Member Info for Bravedog

Strange that nobody has taken up your post on Akri-Bijel!

With the heavy oil discovered at Atrush, isn’t the Greater Shaikan coming back with serious players ?

Indrid

On Genel. Their bonus would have made them very rich. Unfortunately, Tony Hayward was unlucky to buy an oilfield where the water came up to quickly and the reserves disappeared. The rest of the money was wasted in other countries. Add to that ISIS, the unwillingness of Baghdad and the Kurds to agree on anything, the fall on oil prices and the lack of support of the previous US administration: nothing could come out in the 5 years period.

On GKP, all the above mentioned factors have disappeared. Of course, the oil price might come back to 30 if we have a depression, but we’ll see. Now we have an opportunity in April 2019.

We’ll see what happens.

By the way, Alan Mothadi seems to indicate that Rosneft is producing oil.

The other day, I saw on Shamaran’s site that they were producing heavy oil, which seems to be confirmed today, even by Mothadi. This should mean that the oil north of the East-West Shaikan fault reaches Atrush! That is why I hinted at a possibility of a merger GKP Shamaran, or perhaps even Taqa. Unitisation of the field will be necessary.

Anyway, after +70% last year, we are at +40% this year: we are moving in the good direction with a good yield.

Surreyscot,
I explained it in my previous post.
The story of the bonus came up thanks to Straycat and the correct link was given by Mikey. Thanks to both of you.
The bonus is linked to the rise of the market cap on the 30 days following the announcement of the year end results which was on March 28. It then starts on March 29 and finishes on April 28 which is a Sunday.

Hence April 26.

So we need very BIG news for the stock to rise tremendously as the managers get 8% of the increase in the market cap above 8%. The story came up on February 27 or 28.

My bet: announcement that Rosneft has finished its heavy oil pipe to Turkey. Studies seems to have started in Q4 2017 according to the Qamergy report. Then upgrade in reserves and 2nd amendment. But it is a good way to put pressure on Baghdad who will have no reason to oppose the development of Iraqis oil reserves.

Perhaps a dream.

Why?

You didn’t realize that several things must happen before the very strong rise of this stock:
1)Decisions must be taken with the approval of a real government. Thanks to CCC, we know that the PUK entered in the government. You could have learned it thru Rudaw. I think that our stock played a role in the agreement reached.
2)The managers must get their bonus, which implies that on April 26, the stock will have gone thru the roof. And on that day, KRG will probably announce they are handing over another 250 kbd for a month to ICG.

Only good news to come.

I have been buying even today.

Highlander,

I think you don’t get it.
There is the hurdle AND the period taken into account for the performance.

Hurdle:
Hurdle is not 350 mio +8%/year !

Page 10 of the RNS explaining the VCP, there is a footnote:
« *The actual hurdle market capitalization is the higher of 8% p.a. compounded from the starting market of US$300m (minimum hurdle market cap above) and the highest market capitalization at any previous date when nil cost options were banked. ».
Of course, the 300 mio became 350 mio.

No clarity in this footnote:
Is the highest market cap the highest of the previous banking period in May 2018, which was 184p, or the highest reached at 300p?
Thanks for a reply.

Period taken as reference for the 30 days. I got the answer!

In 2018, the results where published on April 11.
The average price of GKP from April 12 to May 11 was 169.36p or 2.3448$, which is not very different from the numbers published on May 15 in their RNS: 1.693£ and 2.346$.
If you take into account April 11, then the price would have been 167.12p

So in 2019, the first price of the 30 days period 2.54£ and the
last day will be April 26 th. Like last year, the annual report will probably be published before the results of the VCP expected on April 29.

Straycat,

You have a start price and the average of the 30 days that define the performance.
Is the start price 248.5 or is it included in the 30 days period.

Their interest is to have a low start price and that is perhaps why nothing new came out.

Beginning April, we have the oil conference in Erbil https://www.cwckiog.com/ where GKP is silver sponsor. Will we learn more about the pipelines?

Quote:
« The share price used for calculating total shareholder returns in plan year 2 and subsequent plan years shall be the average of the closing prices for the 30 days following the announcement of the Company's results for the relevant financial year. »

Question:
Is the day of the announcement included in this 30 days period?

If it isn’t, the hurdle will be today’s price +8%.

CCC
Pareto says a new FDP (timing, costs) and strategy

A FDP is about investment planing of a defined zone.
If big investments are indeed planned (costs), clarification on the PSC are needed as well as the fiscal incentives.
And these investments can only be planned properly (timing) if the true reserves are disclosed to the IOC.

Studies for the heavy oil pipe to Turkey started in 2017. When it is ready we have the timing.

