Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
That’s not true maverick. It’s not a permanent tax and if NE hit there is zero, none, zilch chance it comes online for several years. And this tax won’t be around then. As if it is no one will bother doing **** all in the North Sea apart from fishing off a load of scrap metal platforms abandoned by companies that have gone bust.
Because bp and shell pretty much do **** all in the North Sea. They were just used at the poster child’s for a windfall tax by the dumbass media and politicians who literally know nothing about this industry. It’s like saying we should retrospectively tax all U.K. retailers cos Amazon made too much money GLOBALLY during the lockdowns.
Absolute dumbasses.
So basically, we may as well just do a ton or drilling now and STOP HOARDING CASH!!!
Given the news today, I do believe that diversification need sto be considered. We are too tied to the UK and to mitigate stupid decisions like this we should look tyo M&A outside of the UK continetla shelf which Robin Hood Rishi cant touch us.
So Serica management…get your fingers out your butts and START INVESTING and STOP HOARDING!!! YOU ARE DESTROYING SHAREHOLDER VALUE with the current status quo.
Im not an accountant or a tax expert. Far from it! But my understanding is that in a regular UK business, you pay tax on your earnings after all costs, payment of interest and after of charges for depreciation and amortisation are deducted. As such, to get these pre tax earnings lower (and thus reduce your potential tax liability) you wopudl have to either 1. increase your cost base (why would anyone do that?), 2. take on more debt to increase your interest bill (PE companies will do that and it is a tax shield), 3. front load your depreciation and amortisation by writing down assets quicker (needs clever accounting but some companies for sure do it).
For a UK oil and gas business, tax relief is also given for exploration and appraisal costs. In fact, 100% of all exploration expenditure (including plant and equipment) would qualify for immediate tax relief. All costs associated with appraisal work also attract R&D allowances for 100% of that cost to be written off against tax.
So….to get our earnings before tax down we also have the option to increase our capex on drilling, exploration, appraisals, new developments etc etc. We know this is what Serica want to do anyway as they said they were focussed on growth rather than shareholder returns. North Eigg is gonna cost 100m…that’s tax deductible. Even if it’s a dud it will end up costing us nothing as we would be paying that cost out in tax anyway.
This tax and the price vestment incentive is actually ok. North eig costs will be offset against tax and any future projects.
What does it do? It means Serica management can’t just sit on our cash and do **** all like they are now. Either pay it to shareholders or invest it!!!! Your inactivity is not acceptable.
This idiot thinks he is Robin Hood. Why not just cut vat rather than taking the cash and giving it back to people for them to waste on crap that will stoke inflation further? Vat receipts from energy and fuel will have doubled so cut that vat rate and also targeted tax cuts. People will take the cash and blow it on ****e that will cause further issues down the line.
The most socialist conservative government ever.
This tax is nothing more than lip service to all those clamouring for it who have no clue what it even is or how this industry works. It’s cyclical. You make excess cash in the good times to repair balance sheets for when the bad times come. And they will come!!!
If I am harbour now I dont very every penny of my capex spend outside the U.K. **** the north sea.
https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5253320
Pretty much **** all physical delivery gas trades at spot fyi. It’s all contractual and those contract prices can de miles away from this imaginary spot price. Going forward, Look from sep onwards where we will be agreeing supply contracts with utility providers for winter 2022/23. All above 200p.
Oil is easy to store. Easy to transport. It’s very stable in liquid form. You can buy physical cargoes and park it out on a ship at sea and wait for price to move in your favour.
Gas is a ****er. Difficult to transport - need a pipeline or a big **** off gas-to-liquids facility that’s cost billions. Can’t store it easily and can be very volatile and dangerous. You nice it’s flowing it’s hard to turn off.
As such, gas is a contractual market. Pretty much no gas for physical delivery is sold at spot rates. It’s all sold on contract for forward delivery at a set point and a set quantity in the future.
