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Thanks, Stevo. I suspect, as you also hint at with your "(at least in theory)", that the value of these $90m lease costs savings has not really been factored into the current SP. When the savings actually happen (from April 25), and assuming the situation is rosier then due to the anticipated transformational deal/s acquiring 2P reserves and Brent holding up, my guess is that supported by appropriate comms they will boost the SP. Have the details of the Kraken lease after 2025 been communicated? Did the company exercise the full 17 years extension?

Londoner, thanks for the reply.

If the 2025 saving is $60m and the full year saving from 2026 onwards is $80m, I am surprised more is not being made of this. Maybe a case of waiting until it actually happens to blow the trumpet? Using Stevo's calculation of $90m of FCF adding $200k MC and 8/9p per share, could such a lease lease saving result in outcomes just shy of similar amounts?

Does anyone know the actual $ value saving of the Kraken FPSO lease costs which are set to drop by 70% from April next year. There are 2 contracts, bareback charter and O&M. Both contracts run simultaneously for a fixed period of eight years, valued at $1.4 billion with options for 17 annual extensions with a significant upside when the options are fully exercised.

Does this mean the appropriate saving for EnQuest is the 70% saving of $1.4b, divided by the 8 years, and considering EnQuest’s 70.5% interest in the Kraken field? This is $122.5m. Surely, this can’t be right. Maybe when the company refers to lease costs it means just one of the two contracts?

An amazing interview, romaron, thanks for sharing. David Turver is mighty impressive. At what point does the public, at least in general terms, become aware of all this? Probably will need an "event". David Turver talks of potential unrest/revolution. May seem far-fetched, but it could happen. Could the drive to Net Zero, against the interests of the peoples' prosperity, become Starmer's Poll-Tax? I'd pay to to see a podcast type conversation between David Turver and Ed Miliband, or failing that with dodgy Dr Simon Evans from Carbon Brief (the source of the "9xs cheaper" myth). It won't happen, they are not going to risk exposing themselves and their policies to scrutiny, but the issue is so fundamental, so serious, that it should happen.

Krak, I read that RR said there will only be one fiscal event a year, which implies there will not be a Spring Budget. I need to check this so, in the meantime, considered it as something TBC.

IR said the "key item" was changes to the first year capital allowances, with the rest confirmed today already baked-in. So, the outcome today was as positive as could be expected. Now to understand what it means it terms of what the company can do and the associated benefits.

What's with the SP jump? Has it also been leaked that CT/ST tax credits will become allowable against the EPL?

😊

Agreed, DtP. How to change the voting system via the democratic process when it’s against the interests of the incumbents (the 2 main parties)? Labour need to be given their chance, but if they push their luck too much and believe they have more support than they do, they’ll be out again at the next GE and could in the meantime encourage a popular movement to demand a change in the voting system.

Mr B, let’s remember Labour received 30% of a 60% turnout, so a net 20% of those eligible to vote. Just 1 in 5. Labour received less votes in 2024 than at the previous GE under Corbyn. I agree with your point about voting, but let’s not present or pretend this Labour government has the “ biggest mandate ever from the people”.

“What this research shows is the consequences also go beyond investment in current or new fields. A rise in the EPL and loss of investment and capital allowances may have the unintended effect of accelerating decommissioning and decelerating the energy transition as companies face an additional cost burden.”

https://www.abdn.ac.uk/news/23696/

Megla, I agree with what you say, but would add that changes to the first year capital allowances would be an awful outcome too.

More BS... and looks like a clear confirmation the government will reduce/remove investment allowances.

"However, the Labour minister warned that the UK government would have to make "difficult decisions" in the upcoming budget, with the chancellor warning of a £22bn "black hole" in public finances."

https://www.bbc.com/news/articles/cvglyz9p805o

Hehe, if people really think getting to the so called NetZero is going to change anything they are delusional. It’s tinkering round the edges while Gaia burns. Won’t change diddly. A nice diversionary fear from the real issue. Too many people consuming too much. And unlikely this will change. Without war, famine, pestilence. Better we build defenses and continue living. What is more likely, tho, is once it is understood to not be changing anything, the cry will be because we’re not doing enough carbon reduction. It’s indeed the new religion.

