Member Info for Sekforde

I do not think that we should think the reason for the delisting was anything other than a saving of cost. I do not know how much the annual costs were, but if they were say $300,000 for just $35m worth of shares then the savings should be made. It is very easy for Swedish shareholders to hold shares on the London exchange instead and I do not see why any one of them would not be able to do so.

Net debt at the end of August 2023 was $615m. We have a pretty good idea of the picture to the end of the year in terms of expenditure: Opex $174m, EPL $70m, Capex $53m, leasing $42m, Interest/finance $32m bp magnus $30m = $401M. At $91 average price Brent, revenue should be around 45000 x 122x $91 = $499.59m. So the debt comes down to around $517m.

But next year are not the following realistic?

Opex $450m, Capex $170m, EPL $100m, leasing $126m, interest and finance $60m, bp magnus $90m = $996m. I have allowed for the ravages of inflation on capex and opex but assumed also that absolutely everything will be done to end this misery but hammering down on costs. Leasing costs I have assumed will be the same but they may in fact be lower. Interest does come down as debt is repaid and I have allowed for that but perhaps not sufficiently.

Revenue 45000 x $95 x 365 = $1560m. If no dividend is paid we could in fact be net debt free by the end of 2024!

The sp performance is unfathomable. Either I am missing something completely fundamental or this is just a market aberration. The current market cap of just $350m is potentially less than the company is capable of making each year from 2024 onwards.

I assume that production will match current production for the year. But the board always talks of growing the business and we have never in fact been told to expect any declines in 2024. Brent at $95 seems a fair assumption given serious supply constraints and general inflation in the US.

Hi January 24

They are the numbers taken from the press release on 5th September 2023. Opex in the first half was $162.7m. The forecast for the full year remained at $425m which implies Opex in the second half will be $262.3m or $100m more. On top of that we have to pay the full EPL of $70m in October (following the refund of the December 22 payment of $35m in in March 23). We also had the Golden eagle payment of $50m. In other words we have a total of $220M extra payments/costs in the second half which we did not have in the first half. Thank goodness for the $12 a barrel extra on Brent! Once the EPL is paid we have 12 months of steady debt reduction with no major payments due until the October 24 EPL.... This is the time to really hammer down the debt at a rate of around $40m a month. Once you eliminate this expensive debt which is not even deductible against the EPL we can then take full advantage of our unique tax status paying just 35% tax and making around $300 to $400m a year FCF. Entirely reasonable when you consider that well over $4bn has been invested by Enquest over many years and there has been no return to shareholders at all.

Stevo

Profits in the second half will be lower despite the much higher Brent price largely because opex is weighted to the second half. But given the EPL is not payable until October 2024 on 23 profits it should not effect calculations of FCF which may well benefit from $12 a barrel more (rather than $10) on same again production. You seem pessimistic about production levels for 24. But if one assumes only 40,000 barrels a day if all in costs were $65 a barrel and Brent averages $90 then the FCF should be $25 x 40,000 x365 or $365M. The company always talks of growing the business not managing decline and doing M and A to boost production.

Stevo

The transformer issue at Kraken reduced production in the first half and brought forward maintenance from the third to the second quarter. We could in fact have higher production in the second half consistent with the upper range 2023 forecast being maintained rather than lowered (cf Harbour). $10 extra a barrel produces 45480 x 184 x 10 or $83.683M additional FCF (ignoring additional payments to BP). Not sure how you arrive at an EPL of $150M for October 2024. That implies taxable "profits" of $ 428M in 2023. FCF of between $50-$100M for 2024 looks to me far too low using you own previous estimate of mid 60s all in costs per barrel in 2024. With $90 brent that would surely be 45,000 (say) x $25 x 365 or $410M

Stevo you had FCF at $170M for this year in one of your earlier posts when Brent was a bit lower. Do you agree now it will be around $200m. And what about 2024? You had the all in costs in the mid sixties. What do you reckon if we have brent averaging $90 a barrel with just $100m to pay in tax in October 2024. 44,000 x 25 x 365 is $401M less the tax would be $300m and bring net debt to just a bit over $200m by end 2024.

