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DTP - the over-valuation of TAIL and under-valuation of SQZ in this deal is far more. To calculate Enterprise Values of both TAIL and SQZ, you need to take in to account SQZ's Net Cash position too, not only TAIL's Net Debt. Using the £2.78 SQZ sp as benchmark (which is already a heavily oversold sp for SQZ and undervalues the company):

TAIL EV = £644m (£57m + 111m SQZ shares x £2.78 + £277m Net Debt)
SQZ EV = £315m (SQZ market cap at £2.78 minus Net Cash £460m)

I have no real issue diversifying in to oil, even for UK assets if price is right, but the mis-valuations between the companies above appear inexplicable. It appears Mercuria have completely out-negotiated their SQZ counterparts and got a far better deal out of this. I'm still not at all convinced 1) theoretical tax losses should have such inflated value placed on them; 2) nor that any could even be utilised and that in our current political/tax environment; 3) nor that HMRC wont take an extremely strict view to apply Finance Act 2019 Schedule 15 Oil activities: transferable tax history (apply to entire O&G tax regime rather than just PRT), making such tax losses ring-fenced to each individual asset/field. Unless there is clear case law or case studies post acquisitions that this has been tested to show otherwise.

It will also be extremely interesting to see how detailed the circular will be trying to sell this deal: will it acknowledge the:
1) Major technical risks associated with Triton FPSO (extended shutdown decreasing production + increasing costs)
2) Significant Tailwind cost per boe compared to SQZ's?
3) Will it provide their position on theoretical tax losses, how they think they can apply them across assets and what legislation and case law / previous course of dealing acquisitions they're basing this on?

Don't discount incompetence, ignorance, disregard/ ,misjudgment of tax/commercial/ political/ technical risks, desperation in comparison to other negotiating side as reasons for terrible lopsided deals. No complex conspiracy theories are needed. Remember the SQZ Directors have 2.79% or £21.2m (at £2.78). They may genuinely believe this is a "good deal".

Something not yet discussed in great detail and for those trying to understand this deal in cost models, using the same opex/ costs per boe average for each entity is completely wrong benchmarking. I suggest it's worthwhile to interrogate the "cost of sales" for both Parties.

Using 2021 figures (stripping out non-cash items like depletion/ depreciation):

1) TAIL: Cost of Sales (incl. Admin Expenses + Interest on Loans): $174.6m, 14,000 boepd x 365 = $34bbl ($58bbl if add back in all "non-cash" cost of sales items, depletion etc.)

2) SQZ: Cost of Sales (incl. Admin Expenses ): £103.2 m ($139.3m at 1.35 Forex), 22,200 boepd x 365 = $17boe ($22boe if add back in "non-cash" cost of sales items, like depletion etc.)

We also know from SQZ's Interims (26,600 boepd avg and Cost of Sales £62.9m ($75.5m at 1.2 Forex) 1H 2022) they're still at circa $16boe ($22bbl when you add in all non-cash items in cost of sales).

What is surprising is for what you would think TAIL being a private, slimmed down company, their admin expenses would be less. Admin expenses on top of cost of sales are $21.5m (compared to SQZ £6.1m). Interest costs were $14.1m, which will significantly increase with more drawdowns in 2022 and rising interest rates.

This difference in costs makes sense, considering the additional complexity and costs of fields requiring FPSOs (most of TAIL's production is from their assets tied-in to Dana's Triton FPSO) and other technical differences. Cost inflation with FPSO requiring extensive shutdown life extension works will be a double whammy of lost production (increasing costs per bbl) and increased costs of this work itself (again increasing costs per bbl). TAIL sold their Conwy asset primarily due to "cost escalation in the cost share arrangement with Douglas platform". Could they be in a similar situation with Dana's Triton FPSO. Incoming cost inflation to whatever cost share/ tolling/ 3rd party processing fee they currently pay.

Does TAIL's supposed jump from 12-14k to 15-20k boepd take in to account the extensive FPSO shutdown for life extension works?

