Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
Land costs are a significant portion of a house purchase. Lowering that cost will increase demand from those currently renting.
No doubt Help to Buy helped some to buy. There are several expressions of opinion here on the overall market impact of Help to Buy:
https://en.wikipedia.org/wiki/Help_to_Buy
The Help to Buy scheme provided a short-term fill-up to house builders and buyers about to enter the market but all the sensible economic commentary was that Help to Buy was largely house price inflationary, and they proved to be correct.
What we need is a Help to Build scheme.
What form might that take? Something that reduced land prices and increased the incentive to develop under utilised land would help. Any ideas? One idea has been around for over 100 years and is viewed by most economists as the fairest form of tax.
A Land value Tax.
Tax an asset and it reduces its value and provides an incentive to maximise the value of the taxed asset. Speculators can sit on land untaxed, while the land value appreciates due to neighbouring and surrounding development, paid for by the community, in one form or another, such speculators can drip feed land into play at their own pace. A Land value Tax accelerates that pace.
https://petition.parliament.uk/petitions/657040
This is their target. "Keir Starmer has pledged to get Britain building again – starting with one and a half million new homes across the country within five years of a Labour government."
That's an average of 300K per year, but from a standing start of 230K built in 2023 (GB), and assuming same again in 2024, a 9% p.a. growth in build numbers would be needed to achieve 1.5m over 5 years. The build in year 5 would be 354K.
I don't see it but it would be great for our society if it happened. It would also help my Breedon shares.
The Capital Markets Day is 12th June 2024.
Thanks romaron, after I posted I thought it might have been in the RNS but didn't check.
Many companies are now using this investor forum to communicate with the retail investor outside of the conventional presentation with the Q&A limited to the analysts. I think it was last year that Enquest combined the two and I felt AB got very defensive in his replies, so I can understand why they've now spilt to two sessions. I wouldn't be surprised if this session is hosted by Craig. I've been in touch with Craig recently and found him very open, so ask good questions and you might be surprised at the detail in the answers. I was.
AIMOilking, a recording of the session is normally available on the Investor Meet website a day or two later.
If you have a specific question contact IR. Why wait till the AGM.
I frequently contact company IRs and get good and often detailed answers to my questions. They don't reveal commercially sensitive information which isn't already in the public domain, but ask a question in a way that demonstrates a good understanding of the company's business and you'll often get an informative reply.
Frankly, judging by these boards, many so called investors these days are one rung up from playing slots in their local bar, looking for an RNS to give them there next fix, and trading opportunity for pennies.
I've just received an invitation to an 'investor meet company'
"This is a reminder that ENQUEST PLC will be holding the meeting Results for the year ended 31 December 2023 tomorrow at 11th Apr 2024 at 2:00pm BST."
I wasn't expecting one - thought we'd had it - could be an error, but putting in out FYI.
Hi romaron,
In his post (12:18) Stevo12 describes Labour’s current (public) position on the EPL. I will just expand on the 3rd paragraph.
The key line from my post, which you picked up on is, “there is room for Labour to claim political capital out of removing the ‘addition’ EPL allowance – sometimes referred to as the super deduction – while still providing a case for North Sea investment.”
When the conservatives increased the EPL from 25% to 35% they reduced the investment allowance component (aka super deduction) to maintain total relief at c. 91%. The investment allowance relief rate was reduced from 80% to 29%.
If the same occurred under Labour with an increase in the EPL to 38%, and total relief maintained at 91%, then the investment allowance would reduce from the current 29% to c.16%. Interestingly, the additional allowance under EPL would be the same as the investment allowance under the supplementary charge, at 6.25%.
Back to politics.
There is a fringe in the Labour party which wishes to see a full cessation of North Sea production, but will accept a policy of no new development, regardless of the impact on jobs or the economy.
I don’t think Starmer or Reeves are in that camp. Their position revolves around no new licenses and a ‘proper’ windfall tax, often referring the Norway’s 78% tax rate.
The conservatives have introduced a bill to initiate an annual round of North Sea licensing. There can be no doubt that the sole objective was political manoeuvring in the face of Labour’s stated position on new licenses. This will be the first line of the North Sea debate and the simplest one for the electorate to understand.
On taxes the public will be supportive of higher tax, so long as they don’t see it impacting them personally.
Starmer and Reeves will have to face the impact of any tax changes on North Sea jobs and the economy. The voices from Scotland will be too loud for Westminster to ignore. I have no doubt that the full removal of allowances under the EPL would have a severe impact on the North Sea sector, which is why my current position is on an adjustment to the EPL which will maintain the policy ‘offer’ to the public, while supporting North Sea investment, albeit reduced from an environment absent the EPL.
