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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.
Enquest Plc : Canaccord Genuity raises target price to 33p from 25p
HYNs + 50 points; now 102.00
Today David Latin of Serica said that the UK O&G industry is a "small pond" and everyone knows what's going on. Can they let us in on it?
He said Serica's peers are Ithaca, EnQuest and Harbour. We're the only ones without a dance partner.
Build it and they will come. Where's Ed?
You said it right, Modestus, hypocrites.
How do people think these armaments are made and what do they run on.
It is but a small step from this to declare investments in UK oil and gas also an ethical investment.
Worth reading again what Sunky said:
He [Sunak] said: “There is nothing more ethical than defending our way of life from those who threaten it.”
At the same time, a joint statement was released by the Treasury and Investment Association on Tuesday which added that the defence [and oil and gas] industry “contributes to our national security, defends the civil liberties we all enjoy, while delivering long-term returns for pensions funds and retail investors”.
It added: “Investing in good, high-quality, well-run defence [and oil and gas] companies is compatible with ESG considerations as long-term sustainable investment is about helping all sectors and all companies in the economy succeed.”
His most important and hardest problem to solve will be how to get the drones out of the no job centres..
I think it more a case on "unintended consequences". As a concept and pressures at the time there was a defence for a WFT but expediency should never be written into permanent legislation which is what looks like happening with EPL. Be interesting to see how Jeremy Hunt can make bombs, tanks and missiles "ESG friendly" whilst destroying what is left of the UKCS O&G industry.
Try fighting a war without oil. You can't sit in the road in front of a Russian tank.
In memory of all those who previously helped their country only to see their hard earned initial capital erode
https://www.gov.uk/government/news/chancellor-to-repay-the-nations-first-world-war-debt
https://www.theguardian.com/business/2014/oct/31/uk-first-world-war-bonds-redeemed
Rishi Sunak has urged investors to back defence companies amid concerns that they are being spurned by environmental, social and governance (ESG) funds.
In a statement accompanying a rise in military and industrial spending, the Prime Minister stressed that supporting western arms companies was compatible with so-called ethical investing practices.
He said: “There is nothing more ethical than defending our way of life from those who threaten it.”
At the same time, a joint statement was released by the Treasury and Investment Association on Tuesday which added that the defence industry “contributes to our national security, defends the civil liberties we all enjoy, while delivering long-term returns for pensions funds and retail investors”.
It added: “Investing in good, high-quality, well-run defence companies is compatible with ESG considerations as long-term sustainable investment is about helping all sectors and all companies in the economy succeed.”
It comes after ESG funds showed reluctance to invest in arms companies or nuclear energy producers.
F*ing hypocrites!
Spin, just look at this. I clipped it out of a 50min motivational vid. I'm sure you can find the whole thing if it interests you. But this message is important. I'm trying to tell people and of course they don't want to hear. As a result, I post less (it apparently annoys people who are not of a like mind) and almost no detail now on what I do). Interestingly, I was recently contacted and told to shut up and told if you're doing well, say less. That might have been random, but it might not.
https://screenrec.com/share/LTCJigQWIm
I fully accept a lot of what you say. I have been buying and selling now for a long time and have learnt a lot. Sometimes with expensive lessons but overall I am able to continue with my extravagant life style. This year though I finally decided to remove Aim from the equation. I only have two holding left and their days are numbered. This week my fingers hovered over the buy for a few here but my feelings towards are leaders put pay to my daliance. I have never seen such a load of uninspiring individuals. And that is on both sides. One thing though is cheesing me off. I feel openly gagged...
Sek, you're saying the market is wrong and you are right. But at the end of the day, you have to deal with the value the market ascribes to ENQ. This involves risk, I suspect that your research inadequately takes into account risk. Although I'm an ENQ fan and LTH (do I get a badge for that) I recognise that for the moment I'm wrong and for the last 2 years or maybe more, I've been wrong. Since I recognise that, I've been able to work around it so that I'm fine. But saying something should be one way, is great for discussion, it's great for confirmation bias'ers' but it ignores the market. The market is telling you that there is something else. I believe it's related to risk. I don't understand it (so don't go all detailed expecting an answer on that). It is what it is, we have to work with it.
If you're right (which I believe you are), over time those with investments will gain a good bit I hope. But don't ignore the risk.
Spin, I get the concept, but don't agree. I think you have to be nimble, avoid losses, recognise excactly what you seem to recognise, but make decisions that lead you out of the trap. I really hope you don't believe the old (2020 I believe) addage that 'Time in the market, not timing the market' is the way to go. If you look at the US500, that's a surefire win for 'Time in the market' in as much as you would have made money by just investing and waiting. However, you'd have made more by buying Amazon or one of the other 7 Techs and that would (or should) have been about reconising value rather than passive investing. If you believe something has value today, then you're timing the market. I move from one place to another and it works just fine. But I'm not suggesting everyone would get a soft landing doing that. You need to be good at it, as with anything else. If you're not good at it, then go passiv eand buy an exchange with the belieft the past predicts the future (I have some faith in that, but it's complex). Bear in mind that if you'd bought the wrong market (let's say Nikkei) then if you'd bought in 1989, then time in the market becomes a question of 'how much time before I can get back out of the market without a paper loss). That takes no account of opportunity cost or inflation (inflation not so much a problem in Japan I guess. I think essentially, you're talking about your own experience (as am I) and that you struggle to move from one share to another. Maybe that's because you invest so much into your fundamental research that you don't have time to switch). These are just observations.