Strategy: farm out, dividend/buyback M&A.

That would be good news even if the OGL is lacking. It could perhaps even push ICG to make a deal as they can’t argue against IOC making very big investments in Kurdistan.

But it doesn’t explain why American Funds SMALL AP World Fund sold 2.19% on February 25th. Capital Group acted as guarantor of the 2016 capital increase, becoming almost an insider.

Why are they selling all the holding as they know much more than all of us?

Cockeye,
I went out of GKP after TK sold. At that time, many posters on iii screamed when I said long Genel/ short GKP. Now it is the reverse for me and I see no reason to buy Genel now.
Unfortunately I didn’t follow the good manager, the CFO Metherell, on Genel and it was painful.
Contrary to some claims, II are small shareholders in GKP, otherwise Morningstar would list them. The shares held by UBS are from discretionary accounts where clients manage their money alone. If it was from managed accounts or funds, the stock must be on their approved list with a buy recommendation. When this happens, internal rules are that all the managers allowed to buy the stock must do it at the same time. As far as I remember, when they issued a sell on Genel around 900 years ago, the stock tanked to around 820.
So be prepared when they say buy: don’t sell your shares. In 2009, GKP went from 5p to 100p in 6 months. Depending upon what they announce, we could have a sizable move.

IF good disclosures on the 28th, the cy will have to manage the newsflow in the following months or the market will revert to the OGL and all the negative issues. That is why I don’t believe that we will have all the news on day 1. That will allow people to short the stock and the best rises are the ones where you have a good short position.

And a reverse merger is a good way to let the market forget many things about Gulf Keystone. As you have perhaps noticed, the history of Gulf Keystone on Wikipedia is totally different from what it was in January 2018. At that time, you had the history we all know, with a special heading mentioning that the reader had to be careful and it was a « promotional history ». Look what it is now.

Looked more this morning.
On March 20, they announced a dividend of 95 (upper end of estimate) and an extra of 47.5. You have a solid 4% dividend. They own 7.4% of their stock, Oman about the same % and the state 25%.
The oil coming from Shaikan will replace the one coming from Russia 61%, so there is no problem.

They are locked in their oil and gas business. And there is NO WAY out.
These guys plan investments for 30 years amounting to bil $. They CAN NOT at the same time run shops where the life of the investment is must shorter and the client different.

This is only a setup to become « greener », because it increases their potential shareholder base by having a good ESG ranking. To become profitable, these divisions will need 5 to 10 years.

They are making a presentation on the 29th. Don’t remember where, but it is more about chemicals. Of course, they’ll have to speak about Shaikan.

Straycat,

I only look at what I understand, which is that the yield is around 4% better than any bond. With a 20% stake in Shaikan and growing volumes of crude, MOL will be able to rise the dividend for years and become a growth stock. The target of 500 mio bl reserves 2P for 2023 will be reached quickly and MOL increase its own production and profitability.

Looking at charts, Shaikan’s value and potential isn’t priced in the stock.
https://markets.ft.com/data/equities/tearsheet/summary?s=MOL:BUD
I saw another chart on a much longer timeframe and the pattern reminds me an integrated oil cy. Nothing exciting, rather boring. Good sign: the stock is near its all time high.

There were surprising things with their Kurdish activity:
-in March 2016, GKP reached an understanding with KRG over past payments, but it was not signed by MOL. Why should MOL pay for the delays created by GKP restructuring?
-one of the older annual report showed very big tanks on the field AB (east of Atrush) which they surprisingly relinquished. I think the block has been taken over by Rosneft.
-Putin went to see Orban in Budapest, probably in April 2017. Only comment I could read was that they spoke about oil.
-the managers bought convertible bonds years ago.

I studied carefully the November Investors day presentation and I have very big questions about the management.

The management predicts what will happen in 2023. I believe they have some expertise in oil, refining and chemicals, but there are always delays as we have seen in Kurdistan. At least, they indicate a trend. So the 5 years plan is only for illustration purposes.

But what scares me most is their willingness to expand their retailing and transport business: « Become a true consumer goods retailer and lead the revolution of transportation in CEE » p 25 of February 2019 presentation. It’s not their business, they don’t have the expertise, the managers and the incentive to develop a retailing/transport branch that will remain meaningful. Not to speak about a transport division.
Hopefully analysts will explain them that it’s utter nonsense: what is critical for every company is the « market share » to which profitability is linked for obvious reasons.

My plan was to switch over to MOL after the TO, but I have to alter my plans and find another bank that accept purchases in Budapest ! But I am now scratching my head with these retail and transport targets as it implies the management is missing something. Unless Or perhaps are they willing to waste some money to look « greener »?

