Member Info for Banburyboy

Auson it was in the detail of Hbrs interims.
Someone posted it and we had a debate about it at the time. The company used it to explain limited exposure to WT in 22/23 as you can't use carried forward losses so actual exposue was less (my entire point) . I will see if I can find it or others may be able to help.

14 or so single digit trades yesterday.
Really unusual for this share.
With steep rise over last few weeks does feel like something is affòot

Sekforde - good post this morning.
I would add to your point on four years of losses carried forward against base 40% corporation tax the point on realised losses from hedging.
Realised hedge losses are allowable against WT. You may say so what ?
Consider we hyperthetically hedged all production at $70. Costs of $15 Profit $55.
Tax if market price is also $70 is nil on 40% due to prior year losses $55 profit at WT 35% = total tax bill = just over $19.
If market price is $100 there is a realised loss of $30 against the hedge which means tax is now only on $20 at 35% = $7 an effective saving of $12 on tax.
If market prices are lower its back to $19 tax.

In summary
As a floor on market prices from nil to $70 we allways make $55 profit due to hedge. Effective rate of tax is 35% or $19m
As market prices rise the impact of the realised hedge losses kick in and the effective tax rate falls.

Simplistic explanation but all other things being equal the higher the tax ( particularly if unrealised losses are allowable against mainstream CT) the more attractive the hedge.
Can't help thinking if it was possible to hedge the lot at $70 all the uncertainty would disappear we would know free cash flow with certainty and would only need to worry about operational issues.
That certain free cash flow and hedges would support a higher SP.
Would not the UK government be interested in hedging with us ? At 270p a therm its lower than current cap, and even at 75% tax is massively higher than the 70p or so a therm we realise now !
Sorry for long post but I'm not convinced it's as gloomy as painted.

Kign could you expand on your calc and present with say a £1m investment to illustrate..
I can't find any permutation of your numbers that gets to 46.4%. Many thanks

Ronnie H - on the cut and paste which I commented on when Stevo posted to HBR.

The guidance explicitly says investment allowance is falling from 80% to 29%. That would be nuts !!
In the next paragraph it says as a result of that £91.40 as opposed to £91.25 of every £100 investment is allowable for tax.
Terrible wording which I suspect reflects the allowance moving in part from base corpeartation tax to windfall.
The overall intent is the allowance is the same.
Things are bad enough with misinformation and blind posting :)

Stevo I agree at face value it looks like investment allowance is falling from 80% to 29%. That would be crazy.
However in the same statement they suggest releif for £100 invested is going up from £91.25 to £91.4.
I'm sure the latter statement is the more correct and they are allowing 29% against mainstream corporation tax and the rest against the supplementary and WT.
Terrible wording but I would be amazed if releif was only 35p in the £

Sorry fat fingers.
Hi L3 I took a quick look as you made me think twice. I had thought interest was allowable and principle not.
Found a great paper by Clifford Chase which states international norm is interest for debt taken to buy acquisitions is tax deductible.
The key is the asset acquired has an income stream and is thus subject to tax itself and therefore the link is established. If they used it to pay shareholders (poor example ) there's no income producing asset and it not deductible.
It's a horrid situation and like you all I'm dissapointed but trying to find light.
I repeat my example on realised hedging losses as it has got little air time.
1. SQZ hedge all production at 200p per therm
2. If market price is 50p all well and good but we are taxed at 75%. Effectively on the plus side we have a guaranteed floor on profit.
3. If market price is 400p. The unrealised loss compared to the hedge of 200p is fully allowable against the windfall tax. In other words almost all of the 200p we realise is outside of tax.
I've given two extremities and it will likely be in-between but we will have certainty of a floor and a significant tax upside should we pitch the hedge too low.
Be interesting to see if it triggers new activity around hedging

Hi Level3

Canetoad - agreed loads of opportunities though:
1 - Hedge everything - if we hedge at 200p a therm and prevailing price is 400p. The realised loss off 200p is allowable for tax at 75%.So minimal tax.
2 - borrow and use uk assets as security effective interest cost is only 25% of headline rate.
3 - Invest in UK assets is 90% free. Impact of capital investment on free cash flow is minimal
4 - others on here have suggested free cash flow is still nearly £2bn.
Feels undervalued to me
Time will tell

Another opportunity. Borrowing against uk assets - Borrow £700m. Interest at say 8% = £56m. 75% of that tax deductible real cost of borrowing 2% .
Invest £700m in assets overseas real interest only £14m.
I am sure the Board are looking at tax breaks / opportunities but illustrative of perhaps new potentially more cost effective ways of opporating.

