Member Info for Stevo12

Hunbah

I was referring to tax depreciation as opposed to accounting depreciation - i should have use annual capital allowances as more appropriate terminology. in calculating Corporate tax, Malaysia does not have a 100% first year allowance for CAPEX (like UK) and, for most projects, the annual allowance is 8% of the CAPEX and such the upfront capital costs are spread over the field life. There are some special allowances for late life field investment or high pressure etc.and not sure if these would apply to Seligi.

I need to do a little research to determine if the calculation of PSC allows 100% of in year CAPEX to be used for calculating PSC as opposed to a a capital allowance. Over time it should not make any material difference.

On a couple of other points. Malaysia 2026 production will become increasingly gas heavy and in 2024 Oil at $81/barrel and gas at 85p/therm translated to an average of $58/bOE for Malaysia. The 2025 and 2026 averaged realised price will likely be lower with oil in $60s and gas also trading lower.

While i appreciate your intent was to use $65 BOE and $10 OPEX was to demonstrate mechanics of PSC it is then being used to projected 2026 Malaysian profitability. For Kamrats benefit, i projected 2026 Malaysia PAT using more appropriate assumptions.

Production 11,000 BOPD at $58/BOE = $233m

OPEX at $20/barrel - $80m

CAPEX/ CA - $40m

R/C ratio 1.94 (translated to a 50% cost recovery ceiling)

Profit to be shared - $113m

Enq share (50%) - $56.5

Tax at 38% - 19.8

PAT $37.7m ($9.4 per barrel)

As we have discussed before, Malysian profits per barrel are maintained in quite a tight range (approx $7-12 per barrel) in very materially different oil price environments. This is a very useful moderator in a highly volatile oil and gas price environment and while operators will never make super profits in Malaysia, they are also shielded in oil and gas price downturns. Note to Ed Miliband.

Hunbah, Kam

Just one adjustment to Hunbah’s methodology, namely the adjustment for recoverable costs is OPEX + Depreciation as opposed to CAPEX.

In terms of numbers the average price per barrel realised in 2024 was $58.6/ BOE due to the lower realised price from gas. How have you arrived at your $65/ average in 2026?

Also as previously noted PM*/Seligi OPEX was $20/barrel in 2024 ($61m) slightly higher than reported by the company in 2019 of $19/barrel. How have you arrived at your $10/ barrel estimate?

On today’s OU, Enq does what it does best - efficient production and really positive that they have maintained production at 2024 levels (excl Vietnam Acq).

Really disappointed that Enq failed to disclose net debt. The evolution of net debt has been a feature of all OUs in recent years and to not disclose current net debt is hardly transparent and leads to the assumption that it has gone south. The statement that year end net debt will be in line with” market consensus” Anyone know what the market consensus is? Chatgdp says $400-440m.

Kraken - it looks like you are going to loose the first bet re acquisition by year end. We should have an idea on FCF for 2025 in the 2026 Feb OU.

Hunbah

It is not only about different timeframes, it is also a fundamentally different view about the number of barrels in which Enq has an economic interest.

My understanding is that Enq has a 50% WI in PM8/Seligi which translates to about 9k barrels per day in 2025 (on which it then pays royalty and PSC) and will hopefully be higher in 2026 - maybe 10-11k BOEPD but nowhere near 22k BOEPD. Malaysia should contribute around $20-22m in 2025 after all tax and PSC payments and there is no way on god’s green earth that this will increase to $85m in 2026. The PSC mechanism provides a range of contribution of approx $7 -12/barrel with an oil price range of $65-85/barrel equivalent.

Kamrat

The Malaysian OPEX per barrel for 2019 was detailed in the Enq presentation you shared a couple of days ago.

I presume you are aware that Enq has a 50% Working Interest in PM8/Seligi and gross production for FY25 is looking like 18k BOPD of which Enq share is approx 9k per barrel. The PSC arrangement only applies to Enq appox 9k BOPD net entitlement and not the gross entitlement.

