Member Info for Stevo12

WOW - I was not expecting a deal of that size in Malaysia. Transformational and positions Enquest as a key player in Malaysia.

First impression of deal is that it adds 21m BOPD production, $700m of revenue and $400m of EBITA at 2025 oil/gas prices. This translates to average revenue per barrel of $33 (post PSC payments) and EBITDA of $20 per barrel. This should translate to approx $200m FCF post interest and Tax ($10/barrel) but before any ongoing sustaining CAPEX requirements. Very similar to existing Malaysian business.

So first impressions are the max purchase price represents a multiple of FCF of a little over 4X (pre future sustaining CAPEX). Pretty decent purchase price multiple with initial purchased price closer to 2.5X. Translating to oil/gas prices $20 higher would add approx $4/barrel to FCF or $80m.

My only concern is that this acquisition uses borrowing capacity and may inhibit a significant UK NS deal which would have much higher FCF per barrel (approx 3x per barrel)

Aim

I would not try to second guess and use mid-point of management forecast.

If I recall correctly, Enq hit the top end of forecast range in 2025, fell short of bottom end of forecast range in 2024 and were in the middle of their forecast range in 2023. Second half of the year is normally lower production due to summer maintenance schedule (although this year might look different due to Magnus) and I would wait for updated guidance.

2026 is an interesting inflection point with SEA moving from an historical 15-20% of group production to potentially close to 40% in 2026. A NS acquisition could change the at mix quickly.

Profitaker

Thanks for your considered response and I am also leaning towards higher oil for longer as a result of SOH constraints. However I have been around a long time and I have seen the impact of high oil prices, namely low oil prices too many times. However we find ourselves in broad agreement that in an environment of higher oil pries for longer, Enquest share price should do very nicely.

I agree that it is impossible to know exactly how the market would value Enquest without its legacy liabilities of $1.6b, which have an annual cash cost of $220m+ to service, but we can male a reasonable estimate at 6-8X FCF which would be broadly equivalent to the current NBV of the liability. However the key point I was trying to make is that when you look at Enquest’s equity value of £360m, you also have to consider gross enterprise value after adjusting for financial liabilities (debt, lease and ABEX) and tax assets to form a more considered views on current value. This can then be viewed as a multiple of FCF both before and after cost of servicing these financial liabilities to form a view on current value.

IMO Enquest is currently overvalued at $70 oil, fairly valued at $80 oil and undervalued at $90 oil. I see Brent averaging $90 for next 12-18 months and I am hopeful of an acquisition which will bring more NS production and lower the $70 breakeven.

Profit

What do you think Enquest equity would be valued at if it had $400m less debt, $800m less ABEX liability and $300m less lease liability - at least £1-1.2b higher as the above 3 liabilities alone cash cost $220m per year to service.

This is the reason for different equity values between Enq and Serica not some market conspiracy.

BT faith.

I agree that in a long term oil price uptrend Enquest share price should outperform the likes of Harbour, Serica and Ithaca as a result of relative leverage.

I would argue that on a like for like basis, Enquest and Serica are similarly valued. Enquest has significantly higher legacy liabilities such as leases, ABEX and net debt of approx $1.6b and equity value of $480m. Serica’s equivalent legacy liabilities are $450m and equity $1.4b. Given other assets such as tax losses and working capital are broadly similar, the aggregate asset values (Reserves) are broadly similarly valued.

The key difference is, and the reason I have moved some equity into Enquest, is that in a rising oil price environment the “value” of both business should increase by a similar monetary amount. For example, a $500m increase in value of reserves due to rising oil prices (approx $2b to $2.5b) translates to a 100% increase in the equity for Enquest and around 35% for Serica. This is the impact of liabilities being fixed in monetary terms and Enquest’s higher leverage.

Similarly in a falling oil price environment Enquest’s equity value is more exposed.