Campooter at last a decent post that is thoughtfull rather than a winge.
The WT tax is done two consideration :
- hedging becomes advantageous as you have 75% releif on realised losses. It effectively provides a floor that supports profit. That profit floor rises the higher market price. See my earlier post
- the invest / not invest in UK is so much more nuanced than posters on here suggest. In simple terms £600m cash is safe the decision is special or overseas investment. Only a fool would walk away from current producing UK assets investment to keep the gas flowing is on a marginal basis nearly free and costs of production miniscule. Even 75% tax gives a super rate of return on the circa £300m of residual SQZ market value not underpinned by cash.
The board will be wise to this and no reason why SQZ can't invest abroad/ pay special dividend, pay 17p a year on future profits and invest in the UK at little or no incremental costs to shareholders. Yes its tough but on any metric even with 75% tax this company is undervalued.

We know from statements in HBRs accounts that realised hedging losses are allowable against Windfall Tax.
For me the compelling strategy would be to hedge everything at the current high rates.
So talking literally to illustrate the point we hedge the next five years at 200p. If price is 100p great. If its 400p 75% of the 200p (150p) loss is deductible from our hedged realised price of 200p so we pay more or less no tax on the hedge
Hedging carries less and less risk the higher taxation and provides to a degree an almost certain and guaranteed income stream.
Out the box thinking to a degree but wheres the flaw ?

Hi Noel
I defended you as I agree Hot ticket and bubble are glass half full and external optimists. Mr McCowber types -" something will show up " for those who know there literature.
However as time goes on its increasing apparent you have a persecution complex, an inability to move on or let things drop and really respectfully the propensity to create a dispute or fight in an empty room.
I really think you would be best moving on from this board.

Some great posts on here from London and Sek.
My only observation is their was a debate on here around a couple of lines in the accounts that said realised losses from hedging were allowed for WT.
It was exactly because we had so much hedging at low prices the $400m cost of WT was so low.
Whilst I agree the 2023 to 2022 comparison needs to be adjusted for part year implementation, changes to production, change to price I think the impact of hedges dissapearing at say 50p a them is not the full rise to current market value but 25% of that due to tax advantage unwinding and being lost
It's obviously fiendishly complicated.

L3 the two (40% oil and gas and mainstream CT )are absolutely and completely unrelated. You are I am afraid wrong and deflecting.
Uk government could get additional tax in three ways from HBR (1) change to special 30% rate (2) change to 10% supplementary or (3) change to 25% windfall tax. The chances of 1 and 2 changing are low but it possible. The 25% will likely change. You are wrong I'm afraid. Mainstream CT is a complete red herring to the debate.

L3 trader I share your concerns but good to be factual. The 40% corporation tax is made up of a special corporation tax rate for O&G companies and a 10% surcharge. There is no evidence that the move in mainstream rate from 19% to 25% will impact HBR at all.
75% very tough though !!

Norma it seems like the drink gets the better of him and its normally two or three times a week.
Upomega your day time posts are fine but could you consider avoiding night time posting when you've been on the beer. Many thanks

Deadly - that article is appallingly presented by the BBC. It should be entitled - key sensitivities in calculating UK fiscal deficit. The two sensitivities are

1 - assumed uk growth plus or minus 0.1%
2 - uk cost of borrowing plus or minus 0.1%

No surprise in any of this and this will be what both Hunts statement and the OBR will include.

I would add a third which is cost of energy price guarantee. Consumers are paying 300p a therm brought down to 240p (on average) by £400 bill discount. Uk government will be buying forward but next day gas is below 100P so logic would suggest cost of the guarantee is materially lower and at some extremes a profit is being made !!!

Acquiring a company from cash has no tax breaks. If you borrow to fund an aquisition interest is allowable. No real tax advantage from acquiring.
The more nuanced issue is around the perceived advantage of acquiring a company with tax losses ENQ has £2bn and HUR up for sale is showcasing £340m. Whilst these can't be offset against WT they can definitely offset fully the 40% corporation tax and petroleum revenue tax. HUR rejected a bid of £150M they have £70m cash plus planned Operations to get close to that. If the £340m was allowable against SQZ profit it would be a complete bargain. The rules are complicated.

Allways winning sorry but the prize for stupidest post on LSE.
We watched the conference. Modi criticised him
, China was non committal and the four republics ending in Stan sensed blood and for the first time felt empowered to put the boot in.
You are confusing with the meeting of the new four regions Donenensk Khersn Luhansk and Zap. Those guys are paid lackies.
They probably and quite rightly pulled your posts for misinformation. I prefer the term stupidity!