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It appears the Arms Industry is about to have its own windfall moment, so I look forward to EPL being applied to any excessive profits!?!
Back to ENQ and EPL, when is the government going to announce the new EPL baseline figures?? Any increases should help a very little to underpin share prices of NS O&G's.
For me it is actually On Topic https://www.spectator.co.uk/article/when-will-the-bbc-apologise-to-toby-young/
Maybe instead of using the suffix O/T it might be more helpful to add "Politics" in the subject title because some of us are more interested in the political machinations than others.
I think things are getting very interesting away from EPL and companies' performances and suing Chris Packham would maybe make the "deniers of debate" rethink their slanders and libels that aren't supported by either science or facts.
Today the activists have disrupted the AGM's of BP and Drax. The SNP have split from the Scottish Greens (I think the ramifications of this will be massive). The Scottish people aren't happy and their famously pragmatic approach to finance will assure that there will be NO financial leap into the dark. Their claim to the NS is bigger than the rest of the UK imo and the climate debate deniers are losing ground fast. It has never been "settled science" and I'm sick to the back teeth of the likes of foreigners (non-UK) like Al Gore, Greta Thunberg and Tessa Khan dictating to me.
I think the defending of the arms industry by Sunak should reinforce the argument against why the government [if it cares about security] taxes the O&G industry at penal rates. Is the arms industry more ESG acceptable than O&G?
I also keep wondering whether we will have a few years of Magnus being 100% ours. This must particularly be so if production does increase (as forecast) and we have Brent at around $90 of more. We could clear the outstanding consideration to BP quite quickly. But I am bored and I want a big deal to happen. A merger with Serica is my dream solution. They have the cash we have the tax losses.
Hi Stevo12
I had a bit of time and looked through accounts and hey-presto found it $461,271m this I assume is balance of $1bn gross of the original deferred liability which means as we paid BP $65m last year and used our tax credit to pay 40% of that.
BP may get their money?
Or to put it another way Enquest have paid BP $539m from 37.5% of Magnus so we have cleared $898m
Is my maths correct?
I’m not sure the market takes much notice of positive notes any longer, it seems all about shorting nowadays.
Like I’ve said before we could strike gold be paying 50% dividends and still the SP wouldn’t rise.
We have been doing everything superbly well over the last few years, debt has fallen way over a $1b and still the market won’t reward us.
What more does this UK market want other than a fair tax regime .
About time - a few more positive broker targets would be helpful and over due in my opinion.
Sp performance has been dismal considering Brent is well above $88.
Just a month to the next update and in the meantime the price of Brent, buybacks, positive broker targets should all play into a higher sp, even in the absence of any other positive news. Plus AGM at the end of May.
I have been averaging down since the EPL (35%) news and only see this depressed ENQ sp which is barely off the bottom as the last remaining buying opportunity at these levels. 33p today would be amazing but I think this target will be surpassed over a two year timescale.
EnQuest - Canaccord Genuity raises target price to 33p from 25p.
Great to see a free market of thought here .. Stevo offers clinical fact and like all good cfos paints scenarios but I fall more into sekfords camp but would add more !! AB has made some strategic moves with Steve baker joining to develop our BB assets and the significant creation of Veri! In USA as a start up Veri would likely have a valuation north of £200m on its ambition and project pipeline alone!! The repurposing of SVT is a key part of a Scottish / UK diversified green economy whilst serving both fossil and renewable energy sources! For those willing to wait SVT & Veri will become an exceptional asset !
He is right to point out that BP in effect retains 37.5% of the Crown jewels which is Magnus. But I prefer just to look at the profit payments to BP as a cost just like interest or opex or tax. What to me makes Enquest so exciting in terms of the potential future SP is the likely FCF which of course takes all these costs into account. It is the advent of $87 Brent which may be sustainable which enables us to project forward an extraordinary daily wall of money which is retained by the company and is being used (or should be) to smash expensive debt. Stevo has also made the point that in January and February 2024 we were negative FCF if you ignore the farm down payment. That will be to do with the timing of deliveries and sales. That should mean that March and April will have been two golden months and we will see large reductions in net debt which be reported at the shareholders meeting in May.
What I still can’t understand is why Steve uses barrels as payment to BP etc, we don’t pay the profit share in barrels, the costs of lifting the barrels is big part of EnQuest’s business (we earn from each barrel lifted).
For instance in my industry all jobs are given labour times against them with material costs on our system but if we complete those jobs in half the time that’s a bonus on our part we don’t pass that on and neither would Enquest to BP
Hi Stevo12
Thanks for your accounting knowledge to this BB
I understand your figures on the profit payments to BP on Magnus, do you have a handle on the balance of the net of tax $600m we agreed to pay ongoing, the increased production figures in recent times must be making this look achievable?
