Member Info for londoner7

Reserved, I agree with your comment.

I was rebutting claims here that Mt Winter was funded. I don't recall you commenting on those claims.

A well on EP145 isn't funded.

Mosman has funding for its 20% share in the 5x Vecta wells, but is still to make payment.

Do you agree with those comments?

Anthony Hamilton, Chief Executive Officer of Georgina Energy's closing comment:

'bringing Mt Winter to pre-drill'.

Mt Winter is on EPL155. To be clear, re-entry of Mt Winter on EPL155 is not funded.

Thanks Anthony.

EP155 is GEX’s secondary target after Hussar. In a Georgina Energy publication from a couple of years back they described the timeline for entering EP155 as 18 months after Hussar. I don’t know if their recent prospectus brings that timeline forward, but I do know that the cash raised in the RTO does not cover an EP155 drill – it is explicit on this.

The RTO funding covers a re-entry on Hussar and given the geology I’d be surprised if the drill didn’t get a sniff of Helium. But that’s a long way from handing over a commercial discovery as part of any off-take agreement – look at HE1’s current exploratory activity.

This looks to me like a big bet on Hussar, so based on recent comment from the company I expect an announcement of “potential additional well re-entry targets” long before any results are published on Hussar. How will these additional targets be funded?

EP155 is a long way from being funded.

Dumbly, I’m only aware of the c. $116m current annual (FPSO lease) net cash cost for Enquest’s 70.5% share of Kraken.

In slide 12 of the 2023 results, under 2025 outlook, the FPSO lease is $80m lower, however I believe this describes the step down in the lease change from April 2025. A quoted reduction of roughly 70% would equate to a c.$80m reduction in April, but taking the full year, I interpret this as a saving of c.$60m in 2025.

A saving of $80m p.a. on the 2024 charge from 2026 onwards.

In April 2025 there’s also an option to purchase. This was described in a prospectus a few years back, which I don’t now see on their website.

Tomhuk2000, you say, "With 2x fully funded Australian 🇦🇺 Helium drills next year,"

What are these?

Stevo12, the Golden Eagle acquisition completed in Oct 2021, not 2022.

Based on a 14 month payback. the repayment of the $250m net cash cost would be around end 2022, which implies a 2023 net cash flow from Golden Eagle of approx. $316m - $250m = $66m. I guess this is after the payment of the $50m contingent consideration in 2023 H2, so perhaps net cash flow in 2023 of $116m.

Given a realized oil price of $81 in 2023, I think 2.3m bbls from Golden Eagle could have generated around $150m cash before taxes and Capex. I’d guess Enquest has utilised losses against corporation tax and the EPL would largely have been payable in 2024. This would support a $116m net cash number for 2023.

While Magnus is throwing off cash to BP then 1.66x that amount is being returned to Enquest.

Neither Magnus or Golden Eagle production has met initial expectations, but (todate) they have been positive to cash flows. The debt burden is down to Enquests own developments - Alma/Galia and Kraken.

“So potentially 10+ drills in the next 6 months all bought & paid for.”

At the weekend I posted on MSMN’s hesitancy in paying for the 5x Vecta wells, so I was surprised by your comment. But I now see my post has been removed.

Some posters here should take a close look at themselves. Clearly, they can’t handle a discussion.

Here’s my relevant comment, “Following a recent asset sale and placing MSMN has the funding, but MSMN still owes $250m under the agreed payment schedule and is required to make full payment plus $259 drilling costs before it has a stake in the 5 planned drills.”

I also drew attention to another poster’s comment who described Vecta activities at the current Gasworld’s 2024 Helium Super Summit, as, “Vecta is looking for partners to acquire the remaining non-op working interest.”

It could be that deals have been done, MSMN makes their payment and a schedule for drilling is shortly released. But as an observer who has followed MSMN since 2016, it seems to me the excitement of the summer that funded these activities, exercise of warrants, the disappointing sale of the Stanley assets, at half the prospective price, and the £1.5m placing, might have taken the gloss off confirmation of what was a ‘slam dunk’ on the 3rd June.

I wonder if this post will stay up longer than my last one.

AilOilking, thanks for the link to decommissioning news on the Gython terminal. -a threat manifest here and posed in Dumbly’s earlier link.

The North Sea infrastructure is highly integrated and as the article states, the NSTA has a responsibility to make decisions in the wider interests of the UK, but they are directed by government policy and a change in direction of travel is clear.

For several years, invested in this sector, I’ve been aware of the consequences of a cascade impact when an integrated field ceases production for economic reasons. The infrastructure tariff increases the costs per barrel on the remaining fields.

Enquest has the security of an FPSO export model on Kraken, but other assets are at risk.

