Member Info for Sekforde

Thanks Stevo. Just had an email from Craig Baxter after I asked about the size of the EPL and whether he could give any guidance on 2025 production. He said the EPL on the core activities was estimated to be $125m but that included $15m payable in Malaysia. The balance relates to the 15% sale of Bressay/Enquest Producer as you have surmised. This means that the real EPL for 2023 was only (!) $110m. I am wondering what figure you have estimated for 2024 EPL (payable in October 2025). Craig Baxter also said he could not give any guidance on the 2025 production increase and mentioned a number of variables but said that the Board would not have given that general guidance if the increase was "insignificant". The more I think about it the more I think the board were right to start modestly on the buybacks. They have kept their promise to start returns in 2024 whilst maintaining the focus on debt reduction. Using your most recent figures we have FCF of $364m for 2024 and 2025. This is enough to completely smash the debt or invest in something really attractive with a quick payback.

The buybacks are really tiny. But I assume the thinking is that the company must shed its expensive and non-deductible debt before proper buybacks. But with Brent at nearly $87, production high and no tax payable before 31st October 2024 that debt should melt away like winter snow. M and A just does not seem to be happening. But perhaps we keep it simple and focus on Bressay.

Stevo, for good measure can you do your FCF calculations at $86 average Brent for 2024 and 2025 where we are trading today? Struggling to understand EPL at $175m.

It all looking good. I was initially disappointed by the buybacks. But they will need to spend around $100,000 every trading day to get through $15m by the year end. The net debt reduction to $409m was pretty good and even with the EPL payment we could get to around $300m by the year end assuming no M and A. I liked the idea of making money from the decommissioning team.

Not worried. Very confident. Tomorrow will be good.

Taverham, why would evidence be ignored? I do not accept that the very large number of scientists who all around the world carry out research are under some sort of pressure to ignore real evidence. There really is not some sort of coercive super state that causes harm to any anyone whose research might show that climate change is some sort of hoax or that it is not caused by human activity. A proper scientist produces evidence and evaluates it and then publishes a paper which is peer reviewed. The scientific consensus is highly inconvenient to policy makers.

Dogma is a religious concept completely hostile to science. I think that "Just Stop Oil" and other groups do not really understand science either. And they certainly do not understand what is politically possible. But they are right to keep us focused on finding a solution that does not leave large parts of the world uninhabitable.

I did not watch "The Movie". The International Panel on Climate Change receives evidence from the world's leading scientists. The overwhelming consensus among them is that climate change is caused by increasing CO2 and other greenhouse gasses emitted by humans. There are a few that dispute the claims. But I do not myself think they have any scientific understanding or know how to evaluate evidence. It is a bit like people denying that cigarette smoking causes cancer. Having said that, I am all for a pragmatic approach. We cannot in the next two decades stop using fossil fuels without causing economic collapse. And it certainly makes no sense to use Russian or Saudi oil rather than our own.

I personally think we should completely accept the case for reducing greenhouse gases. Long term the use of fossil fuels should decline. Those who do not accept the case for large and urgent reductions in world wide emissions do not understand the science behind climate change. The UK has been reducing its carbon dioxide emissions fairly dramatically. Scotland has enormous potential to deliver clean energy and Enquest should be part of that future. Frankly I would not invest in a company that just wanted to produce oil and gas for ever. Enquest is and should be a transitional company.

I think net debt at the end of February will be $400m. From the $481m we have to deduct the $44m for 15% of Bressay and EP which gets us to $437m. FCF of $20m for January and February seems a reasonable guess although it is all about the timing of capital movements.

Stevo I think you have been balanced. But on 6th March 2024 you suggested $50m fcf for this year and $200m fcf for 2025. Your analysis assumed no increase in production in 2025 and $80 Brent. The management has told us to expect an increase in 2025 and current Brent is $86. I think if the current price is maintained (a fall in real terms) and production increases by say 1500 barrels a day we add a further $75 FCF for 2024 and $100m for 2025. Agreed? So our FCF for 24 months would be $425m against a market cap of $350m. 2026 will see collapsing interest and leasing costs. Our liabilities are not real liabilities any way. They are just the cost of generating that FCF which could continue to a perpetuity as the company pivots towards carbon capture and renewables over the next 15 years. Decom costs, leasing costs and even finance costs are not really different from a firm of solicitors paying rent on its offices. They are all very manageable costs that are rapidly shrinking anyway.

January 24. Sell the house too and buy more. They are an insane bargain as will become even more apparent on 29th March 2024

To answer your question Redbuffet, the answer is I would if that were to happen. Current prices reflect the intersection of supply and demand. In practice no one knows whether prices will rise or fall. Traders selling at $86 think they will fall. Traders buying think they will rise. By assuming for the purpose of calculating FCF they will stay the same I am adopting a neutral middle course stance. Stevo argues that one should use the forward price curve and there is sense in that too. But the recent increase in Brent has increased all the forward prices as well. We are, for the time being, adding not far off $1m to the balance sheet every day. Happy days.

