Member Info for romaron

I think I've answered my own question on hedging profit and losses. They are ordinary business expenses and by their very nature make either a profit or loss against eventual realised revenue. It'd be a bit like taking the egg out of a cake. If they had been over speculating and got it dramatically wrong then the board or shareholders can force action. The loss would be in the figures and although the exchequer is deprived of potential tax monies there is an assumption that the G in ESG covers and is robust enough to stop any skulduggery.
Hedging isn't that different to a major retail change betting on the fashion and weather for next season except I don't think you can hedge fashion trends.

Thanks to L7 (12:31). As you point out tax losses are prertty irrelevant if you're losing money. I've never understood impairments but the market doesn't like them so a reversal should have the opposite effect. Do either of you have a view on heging losses being included? I suppose if insurance is allowable and you aren't speculating but setting against production they should be allowable.

Thanks Dumbly - I think a few others will also appreciate your breakdown and observations. The 2020 $700mio is a significant number as it is company sourced.
I was over optimistic at its value but like all ratios I'm just reducing the number of multi-baggers EnQuest should be valued at. For a period of time the tax credits were mentioned but more as a background item. I imagine there could even be more accountancy gymnastics and if you torture an item long enough you can make it say most anything. Still a sizeable sum but it does help me understand why the market isn't doing backflips over EnQuest.

*On news. A major stationery company in China has banned the sale of blank A4 paper. Obviously government involvement as the blank A4 has come to represent dissent against Covid restrictions. In China the Emperor really has no clothes but his officials are too frightened to tell him.

Another good point. Thanks AOK - the amount will be tapering though. The thing about the capex is it will most likely all be organic and at present there isn't clarity over what avoids most of the EPL. EnQuest is never dull until Stanley chips in. Did you know he has a PhD in the Psychology of the Outsider - his thesis was on "the importance of pushing irrelevancy onto strangers" from a basis of emphasising the bleedin' obvious. He turns up here more in the winter as it gets cold marching and holding banners.

Good spot. All info welcome. I think they look after AB's shares too and there is a pretty close relationship. I think they're just stating it as it is. They cannot know the future of oil next year let alone next month. Looks like Harbour are dropping out of the FTSE 100. The industry is profitable but it seems there is now a ban on making a profit or providing the exchequer with revenue to be found for non-functioning parts of the economy.
I didn't vote for juststopoil but it appears government listens to them.

*In your post yesterday 07:26 you mentioned present value of the tax credits. I expect the tax credits to be used up by the end of 2024/25 so without complicated calculations the view could be even shorter, only 2 year (23 and 24). It is only a brief respite but it is a respite. Do you think you are being harsh in valueing the tax credits heading our way? I'm still of the view that between June 2022 and until they run out we have a $ billion to offset. I know it's not a billion at present value but I doubt its $400mio either? I messed up the tax lossess/credits and have no excuse as I received this from IR in February:
"With regards your questions on taxes:
Correct that if Company A had $3bn of tax losses and the total effective tax rates was 40% (CT plus the supplementary charge), the total tax that could be saved would be $1.2bn
If Company B purchased Company A, it would have to consolidate its operations into the legal entity (subsidiary company) that holds the losses in order to be able to offset the profits its makes from its existing operations i.e. that tax losses are linked to a legal entity rather than a specific asset."

to civilisation Modestus; I see you've brought contango with you.

Traipsing through West London streets about a dozen juststopoil activists walking along the road with a banner. Queues of buses and traffic behind them. Interviews with the public saying they were late for work and missing trains. No support from those on the pavement. However, the activists safety was paramount so a police escort was provided for them. I wonder how long they would let me jaywalk in North London holding up traffic? The police escort I assume was to stop angry members of the public manhandling them. Isn't walking down the road illegal when there is adequate pavement both sides?
Next up that enemy of the people - methane. Apparently it is caused by 48% animals, 41% landfill and 11% fossil so which area was highlighted. Yeah, you guessed it; fossil fuels. Apparently we are easier to attack and reduce. They had a special camera that could witness the escape from a small oil field in Hampshire (one nodding donkey). Total ignorance on collecting the disparate emissions throughout the UK and a totally impossible conclusion that they could heat 700,000 homes. Economics don't apply if you're an 'environmentalist'.

