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One to watch ....
Tamovv,
Looking at this section from your post:
EBITDAX 2023E: 1.800 mUSD
- 120 mUSD financing costs
- 660 mUSD DD&A
Accounting profit before tax: 1.020 mUSD
Corporation tax (at 40%, without applying tax losses): -408 mUSD
EPL (35%): -449 mUSD
CFFO: 822,5 muSD (30% equals 250 mUSD, so nearly sufficient to close to gap to the 400 mUSD divident target this year)
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Your interest is in the Cash Flow From Operations (after tax) number. What was that number in 2022?
The presentation slide 23 has net cash from operating activities at $1.723m. This seems to me to me the metric for determining dividend payments. The slide doesn’t include tax payments but if I deduct the $184m tax charge from EBITDAX I get $1,732m, so isn’t that essentially the calculation?
The 2022 tax charge of $184m, included $131m for the EPL, leaving a $53m conventional tax charge. My understanding is a ‘net deferred tax asset’ of $392m should result in a low level of conventional tax in 2023. But I’m not an expert in oil taxation, e.g., where does $53m in 2022 come from? Next month’s Q1 numbers might help. In the meantime, I’m going to focus on the EPL charge.
I don’t see where you get EPL $449m. I have $283m. But rather than looking at the detail of my EPL calculation I think it’s worth reflecting on the $131m 2022 EPL charge as a point of reference.
2022 EPL is paid on a cash flow from Ops number of $1,723. Abex and finance costs are non-deductible, but lease principle and CapEx spending is deductible.
Given your 2023 EBITDAX $1,800m is below the 2022 number $1,916m and 2023 Capex guidance S420m is above the 2022 number $381m, and both movements reduce impact of EPL in 2023, then grossing the 2022 EPL charge will set the limit for the 2023 EPL charge.
2022, 7-month CPL charge, ((131*(12/7))/25%) = $898m equivalent FY EPL liability before 25% rate.
For 2023, 35%*$898m = $314m.
Therefore, based on guidance and current oil& gas prices the 2023 EPL charge will be <£314m.
* On the lower Q1 production I’ve revised my 2023 Q1 EBITDAX down to $475m (same as 2022 Q4)
Please forget the below, I had a massive formula mistake. Seems like I shouldn´t be working with Excel after being a night our partying...
Sales 2023E (at 72 kboe/d and 85/85 oil/gas): 2.237 mUSD
Net Sales (after positive gas heding effect): 2.362 mUSD
EBITDAX 2023E (19 usd/boe and 62 mUSD admin): 1.800 mUSD
I have to correct myself in another point, which has a non-minor positive impact. My approach regarding financing costs was way too unsophisticated and resulted in an error. Despite catching myself to be on the rather too optimistic side, the finance costs posted below are way too high (I could have noticed that 200m at 1 bUSD net debt. doesn´t fit, even in a rising interest rate environment):
The 200 mUSD financing costs in 2022 did include a non-cash part ("Accretion"), as well as it has to be recognized that net debt. was higher mid of last year, so some banking charges should disappear in 2023. The senior debt. is stable, so I will carry-forward these and adjust the other parts as follows:
Financing debt 2023E should consist of,
Interest for Senior notes (625m): 62 mUSD
Interest for RBL and other charges: 50 mUSD
others: 8 mUSD
Total 2023E: 120 mUSD
EBITDAX 2023E: 1.800 mUSD
- 120 mUSD financing costs
- 660 mUSD DD&A
Accounting profit before tax: 1.020 mUSD
Corporation tax (at 40%, without applying tax losses): -408 mUSD
EPL (35%): -449 mUSD
CFFO: 822,5 muSD (30% equals 250 mUSD, so nearly sufficient to close to gap to the 400 mUSD divident target this year)
From 2024 at 78 kboe/d and 85/85 USD/boe CFFO could improve to 1.280 mUSD, so depending on a potential price floor a 30% dividend distribution rate can be sufficient to keep 400 mUSD. Please forget what I´ve posted on yesterday.
Nevertheless, without a proper price floor, CFFO remains below 0,9 bUSD even at potential 82 kboe/d in 2025.
So my general statement, that 400 mUSD dividend could end up a "one-off" this year remains intact. Really seems like some fiscal support is needed to maintain the 2023 dividend.
Hi guys,
I updated my model by incorporating the exact hedging schedule and lower revised 2023 guidance:
With 72 kboe/d I get to 1,5 bUSD sales (before hedging) and net sales 2023E of 1.620 mUSD (after 130 mUSD hedging loss oil, but 254 mUSD hedging gain Gas against current UK gas price of 85,38 USD/boe).
