Katherine Roe, CEO at Wentworth Resources talks through the Ruvuma gas development in Tanzania. Watch the full video here.
Do the math on buybacks - Shell has brought back over 80mn shares or over 1% of its total shares outstanding within 20 trading days! Another 6 months of this buying back pace and shell would reduce its total shares outstanding by another 6%. And as the share count goes down, our stake in the Company is rising by 1% every 20 trading days when the buyback is close to 4mn shares per day.
You can say that your stake in the company is technically going up with each buyback day. Equivalent to you buying more shares every day if the share count was constant.
Each remaining share should get higher proportion of dividends in the future. Else buying back that much is just as good imo.
Barrie- a longer term objective should be defined by time scale. But if you have a target of £28 a year from now - for you to realize profit at £28, you would actually need £27.20 to realize that target due to the four 20p dividends paid during the following year, assuming 20p per quarterly dividend.
So if you sell at £27.20 a year from now you would realize your £28 per share equivalent target. And if you extrapolate that and sell two years from now, you would have collected two years worth of dividend I.e. 20p per quarter for two years I.e. 20p x 4 x 2 = 160p. So your target of £28 can be realized by selling at £28 minus £1.60 = £26.40 per share, two years from now. Of course this target price could be even lower if you reinvest every quarters dividend to compound it even further. So your £28 per share could be realized at £24-25 levels if reinvested and with a bit of bump in dividends just in couple of years. Compounding is the real way to accelerate your timeline of £28 per share target. Quarterly compounding is great, although would prefer monthly compounding as that's even better - wish shell paid monthly dividends instead of quarterly.
And when you sell a Shell share you are basically selling a 3.5% to 4% annual interest income stream in perpetuity (!) so the next opportunity needs to at least match that guaranteed income!
Shell and bp should break up. The management and BODs of these two majors have made a fool out of themselves. They foolishly announced that they will be divesting away from fossil fuels during the bottom of the oil market cycle. Talk about selling the bottom. These guys can't foresee a oil market cycle i.e. 6 years of under investment will cause higher prices but we should trust them to transition a business to a different business model. These idiots can't predict their own industry after decades of experience, how are these people going to predict a transition? Third point should partner with Elliot management and other activitsts and gut these inefficient management layers of these companies. Let's hope Third Point gets more shareholders support to kick BvB out and send him on a one way trip back to NL. Andrew MacKenzie the chairman has been also Green washed. Political expectations also don't help shell deliver high returns to shareholders. Best is to separate Upstream and LNG and watch how Shell share price flies.
Boyo - you need to adjust for the extremely weak GBP vs USD when comparing with XOM CVX. Currency adjusted Shel is lagging even more.
Boyo- Compare the 5 years chart of XOM and SHEL. Before covid SHEL was trading at a massive premium to XOM. That has flipped now? Is that just due to dividend level not restored? Surely there is a big undervalued argument vs XOM given the historic levels pre covid?
Sadly the only big risk I can see with i3e is the big holders selling down who are sitting on big gains. Of course apart from commodity price risk and any Canadian windfall tax risk which is less likely than the UK. But Canada is known to follow UK so still a small risk?
Anyway do we have any thoughts if the holders would choose to sell down their 20% stake again after the 90 day period is over next month? Why doesn't I3e buy them out slowly?
"The Placing Shares represent approximately 5.3 per cent of the Company's issued share capital and 20 per cent of the Sellers' combined holding in i3. Following the Placing the Sellers together hold an aggregate of 234,334,943 ordinary shares in i3, representing approximately 21 per cent. of the Company's issued share capital.
Each of the Sellers and Cairn Capital Limited (the "Investment Manager") (acting for and on behalf of the Sellers) have agreed that they will not, for a period of 90 days following the completion of the Placing, offer, sell or otherwise transfer any residual shareholding in the Company without the consent of Stifel and Tennyson (subject to customary exceptions and waiver by the Joint Bookrunners)."
Cheers Tony. Was referring to your post from a month ago or so;
"$241m - $40m(losses on swaps) -$17m(SGA) -$9m(Finance)- $98m(Capex)- $3m(abandonment)= $74m
Can you please clarify how you come to 40% FCF yield?
