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I’ve been holding Enquest for six years. I finally began to sell it and swap into other international E&P and even equipment opportunities in countries less hostile to the industry, namely Canada, France and Brazil. All of those reallocations have paid off. Sadly the UK is just a bad place for investors in this industry. It is not much different than what Xi has done in China to their tech sector. I would never have expected this in “free market UK” with their own crown jewel resources. That is why the valuation is low. I have begun to wonder why AB wastes his time and money on this. As his cost of capital is higher than anyone else in the industry and the market will never give him credit for building enterprise value. He could easily come to this same conclusion. Enquest could just go into a long term liquidation running the assets off and find a way to benefit from the tax losses. I’m not happy writing this but I’m just relaying what has worked for me allocating away from a mistake rather than hoping for some political miracle in the UK.
With all due respect, the UK has the highest inflation rate in the western world, 3% higher than the states. Why are they not raising rates more aggressively. If they did so we would not have sterling so weak. The fed is behind thew curve, the BOE and Europe are not even on the road. Plenty of policy failures here on top of painting North Sea operators as the villain.
No end to a growing global middle class = no end in demand for all types of Energy. Fossil fuels are vastly under invested from a capex standpoint. Amazing to me that oil trades in dollars with Enquest selling in dollar based prices. Enquest has expenses in sterling. Pretty good arbitrage on the income statement. Sterling denominated Enquest shares should trade higher justto keep pace. Problem is no global investor trusts the UK government on energy policy. So we are left with the local market.
Great thoughts in this chat room. Summing them up, the AGM will be very interesting. With the shares underperforming the ****tail of a confiscatory government, long lead time capex in the North Sea and a volatile commodity price is toxic. This business model has to change.North Sea assets need to be a small piece of a big balance sheet or need to be debt free and run for cash. There is enough cashflow now at Enquest to pay a dividend and pay down debt at the same time. It’s a fools errand to invest in the North Sea for “a tax incentive” when success brings uncertain cashflows years in the future. Enquest should run down the North Sea assets and redeploy capex in friendlier areas. I’ve been in this name for 7 years, and am losing patience. I hope shareholders make some noise at the AGM. The UK government has proven to be an unreliable partner for investors in this industry so there is no chance the “market” will assign value to future earnings streams. That is why the shares are cheap and that is why the shares will stay cheap. AB needs to create an end game for all of us and for himself.
If I were AB and have committed myself in difficult time to this North Sea project. I would now have to look at my project as capped in terms of future valuation. It’s not that he can’t execute the project. But the growth opportunity is limited anyway. The valuation advantage that western governments have is they operate in stable regulatory frameworks which translates to higher valuation multiples. As I sit here stateside, I may as well be in Petrobras. So how does AB maximise his expertise? He exits the UK, a declining market and focus on projects elswhere that have growth opportunities. Enquest is of a size that this could be done in a week. If your job is to maximise shareholder interests over the long term, would this not be on the table? might as well monetise what he has done to date in a $120 oil price environment. I have no information on this but IfI was the CEO that’s what I would be thinking. We could get a little pop on M&A activity and debt pay down.
I own a lot of E&P globally. I’ve been in Enquest for years. This stock has been my worst performer and inflicted the most angst. They don’t pay a dividend, they don’t buy shares back and the government has prevented the double whammy of grabbing capital that should be used to pay down debt. The worst part of the WFT is that it is vague and open ended. It makes calculating a terminal value difficult. The policy is short sighted and punitive and sadly it shows that AB is unable to convince the government on this aspect. Just as Enquest was looking cheap as a global E&P play and turning the corner on debt and friendly shareholder actions you get this hostile action from the government. I’m really temped to buy some shares here but at the same time feeling why do I need to be in bed with a hostile government ands a management team that can’t win an argument on a sensible and transparent policy. It’s lklike operating in an emerging market so it deserves an emerging market multiple. Hard to see it trading anything other than cheap. I really hate to make that statement but that’s the truth if you look at the opportunities around the world in the space.