Member Info for Stevo12

BT Faith

It almost does not matter that AB thinks the real value of Enquest is higher than market cap (unless someone else comes in with a bid). If this an agreed merger - it is relative values that are key and the equity split of the enlarged group. Serica could equally argue that their real worth is a multiple of current market cap.

The negotistions will be around the split of synergy values. The combined market caps went up by approx £70m on Friday (£30m Enq and £40m Serica) and if I am correct there is a potential of £200-300m to unlock. So deal certainty should unlock another £130m minimum.

I do agree that the combined business would be in a better position to sweep up other NS assets as long as not too large a cash payout to Serica shareholders. This would unlock further value which would of course be shared with Serica shareholders.

Potential first dividend fromm Enquest in a decade!

Tamovv

You are missing a piece relating to the potential distribution to Serica shareholder pre merger. As an example if Serica dividend was £300m (to equalise debt level to Enquest), the combined market caps would fall to £446m. Add on £200m of deal synergies (we would lose the benefit of reduced interest rates) and Enquest 49% market share would be approx £316m a 37% increase.

Serica would receive £616m in cash and shares - a 20% increase in value.

Reducing the dividend and giving Serica a larger percentage of the new group would give both parties a 40% uplift.

This is not bad but i was hoping for at least a 25-30p enquest share price if we could have purchased 20k BOPD of NS producing assests (45m 2P reserves) for $250-300m on a limited upfront cash basis. This would have added approx $100-150m FCF and 2-3X market Cap.

Am i asking too much!

Wow LSE does not either like the word share or exchange.

not sure why i was **********’d in the last message. i only typed **************!!!!

pete

too early to tell at the moment. i am pretty sure it will be a ************** so no capital gains tax!(if anyone is in the money!). there will likely be a cash distribution by serica which i dont like as it will impact credit rating of combined group. a combined group could achieve bbb+ which would reduce interest rates to 5.6% and save over $30m of interest on enquest debt in due course.

i have looked at the serica tax position and use of enquest losses would reduce tax cash payments by approx $70m pa.

so ignoring other synergies there is $100m of annual fcf to unlock which could add say $400m to combined market caps or approximately 40%. how this is shared between serica and enquest is to be determined but certainly significant value there to be unlocked.

Dumbly

The Serica acquisition was completed by Serica issuing share to Tailwind and accordingly as Serica (the acquiring comany) was profitable and Tailwind had large tax losses, these losses could not be used against the Serica’s legacy gas business for 5 years. However they can be used against the Tailwind profits post acquisition.

A takeover of Serica by Enquest (even if reverse) will allow the Enquest losses to be used against the profits of the acquired business (a business with tax losses acquiring a profitable business). There is an annual restriction of approx 50%.

Accordingly there will be an acceleration of the use of Enquest losses.

Bt faith

you may well be right but where is the deal that AB has been promising for so long. All the talk from management was about buying producing assets for cash.

The question is who is pursuing who in this transaction. If AB is a reluctant seller then you may be right. If this is a deal of the willing then Serica will want to equalise for the debt position and the Enquest decom liability and enquest will want to get value for the tax losses.

No point in guessing and we should not have too long to wait. I would however hope AB has another deal on the boil if this one falls over.

Dunbly

Currently Serica are able to use its tax losses against the oil buisness acquired from Tailwind but not the original Serica gas bsuiness beacuse of the way that deal was structured. Accordingly about half serica’s taxable profits are covered by its tax losses. A reverse tax over structure will allow the Enquest losses to be immediately applied against approx 50% of the serica legacy gas profits.

It is interesting that it took Enquest several hours to issue its RNS which intimates that the RNS’s were not planned.

My concern is that while a merger unlocks tax, debt and operational synergies it is not the transformational transaction we were promised by AB. For Enquest shareholder an acquisition of producing assets without giving away equity is what will move the shareprice materially forward. I am invest in both Enquest and Serica and should be happy but feeling a little disappointed that an opportunity has been missed.

My gut feel is that Serica shareholders will get £200-300m in cash and 55-60% of the new group. We need to recognise that Enquest production entitlemnt is actually about 10kBOPD less than reported due to BP magnus entitlement and Malysian PSC and decom liabilities and debt position are very different

Also a bit odd that Enquest have not issued an RNS.

Very limited information but i read the release as more of a merger than a takeover and not sure this will result in a big premium. The deal is to be structured as Enquest buying Serica to allow Enquest tax losses to be used against Serica’s gas profits. This will accelerate the use of the losses and improve Serica/Enquest FCF. The Enquest debt will also be able to be refinaced at more competitive rates in due course. Both of these actions will add material value and the negotiations will be around how these benefits are shared through the equity split.

Its going to be interesting but not expecting big premium.

NewKOTB

Mr Market is valuing Harbour 2P reserves at $7.6 per barrel (EV OF $9.2B) which is in the lower end of the range for NS assets but not sure how market is valuing 2P reserves in Norway.

My takeawys from reviewing the financial statements is that purchase price for WD was $9.7b and included $3b+ of goodwill which equates to $11.4 per barrel and supports the thesis that Harbour overpaid for WD or the market is materially undervaluing the Norwegian 2P reserves - probably a bit of both.

I cannot see that buying out BASF is currently affordable with the current $6b of debt - it would certainly threaten the investment grade rating which is probably already under pressure given FCF.

The forecast of $2-4b FCF over next 3 years is a little concerning. At the upper end of the range it would result in $1.5b per annum in 2026 and 2027 which is cleqrly dependent on robust but not unreasonable oil and gas prices. I am personally comfortable that oil will be in the $75-90 range in the medium term. However european gas could easily revert pack to 50-70p therm range with the end of Ukraine war.

