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Stevo and in fact it is slightly more than 7 months, as the first savage EPL blow came in on 25th May 2022. So on your calculations we would get to over $70m and yet only paid $60M. Let us hope the actual tax is not quite as bad in 2024 as your workings suggest.

And Stevo, how do you account for the EPL being just $60m for 2022? Can you do the same worked example to show how it cam in so low?

And if you are right about EBITDA being $850m for 2023 then the debt to EBITDA ratio of 0.5/1 could be be achieved by the end of this month by the sale of a single 15% slice of Bressay/producer on the same terms as last month.

Stevo I suppose the point should be is that we should pay off the 13% debt first. My understanding is that the overall debt interest is around 8%. I would love to see another slice of Bressay and Enquest producer sold. The company also keeps telling us it is going to do a deal that accelerates the use of the tax losses. There must be a deal to be done soon. EV looks today at around $800m. IF only that would stop falling.

Stevo I agree with what you say. But in fact the cost of servicing the debt is not that high now. About 50% of the share capital is held by 9 institutions, who seem to be long term holders. A $50m a year share buyback programme at the present very low sp would be consistent with a continued and quite rapid debt reduction. It would show confidence and I think would cause a good and sustainable increase in the SP. Those who favour dividends are I think just missing the point. In the context of a buyback programme you can achieve the equivalent of a tax free dividend by selling down your holding whilst maintaining the same percentage stake in the company. Why not do that rather than pay tax at up to 45% on a dividend?

The entire UK oil production is the equivalent of the voluntary cuts on their OPEC quotas implemented by Russia and Saudi Arabia. If the UK stopped or diminished its production, these despotic regimes would increase their supplies. Carbon emissions would rise and not fall. Plus there would not be the investment required in carbon capture and decommissioning. But winning this argument requires a recognition that climate change is real and very damaging to the world and we do need to transition away from the use of fossil fuels. It will take time and we should use the 15 or 20 years of reserves left in the North Sea rather than pay Russia or Saudi to produce oil for us. Meanwhile I think the fall in Brent is good news in disguise. It should help reduce inflation and interest rates and take away any lingering justification for even more penal taxes after the change of government in the autumn. On the debate between dividends and share buybacks there should be no real debate. If the company buys 10% of its shares, you can sell 10% of your shares and you will still own the same percentage stake in the company. In most cases your 10% sale will not result in any taxes (unless you bought at 12p). It is a much more efficient way of paying long suffering shareholders. Good news is coming soon.

Ignoring the exceptional payment of $50m as contingent consideration for Golden Eagle and the EPL payment of $60m, the net declined declined by $13.5m a month in July and August 2023 and $45m a month in September and October2023. July and August were months of exceptionally low production. November and December should look more like September and October. I am going to assume that net debt declined by $35m a month in those months and there will be a further $25m a month reduction in January and February of this year. Taking into account the $44m just received from the sale of 15% of Bressay and Enquest Producer, the net debt as of the end of February should be $585M - ($44m + $120m) = $421M. The EBITDA in the first half of 2023 was $399.2M. It should be similar in the second half. We are now in spitting distance of a 0.5/1 ratio of debt to EBITDA. The company can comfortably afford as of end of February 2024 to pay $50m a year to shareholders to give an annual return of just shy of 15% whilst continuing to pay down its net debt and grow the company. Share buy backs and not dividends of course at these levels.

Stevo what would be the reason the company would claim in February 2023 that the net cash inflow was $250m after 14 months of Golden Eagle production? I agree it is hard to understand how they arrive at that figure. But is it just a mistake in the presentation? Why would they not have corrected it? We can all agree that this is not a fraudulent company. They must get to that figure somehow. And then what of Magnificent Magnus? For a consideration of $100m the same document claimed a net cash inflow of $460m to end of 2022. Is that also baloney? And then we have paid next to nothing paid for Bressay and yet have sold a 15% for $42m upfront. So the public pronouncement is to the effect all these purchases have been incredibly successful . Magnus and Bressay have on any view been astonishingly good. So even if we have overpaid for Golden Eagle, those two more than compensate.

One of the biggest mysteries to me is how exactly is the EPL calculated? It is supposed to be 35% of "profits" but some costs such as interest do not count for the purpose of calculating profits (hence the need to drive down debt.) Profit, however calculated, must be highly related to FCF. FCF for 2022 was $518m. The tax was at 25% and payable for just over 7 months and came to $60m. Given FCF of around $250m in 2023, I am expecting it to be about $90m or perhaps $100m. But Stevo has a much higher figure and the company did suggest $75m for the first half although they were far too high with the estimates for 2022 tax so I wonder if the actual figure will not also be lower. But roll on February when this and other mysteries should be resolved.

