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Rom
I would add Waldorf, RockRose and Neo to the list.
PS I am a VET-shareholder and i do hope the rapacious UK Government will be legally challenged by several oil companies too.
Stevo agreed. It is all a function of gearing which does as you point out favour Enquest with Brent at these levels. A $120m uplift for Enquest holders is around 30% non taxable return. A $120m dividend for Serica holders is 12% taxable return. I do not like taxes. I do not like dividends. I love share buybacks.
R , the more I look at it I feel AB isn’t up for merger … he’s more acquisition imho … seems to be placing his team for gaining producing barrels @ great efficiency … Veri energy is the political foil… imagine if he decided to relist Veri on Nasdaq and leave Enquest on LSE… just musing over croissant and sunshine :-)
SEK
Fully agree that both Serica and Enquest are under valued. In fact on any normal metric all UK NS operators are undervalued but this reflects the fiscal uncertainty that remains and will continue until Labour finalise their position.
On comparison of FCF for 2024, I have Serica generating approx $80m more FCF than Enquest in 2024 if Gas remains at 80p per therm and oil at $90. Key difference in 2024 is Serica’s all in cash costs are $45n per barrel compared to $75 for Enquest. However due to lower gas prices ($50 per barrel equivalent) and poor oil hedges in Q1 and Q2, I have Serica's revenue per barrel $25 less than Enquest at $90 oil. Net effect is that I have Serica generating $5 per barrel higher cash flow in 2024. If oil drops to $80 per barrel, Serica generates $14 per barrel higher FCF per barrel.
The key difference in 2024 is that Serica will use its FCF to return approx $120m to shareholders and Enquest will repay debt. The debt repayment by Enquest of say $120m should result in a similar rise in Market Cap. So in theory, with Enquest we should see a higher % gain in share price than Serica with Serica’s shareholders receiving more of their return in cash via dividends.
Of course theory and reality often very different
Tigar
If you go to note 28 and look under the section headed liquidity risk. The table in this note breaks down the BP payments to be made in 2024, 2025, 2026-2028 and 2029 onwards. This is a very useful note as it discloses both the projected payments to BP but also they same detail on lease payments.
ENQ in the low 15p and Brent up at $89.59, we should be having a decent bounce purely based on the Brent price, but nothing, plus volumes have been very low. I cannot understand why the analysts are not issuing or reiterating targets. It seems that ENQ and NS O&G have fallen off the radar. I just hope that ENQ's ridiculously low valuation represents a coiled spring that will eventually fire the sp upwards. I can't remember owning a share that has been so incredibly undervalued, particularly given the level of debt reduction - why does the sp not reflect the ENQ's net asset value and FCF?
Where 's the free market?
https://www.telegraph.co.uk/business/2024/04/25/vauxhall-maker-threatens-quit-uk-market-net-zero-crackdown/
Very similar to what happens to our sector. We have the privilege of punitive taxes until 2029 because the Government wants to force a much more expensive alternative upon the populace. Anyone still thinking consequences of net zero and electrification won't be detrimental to financial health, have simply a look at what copper prices are doing....
9 X cheaper....
BT, as far as I recall there is only 1 analyst note (Cannacord) currently at 33p or more. When the majority of the analysts have 33p+ it will be closer to unbelievable.
Does anyone know if there is available a consolidated list of the targets if the 5 analysts covering EnQuest?
https://www.enquest.com/investors/analyst-coverage
(James Hosie left BC over 6 months ago)
It is a lot to take in but it seems (to me) that the majors have all but left the scene in the UKCS. I'm suggesting the 'Peer Group' of mini-majors is.
Harbour
Ithaca
Serica
EnQuest
In the closing of the Ithaca Eni deal I read this: "although it should be noted that the Merger Ratio was determined between the parties on a relative net asset value basis rather than with reference to market share price." This to me is an admission that with the current political uncertainty the prices of all parties in the NS it is one of the worst indicators of value. Both political parties are guilty of this and I wonder what happens when they need the partnership of the remaining O&G companies? For sure they don't trust each other.
Spirit is still about and is predominantly gas (96%) not surprisingly with Centrica owning 69%. I think we can leave them on the sideline from a peer perspective as they are not really O&G. A faint connection is that AB did say we'd look at more gas and Neil McCulloch is ex EnQuest.
I realise there is still a plethora of small companies in the NS but in the new order the peer group of largish production companies seems very small and comes back to the comment by David Latin of Serica that it is "a small pond and everyone knows what's going on".[Everyone doesn't include us]
Have I missed anybody?
