We would love to hear your thoughts about our site and services, please take our survey here.
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.
'I'd expect all hell to break loose'.
What would that hell look like?
Why wouldn't JH keep the cash as an offset?
Perfectly within his remit.
His duty is to his shareholders, not the KRG.
It makes perfect sense.
Anfil,
You did say net cash flow but let's set semantics aside.
I understand what you are saying. (You omit that MOL is being paid monthly but that isn't significant.) However, it is dependent on the company continuing to withhold funds from the KRG (and thereby realize the receivable owed by them by other means). At the moment, the amount withheld from the KRG is relatively small (less than $8m). I note also that this amount is substantially less than the gross field sales for July and August (closer to $19m).
While it's an obvious strategy for GKP management to deploy for as long as possible, personally I'm not going to rely on them continuing to withhold funds as those amounts grow until they announce agreement has been reached to do so. If the KRG isn't being paid by Bagdad and aren't receiving funds owed from local sales then I'd expect all hell to break loose. Also, I'd expect trade payables to have to normalize if the company is retaining substantial cash (even if that cash is owed to another party ie the KRG). Trade payables blew out more than $20 million in 1H. If that happens cash balances fall and not "in fact more".
As you note, there isn't much value created by doing the above except to the extent the receivable can be realised earlier rather than later it's a good thing (particularly when the current stock price appears to have discounted the receivable to zero).
Let's see what happens. Maybe the KRG agree the offset. Nonetheless GKP still needs a proper route to export sales to be worth the current valuation. Hopefully that happens soon. For now I have written off export sales for October and November but basically have a full return to normality in December. On that basis the stock is cheap (even writing off the receivables). Time will tell if those assumptions need to be adjusted yet again.
Looks like with the decision till next month this will drift lower as many better opportunities out there. Liquidity very poor here
R,
I can't even express my share dealing mistakes.
They still hurt and there's so many of them...
For me the issue with GKP is in the fundamentals.
$80+ m in the bank, no debt, available sales avenues (albeit at a significant discount), extraordinarily low oil recovery costs and a willing Board who are prepared to put their money on the line pro-tem.
And sooner or later the tap will be turned on.
Meanwhile GKP can tread water in P&L terms while managing its cash reserves for at least twelve months (probably more).
The share price is a side show right now unless you're a Trader, in which case good luck because you probably won't understand or care about the fundamentals anyway.
Straycat As I’m sure you are aware one or two high risk holdings within a balanced portfolio is reasonable. I identified GKP shortly before the pipeline closure via it’s obvious risk ( 30% + Yield.) My mistake was in the belief that the pipeline closure would be short term, purchasing in April @ 160. Then again @ 140 and 129 finally @ 90. I’d buy more now but for the fact that almost all of my blue chip stocks are historically low and not worth selling while I’m living off a safe high yield.
No I didn’t do what you call due diligence, my mistake, however on the plus side, I’ve learnt more about Middle Eastern politics during the past few months than the past few years, and importantly I do remember when I mentioned my holding in a Brazilian tug boat operator to a risk adverse investor who told me that I must be mad. Mad for buying OCN @ 50p and selling @ £35 ( now £10 or so ) let’s hope lightning also strikes here as it has for me more often than not ( while I have on occasion lost all in high risk companies that went bust, if we don’t speculate we can’t accumulate. )
As mentioned Patience Required.
'Patience is required'.
When did rogthegamer invest in GKP and why?
This has always been a high risk investment.
Part of its attraction.
And you must have known that if you did due diligence...
As an elderly ( experienced ) share trader I’m not qualified to comment on the technical points re. the oil industry, but as a trader I can say that the current the market price of GKP is a concern, the shares are being sold for a reason and more often than not the market is correct. That said, most of the so called ‘blue chip’ shares in my own portfolio are historically cheap, including massive and very profitable investment/ insurance companies that currently trade with a guaranteed safe near 10% yield. In that respect why buy into a small high risk oil company that has its entire assets invested in one of the most volatile parts of the World ? A question I’m asking myself all too often now, hopefully the answer will be found in the historical failings of the market; for instance on one occasion I purchased shares in a small tech company @15p with a near 15% yield in 1990s ( Densitron DSN ) ridiculously cheap and so it turned out to be because they eventually traded @ £5 in early 2000, ( tech boom ) also ridiculous, far too expensive as it turned out because the company failed ( look it up ) The moral of the story being investing is easy in hindsight but very difficult in real time. Dangerous in GKP albeit with the prospect of a reward that equals the risk. We shall see, in the meantime Patience is Required.
