Star Energy Group (LSE:STAR) — Post Budget update

0:00 Good morning, and welcome to the STAR ENERGY GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll, and I'd now like to hand you over to Ross Glover, CEO. Good morning, sir. Good morning. Thank you everybody for joining me this morning. It's been about three months since we had an investor meet presentation. I thought it would be worthwhile just giving you some thoughts on our strategy, especially given that we've had the budget couple of weeks ago.

0:54 We believe that has changed things, potentially less uncertainty out there. So I suppose, you know, as as we look across the The UK, endless to the E and P sector, it's obviously a sector with very few materially scaled vehicles in it, a lot of small subscale players. Quite often, no revenue with pretty high g and a. And certainly, if there is revenue, the g and a is pretty high relative to the revenue. The delays that we've seen over the past couple of years with the uncertainty around the fiscal and regulatory regime in The UK has really drained cash reserves, and that has led to production levels declining.

1:44 No new developments being pushed forward with a real inability to invest in anything. That really comes back to from a a a listing perspective, very low market interest at low liquidity and shares, depressed share prices, those types of things. And to a certain extent, we we obviously suffer from that too. We we fit into that basket of a very depressed share price. But we do stand out. You know, I think the first thing to notice is we've got cash flow. That really is a distinguishing feature amongst small cap E and Ps. You know, our cash flow is highly geared to oil price as opposed to gas. That has its positives. It has its negatives.

2:32 It's more of a global price for oil versus a regional price for gas. But, you know, we've got revenue. We've got cash flow. That's very important. Our g and a management has been excellent by sector standards. I think management has shown over the last year and a bit that we will make tough decisions, and we'll follow through with those decisions, you know, significantly cutting costs both on a g and a side of things, but we've also done the same on a gross OpEx basis as well. Our production levels are relatively constant despite the sort of challenges around regulate regulatory pressure and, of course, the uncertainty that that we've talked about over the last couple of years.

3:19 And we've shown that we will manage our portfolio of assets well. We will sell assets that are surplus to requirement, and, you know, we will continue to manage our our portfolio in that way. And, obviously, that's backed up by you know, we we are the operator and majority position, all 29 licenses that we're in. And our our high quality skill set gives us some operational optionality and, you know, really important transferable skills, some of which we're deploying into the geothermal sector, but could do could be deployed on a more wider basis. And one thing we don't ever really talk about is the fact that, you know, I believe we we really do punch above our weight in terms of talking with regulators, talking with local and central government.

4:18 Those discussions that we have with all of those those stakeholders are are really important and have been important to us over the last couple of years. And, of course, from a local level, we're a very long established employer, and, you know, we're a respected member of the community in the areas that we operate in. And so, yeah, I said budget was a couple of weeks ago. We had alongside the budget a response to to various consultations that have been ongoing for for a number of months. And, you know, whilst we feel that the The UK budget was a huge missed opportunity, there was, you know, there was the opportunity to to really kick start growth in a very focused manner.

5:09 That didn't happen for one reason or another. But I suppose what we can say is that quite a lot of uncertainty is now eliminated. We know that all the existing licenses will be honored. We'll get license extensions. Obviously, that's very important to us with our long life assets, with a long producing tail. We know that development will be supported through transitional energy certificates. So if you are close to an existing field with a tieback to an existing field, you can you can probably go ahead and develop that. There's a lot of a lot of detail needs to be put around that, but we know the direction that everything's heading in. And there is some clarity over over a replacement scheme for the EPL.

6:00 Interestingly, we know now that the future the future system or scheme would deem us not to be in a windfall tax circumstance right now. But, anyway, we we will carry on paying the EPL as we need to. But I think if you take that sort of basket of announcements a couple of weeks ago, it does mean that if you are in The UK in in the e and p sector in The UK, you now have, I suppose, one of two decisions. That's either get on with things. You're you're going to be in The UK for the long term.

6:46 You will probably start investing in more developments. Or I suppose the other option is you can start to think about how you exit The UK. And we believe that creates a very real opportunity for us with that sort of unique position of tax losses. We've got about £250,000,000 worth of tax losses, which we believe are increasing in value now that there's some clarity post budget, and that's alongside unlocking some of those decisions that have been sat on for for a couple of years. And, obviously, we we bring a unique perspective to that in that we've got some cash flow to sit alongside those tax losses.

