Scancell founder says the company is ready to commercialise novel medicines to counteract cancer. Watch the video here.
The only good thing that we are actually seeing is the talks actually happening.
"the Iraqi Oil Ministry pledged to pay off $1 billion in corporate debt within 10 years, and fix the cost of oil production at $8 per barrel."
First, as I said previously $1 billion within 10 years is an insult.
Second they write about Profit Sharing Contract. Profit Sharing Contracts have cost recovery mechanism. What the hell is this $ 8 "production cost"? Even for TSC-s (Technical Service Contracts), there is cost recovery mechanism, quite effective and decent one. What happens there is that there is a fix remuneration PER barrel, lets say $3-6 (which is the equivalent in our case to profit oil). Now, if they were talking about TSC-s, then this $8 could be understood as remuneration. For example, in GKP's case with 40k bpd (daily production) * 365 (days/year) * 8 = $116.8m. Now, there is a 40% tax on that (in general), so this would look like a $70m annual profit, less S&G expenses ($10-15m). IMAO somewhat (by $ 10-15m) worse than the current terms, if CRP were depleted. But of course we are not talking about TSC-s thats why I can not grasp this $8 barrel production cost. Also, I read somewhere that it will be $12-16 according to the budget law. So if these offers were true, then Bagdad is really playing hardball (maybe this is their negotiation culture?)... But of course, I have issues grasping the whole thing, because none of these 2 details ($1b debt payment in 10 years, or the $8 barrel production cost) make any sense! I mean this is very far from anything acceptable (except if we are fine with the current mcap values of the IOC-s... - which we aren't.)
BroadfordBay
I respectfully disagree that the PSC-s are offering high return on invested capital.
One thing is cost recovery but Profit Sharing COntracts and Technical Service Contracts also offer reasonable cost recovery mechanism. What the return on invested capital is in this case: Profit Oil (less tax, which was originally 40%! - the company gave away working interest in order to informally decrease it to 20%)
In my opinion, in order to estimate the return on invested capital (CAPEX), you have to divide the NET Profit oil by the cumulated CAPEX (investments). Of course the return grows as the field becomes operational and starts to produce a lot. At best, it would be currently like 15% [if the pipeline worked and PSC were honored). In the past for different reasons, but the GKP did not too much profit oil, so this "(cumulated) return" was much lower, thus no, absolutely we can not say that IOCs in Kurdistan got decent or high returns. Many oil and gas discoveries failed, its not as easy as in Iraq to put a stick into the ground and oil starts to flow. Someone might accept 8-9% return on investment, but in Kurdistan it should be objectively higher, especially what happened in the last few years.
What makes me angry that they promise to pay back the debt (account receivables) "within a decade".
This is total nonsense. 75% of that is COST OIL (cost recovery). Just keep it in the CRP and let it recover then, the rest 25% ($30m) .. I do not care they can pay that within a decade if they want.
Profit Sharing Contracts, at least what I have seen has decent corst recovery mechanism, the paying back within a decade is an insult. What will matter a lot and what I am afraid is that how much less profit oil do they want to pay, because that is what determinates the non-cash value of the company. Offering 40-50% less Profit OIl than the current (btw not too generous PSCs) means a massive destruction of value. With such a Profit profit-sharing contract, even if they pay back the debt in a timely manner, the maximum value of the GKP is imao around GBP 1.7. Hope for the best but I really do not like these news.
Alexeliasson
Sorry, but you are wrong.
75% of ANY past revenue was cost oil [due to the PSC formula], which came from the depletion of the CRP (cost recovery pool=historical unrecovered cumulated OPEX+CAPEX).
Thus, 2/3 of the $ 266m and $ 165m, $199.5m and $ 124.5m was cost oil payment (made possible by the large accumulated CRP at the time). This means only $ 66m and 40m was the profit oil for those years. If you do not understand this, then you do not understand the contract.
I checked my model, personally I model around 70-80m USD FCFF (which comes from profit oil) after the depletion of the CRP, which is quite close if the company got paid. Let me remind you that the CRP is somewhere $ 200m, 80% of it belongs to the GKP. There is a claim for $120 via the receivables, thus approximately $40-50m remains, which is currently getting gradually realized via local sales.
