Member Info for Stevo12

Kraken

While Enquest is correct that the recent consolidation in the North Sea has resulted in a smaller number of companies who are growing their NS 2P reserves namely, Neo Next, Harbour, Ithaca and Serica. Enquest has a stated ambition to grow its NS 2P but we wait with bated breath. However it is incorrect that Enquest has a key advantage in future deals due to its tax losses as the above companies also have very substantial tax losses.

Do we seriously believe that Enquest does not want to disclose its strong FCF performance in first 4 months due to concerns that our Rachel would be spooked by Enquest reducing its net debt by $30-40m YTD. The only O&G matters that concern Reeves/Treasury are actual oil and gas prices and the widely reported $billion profits made by BP and Shell. Harbour reported that they had generated FCF of $700m in Q1 and are projecting $1.4b+ for FY20206 which did not even get a mention in broader press.

Also the thought that Enquest would either be selected as a preferred buyer or be able to acquire at a lower price because BP/Shell etc think Enquest remains a debt zombie as opposed to demonstrating they are generating substantial FCF and eroding the debt, is a little delusional. A seller will want to ensure an acquirer of their business is financially sustainable in both a high and low oil price environment.

Laidback

I am still doing research on the sector and so have taken a fairly conservative approach and largely bought the sector through COPX. I have however taken a more limited investment in BHP, Freeport Mcmoran, Ivanhoe Mines and also a really interesting royalty company Ecora Royalties. These are not recommendations.

I hope you are right on permanency of oil price uplift; i just have seen oil plummet a number of times in my career after a price spike and I would be surprised if their is a material supply reduction as a result of shut ins. However, we could permanently lose 4m barrels per day of demand if oil prices go too high for too long.

SEK

I agree that there is a pathway to a 2-3X share price increase by 2029 to 2030. However this is conditional on oil prices stabilising at an $80 floor and Euro gas at $12.50. The futures market is projecting an average of $80 oil for 2027 and beyond that depends on when and how the current conflict ends. If oil stays too high for too long, there will likely be significant demand destruction which could damage oil prices in 2028 and beyond. Oil at around $100 for a couple more months is fine but a big spike would likely be damaging for medium to long term oil prices. Hopefully a solution can be found over the next 2 months and oil can come down to around $90 for rest of year.

I do think when the Iran conflict ends there will be a 5-10% reduction in the price of most O&G companies and this will represent an excellent buying opportunity and worth having some cash available.

I have been increasingly researching and focussing on Copper miners for last few months which have excellent underlying demand/supply fundamentals.

Aimoil

There is a sweet spot for oil prices; if it goes too high and stays there for too long, there will be a destruction of demand as economies switch to alternatives such as coal for energy generation etc. Oil at or around $100 is unlikely to damage future demand, although availability in Asia is driving alternative energy sources as opposed to purely price.

History has shown us that a prolonged spike in oil prices leads to a subsequent collapse in oil price. The futures market is highlighting oil at $80 in June 2027 which would be a nice sustainable price for both producers and users and while it will take a numbers of months post opening of SOH for the market to rebalance as strategic reserves are refilled, I am hoping for a swift end to Iran conflict for both a humanitarian and future oil price perspective.

Thanks ROM and Kraken for the feedback from the AGM and I am still scratching my head as to why Enq only provided a limited update at the AGM re trading as compared to the 2025 AGM when a full trading and financial update was provided. It is disappointing if we will not receive an update on 2026 trading and FCF/Debt until September of this year. The other NS O&G companies are being very transparent with 2026 performance and the Serica Capital markets day next week might provide some insight on realised oil prices. It is a real shame that Enq are not providing any update or guidance on FCF/Debt reduction which I think will hold back share price progression.

I also think any meaningful acquisition is unlikely to progress until oil prices have stabilised.

Rom

Were there any questions on how net debt had moved over the first 4 months or realised oil prices post 28 Feb.

Is anyone from BB attending AGM. There may be some Q&A afterwards

Mike

To be honest I was disappointed with the lack of any substantive information in the update. Warm, fuzzy words are all very well but why no update on net debt to end of April or realised oil prise, which would at least give an indication of the cash flow through from the elevated oil price. Other NS O&G companies are giving pretty clear guidance on 2026 FCF and the sensitivity to oil price.

2025 showed us when the numbers were not looking great (particularly net debt) Enq dropped the disclosure from the updates. Mr Market will conclude that the absence of meaningful financial information re FCF and Net Debt in this update is because they are not particularly positive.

SEK

The Waldorf losses cannot be used to offset wider Harbour profits for 5 years. New projects and investment can be routed through the Waldorf entity which will accelerate the use of the tax losses. This is one area that Harbour have been a bit slow on, they could have acquired tax losses in 2022 or earlier which would be available about now.

Profitaker

I have not revised my annual cost per barrel but Q1 will have lower costs primarily due to tax payments in subsequent quarters. There is also generally less CAPEX and ABEX which has historically been summer weighted.

It will be interesting whether the company discloses updated net debt /FCF at next announcement. If it has been a good quarter they will, if less good then they will likely not disclose.

Stumpy

Using the disclosures provided by Harbour of an averaged realised oil price of $76/barrel for Q1 2026, Enq should have generated FCF of $40-50m for Q1. This reflects that EPL is paid in Q3 but is also subject to timing of CAPEX and ABEX payments. Harbour noted the difference between physical and paper oil prices started to manifest in April and averaged $18/barrel.

