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I have now prepared the DCF projections to get to a NPV10 for Buchan under what Zeus believes Labour will impose.

I stress again that establishing a NPV10 number depends on the assumptions made in the DCF projections. Most assumptions are about the future.

The main assumptions I have made are that:

1. Zeus's interpretation of Labour policy in regard to EPL when they take office are substantially correct

2. Brent Crude $75pb throughout

3. Buchan average output 35kboepd from first oil (1 Jan 2028) to end of 2034

4. Output of 35kboepd achieved for an average of 330 days per year

5 Extraction and G&A costs $25pb to end of 2034

6 Tax rate applied to UK O&G cos to "normalise" (ie 30% RFCT + 10% supplementary charge = 40%) from 1 Jan 2030

7 Greta Thunpiglet doesn't manage to convince reps of the people in countries like US, China and the EU to immediately stop needing fossil fuels and understand how much better their lives will be when they decide (or are forced by G7 leaders who idolise her) to stop oil &gas production immediately and rely on other, greener, forms of energy. Has she thought about urine? If this could be turned into energy she would legitimately be able to claim her proposals were "pi55 and wind". Hear, hear I say.

There are two big assumptions that could materially affect FID outcome:

1 The availability of the 84p cash (per £1 spent) in additional investment relief on qualifying Capex and

2 Reversion of tax rates to the levels they were at before Sushi and the rhyming Hunt cluelessly set about their work to raise some quick (and substantial) tax from an unpopular industry which didn't deserve to pay it. People should thank their lucky stars the UK upstream O&G industry didn't pull up the rug to teach Sushi a lesson - bring the country to its knees by dropping output to the lowest levels consistent with avoiding damage to wells, infrastructure, production equipment, etc.

OPEC sets oil prices (Nymex and ICE) not resulting from macro events that restrict or bloat supply - not the UKCS O&G industry. Russia didn't export a barrel of oil less as a result of the sanctions post Ukraine - it simply sold more oil to China and India. The latter refined it and then sold it to the same countries Russia had supplied before the sanctions were imposed. But the Chinese and Indians DID demand lower prices - China on oil for its own use and India to make a turn on its dirty new supply activities. BC rose on perceived fears about future supply, not because of any actual shortages.

The ones who made the money when oil and gas prices rose were the retail suppliers, like Centrica (profits up 3x in 2022/23 on the back of price hikes, esp gas after adding however much for posterity). The sheeple paid the bills and Sushi raped the upstream industry to become "a man of the people" by refunding the sheeple's money and more on top.

I'll tell you in another post what Buchan might be worth to Neo & SQZ.............based on assumpt

I think Zeus need things explaining to them, spudimminent - and you're clearly the person to do it. Many thanks, on behalf of all LTHs here, for your incisive analysis of JOG's situation.

When can we next expect to benefit so richly from your wisdom?

CHF - firstly, I ran my original model from 2027 onwards - income would now flow (under latest revised timings) from about a year later. I assumed that FYAs would still be 100%, but relief would only be claimed at a maximum rate of 40%. I made the assumption there would be no specific capex relief because this was the clear impression Miliband gave whenever he opened his unpleasant mouth. I also made the assumption that the EPL would NOT be withdrawn in 2029, because politicians are lying ar5eholes and when the time comes to revert to "normal" tax rates (ie twice those charged on any other corporate entities' profits in the UK) Greta Thunpiglet will be even prettier and more influential, when freely dispensing her knowledge and wisdom to the then current leaders of the G7 countries.

If one assumes Zeus is right about the 84P investment relief, the effect of the relief JOG's JV partners could claim against taxable profits (from existing fields) at an EPL rate of 78% would be very significant.

Sunak, Hunt and Victoria Atkins - the lawyer who served as Financial Secretary to the Treasury from October 2022 to November 2023 and made the official statement that everything the former two clowns were proposing was "fair" (who to??) - just kept adding to everyone's existing confusion. Unsurprisingly, investors abandoned the sector in their droves. The one thing the market hates above all is uncertainty and this imo is what floored prices in the oil sector. Ref Gobby Atkins (who's now hopped over to Health & Social Care), doesn't she just love herself to bits? I've yet to meet a solicitor who understands the first thing about accounting and very few whose expertise stretches into business management, let alone making decisions about a nation's finances. Fewer still who understand much about oil & gas - and the economics and risks attaching to what is a unique industry, where investment straddles decades and stable economics and fiscal policy are pre-requisites for successful investment. None of the political clowns in office - pygmies in any business sense - even appears to have considered the Laffer Curve, where incentivisation meets fiscal policy and reality is the result. Politicians are only ever interested in what is best for them. Never a truer word was written than by Donkey Oatey recently, when he offered the UKCS as an unmissable opportunity for returns-free risk.