Back 1 July 2022 (EPL 65% tax, 90% effective investment allowance to offset EPL) during a much more buoyant market and pre the revised EPL 75% tax rate + 29% investment allowance, SQZ management who we’re told don’t want to overpay or else walk-away from a deal, put a counter-proposal to KIST’s offer for SQZ. Below is that offer next to TAIL’s, which may help put it in further context. Perhaps for some it may even put the TAIL offer in a better light?

Cash Consideration : KIST £75m versus TAIL £57m
SQZ Shares Issued: KIST 107m versus TAIL 111m

- 2P Reserves: KIST 25mmboe (not incl. 2.5 MMboe when Glendronach tie-back sanctioned) versus TAIL 42mmboe
- Net Cash/Debt: KIST Net Cash EUR 26.6m (30-Jun-2022) versus TAIL Net Debt £277m
- Current Production: 12.4 kboe/d Gas versus 12-14k boepd (86% oil, 14% gas)
- Production Upside: KIST Orion oil discovery (tested max output 3,200 boe/d), Q11-B Gas discovery and Glendronach (FID imminent) versus TAIL which according to SQZ Acquisition RNS could be 15-20k boepd in 2023. But not sure how they jump from 12-14k to 15-20k or if this is amortised to take into account “extended shutdown” (Tailwind’s words not mine) of Triton FPSO for life extension works which has been kicked down the road, it must surely need to happen in 2023 or 2024. I doubt it does.
- Hedges: KIST unhedged versus TAIL 33% of oil 2022-2024 at $57bbl. 80% Gas at 260p/ therm.

TAIL Pros over KIST: oil to diversify, tax losses for potential offset (TBD), on face appears production more for 2023 than KIST, 14.5 mmboe reserves more
KIST Pros over TAIL: Net Cash difference in KIST favour of £300m, no hedges, jurisdiction diversification (Netherlands)

Ultimately the 2 valuations are surprisingly similar. So is KIST in July 2022 context worth same as TAIL in EPL 75% Dec 2022 environment? Even in a less hospitable tax environment, does TAIL’s oil based portfolio, historic tax losses, larger mmboe reserves and annual production (this needs to be interrogated though) trump the £300m Net Cash difference between the entities and warrant similar valuation as a July 2022 KIST?

There’s of course other considerations (jurisdiction + tax rates, growth prospects, production life of fields irrespective of mmboe reserves, cost of production (TAIL’s costs for FPSO use, costs of FPSO life extension, interest on $400m+ loans etc.), technical risks, oil versus gas) and I’m not a KIST holder so don’t know all the intricacies, pros and cons which could impact its valuation, but thought I would outline the very basics to put proposals side by side.

Just more food for thought over the Christmas Turkey… Promise you can stick a fork in me now. I’m done for Christmas. Merry Christmas one and all!

Yep agreed - see today how much power the 30% Hurricane shareholder wields. Forcing a sale and now forcing out management (as a tool to speed up sale). 30% shareholder Crystal Amber are desperate to sell (for whatever their own reasons may be) and by proxy HUR as an entity desperate to sell. Bids by 07 Jan.

Those are the type of sales you want to push for - a distressed seller in HUR due to their 30% shareholder wanting out.

Who is angry? We're deeply oversold and I'd be buying hand over fist as a new investor, but already have so much in here, I will refrain.

I don't personally agree with selling out on this news despite my position, as we're so undervalued, but as this acquisition in my opinion limits the upside in comparison to SQZ without the acquisition, if others see better value/ upside in other O&G plays, fair enough to them. If others have similar models to me and extrapolated out circa £3.6/share Net Cash (based on 180p/therm and $80 brent) by end of 2023 leading to circa £4.6+ share price (still heavily discounted), but with deal, dilution and debt we may not see £4.6+ share price until say 2025/2026, with more political/tax risks involved along the way, I can understand people selling on the lows, if they think they have better plays to go to.

SQZ
- 2P Reserves: 62mmboe
- Net Cash: £460m
- Production: 25-30k boepd (20% oil, 80% gas)
- Market Cap: £775m (the very undervalued pre announcement price, £2.78 after a large decline, part EPL revision, part SQZ management, part acquisition leakage?)
- Valuation Normalising for Net Cash position: £315m, $6.1/bbl avg to Reserves
- Hedges/ Futures: circa 30million therms reducing to zero Sep-2023. Is that circa 300k boe? If so, 12 days of production or amortised over 8 months, 6-7% production per day.

