Member Info for QuintusCurtius

Dexter - Your post mentions the potential problem being with R2. Did you mean R3?

All in my opinion only

Totally agree. Something has to give if they want to make an acquisition in this environment.

My strong preference is that this company continues as an independent but I think this is becoming less and less likely.

Hopefully we get some good news on Columbus and R3 shortly.

Good luck to all LTHs. All in my opinion only

I think it will be much more challenging for SQZ to get a deal over the line than many expect. Their criteria (gas, operated) plus a very high hurdle in terms of profitability means very few deals will fit. Speaking as a shareholder I’d rather have them buy quality assets that are slightly expensive than continuing to sit on the sidelines.

For me, the Shearwater/Andrew assets are the litmus test as they appear to be a great fit for them. If they continue with this ‘only at bargain basement valuations’ mentality they are going to end up with nothing and there are better growth opportunities with companies whose management understand that you don’t have to wait until the ‘perfect’ deal comes to grow your company through acquisitions.

I don’t think they have ever closed a deal that was competitive ... they’ve always used their BP connections to get a look in at North Sea assets that were ‘off market’ (Erskine and BKR). In the nearly four years since BRK was announced the company has sat on their hands and the share price reflects, in part, a lack of faith in them getting a deal done. Contrasted to KIST which is a cash shell that trades at a premium of approx 100% to it’s cash value because the market believes AA will deliver value creating transactions. In four years AA built RRE and our management was unable to get anything done despite the historic fall in oil and gas prices last year. No wonder why Mitch hasn’t reached into his pocket to buy SQZ shares ... he’s probably bought KIST!!!

In my opinion only.

It will be interesting to see whether there is another TR-1 for GRG ...

NewKOTB - I don't think the Enquest acquisition is a valid comparison in this case. Golden Eagle has a unit cost ~$5 which is among the lowest in the North Sea plus there is significant development potential which should extend the life of the field into into the early 2030s resulting in a knock-on effect on the 2Ps (same strategy SQZ is using with Rhum).

Oil and gas prices have buoyed the market but there are many 'motivated' sellers as ESG agendas become front and centre with many of the majors.

NewKOTB - Fully agree. I don’t know what to make of GRG’s restart of selling SQZ shares. Does not make sense that someone who has been invested in SQZ for such a long period of time substantially sells down in front of several near term catalysts (R3, Columbus, and 100% BKR revs).

Duster - there are many factors that go into a valuation. It's not just boepd. Amongst other things, Golden Eagle has significant development potential and the field life is expected to be extended into the early 2030s. The unit cost is also $5 per barrel which is amongst the lowest in the North Sea.

Interesting, NewKOTB. If you are correct then the individual or entity that has acquired the stake that Jeffery has offloaded has not been properly disclosed under AIM Rule 17 ... all that has been reported is the decline in GRG's holding. I find it hard to believe that SQZ are not aware of who the acquirer is given Jeffrey's historical connection to the company.

That will not prevent it, Mav. If your shares are lent out the recall only happens when a trade has been executed. The only real way you can prevent it from happening is to make a formal request that your shares are not lent out (many banks/brokers do sec lending on the sly) or by not signing the securities lending and borrowing agreement.

Buybacks are the last resort when all other options to deliver shareholder returns have been utilised/explored. If SQZ management opted for a large buyback now it would be a terrible message to the market in that they see no other alternatives to generate growth (i.e. no acquisitions on the horizon).

Theoretically buybacks are a more efficient way to return capital to shareholders than dividends because, unlike dividends, there is no immediate tax. Additionally, reducing the float 'should' increase the value of the remaining shares. This means that when an investor sells their holding (which has increased in value as a result of the buyback), they are taxed at cap gains rates on the capital that was used for the buyback and not at income rates (which in most jurisdictions is a higher % than cap gains) as they would have been if the return of capital came in the form of a dividend.

In practice, however, the management of large corporates who have their comp tied to YoY growth in underlying EPS use buybacks to help them hit their growth targets and get paid because by buying back shares they are reducing the float and even if revs are constant, they are increasing the EPS (ceteris paribus). In recent years some corporates have been tapping the bond markets to raise cash which they in turn use for buybacks. I don't think the Fed intended that QE and low rates should allow corporate execs to line their pockets but that is a conversation for another day ...