This could be the headline, “North Sea taxes raised to 78%, EPL super deduction allowance removed”. The Daily Mirror would give more zing, but you get the message.
The devil will be in the detail. EPL increased from 35% to 38%, but the EPL first year capital allowance will be maintained.
From my post, “With the removal of the additional component of the EPL allowance – super deduction - the total tax relief at an effective tax rate of 78% would be (46.25% + 38%) = 84.25% (78% first year capital relief, plus the 6.25% relief on production).
I sensed the Ithaca chairman sees this as a possible outcome – a Norway solution.”
Digging deeper into the Feb numbers.
Pierce was offline in Jan so not a contributor to the 10Kboepd drop. Erskine and Scheihallion contributed 5,360 boepd.
The balance is Captain, 4,400 boepd down in Feb. Again, the status of this field would have been considered in the guidance, but could have been a surprise to the markets today.
Captain numbers have been noisy outside of last year’s shutdown - c. 3K drop between May and June 2023. Probably due to the ongoing EOR works, which are completed this summer. Guidance still had 2024 Captain production higher than 2023, but not by much.
Feb production is down c.10Kboepd on Jan production.
Ithaca confirmed the issues at Erskine and Pierce, which were fully offline in Feb, although the news on problems related to the infill drilling on Schiehallion was new to me, apparently the market was aware. (?) My take from the update last week is that Schiehallion is sorted, Pierce close, but little was said on Erskine, though I think I saw the problem related to a host facility, rather than Ithaca’s operations on Erskine.
As I like to remind myself ‘stuff happens’ in this industry, and it’s rarely good. That said, these Feb production numbers were known to Ithaca when they gave their 56k-61Kboepd guidance for 2024. However, the market (algos) is unlikely to react favourably to bad news even if flagged.
I think it was Stevo12 who clarified aspects of the EPL (including the timing of payments related to tax loss status) in posts on the ENQ and HBR board.
Historically, in the UK non oil gas sector, capital spending was written off over various periods of time depending on the asset purchased. Recently, the UK has gone to full expense of capital, though there will still be historic capex to write down, D&A as you describe it.
However, the UK oil gas sector has operated essentially full write down of capex for a long time – 40% first year capital allowance against a 40% tax charge. An additional 6.25% allowance was added after the asset moved to production.
When the EPL was 25% the EPL allowance included an additional allowance of 80%, providing a total allowance of c.91%. (1.8 x 25% = 45%)
When the EPL was raised to 35% the EPL additional allowance was reduced to 29% to maintain the total allowance at c.91%. (1.29 x 35% = 45.15%)
Incidentally, this highlights the ambiguity of the political debate on removal of EPL allowances and the increase in the EPL rate to 38%.
There can be little doubt that the complete removal of the EPL allowance would make any new investment in the North Sea difficult to justify, but there is room for Labour to claim political capital out of removing the ‘addition’ EPL allowance – sometimes referred to as the super deduction – while still providing a case for North Sea investment.
If full first year capital relief was allowed against the EPL at the new rate of 38%, then this would align with the capital relief applied to the rest of UK business.
With the removal of the additional component of the EPL allowance – super deduction - the total tax relief at an effective tax rate of 78% would be (46.25% + 38%) = 84.25% (78% first year capital relief, plus the 6.25% relief on production).
I sensed the Ithaca chairman sees this as a possible outcome – a Norway solution.
I also listened to Ithaca’s presentation a second time. Two points formed in my mind. One, the ENI assets are unleveraged, meaning no associated debt coming across to Ithaca, and whether the assets carried tax losses or not, Ithaca would be able to offset their own tax losses against profit, so in the near term only the EPL charge applies. Two, clearly Delek is familiar with the UK political landscape and would be looking at ways to alleviate the worst-case impact, i.e. the complete removal of allowances associated with the EPL. In which case, only Rockwell would be completed, albeit perhaps with loss of allowance on half the investment, but unlikely to see any further, non-regulatory investment made in the North Sea.
Against normal field decline, ENI adds c. 40K boepd now, Captain adds c.15K bopd from 2025-6, and Rockwell adds c. 15K+ boepd from 2026-27.
The applied tax rate would be 38% until the current CT losses are used. No doubt Delek and ENI will be looking for full dividends along the way, with room to increase
Enquest has already updated on both Jan and Feb YTD numbers (43Kboepd and 44.5Kboe respectively), so my interest was in looking at where the c. 3K uplift in Feb versus Jan came from.