7:42 So, you know, there are we firmly believe that there are growth avenues for us both on and offshore. We will bring g and a synergies for sure. And, again, I'll remind you, we've taken some tough decisions around G and A over the last couple of years. We can do that again. Onshore, we bring significant operational synergies. We are the largest operator onshore in The UK. We run all of our own operations, and and, you know, there are huge benefits in in a little bit more scale there for us. And we have our in house technical skill sets, which we'll leverage both on and offshore.

8:29 So I think put as a package, the the the budget from a couple of weeks ago, we believe creates a real opportunity for us in the business. And so I think, you know, what what is our our focus as management? You know, first and foremost is, obviously, we've gotta keep on keep on with our our strong operating performance with our existing assets. We've gotta be very nothing changes from a a a capital allocation perspective. We'll still be very disciplined in that. We've got to be very disciplined in that. We're in a relatively low oil price environment, in a high tax rate environment, so it's not a great combination.

9:18 We will maintain our low cost growth platform in in geothermal. You know, it's a platform that we believe in. We believe that there are huge growth opportunities there. However, and it's a big however, we need to see some clear policy support, which we will we believe will bring some really significant growth catalysts in these areas. But until we see that clear policy support and a direct line of sight to value for the money we invest, we will be in a in a sort of maintain the platform as opposed to significantly grow the platform. And lastly, and the last two bullet points are largely related, we will go and search for inorganic growth catalysts.

10:10 We've talked about the opportunities that we believe are out there from an oil and gas perspective. We will deploy our our abilities as an operator and our technical skill sets in those areas. And by doing that, we believe we can bring significantly more value to our tax losses. So I think to sum up, you know, we we we we have a number of growth options. We are looking to add a growth option to that, and we are looking to significantly grow shareholder value through some of the opportunities that we believe have been unlocked through the announcements over the last couple of weeks.

11:02 And with that, I'm happy to take some questions. Ross, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab situated on the right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard. Ross, as you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end? Certainly. Okay. I we had a couple of pre submitted questions. I'll run down those, and then I'll I'll just take them as they come. So first question, what are your year end results looking like following a year of volatile and weakening oil and gas prices?

11:53 It's a good question. We're obviously being extremely disciplined in in how we spend our money. What we will do is we'll provide a full trading update February that will cover 2025 results within that. I'll move on to the next question, which is given that we will no doubt have a change of government at the next general election, what preemptive actions and lobbying is the company looking to implement in order to be in a position to take advantage from the from the very start of of a new approach to to The United Kingdom's energy structure from hopefully a more favorable government or governing party leader? Okay.

12:38 I think the first thing to say is we don't spend money on lobbying. We we I think that's a luxury that we we can't afford right now. However, we have an incredibly powerful lobbying tool within our asset base, and that is our people and our assets on the ground. And so we can and we do speak to all political parties. And so we've got a very positive story to tell. We take politicians around our sites. We show them indigenous production. We show them a skilled local workforce in the East Midlands and the Southeast Of England, and we tell them how we plan or we could grow our domestic production.

13:26 We tell them how that would bring investment to the regions and create skilled jobs and help lower energy prices while the all while producing lower emissions over imported LNG. So, you know, that's obviously key to our ongoing production, but it's also a fundamental aspect to potentially realizing some of the low cost optionality that we have in our very material shale option. So I think what I would say is we've recently hosted councilors in the East Midlands. We we we sent out a blanket invitation to all of the ors across the East Midlands and Lincolnshire and Nottinghamshire. That same invitation went to MPs and mayors in that that area, and we had an extremely good turnout.

14:18 And I think the one thing I that I would say is that when you get politicians, either local politicians or or or sort of central government national politicians, I suppose, when you get them onto our sites, they understand the rationale of domestic hydrocarbon production. They really get it. So in short, you know, we are doing quite a lot of work to to publicize the good things we do as an operator and and how we add or how we are beneficial to The UK economy. Okay. Next question.

