Member Info for Stevo12

There are two primary for the price difference.

1. UK and Norway tax rates results in Harbour keeping about 20% of Profit as compared to 75% for HES - 3.5X for each $1 of profit.

2. US Stock market multiples - US values O&G producers with a relatively low Beta resulting in a much higher valuation as a multiple of profits/FCF.

All the financial info is directly extracted from Enq’s and Serica’s financial statements. Please share which of the 4 legacy liabilities i described and related annual cash costs is wrong.

Agree that Triton has been a disaster in 2025 and Dana needs to demonstrate they are can run a stable platform in 2026.

If Serica has paid its historic dividends from debt why do they have close to zero debt at June 2025. On Magnus you need to be consistent, either exclude 37% of Magnus production from all your calculations or include the annual payments to BP. Either is fine.

On CAPEX I don’t know how you calculate cost/ 2P barrels as Enq CAPEX for last 3 years has not added any 2P reserves.

I think you need to cut down on Brandy source.

OILV

A comparison of Enq to Hbr is just not relevant given their size, scale and geographic spread. However a comparison to Serica has merit given similar production, 2P reserves and UK presence. So why does Serica have a market cap of £670m compared to Enq £190m. As noted by Hunbar the key difference is that Enq has significantly higher legacy liabilities with annual cash service costs which have a first call on FCF. The key legacy liability differences and the cash flow implications are:

1. Enq has a decommissioning obligation of $750m (Gross) compared to $150m for Serica resulting in Enquest paying $60m pa in Decom costs. Serica close to zero currently.

2. Enq has $450m of lease liabilities with an annual cash payment of $70m pa for next 4 years. Serica has close to zero finance leases.

3. Enquest has $700m of interest bearing debt as compared to $200m for Serica. Enq net interest bill is $60m higher than Serica’s.

4. The NPV of Enquest liability to BP for Magnus is $450m and management forecast that at $70 oil, the average Magnus payment is $70m pa.

S0 for these 4 legacy liabilities alone, Enq has an annual cash obligation of approximately $260m higher than Serica. This additional FCF allows Serica to pay substantial dividends (approaching $400m since 2022 compared to $15m for Enq), spend more on CAPEX to grow 2P reserves, fund acquisitions and pay down debt.

The four legacy liabilities detailed above are approaching $2 billion higher for Enq with an annual cash service cost of approximately $260m higher. In contrast, while both companies have substantial tax losses, Enq’s are more effective as they shield all UK profits from core Uk tax. Enq also reports a higher cash balance approx $150m higher.

While there are other factors such as oil/gas mix and OPEX cost per barrel, the key question is does $260m less annual cash costs and $2 billion less legacy liabilities justify a £500m difference in market cap.

OILK

My predictions of cash cost per barrel have not changed over the last few months $70/ barrel for 2025 and $60-65/ barrel for 2026, with the reduction due primarily to additional 6k BOPD Seligi gas.

On Harbour you are not taking account of the interface with CAPEX and tax. While Hbr CAPEX reduced from $750m in 2024 to $500m in 2025, the impact on FCF is $50m due to tax deductibility of CAPEX. Accordingly if CAPEX had been $250m higher in 2025, FCF would have been $50m lower at $400m.

Over the last several years, Harbour and Serica have been investing CAPEX to add to 2P reserves and maintain production. Harbours UK NS production has decreased from 173k BOPD post Premier merger to 155k BOPD in 2025. Since Jan 2020, Enqs UK NS production has halved from 60k BOPD to approx 32k in 2025 and 2P reserves reduced from 200m to 120m ,despite the majority of CAPEX over the last 4 year being NS focused. Enquest’s organic reserve replacement ratio has been zero or close to zero since 2020 while Serica, as an example, has a reserve replacement ration of 100%..

As we have discussed previously, because Enq did not generate FCF in 2024 and will be marginally positive or negative in 2025, it is very hard to value. While low oil prices impact all producers, many producers have cash flow breakeven around $40/ oil and 40p/therm gas. Harbour’s UK business would still have been cash flow positive in 2025 with oil at $40/ barrel while maintaining CAPEX at $500m. Enq’s fixed costs per barrel - OPEX, interest, lease are just higher than other NS operators. It is what it is.