Voice of reason you make a good point. We paid down debt in the four months July to October despite the $50m golden eagle payment and the $60m paid for the EPL and during that period production was hugely below the levels it will have now returned to. Admittedly that was a period of high realised prices. Jefferies' approach lacked sophistication. It does not matter that Enquest is not paying a dividend or buying its own shares. It will soon. We have been promised an announcement on that when the year end results are announced.

Stevo ok but we still have a net debt reduction of $125m and unless the figures are false or misleading I cannot see why that or something similar cannot be repeated in 2024.

Stevo. I think there was $35m paid in tax in 2022 by a mistake. This was refunded in early 2023 but then there was a mysterious $20m exchange loss which reduced the effective payment to $15m. Net debt did fall by $125m in that half -however that was achieved. I don't think it matters that part of that money came from JV partners. It is all money coming in that pays the opex etc. I also do not think it matters if money is ringfenced. JC payments should continue in 2024. Or there could be another sale of a stake in Bressay. We definitely do not need to own 85%. There must be a way of getting to net debt of around $350m by 30th June 2024 and that should make a big difference to the market's perception of risk going forward.

Aim. The market cap in sterling is £278.66. This is $353.8m which is the figure I cited. The entire FCF over the next 18 months could be paid out to shareholders and that would be very close to the present market cap. All it would mean is that we do not pay off debt. But of course we should do that.

I keep returning to the FCF for the first half of 2023. After stripping out the tax rebate and the currency loss, this was $125m. We produced 8,186,400 barrels including the BP magnus share and the Malaysian element. That implies the FCF per barrel was $15.30 on a realised price of $75.80. We now have Brent at around $79. It is as likely to rise as it is to fall over the next 176 days so let us assume it stays the same. Reduced interest $10m and reduced leasing $12m should more or less match increased opex. We should produce at least the same after a year of heavy capex. So we should receive an additional $25m for the oil sold. FCF comes in at $150m for just 6 months. Then assume no FCF in the second half of 2024, what about 2025. Apply all the same assumptions for the first half of 2025 but reduce interest payments by $7m and leasing by $20m and we have FCF of $177m in the first half. So we have FCF of $327m in the next 18 months against a market cap of $353m. By June 2025 net debt should be around $177m.

On 18th July 2023 Jefferies' came out with a price target of 20p. Brent was around $78 and the forward pricing showed declines to the end of the year. So what has changed since then. Nothing really ..... oh except the news about the Bressay sale, the actual Brent price being higher than the July forward curve, the hedging of 0.7m at $88, the refinancing to 2027, the resumption of full scale production following the shutdowns, opex coming in $25m lower than forecast and the EPL coming in $15m lower than forecast. After all that terrible news of course Jefferies should cut 30% off their price target. These guys know a thing or two about valuation.

Krakenoil from where are these figures derived? That would imply a cost reduction of $100m a year. Can't be right?

Thanks Stevo I have that now. If I have understood that table it looks like the leasing costs fall by a further $40m a year in 2025. By then we should also be paying far less interest as the expensive debt is paid down. The company has to avoid large increases in opex. An increase of 5% would be ok. We are now comfortable above the $75.8 a barrel received in the first half of 2023. If we maintain or increase production and keep opex and decommissioning costs down and average say $78 a barrel we could perhaps achieve FCF of around $150m in the first half. But let us hope for some deals very soon. One brave deal has transformed Harbour. Some company must want to dump a mature asset for deferred consideration linked to future Brent prices.

Stevo the last figures for 2P reserves were disclosed for the year ending 31st December 2022 at 190m. The figure for year ending 31st December 2019 was 189m. This is of course before any Magnus adjustment. So we are not actually depleting reserves overall. I could not find the figure for lease costs reduction for 2025. Do you have the figure?

Happy new year Stevo. The estimate for the 2022 EPL was $75m but then came in at $60m. Has there actually been a firm estimate from the company for the whole of 2023? Do you agree that with the sale of 15% of Bressay for $44m upfront and with the 0.7m barrels of hedging at an average of $88 for November and December we should be around $500m net debt as of 31st December 2023? Using 150m for 2p reserves at Harbour's $8 a barrel gives us a market value for them of $1.2bn. The tax losses assuming no accelerated receipt are worth $500m. (I think that was your estimate based on heavy discounting for deferment of use). We now have a real valuation for Bressay. Even with Brent at $75, the EV of Enquest seems way off. You did somewhere identify the actual reduction in leasing costs for 2025. I cannot find the figure any where but it was a lot and Craig Baxter identified it in one of the presentations. Can you help? We are not really using up our 2p reserves because for every 17m produced we manage to replace them.

Mansardman happy new year to you. If you are a betting man then the odds (betfair) of a Trump victory are 6/4 (2.5) implying a 40% chance. The criminal indictments seem to raise his support. But I agree Enquest will matter very little if the orange monster is re-elected. I lost a huge amount in 2016 by betting it just could not happen so I have learned my lesson.