I'll re-run the DCF numbers and let you know. It might not be today, but I do know - because I now fully understand how Zeus gets to the 84p additional investment relief (the 84p is a real cash number) - that the NPV10 result will be significantly different.

Any DCF/NPV valuation is only ever the product of the underlying assumptions made about the future. The only story in town about JOG is more patience I'm afraid. I doubt all of us will still be around to see the end result

dyor

Morning, Megla. This is to commiserate. You provide, in a couple of sentences, the most concise and simplest explanation of the issue facing the Buchan JV partners that I have so far read. Yet only one person (me - can't be a good thing; the normal rule is "find out what Dick has to say about any given situation, do the opposite and you've got a chance") recommends your post. Quoi?

I would add is that there are (to me - be careful) two other relevant considerations. The first is: what otherwise would happen to the Western Isles FPSO vessel (WI) were Buchan not to proceed (NEO Energy owns 23% of a vessel that's only about 7 years old and cost the Harris & Barra partners - NEO 23% and Dana Petroleum 77%) $2bn when it was built. By all accounts it is relatively easily adaptable for hook-up to Crown Estates Scotland's planned Moray Firth wind turbine hub, although heaven knows how long it will take to build, certainly beyond my lifetime. In the meantime, however, WI can be powered in more conventional, relatively "carbon-friendly" - or should that be "unfriendly" - ways. I'll give Greta Thunpiglet a call to find out; she's probably lecturing one or more G7 leaders somewhere in the world or beyond but might be able to spare the time.

The second is that both parties are claiming that UK oil & gas sector tax rates will return to former levels when the next Parliament ends (July 2029). With tax more or less halving from 2029 onwards, the DCF projections I've run to get a NPV10 number for the project show there's a more than decent return possible if my assumptions are anywhere near the mark.

Talk among yourselves. I have too many JOG and not enough SQZ - might have been the other way round, but it wasn't. I am also in HBR, but not to the extent I should be. Not sure why this is relevant, except the "do the opposite and you've got a chance" theory.

In Jan 2022, all Labour was looking for was a 10% levy on excess profits made on top of the hike in Brent and natural gas prices as a result of the Ukraine situation. They said the levy would be temporary, ceasing when prices returned to normal. "The Conservative Party is not one that believes in windfall taxes" stated Sushi-big-ears (with fake conviction). Look what happened 4 months later. FFS. Does anyone think Labour would have been as aggressive as most appear to think they will be, had it not been for Sunakhunt's ridiculous heist?

What looks very odd to me is that Labour is only planning to raise £1.2bn per annum from the EPL until 2029. It's looking to raise £4.7bn a year to meet its "green" aspirations (originally it was £27bn pa). The balance of £3.5bn pa is to be raised by borrowing (it's in the manifesto). Hunt (even with the reinvestment relief) stated EPL would raise $40bn in 6 years (ie c.£7bn pa). Labour is now referring to "industry giants" getting hit. Are SQZ, HBR and JOG "giants"?

Always follow the money. GMB and Unite look likely to me to be the answer.

jmo/dyor

I'll try to run some DCF numbers to get to a NPV of the project, using the 84% tax relief Zeus has said they believe Labour will introduce when they get in (or shortly thereafter). I'm confused by the arithmetic used in getting to 91.4p tax relief that presently applies to investment (called re-investment relief). Because of the lack of clarity in the wording used in the .Gov.UK official issuances, I can't work out if the 91.4p is the cash effect of the relief given, or is a "gross" relief that leads to a cash saving of 75% x 91.4p. It is (more than) unusual to refer to the availability of tax relief using a monetary value rather than a percentage.

Some people who work in the public sector (including virtually the entire population of civil servants) are clueless c.retins. Just a personal view - apologies to any who aren't if they're reading this.

The trouble with DCF modeling etc is that it hurts what's left of my brain. As my brain is the only bit of me that doesn't usually hurt (except when thinking about my oil & gas shares) the thought of voluntarily inflicting pain in that area holds little appeal.

I do think, however, that the negativity around the likely new measures might be a bit overdone. I am optimistic (but not confident) about a decent outcome, albeit delayed somewhat.

