London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
And upward!
SC
There's stuff that can/should be done immediately and then there's the big 'nut': expansion beyond 55k bopd. Both need the attention of management and board. The big nut likely requires, in my view, a complete renegotiation of the PSC, a more strategic solution to gas (likely involving other parties) and more. If all the 'expansion post 55k issues' can be sorted in a manner which makes for very attractive equity returns the company will have no trouble raising the capital for it, even if it requires some equity. Until then, they can run more efficiently with some very easy steps.
If one assumes institutional and UHNW holders don't sell into it, imagine the power of a 20% buyback applied to the remaining 50% (or less) of the shareholder base . That's not to say it will support the price in the face of changing fundamentals but it would sure help to mop up those selling now.
Onward.
Okay. Got you.
So we’re both looking at the same cash flow projections for the next 12-18 months.
Give or take $100m. And that’s the point. $100m doesn’t matter either way.
This is now a cash generating monster. And we need to decide how best the deploy the surpluses.
In the short term we can buy back our stock and pay ourselves dividends. But that only masks the underlying issue.
How to redeploy our upcoming surpluses as a matter of strategic purpose. Hundreds of millions if the KRG don’t interject.
That’s what our Board are paid to do.
You say the future is indeterminate and care should be taken with those precious reserves. I get that.
I say we should press on. As far as I can tell, the next $450m push to 85k bopd can be self-funded, given sensible oil price forecasts. And if that’s wrong, we can re-evaluate at the appropriate moments.
BUT, before we go any further we must look again at the relationship we currently ’enjoy’ with the KRG. It’s not working to our advantage. They’re telling us as much by their desire to change the payment terms; their unilateral decision to withhold payments; their obstructive resistance to our desire to move to 75k bopd. I never bought that gas flaring obfuscation.
To me it’s quite clear…they want to look again at the deal.
And why not? I would if I was in their position. Apart from increased production, they currently get no benefit from our success. But if we bring them in, let them enjoy more of the proceeds of their only asset, they will have more incentive to assist us in our enterprise.
Consider this. If the arrangements were redefined so that they too benefited from oil price increases as we do, then I reckon we’d be dealing with a different animal.
I’m already steeling myself for the outrage from the bb contributors who care to differ.
However, GKP should be about more than just the bean counters, it should be about vision and enterprise.
" you still have $125 million"
Mistyped. Obviously 195-50-25=120
"On a separate point; define what a sensible capital structure for GKP looks like."
At the very least they need to pay out all excess cash. The company had $195 million of cash as of 10 June. Subtract the $50 million scheduled to paid out and, say, $25 million for working capital purposes (I think this generous) and you still have $125 million that should be used for buybacks. The company has $65 million of receivables due and a further $45 million for April and May alone, while we are more than halfway through June. The company should be funding this year's capex with a working capital facility repaid from receivables as they come in. The current bond, while bearing interest at 10%, is not providing any leverage to equity returns because the company has excess equity capital. It would be very expensive to buy back. Currently just 5 months of cash flow repays the bond - there's no need to cover it with cash on hand. In short, they can comfortably buy back 20%+ of their share capital at these levels. (Obviously earlier price levels would have soaked up a lot more weak holders. While this wouldn't matter much for the company as a whole it would have been very good for those who have viewed the stock cheap.) That's the no-brainer part.
Anything beyond 55k bopd needs very close examination to ensure it generates appropriate returns on equity capital. In my view, given the risks involved, these need to be into the twenties per annum (based on sensible, base case projections that involve conservative assumptions on the future oil price and not any form of 'upside case'). Else they should not proceed. To get those returns they'll need debt financing. If the returns from expansion beyond 55k aren't there there's an argument for even greater debt-funded return of capital - at least until the R factor swings and cash flow dynamics alter significantly.
PUTUP,
Good point.
But remember what Weatherdon was walking into and put yourself in his shoes, with his CV.
Then the argument becomes one of pre acceptance due diligence on his part; imo he took the money (and his chances of a big pay out at the same time). We don't know what he's being paid; what price to sell your soul?
And that takes us to his corporate sense in trusting in Jaap's silky tongue....for me he's a lightweight chancer .
Given your background and experience would you get into bed with Jaap??
On a separate point; define what a sensible capital structure for GKP looks like.
"Ian Weatherdon only got 69% shareholder approval to stay on. Why?"
Perhaps... poor management of the company's capital structure allowing it to hold excess cash for far too long: not aggressive enough in returning cash particularly via buybacks once oil recovered from pandemic slump, not swift enough to transfer bought back shares to EBT and cancel balance etc. I can think of a number of areas where he needs to lift his game - a lot.
(PS Many here praise John Harris vs JF forgetting, conveniently, that he has - to date - merely been fortuitous in the timing at which he took the role. He still has to prove himself.)
Only 65% wanted Jaap to remain in post. He'll have to go through the shareholder wringer again, explaining the need for his presence to an unwelcoming crowd. Must get a bit embarrassing, that repeated pleading for another chance.
Ian Weatherdon only got 69% shareholder approval to stay on. Why?
Is he Jaap's next scapegoat? I doubt it, but I do wonder why Weatherdon's in the hot spot.
Yes, the shareholder turn out was low...nevertheless...
35% against Jaap?, time forth him to join his mate JF and take the early retirement route
GLA LTH All’s well, with a few Directors won’t put right
And less than 50% bothered to vote at all. Good turn out chaps.
Summary of RNS
34.96% voted against Jaap Huiske, 31.27% Against Ian Weatherdon and 16.11% against Kimberely Wood the rest passed with over 90% in favour.
resolutions 10 -12 relating to Dividend and Buyback passed with full 100% approval.