Member Info for londoner7

Hi romaron, you raise a good point on the impact of the EPL.

Last week I touched on this in a discussion with Stevo12 on the HBR board. HBR has provided FCF guidance for 2024 based on somewhat optimistic price expectations. However, after the impact of EPL and normal corporate taxes (75% combined) on profits, more realistic pricing has little impact on the FCF number - excepting the phasing of EPL payments.

Conversely, given Enquest's tax benefits, they can achieve greater FCF benefit from higher oil prices. Is $80 the lock in price (ignoring costs)? Time will tell.

I've said before, that I see the investment case in Enquest highly correlated to higher oil prices - more so than the likes of HBR. But there is also the downside to consider. In a normal market I'd have few concerns about the floor price, but while SA is managing the oil price through restrictions on supply, there is always the risk of a reversal. Puts around $60 are relatively cheap.

All will be clearer with next months trading update.

I don’t think Mosman has ever been able to play ‘hardball’ with potential investors over a placing – look at the track record.

Ahead of the next drill Mosman will not be cash flow positive. A drill in Australia is 2 years out, and even if successful by whatever definition you choose, will not be cash flow positive for a year or more beyond that. Though I’d guess, that on success, an additional farm in would be a likely route to additional funding.

A drill in the US, presumably at Cinnabar will require funding. Mosman describe this drill as their focus for 2024. Funding will come from a placing or the sale of Stanley.

The additional 20% interest in Stanley was acquired in Jun 2021 for US $1.1m. Based on 3month production to Mar 2021 net production increased from 27 boepd to 60 boepd, on the higher interest c. 36%.

In the latest quarterly production update to Sep 2023 Stanley net production was 24 boepd, so I was surprised by Andy’s comment that production from Stanley had increased. However, on reflection I wonder if he is referring to S5 added post-acquisition. Recent updates have described a gross target for Stanley production of 100 boepd (36 boepd net), and maximum expected production should have been reached by now.

However, Andy said the sale of Stanley isn’t being actively marketed. I’d guess he’s looking for a higher oil price.

In the last reported accounts (FY toJun 2023), Stanley produced 46 boepd for a gross profit of AUS $444K (US $293K). WTI pricing averaged $82.

In the 6 months to Dec 2023, I expect Stanley production to be 24-28 boepd. WTI pricing averaged $80 and is currently $76. In March Mosman will release 6 month accounts, which I expect to show Stanley gross profit below US $100K. Stanley will be marketed on the current quarter or half, which if gross target can be maintained is 36 boepd net, might lead to gross profit of US $110K.

That annualises to $220K. Andy talked of benchmark pricing of US production. I’d be surprised if that reached US $1m for Stanley.

Does US $1m cover a drill and completions on Cinnabar?

Just to qualify my previous post.

A $80 swap on futures would be cheaper than a put, but I don't know it's price. Does anyone have a source?

Incidentally, a few weeks back forecasts for 2024 Brent were c. $77. The latest forecast (9th Jan) from EIA STOE is $82.5. My guess that that Enquest will ride the price wave, but with cheap puts around the $60 level. If oil prices pop for any reason then that's the chance to hedge into the better pricing, but easier said than done. Last Sept Brent (1month forward) was $95, but what was 12 months forward? I didn't note it but I'd guess low $80s. If so, a tough call to make.

"I agree. I think hedge the next 6 months production at around $80. "

Sounds good in principle, but is it practical at the moment?

Sept 2024 puts @ $80 currently cost c. $7.

"New Government figures showing a sharp fall in the number of new housebuilding sites breaking ground has prompted accusations against developers of constraining supply to maintain high profit margins.

Data from the Department for Levelling Up, Housing and Communities, led by Michael Gove, showed the number of sites where building work started on site was 21,300, down 68 per cent between 1 July and 30 September, compared to the same point a year ago."

"Charles Breen, owner of mortgage broker Montgomery Financial, told the Newspage agency the fall in housebuilding was 'a cynical ploy from developers to constrain supply so as to keep the prices up and their profit margins high, and ultimately serve their shareholders.' "

H&T is primarily a pawnbroker.