Have you had your heating on this week? No. So chances are your gas usage will be much much lower than over winter. As such, the utility who supplies your gas will not need to be taking delivery of huge amounts of gas at the moment. Why? Cos they can’t store it. They just sell it to you when you need it.
But…they do know that come September and October time you will be cranking up your boiler again along with everyone else in the U.K. as a result of this, whilst you are needlessly crapping your pants over a completely irrelevant U.K. summer spot gas price the people that know what they are doing are looking at the forward gas prices which for September 2022 onwards are all trading above 200p a therm.
https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5253320
There is a full risk off in markets given they are turning from worry about to elation to worry how that is going to now impact growth. Recession will happen. It’s a given. And that will impact demand for everything including oil and will rock markets despite savannahs solid fundamentals.
If it’s too hot. Get out the kitchen. You can always buy premium bonds.
Just some back of the envelope from data in the Dec 21 presentation and 2021 Fy trading update.
Trading update:
Cash 154 and gross debt of 524 gives net debt 370
Sales cited as 230m and opex was “at or below the lower end of guidance of 55-65m”.
As such lets take 55m opex and that gives EBITDA (230-55) EBITDA of 170m!!!! Is this right?? Not sure what the mkt has missed heer as its way above consensus.
Using a share price of 35p, GBP/USD FX rate of 1.25 and 1306.1m shares outstanding a mkt cap in $ 571m. As such enterprise value (mkt cap plus net debt) in $$ is 941m. That’s an EV/EBITDA of 5.5x.
Pro forma for acquisition closing will have 1407.2 shares outstanding.
The presentation says gross debt will be 885m which we can reconcile with gross debt at year end of 524m + 300 sr debt to finance acquisition + 32m junior debt = 856m. So in the right ball park.
Pro forma number of shares out will be 1407.2m.
For FY 22 at 75$ oil combined sales forecast at 596m and costs of 226m. That gives PF EBITDA of 370m.
In terms of cash flow the pres says that forecast 22 cashflow is 266m and that every $1 increase in oil px above 75 gives and extra 2.5m of cashflow. Average YTD oil price is $101 so that would give an extra 65m =331m. They are stating the transaction close date as 1 July so some of the cashflow is included in the transaction adjustment but lets take half of it (165m) for H2 and add to the YE 21 cash position of 154. Gives YE 2022 cash of maybe 320m.
Hence net debt = 885-320 = 565m.
Thus at the share prices below using 1.25 FX rate/EBITDA370m/net debt 565m/1407.2 shares I get the following EV/EBITDFA multiples for FY 22 pro forma
30p=2.9x
40p=3.4x
50p=3.9x
60p=4.4x
70p= 4.9x
80p=5.3x
90p=5.8x
Conclusion: straight oil and gas multiples are really depressed at moment still but the infrastructure (midstream) element of this and the contractual nature of the Nigeria gas revenues means this should trade on a premium to a straight E&P. Why? Cashflow. Pure and simple. Thi is the ultimate cash machine and with no Uk production the UK gov cant touch us with any windfall tax nonsense. Would think we could easily trade north of 5x by year end which puts us in the 70-80p in my view. SO…..todays price of 35p? Keep buying!!!!
This is a naturally cyclical industry. The companies repaid balance sheets in years like 2022 so they don’t go bust in the ears like 2016-2107-2019-2020.
Mark my words, at some point the erase will fall out the energy mkt again but most likely will be a super cycle given Russian supply will be ignored by most buyers.
A windfall tax on these companies this year (as per boss of centric a) is like burning the furniture to heat the house. It’s futile. And ultimately it will case more issues down the line.
I do not believe we will have a windfall tax as when the next cycle comes you would get a hold load of smaller e&p going under and blaming the government.
Obviously debt reduction is from cashflow and cashflow looks heavy in q1 given capex is back loaded. They still targeting 1.3bn for the year and only spent 160m in q1. But still…..amazing cashflows.
Great update. Next stop 600.