Anyway enough for 2025 and best wishes to all this Christmas.

OILV

Boy you keep moving the goal posts $50-55/ barrel is now $58, but OK you are on. Hope you, Enq and I are around in late 2026 to see who wins.

Read the posts, I did not say that it is only oil price that will move the share price. Material change in EPL or a significant acquisition of 2P reserves would also move the price. I highlighted that as a leverage to oil price Enq is an attractive investment for certain investors, but I have no idea whether this is the case for Cobas etc.

However without an increase in oil price, a change to EPL or a significant acquisition, I do not believe Enquest is currently undervalued. A current shareholder is wagering at least 1 of the above 3 events will occur to drive an increase in share price. BAU will not do it with oil at $60 and UK 2P reserves valued at $7/ barrel.

OILK

Yesterday you said $50-55 breakeven but I’ll let it slide. I will however stick to the mid-point of my forecast of $62.5/barrel.

Closest to outcome wins bet (you $55/barrel, me $62.5/barrel) and loser pays £200 to charity of winners choice. We will have a very good idea of the answer by end of Q1.

Glad you have a direct line to major shareholder. The only thing we know for sure is that they expect the share price of Enq to be higher in the future and that will only happen if oil price rise above current levels or EPL ends.

Kraken

I can only assume they have a strong conviction that oil prices are going to return to and stay in the $90’s and at this oil price and certainly post EPL, Enq will be multiple times current SP.

Enq is effectively a leveraged bet on oil. A 50% increase in oil price resulting in a 3-4X (as an example) rise in share price is a pretty good leverage. The question is when and will oil go lower in the meantime.

OILV

On reflection I am being a little unfair on our 2026 bet. I have been transparent in my previous posts that I forecast cash cost of $65-70/ barrel for 2025 and $60-65/ barrel for 2026 (due to additional low cost Seligi gas volumes). You have forecast $50-55/ barrel. A fair bet would be around the mid point which is $57.5/ barrel.

OILV

On Harbour and Serica, I have been negative on WD and Tailwind Acquisitions but positive on latest Harbour and Serica acquisitions which are significantly cash generative, particularly the NS deals.

The key difference is that Harbour and Serica generate FCF at current oil/gas prices and the impacted of the acquisition on future FCF is visible and MR Market can apply a valuation. Much more difficult for Enq.

OilViking

Apologies for delay been a busy day.

On acquisition of WD, Harbour provided forecasts of FCF from acquired and current business and for 2025 it was roughly 50:50 with total 2025 FCF projected at $1b. The maths for UKNS is as follows:

Revenue - 55m barrels at $70 with hedges = $3.85b

OPEX at $18/ barrel = $990m

UK CapEX - $500m

UK Decom- $200m

Uk core tax $840m

EPL - $875m

FCF $445m

Very happy to take the 2026 bet. I will take higher than $55/barrel and we should have reasonable clarity with the February update. The final piece in the puzzle will be disclosed with the 2025 financial statements in March 2026 which will disclose 2026 EPL liability, 2026 lease costs and projected Magnus payments to BP. Just want to note that 2026 production volumes to exclude the gas lift from the current Seligi oil fields which Enq has no economic or financial interest in and is solely paid a lifting fee. It is approx 2.5k BOEPD.

Per Hunbah’s note, it is very difficult to value Enq at the current oil price and at anything below $70/ barrel. If you are right and management present in February a new FCF breakeven point in mid-$50s this would most likely trigger a rerate.

The other key challenge for Enq is the effective EPL rate due to relatively high levels of interest and ABEX of approx $130-$140m. As an example, based on 18m barrels of production, cash costs excluding EPL of $55/ barrel and realised oil/gas price of $70/ barrel would generate pre EPL FCF of $270m. EPL would be $400m@38% = $152m, an effective rate of 56.3%. At $65 oil/gas the effective EPL rate is 65% and at $80 average oil/ gas EPL decreases to 49%. The reason i raise this is to highlight that due to relatively high Interest and ABEX costs, Enquest exposure to low oil prices is amplified.

We know Enq did not generate any FCF in 2024, I suspect 2025 FCF will also be at or close to zero and Enq really needs average realised oil/ gas price in 2026 to be over $70/BOE (oil north of $75) to generate a positive FCF that the market can start to value.

