The latest Investing Matters Podcast episode featuring Alex Schlich, founder and managing director of Yellowstone Advisory, has just been released. Listen here.
Gloucester - I get your point and ignorance possibly prevents me as ever having having rounded picture. But -
My mind simplifies things by thinking that EPL cash must be spent on SOMETHING (or given to gov), so won't affect any prettying up and sale (indeed it helps). Put another way - they are unrelated entities, save for future increased revenues buyer will get (if EPL cash spent well)
Costs - (big ifs here) say oil next 12 months oil $120 and daily average 8000 barrels so
$120 - 8% (BW) = S110 -$30 production cost = $80 x 8000 x 365 days = $233 mill, say $220 mill for lost time etc, hence tax bill $55 mill for 12 months. i don't trust HUR P8 cost estimates since written to show court we couldn't survive. so say costs now same now increased. 55 x 91% rebate = $50 mill. so hurr need pay circa $35 mill from own pocket. if EPL allows offset over 18 months period EPL bill 50 x 1.5 = £70 mill so HUR need cough up own pocket $15 mill.
HUR averaging 7000 barrels a day changes figures slightly but not that dramatically
have i got anything wrong?
and can someone advise - if HUR buy producing asset, can this cost be offset against EPL payable?
So as of 31 May we have bond cash + $60 mill - very nice
By 31 July with $120 oil we will likely have $100 mill (CEO always understates - says $90 mill) - very nice
We got $110 a barrel last offload not guesstimated $108. BP deal usually gives slight raise on 5 day average (if rest of month higher). Very nice
Would be nice if CEO had accurately/honestly stated development costs could be 91% offset by EPL (up to value of EPL charge), rather than 'such investment would partially offset the EPL charge'. 'Partial' is erroneous & misleading
Proactive article (courtesy Troajan) good. Ideal headline used (will be mirrored by other writers) - very nice
(save for writer's error/confusion in stating 31 July cash likely + $75 mill, rather than +$90 mill)
Below is April 21 'Offshore' article incl HUR estimates (i) P8 (P7 sidetrack) cost $84 mill, + 1.8 mill barrelage increase (from then 10 mill to 11.8 mill barrels) (ii) subsequent water injection well cost $96 mill + 8.7 mill barrelage increase (from then 10 mill to 18.7 mill barrels). The EPL brings both these into play, especially as separate works are time-staggered. HUR MUST be looking at both, but especially & immediately P8 for summer 23 completion & production. Do the profit sums for extra 1.8 mill barrels, and 8.7 mill barrels. If such work program were announced, we would be off to the races. This quite apart from inorganic growth (eg. production asset acquisition)
Yesterday's musings omitted the obvious proviso and biggest HUR risk - namely the single well dependency. Any problem, even a 2-3 week shutdown to get 2nd pump up and running, would significantly impact recovery progress & SP. This concern will have been CA's biggest impetus for timely exit as soon as SP reached acceptable level. Even a Rolls Royce (well 6) breaks down occasionally. And full credit where due to Maris that operational performance has been exceptional. Others knowing his background have posted that he is a good COO, which requires different skill set to CEO.
Whereas pre-windfall tax the intention may have been to not address the single well dependency by risking investment funds, the tax effectively obliges HUR to now do so (the no-brainer) in preference to donating funds to taxman.
The single well risk has always been live. It was just pointless expending much thought towards resolution whilst bonds still live and zero or piddly free cash. And that without having safety first chief execs with no skin in game save salary, and CA's winding up position. The new tax, and soon to be decent free cash protection, changes things dramatically and enables the single well position the issue to be addressed. The question now is - how quickly & pragmatically can it be addressed?
CA SHs are happy SHs as significant dividends are a regular feature. It would be a fair guess that, pre headache tax announcement, HUR planned to throw off part of increasing free cash as special dividend, then repeat at 6 monthly intervals. I can imagine 2 things may have been planned:-
(i) 3-5p as special dividend
(ii) investment partner sought for LanFax, with HUR providing licenses, acreage & AM, partner providing cash, profits split 50-50. HUR thus at zero financial input exploration/development risk. Thus HUR (& CA SH cash) finances wholly derisked. Good deal for HUR & new partner.
Special dividends would negate HUR's cash mountain being donated at huge discount as part of any eventual sale of HUR in total, or CA's 28%. Consider the selling a car analogy - a buyer usually wants all the extras (aircon, satnav etc) for top of the range model thrown in for free. HUR has acreage, licenses, FB knowledge, data, mega Well 6, AM, huge tax credits....and growing cash pile. It makes sense to not include the cash pile as part of any deal in which the seller will never get fair/full value. Better that cash goes to SHs whilst retaining smaller safe operating cash pile.
Now consider 5 things:-
(a) Do the sums and find that IF Brent stays at $120, by end Jan 23 (4 more offloads) HUR free cash will be circa $200 mill NET of 25% windfall tax.