In relation to the retail side, I note this:

In 2023 H2 retail accounted for 18% of gross profit. This year, in 2023 H1 retail accounted for 12% of gross profit.

This is from the interims:

“Retail sales for H1’2023 grew by 11% to £23.0m (H1’2022: £20.8m), which generated profits of £6.3m (H1’2022: £8.7m). Margins reduced as expected to 28% (H2’2022: 37% and H1’2022: 42%). The reduction year on year primarily reflects the change in sales mix within and between new and pre owned products, and the impact of action taken to reduce inventory levels, in particular of certain 7 higher value watch brands, where we identified changes to the sentiment of some customers towards values. Overall, demand for high quality pre-owned watches remains high.”

Today H&T said this under Pawnbroking:

“Action taken in mid-2023 to mitigate valuation volatility in respect of certain watch brands resulted in the proportion of watch-based lending falling from 17% of total lending in June, to 14% in December. The value of the pledge book secured on watches at the year end reduced by c.£1.25m relative to 30 June. Loans secured on watches currently represent 15% of the pledge book (30 June 2023: 17%).

The Group has implemented changes to its pricing structure for pledge lending, in order to improve yield and generate incremental revenue. Loan demand to date in January has been particularly strong.”

And said this under Retail:

“Trading conditions in the fourth quarter were challenging, given pressure on customers' disposable income.”

“Sales of watches both by volume and value, grew in the fourth quarter by 15% year on year, at an average price point of £1,600. Margins are beginning to recover from mid-2023 levels.

As a result of the changed mix of sales, volume and blended margin, overall sales in the quarter fell 3% by value year on year, with a consequent reduction in gross profit earned. This was particularly apparent in December, which followed a more encouraging November.”

In the full year accounts, we’ll see the resultant retail gross sales. No doubt watches are a significant sector within H&T retail business, and providing H&T set appropriate loan values the volatility of gold or watch prices is manageable. I think they know their business. Besides, 85% of pledges are redeemed, so only 15% is ‘left on the books’ after 65% loan to value ratio, which puts the pricing risk into perspective.

It was the growth prospects that attracted me to H&T last June, but I wasn’t prepared to fully buy in to a forecast 58% growth in pre-tax profits without seeing how 2023 turned out. I now have enough information to maintain my interest and increase my exposure.

Incidentally, given the higher corporate tax rate, 40% growth in pre-tax translates to about 48p 2023 EPS for a current P/E of 7.

Meconopis, thanks for your response. You say,

"The RIGHT thing to do would be to build many more homes for rent and move to the German approach where people don’t expect to buy until their parents die and they inherit.

But that’s political suicide."

If it's the right thing to do, then why wouldn't that be the direction of travel. Savills monitor the Build to Rent (BtR) sector. This is from their 2023 Q3 report:

“The third quarter of 2023 saw a record number of Build to Rent (BtR) homes under construction, at 59,043, despite a slowdown in starts in response to economic headwinds.

Notably, Northern Ireland began construction on its first BtR scheme, signalling a key moment for the growth of the sector in the region.

There are now 92,140 completed BtR homes across the UK, an 11% rise year on year. BtR continues to expand its reach and the number of local authorities with BtR in their planning pipeline has reached 200 for the first time, primed to deliver over 112,500 more homes.

The Single Family Housing (SFH) sector, in particular, continued to expand strongly, with over 28,000 homes now in the planning pipeline (11% of all BtR homes).”

It’s only in the last couple of years that I’ve heard the term ‘Build to Rent’, though in a time past we called it ‘Council Housing’. The difference today is that it is private development leading the way, with it would appear, local authorities returning to the provision of homes for rent.

From almost a standing start the numbers Savills describe are impressive. 59,043 BtR homes under construction represents a significant proportion of total homes under construction - although I couldn’t find a number for homes under construction I’d guess the c.200K completions is a guide.

Single Family Housing representing 11% all BtR homes may be an indicator of acceptance of the challenge of home ownership. An inheritance of a home or a deposit isn’t available to all.

Looking into the currently available schemes for first time buyers I came across this:

https://www.propertyreporter.co.uk/almost-half-of-first-time-buyers-are-getting-help-from-government-schemes.html

The First Home scheme looks attractive for those that qualify.

