The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
Comrieman, why are you scared of posting your numbers? If you want to use $90 oil for 2024 that’s absolutely fine, they’re just FCF estimates based on assumptions. Personally, I’d use the forward curve given the opportunity it brings for hedging, but each to their own.
Comrieman, if oil & gas prices equal the numbers from my previous post, then the yes FCF would be about $300m. The current curve is significantly higher.
Why don’t you break your word salad down into something a bit more structured.
Tell me what your production and oil & gas price assumptions are, then just give numbers for the following, that way I can see why I’m so wrong.
Revenue
OPEX
CAPEX (including decomp)
Finance
Lease
Tax (broken down by the 3 elements)
Xp045
The most logical explanation is that Fitch used the forward curve for O&G prices at the time the report was created. It probably included Gas at 200p+ a therm and Oil at £100+. Regardless, it is very clearly wrong and needs throwing in the bin.
FCF will reduce quite dramatically in 2024 due to the full utilisation of the tax losses (likely Q1 2024). I estimate FCF at around $500m for 2024 based on the current forward curve.
Thanks xpo45.
Unfortunately the report is obviously wrong, unless there definition of FCF is different to the industry standard.
In the report, FCF shows as $1.5bln for 2023 when Harbour themselves have guided to $1bln. Harbour's FCF estimate was made with Oil at $85 & Gas at 150p a therm, obviously the yearly average for both commodities has been much lower. Moreover, FCF this year includes the benefit of the tax loss position and a proportion of the EPL being paid next year.
Xpo45
From next year, with the tax losses utilised, there's no way Habour can produce $1bln (assuming you meant dollars) of FCF per year at the current forward curve. Happy to have a look at the report though, if you can share a link? I can only assume it was for this year, or there assumptions for energy prices are way higher than current.
As for the FPL discussions, who knows. As an investor I don't have a problem with the windfall tax, I just think it should be a progressive. So at current prices we might be paying a little extra, but not the ridiculous 75% we're currently stuck with.
The buyback is pointless in the current market. It needs to be canned and a $75m a quarter dividend put in its place.
Investors get regular cash in their pocket, and shorts face a 3% quarterly bill for the privilege of shorting the stock.
Xpo45, most businesses don't need to give 75% of their profits to HMRC.
The company isn't massively undervalued. It probably deserves a higher valuation (I would say that as a holder) but the market cap is running at EV/FCF multiple of 4/5. That isn't a bad valuation for a company with limited reserves. If the EPL was removed tomorrow, the share price would rise more than 100%.
Arguably, the Linda and Co have done a good job, the problem is the FPL and the prospect of a Labour government that want to put a final nail in the coffin for North Sea O&G. There's not much Harbour can do about this other than diversify away from the UK, which will obviously take time.
Net-debt will likely increase into year-end.
Costs will likely rise due to the dollar/GBP exchange rate.
Production will continue to fall due to natural decline.
Labour are still talking about a ‘proper windfall tax’, removing the investment allowance and scrapping any new licenses.
Debt capacity will reduce during the RBL redetermination.
The EPL has massively reduced post tax profits.
Large decomp liability.
Harbour fairly valued at EV/FCF x 5 (FCF being $500m for 2024 onwards due to the utilisation of the tax losses).
Decent company with a decent divi, but I’m not expecting fireworks unless the EPL is changed or energy prices spike again.
For balance, the share price without the EPL would now be around £6 on the same EV/FCF multiple.
Banbury, where are you seeing this? Currently, we have corporation tax (CT) at 30%, the supplementary charge tax (SCT) at 10% and the energy profits levy at 35%. Interest isn’t a deductible expense for the SCT or EPL, but is for CT.
Absolutely Mike, that’s always been the answer. Introduce marginal rates based on realised prices. Under that scenario, they could even increase the top level of tax to get a few headlines, knowing that it’d only be triggered if energy prices went to ridiculous levels.
As you allude to, the problem is that they actually want the tax revenue, that’s been proven by this latest stunt. I say stunt, because that’s all it is, it’s not a serious attempt to be fair with the industry.
It really is embarrassing from this gov.
Why they think it’s acceptable that a penny difference in O&G prices could trigger hundreds of millions in additional taxes is beyond me.
Can you imagine the outcry if income tax wasn’t marginal? Where an extra pound in earnings took you into the 40% bracket so you actually took home less money. That’s the situation they’ve created for O&G companies.
It is absolutely correct. We’re now in a position where we hoping for low or high energy prices. Anything in the middle is dreadful from a FCF perspective.
A tax policy dreamed up by idiots.
Stumpy, I don’t think there are any proper details yet. Happy posted the link to the gov website with an overview of what’s changing, but it doesn’t cover these types of questions.
Regardless, I think it’s utterly absurd. Tax should always be progressive. Whoever dreamed this up doesn’t have a clue how the industry works.
Agree NewKOTB, it hugely complicates RBL lending.
As an investor this government is so incredibly frustrating. How can it be acceptable for FCF to be lower at current energy prices than it would be at prices underneath the cap? It just doesn’t make any sense. Tax should be progressive, it feels like a 5yr old has put this all together.
How companies are expected to plan when a £0.01 increase in the oil/gas price could trigger additional tax payments of $100m+ is beyond me.
A floor price is better than no floor price, but the Tories had the change to write some wrongs here and they’ve absolutely blown it at the 3rd time of trying.
Strike,
Who doesn’t understand? I’m pretty sure everyone understands that if prices go lower the EPL will be removed. It isn’t that complicated. The question from Happy is what happens if they go down for two quarters and then go back up?! That hasn’t been addressed yet.
We’re currently in situation where at current energy prices, we’re now worse off than we would be if prices were under the floor price. Do you really think that’s a good move from the gov? I’d say it was utterly insane.
Scenario applicable to Harbour but just very rough numbers to illustrate the point.
Low Energy Price - 185k barrels, 50/50 spit, Oil price $70, Gas Price 53p a therm - NO EPL (blended realised price $54)
FCF = $460m
Current Energy Prices 185k barrels, 50/50 spit, Oil price $75 Gas Price 70p a therm - WITH EPL (blended realised price $63)
FCF = $300m
Some windfall tax.