Member Info for Megla

Not looked at longboat in a very long time.

This looks an insane deal for a $5m valued company. Why didn’t JAPEX make an offer for the full company?

Rookie, or you could see it as democracy functioning. Energy bills were rising, the opposition suggested a windfall tax, then as energy bills continued to rise the political pressure became unbearable.

I’m not against the idea of a windfall tax, but given we’d now be better off with Gas at 60p a therm, Oil at $65 (with no EPL) it isn’t a windfall tax anymore. It never really was for Harbour given the poor hedging. The tax was arguably justified, the implementation was dreadful.

The problem is that the conservatives know that reducing the windfall tax now would be about as popular as their poll ratings, so we’re stuck with it in the short term.

I definitely wouldn’t bet on how this plays out, but given the reduction in investment (OBR believed it would stay the same) then something will likely change in the not too distant future. Lower energy prices, however painful for the share price and FCF, will help with those discussions.

Even with Labour, surely they’re not quite as thick as they’re suggesting and will be a little more pragmatic when in power. But that’s me being optimistic.

Sekforde, I really think you’re confusing yourself by not looking at the numbers in isolation.

Very simple way of looking at it:

EBITDA (whatever that is based on your energy price assumption) minus $1.5bln (CAPEX, ABEX, Lease, Finance)

We get to keep 25%, HMRC takes 75%.

In reality it’s a little more complicated, investment allowances, green investment allowances etc, but that will put you in the right ballpark.

Stevo, absolutely, the company is in much better shape than the majority of midcaps O&G companies listed on the LSE. Any tweak to the EPL will see this regain ground very very quickly. When household bills reduce in July there might be an opportunity to have a sensible conversation on the tax.

Sekforde, you really can’t use 2023 FCF sensitively for 2024, that makes no sense at all. Hedging, taxes & production numbers will all be hugely different. It doesn’t make any sense to carry that forward.

Working out FCF for 2024 shouldn’t be all that complicated. There are always questions marks about the phasing of tax/debt payments, working capital movements etc, so no one on this board will nail it, but ultimately the variables are quite small. The real variable is the underlying commodity prices that the company receives, which can only be based on the forward curve or personal assumptions.

The tax losses stand at $500m and based on current energy prices will be utilised in Q4 or Q1 next year, so any FCF projection should be based on the full 75% in my view. If we get a quarter with limited non EPL taxes then great, but that’ll be due to a disappointment in 2023.

As always, the issue is the EPL, which I’ll illustrate in another post, but at 90p a therm and $75 oil I think you’ll be incredibly disappointed if you believe FCF will be anywhere near $1bln.

Unless Oil & Gas prices rise significantly, then there's no chance of a $1bln. My numbers are slightly optimistic as don't include cash G&A.

Happy to be challenged on any of this though.

EPL needs tweaking to get Harbour back on track.

Production - 185k barrels
Oil Price -$85
Gas - 130p per therm (current forward curve)

Revenue: $5.5bln (post hedging)
OPEX: $1.15bln
EBITDA: $4.4bln

Finance: $0.1bln
Lease: $0.2bln
CAPEX: $1bln
ABEX: $0.2bln
TAX: $2.1bln

FCF: $800m

Production - 185k barrels
Oil Price -$75
Gas - 90p per therm

Revenue: $4.6bln (post hedging)
OPEX: $1.15bln
EBITDA: $3.5bln

Finance: $0.1bln
Lease: $0.2bln
CAPEX: $1bln
ABEX: $0.2bln
TAX: $1.5bln

FCF: $450m

Slater606, maybe Sekforde’s FCF projection is correct and I’m the one that’s missing something?! Obviously we don’t know unless it’s discussed, which is why I’ve asked the question.

Obviously if the poster had made some mistakes and continued repeating FCF assumptions that were obviously wrong, then of course they would be very suspicious.

Sekforde might have views that I disagree with, but he’s the only one actually talking about the fundamentals of the company, which in the end, is all that really matters.

Sekforde, your FCF projections for 2024 look far too optimistic. Could you layout the various components that you’re using to get to that number?

In addition, why not use the forward curve to drive your oil & gas price assumptions? Obviously the reality will be different, but that’s what the market is telling us at this moment. Gas prices are currently a lot higher than 90p for next year, which Harbour should be utilising to increase hedging.

