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Thanks for you very comprehensive answer. I shall study it and the references it provides.
I suspect that (ironically) the fiscal situation will be very similar whoever wins the next election. Tax revenues will be essential, and so either party will need to get taxes from oil and gas without killing the industry. Labour will probably face greater pressure from public sector unions for higher wages, so face either (winters of) discontent or stagflation.
I think it depends on the profile of the firm. If you own producing assets, having bought them with leverage (or added to your assets through M&A), you have a finely-tuned model that has been blasted to bits by EPL. Consider - if you have an expensive, moderately producing asset with loads of tax-losses, you are not paying 40% normal corporation tax for O&G. Pre-EPL, you eek out your profit tax-free, minus cost of leverage and decommissioning costs (paid into an escrow account and adjusted for inflation). During the last few years, EPL (not deductable) has cut a big hole in your profits. The cost of leverage has skyrocketed. Inflation has pushed up your decommissioning cost payments. This renders some firms basically bust, and meanwhile you have to ask the regulator to be able to stop producing, a timeline of maybe 2 years! It's basically nationalisation.
If however you don't have tax losses, and you have more profitable fields, Investment Allowance is more critical. GBA is in shallow water, reused infrastructure and should be a profitable, lower cast development. GBA can tolerate EPL at 78% - the asset value just drops to accommodate the yield. However in our case the Investment Allowance is critical as it dramatically reduces CAPEX.
I believe from having talked around, the worst case tax scenario (both EPL increase + removal of all allowances) puts GBA at risk - even then Neo might proceed as what else will they do with the FPSO - instead of modest profit they now scrap it, lose an asset as well has reserves etc. I think some kind of moderation will save the project. As 'loophole' is undefined, it's not a U-turn for Labour to clarify this in a more advantageous way.
Finally - I have had industry friends tell me that if Labour does remove the investment allowance completely, all NS investment other than a bit by BP and Shell (who do it probably to take pressure of their global profits by their HQ nation) will stop. Cambo, Rosebank, pretty much everything. This will be communicated to Labour - I doubt they will want be forced to renege on punishment taxes in order to facilitate high-profile developments that ignorant greenies in our country hate. That is some egg banjo eating.
To address your question more specifically, I don't think you can use the allowance to invest in renewables. I had a look here: https://www.gov.uk/government/publications/cost-of-living-support/energy-profits-levy-factsheet-26-may-2022
One interesting point is that there are a whole host of deductions (loopholes!). Labour could remove only one deduction and still have 'closed a loophole'.
I'd be interested to know if I have this correct:
Under the present tax regime its better to not pay dividends ?
So in the early years you reinvest profits into the project thus minimising taxes.
In the later years you reinvest profits into (for example) a wind farm, again minimising taxes.
At some point you sell the assets and pay taxes on the capital gain.
Under this scenario its the reinvestment relief changes that are the most critical ??
Re: onthe6 - " Dividends after 78% tax. How much would that be? "
If Neo/Jog/Serica think there will be sufficient profit at 78% tax to go ahead with the development, there will be sufficient profit to pay good dividends - and I dont think neo and Serica have come this far to be deterred by another 3%tax, and I think the latest Zeus note says it doesn't have a big impact on anticipated net revenue
It would be sadly amusing to see crude prices rise (many have a demand bull case until 2040 - I don't think the developing world ex-china -is going Tesla align with the growth) whilst with little UK production no tax receipts to offset this. Just a little island with a windmill up its @ss
Headline in the Telegraph: Demand for electric cars slows sharply as customers revert to petrol. Red Ed on the wrong side of public opinion (again).
labour mindset:
pre-election
1) say enough pro-green stuff to attract votes and internal stability
2) grab money from any source to max spending (especially the hated o&g sector? two birds)
post election (or as we get closer to reality)
3) projects being pulled, such as cambo, rosebank etc
4) tory epl is already busting value investors that made levered purchases of mid/ late life producing assets - we will start to see bankruptcies etc from independents in coming months says industry mate.
