Member Info for Stevo12

Hunbah

I agree that the flexing mechanism in Malaysia gives the operator support in lower oil price environments by increasing their percentage share of profits.

However the tax allowance mechanism on capex provides a real disincentive to invest compared to NS and other regions, particularly in a lower oil price environment. UK and other regions allow 100% of capex to be offset against taxable profits in the year spent. Malaysia only permits an annual depreciation charge to be offset and this makes a huge difference to FCF when developing new fields.

By the way where did you get your 20K BOPD from?

Hunbah

I have done more research on Malaysian O&G taxation than i would care to admit and Kamrat is pretty close.

The royalty is simple and clear at 10%. The PSC mechanism has a sliding scale as described but is broadly a sharing of profit after charging OPEX and Depreciation (there is no accelerated first year allowance in Malaysia) which at $70 oil will be in the 45:55 to 55:45 range (individually negotiated). Corporation tax is then applied to the remaining profit and further withholding tax if cash returned to UK.

In H125 Malaysia generated a pre tax profit of $18.9m with a corporation tax charge of $4.6m. Production in H1 was 1.5m barrel so a pre tax profit per barrel of $12.6 per barrel, post tax $9.5/ barrel at $70 oil. FY24 profit per barrel was higher at pre tax profit of $15.7/barrel with oil at $80/ barrel.

Accordingly the current 8k BOPD should generate approximately $27.7m of post tax profit for 2025. FCF will differ depending on difference between capex and depreciation.

In broad terms with oil price of $70/barrel, OPEX of $20/ barrel and CAPEX of $10/ barrel, Enquest retains $10/ barrel and Malaysia takes $30/ Barrel, an effective all in tax of 75% comprising Royalty, PSC and Corp tax. The percentage goes up as oil prices rise and down as it falls.

I see the RNS and replacement of the RBL as a positive step forward.

I am scratching my head a little to understand why the LOC facility needed to increased from $75m to $400m, but I am sure there is a reason to have this increased LOC headroom for decom liabilities. The accordion agreement is interesting and provides the capacity to increase RBL by $400m, which could be used to fund a significant acquisition of 2P reserves. The actual amount that can be drawn down will be set by the next annual redetermination in Jan 26. The last redetermination allowed a maximum draw down of $237m from the $425m RBL facility.

The interest rate is not disclosed but assume that it is similar to current RBL facility of SOFR +4.5%, which is cheaper than HYNs.

In addition to funding M&A, the RBL facility provides an opportunity to reduce the current level of bond funding, which will be very helpful when the current bonds are renegotiated next year.

Most importantly a vote of confidence from the banking community. Well done AB.

Just landed back in the UK. I have not taken a look at RNS yet and will read tomorrow.

Caledonia

A calculation is not possible as we don’t know what % of current shareholder have participated in the placing and, as a result, will not be eligible for OO.

I am sure all large shareholders will have been invited to join the placing.

If you have sold shares post placement announcement i think it is highly unlikely you will be entitled to join OO. Most likely date for OO entitlement is in my opinion the FID announcement date. The logic is that when you sell shares with OO entitlement, the value of that entitlement is reflected in the share price, similar to selling a share with warrants.

VOR

Interest paid on 27 April and 27 October. Received mine today. Thank you very much Enq.

The answer to the question “is FID priced in?” Is yes, but not 100%. Mr market is applying a probability of FID being achieved and my view is that probability is in the 70-80% range. Accordingly if FID is announced that 20-30% risk is removed and the share price rises accordingly. If it was announced tha FID was being delayed into 2026, the probability of successful FID would most likely fall and so would the share price.

So yes the current probability of FID happening is priced in as is the risk of FID not happening. You cannot believe that the share price will increase to £1+ on FID without accepting there is real risk that FID will not be achieved (even if that risk is 5:1).

I have never shorted a company and I was very transparent that I exited Enquest equity six months ago (but kept my Enq bonds) and focussed by UK O&G equity investments in Serica, Harbour and Rockhopper. My decision was solely based on my view that we were entering an 18 month oil bear market and Enquest was almost 100% exposed to oil with the highest cash cost per barrel across the NS at approx $70/barrel for 2025.

