Member Info for Nobull

Putup, I agree with what you say. I was wrong to suggest there is a profit or loss in the Income Statement on a buy-back. I think we agree buy-backs make eps more volatile, and therefore lead to more volatile share price performance., both down and up, which for shareholders at the time would have increased their paper losses on their shares more than would otherwise have been the case but for the buyback. If they still hold their shares, their shares will soon achieve a higher price than would otherwise have been the case as the eps on the cancelled shares are notionally shared out and priced in to the remaining shares. When our chairman called the buy back "value accretive", our stock price was pricing in anticipated shared out losses on the cancelled shares (except they weren't then cancelled but held in Treasury, not that it makes any difference on the denominator in a profits or losses per share calculation). I have noticed that the par value of the cancelled shares or shares held in Treasury are deducted off the share capital, and I assume the purchase cost usually comes out of the cash figure in the current assets, and that a balancing figure must therefore be deducted from somewhere else on the financing side of the balance sheet if the purchase cost is greater than the par value. That is about the level of my understanding of the matter. Using hindsight knowledge to expect the directors to time buybacks to take account of high impact value, low probability events (tail risks?) like oil price crashes is a tad unreasonable, not that you, Putup, are one of those people. I hope this clears up any misunderstanding.

When you change from eps to lps, buybacks concentrate the loss, the loss from selling oil below cost, among a smaller number of shares. I can see Putup’s point that there is no loss in the Income Statement from actually executing the buyback, at least not in the Income Statement, and maybe not on the Balance sheet either – all his arguments sound correct – but there is a loss from the extra volatility suffered from holding the shares if the share price is logically, keeping it very simple, the present value of a future eps stream: the increased forecast loss , from selling oil below cost, is then concentrated among fewer shares causing the present value or share price to fall more than would have been the case had the shares been bought back during a trajectory of rising profits.

I believe less dilution and liquidity risk would have needed to be priced into our shares due to the oil price crash had the buyback not been done. This would have reduced our share price volatility slightly, I wonder?

The problem with oil price crashes is they are high impact, low probability events, at least low probability over any short time interval, so can’t reliably be predicted to time buybacks better.

I continue to disagree with our Chairman’s characterisation of the buyback last May but believe it will be value accretive soon. I am not against the company doing buybacks in the future. JMV.

If it was possible to see a way out of us being a zombie company, the share price wouldn't be what it is. I can only think of 3 ways out:
1. A substantial increase in demand for palm oil caused by new biodiesel manufacturing capacity coming on stream
2. our dud andesite asset suddenly making a contribution
3. our dud coal mining concessions making a contribution
On 1, we really need to the B40 mandate to be implemented but that maybe won't happen until the end of 2022, and there seem to be some technical problems to overcome, so it is by no means certain. And lower palm oil exports (because more is being consumed domestically) might cause more price sensitive consumers like India to reduce palm oil purchases so cancelling out some of the extra B40 originated demand. Some extra biodiesel manufacturing capacity is apparently coming on stream in Q1 2021:
"Indonesia will increase biodiesel capacity by 2.2mn kl/yr in the first quarter of 2021 and by 3.6mn kl/yr by the end of next year, Paulus Tjakrawan, vice chair of the Indonesian Biofuel Producer Association, said at the Indonesian Palm Oil Conference."
I think we can forget "2" - we need the andesite ourselves for road building for more timely evacuation of the ffb to the mill, so no contribution from andesite sales?
"3" is maybe our best hope. But at $80 a tonne, it maybe is not profitable to mine it, I wonder? Maybe our share price won't do anything until thermal coal takes off, if it does. In the absence of any really substantial cost cutting news, and without thermal coal doing anything, we must be at risk of heading down to a new share price trading range whenever the next palm oil bear market starts. JMV.

Are we a zombie company headed for slow death by dilution and if not, what is going to change that, given we can't make an ROCE above the interest rate on our debt and pref capital; we can't benefit from palm oil price rises and we don't have an attractive growth production profile (practically no new plantations maturing) and, worse, we don't have the money to get one? What price of thermal coal do we need to make the mine concessions viable?

