Member Info for Dumbly

Romaron, Probably as misprint.
See: https://www.gov.uk/government/news/chancellor-delivers-plan-for-stability-growth-and-public-services
“To ensure businesses making extraordinary profits as a result of high energy prices also pay their fair share, from 1 January 2023 the Energy Profits Levy on oil and gas companies will increase from 25% to 35%, with the levy remaining in place until the end of March 2028, and a new, temporary 45% levy will be introduced for electricity generators. Together these measures will raise over £55 billion from this year until 2027-28.“

35% EPL rate starts from Jan 23 not 24.

Jan24, looking again, and also in light of your and mrc’s comments, you’re almost certainly right that $140m for EPL for 2022 is way off. The biggest unknown is how much qualifying investment there will be to offset the EPL. The company appears to be reluctant to give an impact estimate of the EPL as by doing this they think it would allow investors to make an estimate on profit and forward profit guidance is something they don’t provide. My revised guesstimate for EPL for 22 (at the conditions in place today) is $35-40m. Even if I am close to being right, something I’d prefer not to be because it turns out to be far lower, my guessed range is still “negligible” and so the discussion can be put to bed.

Krackenoil, the way to improve collective knowledge is to state something together with the reasoning behind the statement and invite others to comment in a similar way. Jan24 and mrc did just that and it was helpful. Childish name calling, ofter the trait of an attention seeker, on the other hand adds nothing. It actually detracts as it risks others respond in a similar vein and thereby detracting from the usefulness of the board.

mrc, from statements in the 2022 Half Year results, see below, I have calculated the EPL cost for 2022 to be around US$140M not $14M. A correct way of calculating/projecting?

“Had the Energy Profits Levy (‘EPL’) been enacted in the interim period, a cash tax liability of $5.6 million would have been recognised in respect of Business Performance in the period 26 May 2022 to 30 June 2022.”

“Had the EPL been enacted in the interim period, a cash tax liability of $14.4 million would have been recognised in respect of Remeasurements and exceptional items in the period 26 May 2022 to 30 June 2022.”

SmokinAces, re your 15:38 post did you mean not to forget the billions in "tax credits" or "corporate tax losses"? At year ended 31/12/21 the corporate tax losses declared was $3.011B. Current tax credits should be more like $400M. As I understand, the tax credits are subtracted directly from any tax owed (excluding the... EPL). Happy for my understanding to be "corrected".

mrc, agreed the amounts in your 11:18 post I would consider “negligible”, and Jefferies should know what they are on about, but I’d like to hear it from the horse’s mouth and after 17/11.

Tax credits are the result mainly of previous years capex in exploration and production enabling activities which has not yet been matched by sufficient income to match and exceed the capex?
The EPL does not allow past years losses (which generate the tax credits) to be used to offset the EPL? Not even a percentage of previous years losses? Without those previous years capex and associated losses there would be much less current production/income.
Does this mean the EPL is calculated on the years income minus operating expenses minus capex in the same year and which qualifies as new oil production costs for the EPL?
If it is like this, then without massive applicable capex ($400+M?) Enquest’s EPL will be far from “negligible”.
Once the conditions are known, after the 17/11 Autumn Statement, Enquest would do well to issue an EPL and general tax impact-statement (it is understandable why they have not done before given the “fluidity” of the situation). Seems nobody here is sure of the EPL impact on the company (even if someone understands properly the rules and basis of the levy, nobody here can know well enough the inner workings and plans of the company).
Before this impact is known how can it be evaluated whether to out new-money into the company?

Bastan, with the UK Government mulling over extending
the EPL timeline and increasing the rate this is to be expected and until the details are known in 2 weeks.

mrc, VoR, and others, thanks for the help to understand - the good thing from your exchange of interpretations/views is the common view that the EPL, as it stands at the moment, is not a major issue for Enquest (that the SP dropped from 35 to 23 following its announcement would seem at odds with this view, but let’s park that).
I don’t understand how profits on oil production in the UK is calculated. Business activities normally incur a taxable profit even if cash-flow wise they are not positive e.g. in property development only the prorate construction costs of the units sold can be allocated in the same tax year, not the total cost of construction even if the construction has been completed. How is it in the oil production business? Is Enquest currently profitable, i.e. as things stand projected to end of the year, will Enquest show a profit for calendar year 2022? If no, then no “standard” or “supplementary” tax or EPL, as there would be no profit for these taxes to be applied to. At what point, what are the conditions necessary, for Enquest to post a profit in a given year? If yes, there would be a profit, then still no “standard” or “supplementary“ tax would be payable as the previous tax losses would be utilised to offset this, but without new (or new/new?) oil investment… how would the 25% EPL payable on profits be avoided?

Separately, but with a potential connection, a CNOOC official has again failed to rule out the sale of its NS assets.