(b) Well 6's recent stabilisation trend is outperforming all expectations. Should that trend continue, allied to long term Brent above $100, the genuine possibility arises of Well 6 economic production alone extending to Jan 25 or even beyond. This raises the question - how much free cash profit over and above $200 mill would this throw off? A further $250 - S300 mill Jan 23 - Jan 25? $500 mill equates to 25p in dividends alone
(c) Windfall tax underwrites (F.O.C) all or bulk of HUR's at present 'go it alone' sidetrack/ 2nd well development. What if it succeeds in good time?
(d) The above means that HUR (& CA) can continue their possible plan to use profit flow for regular dividends, with the benefit of a small forward plan underwritten by windfall tax sums.
(e) Given this rapidly changing landscape & increasingly positive financial upside, CA may be minded to seek it's SHs' agreement for extension of time for winding up it's HUR element. Why exit HUR whilst zero risk cash is being thrown off? More time = more cash + more time to find partner/ buyer willing to agree fair value deal?
As I said - merely musings.
There has been much argument since last Dec re 2 aspects restraining market confidence (i) single well dependency (ii) chief execs. Always thought arguments a snooze till July as HUR hamstrung till bonds gone + $100 mill spare in bank. Can't do anything without money. Well 6 problem free till July was only imperative, with as high Brent as poss. Prayer mats were used - prayers answered - and now HUR has (bar the shouting) done it.
Despite offload due end July It may take till mid August monthly cash & production update for a semblance of formal financial clarity to impress market (bonds gone + $100 mill in bank).
Meanwhile the windfall tax curveball should necessitate the (i) single well dependency issue to be addressed - there is June update, AGM ,& July update for this to occur. The tax may transpire to be a blessing in disguise (at $120 HUR receiving $100 Brent cash profit + free exploration/development).
Meanwhile If (as seems probable) (ii) CA have resolved to stick (and not twist) with chief execs, the BoD confidence issue will likely remain unaddressed. CA cannot be blamed. It is important we PIs recognise this. CA did not elect to be wound-up, and are obliged to do what is best for their SHs within a certain timespan. It will be the inevitable first time that CA interests to a degree digress from PIs. Put another way - I am sure CA's exit timeline & decisions would differ if they were not obliged to wind-up - they will know the potential lost upside of a 2nd producer allied to dynamic new chief execs fully aligned with SHs interests.
Whilst current SP malaise is inexplicable & unnerving, the next 2 months will see considerable positive news flow & likely increased positive media coverage. No institutions are selling, It is only PIs 20% being sold/bought currently dictating SP. In Jan this year all SHs would have given eyeteeth for HUR to be in it's current position. I expect mid Aug to see markedly different SP
Hairy - nice to read you again.
Sadly I agree the permanent drag effect of CEO & CFO. No one buying/buying into HUR will do so unless they intend/are prepared to replace both immediately. History can't be hidden - would you trust chief execs so lacking that rather than ensuring safety by buying bonds back at -40c in S (the 'no-brainer'), they opted to dilute SHs by 95%? CEO & CFO remaining in situ dilutes number of companies interested in HUR. It's common sense.
CA will have a target price and appears they considered it would still reached with current execs so why complicate matters. Windfall tax effectively obliging HUR to be proactive and re-invest the tax has complicated CA's plan. But if they have decided to retain the chief execs it's too late to change personnel now. I agree with Hairy that current chief execs will always affect HUR's attractiveness and hence SP . HUR will soar, but never to where it should be
Dalt - Co Sec left couple of months ago, likely under CA pressure. Immediately RNS moodiness lessened & 'doom & gloom' warning in each RNA ceased. if CA thought him to be string puller of easily led CEO, may explain why CA ajudge more pragmatic for CEO to remain. Also, If 'for sale' sign is up, may not be easy to entice new CEO to company soon to be defunct, or to continue in as yet undefined format. As things stand CEO & CFO currently slated to remain. Whereas one imagines CA to have sound reasons, they can't tell us. Doesn't help PIs, most of whom want CEO & CFO gone unless provided with sound reasoning for their retention
Canaccord as useful as a chocolate teapot. No mention of HUR tax position worth 6p-16p. A 10 year old could write a more accurate and applicable update
Also, since many believe the Annual Report to be an 'airbrush' bereft of ANY acknowledgement of ANY mistakes having been made, let alone bereft of ANY apology. the question arises as to whether Resolution 1 (Annual Report etc) should also be voted against. Resolution is below:-
1. To receive the Annual Report and Group Financial Statements of the Company and reports thereon of the directors and independent auditor for the year ended 31 December 2021.
What are people's views?