Gives some hope, although the part I don’t like is:

“While details of the planned changes to the EPL will be confirmed in the Budget on 30 October, the chancellor “may also specify the timeline for establishing the successor to the EPL”, WoodMac said.”

as this gives the impression Labour will implement what they have said and simply kick the can by giving only a timeline for reviewing the EPL. This won’t be enough to encourage investment.

Wood Mackenzie senior vice president of global fiscal research Graham Kellas said investors were struggling to see beyond a short investment time line set by the UK government: “North Sea oil and gas operators are trying to make long-term financial decisions beyond 2030, but the current fiscal regime does not allow for such clarity.”

While details of the planned changes to the EPL will be confirmed in the Budget on 30 October, the chancellor “may also specify the timeline for establishing the successor to the EPL”, WoodMac said.

Solution is ‘far from easy’

Wood Mac said any new fiscal policies must be “predictable, transparent, simple to administer and self-adjusting during periods of price volatility to minimise the need for further government intervention”.

However Kellas set out that policies that pleased all yet require “difficult conversation”, not just between industry and government but also a “myriad” of “investor types”.

He said: “Price responsiveness, predictability, fairness, simplicity and transparency must all be considered to ensure the correct outcome is reached at what is a crucial juncture for the sector.

“This will be a difficult conversation, with the mechanisms required for an improved system complicated by having to negotiate the myriad of economic outcomes and investor types. But this must be tackled, and a solution found, quickly.

“Achieving consensus on the issues will be highly challenging, not just between industry and government, but between the companies themselves. And there are potential conflicts between the objectives, such as simplicity versus fairness and responsiveness versus transparency.

“The consultation will be far from easy, but there are some shared objectives and where there’s a will, there’s a way.”

A quick solution?

Wood Mackenzie offered suggestions to challenges that need to be addressed to develop a “predictable fiscal system” as budget day approaches.

Government should define what accounts for a price “shock” such as the recent rise in profits and its how long it will last;

Introduce variation like a simple on/off switch or stepped rate increases like the UK’s personal income tax bands or a sliding scale to and determine the appropriate government share to apply during a price shock;

Decide whether to target only excess income or applying a measure to a company’s entire taxable income, as is current practice;

Create a system to fairly tax companies with both oil and gas production when the prices of these commodities can fluctuate in opposite directions;

Simplify the current tax system.

Commenting on the report, chairman of BRINDEX Robin Allan said: “This new report reasserts the point BRINDEX has consistently made to policymakers. Proposed fiscal changes to the oil and gas sector will deter investment, directly impacting jobs and communities across the UK. We will need oil and gas out to 2050 and it should

Government and industry appear to be closing in on a replacement for the so-called windfall tax on North Sea operators when the budget is announced but analysts have called for urgency in currently fraught negotiations.

The UK government must put a more predictable tax regime in place quickly to avoid an “irreversible” impact on North Sea investment after 2030, a new report has warned.

But the energy sector analysts behind the assessment have held out hope that “where there’s a will, there’s a way” in achieving a consensus on an improved system of taxation.

This is despite any potential solution requiring a “highly challenging” compromise between industry, government and a variety of North Sea investors seeking a “myriad of economic outcomes”, analysts Wood Mackenzie said.

The private equity-owned research firm’s latest intervention marks a softening of sentiment as negotiations between industry and government get closer.

In a more strident report issued to North Sea clients just a few weeks ago, WoodMac warned the government’s proposed policies could leave the industry “fatally wounded” within five years resulting in scenario that could wipe out £19 billion of investment, halve UK production by 2030, and virtually eliminate industry cash flows by the 2030s.

As the deadline towards the 30 October budgethurtles ever closer, WoodMac said there are now hopes for a “successor” to the EPL and a timeline for when it may be established.

