Member Info for Sekforde

I meant the cost of assets is lower precisely because of the EPL.

Outofideas what do you suppose the effect would be of buying 10 per cent of the share capital each year and cancelling it? Eventually as long as the EV remains constant the sp will rise. This is not a prediction but a mathematical certainty. It should be possible to maintain the EV given a capex of about 40% of EV. In fact the EV should rise over time precisely because of the enormous levels of investment and the likelihood of successful M and A. The costs of assets is much lower precisely because of M and A. The net debt was only $200m at the end of March and costs around $10m a year to service. There is no need to pay it off. It is trivial and irrelevant. Given the cost of production is around $15 a barrel it would take a huge fall in prices from their present levels for the dividend to be in any danger. I say carry on with the buybacks.

It would be 769M to the nearest million.

815,758,792!

Counting today's anticipated purchases of 510,000 shares the number of shares remaining is 815,758,79. At 240p a share the market cap is $2.447 bn. This implies a dividend yield of $200/$2447 or 8.17%. We have approximately $140m left to spend of the share buybacks announced in March. At present prices that would eliminate approximately 46.66M shares. If the dividend were maintained at $200m a year, the forward dividend yield would be 8.64% in 2024 and of course more if the share buybacks were continued. All entirely safe especially in the light of the excellent hedging for 2024.

With Brent now hovering around $77 and oil averaging over $80 so far this year during the period of peak production, we should pay the bond due in October and pay down further debt. 2024 looks then plain sailing. But I am convinced Harbour will buy Enquest. It is perfect fit with all those unused tax losses.

The structure could be as follows: Enquest "purchases" Harbour. New shares issued in "Harbour Enquest Energy" Harbour shareholders have 5/6 Enquest 1/6. Enquest tax losses used to reduce combined entity's tax bill by $1bn in 2024. Harbour pays off all Enquest debt using cash and low interest borrowing. Cull of high paid staff and closing of one head office to save $100m a year.

AB only has a 12.45% so he would be in no position to block an offer that was attractive to the majority. The tax losses currently being used by Harbour all came from years of losses by Premier oil.

Megla presumably interest is earned on any cash held on deposit. The point however is to do a deal with that cash. My cunning plan would be to do a reverse takeover by Enquest. That company has $3.5bn of unused tax losses waiting to be used. It is over-geared at present oil prices requiring an average of $77 brent to meet its obligations. It is a nice fit adding around 45,000 barrels a day. The blue print is of course Premier Oil - although that company was in a far more desperate position than Enquest. Most of the taxes you have factored in for 2024 would magically disappear. The combined entity producing around 250,000 boe a day would still be net debt free towards the end of 2024 or early 2025.

Megla I think you are really being pessimistic if you do not use the forward prices. After all Harbour has the option of hedging at these prices and thereby locking them in. In fact the company has done some good hedging for 2024 and on oil we have made S100m already on those positions. Absent chronic bad luck Harbour will not be spending $1bn a year CAPEX without its reserves and production going up and not down. The 350 redundancies has saved $50m a year from 2024. I think we are technically net debt free now assuming we paid off the remaining $200m in April. So there should not be any material interest to pay this year or next even though we may have to take out some modest additional borrowing in October to pay the EPL.

Good morning Happy Investor and thank you for your kind comments. I enjoy Megla's posts. He has FCF for 2024 at $500m using the current forward prices of oil and gas. He suggests that 5 x FCF for a business with 6/7 years reserves is in line with the current valuation of $2.4bn. For reasons that I have stated before, I think Harbour will do considerably better than $500m FCF in 2024. However, the real point of difference is the conclusion that 5 x forecast 2024 FCF is a proper valuation any way. The company has a capex of $1bn a year. Admittedly about $200m is on decommissioning. But $800m is on investments that should eventually produce a return which should extend reserves and enhances future FCF. Moreover, the absence of any material debt and a low borrowing rates affords a golden opportunity to do M and A which should further enhance value. There are a very few companies with an 8 per cent plus pure dividend return and none which are simultaneously buying and cancelling 10 per cent a year (at current price) of share capital. In most cases where the dividend approaches or exceeds 8% it is in doubt whether it is sustainable or not. Here $200m a year is sustainable for the foreseeable future and the dividend per share will rise dramatically as shares are eliminated. So I reckon the shares are an absolute steal.

I think the impact of the EPL is absolutely grasped and is fully price in as if it will last for ever. It was a tax imposed in entirely different circumstances when it could just about be justified. It was crude and unfair given all the investment that had taken place in what seemed a fiscally stable environment. The much lower prices have removed the need for Government subsidies to homeowners and businesses and I think the EPL will be reformed or scrapped very soon.

Megla you are right to sound a note of caution. But you will have noted that over 3 months the net debt has come down from $800m to $200m. That of course is largely a function of the timing of taxes and capital expenditure and we may in fact have slightly higher debt at the end of 2023. In any one year we may have a decline in the 2P reserves but the expectation is that they will more than be replaced over time with $1bn a year being spent or about 40% of our EV. $500m a year FCF in relation to a debt free company for at least the next 15 years should not be valued by the market at just $2.4bn. The EPL is due to go in 2028. It has not worked well, is likely to be replaced before 2028 and there is no certainty of a Labour Government. I see the company continuing to mop up cheap shares at a rate of around 510,000 a day whilst strengthening its balance sheets and augmenting its reserves. I see it religiously paying $200m in dividends which means a sharply rising income as shares are eliminated (10% cancelled in a year). So I do say the company is undervalued and patience will (eventually) be rewarded. Should do a deal with Enquest. Therein lies immediate salvation.

Megla the guidance was for $1bn FCF at $85 a barrel and 150 a therm with a sensitivity $180m plus or minus $10 and $120 plus or minus 25p a therm. So using your figures of $73 brent and 130p gas I make it $1bn - ($216m + $96) = $688 FCF for 2023. Your figure for oil looks too low given the weighting of production and the $81 a barrel achieved so far this year. We have a market cap of $2.456bn and we are investing over $1bn a year which should enable us to have a large base outside the UK. The pure dividend yield is 8.14% and, given we are now essentially debt free, is not in any danger. I think fundamentally we are grossly undervalued.

I think there is a real possibility of a bid from Harbour. It is itself running out of useable tax losses and it is Enquest's tax losses (in fact around $3.5bn not $2.5bn) which make it so attractive to Harbour. The latter has virtually no debt ($200m) and plenty of borrowing potential to both buy the company and pay off its expensive debt. Then there are loads of operating costs that can be eliminated. A perfect fit.

There was no discussion really. It was all over in 15 minutes. Whether shares are cancelled or held in treasury makes no practical difference.

I attended the AGM in Cavendish Square. It was a brief affair with only one person asking questions from the audience before the vote on the resolutions which were formalities. I spoke to Linda Cook briefly afterwards. I think she is very charming approachable and unstuffy. The board gave nothing away but mentioned M and A several times during the meeting. There was also brief reference to the low value of the share price and the undesirability (in consequence) of doing anything with equity as opposed to debt finance. On the debt reduction in the first quarter this will not continue throughout the year. It is all to do with the timing of tax and CAPEX. The net debt will probably be somewhat higher at the year end than now. This is my take and not something discussed at the AGM.

Odd indeed that after yet another day of falling Brent and a generally falling markets Harbour should buck the trend. Must be some good news ahead. Here's hoping......

thinking is free and Jefffff filtered.

How cannot it not be? Prices are now well below their long term average after adjusting for inflation. Huge boost to consumer from lower prices. No need for Government subsidies. Very easy to justify in terms of protecting jobs and investment in Scotland. Does not cost very much.