Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Ugh, I've no idea what you just said but I think you forget that there are two sides to the ledger. One side is the making of value (+ to equity value) and the other is paying it out (- to equity value). If, and only if, the first is higher than the second does equity value grow. Note, you can always 'get value out' of a publicly traded shareholding by selling some. There's no need to wait for the company to distribute value to you.
And where did the ability to make 'massive' (yes, supernormal) dividends come from? Over the last three or four years GKP recovered the bulk of the CRP (creating value for current holders by recovering the expenditure of previously wiped out capital contributors). They could then pay it out to current shareholders. Very little came from true, lifetime, project profit generation.
Investors 'might' lower the discount rate but that doesn't change the fact that money went out the door. "All else being equal" means just that. Personally, I don't 'value' dividends at all (and would not alter my discount rate as a result of them). To me, the value the company can actually generate is the only thing of worth (and builds share price) and not that it decides to pay some of that out. You might feel otherwise and if our difference of view is great enough then perhaps at one point I will sell to you.
And, yes, the best possible source of capital returns is recovery of the CRP much of which is in the invoices that are now long overdue. But, as I said, $25 per barrel or even $35 doesn't allow a lot of gross field sales headroom for those to be paid. For that, as mentioned, we need a return for exports. The next best place is a combination of both the excessive cash sitting on the balance sheet and the little biddy bits of CRP that are being recovered each month via local sales - there's still $50-55 million slowly being recovered. (Remember that current revenues are still flattered by excess cost recovery - that little bit of the CRP that has not yet been invoiced.)
"The share price is low enough to offer the prospect of value accretion through capital expenditure in that direction (unlike previous occasions)."
A buyback isn't "capital expenditure". Money leaves for nothing in return. It's distribution. But you, as would I, might feel that increasing your relative ownership at these levels (by not selling into the buyback) is a decent trade. The success of that too, however, depends on a return to exports via the pipeline.
"No problem if I’m wrong because @ 35 dollars a barrel 108 p and a reasonable profit margin"
I love it how people expect $35 when the company was last paid $25... a 29% lower figure.
Just for kicks I plugged $25 per barrel FOREVER into my model. Without arrears recovery (there isn't room for it at those prices) it suggests a fair value for GKP (50k production in perp sold at $25 and assuming the current contract remains intact) of 83p per share. (£1 year end discounted at 20% to end April.) The current share price assumes a LOT better scenario than limping along forever with domestic sales at $25 a barrel. The equivalent but assuming $35 a barrel sale price is 114p. So you could say the (bullish?) $35 per barrel scenario is pretty much fully baked into the current price already. We need a return to exports and recovery of arrears to make appreciable gains.
As for dividends (or buybacks), yes maybe they pay out a little of their excess capital. But the hint is in the words "pay out" - the value of the company decreases when funds are paid out and all else being equal the market cap reduces accordingly.
Always better to get the currency right... (I had used 1.2639 for Cable. FD shares o/s 230.868 million.)
Cheap for good reason.
All of this is about screwing the Kurds. Don't think Iraq/Turkey are quite done with that yet.
"Unless Weir is a special manager (which I doubt) then Genel are in a lot of trouble."
Straycat, it seems you are the one predicting gloom and doom...
Genel has a net cash position of $120 million even after reducing their debt by $26 million. Their cash burn is modest and they expect to maintain a net (of debt) cash position of at least $100 million throughout 2024. Their capital structure position wouldn't appear to be materially different from GKP's. And they face the same risks and challenges...
"But, the argument of "if you cant't do it there are others who can" is a powerful one. "
So is the argument that "we'd do it if you maintain our current contract." But this is in essence the battle before the company. Existential. Can we get to a sensible contract that allows for sensible development of the field? If not it's tits up all round. That was where we were before this whole thing blew up - the self funding plan. A notion that many didn't get. I still think the current contract and previously agreed FDP will - largely - prevail but that's based on hope for commonsense and not any blind faith that "the oil will flow" or "Shaikan heavy will be in demand". Of course both will - whether it's with or without GKP is the question.
"The huge dividends paid out so far can be seen as a red rag to a bull"
I think it readily arguable that the company isn't paying out profits but rather the capital it invested and has had returned via cost recovery. For that Iraq has a producing field and all the assets needed to run it. (It would be interesting to add up all the capital deployed by this company since inception and compare it with that returned via dividends and buybacks. How much of that returned was capital versus generated free cash flow (true profit)?)
If you are confident in your belief that commonsense - and GKP - will prevail then having the company buy back and cancel 10-15% of its current shares o/s at anywhere near current prices ought to make a lot of sense to you. At an absolute minimum they should buy 8 million shares for the EBT to cover the full o/s stock options rather than issuing new shares. If they have balls and confidence, they'd do a lot more... Weatherdon didn't have any and that's why he was pushed out.
"if the self-funding model still has legs.
And I believe it does.
"
How can you? The 'self-funding model' requires a contract with sufficient cost recovery headroom to 'fit' an agreed Field Development Plan. The company isn't close to concluding either. The arguments between Erbil and the MNR about the cost of extraction are just the start of what needs to be resolved. The company needs to no longer use waste sums of its own capital to fund the field development on behalf of Iraq. That's what sent them bankrupt. Instead they need to maintain a minimal capital base, returning any excess to shareholders, and not agree to a FDP that can't fit within the contract cost recovery envelope. I'm not saying maintain zero cash, but $86 million is far too much. Nearly 30% of the current market cap is earning next to nothing. They can cut that in half without materially affecting their risk of survival.
"GKP are debt free" almost, now finally with "the payment of all remaining overdue invoices in 2024." So now that they are finally current on their payables they have debt of about $13 million. They've managed this well.
"self funding" depends on what contract they end up with. Unfortunately little progress has been made on that. Let's see how that unfolds. As has always been the case, upside depends on the receipt of overdue receivables, contract ratification and pipeline reopening. The current stock price is still pricing in resolution of much of these within the next six months. Cheap for good reason.
"No double counting, if that point in the future when invoicing for an already invoiced but unpaid cost becomes necessary, it could simply be deducted from the past unpaid invoice(s) "
Sure. But rather than modeling the unadjusted CRP and no arrears I prefer to accrue credit for the arrears which comprise cost oil AND profit oil and then add the adjusted CRP value. Doesn't matter which way you do it so long as you don't double up on both 79% of the arrears which is CRP recovery. That would be a significant mistake.
GKP/MOL can never recover more costs than have been incurred. But they get a very slight offsetting advantage via the R Factor not rising so much until, of course, the arrears are paid. But this is trivial versus not being paid. So always model the CRP net of invoices else you risk double counting the CRP and arrears which are mostly CRP.