With yesterday's $1130 CIF Rotterdam CPO price, we are in danger of getting saddled with a $51 increase in the export tax next month, which if the CPO price then moderated would leave us with a really terrible net price. Stockopedia calls us a value trap. What are you going to do about this?

o The KRG has submitted a reconciliation model for repayment of the receivable relating to the $159 million in unpaid invoices, whereby for each cent above a monthly dated Brent average of $50/bbl, 0.5 cent per working interest barrel shall be paid towards monies owed. We continue to discuss this model with the KRG, and will update the market in due course

Above is a quote from this morning's Genel update

If it was possible to see a way out of this excessive prior ranking finance mess, our share price wouldn't be the 57p it is. The February 2020 trading update mentioned loss of about 1,000 hectares of plantation for road building, so I am not sure that the cpo yield from the 1,000 hectares that are due to mature this year will compensate for that . I can't see the Kota Bangun coal mine making a contribution either, for thermal coal prices need to rise a lot more to make it viable, I wonder?.

Only really savage cost-cutting is really going to achieve anything. I can't see more than about $14m of interest bearing finance being repaid out of cash generated by the business in the next set of results, and this isn't enough to reduce the risk of the auditors from qualifying our accounts again , maybe not in the next set of results but maybe in set of accounts a few years hence e.g. if we had a future year of low cpo prices again, which would necessitate more borrowing again, undoing the good work done of reducing our net debt in the 2020 financial year, taking us back to square one.

Our business model is under constant attack: policies to strengthen the rupiah (import substitution); policies to take huge amounts of revenue seemingly coming our way before we can even recognise it in the revenue figure in our accounts (utterly massive export levy and export tax); policies to stop us benefiting from changes of use in the land (the terms of the HGU licenses?); policies to discriminate against us (not allowing losses to be carried forward more than 5 years - we are a long term business); fiscal policies to ensure we make losses that can't be offset; and then, if we did by any chance make a profit, we'd be taxed at the same rate as other companies, but we've already paid huge taxes that non-palm oil cultivators haven't paid. The only good news might be that the subsidy needed to make biodiesel viable might be less in future, but are they going to reduce the taxes we pay? No. The Finance Minister has a touch of the Johnwatti McDonnellanto, I wonder?. JMV. Anyway it will be interesting to see what our brainy BoD come up with. Hopefully, no more asset swaps for debt, no debt for equity swaps , no more equity dilution and no more debt extensions or new debt issuance, just tweaks to the business model to turn the company around, all miracle stuff I know, but I live in hope.

Thank you. That makes sense. I did search for the PSC document before, and the Oil, Gas and Energy Law web site claimed to have a copy of it (ogel.org) but that was as far as I got. I also asked a question about our PSC at the AGM and got a confusing answer as to whether the right to extract the oil was time limited. Many people bang on about how we are the cheapest oil producer from the point of view of having the lowest ratio of enterprise value to 2P reserves, but really this is irrelevant if we have to hand Shaikan back at the end of a fixed time period and if we don't have the finance to extract all the oil that is recoverable before the license expires. The initial response from our Chairman seemed to be that we are not time limited, but then as the answer went on we did seem to be. I'll look into cost oil and profit oil. Many thanks again.

P.S. Yes, I know current guidance is for 40,000 to 44,000 bopd so too early to start pricing in 55,000 bopd.

BroadfordBay: Sales are double the $21m a month revenue you quote: 55,000 bopd x 0.75 ownership x ($55-$21 for transport deduction) x 30 days = $42m a month.

Given our share price is a million miles from pricing in such revenues at present, I assume there is something wrong with my calculation, but yours makes no sense at all either. The 5% held in trust for Todd Kozel's company I assume benefits us in no way , so I've used a 75% ownership figure. Indeed we still have not had the benefit of the commodity price gearing effect: when my relative bought these, Brent crude was around $20 to $22 a barrel, and my relative would have made more buying the commodity rather than the shares, ignoring storage and delivery costs and the impracticality of storing the oil in the garden.

"Indonesia South East Asia's largest economy posted a trade surplus for the 8th straight month and have seen exports rebounding in the past few months."

