Member Info for Dumbly

Tigar, agreed. The bond holders won’t want a fire sale either. WP, or rather their creditors, have bought some time. It’s now more of a smolder sale which will likely reignite very soon after the end October budget.

The previously referenced link also states the below. My guess is that even tho the Operating Companies are not in administration does not mean the assets they control are not up for sale.

“The complex set-up means that Waldorf’s Aberdeen-headquartered operating companies (OpCos) – which hold the Group’s participating interests in a number of UKCS oil and gas fields, such as Catcher and Kraken – are NOT in administration. Waldorf’s OpCos employ all of the group’s 40 staff, and will continue to trade as normal, while day-to-day operations remain unaffected.”

Londoner,

Previous communications said WP hadfiled a notice of INTENTION to appoint administrators from Interpath Advisory. This https://www.consultancy.uk/news/amp/38063/interpath-advisory-selected-for-waldorf-production-administration dated 16/8/24 states “…Waldorf Production HAS FILED a notice to appoint administrators. Professionals from Interpath Advisory are reported to be working on the sale of its remaining assets.

It’s not clear if there is a difference between the notice of intention and the notice of actually making the appointment, but based on the dates there would seem to be.

Good. Although, a similar letter in May 22 warning of the consequences of introducing a Windfall Tax went completely unheeded, so what chance of this latest letter being acted on?

https://oeuk.org.uk/31-energy-companies-sign-letter-to-government-warning-windfall-tax-could-jeopardise-uk-investment-jobs-and-net-zero-target/

40%, that is, of the the amount of the “recognised” losses.

Londener, you did not seem, to me, to be correcting anything, rather asking genuine questions to understand things better. From Stevo’s explanations, especially his last post, I think we should all have a clear view of the situation. I think some people confuse the tax losses amount as equaling their potential value, whereas their real likely value as things stand at the moment are in line with Stevo’s last post (so, grosso modo, 40% of the losses amount). Their actual value, tho, is only really released when they are actually utilised/expensed.

Londoner, the thinking behind by question “At 40% of the total tax losses?", is that the value of the tax losses is not the same as these tax losses total, but instead the core tax which can be “avoided”, so approximately 40% of the tax losses (being the “tax credit”). Put differently, if all the tax losses could be expensed/utilised in 2024, then the cash value of the tax losses would be 40% of the $2b or so of accumulated tax losses. The reality, tho, as you point out and

if nothing changes, the company has tax losses in the piggy-bank to be expensed/utilised until at least the end of the decade.

(Stevo has previously explained that, and depending on some details, acquired new production can have 50% of existing

tax losses utilised against core tax, and acquired tax losses cannot be utilised before 5 years.)

Stevo, many thanks for taking the time to provide such a comprehensive explanation.

The main point I now understand is that that the tax losses are recorded on the balance sheet as an asset, and as they are consumed/utilised as expenses to offset core tax obligations they are “transferred” and become a “tax charge”. So, instead of paying cash for their core tax obligation, the company uses its accumulated tax losses. At what value are the tax losses recorded on the B/S? At 40% of the total tax losses? Further discounted to account for likelihood of use and time to get a sort of risk/time blended NPV?

On top of the macro flaws in the “fairness” of EPL, not allowing interest or decommissioning costs to be deducted before applying it seems grossly “unfair”.

I understand/agree with your calculation to estimate the profit figure attracting core 40% tax.

The Agreement announced on 29/4/24 for the first phase of the buyback Programme expired on 30/6/24. RNSs continue to reference the 29/4/24 Agreement. Probably not that significant, but I don’t recall seeing an RNS covering an extension to the Agreement after 30/6/24.

Krak, I was hoping one of our more fiscally competent could give an explanation.

Some help, please, to understand how the taxation works on UK production. (From my questions at the end, it’s clear I am missing something basic regarding how taxation is applied/reported.)

For 2023 the corporation plus supplementary corporation tax rate was 40% and EPL 35%. I assume both are applied on gross profits. Reported gross profit was US$540.7m and reported profit/loss after tax was a loss of $30.8m.

