Member Info for Sekforde

Megla I attended the shareholders' meeting of Enquest this year and the $400m was the "actual" figure which the chairman gave in his opening statement. It was in the context of explaining that Enquest had managed to cut the costs of decommissioning to greatly below that of its competitors. He also said this "When I tell people that the EBITDA of Enquest is $800m and its market cap is $400m they think I mean the other way around". Well of course now the market cap is $315m for enquest.

BTFATH! convert the market cap into dollars and it is around $320m. That should be our FCF in 2026 with nearly all the net debt paid off in 2025. You are too pessimistic about the Labour Government. I think they will be highly pragmatic and there will be powerful incentives to decarbonise which Enquest is uniquely positioned to take advantage of. No one ever mentions Sollum Voe. It will be all anyone talks about in 4 years. It could be worth $1bn.

Megla, I have been a big fan of some tie up with Enquest for the last year. Enquest has these huge tax losses which mean it pays an effective rate of tax of 38% rather than 78%. It has around $400m of decom liabilities which is very low for its size and easily paid for over a 12 year period. But of course Serica has no decomm liabilities to speak of so is especially low risk. A merger would accelerate the use of the Enquest tax losses whilst allowing some serious hacking of costs.

Megla Serica does not really need to reduce the dividend to make an acquisition. Having no net debt its borrowing terms are quite attractive. For example it could buy Enquest for say $600m (more or less double its current price) and pay roughly $54m a year in interest. But enquest should have FCF of about $250m in 2025 and 2026. Enough to pay the interest and repay most of the capital borrowed. I actually want Enquest to buy Serica with an all share offer. But we are going to see deals soon because the market valuation of both companies is simply preposterous.

Even assuming a total tax of 78% and a cutting of the investment allowance, I cannot see FCF being below £150m in any of the next 4 years. So easily enough to sustain and indeed increase the current level of dividend whilst continuing to invest in the North sea or elsewhere. Would be better if it bought shares.

The obligation arises from the mandate Enquest will have given. That is to complete the purchase programme by the end of 2024.

There is a legal constraint on purchasing more than 25% of average volume over a 20 day period. Volume in the last 20 trading days has averaged far more than 2.5m shares so that will not be a constraint.

Why would he not buy? There is a 17% dividend yield. And it should rise over time. This beyond insanity.

It is not an option or a mere objective. It is something required and will certainly happen.

So far $2.83m has been spent. So $12.17m to be spent by the end of the year. There are (including today) 122 trading days left. Total expenditure per day will need to be $99,755 or £77,933 per day. At present prices that is 590,406 shares per day. They do need to step up the average purchases to complete by year end.

I am hopeful that the impressive Rachel Reeves will be a little canny on oil and gas. I just do not see her creating a tax regime which is significantly different to Norway's and she will not want to destroy the economy of Scotland where Labour has just secured most of the seats. But just look at valuation now. The company has a market value of $350m. Stevo did some excellent work around the end of March. At $86 dollar brent he had FCF of $188 m for 2024 (including the farmdown) and then $234m for 2025. In 2026 we should see a further reduction in costs over 2025 as follows: $30m (gas for diesel) $30m interest, $30m lower leasing, $30m capex. So even with the higher EPL we could easily have FCF of over $300m in 2026.

Serica could buy Enquest. Either way there should be some sort of a deal done between the two. And soon. But I have just taken a decent position in Serica through a spread betting account. The 17% yield looks not only sustainable but one which can rise even with "a proper windfall tax". Never seen a more absurd valuation.

The company will have to increase its expenditure to over $100,000 a trading day to complete the buybacks by the year end. Yesterday it was constrained by the rise in the share price to 105% of the average five trading days. With the small fall today it can start buying and I think we will begin to see higher daily turnover.

No mystery about the price rise. It is Brent related. When the price of Brent goes from $80 to $87 that shifts all the forward prices up by around $7 as well. It adds around $65m a year to the FCF or $390M over just six years. Oh wait that is more than the current market value of the company! Never has there been a more insane market valuation. Serica is also an insane valuation with its highly sustainable 17% yield.

Stevo we have discussed this before. They both are at insane prices if you look at forward FCF which in the end is all that matters. I think Enquest should buy Serica by making an all share offer. It would mean that the Enquest debt could be gone before the end of next summer and a huge combined cash flow could be taxed at 38%. I would be happy to accept a ratio of around 30% to 70% Enquest to Serica.

1. FCF for 2024 around $100m excluding disposals (around $160m with 15% farmdown).

2. FCF for 2025 around $240m assuming $85 Brent

3. FCF for 2026 around $260m assuming $85 Brent (lower interest payments, lower opex and capex costs overall but higher EPL than 2025).

4. Net cash end 2026 around $100m assuming $25m a year spent on buybacks and no M and A.

5. But likely "transformative" M and A deal to accelerate use of tax losses before end October.

Buying more.

AIMoilking. The $175m payable in October 2024 is the EPL on the profits made in 2023 (bearing in mind that neither interest nor decom costs are deductible) including the profit made on the sale of 15% of Bressay and Enquest producer. It has no bearing on 2024 FCF which in fairness Stevo has calculated with some precision back in April using the company's own figures at $86 Brent. None of us have been able to find any flaw in his analysis - so far!

I do not understand why any one would advocate the payment of a taxable dividends when the company has $600m of gross debt the interest on which cannot be deducted when calculating taxable profits. The main focus should be on eliminating debt and thereby enhancing future FCF. Any distribution to long suffering shareholders of course should be in the form of share buybacks at these very very low levels.

Profitaker, the requirement is no more than 25% of average volume over the past 20 trading days. It is all set out in the FCA handbook.

Given that in March and April we reduced net debt by about $33m a month, I am hopeful that in the last 7 weeks net debt has fallen below $300m. Of course with $175m to pay in October 24, it will be an achievement to have net debt around $300m at the year end. But using the company's own figures and assuming Brent averages around $85 in 2025 and 2026 and no M and A the FCF should be around $230 m in 2025 and around the same in 2026 even allowing for higher EPL and the likely modification of capital allowances.

There simply is nothing at all to worry about. The only variable that matters for Enquest is the price of Brent and that at $82 is fine. We will make FCF close to our present market cap in 2025 if prices remain around $82. And we will be paying a modest amount of additional tax in October 2026 by which time our net debt will be complete eliminated. In the last three months alone we have added over $100m to the balance sheet or around 30 per cent of present absurd market cap. Most of the $15m in share buybacks has not been spent an the company is able to mop up some exceptionally cheap shares.