Member Info for londoner7

To close on my previous post.

I’ve made the point, here or on another board, that the Ithaca chairman seems confident that the final fiscal outcome under Labour will be supportive – he referred to it as the Norway model (or some such wording). It is my working assumption that the EPL with be increased to 38%, the additional allowance will be removed but full capex allowance (x1) will be maintained against EPL.

Linnn, thanks for posting the detail of Moody’s assessment. I wasn’t able to access your original link.

It’s good to see that Moody’s didn’t flag any concerns with the merger. Interesting metrics on debt, which I interpreted as a $1.5bn future debt capacity, against 100K boepd production, as supported by the rating.

In light of my previous comment on the proposed $500m dividends in 2024 and 2025 I was pleased to see this by Moody’s:

“Stated commitment to its conservative financial policies that prioritise balance sheet strength over shareholder remuneration. Ithaca's ambition to distribute up to $500 million to shareholders in each of 2024 and 2025 represents a material step up from the $400 million amount declared over 2023 results. That said, Moody's views the company's ambition as commensurate with the stated capital allocation framework, supported by the cashflow-generative nature of Eni's assets and the robust commodity price environment.”

I was surprised that Moody’s didn’t refer to the possibility of a change to the UK fiscal regime under Labour.

Stu, you say. “it seems like Delek feel they currently own too large a proportion of Ithaca,”

I’ve wondered about the reasons for this merger. My understanding is that ahead of the IPO, Delek expected a good dividend return from Ithaca to provide cash to the rest of their operations. The 10% free float following IPO was the minimum allowed under LSE rules, so I think it’s reasonable to assume they have faith in the Ithaca’s long-term prospects. The increase in the EPL to 35% just after the IPO reduced their return expectations, which were that after the initial 3-stage dividend payment they were anticipating a c.$430m annual (gross) dividend from Ithaca. This is in accordance with the CFFO (15%-30%) payout metric.

Post the increase in the EPL and resultant impacts on capital plans and production, estimates on this board for the gross dividend payment this financial year have been below $200m at 30% CFFO. There is also the uncertainty of the fiscal regime under a future Labour government. We don’t know who approached who, but I’d guess Delek see the merger with ENI as a hedge against the worst possible fiscal outcome, which I see as an increase in the EPL to 38% and the removal of all allowances associated with the EPL. If that were to occur the ENI assets provide a higher level of cash return because of the much lower level of supporting Capex, but of course this falls away c.50% by 2030. On the other hand, Ithaca is entering a growth phase which largely kicks off 2-3 years from now as the polymer enhancements to Captain kicks in and Rosebank production starts up.

The merger provides cash to pay a higher dividend while also covering the Capex demands on Ithaca’s assets. Hence, the provision to pay up to $500m (gross) in 2024 and 2025. Incidentally, Ithaca has substantial UK corporate tax credits to cover the merged business for the next few years. Of course, with EPL still to be paid.

It was interesting to see how Ithaca presented this dividend allocation in the recent presentation. It seemed to me they went to some length to emphasise the 30% CFFO metric still applied, and the top up will be a special dividend from the surplus pot labelled ‘evolve’. Perfectly valid, but interesting to note the strength of the point.

As I said in my previous post, pro forma the new $500m payment equates to $308m under the ‘old money’. This is shy of $430m but substantially better than below $200m. I guess from Delek’s view 2027 cash flows will be even more supportive of a $500m+ dividend – which is also my basis for holding Ithaca.

If the new labour fiscal regime is supportive of capital investment in the North Sea, Ithaca has a healthy pipeline of projects, which are detailed with anticipated capital costs in Delek’s latest results.

If anyone disagrees with any part of my assessment, please comment.

Reader61, if you're looking for advice on trading BHP today, I can't offer any.

But if you are looking for an entry point to a long-term holding in BHP then these bid situation opportunities don't come up very often. I like to invest in companies that offer me an interest in their activities. BHP is the largest miner in the world and at the forefront of the application of technology as the world transitions towards clean energy. This stuff fascinates me and BHP covers it well in their 'insights' publications. Want to know about the practicalities of the transition, then read what BHP has to say. These are the guys at the coal face, not the idealists sitting at a keyboard.

I've held a stake in BHP for decades and I trade - both sides - as the opportunity arises. If you wish to build a holding then take a small stake today - large enough to minimise trading costs - and pound average over time. In 10 years time, whether you average in at £21 or £23 will be an irrelevance.

Incidentally, you could make a similar case for RIO or other large miners. Take a look at their portfolios and direction of travel, and pick one that appeals to your interests.

Montesa, I believe you’ve read too much into the transaction.