Jan, I know this half million trade would normally be a UT and appreciate your responding. I was surprised that there should be such a large UT on such a low volume day, hence my wondering if it were a buyback trade. Thank you for putting me straight.
We have a lot of chunky sells going through each day pressing on the SP
Buybacks may help whenever they start t
This is just utterly unbelievable, we have broker notes of 33p, poo is about to go through 90 dollars and buybacks are days away we should be at 25p and not ruddy 15p.
Stevo. Bressay clearly has a current value to Enquest in that 15% has just been sold with 15% of that rust bucket which is Enquest Producer for $58m of net of tax upfront cash. It is soon to produce gas which will save $30m a year. Once we ascribe a value of say $400m or so to these assets alone we have already exceeded our current market cap. You have suggested FCF of $180 -$200m for 2024 and $234m for 2025 at more or less current Brent with no further deals. I am wondering if you have made similar forecasts for Serica? I do like the latter and it is an obvious candidate for a merger.
Stevo12
I agree about 2C resources. But even if we were to assume that all your numbers are correct, the company is still very cheap. The stock price is a joke. Should have already been over approx. 30 GBX.
Stevo12
Thanks for info I couldn't find that info in accounts on note 28? I was looking at note 22 and they did say " At 31 December 2023, the contingent profit-sharing arrangement cap of $1.0 billion was forecast to be met in the present value calculations" I am afraid accounts written by accountants for accountants.
Looking forward to 9% bonds pay out May, and shares will come good at some point.
AIMOking,
Sorry - The half million trade was NOT a trade ! (buy or sell)
It is the UT, Uncrossing Trade used by the market makers to balance their books and set the stocks closing price of the day !
OilKing
Not trying to defend myself but my 2023 FCF forecast were based on management guidance provided in September and November which turned out to be materially incorrect but thankfully positively incorrect - I guess I am trying to defend myself.
In response to your points
1. Enquest tax losses are higher than Serica’s - approx $200m higher at 40% rate. These will be used over several years and annual impact is not material. What is more important is that Serica can currently only use its losses against Tailwind profits..
2. Magnus represents 45% of UKNS production and I have assumed they will also account for 45% of 2P reserves (as not disclosed) and accordingly BP’s share is 25m barrels.
3. I have not explained myself clearly enough re Malaysia. As you not PSC are common place in many countries and in Malaysia The government apply a royalty of 10)% of revenue, take 40-50% of operating profit under the PSC and then tax residual profits at 40%. What I was trying to say is that while Enquest is producing approx 8K BPD and has 2P reserves of a little under 30m barrels, approximately 1/2 of the profit earned form these 2P barrels is paid to Malaysian gov under the PSC and Royalties. My goal was to provide a more comparable basis with UK production.
On 2C reserves, the market is not attributing any value to these reserves due to EPL. As an example HArbour gave up its share of Bressay 2C for no consideration and Shell also passed its interest in Cambo to Ithaca for no consideration. I recall Enquest paid a couple of £m for Bentley pre EPL. Nice to have 2C reserves but no value currently ascribed by MR Market.
Topped up again, if Brent holds at the $86-88 range or higher, then the sp will surely rise into the next update, backed up by buybacks - I wonder if the late almost half million trade was the start of the buybacks. I assume ENQ will want to get a couple of purchases and then RNS to say they have started buybacks.
SEK
I fear that the negative working capital of approx $50m in Jan/feb was a reversal of an unusual timing issue at 31 December 23 as disclosed by management and may not reoccur in March/April.
We will see at next trading update.
Kraken
We pay to BP the FCF earned from 37.5% of Barrels sold from Magnus. This is effectively 37.5% of Magnus revenue-Magnus OPEX- Magnus CAPEX.
What I have tried to highlight is that Enquest retains 62.5% of Magnus FCF but the reported BPD production and 2P reserves is 100% of Magnus
Rom
In simple English, Enquest have $1.7b of tax losses which are deemed likely to be used as compared to Serica who holds approx $1.1b. Enquest also holds Bentley losses over over $1b and not sure if theses are purely ringfenced for Bentley taxable profits.
Serica’s losses can currently only be used against the Tailwind profits and so does not eliminate 100% of core UK tax.
Tigar
Unfortunately not quite. The amount still to pay BP for Magnus is $824.9m (see note 28 of 2023 financial statements). The $461m is the NPV of the future projected payments to BP for Magnus. Copmpany’s projections are that they will not pay the full $1b of contingent consideration but this is of course dependent on future volumes, oil price and OPEX.
Company forecast 2024 BP payment reducing to $46.5m due to high Magnus CAPEX. Should be approaching $100m a year thereafter.
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.