Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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peabody,
you mis-read the RNS.
Genel are partners (30%) with Chevron (50%) developing the SARTA field.
Did anyone see/hear that CHEVRON had taken over as operators on Genel field ?
Genel is awaiting confirmation from the operator, Chevron, that payment has been received. The Company expects this shortly, and will not announce the payment separately
The oil companies in N Irak Kurdistan use more or less the same text
https://polaris.brighterir.com/public/gulf_keystone_petroleum/news/rns_widget/story/x573p0w/export
https://shamaranpetroleum.com/news/shamaran-april-2021-payments-received-122773/
Seems volume has picked up with lots of smaller buys
Numbers bang on expectations. Snooze.
Gulf Keystone confirms that a gross payment of $35.1 million ($27.4 million net to GKP) has been received from the Kurdistan Regional Government ("KRG").
“The KRG has stated that payment will now be 60 days after submission of each invoice”, per RNS 13/5.
So we’re not quite there yet for April payment.
TM,
"Fairly obvious we see things from very different angles". Yes. One can't be both be Church of England and Roman Catholic at the same time, although I expect some will happily draw on DCFs and charts without any concern for the contradiction.
Fingers crossed for SH-13 to come good (an event to change the next eps), for some title risk to come out of the share price (the passing of the Hydrocarbon law) (an event to make the eps stream more certain) and for some liquidity risk to come out of the share price (the Budget to be implemented and swifter payment of the arrears to ensue), the last event being one that might improve the payout ratio.
P.S. Our lower EV to barrel of oil produced compared with Genel is, I wonder, due to the lower quality of oil we produce (a sign of market efficiency?). I explain the anomalous EV to 2P ratio as being due to the market having doubts we can get all the 2P reserves out before mid 2043 at our current production rate. I hope this will change if we successfully get to 55k bopd. Let's see.
Nobull, once read that most of the quants in the US were Russian theoretical physicists - the maths is very transferable e.g. statistical mechanics.
A trend is a random walk on a slope, a gap is a jump, after a gap the slope usually reverses and the gap gets closed but sometimes it keeps the same direction, steepens and you get a runaway gap - build the model!
I would be very careful about using any text book ideas with GKP. There are both pluses and minuses but it is borderline unique - think outlier rather than mainstream normal.
If any equation fails to produce the expected outcome then go back to root cause analysis. Start with the following, is the data OK, is the equation wrong or it’s neither of those, it’s simply being used in a situation where it shouldn’t be?
CCC has just posted something about the O&G Law. Come up with the potential extreme side effects in the present political environment and then after the next round of elections - then have a go at assessing the probabilities :)
Fairly obvious we see things from very different angles, thanks for sharing your views.
"which means rule based investment strategy will consistently give superior returns if the profits arise from risk taking"
should be
which means a rule based investment strategy cannot consistently give superior returns if the profits arise from risk taking
In short, so out of $28.9m (a figure that has already suffered pipeline transport and quality discount), the contractors are only getting 16.2% ($4.67m divided by $28.9m). That’s a very low net back (if that is the right jargon) considering the KRG have only had fiscal jurisdiction over where the oil is: can you imagine the British Government levying profits taxes totalling 83.8% on North Sea operators? GKP shareholders long ago took all the risk to discover Shaikan.
The cost oil, the lion’s share of the monthly payments we get, is just the return of our own money previously spent, albeit in a very delayed fashion, delays which are exacerbated when oil prices are low. Straycat says we should change the PSC to give the KRG even more – not that my view matters one jot, I agree with his analysis that the FDP is being held up because they want something, but I don’t agree with giving them an even bigger share. Yes, I can see there can be no brown bags under the table to solve the impasse either.
“It doesn’t matter how frequently Charts are right, what matters is do you make more money overall from the ones that work compared to the ones that don’t. I have no idea which trades will work and which ones won’t but I have a system that I use to evaluate the value on offer.
“To me it’s just the same as rolling a dice. If there are 10 faces on the dice, 3 say win and 7 say lose but the payoff if successful is 4-1 then there is value.”
I trust your maths on that – you are a physicist, so I trust you of course.
“I agree about randomness being a lot more patterned than people realise. In fact that is one of the basic ideas used in fraud detection but don’t tell anybody.”
But the whole legal system around disclosure of share price sensitive info is designed to ensure financial markets are efficient, so it is likely share prices incorporate everything that is relevant, and given share price sensitive news is randomly good and bad, share prices must move randomly, which means rule based investment strategy will consistently give superior returns if the profits arise from risk taking (profits from privilege are different?).
On a less controversial note, I hope your real life name isn’t Antony Bolton or Warren Buffet or I might have to eat my words on that. Am reading Brian Nelson’s Valuentum investing at present – he does claim to have found stocks trading below their intrinsic value.
…” Beware any mathematical approach which says it can differentiate in matters like this, if it does then find the hidden assumption”
Sound advice.