On 17th April notice was released that 339m Ithaca shares had been moved to a custody account to cover the issue of bonds to Delek. Essentially, these shares are collateral for bond debt taken on by Delek, which is nothing to do with Ithaca.

These are the key lines:

“Transfer to a new custody account under a Pledge Agreement in relation to a series of Israeli Bonds issued by Delek Group on 14.4.2024.”

“No change in the beneficial owner of the shares.”

Yesterday’s news is the release of 200m Ithaca shares from the custody account (an unwind), presumably surplus to the collateral requirement.

The news impacting Ithaca’s share price is this item from the merger agreement with ENI:

“….. in order to ensure that the number of ordinary shares in public hands remains at or above 10 per cent., Delek has undertaken to use reasonable endeavours to sell down such number of ordinary shares representing approximately 3 per cent. of the enlarged issued share capital of the Company (the "Delek Sell Down"), prior to Completion.”

3% might not sound much but it is 30m shares into the current free float of 100m shares. As the note says, “use reasonable endeavours”, the wording itself highlights the challenge. Over the next 3-6 months (Q3 completion) Delek need to sell an average of 250K – 450K share per day into a market with typically 500K to 1,000K daily volumes. There were higher volumes around the release of the ENI news, but those higher volumes have now faded.

In a way this is the reverse of a large buyback, except Delek are taking the pain, with ENI accepting their contribution via a call option. To be clear, Delek’s actions are not dilution. Assuming the merger closes in Q3, 635m consideration shares will be issued to ENI.

Although Ithaca is considered ‘independent’, Delek, as the current 90% owner of Ithaca and with two non-execs on the board, will have significant influence over the deal.

I suspect they would have pushed for the provisional agreement to pay up to $500m dividends in 2024 and 2025, ahead of the 30% CFFO metric – I believe that unless there is a problem in Ithaca’s performance or a collapse in oil/gas prices, we will see those $500m dividends.

Pro-rata that is 61.5% x $500m = $308m payable to the holders of the current 1.01bn shares, or $0.3 (24p) per share. A 48p dividend return over the next two year on a current price of 114p is the sweetener to taking those Delek shares coming into the market.

Tigar, I’m vaguely aware of two restrictions on buybacks. Sek referred to one relating to SP increase over a period (5 days?), I remember this was called out on HBR when their program was interrupted, and I recall a rule which requires an independent purchase at a higher price ahead of the buyout order, but I've no idea how it operates in practice. (Looking at the chart it’s possible the first rule kicked in yesterday)

I can't imagine a trader is staring at the screen, with finger over a buy button, waiting for the right conditions to occur - I'd guess an algo is at play, following the rules, with limits set.

Or perhaps algos are the modern-day equivalent of an 80's super model and don't get out of their box for less than $15m.

Or the trader has just had their ar*e kicked for forgetting to plug the algo in yesterday.

Whichever, I think we can agree that buybacks will weigh to the upside. From the limited number of buybacks I've observed they do tend to start off slow and increase volumes later. As an engineer I can imagine an algo being tuned to the market to maintain orderly transactions and given its head over time.

Bottom line interest here will/should fade in this activity.

"The Company will announce any market repurchases of Ordinary Shares no later than 7.30 a.m. on the business day following the calendar day on which the repurchase occurred."

Ahead of the AGM I'm hoping to see Q1 numbers from Wintershall.

Based on last year's release dates I was expecting the Q1 release last week.

Botham, thanks for the link. I had seen it before, one of dozens I’ve seen over the years, with AC, JB and supportive analysts.

I’ve been following the detail for many years, as I said, I find it engrossing and can understand the attraction of a speculative investment. But I’ve also become familiar with the deflections that are introduced in these interviews, which can easily mislead a listener who isn’t already familiar with the story.

AC mentions the two drills on EP145 which were not tested for Helium because they were not drilled to sufficient depth – the implication is that if they had been drilled deeper, they would have encountered Helium. But listen closely – AC does not say these wells will be re-entered. Hence my post directed to you. Read the RNS – statements must be true and accurate.

Why would they re-enter? When these wells were drilled decades ago the prospect was oil. What are the chances that these well locations are the optimum Helium hotspot based on current and to be acquired seismic? Answer, zero.

Which is why I also find Georgina Energy’s plan to re-enter wells on Hussan and Mt Winter-1 as a cheap option, but likely, an unsuccessful outcome.

