Member Info for Surety

Like most others.. I hate this feeling.. it's rubbish and does little for a positive mood... however, that's the deal.. if it was an easy ride everyone would do it.. Great piece in the IC a few months ago about being able to sleep at night, if you're uncertain about the bumps then look at the historic share curve.. That's what you have to be able to live with .. it's an interesting point.. This has had some massive rises, and spectacular collapses..

On a related note, I watched a COVID related stock go up over 8x in ~18 hours on 'news!.' Yep different scenario, different time.. but the point is that big news should propel this...'

Also, they wont run out of cash before the end of Q1, they've said that very publicly.. I think they are good until Q3/Q4..

There are clues everywhere... The most recent RNS (In Q1, not by the end of it).. Energy voice (12 golden opportunities, with 4 not mentioned), the EPL accounting kicker at the end of Q1..

All IMHO/DYOR...

But I'm sitting tight.. I like my seat... and we're leaving the station soon!

One way or another the outcome is close...

Thanks MP0818/alsoppc

They key article for JOG is the 'dozen key projects.' They list eight that are 'known' and that the 'other four' will be added in due course.. The 300 unexplored doesn't apply given that the GBA is 'known!'

My read is that the GBA is in the four referenced, and likely the biggest of them given the other material in circulation!! More to follow no doubt... The interesting point is that the eight all have backers.. So you would think, as per the energy voice article last week that I posted an extract from last week, that competition could/should be fierce for ownership of the GBA..

DYOR

Agree with this Trendz.. There is an acknowledgement that the guys and girls providing the energy transition are the same folks producing oil today. Norway has a higher tax rate, but much more attractive investment allowances.. The working labour are using about new fields may well have a date line even from when they come to power..

If you look at the number of licence bids vs. the last round it was greater this year, no doubt incentivised by the investment allowance.

If you can provide enough capital investment, through EPL offset, in the next 2-2.5 years (especially if the cash outflows are slightly later) then JOG is a goer..

@DU - Guessing Amati made their money (from memory they bought cheap) ?!? Or at least are covering their bases?

Only 6 working days to go in January - lets see what happens this week...

DYOR

https://www.energyvoice.com/

Article on harbour energy cutting jobs… the key extract is :

Access to material projects with high capex that will help offset the EPL is limited, largely as a result of the maturity of the North Sea – and as a result, competition is likely to be high for any available stakes.

This can only be good…..

DYOR

I agree … it’s almost a question of ‘why wouldn’t you’ if you’re an existing NS producer..

IMHO

A good read

JOG falls into the right camp!

https://on.ft.com/3He91RY

DYOR

Very quiet this week..

Any pearls of wisdom... ;-)

Oil giants commit to North Sea expansion despite tax risks

Oil and gas companies have committed to investing in North Sea oil exploration squashing fears the energy windfall tax would halt new investment. The North Sea Transition Authority (NSTA), which hands out UK offshore oil and gas permits, said its latest funding round matched the previous one from 2019.

DYOR

Yep, agree - definitely concerns

But - I would also say that you are taking the cash hit if you dont invest.. and Labour have made their position relatively clear (they will mirror Norway with a further small hike to the EPL). The capital relief on the EPL is uncertain, but surely all the more reason to get on with it now and use the tax between now and say Q1 2025 (next 2 years) for the asset development..

Given the low opex, that would surely still make future incremental production attractive with JOG (if the capital cost has been fully covered by the EPL offset).

Discuss?

IMHO

https://on.ft.com/3iHcEq9

Interesting chart from Wood Mack showing the big producers in the CNS and therefore those most exposed to the EPL (and the relief)

In order in case you cant access it : Harbour / Total / BP / Shell / NEO / Ithaca / Spirit / Repsol / Cnooc / Appache

There is something similar in one of the historic JOG presentations which also shows reserves, but I thought it useful to also focus the mind

In summary - a lot of producers, with volume, with existing infrastructure, not all of who have big shiny new projects, who need a home to offset some tax..

They may be frustrated with the Government (and trying to make a point publicly through investment cut rhetoric), but JOG still looks attractive

IMHO / DYOR

https://www.energyvoice.com/oilandgas/north-sea/475156/only-six-big-spend-projects-for-uk-north-sea-in-coming-years/

Whilst I get there is an argument for not investing, there is also a clear one to invest (use it or lose it re: tax vs . investment allowance )..

Many of these are already owned by majors..

DYOR

How are we all feeling today - other than probably moderately frustrated ;-)

.... Some good chatter last week, we should keep that going...

MP0818 - I know you’re pro Jog, like me.

My take on this, and it’s worth a read, is it’s good for JOG.

They are talking up higher WFT in Norway where it works. They are also referencing Labour taking a position at 38 percent - same as Norway. Likely change of government early 2025. But the reason it works in Norway is consistency and predictability etc. No reference to opex economics in Norway (which I can’t imagine are cheap). Obviously big question on what happens to capital relief for new projects that isn’t really referenced

The bit that pleased me was the reference to a high appetite for low risk production and add ons. This is Jog in my mind ..