“GKP’s share price is dependent on many factors, the simple ones such as production levels or (PoO-21) seem to be swamped by the others. We could both probably come up a list of what those other factors are, chances are though we would come up with two different lists, different rankings and different levels of significance even if our two ordered lists were identical.”
Underlying all the reasons people give for GKP’s price movements are just 3 simple things as far as I’m concerned: the next eps, the eps growth rate and the payout ratio – it’s the only page I read in the whole book “Random Walk down Wall Street”. I’ve no idea if the rest of the book is worth reading.
I like that explanation because it seems consistent with the maths implicit in the fact that a risk-averse person doesn’t pay more than £100 for a promise of £110 in a year’s time (assuming there is no default risk) if they can earn 10% p.a. in the meantime. I expect that fact is a bit controversial for some posters here, but I can’t help that.
“The PSC is reasonable when compared to others, what you don’t like about it is just a by-product of how it works. “
I don’t have the data to show that the PSC is unreasonable. It is very time consuming to find it, but in about a year’s time, I may be able to come back to you on that (why do textbooks mention commodity price gearing if it doesn’t exist?). Sure, the oil price affects our cash flows but not in a way I understand the meaning of the expression "oil price leverage". If I find a pure producer with more commodity price gearing (excluding all other types of gearing and other share price driving events apart from oil price rises in £s),the project will probably have higher expropriation risk. A short term benefit from high net back payments can be taken back by a nationalisation at a later date, below market value, Hugo Chavez or Mossadegh style, can’t it? Yes, I get that: the Kurdish people need to be happy with the arrangement.
“…I focus on the revenue from Profit Oil received by the Contractors divided by the Total Production that the Contractors achieve. That gets around the circulating costs through the Cost Pool and the costs reimbursed directly to the Contractors by the MNR.”
Total profit oil for February was about $26m (60% of net revenue). To get the profit oil figure before deduction of the 10% royalty payment you have to add back 60% of the 10% royalty payment, i.e. 60% of $4.8m, which gives a pre royalty profit oil figure $26m + $2.9m = $28.9m.
Starting with that $28.9m figure and deducting profit oil’s 60% share of the 10% royalty payment ($2.9m), the 70% share of net profit oil going to the KRG($18.16m) and the 40% capacity building charge (let’s call that corporation tax to the KRG)($3.1m), one is left with contractors’ share of profit oil of $4.67m, a figure that has then to be shared 80:20 between us and MOL.
continued...
Would roughly be up circa 5% if divi was included….
Add the dividend and recalculate
Weekly performance:
OXY +16.18%
MRO +10.94%
PXD +7.64%
GKP -2.76%
GENL 2.60%
DNO 3.52%
Nobull, I need time to put something together on the later points but here are my thoughts on the earlier ones.
GKP’s share price is dependent on many factors, the simple ones such as production levels or (PoO-21) seem to be swamped by the others. We could both probably come up a list of what those other factors are, chances are though we would come up with two different lists, different rankings and different levels of significance even if our two ordered lists were identical.
The PSC is reasonable when compared to others, what you don’t like about it is just a by-product of how it works. Different people prefer TSCs or RSCs but others don’t, the locals decide which it is going to be, after that the IOC is either in or out.
The crude from Shaikan sells at such a substantial quality discount to Brent, the low opex is a counterbalance which aids commerciality.
I focus on the revenue from Profit Oil received by the Contractors divided by the Total Production that the Contractors achieve. That gets around the circulating costs through the Cost Pool and the costs reimbursed directly to the Contractors by the MNR.
It doesn’t matter how frequently Charts are right, what matters is do you make more money overall from the ones that work compared to the ones that don’t. I have no idea which trades will work and which ones won’t but I have a system that I use to evaluate the value on offer.
To me it’s just the same as rolling a dice. If there are 10 faces on the dice, 3 say win and 7 say lose but the payoff if successful is 4-1 then there is value.
I agree about randomness being a lot more patterned than people realise. In fact that is one of the basic ideas used in fraud detection but don’t tell anybody.
Suppose someone uses a system and the outcome is profitable, how do you tell if they have hit pay dirt or are have been just very very lucky? There was a piece on Radio 4 news about Andrew Bolton who was retiring from having run Fidelity Special Situations with incredible long term success. Two experts waxed lyrical about his performance, one finished by saying he was probably the most talented fund manager of his generation and the other cheekily added, “Or the luckiest!” Beware any mathematical approach which says it can differentiate in matters like this, if it does then find the hidden assumption.
TM hi,
"The model I use for the PSC is working to within 1% and has done for a long time."
Yes - I probably use the same model - I too got it almost exact for the February (or January?) payment.
What I mean by commodity price leverage is if the oil price goes up 100%, the share price goes up, say, 150%. With GKP it is maybe a case of if the oil price goes up 100%, GKP goes up only 50%.
