The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
I agree, although I can see a short period where it exceeds $100 when US mid-terms are behind us and we have a better understanding of global supply (which the SPR has done well to mask recently). Although a lot of variables that could pull it the other way. We're currently in a very good position so I'd like us to continue to lock in to some of that downside (whether this is hedges or some other mechanism which is beyond my level of expertise) but still able to capitalise on the whole on current high prices.
Will be interesting to see which comes first in the next few years - debt-free or dividends. Some may argue both but I can see AB remaining aggressive on MA/expansion and so one of them will give.
Given where we were in 2020 then we're now in a much better place.
GLA
If ratings agencies are using an oil price of $75 for ENQ and something higher (and arguably more realistic currently) then surely it's something that ENQ management has contested. Has anyone spoken to IR about this? Debt it clearly our biggest enemy right now but with each day that passes we're chipping away at it... slow and steady
Thordon - as always, excellent research. Out of curisoity how are you able to check how many new products we have coming onto the market (or instead a full product listing)?
Haggis - I meant £0.5B, not £0.5M (I was simply missing the B in my previous post) and it's £0.5B which is broadly 10x the current MCAP. And when I was referring to a takeover I meant hostile. I do not expect the BOD to be coming to us if a lucrative offer is received. I asked the question because I have seen it happen to me before, most recently with Ithaca Energy. Ultimately what I'm getting at is what are the reasons why I wouldn't invest more in AEX right now?
I have a reasonable amount invested here already and am looking to increase. I've done my homework and it's a green light but wanted to get any independent view of others on here before committing
Excellent day all, however I'm going to play devil's advocate for one second. What is the risk that 3D seismic results are positive or that another company simply sees the potential in this company and so buys us out? Yes there would be a premium to be paid but nowhere near the levels of £0.5 MCAP I can imagine.
Not trying to put a downer on things but to me it's the biggest material risk as a LTH at this current time
Overall a positive reading RNS. Two minor concerns from me:
1. Reduced profit margin compared to the previous year - although they did address this at the start of the RNS
2. Admin expenses remain very high. Any reasons why so high? I suspect fixed costs are naturally high and so we require larger orders to be able to offset this (e.g. the proportion of expenses to revenue this year compared to last is a big improvement). At a time when the world is looking to tighten the purse strings I wonder what the company can be doing to keep costs under control?
Lots of prospective business activity though - long may it continue!
GLA
E121 - I agree. Talk of dividends would really grab the markets attention. If we're really talking about "blue skies" thinking then:
1. Debt free
2. Dividends
3. Entry into FTSE 250
I'm not suggesting any of the are likely (or at all possible) - it's up to you to make your own views, but if the above were to happen then I can only see the SP moving in one direction. I try not to make SP predictions anymore because I know how undervalued ENQ and the O&G market in general has been in recent times. However, you've only got to look at someone like SQZ and how their SP has grown in recent years. A relatively small company but debt free and dividends have made them a real safe haven
GLA
I am scratching my head at the continued SP rating from them. Is there any detail from them we can get hold to support their rating? Whilst I don't agree with it, particularly given yesterday's update, I am open to other opinions provided it's supported with credible evidence
LS8 - I agree. However, will only start to recognise that value when we become debt free (or close to it) or initiate a regular dividend policy. Given the FCF being generated each day then we shouldn't be a million miles away from either. The problem in the past has been we fail to communicate future strategy in our updates and the market only knows once it has/is happening.
Given current oil price I am comfortable sitting on my hands with this one and waiting.
I agree Romaron, an excellent post from hitman. On that basis, if we want to see a rise in the SP then the company has to deliver operationally - the fact we're not been anywhere near the top end of our guidance for a little while has had an impact. So currently, you'd have to agree with Barclays target (even though it doesn't help). Do we think that a good year or production (no nasty surprises) coupled with talk of a potential dividend in 2023 could improve market sentiment? I agree a PE ratio is low compared to market peers
Jan,
I get something similar to you. The question after that is what will the market value as at then. Even if the MCAP is equal (or similar) to FCF for the year then 600m FCF translates into a SP of around 32p.
Is it the comment around further potential M&A activity that scares the market, particularly if it results in further share dilution?
GLA
We're all aware of how slowly things move with AEX and Tanzania in general. My main takeaway from the RNS was:
"Significant progress in negotiations with the Tanzania Petroleum Development Corporation on Kiliwani North gas sales receivables"
So for me the next milestone is seeing "significant progress" converted to "negotiations complete". All other milestones are still some way away but it feels like that should be completed before year-end.
hitman - excellent breakdown. Re. point 6 I am hoping that we do chase some additional production so that the market doesn't view us as a company with a very limited shell life left. However, any decisions to increase production should be made assuming a very short payback period and average POO no higher than $60 over its lifetime. We've had our fingers burnt too much in the past by chasing production.
I wonder whether the new lenders have in place some measures for evaluating whether or not new projects get approved, for example assuming a payback period of less than 3 years with $60 oil. I for one would find that a very useful mechanism to have in place so that AB is kept on a leash (so to speak) - his enthusiasm for growth is commendable but does come at a cost!
On a separate issue, what are your thoughts on the currently dormant EP? It seems to me likely everyone has this written off (rightly so) and I do hope we are able to eek out some positive value from this in the future
Thanks mrc. My previous annoyance was that ENQ had a number of a small debt arrangements / ring fenced agreements that were incredibly complex to understand whereas the new RBL is easier for the market to understand.
One of the positives I took from the GE deal and re-financing was that the breakdown of our should now be a lot easier to understand and forecast. So at the end of July is should be:
1. Bonds
2. New RBL
3. SVT working capital facility
Given the amount of debt in the SVT WCF why are we not paying this off?
Also I was unable to join the presentation yesterday but did AB mention anything re. the refinancing of the current bonds? We all know they're far too expensive and given the recent upgrades to the company's credit rating you would hope we could re-negotiate a better deal for these.
Good call MRC - did you know something we didn't? Or do you have a stack of lucky horse shoes in the garage?
Kraken - given where we've been the last couple of years I'd be happy with average price above $65. If we can trade in the 75-80 range then excellent. The key thing for me is volatility - personally I don't want to see $100 oil anytime soon. Yes it'll provide opportunity in the short term but room for shale and other threats to emerge.
Slow and steady at present!
Thanks L3. Your knowledge of the options market is clearly far greater than my own. Interesting to hear you say 2/3 or production for 2022. Hypothetically, if today's oil prices were to remain what would you say would be a typical two-way collar that ENQ may be able to hedge at?
Personally, I would be happy to see:
1. 55k production in 2022 (which includes GE, allow for some depletion of current assets but with the view to further acquisitions or developing current fields in 2023)
2. break-even of around $30 (though am expecting lower)
3. realised price of $65, allowing for hedging
This would give around $700M of FCF.... not too shabby for a company with current MCAP of £453m.
GLA