Member Info for Sekforde

The rational way to value a share or a property or really any financial project, is to calculate net present value of a future stream of income. I have done this for Habour on the most conservative of assumptions. First I have taken the company's own estimate of its free cash flow for 2022 ($1.5bn - $1-7bn) and assumed $1.5bn. Second I have added back in the announced dividend of $200M . Third I have assumed that the free cash flow and the dividend remain constant for 10 years. (This is extraordinarily pessimistic. One would expect free cash flow and dividends to increase with rising production, an ending of the bad hedging, a reduction in interest payment and the effect over time of inflation.) Fourth I have used a discount rate of 5%. In other words I have valued a $1 earned in a year's time as worth 5% less than a $1 earned today and so on. 5% is used for calculating the net present value of property where the rent is fixed over time). Fifth (and this really is ludicrous) I have assume that after 10 years the company has zero value (That assumption is obviously preposterously pessimistic. Each year the company is spending $1.4bn CAPEX to ensure that it is able to grow and produce so long as the world needs hydro carbons). But what is the net present value of a stream of income of $1.7bn a year over just 10 years and then nothing at all thereafter? It is $8.6273bn. The present stock market value of the company is just $4bn. So when the saner individuals on this board say the sp should be double what it is now, they are not being crazy optimists, they are being absurdly pessimistic.

Whisper who dares? Christopher Robin is saying his prayers.

The long walk back to sanity begins this afternoon. We hope!

Still snapping up loads of shares. Easily affordable. Not much dead wood left to clear.

And the Scottish Herald this morning is full of the Chancellor talking about the need for more investment in the North Sea and the Scot Nats protesting at London syphoning off tax revenue. He has also apparently agreed a question and answer session. He needs a proper roasting and then to be dispatched South "ta think again".

The company is buying far more aggressively than needed to buy $200M shares by end of December. So what is the likely agenda? I go back to the authority granted by shareholders at the agm. The authority was to purchase up to 15% of share capital or as much as $600M at present prices. And I think that is what the company must be planning to do. It means that the debt will be paid off at a slower rate. But the debt is so low any way it hardly matters.

I think the fact that the chancellor is himself going up to Aberdeen is highly significant. Worst case is that he says no to everything and we will have to live with the tax. But he may well improve the Bill and I am betting he will bring forward the sunset clause. That is easy to do politically because it looks like a technical adjustment and costs nothing in year one. But is actually huge.

Retec profits will be lower than they would have been if there had been no hedging and yes the tax is on those lower profits. But the point being made, is that Harbour has not been a major beneficiary of these high prices because it has hedged most of its production. If pays the 25% tax on the profit that it makes on its oil sold at $66 per barrel as well as the profit on oil sold at $120 per barrel.

The market cap is £3.23Bn or $3.94bn. The pure dividend yield is therefore 5.07% ($200m a year). If you include the share buy backs and assume they will continue at $200M per half year, then the true yield is 15.21% per annum. In other words if the market cap remains constant the elimination of shares and payment of dividend will result in a 15.21% annual return to shareholders.

I have replied to the consultation exercise. I have focussed on the unfairness in taxing in a punitive way a small company and allowing BP and Shell to escape Scot free. I have made the point about compulsory hedging limiting the benefits from high oil /gas prices. I have highlighted the deterrence to future investment in the North Sea and the need for a stable tax framework. But I have suggested that a reasonable outcome would be to bring forward the sunset clause to December 2023. The tax revenue raised between May 2022 and December 2023 would be the same and it would not kill off future investment. Politically this would not be a u turn it could be sold as a mere modification.

Oil off a little today and markets opening around 1% lower. Present buying of shares by company well ahead of where it needs to be to complete $200M by year end. I like the fact that the Treasury is meeting oil representatives in Aberdeen tomorrow. Linda warned that lower investments not more. Draft legislation could be altered. Easiest thing to do would be to bring forward the sunset clause to December 2023.

At the moment the pure dividend yield is just shy of 5%. But the company has instructed its broker to buy $200M shares before 31st December 2022. It can easily do that every half year. $400M a year is nothing for a company with FCF of around $1.7bn) At the rate of just $400M a year it would take just 10 years to have bought up the entire share capital UNLESS the price of shares rises. It becomes therefore a mathematical certainty that the share price must rise over time so long as that buying pressure is maintained. We know that there are a lot of short sellers out there. At some stage they have to cover their positions. They risk getting caught in a painful squeeze.

And to add to the list:
Board lobbying hard chancellor for modifications of proposed windfall tax (Finance Bill not yet published)
Bad hedging easing off in 2023 and more or less over by 2024.
Low current cost of buy backs will enure to the benefit of long term share holders.
Half year results on the horizon.
Total investments in the North Sea so far £8.5 bn plus against market cap of £3.5 bn for entire company.

I do not actually think these director buys are that significant. The sums are small. I would rather trust the many postings on this board about the chronic undervaluation. Ratio FCF to market cap 3. Forward 2024 PE 2. Dividend yield including share bay backs 14% plus. My oldest god child has just got his hands on £200K plus from a trust fund. He viewed investing in Harbour or BP as the equivalent of investing in the slave trade. Going for a buy to let in Manchester. I despair.

Linda has done in the last week everything any one could have asked of her. She has started an aggressive buy back of the shares. She has lobbied the Government. I do not think the Government will change the main structure of the tax. But there is one thing it might do, which is to bring forward the date of the sunset clause to say December 2023 or December 2024. That would take away some of deterrent effect on investment and not cost much politically as 2025 is light years away.

I am taking now a three year view. I think $200M will be allocated to share buy backs every 6 months. So that would take out about 30% of the shares if the price remained constant. It will not however. The relentless buying mops up all those who want out at any price or who have these fairly arbitrary "target" levels. I suspect that we will see some serious surges in August ahead of the half yearly results.

I would propose some house rules which I shall apply to myself. 1. These posts should be related to Harbour or issues that may impact on the company. 2. No one responds in any shape or form to the one or two clearly deranged folk out there.3. No one posts more than three times a day. 4. Zero abuse to any one. Reasonable?

Just like clockwork we have our first RNS on buybacks. I would seriously invite any one on this board to think carefully about how this will play out. Each trading day you have buyers and sellers. But we know now that each day there is a major forced buyer with a mandate to spend $200M before 31st December 2022. Today was an awful day. But I think we will have days in the summer months when for whatever reason few are inclined to sell at these low low prices. And then what? The word rocket springs to mind. Hugely in the red but very very relaxed.

If one assumes that the $200M buy back by 31st December 2022 is a bi annual event and one assumes that the dividend is unchanged, the returns to shareholders are $600M a year. All very very affordable for many years to come on the most modest assumptions. The true yield is $600M/ $4202 or 14.27%. But in fact the company is likely to also increase the dividend at the half yearly stage. I do not know of many investments yielding 14.27% and rising. Bank account 1%. German 10 year bonds 1.71%. UK 10 year gilts 2.64%. FTSE 100 yield 3.8%. London property 4%. Oh and then gold zero. Crpto zero. And yes the lower it goes the more are bought and cancelled leaving an ever increasing slice of the pie for those who remain. Who says clever Linda does not look after her shareholders? Big fan.

Absolutely on the money Raging Bull. This $200M is chump change for this cash machine. If this RNS were not on such a dies horribilis in the markets with every one facing margin calls and panicking then we would have soared. A few days of calm is needed. But still adding.

In general with BP the share buy backs are announced within 2 hours of close. But has to be done before trading resumes. So a clear pattern of purchasing should appear. Today should be interesting.