Member Info for londoner7

Stevo, I can agree on the EBITDAX rate per barrel with a conversion to US$ from Euros.

WD 2023, EBITDA = €4.19bn *1.09 = US$4.6bn, and a unit value of $38.7 per barrel.

For HBR H1, I have EBITDAX unit value of $40 per barrel. (I haven’t seen an H2 EBITDAX number)

But going back to a realised price for gas I maintain the $42 /boe, as I detailed in my previous post. (with oil c.$72)

I see how you have constructed your $25 number, but it comes after €4,677m of ‘production and operating’ expenses, which works out at €39/boe, a bit more than the €6.1/boe headline number.

I’ve no doubt the discrepancy relates to the mix of continued and discontinued operations – trading or otherwise - but what matters to us as HBR investors in the merged business are the realised prices within the new business. The hedging for 2024 and 2025 has been provided and I guess the existing contracts on the non-European gas production will remain, at c.$21/boe.

If I assume the current 60p/therm spot price as an average for 2024 I get a WD realised price of $41, only $1 below my 2023 number.

Running the same numbers on HBR I have $45.6/boe for 2024 gas.

Stevo12, in your post yesterday, 15:06, you said, “WD is only realising an average of $25 per barrel equivalent for gas. This is equivalent to 34p per therm compared to Harbour who in 2023 realised 58p per therm, even with very poor hedges expiring this year. It appear this is primarily due to very low prices on its non European gas sales.”

Referring to page 54 of the accounts I get very different numbers. (I use 5.64 conversion for mscf price to boe price)

WD’s realised price of $7.74/mscf = $43.6 /boe

Breaking it down to constituent parts:

62Kboe/d hedged @ $49.5/boe

51Kboe/d European non-hedged @ $72.5/boe

97Kboe/d Non-European @ $21/boe

Leads to an average of $42/boe. Given the approximate % volumes of the breakdown this is close enough to $43.2/boe to give me confidence in this result.

This compares to a 54p/therm ($39/boe) for Harbour 2023 realise gas price. (Not the 58p you quote)

How do you get $25/boe for WD gas?

A couple of posts suggest my earlier post has been misinterpreted..

I've no doubt that HBR are capable of meeting the $2.14bn cash call for Wintershall Dea.

It's a big deal, and the more I look into it I see a clever structure. The assignment of 360P to BASF holders is their bone. Our bone is the ability of the acquired assets to largely payback the $2.14bn cash call, which represents the assets current cash flow benefit, thereby reducing the cost on our investment.

Ahead of completion we have 5 quarters of cash flows from Wintershall towards the $2.14bn.

On Thursday, Wintershall report their 2023 Q4 numbers,. I'll be watching.

Dumbly, you're like a dog with a bone on this Indonesia gas story. Congrats!

Let's hope we get clarification at the finals.

I haven't looked at the detail of the leasing contact posted but my recollection was that it was a c. 55% reduction in 2025.

If ENQ has stated 70% reduction then I take note. Trading updates are brief, so any comment should be closely interpreted. In the same way that the comment on a $40m WC positive impact should be a caution against how we interpret the year end debt number, the lease reduction comment, I think is important.

Perhaps EnQuest has negotiated better terms. As i recall, the Kraken lease contract runs on a 12 month rolling basis from 2025.

On decom - stuff happens.

Stevo12, you missed the GKA hub in your comment. I don't expect anything immanent, but a consequence of operators ceasing operations on NS fields is that it increases the pipeline tariffs (OpEx) on the remaining operators. The regulator is guarding against such consequences and that may provide opportunities for the remaining players, i.e. cheap acquisition of assets.

I wonder if these 'sensible people' are aware of the current price of gas. My guess is that they do a simplistic comparison to AkerBP to come up with their $15 billion valuation, which I think is nonsense primarily because of the high ratio of gas in the HBR/Wintershall combination c. 60% (AkerBP 15%) and c.$11/boe Opex (AkerBP c. $6/boe).

Or perhaps they refer to the purchase terms, $11.2 bn (effective date 30 June 2023), which include a $4.15 bn valuation on issued shares (thereby assigning a 360p valuation to the shares) and a $2.15bn valuation to cash flows that accrue between 30th June 2023 and completion in 2024 Q4.

Add that $11.2bn valuation to HBR at 227p, $2.2bn, (ahead of announcement) gets you to $13.4bn. I’m happy to call that a rounding error on $15bn, but unless there is a significant recovery in the price of gas, and or significant increase in the price of oil, $13.4bn market value is way too optimistic.

The 360p number is meaningless. It’s the price on the completion date (or their share sale date) that’s relevant to the Wintershall owners.

The $2.14bn of cash flow costs is important. If the cash flows don’t meet $2.14bn then HBR pays the difference to the Wintershall Dea’s owners. HBR has a $1bn bridging loan in place to cover the shortfall.

Quarterly cash flow numbers are highly volatile, particularly given the nature of the Norwegian tax structure, which is time related close to actual profits and investments – I think it’s a two-quarter delay.

