Member Info for epiphany121

Morning Jan,

I keep learning everyday not to assume a no means a no when politicians are involved. Let's see what they do come November - I suspect they'll want to see if oil runs up past 100 before making a decision. Market management the US government way. ;-)

Morning P,

Agreed on the supply situation NOW. The SPR release combined with Russia not reducing production = oversupply and thats what has pushed down Brent by 40 to 50 bucks. If demand did hold up, the market would be more comfortable, but US demand has moderated, China is running a good millions+ bbls/day lower than last year because of their stupid zero covid policy and there's so much global recession fear around in the market because of the fed. The US is about the only economy still running hot and as long as it moderates, then we could avoid a demand sapping recession. I should've been more clear that there won't be additional demand to fill up the SPR at this time - that's probably a 2024 or later story, and they'll take their time (unless oil tanks a lot more).

I'm keeping my fingers crossed that the oil market news gets more positive in the coming days!! Enquest can then break out to new multi-year highs then.

A 11c dividend is more like 9.5p with the current exchange rate of 1.15 USD to GBP.

Morning P - It's mostly a meaningless statistic, IMO. The SPR isn't really relevant when the US is the largest oil producer in the world. It may have been relevant a few decades ago when the US was still a massive net importer of oil/products - not so now. It's not like they will start to buy oil on the open market in November 2022 as soon as they finish the releases - I'm sure I ready that the energy secretary said that they could look at this in 2024. Either way, they're not bound to a fixed schedule to start filling that up.

The key is for demand to hold up and come back in China, and for their Covid lockdowns to end. That is a bullish factor.

Are you getting ready to receive that fat chunk of dividend from Petrobras today? And in 2 weeks' time too? ;-)

Chat soon.

A little? Sounds like ODing to me.. ;-)

I can't comment on what may happen to the SP in the near term - there are way too much factors driving that, outside Brent. Progress on debt reduction has been good in H1 - however, as it stands, H2 will be lower than H1. $200 mill will be a good outcome on the back of lower Brent + higher capex in H2 (115 mill vs 50 mill in H1) + EPL Payment - Anything higher is a bonus.

@L3 - EPL will highly likely not be repealed - that's my view too as it then becomes a political minefield and a big gift for Labour. I'm not sure why the RBL will be extended? It'll be certainly paid off in full by the end of this year - 90 mill shouldn't be an issue at all. I don't get your 60% theory though - that's a head-scratcher for me. Hedging is a tough game - in a big upcycle like it's been since February, almost every market participant and that includes many chaps on here for good measure ;-), were very convinced that there's only one oil would go and that's higher and there's virtually zero downside. I don't buy that BS - oil is a commodity and pricing is determined by financial markets and the moment you see liquidity and demand headwinds, then upside bets must be tempered. I don't see liquidity headwinds going away now with higher rates and QT, but demand headwinds could ease up with lower prices like now (oil down 50 bucks from its peak in Q2) as well as Covid lockdowns easing a bit in China - they're such nincompoops the Chinese. I still see a pathway to Brent ending closer to 100 bucks (if not higher) towards the end of Q4 and that's still my base case for now.

GLA..

Mrc - the energy profits levy was passed in July - that's the law of the land now. However, as Auson was suggesting the real tax impact after capex deductions is likely to be low. However, I'm with you that the damage was done when they bloody implemented it in the first place. Good riddance to Sunak - a useless cowboy that did a lot of damage to the O&G industry through his fiscal malfeasance.

Let's see what LT can do for the industry - I certainly don't the EPL being repealed. That'll be a gift to Labour. Maybe she can focus the tax on real Windfalls to gas producers, hedgers and power companies that are raking it in??

Stupmy - ditto. I wish I had the time to day trade stocks and other asset classes, but alas not to be. Work commitments just don't allow that unfortunately. Godd luck with your trades. I'm getting a touch more confident that the fed can engineer a soft landing and oil is aiding/abetting that view. If ony gas can play ball, I'd be a lot more sanguine. Bloody Putin, heh?

ZFG - she's only said she wouldn't use windfall tax to fund the energy price freeze (that additional funding would be borrowed you can bet) - she didn't say that she would get rid of the already imposed EPL which was intended to fund the one-off handouts to all UK reidents - that would be a politically hard thing to do, even though its right. However, I can never say no - we'll find out tomorrow.

And let's not forget that Enquest has moved up from 21p in January to 29 now, whilst Brent is back to where it was back then and there's an additional 25% tax headache on top, albeit mitigated to an extent by capex. That's certainly a reflection of reduced debt in the interim, IMO. However, oil headwinds seem to be stacking up and I'm not in the happy camp as I was earlier in the year. I view this recent fall as a major plus for the global economy and should stop the fed from hiking themselves into a recession.

