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Solid figures, costs per barrel seem to be under control. Hope they can manage below 21 USD/boe for 2024 despite expected drop in production. Hope management will guide accordingly end of March.

Glad to see the 97 mUSD Rosebank investment in Q4. To the tax experts here, do you think thats sufficient to have avoided additional EPL tax burden for 2023? At the End of Q3 ITH was at 280 mUSD current tax (hope this will be the final EPL charge for 2023).

They didn´t disclose CFFO (after tax) for 2023 today, but I expect them to have achieved 1,2 bUSD (having the 100 mUSD Rosebank investment in mind plus further reduction of about 100 mUSD net debt. in Q4). Thus, 30% of 1,2 bUSD are close to the 400 mUSD dividend they´ve finally confirmed today.

Not a single word about Cambo today,...hoping for some good news soon. Nomination of new partner or at least extension of that end of March deadline to avoid a desaster.

I agree to Tornado when he was saying the market might value ITH based on sales or EBITDAX multiples, rather than dividend potential. I feel not uncomfortable with my 240-250 mUSD 2024 dividend FC. If management includes such a ballpark number in their official guidance end of March I see this approaching 1,50-1,60 GBP. DYOR.

Solid figures, costs per barrel seem to be under control. Hope they can manage

Wow, nice timing! I swear I´ve visited ITHs IR section on yesterday and the calender was completely empty, however now they scheduled two meetings (first one on rather short notice...):

- this Thursday 15th Feb. Trading Update (I am so exicted!)

- 21st March FY23 financial results

Looking very much forward to it and talk to you guys on Thursday here I guess ;)

Thanks Londoner, appreciate!

Any thoughts on my 2024 production forecast and EBITDAX/CFFO assumptions? Think you guys had a more detailed look at the NSTA data (I can´t access / haven´t had a more sophisticated try yet). With my estimation, I have just followed comments from subject conference call, where it was told that decline from Q1 (75 kboe/d) to Q4 (70 kboe/d) can be assumed for 2024 - so a rather simplictic view how I got to my 65 kboe/d.

If you allow for one more question guys:

During the Q3 conference call, in the Q&A session, Iain Lewis was asked "as Rosebank CapEx ramps up next year with the investment allowance, that is going to be that shield that reduces your tax payment, as you just talked about for 2024 cash payments." and replied "Yeah. So, we're well shielded on the corporate tax side, on the EPL side, absolutely. It's capital investment that shields EPL, and we have some standard program, even despite some of the cancellations that we've taken off."

His answer wasn´t really helpful to me. It is clear that investment shields against EPL in general. But with regards to timing, I understood that 2023 deferred EPL taxes will become payable in 2024, so we will know the actual cash outflow soon, once Q4-23 figures are released. What about the timing of the EPL investment relief? I understood the analysts question that way, that he was supposing the 2024 EPL cash payment could benefit from 2024 Rosebank investment ramp-up. Is this true? Do we really have to pay EPL charges one period later (thus 2023 in 24), but can offset EPL investment relief from the same accounting period (thus 2024) to optimize cashflow?

Many thanks for your swift reply - apppreciate!

I managed to listen to the Q3 conference again this morning, Iain kinda confirmed what you´ve been explaining to me. Corporation tax asset is actually 1,8 bUSD, net tax asset lower because partially offset by EPL tax liabilities. Annual D&A charge should be around 730 mUSD, financing&lease like 200m USD. Thus, a 1,8 bUSD tax asset shields 4,5 bUSD profits before tax (at 40% corporation tax rate), with other words accumulated losses are 4,5 bUSD?!

Profit before tax 2024 should come in below 500 mUSD acc. to my model, thus the acc. losses could last for many many years to come - do you agree? This completely disagrees with my memory, I thought acc. losses were nearly exhausted.

I feel confident with my 65 kboe/d production estimate for 2024. Do you guys, who have reviewed the NSTA data, agree? Management, when asked during the Q3 call, replied we should look at production run rate difference of Q1-23 vs. Q4-23 (to be calculated by using mid range YE23 estimate, so I have taken 70 kboe/d) when assessing the natural decline for 2024.