Enq share of Malaysia revenue in 2024 was £123.7m after netting off PSC and Royalty payments of £52.8m, resulting in an average revenue per barrel of $58.6/ barrel in 2024. OPEX in 2024 was $61m ($20.5 barrel) and depreciation $17m resulting in PBT of $45.5m, after corp tax PAT was $27.5m ($9/ barrel).

2025 revenue per barrel and profitability has fallen and 2025 contribution is looking like $7-8/ barrel. I can not see any pathway to increase contribution per barrel to $20+ in 2026.

On a wider point, I can only assume that Enq has got something pretty important to announce resulting in OU delay.

Kamrat

I start with 2025 results because they are an audited, reported base from which to build 2026 and beyond forecasts.

I fear you are substantially overestimating contribution/ profit from Malaysia for 2026. A couple of observations that i have made previously - OPEX is most likely closer to $200m ($25/barrel) than the $10/ barrel you have assumed (Malaysia OPEX was $18/barrel in 2019). I also think Enq share, after PSC and Petronas 50% WI, is closer to 25% of gross PBT.

We should have a bit more to build on after the Opp update, whenever it is released!

Hunbah

I would add that Enq is currently valued on the basis that oil stays at or below $70/ barrel and this is the key driver of Enq’s share price. If the operational update confirms that Enq needs $65-70 oil to break even then not sure where share price goes until the upward trend in oil price becomes visible (possibly H2 2026 but who knows)

Waldorf is certainly a highly distressed sale and should not be used as a barometer for other companies’ valuations. The fact HBR is being paid $180m net cash to take on 35m of reserves with 20k BOPD (shielded from core UK 40% tax) generating at least $150m of FCF is an absolute steal. Yes they have an obligation to fund $400m of ABEX (net of HMG contribution) in over a decades time, but by then HBR will probably have taken over $1.5-2b out of the business with a modest rise in oil price to$80.

Based on the increased in HBR market cap this acquisition would have doubled Enq share price.

The question is what next for Enq. The Serica merger was the natural solution and will this come back on the table? Enq is not a particularly attractive acquisition target with its high FCF break even and significant liabilities- (Decom liabilities, BP Magnus liability, Bonds and lease liabilities). On the positive side its UK profits are shielded from core UK tax, it is holding some cash (how much ?) and has 2P reserves which might be worth around $1b at current oil prices.

Oiluser

Private placement shares have not been created yet. Cash held in escrow until financial close and it will be at date of financial close the shares will be created and issued to private placement investors. My gut feel is that OO will be the date of financial close which per Navitas will be pre 31 December

Stupmy

The WD was a good strategic deal but HBR way over paid and hence the share price performance.

While this is a smaller deal it is certainly very well priced with a net $180m cash inflow on day 1 and $7 per barrel for 2P reserves.

Even at $60 oil the ex-Waldorf fields should contribute $150m pa after EPL. Great deal for HBR and while we can’t use the tax losses for 5 years against HBR production it shields the acquired fields from Core UK tax for most of field life.

Well done Linda and team.

Impossible to know change of control terms or whether they even existed. If there were outstanding preemption rights and given kraken is a significant part of the acquisition, it would have been disclosed (as Serica did on the recent acquisition from BP that got preempted by Neo). Enquest must have wanted this deal and, if they had preemption rights, I can’t see they would have waived them pre deal.

The only positive i take out of this for Enq is that HBR would make a great parter to develop Bressay and Bentley post EPL.

Would not

AA2020

Apologies i should have been clearer. I was referring to no corporation tax payable on the ex Waldorf production and not wider HBR production. It will be 5 years before HBR can use any of the Waldorf losses against its own current production.

Preemption rights would likely not have applied as HBR have acquired the legal entity which holds Kraken, Catcher and not the field itself.