- Actual Tax Losses to offset future Profits: North Eigg Drill Costs circa £70-90m offset EPL (or however much was spent which SQZ left out of last RNS). This should show up in 1H 2022 by offsetting the next EPL instalment.

TAILWIND
- 2P Reserves: 42mmboe
- Net Debt: £277m ($425m debt to be repaid 2027 at ??% and $50m with Mercuria matures 2028 at ??%, admittedly not all drawn down. But guessing at 3-4% + LIBOR eq./ BoE Base Rate you’re looking at 7-8% total interest or $38m p.a. of additional costs)
- Production: 15-20k boepd (86% oil, 14% gas)
- Market Cap: £367m (as per acquisition, £57m cash, 40% 111m SQZ heavily diluting shares)
- Valuation Normalising for Net Debt position: £644m, $18.4bbl avg to Reserves (i.e. Tailwind valued at 3x SQZ)
- Hedges: 33% of oil 2022-2024 at $57bbl. 80% Gas at 260p/ therm

- Potential Tax Losses to offset future profits: $1.37bn Ring Fence Corporation Tax (30%) losses and $1.2bn Supplementary Charge losses (10%) as of year-end 2021. Will be slightly less but immaterial, depending what Tailwind has offset in 2022.
- Of this Actual Tax Losses post acquisition to offset future Profits: ??? See other posts on why a discounted risked valuation of such will/ should be a fraction of above and should not be relied upon.

For my own sanity and before I nip out for the day, thought I'd update my overview and let people rip it to pieces with other posts I've missed (sorry!), valuation factors and pertinent details on either side of the aisle.

I like to play devil's advocate and whilst I'm currently a No as believe SQZ is far more undervalued without the acquisition than with it (I still believe we will be undervalued post-deal, but not nearly as much due to the over-valuation of Tailwind and under-valuation of SQZ, leading to unnecessary dilution). I'm happy to be convinced and shown error of my ways.

Hi Quintus - thanks for clarification. At first I also thought the Finance Act 2019 Schedule 15 Legislation I referenced was specific to Petroleum Revenue Tax (PRT). When it was being originally drafted in 2017, it had many references to PRT. But in the final legislation in 2019, all references to PRT appears to have been stripped out, unless I missed it? Which makes me wonder about its wider applicability and if this was intentional.

On the specific legislation CTA 2010 Section 305 Group Relief, is this not covering tax relief within the existing "Company Group" only (i.e. one subsidiary to another)? Perhaps prior to Finance Act 2019 Schedule 15 it could be extrapolated to also apply post-acquisitions too, however following the more recent Finance Act 2019 I'm not convinced.

Ultimately with this uncertainty it boils down to what yourself and many others have said here - you don't value a company or acquisition on its tax losses of which we have no clue of what can be "carried over" post acquisition, what is ring-fenced by license/asset, activity (decommissioning etc.) etc. The Finance Act 2019 Schedule 15 is very fresh and I don't particularly want to be part of case law HMG v Serica Energy Ltd testing the applicability of CTA 2010 S305 (Group Relief) over Finance Act 2019 Schedule 15, which explicitly covers Transaction Tax History.

The difference in valuations between SQZ and Tailwind is a whopping £329m. When SQZ produce more and have larger reserves, you can therefore extrapolate that the valuation on these theoretical tax losses is >£350m +. Based on lets say $75bbl oil and 180p/therm gas, do we believe that's a fair discounted value for these "Tax Credits", with the tax and political uncertainty / risk? Should actual cash in the bank be valued less than "tax credits"?!