I wish the Police would adopt the same approach to Sunakhunt, Stoma, Amazonian Angie and Rover (woof woof) Reeves as they did to the runaway cow............

dyor

I see Stoma wants 16 year olds to get the vote (as they're paying tax - quoi??). I think it should be given to 4 year olds - they do, after all, qualify for sex lessons under our political masters' guidance. Something has gone very badly wrong with our country........

Https://researchbriefings.files.parliament.uk/documents/SN00341/SN00341.pdf

see page 76:

"The following paragraphs focus on these modifications to the EPL, while the

next section looks at the Electricity Generator Levy.

The Treasury published further details of these reforms in a factsheet

alongside the Autumn Statement. In the case of the EPL, it noted that setting

the rate at 35% would “bring the headline tax rate for the sector to 75% which

is comparable to other North Sea tax regimes, including Norway (DU comment: note the select application of the 78% headline rate only, when the Norwegian Govt's absorption of the downside price volatility risk by refunding, in cash, 78% of any NCS company that makes losses as soon as accounts are filed; plus extraction costs are on average more than $10pb lower than they typically are in UKCS cos). It also provided an explanation for how the investment allowance would apply, both

to general investments and specifically to decarbonisation expenditure:

[The] 80% Investment Allowance meant businesses would get a £91.25 tax

saving for every £100 they invest […] Under the 35% levy rate, the government

is reducing the rate of the allowance to 29% which, due to the higher rate, will

broadly maintain the existing cash value of the allowance. This means

business will be able to claim £91.40 in tax relief for every £100 invested rather

than the previous £91.25. […]

Decarbonisation expenditure such as modifying existing installations to use

power from offshore windfarms, installing bespoke wind turbines to power the

installation or running electricity cables to the installation from shore will

continue to qualify for the current investment allowance rate of 80%. This

means from the 1st of January 2023, a company spending £100 on upstream

decarbonisation will now be able to deduct £109.25p when calculating its levy

profits"

Under Sunakhunt's' proposals, some of the capex (eg: spend on the Western Isles to allow hooking up to the Scottish Crown Estates wind turbine hub would have qualified for the increased EGL allowance. Not sure what Labour is truly proposing - they aren't giving much away. What is striking, however, is that (as set out in the linked House of Commons Library article - see 5.32 on P 76) " the EPL is expected to raise

over £40 billion in total over the next 6 years. Labour's manifesto anticipates the EPL to raise £1.2bn per year over the term of the Parliament. Assuming the entirety of tax from EPL is applied to meeting Labour's green policies (as previously set out), with the majority of the costs to be raised by borrowing, there is is a huge discrepancy. Maybe GBU and Unite have made their point forcibly enough for Stoma and Rover Reeves to back down, with an agreement to keep quiet until the election is over.

Is anyone able to understand (and explain) how the arithmetic works around an investment allowance of 29% becoming tax relief of 91.4p

It's the paltry amount forecast to be raised that intrigued me most. £1.2bn a year taken off " gas giants making record profits" would hardly make a dent on the industry overall.

The OBR forecasts were of course based on the Conservatives' proposals

Https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/oil-and-gas-revenues/

..............the above is for comparison purposes. Shows that expected total tax take from UKCS oil & gas cos from 2024 to 2030 falling from £10bn in 2023 to £2bn by 2030. Nearly half of this would be from the EPL (35% vs Ringfence CT of 30% plus added 10% supplementary charge = 40%). Plus bfwd losses, interest and decommissioning costs aren't allowable after the rhyming Hunt's uneducated interference with an industry he doesn't understand.

Somewhat strangely - HMRC has removed all projected numbers from its .Gov.UK website. Possibly at the behest of its anticipated new masters??

"The Green Prosperity Plan will be funded in part by a time-limited windfall tax on the oil and gas giants making record profits, with the rest of the funding coming from responsible borrowing to invest within Labour’s fiscal rules – catalytic investment that will leverage higher private investment and boost economic growth.

For transparency, we have given an annual average across the parliament given the exact profile of projects will be driven by partnership with business".

"Funding (annual average): Windfall tax on oil and gas giants £1.2bn"

"Policies (to be) funded (annual average - inc Great British Energy) will total £4.7bn. Balance of £3.5bn to be provided by borrowing to invest within fiscal rules".

