the 75%. I have should have made that clear.
Pelle and L3, you seem to have a good grasp of the accounting if you can opine. I think its very important to decipher gross and net for Magnus as the cash flow profit share as an outflow could be chunky. The provision is just finger in the air re discount rate of 10% etc so I don't pay too much attention to accounting estimates. Its the utilisation via the cash flow statement $36.7m in the H1 cash flow line to watch.
I am looking forward to February. I am very hopeful of significant debt pay down.
I am trying to work out the cash flow impact of Magnus. Please feel free to chime in and lambaste any stupid assumptions. Firstly i have assumed the 63-70k boepd production guidance is gross for Magnus and includes BP barrels i.e. the 50% of the 75% of Magnus. I would surprised if otherwise as that is why there is a contingent consideration provision of $678m as the discount of future cash flow sharing and the seller notes. Regarding the BP seller notes i note in H1 2019 EnQuest repaid $24.3m and stated it would clear the remaining $10m balance in H2. This will obviously not reoccur in FY20 as thats the 25% wiped. They only paid $12.5m of the contingent consideration in H1. The H1 accounts do not disclose whether this is in relation to the deferred consideration/seller note which was $116.5m on 1 December 2018 or the cash flow profit share. As the seller note is expensive due to it being PIK'd at 7.5% i am going to assume that EnQuest could wipe the remaining $100m or so off in H2 2019. Ok now for the cash flow sharing.....people on this board probably have a better idea of what Magnus is producing but take the recent OGA data range of 15-20k boepd. Assuming mid-range of 17.5k boepd BP’s interest would equate to 6.5k boepd (17.5k boepd*75%*50%). Assuming a brent price of $64p/bbl, $20p/bbl opex per H1 and an additional $15p/bbl for absorbed lease payments/maintenance capex, I have assumed $25p/bbl of profit on Magnus oil. On 6.5k boep, EnQuest would therefore pay BP $70m per year to BP? In total for 2019 then thats potentially c. $150m cash out to pay off the defferred consideration seller note and then $70m for the cash flow sharing on the 75%? The $70m would then reoccur as a cash outflow for future years until we hit the $1billion cap which is way off at current production levels. Am i missing everything?