Member Info for Tamovv

Hi Londoner,

Many thanks for your swift reply! Always appreciate your thougts every time. Earlier today, I´ve noticed your comment on the HBR board regarding your opinion on the consultation on future taxation and was going to ask you a question anyways. So more than happy we can discuss it here in the ITH space, which isn´t as crowded ;)

I have read the full 38 pages pdf this afternoon, following your comment. Before, I only had a brief understanding based on some newspaper articles.

However, I struggle to develop an own evaluation of that paper itself, since they didn´t mention any target for tax-rate, profit margins, hurdle rates etc... So I am open to that outcome and optimistic, that the geopolitical shift and high importance of energy security bodes well for a pro O&G taxation outcome. I, as a German citizen, would love to use British North Sea gas in the future in combination with Norwegian gas, rather than Russian gas or LNG exports! Since Starmer mad strong comments pro Ukraise, I hope for him having an influence on the "consultation" as well, ensuring geopolitcal goals are being considered.

As you wrote below, question is in context of the revnue model, whether "windfall revenues" are taxed with 10 or 90%, but again, I hope their aim for making Cambo, Buchan, etc. happening (I invested into JOG recently at 66 pence for that reason).

Hope behind the scenes, investors (ITH, JOG, etc.) have been asked under which circumstances (under which new tax regime) they would actually invest. Since I recocgnized a clear push towards execution of these projects recently, I trust the taxation workstream will be well aligned with overarching goals in this regard as well. But as always, I might get caught too optimistic.

Anyways, can´t wait for tomorrow (ITH and spring budget)! I don´t fully agree to your comment below that todays RNS did cause the 4% sp rise in ITH, because HBR/ENQ/SQZ/etc. all reacted quite positive in the morning and dropped in the afternoon, so they followed brent if you ask me (RNS was a "non-event").

However, ITH will well incorporate the new 15% stake in their 2025 official guidance tomorrow. I hope for a huge positive surprise north of 110 kboe/d and hopefully 20 usd/boe opex (or a hint lower, see Q4 actuals).

Regarding Cambo vs. a bunch of possible transactions as we´ve seen today, I am totally open. As a non O&G expert, I have a much worse feeling for the number or size of potential transactions out there than you. So Cambo is a much more obvious way in my eyes to grow, but M&A is always welcome. In addition, I don´t think its "either/or", ITH management pointed to their "firepower" several times. Looking forward to their CAPEX guidance tomorrow as well as their net debt. figure, so we can quantity that "firepower" and discuss further

PS: Sorry for mixing things up slightly. It was actually your comment regarding the implicit role of Cambo on the ENI.UK merger as you outlined in your post belo

Nice smaller M&A announcement today, but this is massive news: https://www.agcc.co.uk/news-article/chancellor-says-jackdaw-and-rosebank-will-go-ahead

Little bit disappointed about the rather muted sp reaction. As Londonder pointed-out earlier, ITHs current valuation does highly likely not include any value for Cambo. In case of a sensible outcome of the industry consultation on post EPL taxation in combination with a legal framework allowing for these kind of projects to happen, I hope for a farm-in partner announcement this year. All the "delays" in Cambo, will probably lead to a startup date pretty close to the end-date of the EPL...

Aceofaces, well, I am hugely positive on ITH as well, but the picture you are drawing might turn out a little bit too optimistic.

Seems like you´ve used Q4 numbers from recent TU to extrapolate 2025. I used to do the same when I was new to O&G but always overestimated results, because I didn´t incorporate maintenance periods sufficiently.

Official production cost management guidance is "low 20s". So despite the fact Q4-24 was already reported lower, I would be surprised if official guidance for 2025, to be released on Wednesday, aims for less than 20 usd/boe.

On top of that, when talking about "breakevens"; we need to add capex per barrel as well (15-20 usd/boe). Londoner might correct me (to a higher number I am afraid), but we are talking about at least 40 usd/boe excl. tax.

Thus, it defo matters if poo is at 60 (global recession, drill baby drill starting to impact US output, etcl.), 70ish (current level), or 80+ (bullish scenario, global demand proving robust, us shale flattening, opec cohesion doing okay again, ME "war" incl. Iran, etc.). Same scenarious could be developed for gas (i.e. russia/ukraine peace deal playing out well).

But anyways, we are on nearly the same page. In absence of a global downturn with negative implications on the price of oil I do expect ITH to payout their 500 mUSD 2025 dividend target as well.

Looking forward to 2025 guidance on Wendesday, hopefully midpoint higher than 105kboed/d for full 2025. OPEX/boe will follow higher output then (grinding lower obv.). Some nice headging (especially gas in February).

Yes, of course. There is official public Dividend guidance. The to be payed soon installment, technically belongs to 2024.

For 2025 they reiterated their 500m usd dividend target. Without a collapse in o&g prices or major unplanned shutdowns, i am highly confident the target will materialize.