I'm quite pleased in a way. They don't know when to stop and the result of losing all public sympathy. A dozen unemployed or retired "activists" who believe they have the right to dictate to the majority. There is no need to read them their rights as they are all repeat offenders. Just ruin their day like they have for many others and use fines and incarceration. Don't give them the publicity they crave but don't deserve.

O/T I suppose they think this is the opposite of boring. I flicked Bloomberg TV on and a breathless female reporter speaking twice as fast as is healthy, possibly because she was trying to keep up with the loud techno beat accompanying her bulletin, said about the Chinese market - "and the market is down five tenths of one per cent".

Do people actually talk like that. When I was in the market we called that "half a per cent".

It is good to knock ideas about Bastan and we know what you meant. We each have our own way of evaluating the market and stocks. I leave the accountancy to those more qualified. A couple of points; it isn't only O&G in the doldrums. There are other sectors (including Investment Trusts) that are priced below their NAV and it is almost as though when a sector/stock is out of favour very little will change that. We are not alone.
Brent is reverting to contango at the front end (Reuters today) whilst the 6m calendar spread has softened to $1 compared to $9 at end of September and a peak of almost $22 in March. I could be completely wrong but this looks to me like manipulation by Energy ministries of certain countries in the same way that Central Bankers collude and operate when currencies are attacked. LTH's could be very right in a matter of days if caca hits the fan.
Something is definitely going on and day traders and speculators are playing a dangerous game if they are short. Picking up halfpennies in front of a steamroller might work for them but they never question why smart money isn't doing the same.

Error - I wonder what was really discussed between Biden, Xi Jinping and MBS

If the price of oil was being artificially depressed by say a concerted media attack and release of SPR conveniently assisted by one of the biggest importers (China) having reduced demand using the Covid excuse (I don't believe a word out of China - but Covid could be seen as an opportunity to make plans with a plausible smokescreen).
And if Russia was your perceived enemy and you were about to place a cap on Russian oil prices then you would like the market oil price to be as low as possible because the discount is to some extent irrelevant if the TRUE price of oil was (say) $100.
So if spot WTI is $75 and arguably the true price is $100 then $70 may not seem so punitive to Russia but is still a 30% discount. $60 is 40%.
I expect that after 5 December there will not be such an imperative for China to continue the lockdown. They will be getting oil from Russia at a reduced price. China won't ease lockdown until the cap is in place imo because they are one of the major beneficiaries of cheaper Russian crude. The rest of Asia aren't complaining either.
I really hope they squeeze Putins nuts dry but he'll be able to tell the Russian public that he has won the oil battle.
I wonder what was really discussed between Biden, Putin and MBS.

Also this KO - "Oil prices were also pressured by reports that the US granted Chevron Corp a license to resume oil production in Venezuela." Now why would they do that if everything was hunky dory?
and this "Meanwhile, traders continued to track developments surrounding a G7 plan to impose a price cap on Russian oil, though reports of a high price cap eased worries that Russia would retaliate by cutting supply."
It does appear at first glance that on energy production at least, Russia is winning. They are in the position to deny energy to Europe whilst the US is unable to make up the shortfall. OPEC reaction? -dunno but there must be an awful lot of horse-trading going on behind the scenes.

I couldn't read the Telegraph article but Energy Voice have picked it up and given their take today. I think there is zero chance of the government rescinding the tax and it is more about gas imo. From EV:
"The EPL in the recent Autumn Budget was increased by 10% to 35%, taking the headline rate of tax on the industry at 75%.
It is also being extended from its original sunset clause of 2025 to March 2028, but there are no plans to cut the tax even if energy prices drop.
This risks “crippling” companies if their profits fall, MPs said.
‘No plans’ for price back-stop
The Telegraph cited a Treasury source as having “no plans” to introduce such a back-stop, adding that they don’t expect gas prices to return to pre-Covid levels by March 2028."

There you have it. The Treasury expect GAS prices to be higher for longer. They have statistics and information that the public are unaware of. What do they know that we don't? Possibly in as soon as a few weeks we will see the Russian embargo in place, Covid restrictions might be eased in China and an OPEC announcement supporting the oil price. I think the governments around the world have different scenarios placed in front of them and some of the energy projections are very UGLY. Russia is in the opposite corner and their confidence seems undented.

I wouldn't be surprised to see a big change in December. The paper market always follows spot oil and it does give easy headlines to Bloomberg. The trolls are out in force today - lets see if they're around mid-December.

