Member Info for Dumbly

Not sure if already posted, but 4 of the 21 UK CCUS licences recently awarded and ACCEPTED went to EnQuest. I don't know the relative size for CCUS of these 4 licences but 4 from 21 would see to show intent.

https://www.nstauthority.co.uk/news-publications/net-zero-boost-as-carbon-storage-licences-accepted/

Stevo, on point 2 on your 22/11 1910 post, “the EPL ESIM will be monitored monthly and that the price thresholds of the mechanism will be adjusted annually in line with CPI from April 2024.”

romaron, on Stevo’s point 2, all I could find from the Review Outcome is, “If there are unexpected price shocks in future, then to support investment, a future mechanism would be targeted at the unexpected outcomes arising from a price shock in order to not impact investment decisions which are made assuming normal circumstances. When designing a future mechanism, the government will consider suggestions, such as assessing the benefits of capturing a share of revenue resulting from high prices, rather than profits.”. Not sure how to interpret that or what the impact could be. Plus it just says they will… consider suggestions.

An agreement with APA (Apache) Corp’s UK subsidiary must be a consideration. They produce around 50k boepd from “brownfield" assets. In June this year they stated they would halt all drilling due to the WFT/EPL. Just “running it into the ground” we’re told does not work and clearly would not release best value. I assume they are debt free. For a joint APA/EnQuest entity the use of EnQuest’s tax credits should last to around about the end of the EPL. APA could make a deal with EnQuest whereby they should get more net profit than they would have got and at the same time or earlier than they would have got it if they had continued with their stated no drilling policy. They also offload the decom liabilities. I don’t know if APA’s NS assets are candidates for CCUS use. APA could reallocate their resources to easier places where they can get a bigger bang for their buck and that have a future for them. EnQuest would double in size and AB’s status would be enhanced. PE, if needed, should be interested in such a deal.

Stevo and others, do you think EnQuest buying the APA UK legal entity would escape EPL?

Plus:

6. B&B is already "licenced" and could be brought online (once tax-losses are consumed for better use of the EPL investment allowances)

7. Brent is down today almost 4% and EnQuest is UP 0.5% :) :) :)

There are positives:

1. Greater clarity re the EPL and what comes after, including the principles which will be applied to deliver a stable fiscal regime

2. ESIM thresholds will be updated annually per the defined mechanism

3. Labour, per SKS statement, will not “extend” the EPL (is it too much to assume they will adopt the outcome of the fiscal review?)

4. CCUS tax reliefs – EnQuest has secured the offer of a CCUS licence (don’t know how “valuable” this is for the company).

5. EnQuest will for the foreseeable, as VoR underlined, “pay max 35% {EPL} tax (less due to capital allowances) as we don’t pay any of the 40% due to booked tax losses”.

Seems to get back to Stevo’s point that EnQuest’s best course of action could be the acquisition of existing production ideally through a Magnus-style vendor funded arrangement. And potential vendors now know better the conditions which will govern the UKCS and therefore be in a better position to decide.

Https://assets.publishing.service.gov.uk/media/655cfc9e544aea0019fb3207/_8254__Oil_and_Gas_Fiscal_Review_-_Summary_of_Responses_FINAL.pdf

2.5 The government recognises that many stakeholders noted views about the Energy Profits Levy (EPL), a new, temporary, levy on ring fence profits of oil and gas companies, in their responses to the fiscal review. As part of Autumn Statement, the government is also setting out next steps on the Energy Security Investment Mechanism (ESIM), the EPL’s price floor.

Miles, From the full Autumn Statement text:

5.155 Oil and Gas Fiscal Regime – The government has announced an oil and

gas fiscal regime package covering the short, medium- and long-term. The

government has published a Technical Note and Summary of Responses from

the Energy Profits Levy (EPL) Energy Security Investment Mechanism (ESIM)

discussion note. In addition to restating that the EPL will end no later than 31 March

2028, these confirm that the EPL ESIM will be monitored monthly and that the

price thresholds of the mechanism will be adjusted annually in line with CPI from

April 2024. The government will introduce legislation to give effect to the ESIM in

due course. The government has also published its conclusions to the review of

the long-term oil and gas fiscal regime. This includes setting out principles for the

tax treatment of future oil and gas price shocks after the end of EPL and targeted

support for the energy transition through allowing relief for payments made by oil

and gas companies into decommissioning funds in relation to oil and gas assets

that are repurposed for use in Carbon Capture Usage and Storage instead of being

decommissioned after their productive life in upstream projects. Legislation will

also remove the receipts from the sale of these assets from the EPL.