500m usd / 1.660 mShares = 0,30 usd per share (to be payed after H1 results and in March 2026). I would expect them to maybe not to go for a 50/50 Split straight, but start with 200m later this year, in order to maintain some flexibility. Somewhat dependend on First 2025 guidance next week. Hope Production guidance to give us a positive surprise. So given that and hopefully higher o&g prices in Summer, we might see another 250m so 0,15 usd per Share in September. So 0,10-0,15 usd as final payout in 09/2025 is my educated guess (= public knowledge).

Dividend is 500 mUSD not GBP, so /1,29.

1 Pence = 1,29 USD. 1,68b shares = 2.167,2 mUSD market cap at price target. 500/2.167,2 = 23-23,5%. Not as high as you thought (but still "very high").

"Barclays cuts Ithaca Energy price target to 100 (155) pence - 'underweight'"

Wow...okay. Oil and gas prices suffered a bit, but I still believe in the 500 mUSD dividend (for 2024 its almost granted anyways, but also for 2025).

So Barclays requires a 23,5% dividend yield? Interesting.

Interesting weeks ahead. FY24 release with 2025 official guidance and UK spring budget with hopefully more positive tones in general and publishing of legal requirements for environmental assesments (Rosebank, Camob).

Found this article in the Swedish Discord:

https://www.agcc.co.uk/news-article/north-sea-mega-merger-between-serica-and-enquest-edges-closer

still need somebody to help me with the legal stuff ("required majority"). maybe its to early to think about it, before an offer has been formally released yet. but i am wondering why the sp action is so muted this week. so it came to my mind that the market might see the go-through much less likely than i do.

i tried self-study of the uk takeover code. found that a simple majority is required to gain technical control of the target (quite obviously, nothing new), but learned about a 90% rule to be able to squeeze out non-complying remaining shareholders.

when trying to combine this with uk taxaxtion law, i come to my boundries sooner that later.

my non professional impression is, that the deal might require that 90% on sqzs end, because enq need to fully incorporate sqzs legal entities, in order to be able to use their production against tax losses on enq "holding level". or are there any other rules (i.e. stevo is maybe aware of), that other (smaller) ownership percentages (i.e. 75%) are required to offset acquired production against "acquiree" tax losses. however, having left over old sqz shareholders feels rather strange, but think this will happen if a minority opts to reject the ************** offer by enq? would those still receive the special dividend (think process-wise its a extraordinary but normal dividend to all shareholders), but keep their sqz shares?

Haha, thanks Stevo, you made my day with that post.

As a German I obv. don´t have deep knowledge of the exact rules of your UK takeover code, but it seems that both parties are pretty active in posting to comply on both sides (hopefully not only to comply with abstract legal rules, but also to facilitate the potential happening of the proposed transaction).

Not sure if it was mentioned here earlier on this board, but both parties already opened a respective section on their websites:

ENQ: https://www.enquest.com/investors/possible-combination-with-serica-energy-plc/documents

SQZ: https://www.serica-energy.com/possible-merger/

On top of that, SQZ seems to have done some kind of employee communication in terms of an internal mailing and townhall meeting.

Not sure if these website sections are kinda required by your law, an employee mail about speculation is nothing spectacular either, but a dedicated employee townhall meeting feels more like "best practice integration efforts starting from the very beginning", rather than an employer just informing its workforce about a "vague uncertain pending bid".

So hopefully, while we folks on this board still discuss valuations and other deal metrics, the parties involved have already come to an agreement. What speaks against this thesis is indeed, the time ENQ needed to react to the initial announcement by SQZ. But all other facts do indicate the deal will happen in my opinion. With Mercuria and Mr. and Mrs. Hardy, SQZ has about 33% in two strong hands, so Chris might have pitched his idea well in advance ;)

Stevo, do you or anybody else know which kind of shareholder vote majority is required? Does the show start with a 51% simple majority for SQZ?

What I understood from Petes post:

ENQ number of shares 1.950m, get 1 to 1 Exchange

SQZ number of Shares 395m x times 5 = 1.975 in NewCo

Total NewCo shares 3.925m, whereof 49,7% ENQ, 50,3% SQZ + 98,75 mGBP Special dividend (1/6 or 16,7%) for old Serica holders.

This would be a damn good result for ENQ in my opinion.

The nominal valuation of 30/150 pence doesnt matter. If the market values newco at 0,8b GBP, this will already implie quite significant upside for old ENQ holders and doesnt seem unrealistic in case of a 100m SQZ Special Dividend only, which will not inflate NewCos debt Level too much.

Keep your Fingers crossed, I owe you a large beer Pete if you have some kind of valid source for your Speculation! ;)

Hi,

Impossible to answer for now. Highly depends on the relative valuations of both companies against each other and the cash payment to SQZ will play an important role.

What can be said is, if you are looking for a quick buck SQZ could be a good bet, because in my opinion the current valuation does not reflect the chance we´ll really see a 150mGBP+ payment, resulting in a 30% one-off special dividend in a relatively short time frame.

I personally overweight ENQ 4 to 1 against SQZ, because it feels SQZ does need the deal (more). ENQ as a smaller stock might get a relatively bigger share of the upside (i.e. synergies, see Stevos post). I.e. if they agree to split the synergies (i.e. 300-400 mGBP) equally fair between both parties, this would have an bigger impact on ENQ relative to its current market cap.