Another possible value creation is to run up the production to 80k/day but we are very far from that in every regard (and I would be very happy by just preserving approximately the terms of the current PSC). I think that could create an extra value of around GBP 0.3-0.4 per share.
Btw, the $ 18 discount for Shaikan oil is likely too low, it was initially set at $21 then after the inflow of Ural oil - which is also heavy crude - to Turkey (due to the war and sanctions) it widened to over $30. I think its a lot safer to assume a $25 discount at least... So once again for $75 Brent again I would say $50 realized price.
Alexeliasson
You can only recover costs that you incurred in the past (CAPEX + OPEX). From the past there is a CRP (unrecovered cost oil). The mistake you are doing is double counting. Now, what the company reports (idk exactly and wont chack it: around $ 200m I guess) is a GROSS figure, 80% of it belongs to the GKP. Then, a large amount have been already billed via the receivables (75% of the 150m is cost oil). So what remains in NET terms after the receivables is around $ 45m NET for the GKP (So do not doublecount it). Now, what they invest for field development, of course they can recover that amount, but that is NOT free cash flow. How I remember, when I modeled, GKP can do around $ 80-90m for $70-75 Brent (thus around $ 50/barrel realized!) from profit oil. But of course there is this $150 m receivables and another approx $ 45m for the NET CRP (pls do not correct me if it is only $ 39 or 50m cuz I do not care). Thus, how this story looks like: $ 90m cash (lets round up), $150m receivavles, approx $ 45m CRP that can be recovered fat and idk what about with payables.. I wont check it cuz again I do not care less substract 15m. So we are now at $ 270m and we need to add the PV of PROFIT oil. Lets say for simplicity, a FCFF of 80m/annum (approx $70 per barrel for brent, 55k barrel production/day), lets use 20% wacc (or 15% wacc and -5% 'growth', all the same).. So the PV of profit oil is $400m. So a'fair' market cap, - assuming the recovery of receivables - is approx 270+400=$670m vs the current Mcap of approx $ 400m (now, of course you can use higher wacc or you can also substract the cost of the disassembly of the field.. in the book there is a $ 40m item for that ) a . This indicates for me(!) a GBP 2.37/share or 66% upsdide but I will get the f*** out here around 1.8 I think (if I can). Belive me or not, this is the approx situation. Have a nice day everyone
Belgrano, are you sure that Iraq pays more for other oil companies?
The PSA-s (Profit Sharing Agreement) that I checked pay around 40% less remuneration vs the Kurd PSC-s (profit oil).
(Although you can argue that Kurdistan is riskier and its harder to extract oil, so higher compensation is justified... But who cares if they just wanted to bring the kurds to their knees?..)
"20.6/ barrel low" I respectfully disagree, at least in the context of GKP. (Sorry if I misrepresented it, I understand it as a fix payment/barrel.)
The $ 151m is a completely different matter, and there is a further approx $ 40-50m net [for the GKP] in the CRP. So the sum is lets say $ 200m.
Why I would take a $ 20/barrel without hesitation: 50k(Bpd)*30(days/month)*12(month)*20=$360 million.
If we just calculate the share with the Working Interest (61.5%), its over $ 220 million. The OPEX was around $ 3.1/barrel so OPEX is max 50-60m/year, 40-45m in CAPEX is required to keep the production flat + some S&G... More than $ 100m would remain. Beyond anything that we can hope for.
If anything like this were offered (unfortunately I doubt in it...), it should be accepted.
This paying the production costs is a total BS.
In federal Iraq, even the most primitive TSC contracts have cost recovery mechanism (after reaching a certain production target). DPC-s on the other hand are actually "nerfed" PSC-s. Changing the contracts to DPC-s would most certainly scale back profit oil revenues because in federal Iraq the investment costs are usually lower.
Things that I do not understand:
-Why is GOI hesitant to pay the costs?... They have basically the same mechanism.
-Why not "simply" change the ICO-s contracts to DPC-s with Bagdad and make the Kurds to pay the difference in profit oil that IOC's would get according to the current (PSC) contracts?