I think for those invested here it’s positive narrative

DYOR

https://www.investorschronicle.co.uk/news/2023/01/12/what-the-north-sea-bids-will-tell-investors-about-the-uk-s-energy-security/

‘North Sea is becoming increasingly played out, east wins found and there aren’t many large robust drill ready prospects remaining’

‘There is plenty of interest in the lower risk options…. Paraphrase.. where companies look for new reserves close to existing hubs…. ‘

Very interesting and helpful… JOG ticks these boxes..

DYOR

I am inclined to agree Trendz. Given the amount of EPL cost for producers, which is sunk if not invested, then the likelihood is that a deal will materialise. Peak inflation seems to have been called, Markets are rising, Oil is rising (as you point out).. China has reopened, and if you dont invest in the NS, then you pay the EPL. Common sense says with a low risk asset suite like the GBA that some form of deal will complete.

The podcast from ST in early December was massively talking up the JOG management team (stated as the example of management excellence). It is unlikely that he is going to be so positive, if he believes the EPL change has just materially derailed JOG's chances. Before someone says it, again, no I'm not blindly following him.. but I do respect his judgement and blended with other sentiment and the common sense argument above it still makes sense to me..

I share your frustration DU, as I demonstrated last week ;-)

They do however, need to get on with it!!!

DYOR

All the recent narrative from management suggests farm-out , but then it would if you were trying to drive up the takeover price.. especially if it comes from one of the parties who have been in the process, but that are no longer in the select group...

The key point for me is assume that NPV10 is £1.2-£1.5bn with the increased EPL throughout the entire lift of the project (in other words they lose 75% of profit in tax every year)

As a farminee you have lets say between 60-70% of Buchan in F/O for giving JOG a free carry inc dev costs, and then you receive 60-70% of £1.2-£.15bn in your favour. You can offset all development costs through EPL savings, so essentially your 60-70% is free. You then continue to pay some EPL tax in the rest of your portfolio because you dont have other assets to offset against....

OR

You buy JOG outright for £300-£350m, and if Trendz is right, you offset the purchase price and the development cost through EPL offset.

Assuming as a producer you are going to pay any EPL at all (because you dont have other assets to offset against), why not just use more of your EPL offset and buy JOG! That way you have 100% instead of 60-70%. It doesnt cost you anything (you were paying EPL anyway).. assuming you can cover it all with your EPL bill.. the big boys definitely can...

I accept there is greater risk in owning 100% of JOG, but if you are producing anyway, and you can fund the whole thing through EPL offset (because you're big enough) inc the purchase price - then why wouldn't you attempt to buy it outright? You then own 100%.. if the EPL changes favourably throughout the GBA lifecyle you ride the upside. Even if it doesnt you are better off.. £1.2-£1.5bn vs only 60-70% of this..

You can retain the Ithaca management team with the right incentives in newco if you choose, and they agree..

It's just my perspective... but if you are the JOG team, and you want to run this all the way.. I think selling it (for a hefty premium now), cashing in (or mortgaging some forward) and having another go in newco (if you like the look of them) makes good sense.

If you can get ~£8 now (to pick a number), it's probably worth more than the risk of £10-£15 in a few years with all the things that could side swipe you on the journey... especially if the new owners then incentivise you to stay around as well...

Just a perspective.. I might be totally off the mark, but I dont think this outcome is impossible...

IMHO/DYOR

Agree on the £8 for a takeout.

If you think the NPV10 (inc higher EPL) is £1.2bn, and say the share price grows to maybe 25%-33% of this (in the build to first oil) .. I would have thought it's maximum potential price is £10-£15

If you do it on earnings - Then a PE ratio of say 2-3 (looking at Harbour / SQL examples ) at production would give say £350-£500m based on my profit calcs, so £10-£15. Same number...

Any thoughts DU?

DYOR / IMHO

Agree Cyril 2. I'm definitely not blindly following anyone (other than maybe myself!) - but I rate ST and when you put his thoughts together with the broader analyst community covering JOG (and their very recent upgrades) + his economic predictions being realised (as a you highlight) it makes for interesting reading.

Without going over old ground - With the NPV10, allowing for the increased EPL throughout the GBA's life, at somewhere around £1.2-£1.5bn then Jog's current market cap of ~£70m looks like it has plenty of upside.

If a producer is going to invest their otherwise 'sunk' EPL costs on development, they could for say a further ~£300m-£400m (3-4x allowing for shares to enter distribution) acquire JOG. It's $1bn development cost (depending on your solution, probably now less) is essentially free if your EPL cost high enough (Look at how much Harbour will now pay as an example in EPL costs)

For a £300-£350m acquisition price, why share it ?!? - That's why I think a take out (that is vastly greater than 100%) remains an interesting option. I'm not saying it will happen, it's just an interesting option ...

Noting Abatt's point, that this is all just speculation until something actually happens!

DYOR

Son of the Bull. I’m not saying that will happen, as much as I’d like it to. I’m saying it’s still a possibility and certainly what ST has written in the IC. Read it for yourself. Note comment about major liquidity event (ie takeout) - and analysts forecasts on the low side in that scenario

IMHO

https://www.investorschronicle.co.uk/ideas/2022/09/22/poised-to-hit-pay-dirt/

Looking at ST’s last IC article you would think he’s guiding to £8-10 in a T/0 scenario (ie above analyst expectation). That would give a 4x premium + on todays price (way more than 100 percent)