Nitro

I fear the market is coming to the view that we significantly overpaid for WD. The fact that we outbid Abu Dhabi should have raised concerns. The management team clearly did a great job with the Conoco acquistion and picked up Premier for a steal. However, while i was prepared to give the Board the benefit of the doubt, it is becoming apparent that we overpaid for WD. It is going to be difficult to seperate the $1b 2025 FCF between old Harbour and WD business but 2025 was looking to be a positve year for old Harbour. We have taken on over $5b debt, paid $1b+ in cash and given away approx 60% of old harbour for approximately $0.5b pa of FCF (and that is with high oil and gas prices!)

Unless the capital markets day details a plan to improve FCF to $1.5b-2b in 2026 and beyond, I can not see that share price will progress and dividends and debt repayments achieved (we need to be repaying $1b per year over medium term). The reality is that while WD production looks high, the FCF generation is pretty poor (and was historically) and Norway 78% tax regieme is not going to change even if UK EPL is relaxed.

the big question for me is whether 2025 CAPEX is sustaining or growing the business. If the 2025 CAPEX is sustaining then improving the FCF is going to be difficult. The only real hope is a change to EPL or a spike in energy prices (which looks unlikely for oil). If EPL is amended we have given away the majority of this benefit to the WD shareholders.

I am going to be as “sick as a pig” if Navitas and Rockhopper are able to FID Sealion and build a highly cash generative business in the Falklands with low taxes. This was Harbour’s for the taking.

Sorry to dampen the mood a little but feeling a little disappointed with 2025 FCF.

Firstly 20024 FCF after net proceeds from Bressay farm down was approx $50m which is what I was expecting. However on first look 2025 FCF is going to be much lower than i was expecting. Opex, Capex and Abex is projected at $10m less than 2024, Kraken Lease $60m better, Tax $20m worse and incresaed production in the $40-50m higher. Excluding any changes in average oil prices (i have not a look at this yet) this leaves a $90-100m improvement on 2024 FCF(EPL on the improvements payable in 2026). Accordingly FCF in the $140m-150m range which is not bad but not the $250m i was hoping for. FCF in 2026 will then fall to closer to $100m if production can continue in the 42.5k BOPD range.

On ther positive side if debt can be reduced by $150m in 2025 this should add at least $75-100m to market cap which would be much appreciated.

I did like the positive sentiment but that is normal for Enquest team. Bring on the transformative deal!

Muckle - not a contractual agreerment but tax legislation.

Dadean

It is not that oil or gas losses can only be used against similar profits. The Serica losses were acquired with Tailwind which was almost an exclusive oil producer. The Uk tax rules prevents an acquiring company using the tax losses of an acquired company for 5 years. The tailwind lossess can be used to offset the taxable profits from the former tailwind business but not Serica’s core business . This was one of the big lies at the time of the acquisition.

there are ways to use them a little quicker but tax losses are largely ringfenced. Acquiring another company with tax losses would not help for 5 years!

Stumpy. The market is focussed on 2025 FCF and accordingly 2024 WD acquisition accounting is not really relevant. Harbour will have received FCF post acquisition and WD retained pre completion FCF plus a top up from the bridging loan as per the acquisition agreement.

Harbour projected back at the start of 2024 that 2024 FCF would be effectively nil but that 2025 would see a significant improvement (pre WD deal). WD alone should be generating FCF of over $1b. The production target of 175m barrels for 2025 equates to FCF of $6 per barrel which is not great given high oil and european gas price assumptions.

There is not enough info to undertand how OPEX in the $teens/barrel translates to not much for poor old shareholders - 78%+ tax rate explains part of it. i think harbour missed a trick by not progressing the Falklands with a very low tax regieme and v large proven reserves.

Tigar

The headline purchase price will be reduced by the WD FCF up to the completion date. The Harbour FCF reported for 2024 should not include the WD FCF prior to completion date.

Rom

It is even more crazy that the increase in gas powered electricty prices are also applied to the nuclear and renewables electricity prices that make up 2/3 of supply on average across the year. The UK marginal cost pricing system for electricity is nuts given the majority of supply is now high upfront fixed cost with relatively low marginal costs (particularly off shore wind). Also given wind and solar farms developed since 2019 benefit from fixed price guarantees, there is no point in them bidding at low prices to be allocated capacity when the price they bid is irrelevant to them.

Also the average wholesale price of electricty in 2024 of £75/MWh acconted for less than 25% of bills in 2024 with subsidies, network costs and distributor costs making up the balance of electricty bills.

Being a little sad, I reviewed the financial statemenst of all 43 UK offshore windfarms and in 2024 they received an average of £160/MWh for electricity generated. Gas CCGT generated electricity cost £54/MWh before Carbon taxes of £16/MWh.

Dave

the SP decline reflects pretty poor FCF for 2025 even on highish oil and gas prices.

i dont think it is much more complicated than that. We have not really paid $11.7b for WD, real price is probably closer to $9b and yet combined business is projected to generate $1b FCF. WD should be doing this on its own!

Londoner

I have also followed a cash route. G&A is general and admin costs (inc linda’s salary) which are not included in OPEX. I have estimated G&A to increase from approx $200m pre WD to $300m.

I have used a blended tax rate of 75% as an aggregation of UK and Norway at 78% and lower rate in Argentina, Germany etc. A little finger in the air.

in terms of average O&G price per barrel , I have used $80 for oil, $71.5 for Euopean gas and $27.5 for argentina gas giving an average of $69/BOE. i have assumed 40% oil, 45% euro gas and 15% int gas. I note in recently released presentation that int gas is increasing to 20% so average price may be a little lower.