Parkmead Group (LON: PMG) shares are up 24% which is a bit of a surprise for an oil and gas producer in the current market. Yes, clearly, prices are pretty good at present but they’re a long way down from what they were. The announced results though show that the company’s doing well enough. There’s been a recovery from that recent disaster over the Perth idea at least: “Numerous challenges including sharp increases in UK taxation have prompted one of the country’s operators to drop a proposed North Sea oil development.
UK energy company Parkmead Group informed shareholders it will no longer pursue the 100%-owned Perth oil development in the Moray Firth area, which contains major fields such as Piper, Claymore and Tartan.” And yes, it was government that killed it: “However, the mounting development capital costs for Perth, including the additional costs of achieving the UK government’s net-zero requirements, had soared to almost $1 billion. According to Parkmead, this appeared to be a technically sound central North Sea development that could have produced significant oil volumes for the UK.”
But OK, that’s in the past now. The announcement today: Revenues increased by 22% to £14.77 million (2022: £12.13 million). Gross profit increased to £12.5 million (2022: £10.8 million). Gross margin remained strong at 85% demonstrating very low operating costs. Net Cashflow from Operations rose 44% to £6.5 million (2022: £4.5 million). Operating profit before exploration write off and impairments of £10.6 million (2022: £6.9 million) or 9.7p on a per share basis. Taxation of £4.7 million and Dutch windfall taxation of £2.4 million” we can see more of that tax bite there.
Parkmead Group share price from Google Finance
The interesting thing is this comment: “The company continues to build a balanced portfolio of assets and the note adds that Parkmead is sitting on some significant UK tax losses, leaving the company well placed to make acquisitions at a time when UK oil & gas tax liabilities for producers are very high.”
The point being that - as we can see above - tax rates are very high on N Sea oil. OK. That means that he value of any operation is low compared to either gross revenues or profits. But if you’ve past tax losses then those can be applied against the profits being made. And the higher the current tax rates - they’re very high - the more the gap in value between what a field is worth to Parkmead and someone without those tax losses. They’re well positioned to buy further assets that is.