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I totally agree with people here who mention dividends. The company should have given approx. 15-20 million USD in dividends. I understand that the company wants to grow and pay off debts. But the company can still do that. You can do a lot at the same time.
After so many years and so many failures, Amjad and the management should have decided on a small dividend. Instead, they do nothing and therefore the share price is punished by the market.
Serica pays a 15% dividend yield over 2023 and their share price got slaughtered as much as ours over the last year. When we are trading at these ridiculous EV/Ebitda-levels nothing makes more sense than buybacks. Much more advantagous from taxation viewpoint.
If we had received say about 20 million USD in dividends and 20 million USD in share buybacks, many of us would not have cared if the stock had traded at 12 GBX or 18 GBX. After about 15 years of failures, the company must start delivering shareholder value. Amjad's and management's primary task is to create shareholder value.
Nothing creates more value than buying back shares at these hyperdepressed levels.
I do not understand why any one would advocate the payment of a taxable dividends when the company has $600m of gross debt the interest on which cannot be deducted when calculating taxable profits. The main focus should be on eliminating debt and thereby enhancing future FCF. Any distribution to long suffering shareholders of course should be in the form of share buybacks at these very very low levels.
If we hadn't of been robbed by the government the SP would be 70p plus by now, I suppose that's AB's fault as well.
I don't buy the talk about the company having debt. Almost all companies have debt. My friends, AkerBP has a production circa 10 times greater than Enquest but also a net debt that is circa 10 times greater. AkerBP gives very high dividends to shareholders. Some of you will say they produce in Norway. Then I say ok, but what do you say about Harbor Energy. Exactly the same as AkerBP.
The truth is, without a return to shareholders, you will be punished by the market. It is not more difficult than that. Especially as an oil and gas company.
SEK
Fully agree and with $70m+ interest on the debt, which is not tax deductible for EPL purposes, the key priority for 2024 has to be reducing debt and/or purchasing producing reserves.
We also need to recognise that 2024 is a year of investment to add 2P reserves before investment allowance is reduced by Labour and to purchase producing reserves. I still have 2024 FCF sub $100m before any asset sales or purchase and after $175m EPL payment in October 24.
I am still trying to better understand the Malaysian free cash flow potential for 2024 and 2025 and comforted that Payments to Malaysian government reduced to $90m in 2024 from $125m in 2022.
2025 is the year when Enquest will have real choices to increase shareholder returns as well as reduce debts with approx $250m of FCF.
Oilviking
The big difference is that while BP Akers gross debt is approx 9 times higher than Enquest, its interest cost is only a little over double Enquest’s, due to a much lower interest rate (less than a third of Enquest’s).
In aggregate, while BP Akers production is approx 10x higher than Enquest, its net interest expense was lower the Enquest’s in 2023. Harbour post WD acquisition will have debt of $4b+ on 500k BPD of production but will be paying less interest on its $4b than Enquest pays on its $625m of debt. Serica is pretty much debt free.
The reduction of Enquest debt will have a double whammy of also reducing the interest rate on future funding. Having to pay interest at 10%+ is pretty expensive.
Hi Stevo,
Where are you getting the $175m EPL payment in October, if correct that suggests EPL at 35% on $500m+ , which in turn might suggest that there is a little more FCF for debt reduction than you suggest in 2024.
Do you have a net debt figure in mind for the end of 2024?
AIMoilking. The $175m payable in October 2024 is the EPL on the profits made in 2023 (bearing in mind that neither interest nor decom costs are deductible) including the profit made on the sale of 15% of Bressay and Enquest producer. It has no bearing on 2024 FCF which in fairness Stevo has calculated with some precision back in April using the company's own figures at $86 Brent. None of us have been able to find any flaw in his analysis - so far!
Aimoil
The Oct 24 $175m EPL payment includes $50m related to Bressay transaction in Dec 23. EPL on 2023 results $125m.
My current best estimate is that at half year next debt will be a little over $300m and at year end approx $350m. There is always a potential working capital impact on FCF depending on timings of kraken offloads and over or under lifts which could be plus or minus $30-50m. My gut feels is that 2024 will see a reversal of the 2023 working capital timing benefit of $50m and the overlift position at end of April 24 will also likely reverse by year end.
The one area that is difficult to project is the JV cash balances (which are pre funding of approved CAPEX by our JV partners).
This is all before any acquisition of 2P reserves in the second half.
Thanks Stevo, I had forgotten about the Bressay profit counting towards the EPL liability for 2024.
Two more weeks of uncertainty to the election results, I wonder if any deals will be squeezed with sellers worried about the future post election? We'll also be entering the six weeks since the AGM and just 4.5 months to AB statement that a deal would be done withing six months.
SO next big news could be a deal, otherwise the next update or a higher Brent price is all we have to look forward to, holding as I do not want to be out on deal news. Also glad that buybacks must surely be helping underpin current sp from sliding further.
Hi Stevo,
Has the company issued any guidance re likely EPL payment? All I can find is "The Group is due to make its first full year payment under the Energy Profits Levy in October 2024."
I was also wondering:
1) whether disposals are caught by the EPL
2) If they are, whether this is based on revenue or profit
3) if the latter, whether Enquest is making any profit on the disposal.
4) the sale is for 15% of Bressay but also 15% of the Enquest Producer, not sure what these cost or are valued at
Overall Enquest agreed a sale for total consideration of £46m "and will involve an initial payment by RockRose to EnQuest of £34.75 million, which will be used for general corporate purposes, with the remaining £11.25 million to be paid from future Bressay cash flows. "
$50m of EPL on that sale sounds a lot, given we got £34.75m actually paid in cash?
Also wouldn't this fall into next year's EPL payments?
Tommo
The 2024 EPL payment to be made was disclosed in the 2023 financial statements (tax note).
EPL is paid on asset disposal unless they are sold for CCS purposes and the EPL is based on profit on disposal. However as all historical assets will have a zero tax base (having received 100% capital allowance on acquisition) it is effectively the same as sales proceeds.
On the Bressay disposal we not only sold 15% of Bressay producer to Rockrose but also some old inventory for $80m+ (pipes, pumps etc) for a total consideration of $140m of which we received $108m in cash and Enquest will pay $50m of EPL on sale in October 24. So net cash proceeds of $58m.
The $108m will be paid back to Rockrose is Bressay is not progressed.