The problem is the ridiculous EPL, EBITDA will increase next year but then we’ll be giving 75% to HMRC as the tax losses run out.

It’s been said before, but unless the EPL is tweaked then we can forget about £4+. Still, there’s probably a few quid to be made at these prices. IMHO DYOR etc etc

Happy,

FCF for 2024 isn’t difficult to work out. Yes there’s a timing issue with tax payments, but working out the tax charge will get you in the right ball park.

Fair point, not sure why anyone would ever see positives in a falling share price, I’d rather see the company buying back stock at £4 per share. In fact, I don’t want to see the company buying back stock at all. Either put the money to work or put it in my pocket.

Market seems to be getting a impatient with Harbour, EV now less than half the value at inception. Mostly EPL related of course, but Ms Cook likely starting to feel uncomfortable.

Landicaamans,

You’re an institutional investor, given the current fiscal/political environment, would you increase your weighting in an already hated sector (Mr smith sums this up well)? I think the problem for Harbour, is that in most cases the answer to the question is going to be no.

The EPL is an utterly dreadfully designed tax, that leaves the company with absolute peanuts if Oil / Gas prices fallback to more normal levels.

I remain invested on the basis that the EPL will be tweaked in the near future, I also pick-up a decent dividend yield in doing so, but I don’t see the share price gaining any traction whilst the current version on the tax remains in place.

A big risk is that Labour get into power and follow through with what they’re saying. Increasing the tax rate and removing the investment allowance will completely destroy investment in the sector. Populism at its finest.

There is an answer to this, redesign the tax to target the windfall only (people with a differing view of what that is) but then that would actually take some effort rather than current knee-jerk reactions that have put us in this mess in the first place.

The answer is within the article, a simple floor price doesn't work, the industry needs something fair to both producers and consumers when prices are ridiculously high.

“A better approach that might bridge the political divide would be to offer a regime where rates moved predictably with prices, preferably at lower levels but with fewer allowances. The position would be transparent and likely to survive both a change of government and market shocks.”

Why this wasn't implemented in the first place is beyond me. The Tories or Labour would likely win a few Scottish votes if they adopted this approach, which would be far more practical than trying to out-do each other with ever more taxes.

Economic mismanagement is nonsense, the vast majority of people cheered on furlough and the printing of mountains of cash that allowed people to sit at home and wait out the pandemic. Couple that with an energy price shock from the Russian invasion and here we are, the same position as nearly every other western country. But sure, let’s blame Liz Truss and her short spell at number 10.

The IMF forecast shows that we’ll outperform Germany and others over the forecast horizon, but I guess that doesn’t fit the picture you’re trying to paint.

I agree the current crop of Conservatives aren’t great, as you say they dreamed up the ridiculously designed EPL in first place, but the answer to the country’s problems isn’t Labour.

IMHO of course.

Damofarl,

You do realise Interest rates has risen around the world, right?! Truss caused some temporary noise and a spike in UK gilts (which the BOE actually profited from) but to say the Conservatives are responsible for the interest rate rises is devoid from reality. The US has higher rates, is Truss to blame for that as well?

Fuel/energy, we're basically in the same boat as most of Europe. In hindsight, every country would have done things differently. Hopefully whoever is in power next will do better.

"I believe in HBR" but support a party that will cripple investment in the North Sea.

You and Labour are well suited.

hobione, hysterical nonsense.

The NHS England budget is £155bln, which is in part, funded by successful British industries like Oil & Gas. Now you can argue that budget should be higher, but to say you won't get an ambulance if you vote Conservative is utterly ridiculous.

I dread to think what the waiting lists would have been if Starmer had managed to lock us up for another 6 months.

Lol Hobione, you've been spending too much time on twitter.

I guess the conservatives are also responsible for interest rates going up around the world as well then?! And there was me thinking it was something to with COVID and the ridiculous amounts of cash injected into the system via QE.

Lets not forget Starmer wanted to keep us all locked up towards the end of the pandemic, which would have compounded the problems for the NHS and the economy, but sure things would be so much better under Labour.

The current crop of Conservatives are dreadful, but Labour are a most definitely a clown show.