Thanks Stevo - I looked at Note 9D however it was written in Sanskrit but appreciate the google maps assistance. I seldom go that far. Very difficult to compare I know but it has explained things to me. The reserves answer will make me look more closely at reserves. There is often an overlap with total reserves of a field and what belongs to partners in the field. The likes of Uplift and juststopoil are very casual about this and the difference between 2P and 2C. We know that 2C is close to worthless on fields that haven't been given the go-ahead yet. Our Opex is similar to theirs if you average the 50/50 split they have with O&G.
Thanks again for help.
@Sekforde/Stevo : Thank you for making interesting valuation comparisons Enquest-Exxon-Serica....
How do you see the merger Ithaca/Eni's UK assets?
I'm sorry, but you have been consistently wrong. Your calculations have time and again shown completely wrong numbers.You are also wrong here.
1. I think Enquest has 100-200% more in tax credits. So you are wrong. This is also why Enquest pays less in taxes than Serica.
2. Regarding the reserves, I would say that only about 15 million barrels belong to BP. The rest belongs to Enquest. However, don't forget that the company also has approx. 400 million 2C resources.
Regarding Malasiya, you are completely wrong. Many oil companies in world have PSC and then you mean that all the oil companies have 50% less reserves than they claim they have. You are unfortunately wrong again.
Enquest will make approx. 550 million in both 2024 and 2025 together in free cash flow. Calculated for oil at about USD 90 per barrel.
Stevo it is true that EV of Serica and Enquest are similar. But what really matters for valuation purposes is prospective FCF. After all , that is money that is available for distribution to shareholders. Using your own figures carefully calculated assuming $86 Brent for 2024 and 2025, Enquest FCF is around $180m for this year and $270m for 2025. I would imagine that Serica will be similar. Moreover, I do not see this as a two year wonder. In the case of Enquest it is sustainable over 20 or 30 years from existing proven reserves, the development of Bressay and Bentley and of course Veri Energy. Although FCF could simply be paid over to shareholders, management is using it to pay down debt which of course will enhance FCF in the future. I do not see Serica as having anything that competes with Enquest's tax advantage, its ownership of two huge oil reserves and its potential for carbon capture and renewable energy. It is these assets that will enable FCF to rise over time.
Romeron
Regarding your questions.
1. Tax losses were acquired with Tailwind and $331m tax loss included as deferred tax asset - see note 9D of financial statements. Only usable against Tailwind profits initially and so still some core Uk tax to pay annually in addition to EPL.
2. On 2P reserves and production. Approx 4k BOPD of profit from Malaysian production is paid to Gov under production sharing agreement and gas lift. Also approx 6k+ BOPD of Magnus production is paid to BP. While Magnus is responsible for operating 43k BOPD of production, a little over 10k or 25% is for third parties and no benefit flows to Enquest.
3. On gas OPEX costs, I would be guessing but should be in the $10-15 range per barrel. The larger gas fields in Norway are $6-10 OPEX.
I hope for UK ECONOMY that Bressay does get developed but a lot of water to go under bridge and the initial phase to access 35m 2P is projected to cost $700m CAPEX.
Actually change that. Serica a BUY and EnQuest a STRONG BUY.
Where did you find reference to tax losses 11. I don't have your forensic skills but I never heard or saw them mentioned?
Hi Stevo - can you expand on 5. Is that because of Malaysia and Magnus?
9. What would be a wet finger guess at gas OPEX? in today's presentation David Latin said that their investment into oil compensated somewhat for lower returns on gas.
I like your comparison. Not apples to oranges but definitely Cox's to a Bramley. Serica dividend since 2020 has also played its part.
I have Serica as a hold and EnQuest a BUY purely because Bressay is such a beast and sentiment has changed with ESG now on the defence. If Bressay passes Go then Bentley starts to be discussed.
Summer is coming.
I forgot to add that Serica’s cash cost per barrel for 2024 is approx $45 per barrel compared to Enquest’s $75 per barrel. However need to reflect that 50% of Serica’s production is gas which is currently realising approx $50 per BOE - so much less profit on Gas BOE.
SEK
I an invested in both Serica and Enquest and I do think comparisons of performance and market caps are useful. However I do not think you have fairly compared the two companies and my takeaways from today’s results announcement are as follows:
1. Adjusted for debt and cash balances, Enquest and Serica have similar EVs
2. Serica’ s FCF for 2023 was $195m after paying $183 of 2023 tax liabilities, including approx $100m of EPL. Enquest reported $300m of FCF but management noted that approx $100m was a result of working capital benefits which are non-recurring and will likely reverse in 2024. Also Enquest will not pay its 2023 tax liabilities of $125m (excluding. $50m Bressay EPL payment) until October 24.