But, back to the future, and possible changes under Labour.

I’m from the Thatcher generation, so remember the dinner table discussion on the housing market. For the young folk of today, housing is still a very important issue but perhaps their more accepting of alternatives to home ownership.

On your point ‘political suicide’, I expect there to be a continuation of limited support for first time buyers, but I can’t see any political party offering anything like the level of support provided under Help to Buy. It should be clear to everyone that the answer is simple – build more houses of all tenures.

Sekforde, I don't have any insight into 2024 production numbers, particularly given the current or recently completed drilling on Magnus and Golden Eagle, so I wasn't querying your 43K number.

Rather, I was querying your translation of production volumes to a revenue number. I thought I was clear on that. Look at crude oil sales pg34 2023 interims.

Dumbley, thanks for your clarifications.

I had listened to it several times to pick out the detail - you have it.

Now, Enquest is 20% gas (that was the basis of my earlier comment), increase in Malaysia from 50 cfpd (?) to 300, but, as you say, no reference to gas in relation to the 'very large discovery' by the SE Asia affiliate.

In the 2 days since I wondered why this discovery hadn't been announced - presumably it's material. When public slips have been made a company RNS often follows, so assumed it was already reported. The PM409 drill was plugged and abandoned dry, so I thought of earlier reports on what I thought was an undeveloped Seligi gas field.

I'm now more intrigued than I was when I first heard the comment. No doubt all will become clear by the results in March.

Thanks for your response.

It will be interesting to hear any detail in Labour's proposals over the coming months.

'We can also see that CAPEX at $21 per extracted barrel should result in 100% 2P replacement rate and maintain production at the 160k BPD rate.'

That's an interesting metric I hadn't considered, though I'd net out the decom for $17.4 per bbl - still supportive. Let's see if management can sell it in March. The bit of colour I'm looking for.

(Continuing from last post)

What does the future hold?

I can’t see Labour repeating the buyer subsidies of the past, which have failed to solve the problem, so what are the alternatives?

The noises I’m hearing, build to rent etc. point towards the ‘partnerships’ model. Will partnerships operate alongside the tradition builders or will it be a disruptor. Time will tell, but I’ve become wary of assuming a ‘normal’ recovery in the traditional builder’s model.

No doubt similar concerns are raised through each cycle, but perhaps this time will be different. I’d be interested to know if your considerations include any electoral impact.

I should add that I’m a strong advocate of a ‘Land Value Tax’ which shows how out of touch I am.

Hi Strictly

I only managed 20 minutes too. I’m an engineer and worked with statistics for many years and I thought much of the data shown seemed little more than background noise.

The focus seemed largely on housing transactions from the perspective of estate agents. Perhaps the scope expands further into the program.

Housing transactions reflect various factors within the economy. No doubt transaction volumes will wax and wane with occasional bursts in one direction or the other. To some degree these transactions will be reflected in house prices and opportunity (or not) for the traditional house builders.

I emphasis ‘traditional’ builders, which describe the models of builders like PSN, RED, TW., BWY, BDEV etc. We’ve had a few exchanges over the years, I appreciate your focus on the sector and detailed examination of the balance sheets. You’ll know the model:

Buy sufficient land to support anticipated near term build volumes at a level that overcomes the various obstacles put up by the planning system. For the large builders, given a solid balance sheet, the ability to overcome these issues presents a ‘moat’ over the smaller builders.

Build out on large sites to gain economies of scale and efficiency.

Sell the resulting product at c.20% profit margins.

Use the lack of housing (real or otherwise) to lobby government for buyer subsidies, Help to Buy etc.

When the profit margins are challenged, pull back on build volumes to ‘reflate’ future demand, and stimulate the political agenda in favour of additional buyer support.

