Member Info for Sekforde

Nothing interesting revealed at the investor's update. However confirmation that everything remains on track. Capex for UK down to $500m next year.

It is not all that far fetched. It does not take much disruption to supply or increase in demand for the price to rise at lot. $100 a barrel in real terms is close to the average over the last 20 years if you adjust for inflation. I have vague recollection of the old Premier Oil company have a market cap of around £11bn at its peak. But more interesting is to look at fair value using the present forward curves and assuming production is maintained at 450,000 per annum for the next 20 years.

There is a meet the investor at 11am tomorrow.

Hi Londoner yes you rightly observe that a great deal of the cash will have been used by the year end. I am hopeful we will do better than the forecast $1bn FCF for the year because I am expecting production to be right at the top of the forecast range. I base that on the 491k boe achieved in July after the summer maintenance had been started and mainly after the Vietnam interests had been disposed of to Enquest. Also the admittedly small sums for that sale do not appear to have been factored into the forecast of $1bn. However, the real hope lies in the first half of next year. All we surely have to do is more or less maintain production whilst enjoying lower capex and opex to achieve the same again in terms of FCF. The price of Brent and gas is of course not irrelevant but we know 50% is hedged at what are very good above the curve rates. Hopeful tomorrow provides information and does not just focus on the first half results which are old hat.

If they are going to use the cash to buy other assets and thereby increase the net debt, then they do need to hedge forward. In this way the risk (and of course some potential reward) is reduced. But as the Serica deal demonstrates this morning, there are assets to be purchased which can really boost the long term revenue for very little money. I am annoyed with myself for dramatically reducing my Serica holding and increasing my Harbour holding but both look great value. I liked the additional gearing with Harbour and the spread of assets and its very low OPEX.

I mean foregone interest on the cash

Tmnky. We do not need to reduce dividends if we are prepared to tolerate the debt. We are sitting on $2.7bn of cash which is easily enough to buy out BASF completely at the present price. I would like to see that cash used for something soon. Even if the company did not change the dividend per share the saving of dividends on the BASF stake would be more than the foregone dividend on the cash.

Nav Mike I am not obsessed with anything. But I do favour buybacks all the more so when the sp falls. But I thought you said you did not want to debate with me and I was very happy with that proposal. "Jeez".

I think if BASF start selling at that rate, then the company should reduce its dividend and seriously up its own buyback programme. After 4 years of selling all existing shareholders would own roughly twice as much of the company. Any company contemplating a takeover could build a 3.5% stake and then make BASF an offer.

Bots I do not agree that any of those matters are important. 1. FCF rather than accounting profit is what really matters. It is that which enables the dividends to be paid, the debt to be paid off and the buybacks to continue. We are in fact making huge profits and paying huge amounts of tax - around $3.2bn around the world this year. 2. Why actually does it matter if BASF has a 47% stake? If will not want to sell at these prices. It it made clear at the time of the deal that it would divest over a number of years. 3. All the signs are that there will be no material change to the EPL before the next election. The UK government needs the revenue. However the UK represents less than one third of production and so the ELP is much less important than it was before Wintershall Dea.

The sp of the shares is not only too low it is beyond absurdity and quite unrelated to the performance of the company and its brilliant board. It will all change soon. There is by my reckoning $69m worth of shares to be purchased before the current buy back is completed. That is enough at current prices to reduce the number of ordinary shares to almost exactly 1.4bn. That gives us a market cap of 1.4bn x 2.08 x 1.34 or $3.908 bn. The annual dividend is $380m and so that gives a forward yield of 380/3908 or 9.72%. However that is still too low because it assumes that the buyback programme will not continue into the new year with a further $100m. I am sure it will. The first half of 2026 will be a repetition of the first half of 2025 and generate around $1.36bn of FCF. Forget the price of Brent and gas we are well hedged right though 2026 and so 2026 is guaranteed to be an incredible year. At some time the market will see that the near 10% yield is not only sustainable but likely to rise as shares are bought and cancelled. The worm will turn soon.

Value S. It will be a bit more than that as they have committed themselves to paying $380m on the voting shares and, by the time the shares go ex dividend next year, perhaps 5% of these will have been cancelled if, as I think likely, the buyback will continue after the present campaign is over. In fact I see a much higher level of buybacks. In her recent fireside chat LC said that they would maintain their core dividend and then use surplus cash for more buybacks. But the ambition in January 2025 was only to reduce net debt by end of 2027 by between $500 and $1000m. The bottom of that range has already been more than achieved. So assuming that the board chooses to reduce debt by say $250m a year in 2026 and 2027 and assuming also that FCF is around $1.2bn for 2026 and 2027 (very achievable given the hedging position and reduction in capex), we could see ($1200m - $380m - $75m (letter-one)- $250m) $495m available for share buybacks.

Nav Mike. First it is very odd to be referring to Harbour's turnover in 2024 when that is largely irrelevant because it is mainly pre Wintershall Dea. Second the half yearly accounts for this year show equity rising from $6.251bn to $6.437bn. That of course is one measure of value and it is well ahead of the current market value of the company. Even my £3 target price would still have us below the equity figure. This increase in equity was achieved despite the accounting post tax loss and was mainly in the form of hard cash. The company was at pains to provide "adjusted" figures precisely because the statutory measures do not reflect the true underlying position. The true tax rate is of course not 113%!

NAV Mike. It is not really a question of agreeing or disagreeing. Whether turnover is $6bn or $11bn is a matter of objective fact. It is in fact $11bn and not your figure of $6bn. FCF is a concept understood by most people and is the metric that is most frequently used by oil companies in all presentations to demonstrate underlying value rather than after tax profit which is often a quite meaningless figure. Have a look at Stevo 12's excellent contributions on the subject.

And Harbour's turnover is closer to $11bn.

The only thing that matters is FCF - the sum available to shareholders after everything including tax is paid for. There just is no reason for BP to be on a price to FCF ratio of 9 and Harbour on around 3.5. I am optimistic. Very.

Good decision Neversellshell to re-invest. I think we could be due a spectacular re-rating before long. £3 a share is only a market cap of $5.779 bn. (less if you account for the intended buybacks)The company's forecast FCF for this year is still $1bn. But it is going to be revised upwards as production will be right at the top of the forecast range and they have not taken into account the bit of cash coming from Enquest. I think FCF of $1.2bn is realistic. There is simply no reason why reason why that performance cannot be repeated in 2026. A company capable of generating $1.2bn a year is worth a lot more than $5.779 bn. BP is currently generating around $10bn a year FCF and is worth $91bn. And actually Harbour has less risky assets than BP. Two thirds of production is still coming from Norway and the UK. Both those countries have at least the rule of law.

The results are not good. The net debt is rising and not falling when the latest tax payment is factored in. Enquest should have done a deal with Serica when it could have.

I hope it a statement of things to come, but the buybacks on Friday were 371,971. The total spent was $1.065m. If that level was maintained then the buybacks would be completed at the very end of this year.

"I think we will will move to about 150p in the relatively near future". Then sell now and buy back later if you think that is likely. But absolutely incisive analysis.