Member Info for L3Trader

Some of the tax losses can be used.

The ones that cannot are the field specific allowance:
https://www.gov.uk/hmrc-internal-manuals/oil-taxation-manual/ot21415

Hi Mommur,
Lots of little companies will apply for licences in the 33rd round. They will get them. But won't do anythuing with them, except allowing them to lapse (see PMG and many others over the years, many of which went belly up). They need money to use the licences, but money is not available (with the tax regime in place PE money will stay away), except that fools have.
Majors do not engage with fields that have less than 100MMbbls. And most fields left would not have that level of reserves at a P90 scenario.
So, Hunt and Sunak have sealed the fate of the UKNSCS: offshore wind is the future, no more oild and gas.

what would change their minds? Two months of veery cold weather, with limited gas availability. People will survive, but the industry will be decimated because gas will be turned off for them.

Hunt and Sunak will change their mind in a flash.

ATB

Nitro182,
You wrote; "Won't this affect the growth opportunities though? Or do we have plenty going on elsewhere in Indonesia / Mexico."

Answer: plenty going on in Mexico and Indonesia/Vietnam. That is where the CAPEX should be going.

You asked: "Dont we get windfall taxed on our operations in gas and oil drilling outside of the North Sea too?"
Answer; No. A question and answer for you: Why are not the trading houses that beneffited from hedges being Taxed? Answer: because they can redomicile the company to a different jurisdiction overnight, while Harbour cannot move the well oout of the UKNSCS.

As I wrote earlier, I am very impressed by Linda. First and foremost she is defending our interests.

If the male CEOs of all the other NS Oil&Gas companies really were true leaders they would do the same that Linda did.
ATB

WELL DONE LINDA! (Harbour out of upcoming UK licensing round)Today 17:43
I am full of admiration for Linda Cook, the only female CEO of a NS oil&gas producer.

Why does not the CEO of Serica, Mitch Flegg, have the balls to do what Linda did?

He needs to be voted out!

https://www.reuters.com/business/energy/harbour-reviews-spending-shuns-uk-licensing-round-after-windfall-tax-2022-12-15/

I am full of admiration for Linda Cook, the only female CEO of NS oil&gas producers. Her male counterparts at Serica, ENQ, Kistos, PMG, etc., are all a bunch of wimps and have shown not to be leaders. Vote them out!

https://www.reuters.com/business/energy/harbour-reviews-spending-shuns-uk-licensing-round-after-windfall-tax-2022-12-15/

Hi Stevo12,

"On a go forward basis not too bad a deal with offer being “you pay for 8.6% of investment costs and we will let you keep 25% of the profit”

You are forgetting a few things:
- Decommissioning expenditure is a "capital" cost you have to pay when production stops. So, add it to the 8.6%. What is decommissioning usually as a percentage og Initial CAPEX? It varies, less for FPSOs than for the old oil/gas platform. But government could start requiring very expensive decommissioning work on environmental grounds.
- The 8.6% assumes you always produce when you develop a field because there are no dusters. When they are you do not get 91.4% of tax relief.
- Cost of debt is taxed at 35% (interest expenses are deemed "profit")
- Finally, you need to commit to invest years in adavance. But, Labour is saying they will withdraw the rax relief. So, anyone developing a new field will need their head examined if they go ahead with it.

Finally, plenty of fields currently in operation would not have been sanctioned if it was known their profits would be taxed at a rate of 75%. And this tells us all we need to know: do not trust the UK goverment going forward.

The UKNSCS is going to see oil production decline.

ATB

"The case for hedging the entire production at 300p a therm plus must be fairly compelling as it removes an existential risk if gas price craters."
we have not seen yet how high prices will go if December is cold all the way through... you will get average of 400p/thm until end of February...

IOGers,

Most recent presentation posted states "in H2 2022, Gas:22-28mmscf/d (including Q4 shut-in)".
If you look at the production in July+Augu+Sep+Oct+Nov, to reach 22mmscf/d in H2 is requires about 30mmscf/d in December.
IOG receives revenue from 40% of it, i.e., 12mmscf/d. Assuming 300p/thm, you get about £12M.

On 30 September I wrote: "Given that IOG's CAPEX in H2 will be c. £50M, and it needs to pay interest, OPEX, and last but not least G&A, it needs to bring in another £35M at least to not have to use its cash balance of £12.3 million the end of H1.

But working capital outflow of £10M (Receivables) in H1 can hopefully be in part reverted to compensate for that.
Cat it get those £35M by year end?"

We know that when they received the revenue from September in October they had "Following the scheduled monthly receipt of payments for gas sales, IOG's cash position is today in excess of £36 million, of which £5 million is restricted."

to this weneed to add revenue from October, i.e., 40% of "October average 15.8mmscf/d at 164p/therm", so, less than £4M.

So, it seems that if there are no hiccups with production until 31 Dec, the answer to the question above is yes.

ATB

That is the key question here. if so, it needs to announce that it won't embark in developing new fields and that all CAPEX henceforth will be allocated outside the UKNSCS.

In general, the independent O&G companies find themseleves in this position of an increased EPL to 35% (with all the details that it entails) because the incentives of the members of their boards are not aligned with those of the shareholders, and therefore they were not forthright when the EPL at 25% was first legislated by the Government.