Can the valuation of Enquest be justified as against Serica Energy? The latter has a market cap of $956m as compared to Enquest's $375m. This is wholly absurd. First and foremost Enquest generated $300m of FCF in 2023 against Serica's $242m. Second Enquest has 175m of 2p reserves as against 140m for Serica. Third the production guidance for 2024 is remarkably similar 41k - 45k for Enquest 41k -46k for Serica. There is of course an important distinction. Serica has net cash of $96m as against Enquest's net debt of $410m. But the value of Enquest's tax losses alone are $500m. And the effect is that even after servicing the debt and paying BP for Magnus Enquest will achieve superior FCF to Serica for the foreseeable future. Serica has nothing to compete with the potential of Bressay and Bentley or the extraordinary long term potential of Sollom Voe. So I conclude that if the market were entirely rational and analytical it would award a much higher market cap to Enquest. I would say it ought to be at least $1.2bn. But let us put things a little differently. In 24 months time Enquest will also be essentially debt free. It will look remarkably like Serica except it will have the advantage of its still unused tax losses and almost certainly a large increase in 2p reserves as Bressay moves towards production. As it happens I think Serica is substantially undervalued by international standards (particularly the US) as well with its dividend of 12% and the commencement of share buybacks. It is only a matter of time though before the market recognises the completely unjustified differential between these quite similar companies. The far too modest share buybacks will commence before the end of April. The commencement must be announced by the company and the daily purchases must also be announced under stock exchange rules. So they clearly have not started yet.
Take a quick look at UKW (Greencoat). They have been buying back continuously since November 23. Truthfully there appears to be no improvement in the SP although obviously there is a monetary gain.
I have lots furiously doing the same but since Xmas my portfolio has dropped 14%....The FTSE 100 is at record highs but that is because a few have out performed ...
I just take the dividends and accept I am probably in a trap. Jumping about from share to share just makes the brokers rich.
We need a period of stability in the world and at present I cannot see how this will happen. Many years ago I worked in the film industry. There was a small Czech cartoon called 'Attention' . Two stone age men in skins were busy carving out huge clubs. When they had finished they sat back to admire their work and then prompty smashed each other over the head. It sums up what is happening today on the world scene...
In France, state spending is a massive 58pc of GDP, while the US, even with President’s Biden’s huge increases in welfare payments and industrial subsidies is still only at 36pc. A country which has usually been closer to Washington than Paris is now starting to drift the other way.
This is happening across the economy. As Tuesday’s shocking figures for public borrowing showed, even with punishing tax rises the government is still nowhere close to balancing the books, with a deficit running at 4.4pc of GDP compared with 5.5pc for our neighbour. And of course, growth is miserable.
France is expected to expand by only 0.7pc this year, on IMF forecasts, while the UK will only manage 0.5pc. The USA, on the other hand, is projected to roar ahead at 2.7pc.
The problem is that while we’re increasingly mimicking the French public spending strategy, we don’t seem to get anything like the same results. If you are going to have a huge, intrusive state – and of course at least a few of us would prefer that we didn’t – then at least you might as well have the French version.
For all its faults, it certainly seems to have one redeeming feature. It is effective. On almost any measure you care to look at the French government machine easily outperforms the British one.
Such as? France has a far better health system, combining social insurance with state provision, and while the French are angry that average waiting times to see a GP have risen from four days before the pandemic to 10 that is far better than this country, where the waiting time for a routine appointment is 19 days, if you can get to see a doctor at all.
We have huge levels of government spending. We have punitive taxes. The state micro-manages the economy, offering lavish levels of welfare, while constantly racking up more and more debt.
True, we don’t have a boulangerie on every corner, and we don’t have riots every weekend – or at least, not yet. But in almost every other way, however, as Indermit Gill, the chief economist of the World Bank, pointed out this week, the British economy has slowly turned into a French tribute act.
There is just one catch. While France at least gets results from its sprawling state, the UK seems to get almost nothing. We face a fate far worse than our neighbour on the other side of the Channel – French levels of tax and debt, combined with practically third-world levels of investment and public services.
It is one of the ironies of the last half decade that instead of turning into Singapore on Thames or mimicking American dynamism after leaving the European Union, the UK has turned into France instead.
As Gill put it, “the country that used to be most like the United States in all of Europe was the UK. And you guys decided to go and become a lot more like continental Europe. You look like France, not like the US.”
UK economy is turning into a French tribute act – without any of the hits
Matthew Lynn
24 April 2024 • 6:00am
Matthew Lynn
4
Sunak Macron
While France at least gets results from its sprawling state, the UK seems to get almost nothing Credit: Simon Dawson/No 10 Downing Street
We have huge levels of government spending. We have punitive taxes. The state micro-manages the economy, offering lavish levels of welfare, while constantly racking up more and more debt.
True, we don’t have a boulangerie on every corner, and we don’t have riots every weekend – or at least, not yet. But in almost every other way, however, as Indermit Gill, the chief economist of the World Bank, pointed out this week, the British economy has slowly turned into a French tribute act.
There is just one catch. While France at least gets results from its sprawling state, the UK seems to get almost nothing. We face a fate far worse than our neighbour on the other side of the Channel – French levels of tax and debt, combined with practically third-world levels of investment and public services.
It is one of the ironies of the last half decade that instead of turning into Singapore on Thames or mimicking American dynamism after leaving the European Union, the UK has turned into France instead.
As Gill put it, “the country that used to be most like the United States in all of Europe was the UK. And you guys decided to go and become a lot more like continental Europe. You look like France, not like the US.”
It’s hard to disagree. Public spending in the UK rose from 39pc of GDP in 2019 to 50pc during the pandemic, and it has now settled at 44pc.