Member Info for Stevo12

Kraken

Agreed but it has to something material say over 10k BOPD.

Kraken

Per my response to Rom, I am sure AB has a number or irons in the fire and has been promising an imminent transformation acquisition for the last 2 years. The logic for acquiring Uk producing 2P reserves is overwhelming and my only point is that any deal is not near term (pre year end) as it can not have been sufficiently progressed on 10 October when NEDs bought shares.

It looks like early October was the first time NEDs have been able to buy shares for last 12 Months + and my guess is that Enquest was also bidding for the Prax upstream assets and or the BP asset and these deals fell away in early October.

Rom

Having retired as a senior partner of Big 4 firm 5 years ago, I sit on 2 boards of listed groups and chair audit committee and remco. Accordingly, I am very familiar how Board’s function. While Exec teams are given freedom to pursue early stage discussions any progression of theses opportunities beyond preliminary discussions requires due diligence and third parties to be engaged (lawyers, accountants, reserve experts and Nomad). For any transaction to progress beyond preliminary discussion to serious due diligence will require Board approval and once discussed at Board, all Board members are insiders.

I am sure AB and team have multiple early stage discussions on the go at any point in time. The point is that there cannot have been any acquisitions being materially progressed on 10 October when the NEDs purchased shares. My observation is that, given timeline to progress from preliminary conversations to completed deals takes a number of months, a 2025 deal is now highly unlikely. If Enquest gets a deal over the line in the next few weeks, I will eat Hunbah’s hat.

Kraken

I hope Enq can pull off a transformational deal but it is now highly unlikely in 2025. As we have discussed previously, the new NED’s buying shares for the first time a couple of weeks ago indicates that there were were no progressing acquisitions of which the Board were aware. The Exec team will need Board approval to progress any opportunity beyond preliminary discussions and given it will take at least 3-4 months to complete due diligence, negotiate deal etc. the earliest potential window is Q1 26. Also any buyer or seller will want to see whether any changes to EPL are announced in November budget.

It is certainly positive that alongside AB’s holding there are two other big holders. I don’t know how and when they have built their positions but I would have expected that major II buying would have driven the share price up over the last few months.

AImoil

Misleading as normal. My post on 12 May is extracted below

“Your logic is correct but is based on the assumption that debt can be refinanced and at reasonable interest levels. Harbour’s current credit rating is strong but we are carrying a lot of debt relative to equity and much of the acquired debt is at very low interest rates. The rates on this debt will increase as they fall to be refinanced.

We all have different risk tolerances and I would be much more comfortable with $2b less debt, but it is hard to turn down share buybacks at current share price. IF oil prices recover and European gas remains strong, I would like to see a mix of buy backs and debt repayment in 2025 and assuming we are north of £3/shares by Q1 2026, debt repayment in 2026 and 2027.

The board have a history of buying with debt and repaying debt as quickly as possible.”

On 12 May HBR was 170p and today is £2, Serica was 140p and is now 186p and Enq was 12.5p and is now 9.8p. While I never recommended anyone follow me in exiting Enq equity and moving to Serica and Harbour, such a move has been very financially beneficial. This could all turnaround in the future and the £3 price potential I referenced for Harbour was for 2026 following an oil price recover and I stand by it.

Hunbah. LOL!

Not suggesting you include PSC costs and reduce volumes. Just one or the other!

Agree this is a 2025 only projection. 2026 will look different again. EPL will be at least $50m lower and I have no idea on CAPEX, ABEX, Magnus etc, etc. Until we get management guidance on 2026 it is not worth guessing breakeven cash flow as costs will be flexed by management depending on oil price.

Also concur. This is what i was proposing to do until Canncord turned down my application. SOBs.

Hunbah

Agree with most of your numbers, but I am not sure you are fully understanding how PSC works in this context.

Let me use Malaysia as an example. In H125 Enq reported production of 38,257 BOPD included 8,427 BOPD from Malaysia. While Enquest reports 100% of Malaysian production, Petronas is entitled to somewhere between 40-50% of operating profit post royalty payment from these barrels. Enq then pays corporation tax on the post royalty and PSC profit.