However, there’s another element that, perhaps, is covered in the detail of the report Dumbly references. The UK tax regime was structured to maximise near term tax revenues while deferring the cost of decommissioning assets to a later date. Manageable while there is a flow of new development to offset decom costs but unravels when those new developments cease. In a green transition these costs would transfer to the green developments. But it appears that the introduction of the EPL has removed any semblance of a seamless transition.

While the current crop of politicians in office will be focused on a potential tax grab in the near term, there will be other agencies mindful of the longer-term consequences. I think the outcome of this week’s budget will reflect the degree to which these other agencies are being heard.

Thronegames, I assume you mean your in IRL.

A couple of years ago I visited a cousin in IRL who asked me for some investment advice - he was in a money account with a very conservative outlook. I went online and was surprised how different the investment landscape was in IRL compared to the UK. Options seemed to be limited to stockbrokers and a phone call and and email to one - name beginning D - didn't get a response.

I'd appreciate it if you could briefly expand on the options open to investors in IRL investing in say, LGEN. I guess you don't have ISA products and my recollection of the pension products was that choice was very limited. I didn't see any AJBell type platforms. Happy to be corrected.

Linnn, thanks for posting the Fitch ratings.

It provides a useful breakout of various metrics, which align with my expectations - assuming the ENI merger completes as expected. The reference to 1P reserves is interesting, but I wonder where they get this level of detail. The AR doesn't refer to 1P.

My interest here is in the potential dividend payments, so the recent fall in the share price is less of a concern, but worth consideration. I was surprised by comments in the interim update that implied the Delek sell down - to achieve the 10% free float post merger - has not been completed and might not even have started. The market will not be giving Delek a free ride, so that alone may be the cause of the fall in share price. But also, the timetable for completion is now Q4 (prospectus) when the original guidance was Q3. (I don't know where Fitch gets early Q4). That delay, could also cause market jitters, in light of the RR budget now coming before completion.

Key near term factors are the RR budget and closure on the ENI merger. I'd expect a favourable outcome on both to lead to some recovery in the share price, but it isn't something I'm currently playing or chasing, though I'll reassess my position after the budget.

Stevo12, thanks for the clarification on the Bentley tax position.

It prompted me to look back to the RNS on the acquisition (26/4/21). No clue there to the potential of the tax asset value but it seems an astute purchase given the current fiscal regime.

This morning I listened to Ithaca's interims presentation. The first note I made was "Looking at UK accretive assets".

Ithaca has been less vocal in a rejection of the UK sector for investment, than say, Serica. Both companies have net deferred tax assets which could be utilised against a UK acquisition, but not of the relative scale of Enquest, particularly when the Bressay losses are included. Serica's positioning makes a UK acquisition difficult for them, but I see Ithaca as very much in the frame alongside Enquest in pursuing any UK opportunities.

It was interesting to hear the Habour CEO recently, who has previously been a vocal critic of UK policy, say that Harbour were still making good margins in the North Sea and had several short cycle investment opportunities.

The UK sector is dying, but it isn't dead. To (mis)quote Buffet, still a few puffs to be taken from the cigarette butt.

Dumbly, on a related matter, I was following your thread on Waldorf with some interest. I'd also noticed the two conflicting reports on the possible sale of Waldorf assets, but had a vague memory of a later piece which suggested a possible sale was on. I'd like to think I assessed it's validity at the time, but couldn't recall the reference to respond to your post.

I guess we watch this space.

Doh, I'm mixing up my oil fields.

I meant Bentley is a pipe dream under the current fiscal regime.

I think the gas cap on Bressay may well go ahead, for reasons related to flaring restrictions on Kraken that I understand come into to force 2025. But don't quote me - this is from a vague recollection of something I recall from a few years back. IR are the best source for confirmation.

Stevo12, you are a tease.

I questioned Enquest's reference to a historic $2bn tax asset, on the basis that I don't see Bentley going ahead and you introduce losses ringfenced for 5 years. Do you mean that after 5 years these losses can be applied across Enquest's portfolio. Significant, if that's the case.

However, caution may be in order.

Licences are issued with scopes of work. As I recall Bressay requires a a drill (2025?), but I don't know the work scope for Bentley. While the authorities can be generous in extending work scopes, we know from Enquest's failed attempt to extract value from the Eagle prospect a few years back that the authorities are not always accommodating.

Dumbly, I wasn't looking to correct Stevo12's explanation of the tax asset, rather I was attempting to clarify what I interpreted was your query but on a 2nd look perhaps I missed your point.

No matter. If it's wrong I guess Stevo12 will correct my explanation.

It leaves the query of where does this $2bn of tax assets come from, which was referenced in the FY presentation. I don't see it as 'recognised' in the balance sheet, so assume it is related to a Bressay development, which under the current fiscal regime seems to me a pipe dream.

I'll be honest, I'm piggy-backing your query to get some clarity on mine.