Yes, 150 mGBP at a 60/40 feels about right. 1b market cap for newco as well (see my other posts on the ENQ Board)

SQZ holders get 600m (60% of Newco) + 150 Cash = 750m GBP = 60% upside on Fridays valuation

ENQ holders get 400m (40% of Newco) = 80% upside (including the risk that this 1b valuation wouldnt be reached. SQZs 150m / 30% Special divi directly is not subject to any market fluctuation)

Using „Stevos approach“ from the ENQ board newcos valuation could be 221 for old ENQ+320 for old SQZ adj for the Special Dividend(470-150) + 350 synergies (his number was 400m, I adj for interest of 150m additional debt at a 4x fcf multiple) = about 0,9 bGBP (thats 60% upside for enq at 60/40 w. a 150m payment, or 45% upside for serica).

Alternatively ENQ could attempt to go for more equity (45-49%) with a higher payment (i.e. 200-250m on a 1b valuation for Newco), but I agree to the comment you have made regarding keeping an eye on newcos debt burden (especially if there are still other uk Assets for sale!)

Hi Megla,

Very useful Posts! I‘d like to add the following:

On top of the 20% Dividend yield potential for SQZ from 2026, there would be a highly Likely Special dividend this year resulting out of the Cash component of the purchasing Price. At the current State of the negotiations its totally unclear what this means in Numbers so I am guessing, but 200 mGPB doesnt look unrealistic. This would result in an about 40% one-Off Dividend as cherry on the pie (and to compensate sqz shareholders for the „smaller“ share they would be getting in Enq.Newco relative to current market caps) - some argue for an even higher compensation amount (250/300 mGBP), one can do the math on his own to figure out what this means for old SQZ shareholders…

Third approach,

Enq.Newco vs. ITH. The potential enq/sqz merger clearly follows ithacas good example with ENI.UK. With its enlarged size and 80 vs. 120 kboe/d (already assuming future state after rosebank Startup) and its new enlarged tax shield, new ENQ should aim for at least 65% ITHs valuation (which I believe is also still undervalued). ITHs EV sits at about 3,2 bUSD (official net debt at 31st Dec not released yet). Thereof 65% and after deduction of 840m enq.newco net debt we end up in a ballpark of 0,9-1,0 bGBP.

So from all three angles, including stevos 400 market cap creation scenario, about 1b GBP market cap doesnt feel too wrong for the merger result…

Second approach,

Newco, with 80 kboe/d production and 45 usd/boe ebitdax creation might aim for a combined 1,3 bUSD ebitdax. Cffo at a 40% effective tax rate and after deducting 50m interest (450m net debt +390m new debt issuance at 5,6%) and lease costs of 30m (70% reduced) might be in a ballpark of 700m usd. When paying a 30% cffo dividend at 15% required yield the market could value newco at 1,3-1,4 bUSD. I am aware that this scenario does includes a lot of „mights“ and „ifs“, but still indicates for a bright future.

PS: as a JOG shareholder the fpso contract cancellation wasnt welcome for me on yesterday. On the other Hand, from an enq perspective, the current buchan project valueation as part of sqz might be minimal currently

Thank you Stevo,

Very useful as usual!

Do you agree, that as a First „guesstimate“ for NewCo from an ENQ shareholder perspective, assuming a 45% remaining share, we might add the two oldco market caps to the value creation (221+471+309‎ = 1.001) so 1b pounds or 450m GBP for old shareholders. This would indicate a potential 2x. In an earlier post on this Board on yesterday, you werent too convinced of this Deals potential to unlock value. What my simplistic approach misses is the issuance of debt to be payed to sqz shareholders. But assuming we still be able to Secure the Credit rating you mentioned, at 5,6% and a „worst-case“ Cash component of 300m pounds, this would result in 17m pounds annual interest or 70m less market cap gain for newco (still resulting in a potential Double for enq shareholders). At a 40% newco share this still implies 70% upside (cannot Imagine we end up paying 300m and less than 40% of newco).

Am I mistaken here, or did your Assessment change to a more optimistic stance now after youve done the underlying math on tax and interest synergies.

Thank you!

Many thanks Kamrat (and Stevo)!

Possible to join that discord? Would be interested.

Yes, guess thats the reason for slower progress on many different M&A deals people have expected to have happened already (i.e. maybe Harbour has revoked their idea of selling their UK business given an avoided wort case political scenario).

UK O&G asset prices might have seen their lows last year August/September at peak pessimism before the autumn budget. Tide seems to have turned now (expect informed O&G executives closer to the Government to have even greater insights than us).

Only party involved and under short term time pressure must be Waldorf, hope we can score a win here in March.

"the agreement longstop date was reached at the end of February 2025 with work outstanding. In light of the current slowdown in Buchan project activities as a consequence of the fiscal and regulatory consultations, along with work on the vessel still requiring completion, the parties have not terminated the agreement and are in dialogue on the optimal contractual way forward to accommodate these delays."

Think this triggered to rather large sales end of last week. Not a desaster since they are "in dialogue" regarding the FPSO, but certainly not good news either.