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Correction....

Interesting anomaly now with the EPL floor...the algo's that link oil/gas stocks to oil price, i.e frequently knock a point or two off sp when oil drops & vice versa as some correlation to earnings are now totally out of sync with North Sea producers as earnings/profits are higher at various lower oil prices !.....as detailed below SQZ now has fundamental downside protection whilst also having the ability to generate increasing free cash flow, even on an oil price drop :-)

Interesting anomaly now with the EPL floor...the algo's that link oil/gas stocks to oil price, i.e frequently knock a point or two off sp when oil drops & vice versa as some correlation to earnings are now out totally out of sync with North Sea producers as earnings/profits are higher at various lower oil prices !.....as detailed below SQZ now has fundamental downside protection whilst also having the ability generate increasing free cash flow, even on an oil price drop :-)

And likely to improve further.....

https://twitter.com/surprised_trade/status/1667802876612165633

on current WFT/EPL (expect it to improve further imo) calculated scenarios all confirming very limited downside, divi protected and serious scope for further upside.

courtesy of Affan

This is what the story looks like now, assuming no growth in production and no M&A

Worst Case (collapse in Oil and Gas at 55p/therm =EV/FCF of 5.5

Best Case (collapse in O&G prices)=EV/FCF of 2.4

O&G Bull Case =$90/bl, 120p/therm=EV/FCF of 2.6

Yield 9% protected. DYOR ;-)

The current WFT policy is a deterrent to any Green energy investment business too, as an unstable & unfair tax system will apply to anyone making profits in future. The WFT is not a windfall at current prices as most know & is simply an unfair tax grab. The UK is now becoming an unattractive location for investmet and this current group of politicians have no idea that their approach and policies will make anyone in any industry think twice about investing as both labour and amazingly Conservatives have no business acumen.

SQZ are in an ever improving position and will still generate very decent FCF with the first 'proposal' of a floor if prices drop (unlikely) however unless the floor is raised substantially and oil and gas floors are seperated then it would make sense for any business in the North Sea to begin to consider 'relocation' over the next 18 months and place investment in a more stable tax district, there are options out there and SQZ has the means :-)

North Sea independents call for govt to go further and scrap EPL before 2028

A group of North Sea firms is urging the UK Government to drop the curtain on the windfall tax ahead of the current schedule.

The head of BRINDEX – a group of over 20 independent operators – says it is “positive” that ministers have heeded industry concerns and introduced a price floor to the energy profits levy (EPL).

But Robin Allan is pushing Westminster to go further in order to fix some of the existing “serious problems” that are impacting jobs and investment in the North Sea.

Mr Allan said: “The UK’s oil and gas sector is clear: the untenable energy profits levy is harming jobs and investment in the North Sea. It is positive that the UK government has begun to address these concerns; however, serious problems remain after today’s announcement.

As well as calling for the EPL to be scrapped before March 2028, the date it’s currently due to expire, he wants the price floor mechanism to take effect if either “oil or gas” drops below the required level, rather than both.

“The March 2028 end date for the EPL is simply too far away. If the government is serious about energy independence, the current anti-investment taxation environment cannot continue to hamper the UK’s independent North Sea oil and gas companies: the backbone of this country’s energy supply.

the removal of the EPL should require either the oil or gas price to fall beneath the floor price, not both. This will protect the UK’s smaller, independent exploration and production companies.

“We look forward to working collaboratively with HMT to ensure that Energy Security Investment Mechanism is implemented in a way which truly protects investment and jobs in our industry.”

BRINDEX features some of the North Sea’s biggest hitters, including Harbour Energy, Ithaca Energy, NEO Energy, and EnQuest.

https://www.energyvoice.com/oilandgas/north-sea/508054/independent-north-sea-producers-call-for-epl-windup-before-2028/

I would imagine the industry will be explaing to Hunt that he needs to revise his figures, at least they are talking and we know the starting point is the current proposal, one can only imagine that it will improve further from here when they all sit round the table !

Https://twitter.com/surprised_trade/status/1667086525929082880

''Serica would be on a EV/FCF with risk to the upside irrespective of the direction of O&G prices? Find me a better investment scenario in the O&G sector where you are not worried about falling oil and gas prices?''

I can't, I've looked :-)

Fully expect the industry to push for a higher floor, however, on current proposal it's an improvement, let's see if there's more to come.

