Member Info for Megla

Labour are an absolute clown show.

78% tax rate without the improved investment allowance. May as well just shut up shop.

Whereas it'd be a disaster for the share price, I'd like to see the entire industry put two fingers up to the government and suspend all new UK CAPEX.

The EPL at 25% with the improved investment allowance was bad but still workable, the current tax is utterly insane given the reduction in energy prices. Quick to implement knee jerk rubbish, drag heels whilst the UK loses hundreds of millions of investment due to the fiscal instability of a so called Conservative party.

The problem with a floor price is it just doesn’t really work to encourage investment. One minute you’re paying 40% tax, then $1 more and you’re paying 75% with potentially hundreds of millions difference in FCF. It just doesn’t make any sense.

I’d like to think, and assuming the Conservative government are serious about being fair with the industry, then they’ll have used the time to come up with something far better than the previous rushed nonsense.

What I’d like to see is a 40% tax at a combined ‘realised’ price of say $65-$70, then the tax stepping up by 1% for every dollar over that up to a maximum of 78% (same as Norway). Any windfall tax returns go to support those in most need with their energy bills. That way, it takes into account the mix of oil & gas, whilst being fair on producers and consumers. I’m sure there are plenty of flaws in even this suggestion, but for me it seems like the right way to go. Anyway, let’s see what we get.

Absolutely Nitro, this is a massive opportunity to show their support for a hugely successful British industry that employs 200,000 plus people, whilst also showing their green credentials by supporting CCS.

Let’s face it, anyone that wants to get rid of Oil & Gas believes in ideology over reality, which would already put them in the delusional Labour camp.

Only thing that worries me is that the floor price for the windfall is rumoured to be a ridiculous $65, but hopefully the mechanism for any windfall is far more sophisticated than that.

Happy, yesterday you were saying FCF would be negative for 2024.

Assume you’ve realised your mistake?

Yes, and 2024’s EPL will be paid in 2025.

Just like the balance of 2022 was paid in January of this year.

FCF expectations are disappointing but have been for some time, hence the current share price.

Happy stop scaremongering.

2024 EPL will be paid in 2025.

FCF is disappointing but for those that haven’t had their heads in the sand it is close to expectations.

EPL is an utter disaster at current energy prices, this is Habours problem.

This is a bit of a worry. Although the balance of 2022 would have been paid in January so does offset somewhat. I’m sure this will become clearer in the Q&A.

Using a gas price significantly higher than current to get to that $1bln is disappointing. “Hey guys, this is what you could have if prices rise by about 25%”.

Buyback will have to be put in place very quickly to support the share price. Not much good news in this update.

The OBR’s forecast for Gas prices (it isn’t really a forecast, they just take the futures curve at that time) was £3.40 per therm for 2023 & £2.70 per therm for 2024.

With that price deck, and with the EPL in place, Harbour would still have produced $3bln+ in FCF over the two years. The company would have had a massive windfall, so the implementation of the tax was difficult to argue against.

The problem is, the forward curve changes everyday, which shows just how ridiculous it was to impose should a punitive tax rate on a incredibly cyclical industry without a mechanism to reduce/remove it.

The current forward curve is roughly £1.30 for 2023 & £1.40 for 2024. At these prices, household bills will be under the price guarantee, therefore no government support will be provided. Obviously prices could rise again, especially next winter, but as it stands, they’re not too horrendous, especially when adjusted for inflation over the last couple of years.

Of course prices are still somewhat higher than they used to be, but it does feel incredibly wrong that Harbour are now worse off than we would have been if the Ukraine war had never happen. That may be a contentious statement, the high prices last year did allow us to plow through the debt much quicker than expected with only a limited windfall tax.

Anyway, the likelihood of anything changing to the EPL in the spring statement is zero (IMHO) but I’m sure the industry is being vocal to the government behind the scenes. If gas prices stay the same, or go lower, then they’ll be a lot pressure to tweak things come the autumn statement. I guess we’ll find out then just how hated the industry is.

