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As expected, The ENI news we’ve been waiting for …..
The period of exclusivity ends next week.
Will it happen? I think it will be a game changer for the company.
Fingers crossed.
Tamovv
Thank you very much
Hi Asartara,
Sorry, have just been very busy recently. The reason for not having posted for a while is clearly not related to the recent SP drop on top of the dividend deduction and potential frustration.
Well, February production of course didn´t come up to markets expectations. I think the recent drop was caused by a mix of Stifel downgrade, weak 02/24 production and technical sells given this small stock with only 10% freefloat.
As posted on the M&A announcement day, for me the ENI UK transaction seems fairly priced to slightly expensive, but managements explanations for that were reasonable (having a strategic option to make use of the tax losses if investment climate further worsens after the upcoming election). So clearly not that bad/dilutive for current shareholder to solely justify stock price movement.
Commodity prices rallied, other players like HBR benefitted, but in 2024 ITH with lower production profile, higher proportion of undeveloped assets and some lower oil hedges already in place, doesn´t benefit to the same extent (but I am sure they will put some great additional hedges in place as they´ve shown in the past).
I personally sold some harbour to overweight ITH given share prices below 1,20 GBP, but thats no recommendation.
ITH heavilie relies on the UK O&G climate to stay investable, HBR only has one big risk that the Wintershall transaction will not go through (i.e. vetos from certain governments like Germany - which I hope as a German HBR investor will not happen!). So comparing HBRs 2,94 GBP today against ITH 1,20 GBP I decided to overweight ITH given 40-50% potential I see against 20-30% for HBR over 12-18 months. Haven´t looked into Serica yet, so no comment on that one.
For ITHs FC 2024 I agree to what Londoner or Tornado already commented on 02/24 production, it was known to ITHs management when they presented FY2024 production guidance.
However, in my model, I lowered my rather optimistic production estimate of 63 kboe/d (was betting on Captain EOR 2 to contribute to output earlier than guided) to midpoint guidance again (58,5 kboe/d). That causes CFFO to drop to 600 mUSD, equaling 180 mUSD dividend at 30%.
As Londoner already mentioned, 2023 CFFO was negatively impacted by negative working capital movement. Maybe these were even "engineered" by management to have this effect to reverse and support 2024 (their reported 2023 CFFO was exactly sufficient to cover the 400m USD dividend by applying the 30% rule).
So as you can see it´s too early for our models to be accurate enough to aim for precise numbers. Thats why I decided to leave out own interpretation for now and just work with management guidance, trusting in their capabilities and achievement rate in the past.
I would be surprised to be see a 2024 dividend below 180 mUSD, which equals 11,5% yield. Any positive development around discussions with the UK goverment, Cambo, earlier Captain EOR-2 ramp-up etc. should all offer tremend
Tammov
Londoner
Tornado
You have all gone a bit quiet
Do any of you have any thoughts on the recent large fall in share price?
Is it a buying opportunity?
And what do you think about these reduced forecasts?
Do you agree with them?
Do you still expect dividends of $200 million for 2024 and $300 million for 2025?
And which oil company do you prefer as an investment?
Ithaca, Serica, or Harbour?
Https://finance.yahoo.com/news/ithaca-energy-plc-lon-ith-051051241.html
Oil prices slowly moving northwards. $100 dollar oil is very possible within the next couple of months.
Thats what i have been thinking since deal announced and lower profits
Probably because its gone ex dvidend and the dividend for 2024.25 might be at risk
45 pounds loss sold at 128 plus mind you a lot more if sold tday .This drop dose not make sense to me
@ Asartara : Stifel reduced ITH's target price from 157 to 140 pence. Curious how one single analyst recommendation can have such an immediate impact.
Share price is now in oversold territory, looking at the 1 day chart.
We're now at the support level from 12 Feb, 2024.
I've bought more, this morning.
1 day chart:
https://ibb.co/h7MN1pf
Anyone know why there was such a large fall in the share price today?
And how do people here see the valuation of ITH when compared to other UK oil companies such as HBR and SQZ ?
I am interested in oil companies with good dividends and ITH/HBR/SQZ all seem to have good dividends at present
The obvious question though is will their dividends be maintained or increased in the future or will they be reduced
So do people here see ITH as better value than HBR or SQZ ?
I have also looked at BP and Shell but their dividends are less than half the dividends of ITH/HBR/SQZ
Why are the dividends of BP and Shell much less than ITH/HBR/SQZ ?
I am also interested in Var Energy as the valuation looks quite inexpensive
https://moderninvesting.substack.com/p/var-energi-norways-dividend-monster
Reserves: https://www.ithacaenergy.com/operations/reserves
Full CPR: https://ithacaenergy-files.fra1.cdn.digitaloceanspaces.com/NSAI-Ithaca-YE23-CPR-2024-03-15.pdf
2P reserves value at 10% discount rate = $4.35B
2C contingent resources value at 10% discount rate = $3.05B
And yet Ithaca is traded at less than its tax asset. What a bargain!
As per my calculation:
Jan: 42.5Kbbl/d oil + 20.2Kboe/d gas = 62.7Kboe/d.
Feb: 34.6Kbbl/d oil + 18.4Kboe/d gas = 53Kboe/d.
Digging deeper into the Feb numbers.
Pierce was offline in Jan so not a contributor to the 10Kboepd drop. Erskine and Scheihallion contributed 5,360 boepd.
