Following the budget ambush, are N Sea stocks now oversold and is it worth thinking of buying any?

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24th Mar '11 by AnonymousUser858

8 comments 2988 reads

No profound analysis here, just thinking aloud and sharing thoughts.

I've just bought smallish quantities of Encore and Faroe. They both look oversold to me.

Already have enough Nautical and Deo to inhibit me from buying more.

Apart from Sterling, the rest of my portfolio is active outside the UK N sea, so is not affected by the tax changes.

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AnonymousUser858

Premium Member

8 comments

Fangorn

24th Mar '11

I bought some more NPE yesterday,and some more EO. Waiting for funds to clear to buy some more FPM and DEO..

I suspect they're now all ripe for takeover given the sell off and am sure several houses will be running the numbers so to speak...

marben100

24th Mar '11

Hi T,

I think this conundrum (and divergence of views) comes down to whether you're an investor or a speculator.

Rightly or wrongly, I prefer to think of myself as an investor. My decisions to buy or sell are taken largely on value and known facts, rather than speculating on outcomes of particular wells irrespective of price - or future changes in tax regimes.

On a logical basis, it appears that this change immediately reduces the value of UKCS assets by 20-25%, because it will have an impact of that order on future cashflows. That view (IMO) is confirmed by RBC's downward revision of their NAV estimate for Encore by more than 20%, announced this morning.

Therefore, logically, the SPs of companies whose sole (or major) assets are UKCS based should be around that sort of figure lower. Some have argued that these adverse tax changes will not last, or that they will be exceeded by the positive impact of oil price rises, but that's speculation, in my book. The share price falls, so far, do not appear to have priced in such a reduction in asset values. Hence I have been a seller today rather than a buyer.

I still retain significant holdings in Encore and Sterling, as the prospects for wells currently drilling are good and the risk/reward is reasonable - but somewhat smaller than I had before as the risk/reward equation, at the current SP, is significantly less favourable than it was. For Encore I now see downside to 72p (85p previously) vs upside to 181p (219p). So,at a share price of 105p (vs 115p) downside is now 33p = 31% (20p = 17%) against upside of 76p = 72% (104p = 90%). A significantly riskier and less rewarding proposition.

I take fleecednflogged's point about an increased likelihood of M&A with reduced price expectations - but that too appears a specualtive view to me, which may or may not come about. It will depend on how the overall balance of views between buyers and sellers of assets changes (and financiers - banks will almost certainly take a less favourable view of lending against reserves or future production) .

I don't mean this to come across as "holier than thou" but I hope it explains my rationale.

Best,

Mark

Fangorn

24th Mar '11

First North Sea Oil raided, now generators face a new charge on carbon dioxide emissions...

http://www.bloomberg.com/news/2011-03-23/scottish-southern-drax-centrica-fall-on-co2-floor-price-1-.html

Is there no end to the grasping chancellors reach. What next - those individuals with significant savings will be called upon to forefeit some of their prudence to aid in the bailout(even though those of us that are left have been hit first by the North sea oil raid, and now this!). This is seriously getting ridiculous. How many bites at the cherry does George want?

Low carbon technologies are inefficient, too costly, and will in no way make the necessary contributions to our energy requirements.

bugsmunny

24th Mar '11

What next?

I've always suspected when the time is right - they'll whack on a big tax on your ISA, when they notice how nicely some people have done looking after their own finances.

B :-(

Fangorn

24th Mar '11

You know B,

I reckon you might well be right - that, or, at some point, they'll take away the ISA annual allowance. Or they will means test the state pension by the time we get to retire, and those with chunky ISA's will no longer become eligible for it!

nigelpm

24th Mar '11

Some NPE for me. Too cheap too resist.

thebuffoon

25th Mar '11

They will never be able to do this for those of us who are adults today. Sure, this £140 nonsense may be severely watered down, but we have already earnt a state pension by paying NI all these years.

Buffy

Fangorn

25th Mar '11

http://uk.news.yahoo.com/5/20110325/tbs-fuel-duty-drop-not-being-seen-at-pum-327c223.html?

So, despite taking a large hit from Osbo's North Sea Oil tax rise, all so as to trumpet the 1p off a litre of petrol, we motorists aren't seeing the latter either!!!!

You couldn't make it up. Lose / Lose these days it seems, regardless of the colour of the government.

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Following the budget ambush, are N Sea stocks now oversold and is it worth thinking of buying any?

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AnonymousUser858

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