Aa2020

Hbr can not use any of Waldorf’s tax losses for 5 years. In essence the Waldorf deal gives HBR FCF from Waldorf assets on which they will pay EPL, but will not have to pay core UK tax for close to field life. Looks like $150m pa FCF at $60 oil.

Ever the bridesmaid!

This looks like a pretty good deal for HBR. They are receiving $180m cash on day 1 and pick up 35m of 2P reserves (mainly 1p) and a decom liability of $420m (net of tax) to pay in a decade or so time. Production of 20k BOPD should generate FCF of approx $150m Pa after EPL at $60 oil, with no core UK tax to pay for field life.

Net purchase price including decom liabilities and adjusted for cash is $240m or $7 per barrel. The acquisition has added approx £150m to HBR’s balance sheet.

It looks like it would have been a perfect fit for Enq with quality, well maintained assets in Kraken and Catcher at a low acquisition price per barrel. Enquest may not have been able to get the $350m cash secured for decom liabilities released, but still a $170m upfront purchase price from 35m of 2P would have been very affordable given the new facilities.

SO the question remains, why were Enq not able to get this over the line?

Using the valuation metrics for Waldorf and applying them to Enquest looks pretty brutal.

Looking on the positive side, i feel less aggrieved that the private placement investors got in at 53p.

Dumbly

The tax losses on the balance sheet are not discounted so should not be used as a proxy for NPV.

Update tomorrow?

Dictum

Looking at valuations. RKH has 60m barrels of phase 1 and will have approx $620m of debt at first oil (270m+350m); so at current market cap of $1b, puts a value on phase 1 barrels alone of $27/barrel which is on the high side. Accordingly there is clearly value in todays market cap for Phase 2 and beyond.

What value is ascribed to the 52m phase 2 barrels is not clear but must be north of $10 per barrel to make any sense, which reduced phase 1 value closer to $18/barrel at First oil.

An incredible journey and i see Navitas is up on announcement. Not sure what the market was expecting but while costs to first oil are up, this includes interest on the $1b debt of close to $100m per annum once fully drawn as well as contingency. The interest rates are as expected. Historic tax issue resolved with payments over an extended period.

Don’t understand what has disappointed the market to warrant close to a 10% share price fall.

Regular assembly meetings are last Thursday of each month. This would be 18th

Thanks smac, really helpful.

My guess is then is a couple of days for new members to be briefed on the details, assembly meeting on Wednesday afternoon to approve and announcement of FID on Thursday morning. This will allow a couple of days to deal with press before Christmas break.

Just a guess but I will nail my colours to 7am, 18 December for announcement of FID. Any other takers?

Dumbly

You are spot on. The “cash value” of the losses is approx £1.3b in terms of tax payments which may be avoided in the future. Interestingly at 30 June 2025, Enq had recognised $668m of this asset on the balance sheet.

The new MLAs will need to be sworn in before they can commence their roles and the signing in will start in early week commencing 15 Dec. An assembly meeting could be scheduled for back end of that week to approved FDP, tax etc but going to be very tight.

If not possible in week commencing 15th it is going to be difficult to get sign off pre year end.

I thought the CFO delivered an impressive and confident performance, but it was a bit of a patsy interview with no real challenge. The level of debt repayment over the last 5 years is a real credit to management. The interviewer did not address the elephant in the room namely oil price; While the CFO described the UK as a cash cow to fund growth in SEA, he did not address the oil price need for ENQ UK to deliver the cash for expansion.

I am not expecting positive FCF for 2025 and it will be interesting what management do with dividend. Trading update will tell us more.

What came over loud and clear was quality of team in both field life extension and ABEX. Clearly well positioned to take over further late life fields in the UK but hopefully in early 2026 and not this year. I think he also underplayed the company’s debt and debt like obligations which includes leases and Magnus liability to BP.

My personal take is that I will buy back into Enq shares as and when the signals on oil prices start to look positive. Looks like possibly H2 2026.