I used to be slightly too optimistic with my EBITDAX forecasts, so 1,35-1,4 bUSD is maybe a more realistic range. However, after finetuning my tax model (also based on some comments management made during the call), CFFO after tax could come in at or slightly below 0,8 bUSD (equals 240 mUSD dividend, or like 2x 12c or 12+13c, so pretty similar to the current level). Would appreciate your thoughts/feedback regarding the dividend here as well.

Just added to my position at 1,28 GBP this morning. Expect it to yield close to 15% 2024 dividend.

Many thanks @tornada10 and londoner7, appreciate your kind efforts in putting all these things together!

@DN2024 Yes, the 0,13 USD dividend is confirmed. But in my opinion it´s all about the 2024 dividend guidance then.

In my opinion, the 2023 400m USD dividend is kinda "cheated", because its not solely related on 2023, but was payed from H2 2022 profits as well. From now on Management guides for 15-30% of CFFO after tax.

Could you guys (maybe Stevo is reading here too) help me to understand the tax effect on 2024 CFFO? I was shocked by HBRs 2024 CF guidance, which was completely wiped out by 2023 taxes payable in 2024 (EPL).

Q3-2023 shows YTD EBITDAX of 1,4 bUSD + approx. 370 mUSD for Q4-23, so 1,75 bUSD EBITDAX. EBITDAX to CFFO conversion was very strong with approx. 70%, so I expect further net debt. reduction and FY23 CFFO after tax of 1,2 bUSD.

This impressive 2023 number must have benefitted from two factors:

a) EPL payment date (at HBR, a significant amount of 2023 EPL becomes payable this year, so I expect the same for ITH)

b) Tax losses shileding against corporation tax (40%)

My 2024 model base case, taking favorable hedging and 65 kboe/d into account, forecasts 1,4 bUSD EBITDAX. Can you please help me to translate this into CFFO after tax for 2024? The EPL charge payable in 2024 must be known now (or soon). Q3-23 shows current EPL of 280m for YTD 09-23, so probably 350m for 2023 - is this reasonable?

Regarding corporation tax, page 21/33 of the trading update shows a remaining Net deferred tax asset of 625 mUSD. As you will have noticed by now, I am not an expert in corporation tax. I assume that this amounts stands for the "net cash value" of the forwarded losses. Thus, approx. 1,5 bUSD profits before tax can be made at a tax-rate of 40% before the net tax asset is consumed - is this correct?

I expected them to consume their forward tax losses by end of 2023, so I was surprised by the huge remaining net tax asset as of 30th Sept. last year.

In my mind this indicates there won´t be much corporation tax to be payed in 2024 as well. So from my 1,4 EBITDAX FC for 2024 only 350m EPL + maybe 100m current 2024 corporation tax have to be payed. Finance costs should be below 200 m USD as well. So in my mind, 0,75 bUSD CFFO after tax seems to be a realistic number for 2024, do you agree?

I expect management to choose a payout ratio at the top end of their guidance, so 30% (unless any major M&A suddenly comes up, parent company Delek also relies on ITH to pay or has to cut their dividend respectively). This would mean 225-250 mUSD 2024 annual dividend (similar bi-annual cash payments to the current dividend). After the IPO ITH yielded 11%, so assuming markets to require 12%, 1,875 bUSD equity value seems to be a reasonable, or 1,48-1,50 GBP per share. DYOR.

PS: Haven´t heard from Cambo recently. There is an upcoming due date end of March for submission of a development plan. Hope they can extend that deadlin

Can somebody assess this?

Source: https://energywatch.com/EnergyNews/Oil___Gas/article16798413.ece

I´m also sorry, kinda liked this guy...

Anything known? Delek Owner billionaire joined the board (Itzhak Tshuva) in the course of last. Delek might be disappointed by the development around Cambo and Rosebank (especially Cambo since 100% in ITH/Deleks ownership now).

So maybe shareholders opted against Alan...

Obviously they can´t be too satisfied by the aquisition of Siccar Point in retro perspective and developments since then, but it´s mainly the EPL effects rather than the management in my opinion (of course the public doesn´t have any detailed insights).

Hi,

Delek is my biggest single holding and the reason how I came to ITH. Delek used to have major problems with bondholders in 2020 when the corona oil-drop happened. In the aftermath they worked hard on improving credit rating, in order to meet set guidelines as a basis for i.e. dividend payment which Delek recently resumed.