And in fact 184 days in the second half so a bit more!

Now that would be good.

Yes I see. Generally strange with the way way everything is presented in the accounts - movement of working capital, deferred consideration and leasing obligations not listed as debts, Bp stake treated as wholly Enquest's etc.

Seems a lot for surplus gas!

Yes Papegoja I could not figure that out either. I suspect what they are doing is calculating the revenue before the hedging losses and then may be adding the interest earned on the cash balances.

It is always the best time to buy when every one is thoroughly sick of a share. The delisting should not really make any difference but I guess some Swedish shareholders think, "I can do with out the hassle". I do not suppose we shall have to wait long for some good news. There is scope for quite a bit of M and A which can unlock sooner the tax losses. It is true that the effective rate of tax for Enquest is not 35% because it cannot deduct the interest and the decommissioning costs. It is more like 50%. BUT other players have an effective rate of tax of 82%. So Enquest needs to buy some assets on a deferred consideration basis. It can readily create a "win win" deal. But regardless, there is a perfectly likely outcome that for the next 12 years Enquest will make $250m FCF a year . And a market that values that free cash flow at just $350m has just made a great mistake.

For the second half: I have

Opex $262m, decom $31m, capex $80m, interest and finance $49m, leasing $63m, bp magnus share $40m, golden eagle $50m, EPL $75m = $650m. Revenue : 45000 x $87.5 x 184 = $724.5M. So net debt at year end falls to $517.5M. This seems slow progress. But it is a reduction of debt of almost $200m over the year.

2024 looks ok. The EPL is around $100m. There is a lot of uncertainty about production levels but if there is no material decrease in production, Brent average around $90, then even with lower finance charges and some opex increases we could clear a further $300m of debt. We just then need the enterprise value (debt plus market cap) to return to around $1.2 bn to get the sp above 40p. This has huge potential. It is a highly leveraged play on Brent prices which at the moment look fine. Sixteen months is not a long time to be patient.

The debt is so expensive and not deductible against the EPL so we should just clear it before payment of dividends.

Taking into account the average price of Brent in July and August (around $80 and $85) assuming $90 is averaged for the remaining 4 months of the year we would have an average price for the second half of $87.5 So around $12 extra per barrel a day : $12 x 182 x 45000: $98.280M extra. Enough to pay the entire EPL in October 2024. All sorted.

And who cares about the Swedish delisting? Has no impact on valuation except it saves some costs.

One would expect the ratio of debt to EBITDA to be unchanged because there were lower earnings in 2023 than in 2022. However a further payment down of debt of $200m to around $400m achieves the stated target of 0.5% at which dividend or share buybacks should commence. That should be achieved in early 2024. But a FCF of $250m a year looks achievable for the next twelve years or so and that is not consistent with a market cap of around $350m.

I do not see what is not to like about $140M FCF. It is impossible to understand the reaction of the market.

These are excellent results. First the all important figure was FCF of $140m. That was achieved with an average post hedge price of $75.8. Second production was well in the top half of estimates. Third all costs were in line with estimates - no bad surprises. Looking forward to the second half there is NO bad hedging. If current Brent prices are maintained we will achieve an average price of around $88. At 45000 barrels a day that will mean an additional $549,000 a day revenue.

No buybacks today. May be none on Monday. But as the average sp over the past 5 trading days catches up with the current sp they should resume on Tuesday. Meanwhile money continues to pour in with Brent heading towards $90 and the added benefit of a weaker £ v $ rate. Excellent all round. Very optimistic.

The brokers were forced to halt the buybacks abruptly yesterday. It has been said before but I think the shorters will become a little nervous. After all the news since the wretched EPL was introduced has been all good. This soaring Brent is an unexpected bonus. With a fair wind and the receipts of the Vietnam interests I think we should remain net debt free at the end of the year. 2024 is the year of no bad hedging. We have an extra $375M FCF coming from gas (AFTER tax). (See Stevo's note).