Member Info for londoner7

"My understanding is that the overall debt interest is around 8%"

Based on the latest update I have $88m annual interest on $812m gross debt = 10.8%

No need to wait.

There is substantial detail on individual field metrics in the Delek Group financial statements. These statements are released the same day as the Ithaca updates. Obviously, one of the perks of being a controlling shareholder is access to the detail. Perhaps these will appear in future Ithaca updates, but good to have a back-up source on Delek's website..

Meconopis, I replace my Windows m/c every couple of years because of performance issues, but stayed with Windows only because of my desire to maintain Microsoft Money.

However, I see there are ways of partitioning 'Intel Macs' to run Windows via an app called Boot Camp. Before replacing my current m/c I'll ask my brother, who's a Mac user, to try it out for me.

If you try it I'd appreciate a report on your findings.

Trouts, my version is Money2005-UK-QFE2.exc

Unfortunately the link to the Microsoft download centre says it's unavailable.

However, I found a link to a dropbox. I can't validate the site or it's content but here it is with that warning.

https://www.dropbox.com/s/qirvcp46ytswe1s/Money2005-UK-QFE2.zip?dl=0

I should add the one deficiency in the product is that there's no online access so prices need to be entered manually.

While I missed the auto share price updates in the original product, I've got used to it over time. I update prices sporadically and all prices before the end of the month - helps that I only have a dozen stocks in my portfolio, which I update from a watch list in my CNBC app.

Also, the original on-line version crashed occasionally, sometimes with disastrous file failures. The Sunset version has been running reliably for the last 15 years. Unlike my Windows product.

Meconopsis, I consider myself a dab hand in Excel. I use it extensively, but I don't use it to monitor portfolio performance when Microsoft Money meets all my monitoring and reporting needs. I've used the product for over 20 years. Before that I used a Quicken product which was withdrawn from the UK market.

Some years back Microsoft discontinued the sale and support of their Money product but released a free version called Microsoft Money Sunset - google it.

I can't imaging maintaining my portfolio without it, given the very limited functions provided by broker accounts.

Incidentally, I've often wondered if there are other comparable products out there. From time to time I've had a look but haven't yet found anything better. Anyone?

The issue with Magnus and Malaysian production numbers within the 'net working interest' has been discussed here since before I joined in 2019.

In 2019 I used a 86% of 'net working interest' for crude oil sales. This % has declined slowly over the years as the influence on Malaysia has increased. In 2022 it was c. 84%.

Take latest interims 2023 H1 pg 34.

Crude oil sales 6.833m bbls.

Knocking off the latest Seligi gas production of 600boepd, 2023 H1 net working interest was 44,880 boepd * 182 = 8.153m bbls.

6.833/8.153 = 83.8%.

Gas sales include flow through Magnus that isn't attributable to Enquest, but an additional $60m p.a. for gas revenue works today. before the gas price uplift it was $30 - in the noise.

In my last post I said I was happy to be corrected on my interpretation of the Magus BP profit share.

I’ll correct myself.

I’ve long looked for meaning in this component and while looking back at the accounts to determine historic FCF numbers, I came across notes that prompted me to look again at Magnus.

I’ll save you the detail of 2x A4 pages of scribblings with the following highlights:

Up to the 2021 accounts I had previously examined the detail closely but didn’t unwind the loan repayments from utilisations in the balance sheet and cash payments to BP in cash flows. I have now.

25% of the Magnus was acquired via a $100m vendor loan with an option (executed one year later) to acquire the remaining 75% for $300m, via a $100m cash payment from a rights issue and a further $200m loan. A contingent payment of $1b for 50% of 75% (37.5%) is also payable from Magnus FCF.

The annual repayments were to be made from profitable Magnus cash flows first towards the loans , with the balance paid under the BP profit share.

In 2021 Enquest fully repaid the loans ahead of Magnus cash flows (as I recall the closure payment was c. $60m).

To the end 2021 I see c. $332 of loan repayments (including interest) and $64m under the BP profit share component.

In 2022 FY accounts and 2023 H1 accounts the 75% utilisation numbers (Balance Sheet) equal the BP profit share numbers (Cash Flow).

To June 2023 I have ($400m (initial consideration) plus $32m (loan interest) minus $100m (Rights Issue) minus $60 (closure payment)) / 37.5% = $1,120m.

