The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
theoryman,
your concluding remark caused me to have another look at the declared revenues.
I started with the 2019 Annual Results (released 23rd Apr-20) where, mid-page 20/33, the "Capacity Building Charges" for 2019 were stated as being $15.3M.
I checked my figures and the numbers do not stack up when using the 80% WI for the PO calculation and a Capacity Building Charge of 30% - with these figures the sum works out at approx. $20M.
Using a 58.2% WI figure, however, gives quite a good fit - I get $14.6M.
So, if the figures don't lie, either the Working Interest is not 80% as the company states, but nearer 58% - alternatively the capacity building charge has been reduced (from 30% down to 22.5% or so).
My assumption is that the Cost Oil is being paid at 80% WI, as GKP are (with MOL) currently carrying all of the costs.
Thank you for the prod!
theoryman,
GKP has, and continues to be, a company most unwilling to share anything that can be considered unwelcome news - this stretches back to Todd's day and remains a defining characteristic shared by company officers and those entrusted with their PR .
For example, the issue of SH-6 and the FWL: This was very well addressed by Gramacho in his post of 18th Apr-2014, following publication of the CPR, in which he highlighted the apparent contradictions found therein. Gram was hounded from these boards and obviously decided his professionally-founded views were of no interest to many of the "investors" (to be found here and on the other 2 boards) who prefer only to dream of the 100 Billion Barrels and who wish to believe everything the company says.
The lack of clarity with respect to OWC etc can be seen today with the lack of information re well output from the Eastern side of the field, depth of currently producing wells and reasons for, lack of information re SH-4 performance and the SH-9 experience. I must also mention the issue of gas treatment which seems to have been pushed to the back of the queue despite it having the potential for (financially) blowing up in our faces.
It may well be that the CEO and BOD are just paper tigers, chosen for their willingness to comply - to be well-paid putty in the hands of others, but - and this appears increasingly common in the UK financial world - the apparent lack of a moral backbone is shocking. The company may be a Public Limited Company but, leaving aside the handful of larger investors (corporate & private), scant regard seems paid to "the public".
I was part of a small but vocal group who tried to change this but we, and our NEDs, failed.
Re your final point: I no longer believe that any UK City Watchdog is interested in such goings-on. The information given out along with the accuracy / truthfulness is “just enough”, and that encapsulates a lot of what is wrong in our country and society today. GKP’s SP development displays enough peaks and troughs to keep the financially astute more than happy.
PS. You remark upon the PSC flowchart showing Revenues – I agree (the PSC actually speaks only of barrels due). My personal view is that the Profit Oil is the most relevant part of the agreement and will be the value-defining aspect – the Cost Oil part just defines how quickly you get back your own, or borrowed, cash.
42Mbopd means 1,171,800bbl after deducting the 10% MNR Royalty.
Using that output number:
At Brent $50 this implies $33,982,200 total monthly revenues.
At Brent $55 this implies $39,841,200 total monthly revenues.
Difference is $5,859,000.
A 50:50 split between the KRG and the SH licence partners implies $2,929,500 for the KRG and the same amount to be split between GKP and MOL.
If GKP’s WI share is assumed to be 80% then that equates to $2,343,600
If GKP’s share, however, is taken to be 58% then that equates to only $1,699,110
Nobull,
Sales are not revenues, and GKP does not receive 75% of the sales revenues - the contractor group receives a percentage of the oil sold and that is further broken down into Cost Oil and Profit Oil.
GKP then receives a percentage of each of these sums - they also pay a 30% tax, initially described as an Infrastructure Support Tax, on the Profit Oil.
You obviously do not quite understand the GKP Production Sharing Contract.
Go back and read it - final slide (#26) of the Jan-2020 Corporate Presentation will show you where you are misinterpreting its workings. Do your sums and then we'll debate who is wrong.
On the contrary,
field output of 55Mbopd and Brent $55/bbl generates revenues of ca $21M+ per month. Upping Brent to $60/bbl increases those revenues to ca $25M per month
The 75Mbopd level would generate ca $29M per month at $55/bbl Brent, increasing to ca $34M at $60/bbl Brent.
The costs of re-injection, while not cheap (DNO spent ca $110M for the Peshkabir gas collection, storage and re-injection project), are manageable. SH crude is even more acidic and sour than Peshkabir, so SH costs would be somewhat greater.