The balance is Captain, 4,400 boepd down in Feb. Again, the status of this field would have been considered in the guidance, but could have been a surprise to the markets today.
Captain numbers have been noisy outside of last year’s shutdown - c. 3K drop between May and June 2023. Probably due to the ongoing EOR works, which are completed this summer. Guidance still had 2024 Captain production higher than 2023, but not by much.
On top of that, Stifel doesn´t like the proposed M&A transaction too much: https://www.proactiveinvestors.co.uk/companies/news/1044363/ithaca-s-proposed-eni-deal-is-the-right-strategy-at-the-wrong-price-says-us-investment-bank-1044363.html
"However, Stifel views the price paid for these assets as not particularly value-adding, equating the equity issued for the acquisition to the assets' value, thus creating no additional value from the transaction."
80p translates into 1 bUSD market cap., thats an interesting valuation.
Tax loss position sits at 4,5 bUSD, thus shields against corporate tax until 2029/30 in my opinion. Based on that, even without Cambo, ITH should be paying 200-400 mUSD annual dividend so 1,4-2,1 bUSD by 2030. Even if you consider ITH worthless by the time it consumed its tax asset because of no new Northsea investments and if you discount the expected dividend cashflows, you should arrive at more than 1 bUSD in any case (the 20% Rosebank share not considered).
But I am highly invested and might be biased.
Feb production is down c.10Kboepd on Jan production.
Ithaca confirmed the issues at Erskine and Pierce, which were fully offline in Feb, although the news on problems related to the infill drilling on Schiehallion was new to me, apparently the market was aware. (?) My take from the update last week is that Schiehallion is sorted, Pierce close, but little was said on Erskine, though I think I saw the problem related to a host facility, rather than Ithaca’s operations on Erskine.
As I like to remind myself ‘stuff happens’ in this industry, and it’s rarely good. That said, these Feb production numbers were known to Ithaca when they gave their 56k-61Kboepd guidance for 2024. However, the market (algos) is unlikely to react favourably to bad news even if flagged.
Just quick thank to the numerous posters for the really informative/insightful considerations in the last couple of days, on the EPL, forward looking dividend, ENI. The detail, the number crunching delivered takes time (I know having done likewise for other stocks I hold), and.to do such, to share such here so we don't all have to, is a true service. So thank you.
My tuppence, I'm a big fan of ITH. EPL or no EPL/replacement EPL they are laser focused on returns e and we will get such riding Delek's coattails. And the ENI deal sounds great, if only at the level of garnering economies of scale/efficiencies.
This is well overvalued compared to others !! I called this when it floated around 250p which was ridiculous and was only going one way .
This will be 80p in the next 18 months so still worth shorting.
In this political climate does anyone think Cambo is likely?? I am hoping the Eni deal is the launch pad for this to happen. Seems highly unlikely and 78 % proper wind fall tax on route it is hard to stay positive
I think it was Stevo12 who clarified aspects of the EPL (including the timing of payments related to tax loss status) in posts on the ENQ and HBR board.
Historically, in the UK non oil gas sector, capital spending was written off over various periods of time depending on the asset purchased. Recently, the UK has gone to full expense of capital, though there will still be historic capex to write down, D&A as you describe it.
However, the UK oil gas sector has operated essentially full write down of capex for a long time – 40% first year capital allowance against a 40% tax charge. An additional 6.25% allowance was added after the asset moved to production.
When the EPL was 25% the EPL allowance included an additional allowance of 80%, providing a total allowance of c.91%. (1.8 x 25% = 45%)
When the EPL was raised to 35% the EPL additional allowance was reduced to 29% to maintain the total allowance at c.91%. (1.29 x 35% = 45.15%)
Incidentally, this highlights the ambiguity of the political debate on removal of EPL allowances and the increase in the EPL rate to 38%.
There can be little doubt that the complete removal of the EPL allowance would make any new investment in the North Sea difficult to justify, but there is room for Labour to claim political capital out of removing the ‘addition’ EPL allowance – sometimes referred to as the super deduction – while still providing a case for North Sea investment.
If full first year capital relief was allowed against the EPL at the new rate of 38%, then this would align with the capital relief applied to the rest of UK business.
With the removal of the additional component of the EPL allowance – super deduction - the total tax relief at an effective tax rate of 78% would be (46.25% + 38%) = 84.25% (78% first year capital relief, plus the 6.25% relief on production).
I sensed the Ithaca chairman sees this as a possible outcome – a Norway solution.
I also listened to Ithaca’s presentation a second time. Two points formed in my mind. One, the ENI assets are unleveraged, meaning no associated debt coming across to Ithaca, and whether the assets carried tax losses or not, Ithaca would be able to offset their own tax losses against profit, so in the near term only the EPL charge applies. Two, clearly Delek is familiar with the UK political landscape and would be looking at ways to alleviate the worst-case impact, i.e. the complete removal of allowances associated with the EPL. In which case, only Rockwell would be completed, albeit perhaps with loss of allowance on half the investment, but unlikely to see any further, non-regulatory investment made in the North Sea.
Against normal field decline, ENI adds c. 40K boepd now, Captain adds c.15K bopd from 2025-6, and Rockwell adds c. 15K+ boepd from 2026-27.
The applied tax rate would be 38% until the current CT losses are used. No doubt Delek and ENI will be looking for full dividends along the way, with room to increase