Member Info for Stevo12

Indy - I think both and definitely Serica shareholders have been legged over. With the amount of cash they are sitting on they should have their choice of assets to acquire.

The only thing shareholders are being asked to vote on is the issue of new shares . While this is effectively a proxy for the deal I thought we are required to approve an acquisition of this size under listing rules.

Banbury

Agree there is value to the losses but how many years will it take to utilise them. I would not put the value above what sits in Tailwinds balance sheet which is approx £250m. This will have been discounted based on likely timing of usage. If Serica gets to use them quicker it should be to Serica shareholder benefit not Tailwinds.

I would have much preferred for Serica or go and buy 15k per day of producing assets from majors or other NS companies that will be feeling the squeeze from EPL. 40m barrels of reserves is worth $ 6-7 per barrel based on the only valuation tool currently around, being the market valuations of listed NS O and G companies.

I expect we will see a number of consolidation deals over the next 12 months and I’ll wager we will never see a valuation anywhere close to this deal.

Apologies for typos. Meant to say they will control the board in point 2.

I have just listened to the Q&A and comforted on some levels and certainly the ability to use the tax losses. However really concerned with the following

1. Mitch referred to the respective valuations being a comparison of balance sheets and not production, profitability or reserves. Adjusting for debt and cash we are acquiring the business for $20 per barrel of reserves and Serica is valued at $5 per barrel of reserves.

There will never be a deal again for reserves at $20 per barrel with EPL. I could accept $10 per barrel at a push.

2. The ongoing influence of Mercurial going forward. Please be in no doubt they will. Ontario the bird me have just acquired 25% of Serica’’s assets at a massive discount.

Really disappointing that the analysts in the Q&A did not question relative valuation.

It will certainly be a no for me but I presume that the board have already. On investment the Hardy’s and other major shareholders. Not a bad deal just a very bad price.

The more I look at this deal the more concerned I get. In addition to the debt there is also royalty and contingent consideration on past acquisitions to pay of £54m. There are also only 19 employees so assume we are not the operator on most of or all of the fields. Accordingly we do not get the full benefit of 15k bpd.

If you adjust for cash/debt, tailwind is being valued at more than double Serica and they are 1/2 the size by production.

The financial statements only disclose the deferred tax recognised. There is a requirement to disclose the unrecognised losses but appears Tailwind have not complied. Accordingly there could be material unrecognised losses in relation to a previous business they have acquired.

Not adverse to a U.K. acquisition but this is way, way over market price in comparison to other listed NS independents. Feels like this was price agreed before latest increase and extension 0f EPL and Serica management have folded.

In 2022 epl is paid in two instalments - the first in October 22 and the second in January 23.

The latest files financial statements for 2021 show quite modest tax losses at 31 Dec 21. I don’t see how they could have grown so much in 2022. Something does not sound right.

Wow. This an an expensive deal. Almost $20 per barrel of 2p reserves was top end before EPL. This compares to harbour who are valued at under $10 per barrel of 2P reserves on enterprise value and Serica at closer to $5 per barrel.

Enquest are probably most comparable and are also below $10 per barrel of 2p reserves and also have large tax losses.

Zebbo

All depends on the price you pay for U.K. producing assets. As an example if 10,000 bpd cost £200m before EPL and now costs £100m due to lower post tax cash flows, you could now buy 20,000-bpd for £200m and have the same post tax profit/cash contribution as before the EPL.

Share price of listed NS O&G are down approx 40% and value of producing assets will have fallen by a similar amount.

Terry

The choices are you pay £100m in tax or $8.6m in tax and £91.4 goes to investment.

Maths as follows

Profit £133m
Tax. £100m (75%)

Under no-investment scenario there is £33m for shareholders, under investment scenario there is £24.4m to distribute due to capex funding. the choice is pay £100m in tax or pay £8.6m in tax and get the gov to fund £91.4m of cap ex. Company funds £8.6m of cap exp.

£45.7m of profit under your scenario compares to an investment of £8.6m. In reality profit would need to be 3-4X cap ex to psss IRR hurdle.

If a duster government picks up 75% of the cost via tax deduction.

Apologies my error. Cash balances are sterling.

Infor

Cash for second half of the year closer to $20m per month as we have to make core and some epl payments in second half. Also gas prices were much weaker in October and November than earlier in year.

Also cash deposits are reported in $ not £. We could certainly get to $650m of cash balances at year end.

Terry

Fully understand but would you not consider it an ok deal if someone paid you 91.4% of the cost of an investment and let you keep 25% of the profit?

I agree with you on the risk of a change in government and you would want to spend monies in 2023 and 2024 before next election.

I also would not be keen on board spending money overseas as they do not have experience and it is likely all governments are going to milk the O&G sector.

Kraken

The market is looking at cash flows for 2023, 2024 and beyond. 2022 will soon become history.

We need guidance on post EPL cash flows for 2023 to help share price. While are market cap is sub £400m our enterprise value is closer to £2b when you factor in debt and other financial obligations. We could be able to repay over $500m of these obligations per year in 2023 and 2024 which should translate to substantial increase in share price. All down to POO over next couple of years.

Wishful thinking I am afraid Maverick. This was a duster that has been dressed up to sound a little better - the data gathered is always hugely valuable for surrounding fields. This was always a 25% chance of success at the best.

As flying Dutch notes if it had been a success the government would have paid over 91% of the capital cost of developing the field.

It makes a lot of sense that government agrees long term supply agreement at a fixed price or a price range. This would avoid the need to hedge and pass on huge margins to the likes of Glencore. It would provide long term contractual commitments and certainty to support investment. Combine this with normal tax regime and you have a very investable proposition.

Future governments would not be able to reverse the contractual purchase commitment but could amend tax in the future but unlikely if consumer prices are not an issue.

Thanks therapist.

So at $100 pbbl equivalent over next few years approx $35m or $23m pa after 35% epl. So additional Magnus gas will cover about 10% of EPL - all helps but we would need an additional 10,000 barrels per day to cover EPL.

I am also confused at Fridays share price drop - I can’t see any reason apart from more sellers than buyers. Enquest has the highest level of financial liabilities relative to market cap of the North Sea independents - particularly when you factor in lease liabilities and deferred consideration obligations. This will make its share more volatile than those with low or no debt.

Frac

Can you share what the you believe the additional revenue from Magnus gas off take will be.

My estimate is that it would need to be approx the equivalent of 10,000 barrels per day at $100 pbbl to cover EPL.

Currently over 60% of electricity is being generated from gas as very little wind and solar at present.