I only look at the oil numbers and the net uplift on oil is 1,383 bopd. Magnus did the heavy lifting with Feb Magnus oil up 2,112 bopd, and estimated gas from Magnus taking the total North Sea increase in Feb to c.1,750 boepd.
Which leaves the balance of c.1,250 boepd coming from Malaysia, which seems a lot, but perhaps it had a poor Jan.
Enquest don’t normally provide any breakdown on field production till after the April numbers. That will provide the clearest guide to a (net) revenue estimate for 2024.
I’d appreciate it if anyone else looking at these numbers could confirm my summary.
Hi Tamovv,
Your EBITDAX number is close to mine.
In 2023 the net CFFO of $1,291m included a negative impact from movement in working capital of $210m. What will be the movement in working capital in 2024? Not knowing makes an estimate of CFFO difficult. But assuming a neutral movement in working capital I have a $163m dividend for the financial year 2024.
On your EPL question, let’s go back to the 2023 numbers:
Adjusted EBITDAX $1,723m.
As you say, decom and interest are not deductible before EPL, but other costs are. To keep the calculation simple, I’ll just deduct lease costs $42m and Admin $34m, for a combined $76m.
The investment allowance before EPL is applied is (1.29x(393+97)) =$630m.
Profit subject to EPL is 1723-76-630 = $1,017m.
EPL is 35%x$1,017m = $356m, which is close enough for me to the reported current EPL charge of $333m, and the estimated cash tax payment in 2024 of $345m-$355m.
Applying the EPL calculation to your EBITDAX number for 2024, same again lease and admin, and the higher Capex:
1160-76-(1.29x (365+210)) = $342m subject to EPL.
EPL is 35%x$342 = $120m.
A cash tax reduction due to EPL in 2025 (using my simplified calculations) of $356-$120m = $236m. Potentially adding $70m to the 2024 dividend, for 2025.
I suspect that most North Sea companies, (I’m thinking ITH, HBR & ENQ) will see similar cash flow profiles over the 2023-25 period, i.e. reduced CFFO in 2024 when EPL cash payments are at their highest, with a reversal in 2025. All three companies are also predicting higher production volumes in 2025 versus 2024.
On Ithaca's dividend yield, I find the reference to a $400m dividend payment for 2023 misleading. My interpretation is that only the 2nd and 3rd interim payments apply, i.e. a total of $267m. The 1st interim of £133m was effectively a dividend on 2022.
But my current focus wrt Ithaca is understanding the logic of the combination with ENI and the future impact on dividends. The ENI assets add to cash flow, with little or no ongoing capex. My initial assessment is that this combination supports the dividend alongside new investment in Cambo, Flota and Marigold, assuming Labour's adjustments to the EPL permit the investment. But would an adverse fiscal adjustment hold Ithaca back? I can imaging Labour calling the bluff of North Sea company executives, and winning - at least in the short term, and to a politician that's all that matters.
Stevo12, thanks for the IR communication confirming the treatment of EPL on the Bressay farm down.
Out of interest, do you know the workings to get a $50m EPL charge from the $141m total consideration?
All, please ignore my posts yesterday (12:11 & 14:59). I didn’t recognise the $86.6m transaction as an additional component to the agreement announced in December, which led me down a rabbit hole.
Stevo12, from this:
"In December, EnQuest announced the sale of a 15.0% equity share in the Bressay licence and the EnQuest Producer FPSO for a total consideration of £46.0 million (c. $57.0 million). Subsequently the Group received $85.6 million for a 15.0% farm-down of capital items identified for potential use on the Bressay development. Through these transactions the Group has realised near-term value, expecting to yield c.$58.0 million post-tax cash flow in 2024, and delivered an important step in moving the Bressay project forward. "
$85.6m is the cash component of the transaction received in Jan.
The $108.8m is a component of the vendor loan facility, described here:
"EnQuest received $108.8 million repayment of the vendor financing facility. The remaining amount ($36.3 million) is repayable through net cash flows from the Bressay field in accordance with the agreed payment schedule. In the event, however, that the project does not achieve regulatory approval, there remains an option to deploy the assets on alternative projects. As such, proceeds from the transaction are reported within deferred income on the balance
sheet."
The $108.8m is recorded as deferred income.
Stevo12, you've opened up some interesting aspects, I look forward to IR’s response.
This is my read.
At the time of the announcement the total consideration was £46m (c$57m), including a deferment of £11.25m to be paid from future Bressay cash flows.
In the Feb update we were told, “In December, EnQuest announced the sale of a 15% equity share in the Bressay licence and the EnQuest Producer FPSO to RockRose UKCS 10 Ltd for a total consideration of £46 million (c.$57 million). The transaction was net debt neutral at 31 December 2023, with cash settlement realised in January 2024.”