If we're interested in tax loss credits and we believe they are transferable post-acquisition (not convinced), why would we simply not acquire Hurricane and its $370m tax loss credits? They should have circa $100m Net Cash end of year, 9,000 bopd (very little 2P reserves, but room to develop and prove up, to offset against EPL). In addition to Net Cash, they have a ring-fenced $60m restricted cash pot for decomm, so no decomm liabilities. Current Market Cap £159m. Are SQZ participating in the formal sale process?

rt49 - it's in recently uploaded AGM document on THS website and will be paid 15 March 2023:

https://www.tharisa.com/pdf/investors/annual-reports/2022/tharisa-iar-2022-notice-of-agm.pdf

ORDINARY RESOLUTION NUMBER 8
Final dividend
“RESOLVED THAT a final cash dividend in the amount of US 4.0 cents per ordinary share is declared for the financial year ending 30 September 2022, such dividend being payable to shareholders registered on the register of members of the Company as of close of business on the record date, being Friday, 3 March 2023.”

Additional information in respect of ordinary resolution number 8
The Board has proposed a final cash dividend of US 4.0 cents per ordinary share for the financial year ended 30 September 2022. If approved by shareholders, the recommended final dividend will be paid on Wednesday, 15 March 2023 [...]"

I guess my over-arching point is without further clarity, I believe of the Tailwind $2.5bn historical tax losses, a fraction of this will be "theoretical" that the auditor will be allowed to declare in the Accounts as the max they believe could be used for offsets and of this, practically only a % of this will/ can be applied in real world and only to the specific asset/ field the loss is against over X number of yrs.

So on a risked/ discount basis, for this deal do I think that SQZ 2P Reserves should be valued at $6.1bbl and Tailwind $18.5bbl, when we have the larger reserves, larger annual production and stronger balance sheet. Absolutely not. It completely overvalues the potential TTH credits.

I am happy to be proved wrong in the early January Circular from SQZ, but it's going to have to be extremely clear on how they've valued the TTH and the basis for this, referencing independent tax advice and up-to-date legislation and case law they're relying on.

1) Where have you plucked this £400m from?!!
2) What's the basis of it? Are you assuming any and all Tailwind Corp & Supplementary Corp historical tax losses/ credits from can simply be credited across to any SQZ Assets/ fields?
3) I suggest people start reading up on UK NCS Transferable Tax History (TTH) Legislation, a bit of light reading in the "Finance Act 2019 Schedule 15 Oil activities: transferable tax history". It's immense, it's complicated and it won't even be the only piece of legislation to cover such topic. A lot of the wording appears to strictly limit TTH to the asset/ field in question (i.e. for our scenario, this implies Tailwind tax losses can only be utilized against Tailwind assets/ fields. Even within Tailwind, they will have to track the tax losses by each asset to avoid "cross-contamination"). The tracking and submission to HMRC appears quite onerous. In addition to limitations by field, TTH also appears to be mainly for purpose of the purchaser to "be able to set the costs of decommissioning the fields at the end of their lives against the TTH".

So for those putting a very high valuation on the tax losses:
1) Are you certain that the TTH losses/credits can be applied across assets/ fields? If so, what legislation are you relying on and are you certain it take precedence over other conflicting legislation?
2) Are you certain post 2019 that such TTH losses/credits aren't only ring-fenced to cover decommissioning costs of the asset/ field in question the original TTH losses/ credits are against?
3) Do we know of any real world examples post Finance Act 2019 where a company has acquired another in North Sea and been allowed to use their tax losses across assets?

Being an extremely cynical sort, I can imagine a HMRC rep would think it may not be in "the spirit" or their new interpretation of the law to apply losses across assets/fields. We are all talking about ring-fenced corp tax and ring-fenced supplementary tax. We need to start covering the fact as to whether these "TTH" are ring-fenced to the assets the losses are originally against?

Mommur - mine and families 325k shares will also be voting NO, across HL and AJ Bell brokers. Unless there is a renegotiation or major clarification explicitly stating how and why they've valued Tailwind's historic tax losses.

Some great comments over last few days and I'll post my full thoughts later today or tomorrow (not changed much since my initial thoughts on evening of RNS!), but even with all the clarifications on POTENTIAL benefits of Tailwind's historic tax losses etc., it is clear that Tailwind/ Mercuria are getting a far better deal out of this than SQZ shareholders.