As part of their aim to improve credit rating they decided to IPO ITH and sell just a minority stake (hence Delek wanted to remain in full control since they strongly believe in ITH in my opinion - of course EPL hitted hard and they didn´t expect). Thus one of their major assets (ITH and NewMed Energy where an IPO failed due to complex partnership structure and merger with Capricorn also failed due to shareholder activism) now is much more liquid given the successful ITH-IPO.

Assumptions:

a) the non-voting shares were to be converted into ordinary shares, Harbour’s existing shareholders would own 45.5% (source: todays presentation)

b) New.Co´s 2P reserves to be valued at c.$10/boe (Linda said during the call today that such a 2p price to be quite standard, so why don´t we use this metric for a valuation approach)

c) Net Debt. of New.Co to be: 7 bUSD (thats the most challenging item, there were several analyst questions during todays call and the Alexander wasn´t answering too precisely but rather was talking about a lot of moving parts, etc. So with 7 bUSD I am on the rather conservative side - see slide 11 of todays presentation ported DEA debt. + Harbour bond + bridge facility)

d) prior deal sharecount of existing shareholders 770.37 m

Thus, NewCo´s EV based on 1,5 bnboe 2P reserves is 15 bUSD. Deducting net debt leads to 8 bUSD market cap. I think this approach is more realstic than simply adding DEAs deal valuation to todays market cap. of harbour, because this simplified math doesn´t take into account that 1,5y of future earnings power / cashflow will go to the seller.

Value per share: 8 bUSD * 45,5% / 0,770 bn shares * 0,79 FX = 3,75 GBP (based on 2Ps)

This valuation does not take other positives factors into account and should be bottom-line in my opinion, so really don´t understand the closing drop from 329 to 295,5 pence today. I am not too experienced with O&G, so might be totally wrong valueing New.Co with basically 1,0x 2024 EBITDAX...

Hey Basil,

Yes, partly agree (well done), but still struggle to understand why they don´t use hedging right now on a voluntary basis at circle highs to login favorable prices. For example ITHs hedging schedule presented last week offers huge protection while still allowing for significant further upside from current levels. HBR to me looks like they are just sitting our there unfavorable legacy hedges right now and are then up against 100% market price exposure (thats probably one of the reasons why the SP fluctuatesso strongly with the POO).

Thats great news!

Hope to see some news regarding partial sale of Cambo as well, benefitting from Rosebanks green light. Quite sure 100% share is not ITHs target project allocation.

Source: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/090623-interview-equinors-uk-rosebank-oil-project-to-be-crown-jewel-of-decarbonization

Equinor speaks first, followed by ITH chair Myerson.

Keep my fingers crossed that both projects will be sanctioned this year. Market has priced in certain level of divi-cut for 2024 if you ask me. Any positive development around these projects should boost Ithaca.

Many thansk for rasing this topic Megla. Noticed low activity here so tought it would be fruitless, but more than happy to share my thoughts:

The IPO documents guided for 420m 2024. I don´t think they can maintain this level for the reason you stated (15-30% of CFFO). However, I think they don´t want to fully disappoint IPO investors + parent company Delek raised Dividend to approx. 10% yield this year as well, so I expect them to use the upper boundery (30% CFFO). As long as they don´t risk running outside their leverage target range (which I totally don´t see, but surely they are bidding for some UK M&A targets/divestments from big oilers right now) I expect them to stick to 30%. Important to mention they won´t do buybacks in my opinion due to low freefloat of just 10%, so investor returns will be spent on divi 100%.

I was very pleased by their hedging performance, comparing ITH and HBR its mind boggling when you look at production and EBITDAX:

ITH 1st half 2023: 980 mUSD at 75.8kboe/d

HBR 1st half 2023: 1.400 mUSD at 196 kboe/d

so HBR did +42% EBITDAX at +158% daily production...

During the conference call they explained their hedging approach when showing the respective slide of their investor presentation and also commented on some good hedges they placed recently.

Of course lower production will impact CFFO, I haven´t had the time to fully update my model yet. I expect like 7/8 kboed less (they mentioned -5 kboed directly resulting of one investment they decided to skip, which was part of their 2024 baseline before).

Operating costs seem to be under control as well as finance and least costs, so just from my gut feeling (will update once I adjusted my financial model) I see 250-300 mUSD, giving a 2024 target divi. yield of 11,3%-17,3%. The lower end fits to the IPO valuation (offered around 11% if I recall correctly).