3. Production for 2024 is similar at approx 43k BOPD but Enquest only has an economic and financial interest in 33k BOPD, while Serica has full entitlement to all its production.
4. Serica has limited finance lease liabilities and much lower decom liabilities than Enquest
5. Enquest 2P reserves are 175m compared to Serica’s 140m but, as noted above, Enquest has no economic or financial interest in approx 25% of its 2P reserves and so similar 2P
6. Serica inherited some pretty poor oil hedges with Tailwind that continue through to Q2 2024 which resulted in realised oil prices in 2023 of $70 compared to Enquest’s $82.
7. Serica 50% gas and personally I prefer the more predictable and higher value oil markets. However recognise there is a push to move into gas for ESG reasons
8. Serica CAPEX is adding more 2P reserves than its is extracting. In comparison, despite quite high capex over last 2 years Enquest has added close to zero 2P reserves.
9. Serica has lower OPEX for 2024 ($20 compared to $27 per barrel). However this would be expected with gas mix.
10. Serica paying $100m pa in dividends and $15m of buybacks
11. Similar level of tax losses - Enquest slightly higher.
As noted above I am invested in both Enquest and Serica but I have increased my Serica investment over last month - while Enquest is a hold. Higher percentage gain likely with Enquest shares if oil holds $85 plus, but lower risk with Serica and 12% dividend return. We all pick our own poison but I do not believe, based on above, that Enquest is undervalued compared to Serica.
Seric
I have no idea who owns the HYNs but it's a fair bet nobody on here does. Just because the larger funds prefer investment grade doesn't mean that those who hold are retail. They will be sophisticated investors and have the funds to invest or play. HYN's are also called "vulture funds" and those involved don't worry about titles and often work in the shadows. It is easy to dismiss them as retail. They ain't. They are ruthless and some lack financial probity (as Premier found out) They may be rich individuals but more than happy to trade in a market that the large institutions either ignore or are prevented by mandate from investing in. They will understand the market better than most on here, me included. I very much doubt that EnQuest are buying back unless their advisors recommend. I just know that this is a positive move. The return from here would encourage some to sell and use the funds to attack a weaker company: it's what they do. Buying at this level has limited upside so why buy now? It is (imo) new entrants who think “why not”. If we are merging we might get a higher credit rating or dowry if debt is merged etc.. This is a YTM of c.11%. Pretty safe and could fit in nicely with a smaller fund that looks after high net worth individuals. At the end of the day it is irrelevant whether a credit in your bank account comes from a gilt, Shell or EnQuest.
This is good news and we are so ignored we might need explosives to lift our price.
We have such low daily volumes I can't see anything happening until that starts to change.
The equity is still unloved in the sector and that probably wont change until we can pay a dividend, not really sure why our market value is so low to be honest as we have a proven record of navigating very rough seas where most would have sunk and our debt risk is shrinking by the day.
Where's these buy backs then ?
This time next year Rodder's
I think they would deal with the junior loan first before worrying about the bonds. This is the most expensive debt (13 %) and unlike the bonds it is secured. But nothing should be paid off if there is a two year pay back investment. High time the board announced a deal. Insane not to accelerate use of tax losses.
The suspicion i’ve always had is ENQ are buying the bonds back themselves as they yield 11.6% on par - this opinion is also held by my bond desk although with caveat that ENQs bond holdings are very ‘retail’ - with the biggest position in the 11.6%’s of 20m which is with Fido so clearly a grouping of investments (but the other debt holdings are pretty difficult to buy so this is the easy way to pay off 5-10m blocks
But until confirmed who knows?
As to partners - we’d clearly like one but fact is we are not desperate so it’ll be done if stars align
2014 Maximising Economic Recovery - more like the Bataan Death March since then.
This from David Latin again in the P&J Scotland under the title "NS boss asks if policy of maximising economic recovery has been abandoned"
"The troubling developments in 2023 – and sadly again in 2024 – came from Westminster. Our politicians appear to have embarked on a race to the bottom.
Mr Latin said: “Any ‘windfall’ due to high commodity prices has long gone and the high
tax situation is ill-suited to a mature oil and gas basin such as the UK North Sea.
“Its continuation will not benefit people in the UK either financially or environmentally.”
He added: “Without doubt, times are currently difficult for independent oil and gas companies working in the UK.
“The troubling developments in 2023 – and sadly again in 2024 – came from Westminster.
“First, the government elected to keep its supposed ‘windfall’ profits tax in place long after any possible justification for it based on oil and gas prices had disappeared.
“And then… in the Spring budget (the chancellor) announced they would extend it by a further year to 2029.