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"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."
https://twitter.com/privatetrader07/status/1531294132228046851?s=21&t=dWO8Hc0tfZD0avolJuan1A
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."
https://www.reuters.com/markets/europe/harbour-enquest-serica-shares-slump-uk-windfall-tax-2022-05-27/
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!"
https://twitter.com/ronbousso1/status/1529930449098883072?s=21&t=Xb7W0OaofRfwANJosQiHrA
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.
Reuters reporter analysis ;
"Consultancy @Woodmac_SSA says the UK #windfall tax “will influence investor sentiment toward finding and developing new sources of supply in a very mature, fiscally unstable country with ambitions to be net zero by 2030”
" It appears to incentivise with the investment allowance scheme, but in fact the terms are worse than the existing tax system which means that overall, project economics are weaker."
https://twitter.com/ronbousso1/status/1529886305823469573?s=21&t=Xb7W0OaofRfwANJosQiHrA
This gov and uk in general is turning into an anti capitalist country it seems. Such a shame. No one helped the north sea in 2020 when enq was at brink. Many north sea E&Ps didn't survive and those who survived, now the government is making sure that they don't thrive.
For enq this could be a body blow if there is a peace resolution to the war situation as the drop in oil prices combined with this 25% tax means, enq will retain the full downside but not the upside. Let's Wait and see what enq has to say but given that bp is upset with this new tax, means its definitely not good for the north sea operators.
If oil prices drop because of any resolution to the war then enq can be in real trouble with this 25% tax that doesn't go down until 2025. Today Enq is definitely in a worse position than yesterday. A big chunk of the value of enq corporate tax losses has been eroded by this tax.
Bp is not happy. its like the government is trying to put the last nail in North Seas coffin. There is no upside to this announcement it seems, only downside. If this tax was introduced after enq had reduced its net debt - it wouldn't have hurt as much but with refinancing coming up , reduction in fcf projection might be on cards due to this tax but a question of by how much? Can we estimate it ourselves given that enq doesn't help out much when it comes to transparency? Vulnerability to downside oil prices has massively increased imo.
That this 25% is on profits. If you see the income statement that could be a big hit?
If I understood correctly This essentially is saying to invest back the FCF money, which enq can't afford as they need to pay down debt. So if 300mn is profits that would mean 75mn will go to taxes instead of going to debt reduction which is what enq needs especially with refinancing coming up. So enq will have to choose pay down debt or lose the 25% of FCF to taxes? Basically could this tax essentially cut fcf by 25% as either capex need to increase or 25% tax would need to be paid?
Let's see if enq or IR can shed some light on the impact this will have on enq? What use is all the tax losses if profits are getting taxed irrespective?
Market keep hitting new 52 week highs. Ab should think about listing enq on US markets, maybe then the valuation discrepancy will disappear. Most enq sized leveraged E&Ps with similar debt and production in the US are priced at least 100% higher, above $2bn market cap.
Interesting analysis of any potential tax and the zero impact on enq. Even more interesting is that HBR is going to run out of the tax loss allowance that it got as a result of its merger last year. I think Hbr took on $2bn debt from the acquisition past year and I think got some $1.5bn in tax losses?
Could HBR start looking at enq given enq has much lower debt of around $1bn and tax losses of $3bn? Surely they can see the deal enq current low valuation offers?
North Sea’s biggest oil and gas producers likely won’t feel brunt of windfall tax
"Similarly, 50,000 barrel per day producer Enquest Plc (AIM:ENQ) will be the least affected according to Jefferies whilst Serica Energy Plc (AIM:SQZ) said to be the most exposed.
“While we cannot predict what policy decisions the Government may make and how political and media considerations may factor into those, for illustrative purposes, a hypothetical 10% increase in the UK marginal rate to UK independent E&P producers on 2022 production would, in our view, have the greatest impact to Serica Energy's 2022 net income and free cashflow of approximately 15%,” Jefferies analyst Mark Wilson said in a note.
“At the opposite end of the scale, EnQuest's tax losses and investment allowances would see it incur little to no incremental UK cash tax exposure. We estimate Harbour Energy (LSE:HBR)'s exposure as sitting between the two.”
"
https://www.proactiveinvestors.co.uk/companies/amp/news/983237
With production known and oil price known till April, think FCF and net debt end of April can be calculated assuming similar levels of capex, hedges, etc as Jan and Feb. Potentially net debt between $800-900mn? Although $70mn of extra retail debt offering can be used to repay near term facilities.
Drilling to accelerate. This Wednesday, Davos resumes, might hear ab speak. IR communication might be helpful to get more color on the specifics of the update and whether there would be an AGM statement /update in June as well? Would be interesting to hear posters experience /feedback from the agm meet up? Swedish Discord community seem to have a lot of chat going on, unfortunately unable to understand as none of it is in English.
Enq next step is FTSE250 entry criteria if oil stays stable and need big IIs buying. Pfc seems to have moved ahead looking towards their ftse250 entry given market caps.
Their 2021 May operations update was also just focused on operations and didn't have a net debt figure mentioned.
