We would love to hear your thoughts about our site and services, please take our survey here.
Pattyboy.. Have you ever thought the potential for an equity raise via a RI may well just be already priced into the shares - no sarcasm at all in my statement. Your speculative nonsense about predicting a short term dip in a share price has never worked for anyone in history. you either like this long term or you dont. the RI is priced in period.
haha chilting Ocado. Selling tech? you mean an IT system. We were doing that in the 90s. The company has never generated any free cash flow, it has a market cap of £20bn, has regularly diluted shareholders with equity raises and can not explain its business sufficiently. The belief systems around 'tech' and things like bitcoin are starting to sound like religious Babylonian texts. I rarely make market calls but this zero interest rates experiment is close to ending horribly for many people.
Squif if we can participate in the RI and AB comes in, pro-rata, alongside shareholders then I have no problem with that. The guy has lost his shirt alongside other shareholders since 2014 so its fair to say his fortunes are still in lockstep with ours if its a normal RI. Accusations of something more sinister further down the line can only be speculative but everyone entitled to their own opinion.
ENQ competence regarding their ability to allocate capital is another question. Kraken and Magnus have not worked if you define worked as 15-20% return on invested capital. The consensus is correct with Eagle. E&P is a commodity business. With any commodity business your competitive advantage can only be cost leadership, in the case of oil - low finding costs per barrel and having a track record of delivering. There is zero alpha in this deal, negative in fact. Given the information we have, it is a speculative bet on Brent. The market is treating it as one and discounting for the risk. No more complicated. Anyone who thinks this is a good deal, given the information we have, is lying to themselves.
when half asleep this morning, i actually missed the acquisition rns and went straight to the OU and the net debt starting with a 12...was pleasing. Clearly well done for squeezing extra juice out of AK barrels. When re-looking at their guidance between 46,000 Boepd and 52,000 Boepd even this is not a complete disaster. If you back out the net to Kraken and then assume Malaysia can be half-fixed, Magnus as the residual is not great but its not a collapse. But then......i read this damn deal....
Why do people think this is a good deal based on information we have? I am totally confused. Has the price of 2P globally been like a golf ball bouncing off a car path just like the S&P500. Maybe but still, it feels very toppy and emotional. Will there be decomission liabilities? Who will take the liabilities? Has that been included in the $20 of capex? This is very important in the deal.
This is a high price for a short-life asset with a mediocre break even that has unfortunately been forced to compensate for Magnus. L3, L7 and I raised significant concerns on this board about the Magnus wobble and those concerns have proved legitimate. When including the consideration paid for this acquisition, its an example of capital allocation that falls in line with the market consensus view of ENQ's management abilities. Unproven claims of paying nothing for cigar butts in the NS and getting one last puff out of them. The realities are quite the contrary....ENQ management have a record of high finding costs per barrel and paying for those barrels using leverage, which then eliminates chess moves and wiggle room further down the line if the price of the product you are selling collapses or falls.
It could work and be a 2 bagger by 2024 if Brent stays at 70, but you will not get any reinforcement bias from me on this board if you want to simply feel better. Its a forced hand and pure speculative bet on the oil price.....and no the market is NOT reading it incorrectly. The market tends to work through these situations very efficiently. There are mispricings very occasionally but just because you hold the stock doesnt mean it is mispriced.
Guys i use this board more than others as i enjoy the informed opinions, particular from L7, L3, Squif, Daynes etc. Please can you stop saying "the update is tomorrow" if you dont know whether what you are saying is true. It means people like me look for the update and find out its not released.
"ENQ needs a new direction. Indeed, the lack of a new direction being communicated to the shareholders"
L3, this sounds good on paper or in a Mckinsey deck but do you mean you want them to sell shareholders dreams with photos of solar panels and windfarms and growth stories in the appendix of a management pres? New direction takes capital and execution. How and where can they access the funding for "new direction" required without material dilution?! They can't and people would see through it anyway. The oil price has just fallen down the elevator shaft. They are confined to things like Bressay and Eagle for the time being until they can steady the right side of the balance sheet. At least they provide optionality in the future without significant capital outlay now. I agree with you on hedging. They got greedy but didnt we all. How many of us forecast a pandemic causing global oil demand to drop 10m barrels. Some things in life are just a son of a *****. Shareholders have a bloody nose but we will need to sit in our messy dypers a little while longer until we are in a position to clean up.
Chilting, the point i think Squif and I are making is that this carbon capture renaissance has not doubled the price of higher quality E&P names from last March. Small NS operators such as Serica have doubled and reverted back to where they were because of low finding costs per barrel, no debt, cash going back to equity holders i.e. management has a record. Yes, they can now sprinkle some ESG dust on what is a solid base by reducing flaring but its the cash flow my friend. Follow the cash and nothing else.
Chilting, I hear you on ESG but I think you ascribe more moral authority to finance market participants than they deserve. ENQ has not demonstrated it can return cash back to shareholders. They have not established a record yet. Management overpaid Kraken, it’s over-leveraged and the earning power of Magnus is now in question. These factors could change, hence why I’m a holder, but when the cash starts gushing to the equity, I wouldn’t worry about ESG. I think the oil & gas sector are kidding themselves with this ESG baloney. Deliver first and quit the self pity.