To put in perspective how much improved the initial proposal for wft is and it could improve further after todays meeting, the Lowest FREE CASH FLOW SQZ would make under all scenarios (for the next 3 years) is £170m.....Without EPL applied and with $55 oil, it would get to over £230m Free cash Flow .

That's not too shabby on current view and adds greater value, we'll see if it improves further after todays meeting.

The Proposal is if both crude oil averages below $71.40 a barrel and gas £0.54 a therm for two consecutive quarters, tax rate will revert from 75% to 40%

Serica makes £300m+ in FCF if oil below $71 and gas below 54p/therm. If not then it makes at least £170m in FCF p.a. for the next 3 years. Its a win-win at the current valuation and a much improved picture for the UK assets and clealry SQZ can still invest elsewhere, at least the UK side will keep a larger percentage on the current proposal, meeting today may well revise some figures if the industry finds them not to their liking.

FT..

Chancellor, Jeremy Hunt, is expected to confirm plans to introduce a “floor” on the 35 per cent levy in the coming days so that it only applies if oil and gas prices trade above a certain level. Treasury officials are due to meet the oil and gas industry on Friday at a forum

Where the floor for the windfall tax could be set is not yet clear. One industry source suggested the sector would like to see it set at about 120 per cent of the long-term average price

Another (probably short lived) river blockade

• The Indigenous Association for Development and Conservation of Bajo Puinahua (AIDECOBAP) has started a violent blockade in the Puinahua Canal against all ships providing services to PetroTal, preventing the monetization of oil production.

• This has happened several times in the past and has historically been resolved quickly. During social activism-related downtime, over US$50,000 per day is forfeited from future social trust allocations.

Already US$8 mm has been accumulated in a social fund by PetroTal in a restricted bank account.

• This river access disruption coincides with planned production reductions to tie in previously installed infrastructure. Production in June to date has therefore been only 10 mbbl/d. From 8 June, the field will be shut in for ~5 days for field installation work.

• The story continues to be about significant free cash flow generation, production and reserves growth with generous shareholders returns through a share buyback programme of ~US$3 mm per quarter and a US$0.015 per share quarterly dividend (~11% annual dividend yield)

Assuming US$75/bbl for Brent from 3Q23, we forecast that PetroTal will have returned ~US$50 mm in dividends and share buybacks in 2023 and will still hold ~US$145 mm in net working capital at YE23. At YE24, the net working capital would be ~US$165 mm net of a further dividend distribution of US$55 mm in 2024.

We re-iterate our target price of £1.50 per share

The government want investment in UK and not for it to go abroad and they want energy security, so any floor has to allow for those aspect or there is no point. It is a crucial time for Government to secure ongoing operations in the Nort Sea so comapnies can see return on investment and plan ahead. The oil/gas industry meet today to discuss the next steps to achieving the best for the industry and UK.

Https://www.ft.com/content/f69e5069-1a00-42c1-8219-84ccd5cbbfd9

Government plans to introduce a “floor” on the 35 per cent levy in the coming days so that it only applies if oil and gas prices trade above a certain level. Treasury officials are due to meet the oil and gas industry on Friday

the epl will remain in place, however, it will be on more favourable terms with a floor to incentivise UK investment and secure UK energy security

https://twitter.com/surprised_trade/status/1666906779291140096

Https://twitter.com/surprised_trade/status/1666906779291140096

Government plans to introduce a “floor” on the 35 per cent levy in the coming days so that it only applies if oil and gas prices trade above a certain level. Treasury officials are due to meet the oil and gas industry on Friday

PTAL on a planned down time for next few days as detailed in RNS etc, oil price will move up and down, PTAL still generating profits and likely to increase them soon with new wells etc ....when they start up after the planned downtime :-)

Malcys Blog...

Regular followers of PTAL will be aware of these occasional breaches of the peace and as it says above are not only expected occasionally but are even in the production guidance. The fact that it has come at a time of planned downtime also negates the effect somewhat.

With all the various returns to shareholders having been announced I am astonished that the shares have yet to react much more favourably to what is fast becoming an industry high yielder. My TP of 150p is still very much in place and the income and capital return expected should make this an exceptional investment.

https://www.malcysblog.com/2023/06/flash-blog-savannah-arrow-petrotal-petrofac/

Https://twitter.com/surprised_trade/status/1666714363309195265

Canaccord increase to 17% from 11%

The disruption is irritating, however, one of the biggest drags on a rising sp has been the warrants, the good news is they stop around the 18th June so that selling downward pressure will finally be removed :-)