Hedges seem a bit hard to read through as to whether it is front loaded or spread across - May to end Dec 22 has 4mn hedged so was Q1 hedged volumes mostly? But then end Feb net debt was $1090 mn showing oil price realization was much higher?
GE production seems a bit lower, although additional drilling should offset - seems like a global issue where lack of capex in 2020 & 2021 is catching up with most upstream assets?
Can someone please share what are the upcoming catalysts for ggp in the coming months? CEO mentioned in the recent interview that resolution of the 5% valuation issue will be a big catalyst in the coming months... And DFS seems to be coming up as well in the coming months? Can we see a 70% + share price run upto DFS as we saw recently with SOLGs run up to their PFS announcement?
Cheers
"Seplat Energy is confident that the process to obtain all approvals on the acquisition of MPNU's entire share capital is being followed and will be achieved."
That clearly means the transaction is still ongoing. "will be achieved" seems fairly certain on seplats end?
And just the other day the news was out about the energy Minister being fine with the acquisition?
"Chief Timipre Sylva, Minister of State, Petroleum Resources has lauded Seplat Energy Plc on its recent acquisition of the entire share capital of Mobil Producing Nigeria Unlimited (MPNU) from ExxonMobil Corporation, Delaware, United States of America."
Agree Sea. And since the announcement of the acquisition, oil price has gone up $20 /bbl. Market didn't price anything for the acquisition anyway.
And Seplat deposited $125mn for the transaction in Q1. Net debt would be closer to $200mn end Q2 if not for the transaction. And another $55mn from the disposal coming in.
Wider markets being red and illiquidity driven shake out usually provides opportunities? Seplat is confident in closing the transaction. If no acquisition, a big sizable dividend bump is obvious as cash flow will chew through existing debt. Sepl is paying a sizable dividend to shareholders to wait anyway. All imo
Are roofing stateside. The impact of accelerated drilling on reserves and revenues should be massive although a lagged effect to production.
i3e needs to increase its shareholder returns policy to be in line with the Canadian peers, more like 50% FCF IMO.
Is it possible for enq to drop hedges on a rolling basis if prices are much higher but also have the hedging requirements fulfilled? Surely dropping the non financial lending linked hedges would be beneficial if possible?
"Hess Corp in March paid US$325 million to exit some of its hedges — more than twice what it cost to enter the contracts six months earlier. Pioneer, which reported US$2 billion in hedging losses in 2021, spent US$328 million to drop its hedges. And EOG, with US$2.8 billion in hedging losses in the first-quarter alone, has paid US$85 million."
https://www.theedgemarkets.com/article/shale-giants-dump-oil-hedges-losses-spiral-toward-us42-billion
What's the impact enq finances would have if we halve our decommissioning costs?
"Industry regulator the North Sea Transition Authority (NSTA) has released a new dataset to help four North Sea operators to reduce their decommissioning costs by 50%.
CNR International, EnQuest (LON: ENQ), TAQA and TotalEnergies (LON: TTE) currently estimate they will have to spend ÂŁ1 billion to decommission their UK subsea infrastructure over the next 15 years.
This represents about a quarter of the forecast subsea infrastructure decommissioning bill for the whole basin.
At a webinar hosted by Decom North Sea, the operators signalled their desire to engage with suppliers to aid technical and technological innovation.
They will explore whether combining the work in a single package would open up new ways of working and save money on decommissioning.
In order to support the project the NSTA has created a map and a dataset of the assets that is available on its website.
Designed in response to the supply chain’s call for greater visibility of future workscopes, it’s hoped the resources will drive discussion and help service companies to bring “game-changing ideas” to the table.
CNR, EnQuest, TAQA and TotalEnergies began considering combining their decommissioning projects in one portfolio in 2018
And two years later they narrowed that focus to subsea infrastructure.
The group also named itself the Subsea Decommissioning Collaboration (SDC) and signed a charter to guide their ongoing work.
Iain Lewis, chief financial officer and decommissioning director at TAQA, said: “TAQA is delighted to co-lead the SDC initiative, which offers a unique opportunity to work collaboratively with other operators on decommissioning delivery. Subsea infrastructure removal on an industrial scale is both a challenge and an opportunity for our industry, so we look forward to working together, and with the supply chain, to find innovative solutions and new ways of working to sustain safe, responsible and cost-efficient decommissioning into the future.”
The NSTA believes the new dataset represents a “substantial improvement” in the volume and quality of published data.
The SDC is also seeking feedback on how it could be improved further.
Pauline Innes, Head of Decommissioning at the NSTA, said: “The maps and datasets created by the NSTA are a key enabler of this project and we are proud to support these operators, which are working together to drive efficiency through large-scale decommissioning projects, which is exactly what we want to encourage.
“The SDC is a great opportunity to reduce financial burden by developing new technologies and working more efficiently. This, in turn, will stimulate the development of a competitive and sustainable decommissioning market in which the supply chain can thrive long-term.”
https://www.energyvoice.com/oilandgas/north-sea/decom/410549/regulator-helping-cnr-enquest-taqa-and-totalenergies-to-halve-subsea-decom