It’s a model which has worked well for these builders over recent decades. But I’d argue that the resultant housing ‘shortages’ these cycles engender are damaging to the economy and the natural development of new families. (I nearly fell off my stool when I heard a Tory minister advocate ‘boomer generation’ holders of the larger properties add an annex for their children and their families. A reverse of the granny annex. Dire as the housing market might be for the ‘not haves’ I think that’s a level of desperation only a geriatric Tory minister could envisage)

Amongst the ‘haves’ – property owners or secure renters – housing doesn’t feature in their top 5 concerns, so the current government have conveniently – for their NIMBY constituents – been able to dodge the issue.

However, amongst the ‘have nots’ I’d guess housing features in the top 3 of their concerns, and it seems Labour see a clear electoral advantage in targeting housing.

(To be continued)

Fogthemogg, I take the time because I like to understand my investments and enjoy numbers.

Whether HBR is a 'spiv trading stock' is a matter of opinion and you're free to express it.

I trade all of my stocks when the opportunity is presented, but I don't enjoy chasing trading opportunities. Each to their own. All of my stocks are cheap and undervalued by the market. Why else would I hold them? I also know from experience that some will get even cheaper, and I've no qualms about accepting a loss.

I only hold stocks I understand and enjoy following. The boring part of my portfolio I leave to fund managers or an ETF index.

Good luck with your trading.

Sekforde, we’ll soon get an update which will provide us an opportunity to assess the accuracy of your previously posted 2023 valuations.

In 2024, you say:

Revenue $80 x 43000 x 365 = $1255.6m

I assume you anticipate 43,000 boepd production in 2024.

I’ve posted here before that the back of the accounts provides more precise numbers on crude oil sales. They guide to a 14%-16% reduction on your simplified format. You can then add back a gas profit component to the bottom line, which recently has been c.$60m.

My interpretation from the AB interview in Davos is there’ll be a larger Malaysian gas component in future production, though I think we’ll also see this in the 2023 numbers.

The comment on a gas find with a partner was interesting but unclear. I took it to mean potential gas plays around Seligi, which were talked about a few years back. As I recall the potential was big – perhaps higher gas prices have brought it back into play. I’m guessing we’ll get some detail on this and Bressay at the results presentation, if not before.

Hi Stevo12, your post 00:03. I’ll take each paragraph in turn.

1) To be honest, I think my 2024 realised price of $72 and your $77 are too far apart to be ignored, so I’ve looked again at this calculation. For the therm to BOE conversion I assume you’ve used the 0.01724 constant. Using your 100p to $74 conversion I think you’ve used the current $ rate of c. $1.27. I was tardy and still using $1.22 from when I looked at HBR numbers last Feb. What is the appropriate rate? I’m going with the average for 2023, which was $1.243. The impact of the oil hedge is minimal – I have $84.8 – but gas hedges account for more than ‘10%’ of production. Hedges are tabulated at the end of the RNS. 10.1 mmboe swaps @54p and 3.0mmboe collars @112-263p.

I have this sum for gas, ((10.1*38.9)+(3*80.8)+(15.6*72.1))/28.7=$61.33, leading to a combined oil/gas realised price for 2024, $73.2.

Using the same $1.243 rate on 2023 numbers, oil $78 and gas 54p ($39), leads to $58.5 combined.

Plugging these into my adjusted 2023 revenue calculation,

((157500*365)*(73.2-58.5))-(58.5*28500*365) = +$237m.

2) Using $73.2, 2024 realised price, with $200m FCF leads to 73.2-((200000/(157.5*365))) = $69.7

I see your $400m lease and interest costs comes from 2022 finals.

(400m + 1,035m + 1,200m + 1,200m) / (157.5K*365) = $66.7

It isn’t clear to me what we’ve established. Is the difference between $69.7 and $66.7 the error margin?

3) On your 3rd paragraph, I have (58.5-14.7) – (16+14.7+5.9) = $7.2.

In your wording, this translates to lease and interest payments of $530m. (These are differences between two close and large numbers, so I’d be wary of the precision of the result).

To be honest, I’m not clear what paragraphs 2&3 have told us.

4) On your 4th paragraph, I agree that the impact on FCF in 2024 is an anomaly, and is due largely to the phasing of tax payments. All other things being equal, 2025 and beyond should show much better FCF.

