Member Info for Sekforde

I see nothing in today's published manifesto to justify the drop in the sp. It is all something we have been told before. There is the 3% increase in the windfall tax and the extension to the end of the next Parliament (which the Tories have already done!) There is a reference to the removal of the "unjustifiably generous investment allowances". So that means they will be cut this back. But I cannot see any of this happening before the end of the year since the new chancellor has promised to take advice from the OBR. And I think the modelling by the OBR will show that a large cut will reduce investment and the tax take and cause a loss of jobs. There is absolutely nothing that indicates anything will be retrospective and nothing to indicate that there will be any attempt to restrict the use of historic tax losses. All in all 2025 still looks like a golden year in which we could easily clear all the remaining debt. We should not pay a cent more as a result of the proposed changes until October 2026.

Yes indeed profitaker. If you are right about the average volume then we should be able to spend the required $100,000 per trading day to complete the programme.

A dividend is the last thing that should happen. Shareholders will benefit far more by the retirement of the debt especially as the 13% interest on it cannot be deducted for the purpose of calculating EPL. I have been thinking about just how advantageous our present position is if we can clear the debt completely. The total tax after the next election will be for most north sea producers will be 78%. Ours will be 38%. But this understates the advantage of being required to pay tax on profits an average of 16 months after the profit is made. In other words the profit we make in 2025 will not be taxed until 31st October 2026. Having the use of that money for 16 months is worth an additional 15% or so. Looked at like that we have an effective tax rate of 23%. But we do need to find a way of accelerating the use of these tax losses. An all share purchase of (cheap as chips) Serica Energy is my top suggestion.

It is is just not possible to complete the share buybacks by the year end. This is because so few shares are traded each day and the company is not permitted by law to buy more than 25% of the average number traded over the previous 20 trading days.

Yes I think your bet is back on track Stevo. Ignore the insults and continue to publish.

Not at all surprising the sp has fallen. Look at Brent. If you follow Stevo's calculations the total cost per barrel in 2024 is $75. So at this level ($77) we are barely covering our total costs. It looks much better next year and of course we have had higher price for the first 5 months of this year. I would say it may make it extremely difficult for the new Government to increase tax as we are now below the level just before Putin invaded the Ukraine - even before adjusting for inflation.

There are two constraining factors contained within the Buyback and stabilisation regulations. The first is that it is not permissible to pay more than 105% of the average price over the past five trading days. So if the price has averaged 20p it is not permissible to pay more than 21p. The second is that it is not permissible to purchase more than 25% of the average volume traded over the past 20 trading days. So if the volume has averaged 1,000,000 shares it is impermissible to buy more than 250,000 on any given day. The idea behind these regulations to prevent what is perceived as market manipulation.

It was never going to be possible to complete the purchases before the end of June. But given we are only averaging about $1m per month, there is some doubt as to whether this program will be completed before the end of the year. The trouble is spending even as little as $1m is quite difficult given the lack of any real liquidity. But it is a good problem to have.

I attended the agm with a friend as it was only a mile up the road from my house. It was a fairly dull affair with only about 30 attendees. But I was impressed. The chairman suggested that a transformative m and a deal would happen within 18 months. But this was later corrected by AB to "within 6 months". AB said that several proposals had not resulted in deals but they remained very determined and focussed on pulling something off. The chairman said something quite interesting about the market's valuation of the company. "When I tell people we are making EBITDA of $800m and are worth $400m, they think I mean the other way around, that is to say market value of $800m and EBITDA of $400m." Craig Baxter then said that the banks had stopped analysing the sector and that there was no interest in it. Then of course there was the mention of uncertainly about the future tax regime. Afterwards Craig Baxter said to me that to have what we have at Sullom Voe you would have to pay much more than a $1bn.

We do not need to worry about the terrible market cap. The share buy backs will sort that out and the pace will have to accelerate to complete the current program by the end of the year.

There will be a trading update tomorrow at 7 am ahead of the shareholders' meeting.

I calculate that between 30th April 2024 and 31st December 2024 there were/are 164 trading days. To complete $15m of share buybacks by the end of this year, the company needs to spend on average $91,463 a day. In the first 10 trading days it has spent $443,000 or around $44,300 a day. It will need to more than double this average to accomplish its target. But $15m is just trivial. Next year I am hopeful it will be at least $50m for the full year. Easily affordable as costs begin to collapse.

Exactly. It is impermissible for example to pay more than 5% above the average share price over the previous past 5 trading days.

True it does not say it will be spent. But there is no point in referring to the 30th June 2024 if it is not the intention and expectation that the money will be spent by that date.

The way I read the somewhat cryptic announcement is that the $15m will be spent before 30th June 2024 and that is the first phase. It will be followed by a second phase which is justified because of the huge amounts of cash being generated at $87 brent. $15m buys around 73m shares at the present price. So we will see the buying crank up as we have only around 40 trading days to spend the $15m. But who would be a seller at these levels when the FCF in 2025 could be around 12p a share?

Reporting share buybacks is required by all companies within 24 hours under stock exchange rules.

Stupmy. Harbour is a case in point. Since April 2022 after which it began its buy backs its shares have fallen from around 500p to just under 300p. In contrast Enquest has fallen from 35p to 16p. In addition Harbour has paid around 30p in dividends. So Harbour has hugely out performed. Both companies have of course suffered because of the EPL. But the impact on Enquest should have been more muted because of its tax losses. There are many factors at play. But I think Harbour has performed relatively well in part because of its bold buyback programme. It comes down to mathematics in the end. It would be possible to purchase every single share of Enquest using the FCF over the next two years IF the sp did not rise. Quite obviously that could not happen as most holders will refuse to sell at anything like the current price. But we will have to see.

The announcement should not come as any surprise as that is precisely what Craig Baxter said would happen before the end of the month. However, what is new is the reference to the period of buybacks ending on 30th June. If what it means is that 4% of the share capital will be purchased in just 40 trading days then that is quite something. More than 50% of the stock is held by institutions (and AB) which appear to be long term holders. I suspect that the company will complete the programme and then add to it in the autumn. Harbour did something similar. The key thing is that this is very small beer in relation to FCF.

AimOil It is grossly unfair to target an important industry. But there are no legal challenges available. All one can do it to campaign for the law to be modified. The Oil and gas industry is an easy target for taxing politicians. It has few political champions. I myself think one has to emphasise not just the jobs, the tax revenue and the energy security but the transition that is being made to a carbon neutral future. I am a big advocate of reducing carbon emissions more drastically. But that has to be done in a sensible way without wrecking the economy. Enquest are part of the solution as indeed are Harbour and a host of other companies who produce oil and gas do not ignore the science of climate change.

We have been over this before. What legal challenge could be mounted to primary legislation? The Finance Act 2022 which brought in the EPL was passed by both houses of Parliament. Parliament is sovereign. It makes the law of the land.

Stevo agreed. It is all a function of gearing which does as you point out favour Enquest with Brent at these levels. A $120m uplift for Enquest holders is around 30% non taxable return. A $120m dividend for Serica holders is 12% taxable return. I do not like taxes. I do not like dividends. I love share buybacks.

Stevo. Bressay clearly has a current value to Enquest in that 15% has just been sold with 15% of that rust bucket which is Enquest Producer for $58m of net of tax upfront cash. It is soon to produce gas which will save $30m a year. Once we ascribe a value of say $400m or so to these assets alone we have already exceeded our current market cap. You have suggested FCF of $180 -$200m for 2024 and $234m for 2025 at more or less current Brent with no further deals. I am wondering if you have made similar forecasts for Serica? I do like the latter and it is an obvious candidate for a merger.