Member Info for Stevo12

What have i learned from the update:

1. Excluding the dividend and the Vietnam acquisition cash cost, debt increased by approximately $10m and with an average realised oil price of $68.2/barrel, 2025 cash cost per barrel was approx $69/ barrel

2. For 2026, production volumes are projected to be similar to 2025 (43k/ BoePD) and based on guidance OPEX up $35m and CAPEX down $20m, Lease costs up $5m (due to Vietnam FPSO), Interest costs will be up due to Magnus borrowing, offset to a degree by high FCF due to current oil price.

3. Government “take” in 2026 will be higher as we exchange barrels cash taxed at 38% in UK for 75-80% in Malaysia (not sure about Vietnam). Interestingly after 2025 royalty and PSC payments in Malaysia, Enquest revenue per barrel was $34/barrel in 2025. I have not done the detailed work and depends on timing of payment of 2025s EPL charge of $85m but likely total government “cash take” in 2026 materially higher.

My conclusion, which I know I will get slated for, is that the FCF per barrel break even will be higher in 2026 than 2025. I had estimated $62-65/ barrel for 32036, but now looking more like $70/barrel +. Enq needs a significant UK acquisition (15-20k BPD) to use tax losses and bring FCF breakeven down.

Please challenge the assumption above with thoughts and rationale and not emotion.

Profitaker

Don’t want to burst your bubble but in 2018, when i first invested in Enquest, UK NS production was 47k BOPD and 2P reserves were 250m barrels.

If i recall correctly debt was $1.7b and oil was in $60s. What an historical look back shows us is that over last 8 years Enq has extracted and sold approx net 150m barrel of 2P reserves and paid down a little over $1b of debt, effectively generating an average of $7/barrel (although it has been zero/ barrel for last 2 years). An elevated oil price for longer will enable Enq to up its FCF per barrel, but oil futures for Q4 2026 are in the $75-85 range which I estimate yields $10-15/ barrel FCF.

It feels like the Overton Window has moved re NS oil extraction and the sooner oil prices come down to mid to high 70s, the sooner EPL will be ditched and new licences opened up.

VOR

I agree 2026 production guidance does feel low with additional 6k BOEPD of Malaysian gas. At the midpoint of management guidance of 43k BOEPD, that is a 8K per day reduction on 2025 and while i can see Kraken declining by 2k per day, the balance is unclear.

Hopefully clearer guidance will be provided later this month.

VOR

I have taken the midpoint of management guidance of 41-45k BOEPD and assumed Malaysia at 14k BOPD (6 oil and 8 gas) and Vietnam 6k BOPD. This leaves 23k BOPD for UK.

On gas, I have used a broad assumption of $100/barrel equivalent. Does nt make much difference as gas is in Malaysia and gov will be taking 80% ish of upside.

I also agree on a monthly basis management will be deferring hedges until later in year in case oil price falls. I have used a 12 moths example and assume oil prices remain at $100/barrel.

Really pleased to see Enq share price rise alongside other NS O&G with a potential doubling of Enq SP from time of aborted merger last year. Serica already there and Enq catching up fast. However I wish it was not on back of death and destruction in ME.

VOR/Hunbah

My estimated of additional FCF is based on the following assumptions; UK 2026 production 8.5m barrels, SEA 7m barrels. FCF breakeven $65/barrel. 4m UK barrels hedged at $70/barrel. Oil price averages $100 for year.

UK additional cash flow $35*4.5m = 157m, hedges $5*4m = $20m - UK FCF =$177m (additional EPL of $67m payable in 2027)

SEA =$35*7m*20% = $50m (after effective tax rate of approx 80% on additional price uplift)

Accordingly for 2026 a $100/ barrel price would translate to approx $227m of FCF ($4.4m PW)

The assumption that the FCF cost per barrel breakeven in UK and SEA is similar is clearly inaccurate and UK cost per barrel will be higher after bearing interest, ABEX and Lease costs. However as we do not have this breakdown, I have assumed similar which results in a higher FCF projection.

The incremental tax rate of 80% in SEA reflects the increase PSC share as revenue per barrel rises.

The futures market are pricing the oil spike as relatively short term with WTI futures for December 26 delivery falling to $67/barrel. The forward curve starts to decline quite rapidly post April 2026 and the markets values O&G based on long run oil prices, not a potential short term spike. Accordingly Enq and others cannot take out high price hedges beyond April/May 26.

If and when there is an acceptance that oil is higher for longer, then the share prices of all O&G will be rerated. Of course a quarter of high oil prices is not to be sniffed at for Enq and others, but it is not transformational. My belief, and i could be wrong, is that the step up in value of NS O&G is more to do with expectation of end of EPL, combined with some very favourable consolidation deals by Enq, Serica and Harbour.

Enq needs $80+ to generate meaningful FCF and it will come, but probably not sustainably until mid-late 2027.

Asartara

See slide 26 of presentation which discloses tax paid in Norway and Uk, with Uk split between EPL and core UK tax. The $1b EPL cash cost in 2025 is probably higher than 2026 EPL - however it will still be substantial.