From a financial reporting perspective, royalty and PSC payments are deducted from gross Malaysian revenue and, accordingly, in H12025 the net revenue to Enquest from Malaysian production was $54.8m ($35.7/barrel), resulting in a pre tax profit of $18.9m ($12.2 barrel). Corp tax is then approx 25%.

So in simple terms for the barrels Enq produced in Malaysia in H125, approx ½ of the revenue went to the State in royalty and PSC payments. From the remaining revenue ($35.7/ barrel), Enq funded OPEX of approx $23.5/barrel.

Accordingly in you cash cost stack you can either include the Royalty and PSC payments as a cash cost or you can remove the Malaysian barrels (approx 50%) in which Enq has no effective economic or financial interest. I suggest the former.

Similarly for Vietnam you have included 12 months proforma production and 12 months OPEX, but you have not included related proforma tax and PSC payments to Vietnam government. The only basis for estimating is the $40m Harbour paid in 2024 reduced for lower oil prices, say $30m.

Using your cash stack analysis which totals $1,065m (inc Malaysia Royalty and PSC), I would add $30m of payments to Vietnam government and $5m of G&A. I do think in 2025 the Magnus payments will be lower due to the high levels of Magnus CAPEX and I have taken off $20m to align with management forecast 2025 payments as reported in 2024 financial statements.

Net result $1,065m+30+5-20 =1080/15.5m (midpoint of forecast) = proforma fcf breakeven of $69.7/barrel. Actual 2025 break even will be $1-2/ barrel higher due to only 6 months of Vietnam.

FYI, Serica equivalent 2025 FCF breakeven is approx $45-50/ barrel but difficult to accurately estimate given the wild swings in production due to Triton FPSO failures and low tax payments due to prior year overpayments. Not enough info yet to project 2026 FCF breakeven for Serica which is partly dependent on BP deal closing.

Just to add my Tuppence to the debate. I watched Craig’s presentation, and I came away more positive towards Enquest and can see a pathway to 2026 FCF break even in the low $60s. However, I will not comment further until I see management 2026 guidance and 2025 financial statements.

The comparison of Enq and Serica is valid and both companies have similar OPEX per barrel in the high $20s. Serica is marginally lower due to gas element of production. The material difference is that Enq has interest costs of $70m, ABEX of $60m and lease costs $70m (post Kraken saving). These structural costs add approximately $22/barrel to UK production (based on 9m barrels which excludes BP’s 37% share of Magnus).

The above non OPEX costs inevitably result in Enquest having a higher oil price break even than Serica and was the key reason I exited Enq equity 6 months ago and focussed my higher risk oil investments in Serica, Harbour and Rockhopper. I would not have exited if oil price were not looking so anaemic.

However, a universal truth is the best cure for low oil prices is low oil prices and the cycle will repeat again. I can remember a year ago when oil was in the $90s the consensus was we would never see oil below $80s again. Today with WTI in the $50s, it is difficult to imagine oil in the $90s again – but it will come. The only question is when and while Q1and Q2 2026 looks pretty horrible, beyond that the pressure will be to the upside.

While past performance is no indication of future performance Serica is up 50% over the last 6 months and Harbour 25%, while Enq is down 25%. I am not anti Enquest, my thesis 6 months ago was that Enquest was not going to be the best place to ride out a low oil price environment.

I do like Enquest’s overseas developments (although Malaysia tax regime is only marginally better than UK) and will be interest to see how this develops. I do hope/expect that I will reinvest in Enquest equity in the future but probably wont jump back in until refinancing completed in late 2026 and or oil price start to recover. I would be very happy to rejoin at 20p+ when these conditions arise.

In the meantime hopefully EPL changes will float all boats (and FPSOs).

