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At least we do have a couple of officials now saying that the export position will be sorted out. I'm also in the sceptical camp on this one and look upon it as a brilliant bonus if it happens but most certainly prepared for a 15 month wait till current pipeline contract expires if nothing but biscuit munching and hot air comes of it. We know its a tactic employed too often by Baghdad when pressure on them builds and in this case from Turkey and Uncle Sam. However we have not had one jot of evidence that they have in any way accepted our contracts, or even going to shift from a paltry $6 per barrel of crude.
A debt is unpaid, who was the bill sent to for payment, presumably there exists somewhere a contract governing the conditions of payment, the recipient hasn’t paid within that time limit…. take them to court seeking payment (plus interest).
I suspect that were the circumstances reversed - we would feel the full wrath of that court in recovering payment ?
It’s that simple.
Unless of course, no enforceable contract exists, or we are operating under a dictatorship with no accountability to anyone anywhere (until the regime is brought down).
"We can all lament that potential loss of $151m, "
Without the clear path to the recovery of this, the short term upside is limited IMHO. A lot is priced in - both with respect to losing the $151m (negative) and reopening of exports (positive).
"without its recovery being a structural impediment to progressing GKP's self-funding proposition."
Growth and the self funding proposition depend heavily on the contract and its cost recovery element. Yet another area of great uncertainty.
So we have $151 million of receivables and future growth up in the air...
We've still got historical costs to recover: the circa $121 million embedded in the receivables balance and, I'd estimate, a further $45-50 million beyond that. After that we just have the profit oil stream (as cost recovery = cost incurred). Free cash flow generation in the future will not look at all like the last couple of years.
This is Iraq, so if the locals get angry enough the FGI will keep the subsidy low but drive the pump prices back down by paying the IOCs less 😁
On a more serious note, that is one hell of a deficit budget they ran last year and doesn’t match Sudani’s comments when he RAISED the spending for this year based on roughly the same income.
Heard the one about the honest Iraqi politician? Asif…
Could well see the local crude prices paid rise a lot more as retail diesel and petrol prices have just risen a full 30%.
https://www.thenationalnews.com/news/mena/2024/05/01/iraq-fuel-petrol-prices-cost/
Sadly the Iraqi Oil Minister is a lying toad and has promised a resumption of oil flows numerous times. Hard to tell if the 'committee' is genuine or another delaying tactic 🤷🏻♂️
I think we have to follow the money here. We produced the crude oil and it was sold (its not still in Turkish tankage), and the proceeds were taken by the KRG, and although they know they owe us 151M which is our rightful dues, they have wrongfully blown the money elsewhere. What can they now do.
1. GKP to have "free carry", taxes, rates, etc to help against debt.
2.Also the KRG do get a decent percentage of the value of the crude produced, possibility that they forfeit this income going forward until debts repaid. will mean more to gkp.
Straycat, no way am I bailing.
When this mess is eventually sorted out we will hopefully be in a much safer climate for future payments and for surety of how the field will be developed into the future. I cannot believe the decisions to restart exports will not encompass all those discussion points. A fresh start, so to speak.
Also, concerning the debt, GKP should not concede, in my opinion. This is a political issue between the central and regional governments. But I agree that the company can make generous proposals for a repayment plan that suits both parties.
Https://www.kurdistan24.net/en/story/34790-APIKUR-welcomes-formation-of-Baghdad-Erbil-committees
"Hayyan Abdul Ghani, Iraq's Oil Minister, told Kurdistan24 earlier that the production and export of oil from Kurdistan Region fields would be resumed."
"Meanwhile, Kurdistan24 was informed by the Director General of SOMO that their recent meetings with the Kurdistan Regional Government and the Ministry of Natural Resources in Erbil were positive on the issue of Kurdistan Region oil export to Turkish Ceyhan Port. The Turkish side is making preparations for export."
Bring it on!
The Markets have obviously discounted the delinquent debt and re-valued GKP accordingly.
Quite rightly in my view.
There's no need for nuance here.