I recognise that as we look forward to 2030 and beyond, the FCF and value of SEA needs to be better understood. I personally do not have a deep enough understanding. We know in Malaysia operator post tax profit has a very tight collar and cap in the $7-12/ barrel range depending on oil price and no idea what gas will be sold at from new Segeli. No idea on other regions but currently Mr Market places very little value to 2C reserves.

I do not make share price forecasts. I did make a statement on Harbour BB earlier this year that if the share price hit £3 in 2026, I would like to see a focus on debt reduction and i still hold by that.

What projection have i got wrong? My forecast of 2024 FCF was spot on and I won my bet on that. I projected that there would not be a deal by year end due to director share purchases relatively close to year end and I also have a bet with you and Kraken on 2025 FCF / net debt. I have been transparent that I have a significant holding in Enquest bonds but i moved my shareholding into Harbour and Serica following the collapse of the merger. Harbour and Serica share price are both up and Enq is down since May 2025 - why was that a bad trade. As I stated at the time, my decision to move out of Enq equity was solely driven by oil price softness and Enquest high cost breakeven.

On refinancing, I stated that refinancing the $650m of bonds and HYN in late 2026 (12 months ahead of maturity) is going to be a challenge if oil price remains low. We will see how that unfolds. The new RBL facility is great but the amount Enq can draw down is based on 1P reserves and this will be reset in Jan 26 and will most likely go down (due to reduced reserves and lower oil price) from the Jan 25 redetermination (about $250m if I recall correctly). I saw the new facility as source of funding for acquisitions and new 1P reserves.

You really can’t compare Hbr and Enq, but HBR will be generating $1b of FCF in 2025 of which approx half comes from UK and, based on your forecast of net debt, Enq will be around breakeven FCF in 2025. Please could you provide a breakeven of your forecast 2026 $50-55/ barrel cash cost as Enquest’s cash cost per barrel in 2025 is in the $65-70 region as we have already discussed on this Board in some detail. Even if you could provide the main drivers of the $15/ barrel reduction in cash cost in 2026 will help understanding.

Personally I will wait for management’s guidance in Feb 2026 re OPEX, CAPEX and ABEX , production targets and potential 2026 EPL projected payment. Interest expense will not change from 2025 and 2026, 2026 lease payments and projected 2026 projected Magnus payments will be disclosed in 2025 financial statements. The only elements of 2026 FCF which are not disclosed or can be extracted from 2025 financial statements are Malaysian PSC, Royalty and corp tax costs and Vietnamese Corp Tax. Both can be estimated with reasonable accuracy.

There appears to be broad consensus that Enq is unlikely to continue in its current form by end of 2026 - will it be the predator or the prey?

I think it is highly unlikely that HBR will offload any significant NS assets. The NSCS (Norway and UK) is a key region and their recent UK acquisition further underscores that the NSCS remains core to the group. They have acquired enough tax losses to both shield the acquired business and to use in wider group in 5 years time. Fundamentally HArbour can afford to be patient as the follow-on regime to EPL will again make the UK one of the lowest O&G tax regimes iby 2030, or earlier if Labour lose next elections.

I also can not see Enq being taken over due the size of its legacy liabilities and the current low valuation of UK 2P reserves. A merger look like the most realistic option and this brings Serica back on the table. However i still believe an acquisition of 2P reserves (20 BOPD minimum) is the most likely, but I am struggling to understand why Enq was not able to close one of recent opportunities - Either Waldorf, Prax or Spirit would have been ideal with very little cash out on day 1.

On first look this is a far better deal than the WD acquisition. Purchase price looks reasonable on a 2P basis ($12/barrel 2p) but high for 34k BOPD, reflecting then very long life of the reserves (22 years). At $60 oil and 34 BOPD this should cash flow $450m per annum with further upside with production growth and oil price appreciation.

$2b of additional debt is starting to stretch leverage but with a following wind this acq could be kicking off $1b FCF PA by 2027/28. Compare this to WD where we paid $13b for a company generating $0.5b of FCF with no short term roadmap to grow or improve FCF.

Factor in strategic value on top of standalone and I like the deal. Well done Linda and team. I think market reaction is overly negative,

OilV.