Hunbah

100% agree, average cash cost per barrel produced is a constant moving variable - it was $80/barrel in 2024. CAPEX can change, natural production declines, oil price up and down, acquired production and of course the tax regime all impact the variability of all-in cash cost per barrel. My analysis has always been focussed on the oil price required in 2025 to cash flow breakeven with current known or best estimated parameters and by extension 2026.

I have been very transparent that i exited Enquest equity post the collapse of Serica deal but I maintain a significant investment in Enquest retail bonds. I, like Rom, keep a very close eye on Enq bond prices which are normally the canary in the cage and currently stable which might partially reflect that the bonds will likely be refinanced next year.

Hunbah

Glad we have finally got there. I have always stated approx $70 FCF breakeven, including EPL and Magnus payments. While I agree that EPL is not a permanent tax, it is currently around until 2030 and it is helpful to know what the cash flow breakeven price is both with and without EPL.

Vietnam is unfortunately nowhere near a $60-70/barrel margin business. OPEX is projected by Enq management at $25 per barrel and the good old days when the British empire could rock up in some foreign land and steal all their resources without payment are long over - unfortunately. Just joking. I am afraid I cannot be bothered to research Vietnam O&G tax laws but Harbour was paying a pretty penny ($43m in 2024). Plus there will be ongoing CAPEX.

In my opinion, It is now almost certain that FCF for 2025 will be negative given EPL payments in H2 and falling oil prices. The ultimate arbiter of our disagreement will be the 2025 results when published and while you believe FCF will be positive, I believe it will be negative for 2025. Let’s revisit in March 2026.

I have been in bed for last couple of days with flu and this debate has helped passed the time. Stay well and lets revisit when results are published.

Magnus is a structural cost and in reality BP has retained a 37% working interest in Magnus which has been presented in the financial statements as a deferred consideration. It really isn’t.

Ukbbbb

Good point on higher revenue per barrel in Vietnam. On costs, the $40 per barrel was i believe the reported breakeven costs (OPEX projected by management at $25 per barrel and so presumably CAPEX of $15/barrel). At say $75 oil there would be tax and PSC payments on the $35/ barrel profit. I have research Malaysian O&G tax (effective rate of 70%) but not Vietnam and so i can not estimate how much Vietnamese tax there is to pay. However i did take a look at Harbour’s disclosure of tax paid to Vietnamese government which was $43m in 2024 or $21 per barrel. Might be lower in 2025 due to falling oil prices.

So I agree Vietnam will have a lower cash flow breakeven than average group, possibly in $55-60 per barrel range including local taxes. However it would possibly reduce group average by $1/barrel in 2026 if production remained at 5k BOPD. Again this is just rounding.

Hundah

You misunderstand. I am saying Malyasia PSC and Royalty payments are included in the $66.3/ barrel cash costs reported for H1 but that they are not included in the cash cost stack produced by AA2020. I am not adding Malaysia PSC and Royalty to the H1 $66.3/barrels cash costs (see previous email), I am however including it in a bottom up cash cost build.. The Malaysian volumes are 8.2k BOPD or approx 3m per annum from this we have to pay PSC, Royalty and tax which was factually $81m in 2024. I calculate it will be $20m lower in 2025.

There is no double counting, the only items I am adding to the H1 cash cost per Barrel is 6 months of EPL and an estimate for six months of Magnus. I also proposed to equalise H1 and H2 CAPEX and OPEX which only has a minor impact. I agree Magnus payment is oil price dependent but it does not mean you can simply ignore it. We still have $800m to pay.

You can include 12 months Vietnam production if you like but you also have to include 12 months OPEX and 12 months PSC and tax payments. As we don’t know what these PSC and tax payments are it is simpler to exclude Vietnam costs and production volumes. You are deluded if you think Vietnam is going to materially change the group’s cash cost per barrel from volumes that are at best 10-11% of group production. Malyasia and Vietnam are both high tax .