I am happy to add shares on levels of 140 pence, having the jucy dividend plus hopefully marco tailwinds in mind (praying for the UK government to announce after summer break).

Its another third, so 133 mUSD. Remember this from the last conference call.

Timing for the rest is shortly before Year End.

Looking very much forward to the results on Wednesday. They should suffer more than harbour from lower energy prices compared to last year, because of less hedging.

Crazy to see them paying 400 mUSD dividend this year, compared to HBRs 200 mUSD but 3x production. Would be interesting to hear if they comment on future dividend development at ITH. One of the last presentations gave general guidance in terms of percentage of CFFO, so with EPL still in place I think they have to cut to 200-250m from 2024 (just avoided to cut this year to not totally screw up IPO investors...).

Still one of my favorite stocks even though it fundamentally looks significantly more expensive then HBR. Like the management team at ITH and also at Delek Group. They just were a little unlucky again with timing of the siccar point purchase, could have bought it for 30-50% the price a little later... :-/

"Have you factored in asset planned shutdowns, and asset unplanned shutdowns, all impacting the Production Efficiency?"

No, I thought it´s net realized average production output (net after the diminishing factors you´ve mentioned). But again, I am new to Oil and Gas, didn´t find any definition, might be wrong. But makes no sense to me that it´s anythin else (i.e. peak production).

https://www.investopedia.com/terms/b/boed.asp

@Megla

I use 195 kboed, 360 production days and 80 USD/boe (equivalent for gas). Thus total production 68,4 mboe.

Have built a hedging model which forecasts a 248 million USD hedging loss next year. This translates into 76,37 USD/boe net sales (based on my previously given production assumption).

Looking forward to seeing what your model comes out with that input data.

@Comrieman

Thanks for the quote/transcript. I get to roughly 2 bUSD pretax profit as well, but I built two types of "pre-tax-profits", one for standard corporation tax and one for the EPL. My 2024 corporation tax estimate is 950 mUSD, whereas EPL to be 540 mUSD (I have further deducted 91% of the 900 mUSD investment capex bringing the EPL pre-tax-profit down to 1,55 bUSD excl. interest). Thus my 2024 FCF estimate seems way to high with 1,2 bUSD compared to consensus here (and compared to the share price). Compared to 2023, the tax bill increases by 0,7 bUSD which seems reasonable due to the consumption of the carried forward losses by year end 2023. But in my model this is completely compensated by improved hedging losses (950 mUSD in 2023 vs. 248 mUSD next year).

@all

Not sure how to handle the additional 250 mUSD mentioned in the call. Is this a 2023 delayed into 2024 (payable date) or does this tax appear in that certain legal entity for the first time in 2024 but is part of the "normal" EPL of that year (see my calculation above as 35% of "EPL-pre-tax profit". Even if additional, I understood its sort of a one-off, so it shouldn´t be used for valuation purposes by applying a multiple (as you did Megla, but please correct me if I am wrong and it turns out to not be a one off but just a delayed recurring carry-forward tax which ends only one year after the EPL ran out).

Megla,

appreciate your posts and agree to your rationalising. Just worried others won´t disclose there models/figures (in case they have any and aren´t just guessing), so I will for the sake of comparison:

For 2024 I get to 5,5 bUSD gross sales and a 0,25 bUSD remaining hedging loss, so 5,25 bUSD net sales

1,1 bUSD OPEX

0,26 bUSD Lease/Finance G&A

so 3,9 bUSD EBITDAX (have a similar model for Ithaca with 70 kboed production and better hedging positions, it compares pretty well to HBR in my opinion, because ITH forecasts slightly below 2b USD EBITDAX)

I am clearly not an expert in taxes and especially not in the EPL, but I get to about 0,8 bUSD net earnings for HBR in 2024. I think the FCF is just heavilie impacted by carried forward EPL payments from 2022 and 2023. So I am questioning if FCF is the correct basis in this case for valuation purposes (of course I know that DCFs are the industry Standard for company valuations, just wondering how to properly handle the delayed EPL payments impacting the model).

Sorry, just seen Ithaca finally released it on their own website. I swear it hasn´t been there on yesterday already :D