BP has received ($100m plus $332m plus $148m (BP profit share)) = $580m.

Enquest net cash profit to-date on Magnus deal is ($1,120 - $580m -$100m - $60m) = $380m.

BP are due a further $852m under the 75% consideration, discounted to $514.8m (June 2023). Current expectation is that the balance of the consideration will be repaid during the life of the Magnus field, so at least a further $1,420 accruing to Enquest.

Regardless of what JV payments are made or how they are captured in accounts, if the 75% utilisation number equals the BP profit share number, then I interpret that as a 37.5% Magnus FCF number.

The payments to BP are sporadic so I’m cautious in extrapolating a single payment. However, a $84.2m payment over the 18 months to June 2023, may be indicative of current cash flow levels, say $56m p.a. grossed up to $149m p.a., $93m p.a. net to Enquest before EPL. (Stevo12 made a similar computation but over a shorter time).

Thanks Therapist, your sleuthing skills know no bounds.

Stevo12, although this relates to the initial 25% acquisition, I think the terms on decom are likely to be reflected in the 75% acquisition (50% profit share to BP till $1b cap achieved)

11.2 On and from Completion, the Buyer shall bear any and all Decommissioning Liabilities arising in respect of the Other Property,

"Other Property" means any Joint Property attributable to the Interests that comes into existence at or after Completion and that is not Existing Property, Seller P&A Wells, SVT Tanks, the MEOR Facilities or Magnus Phase 3 Property.

This seems to support my view that Enquest are fully responsible for decom of ongoing activity, but the detail in the schedules is less clear.

The schedules are loaded with AFEs (Authorisation for Expenditure), which involve BP in any expenditures above £1m. I’d guess similar authorisations will apply to the 75% acquisition, throughout the Magnus project – field life, COP and decom - which protects BP’s interest in capex along the way.

To your closing comment on the BP profit share:

Assuming BP does pay 37.5% of Magnus capex, how does this show in the accounts?

If this is a contribution in full or part of the $39.5m JV advance cash call (as you suggested), and $38m is paid to BP in 2023 H1 as profit share, then we’d need to know more before we could net off the numbers. Which means the BP profit share offers no insight into Magnus profitability.

I’m happy to be corrected.

I'm sorry to see Alan Bruce leaving.

In calls I've felt Ithaca management have been more open and responsive to questions than I've seen with other companies.

On the recent call I picked up comment on the publication of detail on fields with the next results. I interpret that as a reveal on metrics beyond simply the production numbers. I hope that initiative hasn't left with Alan Bruce.

We'll soon find out.

Stevo12, you say, "checked with IR. They confirmed that BP is entitled to 37.5% of FCF from both the fields and infrastructure on acquisition and also any new wells developed by Enquest and that they contribute 37.5% of the capital costs until they have received a net $1b. "

Thanks for the info, A couple of points jump out.

1) The reference to FCF from infrastructure - not sometime I'd considered, but probably a contract point.

2) I remember considering the possibility that BP were contributing a 37.5% share in ongoing CapEx but then I wondered if this offered ENQ the opportunity to load up on CapEx just before closure on the £1b payment. Perhaps that's just the cynic in me, and North Sea partners don't operate that way.

I don't see the link to the prospectus, but I've strong recollection that it said ENQ are fully responsible for decom of additional development.

I felt it was important to understand these elements because the BP profit number provides good insight into Magnus cash flows and costs. Though academic to the day traders.

Correction: 2023 H1 not 2022 H1

Bottom line:

Accept that latest published numbers from ENQ, which may be revised from time to time. The current EPL charge for 2023 H1 is $73.8m.

If I was still invested, I’d ask IR why the Oct payment for 2022 was reduced from $75m to $60m. Perhaps the reasoning does also apply to the 2023 H1 number.

The missing bit.

Bottom line:

Accept that latest published numbers from ENQ, which may be revised from time to time. The current EPL charge for 2023 H1 is $73.8m.

If I was still invested, I’d ask IR why the Oct payment for 2022 was reduced from $75m to $60m. Perhaps the reasoning does also apply to the 2022 H1 number).

Warning: For geeks only.