Taking 2023 Q3, the first 3 months of the relevant ‘cash flow period’, operating cash flow was €409m, and after €274m of investment the FCF was €134m. Of course, the investment adds value to the business, but these investments were already in the schedule, as will the 2024 investments, ahead of determining the $2.14bn cash payment. (That’s my understanding, but I’d be delighted if someone can convince me otherwise)

After 3 months, the cash flow contribution to the $2.14bn payment is €134m ($144m). This Thursday we’ll get the 2023 Q4 number.

Stevo12, in 2022 Enquest IR communicated the EPL calculation which was posted here. The lease was one of the line items.

I was going to clean up my worked example (based on 2022 H1 numbers) but decided to leave it as it is - see below.

Interesting that you question it. If I was applying logic I'd have treated it as an ' effectively operating leases and expensed against tax as spent' as well, which now makes me wonder if it was part of the corrections EnQuest made which reduced their 2022 EPL from $75m to $60m paid last year.

Based on 2022 H1 numbers – using 25% WFT and 45% tax relief

UK Revenue $1,032m minus $267m (hedge loss) = $765m

(less) Opex (excluding depreciation and interest costs) 586-174-59=$353m

(less) Magnus profit share $32m

(less) Kraken Lease – principal element ((123-45)/2 = $39m

Taxable Profit (pre-Capex) = 765- 353-32-39 = $341m

(less) UK capex – I’m attributing $45m to UK of $55m spent in H1

(less) Tax relief = 0.29X Capex (investment allowance totals 1.29x capex) 0.45x 45 = $20m

Taxable Profit = 341-45-20= $276m

EPL applied at 35% to taxable profit (25% for 2022) = 0.25x 276 = $69m

Pro-rata for May 27th – 30th Jun = (37/182)x 69 = $14m.

Same again in H2 leads to 69+14 = $83m for 2022.

Stevo12, only the principle element of lease costs are deductible before EPL.

Tamovv, I might be having the same problem you had earlier. I'll try again after removing a special character that might be causing the problem

EBITDAX provides a good insight to the EPL charge before allowances. I’ll spare you my workings, but I estimate a current EPL charge for Q4 between $42m-$57m, making a total for the year, $330m. However, the Q1 current EPL was high at $126m, which makes me wonder if that included a $72m refund of the 2022 payment. If so the current EPL charge for 2023 is $258m. This is in keeping with numbers I posted last March (?) where I implied the 2023 EPL charge would be less than $314m. Given the lower 2023 production and prices, and the higher CapEx spending, much less than $314m.

In summary, in 2024 I’m expecting a c. $260m EPL cash payment and ‘low digits CT’, which I going to surmise is $10m, for a total cash tax payment, $270m. Cash tax paid YTD (Q3) is $163m, and I don’t expect a Q4 payment. Therefore, a c.$100m additional tax payment in 2024 compared to 2023.

(I’d be delighted if anyone can critique that analysis.)

I’m unclear about your comment on CFFO and Rosebank CapEx.

CFFO is after cash tax payments and Decom spending, but before CapEx spending and acquisitions.

To be clear, after 30% dividend payments, 70% of CFFO is available for CapEx, acquisitions and debt repayments.

I missed a section:

EBITDAX provides a good insight to the EPL charge before allowances. I’ll spare you my workings, but I estimate a current EPL charge for Q4 between $42m-$57m, making a total for the year, $330m. However, the Q1 current EPL was high at $126m, which makes me wonder if that included a $72m refund of the 2022 payment. If so the current EPL charge for 2023 is $258m. This is in keeping with numbers I posted last March (?) where I implied the 2023 EPL charge would be

Tamovv, I wrote this in response to your 14:44, but after reading it a couple of times I decided it wasn't sufficiently rigorous and pulled it.

However, after reading your follow-up I will post but please treat with caution

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I wouldn’t assume that the $97m Rosebank investment occurred in Q4.

At Q3, CapEx was $346m. In the presentation CapEx on producing assets was $293m, so I assume $53m had been spent on Rosewell, leaving a balance of $44m (97-53) spent in Q4. Total Capex spend in Q4 was (392-293+44) = $143m, which equates to an EPL allowance $65m.

I wish the EBITDAX number of $1.7 billion went to a 2nd decimal to provide a more accurate number for Q4. At $1.70 billion the Q4 EBITDAX number would be $322m. I estimated $371m, but stock movements can be noisy and I’ve no insight into them.

EBITDAX provides a good insight to the EPL charge before allowances. I’ll spare you my workings, but I estimate a current EPL charge for Q4 between $42m-$57m, making a total for the year, $330m. However, the Q1 current EPL was high at $126m, which makes me wonder if that included a $72m refund of the 2022 payment. If so the current EPL charge for 2023 is $258m. This is in keeping with numbers I posted last March (?) where I implied the 2023 EPL charge would be

In a post 2nd Dec I postulated 2023 net debt $550m and FCF $184m (after adjustments - +$50m Suncor payment, -$33m EPL refund)

Today’s update has net debt $481m. Where did $69m come from?