The next couple of months could be volatile for both for oil and enquest, but we should see a bounce come November. How big - that depends on how low oil stays in the next 6 to 8 weeks, giving the fed enough reasons to stay a bit on the sidelines as inflation keeps moderating.

Both Brent and WTI are now below mid-January levels, let alone levels just prior to the onset of the Ukraine war. Surely the UK has to take note of that fact that there's no longer a windfall in the picture for oil. Gas is where the real issues are and that's where the government's tax focus should be - however, don't expect them to be progressive on that count and roll back the EPL. Enquest and oil focused companies are now saddled with a 25% tax that should've never been put on in the first place.

However, there's a clear case for gas sale profits to be in the firing line - won't happen though.

Chilts - "My comment was directed at how the oil price would deal with a recession.". The market has currently factored in a mild recession PLUS the risks from further lockdowns in China. This circa $90 is reflective of these demand headwinds. For the oil market, and I keep banging on about this, demand issues are a bigger factor than supply concerns - the market has been discounting a lot of supply factors of late and is factoring in a realisation that Russian oil supplies aren't down as much - that may yet change later in the year when some more sanctions kick in. What do I think will happen to oil if there's a global recession - oil will fall to 50s/60s, IMO. How long would that last - probably not long and we'll see a bounce-back like we did in 2009/10 after the great recession, when prices went from the 30s back into the 100s.

@Jan - Biden won't extend SPR releases post October - Mid-terms are done and that's that. The bigger risk is in assessing whether the bond market is right OR the stock market is right. The 2Yr/10Yr treasury yields are deeply inverted and that's the bond market calling out a deep recession. The stock market is currently pricing in a mild recession, not too worse than the levels we're at now - maybe another 10 move downwards is all that there is to it. Inflation in the US is dropping across the board and that's good news for the fed. I'm always of the view that the Fed is the only game in town when oil prices are in the picture, as they're the ones who can take the world to a global recession. If oil doesn't go up as much from here and gas moderates, then I'm convinced we'll avoid a deep recession. Else, all bets are off.

I'm keeping my fingers crossed - of course, for all our sakes, a deeper recession MUST be avoided. ;-)

C - you're barking up the wrong tree!!! Oil prices are already substantially and if you look at global gasoline futures, they have tanked badly in the past 6 weeks - US demand is waning as we're heading to autumn and that's a big factor. They're slowly dropping here too, but the big problem in Europe is Nat gas. That is the main inflation driver and until that situation is brought under control, there'll still be some pain ahead for the consumer - that's never good, Winter demand for oil should be better this year because of gas to fuel switching, but I'd want to see aggresive fed + central banks as they can induce a deep recession, which is what is not good for oil prices. That's not yet a base case for the oil market.

The oil market has factored in a minor recession with the recent fall from $130s to $95 and the ever continiung lockdowns in China aren't helpful - they're complete plonkers to think they could ever fully cut off Covid. Oil isn't really the problem child now, it's gas and that's where the focus should be. And Enquest has very little gas - I'd suggest that your time will be better spent in preaching the good of green energy on the HBR and SQZ boards. ;-)

I can see both arguments and I'm squarely in the middle camp. We don't really need oil much higher than these levels globally as that's an invitation for the fed and other banks to raise rates. Gas is a bigger problem in Europe now as the prices are at plain silly levels and will have an outsized effect on inflation and its then a vicious cycle of central banks raising rates to keep inflation lower, which is not good for growth or commodities.

Upsides for the oil market - China demand coming back/SPR releases winding down in 2 months (in time for the US mid-terms)/OPEC+ noises on cutting supply/gas to oil switching in the winter (if prices stay high).

Downsides for the oil market - Iran coming back (and oh, they have plenty of stored oil that they can export), rates keep rising fast impacting growth & demand, a real US Recession (not the Q1/Q2 2022 technical recession) driving by dropping consumer spending, higher interest rates and QT in the US and Europe (lower money supply = not great for commodities)

No matter what most on this board think, demand trumps supply and too high oil prices can only help a quarter or two. Why do we think that oil stock prices globally haven't really tracked high oil prices in Q1 and Q2 - the market just doesn't believe that higher prices are here to stay and until the market sees prices at these levels or maybe a bit higher/lower for an extended period of time (say into Q1 2023), we won't realistically see solid re-rates.

All oil shares across the board are in limbo land at this time - obviously the gas focused ones are shaping up better in the near term, but that won't last very long, IMO. Where we are now with oil is the sweet spot and Enquest can focus on paying down debt from all the FCF coming though at these levels. I like the relative strength of the SP in the past few days and the market's hoping for a positive update next week - fingers crossed.