Sekforde, the EPL is a big impact on the sector and in May 2022, ahead of any guidance from the operators, I attempted to work the numbers for myself.

Looking back at my notes I see the following (I posted most of it to this board):

We’ll get some clarity on cash flows over the coming months, in particular the cash cost of the EPL – I have $75m in mind for 2021, and $150m for 2023. A $50m payment to Suncor in 2023 H1 and c$125m payment on the RB in Oct 2023.

(At the time Jefferies predicted $14m EPL for ENQ in 2022. Fair to say the analysts were all over the place.)

My first calculation using the 2022 H1 numbers was:

2022 H1 Operating profits before tax & finance = $294m

Assessing Malaysia contribution as pro-forma production volumes = 8.8%

UK OP before T&F = $268m

Add back decom in H1 = $28m

Deduct UK CapEx allowance = $44m x 45% = $20m

Profit subject to EPL = 268+28-20 = $276m

EPL @ 25% = $69m

Using pro-rata for period 25th May – 30th June = (37/181)x$69m = $14.1m.

Similarly for 25th May – 31st Dec 2022 = $83m. (I made no allowance for production or oil prices changes in H2)

Late in 2022 Pelle posted guidance he’d received from IR on the calculation. Refer to his post for the original calculation. I only have this after workings and notes on the Nov revision to the EPL.

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.

Remarkably, it gave the same result as my original calculation.

Finally, ENQ came up with $75m for 2022, with payments in Dec 2022 and Jan 2023. (In the event it seems all the NS operators I follow had their Dec payments refunded and made full payment in Oct 2023)

As recently as the 2023 H1 results ENQ expected to pay $75m, but this was reduced to $60m by Oct.

My guess is that the adjustment reflects movements in assessment of hedging losses/gains (or something else) from one year to the next. In which case it would be unwise to extrapolate a $15m ‘saving’ into the next payment. Rather, that $15m has been deferred for one year.

Bottom line:

Accept that latest published numbers from ENQ, which may be revised from time to time. The current EPL charge for 2023 H1 is $73.8m.

If I was still invested, I’d ask IR why the Oct payment for 2022 was reduced from $75m to $60m. Perhaps the reasonin

FCFY,

I'm invested in Ithaca so, I'll attempt to address some of the points you make.

I expect Ithaca to announce M&A soon - though I had expected it to have been by year end. Is ENQ in the frame?

That isn't my expectation. Ithaca already has c. $800m of tax losses which it picked up through acquisitions in 2022. In 2023 Ithaca paid substantial taxes accrued in 2022, but these are expected to fall to low single digit % in 2024. I haven't worked the numbers but the $800m is likely to be used in the next couple of years, so they may be looking for tax loss related M&A.

On the ITH board I've posted my thoughts on possible M&A. Based on these speculative thoughts ITH could become a partner in Kraken, which in turn could lead to Bressay. But until M&A is announced that's as far as I'd take the idea.

I think other ENQ assets such as Magnus (terms with BP) and GKA (costs and possible near term COP) and associated decom may not be worth the associated tax losses. (ENQ has dropped development opportunities around the GKA, e.g. Eagle, which leads me to believe the hub is being run down).

Ithaca has a 37% interest in Alba, so Enquest's 8% interest may be attractive. I don't know it's value but Enquest need the cash for planned development of Kraken in 2025.

On metrics, I use FCF/EV, EBITDA/boe and FCF/boe.

I work these on ENQ, HBR and ITH and ENQ comes out worst on my 2023 numbers. I'm waiting for results and guidance before I look at the 2024 numbers.

In the 2023 interims ENQ posted FCF/boe of $17 (page 7 of slide deck). I expect $12 for the full year 2023. This demonstrates the leverage ENQ stock has to the oil price, or specifically their FCF to the oil price - do the numbers.

For this reason my NS investment is in ITH and HBR - I prefer dividends and lower downside leverage to the oil price. But given an oil price approaching $90+ ENQ could produce a better performance than ITH and HBR in 2024 - it just doesn't fit my risk/reward profile.

That said, a good M&A deal could change the profile.