The company stated for results year ended 31/12/23:

“The $262.6 million total tax charge includes a $77.2 million net EPL charge, which is calculated on a higher profit before tax, and the impact of limited corporation and supplementary corporation tax relief on impairments related to assets where historical deferred tax initial recognition exemptions have already been applied (2022: $244.4 million tax charge).

The Group’s effective tax rate for the period was a charge of 113.3% (2022: charge of 120.3%), which primarily reflects the non-deductibility of various cost items under EPL.

EnQuest has recognised UK North Sea corporate tax losses of $2,007.9 million at 31 December 2023 - the reduction in the period reflecting utilisation of ring-fence corporation tax losses against the Group’s profits before tax.

My questions are:

1. As the EPL was $77m and the company has historical tax losses to use against the 40% corporation tax on UK production, why was the total tax charge $262m on $540m gross profit? (Is the “tax charge” the amount which should have been paid before historical tax losses are considered, and the actual net tax paid reported elsewhere?)

2. As gross profit was $540m and total tax charge $262m, why was an after tax loss of $31m reported? (Does gross profit not include finance costs?)

Taverham, spurred on by your reference to Dieter Helm i just read his “Net Zero Realism” article from November 2023. Nothing we don’t know, so to speak, but well worth a read for the clarity in the way it explains the situation.

https://dieterhelm.co.uk/natural-capital-environment/net-zero-realism/

Again regarding Waldorf, it would be good to know the content of the 12 July announcement, as per below, which was 2 days after Reuters reported about the document stating the administrators had put the company’s holdings up for sale. I can’t find anything online.

“Reference is further made to the announcements by WEF on 28 June 2024 and 12 July 2024 regarding written resolutions adopted in the WEF Bonds to approve the transactions necessary to complete the Refinancing.”

https://waldorf-production.com/news/

Romaron, regarding your yesterday 1916 post and the shifts from Majors to Independents and the associated M&A. You’re not saying M&A is unlikely but rather it’s timing is more likely later than sooner. Your reasoning certainly holds water and, for me, without more info it really is a guess when something could happen. Has AB’s indication of M&A activity by around the end of this year changed due to events since he said that? My thinking, as Kraken picked up on too, was also influenced by the expectation Waldorf’s assets were up for grabs in the fairly short-term. As per my last post I now question whether their assets are still up for sale.

Krak and all, regarding Waldorf, on July 10th we heard on “(Reuters) -Administrators of North Sea oil and gas producer Waldorf Production have put the company's holdings up for sale, according to a sales document seen by Reuters. [has there been confirmation of the content of this “alleged” document?]

On July 24th the company communicated “Refinancing completed”, adding “ The Refinancing allows WPUK to continue with its ordinary course trading and places each of WPUK and the other primary producing operating companies in the Waldorf Group on a stable footing going forward.” https://waldorf-production.com/news/

How to interpret this? That the July 10th statement remains valid or has the refinancing maybe halted the sales process?

Also, romaron, at around 30k boepd (TBC) maybe WP be also on the list of top UK producers? Maybe not there because was from 2022 or because a private company?

Aim, Krak, thanks for your comments and the list of other possible positive catalysts.

I’m saying in the short to medium time frame all now depends on M&A, the possible positive impact of which could be considerable, but I’d like the reasoned opinions of others, especially if they see anything else I’ve missed.

What are the remaining possible catalysts for SP improvement?

1. M&A activity to increase production and accelerate use of tax losses. Likely, but not before the budget. It’s a buyer’s market, and why would AB risk moving before knowing the outcome of the budget?

Likely.

2. Allowing tax losses against EPL?

Unlikely.

3. Something less severe than expected in regard to “reducing the extent to which capital allowances can be taken into account in calculating levy profits.”

Unlikely.

4. Knowing the details of the successor regime to the EPL, to cause a revaluation of reserves and associated borrowing capability.

Very unlikely

5. Announcement of a major discovery, such as about gas in Indonesia.

Very unlikely.

Anything else?

In case not seen: https://www.theguardian.com/business/article/2024/aug/12/treasury-pledges-low-carbon-investment-relief-to-appease-oil-and-gas-industry

Or, even, “more generically…” 😂