I don’t think I’ve posted here since late 2022, but I’ve previously posted on the misleading claims based on high concentrations of Helium. I’ve referenced academic papers that reported high initial concentrations on wells referenced by AC, but the flow rates dropped off to negligible with weeks, i.e. not commercial. Given the current high price of Helium, a few years back Central Petroleum conducted a study of commercial Helium extraction in the basin. I’ve read the report, but don’t remember the reason the project never went ahead. More recently an Asia Helium company agreed a JV with Central Petroleum and a free carry on a drill for Helium, but they never came up with the funding. Last I heard CP were claiming for their costs in the JV.

Lots of activity above ground, but little happening below ground.

Botham, given your declared positions in both Mosman and Georgina Energy I’d expect you to add some clarity in your posts, but I think you’re confusing Greenvale terms on EP145 with the Georgina Energy’s plan for EPA155.

Geogina Energy’s primary target is an existing well on EP513 Hussan in the Officier Basin. Last I heard the Mt Winter-1 well on Mosman’s EP155 licence is their secondary target, 18 months later. I don't know if that has changed.

The EPA155 agreement:

“The Farminee will also undertake technical work in accordance with the permit work programme, and thereby earn a 70% working interest and become operator of the permit. Mosman will retain a 30% working interest in the permit. At the time of drilling of a well, the Farminee may elect to carry Mosman through the cost of the well and in that case would earn a further 15% working interest, in this scenario Mosman would retain a 15% working interest in the permit.”

“In addition to the forward work programme obligations set out above, Mosman will receive an immediate contribution of A$15,000 from the Farminee in consideration for past costs and a further A$15,000 following completion of the required seismic re-processing work.”

Returning to EP145. The latest news with Greenvale Energy on EP145 includes these comments:

“Mosman has identified a drilling target at 1500m and estimates the cost of drilling that well to be in the order of AUD5m. However, the final location and well design is subject to seismic results, joint venture discussions and NT government approval. Costs of the well over AUD5.5 million and any other costs will be shared Greenvale 75% and Mosman 25%.”

“The cost of drilling a well depends on many factors including the depth of a well and cost of drilling rigs at the time of drilling.”

Mosman has a pattern of issuing market impacting news during market hours. Other companies issue an RNS at 7am giving investors time to digest the news. No doubt Mosman’s intention is to generate some excitement in the stock. Given the very low liquidity in the stock and predominance of poorly informed investors attracted to any spike in the SP, excitement is easy to generate, and this board will reflect the excitement and disappointment of any moves.

Once the dust has settled, there’s a fresh supply of typically novice investors in Mosman’s stock who are then faced with coming to terms with their position. This is reflected in posting. Those of us who have followed Mosman for several years can help by being clear and accurate in our postings.

* I’ve been following the Mosman story since Feb 2016, when an associate asked me for advice on his large investment in Mosman running at a loss. At 0.8p I advised him to take the loss and sell. I lost touch with him but believe he held, in which case he’s another 97.5% down at 0.02p.

My interest is following an engrossing story, from a safe distance.

Solomonkane, in answer to d)

I've no doubt the M&A team at BHP will have run the rule over all possible candidates. They'll understand the regulatory and local risk involved in the assets and the likely price of a successful bid. AAL has well publicised problems outside of the core copper and iron assets of interest to BHP, and I'd guess BHP sees those issues around AAL as providing an opportunity. Once in play there are a number of possible outcomes. I doubt BHP ever expected their initial bid to be successful, but rather it is part of a larger strategy.

I'm a long term holder in BHP (decades), trading when the opportunity presents but always maintaining a stake. I don't like the short term impacts on the BHP SP of these bid approaches but it is part of the game.

The FT has an excellent article on the merits of buy or build - worth a look if you can get access (subscription)- titled, The ‘build or buy’ copper maths that could guide BHP’s bid for Anglo.

Buybacks.

There are rules that govern the conditions of trading - in simple language, rules to prevent market abuse.

These rules are restrictive on the buyback pricing, which are subject to the trading of independent participants in the market. Given the size of the buyback over the short first phase period, and the relatively low trading volumes in Enquest stock there will be days when it will be difficult be purchase an appreciable level of stock. It's likely that bots will be making these purchases in accordance with the rules and they'll be opposing bots programmed to profit on the other side.

I don't know if yesterday's small buyback was a result of the restrictions/illiquidity in the stock or not. Time will tell.

No doubt BHP has examined the various outcomes from their opening bid. The structure of the offer makes it clear that there are many elements of the AAL business of no interest to BHP.

AAL management were already examining a restructure, this bid accelerates the process and may fracture the business into more bitesize pieces, allowing BHP to make a more targeted bid for the pieces it wants - it will not want diamonds, platinum or a piece of Yorkshire.

This BHP management team is a very different group to those who originated the bid for RIO. They claim to be more disciplined than the old firm - the last 6 years has shown they are, I hope it continues.

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.”