Member Info for Stevo12

Tamovv

Apologies I was not clearer. I was trying to say that the current Enterprise value of HArbour is $4b ($3.2m market cap plus $0.8m debt) as compared to 2023 expected FCF of $1-1.2b, resulting in a current multiple of 3.5-4 Xs FCF. This is not an unreasonably low number for O&G sector.

I was then trying to highlight that in 2023 as we use $1b+ FCF to pay down debt or fund share buybacks, the share price should increase by approximately £1 to £4.20 to maintain the same EV. This assumes constant O&G prices and tax regime does not change again.

Of course we could see a nasty recession in 2023 and a fall in energy prices which would have a negative impact on Harhours share price in the short term, but in the medium term the supply and demand balance is in favour of an oil price at or around $100 per barrel.

On this basis we should be adding £1 in value per share per year for next several years.

Bonkers

While expiry of gas and oil hedges will add an additional $4b ish of profit in 2024 if prices remain at current levels, HMRC will take $3b and we will be left with $1b. By 2024 we will have used up all of our PMO tax losses which is currently reducing our core (not EPL) tax bill by over $1b per year.

Accordingly, in my opinion, the current core business will likely generate approximately $1-1.2b a year for the next several years (£1.10- £1.30 per share) after spending $1b per year on sustaining Capex and AbEX. The EPL has reduced Harbours value by somewhere between £3-4 per share (£2.5-3.5B) and without a major revision to the EPL, I think £4.5-5 per share is top end of our range over next year if oil remains at $100 per barrel and gas 200p per therm. If HArbour is able to add value through overseas investments then this will ultimately flow through to share price.

Unless other O&G companies follow Harbour I fear there is no chance the EPL will be removed/ materially amended. The Treasury believe the 91.4% investment allowance is sufficient to incentivise major investment in new projects - harbour have said no but will Equinor and partners say yes on Rosebank and Cambo.

There is a really interesting interview of the Enquest Chairman at Davos which is worth a watch on YouTube. I don’t have the link but it is on Enquest chat board.

Infor

The ability for Tailwind to use losses against its profits is pretty secure and would require a fundamental shift in UK tax law to not allow companies to offset prior year tax losses against taxable profits. The matter in doubt is whether these losses can be used over a shorter time period by also offsetting against Serica profits.

To be clear at the very best the losses are worth about 250m-£300m after discounting on a Tailwind only assumption, probably another £100m higher if Serica can utilise them as well due to timing of cash flow benefit.

We don’t know how much value Serica board has allocated to the Losses but it is clearly very significant and probably makes up around half of the valuation. Pretty high risk if O&G prices fall.

Visitor

As has got the tax position totally wrong. There are not $2.6b of losses. There is $1.3b of losses to offset agains the 30% charge and $1.3b to offset against the supple tax charge. Accordingly the undiscounted tax shield is $520m and not $1b. Really frustrating when these influential commentators can not get the basics correct.

Just doing a back of the *** packet calculation and without the oil and gas hedges in 2022, profits and FCF would have been $4b higher. Now that’s a windfall gain worth taxing!

Salford. I hope you are right.

I Have factored in $200m less revenue due to fall in production, $150m more operating costs, $100m more Capex and AbEX and $650-750m more EPL resulting in a $-1.1b lower FCF than 2022. Oil hedges in 2023 are better than 2022 and gas worse. Overall i see a $100m benefit from hedges YOY.

Accordingly the above results in a $0.9-1b reduction in FCF and my projection of $1-1.2b. I do not see any merit in reducing debt to zero but the potential is there. i interpret as being either share buy backs or debt reduced to zero and not both. In reality i am sure there will be M&A in 2023 which will be debt funded and i would be surprised if share buybacks did not continue from Q2 onwards

We also need to recognise that the EPL is taking over £5b of additional taxes from HArbour over next 6 years. Even after discounting the EPL payments it represent an amount equivalent to our market cap before the EPL was introduced and in someways I am surprised the share price did not fall more.

We are currently benefiting from PMO tax losses in reducing core tax by approximately a $1b a year and will be largely used up in 2023/24. Thankfully gas hedges falling away in 2024 and medium term energy prices looking solid. Accordingly i see current harbour business as yielding a £1 - 1.25 return per annum for next several years.

I would class the RNS as “solid and in line with expectations” as opposed to outstanding. Production, FCF and debt all fell within the well sign posted ranges. I am not say this is not a great result but as expected.

FCF for Q4 was $300m and post EPL i expect the market is targeting FCF of $1-1.2b for 2023 which results in a valuation of approximately 4xs 2023 FCF, which is not unreasonable given the uncertainty of oil and gas prices in 2023. The repayment of debt in 2023 should translate to a 75p price increase in share price over 2023 and together with 2023 share buy backs and dividends should add another 50p to shareholder return.

Accordingly my personal expectation is a £1-1.25 return in 2023 in cash and share price improvement. I am not expecting fireworks but a £4.2 share price by dec 23 is good enough for me.

TerryM

Unfortunately you are spot on and real risk of a death spiral of higher and new taxes which raise less tax.

The huge irony is that increased public sector spending in the 70s,80s,90s and 2000s was funded by North Sea oil revenues and taxes on profits, jobs etc. Sterling also benefited as a quasi petro currency and, unlike Norway, we have not invested this bounty in either a sovereign wealth fund of transforming our infrastructure, skills, innovation or productivity.