2023E
Net Sales: 1.621 mUSD
Operating costs: 499 mUSD
Admin: 62 mUSD (2022 included high level of transaction related costs i.e. siccar point)
EBITDAX: 1.060 mUSD (72 kboe/d, 85 $/boe oil, 85 $/boe gas)
Net debt is stable, so 200 mUSD for Financing costs for 2023
DD&A to be stable too at 660 mUSD
Regardging the taxation, I might need some help from the experts here, I am trying to figure out how CFFO (after tax) looks like 2023 at 72 kboed/d.
Accounting profit before tax should be: 1.060 EBITDAX -200 Financing -660 DD&A, so roughly 200 mUSD only
Thereof 40% leads to 80 mUSD corporation tax charge 2023
EPL is more complicated (too complicated for me):
EBITDAX 1.060-200 mUSD Financing (not sure if deductible, but if not figures look crazy) - 395 mUSD Investment relief (92% of 430 mUSD midpoint CAPEX guidance) = 465 mUSD "profit before EPL", thereof 35% should lead to 163 mUSD EPL charge
Coming back to CFFO:
EBITDAX-Financing-Corporation Tax-EPL charge = 1.060 - 200 - 80 - 163 = 617 mUSD Cashflow from Operations (after tax)
Management guidance confirmed dividend payment range of 15-30% of CFFO (after tax). Thus 2023 max. 185,7 mUSD.
133 mUSD have been payed already. This was questioned during the conference call. I understood that it basically came from 2022 due to timing/trifferpoint issues based on the IPO date.
However, by doing so, I get to a max. dividend of 300 mUSD 2023 rather than 400 mUSD "dividend target", which was confirmed during the call on multiple occasions (why? how?).
The only possible explanation I have in mind, is that actual negative cashflow from EPL will occur (partly) in 2024, so there is more cash left in 2023 to pay the 400 mUSD dividend.
Unfortunately 2024 doesn´t look much better in my model. Even based on 78 kboe/d production and no EPL at all (i.e. very positive pricefloor), I get to 755 mUSD CFFO based on a 1.020 mUSD EBITDAX (fewer hedging gains weigh out higher production).
Thus, 30% of 755 mUSD is 225 mUSD Dividend for next year only, which is way off the 400 mUSD.
Please correct me if I´m wrong, hope I´ve missed something, otherwise I would turn much less bullish. 225 mUSD would give a forward 2024 dividend yield of 12,5% (and this already assumes a full price floor in my model). IPO yield was around 11% for comparison.
Jefferies and Co. highlighted the 21% current dividend yield as well, but for me it currently seems like a "one off" in 2023 as result of the 133m payment (deferred from 2022).
Hmmm. I said this was overvalued at 196p and again at 180 and it’s now 147p or down 41% since it’s overvalued IPO.
At the current price it’s still double the EV it used to be when it was taken over as a 50k barrel producer. It’s now a 70k barrel producer. So ideally I’d be buying at 103p as an equivalent target price, however I did think it was taken over very cheaply so perhaps we might not quite get there. Though it doesn’t seem to be turning around much so far, especially if dividend gets revalued.
Jefferies believes these deferrals are unlikely to have much of a cash impact at current crude prices nor on the US$400m dividend "target" for financial year 2023.
'Buy' with a 245p share price target is Jefferies' view, but investors seem sceptical that Ithaca will make good on its ‘target’ with the shares down 5% at 147p
Pretty solid management call, you were right regarding use of cash for M&A instead of net debt. reduction.
Dividend has been strongly reconfirmed by all three participants as well.
Sounded like they will proceed with Rosebank for sure (was clear since the operator increased stake to 80% recently), adding 15 kboe/d from end of 2026 for their share, cambo will compete for capital against M&A (obv. depending on the way forward with EPL).
Hedges slightly improved acc. to my amateur understanding.
So nothing to complain for now (my impression after the reading of the press release was much worse), they commented on their current dividend yield without mentioning a concrete number :D, but for me the close to 20% with 19 years reserves life of ITH are INSANE.
Thanks! Listeing to the conference call right now, will post some impressions here.
Tamovv, I've only made a quick pass on the report. I'll go back to it after the presentation, but to your points
Agree, Q1 and FY production guidance disappointing, No doubt the market was aware the issues. I'm new here so hope for clarity on the call. I thought Pierce had started production in Dec.
