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
Londoner,
Many thanks for providing that date. I wasn´t able to find it.
Could you please share your source? Looking very much forward to their Interims.
But the longer I am looking at these numbers, the more I get the impression it actually is meant cumulative :-/, so nothing new at all.
Well, they should have marked it a little clearlier in my opinion, but the numbers add up so well compared to the cumulation, that it most probably is...
Guys,
you haven´t looked at my post below. Beside the TU the presentation for todays AGM is already online too.
Page 18 shows new dividend and buyback numbers in my opinion (assuming its not meant cumulative).
The music placs on page 18 in my opinion, shareholder returns (or do they mean "cumulative"?!) of 392 mUSD dividend and 602 mUSD.
If not, at year end, based on todays market cap. of 2,5 bUSD, and assuming 450 mUSD buyback-power left (if 602 is really the new buyback rate 2023F), we´ll end up around 19% dividend yield.
Crazy share, they have payed off 2,7 bUSD debt. in 2 year and their current market cap. is 2,5 bUSD only. This implies EPL introduction more than wiped out the net asset value from 2y ago...
Net debt. already stand at 0,2 bUSD as mentioned earlier here, so with 1,0 bUSD FCF guidance for 2023 the a.m. shareholder returns from slide 18 can be financed in theorie (assuming its not meant cumulative, they should have mentioned clearlier then but waiting for the call to start to confirm...).
Nevertheless they mention reduced debt. capacity since EPL introduction (as other O&G companies explained when discussing Rosebank/Cambo development). So will be interested when M&A opportunities really arise (if they have to use FCF for that instead of mentioned buybacks volume).
Despite all your valid comments regarding FCF at current POO we have to admit that this stock has become a highly political play unfortunately.
As the folling article shows, there is huge social unrest around Rosebank/Cambo:
https://www.petro-online.com/news/fuel-for-thought/13/international-environmental-technology/will-the-rosebank-oil-and-gas-field-project-proceed-amid-climate-concerns/60214
These projects are obv. not directly linked to HBR, but I think the relevance is still clear:
UK gov. must strike the balance between social unrest (new O&G projects, people demanding windfall O&G taxation) and new field developments.
What makes me rather optimistic is that Equinor recently increased their rosebank stake to 80%. Norway is the biggest energy exporter to UK, so I can´t imagine a situation where really nothing happens around floor price / investment allowance guarantee, really risking these projects not to happen (and the Equinor rosebank stake increase to become a major fail).
Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.
https://www.ft.com/content/b4b3982e-3b51-4836-9333-53e6fd8d15a2
"The chancellor added that it was right to have imposed a windfall tax on energy companies’ profits but that he would keep “a dialogue going?.?.?. because we need to unlock investment in the North Sea”.
Many attendees were positive about Monday’s event, although some maintained Sunak needed to follow through on his “listening” exercise with business-friendly policies. "
Source: https://www.ft.com/content/b4b3982e-3b51-4836-9333-53e6fd8d15a2