I moved some equity back to Enquest as i believed that we were entering a multi year oil bull market in 2027 and beyond. I was not expecting the SOH to be closed and i am concerned as to the impact of the closure may have on oil prices in 2028 to 2030. Yes we are going to have abundant FCF for next 12-18 months but not sure what oil prices looks like the other side of this. Anyway hopefully all NS O&G companies can fill their boots for next year and for Enquest a real opportunity to reduce net debt.

So kraken, you believe Serica management were telling porkies on Tuesday when they provided clear guidance that they expect to be debt free by end of June 26.

Aimoil

We need to start with an oil price assumption. Using the futures market to December 2026 and the oil price in Jan and feb, an average price of approx $90 looks reasonable. Could be higher if Iran conflict extended into summer. Realised price post hedges (30% at $70/barrel) totals $83/barrel which I estimate will generated $13/barrel FCF or $204m before fines, dividends, refinancing fees (approx $70-80m) so reduction in net debt of $125-135M).

Need to take cash balance with a pinch of salt as this will be a managed year end/ half year number and average cash balance during the year will be lower (as it is for almost all public companies). Look at the reported interest received on cash deposits and gross up for interest rates to estimate average cash balance during year.

Aimoil

What do you mean by net profit? After tax charge including deferred tax and depletion/amortisation charge.

I think FCF is probably a more useful metric.

It is going to be interesting to see if AB has the appetite (balls) to go for something big and spend $1b on 100m+ barrels of producing 2P reserves or whether he is thinking more incremental. Will he bet the house with resultant debt of $1.5b at 10% interest - I think he would need vendor finance at much lower rates to make it work.

There are realistically only 3 companies that could fund this deal other than Ithaca: Neo Next, Adura and HArbour. I cannot see Harbour taking on another $2.7b of debt following the recent LLOG deal and Neo Next has a lot on its plate. The adura deal was about generating operating and capital efficiencies and not sure if the partners would stump up close to $3b for expansion. BP could take an equity stake in Adura but I Understand they want cash to pay down debt.

It would be a very, very brave move for Serica to take on that level of debt, even with say $1b deferred. BP might be willing to breakup the assets which would make it more manageable for likes of Enquest and Serica. How much do folks think Enquest would be willing to Spend?

Jan

Net debt was disclosed at the 2025 and 2024 AGM updates (with explanations) which allowed change in net debt/FCF to be derived. It is the absence of net debt disclosure with the 2026 AGM update which has been debated.

Agreed.

Excellent presentation of strategy and 2026 is looking like an excellent year with $500m of FCF and debt free by 1/2 year. Also exiting the year at 65k/ BOPD with an ongoing programme of converting low cost 2P and 2C into production over next 2-3 years.

Really like the team and transparent nature of presentation. Chris Cox has transformed the business and just need Triton to keep delivering until summer shutdown.

A very comprehensive presentation and was interested that they are sniffing around Malaysia. They also indicating that while there will be fewer deals available in 2026, there was potential for a share deal - I can only see this as potentially Enquest.

Also $500m FCF in 2026 is very strong and debt free by 1/2 year puts Serica in a very strong position. I have tried to translate this to equivalent Enq FCF with 2026 production looking broadly similar. Serica is paying 78% tax on Bruce production and Enq is paying similar on Malaysian production. Key differences in FCF will be driven by Interest cost, Lease costs and ABEX and these legacy costs are approx $200m pa higher for Enq. OPEX per barrel is also higher and assuming similar hedging this would translate to Enq FCF in region of $200-250m.

Very much a finger in the air and frustrating that Enq has not provided any guidance.

Harbour published its tax payments to government bodies and in 2025 HBR paid more tax per barrel to Norway than it did in the UK. I scratch my head a little when the UK NS is deemed uninvestable with a 78% tax and Norway NS is a hot investment spot with a permanent 78% tax. Yes there are some differences re tax deductibility of ABEX but UK allows 100% year 1 allowance for CAPEX, with Norway having an element of spreading over first few years.

