If you would like to ask our webinar guest speakers from WS Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund a question please submit them here.
Sekforde - the only reason I can think of right now for our PE ratio being so low is dividends, or the lack of. Whilst the Company is starting to bring it more into the conversation until we get some indication of a committed dividend policy then we won't see a PE ratio anywhere near the likes of the other O&G companies that do have such dividend policies in place. Luckily we should be nearing that stage... buybacks was the start... debt removal and dividends should follow (in that order IMO)
GLA
I had the exact same conversation on this with a family member yesterday when I saw the headline "Tesco profits soar" on the BBC... but it was advertised on there as being a good thing despite the fact that supermarkets hiked up prices expecting further inflationary pressures, for it to not transpire. Sounds a little like profiteering to me and is the same thing the banks done when they kept savings rates intentionally lower for a few months until parliamentary/regulatory pressure kicked in and they were forced to. I really struggle to understand why one single industry (that is powering day to day living in the UK by the way) is being targeted so unnecessarily.
The industry needs to speak up a lot louder than it has done previously!
Stevo, mrc - thank you for recent contributions. Regarding Bressay, what do we think is the economic value (in £ terms) of producing gas from Bressay to offset the diesel costs for Kraken? I completely agree with the rationale but not sure it provides sufficient benefit for ENQ on its own. I'm sure it does given how firm a statement they made in the 2023 year-end results but wonder if anyone has asked this question of IR already
Can someone please remind me... was it the RBL that was prohibiting us from being able to deliver shareholder returns until we reach 0.5X EBITDA? Although we are almost there already by paying off the RBL completely are there no longer any of these restrictions and action on shareholder returns can happen when needed?
Will digest the remainder later today but as always great input from others on here already.
GLA
This post is very much "pie in the sky" thinking right now but curious to hear other views... how would you view the Company releasing news of a 1p per share dividend? Based on current amount of shares released would cost less than £20M and based on current SP would represent a yield of just under 8%. By means an astronomical figure given the risk profile of the Company still but I would still think it is a start. Even if the SP were to increase to 20p it would represent a 5% yield.
Note I've previously taken a very firm view that I'd rather see the Company reduce its debt completely before considering buybacks/dividends but given external factors that have taken place in previous years that are out of the Company's control (COVID-19, Russia, shale, WFT) then I can understand why the SP has barely moved and now believe it requires dividend returns to get things moving. Even in the wake of recent stellar results the reaction was relatively muted... and unless I've missed something there still hasn't been an upgraded broker rating (doh!)
GLA and keen to hear your views
3 initial comments:
1. Romaron - I would like to hear your comments on the numbers, be they positive or negative?
2. "The Group will provide an update on shareholder return plans when we announce our final audited results in March."... this suggests something a little more definitive than what we have heard in the past?
3. Let's assume 2024 production is bottom end of guidance (prudently)... where do we think that leaves net debt at the end of 2024? I get gross FCF of $365M, i.e. revenue = 41k x 365 x 70 = 1.05B less 200m capex less 415m opex and less 70m decom. EPL of around 120M leaves say 250M... still more than current MCAP??!!!
I agree with you BTFATH1 and have been scratching my head for some time over the MCAP. So, in the interest of sparking a constructive debate, what are the micro factors (ENQ driven) that are keeping the MCAP as low as it is?
Depletion of reserves and not enough 2P/2C? Too high a break-even cost? Cost of borrowing too high? Some of the factors will play a part but I do wonder whether we're being pulled down by much greater macro-driven factors.
Continue to reduce debt (and pay off most expensive) >>> Confirm small dividend >>> Small share buyback
Time will tell
I too am struggling to understand how the MCAP is not at least equal to the value of cash or equivalents. It assumes that all other assets will lose us money in that case, despite that given current POO we are generating profit daily. I am not aware that we have any material outflow in H1 2024 that would result in such a drop in cash or equivalents.
Is the market ignoring restricted cash and ring-fenced funds held in joint venture operational accounts, which were around $130M as at 31 October 2023?
I'm pleased to see some level of debt reduction since the half-year. Whilst I'm not an accountant I am interested to know how the remaining net debt is broken down.
At 30 June 2023 it was £592M total which broken down was: Bonds = £615M, RBL = £247M, SVT = £14M and cash = (283M)
I'm struggling to reconcile how the figure at 31 October 2023 is made up. We've paid off £111M of the 7% sterling bond in October so this total is now c.£504M. The RBL is now down to £190M and cash was quoted to be £386M in the RNS. Assuming the SVT is still c.£14M as this has been unchanged for some time then I get a net debt figure of c.£322M. Please can somebody explain the difference? Is it that the restricted cash of £131M is not allowed for in the overall net debt calculation?
Assuming the bonds remain broadly £500M then this is broadly broken down as 65% for the 11.625% bonds which matures in November 2027 and 35% for the 9% bonds which matures in October 2027. That's a weighted average of 10% and so broadly £50M of interest per year. Given the FCF we're producing based on current POO then I really hope that they consider accelerated payments on this (if available). It may mean a slightly lower divi/share buyback programme over next couple of years but I do not understand why we're paying such a high interest rate given the profit we're currently able to generate.
All back of the envelope stuff and using only the latest RNS and half-year update so feel free to critique or challenge.
GLA
I'm interested to hear people's view on what they would prefer to come first; for the Company to be completely debt free or to potentially increase the level of debt in return for M&A, further exploration, increased production etc.?
Now I completely get that this isn't binary and there a number of other options available (likely something in between the above) but currently the market appears to have a very strong view to oil companies carrying debt and whether the SP would react more positively to becoming debt free first before expanding (and introduce further debt).
There's also dividends to be brought into the equation but may leave that for another time... unless people want to bring that into the discussion now
Any views would be appreciated.
Sekforde
I do not disagree with your post. But I would ask the question as to whether you think we require to either a share buyback programme or some form of dividend policy to be put in place in order to accelerate the market cap?
Potentially when it can prove its able to make a profit over a sustained period (say all of 2024). However, I'm very much hoping that by then the market cap will be significantly higher than it is now.
All the signs point to the company moving in the right direction but it does need to demonstrate profitability before it can be taken seriously... I will continue to top up at current prices whilst that happens
Apologies if I have missed something but things appear to have gone very quiet re. Enquest Producer. I recall it being discussed a lot a few years ago and back then the options were either to sell it or use it as part of a future project. What was the last update we have received on this?
Thanks Kamrat. I agree, given the current climate it's difficult to predict anything with confidence in the longer term. It was simply a "glass half full" question in order to provide reassurance in my investment - which it has done.
Keep up the good work!
Tarmak - once again excellent stuff, thank you! One interesting takeaway from this is in the tab "Chart" we see how net debt had reduced over time and we are now at the crossover point between net debt and FCF (and market cap).
Can I ask one question please - I tried to do myself but felt there were too many variables for me to do accurately - what do you get the 2023 EBIDTA to be with realised oil price as $80 say? Personally I don't think we'll see $80 as an average price for 2023 (I think higher) but useful to know what you think for stress/scenario testing
I agree, although I can see a short period where it exceeds $100 when US mid-terms are behind us and we have a better understanding of global supply (which the SPR has done well to mask recently). Although a lot of variables that could pull it the other way. We're currently in a very good position so I'd like us to continue to lock in to some of that downside (whether this is hedges or some other mechanism which is beyond my level of expertise) but still able to capitalise on the whole on current high prices.
Will be interesting to see which comes first in the next few years - debt-free or dividends. Some may argue both but I can see AB remaining aggressive on MA/expansion and so one of them will give.
Given where we were in 2020 then we're now in a much better place.
GLA