As others have said, compare this to Hurricane looking for offer which would could be better fit. Compare this to SQZ's "counter offer" to KIST pre EPL and then normalise/ discount that to today's regime. This new deal is completely out of kilter. I am not adverse to buying in to other UK assets at right price, I also think it's good to diversify into oil too. But either Tailwind/ Mercuria have run rings round the SQZ negotiators on the other side, or being more cynical it's a stitch up where directors on both sides of deal do very well to detriment of wider SQZ shareholders. I feel it's more the former and that it's simply that SQZ directors have negotiated a bad deal and they're out of their depth. This deal significantly undervalues SQZ and Tailwind is overvalued creating needless dilution and on top of that a cash payout too! Beggar's belief. It feels like Tailwind's tax losses and their potential applicability have not been correctly discounted or put through different probability regimes / stress tests on the SQZ side.

In general any tax losses pre Apr 2017 "can only be used against profits of the SAME trade". Anything post that is fair game, but again you have to be incredibly naive to think Government & HMRC will stand by and allow historic tax losses to mean a company won't pay tax forever more at corporate tax level. How many times have we heard an official state "that's not in the spirit of the law". I'm also not yet even deep dived any UK O&G specific tax rules on carrying over tax losses from "different trades/ assets/ companies" which may be even stricter. It won't take long for civil servants to lobby Government directly or leak O&G companies paying no tax through "loopholes" (you know how media will spin it) before that April 2017 date could become 2020, 2021 or other mechanism to wipe out the potential benefit of historic tax losses.

I broadly agree with the Research Note extract in Infor's tweet link: with this deal in mid-term proceeding SQZ worth circa £3.35. Without the deal £4.15 area. How do we get back to £4 area without deal proceeding. Proper dividend policy, one-time special dividend(s) to give back huge cash pile to shareholders, buybacks (as was alluded to in Interims Presentation but yet another smoke and mirrors exercise).

Thanks Feynzz and Investor81 previously. Ok that makes sense, so if Tailwind and their auditor Deloitte believed they could reasonably utilise $277m of tax losses (as per their Accounts) and with a SQZ + Tailwind near doubling in size as an entity, it would make sense that historic tax losses and allowances in the UK that can be utilised against taxes in future could be circa $525m (£438m) as per your ballpark. This clarification is helping me get closer to seeing further beneficial parts of the deal.

You would then assume same logic applies for further M&A activity in similar scenario and could unlock further historic tax losses for offset purposes.

Barry - the Tailwind Gross Profit was $101m, as title chart is denoted in $'000. In a fully merged company the losses can be utilised across entire company in terms of the respective ring fences (corp tax and supplementary tax), but be nice for avoidance of any doubt for all issues discussed and not covered in RNS and investor call to be clarified in any pack.

Feynzz - the devil is in the detail and whether:

1) There is indeed $2.5bn tax losses
2) How much of that can actually be utilized by SQZ to offset and reduce future taxes. This is key.

If we look at Tailwind's own Accounts, they had a 2021 Gross Profit of $101m, of which taxable of $40m. On pdf page 37 of their Accounts they have various offsets, but it still amounts to a tax bill of $31m in the end. So what's point of having such large tax losses which are being billed as "credits", if only a fraction can be used?

On their next page they have a line item for "tax losses carried forward" and it is only $277m. A footnote then states "The Group's deferred tax assets at 31 December 2021 are recognised to the extent that taxable profits are expected to arise in the future against which tax losses and allowances in the UK can be utilised". So why are we led to believe in a new merged company this will release billions in tax losses that can be used to offset future taxes? I believe based on data we have been provided to date, only a fraction of these tax losses can be utilised, even in the respective corp tax and supplementary corp tax areas. You're an accountant so hopefully can provide a different interpretation of Tailwind's Accounts and why they haven't really been able to utilize their own historic tax losses in any meaningful way in 2021 and why it could be different in a merged company. I hope I'm wrong, but this is why we need more information from SQZ verified by their financial advisor and auditor.

Thanks for clarification Stevo - seems bizarre way to apply the tax, but doesn't surprise me with this current Government and the civil servants behind them. Will be a nightmare to reconcile in Interims and Accounts too when it's not aligned and there will be revisions, offsets etc. based on actual audited figures. Simply more money for the accountants by Government creating another cottage industry, like the recent new IFRS rules.