Extract from: https://www.telegraph.co.uk/politics/2022/10/27/rishi-sunak-plans-expand-windfall-tax-grab/
Rishi Sunak is drawing up plans to expand the windfall tax on energy giants as he attempts to raise billions to help balance the books.
The Prime Minister is understood to be considering a range of proposals including increasing the levy, extending the deadline and expanding its remit to include renewable energy generators such as wind farms.
It came as Shell said it was in talks with the Government after announcing its second highest quarterly profit on record - £8 billion, more than double a year earlier.
Despite the existing windfall scheme, it did not pay any tax in Britain.
At present the energy profits levy on oil and gas firms - known as the windfall tax - is set at 25 per cent and, according to law, will expire in December 2025. It is expected to raise £17 billion this year and next.
The Telegraph understands that Mr Hunt is looking at increasing the levy above the 25 per cent level, and extending the legal deadline.
The Chancellor is also looking to include renewable energy generators such as wind farms in the remit of the tax.
That could replace the price cap on wind farms introduced by Jacob Rees-Mogg, the former business secretary, earlier this month.
Nadhim Zahawi, the Tory chairman, suggested on Thursday that the energy giants’ windfall tax could be extended as part of next month’s Autumn Statement.
He told LBC Radio: “The Prime Minister, when chancellor, was actually the chancellor who introduced the windfall tax which is raising £5 billion from the energy producers like Shell.
“It also is incentivising them, this is why Rishi Sunak was so smart about this when he was chancellor, that if they make an investment in the UK… then of course they will be incentivised to do so.
“But these are tough decisions and I know the Chancellor and the Prime Minister will be looking at everything.”
Ben van Beurden, the chief executive of Shell, conceded there was a case for windfall taxes but said that producers should be “at the table” to make sure any new taxes were designed in a “correct and appropriate” way.
Asked if Shell was actively engaging with the Treasury about the design of any additional UK taxes, Mr van Beurden said: “We have spoken with the Government many times in the lead up to the levy put in place by the then-chancellor earlier in the year.
“I am absolutely certain that we are indeed in continuous dialogue with the Treasury on these matters, in a constructive way.
A government spokesman said: “The Energy Profits Levy - which comes on top of an existing 40 per cent headline rate of tax for the industry - is expected to raise £17 billion this year and next to help fund cost of living support for eight million people.
“We also want to see the sector reinvest its profits to support the economy, jobs, and our energy security, which is why the more investment a firm makes into the UK, the less tax they will pay."

mrc, thanks for the link and the comments, especially the one highlighting Enquest post-financing are now in a more flexible position with regards to being able to invest to mitigate the effects of the EPL.
I am still trying to get my head properly round the EPL and its impact on Enquest. Seems others in similar position.

Help needed, pls, to understand how the Energy Profits Levy (EPL) works.
The EPL allows some 90% of profits to be offset by making applicable investments.
Shell state they do not expect to pay any UK Windfall tax (EPL) until early next year. This because they have made large investments in the UK and made no profit.
So… 100% of the EPL can be offset by making sufficient applicable investments to a point that no profit is recorded.
How does the 90% offset on profits work and what is the timing? If a profit is made in one period does an investment to offset the EPL in that period have to be made by a the end of what period? The next one? What is the period, a tax-year?

LBC presenter Nick Ferrari (today, 27/11/22) said: "So they might look at an additional windfall tax...?"
Mr Zahawi replied: “I would not preempt any decisions but absolutely the Chancellor and the Prime Minister will look at every decision and will, on the 17th November, stand up at the despatch box… and deliver an Autumn Statement that demonstrates we have an energy plan that delivers energy security because what you can’t do is create a tax system that disincentivises investment.”

Pure speculation and maybe a case of seeing 1+1 and coming up with 3… AB’s comment in the last RNS “It also provides us the runway to deliver on our strategy of optimising our upstream production to support energy security as well as leveraging our existing infrastructure for future opportunities.“ made me think why add “to support energy security”? Yes, “energy security” is important for the UK and good to emphasise the company’s potential role here, but it is not the role of private investors (which is what Enquest is supported by) to do this. If private and public/society’s interests align, then great, Enquest should normally assist. But, it is not an obligation. So, my speculation is that there has been some discussion on smaller producers being exclude from any future windfall tax and/or past tax credits being usable to offset a new WFT. With Shell’s profit announcement today and their CEO saying WFTs are inevitable/needed, the pressure for a further WFT is only going to increase (to note that Shell’s announced profits are worldwide and on top of production activities include also refining and distributing etc activities).

L7, thanks for your post yesterday 22:58. Comments/thoughts like that is what I was after to get a "wisdom of this crowd" view. Agreed that "political risk" is one of the biggest challenges to investment in Enquest. It's more my "hope" than belief that Enquest won't attract the attention of Labour. As romaron said, Labour will say what they think best supports their interests i.e. influencing as many people as possible. They should still have at least 20 months in opposition. I took some encouragement that their repeated chant now has "giants" added onto oil and gas producers. I also take encouragement that Jeremy Hunt will likely bend less in the with than Johnson did and Hunt is also more capable of putting across the issues and dangers of their calls for windfall taxes, as well as calling out BS on Labours assertions e.g. see:
https://www.channel4.com/news/factcheck/factcheck-labours-miliband-not-telling-the-whole-story-on-energy-windfall-tax
https://www.channel4.com/news/factcheck/factcheck-labour-keeps-repeating-misleading-claim-on-energy-windfall-tax

Hard to know the impact of the EPL on Enquest until... they tell us. It could be on the lower part of the range and the SP dropped because the market just does not know the Enquest-specific impact.

Yesterday in The Common the new Chancellor, James Hunt, was asked if he will implement a “genuine windfall tax” on energy firms, to which he replied: “I am not against the principle of taxing profits that are genuine windfalls. But, in the energy industry, it is a very cyclical industry. There are businesses that have periods of feast and famine and you have to be very careful that you don’t tax companies in a way that drives away investment. So we have said that nothing is off the table.”
I am interested in views on the likelihood of Enquest being impacted negatively by a further windfall tax. I take the above from Hunt as positive because of the penultimate sentence of his answer. I also take it as positive, for Enquest, that Labour’s continued push for a further windfall tax on oil producing companies now appears to be aimed at oil and gas “GIANTS”, which I assume would not include Enquest. My conclusion is reasonable/sensible or could some sort of confirmation bias be at play? Thanks.

The anti-hydrocarbons narrative worm appears to be turning. More evidence to support this: https://oilprice.com/Energy/Energy-General/Oil-Industry-Execs-Lash-Out-At-Botched-Energy-Transition.html

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

News presenters all over the world are now trembling :)