How on god’s earth can you accept that cash costs were $66.3/ barrel in H1 without any EPL payments or Magnus payments and then keep a straight face and state that when you include EPL and Magnus in H2 the annual cash cost per barrel will fall to low to mid $60s per barrel. Enq paid $104m EPL in July - that is huge. What H1 cash cost per barrel gives us is an indication of cash costs per barrel if EPL was removed.

What would you suggest is a normal EPL payment and Magnus payment to add to H1 cash flow? And how do you think cash cost per barrel are going to dramatically fall in H2?

So Serica up 50% over the last 6 months and Enq down 25%. Mr Market does not seem to agree with you.

Your statement that I was projecting negative FCF for Serica is just another of your lies. However i do agree that previous Serica management were negligent on Tailwind acquisition and the condition of Triton platform should have been understood pre acquisition. I do however trust the current Serica management who believe the FPSO can be fixed and operated successfully for another decade.

Aa2020

As per note to Hunbar, you have include 3m barrel of annual production from Malaysia but you have not included the PSC and Royalty payments in you cash stack.

The royalty payments are 10% of revenue and the PSC payment is 40% of operating profit. There are also corporate taxes at 25%.

Hunbah

Let me try and be clearer for you. Enq has to pay Malaysia a royalty, a PSC payment (approx 40% of operating profit) and corporate tax. You can not include Malaysian production (1.5m barrel for H125) and not the associated cost. In H1 2025 the revenue from Malaysia was $55m from 1.5m barrels. The reason revenue is only $36.7/barrel is because the revenue is reported net of the PSC and Royalty payment. Enquest H1 production of 38.2k BOPD includes 8.4k BOPD from Malaysia

The payments to the Malysian government are real and my estimate of $60m might be + or - $5m but you can not include 100% of Malaysian production without including these cash costs in the cash stack.

The Magnus cash costs are real and have to be paid each year being 37% of Magnus revenue- opex. These payments will continue for the life of the field and you cannot simply ignore them.

Your suggestion that you then exclude all of Vietnam OPEX, PSC and tax payments and simply add Vietnam 12 months proforma production is simply insane. DO you really think the Vietnam acquisition is going to lower the average cash cost per barrel for group.

Stepping back. We are in agreement that cash cost per barrel for H1 25 was $66.3/barrel excluding EPL and Magnus. How do you think H225 cash cost/barrel is going to be substantially lower than H125 (to arrive at your low$60/ barrel for year) when there is a $104m EPL payment (which alone will add $15/barrel to H2 cost per barrel) plus Magnus payment while UK and Malaysia production in H2 is similar to H1. 1m barrels from Vietnam in H2 is not going to change the average group cost/ barrel.

Ok Hunbar i will go back to first principles. I have update my cash stack of a few months ago as follows. I have excluded Vietnam as i do not know enough about tax and PSC but it will not materially change the overall average group cash cost per barrel

2025 Enquest cash costs (excluding Vietnam)

OPEX 400 (excludes $50m proforma OPEX of Vietnam)

CAPEX 190

ABEX 60

EPL 104

Interest 75 (compares to $73m in 2024)

Lease 69 (compares to $130m in 2024)

Malaysia 60 (compares to $81m in 2024)

Magnus 40 (compares to $48m in 2024)

Total 998

Production 13.9m

Cash cost per barrel $71.8/ barrel

(1) Production is based on 38.2k BOPD excluding Vietnam and is in the upper end of the company’s projection of 35-40kBOPD exc Vietnam

(2) i have estimated that at average $68 per barrel, revenue and profit from Vietnam will decrease by $30m which will result in $3m less royalty, $12m less PSC and $6m less corporate tax payments. Resulting in payments to Malaysian government/Petronas falling by $21m

Please tell me which of the above cost or production estimates you disagree with and we can have a discussion.

Excellent. Charity of losers choice. I’ll give to prostate cancer if i lose.

Kraken. If you are so positive I am surprised you ducked the bet i offered you.

Oil king.

You have got the wrong company. What Sekforde and I have said is that with oil in $60s, Enquest (not Serica) will be negative FCF.

Serica is just fine.