Member Info for Sekforde

We started the year with $2.3bn in debt. It took just two quarter to reduce that to $1.1bn and buy $50m of shares. The 3rd quarter saw $250m of buybacks with no further debt reduction. This quarter will see debt come down by around $500m and we should spend $100M on buybacks. The good news is that most of the CAPEX has taken place post the introduction of the windfall tax and so is deductible. The yield with dividend and buybacks looks fantastic. The maths look good even at 35% windfall tax. The Government just needs to keep the super deduction on CAPEX.

All anyone can ever do is to look at a current market value and ask whether that valuation fairly represents a stream of likely future earnings or free cash flow. I do not think any one will make money in the long term by jumping in an and out of a share based on trying to predict future short term sentiment. One thing I think the Government will recognise is that high tax deters investment and uncertainty deters investment. And there does need to be investment in the North Sea if we are to maintain for the next 10 years supplies. So the autumn statement may be ok after all.

Comrie man. Free cash flow is not quite the same as earnings. Earnings are essentially profits which could be much higher. Free cash flow is after payment of CAPEX and all taxes. It is essentially the sum left to repay debt (which will be zero by next May) and then reward shareholders. free cash flor of $1.5bn is very achievable for 2023 with all the bad hedges. 2024 could be much more. So looking forward the returns to shareholders could exceed the entire market cap by the end of 2024.

Even at $1,025bn for 2023 the tax is affordable. The past losses can still be used to offset ordinary corporation taxation. It all very "back of the envelope" but the free tax flow for 2022 should be above $1.5bn. So we will be debt free. We can ramp up investments elsewhere and the buy backs can continue at around $600m a year. All companies benefit from the national finances being in order. So I think we have to accept it.

The $400m windfall tax for 2022 was from 26th May 2022. For a full year at 35% (all other things being equal) it will be $1025m.

The Times reports this morning that the windfall tax is to be increased on Thursday to 35%. Quite how they know is itself shocking. Information like this should not be leaked from the Treasury. But one must assume the worst. Given that Brent oil and gas remain higher than assumed when Harbour updated us on 3rd November 2022 the free cash flow should come in at $2.3bn for 2022. This is after payment of $500m ordinary tax and $400m windfall tax. If one assumes that the post hedging prices ($80 brent 86p a therm) are maintained in 2023, production volume is also maintained, opex and capex remain the same, then the ordinary corporation tax will also be about $500m but the windfall tax will rise to $1025bn for 2023. This will mean that free cash flow will be about $1.675bn for 2023. If year end debt is around $600M (ie a reduction of $500m since the 30th September 2022) then that still means that we can still be net debt free by the end of May 2023 and have $1bn to distribute to shareholders in one form or another. But the constantly shifting goal posts (if the Times is right) is quite something to accept.

Greetings shorters. You must have felt mighty clever yesterday with HBR around £3.65 at one point. But you see it has now gone up a bit. You have borrowed just over 2% of the company's shares and sold them at slightly higher prices than today. But the trouble is closing them will force up the price. And the company is coming with its $100M of buybacks which might be completed in 6 weeks. It was last time. Well may be you know best. I think you have made a lucky punt. But I think your luck could be about to run out. We will see as always.

This morning the market places a value on Ithaca Energy of $2.88bn against its valuation of Harbour of $3.82bn ie. 73%. The former company produces 70 k barrels a day as against the latter's 210k. It has similar levels of debt about $800M. It has proportionately greater decommissioning liabilities. Its reserves are fewer and inferior. The only thing that stands out is its promised dividend of $400M next year and $420M for 2024. But of course Harbour could pay $1bn in 2023 and 2024 if it chose to do so. It is pursuing a more canny strategy of buying shares.

Confident of a good day today. Brent well up over night. Comfortably ahead of the $90 a barrel assumption made for achieving $2 - $2.2bn free cash flow for this year. Debt now being destroyed daily at pace. No more bad news leaked on the windfall tax. Would settle for 30% and extension to 2028 as the price for some certainty. Should keep the super deduction on investments. Buy backs will commence in earnest after autumn statement out the way and at much lower levels than before. Shorters should have closed yesterday. They did not and may well yet be punished . I guess we will open around 375. The long walk back to sanity may start today. The bottom line is any company is worth much more than the next two years expected free cash flow - most of which will be paid to long suffering shareholders in dividends and buy backs. Keep the faith. Buy more. I will.