Not helpful to us if the rupiah strengthens what with REA having to pay off the bank debt with US$. I think the Indonesian authorities also set the minimum wage our workers earn . Taxing us at extortionate rates, and using some of those taxes to subsidise smallholders seems to mean they really have no need to limit foreign ownership of oil palm estates as the authorities already possess all the levers of control to undermine our business model (exchange rate, taxes, cost of sales through wage setting). Thermal coal prices maybe have to rise a lot more before our coal mine is viable, I wonder, the one thing that could rescue us. Maybe if Brent crude rose a lot more, they wouldn't need to subsidise biodiesel so much and could afford to reduce the export levy. But the Indonesian voter probably loves the low cooking oil prices subsidised by us, so will they cut the levy? Probably not. These scandalous levels of taxation simply incentives oil palm cultivation in other countries. JMV. P.S. it will be interesting to see if our BoD has anything to say about cost cutting in the next trading update.

No, because the average tree age of MPE is much lower (it has a better production growth profile), although it is a moot point of how much of that is priced in already), and REA has about 1,000 hectares of immature oil palms maturing this year. The most that could add to production is maybe about 5,500 tonnes, but at age 4 years old, maybe the oil palms won't be adding 5.5 tonnes of cpo per hectare. At age 10, they maybe can. JL will be able to help you on that. We just need to be able to be able to generate enough cash from oil palm cultivation, as opposed to selling new shares or taking on new debt, to be able to pay off the debt. With Brent crude rising, maybe coal prices will start to recover, and our coal mine might be able to come to the rescue, I wonder? Cutting costs will help, but the depreciation charge seems hard to cut (a historical problem), which leaves things like head office costs? If it is necessary to have a posh office, then there are other posh places that are cheaper: Tunbridge Wells, Harrogate, but maybe these places are the pits for our staff.

I should have added: the problem was they paid a lot (with hindsight they didn't have the benefit of at the time) for a very small benefit because the eps forecasts went through the floor with the oil price crash, so the buy-backs were not as value accretive as alternative uses of the money were. Having the extra cash on the balance sheet might have lessened the share price fall caused by the oil price crash a bit, I wonder? If our share price gets to say £3 or £4 then I suppose we will feel the benefits of the buy back in having a much higher eps stream than we would otherwise have had the buy-backs not taken place. The value accretion has been delayed and is conditional on significant future profits growth occurring, I wonder?

The cancellation of the shares is supposed to boost eps (profits shared between a smaller number of shares), and the present value of a more valuable eps stream lifts the share price. Well that is the theory. So there should be a gain for the remaining shares. JMV.

There is no need for a cash takeover if MPE will just get on with some more extension planting. That would surely help to keep a steep production growth profile and allow our shares to trade on a high PE. The Finncap target of £10 is maybe based on a change of control, that being the amount that gives an enterprise valuation of $18,000 per hectare, if I've understood it right. The accounts of KLK won't be relevant in the case of an all cash offer. My relative, although now in profit, will need a lot more than £10 to compensate for the unwanted CGT bill and the loss of BPR. A takeover by them is just pointless fiscal and financial vandalism to a largely well-run company. All I want is more planting. JMV. Yes, I have a grudge against KLK for stopping the buy-backs, buy-backs that would have been value-accretive but for KLK's behaviour.

"Obvs oil is up, but we're really flying. What's happening?"

Commodity price gearing, and if I've understood the terminology right, some operational gearing (dilution of fixed costs against bigger anticipated revenues?), although the first term maybe covers that. Hopefully we will get a volume gearing benefit in the next production update e.g. a further increase of 2,000 bopd? Finally as our ROCE starts to exceed 10%, (the rate on interest we pay on our debt), as the oil price goes up, we should benefit from a financial gearing effect. I don't think there is any magic about it: it's all in the maths. Just my view. P.S. I don't pay any attention to people who talk about takeover prospects: nice if they happen but they have a low probability of occurrence in my view (50% chance over the next 10 years?, which translates into an extremely low chance in the coming months, I wonder?). We have had two offers in about 15 years (Rak Petroleum and Dana).