$30m is clear – due to a further reduction in OpEx outcome, after the $400m guided in the previous update. At the interims, “This decrease (in OpEx) was driven by higher lease charter credits, reflecting unplanned downtime at the Kraken Floating, Production, Storage and Offloading (‘FPSO’) in the second quarter of 2023, and lower maintenance and well intervention costs at Magnus and at PM8/Seligi.” I assume these reductions continued into the 2nd half.

The balance of the debt reduction is less clear – “The 2023 year end net debt figure incorporated c. $40 million of positive working capital movements, including the timing of cargo receipts. “. That accounts for the difference from my net debt number, but how should this statement be interpreted?

Perhaps we need to wait for the accounts.

The 2024 and 2025 production guidance is encouraging. I thought the natural declines at Kraken and GKA would out weigh the drilling and workovers, given the modest CapEx. The purchase of long lead equipment for Kraken takes advantage of the current EPL allowances.

Modestus, thanks for posting the article by Ryan Crighton (Aberdeen & Grampian Chamber of Commerce)

A provocative comment that no MP of any party north of the border can ignore – okay, maybe the Greens would choose to ignore it..

An interesting dig at the SNP, who are under the cosh at the upcoming election, but they can’t ignore the opportunity Labour is providing in the debate on a ‘proper windfall tax’. A couple of weeks ago Gillan Martin (MSP) who is Scotland’s Minister for Energy, said she wasn’t in favour of a policy described as ‘a presumption against oil and gas’.

There’s much to play for in Scotland.

" $60m ish margin on the gas pass through arrangement."

They don't. I don't know what margin they receive from the pass through, if any. The $60m net gross relates to total Enquest gas volumes. In 2023, the net gross number should include the additional gas (c. 700 boepd) sold through Senegi, which is subject to some sort of fee arrangement.

Enquest don't post their oil/gas mix, but the numbers on crude oil sales are provided near the end of the accounts. I've referenced these pages in previous posts.

Hi Tamovv, I'm not looking at 2024 estimates or producing my own until after the next update - too many moving parts.

On the 5Kboepd drop due to the pullback from Harrier development: a portion of this drop relates to the loss from development with the balance from current production numbers. From memory, I think the decision followed the pullback in gas prices. By my numbers, gas accounts for c. 85% of Harrier/Stella production.

A key factor from mid 2024 is the performance of Captain with the new polymer injection in place.

Combined, these factors should increase the % of oil in the mix, which is positive given the recent pullback in gas prices. But the big numbers will be estimated production and CapEx. I'm not giving 2024 much thought until I know those numbers.

We could see a trading update and dates on the dividend payment before the end of Feb.

Worth adding, when the gas price spiked there was speculation here that if the gas contract pricing was fixed then Enquest would gain from higher gas price. This speculation was fuelled by what I considered to be misleading comment by Enquest in a trading update.

I don't know the terms of the contracts but essentially it is a neutral pass through of gas with respect to pricing.

"I think $60m in 2023"

I meant 2022 - refer to accounts. Obviously, I don't yet know the 2023 number.

Stevo12, thanks for that clarification on decom. It isn't as bad as I projected - last man standing. Though the commentator was correct in his debunking of the idea that taxpayers subsidise decom.

On Magnus gas.

Originally, gas injection was used on Magnus. This gas was supplied from 3rd parties (BP and fields WOS) under long term contracts. These contracts were inherited by Enquest as part of the acquisition. The gas essentially flowed into and out of the Magnus field and was piped onward to the Scottish coast. In 2019 Enquest decided water injection was more cost effective than gas injection.

The bottom line is that much of the gas revenue shown in the accounts is actually gas flow from 3rd parties in the WOS. This is adjusted in the cost of sales. The net, I think $60m in 2023, is the gas gross profit number for Enquest.

As a follow up.

I guess the point you are highlighting is that if 2024 Rosebank CapEx is say $200m, that $200m will come from current funds and only be reimbursed through the EPL allowance in 2025.

Yes, that is my understanding.

Tamovv, my understanding is that the schedule of cash tax payments in 2024 is now fixed, or will be once the 2023 accounts are closed. As tornado10 says, the 2023 Q4 CapEx may be higher than the original guidance, which was for CapEx in producing assets. There will be the first phase of CapEx on Rosebank - the higher the better. CapEx spending in 2024 reduces the cash payments in 2025.

I understand from comment on HBR that this phasing of payments changes when a company returns to the normal CT payment schedule. Although, Ithaca has c. $1,800m of tax losses from the 2022 acquisitions, I recall a comment that CT payments would be in the low single digits (I don't know if that's $m or % but if you have the transcript you might).

As I say, this is just my understanding. I'd guess we'll get clarity with the results, when the Rosebank payment schedule should be disclosed.