this precipiates
5) job losses en masse, angering gmb and unions in solidarity, make headlines
6) as per zeus, medium term fiscal wrecking ball (don't underestimate how fine tuned budgets are; strip out 5% tax revenue and uk plc has a big problem)
7) massively curtailed spending and optionality in government
they will be working this out now. don't underestimate how ignorant politicians are - they spent 50% of their time just surviving internally, and the rest thinking about what to say externally making them popular. many people on this board are well better informed.
loopholes is not yet defined. lobbying is going on hard and the **** has hit the fan in ns regardless. we will get moderation i think now before the election - projects and thus tax reciepts have, are being, and will be cancelled soon.
the stock must then shoot up. don't be out now.
You haven't upset me, MPO
UK fiscal uncertainty may be over emphasised by the stock market. The recent dip in the
JOG share price has coincided with a degree of UK oil and gas tax regime uncertainty. In the
recent UK budget, the Energy Profits Levy was extended to run for a further year, from 2028
to 2029. Prior to this, the Labour party (seen by many as the incoming UK government) had
released a statement proposing an increase in the EPL from 35% to 38%, extension to 2029
(now enacted by the existing Conservative-led government), and the addressing of what
Labour referred to as “loopholes” in the existing UK oil and gas tax regime. It has been
interpreted that these loopholes could refer to the investment uplift allowances in the EPL
regime.
When the EPL was originally brought in in 2022, it was designed with relatively generous
investment allowances (such that, overall, new UK upstream CAPEX investment could attract
up to 91p in the pound of tax relief). This has created a significant incentive for existing UK
producers to invest in new projects – indeed, our modelling estimates that it can increase the
value of a new UK project to an existing producer by up to 61% if tax allowances are able to
be used against existing production. As such, any government watering down of the EPL tax
allowances could impact industry decisions to invest in new projects, including potentially
Buchan.
In our view, the danger of changes to investment allowances may be limited. While we expect
that both the incumbent Conservative government and the Labour opposition are including
the significant benefit to the exchequer from the EPL in their fiscal calculations for the next
five years, we find it hard to believe neither would look beyond this period. Altering tax
allowances could have a more significant negative effect on future UK North Sea projects
and investment than the existing EPL regime (which, for all its faults, is relatively well
designed for encouraging new investment), and this could in turn have an impact on
government fiscal calculations beyond 2029. Damaging the UK oil and gas industry in the
longer term would be economically self-defeating for an incoming Labour government,
ultimately damaging government spending flexibility. This would be a choice that Labour
would have to face up to in government, with potential serious consequences if it were to
degrade UK oil and gas tax allowances. In our view, the move from campaign rhetoric to
implementing policy is more likely than not to see Labour take a moderate stance in practice.
We also consider the fact that 72% of total UK energy supply in 2022 was from oil and gas,
the c.200k well-paid UK jobs that UK oil and gas activity supports, and the substantially lower
emissions from domestic oil and gas production versus most imports (particularly LNG), as
further strong points in favour of a moderate government approach to oil and gas taxation.
We t
OOP'S sorry if that upset you DU that was not intentional. I'll shut up now.
Garbage seems to proliferate on the JOG forum these days. Constant price, price price. Give it a rest, will you?
Read what the Sage (of Omaha) says about it. "Price is what you pay; value is what you get".
Price is a measure of supply and demand. More people buy than sell and the price goes up. If it continues? The price goes up more. Still with me?? And vice versa.
Predicting what the scrambled and befuddled minds of a whole lot people, who wouldn't know what affects share prices if it stood up and slapped them in the face, will tell them about any number of real factors that are relevant to an understanding of what value should be put on (in this case) JOG's shares at a point in the future , is a very silly game. Let's all talk about what we want it to be, shall we? And tick up people who say it will be high. That's really clever.
If politicians don't prevent it (which they might) LTHs should get a good result. How good? Consider what various brokers and professional share commentators have to say - they're the ones who have put in the hours.