The additional $800m cash tax payment and $200m extra CapEx are certainly headwinds for 2024. However, while the $200m FCF is guided on what currently looks like optimistic pricing, $85 oil and 100p/therm gas, if I use $78 oil and 80p/therm gas, the FCF is still c.$100m after adjusting for 75% tax, though I don’t know how the phasing of tax payments influences the year end cash number.

In the meantime, I’m happy with my dividend, while I await development of Zama and Indonesia. An approved Wintershall deal is a bonus.

But I take on board ‘inSdn’ comments. Yesterday’s update was an ‘in your face’ summary. HBR will have the opportunity at the results presentation to make the case for maintaining production into 2025 and add some colour. The prospectus will clarify prospects and investment in Wintershall’s assets. The bid is a nice option to have, while HBR prospects are developed. The BASF shares may be an overhang, but ultimately the assets will prove themselves or not.

Stevo12,

I’m responding to your post 11:40, in which you try to reconcile the 2024 cash flow guidance. I came at it from a different direction.

HBR has provided much of the cash flow numbers in the guidance.

In 2023, $1,000m FCF was generated from 186Kboepd production at $58 combined realised price.

In 2024, increased Capex of $200m and increased cash tax payments of $800m, effectively cancels out the 2023 FCF of $1,000m.

Therefore, changes in other cash flow components will sum up to the 2024 FCF number, forecast at $200m.

With a price of $84m at an effective date of 1st Jan 2023 I discount the sale of Vietnam business from the numbers.

Guidance is no change to total OpEx. I expect little change to cash interest or lease charges. The key variable is the impact on revenue of the lower production, and higher realised prices due to better hedging.

In 2024, at $85/bbl and 100p/therm, I have (with hedging) a combined oil/gas realised price of $72. (Who knows what the 2024 pricing outcome will be, but HBR have guided on these numbers so that’s what I’ll go with, particularly as these numbers also lead to their tax guidance number)

For 2024, using mid-point guided production of 157.5K boepd. Production shortfall in 2024 is 28.5K boepd, which @ $58, equates to $603m comparable reduction in revenue. The realised price gain on 157.5K boepd @ $72 for 2024 equates to an increase in revenues of ($72-$58) x 157.5K boepd = $805m.

Therefore, revenue increases in 2024 by ($805m - $603m) = $202m. That’s close enough to 2024 FCF guidance for me.

From the update:

Looking ahead to 2025, Harbour expects:

- Production to be similar to 2024, with less maintenance downtime and volumes from new wells and projects substantially offsetting natural decline

- Unit operating costs to be broadly flat with 2024 while capital expenditure is anticipated to be materially lower

- Significantly higher free cash flow compared to 2024, resulting in a sizeable net cash position by year end

My interpretation is that while the ‘current’ tax charge may be similar in 2024 to 2023, the tax cash payment ($1.2b in 2024) will be lower in 2025, largely due to the phasing of payments (for the reasons you pointed out).

Thus, I can understand why HBR provided the 2025 outlook. Though I am confused by the ‘materially lower’ capital expenditures in 2025. I’d like to think spending on Zama would begin late 2024/early 2025.

Stevo12,

Okay, thanks for for your details - you're not including the $44m.

I thought realised price over H2 might be higher given the hedging but also aware that the higher Brent price was in Q3 when production was lowest, though GE offload timing also factors in. As I said, I hadn't worked the detail. Your number would be a good outcome for Enquest.

On the EPL allowance take a look at this:

https://www.gov.uk/government/publications/changes-to-the-energy-oil-and-gas-profits-levy/energy-oil-and-gas-profits-levy

My interpretation is £1.8*25% = 45p, £1.29*35% = 45.15p.

H1

Adjusted EBITDA in 2023 H1 was c. $400m

"EBITDA $850m"

I'm guessing this includes the $44m farm down on Bressay and the FPSO.

If we're considering debt ratios then we should be using adjusted EBITDA.

Adjusted EBITDA in 2023 was c. $400m. On lower H2 production for a FY 44Kboepd outcome , and same again realised oil price and Opex (I haven't worked the detail but the recent hedges would add c. 7m to Brent pricing) I get c. $375m for H2 and total 2023 adjusted EBITDA = $775m.