15:05 The small cap UK E and P space looks pretty broken. Why would you stay in the sector at all? You know, I I think as I've said, you know, I think you're absolutely right. The The UK e and p sector is pretty crowded with subscale companies, high g and a, limited access to capital, but I think that's exactly why there's the opportunity for us. We already operate in The UK. We've got cash flow. We've got a proven operating team. Our job is now is to to use that ability to operate in a challenging environment to build some scale. And we believe that using our cash flow, our operating model and tax position, we can we can turn things that are are less attractive or marginal than somebody else's hands into something that's genuinely valuable for our shareholders.

16:05 Okay. Next questions. What are the main catalysts for the share price over the next twelve to twenty four months? I think there are three key areas there. We would like to build some scale into our oil and gas business. So I think I I think that is that is one thing is is is is sort of building that scale and bringing more value to our our tax losses is, I suppose, one key area. I think another key area is is is demonstrating that we can continue to produce cash flow out of our existing operational fields.

16:57 And then I'd say a third area, and it it's quite selective, and that is geothermal milestones backed by government policy that would have to that, you know, that we'd have to see policy positions in The UK and in Croatia that demonstrates that the platform has got real bankable value and allows us to to to go forward and grow those without overstretching our balance sheet. I I think that's yeah. That those are probably the the three buckets that we that we see or or the three areas or catalysts that we see around share price growth. Next question is, you highlight £250,000,000 of tax losses. How do these create value for shareholders?

17:51 I think as they stand right now, the value is there, but it is a low level of value because we put our taxable profits against them, and we slowly use up those those tax losses. Obviously, the more taxable profits we can put against those those tax losses, the more valuable they become. And, obviously, the more losses that we have, the more value there is anyway. But the key is really to finding more taxable profits, you know, and that's how we monetize the the those tax losses. If we can shelter profits from tax using the losses that we already have, obviously, after tax returns are significantly higher, and that's a core part of of what we would set out to do.

18:48 Next question. So are you aiming for dividends or buybacks in the medium term? I think the the the first job is to to grow the business so that dividends or buybacks are sustainable rather than one offs. Up until that point, I think that a one off dividend, one off buyback may hinder our growth potential. We will you know, we're we're not ruling anything in or out, but we're certainly not gonna promise any distributions before we can show that they are sustainable, and they won't compromise our future growth or liquidity. Yeah. So and, yeah, I would also say the ability to make any distributions is very heavily influenced by the oil price.

19:37 The oil price is is not high right now. I can just see the next question deals with that. So, you know, in the meantime, we we we want to create shareholder value by increasing share our share price improving the liquidity within our shares. And so I think onto the next sort of question, which is with oil prices hovering around the $60 a barrel mark and the potential for a weaker dollar, how how is the company doing? I think a couple of things to note there. You know? We've got an oil hedging program in place, which gives us some downside protection throughout 2026, and we actively manage our cash flows. We have the ability to flex some of our CapEx, and it's something we keep an extremely close eye on.

20:28 You know, it is a it is a weekly fortnightly sort of exercise. As you know, we've made pretty significant cuts to our g and a over the past year. We've also cut our gross OpEx bill, and these two have made the company so much more resilient to general sort of macroeconomic events. However, where we are, you know, we've got low oil prices. We've got a weaker US dollar pound exchange rate, and we have the EPL. So it does generate some challenges. It hinders our ability for capital investment, and that actually is why we see real value in scaling up. Scale by scaling up in the right way, we increase our resilience, to to then that.

21:23 Then how do you justify growing oil and gas production in the context of the energy transition? I think it's really important to say, you know, The UK will need oil and gas for a, you know, for a a very long time, even in the most ambitious of of of net zero scenarios. The question is where does that where do the hydrocarbons come from, and how is it produced? We are a firm believer that the best place to produce those hydrocarbons is in The UK. We've got a strong health and safety record. It's better than importing higher emission hydrocarbons. We operate in an environmentally friendly way, and it it there's so many economic benefits to producing hydrocarbons in The UK.