Let's assume the debt's now a real problem while continuing to pursue it relentlessly.
And get on with the development of the business.
In a different climate where the old 'principles' don't apply.
We can all lament that potential loss of $151m, without its recovery being a structural impediment to progressing GKP's self-funding proposition.
There will be no trust between the parties going forward. Obvs.
Yet the stakes are worth the risk...still.
GKP should drill down and enter a new set of negotiations with people they don't know or trust. Bit like they did with the KRG!
Right now, where's the downside?
Or we should all bail.
@invstrat, the KRG have not broken any clauses in the PSC,, they have failed to make payments under a separate Sales Agreement.
When it came to the company’s payments to the KRG they paid those required under the PSC but not those under separate contracts.
KRG have effectively broken their contract with is by not paying according to same contract.
KRG compounded the felony by indirectly involving us in exporting the oil illegally via Turkey.
ICG claim that the local IOC contracts within Kurdistan are not legal under Iraqi law anyway.
Why don’t the ICG offer us a new, legal contract then ?
Why are they afraid of the wealthy KRG tribal rulers ??
Three viewpoints wrt the PSCs:-
#1 The contracts were illegal when signed
#2 The contracts were legal when signed and they are solely with the KRG.
#3 The contracts were legal when signed and through the Sovereignty argument, even though they look like they are with the KRG, they are effectively with the FGI.
So if you were offered 80% of the debt, to be repaid over time as cost recovery through a new commercially equivalent contract with the FGI, would you accept the offer under each of the three scenarios?
#1 YES!!!!
#2 Yes, move on, the future looks good.
#3 Hmmm, probably Yes. Proving you are right sometimes just isn’t worth it.
"And the ICG feel no natural responsibility for the $151m debt because it was not incurred by them. It's not their contract.
If they're going to take it on, it'll be on their terms. Almost certainly ugly for us. But they probably won't.
And that's what we've got to recognise. A problem. "
Of course it's a problem and one fully recognized by all. It's already written off in the current stock price. Also, it represents a quarter (actually just over) of my forward fair value price. That's a big hit if it's gone.
The more nuanced question is the following. Let's assume the ICG say the debt isn't theirs and that the KRG have no way of paying i.e. we never get it. What will be the position taken by the ICG/SOMO with respect to the circa $122 million of it which is cost oil recovery. Will they say "you invoiced it, and it's not our problem that you weren't paid, and hence it can't be invoiced again and recovered from us." That is materially different from a situation in which that $122 million is still recoverable (from SOMO/ICG). In the latter case the hit is only the $30 million of profit oil. Who knows...
No one knows. Correctly, in my opinion, the current stock price has discounted the $151 million to zero - even though the final outcome might possibly be much better. Assuming such a discount is appropriate, and assuming a return to exports in Q4 and NO material impact to the current contract, I believe the market has priced in almost all the value of 50k production through to the end of the license. I make it only 10% cheap at current levels (on those assumptions).
(And paying today for 90k rather than 50k would only add about 60p of value.)
So a lot of value rides on recovering the receivables or at least the cost oil recovery therein.
That doesn't change the fact that the company is carrying excess cash which should be returned (alongside any near-term future cash generation from local sales or otherwise) via a buyback.
Waffle. Waffle. Beach day.
Points well made V.
However, the world's turned.
And as a Board and shareholders we need to recognise that and turn with it.
I know you were punished by previous events, but you've always represented yourself with dignity on this bb.
I'm just asking that you run with the new state of affairs and deal with the prospect that the $151m might not be recognised in any new arrangement.
Nobody would be comfortable with that.
But that could be the new reality.
That's all.
That isn't what I asked.
"Please get real."
I am real, and I'd urge you to remember the word 'sinificant' in the expression "significant further investment". In my book it means: when the costs (opex + capex) incurred in a given time period exceeds the costs recovered from the CRP within the said time period.
