Member Info for Stevo12

OILV

Provide your detailed breakdown of production and cash costs for each company - how did you get to your forecast cost per barrel?. You are just making up numbers without any detail or logic.

I have provided a line by line breakdown of costs as detailed in management guidance or latest financial statements. If you want to be useful and contribute which cash cost items are you challenging? We can then have an informed debate on specific line items.

.

The fact that Serica and Enq management are guiding that Serica will generate $20/barrel more cash than Enq in 2026 from similar production might have something to do with valuation difference.

The valuation gap has gown from £250m at the time of last years failed merger to over £700m today and will continue to grow unless Enq acquires significant UK production to use losses and drive down average cost per barrel.

TWal

I have done a cut and paste from the excel spreadsheet and it does not paginate very well but all the numbers are there.

2026 FCF Cost per barrel

Serica Enq

Production Estimate (BOPD) 43,000 43,000

Annual 15,695,000 15,695,000

- UK 15,695,000 9,490,000

- overseas. 0 6,205,000

£m £m

OPEX 390 450

Interest 20 90

Lease 5 85

Overhead 20 20

ABEX 20 60

Royalties 31

PSC 84

CAPEX 185 160

Pre tax cash costs 640 979

Per barrel (exc tax) 41 62

The above analysis is at $70/oil and Malaysian PSC is assumed at 50%. I want to do a some more work on the EPL and taxation cash costs for both Serica and Enquest but it is in the $8-10/barrel range after use of tax losses.

Just to further inform the debate, I have completed a detailed analysis of projected 2026 all in cash cost per barrel for Serica and Enq. This is based on management guidance on costs. capex and production of 43k/ BOEPD for both companies. I have done the analysis on a pre tax and post tax basis and the pre tax all in cash cost per barrel compares as follows

Serica $41/barrel

Enq $62/ barrel

The timing of EPL payments, use of EPL losses, tax on Bruce and overseas tax makes the post tax position more difficult to compare but the $20/ barrel difference in all in cash cost per barrel remains.

Happy to share the calculations for those interested.

OilV

Provide proper meaningful analysis. Higher Capex adds value to the business and increases 2p reserves and production. It is also discretionary. The reason Enq Capex is low is that they are not replacing extracted reserves with an organic replacement of close to Zero for last 4 years. Serica’s reserve replacement ratio is over 100%.

I have highlight the main differences in legacy cost and you provide nothing but a random number plucked out of the air.

I could have also highlighted than Enq OPEX is also $50-70m higher and Enq will be paying $100-140m to Malaysian gov in royalties, PSCs and corp tax in 2026.

I am very happy to have an informed debate which adds to all our understanding and please provide some substance to your claims. I provide the details that support my thesis. Do the same and pay up when you lose your bets.

.

There is a reason that the value of Serica has increased by £500m post the collapse of the Enq merger and Enq has increased by $100m. Production in 2026 is broadly similar but Mr Market values current and perspective FCF and Enq is disadvantages by its legacy liabilities which impact prospective FCF.

Enq pays interest of $90m per year on its debt, Serica $20m. Enq lease costs are $85m a year and Serica £5m. The other key difference is Enq has ABEX liabilities of $930m with $60m pa of spend, Serica $250m of liabilities with very little spend.

Yes Enquest and Serica are very similar in that they sell the same product (although with different oil/gas mix) at the same quantity (approx 45k BPPD). However if you are not able to understand that Mr Market would value two companies very differently if one has recurring costs which are $200m higher per year, then you really should not be investing.

The key question is whether the £700m market cap difference is justified by the $200m FCF advantage noted above and other differences (UK/Malaysia etc). Given the recent acquisitions and hopefully the stabilisation of Triton, I am betting that the valuation gap will continue to widen. This is why I am invested in Serica and not Enq. Others can hold an alternate view and invest in Enq and that is perfectly legitimate and how the markets work. However I am seeing very little informed analysis to support the Enq investment case more blind faith. I do however acknowledge that a significant UK acquisition for Enq could change the game but management have singularly failed to close a deal despite continual promises for last 3 years that a transformational acquisition is just around the corner.

OILV

You really are an idiot. Yes Serica is spending more on CAPEX than Enq and is adding 2P reserves organically and acquisitively while Enq is depleting it NS 2P reserves (down 50m barrels over last 5 years). Enq has added some good 2P reserves in Malaysia but this will never generate significant FCF due to government tax take.

How much interest does Enq pay in interest compared to Serica’s ? What are Enquest lease cost compared to Serica and what are relative ABEX spend?. Enq starts the year with an unavoidable fixed cash obligation of interest, Lease and ABEX that is $200m higher than Serica’s equivalent - that is huge. That adds $20/barrel of cash cost per barrel for NS production. Serica’s OPEX per barrel is also lower but that is mainly due to gas/oil mix.