The £ strengthening against the dollar is fine. It is a sign of some strength and confidence in the UK. It reduces inflationary pressure. Ten year gilt yields have come down today to 3.29% so we may not face further significant increases in interest rates. As of mid November 2022 we should have around $800M of debt and we should be debt free by next April at the latest. It really is just a question of patience.

The time to buy of course is at the time of greatest pessimism. At the moment everything is sentiment driven and we go lower and lower without any real reason. It may be fear as to what may happen on 17th November 2022. It seems to intensify as we get closer to that date. Once that is out the way then perhaps the market will relax as the buy backs kick back in. How quick the market has overlooked the trading update on 3rd November! That was all good.

It is worth nothing that about $270 m of the $300m buybacks were completed in the third quarter. That third quarter was also affected by much lower production around 200,000 boie per day as opposed to 211,000 in the first two quarters. This is attributable to the maintenance programme. It is those factors that prevented the net debt being reduced as I thought was likely. In the first two quarters we removed debt at a rate of $200m per month. We should therefore be just above $800m now as there have not been any buy backs executed in the fourth quarter - so far.

It is wishful thinking to suggest that there will be no increase to 30% and no extension to 2028. $60bn is a huge black hole to fill especially when it is politically impossible to cut NHS expenditure or abandon the triple lock on pensions (the most absurd commitment possible).

Markets are forward looking and I keep think of 2024. in 2022 with all the bad hedging revenue will be just under $6bn. And we should come out with free cash flow of around $2.3bn before dividends and buybacks. Assume that prices hold for 2024 and production remains unaltered. That would give us a revenue of around $8bn. Assume we keep costs of operations to $1bn and keep CAPEX at $1bn. That is a surplus of $6bn. Assume tax of $3bn or more than treble for 2022. So that is $3bn left over in one year which starts in 14 months. And market cap is just under $4 bn. All quite crude maths but this will one day explode.

Yes but all that bad hedging is coming to an end in about 14 months or so. And Ithaca has much higher production costs. And it will have to pay tax.

Little Ithaca only produces 70,000 boe a day. So roughly a third of Harbour. So £2.5bn? I do not think so.

Grant Shapps really gave the game away when he was interviewed on Sky. I think that an increase to 30% and an extension to 2028 is the least we can expect. I suspect that the market will be relieved if it is no worse. There is incredible nervousness. But in the end the maths will work wonders. At some stage the new buy back will commence. I suspect the programme will be completed in swift order as it was last time. This will mean that almost 10% of the shares will be gone this year. An unchanged dividend of $200m will actually be a sly increase of 10% per share. Even with the extra tax with no debt to pay down after say March 2023 the company really can afford to pay $600m for shares in 2023. That is after all an increase of just $200m over 2022. $600m is more than 15% of the company at the present market value. Adding in the dividend unchanged at $200m total returns to shareholder next year will be around 20%. That is ok is it not? And although it all seems unfair and a deterrent to investment, the market as a whole may well rise as the public finances come into some sort of order. So I am super chilled about everything. But it does take the patience of a saint.

Rookie you are I am afraid confused. You cannot on the one hand predict a collapse in demand and no selling of the product and then suggest prices are going to be even higher. Prices of crude oil are lower in dollar terms than in June 2014. But the dollar has risen a great deal against sterling since 2014.

The "masses" are paying much less for oil in real terms than they were in June 2014 when Brent reached $107. But there is no reason to assume a huge fall. Gas prices are extremely high by historical standards but we will all just have to get used to that as the old supplies from Russia are not coming back soon. If they do fall then this is when all the bad hedging begins to look less bad. But actually I suspect that prices will rise rather than fall. It is a function of world wide economic growth, an increasing population and dwindling supplies.

The windfall tax was introduced with effect from 26th May 2022. So there are 199 days in 2022 when we have been subjected to it. It will cost according to the company $400M. So on a full year basis that will be $400m x 365/199 = $733M. All other things being equal in 2022 with the tax raised from 25% to 30%, the cost will be $733 x 30/25 = $879M. In other words the additional tax will be about $146M for the full year. If and it is a big if the free cash flow for this year is $2.3bn (slightly above the latest range) and it remains the same for 2023 before accounting for additional windfall tax we are still looking at a free cash flow for 2023 of $2.3bn less $479 (additional windfall tax for the year) or $1.821 bn. I think the additional tax is a certainty. It is already factored in. But even so. It is affordable and the shares remain desperately undervalued. And whoever suggested production should fall I think is mistaken. It should rise. We do not invest $1bn plus a year capex just to stay the same.