Member Info for Sekforde

I think there is more than an outside chance that in 2028 there will be no repeat of the EPL particularly if Brent is at or just above the present levels in inflation adjusted terms. Enquest's tax losses are so vast that it will not have used them by that year and we could therefore be back to paying no tax at all. If Bressay is producing then we could be a 70,000 barrels a year debt free company. But there is lots of scope to do deals in the meantime. The company just needs to acquire a few assets on a deferred consideration basis to accelerate the use of the tax losses. I am hopeful that will be announced before the end of this month.

The re-election of Trump will be a disaster for the world. But he is ahead of Biden in the polling. And a highly partisan supreme court will keep him on the ballot. The one thing he will do is impose fierce sanctions on Iran and make all manner of threats against any country that buys its oil. Removing about 2 million a day from the market will add perhaps $20 to a barrel. So all very interesting.

AimOilking your 27.5p a share by year end would give us a market cap of $667m. Assuming debt reduction of $200m to around $300m we would have a EV of just $967m. I think for the market to place a value of less than a $1bn on a company that has invested over $5bn and has 600m reserves plus its tax losses plus Sollom Voe which itself could be worth billions in the future would still too low. But I would settle for it.

I think that the FCF for 2024 after allowing for a payment of say $90m for the EPL in October 2024 could come in at around $210m. It does of course all depend on Brent. I assuming around $80 average for the year.

I base the $90m on the $60 m paid for the 7 months of 2022 profits at 25%. Assuming no further disposals no M and A and no dividend or share buy backs in 2024 we will have a net debt of under $290m by 31st December 2024. At the end of 2024 the market should be looking to a big reduction in leasing costs and a further reduction in finance costs. At $80 Brent we should be able to achieve a FCF for 2025 of almost $300m. It would in fact be safe to allocate 50% of that sum to shareholders and the balance being used to further pay down debt or to develop Bressay. But this could all be quite pessimistic. There is lots of scope to bring forward in 2024 the use of the tax losses. A rational market would give a company with at least 12 years of reserves and a FCF of $300m a EV of say 6 times FCF or $1.8bn.

Sorry net debt $492.8m as of 31st December 2023

At the start of 2024 it is worth doings some maths. The latest net debt figure as of 31st October 2023 was $586.8M. But since then we have had 2 months of trading with 0.7m barrels hedged at an average of $88. That is enough to have reduced the net debt by around $50m. We have also had the sale of the stake in Bressay for an initial payment of £34.75M or $44m. So we should as of 31st December 2023 have had a net debt of $496.8m.

In the first half of 2023 the FCF was $140m. But this was inflated by a tax repayment of $15m so the real figure was $125m. The average realised price of Brent was $75.8 per barrel.

I assume same again production which is conservative given the high capex in 2023. I also assume that Brent will average its present price which is $2.50 higher than the average realised for the first half of 2023. This gives us an additional $20m. I assume that with average debt down by $200m and the highest interest debt costing 13% per annum we will save some $13m in interest. Leasing costs should also be about $10m lower. I assume a $20m increase in opex given how tilted 2023 was to the second half. Capex etc I assume will remain the same. All this means that FCF should be $125m plus $20m plus $13m plus $10m minus $20m or $148m. So net debt as of 30th June 2024 should be $348.8m.

With 1,912,304,113 shares in issue we have a market cap of 15.7p x 1.27 = $381m. As of 30th June 2024, if the sp were to remain the same we will have an EV of just $729.8m. An EV of $1.1bn (the figure at the start of 2023) would require an increase in market cap to $751.8m. This would imply a 96% increase in share price.

Would an EV of $1.1bn be realistic? Well given the undeveloped Bressay field has a present value (based on the recent up front payment) of $231m and the tax losses alone are worth at least $500m, it would still remain grossly undervalued. It will be the crushing of this debt that will I think change the market's perception of risk.

Sorry net debt end 2020 $1.297. So enterprise value ..... even higher

3 years ago to this day the sp was 11.3p. At the prevailing exchange rate that gave the company a market value of $284m. Today we are at the dizzy heights of 15.08p which at the prevailing exchange rate gives the company a market cap of $360m. But back in 2020, on this day the company had net debt of $1.222bn as opposed to $500m (counting the proceeds of the recent deal.) So our enterprise value has fallen from $1.506 bn to just $860m. The key point is that on 28th December 2020 the price of Brent was $51 as opposed to $77.5. Really hard to follow. Oh and the sp on 28th December 2013 was 136.70p.

