Member Info for Stevo12

I am not going to guess on the likely equity split but a couple of observations.

Firstly it would be crazy to make too large a cash payment to Serica shareholders and end up with an over indebted group paying similar interest rates to Enquest’s current debt - particularly given interest is non deductible for EPL.

Secondly, I can not see any way that the enlarged group can continue with the same dividend with somewhere nearing a doubling of the shares in issue. If oil was at $90 possibly but with low 70s and talk of $60s it is simply unaffordable.

Therapist

Well framed question.

The acquisition of Vietnam will be consolidated from the date of completion - looks like about mid-year. The purchase price is adjusted for cash generated from 1 Jan 25 to completion date - currently forecast at $49m of cash generation for the first half of year. This seems very high at approx FCF of $50 per barrel. Possibly due to tax and PSC payments due in second half of year.

Management have provided proforma production targets rather than actual production targets and I have asked IR to confirm whether proforma includes 12 months of Vietnam. I will update when I have a response.

Kamrat

Thanks for all your work on the cash flow forecast which I find very helpful.

The announcement states that the 40-45k production is proforma and not projected or forecast. This by definition includes 12 months proforma production from. Vietnam. The production costs etc are also highlighted as proforma and so would include 12 months operating costs from Vietnam.

The whole point of proforma is to display what the business would generate with a full years contribution from mid-year acquisitions (it would also remove production and revenue etc from any disposals if there were any).

This will hopefully be clarified in the upcoming announcement.

I am reading managements guidance for 2025 as 35-40k BOPD plus Vietnam from whenever the deal completes.

Guys

All good points and I will contact IR and ask the question. I was aware that the Q125 Kraken drilling programme had been deferred but was not expecting the delay to have had such an impact on production.

I do think buying out the remainder of Kraken could be a good move if the price is right. If it was structured right we could also get an EPL deduction as well as adding to the tex losses.

I

MRC

I am just looking to get a better understanding from the year end update as to why planned production for 2025 is now forecast to decline rather than increase. Nothing more nothing less.

The management guidance last year that production was going to organically grow in 2025 was a core reason for me moving some of my investments from Enquest bonds to Equity. A reduction of 5K BOPD has a significant impact on company valuation and I am looking forward to understanding why production targets have been downgraded.

Kamrat

Fully agree that vietnam will only be included from actual acquisition date and 6 months is a fair estimate.

however excluding vietnam management’s forecast is 35-40 BOPD for 2025 so why would you use 44.5k? If we use the mid-point of management guidance of 37.5k excluding Vietnam and include 6 months of vietnam - production forecast would be 40k BOPD for 2025.

I can see that management using proforma guidance rather than actual has confused the picture but you can not hide from the fact that management are telling us that production from legacy fields is declimimg in 2025 and not increasing.

Kraken

Not at all. The company published very clear information in February updated. Management provided a proforma production forecast for 2025 of 40-45k BOPD and they were clear that this includes a proforma 5.3k BOPD for Vietnam.

Accordingly all i am saying is that management’s guidence for 2025 excluding Vietnam is 35-40k BOPD which is a decline on 2024 production as opposed to the increase in production projeted last year.

Could I ask the simple question to the this discussion group. What production guidance do you think management have provided for 2025 excluding Vietnam?

Kreken. Actually just back from a yoga class. Please, Please can anyone tell me what i am getting wrong. Is everyone interpreting the Feb update that production from the legacy business is not declining!

I really would like to know what i am missing.

Osaka

I was not aware there were production problems with Magnus in 2025. I have not seen this info. could you share where this was disclosed.

What I am trying to understand is why 2025 production guidance is projecting a decline excluding the proforma vietnamese business.

I think it is a reasonable question to ask as to why the conmpany’s 2025 guidance forecasts a drop in 2025 production from the legacy fields (excluding Vietnam) when we were told by management 12 months ago that production will increase in 2025 from the core business.

This is information we need as shareholders and i am hoping futher information will be provided by management with the year end update.

Smokinaces

I am not making any assumptions, I am just following what the company has disclosed in their annoucements. If i have misinterpreted the information disclosed, please let me know as I am here to share insights and learn from others.

The feb25 operation update is pretty clear that the 2025 guidance of 40-45k BOPD is proforma and includes 12 months of Vietnam. am i wrong?

I have just looked back at the feb 24 operational update and with 2023 production of 43.8k BOPD the forecast for 2024 was 41-45k BOPD (so mid-range broadly flat on 2023) and management made the follwoing statements that

“Capital-efficient investment programme; targets organic production growth in 2025.”

Taking the mid-range guidance for 2025 (excluding vietnam) the guidance is 37.5k BOPD. So my question remains where has 5k+ BOPD gone between the feb 2024 and the Feb 2025 operational update. My pesonal assumption is that Kraken is declining more rapidly as a result of cancelling the workover but hopefully we will hear more with the year end report.

It was not long ago, the existing fields were delivering 50k BOPD (47.3k in 2022).

Therapist

My understanding is that the 2025 guidance of 40-45k BOPD is proforma and includes 12 months of Vietnamese production of 5K+ BOPD. Accordingly I have assumed the legacy business guidance is 35-40k BOPD which compares to the 2024 guidance of 41-45k BOPD.

Appreciate that the year has started strongly at 44k (excluding Vietnam) and it should be expected that Q1 and Q2 are strong production quarters pre summer maintenance programmes.

Accordingly unless I am missing something, there is a decrese of approximately 5k BOPD in the leagacy business which does not line up with the guidance the company was giving that the legacy business volumes would be flat to slightly up in 2025 on 2024.

Sekforde was always on top of production volumes and guidance - any thoughts?