From the full Autumn Statement text:

5.155 Oil and Gas Fiscal Regime – The government has announced an oil and

gas fiscal regime package covering the short, medium- and long-term. The

government has published a Technical Note and Summary of Responses from

the Energy Profits Levy (EPL) Energy Security Investment Mechanism (ESIM)

discussion note. In addition to restating that the EPL will end no later than 31 March

2028, these confirm that the EPL ESIM will be monitored monthly and that the

price thresholds of the mechanism will be adjusted annually in line with CPI from

April 2024. The government will introduce legislation to give effect to the ESIM in

due course. The government has also published its conclusions to the review of

the long-term oil and gas fiscal regime. This includes setting out principles for the

tax treatment of future oil and gas price shocks after the end of EPL and targeted

support for the energy transition through allowing relief for payments made by oil

and gas companies into decommissioning funds in relation to oil and gas assets

that are repurposed for use in Carbon Capture Usage and Storage instead of being

decommissioned after their productive life in upstream projects. Legislation will

also remove the receipts from the sale of these assets from the EPL.

The below is in the Outcome and Responses document - would lead to think that in the detail of the 100+ measures in the Autumn Statement supporting business is something about the ESIM.

2.5 The government recognises that many stakeholders noted views about the Energy Profits Levy (EPL), a new, temporary, levy on ring fence profits of oil and gas companies, in their responses to the fiscal

review. As part of Autumn Statement, the government is also setting out next steps on the Energy Security Investment Mechanism (ESIM), the EPL’s price floor.

Yep, Krak, as expected.

Although.... is it a coincidence that the government just published, right after the Chancellor's Statement as far as I can see, the... Oil and Gas Fiscal Review - Outcome and summary of responses, see: https://assets.publishing.service.gov.uk/media/655cfc9e544aea0019fb3207/_8254__Oil_and_Gas_Fiscal_Review_-_Summary_of_Responses_FINAL.pdf

Is Hunty sending a message? And if he is... WTF is it? :) :) :)

Krak, most voters are far more interested with taxes which hit them directly, and maybe Hunty did not want to draw attention to possible EPL changes and have to defend things twice, before and after the AS, preferring instead to be quizzed on the IHT reductions flag he ran up the pole to divert attention to something he never intended to do now anyway. Can’t say i am convincing even myself with this line of reasoning.

Romaron, thanks, I am two thirds through reading the debate you posted and my thoughts start to change. As all must now know, "permitting" the NS without "fiscally enabling" it will change little with regards to incentivising investment. Sunak is to a large degree already getting the political outcome, in votes won and votes lost, from his NS/Energy policy, so to not follow through now with some changes actually enabling investment would seem like risking to alienate even those voters he's recently given a reason to support him. Yes, doing this could help an incoming Labour government, as it means he's doing the "dirty" work for them and they would gain the benefits, but depending on how things look before the election their are plenty of ways to raid the larder. So... I now think it is is more likely some bone is tomorrow thrown the way of the O&G industry,

All feels very unlikely that a legal challenge in the UK to the EPL and based on the ECT would be successful. However, should a challenge by and international investor be successful that should open the way for domestic business to also make a challenge based, at the least, on anti-competition laws. Just imagine if, for example, Apache was let off the EPL but EnQuest was not. It would be farcical.

Yes, romaron, a gripping and illuminating interview (post 15/11 21:18). Agree with your comments. I’ll need to watch it a couple more times to get the most out of it.

Stevo, and others, thanks for your info and views, which were helpful.

On investing in B&B, Stevo, I forgot what you had already explained previously, being that with regards to investing in B&B that due to EnQuest's large tax credits position they would have to cash fund $54 of every $100 of Capex. Therefore, buying at good value existing production to accelerate use of the tax credits, maybe with some form of Magnus-like vendor funding agreement does seem the most likely good news we can hope for in the shortish term.