VOR

Not sure if you follow Serica but they provide a trading update and financial update (including latest net debt) on 24 April and they confirmed at the AGM that they will be holding an investor day next week on 2 June.

In prior years AB has provided a trading and financial update at and in advance of the AGM including latest net debt. I attach the extracts from prior years AGMs FYI.

2025 AGM “Net debt c.$405 million at 30 April 2025; represents an increase of c.$19 million since 31 December 2024, primarily driven by the phasing of liftings and extensive 1H 2025 capital activity.”

2024 “ Net debt c.$344 million at 30 April; represents a reduction of c.$137 million since 31 December 2023 and a reduction of c.$66 million since 29 February 2024.”

Enquest do not have an update scheduled until September which i think is poor from a shareholder perspective. Harbour provides shareholders with net debt and FCF forecast and has updated them regularly for changing oil price as well as providing guidance on the impact on FCF for each $1 change in oil and gas prices. Ithaca has also provided clear guidance but not as comprehensive as Harbour. I am not expecting Enquest to provide quarterly statements like Shell and BP but equally they should be communicating openly with their shareholders.

The real difference from the 1970 oil crisis is that there were limited strategic reserves back then. In particular China has built huge reserves of cheap Russian and Iranian oil and has not been bidding for available barrels over the last couple of months, using its reserves instead.

The global reserves have done what they were supposed to do; namely meet demand and moderate oil prices in times of a supply curtailment. However these reserves are finite and China in particular is expected to start bidding for available barrels in July. If the SOH are not open then you are going to see a proper price spike.

Consequences are horrible and hope it does not happen even if O&G companies are beneficiaries.

Fully agree Values and I very much expect this to happen in 2026. If oil price remains at or around $90-100/barrel for next 3 months they will have the cash to buyback BASF which i believe would be a real catalyst to share price of 10% plus. However i am not expecting this to happen until Q4 or late Q3.

I do think however there is the potential of a further dip if peace deal is announced in June.

Dumbly.

Unfortunately Politics and Economics are all too often disconnected and if they weren’t we would be issuing new licences for NS exploration and Rosebank would be in production. Politics follows media and public opinion and that is shaped by BP and Shell’s results - it’s wrong and it’s lazy but it is reality.

If the NS O&G companies were acting in concert to keep their FCF on the quiet then a bit surprising that all the major NS producers are providing fully transparent info on their results and the impact of higher O&G prices. I am expecting Serica to provide a comprehensive update on their FCF next week and it is only Enquest that is being Opaque.

Very impressed by Blair’s broader analysis including O&G

Profitaker

I do not believe it is because Enquest are concerned that it will negatively impact No 11’s thinking on EPL - all other much larger producers are being fully transparent. I also do not believe it is because they are in the middle of a deal. There is no logic to that.

My only realistic conclusion is that dropping net debt and FCF info from the AGM update in 2026 when it has always been provided in the past, is that the debt reduction/FCF generation has not been as strong as expected and they want to generate another couple months of positive FCF before 1/2 year. Net debt reporting was dropped for trading updates in late 2025 for the same reason.

Dumbly

While Shell and BP Uk operations contribute a fraction of their total profits, they are unfortunately the posterchild of O&G in the UK and are the focus of media attention when they publish bumper profits in times of elevated oil and gas prices. I am afraid politics and politicians are more interested in media and voter perceptions than tax reality and (because of media portrayals) the general public believe that higher energy bills in UK translates to BP and Shell profiteering. Serica, Ithaca or Enquest have no real media profile beyond the sector nerds like us.

Anyway the point was that neither the media of No 11 are interested in whether Enquest reports a $30m or a $50m debt reduction, it is the several $billion profit reported by BP and Shell that grab the media attention and consequentially the response from politicians. By the way Treasury was 100% behind the replacement of the EPL pre the Iranian conflict and it is politics that is blocking the transition not tax economics.