What is challenging, however, is finding the right formation and location for sour gas injection.
There are 2 main, gas project aims (the 3rd - selling a nice commercially clean gas, is an outside bet):
1. Get rid of the nasty, poisonous gas – that means finding a non-leaking formation into which it can be safely injected. In addition, if injected into an oil-bearing formation (as opposed to a gas cap type location), then the increased GOR comes back to bite you at surface (reduced fluid handling, proportionally more gas handling, etc.).
2. Inject the gas at location(s) that will assist your rate of oil recovery. That objective was not achieved at SH-9 and the management are now very aware of their lack of knowledge re potential gas cap locations and general sub-surface transmission pathways.
At the end of the day, resolution of the gas issue will forced upon GKP by the MNR – the only question is when. Sooner is very bad, Later is good.
Hi Cookie,
I’m not qualified to give a professional opinion on this – all I can offer is an intelligent interpretation / opinion of what I read and understand, somewhat expanded by 10 years of exposure to SH data releases.
What I can say is that the company has been vigorously trying to more fully understand the petro-geological implications of what has so far been measured; witness the recent Geo Society papers found in the Lyell Collection dated 18th Sept-20 and 28th Aug-20.
These efforts have already been mentioned in several company publications (see Discreet Fracture Network Studies in recent presentations) and have been ongoing for several years.
Have a read and you’ll gain a bit more background to the issues.
My very broad-brush interpretation of what is said in the Abstracts is that, as a result of observed pressure declines, more effort is been put into understanding why this should be so (especially as the fractures are said to be huge and well/pressure communication can be seen over great distances).
The behaviour of fractures under changing pressures (they are three-dimensional after all), the stress to which they are subject, coupled with their orientation (these vary all over the field) greatly influences permeability: the orientation relative to the axis of stress determines whether they are deemed critically oriented or not (as does their orientation relative to the wellbore!).
Critically Oriented generally translates to “to your benefit”, as in better flow.
As pressure changes / drops, some fractures close – and some open up. If stress changes enough during such movements then some previously closed but critically oriented fractures may reactivate / extend / open up (ref hydraulic fracturing enhancement).
The Shaikan field is located at the conjunction of the Taurus and Zagros orogenic trend and overlies the basement strike-slip fault (Kochuk-Duhok Fault, ref 2011 Strike-Slip Earthquake) and recent seismic activity suggests this region is critically stressed (Heidbach et al. 2016).
Any increase or decrease in localized sub-surface stresses has potential implications for the outcome of the Discreet Fracture Network Studies mentioned. From these flow output projections, depletion rates, OIP, Reserves, etc, etc.
It’s not much, but it’s my rough understanding of what is being said.
There appear to be both positive- and negative implications within the articles – it is after all an intensive and ongoing bit of work trying to understand more fully just what’s going on down there!
Good morning Cookie, I trust you and your family are all well?
GKP has had a good run lately - up 100% since Oct-20 - and good luck to those who profited from the rise; it should not be assumed that the rise will continue. Should Brent take a dive the SP will be slaughtered rather quickly.
Apart from field performance- and water issues (which are being hidden under the carpet), the KRG threat of forcing the company to deal with the gas issues in their (KRG) timeline is a significant danger, as the company does not have the cash to go ahead and do it PDQ. Holding back and waiting for KRG to pay their outstanding sums will increasingly be interpreted by the KRG not as good commercial sense but as a threat IMO.
Re your remarks about the Incontinent Rampers, yes, that's why I continue to post. How people interpret those posts is entirely up to them. There are many liars and fraudsters posting here and on the other board who try to convince you they are the good guys, that negative postings are "paid for", that they have a Lifetime's Experience in the Industry and will put you right and so on.
Caveat emptor...
It has been reported in several sources that the KRG owes a great deal of money to the various operators - GKP is not alone here.
Erbil is enters 2021 with a massive $850M in receivables owed to foreign operators for missed payments between
November 2019 and February 2020 (MEES, 9 Oct-20 ). While subsequent payments have been reliable, it is far from clear how the KRG will be able to pay this down any time soon.
The auditors decision to support the CEO's argument that "these invoices WILL be paid", leading to recognition of submitted invoices as "cash received", is now standing upon very thin ice.
We shall see...