Stevo12, I can see Bressay in the frame for development to reduce gas emissions from Kraken and possibly an early development option. But Bentley?

Going back to Dumbly's question, "At 40% of the total tax losses?" I assume his question relates to the net deferred tax asset of $540m-$78m= $462m. My understanding is that this is effectively an asset against $462m/40% = $1,155m of profit subject to CT.

In the 2023 FY presentation Enquest refer to an historic tax asset of "$2.0 billion as at 31 December 2023". Do you think this includes the Bentley component?

Regardless, given the $78m reduction in the net deferred tax asset in 2023, at same again levels, $462m current, should keep UK CT at effectively zero for the rest of the decade.

I've often been confused by comments around Enquest's tax position, so please correct any errors I've made.

There’s an article on the FT website which asks, what makes a great stock?

It’s looks back over the last century and identifies Altria, formally Phillip Morris as the star performer, up 265 million per cent since 1925. In 2nd place is Vulcan Materials, up 39 million per cent, or about 14% per year over the last 98 years. It is in the business of making big rocks into small rocks.

It quarries and sells aggregates with a sideline in concrete and asphalt. Sound familiar?

The characteristics of the aggregate industry conducive to sustained profitability are barriers to entry and local rather than global competitive dynamics. Attributes Breedon management frequently highlight in their company updates.

Consider the difficulties of permitting and building a quarry in the UK. However, once established the quarry could have a reserve life of decades. This is the barrier to entry attribute.

No doubt a key contributor to Vulcan’s success will have been good management pursuing a successful strategy.

Does Breedon have the same?

I first came across Breedon in 2014. It was founded by titans of the industry – Peter Tom and others. Early growth was exceptional, largely through the acquisition of Hope in the UK and Lagan in Ireland, but in recent years the construction market hasn’t been in Breedon’s favour. Lagan was acquired at the top on the market and marked the exit of the old team and the entry of the current management team. At the time, and several times since, I’ve judged that Breedon overpaid for Lagan and it has failed to perform as hoped. That said, Lagan came in two parts, the cement business and an aggregate and asphalt business, which largely consisted of asphalt services and a few active quarries, but several inactive quarries, which were a relic of Irelands ‘tiger economy’ days a decade or two ago. The cement business appears to have done well but the accounts on cement don’t split out Ireland from the UK. The Ireland aggregate business less well.

The current management team is now well bedded in and the recent entry into the US looks sound. Importantly, to me, it’s a relatively young team who may be around for a while – any exit would flag a concern for me.

For various reasons, well covered in the financial press, construction is likely to see a recovery over the next few years in both the UK and Ireland, with the US continuing to benefit from the infrastructure spending.

Back to those barriers to entry.

On Ireland, Breedon said, “Our land and minerals team work closely with planning authorities to reactivate dormant quarries and extend existing sites. Since 2018 we have successfully extended our reserves and resources from 60 million tonnes to 153 million tonnes today. In 2023 through the acquisition of land adjoining three existing quarries, combined with the addition of Robinsons, we added over 50 million tonnes of mineral with nearly 40 million tonnes at various stages of planning

Tamovv, unfortunately the reported NSTA Q2 production numbers are down on Q1. April and May down slightly on the Q1 average but June numbers include several ‘0’ entries. I’d expect these to be reporting errors, rather than say field maintenance, as maintenance periods rarely last a full month. However, my gut feeling is that June is down on April and May. This information is in the market, so I don’t expect any reaction to the production numbers this week unless there is an adjustment in the full year guidance.

As you know the reported net CFFO for Q1 was $313m, but this metric includes significant moving parts such as tax payments, working capital movements and FX adjustments. Bottom line, I’m closer to $500m for H1, but will little conviction given the noisy components.

The dividend announcement will be interesting. Will it be to current shareholders or the post-merger shareholders. Either way, I’d guess any payment had been agreed within the settlement of asset valuations between Ithaca and ENI.

Sekforde, you say, “the £195m "cash flow" is said to represent the "cash generation of the business prior to discretionary decisions regarding capital allocation" which I took to mean FCF.”

That is a serious misinterpretation of Free Cash Flow.

A dividend payment is discretionary.

An acquisition is discretionary.

A field development such as Belinda is discretionary.

But if a company wants to maintain anything close to current production levels, capital expenditure on well work, side tracks and in-fill on current producing assets isn’t discretionary. On this basis, the £79m spent in 2023 on Capex & Abex isn’t discretionary and the £170m capital cash expenditure expected in 2024 isn’t discretionary. The payment of prior year taxes, £96m in 2023 and £58m paid in 2024H1 isn’t discretionary. All these payments deduct from the Free Cash Flow line.

