Member Info for Sekforde

Doctordong I am not going to say 20% annual return to shareholders because it is actually at this sp just over 14% for this year if the the buybacks are included which of course they should be. That 14% true yield is not in any danger at all with Brent above $80 and gas above 90p a therm. It cannot be obtained in any other sector. It reflects an anomaly which I think will be corrected over time. Best of all at today's sp the true yield rises to over 15% in 2024 and to over 17% in 2025. All achieved without increasing the simple dividend of $200M a year but maintaining the buybacks at $200m per annum.

The guidance suggests that at current prices of oil and gas, the FCF will be around $800m this year. With the bad hedging gone it should be at least $1bn in 2024 even taking into account the EPL. Very difficult indeed to justify a market cap of just $2.728bn when the FCF for just 2 years may be around $1.8bn. Of course the extremely low sp just enables more shares to be repurchased for cancellation.

Stevo

I suppose that very strain adds to the discipline required. After all we are dealing with expensive debt and the sooner it is cleared the better any way. It would be good if there were still scope to cash in the existing tax losses. These alone must have a Net Present Value of perhaps $700M? Any views on FCF for 2024 assuming average Brent of $86?

Directors purchases are usually highly significant. It is worth reminding ourselves that AB purchased 4,222,033 and 170.109 shares on 19th December 2022 when the price of Brent was $81.66. He paid approximately 21p per share. He must have thought that at a market cap of $491M his shares were a steal. Since that date the price of Brent has risen to $86.31 at last night's close. Any avid reader of Stevo's posts will have seen his assessment of the total cost of production for 2023: $70 a barrel (he has included deferred consideration as a cost). This means the "headroom" has in less than 4 months risen from $11.66 to $16.31 per barrel on the unhedged production. Although we have hedged 7.9mmb, as far as I can make out only 3.3mmb is collared at $75 per barrel. Assuming 45,000 barrels a day, 13.125mmb should achieve full market price. An extra $4.75 per barrel translates to an additional $59.0625M. However there should also be an additional saving of interest of say $3m. It is just sentiment that has caused a company with greatly improved prospects since December to fall in value and sentiment can change very quickly as the debt is steadily reduced. The company could in 2024 pay about $100M in dividends and share buybacks to give an effective yield at present sp of 23%.

Stevo why is the deferred consideration not treated as a debt - surely it should be? In your analysis you have included it in the cost of production. Also is it not interesting to look at FCF for 2021 ($396.8M). Production was 44,415 barrels and the average realised price $68.8. Assuming an average price for the rest of the year of $87 and an averaged hedged price of $75 on 7.8 mmb we should achieve a post hedge average of around $82 per barrel on production of perhaps 45000 barrels.

SmokinAces. Not misleading. You have to listen to the audio presentation on 5th April. From memory it was during the Q and A at the end. There was reference to a "path" to shareholder returns in 2024. There was also a question about whether they were considering dividends or buybacks to which the answer was both.

AB did indeed suggest that returns to shareholders would begin in 2024.

If the costs are really as bad as that then we do need to get to an average of at least 45,000 barrels a day without them being increased a cent. A 1000 above the mid range forecast provides another $31,025,000 before EPL at $85 a barrel. Must also be something to be done with the huge tax losses. A purchase of assets with a deferred consideration would work.

Stevo

I think your figure for total costs should be $1.024bn rather than 1.044bn. Are you really saying that at $70 brent there would be no FCF at all? The FCF for 2020 was $211M when brent averaged under $42.

There are (as of last night) 831098792 shares remaining. So 831,098.782 x 280 x1.246 gives us a market cap of $2.8995 bn. The promised dividend for the year is $200m so the yield is $200M/$2.8995 or 6.897%. Add in the share buybacks and we have a yield of 13.794%. This is very much ahead of BPs. The FCF for 2024 should be considerably higher than the $900M for this year as the bad hedging on gas will have (virtually) gone and interest payments will be much lower. The effect of those advantages greatly outweighs any additional EPL.

It is disappointing that there was no FCF forecast for 2023. But net debt has fallen from $717M 31st December 2022 to $624M 28th February 2023 or by $93M in just 2 months. We head into the second quarter with the prospect of slightly lower production for the rest of the year but (so far) slightly higher prices than in the first quarter. I would be disappointed if FCF for the year does not come in around $250M. It is then interesting to think about 2024 when all the bad hedging is over and the interest on debt is much lower. I am hopeful we could achieve a FCF of $350M. If the EV holds steady (a modest assumption) then this reduction of debt of $600m should translate to an additional $600m on the market cap or a 133% increase in the current SP.

Slater I think you are completely wrong. Take your BATs. It has a pure dividend yield of just under 8%. But it is paying out virtually all its earnings in dividends. It has a huge debt pile of £43bn and faces a number of really threatening law suits. So the 8% is by no means safe. By contrast the 13.64% current yield (dividends plus buybacks)for Harbour is covered at least twice by future FCF and Harbour will be debt free in about 12 months. No one can do anything about past losses. The relevant question is whether the shares represent value at this level. The FCF over the next 24 months is greater than 50% of its market cap. Meanwhile it is investing very heavily for future growth. Sadly I am not paid to post. Cannot imagine anyone paying for my common place observations.

I am not quite sure Slater why you say it is dishonest to include the share buybacks in calculating yield. After all if you eliminate 6.5% of the shares then each person who keeps his shares owns a proportionately larger share of the company. Moreover, at the same cost, the company could simply double the dividend and halt the buybacks. Safety is about sustainable cover and the companies you mention are barely covering their much lower dividends with earnings.

FCF not FRC

The present dividend is over 13% if you include the share buybacks (which one should). That is far higher than any company on Slater's list. In terms of safety, the total cost is $400m a year against $900m FRC at today's prices - so very safe indeed. The FCF should be higher in 2024 as the bad hedging will be over. Not unreasonable to imagine total dividends plus share buybacks to be $600m in 2024. A forward 2024 yield of 20% (at today's price) is extremely realistic. If this is ramping a scandalously undervalued well run company then I plead guilty.

FCA LR 12.4.1 is the rule

The average price over the last 5 business days I make 279.2p (including today). So in fact purchases could resume tomorrow at prices up to 293.79.

The rule is FCA LR 12.4.1.

There is no manipulation. It is a regulatory requirement. A company can not purchase its shares as part of a buyback programme at a price which exceeds 5% of the average over the past 5 trading days.

Using the guidance provided, FCF for 2023 should be $900m if present prices of oil and gas maintained at current levels. The present programme of buybacks and dividend are easily affordable. The recent surge in SP means there will be no buybacks today or tomorrow as the average 5 day price will be too high. They should however resume on Thursday.