Please, also remember that before GKP no one ever heard about the 'Shaikan Oil Field' because there was no 'Shaikan Oil Field'! It is GKP who discovered the 'Shaikan Oil Field' and that entitles GKP to certain rights and merits even according to the Iraqi Constitution whoever is assuming jurisdiction over the territory.
This is totally different with other IOCs operating oil fields anywhere in Iraq that were known many many decades ago.
I for one, wouldn't want to be a GKP shareholder anymore if they end up being forced to make such investments without recognising past dues.
Best Regards ValueS
Missed me have you?
You may have noticed the oil has been flowing, as per the FYR that sales are tracking at 43,000 bopd currently albeit @$25. And at that level, given that the b/e is 22k bopd we're making money and the FCF is improving.
‘…an air of desperation’?
Seriously?
This share has done nothing but reward me in spades.
As a shareholder since early 2018, I just care about the future prospects and how they will be best represented by Board decisions.
Don’t you?
Straycat,
Your increasingly long and 'facetious' posts have an air of desperation about them. Has your formerly punchy 'the oil will flow' position lost its sting?
ValueS,
Please get real.
The KRG are being bullied financially by the ICG.
And the ICG feel no natural responsibility for the $151m debt because it was not incurred by them. It's not their contract.
If they're going to take it on, it'll be on their terms. Almost certainly ugly for us. But they probably won't.
And that's what we've got to recognise. A problem.
So let's keep the cash we've amassed and build a sustainable model that means we're accepting realpolitik in the region and dealing with it accordingly.
None of this is easy. If GKP rebuild their model, there'll be plenty of time to review the delinquent debt later.
For now JH has to rebuild the GKP model.
And that's all.
So that cash and any future cash flow will need to be treated a special commodity.
Until we're in less turbulent times.
APIKUR as an entity throws up a few issues IMO - group identity versus individual needs has been covered previously.
Who sanctioned Caggins’ reference to strangling and hands around the neck?
What was the intention? To deliberately mess up negotiations? To provoke the FGI into doing something self destructive? To expose the limitations of what the FGI can do?
Best of luck to anyone having to convince the FGI that the PSCs are a fair return when taking on board the fact that the IOCs and not the KRG took on the risk of failure. All of the other sides representatives are used to TSCs where the Government take on the initial financial risk.
Combine that with survivorship bias in the data set, only those IOCs who found commercial oil are getting rewarded through the PSCs, so their returns will seem way too generous when looked at in isolation.
Might be better to start with looking at the failures, the PSCs and TSCs that didn’t get going 🙄
Morning Invstrat,
Obviously I was being facetious, but these issues are real and will have to be addressed by JH and the Board. And I wouldn’t be relying on APIKUR or Myles Baby Caggins to navigate us through these tempestuous seas…
To address your issues sequentially:-
1) Going forward, inevitably Baghdad imo. Can’t see the KRG having as much influence now the issue’s gone geo, even though they’ve got a strong legal argument;
2) Probably not, but they will inevitably take advice from the IOC’s on the ground, as well as their own advisors. And there’s the rub. Who are those advisors, and what are their private interests?;
3) I think GKP should prepare an alternative plan for performance that does not rely on repatriation of $151m delinquent debt. GKP should pursue that money vigorously but shouldn’t rely on it for commercial viability. Neither do they need to because of sacrifices made by guys like you. GKP live to fight another day DEBT FREE. Not sure engaging in a deep and meaningful relationship with the ICG is the way forward. Could be wrong on this. But if I’m right, of course that would torpedo my investment in GKP because its based on self-funding growth;
4) Not a clue.
I’m currently rewriting the GKP business model based a new set of parameters which protect the independence of the business from external financial influence while retaining its basic proposition.
I know it’s sad and sounds pretentious, but I’m damned sure that work is being done behind closed doors in GKP.
And if it isn’t then we all have real problems…we’ll see.
For those who argue that GKP might be obliged to make significant further investment, the answer is simple: there is $151 m unpaid invoices, get those paid in full with interest and it will be invested in Shaikan. No payment, no further investment.
No need at all to keep excess cash.
Best Regards ValueS