Why are we worried about the Market valuation of the Company right now?
It's irrelevant.
What matters is what the Board are doing to deal with the current challenges.
I reckon they should be about intensive cost control and serious sales development.
The structure of GKP is based on low costs and cheap sales (i.e. what the KRG allowed under the contract).
That's the underlying premise of the PSC.
When I bought in, all sales were via trucks. The pipeline happened later. And saved GKP money.
But without the pipeline and even given the discounted prices for selling oil locally, GKP MUST keep selling oil.
Because its cost base is so small and, as far as I can see, it will continue to make money until the tap's turned back on. Just not as much.
Got to keep an eye on the FCF which is all about cash collection and supplier management..
Not hard to do.
Just sell the product. There'll always be a market for it.
It's not like trying to parasols in the Antarctic...
But the oil will flow.
This sheister is the servant of two masters. He’s in communication with putler who, I’m sure is asking him to delay the opening of the ITP iot put pressure on western governments with a rising oil price. He’s also a servant to his people who likely want the ITP to open so they can get back to earning easy money and cheap fuel.
Https://www.gerceknews.com/amp/diplomacy/iraq-turkey-oil-flow-on-pause-awaiting-erdogans-october-visit-221468h
I guess we find out in a month.
Atb and dyor
I see no difference in what we are saying.
I just said they effectively keep the share of KRG, I have not wrote that it is FREE cash flow. I said this is "cash flow" but of course the KRG's share that they keep is a liability for the company. (Per barrel the gkps share is 36%, the MOL's is a lot smaller so yes most of it goes to KRG.) I do not understand what you try to say with it, maybe I get sonething wrong?...
I am not aware of any agreement to net it out, but I hope(!) -assuming I am not misinformed that the GKP keeps the KRG's sare from the local sales - they will have it because that way GKP could realise at least a part of its recievables (without the reopening the ITP and KRG getting its full budget share).
Btw if demand persist they might be can reach 35k bpd within 4 weeks. 40-45k bpd is the logistical maximum, to reach that a further 4-6-8 week might be necassary. (Again these are not my estinations, noone is obligated to belive me.)
The only things being netted are (a) the amounts owed to GKP (and MOL) from the oil the KRG is lifting and (b) the amounts GKP/MOL owe to the KRG for the local sales they're handling. You'll understand that per a barrel of oil the KRG owes a lot less (again, per barrel) to the contractor than the contractor owes two KRG for a barrel sold locally.
@theoryman
Indeed, a "small" fraction of oil is directly going to the KRG, they have an agreement which details can not be disclosed. In my opinion it won't influence the whole picture.
Value S
No need to believe me anything, contact the company yourself. But calling me innumerate after I literally wrote you down how the PSC exactly works is quite impressive.
@PUTUP
Yes, there is indeed no such an agreement to net out payables. You can continue to calculate with the cash flow that they get according to the PSC but maybe it would worth a try to contact the company about whether the KRG's share is kept or not... If nothing else, lets prove meg wrong (anyone).
Yes and not just the production capacity of the field (as limited , or not, as the case may be, by processing)
I'm not interested in Anfill's post, I don't like to respond to innumerate posters.
I'm not sure what you mean. Is it about availability of buyers or trucks or ability to fill the trucks.
If it were easy they'd already be doing it. In any event, let's see. Nonetheless the delta in free cash flow between 25k and 35k at $30 a barrel ($3.3m) likely won't define the valuation of the company materially. You still don't get to Anfil's free cash flow expectations.