2020 Sales revenues received so far amount only to $55.7M.
Dec payment remains outstanding - say $14M , so total receipts of ca $69.7M.
The payment of Nov-19 thru Feb-20 ($73M?) cannot be assumed before EOY results.
It is very, very doubtful if the KRG could decide to settle all of one company's outstanding payments at one go - the outstanding sums are far too large; a drip feed of small monthly amounts is what should be expected and even that is not guaranteed to be announced before putting the accounts to bed.
We should expect the accounts to be qualified by the auditors.
Before you get too excited...
I found the Ops Update to be rather negative.
Take the total output - now 42Mbopd, from 5 +5 wells.
PF-1 is handling 27.5Mbopd so PF-2 (serving the Eastern side of the field) is handling only 14.5Mbopd.
The Eastern side of the field appears to be suffering rather badly but we are given no explanation as to why.
Water issues.
Good morning,
Atrush (adjacent to Shaikan, to the North) started production in July 2017 and current output is over 46Mbopd.
Shaikan started production in July 2013 and current output is about 39Mbopd.
Management.
The Total crude oil being produced in the Sarsang block is 36°API - 41°API.
The Shaikan crude currently being produced is 17°API - and getting heavier by the day.
There is a world of difference between the value of these 2 crudes; there is absolutely NO value read-across.
"DNO were not however holding the stock as a hostile take over defence.
GKP were."
Only your assumption - nothing to this effect was ever even hinted at by the company.
You are severely deluded, untrustworthy and your motives are anything but well-intended.
Oslo, 8 September 2020
DNO ASA, the Norwegian oil and gas operator, today announced that the reduction of its share capital by cancellation of all 108,381,415 own shares held by the Company, approved by shareholders at a 28 February 2020 Extraordinary General Meeting, has been completed.
Friendly deal done...?
Laugh out loud.
No deal for GKP - only more pain.
The same rampers, wearing different clothes, are trying to dupe you again. with their takeover nonsense.
Back on 20th Feb 2012 (when the stock hit 450p in old money or 46,500p in new money), the Brent price was $121/bbl and the rampers were shoving Exxon’s alleged interest in buying GKP for $7Bn - $8Bn down everyone’s throats.
The company denied there was anything in this, as did Exxon, and Mark Leftly’s best efforts came to nought.
Todd managed a smile, however, as his take that year was $13.6M plus another $9M in deferred payments.
The company also claimed (in their 26th Jan-2012, LSE O&G Investor Forum) that:
- they planned to build a 440Mbopd pipeline from Shaikan to connect with the Ceyhan pipeline,
- they had a clear path to a daily production of 400,000 barrels,
- they had incremental Billion barrel potential across three other blocks.
A lot of HOT AIR was produced around end-2011 thru Summer-2013, when the brown stuff finally hit the fan.
Do not be fooled – there is NO imminent takeover. The SM chap does NOT have your interests at heart – he only has his own trading positions to protect.
Do not be fooled.
Sorry,
that should of course have been 21 years and 8 months to expiry of the PSC.
Always assuming of course that the final 5-year extension is requested!
Depending on just how capital hungry your field has become, you might want to reconsider your options.
Still, the Chinese are buying GKP tomorrow aren't they, so maybe there's no need to be concerned?
GKP made a Declaration of Commercial Discovery on 1st August 2012 to the Shaikan Block Management Committee under Clause 12.6(a) of the PSC.
The declaration was made in respect of a Crude Oil Discovery (with associated natural gas).
The Development Period is defined in Clause 6.10 of the PSC as 20 years, with an automatic right to a 5-year extension.
If commercial production from the production area is still possible at the end of its development period then, upon request, the contractor shall be entitled to a 5-year extension under the same terms as the those provided in the contract. Such a request must be made in writing at least 6 months before the end of the development period.
So, PSC expiry either 1st August 2032 plus 5 years, meaning 1st August 2037.
OR
Expiry 1st August 2037 plus 5 years, meaning 1st August 2042.
I believe the person going under the name of a previous GKP director, the one with Sino connections, has been banned for a ridiculous amount of spamming on the other board and has now turned his attentions to this LSE board.
His contribution is zero, and he has been spouting the same takeover- and Bermuda corporate law nonsense for years.
Be warned...
The company does not have $150M cash at the moment - the sum is closer to $130M.