Enq does have some interesting 2C reserves in Bentley and Bressay but 2C reserves have no value under the current tax regime. This may change at the next election but the reality is UK 2C reserves are currently uneconomic to develop.

OilV

I have never recommended anyone buy or sell, but I posted on 2 May 2025 after the collapse of the merger that i had sold my Enq shares (but kept Enq bonds) and focussed my NS O&G in Serica and Harbour. I sold Enq for 13.1p and purchased Serica for £1.27 and Harbour at £1.53 on the same day.

I explained my thesis which was purely linked to an oil price expectations in 2026 and Enq’s higher break even costs. You were highly critical of my expectation that Harbour would hit £3 by end of 2026 - it achieved it in Q1 and Serica is up 115%. Enq has delivered a very reasonable 48% over the same post merger period and we will look back in another 12 months to see how these 3 companies has performed during 2026 - I hope they all double from here but I am not ready yet to get back into Enq, but will look again post 1/2 year 26 results.

OilV. You have a very short memory. I attach below our posts in Mid December regarding a bet on year end net debt

On 19 December you posted “Yes I am absolutely sure that FCF would have been around 120 million USD if the company had not had the one-time costs along with the high cost for Kraken FPSO lease. I can bet £50 on the net debt. I'm saying about 390-400 million USD by the end of 2025. And you're saying about 440-450 million USD in net debt by the end of 2025? Am I understanding you correctly? To charity”

On 21 December I responded

“I see you are backing away slightly from your “no increase in net debt position” to a modest $14m increase, but in the Christmas spirit you are on. I think it will be very close and management will be pulling every lever to improve year end net debt by deferring December cash payments into January. No reason not to disclose net debt in recent updates other than it looked ugly.”

Actual net debt at year end was $435m compared to my forecast of $440-450m and your forecast of $390-400m. What am I missing?

I also have never said that Enq is likely to go bankrupt. I stated that the $630m bond refinancing later this year would be challenging with oil in mid-60s and would potential result in higher interest rates.

OilV

Name one thing I have been wrong on. Why have i won every bet i have waged on this board including the one I had with you on year end net debt which you have reneged on. I am also now doubly confident i will win our second bet on cash cost per barrel in 2026. I would offer to double it but i know you will probably welch on that bet as well.

A comparison of Enq and Serica is a useful case case study as they will likely have similar production in 2026 of 40-45k BOEPD. As Hunbah notes one of the key differences in complexity which can be translated to legacy liabilities. These legacy liabilities are the key difference, alongside geography and oil/gas mix. Enquest’s interest, lease and ABEX costs are approx $240m each year. Serica’s equivalent is approx $50m per annum- $180-190m lower fixed costs. This alone should account for over $1-1.5b of valuation difference. Enquest buyout of BP’s Magnus interest has closed the gap, but it still a huge.

UK tax losses are broadly similar in value with Serica likely using them at a faster rate in 2026 and beyond. The other key difference is that Enq has been depleting its NS 2P reserves each year for last 5 years while Serica has added to them both organically and acquisitively.

The EV of Serica is approx £1.2b and Enq £750m. I increased my Serica investment post the collapse of the merger last year and exited my Enquest equity position which has proven a good call for the last 12 months (Serica up 110% and Enq 40%) and I think the value gap will continue to widen unless Enq can pull of a significant UK acquisition.

Serica however needs to demonstrate that Triton legacy issues are fix and uptime will improve. Once it has done this and beded in the acquisitions, it is off to the races in 2027. If EPL also removed then I would be disappointed with anything less than another doubling over the next 12 months.

Rom

You always come over as very considered, insightful and smart individual and I am sure you can understand the very difference marginal FCF per barrel in Uk and Malaysia.

yes current HMG is doing very thing it can to destroy a highly valuable industry, but the simple observation is that because of UK tax losses, Enq FCF per barrel is 3 times higher in the UK than Malaysia (after EPL) and before fixed legacy costs. Enq retains 62p for each £1 of additional revenue in UK as opposed to 20-25p in Malaysia.

Uk production is dropping faster than envisage in 2026 and SEA is going to need to add 3 barrels for every lost Uk barrel to stand still.

VOR

It is impossible to predict 2026 FCF with the volatility in oil, it could be $100+ in 3 months time or it could be $70. My analysis has always been on company specific cost and production and the oil price needed to generate breakeven FCF. I have a bet with OILViking that FCF breakeven will be $62.5/barrel and he is at $58/ oil, closest wins £200 for charity of choice.

Happy to replicate that bet if you are up for it as i am not expecting OilV to pay up when he/she losses. Kraken has always been very good at paying up on losing bets but has gone very quiet on our last wager.

Profitaker

My reference for the 7-10k BOPD reduction in NS production is management guidance. Management has guided that there will be an addition 6k BOEPD from Svengali gas and 2.5k BOPD from Vietnam (full year contribution).