Their reaction was weak and feeble. At that stage they should have immediately started suspening CAPEX in the UKNSCS and let it be known to the media and UK Government. They didn't. So, the government thought that it could go futher and almost nationalize the industry, which it did by stealth. And that is why we are where we are.

Does anyone have any estimates for the amount of unhedgeg gas to be sold in Q4 and revenue from it if gas prices stay around 300p/thm until 31 Dec?
Thank you.

I am disappointed this is going to be taken over. I bought into this years ago, and was expecting this to return 400%! In the end it was not to be. Good companies taken private, as always...

Stevo12,

you wrote: "This will allow us to pay down debt and prepare for new normal where government has taken 75% of the equity while providing just enough crumbs for management to continue to participate in NS.".

i think it is a bit less than 75%, because HBR was already going to pay 40% starting in 2024 when the tax credits would have all been used.

on the other hand, i think there is zero incentive to embark on any greenfield project. HBR should state publicly that there won't be exploration in the UK and development of new fields as things stand.

we have to wait and see what average gas price in Q4 will be.

current strategy failed, because TEN's geology means investment there is mostly pointless. so production not increasing. debt not being repaid. need to change strategy as otherwise will be shown the door.

board, asleep at the wheel, they should have bought WENT.

you do not get 91.4% of capex in a field that is never brought into production. you get less tax relief than that.

anyway, time to move away from the UKNSCS and invest elsewhere. why pay 75% in taxes if you can pay less elsewhere...

Heheheh.... that was my reaction too. Either the Dutch or the Spaniards were going to acuqire Devro. It was a matter of when and who rather than if. I accumulated shares over a decade, and will make a nice return on my investment. Now, just need to make sure I delpoyed the capital to a company and sector where the potential returns are high as well.

Any ideas anyone?

(No suggestion about oil&gas companies, as they have been effectivelize nationalized by the state by stealth!)

ATB

After the independent o&G companies, it is the turn of the majors:

https://www.reuters.com/markets/europe/equinor-evaluating-impact-britains-windfall-tax-projects-2022-11-22/

Sunak&Hunt's policy is a winner!

CCS investment does not attract tax relief. it should be paused, period.

Kign, you are correct in that HBR will not be able to get out of becoming a less valuable company until it diverts its CAPEX elsewhere. As a jurisdiction to invest in oil&gas the UK is no better than Kurdistan (now see at what multiples oil&gas KRG focused companies like GKP, GENL trade...)

If you read the government's release
https://www.gov.uk/government/publications/autumn-statement-2022-energy-taxes-factsheet/energy-taxes-factsheet

you will conclude that it is nothing more than propaganda,
Under "Further facts and background" it states "The permanent 40% headline tax rate for oil and gas producers is competitive globally against similar operating environments, and is lower than Norway, the Netherlands and Denmark. The Energy Profits Levy is an additional tax which reflects the extraordinary global context of high oil and gas prices."

Well, we can all read, and so we know that the tax regime in Norway has lots of incentives:
https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Energy-and-Resources/gx-er-oil-and-gas-taxguide-norway.pdf
See annual cash refund of 78% of exploration costs. Yes cash refunds! So, comparing tax rates and ignoring the rest of the tax regime is disingenuous at best and at worst an intentional lie.

Also, while gas prices are very high compared to historical prices, oil prices are not. See oil prices in the early part of the last decade... 2010 to late 2014... ).

So, the intent of this bunch is to tax oil&gas to bring production in the UKNSCS down, and I am under no illusions they will succeed.

I now hope that Linda Cook will have the courage to make an announcement about pausing all CCS spending.

Hi Londoner7 and Banburyboy,

I am not going to get into the hedging and EPL issue in detail.
The little time I had to skim through the previous EPL bill, i remember the EPL is calculated as follows:

(Accounting profit + Interests costs + Decommission costs - Decommissioning rebates) x 0.35%

after which you subtract the tax relief on CAPEX

Now, think of a company that has to decide how much to spend on decommisioning next year. If they spend $100M, it will cost them $135M. If they do not spend anything at all, they will pay $35M in tax (if they have tax credits to be exempt from the 40% tax rate - I think decommission expenses are part of the profit measure to which 30% and 10% tax rate apply - but stand to be corrected), and keep $65M that they can return to shareholders.

By the way tax relief on intial CAPEX (interestingly, HBR labels ABEX as CAPEX as well, which is correct!) is not 91% for everything, e.g., CAPEX on exploration and appraisal wells in fields that are not brought into production has lower tax relief ...

The bottom line for me is threefold:

1) Taxing the profits of projects that were sanctioned years ago with CAPEX, results in many of those projects having ex-post IRR that are negative. How can anyone invest when there is uncertainty about tax regime in the future (Government promised the May/June EPL was a one-off change of the tax regime. They LIED). Imagine you FID a project now, engage in contract with suppliers, only to find out that the tax relief on CAPEX is going to be removed. I would not invest in new oil fields in the UKNSCS....

2) "The Levy will end on 31 March 2028. With these changes, the EPL is expected to raise over £40 billion in total over the next 6 years." Well, that solves Scotland's public finances problem if it were an independed country. Sunak and Hunt have de facto made Scottish independence a question of when rather than if. They are political geniuses.

3) In light of 1) and 2) HBR and other UK focussed oil&gas producers need to stop FIDs in the UKNSCS and redirect the CAPEX elsewhere, and relocate to a different jurisdiction.

ATB