Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
Onedb, as it says on the packet, the deal is ‘Sale of 15% interest in Bressay and EnQuest Producer FPSO’, but I think examining the detail of the payments is informative.
Let’s split the two interests:
FPSO
Following the initial payment £34.75 ($44m), RockRose own a 15% share of the FPSO. Assuming this payment is largely, if not fully, towards the purchase of the stake in the FPSO, it values the FPSO at c.$300m.
In the latest balance sheet, the FPSO will have a value within the $2,288m property, plant and equipment (PPE) total. I don’t know the valuation assigned to the FPSO, but the FY balance sheet will reflect 85% of the gross value of the FPSO, based upon its anticipated utilisation, which may be higher or lower than the previous valuation. This change in the FPSO’s valuation reflects the impact of the deal, including the $44m payment which is assigned to cash.
Bressay Field
In 2020 Enquest acquired a 40.8% interest in Bressay. “The initial consideration is £2.2 million payable as a carry against 50% of Equinor's net share of costs from the point EnQuest assumes operatorship. EnQuest will also make a contingent payment of $15 million following OGA approval of a Bressay field development plan. There are no gross assets or profit before tax associated with the assets.”
“The contingent payment increases to $30 million in the event that EnQuest sole risks Equinor in the submission of the field development plan.”
Equinor has now relinquished their 40.8% share to Enquest but presumably a $30m contingent payment is still due on approval of an FDP.
Chrysor (now HBR) has also relinquished their share, but I don’t know the terms.
Today, Enquest holds an 85% share in the Bressay Field and RockRose 15%.
The balance sheet probably still reflects, “no gross assets or profit before tax associated with the assets.”
I understand from previous commentary that while Equinor and Chrysor were on-board a substantial amount of progress was made on the FDP. The licence extensions require a submission by end 2024.
On approval of the FDP Enquest pay Equinor $30m. (This contingency may have been cancelled by subsequent events)
Assuming the project progresses to production, with EnQuest and RockRose each paying their share of CapEx, then RockRose will pay £11.25m ($15m) to EnQuest.
In conclusion, the deal implies intent to progress Bressay towards production, but essentially Enquest has only made a partial sale of the FPSO, will little other impact on the balance sheet. RockRose are on a carry to approval of the FDP.
However, confirmation of intent to progress Bressay adds value from an investor’s perspective. I understand there are environmental requirements around emissions which will impact Kraken’s future operation. I have 2025 in my mind as a key date. I also recall a statement that electrification of the Kraken FPSO wasn’t an option, so I’d guess Bressay gas offers a solution.
I meant to add (from memory) that the Pierce FPSO had a mooring issue, which is expected to be sorted this half year.
Performance at Captain, following the polymer work, is key to Ithaca's near term performance. This is from the latest update:
Captain Enhanced Oil Recovery (EOR) Phase II project now ~80% complete,
supporting first Phase II polymer injection into the subsea wells in H1 2024, with
the following activities completed in the quarter:
Drilling: Completed drilling operations of all three Area E polymer injection wells
and the commencement of drilling operations in Area D
Subsea: Completed laying and trenching operations of all flowlines and umbilicals
Facilities: Turnaround successfully completed including facilities upgrades in
support of EOR II project
Tornado10, good to know I'm not the only saddo looking at this stuff ;-)
I download the csv file and sort it in Excel.
I've done a similar exercise to yours, working the numbers for each quarter, but come up c5% short of Ithaca reported numbers (Q1,Q2 & Q3).
My Q4 sum is 63.1K boepd, which I correct to 66K boepd, for Q4 EBITDAX $371m.
I suspect I'm missing non-operated fields. Can you add to my list?
(The % is working interest rounding number. I have the precise number in my work sheet.)
