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I'd say the sign off is now a matter of when and not if.
The government has stated that the Bill aims to achieve the following:
Make the UK more energy independent and safeguard domestic energy supplies by increasing investor and industry confidence.
Enhance the UK’s energy security and reduce dependence on higher emission imports from overseas.
Protect the domestic oil and gas industry that supports more than 200,000 jobs.
Realise the UK’s net zero target in a pragmatic, proportionate and realistic way; without unduly burdening families and businesses.[1]
The obligation on NSTA to run an annual application round would only apply if two tests are met: a carbon intensity test, which would be met if the carbon intensity of domestic gas is lower than imported Liquefied Natural Gas (LNG); and a net importer test, which would be met if the UK is projected to be a net importer of both oil and gas over a 15-year assessment period
Putup,
Take sometime to read, take in and understand what's presented before babbling guff, andtrying to sound clever.
“ What's the Iraq governments new stance on flaring?”
That aside,
I still don't see your answers to my questions? I.e the facts.
It's not difficult. What did you find?
Putup,
Many thanks for the reply,
You've made a few errors again. I presumed your level of financial literacy and maturity to be at a higher level than presented.
It applies to the NPV given in the CPR and the historic risk discount that the market applies.
Not to repeat myself, but,
i.e."The net monies received over the life of the field come down to net cash flows contingent on contractual terms." , Then discount.
How do you derive it?
You may want to look at NPV at your 20% discount rate; it’s in the CPR already worked out, you'll have to make a few changes but it's easy enough. Then, apply the new fiscal regime. What do you come to?
“While this is correct, you also need to factor in who bears the cost of capex. HINT: under the current arrangements, very little is borne by the Contractor. ”
That's correct, and unfortunately, that's my point. What's the Capex recovery of the Iraq contracts? What's the Iraq governments new stance on flaring?
A few questions:
What value target do you think the investment funds shorting GKP have?
What research do you think they've undertaken?
What fair market value do you see for GKP and how do you derive it?
The reduction in NPV is calculated off the IRR. It’s just facts. You can’t wish for money to come in that is no longer yours to lay claim to. When it’s gone it’s gone and it will happen overnight.
The net monies received over the life of the field come down to net cash flows contingent on contractual terms. The Iraq contracts own a significant amount more of the field and those cash flows.
The reduction (as I calculate it) in Net monthly cash inflows will be at least 50-60% - The operating costs and Capex remain the same and that’s the crux.
Discount to what price? That’s very relevant .
I discount it from where GKP stood at £2 expecting 50K + production. Hence my own 80p to 90p fair estimate (The price was consolidating to that value)
Reason- Fiscal and political instability still remains. Iraq recently missed payments to an IOC Janice even with an Iraq contact the same price discount will remain, possible better is payments are on time.
FCF for further development and expansion will be significantly hindered. It will certainly reduce or eliminate the dividend while expansion happens.
Don’t forget GKP we’re planning over £200m in Capex to reduce field flaring. That Capex won’t increase production.
Let’s wait and see what happens. I can’t see anything meaningful for another 3 months - Finalisation of the 5+ bid round. Contract negotiations will also go through Iraq- IOC lawyers - a lot of back and forth.
ValueS,
Many thanks for the reply. I've been using the breakdown from the presentation. It's a bit more intricate than how the RNS makes it seem and what GKP takes home. I'm getting the figures below, but I thought some folk may have already reviewed it forensically.
I'm just being realistic, I'm sure the funds shorting the stock see the same thing. It may or may not happen that we get an Iraq contract but it's likely imo.
For anyone interested in the effect on the NPV refer to this excellent analysis for the Iraq contracts:
https://iraqenergy.org/product/iraq-5th-bid-round-analysis-report/
Handily, on p18 'Table 5 Economic results of 5th Bid Round TSC compared to other systems'
GKP and its Kurdistan contract are used as a comparative example. Look at the effect on the value if issued with an Iraq contract. 50-60% drop in NPV.
It's just the reality. Then, one has to account that FCF for development may be tight, as in Iraq, hence the declining production. Hopefully, something more commercially viable is issued.
All three countries respected the Paris arbitration courts decision.