"HEAD OF LEBANON'S HEZBOLLAH: THE GROUP CANNOT STAND WITH ITS HANDS FOLDED AS ISRAEL EXTRACTS GAS FROM THE KARISH FIELD."
HEAD OF LEBANON'S HEZBOLLAH: THE BUSINESS EXTRACTING GAS FROM KARISH IS A PARTICIPANT IN THIS ATTACK ON LEBANON, AND CONSEQUENCES WILL BEFALL THIS ENTERPRISE AND ITS ADMINISTRATION.
We have continued to add to our position in Shell, as it trades at the same deeply discounted multiple today that it did last year due to a move up in commodity prices. We are engaged in discussions with management, board members, and other shareholders, as well as informal talks with financial advisors. We have discussed various alternatives with the aim of both increasing shareholder value and allowing Shell to effectively manage the energy transition. We have reiterated our view that Shell’s portfolio of disparate businesses ranging from deep water oil to wind farms to gas stations to chemical plants is confusing and unmanageable. Most investors we have discussed this with agree that the company would be more successful over the long term with a different corporate structure. Discussions among the parties have been constructive and will be ongoing since stakeholders clearly see these corporate changes as instrumental, particularly if Shell wishes to become a leader in the energy transition rather than be left behind as a tarnished legacy brand.
Beyond our discussions around corporate structure, there have been two important developments since our last update. First, Shell announced a plan to redomicile its headquarters to the UK and create a single shareholder class. This move allows greater flexibility to modify its portfolio (either through asset sales or spin-offs) and allows for a more efficient return of capital, specifically via share repurchases. Second, fundamental and geopolitical events have highlighted the strategic importance of reliable energy supplies, especially in Europe. Shell’s LNG business, the largest in the world outside of Qatar, will play a critical role in ensuring energy security for Europe. In our view, the value of this business has increased dramatically since our original investment.
While Shell continues to trade at a large discount to its intrinsic value, with proper management we believe the company can simultaneously deliver shareholder returns, reliable energy and decarbonization of the global economy. We look forward to continued engagement with management and other shareholders and to more strategic clarity from the co.
One important thing is that Shells realized oil price for lng and upstream during Q1 was $88 per bbl. And so at $98 the cash flow will be $6bn higher? Will be good to see more aggressive buybacks even off market once this cash flow lands.
This Third Point Q1 letter summarises well the inherent value in shell at the hands of this virtue signalling management. If Shell breaks up we can easily close the ExxonMobil sp gap.
Main reason imo is because shell is a major listed in European continent where capitalism and profit making is frowned upon. If Shell was listed in USA it would be valued more than ExxonMobil because of the assets. Dan loeb of the third point capital has argued the same as he rightly calls for break up of Shell.
Shell has been busy virtue signalling regarding net zero targets and reducing oil and gas investments while ExxonMobil Chevron are increasing hydrocarbon investments alongside zero carbon ones. Shell should break up or at least spin off its lng or upstream business. The chairman got 91% of votes, let's hope there is a new CEO and a new strategy with shell. Shell panicked and cut its prized dividend at the covid bottom, like fools - that alone should have cost the CEOs job imo. Shell is very undervalued but been thinking of moving across to USA and Canadian markets where the likes of Baytex, ATH, CVE, APA, etc have gone up 100% + in the past year or so while uk E&Ps have turned into dumpster fire. Look at the miserable performance of Tlw, enq, cne, etc. Listed companies
Alive - what other opportunities do you see in this market? Hard to see any other investments that are non oil and gas insulated from the inflation impact? Shell can go over £30 if Shell is broken up. So much value sitting dormant for the biggest lng provider company in the world. Not even valued higher than ExxonMobil above $400 bn market cap.
The issue is that north sea is a high production cost environment. 25% tax on profits means enq will have to pay profit tax on their $76 per bbl hedged barrels too. With such a big tax rise north sea suddenly has become a dumpster fire jurisdiction to operate in which has a much higher production costs. For North Sea, $80/bbl oil seems like the new $60/bbl. The likes of gkp have to only deal with above ground risk but get super low costs in return unlike north sea with its high costs. Of course gkp has a rug pull risk with any morning an RNS could land about PSCs nullified due to Iraq central gov, and it could send it down 50%?