Squif, agreed on upside. I am coming out a fair bit lower than $20 a barrel of value currently. 2P number radio slience should end soon. Yes on leases and contingent cash, hard to capitalise in my opinion if there is comfortable EBITDAR cover. Same with retail. This IFRS 6 is driving everyone crackers with rent.
Squif i cant follow your calculation sorry. Are you trying to calculate the current enterprise value of ENQ on a per barrel basis and then comparing it with the cash profit per barrel over the $33 breakeven they have stated in their accounts? You maybe capitalising the $500m contingent consideration for Magnus. If you are doing that then you have to include BP's share of the the 2P. Also are you capitalising the lease? If so the BE of $33 is stated after the lease so you would have to take it off the BE to get apples and apples. I still cant follow your calculation, sorry.
Does anyone have a capex projection in 2021 for Kraken to stay in the same place? Cairn’s statement bricks on our back. In the last OU management expected good production numbers to continue to offset Magnus. If Kraken is showing weakness, we have a problem
L3/Hitman.....how would you think about the decomm cash outflows in the breakeven? Mental equation: Cash flow per barrel net to ENQ * 2P less debt less non-debt like items (provision for deccomm), discounted back at an appropriate cost of capital = equity. Magnus is well covered by BP for decomm. I am less informed on kraken. The 2P will be interesting on the ENQ of new. I was thinking 175mm but L7 sounds way further up the curve so 170mm it is. When you run basic math on the asset base at these levels i just can not see blow-ups in conversations about refinancing the stub on the RCF but its not done until its done. Being as objective as possible, its a promising start to 2021. I have mentioned in previous posts that the fortunes of highly leveraged E&Ps with PIK compounding liabilities can quickly reverse in higher POO environment. In effect the equity compounds quicker. You can choose to short companies such as ENQ at the moment and you can also make a living walking tight ropes across Niagara Falls on a windy day
L3 your fag-packet conservative estimate of the short term FCF generation looks broadly fine. You have raised concern about the 're-financability' of the the revolver in October this year, which is warranted and rational. If i can introduce another vantage point from the credit. What would you say the level of 2p is in October? and what would be a conservative estimate of the FCF flowing from those barrels in the future discounted at an appropriate base? How much would you be prepared to lend against that or refinance?
L3. The £87m of FCF for H1 is after Magnus vendor loan repayment and Magnus cash flow share. PIK is a non-cash item so they have added back to get to operating cash flows (see the £82m note 20 of the interims - its mainly PIK). But of course, it becomes cash outflow in financing activities further down the line due to the loan being higher to refinance or repay. In fairness, PIK can not obviously be accounted for as cash in the cash flow statement because it isn't a cash movement.
Personally I do not obsess about working capital moves, so long as they are not crippling in terms of capital employed. Yes its not just the retail bond and the HY note but lets be honest the RCF will be paid first and reduced aggressively (hopefully) and the magnitude of the PIK on the Oz loan is small due to the principal outstanding being sub 100m.
I said in my previous post that the degree to which the world can jab people in the arm with a vaccine, will determine Enquest's prospects. I still stand by that. This is what happens when a management fails allocate capital correctly. In our case overpay for the development of assets and undertake leverage to fund a big chunk of the capital outlay.....we are reliant on the friendship of other people or organisations. Its not a slam dunk but I do not think ENQ stumbles and falls because of working capital slippage.
L7 and PR....thanks for those two points. On the hedging I wanted to use apples and apples so oil price achieved but less cash costs of ineffective hedges. i could be wrong. Anyway i want to be able to follow the cash in the annuals as you say.
L3, L7, Pelle, anyone......... can you tell me if I am doing anything wrong with this calculation regarding FCF breakeven as I too, am very skeptical on this $33.
Lets just use H1 to try and substantiate the claim:
Reported FCF (£87.481m)/((66,055 (barrels per day in H1 reported)*181 (calendar days between 1 jan and 30 june)) = $7.3 reported FCF per barrel
Reported Realised oil price ($/bbl) = $43.6
Difference $43.6 - $7.3 = $36.3
Where are they getting $33 from or am i missing something? That $87m is after the magnus vendor loan repayment and cash flow share so its everything other than principal repayments on all facilities.
Because Rhum 3 doesn't take >£100m of additional capital and we have >£100m of capital in the form of liquid cash to deploy. So for the company to generate a return on capital above the cost of capital it needs to do more than Rhum. Sorry to be too direct but comment is a non-comment.
Thanks for your input Londoner. Interesting insight on Kraken. I think my sentiment matches yours hence the subject title - "decent update" save for Magnus concern. I don't think the TU calls for a bonanza just yet but lets hope the oil price carries us home nonetheless. Perhaps my sensationalism was OTT on the debt. I disagree with your characterisation of PIK being a good thing. Its nasty because its nasty. Its not good just because we have to live with it. It may be necessary but compound interest is the 8th wonder of the world for the recipient of that interest in question. For the payer, to be compounding your liabilities is never a good thing. Yes its keeping the company afloat but you could argue the opposite from Mr Markets vantage point of view. Its bricks on our back and a tough hurdle rate for FCF so we need to get to the principal pay down asap for this MCAP to turn around. Onwards and upwards, best