We are talking local sales via trucking
"I'm not sure it will be "easy" to get to 35k"
I'm not sure why is that the case?
Remember they were producing 55k before the pipeline was shut, AND SH -18 drilling was still going on while SH-17 production was restricted because of flow-line sharing. Gkp previously informed via an earlier RNS that SH-18 drilling was complete and the flow line sharing issue was resolved. I think therefore, it is reasonable to expect a maximum production capacity for the Shaikan oil-field far higher than even the 55 k figure. Capped only by the processing capacity available.
Best Regards ValueS
Anfil, yes I have pro formered cash for $7 million of the $8 being a payable. (I'm not yet adjusting for "accrued expenditures and only adjust for the steep increase in trade payables from YE to 1H.)
Your cash flow calculation is very aggressive. I'm not sure it will be "easy" to get to 35k (for now I assume 25k for Sep and Oct), bpd but assuming they do GKP is entitled to a net $11.7 million after CBC. (80% of that is cost recovery rather than 'profit oil less CBC'.) Remember the PSC still applies - GKP isn't selling and keeping all the proceeds without owing (payables increase further) anything to MOL and the KRG (even if short term they may try to hold its back). There isn't yet any agreement that monies owed to the KRG from local sales can be used to offset receivables owed by the KRG. It would be ambitious to assume such an agreement will be concluded when the KRG is desperate for funds. Until such time as an RNS confirms such an agreement I'm not going to assume it.
Subtract the $6min cash costs from that. Then whittle down payables from the remainder. So quite a bit less free cash flow generation than your numbers below.
@Anfil, you wrote, “Trust me, they are receiving the gross payment and are paying only for the MOL.”
How gross is that gross payment?
IW clearly states 34:00 onwards in the presentation that the KRG are taking some oil in kind.
Is your gross before or after they have taken some in kind?
I interpreted what he said as implying that some money was only being withheld at the Constructors’ level and it wasn’t MOL’s share.
Are you really suggesting that they are withholding the whole of the KRG’s share of the revenue from the gross field production and is that opinion or knowledge of what is actually happening?
@PUTUP
Trust me, they are receiving the gross payment and are paying only for the MOL. The KRG is flexible yet and this is subject of negotiations, hope they will sow patience (it would make sense especially, that the GKP owes them $ 151m). Regardless there is $ 48 million (trade payable and accrued expenditures to local suppliers), that they have to settle within the next 12 months, and $ 8 million is in cash.
They can easily reach 35k bpd production, and I expect them to continue to get $ 30/ barrel. So their monthly cash flow were: 35k*30*30=31.5m (technically a bit less because of certain reasons that I wont mention). So GKP can generate a net 20-25m cash flow if they increase the production up to 35-40k, assuming that local sales will be possible in the future. There is no or only marginal value creation here, but at least we can say that ceteris paribus the GKP can REALIZE some of its net payable (which is imao 151m minus 48m=103m currently.). I mean if the pipeline can not reopen and they can continue local sales like happening now, then they could realize the net payable within 7-8 months which would indicate a $ 100 million increase in its cash balance (or in fact more because all the supplier could be paid out). Regardless the price might further decrease due to the lack of progress in talks.
" all that matters at this point is GKP can survive indefinitely,"
But at what valuation? Everything needs to be considered relative to what's factored into the current share price. The good news is that a lot is discounted already, but not an indefinite limping along.
@JAB, there has been an increasing tendency on here recently to use Cash Flow and Profit as if the two were interchangeable, which they obviously aren’t.
What is amazing from a statistical point of view, as long as you ignore bias, is when the wrong interpretation is used it enhances the case of the poster - utterly amazing :)
Tomato - Tomato, all that matters at this point is GKP can survive indefinitely, barring a massive Pyrrhic decision by either government of moving to take over the oilfields, (can't see it happening), then it's a question of how good or bad a deal comes out of this, there's people coming out into the streets now https://www.kurdistan24.net/en/story/32498-Demonstration-held-in-Duhok-against-Iraqi-government%E2%80%99s-incompetence that's often the start of the end game.