The golden goose is getting old and less productive and we are now trying to strangle it rather than celebrating and enhancing the benefits that can still be delivered from North Sea O&G.

L3 - depletion, depreciation and amortisation are not offsetable costs in determining EPL or indeed core tax liabilities. The company receives an investment allowance for in year capital expenditure instead. Accordingly Londoners definition of profit subject to EPL is pretty accurate. Of course the tax is then reduced by the investment allowance.

Fingers crossed for tomorrow

Pelle

I am saying 1/2 of EPL will be paid in 2022 and the balance in Jan 23.

Given the cap ex profile I anticipate about $20-25m of EPL cash paid in 2022. given net debt was $750m at 30 Sept and with Q4 normally having strong uptime and production levels, it should be a strong quarter for FCF. Q3 was $130m FCF if I recall correctly and I would hope Q4 would be an improvement.

My forecast for net debt at 31 dec is $550m.

While this seems low compared to others it reflect the timing of UK tax payments under the current payment on account regime. Approximately 1/2 of the EPL payments for 2022 will be made in Jan 23 with Q3 being the highest tax paying quarter. Q4 should be a high FCF quarter, although O&G prices have softened, and I am expecting $200m of FCF.

Ss17

The company’s forecast was increased to $2-2.2b FCF per the November update, after $700m of tax payment in 2022. We need to land at or above the top of this range to be positively received.

Losses brought forward are not offsetable against EPL (disgracefully!) but do reduce the tax payable on core 40% tax rate. I agree $1.2b (£1b) FCF for 2023 is a realistic expectation if oil averages over $80 and gas 150p per therm. Gas prices looking pretty weak at the moment but who knows whether Europe will be able to fill its gas reserves over summer and autumn at current prices as there may be more competition for US LNG from China.

DUMBLY

Unfortunately not.

I’ll put a wager on $750m at 31 December, maybe slightly lower given deferral of buybacks into January.

Supuser

I concur that the view. I anticipate Thursday will contain some good news in confirming the 2022 results towards the top end of the FCF range and hopefully a reconfirmation that net debt will still hit zero during 2023 (probably towards the end rather than middle) based on certain gas/oil price assumptions.

However that is already largely factored into the price, but a reveal on the full impact of 2023 WFT could be negative. I am very surprised on the quantum of the WFT impact for the super majors in 2022 given that it was only for 7 months at 25% as opposed to full 12 months impact in 2023 at 35%. Ultimately for companies without tax losses carried forward or large future capital programmes, the WFT reduces North Sea FCF by 58% for 6 years (previously O&G retained 60% of their taxable profits now reduced to 25%). In contrast share prices for many of the NS O&G companies have reduced by 35-40% from pre WFT levels, possibly somewhat protected by tax losses which mitigate the 40% core taxation.

I am not sure we will get details of acquisitions unless there is a deal very close to completion but more of an intent to geographically diversify. I would like to hear from HArbour about the Tuna field economics. The new stories on tuna implied we were operating on a cost plus basis with capped profitability.

I am also with Barclays and there is no corporate action yet. I have emailed but no response yet

I suspect we may get another bite at this cherry. Shell are keen to exit North Sea upstream O&G but comforted that Harbour are not willing to pay a price which we might look back on as being a halcyon period of gas prices. I am sure Shell would have approached their partners in these fields first and there will be no PE interest. Unless likes of BP AKer are interested, there are very few potential buyers.

Quest

I do not believe we will likely get a material re-rating of the share price until Q2. My reasoning for this is that we will be receiving more detailed Fy23 forecasts along with year end results. Also most importantly, we will get clarity over Enquest’s key strategic choices (pay down debt or shareholder distributions, invest in UK or overseas, clarity over EPL).

Further, on a macro basis, the impact of China reopening, global recession etc will be clearer and the resultant impact on medium term Oil prices clearer . I also hope but do not expect the Ukraine war to be over, which is both a positive and a negative for oil prices.

I am not expecting any changes in EPL (even a floor) until the current “roots and all” O&G tax review by Treasury reports in Q4 2023. a totally redesigned tax approach to NS O&G is politically more palatable that removing or amending EPL. Hopefully we have a period of stable gas prices leading up to the publishing of the report.

Jerffrey

We have to recognise that Enquest is a leveraged play on medium to long term oil prices. If Oil prices average $75-80 per barrel over next 3-5 years the share price will do very well. Deleveraging over next 12 months is still for me the key priority and will translated to an increased share price. Enquest Bond’s are yielding over 10% which is in the high risk territory and indicates a real risk of default if oil prices experienced a material and sustained decline.

Reducing net debt will result in a re-rating of bonds and also equity which equally will have the same risk of failure factored into the share price. the impact of the WFT is not yet truly understood by the market and how individual companies will respond reading ongoing investment in UK and overseas.

In theory a £500m reduction of our net financial liabilities in 2023 (I include RBL, Bonds, Finance Lease and Deferred consideration) should translate to a more than doubling of our share price - in theory more. I am personally comfortable that once we get through the risk of global recession in Q1 and Q2 of 2023, the $75-80 floor in oil prices will be clear and this will be reflect in share price for all the mid-tier O&G companies.

Investors need to either embrace this is a highly leveraged play on oil prices or exit. Each to his own.