Member Info for Sekforde

Lydia was on the conference call. Hers is the only post LLOG analysis.

It has always been like this. The market very often is driven by a sort of illness where negative sentiment entirely triumphs rationality. When we are told in express terms that FCF will be enhanced by 60% between 2026 and 2029 as a result of the LLOG purchase how on earth could the price drift lower? The only metric for valuing any share is future FCF. The price should have risen by at least 50%.

I suspect that the buybacks will end and not be resumed until the results are announced in March. The current dividend on the ordinary shares is $380m a year. I do not see that being halved. There is just no need to as 2026 is going to be a golden year in terms of FCF because of the favourable hedging and the net cash receipts of over $400m from the first two December transactions. However with one major determined seller holding around 40% of the shares it makes sense to hugely increase the number of buybacks at the expense of the dividend. The LLAG share holders have agreed a 12 month tie in for 70% of their shares but that suggests to me that 30% may be dumped after March 2026. The very low value of the shares reflects this overhang. Once absorbed the position should change.

You have to guard against the possibility of $30 Brent. World production exceeds world demand at the moment by 3m barrels. Enquest's failure to hedge was a risk that it thought worth taking. But it has proved devastating. It just cannot survive $60 Brent and will go under sooner or later unless there is a sudden rebound. There is nothing wrong with taking on debt if you eliminate risk. The 60% boost to FCF as a result of LLAG was based on the forward curve at the time. That is plenty of uplift which can be secured now (if it has not already been).

I cannot understand the concern about debt levels. After LLOG the debt to EDITDA should be just over 1 for a very short period. That is extremely low by most companies' standards and low by oil industry standards. Shell for example has a debt to EBITDA ratio of 1.23. It is the reason that the investment grade will not be affected by the increase in borrowings. It is creating this marvellous gearing situation. The risk of lower commodity prices has I am sure been removed by a continued aggressive and highly successful hedging strategy. I hope and believe most of the 2026 and 2027 production from LLOG will have been hedged by now.

Stevo he did not really say to what extent the $300m a year would be front loaded or whether that would lead to an overall capex of more than $2bn. I think it is hard to work out what the average price of a barrel of oil equivalent is over so many jurisdictions. But most of the production is in Europe and with the hedging that production is well above $60 boe. The accretion of FCF per share does indeed start in 2027. We are told that overall the increase in FCF as a result of LLOG is 60% in 2026 2027 2028 and 2029. That implies that the management has an idea of FCF without LLOG. I find it frustrating that there is no updated guidance on this figure.

Dan. You cannot assume 330 days. The figure provided by the company are for the entire year. So this year (2025) production is between 465k and 475k per day which is an average. For the first six months before the summer maintenance it was 489k per day.

Stevo they have told us (Alexander Krane) the capex for LLOG will be $300m a year aimed at increasing production by 25% compound. So I have taken the figure of Elizabeth Brooks of $1.7bn given at her last solo presentation and added $300m

On HBR v Hess is is best to look at FCF for 2025.

Stevo I should be very interested if you could do a forecast of FCF for 2026 assuming the current forward curves, the current level of hedging (or at least as last reported) and assuming all three deals go through - which they should. Are my figures below completely out?

Fair enough Value. I am trying to get ahead of some good news in January or March when as you say all will be revealed.

All the transactions are backdated to 1st January 2025. This means we keep the cash generated by Waldorf and the cash generated by LLOG from that date until completion. Waldorf is no tax and LLOG is 23.5% tax. You have therefore to assume full production for the whole of 2026.

Forecasts!

Its forecats

New KOTB. The downtime is taken into account when the company publishes is forecasts. The current forecast is 465k to 475k for 2025. So my forecast assumes a decline on the existing portfolio.

There really are no reliable forecasts for FCF in 2026. However with the recent acquisitions taken into account it is worth attempting a stab. I think 520k boe is realistic. We have the additional 20k a day from Waldorf and at least 45k a day from LLAG. So that assumes only 455k boe a day from the existing portfolio. Taking into account the excellent hedging and using the forward curve, we should achieve an average price of $64. This means a gross revenue of 520,000 x $64 x 365 or $12.147 bn. Call it $12bn. Second it is reasonable to assume opex at about $12 a barrel. This is $2.277bn but say $2.3bn Capex (including decommissioning costs) we are told should be around $1.7bn but that was before LLOG so I am going to assume $2bn. Finance costs assuming an average debt over the year of $5bn and an average rate of net borrowing of 6% should be around $300m. But let us say $400m to cover fees and the like. The big item is tax. This year the figure should be about $3bn. I am going to assume $3.5bn for 2026. I am then going to add a further $500m to cover any possible additional cost such as currency losses although it is as likely that there will be currency gains as losses. That gives me a figure for FCF of $3.3bn for 2026. That seems way too high but I am really uncertain what is wrong with my maths. Sure as heck a company capable of making FCF of $2bn each year is not worth $4bn

Chevron paid $55bn for the Hess Corporation in the summer. Hess's production is slightly less than Harbour's. It also has significant assets in the gulf of Mexico. Very difficult to see why Harbour should have a value of just $4bn after the 11% dilution. Given the fall in the value of Harbour shares and the fact that the effective date of the transaction is 1st January 2025, we should be paying on completion for LLOG in March 2026 around $440m in shares and $2.5bn in cash. So the true price is just under $3bn.

Y11. You are completely ill-informed as usual. Management has not guided 4%. Indeed they have said the dvidend may not necessarily be reduced at all. The current dividend is more sustainable than it was before which is what happens when you at a stroke the company boosts fcf per share by 50%. With the additional shares the current dividend on the ordinary shares would rise to $420m a year. That is tiny in relation to FCF of perhaps $1.8bn in 2026. The company may however choose to reduce the dividend so as to increase the buybacks and the rate of debt repayment. The mix does not matter so much as the size of the FCF.

We did not pay too much. We are told the deal will enhance FFC by 60% between 2026 and 2030. After the 11 % dilution that means FCF per share should rise over that time period by 50%. By 2028 the FCF from LLOG should be around $1bn. In a rational market this should mean that each share is worth 50% more than it was before the deal. This year we managed FCF of $1.36bn in the first six months. Next year FCF should again be tilted towards the first half and should be similar. We should received the $400m from the earlier December transactions. So possibly $1.7bn in the first six months. After the dilution the market cap is just over $4bn which is insane.

The important thing to do now is to hedge production. The forward curve gives around $60 a barrel until the end of 2027. There is nothing wrong with a large debt if the company can be confident of servicing it. The net debt at the end of March when the deal completes should be around $6bn. Assuming an average borrowing rate of 6% that means it costs $360m a year to service. The gross income should be 500k x 365 x $60 = $10.950 bn say $11bn. I am hoping for 2026 capex will be around $2bn (including the new acquisition and decommissioning. Opex will be around $2.5bn. Tax will be around $3.5bn. Finance and leasing costs and all other costs will be around $1bn. That leaves us with $2bn. Oh and then the $400m from the earlier December deals.