Shame that uk is turning anti capitalist - and this is with a conservative government. What happens if we see the L guys in power? 25% tax rise would look like a slap on the wrist?. Best to move to investing in USA markets instead. Any ideas what broker is best for USA and Canadian markets/E&Ps to invest via ISA from uk?
"Analysts at Barclays downgraded their recommendation for shares of Enquest on the back of the government's recently announced plan for a levy on energy companies' profits.
The recommendation went from 'neutral' to 'underweight' with the analysts estimating the tax would reduce the outfit's free cash flow across 2023-26 by $450m.
That equated to a 36% cut to the company's discounted cash flow valuation and put Enquest's debt refinancing plans back in focus "just as higher oil prices and improved operating performance had eased concerns."
In turn, the analysts lowered their target price for the shares from 40.0p to 23.0p."
"Spot on. And many companies have hedged large volumes of production at prices below $80/bbl. The profits on such bbls are also being taxed at 25%. Incomprehensible."
What happens if this leads to a ceasefire and oil prices calming down? What a timing it would be for North Sea producers. Surely they will have to walk back this tax hike? Or even with oil prices in $90s they would retain this hike?
If they are planning to keep this 25% hike until they think oil prices go back down to historic levels of $60-70 pre covid then north sea has suddenly become a bargepole jurisdiction for E&P investors. Let's hope they take this tax off else waiting until oil and gas prices go back down to 40p per therm and $60 per bbl averaging across a year, there would not be much left of the north sea industry to save. Makes you wonder if they want to kill the north sea industry to meet their net zero goals...
34a - that's like saying if oil prices go down, the asset prices for acquisitions go down so we can buy cheap assets at low prices, hence lower oil prices are good? Enq own assets value will also go down in such a scenario as there won't be any decent buyer for assets.
The way this seems to be setup is that 25% of profits will go as cash to gov? And if enq generates non-cash profits due to higher aaset/ppe valuation or other income statement /bs items then its a net negative as cash would need to be paid on the headline profit even if enq doesn't generate the cash via oil sales? No clarity yet.
The same article also has enq view on the taxes. The below statement from enq shows its definitely going to be negative but by how much we don't know yet. Do we know if the rise in oil prices and increase in asset value and write backs would inflate the profit numbers hence increasing the tax bill proportionally? And is there a risk that golden eagle and other north sea assets might be impaired due to the tax making some of them less economic on a lower oil price impairment testing? Surely asset values would drop with this new tax as future profits will be discounted even further?
"While all producers will have to pay more under the new tax regime, those with smaller oil and gas investment budgets as a percentage of profit will be harder hit by the levy. read more
"EnQuest is aware of the need for action to address the cost of living crisis, but is disappointed with the implementation mechanics of the new Energy Profits Levy," the company said in an emailed statement late on Thursday."
And to confirm how bad the tax is for the north sea industry. EY global tax lead on the new tax levy on linkedin ;
"Energy Profits Levy
The Energy Profits Levy announced today will be detrimental to the energy transition and the UK oil and gas industry. It will impact investor confidence and be a bitter blow to the UK oil and gas supply chain.
Even those who supported the concept of a "windfall tax" may be surprised that investment in the energy transition, and in green energy more generally, will not be deductible against the levy nor qualify for the new investment allowance.
It is also a fundamentally bad design for a tax to be imposed on an industry that is cyclical, with more lows than highs in recent years, in a manner which does not allow the trading losses of earlier years to offset the current profits. Essentially relieving losses at a lower rate than you tax profits - an extraordinary approach to tax policy!"
L3 - the issue is not too big at current oil prices but it does make project economics bad especially when enq was relying on the tax losses to make the FCF numbers work. The tax is not a windfall one but until 2025 and a temporary tax is never a temporary tax especially with governments changing. It has changed the downside protection scenario for enq especially when the only thing making enq FCF numbers really work were the tax losses? Government is essentially saying we just want you to invest back the profits - but enq has basically sacrificed investing in North Sea to reduce its debt load. Let's wait to see if enq or ir can come up with some explanation. Such a shame, as if the government wants to drive north sea production into the ground.