In reality quarterly FCF can be influenced by numerous factors and working capital alone could swing it by $50m. It would be helpful if Enq provided transparent annual FCF forecasts with key assumptions like Harbour who have assumed that oil will average $80/ barrel for 2026 after hedges, which feels a little conservative.

The reality is that the Market is not giving any credit to NS O&G for elevated oil prices beyond Q1 2027, assuming Brent effectively returns to $70-75 range.

Harbour share price and market Cap has risen by approx 20% since the start of the conflict, an increase of $950m. Management are forecasting the FY26 FCF will increase by $800m (on the conservative side).

Accordingly Mr Market is reflecting the above budget 2026 FCF in share price but is projecting oil and gas prices will return to projected levels pre conflict in early 2027. Whether this assumption plays out is anyone’s guess at the moment and while we would all like to believe oil/gas will stay higher for longer, history has shown us that after an unusual fossil fuel price spike comes a painful fall.

We will know more by Q4 as to whether 2027 forward curve shows a return to the pre Iran conflict expectation of $70/oil rising to $75 in 2028/29.

Rom

I would not get too excited. The new bonds were issued at an effective yield of 10% to attract interest and the market is now pricing Enquest debt at 9.55% which has given the bond subscribers a 4% capital uplift. Overall a positive movement for Enquest in that the bond market is providing a vote of confidence and the bond holders have been given a 4% initial gain which is not unusual. These are relatively small movements and I would not get too concerned or too excited.

Profit

My 2026 FCF projection at realised prices as follows:

Zero at $70 oil

$128m at $80 oil

$238m at $90 oil

$360m at $100 oil

The FCF will drop at the same price points in 2027 due to 2026 deferred EPL payments.

Rom

Enquest tax losses are a substantial asset which we have discussed many, many times and AB has told us for the last few years that it will give Enq a key advantage in acquiring NS producing reserves.

Unfortunately it is not a unique advantage and actually Harbour has the lowest level of tax losses relative to its size. Serica has broadly similar levels of tax losses as Enq, Ithaca also has substantial tax losses as do some of the new merged entities.

KO

I have used the following assumptions - Royalty 10%, PSC 60% and Corp tax 38%. The PSC % is the unknown but at $90 oil assumption it will at the higher end of the range.

Papegoja

It is really difficult to understand the difference between the spot and the dated price and what Enq is currently receiving per barrel. Enq used to receive a reasonable premium over Brent for Kraken loads.

I have tried to stand back and project the FCF at $70, $80 and $90 oil/gas average realised price. At 43k BOEPD production and averaged realised $90/barrel (after hedges) my current best estimate is FCF of $238m, although there is a big EPL bill to pay the following year.

VOR

My estimate of cost per barrel is for the group not just the North Sea and you have to distinguish between the fixed legacy costs and the incremental variable cost of an additional barrel. Legacy Interest, Lease and ABEX are projected at approx $235m and are largely fixed. CAPEX is also scheduled well ahead and will include both SEA and NS spend..

OPEX in NS and SEA will be broadly similar at $30/barrel. Accordingly for an incremental barrel at $90 oil, Enq FCF will increase/ reduce by $37/barrel for NS production (after paying EPL in 18 months time) with additional FCF of $12-13/ barrel for incremental production in Malaysia. This is why i said for each barrel reduction in the NS, Enq needs to add 3 in Malaysia to generate the same FCF. In very broad terms, Enq pays 38% cash tax in UK for an additional barrel and 80% in Malaysia.

I have sold my Enq retail bonds at a very small discount to redemption price and invested some of the monies back into Enq shares.

Why have i done this; 1. The bond refinancing has materially reduced the debt risk, 2. Oil prices are looking like they will be sustainably higher into 2027 and beyond. I have only invested about 25% of the proceeds as I want to see a material UK acquisition before I am fully back in. Malaysian barrels are fine but as I have noted before it takes 3 Malaysians barrels to generate the same FCF of 1 NS barrel at $90 oil. Perhaps BP’s NS exit will be the key to both stem the decline in NS production and generate production growth.

Oil prices were always going to move up into the $80+ / barrel region, but I thought it was going to be mid to late 2027 and The Donald has accelerated that move. I just hope that oil does not go too high and damage future demand otherwise this will be a short lived oil bull cycle.

I there is a broad consensus around 2026 FCF and personally I am in the $1.6-2b range. I would not include the cash proceeds from acquisitions or disposals, similar i would not include the LLOG cash payment.

while broadly an additional £750m of FCF in 2026 is very welcome, on its own it adds approx 50p to share price of which some is already baked in. The real question for me is whether the medium term oil/gas price from 2027-2030 will be higher due to this conflict or lower due to demand destruction as a result of very high prices in 2026. I think this is the question the market is grappling with and it all depends on how long this conflict goes on for and how high oil prices spike.

Profitaker

The RNS was pretty clear that the bond issue proceeds are going to be used to redeem both existing HYN’s and Retail bonds. Quote from RNS “….which may be used to repay or refinance existing indebtedness (including but not limited to the Company's £133.3 million 9% Retail Notes due 2027”. I recognise that management used “may” rather than “will” but it is inconceivable that the company’s new bonds are not going to replace both HYNs and Retail Bonds.

The only other potential use of funds would be a significant acquisition which appears unlikely at present and to raise cash to leave in bank earning 4%, while paying 10% on the bonds is not credible.

We will see.