Member Info for Stevo12

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.

Londoner my model is 169m BOE, Revenue $11.7b, EBITDA $9.3b ($55/BOE), CAPEX and ABEX $2.6b, Interest $400m, G&A $300m, Tax $4.5b. Results in FCF of $1.5b so something missing.

You are missing the tax and interest payments from the estimate FCF forecast. I am gusesing but tax could be in $3b region

NAV-M

I think the core problem is the pretty anemic $1b FCF forecast for 2025. This will be enough to pay dividends but will not allow for significant debt repayments. Both Harbour and WD were generating north $1b FCF pre deal so not sure what has gone wrong. Harbour is certainly paying more tax in 2024 and 2025 than 2023 but WD should be generating FCF over $1b on its own given the purchase price.

I am also interested to understand what the significant working capital outflow relates to in late 2024 and if this is reversing in 2025 it makes the $1b FCF look even worse. Harbour needs to be generating $1.5b minimum FCF to pay dividends and repay $1b a year of debt. While all ther oother elements of the opertaing update were strong the forecast cash generation was weak and i think this has spooked the markets.

The market appears to be disapponited with the 2025 FCF forecast. HArbour forecast a significantly improved 2025 FCF before the WD acquisition and the $1b forecast is pretty much what was expected from HArbour pre WD.

I was personally hoping for $1.5b 2025 FCF as a minimum. not sure where all the WD cash flow has gone?

.

H

Dumbly

unfortunatel;y Harbour would not be able to use Enquest’s losses for 5 years. There are small workarounds to use some but it would be marginal.

Enq needs to acquire 2P to use losses, rather than being acquired by another larger company. I am comforted a little that apart from the BP/Equinor merger there has not been much NS M&A, so we have not missed out on anything, I assume we will be competing with the likes of Serica to buy producing fields.

This is effectively the same deal that harbour had with local oil company last year which harbour pulled. Same headline price but harbour have retained 12 months more cash flow but equally there was some capex in 2023.

Agree with londoner that the best evidence is the expected $50m FCF for 15-18 months from 1 Jany 2024 to Q2 2025. looks like 12 months payback but not going to set te world on fire. Where is the transfomational NS deal we are all hopimg for?

I should add that the cost of generating electricty is now less than 25% of electricity bills with environmental and social subsidies (mainly renewable subsidies) and distributor costs (not netwok costs) representing almost 1/2 of elctricty bills. Thanks Ed!

Modestus

German domestic energy is same price as Uk but Uk industrial electricty charges are 50% higher than Germany, Four times the US and 50% higher than the second most epensive industrial economy.

Offshore wind is eye wateringly expensive. Currently offshore wind costs 17p/KWh compared to 5.4p/KWh for gas generated electricty. An inconvenient truth!

Londoner

Re the statement that increased 2024 capex forecast from $200m to £250m only impacts FCF by $15m. I assume this is because $35m will fall into next years cash flow due to credit terms etc. Equally it could be that the equipment is leased and paid over a few years.

I am expecting FCF (excluding Bressay cash) to be broadly neutral in 2024 with a large outflow in second half due to £170m ish of EPL payments. 2025 FCF continues to be the prize.

Kraken

The gas cap makes absolute sense to use to power the platforms. It is however small beer.

I can not see Enquest developing the core Bressay O&G reserves until the tax regime changes. It is just uneconomic to spend $20+ per barrel to develop a new field which is only worth $6-10 per barrel. A company paying full tax will get a tax allowance worth $15.60 but with Enquest losses, the tax allowance for Enquest is worth $7.60.

So developing Bressay at the moment would destroy shareholder value.

Rom

On Bentley, Enquest acquired the losses of over a £1 billion incurred by the previous developer of Bentley. The use of these losses were restricted for 5 years and that period has just ended.

I can not see anyway that Enquest can develop Bentley/Bressay under the current tax system - it is quite simply uneconomical. Enquest has to acquire existing reserves at less than $10/barrel, not develop its own reserves which will cost $20/barrel+

Happy new year to you all.

I am sure there are other NS oilers interested in Waldorf and Serica have expressed an intent to grow their NS production. The problem with acquiring Waldorf is that their losses would not be usable for 5 years and Enquest has more than enough losses with Bentley losses becoming available this year.

Accordingly I don't think anyone is going to pay much for the losses - possibly worth £40-50m if there is £900m of losses.

Buying individual fields is more attractive for Enquest but results in Waldorf paying EPL on sale proceeds. The purchase price would probably need to reflect the EPL payable.

Kraken

I just want accurate information, whether good or bad.

I am still hopeful that we will find an accretive acquisition this year as this is the only real game changer.

Sounds like a positive conversation with Craig who has always been very open.

I meant to add that I was disappointed that Enquest did not update on net debt as there will be no further updates this year. The EPL payment of close to $175m at end of Oct 24 would not have helped but it would have been helpful to understand FCF generation in H2.

I am not surprised that Waldorf have pulled the Kraken infill which was planned for Q1 2025 given their financial position. The infill programme was approved in late 2023 and as I recall Waldorf made an advance payment for their share of 2025 production costs of $40m (recorded by Enquest as JV cash).

I believe Enquest could have pushed through this programme, given the commitments already made including contracting the drilling rig. However it looks like it is also in Enquest’s interest to delay and it will be interesting to see how the cancellation cost are split.

Enquest will have to return the JV money advanced by Waldorf, less the drilling cancellation fees. I am sure there will be a push by Enquest to return the cash this post year end to manage net debt.

The $60m saving is going to help in the short term but will result in Kraken production falling pretty rapidly in 2026+. Ultimately Enquest will get a better return from buying producing fields than developing its own assets, given its tax losses.

Kraken

I do not have them individual lease details but. in aggregate, total lease costs fall from £160m to £70m in 2025, a £90m reduction. The majority of this is clearly Kraken, but there must be other leases ending as well.

This will result in an additional EPL charge of £34m, but this will not arise until 2026.

There is also reduced CAPEX and the impact of lower CAPEX increasing EPL will not be felt until 2026. OIl price is still the key driver and 2025 oil prices not looking as bullish as earlier this year. However if oil prices hold up, 2025 should be a golden FCF year for Enquest with cash flows falling back in 2026 onwards.

London A

The 25% restriction on buybacks relates to the average daily volume in the 30 days preceding the announcement of the buyback programme. Accordingly ML will know exactly the maximum number of shares they can buy and will have chosen the announcement date of the buyback scheme following a relatively high trading month.

Dumbly

Total lease costs reduce from $160.3m in 2024 to $70.1m in 2025 (page 180 of annual report), a reduction of $90m of which the majority of the reduction relates to Kraken. Leases costs in aggregate then remain at a similar level from 2026 to 2028.

This reduction, together with other cash savings such as lower CAPEX and reduced EPL payment, have been disclosed and factored into the current share price (at least in theory). The impact of an acquisition of 2P reserves is currently unknown and not reflected in SP.