So have I and have come up with NPVs (based on DCF projections) for JOG, NEO and SQZ (the value is different for JOG because it won't have any Capex - fat lot of good this will do if NEO and SQZ decide it just isn't worth it).
Risk is what is holding back JOG's SP. The risk of virtue signalling, commercially inept, dishonest politicians deciding to ignore advice offered to them on the error of their ways - and proceeding with plans that will not only significantly damage our nation's energy security, but generate less revenue from NS taxes, trigger rampant energy inflation and destroy the jobs of countless thousands of highly skilled employees directly and indirectly in the industry, along with the plans and aspirations of all these people's families.
And all for what? I doubt there will be any measurable difference in anything in 26 years (ie in 2050). It is a flick of a finger in astronomical/geological time. The sun (the earth's only energy source) has been around for around 13.5bn years and the earth close to 5bn years. And Man can change what it falsely thinks is wrong in 2 minutes? Labour's plan is to turn GB into a shivering nation that either can't afford or can't buy countless items that rely on oil they are used to picking up off the shelf in a supermarket, or anywhere else. Wait 'til the fat and greedy masses can't get their cheap flights to Costa del Vomit. There'll be riots. So let's all vote Labour shall we? That Kweer Stoma seems ever such a nice man. And that lovely Rachel - it's not her fault her legs touch all the way up from the ankles. She used to be ever so good at chess, so she's bound to be a good chancellor. Oh, and there's that lovely Angie too..................
dyor/imo
PS: the 332p opening quote doesn't mean anything - it's a number put up by those who fix the markets - sorry: enable people to trade
Oh please MPO don’t make it sound like my £4 talk is unrealistic! I’m having enough trouble as it is :)) happy Thursday all. Should have sold and now doubled?!!! Good links alsop thanks so much. Happy Thursday all!
JOG opened at 332p (from YAHOO)
Will we ever see this again??
Nice little summary https://www.offshore-technology.com/projects/buchan-horst-oil-field-uk/?cf-view
Dividends after 78% tax. How much would that be?
Onthe6
You presume to think what other holders will be happy with.
Not wise.
There's a thing. Never use a left angle bracket (or 'less than' character) in your post as it will be truncated there.
Cyril 2 - " ...for what it's worth, here's mine. To the original question you bet it's worth 7 quid - "
I agree - let those want to get out at £2- go and dont worry about huge SP fluctations - those that would grab at £4- goodbye, you've been nice travelling companions
If no takeover - Oil will flow - big dividends will paid - and then there will be takeover bids
For some reason I got truncated in mid flow. Most uncomfortable. I went on to write........ at less than £8 and since then a great deal has been achieved. I see the issues as almost entirely political. Labour and the current lot communicate in words of one syllable to rally the tabloid reading masses. For many 'just stop oil' is a coherent strategy. There is another discourse only accessible to those prepared to apply effort and intellect. Once Labour get into power the front bench, most of whom have no real world experience of government, will be confronted with the actual realities. This is how u-turns happen.
For some reason I got truncated in mid flow. Most uncomfortable. I went on to write........ at
Onthe6: " Of course I pray that the £7 talk will come to pass and I can dine with Einstein. 699 actually. Enjoy your day all."
Prayer as an investment strategy - could put IC and lots of others out of business - and cheaper than a Wealth Manager.
For some reason I got truncated in mid flow. Most uncomfortable. I went on to write........ at
Of course I pray that the £7 talk will come to pass and I can dine with Einstein. 699 actually. Enjoy your day all.
Think most long time holders will be happy with £4. Bad investment unless bought in in the pennies. Agree with alibro.
Thing is if this gets to £2, those bought in recently around 150p, 160p will be selling then it’s back down again. The only way for our board to make sone money is to sell the company.
...for what it's worth, here's mine. To the original question you bet it's worth 7 quid - and some! Years ago I stated I wouldn't sell out at