Hence we are where we are.
The question is now the most likely outcome and the new value of the assets, net to the companies after that outcome.
I get a 50%-60% discount given the contract changes.
The oil majors are on the Iraq contracts, I can’t see exceptions made for the smaller co’s.
Does anyone have any figures for the % of net profit/Rev of the Kurdistan contracts Vs the % of net profit from the Iraq contracts?
I need help finding a solution that doesn't involve a new contract. Iraq deemed the Kurdish-issued contracts illegal and now has all the control and power.
Small oil companies vs the Iraq government, which now owns all the means.
Look at this another way: If this was an Iraq oil company in America, invested in a breakaway region, which you've just brought back to the fold, telling the USA what's right and wrong and what to do or not to do vs their laws, what would the outcome be?
The oil quotas, pipeline ownership and payment control mean there's no rush.
I see the value of production as no halving or more, so I now have a target of .80p- .90p from which we can then build value.
I want to be proved wrong; please do so which numbers.
All IMV
Enquest is a collision of cheap O&G valuations, leverage, and cash flow.
Enquest enables the investor to buy production with leverage. The price is so cheap you can then pay off the leverage within two years (Subject to long-term forecast $70 oil)
Enquest re/valuation
How I see it,
(*There's a 'phantom' long-term debt of around £500m on the financials due to an NPV calc of the BP profit share. Excluded for obvious reasons)
All simplified to round figures, and we have yet to determine the final 2023 debt position.
Estimate:
Mcap: £280M
Net Debt: £420M in 2 parts = £210m and £210m
FCF: £224m
The EV 'should' remain static at around £700m for the given production/Net cash flow.
So EV = (Mcap | Debt)= |£280m | £210m & £210m|
For FCF of £224m
Pay off one unit of debt EV = (Mcap | Debt) = |£280m + £210m| £210m|
Reason: Independent E&Ps are now priced around EV/Earnings = 3,
So, at this inflection point, when we pay off debt at this stage, it should start moving the market cap.
Looking at it another way. We have paid off all the debt over two years, and the market cap doesn't move.
Now we're on a P/E of 1 more or less.
Leverage/ Cheap valuation / Stong FCF:
The power of this leverage for the investor is if ENQ starts to issue dividends.
e.g. (Simplified for the point)
To buy SQZ FCF you pay £900m for ~ The same FCF as ENQ let's say £250m (They had an exceptional net gain booked of fair value/good will this year -Excluded)
To buy that FCF at ENQ you pay £300m.
If you issue 15% of that FCF as a dividend (Tax 35% - Considering both have/using tax credits)
£75m - Tax 35% = £48.75m
SQZ = 5.4% Yield
ENQ = 16.2% Yield
Thats where the leverage comes in. The fact is, ENQ is so cheap to buy for its FCF that it could pay a dividend and pay the debt down in 2-3 years from this point (Assumptions of current ops made), in which time the debt should convert to market cap to maintain a 3x EV/Earnings.
One never knows the future, but the reasoning stands.
Few more notes:
I think we'll get development approval. They wouldn't have had another licencing round if developments were vetoed, but who knows when. Rosebank opened the door IMO.
I'm still trying to make the accounts clear to myself (Thanks for the clarifications).
The lease costs are significantly reducing, as is the interest expense. Also, it will be interesting to see to what extent the Puts are offset against the EPL.
You would think SQZ or ITH must be looking at ENQ?
Caveat: All of the above is in my opinion, and may not be anywhere close to how it works out.
A few questions:
How are other people's Net FCF forecasts for 2024, given $70 oil, working out?
How do you see ENQ vs SQZ and ITH (I like both, but as explained above like the leverage on ENQ and the tax losses vs production. And greater reserve life)
Control and owning the oil fields.
The Iraq contracts take financial ownership to the region of 95-98% of the fields productive value.
That’s why I want to know what other people get for the Kurdistan contracts %.
We can then look at a fair value.
There’s no option here now but for an Iraq contract.
Iraq now have legal control of the export pipeline, payments to the IOC’s, and fiscal control of Kurdistan.
The IOCs can say ‘we’ll go to the London arbitration court” but in reality it will take 2-3years to get a hearing.