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.

2025 will soon be in the rear view mirror and the real question will be what oil/gas price will Enq need in 2026 to generate FCF to fund Dividends, Acqusitions and repay debt. Looking forward to New Year update for 2026 guidance. In the meantime, my predictions for 2026 are as follows. As ever comments, thoughts and counter opinions help us all learn:

1. OPEX per barrel to be broadly flat with inflation offset by increased gas in SEA with lower OPEX/Barrel

2. CAPEX up driven by Kraken (with new parter), Bressay gas cap and SEA

3. ABEX - similar

4. Lease cash costs the same at $70m (based on company’s 2025 and 2026 forecast lease costs in last financial statements)

5. EPL in 2026 similar to $100m in 2025 ($45m of EPL on H125 trading)

6. Magnus payments increased by $20-40m (I am expecting low payments in 2025 of $20m region)

7. Net Interest cash costs similar to 2025 of $80m ish

8. Malaysia PSC, Royalty and Corporate tax up driven by increased gas volumes

On production, NS sea flat to modest decline, with Magnus uptime offsetting Kraken and others natural decline. SEA naturally up with acquistion and Seligi gas extension.

Beyond Enq but oil related

1. I do think there will be increased pressure on government from Unions, Press and the voting public in Scotland to amend EPL to sustain jobs etc and i am projecting a revision in March 2026 but not removal.

2. Oil stays in the doldrums in H126 and gas prices in Europe ease as LNG volumes rise and winter peak ends. Difficult to look beyond 6 months but real difference between short term and long term dynamics.

Dumbly. Apologies I misread your posting. And yes it is 35%, bit of a brain fart.

Oil V

My projection has always been zero FCF excluding acquisition payments and dividends of $37m, which translates to net debt increase from $386m to $423m.

Your projection of $90m FCF also excludes the ELP on Bressay transaction, so positive FCF of $3m which translates to net debt of $383m.

£50 to charity by whoever is furtherest away. The fact that Management have refused to report net debt in the last to updates is a negative sign and Management will be pulling every lever to minimise year end next debt but we will see where we end up,

Rom

It really is not that complex. The OGPM is just calculated on post hedge realised prices and not market prices.

Aimoil. My comment on refinancing relates to the $650m of bonds which will need to be refinanced in H2 next year. The RBL facilities the company recently secured can only be drawn down to a maximum amount which is set at each annual redetermination date (Jan each year) based on 1P Reserves. The new facility provides capacity for Enq to acquire Reserves but is unlikely to increase the borrowing cap set in Jan 25.

On FCF for 2025 we just don’t know yet. You seem very confident that FCF will be at least $90m for 2025. Fancy a £50 bet that you are at least $50m too high?

Rom

I believe you are incorrect. While the OGPM has not yet been enacted, it is proposed that the OGPM will based on average realised prices as opposed to market prices. The realised price will be the hedged price (if a company hedges). As an example, if Enq entered a collar and cap in 2030 when oil price was $85 with a $80 floor and a $95 ceiling. If oil prices increased to $110, the realised price for Enq would be $95 being the realised price and accordingly would not be subject to OGPM.

The reason I don’t think OGPM will see the light of day is that I cannot see Labour being in office in 2030 and certainly Reform would likely remove the OGPM and possibly the Conservatives as well to motivate O&G investment.

Dumbly

Not quite. The OPMG should be viewed as a surplus revenue tax.

As an example, if oil is $100/barrel and threshold is $95. A company producing 4m barrels of oil would pay OPMG tax of 4m*$5*40% or $8m pa.

Effectively the government gets 40% of the windfall (oil price above set threshold) and company keeps the balance. The problem is the government will face is that companies will likely hedge up to the threshold price in exchange for downside protection and likely will not raise any tax even during high oil price environments.

I can’t see OPMG ever seeing the light of day unless we see a gas price crash in the next 24 months and EPL ends early.

Kraken

I agree that Enq and Serica merger makes sense on so many levels. The key issue is equity share in new combined entity and I understand this was the reason the merger did not proceed first time around. Using current market caps results in Enq having a lower % than first time around (around 22% today before any cash outs to Serica shareholders) which I don’t think would be acceptable to AB.