Q1/Q2 2022 predates the acquisitions. Closing net debt $960m, net cash spent on acquisitions $957m, so if debt free was an earlier goal that's close enough for me.
RBL will have been impacted by EPL. The new level of $925m takes that into account, leaving $325m head room and $250m cash. I suspect EPL adjustments are still in play, but apparently not today as part of the energy policy update - politics?
$400m dividend for 2023 financial year is reconfirmed. The 15-30% metric is for 2024 and beyond.
A couple of good items:
Received $51m in Feb from judgment in their favour - not previously counted.
Some beneficial improvement in the 2023 gas hedges, but may be modest. The presentation slides should be clearer than the text.
Figures are out, I´m not too happy about the updated 2023 guidance. Volumes down, seems like they´ve had operational problems during Q1 (which are supposed to be solved by now).
Heard management in some Q1/Q2 2022 conference calls talking about being net debt. free at YE22 as well, net debt. remained unchanged.
Looks like the banks have cutted there liquidity lines as well, because they flag lower available drawing room.
For me dividend of 400 mUSD is at risk as well. 15-30% of post tax OCF are mentioned, will be quite close 2023/24 given current commodity prices if EPL remains unchanged.
I had Wed in my diary, but I see their calendar does say Thurs 30th, so thanks for the heads up.
Looking back to an earlier post, I said, "I've made estimates for 2022 Q4 and 2023 Q1 EBITDAX of $530m and $580m respectively."
I don't see how I could have got $530m EBITDAX for 2022 Q4 - guess I had a typo in my calculation - now c.$475m.
We should see a tighter estimate on 2023 Opex and Capex, which will help the 2023 calculations but any additions to their gas hedging position in 2023 is likely to have a greater impact given the recent pullback in day ahead gas prices.
Hi guys,
will be an interesting week for ITH in my opinion. FY2022 results to be released this Thursday, conference call 9 am British time.
On top of that we´ll have the UK energy security event on the very same date.
Keeping my fingers crossed!
PS: parent company Delek and sister company Newmed Energy both to release Thursday as well, but both dates are not 100% precise acc. to my experience, they might release earlier. Especially Delek includes consolidated Ithaca results... ;)
Perfect, thanks. So we are not to far off each other. Stevo just posted HBR FCF of 800-900 mUSD 2023. So if you two guys are right, HBR and ITH are still very close to each other this year despite 2,5x difference in daily production, crazy what hedging can make as a difference...
The deferred tax asset at ITH is the reason why I´ve applied the unusual low corporate tax rate of effective 15%.
Looking forward to ITH posting their FY results end of this month. I am big in Delek Group because of Leviathan Gas field, but added to ITH recently instead.
Hi Tamovv,
I've nothing to add numbers wise until I see the detail on the 2022 final numbers and 2023 guidance. But your view that CapEx will be lower than 2022 and your expectations on the 'conventional' tax are interesting.
I'm new to Ithaca 2.0 and looking forward to getting up to speed on their operations with the finals presentation.
But I wonder if enough has changed wrt Cambo financing to cause much change from confirmation of the $450m-$550m 2023 CapEx made only last Nov. Also, I never expected 'spades in the ground' on either project in 2023 so I don't see a significant 2023 CapEx impact.
The 2022 H1 acquisitions added a significant deferred tax asset, which should reduce their exposure to 'conventional' tax in the last half year and 2023. That's my expectation, but stand to be corrected. We'll know more later this month.
Error noted, so getting to 1.000-1.100 mUSD FCF rather than 1.200 mUSD.
Overall statement still the same, should be a close race between ITH and HBR in terms of FCF, whereas HBR runs 2,5x the daily output.
From 2024 on HBR is in the lead again - all else equal - due to the expiration of the very poor 2024 gas hedges.
Thanks londoner!
"The Group achieved an estimated average production for Q4 2022 of 80.8 kboe/d, ahead of management guidance of 77–80 kboe/d"
Q4-run rate given in the last trading update was already higher than FY guidance, this made me use an optimistic 82 kboed having in mind this flagship project captain with the following information:
"C71 well online in October, C72 completion activities ongoing", so I assumed during Q4 with 80,8 run-rate Captain did not deliver full contribution.
However,...thats not the topic for now ;)
CapEx 2023 are a questionmark, I agree, but since I´ve highlighted them complaining about financing issues with Cambo, I don´t expect much progress with the leggacy Siccar Point projects this year, so I am using 300 mUSD (slightly reduced from 2022 because of completion of work at Captain).
250m Admin&Financing based on H1-2022 run rate, assuming lower indebtness covers interest rate increase. This assumption should be on the safe side, because debt reduced more than interest fees have risen proportionally.