I’m sure it will. Gas prices are already at a level where only limited government support will be required going forwards. It’d be inexcusable to keep a hugely punitive tax rate on the industry when there would be no real justification for it.

As Stevo had previously mentioned, this is the 3rd time a windfall tax has been introduced, the other two were eventually rescinded.

Jeffrey,

Prior to the EPL, Linda has built a business that would have generated $2bln of FCF this year. Even with more normal energy prices the company would have been capable of producing $800m on a consistent basis. She’s done a good job, which has been undone by ill thought out tax policies.

I do love how some posters know better than one of the most experienced CEO’s in the industry.

Linda knows what she’s doing. The Tory party do not.

Bloody EPL init

Hard to even be angry at the company when it’s the Tories that have shafted us.

I wouldn’t pay much attention to that, it was literally just done by updating my assumptions for oil & gas prices for 2024 with the tax losses fully utilised.

In my view, there’s not much chance the EPL would still be in effect in that commodity price environment.

That said, the very rough numbers do show how absurdly designed the EPL is though. Why it wasn’t based on realised prices is beyond me.

The investment allowance is okay. But flip it on its head. If the government had reduced the investment allowance (increased risk), but also reduced a 75% tax rate to 40% (increased shareholder returns) share prices would be increasing, not getting slammed into oblivion as they are now.

The real problem with the EPL is if gas prices normalise (not sure they ever will) we’ll be burning through the reserves whilst being left with scraps.

Using 70p therm and $75 oil I have $800m of FCF under the old tax regime and $270m of FCF under the new tax regime.

The EPL definitely needs tweaking, I’m sure most of us would accept something that was based on realised price. But the crude design of it is already having an impact on how the industry views investment in the North Sea.

I’m not expecting any changes in March, but they’ll be a lot of pressure come the Autumn from the industry if Gas prices do continue to weaken.

Using the current forward curve, the company would have been significantly better off with the price deck before COVID than we are now, which is utterly ridiculous. Stealing from shareholders would be one way of putting it.

This isn’t a tin pot operation, there’s no need to provide a net debt update for February.

FCF for year is important, but more important is price deck and expected tax charge on those number. FCF projections are relatively easier after that. Well, within a certain margin of error of course.

I don't think the company will provide a net-debt update for Feb. The balance of the now various different taxes gets paid in January, so providing an update might not be favorable and would ultimately just confuse things.

- The key thing for me would be the amount of taxes the company expects to pay on the price deck they provide. Once investors know that, they can play about with the numbers based on their own assumptions for energy prices going forwards.

- When the company expects the tax losses to be utilised - no doubt will be a question in the Q&A

- Progress on international developments and M&A

- Comments that spell out just how ridiculous the EPL is, especially considering the forward curve is now massively lower than those used by the government (from the OBR) to justify the windfall tax.

- Drop the arbitrary net-debt free target for 2023 that no one asked for

- Announce shareholder to be in dividend format only, which would put the cat amongst the pigeons for those betting against the company.

Sekforde, please review page 35 of the half year results. Tax losses at the end of H1 were $1.3bln, you’re using the number that also includes the expected tax savings from carrying out the required decommissioning activities.

Given the current price deck for Gas, I no longer think the losses will be fully utilised in 2023 and instead will likely last into H1 2024. Obviously this is a moving target as energy prices move up an down.

Actually Sekforde, 2024 is where we really start to diverge.

The tax losses will likely be fully utilised this year, so with 185k barrels, £1.25 per therm and $85 oil, I have FCF at $650m. The biggest factor is the increase in tax, which rises to $2.1bln.

Production won’t increase in my view, in-fill drilling just slows the decline rate. The only major asset to come on-stream next year will be Talbot. 185k barrels would still be a very good result though.

I don't think we need to debate this too much, next year will look very different after the expected M&A anyway. But even if they don't close a deal this year, $650m of FCF is still pretty good, provided we're converting reserves from 2C to 2P with the CAPEX spend.