Accepting Stevo's excellent analysis of 6th March in which he assumed 43000 a day for 2024 and 2025 and an average of $80 a barrel and arrived at FCF of $50m for 2024 and $200m for 2025, I adjust for two factors: (i) Brent is now $86.5 - so let us assume we average that for 2024 and 2025 (ii) We were promised an increase in production in 2025 - so let us assume 45,000 barrels a day. After allowing for the increased payments to BP, this would add 13 .495m x 6.5 = $87.7m for 2024. For 2025, the additional assumed price gives us an additional $87.7m and the additional assumed production gives us an additional $55m. There would be higher EPL to pay in October 2025 (around $30m) but that would be offset (by around $20m) in interest savings over those two years. So in rather rough terms I think our FCF looks like around $140m in 2024 and around $330m in 2025. Taking into account the receipt of $44m for the 15% of Bressay/EP and the last posted outstanding net debt of $481m, we could be net debt free in just 20 months. But of course a net debt of say $150m at the end of the 2025 would be fine and consistent with very large share buybacks until then.

I think we we get with the full year results in a few days (i) the net debt to the end of February 2024 (ii) confirmation of the costs guidance for year (iii) confirmation of production guidance (iv) estimate of EPL for October 24 (v) A lovely surprise of one sort or another !!

Thank you BTFath. If we manage to average $84 Brent this year (not an especially brave assumption) then that translates to an additional $4 x 15,695,000 or $62,780,000 - $8m (additional bp magnus payment) = $54.780m in FCF this year on Stevo's figure of $50m. The market simply has not woken up to the enormous benefits that accrue to a highly geared company from these higher Brent prices. I now favour a very aggressive buyback approach. I think the company can afford to spend $70m this year and $100m next year whilst reducing net debt by over $200m. That is a very substantial and sufficient deleveraging in a short period of time. It could be achieved at the same time as giving shareholders back more than 50% of the current market cap. I think we deserve it for all the pain we have endured!

Stevo I have returned to your excellent analysis on 6th March 2024. You projected FCF for 2024 of $50m and FCF for 2025 of $200m. Accepting these figures (and they were cautious in that you assumed $80 Brent and no increase in production in 2025 which Craig Baxter has told me there would be) but adding in the $44m paid in January for Bressay/EP then that would give us FCF of $294M by 31st December 2025. If there were no return to shareholders the net debt would fall from $484m to $190m. It would be safe to return $110m to shareholders by means of buybacks between now and December 2025 leaving us with a net debt of around $300m in December 2025. At present market prices that would remove more than a third of the shares. But of course the effect of all that buying would quickly drive the sp much higher.

After the election, we will be paying tax at 38% until 2029 and then back to zero until 2033 assuming we do not find a way of accelerating those tax losses. Harbour is paying a dividend of $200m a year. Ignoring its recent takeover it is 4 times the size in terms of production. It does not have the reserves Enquest has and has used up its tax losses. It has much less debt. The cost of servicing our debt is less than the tax advantages. So I am expecting at least $50m a year in share buybacks starting in March.

2023 and 2024 compared using company's figures and assuming same again production and $3 extra realised per barrel (2023 realised $79.50 so assuming $82.50)

Costs

Opex - + $45M. Capex +$40m Decom + $10m. EPL + $105m (after repayment adjustment) Interest - $10m Leasing - $20m = $170m worse than 2023

Income: Assume additional $3 Brent over year (average realised price Brent 2023 $79.50) on 12.8m barrels and same again production = plus $38.4m.

FCF in 2023 was $236m plus $50m (Golden Eagle payment) = $286m. So: $286m - $170m + $38.4m = $154.4m.

Stevo your figures are not far off based on what we have been told so far. But here is why you may be too pessimistic for both years:

2024.

1. You have used $80 average brent price. We have averaged $81.70 so far in 2024 and at present are above $83. If you use say $83 average then that gives us an additional $38.4m.

2. You have not (and you say so) included the 15% sale of Bressay/Enquest producer. That gives us an additional $44m.

3. The $150m EPL may be too high (you will recall the 2023 surprise reduction). I am using $130M. That gives us $20m

4. The fact that the EPL is payable on 31st October 2024 means that until that date the net debt should be falling rapidly especially at $83 a barrel. Interest is difficult because we have to calculate it on gross debt then adjust for money earned on cash. But perhaps your $70m could be nearer $60m. That gives us $10m.

5. Your opex figures of $415m is of course what the company has told us, but that would be an increase from $370m over 2023. An increase of 12% is above what could be justified. A 5% increase in OPEX gives us another $27m.

6. Your decom figure is again what the company has told us. It is an unjustified increase from $60m. A 5% increase gives us an extra $7m.

I get therefore to an extra $146.4m on your FCF figure for 2024.

2025. There is understandably less detail in your 2025 figures. but you assume I think same again production. But as I have said before I met Craig Baxter for lunch and he wrote to me afterwards and said the company expects to maintain production in 2024 and increase it in 2025 because of the 2024 drilling campaign. It is all about making use of the generous capital allowances in 2024 before they are reduced by the next Government. As you acknowledge 2025 is a golden yea and you have calculated FCF at $200m. But there are many paths that lead to an excess of $300m FCF for 2025.

More news from this slightly opaque company coming soon. So we may both have to adjust our estimates.