I would then assume that expenditure allowed to offset against EPL (in our case North Eigg) is not applied in these installments, but only applied later! This is something I hope SQZ clarifies and in that case £460m cash position isn't too bad at all end of Dec-2022.

Ditto NewKOTB for all your input and all other posters here, who post much more than me and keep this board alive with pertinent positive and negative constructive comments. I always lurk and read most days, but then have "spurts" where I have time to do some more detailed reviews. Today is important to be one of those days!

Despite my posts coming across as negative today, I am a large shareholder and simply want to kick the tyres and ensure this acquisition (more a merger as others have stated) is good for SQZ shareholders and we're not getting raw deal in comparison to tailwind, mercuria and SQZ management. If SQZ board members leave in 18 months and get large golden handshakes, it will be a major conflict of interest and something I will pursue accordingly. It would also be more a RTO than acquisition if that occurred!

The funny thing is despite all my posts, I think SQZ is incredibly undervalued, including if this acquisition goes ahead. HOWEVER I think based on current data, we're more undervalued without this acquisition. We should be following HBR at present or if making such acquisitions, not overpaying like this as it appears. It would be far better for shareholders in short, medium and long-term for SQZ to do buybacks + dividends and simply "wait" until EPL is further clarified/ enacted with amendments etc. (much like GKP have in 2022 for their own unique reasons). The original EPL was still fresh with no real analysis and now we have the revised EPL. No one truly knows how it is applied, the O&G companies themselves have different interpretations from looking at various RNS'. I tend to veer to HBR's more conservative view until everything is clarified. I notice that some of the original HMRC guidance notes on the revised EPL have disappeared too. I think it should be clear for O&G companies, their base case should be the investment allowance is now a miserly 29%. Investment allowance only remains at 80% for investment expenditure on upstream decarbonisation. Those original guidance notes where HMRC claimed it was still circa 90% I don't believe one bit and can't find any more... In addition they are guidance notes only and not legally binding or to be relied upon. You can only go by what the act itself will clearly state. If all O&G operators took HBR's stand the Tories would be forced to reverse. So I guess this acquisition of existing operations is at least far better at bidding for new assets, which SQZ must clearly say is off limits until policy is clearly clarified and revised.

I'm not against acquiring new operating assets, even in UK, but needs to be at right price based on current proposed UK laws which aren't going to change anytime soon and must be base case. I am dead against any new development or exploration though.

Another area to interrogate/ clarify from the board is why the new company would have 2023 guidance of only 40-45k boepd?

If Tailwind is estimated at 15-20k boepd, that estimates SQZ at only 25K boepd?! When we started 2022, guidance was at 27,100 – 33,600k boepd for 2022, it was later reduced to 26-30k and now 26-28k due to a number of issues we're well aware of this year. So in 2023 are SQZ management now forecasting only 25k boepd, or are they underplaying their own guidance to make this deal look more attractive? This is a bizarre and strange way to release such guidance with no explanation of why SQZ production will be down on 2022.

The cash position of £460m est. end of 2022 needs clarity too. We were at £482m end of Sept-2022. Yes we had £22m dividend in November, but are SQZ management stating there's been no cash generation in 3 months?! They state "This reflects expenditures on the North Eigg exploration well, the payment of tax and Energy Profits Levy instalments and the interim dividend paid in November 2022". North Eigg costs I get, but is it everyone else's understanding the EPL is paid in "real time"?! If so this is yet another example of how no one really understands Government's EPL tax policy. They're applying it in real time and not when company correctly assesses its tax liability as part of its accounts?! That can't be right surely? And if it's in real time, why can't the costs be offset in real time, like North Eigg drilling costs as we're led to believe? Or is SQZ management downplaying its cash position, including the future EPL costs in this RNS, but not applying expenditure/ offset from North Eigg which we're led to believe is circa 90%?

Apologies if already posted, but here is link to Tailwind's last set of 2021 Accounts on Companies House:

https://find-and-update.company-information.service.gov.uk/company/07879002/filing-history

If this link doesn't show up after I post (don't see why it wouldn't), just google Tailwind Energy Companies House and then go to filing tab once on Companies House. I did very quick read through but few high level items from accounts:

1) acquiring Tailwind limits oil price upside as they hedged 33% of their oil production 2022-2024 at $57bbl. They did better on gas at hedged 80% of their gas at 260p/ therm.