GLA

"ABS seems to be calling out the US for manipulation of the paper market in to the 90s". That's the pot calling out the kettle, heh? The reality is that OPEC was manipulating prices on the way up and the US is doing it now via SPR releases. These releases plus US recession concerns are exerting downward concerns on oil prices. IMO, oil falling as much as it did, has only but helped higher inflation concerns in the near term, more so in the US. We still have gas issues staring back at us in Europe and we have a deeper recession staring at us here, particularly if Russia holds back more gas supplies.

The market is probably viewing $85 to $100 Brent as an equilibrium price and that is good for us. Saves the fed from hiking too much and getting the globe into a protracted recession. We'll just have to see how the US data plays out in the coming weeks and that'll inform the market as to how high the fed can go - this is a key driver for oil prices. Any 'positive' Iran JCPOA news can of course pull down oil prices a bit, and that's still OK, IMO.

And yes, we're still undervalued, and as long as AB follows through with dividends in 2023, the undervaluation shouldn't persist, even with the WFT in effect for a couple of more years.

Good luck all...

Another excellent update, with a solid debt reduction number, even taking into account a circa $150 mill hedging loss in H1. We could be on track for another circa $300 to $350 mill debt reduction in H2 noting a lower hedged volume in this period, if Brent stays above $90 in H2. The focus on debt reduction for H2 is a good thing, IMO. Once the RBL is out of the way in early H2, more debt buybacks could be executed and then the focus could shift to shareholder returns in 2023 - thats how I see it.

Good luck..

I doubt that WT will be scrapped - it just won't happen. However, there is a bit of good news in the changes secured by OEUK. Decomm spend can be used to reduce taxable profit - nice. Will save us a bit of tax. Hopefully, Zahawi can make a few more tweaks and give us some more concessions. The tide should turn for us and HBR (they're even more reliant on decomm spend to cut tax spend than us) soon, IMO.

"The government changed the draft bill to set a firm end date for the levy in December 2025 and allow firms to reduce the tax by spending on decommissioning old fields and investing in the electrification of producing fields."

A five quid fund is still a fund I suppose?

I have no problem with Brent below $100. It's healthy for the global economy and sets up a stable price at a higher level in the coming days/weeks. I was never in the its great that Brent is in the 130 to 140 bucks camp as that's a certain recipe for a quick fall to 50 bucks, should the inevitable recession come around on the back of higher commodity prices all around.

ENQ is still a nice money spinner at these Brent levels.

"But what will happen to oil share prices in the US if Bidden introduces a windfall tax?
Although it maybe that US oil companies are confident that a windfall tax would be blocked unlike in the UK and EU where oil companies are fair game, even the majors."

I'll give you the % probability of a Windfall tax being imposed in the US - a big fat ZERO. Even if you assume that a democratic controlled senatetries to use the reconciliation approach to try to impose a WT, Senator Manchin, the Dem from WV, will NEVER support such a measure (Remember he was the one to torpedo the Build Back Better act) as he's from a coal producing state and is massively pro O&G too. If you really know the US political setup, you'd know that there won't a O&G winfall tax now, and certainly not when republicans take over the house in November.

Given that agri and base commodity prices have tanked just in the last 5 to 6 weeks since the fed embarked on the rate hikes - Wheat, Corn, Palm oil - are all down 40 to 45% from recent highs and base commodities like Copper are down 30% and oil hasn't spared either, it stands to reason that the fed will pull back from aggressive rate hikes after the July hike and that sets the oil and stock markets up quite nicely going into the end of the year. People's pockets will be pinched less from herein onwards and then the ongoing supply issues for oil will come to fore and keep prices buoyant. That's my base case.

True, if we were to have a full-blown recession in the US, then I see oil tanking to the 60s/70s that the perma bears, Citi, has been calling. I'm personally not seeing that and that's great for FCF. Wouldn't it be nice if the WT were to be diluted - now that the numpty that came up with this proposal is out, maybe that could happen?

@Wellinterversion, Cheers. Eric Nuttall did fabulously with his picks in the beaten down Canadian O&G picks - Athabasca at 20 cents was a killer pick and it went up 1500% from the lows. His other picks like Whitecap and Baytex have also done fantastically well, although I don't own those. I'm in the likes of CPG and VET, and VET has exposure to European gas as they operate gas fields in Ireland, Germany and the Netherlands. And they don't have the headwinds of an O&G WT that the silly UK government has imposed on NS oil companies. Even with that in mind and given how much the likes of HBR/ENQ have fallen since the WT was announced, they're valued silly. I can't quite say that they're done falling and as there's a massive fiscal sword hanging over these North Sea biggies, but with HBR potentially debt free by 2023 and Enquest trading at less than 100% FCF yield, they should be good mid to long term investments. For the plentiful of traders on here, they're both looking ripe for a sharp trading bounce. Play them as you see fit I suppose.