Based on this update I assumed the January cash payment was £46m minus £11.25m (c.$44m).
Now, we learn, “With the Bressay-related farm down proceeds offset by a vendor financing facility of $141.4 million (from EnQuest to RockRose, arranged to manage the companies’ respective working capital positions) the Bressay transactions were net debt neutral at 31 December 2023. In the first quarter of 2024, EnQuest received a $108.8 million repayment of the vendor financing facility. The remaining amount ($36.3 million) is repayable through net cash flows from the Bressay field, in accordance with the agreed payment schedule.”
The $108.8m is reported as a gain from the transaction and recorded on the balance sheet as a deferred asset, so not a component of the reported net debt figure $409.6m, end Feb.
The year end the vendor facility ($141.4m) – from Enquest to Rockwall - is added to net debt but balanced by ‘proceeds from farm down’ of $141.4m, hence debt neutral at year end.
In cash terms, $85.6m has been received, presumably the cash settlement reported as paid in Jan.
I believe the net debt figure is affected as follows:
End 2023, $480.9m.
$85,6m received.
$32.6m ($36.3m is non-current deferred value) owing under the vendor loan facility, so current net cash gain of $53m from farm down.
End Feb 2024, net debt $409.6m.
Therefore, net cash flows from operations, Jan/Feb, is $18.3m.
Enquest say, “Through these transactions the Group has realised near-term value, expecting to yield c.$58.0 million post-tax cash flow in 2024”.
Based on this I see the tax impact as c$28m ($85.6m - $58.0m).
Given we were expecting c.$150m EPL payable in 2024, and reported current EPL is $175.1m, the tax impact on the farm out makes up the difference.
A recent report by Savills illustrates the growth in the Build to Rent market in 2023, “BtR Houses, otherwise known as Single Family Housing, saw £1.9 billion worth of investment, up significantly from £360 million in 2022. This represented 42% of total BtR investment, shattering the previous record of 8% in 2022.”
This statistic represents a significant movement to new development, rather than acquiring existing housing stock for the rental market.
The latest ONS construction report for Jan 2024 shows, latest 3 months on year earlier, public new housing up 5% versus private new housing down -20%. (Currently, public only represents 15% of all new housing)
Perhaps the Vistry CEO is correct in saying the time is right for the partnerships model.
I’ve been following Vistry’s progress towards the partnership model for a few years. I was invested in Galiford when Vistry (formally Bovis) acquired their partnership subsidiary. While I’ve been attracted to the partnership model as key to getting more homes built, addressing the societal need, from an investment perspective I’ve struggled to understand the barriers to the traditional builders moving to the model and negating any Vistry advantage.
I watched the recent results presentation by Persimmon.
I was surprised to see that partnerships accounted for 23% of Persimmon’s sales in 2023, up from 18% in 2022, but partnership volumes were still down 17%. The CEO acknowledged the need and likely trend towards an increase in the supply of affordable housing, particularly if Labour wins the next election. But I interpreted his comment as favouring the status quo with the return of a coalition if not Conservative government. Perhaps I over interpret the comments, but it encouraged me to believe that Vistry will get a clear head start in the partnerships sector, and that creates a moat over the traditional builders, albeit for a few years.
I see this as important because I expect the future housing market to be quite different from the market that has operated for the last 30 plus years. I think a potential reversal is illustrated in the house price to earnings ratio, which peaked in 1989 (5x), 2007 (6.3x) and most recently in 2020 (7.0x). Each push higher has its own stimulus and, in my view, the latest was due to:
Planning restrictions, supported by the emergence of the Nimby, which favoured the large builders over the small and medium builders which struggled after the 2008 financial crisis.
Low interest rates, which made higher house prices affordable to buyers.
A diminished desire for flats, following the cladding and lease issues, and Covid lockdown.
(and I’ll add, with lower conviction) A more constrained construction labour force following Brexit.
Today, because of the cost of housing, the marginal first time buyer remains in the private rental sector, and the marginal private sector renter has fallen back to local authorities for social housing. Key is that local authorities have a statutory requirement to support the lower tier, and it then becomes a government problem, which can no longer be ignored.
Assuming Labour form the next government, I’m doubtful it will achieve a substantial increase in the number of houses built, particularly given a continuing constraint on construction labour, but I’ve no doubt that tax funds will be directed towards the affordable housing market. The current CMA investigation should provide evidence of the impact of planning restrictions and Labour might implement a policy solution, which I doubt strengthens the hand of the dominant large private house builders over the affordable market or the small and medium sized builders.