I will reinvest in Enquest equity when oil market’s are looking more positive which I am not anticipating until H2 26 I would be happy to re-enter at 20p on a rising oil price outlook or post transformational deal. In the meantime i am comfortable holding lower risk equity investments in Harbour and Serica with Rockhopper providing all the spice I need.

By the way, Enquest is the best board on ii for both informed debate and relevant wider topics (thanks Rom).

Dumbly

Yes as long as Serica’s acquires the BP business via the entity with the tax losses. There will be some restrictions but historic tax losses should extinguish the majority of CT/ST from BP acquisition.

SEK

My estimate is that the acquisition will contribute approx $240m pa after EPL. The business will be acquired through one of the entities with significant tax losses so no non EPL for a couple of years at least. Removal of EPL will add approx $150m of additional FCF but will require further consideration payable to BP. How much we will find out soon.

Certainly this looks like something close to a 12 month pay back and could add over £0.5b to market cap. Feels too good to be true but part of this is due to using Serica’s tax losses which are worth approx $160m per year. Without these losses the acquisition would be generating approx $80m of FCF and the purchase price looks more reasonable if full UK tax and EPL payable.

Very much agree on Kathryn, not only a deep expert but able to communicate in a very understandable way. A rare talent and a ray of light in countering the arguments of green zealotry. When misplaced ideology and reality collide, reality always wins (eventually).

Hunbah

Hope you have a tasty hat just in case AB manages to pull off a transformation deal pre year end! In reality 8 weeks and counting.

Great day for Enq today and other NS O&G.

The fact that Enq has risen by more than its peers emphasis the underlying point we have been discussing for the last few days, namely that Enq is more leveraged to oil price movements (due to its relative cost per barrel and limited gas production). This has played out strongly with the oil price slide over the last 6 months and will play out in reverse once there is a sustained oil price increase.

However I can not see a sustained uptrend in oil prices over the next 6-9 months, could be wrong and that is the bet I have taken. Others may have another view and certainly Enq will be a good way to ride a significant oil price recovery. Equally I agree with Sekforde that being around for the structural oil price uptrend in the second half of this decade is an imperative and increased hedges is a solid insurance policy even if it means missing out on the initial oil price rise.

Hunbah

What I am saying is that a transformational acquisition can not progress further than preliminary discussions without Board approval. Before due diligence starts in earnest and the various advisors are appointed, Board approval will be required. There will be a monthly agenda item to update on potential acquisitions.

Believe me on joining a Board as a NED your are robustly encourage to acquire company shares. The fact that the NEDs were appointed 1-2 years ago and this is the first time they have acquired shares indicates to me that early October was the first period when there were no progressing acquisitions since their appointment or within a reporting closed period.

Kraken

Nope. I have not spoken to Craig and I am sure Enq are trying to progress opportunities. I am of the opinion, and it is my view not fact, that on 10 October there were no progressing transformational acquisitions (for the reasons i have previously stated) and I do not believe there is enough time to progress a transaction from early phase discussion to completion pre- year end (particularly with budget now late November).

How many times has AB promised a transformation deal is just around the corner? and then nothing materialises - so please forgive me if i take another management assertion that a deal is imminent with a large pinch of salt. I think Q1 2026 is a much more likely timetable and if I am wrong very happy to contribute to charity of your choice.

Rom

For your info, the Big4 actively encourage partner retirement from 54 and requires retirement at 60. Every year you stay beyond aged 54, you lose 20% of your pension entitlement which declines to 0% at 60. The goal being to create partnership opportunities for next generation and believe me 20 years as a partner is more than enough.

Kraken

Ok but has to be UK deal.

NSS

I do think the WD acquisition was a good strategic move but I also think we materially overpaid for the assets.

How do you know Enquest were not in the running for Prax upstream? Would have been a very good fit with decom of Lancaster.

Buying a new kettle and hobnobs would not count