I think this is because the present value of the future cash flows changes in that way due to the disadvantageous terms of the PSC that give the lion’s share of profit oil to the KRG even though they are free carried. Cost oil is really just the return of our own money (discovery cost and past capex), so I don’t really count that (it’s like repayment of an interest free loan by the KRG back to us – nothing to do with our share of the oil sales proceeds)
Our BoD’s continual trumpeting of low opex seems to me to be a way of fooling people into thinking the PSC gives us a high net back (if that is the right jargon); the low opex definitely does not because we have other costs that international oil companies operating in other countries don’t have: I am sure our share price would move in a much more leveraged fashion to oil price movements if we had a high net back.
I am a believer in near efficient markets, so charts, momentum based investing, factor based investing (using seemingly cheap value ratios such as price to book, price to sales, price to earnings, EV to 2P reserves, etc.) simply are of little interest to me. (Charts will be right 50% of the time, but the problem is you don’t know which times they are right – sure, if SH-13 comes good we might get what a “cup and handle” chart predicts, but it is all dependent on SH-13 adding 5k bopd to production, and on no other random possible negative events occurring in the same time interval (pipeline shut down, oil price crash, license cancellation, etc.).
A consequence of a belief in random share price movements (because news is randomly good and bad, and, btw, repeated sequences of good news, so called ‘trends’, count as random to me) is surely that no system works for any length of time, because if it did, it would soon be discovered, and the advantage it conferred be priced away: even Buffet has a rule that he can disregard his own rules, recognition that markets are efficient, and proof to me that his comment “I wouldn’t be this rich if markets were efficient” is just a case deft self-promotion for the unsophisticated?
Yes, our business model benefits from other types of leverage but I just wanted to keep things simple.
When GKPs PSC was signed Poo was on it's way up to $140 , then the crash came and it hit $32 in 09 . If the world needs oil quick the onshore super fields will be the most sort after . The KRI HNW VIPs will be very happy GKP got the licence and not XOM they will have made loads from this already.
‘Fraid we must resign ourselves to accept that our monthly payments will steadily slip by a month each month.
Meanwhile the MNR will be paid before the oil is even loaded I guess.
Wonder where and to whom the buyers make their payments ?
Comforting to think that our sacrifices are benefitting the poor of Kurdistan.
Nobull, are you questioning my interpretation of the workings of the PSC or referring to additional corrupt practices?
The model I use for the PSC is working to within 1% and has done for a long time.
Iraq and the Kurdistan region are amongst the most corrupt countries in the world and have been for a long time as well.
IMO that latter fact and the subsequent effect it has on the payment risk is well known by the market and is built into the price.
In theory there should be a very strong correlation between the share price and (PoO-21)…
"the KRG pick up circa 53% of the total field production for doing nothing!
A lot of our 'share' of the monthly payments (on the rare occasions when they occur) is just the return of our own money. I am sure the KRG get a lot higher percentage than that: 53% is pathetic for people of Middle Eastern origin - you should expect them to take a lot more, I am certain they do - anyone who has lived there knows how sharp they are at business. Our BoDs trumpeting of the low opex costs is simply sick-making. Other companies elsewhere in the world probably have a far higher net back, if that's the right jargon. You can see it in how more leveraged their share prices are to the oil price. We have damn all commodity price leverage - why else has Brent crude risen 3.5 times since March 2020 and our share price has only risen about 190%? I'd have been better off in Touchstone Exploration - it rose 15x (although that one doesn't have any leverage to gas prices, only to volumes sold, whenever it is able, if ever, to connect up to a pipeline). I am sure many producers have much better commodity price gearing than we do. JMV.
TH,
You've just made my point very eloquently for me.
Under current terms the KRG can continue to do nothing and the PSC will run its course.
Not at all helpful if you're trying to develop a field of such significance.
It may be unpalatable, but it looks to me like something has to give if we still wish to pursue our stated ambitions.
And if so, true management requires improvisation and flexibility.
Otherwise we settle for the easier option of buybacks and dividends; not too shabby an option either.
But we won't ever maximise the field potential in that case.
Straycat, one of the fundamental components of a PSC when they were first introduced, was to allow the government to join in as a contractor, once the IOC had taken on all the risk and the field had been declared economic.
The idea was that selected locals would be trained and experience the problems faced by a contractor and hopefully set about disabusing the government wrt any ideas that it was easy money.
The KRG has not taken up that option so far. I wonder how many relatives of the rulers would have been employed to deal with the bilateral failure of the government to pay itself in both roles.
Historically there are a set of accepted %s that occur in PSCs. The ones that are in the GKP version are well within that the range, both before and after the R factor triggers the sliding scale.
Using the PSC and numbers that have occurred in Presentations, but not one that was tagged on the end of the full year results notes, the KRG pick up circa 53% of the total field production for doing nothing!