-Barzani argued in the latest interview that they view the PSC contracts as legal ones and are siding with IOC-'s (which is their very interest because no one will ever invest there if IOC-s are ***ed). But why argue when Bagdad clearly has the upper hand and you know that PSC-s are unacceptable because of the activist Supreme Court full of pro-Iran & anti-KRG judges?... KRG should support IOC-s to make a new contract with Bagdad and compensate for any disadvantage compared to the existing one. Not easy stuff, might ake time but it is clearly straightforward and could be carried out. I mean if Bagdad indeed wishes to make any deal and resume exports. Hopefully, Bagdad will give some exact offer to IOC-s in the near future and there can be some negotiations.
I am trying to do some research regarding this possible contract modification.
At the end of the day it will come down whether GKP gets a correct deal or not.
What is interesting that I do not see why this proposed Profit Sharing Agreements (PSA) are fundamentally different than PSC-s. I did not found detailed explanation how this contracts work, only that contractors effectively get a certain share of the profit (and said to be more investor friendly). But I still do not see the legal framework why PSA-s are OK, while PSC-s are not... In an article it is stated that oil and gas law may be in front of the Iraqi Parliament in December. If that's the ground for PSA-s then what if it wont be passed?...
This is a huge mess.
https://www.oilandgasmiddleeast.com/news/adipec-2021/adipec-2023-iraqs-fifth-and-sixth-licencing-rounds-promise-profit-sharing
https://www.zawya.com/en/projects/oil-and-gas/new-iraqi-oil-law-to-allow-production-sharing-with-foreign-firms-vhwjw8mu
Sorry, there was a typo on my part but you understood it anyway what I meant.
Mr Spacetomato,
Its up to you. The reason why I am not selling yet is because I still see huge value (upside) here, although I am increasingly worried because of Bagdad's agenda. Maybe incompetence is met with malevolence. The main reason why I am not selling is because Kurdistan's oil sector simply can not function without IOC's. And if they are "robbed" then Kurdistan will become uninvestable, while the economy will get crashed for a long time because of the decline in oil production.
The way that I see forward: give the IOC-'s a fair deal: give them a similar TSC or RSA that they have now with 65-70 USD oil prices. According to my calculations 22-24 USD/barrel should be more than enough to cover not only the OPEX and maintenance CAPEX -but also leave some profit for the producers. + 8 dollar/barrel production cost, then the monthly oil exenses should be: 28 (or 30) * 400k (bpd) *30 (day)=360-380 million dollars expense per month. (To compare that KRG has a monthly share of $ 1.3 billion/month and they have another $4-500m revenue.) I think they should be able to pay, but of course they want to ask as much from Bagdad as they can, while Bagdad wants the opposite.
If you search back, the maximum amount that KRG paid in a quarter was $ 1.6 billion in 2022, so more than 500 million per month. Usually they paid around $ 1 billion/quarter. GKP specifically had a huge cost recovery in the year of 2022. It still leaves the issue of recovering cost from the past, but for Shaikan (55-60k bpd) and Tawke (100k+ bpd) there is hardly any unrecovered cost from the past - if you exclude receivables its around $ 50-60m for Shaikan.
https://gov.krd/english/information-and-services/open-data/
Suddenly, we rather have more questions than answers.
Who will pay the costs/fees, GOI or KRG?
Who will make the new contract, the KRG or GOI? The finance minister hinted that KRG should adjust the contracts...
Then what to do with the unrecovered costs, capacity building payments and working interests?
They cant even agree on transportation fees... Just that is said to be 8 USD/barrel. Also, the 22-24 USD production cost per barrel is interesting. Shaikan has an OPEX around 3-3.3 USD and with 50-60m CAPEX/ year, the production can be kept flat, so the production should all-in-all be around 7 USD for Shaikan (and of course another 14-16m G&A expense for the company...). So for GKP getting a fixed amount of 16-18 USD/ barrel (even if 20% of profit would get taxed, like now with CBP) would be OK, compared to the previous situation with the PSC. But of course the production costs - just like the crude quality - differ greatly between fields.
I do not think that all this can not be sorted out in a short period of time.
Gentlemen please try to focus to the GKP here...
@BroadfordBay
@PUTUP
Are you still holding?
And an other question: if PSC-s are modified to PSA-s or TSC-s of whatever f*ck, then in accounting terms, are the companies obligated to write down the production assets in the balance sheets?