This is just a summary of my thoughts which have changed because I don’t believe KRG has any interest in selling GKP. Of course, I might be totally wrong.

If KRG decides to sell GKP, the buyer will agree on payments and everything with Baghdad and Kurdistan will be out of the picture. The KRG will have lost all their leverage power.

Their interest is to keep the cy listed and allow it to grow by acquisition(s) because the bigger GKP becomes, the greater its political and financial value. I’ll outline one scenario that could explain why JF and SB made a visit to Africa.

As GKP doesn’t have the capacity to develop this field alone, they have to make a farm out, keeping a part of the field so that the market will consider GKP as an oil producer. With the cash, they can buy back shares, make acquisition and give an extra dividend. (The cash kept is probably for a dividend).

The problem with an extra (sizable) dividend is that the beneficiaries of the VCP will not get anything ! There is however a solution solving this problem which has also the advantage of increasing the coverage of GKP by analysts. To be followed by institutions, it is better to be a dividend paying cy, to be registered in a big country where there is a stock exchange which will automatically include you in an index.

So why couldn’t the management register the cy in Canada where many oil cies are listed? Something smarter and quicker could even happen: a reverse merger with Shamaran with several advantages:
-it makes sense, because the block is north of Shaikan.
-it is a first step to take control of the block north of Shaikan where low risk exploration can be done. GKP hasn’t given any information, except showing maps of the greater Shaikan: in February 2018, page 8: https://issuu.com/pesgb64/docs/january_february_2018 , confirmed later by the Chinese study of the so called block SH which is much greater than Shaikan (page 9 http://www.searchanddiscovery.com/documents/2018/42204lin/ndx_lin.pdf#page9 ).
-it solves the VCP problem as all the allotted option, even if not vested, will be converted in shares and a new VCP will be set up with a different benchmark.
-it erases the history of GKP with unpublished reports and other missing informations.
-wider coverage by analysts and inclusion in indexes.

Of course, this doesn’t solve the problems with Baghdad, but if ICG can profit from the rise of GKP, it will help. But I don’t know if a listing on a Canadian market will protect GKP and how it’s profits would be taxed. There might however be other negative factors that I haven’t seen.

Anyway such a low valuation is an invitation for SOMO or other hostile investors/countries to start building a stake in GKP. The best way to protect the cy is to disclose the true size of the reserves and afterwards start selling a growth story.

No problem Mikey,

I don’t know how you didn’t notice earlier that I have nothing to do with all these posters/avatars.

I am however very optimistic about the value of this stock due to the scarcity of such a big field, even if there are political, judicial and payment problems. I believe the current shareholders will get a very good price, way beyond what is expected here.

You should all remember that there is only one country where Soros lost money: China. In all the other countries, it worked very well. So if China takes GKP, we earn a lot of money but the Kurds lose all their power (and the Iraqis also). Look what happens in Kenya.

Sorry for late reply,

Dakad
315p IF the management fills the pot. For this we need a big announcement, which is possible due to the MOL leaks and it is in the interest of thee management.

Cockeye
Where do you see that the pot is capped at 100 mio$ ?

Straycat
Page 12 of the exhibit, it is written « These tables provide illustrations only ». The 42.1 mio$ is for an annual rate of increase of 18%. If this rate is higher, the amount also.

On December 8, 2016, GKP issued the following RNS:
https://ir1.euroinvestor.com/asp/ir/GulfKeystone/NewsRead.aspx?storyid=13495537&ishtml=1
where everything is clear: « A cap of $US20m is being introduced to the total value of the Nil Cost Options, i.e. at each Measurement Date the aggregate value of all Nil Cost Options granted at previous Measurement Dates and at that Measurement Date shall not exceed $20million. The value of Nil Cost Options for these purposes being the value at the Measurement Date in respect of which they were granted. »

The cap is at 20 mio$, valued at the date of award.

Just noticed that the end had been truncated.

If we have the current market cap of 750 mio $ on the 27th and add 8%, we arrive at 810 mio$. 11.2 mio $ over performance (over the 8%) equates in an increase 140 mio $ in market cap which would then be above 950 mio $.

This implies an average price of 3,15 for the 30 days period. But as the price will be rising during 30 days, it will be well above that level.

I take the opportunity to answer another question of Straycat.

Why can the board change the VCP ar any time?

Very simple: the amount of over performance needed to fill the pot, is 11.2 mio $. It has nothing to do with the current price! It is the same if the stock is worth 1 or 3 or 5 or 100$ ! What differs is the numbers of options awarded !

That is why the management wants the price to be low and why the Bod has allowed itself to change the rules if they can’t control the price of the stock.