Always remember voting can safely be made any time up until 22 June to allow 5 working days (AGM 29 June), though Hargreaves told usually any time up till 48 hrs prior is usually enough. So it is safe to wait till this month's update to see it's content, before voting
Supply crunch seemingly imminent
And most banks/brokers raising price forecasts
An infrequent poster's yesterday's thread directly criticizing CEO has been pulled - so someone is still at it
CA - the $24,000 AGM voting conundrum. Do PIs support all resolutions, on the basis that if CA are, unanimity may assist HUR going forward? Or do PI's vote against Resolutions 3, 8 & 9, in line with integrity, and to ensure protest vote message to BoD that nothing is forgotten or forgiven, and actions are being monitored. I am leaving voting till after this month's update in case of surprises. My current thought is to vote against 3, 8 & 9 to send a correct protest vote signal to BoD - whilst being aware that voting outcome. barring a miracle, is foregone conclusion
My view like Gloucester's is parameters increasingly indicate economic production well 6 alone good to 24/25 - my view more likely 2025 given likely oil price.
Unfortunate consequence of CA forced to wind-up by end 2023 likely to be wholly new 3rd CPR likely to not occur until CA out, or at any time in near future or at all. Were CA not having to wind up they would likely have pressed for 3rd CPR at some point. Also, CA 'reserved it's position' re NED investigation into 2021 events (ie. did not believe the outcome) and likely would have revisited the matter near-term. Events (ie winding up) have overtaken what CA would have otherwise likely chosen to do.
Para 3 states this IEA 2 mill bpd lowering estimate is before insurance effect taken into account
This a biggie for underpinning PoO - even if Russia gives state-backed insurance, most delivery ports don't allow entry without full blown insurance cover
Whereas as courtesy I would normally respond to any question directed to me by any poster, I am no longer prepared to engage in direct interchange with you. As courtesy I give reasons. I find the tone & content of much of your posting, and indeed your forum conduct generally, both ignorant and offensive. I also believe you to be injurious to the integrity, well-being and fundamental purpose of the forum.
The above represents my balanced personal opinion, and does not breach forum posting guidelines
i rather think that since windfall tax was only announced 26 may (ie 2 short weeks ago), it is reasonable to allow HUR & CA a few short weeks to construct a plan to avoid donating tax money to government. i don't think it helps for anyone to be going full tonto re this issue until and unless this month's update (circa 17th?) and the AGM pass without it being addressed. i personally don't envisage silence. i also reiterate it is only now that HUR are financially arriving at a position whereat (irrespective of recent windfall tax) ANY plan is possible.
i regard the issue of basic lack of faith in various BoD members as being a separate issue which should not fundamentally be affected even if a coherent & sensible plan(s) IS announced
i don't see merit in any poster EVER threatening another with post-removal for the heinous sin of being called 'a prat'
From yesterday's Serica Energy Corporate Update RNS. Much applicable to HUR. One hopes HUR June monthly update contains similar direct, positive & upbeat addressing of windfall tax issue:-
" Energy Profits Levy
The Board notes the significant fall in the Company's share price in the run up to and particularly following the UK Government's announcement on 26 May 2022 of an Energy Profits Levy.
The Levy is applicable to profits arising on or after 26 May and so Serica's profit prior to that date is unaffected.
Although fiscal instability is unwelcome in an industry with long lead times for capital expenditure, this new Levy is part of a package that includes significant investment incentives designed to encourage companies like Serica to continue to reinvest profits. Serica already has an ongoing investment programme including the LWIV campaign and the North Eigg exploration well in 2022. Based on our current understanding of the Levy, this programme will qualify to benefit from these incentives with each £1 invested by Serica offering an overall tax saving of up to 91.25 pence. Our planned 2022 expenditure on the North Eigg well and the LWIV campaign is around £60 million which we expect to be eligible towards this tax saving. This will offset a large element of the Energy Profits Levy that would otherwise be payable on Serica's profits this year.
Moreover, we are evaluating additional candidate projects designed to increase the productivity of the Bruce hub. Our strong cash balances with no borrowings, 100% of cash flows from our shares of the BKR assets and now enhanced investment incentives puts Serica in a strong position to continue to prosper as it adapts its strategy to changing circumstances.
The Company will be holding its Annual General Meeting on 30 June and looks forward to presenting our forward plans in more detail and hearing shareholder views.
Mitch Flegg, Chief Executive of Serica Energy, commented:
"Our established strategy of investing in our portfolio to enhance production and create greater value means that Serica is well placed to take advantage of the investment incentives included in the Levy. We have built a strong cash position and balance sheet and this, combined with strong cash flows and being a current taxpayer, gives us the leverage and resources to do so.
Although Serica has financial strength, our industry operates within unusually long investment horizons against a backdrop of often highly volatile commodity markets and business cycles. We therefore encourage policy makers to consider the importance of fiscal stability in enabling government and industry to meet the mutually set objectives of sustaining investment in the UKCS at a level capable of ensuring security of oil and gas supply in volatile markets and delivering energy transition targets."
Euston - You disappoint. An easy throw-away let's get popular quickly line? Rather than thought? Resident new nutters Golfer & Kentboy I get. But you? Really?
A single poster has since Feb caused half the forum to depart elsewhere by persistently rewriting HUR history and essay-bombing anyone calling him out. In another few months the rest of the decent posters will have gone and the forum will consist of February man (a nutter who can write, but still a nutter), you. and the usual nutters.
You could of course call him out yourself occasionally. But that of course takes a little effort