Buffett will use buybacks but only when BRK shares are trading significantly below tangible book value and there are no foreseen uses for that capital that would generate a higher return. In one of his annual letters he delves into buybacks and provides a good argument in their favour.

Scott - How do you derive the £125 mln net of capex, div and BKR rev sharing? Seems high to me given that is the only incremental revs are from R3 and Columbus unless I'm missing something.

Keep in mind there are only GBP 40 mln of deferred tax losses.

Agreed, Dick. Locking in the rest of 2021 production at these levels is very attractive especially considering the seasonality of gas prices.

All in my opinion only

There we go ... a reasonable conversation NewKOTB : )

I have no visibility over who might acquire GRG’s stake. If I were to hazard a guess, totally in my own opinion only, I would look at Jeffrey Harris’s PE network for clues but in my recollection these are mainly US focused firms but I may be wrong.

I really hope they are not taken out as I really think the management is top notch (with a few minor caveats but nobody is perfect) and this company’s best days are clearly ahead of it.

Great weekend all.

All in my opinion only. DYOR

NewKOTB - so I’m the reason a deal hasn’t been done? You flatter me ; ) Seriously take your tin foil hat off.

Two questions for you (if you actually want to engage in an informed discussion):

1. Do you still believe the share price is being suppressed at these levels?

2. Seeing that I’m sure you’ve done your homework, what is your calculation for the derisked NAV of SQZ?

Beech - A few weeks ago I posted about these assets and how it potentially made sense for SQZ to look at them.

If I am not mistaken the Andrew assets are all operated which ticks that box for SQZ and a Shearwater stake would be strategic in that Columbus is being developed via Shearwater and Erskine is in very close proximity.

Agreed. The OFAC renewal is the sword of Damocles hanging over the head of a potential acquirer. I hope I am wrong but I can’t see them being taken out until they have a more diversified portfolio of assets.

Definitely see an acquisition as being the more likely outcome at this point.

In my opinion only

My hypothesis is that this is US tax related. 4 January being the first day of the new US tax year. Possibly liquidating enough to pay US tax on the SQZ div from 2020 or pay for realized gains elsewhere?

Rax - In addition to hydrocarbons, KIST will be targeting energy storage, infrastructure and 'energy generation' projects [renewables?] and the geographical remit is broader in that continental Europe is also their hunting ground.

To my mind AA has a different strategy than SQZ. Historically he has not been afraid to acquire minority stakes whereas SQZ are clearly seeking operated interests at high levels of profitability to the firm. If I read AA right, he knows that capital markets reward companies who are able to deliver a steady flow of deals which is what happened with RRE.

KIST have also structured the company such that the share price appreciation is how the directors will really make money and not through high salaries. I believe AA's PA is the highest salaried person in the company.

Mav - KIST has delivered much more than 60% for the pre-IPO investors who were in at 50p. As you noted, AA has reached into his own pocket and invested a large portion of his own wealth in KIST. It has always concerned me that SQZ does not have anywhere near that level of management stock ownership funded via their own funds. For many of them the only shares they own are those that they acquired through the options awarded by the company as a part of their long-term incentive plan (ACW being the noted exception). If they are 110% committed to long-term value creation for shareholders why would they not have more skin in the game? The fact that MF has only 184K shares in SQZ is a glaring inconsistency. I wonder how MF has invested his savings if not in SQZ? By contrast if KIST goes bust AA loses a large portion of his net worth.

My understanding is that the BoD prefer operating assets to non-operating and SSE are almost if not entirely non-operating. I think there are other opportunities they have their eyes on.

Now that the Premier deal to buy the Andrew and Shearwater assets has fallen apart perhaps they are looking at them. The two assets produce ~23K boe/day and the latter is in close proximity to Erskine. Main downside I’m aware of is that Shearwater is operated by Shell (Doesn’t fit the soft requirement by SQZ for operated assets) and Shell have an option to purchase BP’s stake which they may or may not exercise.

In my opinion only.