22:20 You know? However, we've also got our geothermal energy business. We are ready to invest in that. Our skill set is well adapted to that. We have a cash flow that can support the decarbonization of of the the energy system in The UK. But I've asked it again. In that area, we need some very clear policy direction from government before we start committing really material amounts of capital to that. Right. I next question is a recent tier one notification show that Peter Gillenhammer has recently built a significant shareholding in STAR ENERGY. Can you comment on any engagement the board has had with him so far, how you understand his intentions as a shareholder, and whether you see him as being aligned with the company's current strategy and long term plans?

23:16 So I think to to answer that question, yes, we have met with Peter a couple of times now. As you all know, he's a deep value investor. He you can see that he's continuing to build a stake, and we have a positive relationship with him. We believe that he does support the current strategy. We as I say, we we've I I've met him twice, and we obviously look forward to to growing that relationship. It'll be a very important relationship for us, but we do believe that he is he is he is supportive of of the business strategy.

24:06 Think so next question is how quickly could you realistically close a significant transaction? And I think it's a good question. You know, there's a lot of moving parts there. We've obviously there's due on everything that we look at, there'll be due diligence, commercial terms to to to be agreed, regulatory approvals, and there might be multiple counterparties as well. So I don't wanna put any artificial deadlines on it. We are actively looking at the market at the moment. We know what we're looking for, and I would prefer to explain why we didn't do a bad deal rather than rush into a deal just to say we've done a deal.

24:58 I think history shows that the the right deal takes time. We need to deliver the the ones that genuinely benefit shareholders over time. So I don't want to just sort of run into to any deal just for the sake of it. Next, I'll answer this one. Isn't this just another AIM lifestyle company? Lots of slides and presentations, but not much value. I think the obvious answer is gonna be no. We we we operate real producing assets. We have a 140 employees around the country.

25:47 We generate cash. I think we've demonstrated that we we take tough decisions on costs and on structure. Lifestyle companies don't do that. We've built in real capital discipline. You know, I think you can see that with our disciplined approach to our geothermal platform. Again, lifestyle companies don't do that. Our plan is built around discipline, getting the right returns. And if something doesn't improve our cash flow or our positioning, we won't do it. Sorry. Keep on going.

26:45 Just a quick one. Well done on the Hollybourn site sale. Are there any similar deals envisaged in 2026? You know, I I that's what I what I would say is, you know, in terms of surplus land that's lying around not doing anything, you know, we we use all our land for our processing sites. The the you know, we are not currently decommissioning any large large swathes of land that could be But, you know, as I said, we are pretty disciplined about our portfolio management. We're always looking at how we can operate better, and, you know, that may that may produce some value, but I would or it's it's certainly not gonna be in the next year.

27:33 I think it's probably time for one last question. What keeps you awake at night? What are what are the biggest risks to the business and to our plan? I think there are probably three main areas, you know, very very concerned about policy policy volatility. You know, I think we're we're through that, but there's still a lot of detail needs to be put around transitional energy certificates and things like that. So, you know, we're certainly not naive about the the political risk that's out there. And then, obviously, there is commodity prices, huge uncertainty around oil price in 2026. I believe there's a real risk of oversupply in the market going into 2026.

28:23 However, we've done a lot of work to make the business a lot more resilient to lower prices. And in the medium to longer term, we'd expect higher prices. Again, I think that's the opportunity for us. Yeah. And then I think the third area is, you know, capital discipline. There's a there's a temptation in the sector just to chase deals. I think it would be a biggest sort of self inflicted risk out there is doing a deal for the sake of doing a deal rather than doing a deal because it actually creates value. So I think we've gotta be very selective. We've gotta stress test our decisions, and we gotta try and build some flexibility into our balance sheet so so that we can absorb some shocks. I think that's probably about our time.

29:12 That's great. Thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you their feedback, which I know is particularly important to the company, can I please just ask you for a few closing comments? Yeah. Sure. So, you know, I I think we have a very unique position as a business with with some production, with some tax losses. We are hugely undervalued. We look forward to to to to to looking for deals that give us some scale and that allow us to build shareholder value. And, you know, we look forward to taking you along on that journey, and we will keep you updated as things progress. Thank you for your time.

30:01 Ross, thank you for updating investors today. Now please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure be greatly valued by the company. On behalf of the management team of STAR ENERGY GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.