In a recent call, Harbour's CEO responding to a question on North Sea decline rates and capital expenditures, said, the natural decline of Harbour’s UK assets over recent years was 20%-25%, but capital expenditures had reduced the decline to 10%. These numbers struck me as being high, but that’s what the CEO said. The message is clear – a high level of sustaining capex is required to limit the decline in production. The good news is that she also added that UK margins are still good under the current fiscal regime and Harbour has a good supply of short-term payback opportunities in the North Sea. To a greater or lesser degree, I’d guess this is true for all North Sea operators.

* Thanks for the correction on currency. £s not $s.

dadean, this should work for you.

https://www.msn.com/en-gb/money/other/britain-s-unstable-tax-regime-will-push-us-to-norway-says-north-sea-oil-boss/ar-AA1oZw4l?ocid=finance-verthp-feeds

"An ambition to pay a $500m dividend in 2024 (FY) and 2025 (FY)"

Ithaca is unique amongst the quoted North Sea sector in having a majority stake held by a single institution – Delek. They hold 90% of Ithaca, leaving a free float of 10% split between investment institutions and retail. I believe Delek are more aligned with my interests as a retail investor than Ithaca management would be. In agreeing to the merger with ENI, Delek are behind the $500m dividend call.

Ithaca has a clear dividend policy of 15%-30% of net CFFO paid in dividends with 30% declared for 2024. To reach $500m in 2024 (FY), the dividend ambition includes the possibility of additional payments, beyond the 30% criteria.

Ithaca has provided guidance on the merged cash outcome for 2024. Roughly, I judge 2024 FCF at $500m, before c. $210m Capex on Rosebank, so 2024 FCF will not cover a $500m dividend payment. You describe this as a ‘terrible idea’. ENI has agreed to it. In a review to upgrade, following the merger, credit agencies Moody’s and Flitch have said, “continued commitment to conservative financial policies and leverage, notwithstanding the Company's ambition to distribute up to $500 million to shareholders in each of 2024 and 2025.”

Megla, as a retail investor you’re free to make your own assessment.

Interims next week.

I had anticipated that the H1 numbers would be delayed until after the completion of the merger. My thinking was that there might be more certainty on an appropriate dividend payment, given my comments above. I was wrong on the timing but look forward to next week’s update. Interestingly, given the bulk of cash tax payments are due in H2, 30% of net CFFO for H1 could allow a significant dividend payment. I also look forward to comment on the realignment of the free float post-merger and the timing of the prospectus. Though, stuff happens in this business, so I always expect some bad news – surprises to the upside are rare.

Megla, in considering a response I fear a long post is coming. (I largely agree with Tamovv’s reply, but I’ll expand where I differ).

I’d break down my response between the EPL changes and the payment of a $500m per year dividend against anticipated FCF.

EPL

The changes announced by Labour would have been anticipated by Ithaca. Raising the EPL to 38% and the removal of the additional capital allowance have been in the frame since before Ithaca announced the merger with ENI. The only surprise is the earlier implementation, 1st Nov rather than say, 1st Jan 2015, given the early election call. (The EPL extension wasn’t a surprise to me. I’ve posted on this. If I saw it coming, I’d guess Ithaca and ENI did too.)

These changes by Labour were a pure political call to placate their base. It will result in reduced investment in the North Sea and job losses. Reeves knows this, but her task is now to address the fiscal conditions in the October budget. She will be assisted by the fact that oil and gas companies are in the business of the development of oil and gas production. The margins will be smaller, but management can adjust their bonus targets accordingly to maintain their renumeration, though the stock will be a worse investment. That said, there will be a substantial fiscal impact to UK finances if capital allowances are removed – Reeves knows that too. I await the October budget, and wonder if there’s any significance to the implementation of the changes announced 1st Nov, rather than say now, 1st Aug. (Where I differ with Tavvov is on Cambo. It is a more marginal prospect than Rosebank under the upcoming EPL regime. Also, Rosebank has the benefit of c. 40% of pre-production Capex benefiting from the additional allowance ahead of the changes 1st Nov. An independent Ithaca board might be inclined to progress Cambo, but Delek will have near term cash flows supporting dividends in mind. Besides, I think the sanctioning of Cambo will be politically challenging for Labour – I suspect Reeves would be in favour of Cambo, but politics might win out.)

I’ve gone over my 3,000 characters, so I’ll follow up with a post on the dividends.

Sekforde, you refer to $195m free cash flow in 2023.

I don't see a FCF number in the 2023 accounts, but I see $195m attributed to Cash Flow From Operation (after tax). Deducting $79m CapEx and $5m bank interest charges would lead me to $111m FCF in 2023.

However, the cash bridge, slide 17 in the FY presentation, splits out the cash payment made for prior year tax to get to $195m CFFO. I don't know the relevance of the split, but deducting prior year tax due ($96m) and other ($4m) leads to $11m FCF in 2023.

Was FCF in 2023 $195m, £111m or $11m?

Has Serica guided to a cash tax payment for 2024?