Abigail ITH 100%
Alba ITH 37%
Alder ITH 74%
Arbroath REP 41%
Arkwright REP 41%
Brechin REP 41%
Britania HBR 32%
Brodgar HBR 6%
Callanish HBR 17%
Captain ITH 85%
Cayley REP 41%
Columba BD CNR 6%
Columba E CNR 20%
Cook ITH 61%
Elgin Total 6%
Enochdhu HBR 50%
Erskine ITH 50%
Franklin Total 6%
Godwin REP 41%
Harrier ITH 100%
Jade HBR 26%
Mariner EQUIN 9%
Montrose REP 41%
Pierce BP 7%
Schiehallion BP 12%
Shaw REP 41%
Stella ITH 100%
Vorlich ITH 34%
Wood REP 41%
In a recent post I expressed my views on the retail part of the business, which was the part in focus on the day, and concluded with the comment, “I now have enough information to maintain my interest and increase my exposure.”
I had been holding funds for an additional investment in H&T once I had some clarity on the 2023 numbers, however, when I reviewed other parts of my portfolio, I decided there were better candidates for investment.
I had been concerned by the additional funding last Nov to fund the growing pledge book, because I wondered about the merits of growth over margin. The comment in the trading update, “The Group has implemented changes to its pricing structure for pledge lending, in order to improve yield and generate incremental revenue.”, is unclear to me. The changes to the pricing structure may be positive, but when I’m unclear on something I become cautious.
The Hardman & Co Research note on the company is interesting and there’s little I’d disagree with, but the reduced dividend forecasts and wage cost pressures, which may persist under a Labour government, is sufficient for me to temper my own expectations, so rather than add to my exposure I’ve decided to exit.
I only post this to counter my previous, more bullish comment. I’ve no doubt H&T will return to 400p soon and beyond in the next few years. I just think I see better candidates for my investment.
I’ve learnt more about the pawnbroking industry than I ever expected and will look at the final numbers and prospects. But for the moment I’ll be looking in from a distance.
Stevo12, you say. “What is the financial impact of Labour removing the additional allowance uplift (reducing the allowance from 91% to 75%)? “
It’s my working assumption that Labour will be elected and will remove the EPL additional allowance uplift at the start of 2025.
I have the additional allowance as this (from Gov guide notes):
EPL 35% Investment allowance 29% (for expenditure) £10.15 relief on £100 expenditure
Which limits the first-year capital allowance to 75%. However, I expect the investment allowance under the supplementary charge (part of the old regime) to remain.
Supplementary Charge 10% Investment allowance 62.5% £6.25 relief on £100 expenditure
This allowance can be claimed when the investment starts generating income.
In your example this equates to an allowance of $600m x 6.25% = $37.5m. The first year of taxable FCF is $180m. Deducting the supplementary allowance leaves $142.5m. Post tax FCF in first year is $73m.
Time to payback on investment of $150m is 2 years 9 months.
$73m + $45m = $118m (2 years)
(150-118)/45 = (9 months)
The payback (under Labour plans) is extended by 18 months, but then ‘FCF profit’ on the $150m investment stills runs at $45m p.a. as it would be pre-Labour.
I don’t think loss of the allowance under Labour is a fearful outcome.
Labour could increase the EPL to 38% to align with Norway’s 78% total tax rate, but my expectation is that it will be removal of the EPL investment allowance or an increase in the EPL rate, but not both.
An increase to 38% EPL reduces the ‘current’ $45m to $40m.
The problem with the UK’s O&G tax regime is that it’s unpredictable, and for some to a point where it’s uninvestable.
Sekforde, so you’ve swapped Mar – Jun production @ $80.
It’s interesting to speculate on hedging options, but it’s the company’s transactions that matter. Worth remembering that Enquest took 0.8m bbls of swaps @ $88, probably around the time of the $95 in Sept, so Enquest are alert to hedging opportunities.
Let’s see what hedging positions Enquest reveal next month.
For comparison, Ithaca revealed their hedging for 2024 (as of 20th Nov):
14,750 bopd hedged with a floor @ $77, including 5,750 bopd swapped @ $82. The balance is capped @ $87. Hedges are 62% weighted to H1.
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.
"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.
'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.