"Cpo tumbled to $964 on profit taking and some nervousness of the rapid increase in the price. Cpo/Cif R seems stuck at $1030."
Yesterday's ringgit price was 3,724, a new high, and up 124, on the previous day, according to MPOC. Today's January 2021 contract on the BMD is 3,967 (at 6pm KL time). The headlines for 05 01 21 on PalmOilAnalytics is

05
Jan
CPO ON A SPECTACULAR RISE REACHING 10 YEAR HIGH ON THE 1st DAY OF TRADING. CASH PRICES RISE SHARPLY
Comments Offon CPO ON A SPECTACULAR RISE REACHING 10 YEAR HIGH ON THE 1st DAY OF TRADING. CASH PRICES RISE SHARPLY
05
Jan
CPKO CIF Rotterdam—Higher offers, lower trades, narrowing spread

I find it difficult to believe the Rotterdam price is anything under $1,000 right now. It ought to be closer to $1100, but I could be wrong. Anyway the performance of REA's share price is perverse now, unless there is capital raising coming. JMV.

If it is of any help, the last CPO price for CIF Rotterdam I have is $1,030 on Xmas eve. All my usually up to date palm oil price sources have gone on the blink: Palmoilanalytics has updated its software, and MPOC hasn't been updating the discount of palm oil to soybean oil since 17th Dec. However, the latest BMD price on New Year's eve was 3,600 ringgit, but that has to be looked at in the context of today's Futures prices where the January 2021 contract closed today at 3,950 ringgit. Some convergence needs to take place, I wonder, as time goes on.

https://www.bursamalaysia.com/market_information/derivatives_prices?code=FCPO

Even with all these punitive export levies and export taxes that at present give us no additional B40 demand for palm oil, surely the FOB Samarinda price is going to be a tad over $700 a tonne? The last time we had $147m revenue (the amount we ought to have for 2020?) was, I think, in 2011, when there was a contribution from the coal mine.

I presume a lot of the international price rise in palm oil is due to soybean prices rising, weakness of the $ (printing presses running wild) and of course the export levy and tax, and is nothing yet to do with increased demand for making B40 biodiesel, for that is yet to happen, I wonder?

"The company seems to more sittings for the lenders" should be "The company seems to want more sittings for the lenders"

JL, hi.
I would hope you would make more than 25% on REA ords over a 5 year period,, i.e. more than a 4.56% CAGR, especially from these bombed out levels. A 44p to £5.90 share price rise over 31 years on MPE gives a CAGR of 8.73%. REA is probably as efficient as MPE in terms of the yield of cpo per mature hectare. The problem with REA seems to me to be the finance model is not working. The food on the table only feeds bank loans and loan note holders. The company seems to more sittings for the lenders, keeping out the ords from ever getting fed for even longer. The company has made the table smaller (capitalisation of the minority partner's loans) so there is less space for food. So when the ords are ever going to get invited in to feed is still light years away, not helped by the Indonesian governments obnoxious levels of tax on the company (The government creams off the export levy, stopping the company from making a profit, which helps past tax losses expire worthless - they can't be carried forward after 5 years - how fair is that?). The rise in the palm oil price probably has little to do with extra demand created by B40 biodiesel mandate, but more to do with the rise in soybean oil prices, so the $200 export levy is nothing more than unbridled greed. They did this before with using the plantation sector as a piggy bank to support the banks during the Asian currency crisis. I see nothing wrong in taxing REA some of the benefit provided by the extra demand created by the B40 mandate, but taxing REA now for a benefit it has yet to receive is simply scandalous. They are MEGAPOTTI.

Is it reasonable a foreigner should be able to debt finance a plantation development using loans from an Indonesian bank? Maybe not? If this covid crisis is overcome, I will ask a question at the AGM about the finance model and those oil palm trees aged 23.5 years. The company could of course put more food on the table by cutting costs. Do they need an office at such a posh address? I have not advised any of my relatives to sell their shares in REA. A bright guy like Evil must know perfectly well why these shares trade below £1. Just my view.

I agree it is unfair to criticise our BoD by being clever with hindsight, but what I can't get my head round is JH said it was value accretive at a time when it wasn't; it might be in the future, but it wasn't then. What is really obscene is JF and JH won't buy our shares with their own money (the big 'T' risk mentioned in the 2014 prospectus is too much for them?) yet they are happy to punt our money on it never going bad. JH said the BoD was fully aligned with shareholders; they are mostly only aligned on the upside.