Is the use of the term "oil giants making record profits" relevant here? Does this description give Labour the flexibility it needs to back off the cases of the many independents who are the lifeblood of the UKCS, who are fleeing the basin in droves because there are no profits to be made? These independents could not in any context be viewed as: "oil giants making record profits". Shell, BP and a few other international players do still have some interests in the NS, so maybe a light has dawned on Labour's ultra-left thickos (perhaps after an adult in the Treasury wised them up to the fact that the proposals they've broadcast so far would lead to the loss of countless thousands of highly skilled jobs that aren't transferrable to the renewables sector, plus cost £20bn in lost tax revenues by 2030) that their initial proposals made no sense at all to anyone except the countries we'll still be look to provide us with at least 50% of the energy we'ree short of following Labour's last destructive act of 2008, when Brown raised the tax rate on oilcos to 60%, then Osborne added 2% for posterity - the ultimate d.ickhead.

£1.2bn is a paltry amount to be raising pa. One possibility is that Labour is playing both ends against the middle and banking on the Green zealots buying their words about: "no new production licences from now on". When the huge tax rate imposed on independent companies, all of which are experts in maximising returns and whose efforts keep Britain's lights on, are either reduced or lifted altogether. Perhaps companies with a market cap of - say - £5bn) will be excluded altogether? Labour could legitimately say it was all there in the manifesto - surely no one seriosly thought it would be a good idea to cause so many job losses, cost the UK even more on importing energy from abroad (oil & gas imports currently account for one third of the UK's total imports), reduce tax receipts etc .

It's the paltry £1.2bn that interests me most. Maybe the O&G's industry representatives, the GBA and Unite trade unions and a body of sage people whose concerns genuinely focus on the economic and physical safety of the nation has finally got through to Labour?

https://labour.org.uk/change/labours-fiscal-plan/

Views

"Yes, they could back out, but where would they go"..................

............anywhere except the UK, ALGU

......what enormous profits? What about the enormous losses during Covid - was Covid controllable by O&G companies? Ditto the 2 year dispute between the US and OPEC 2 or 3 years earlier. Was adjustment made for the artificially low oil & gas prices in the 5 year period the above two "non-oil related" events when calculating a floor price to be used in determining when oil & gas prices return to "normal" - which they did ages ago. It's an out and out heist for which I blame Sunakhunt more than Labour, which just copied the illogical formula and added a few noughts.

The EPL was never a tax on windfall gains - it is a tax levied on all upstream oil and gas cos profits arising from UKCS activities, after disallowing perfectly normal items of expenditure like interest, decommissioning costs (expect gazillions of these in the near future) and even capital allowances (I fear - there will be no stopping Miliband who I believe favours the interests of Russia above those of the UK).

With the "normal" BC price calculated (dishonestly - like everything else about both main parties) set at $71.40 for Brent Crude, with an actual oil price of $81.40 I calculate that the rate of tax charged on the so-called "windfall gain" amounts to more than 300%.

OEUK should be scrapped. They've missed the opportunity to get videos published showing what "Starmageddon" would result in - cars backed up miles along motorways waiting for recharging space, airports shut, people fighting over items on half-empty supermarket shelves - never forget (most of the people gaily voting Labour won't have the first clue about how dependent the country is on oil & gas - oil is used in thousands of products used every day (not sure about inks used for tattoos - we're onto a winner if it is as Labour would instantly be rejected if tattoos cost even more)

I could go on but what's the point. I've been smashed today - and I fear it will only get worse. I was smashed beforehand

Whay a s-hole Britain has become

From the Telegraph today:

https://www.telegraph.co.uk/business/2024/06/12/jacinda-ardern-new-zealand-blackout-keir-starmer-learn/

A few extracts for those who aren't subscribers:

"How Jacinda Ardern left New Zealand on the brink of blackouts

Fallout from country’s oil ban offers dire warning for a Labour-run Britain"............

........."Sir Keir Starmer is standing by a pledge to ban new drilling in the North Sea, despite New Zealand abandoning a similar policy amid blackout fears. Labour’s manifesto, due out on Thursday, will feature a pledge to block all new licensing for oil and gas as one of its key energy policies. The party “will not be issuing licences to explore new [oil and gas] fields as we accelerate to clean power”, a Labour spokesman confirmed on Tuesday".......

"It follows last weekend’s announcement that New Zealand’s government was lifting a ban on new oil and gas exploration".............