Thanks Dumbly - I did think before I posted that there might be a difference between tax credits and tax losses. Best and quickest way to find out was to press "Post Message". Thanks again for the quick response.

ESG won't go away but the media circus has moved away from O&G for now. I caught a bit of TV and Labour have moved on to attacking non-doms if they get into power. Continually attacking O&G will corner them and I expect they'll back off. The UK is becoming a much unfriendlier place for business.
It is always incremental steps and the EPL does mean we'll get respite for a while. ESG and friends have been given a concession and handled correctly they will be be seen as zealots who won't be happy until we've exited fossil fuel for good. What we really needed was NO gas or oil so they could see what it's like to enjoy the current Ukraine experience.
It seems ludicrous to me that Europe and the UK will require O&G for decades yet there is pressure to stop production in the NS and import from elsewhere. The industry could help finance the black holes in our exchequer and help fund the NHS.
The industry has had to accept the EPL conditions and now we have to wait for events and conditions to unfold. If bottlenecks and shortages occur, followed by blackouts it won't be the O&G industry's fault. Any security threats will highlight the importance of energy as I doubt trebuchets and long bows, although environment friendly, are as effective as modern weaponry. EnQuest is in a position to wait and see.

Tigar - you're out by about a $1 billion. Our tax losses at 30 June 2022 were $2.627 bn. You cannot offset the EPL against it but it means we will be one of the lowest tax payers in the NS. I reckon the tax losses will outlast the EPL (end date of 2028). With organic options we are sitting pretty I'd say.
I wouldn't be surprised if there isn't pressure on us for merger or acquisitions in the next few years.

He who wishes to become rich from the game must have both money and patience. Profit in the share market is goblin treasure: at one moment it is carbuncles, the next it is coal; one moment diamonds, and the next pebbles. Sometimes, they are the tears that Aurora leaves on the sweet morning’s grass, at other times they are just tears.

From Confusion of Confusions- oldest known book about the stock exchange - published 1688.

*Quite a recent book in terms of human life. The clock was only invented in the 15th century. Even sundials are only from about 5 millennia. Humans as we are now are about 200 millennia old whilst trolls that climbed out of the primeval soup are even older. Buy tulips!

Juan - I've said several times that oil is too high at this juncture. That is because the weather has been kind and the rest of the world has been buying on a contingency basis that compensates. Most are long for the immediate future. China with its Covid stance helps too. It happened in FX all the time. A front end liquidity is the same as when the tide goes out following an underwater earthquake. Timing is impossible. I would be long of oil too if I was a country or an oil trader. The impact is ahead.

I bumped into an analyst I've known for over 25 years this morning. He does retail so unless you want salacious anecdotes about some of the famous names in Retail he doesn't really have a lot to offer me. Out of politeness I asked him how things were and he went off at a tangent about bonds, longer term interest rates and the problems it creates with DCF. A difference between 6%-and 8% means he can play all day (he is after all an analyst and chartered accountant). He was complaining that lack of liquidity was hampering the sector whilst the bond market practises mutual onanism between one another. He is old school but very experienced. He said that the vacuum created by the bond market and banks steering clear of capital investment has meant that hedge funds are filling the space. He expects this to go dramatically wrong as they are overconfident and rely too much on black boxes. The paper market eats its young and dies of overindulgence imo. Some of the excesses we see make bitcoin look a bit staid.
What he did say though got my attention. He said that even the Fed showing a relaxation and getting ahead of inflation had an immediate buying effect but what would really make him "pin his ears back and go all in" would be if Janet Yellen took measures that would release or encourage liquidity. Break the logjam.
I walked away thinking to myself "EnQuest aren't after liquidity, but will actually be building a war chest (owned by investors) and can take a more prosaic, old-fashioned view. I mentioned that EnQuest EPS is higher than the share price. He didn't blink but said "wow - a P/E below 1." I don't think he believed me.

Build it, there's a queue forming.

From here: 29 April 2020 "EnQuest has started a six-week consultation with UK staff as it tries to make 300 million US dollars (£275 million) in savings this year.
It has announced plans to make 530 redundancies as it expects economic production at two of its North Sea fields to cease in the second half of 2020, and it no longer plans to restart work at two others."

to here 3d ago: "EnQuest is delighted to have been named the leader in North Sea decommissioning, securing the Offshore Energies UK (‘OEUK’) Award for Excellence in Decommissioning!"

Life moves on and a reminder of what we've been through.