Member Info for AA2020

Soder / laidback....I very much hope I'm wrong. I very much hope Jeffries, Morgan Stanley, etc are correct. But I'll believe it when I see their reports with my own set of eyeballs. By all means, post the evidence, links, screenshots, etc of their reports.

Soder.,....."You do not deduct the capex from your earnings and run a tax rate off the balance!!!!"

Oh yes, yes, yes you do. In this instance , they are allowing the 80% allowance in year 1. It's just super-accelerated depreciation. And of course as anyone with any accounting knowledge knows, you deduct depreciation (which is just a portion of historical capex) from earnings and tax the balance.

Soder, we're saying two different things. I'm arguing that I think the tax calculation is in a different sequence. Think of the capex allowance as just simply another name for depreciation. They can reduce taxable profits (not the tax due itself!) by the $720m (UK capex of $900m, at 80%, is $720m). So.... $3.2bn pre-tax earnings, less the extra capital allowance of $720m takes you to TAXABLE PROFIT of $2.5bn which is the figure which gets whacked at 25%. Which is a big fat incremental cash tax of around $500m for the 7 months of this year alone.

Remember, Harbour is the largest UK oil and gas producer and this gov't expect to raise £5.0bn in these first 7 months alone. My view on the order of the tax calculation above is consistent with this.

Auson, erm, that $3.0bn UK earnings for the 7 months is net of opex and hedging losses. That is the definition of earnings.

Auson - yeah, exactly. Assume UK pre-tax profits of c. $3.0bn for the 7 months (if that is indeed what Jefferies are modelling). Subtract around $1.0bn capex from that $3.0bn pre-tax earnings (actually would be less as is just the capex for the 7 months as well) and you're left with taxable profit of c. $2.0bn. Whacked at 25% is c. $500m in 2022 alone.

Soder - surely the calculation would be the capex comes off the earnings of c. 3bn, and then what is left is taxed at 25%.

Need clarity on if the capex spend is offset from the tax liability (i.e. more of a tax credit) or rather instead is offset from PBT. If Jefferies are estimating c. $5.0bn of UK PBT, then $1.0bn capex in 2022 takes that down to c. $4.0bn of taxable profit, whacked at 25% equates to an incremental c. $1.0bn cash tax.

These are great results for the company and very positive outlook. Some of you are too bullish, some too bearish. Strategic patience here is key. It's most definitely not a value trap.

In terms of the banks/warrants/equity raise....they provided some interesting clarification to their choices:
1. Raise $50m (issuing well north of 700m shares at your customary discount to current price levels). Ouch!
2. Effectively raise only c. $10m (via issuance of warrants to banks equivalent to a "mere" 132m shares or 11.5% of the company at 6 pence). Nice!

While neither option is ideal under normal circumstances, in the context of this company option 2 would be a splendid outcome. So the banks would have 11.5%.....not that big of a deal! Any indeed they confirm as of 31-Dec-21 option 2 was the more likely. Any of course perhaps we'll all get luck y and they'll refinance entirely later this year and this all becomes a moot point.

Also nice to see (am surprised, as my calculations say differently) that they expect to be below 4.0x leverage by year end.

@ Citywatcher, there is no share consolidation associated with the buy-back. Was only going to be a share consolidation in the event they paid out a special divi

It's actually all rather simple. A lot of II's probably just wanted out, and they weren't able to get out in full via the TO. So....they are exiting in the market. Hence...the overhang. Just sit back and go do some gardening for the next month while this settles down and the air clears. There is still c. $190m more of on-market buy backs to go over the course of this year. NAV will be around 300p after all of that, even factoring in a 10-20% discount for the rubbish they have in Egypt.

Well, the risk of any dilution is exactly 0% so long as you subscribe pro-rata.

They could have worded the RNS better:
"...and is expected to generate c.$300 million incremental free cash flow at $75/bbl between 2022 and 2026"
I trust they mean per annum and not cumulative over the period.

Wow - max TO price only a 5% premium to VWAP. Stingy as fu**.

I wonder if the split was amicable...

What am I missing here?? My list of 2022 cash outflows excluding working capital and any debt amortisation and excluding the additional Ghana equity.

Production opex: $300m
G&A: $50m
Lease costs: $140m
Capex: $350m
Abex: $100m
Cash Tax: $90m
Debt interest: $225m

All figures approximate.

Can anyone make sense of how management get to a figure of c. $750m underlying operating cashflow for 2022 ?!?

Based on their hedge position, oil at $75, mid-point of production guidance range (58k assumed) and excluding the impact of the additional equity in Ghana, to get to $700m operating cash flow as per their latest guidance would mean a very chunky opex figure (inclusive of lease costs). My excel tells me c. $1,600m revenue and c. $850m opex. Just seems like the implied opex is extremely high compared to 2021.

Would be amusing if RDS acquired CNE. Sold the Egypt assets and then buys them back via a CNE bid for essentially zero

@ Thunder, you say:

"Say it operated for about a quarter, net CF $56m-$22m = $34m or about £25m

With scaled up production I would estimate freecashlow of circa £100m for the year. Wasn't sure if they was all attributable to Cairn or not"

You are missing something big here....CAPEX. Your FCF above is just revenue less opex. That's OCF, not FCF. All the operating cash flow is being consumed by capex for the next year or two. So more or less zero FCF for a while.....

I think Amtech needs to go back to university and do a few courses in basic accounting and finance. Or perhaps back to primary school and learn his (or her?) arithmetic

Well I think some people were probably expecting/hoping 2022 EBITDA guidance would be a little north of $80m given the second half 2021 run rate. Perhaps they are low-balling now in order to surprise to the upside later (although I wouldn't put my money on it). I also think people were hoping day rates would be a little more improved than 10%. All in good time.....