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"All of your dividend- and free cash scenarios mentioned so far assume nice, stable outputs and omit the danger posed by a crash in crude prices - don't you think that should be mentioned as an important qualification? I certainly do. "
"It would be a bold investor that paid up today (in the share price) for $100 Brent in perpetuity though."
Of course they can only pay what they have made ie determined when and only when the cash is in the bank.
Re how much capex can be "afforded" without building beyond a receivable-period CRP, I suggest you and others do the maths to work out just how much can be front-loaded. It's quite substantial at current prices and volumes. The company has provided guidance as to the cost of the FDP. How much investment can be pushed through one year's Cost Recovery given current or near-term production and a particular price of Brent assumption?
But that doesn't detract from the overriding message which needs to be one of fiscal discipline for management. They should not and must not build a substantial CRP (beyond the receivables period amount) again. Even if gas moves up the priority list. It will cost the KRG more and things will take longer. It doesn't need to cost GKP more. That's the discipline that needs to be in place, in great contrast to days of ol'.
At this moment we don't know just how front-loaded the FDP investment might be (how much will have to spent very early on vs how much later). We can be sure, however, that the Capex involved will be substantial - so I agree with Cookie that a substantial cash holding should be on hand when the FDP is announced. Even if the front loading is minimal then a nice cash holding will calm nerves when the sums involved are finally laid out.
All of your dividend- and free cash scenarios mentioned so far assume nice, stable outputs and omit the danger posed by a crash in crude prices - don't you think that should be mentioned as an important qualification? I certainly do.
Another thing not being mentioned is dealing with the gas issue; if the MNR decides that this has to be moved up the list of priorities then the rosy scenarios might evaporate.
Inadvertently I wrote "GKP's WI in profit oil" below. That was incorrect. That's the total WI. This WI is shared 61.5/18.5/20 between GKP/MOL/KRG.
CCC. the company doesn't need substantial cash reserves for the FDP. Just regular payments and if they're not getting regular payments they should halt investment. The Contractor doesn't fund, ultimately, much of the investment; the KRG does. (For the Contractor, the funding need is just short-term working capital. I'd prefer, by the way, that they don't fund that with my expensive equity capital.) And, no, the CRP doesn't start increasing. At the current base level of production there's plenty of room for the cost oil component to receipts to cover the investment required (money spent and recovered in payment-terms months later) assuming they're getting paid.
IF the company generates free cash flow of, say, $120 million a year there's still a lot that can be returned to shareholders. It would be a bold investor that paid up today (in the share price) for $100 Brent in perpetuity though.
I think you might upset a few ultras Putup.
"Crunch all that at $100 Brent and GKP likely generates roughly $10 million a month in free cash (+/- depending on what you assume for some of the items above)."
Now according to Opti, GKP will be awash with future dividends, Hmm i think not!.
The company needs substantial cash reserves for the FDP whenever it arrives, the added bonus will be the CRP pot starts to increase again returning in monthly payments and so on.
I have no problem with clearing the debt, it made good business sense by the way.
What do you think the answer is Arma?
Accounting profit isn't a particularly useful metric for GKP, largely due to the distortions created by depreciation vs cost recovery and stock options. (And were GKP to have its license terminated or not renewed what do you think are the assets that could be recovered?) Far better to look at annual/monthly free cash flow. To figure that out (or profit for that matter) you need to make a number of key assumptions beyond simply the price of oil. These include:
- average daily production (let's say 50k - well above current levels)
- opex per barrel, capex and direct Shaikan G&A -> thankfully assumptions re these don't affect the answer too much because they're recovered 1:1 via cost oil although they do affect how much profit oil there is
- GKP's WI in Profit Oil. As you know this declines from 30% to 15% as the R factor rises between 1 and 2. I reckon the WI will have declined to 26% by the end of this year. Let's assume an average of 23% for the year 2023.
- the level of Corporate G&A (GKP booked $9.5m in 2021 - it will no doubt be higher this year and next)
- residual finance costs (if any)
Crunch all that at $100 Brent and GKP likely generates roughly $10 million a month in free cash (+/- depending on what you assume for some of the items above).
It's not a hard 'model' to do (just 20 lines in Excel). I suggest you do your own calcs.
So what will monthly profit be post cpr with oil at 100 dollars?