........."some in the (Labour) party are now questioning the commitment, after New Zealand resources minister Shane Jones last weekend denounced its own ban as a disaster – and revoked it. It followed three years of rising energy prices that have left 110,000 households unable to warm their homes, 19pc of households struggling with bills and 40,000 of them having their power cut off due to unpaid bills, according to Consumer NZ. Since April the situation has further deteriorated: Transpower, the equivalent of our National Grid, warned that the nation was at high risk of blackouts"..........

"Sean Rush, a leading New Zealand barrister specialising in petroleum licensing law and climate litigation, called the oil and gas ban economic vandalism at its worst in exchange for virtue signalling at its finest”.

"Rush warned Labour off a copycat policy, saying: “There will be no benefits to UK energy security by banning new exploration drilling. You will simply disown an industry in which the UK has been world-leading.”

If Buchan doesn't go ahead, if one assumes a tax rate of 40% and an oil price of £80pb, the Treasury will forego £4bn of tax receipts Buchan would have generated. Yet still Labour persists. And a big percentage of the UK population supports them (according to the polls). A smaller (but still significant number support the Lib Dems and the Green Party) whose policies are even more draconian.

I reckon there'd be fun to be had out of introducing Greta Thunberg to the Green Party's co-leader, Carla Denyer (a nontheist Quaker who describes herself as bisexual or pansexual and is a vegan - just the sort to be representing the people). Not sure who would do what, with what and to whom. Speculation welcomed.

imo/dyor

.......from the GBE website (presumably to promote clarity). Can someone please translate what the cretins are acually saying?

"Britain needs Great British Energy

A new publicly owned, clean power company for Britain.

Britain already has public ownership of energy – just by foreign governments. Taxpayers abroad profit more from our energy than we do. It is time to take back control of our energy."

We should learn very soon what's in Labour's manifesto.................a watershed moment for many UK upstream producers.

Odd that Labour doesn't seem to concentrate on (mention, even) the retail energy companies whose charges went through the roof, when the justification for it was far from clear to see. Don't recall them coming down all that quickly either. Ditto petrol and diesel prices.

From Animal Farm:

Before the revolution: "Four legs good; two legs bad"

After (when the pigs had learned how to walk on their hind legs): "Four legs good; two legs better".

According to Labour: "Upstream bad; downstream good" - mainly because it justifies (in their minds) taking money off the upstream producers (whose "windfall" profits were scant and disappeared ages ago) to pay the excessive domestic energy bills produced by the likes of Centrica, whose profits went up in multiples after Sunakhunt struck and have largely stayed high for no particular reason except to make more money.

It's a vote winner, see? You can trust Labour to keep on paying the bills of the people - they're wonderful and have everyone's best interests at heart. Just wait 'til you see what your council taxes rise to when they're reassessed values. CGT too. Anyone worth anything is going to be targeted. Pension savings? Confiscated by Labour to redistribute to the more deserving. I could go on. People don't realise how far left Starmer is - and those he surrounds himself with.

As someone who sent me a text this morning said: "Voting in Starmer after Sunak is like changing your tie after you've sh@t your pants". The earlier joke was for acclimatisation purposes only...............

https://www.youtube.com/watch?v=VJowlyTyGBY

dyor

Https://www.reddit.com/r/funny/comments/bwwx5/possibly_the_best_delivery_of_a_joke_i_have_ever/?rdt=34228

Sasa - another interesting Q&A posted on the JOG blog this morning. The momentum seems to favour the sane among us. Soon, only our politicians will want to see everyone's living standards decimated and Britain at the mercy of other (some unfriendly) nations for its energy supplies:

Https://m.youtube.com/watch?v=tqcDyHdbYd4

Well worth watching imv

https://www.youtube.com/watch?v=lX1z_6pvM-Q

Well worth watching imv

https://www.youtube.com/watch?v=lX1z_6pvM-Q

The linked lecture (on video) is well worth watching. My understanding is that the eminent speaker (Patrick Moore - no, not that one) has asked Greta Thunberg if she can spare him the time in her international travel schedule to bring him up to speed with his understanding of global warming and other matters on which she is a world expert - remind me of her qualifications, someone. Unusual that Moore should use facts as the basis for forming his opinions and beliefs - more than a bit dangerous if you ask me.

I reckon I know who the pinheads are in this stupid world we live in. Never before have so many people been conned by politicians and others who stand to gain (in whichever way they seek) by spreading lies and falsehoods.

I am pleased to have discovered this incredibly intelligent individual and, in his honour, I am today proudly wearing my "I LOVE OIL" tee shirt.

https://www.youtube.com/watch?v=lX1z_6pvM-Q

..what bad luck, buchanan :-(