Sekforde, a Harbour/EnQuest marriage would seem to make economic sense, but personalities and personal agendas can trump economic sense. LC won't want to lose face by doing a 180 on further investment in the UK and AB is unlikely to want to lose the control/status he has now of his "baby". Having said that, if the benefit was so big for sure both could compromise.

On changes to the EPL on Wednesday, continues to feel unlikely, but we will find out soon enough. One thing, tho, by Starmer's cosying up to UK O&G last week and stating he would not "extend" the windfall tax, and that it was only ever meant to be temporary, should Hunt announce some changes it would be tough/hypocritical for Labour to attack strongly those changes and/or continue to call for a tightening of the allowances "loophole".

A high-level sense-check on the following, pls. (Stevo, maybe you’ve got the best grip on the finances to comment.)

Assuming neither party will “extend” the EPL, and this means at worst leaving it as-is or replacing it with the outcome from the Fiscal Review, an assumption which now seems reasonable to make, could EnQuest consider the following 3 things:

1. Invest soonest in B&B. It could be largely “self-funded” as using the allowances which otherwise would be paid as EPL

2. Buy existing production. This could also be largely “self-funded” as it allow an earlier use of the tax credits.

3. Shareholder returns through buy-backs or dividends as already planned and as and when the debt target is reached. If 1&2 could be arranged to be “self-funding”, they should not push out by much the timing for this.

“Sir Keir also ruled out extending the windfall tax, which placed a levy on industry profits, after the sunset clause comes into effect on December 3, 2025 [wrong, it’s 31/3/28].

He said: “The windfall tax was only ever a windfall tax – a short-term solution.”

If ruling out “extending” means not continuing the EPL past 31/3/28, or “worsening” its impact while in force by, for example, changing the conditions of investment allowances, or replacing it with something different but still putative in comparison with the situation before the EPL was introduced, then this is big news. It would be very sneaky if he did not “extend” but did something different with a similar effect.

Yes, this should bring B&B a lot closer as removes (reduces…) risk of being “suckered-in” to make investments to get the allowances to only see the EPL extended or other tax imposed. The outcome of the Oil and Gas Fiscal Review should cover what happens in future oil price spikes or drops to remove risk of future EPLs as damaging for the industry as this one has been.

Something from the Autumn Statement to improve the RBL situation and we really could be kicking goals.

Romaron, re ECIU and Jess Ralston, I expect you're right. The entity and her title sounded impressive to me too, but she did sound "junior" and her comments were either wrong or with heavy bias. I expected to find ECIU was more akin to Carbon Brief. The misinformation is astounding. If I find the time I may just send ECIU a note expressing my concern they are not delivering what it says on their can.

Romaron, the problem is now being presented as too little not too much NS gas, and this problem is now being presented as why more wind power is needed.

This morning on the R4 I heard Jess Ralston, Head of Energy at the “Energy and climate intelligence unit” talking about offshore wind and the government raising the prices. The Energy and climate intelligence unit is new to me. A quick look at the composition of their board https://eciu.net/about/board gives a first impression that they should be balanced in their opinions. JR (a geologist/oceanographer I see from her bio) came across as “reasonable” but it did seem she was on the renewables-at-any-cost side of things. Anyway, she said due to the supply chain inflation driven by gas prices, the need of security for investors, and the need for Energy security given that the NS is running out of gas, it is essential the government’s 2030 target for wind power generation is met. It made me smile (grimace more like) the way things are being twisted. NS is running out of gas production, not so much running out of gas, because of insufficient security for investors and cause their far-from-sure profits are being taxed and reallocated by a central government to wind power generation to meet targets. Wind generated power could not survive as-is without more and more subsidies. Prices for electricity will be higher than they needed to be. As said before, these wind companies have us over a barrel in a situation of moral hazard. Add to this wind power generation without a back-up to deliver dispatchable energy when needed means a double, or more, cost and big energy security risk if the fuel for the dispatchable energy is not there. Blah, blah, blah, refer back to the “Goner with the wind” article. It’s madness to blindly go towards the UK's 2030 wind power generation target.

Came across as simplistic and lazy journalism padded out with nice scenery and talking heads. The conclusion that supply is there because the demand is there should have been the starting point. The deeper more demanding journalism would have been to u

explore why this is the case and what could be done to either reduce this and/or ameliorate the effect. What are the issues, the possible trade-off choices. Telling the hard truths were avoided.