D&A 600 mUSD based on H1-2022 run rate.
Thus my rough P&L looks like:
EBITDAX 2,1 bUSD
- 0,25 Admin/Finance - 0,6 D&A
EBT 1,25 bUSD with 15% effective tax rate for corporation+supplemental tax (based on H1-2022 details) = 187,5 mUSD
EBT.WFT 1,6 bUSD with 35% EPL tax rate = 560 mUSD EPL charge
So Net earnings approx. 0,5 USD -> FCF (adding D&A) of approx. 1,2 bUSD as stated below.
But agree, I am always on the rather optimistic side!
Tamovv, your understanding of puts, swap and collars looks good to me, but premiums are paid on the puts and swaps. This may only be a couple of $s - depends on how tight the contracts are to forward pricing at the time the contract is purchased.
You describe Ithaca's hedging information as complex. I'd describe it as detailed. Broken down by quarters is considerably more informative than the average year numbers provided by other companies, given the volatility of pricing. Also, it highlights gaps in the schedule - I wonder if Ithaca took advantage of the pop in gas prices in Dec to add collars to 2023 Q4. The next update will tell us.
Given volumes and Opex It's relatively easy to work out the EBITDAX numbers but for FCF you need EPL, CapEx, finance costs, etc.
You've assumed 82Kboepd for 2023 but latest guidance is still the 72-80 number provided at the time of the IPO. CapEx guidance is also wide, but higher than 2022.
I've made estimates for 2022 Q4 and 2023 Q1 EBITDAX of $530m and $580m respectively. But I'm holding off on a FCF estimate for 2023 till we get fresh guidance later this month. My preliminary look points to $800-$900m FCF in 2023, but that is a very rough estimate, with volumes and CapEx the biggest unknowns.
With todays prices of 117 p/therm and 81$/boe for Brent it get to 96 mUSD heding loss for oil, but 230 mUSD hedging gain for gas, so overall hedging gain of approx. 134 mUSD for ITH, not bad compared to HBRs hedging loss of 1.850 mUSD this year...
Thus, I see ITH at 2,1 bUSD EBITDAX this year despite massive drop in the UK gas price. This should result in 1,2 bUSD FCF this year, so even better than HBR despite the fact I have assumed 82 kboed compared to 195 kboed at HBR...
Please correct me if I have made any mistake!
Hi guys,
just trying to wrap my head around Ithacas heding for 2023.
Since HBR hedged gas 2023 so poorly (please find my corresponding post at HBR thread), I realized to have to focus more on hedging.
Ithaca shows a schedule on page 20 of their presentation dated 30 Nov. last year.
Harbours schedule was straight forward and easy to understand for me, Ithacas looks more complex with Puts, Swaps and collar floors. As said before, I am not an O&G guy, so dealing with this for the first time.
Lets ignore oil for the while, because all prices are close to market price at the moment. But for gas, I see Puts, Swaps and Collar Floors at 195-248 p/therm, which is twice the current market price level!
I understood that:
A gas put gives Ithaca the right to sell for i.e. 200 p/therm in Q2/Q3 2023 (so only executed if favorable)
A swap is a binding agreement to sell for the given price, i.e. 217 p/therm in Q1 2023
A Collar floor seems to combine calls with puts to fix some range around a an expected price, so in my calc. I would keep things simple as handle a collar similar to a put (since we are significantly above the current market price at the moment)
Please correct me if I´m wrong, in the meanwhile I will start building a model to calculate the potential hedging gain for Ithaca this year.
What can we expect?
Thanks., londoner7. You are correct. My bad.
tornado10, my interpretation is that there will be 3 payments of c.$133m making a total of $400m for 2023 paid as follows:
1st payment next week
2nd payment after the 2023 interims
3rd payment after the 2023 finals - that would be Mar 2024, so 2x cash payments this year.
For the 2024 financial year, (1/3 of $420m) $140m paid after the 2024 interims, and the final dividend of $280m paid after the finals are announced Mar 2025.
@londoner7 - Ithaca plans on paying 3X$133M dividend in 2023.
Planned divi is 400M in 2023 and $420M in 2024.
See prospectus §3.1.6 on p. 5; §3.5 on p. 81; §16.1 on p. 122.
Tamov
I think the key challenge with Cambo is finding 1or 2 partners and the risk that Labour pull the investment allowance in 2024/25 right in middle of development.
Cambo is affordable for Ithaca but it would be high risk to push ahead as 100% operator.