Just to give you some info:
GKP's unrecovered costs: ~50m USD
Reciavables: 151m USD
Shaikan's OPEX/barrel (probably the lowest in the region): 3 USD
In order to keep the production flat one well/ year needs to be added, that costs around 40-50m USD. So thats an 3-4 USD CAPEX/barrel (to the paying interest, which is 80%).
If GKP got paid for reciavables and the 50m unrecovered cost, then we can talk about the PSC modification. Anything above a fixed 6-7 USD/barrel - for "profit oil" - would not be worse compared to the current PSC. This is just for the Shaikan, in other fields it might be much more complicated and the costs might be higher. Another question is what to do with the 'working interests' once the PSC-s are nullified. The KRG has working interests in several PSC's and it has quite some value... Adjusting these contracts should take quite some time.
I have seen no indication in the news that Bagdad directly negotiated with AKIPUR about changing the contracts or there were any serious proposal. It seems that some people in Bagdad are in rush to negotiate and US also takes part but I do not see any obvious progress or even proposal... On the other hands kurds should be aware that noone will invest there anymore if the PSC's are replaced with unfair contracts, not to mention the lawsuits.
Anyway is there anyone familiar with how much money are getting those IOC's in federal Iraq? How "rewarding" are those TSC-s?
Btw, Bagdad issued some more "advanced" contract this year:
https://www.reuters.com/markets/commodities/iraqs-massive-total-oil-deal-heralds-new-revenue-sharing-formula-2023-07-19/
Hi xxxAccountant,
If I remember correctly, Genel will publish an update on Tuesday.
GKP Genel
Main "Asset" Shaikan Tawke
Years left (P2 reserves, before ITP shutdown production rate) 25 years 7 years
Mcap: approx the same, you can check it somewhere above 300m USD
R factor (latest) 27% 16% (or close to it)
Paying interest 80% 25%
Working interest 61.50%; 25%
CBP (tax) 20% of Profit oil; 0%
Unrecovered costs (approx) 50; 0
Cash approx 80m; 390m
Reciavable 151m; 100m
Debt (face value) approx 0m 240m
Trade payables (& accrued exp.) approx 70m 70m
*where "approx" is my best guess.
GKP profit oil calculation: After royalty production*(1-cost recovered/maximum cost recovered)*27%(R factor)*61.5%(WI)
(and minus 20% of this is Capacity Building Payment)
Genel profit oil calculation: After royalty production*(1-cost recovered/maximum cost recovered)*16%(R factor)*25%(WI)
I see the following important differences
-Genel has a serious lawsuit against KRG because of the termination of 2 PSC contracts where they invested more than USD 1.5 billion.
https://www.reuters.com/world/middle-east/iraqs-krg-says-genel-energy-not-entitled-compensation-2021-12-12/
KRG of course has counterclaims. Now I do not know whether this is just their technique to negotiate, but that would be brutal if Genel should pay compensation... In my opinion, the good news is that the lawsuit is in London.
-Crude quality, Shaikan's oil is heavy, Tawke's oil is close to Brent's "quality" so in general, one barrel from Tawke can worth 5-10 USD more. There are even arguments that if SOMA will decide which oil to put into the pipeline, then Tawke's oil has the advantage because of quality.
-Genel is looking for M&A, because the Tawke field will be depleted in 6-8 years. Sarta got shut down and Taq Taq is insignificant.
So overall both are extremely interesting! (I have only GKP (so far..!)
Good luck!
"First step is to agree with the region and companies on adjusting (!!!) their existing contracts to be consistent with Iraq's constitution (!!!). We could reach a deal in three days."
This part is the most important! I see still huge risks here. Either they are gonna try to f*** us over (and ICO's will reject the proposal) and we may enter into other months of stalemate or we will get fair proposals and we will go into the moon.
What I like so far: GOI acknowledged past debts (basically the unpaid receivables). And because there is not much unrecovered cost for GKP (net. approx 50 mUSD if we exclude the receivables), to be honest I do not see that of a huge issue entering into a TSC (technical service contract) where GOI pays the costs (CAPEX+OPEX) + ICO's get a fixed amount, lets say 5-6 USD per barrel - now I do not know whether that would apply for WI or PI - but that would be 70-90m FCFF for GKP/year, assuming 55k bopd productuon. Of course those companies who have large unrecovered costs from the past would be ****ed.