Kamrat

My point is that the Vietnam production should have been in addition to the 2024 40-45 BOPD forecast. We were directed that 2025 production was going to be better than 2024 rather than 5K BOPD less.

Aimoil

I am also looking forward to the forthcoming update on 2024 outturn and 2025 forecast. I will be looking for the following:

1. Production guidance - the 2024 production guidance was 41-45k and comments that 2025 would be better. Sekforde had a number of conversations with Craig on the 2025 guidance. The 2025 forecast is now 35-40k excluding the Vietnam acquisition. This is a big drop and impacts FCF by around $70-80m. I would like to know what has changed. I assume the delay of Kraken work over is a contributing factor.

2. I would like to understand the impact on FCF of the currently depressed oil price with some guidance on the core 2024 oil price assumption and the impact of + or - $1 change in oil price.

3 My FCF breakeven calculation for Enquest is $61-68 per barrel depending on production volumes and I would like to get further guidance on this.

4. Terms of any deal with Serica.

Dcgc

The Serica tax losses can be used against the tailwind profits but not the legacy Serica gas profits. This was one of the big lies to justify the excessive price paid for tailwind business.

Tamovv

The requirement is for greater than 50% of Enquest voting shareholder to approve the offer to Serica shareholders. Serica shareholders then individually decide whether to accept the offer. There is normally a clause in the offer that it is withdrawn if less than a specified percentage do not accept

.

If say 80% accept the offer, then other 20% remain Serica shareholders in an unlisted subsidiary of Enquest and have no easy means to sell their investment and no assurance they will receive any dividends.

If more than 90% accept the offer, Enquest has the legal right to compulsorily purchase the remaining shares at the offer price.

Sorry Kraken. I have no idea must be something to do with takeover code.

By the way I was wondering through old london town when I happened to call into Mrs Miggins coffee house for a quick Latte and who was sitting in the corner, thick as thiefs. AB and C.Cox. I sat as close as I could to listen into their conversation and it went along these lines.

“Great to catch up again AB, How’s the family. Not too bad Coxy my old mucker. Anyway Coxy, before we start discussing this merger, who’s paying for the coffees. Your market Cap is higher than ours, so I think you should pay. Wait a minute AB, you have more 2P reserves, surely you should pay. Look I have an idea, I’ll pay for the coffees if you pick up the tab for the carrot cake. Deal!

Ok Coxy what about this merger you have been getting all excited about. Yes AB it is going to be great. We get to use all your lovely tax losses and pay off your ridiculously expensive debt. Also AB I need a bit of help from your technical guys on Triton. Whats happen Coxy. Well AB, the strings broke again and we were using the finest Scottish twine. Well before we get into that Coxy, how are we going to split the goodies? Well AB, I was think a no premium merger and we all share the benefits of the synergies. Your having a laugh Coxy, that means you get 2/3s of the upside and we are bring the tax losses to this party. By the way AB where did you get almost $2 billion of losses from. Funny you should ask Coxy, we have a great business model, we spend more on investing in new fields than they pay back and we are left with huge tax losses that are worth a fortune – simply brilliant. However don’t tell everyone as it might catch on. OK AB, interesting. I’ll give you that we need your losses to reduce our tax bill but you also need our profits to use them. OK, let’s split the benefit 50:50. Agreed.

Ok before we start discussing debt and other grubby details, I need a bite of lunch. Your club or mine.”

Discussion to be continued…….

Apologies sitting at Airport totally bored and flight delayed.

Pete

Your forecast split would result in all the value of the tax, debt and operating synergies being allocated to Enquest share holders - assuming the combined group is worth £200-£300m more than the two standalone businesses before cash distribution. This would require the Serica holders to take a loss on their current share value, particularly as it will take time to realise the synergies and for them to be fully reflected in the share price.

Both Serica and Enquest have strengths but both also come with baggage. Enquest’s baggage is the level of debt and other obligations (decom, BP deferred consideration and lease) and Serica its ageing infrastructure prone to failures.

The reality is that any deal with Serica will require the synergies to be shared. If AB wants all of the value of the tax losses to accrue to Enquest he needs to find another deal where Enquest buys producing 2P reserves. We have been told for a long time that such a deal is just over the hill. If the Enquest board recommend the Serica merger it will tell us much.

I dont think either party desperately needs this deal but it would be a shame to walk away from all those lovely synergies

Jeffrey

I am warming to the deal. It will not be transformational in terms of share price but it will be transformation in terms of scale, capacity and credit worthiness of the enlarged group. The englarged group provides potential for growrth that would not be available to Enquest alone and potentially puts Bressay and Bentley back on the table.

If an agreement could be reached with Government on an attractive tax structure on the expiry of EPL in March 2029, it would be an ideal time to invest in new development in 2026 and 2027. Receive 78% tax allowances, reduce EPL payments and then pay tax at the lower rate post EPL once tax losses have been utilised in 2030+.

My gut feel is a more attractive arrangement will be introduced post EPL and will be agreed in late 2025 early 2026 to kick start NS investment. The question is will O&G companies trust the Government given elections in 2029.

Tamovv

my gut feel is a £1b market cap immediately post deal is too racey.

current combined market cap of approx £750m has benefited from £70m deal uplift on Friday and potential of another £130-230m to come (assuming tax and debt synergies worth $400m). This would yield a market cap of 0.9-£1b before cash distribution to Serica and £750-850m after distribution (assuming a £150m distribution).

I think we are looking at a 40%ish uplift (at the upper end) for both shareholder groups on pre Friday prices. There would be more to come from sweeping up other NS assets.

On a deal AB would likely take over as Chair with C.Cox as CEO.