The biggest issue for EnQuest (ENQ) has always been the high levels of debt which it took on to develop its assets, and the fact that its timing in doing so couldn’t have been much worse with over-supply starting to hit the market in 2014 and Brent steadily plummeting from the $100-plus level it traded at back then. It is one of the few oil producers which hasn’t really recovered from the further drops which we saw during the peak of Covid and oil market panic last spring and, although I do still see its large debt pile as being an issue, I can also see potential from here. Even more so if we are to look at the typical cyclical nature of oil prices and what typically happens to prices following a prolonged period of low prices and a general lack of investment into bringing new oil online and exploration to keep replenishing resources.
I accept that things are different these days in terms of the potential future supply shocks which that lack of investment can cause, as shale plays a big part and it is easy to turn supply back on as and when prices become economic once again. But I also think that those types of companies will find it harder to obtain bank loans and funding this time around, given the widespread bankruptcies during Covid, plus with Biden to be in power we may see more restrictions on shale producers – although the flipside of that is that he could also affect demand via greener policies than we have typically seen in the US. I would also argue that if and when oil prices do go on a run upwards, Enquest is in a much better position to take full advantage of them this time, with daily production for the full year in 2020 expected to have been just below the 60,000boepd level, and pretty much in the middle of the guidance range. There is also potential for a stronger performance in 2021, given that Kracken (60% owned and operated) performed strongly last year and at the last update had averaged nearly 38,000boepd, and was expected to be above the 35,000boepd upper end of annual guidance. Plus, production in the second half of last year was impacted by scheduled maintenance and an outage at its PM8/Seligi field in Malaysia – although the latter had no impact on revenue due to the structure of the PSC and cost recovery mechanism in place there. It also had issues with a lift pump system at its Magnus field, which alongside Kracken makes up the bulk of its production (over 17,500boepd net last year), but that has been resolved and the focus remains on improving production there, and making the most of the 38mmbbls of remaining 2C resources, plus other potential resources still to evaluate.
Decommissioning of several of its North Sea fields is underway, or about to commence, but much of the production drop from that has already been seen, with cessation of production at the Thistle/Deveron and Heather/Broom fields already taken into account (they were producing a combined 7,000boepd net the previous year), and the Dons field is expected to follow towards the back end of this year now that gas lift from Thistle is no longer available and has already been impacting production rates. The company is also in the process of completing a deal for a 40.81% interest in the Bressay field, by paying Equinor £2.2 million upfront, plus a further $15 million as and when the field development plan is approved. EnQuest is hoping that its knowledge of heavy oil, gained at Kracken, will help it to unlock the 115mmbbls of 2C net resources which it is acquiring under this deal. So from an operational point of view things look promising, but we also need to consider the net debt, which stood at $1.35 billion as at the interims up to the end of June 2020, which is obviously a very high amount for a company with a market cap of around £230 million at the current share price of 13.4p.
I would also note that despite the low oil prices in H1 2020, even allowing for the fact that the company was well hedged, it still managed to generate $87.5 million of free cash flow and reduce debt by over $60 million – although that had been reduced to around $25 million by the end of October – and cash available at the last update in November was $268 million. In terms of managing its debt, the company has agreements in place to extend the repayment of its retail and high yield notes until such time as the senior credit facility is repaid. It has been paying that down gradually and at the last update that stood at $425 million. The company also announced an automatic extension to the maturity of those notes to October 2023, from the previous date of April 2022. It is also worth noting that the debt holders allowed the company to take on the Bressay asset. Any real recovery for this company all hinges on future oil prices continuing to increase and get back to higher levels than they are at currently, if it is going to have a chance to pay off those debts. Plus of course avoiding any major production issues, which also always presents a risk. Overall though, given my expectations of where oil prices will go in the coming years, I think this has potential to generate a good return for shareholders during that period of time and can see why some people are interested in buying the shares at the current share price, especially if you have a bit of patience to hold and see where it is later this year. So for me it is a speculative buy.
Filed under: EnQuest, The Hut Group, Tern, Ariana Resources, TomWinnifrith.com, Trafalgar Property
RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.
Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.
We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.
You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.
There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.
Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?
Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now
We've put together a panel of top tipsters, including:
Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"
Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit
Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks
Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books
Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers
Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies
Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments
The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view
Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.