Maths of the VCP

Cockeye
Cy is indeed an abbreviation of company.

Straycat
Agree with you that the VCP is a golden handcuffs. And your question is « What is the real plan? ».

Barzani’s plan was the independence of Kurdistan which could only become a reality with a 100 years field. For that he needed directors who would do as instructed and this is only be possible if the Kurds are controlling the cy thru hidden accounts. Otherwise, hostile hedge funds would try to blackmail them.

Past history of GKP, lack of information on reserves, presentations prior to 2016 withdrawn from their website, judicial uncertainty about the contracts, uncertainties about the payments, Isis fighting nearby when the Iraqis weren’t fighting the Kurds, stock not included in any index and a very small market cap explains why no studies have been made. There are to many factors that the analyst can’t put in a spreadsheet and there is no sane II constrained by all these crazy Mifid rules that has an interested in this type of dirty investment when the UN and all the politicians claim that the future is green energy and when the markets were roaring higher.

At least, this VCP gives some clarity as to when the cy might be sold: when the managers have their 20 mio $ options.

All this bonus scheme has been built to take advantage of a well known fact that stocks reacts to surprise announcements which triggers stock moves within a certain timeframe irrespective of market conditions.

The interest of the management is now to get as many options as possible. Their problem is: where must the price of the stock be on the 27/3 and on 28/4 in order to be granted as many options as possible.

To know this, we must know the value of those granted, because the value of the pot is capped at 20 mio $.

For 2018, it is easy: 2x 1,681,839 options were granted at $2,346 with a value of $7,891,188.
For 2016, it is more complicated. 90% of the pot (920000 options) was awarded to the directors, but that number was reduced after Zaharia’s departure.
The first question is: was the pot 920000 or 920000/0.9 as 10% wasn’t granted? I’ll go for the first.
If the pot is 920000$, then 8% of the over performance above the benchmark (300 mio $ for 2016) is equal to 11.5 mio $ (=0.92 mio/0.08). As the hurdle was 324 mio$, the market cap was 335.5 mio $ and the value of the grant 1.47x920000= 1,352,400$. This number has to be reduced by the 266,667 options left by Zahawi valued at 392,000$.

So the total value of the grants belonging to the two directors is 8,851,588$ leaving 11,148,412$ in the pot. If 8% of the stocks over performance is equal to this amount, they have their full bonus because the market cap is above the threshold.

They only need to achieve an over performance of 140 mio$ during 30 days to get their 11.2 mio options: 140 mio x 8% = 11.2 mio. The lower the price, the more difficult it will be.

If we have the current market cap of 750 mio $ on the 27th

Newbie on this bb, but not on GKP.
Thanks Mikey and Straycat for your input on the VCP.

But there are some things missing.

The Notice of the Annual General Meeting of shareholders to be held on December 2016 explaining the VCP is unavailable on Gulf Keystone’s website unless you have stored the link in 2016. Thanks Mikey.

The RNS listed is this one: https://ir1.euroinvestor.com/asp/ir/GulfKeystone/NewsRead.aspx?storyid=13481602&ishtml=1

The link for the AGM with explanations of the VCP is this one: https://www.gulfkeystone.com/media/108652/Proposed-consolidation-of-common-shares-and-notice-of-2016-AGM.pdf

This contradicts the statement in the Annual Report 2016, where you can read CVP Annual report 2016, page 62:

Remuneration Committee Report

The 2016 AGM Notice contains an illustration of the potential benefits to participants at different levels of achieved shareholder return.

When you read the annual report, it is after 65 pages you find the explanations that inform you that it is the performance of the stock on the 30 days after the publication of annual results that matter for the bonus.

And as you, Straycat, have been on the board of a listed cy, you should know why they took the 30 days period after the year end results. After such an announcement, if the results are good, the stocks generate over performance! A good way to be sure to get a good bonus!

Where did they get that idea? Perhaps thanks to Tony Hayward who created Vallares, merged with Genel but had a very big bonus (I think it was 10% of the equity for the founders) if the stock was admitted in the Footsie within a defined timeframe. As we all know, over performance of such a stock starts 2 months before the inclusion in the index.

And when you look at it the original VCP, the date chosen as starting point for the bonus was to allow the management to get almost 10% of the equity. Thanks to the II, a cap of 2% was put on the bonus.

This brings another question: why did the board allow two managers, who haven’t achieved much, to have the opportunity of becoming major shareholders of the cy? As Straycat pointed out, it was to obey to the orders and have them execute the plan set up by Zahawi. Could it be that 5 to 10% of the equity doesn’t represent much for the hidden shareholders selecting the board members and controlling it?