Stevo12, you say, " I am guessing that it largely relates to BP’s share of future Magnus CapEx "

I said in a previous post that I believed there were no Magnus CapEx payments from BP. In 2019 I came to the conclusion that Enquest must have free reign to fully manage Magnus activities wrt Opex and Capex. This view is supported by a statement in the terms that Enquest are fully responsible for the decom on new developments. BP are largely responsible for the decom of Magnus as it existed before the acquisition with Enquest owning a small share of these original decom costs.

This gives Enquest 'buy-in' to a cost efficient decom of the entire Magnus infrastructure. A process that is already underway, albeit at small scale.

*By the way, thanks for your forensic focus on the numbers.

Correction - $250m.

On a deeper dive into Waldorf assets I see they have substantial holding in the NS including a 40% holding in Catcher, 25.7% in Alba and 50% holding in Enquest operated Scolty - Crathes, and 5 other fields.

A mixed bag and possibly a good deal to be made on a job-lot basis. But that's as far as I'm digging.

The cards are in the air, let's see where they fall.

Waldorf has concluded contingent payment terms with CNE on it's 2021 acquisition of interests in Kraken and Catcher, clearing the decks for onward sale.

To whom?

I don't think ENQ would be looking for 100% of Kraken.

HBR might be in the frame for an additional 20% of Catcher on top of their current 50%.

Many players out there but my interest is in Ithaca as a possible acquirer.

My rough numbers, c. 13K boepd in 2023, c. 11.5K boepd in 2024.

At $60 netback, CT on Catcher, EPL on both, I have c. $100m FCF for 2024. Worth $250?

Rough numbers but interesting.

Tigar, your view is the same as mine.

When I invested in Enquest in 2019 I went to some length to construct an accurate cash flow model. I considered how BP and Enquest would come to agreement on Magnus development. Given that BP are responsible for the decom of existing wells and infrastructure, and Enquest are responsible a % of BP’s liability and, for the full cost of the decom of new development, I concluded that Enquest has free reign to develop Magnus as it sees fit.

Enquest has full ownership of Magnus activities and has paid for it up front and with the continuing contingent consideration at the rate of 37.5% of FCF, to the limit of $1B. If Enquest deploy effective CapEx allocation, then both BP and Enquest benefit. If they make a bad call, then Enquest is fully responsible for the decom associated with the decision. The small % of BP’s decom liability that Enquest carries is ‘insurance’ for BP that Enquest manages BP’s liability to the benefit of both companies. BP does not make any direct cash contribution to Magnus CapEx.

My conclusion was that it was a well-constructed deal.

BP receives a profit share of Magnus FCF, after any Magnus costs incurred, operating or Capex. As for tax due on BP’s profit share that is not relevant to Enquest. I don’t expect the deal to be reopened.

Enquest tax losses have a value that can be extracted through organic investment, in Magnus and Golden Eagle, and in prospective investment at Kraken in 2025, and through in-organic investment in existing production from a 3rd party field, where the existing owner doesn’t carry a (non-EPL) tax benefit – subject to the tax restrictions Stevo12 has highlighted.

Other M&A options are a possibility but given comment/guidance from AB, not my expectation.

But here’s the thing. The possible utilization of these tax losses predates the EPL. The EPL has only cost Enquest c. $60m to date. This suggests much of the poor performance in Enquest stock over the last 18 months is self-inflicted.

Hi luks, thanks for your reply. Interesting to get your perspective.

I can see that trade counters blur the line between Headlam’s distribution model and retail, so I can understand the distaste of traditional retail.

The activities of Jason Maguire in the sector are also interesting and provide additional insight into the competition for both Headlam and Likewise. I understand his group operates as Connection Retail. I’ll investigate this further.

In a previous post I commented that the two quoted companies might account for 50%-60% of the distribution business but another look at the numbers suggests this might be closer to 40%, which implies a 60% share across many smaller businesses, such as Connection Retail.

Given this level of competition and I assume overlap, I still wonder at the extent and reasons for your business relationship with Likewise, given the issues you’ve expressed – leaving aside any investor interest.

I guess bulk/volume of the product versus value means that the product doesn’t move far from the cutting table to the final installation, so competition largely occurs at a local level.

What prompts you to use Likewise rather than another distributor? Is it payment terms, product offering, or something else?

Is there a local alternative to Likewise or Headlam?

(I was going to say, Flooring Superstore, but I wonder if they are retail rather than distribution.)