Yet agreement any new and improved replacement on the government’s current tax policies seem close but not quite there as government, industry and investors struggle to align opposing objectives.

A fiscal history of North Sea taxation:

Graph called a fiscal history of North Sea taxation © Supplied by Wood Mackenzie

KEY: APRT: advanced petroleum revenue tax (1983-86); CT: corporation tax (1975-2002); EPL: energy profits levy (2022-present); ESIM: energy security investment mechanism (EPL price trigger) (2023-present); PRT: petroleum revenue tax (1975-2016, not applicable to fields developed from 1993); RFCT: ring fence corporation tax (2002-present); SC: supplementary charge (2002-present); SPD: supplementary petroleum duty (1981-82)

In a statement, WoodMac insisted that the Labour government’s proposed modifications to the Energy Profits Levy (EPL) – currently set to end in 2030 – have created “unparalleled sector uncertainty and consternation” for the UK North Sea, particularly those now considering investments beyond the next six years.

This echoed dire warnings that tens of thousands of UK jobs would be lost and tax revenues would collapse after the newly-elected chancellor of the exchequer Rachel Reeves set sights on killing “unjustifiably generous investment allowances” as well as formalising extensions to the EPL.

Wood Mackenzie senior vice president of global fiscal research Graham Kellas said investors were struggling to

Correction: the quote in last post was not from Wood Mackenzie. It was EV’s interpretation. The message remains the same tho, and that is something is in the works.

https://www.energyvoice.com/renewables-energy-transition/560701/hopes-rise-for-north-sea-windfall-tax-successor/?utm_source=Sailthru&utm_medium=email&utm_campaign=Energy%20Voice%20Daily%20Newsletter%202024-10-03&utm_term=Energy%20Voice%20-%20Newsletter

Energy Voice are reporting Wood Mackenzie as saying “Government and industry appear to be closing in on a replacement for the so called Windfall Tax on North Sea operators when the budget is announced but analysts have called for urgency in currently fraught negotiations.”

(I cannot access the full article, if anyone can pls post.)

The industry and individual companies have well signposted the outcomes if Labour change the fiscal conditions as announced (78% total tax, EPL extension to 2030, removal of investment allowances). As the political parties make “pledges”, perhaps the industry should issue their “pledge”. State that the understanding is the government wants to bring about an accelerated demise of the North Sea through fiscal policy. This is because the Windfall tax is being continued and extended when the conditions for windfall profits long ago fell away. For the avoidance of doubt and considering the critical nature of the matter, they should say industry wants the government and public to be clear on the consequences. For this they are issuing this pledge. To support the government’s objective, they should pledge to not make investments in new production apart from listed exceptions. Each significant company should then list the only investments they may make in new production. Finally, the impact of these pledges on total production to 2035 should be projected, together with the impact on jobs in the sector and the wider supply chain.

Even if Brent gets back to around $80, the impact on profits and therefore an increase in tax/EPL would be minimal. However, an increase in Brent would have a negative impact on the balance of

payments as more would be paid for imports. This impact on the balance of payments would increase as indigenous production decreases due to the fiscal conditions.

Thoughts?

Will Starmer, Miliband, Reeves watch this: https://content.jwplatform.com/previews/ThrCIcXm

Will they listen?

“Serica Energy and unions GMB and BRINDEX have created a campaign highlighting the role of North Sea oil and gas in the lives of its workers.

Their new short film, entitled A Town Called Bruce, focuses on the working people of Serica’s Bruce facility and highlights concerns about how government policies will affect their livelihoods.”

https://www.energyvoice.com/oilandgas/north-sea/560471/watch-new-film-highlights-importance-of-uk-oil-and-gas-for-its-workers/

Dot, that video provides a good explanation of the unintended consequences of sanctions. Sanctioned countries were obliged to find ways round the sanctions and in doing so build a trading platform for those countries concerned they could be sanctioned. The global market now less transparent. Big benefit for China, India.

Reposting video:

https://youtu.be/uUyfVRwQk7E?si=gtPTmeDvDqgYeni_