Of course that is the best time to invest when every one has given up. I see share buybacks starting soon. About $50m per annum, to give a return of just under 14%. Afterall Harbour has being paying a dividend of $200m and it has roughly four time FCF as Enquest in 2023 although falling in 2024 to about twice because of its much higher taxational rate.

I have just been looking at Aker BP. It is producing about 450,000 barrels a day as opposed to Enquest's 44,000. It has net debt of $2.7bn as opposed to Enquest's $500m. It has an effective rate of tax of 78% as opposed to Enquest's 45% (and of course falling as debt recedes.) It does have much lower opex (around $7 as opposed to around $18 per barrel). But it has a market cap of $18bn as opposed to around $370m (around 50 times greater). Very hard to justify the disparity. Harbour will look awfully like Aker BP after its merger. It would have a market cap of around $5.7bn at current market prices. So again very hard to justify the disparity.

Megla that is not really going to help much. The net debt will still be above $7bn and will take at least seven years to pay down if oil prices hold. I have now cashed in on Harbour. It is a great company and the deal makes sense despite the debt. But Enquest is so much cheaper and has its own surprises to spring in the next few weeks.

With $44M being added to the bank account, we should end the year with net debt below $500m. As we enter 2024, the cost of servicing that debt should have fallen to around 8% of the outstanding balance. In the first half of 2023 we had a FCF of $140m with average realised Brent of $75.80. Assuming an extra $34M from higher Brent (8.5M x $4), $10M saving in interest, $10M saving in leasing costs, same again opex cap ex and production we could get to close to $200m FCC in the first half of 2024 . But let us say $150m. That will take the net debt down to around $350m. Harbour paid $8.60 per barrel for Wintershall's 2p reserves. We have around 190M. But our reserves are much more valuable in our hands because of the extremely low tax status. Let us say they are worth $12 a barrel. That would give a rational EV of $2.28bn. (I shall ignore sullom voe and the producer and the 2C reserves which clearly have additional value). Deduct then the $350m net debt and we should have a market value of $1.93bn as opposed to $368m. This is not wishful thinking (which I am often guilty of) but a fair comparison based on what Harbour is paying. Sell Harbour and buy Enquest is the answer.

At close of play last night we (Enquest) had a EV of $900m (market cap $340m debt (say) $560m). The EV of Wintershall is $11.2bn following the bid yesterday. That is 12 times the EV of Enquest. ANY YET we have roughly one sixth of the reserves and one sixth of the production. AND we have tax losses worth around $500m AND Sullom Voe. So Enquest remains very cheap indeed.

Megla I agree with you about LC. She is great.

Megla the BP debt is around $22bn against a market cap of $103bn. It is in relative terms tiny. Bp is much more diversified. The debt after this deal will be more than $7bn against a market cap of perhaps $5bn. So I do think the re-gearing makes it more risky. The higher promised dividend will not leave much for debt repayment and share buybacks. I would have favoured a tie up with Enquest instead.

We have been in the FTSE before and will go back into it again. But the forced buying theory did not help last time. Do not get me wrong I see the logic in this much larger deal than the Enquest deal I continue to advocate. But it is a massive re-gearing of the balance sheet. I liked the balance I had between low risk undervalued Harbour and high risk undervalued Enquest. I now have two high risk highly indebted companies with enormous potential IF oil/gas prices remain at current levels.

The FCF for Harbour alone will be about $1bn for 2023 but it falls to around $500m in 2024 because nearly all its tax losses will be exhausted. The FCF for 2024 is not unfortunately going to be anything like $3bn for the combined group.

I do not think it is a good deal for Harbour. It is taking on a huge amount of debt - well over $7bn. The reserves are solid but in some fairly unstable countries and in some high taxing countries.

600m reserves of oil this is!

We end the year with a market cap of just over $300m and debt of say $540M and so an Enterprise Value of $840m. This after investing $5bn. We have roughly 600m of reserves. And we have tax losses worth gross $900m or so. And we have Sullom Voe potentially worth many billions if we can find the right partner. In the short term even with Brent at about $78 we can clear debt at around $4m per week. I see a reversal of all the losses suffered this year with or without M and A. 20p before June is quite possible.

The tax losses would save Harbour around $800M in 2024 if a deal could be done. They are worth less than that sum to Enquest because they will take so long to use. But even assuming no deal they are worth at least $500m. That is not a sum very different from the net debt at the end of 2023.