Interesting and much welcome share price movement today. I was a little surprised at price increase as the results did not provide any additional forward looking information. However what was evident was a more upbeat sentiment from the team and I got the sense that LLOG, in particular, has put a bounce in their step.

One disclosure which drew my attention was the tax payments in 2025 - $2b in Norway and $1.5b in UK (of which EPL was $1b). Uk and Norway production was similar and interesting that UK is “uninvestable” (due to tax take) while Norway is attractive. Go figure! Also EPL payments were $1b in 2025 and shows the potential share price upside if EPL ends 3 years early..

I am not getting too excited about 2026 FCF. Hopefully the Iranian conflict is short and sharp and, if that is the case, oil will be back to $70s. The sustained oil bull market starts in 2027 or 2028 and this is when FCF grows substantially. If and when oil falls back to $70, I believe EPL will be retired and this alone will add close to $1b to HBR’s FCF.

NewkOTB

That is not Linda it is Louise Kingham from BP. She looks very bored and has not even brought a note book.

Interesting that most of the companies except Serica sent their No2s or No3s to the meeting. Nice to see that Serica and Enq were sitting next to each other! Probably reading too much into one photo.

Kraken

Today’s price reflecting the expectation that EPL was going to be retired in Spring statement and i think it would have been if oil prices had not spiked. Still an opportunity to retire EPL early following tomorrows discussions with NS sector leaders - I wonder if AB is invited?

BT Faith

It has been great to see all NS oilers progressing over the last few weeks and Enq more than most.

A sustained oil price of $82.5/ barrel is approx $20/ barrel higher than my assumption and would add $12.5/ barrel to UK FCF in Year2+ and $20/ barrel in 2026 due to tax payment timings. It would also add approx $4/barrel to FCF from SEA production (assuming gas moves up a similar %)

So broadly for 2026: UK 23k*365*20= $168m (reducing to $105m in 2027+) and SEA 20k*4*365 =$29m which totals additional FCF in 2026 of $197m ($134m in 2027+).

What this demonstrates is the difference in marginal tax rates in the UK and SEA - UK marginal cash rate 0% in year 1 and then increasing to 38% (until EPL ends) and Malaysia approx 80% effective rate at these higher prices (Royalty, PSC and Corp tax) and the imperative to organically or acquisitively grow UK Production which has halved since early 2020s.

The medium to long term oil price curve - used for hedging beyond the short term - has not yet moved that much and 2027 hedges would still be below $70/barrel.

A strong day for all NS O&G share prices which have risen much more than North American mid caps.

It feels like this could be a convergence of oil price spike and EPL news leaking to insiders. I hope that Rachel and Treasury do not bottle it this time around! We will see tomorrow.

I meant to add that on the Magnus deal Enq has picked up the financial interest in a further 22m of 2P reserves for less than $3/barrel. Current going rate is in the $6-8 /barrel range for UK 2P and highlight the quality of the deal. Unusually for Enq it looks like it was a bit of a leaky ship leading up to announcement.

Not a criticism but an observation on how quickly things can change. In 2023 Enq production was 36k BOPD Uk and 7k BOPD Malaysia and 2026 approx 23-25k BOPD Uk and approx 18-20k BOPD SEA thanks to Mad Ed’s zealotry.

Kraken - The RBL facility indicates that a deal is likely in 2026 but I have no idea on timing. Not willing to better without some evidence. If the NED’s buy shares in the weeks before AGM, I would be happy to have a wager. What’s your thinking on 2026 FCF?

A little concerned at the moment re expectation of removal of EPL. I am sure the treasury are supportive but will Kier and Ed blackball on political rather than economic grounds. The outcome of todays vote in Manchester might be key.

Schlemiel.

SEA production for 2026 should be approaching 20k BOPD, including full year contribution from Vietnam and Segeli gas.

Enq has moved very quickly to almost 50% of group production being in SEA. Unfortunately the increase in SEA is matched by UK Gov driven decline in NS production. You can debate whether this switch is positive or negative.

Unfortunately due to WD acquisition and subsequent dilution, a removal of EPL would likely move share price closer to £3 than £6 - an increase in market cap of approx £1b.

SEK

I think you are underestimating EPL costs in 2025/ 2026. The reduced UK CAPEX in 2026 could result in EPL of $300-400m in 2026 - possibly higher.

Equally an early end in 2027 would save 3 years of EPL and should add over $1b to market cap of which we are seeing an early instalment today. Further, an early end to EPL could see a bit of a “gold rush” to kick off new projects before EPL ends.

Great to see the impact on all NS O&G today and hopefully not another false dawn.

OILV

Am i missing something?. 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.”

In my world if someone offers a bet and it is accepted - it is a bet. Actual net debt at year end $435m.

Oilviking

Are you ready to settle up on our year end net debt bet?

Kraken - I think we will need to see the 2025 financial statements in March to be definitive on our bet on 2025 FCF, but it looks like slightly negative excluding dividend and Vietnam acquisition costs.