So in case of such a PSC modifications, the AKIPUR should hold together and demand the payback of all unrecovered costs. In my opinion if we were to get an unfair contract modification (where I can not imagine that AKIPUR would not fight), without the recovery of past cost (but getting the 151m!) GKP is still to worth 1.8-2 GBP with a brutal (20%) WACC. And I am just speculating here, nothing else! This is just my opinion how I "imagine" the situation. And a TSC with fixed amount "fee" would protect from downward oil swings and also not reward for high oil price . Correct me (maybe @PUTUP?) if I misunderstand the functioning of the TSC-s.
JakelaMotta
You completely misunderstanding it and I do you a favor and explain how it works.
What you are referring to is the 200/500=40%, which is GKP's revenue share with MAXIMUM cost recovery.
GKP is NOT entitled for the total value of those barrels. Repeat with me GKP is NOT entitled for the total value of those barrels. GKP according to the PSC is entitled for:
1) Cost oil: to get back its past CAPEX+OPEX
2) Profit oil: which depends on the produced volumes and R factor, it is a tiny fraction of GKP-s historical revenues. To be exact it is around 25%.
So, itf GKP gets back all its "investment expenditure" (past CAPEX+OPEX) then the revenue, so the profit will drop because in form of cost oil, it will be only able to recover its very recent cost and expenditures. So basically what you do not get is that the cost oil will drop very much if all the past cost are recovered, and we are in fact quite close to that. I think GKP has one "great" year left for this huge cash flow generation, assuming all the things get fixed (and no large additional production expansion is made). Then it can generate like 80-90m USD.
You are welcome.
Guys you better start understanding the PSC and do your own modeling.
With local sales there can not be any (significant) cash flow generation until the approx 20 million account payable is not paid back. According to the PSC, with 33k bpd production and $ 30 realized price the net entitlement is $ 10.7 million. With $6m/month run rate. free cash flow can be maximum around $5m. This can increase to $8.5 million with 45k bpd, assuming that expenditures and cost don't rise which is also nonsense... So I think - with the current conditions - at best GKP can generate currently around 6-7 million/month. And again there is $ 20m payable (towards local suppliers) to manage.. So there wont be any significant rise in the cash balance until the end of the year just because of the local sales.
On the other hand, regarding net entitlements:
After the cost recovery pool will get empty (which means annual cost oil will be equal to the annual CAPEX+OPEX), there will be like 80-90 million USD/year free cash flow generation potential (assuming around 55k bpd production). And regarding the net entitlement for the company, the net(!) cost recovery pool can be around $ 55-60m USD (although there is 120m in account payable to be paid...).
Again these are the actual current(!) numbers, I am not talking about any additional investment (potential).
Gentlemen,I think you better learn from PUTUP and appreciate him, he is by far the most informed among us.
GKP worths significantly more than today's price if Bagdad will implement reasonable solutions which I hope it will.
You can dream that it will go up tenfolds - I will be happy with you - but any serious analyst will tell you that - based on our current information - the share in any bull scenario does not worth more than GBP 2.5-3.
Well, if I run my model.. I calculate with: 75 USD Brent with 60k bpd production forever (and an implied negative "g" in TV), 25% discount on realized prices (56.25/barrel) and then we use a WACC of 20% (while assuming that the $151 will be fully paid) then the fair value per share for me is GBP 2.22. With 15% WACC it is GBP 2.65. (Yes I know PUTUP demands higher WACC, probably rightly so.)
But for it of course PSC needs to be legitimized (oil and gas law were the best but they are unable to pass that since 15 years..) and GKP needs to get paid.
From acquisition perspective supermajors can diversify the risk so in my opinion (!) they would use a WACC around 12%. That implies a value of GBP 3.1/share for the 2P reserves (500m barrels). If they could rump up production to 110k barrels per day until 2026 -- which is very unlikely - then and also utilize the resources then it can worth GBP 4 for a supermajor (but in reality they would likely not offer anything like this). But we are very far from that, basic things like the payment, pipeline resumption and PSC legitimization needs to be shorted out first.