2) Tailwind paid out to their sole parent $95m dividend in Jan 2022! Imagine SQZ treating their shareholders in that way, be nice wouldn’t it?!

3) Tailwind’s auditor is Deloitte, so I would expect Serica to employ their auditor E&Y or a more independent financial advisor specific for this acquisition to do a deep dive of the tailwind accounts (including any unaudited data for 2022) and test the tax losses and their applicability and to ensure they come to same interpretation as Deloitte.

4) Tailwind Tax details starts on page 40 of their accounts. I can’t see any mention of these huge historic tax credits / losses on the scale stated in the proposed acquisition, which is a big red flag for me in terms of how HMRC will view them, if they’re not explicit in the Accounts. I will admit I’ve only skimmed the accounts so could have missed the references.

Was that the analyst on the tube?! Admittedly it was late notice, but the quality of questions from analysts was poor and wasn't any real scrutiny of the numbers or back-up with any detail.

It's clear just crunching the numbers it's not $10 bbl but more like $18.4 bbl when you normalise for Tailwind's Net Debt position (assuming forex of 1.2 USD). That's not cheap, so there is a huge premium applied to Tailwind's historic tax losses, which SQZ management are being coy about, so I have no assurance or certainty they will be able to apply these as they think they can.

HMRC may have very different view on their interpretation of UK tax laws you can drive a bus through and allows accountants and lawyers lucrative jobs for all those grey areas! When it comes to tax you can't be clever or coy, that's where you get in trouble. Be explicit with your shareholders in writing (not verbally on analyst call) exactly how you believe these can be applied to the new company (i.e. can apply to entire new company's corp tax + supplementary tax and not ring-fenced to tailwind assets, impact of EPL etc.) and get confirmation of such position from independent auditor and HMRC directly. Maybe then I will vote yes and agree with those this could make sense based on applying such tax losses.

NewKOTB also brings up a good query regarding the size of Tailwind's tax losses. We need confirmation from auditor as well we truly can carry across the entire $2.57bn and it's not Tailwind and Mercurio being cute with SQZ and HMRC.

Huge amount of questions raised by today's announcement and after reading through the presentation and listening to investor call, key issues for me not addressed and so all of mine and families >300k shares will be voting NO in Jan 2023 and would recommend every other shareholder does likewise, unless a far better SQZ presentation and investor call is provided - the presentation and call does nothing to clarify how this is a good deal for existing SQZ shareholders, particularly based on the "new norm" UK tax climate. Great deal for Tailwind and Mercurio who have played a blinder with help from “useful idiots” / cynical “jobs for the boys”.

Serica
62mmboe
Net Cash: £460m
Production: 25-30k boepd
Market Cap: £775m (pre announcement)
Valuation Normalising for Net Cash position: £315m

Tailwind
42mmboe
Net Debt: £277m
Production: 15-20k boepd
Market Cap: £367m (as per acquisition)
Valuation Normalising for Net Debt position: £644m (WTF?!) – for lower production and mmboe reserves

So this deal for Tailwind effectively values it at double Serica on lower production and mmboe reserves?! SQZ Management need to explicitly detail the deals benefits to SQZ shareholders, because based on all known data to date, it’s a terrible deal. I called the KIST deal derisory (which it was based on tax regime at time), but this Tailwind deal is on another level. At least KIST deal was a cheeky proposal by KIST itself, this one is being proposed by SQZ management and even worse than the KIST deal!

They can’t be coy about the “tax credits”/ tax losses. They need to be explicit how they think they will be applied and if they have sought outside advice from at least one outside accountancy firms specialised in UK O&G. Doubling-down on UK in the new norm tax regime (let’s not kid ourselves this is short-term, this tax regime is here to stay – it’s called EPL with no price points, not windfall, for a reason!) and paying a premium is absurd. One quick further revision or new interpretation by HMRC, these “tax losses/ credits” could become meaningless and “stranded”. This premium only makes sense based on SQZ’s interpretation and valuation of the tax losses...