2025 production was 43k BOEPD and 2026 guidance is 41-45k BOEPD and so using mid-point broadly flat. If production is flat YOY and SEA is up 8.5k BOPD per day please do the maths re resultant UK production. Kraken is in natural decline and Magnus impacted by shut ins, other fields also in natural decline.

Rom

You misunderstand me, I think an expansion into SEA is and was a great strategic move, particularly as it is currently requiring relatively low CAPEX.

My point is that due to the high government take in Malaysia via royalties, PSC, corp tax and withholding tax on dividends (at any oil price) and the UK losses, Enq needs a 3-4 barrel increase in SEA production to compensate for a 1 barrel reduction in NS production. SEA is great as incremental growth barrels but not as replacement barrels for NS contraction. The mid-range of management’s 2026 production forecast is for flat production with SEA increasing by approx 8k BOEPD and as a result Enq needs oil over $70 to breakeven. This is not my forecast but the guidance management is providing.

VOR

The Malaysian government tax does flex to oil prices as we have discussed many time on this Board. However it is a flex that ranges from approx 65% at low oil prices (say $55 oil) to 80% when oil is over $85-90. It also goes over 100% in very low oil/gas prices (say $30/oil) due to fixed royalties.

I used $70/oil to provide an example of the difference in contribution per marginal barrel. NS needs a much higher contribution per barrel to cover the fixed costs such as interest and lease costs (which are approx $20 per barrel of NS production). At $100 oil an additional barrel of NS oil contributes $42/ barrel, Malaysia $10-12/barrel.

The point i am trying to highlight is that increased Malaysian production does not offset the impact of falling NS production on a per barrel basis.

At $100 oil all NS O&G are generating huge FCF. I am surprised the Enq is not locking in more hedges in the $85+ range.

Kraken - when are you going to pay up on another bet you lost? My charities are benefiting hugely from the Enquest Board.

Hunbah

Time as ever will be the arbiter.

However what i think a lot of people are missing is that an additional barrel in Malaysia adds approximately $8 at $70 oil, while an additional barrel in NS adds $24/ barrel after EPL. Accordingly, Enq needs to add 3 barrels in Malaysia for every barrel reduction in NS and it looks like NS production in 2026 will be down between 7-10k per day based on management guidances.

Malaysia is great as an addition to NS production but not as a replacement.

Hunbah

I have excluded dividends and Vietnam purchase costs from the $69/ barrel 2025 all in-cash cost. I have included refinance fees as they are an ongoing business cost and will be similar or possibly higher in 2026.

2025 EPL payments were lower than I expected at $85m and looks like 2026 will be a similar EPL payment based on disclosures in the tax note. Royalty, PSC and tax in Malaysia and Vietnam probably in the $60-80m higher than 2025. Accordingly i can only see one scenario where 2026 cash cost per barrel falls below $70/barrel and that is a major UK acquisition ASAP.

Of course if Oil/gas averages $85-90/ barrel in 2026 the cash will flow. At $90 oil, I calculate FCF at $180m for 2026 after 5m barrels of hedges. If the hedges can be used against Malaysian oil production the FCF would be $120m higher - not surE if that is possible.

Frac

I saw the 26p price target last month but i have not seen he 41p. I think the 26p is definitely achievable with transition from EPL to new OGPM which i believe would have come in this year if the Orange one had not kicked off. However, the current debate on energy security is helpful to the cause.

My gut feel is there is anther 50% of share price appreciation for uK O&G when EPL replaced.

Profit taker

Refinancing fees are a normal and ongoing cost of running the business. The RBL was refinanced in 2025, The Bonds will need to be refinanced in 2026 and the Bond refinancing fee will be a similar amount in 2026. I concede that 2025 and 2026 will be unusually high years for refinance fees which are amortised over the life of the facility for accounting purposes.

On production, I can only take management guidance of 41-45k. Yes there will be some months when there is no maintenance or shutdowns which will exceed the average for the year and there will be months where production is below guidance..

On the geographic split of production. Management have guided that SEA production will be in the 18-20k BOPD and that Kraken will be subject to natural decline rates and Magnus impacted by shut-in. This equates to a Uk production rate of approx 23- 25K BOPD which is well below prior years (approximately 1/2 of 5-6 years ago). This should not be a surprise, Enq have not added any UK 2P reserves organically or acquisitively for several years (100% of Magnus has always been include in UK2P and no cash payments were made in 2025 to BP). The point I raised is that for 2026 at least, the additional SEA barrels are offsetting UK declining production and are cash taxed at 70-80% compared to 38% for UK barrels and will impact cash flows due to higher PSC and Royalty payments than EPL equivalent.

I remind Kraken that I continue to hold a significant Bond investment in Enq and again play the ball not the man. Also Kraken do you accept that you lost the bet that debt would not increase in 2025.