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Jens, now 9 months old and they've withdrawn the cost guidance from subsequent presentations...

(BTW I could be wrong but I'm not expecting any update until the New Year...)

And then....

from that production.) One can calculate this easily. If we first assume that they stay within the annual Cost Recovery envelope then thee amount the Contractor has to fund is simply that amount divided by 12 and then multiplied by the number of months lag. So in this simple example that would be $67, 89, 111 and 133 million for a 3, 4, 5 or 6 month lag respectively for the Contractor - GKP's share is 80% of that (eg $107m for 6m payment turnaround). If the expenditure exceeds the annual envelope then we need to add the excess as well. So obviously the amount of capital required depends also on how timely payments are from the KRG. I'd expect this to be a considerable portion of any FDP discussions. If the Contractor isn't being paid they need the discipline to curtail/delay capex until payments normalize to a regular frequency. Each person here can form their own view on how much delay the company should tolerate, continuing to incur capex, before reacting and curtailing such. Again, discipline is key. No payment no spend. And of course it's not so simple as some capex will have long lead timers and hence long commitment times and it may not be so easy to curtail in the face of non-payment. Assuming a funding need of two months of capex would clearly be inappropriate. But if we haven't been paid for 6 months things are going seriously wrong and field development is likely the least of our concerns.

The above provides a framework for assessing the amount of capital the company might need to do the proposed FDP. Importantly it depends heavily on the base level of production, Brent (together determining the base level of sales) and the regularity of payments. Near term production gains are very important. But just as importantly it requires real capital discipline from the company. We should not build up a massive off-balance sheet receivable in the form of the CRP again.

GLA

How much contractor capex and direct exp can be recovered in a single year's production? A hypothetical working example: (amend as you see fit)

Brent 75
Discount 23.2
Sale Price 51.8
Less 10% royalty 5.18
Net Sale Price 46.62
Average daily production 48,000
Gross Oil Sales $m 817
Contractor Direct Operating/Lifting Costs 54 $3.10 per barrel of which 80% is GKP
Contractor Direct Shaikan G&A 5.6 GKP booked (its share) $4.1m 2021

A max of 40% of gross oil sales can be directed to Cost Recovery.

So, in this example, $326 million per year can be recovered via the Cost Recovery mechanism. Subtracting out the lifting costs and direct Shaikan G&A and we get $267 million (48k av production, $75 Brent).

(Lower oil price and lower production => less available Cost Recovery.)

Of course there is a delay in recovering expenditure incurred today. So when we look at the above example some of the receipts pertain to the prior year and some relating to current year production won't be recovered until next year. If oil and production remains constant this all balances out. In a growth situation, there is a real lag but then the base gross oil sales are also growing and hence the envelope for Cost Recovery is also expanding.

The company previously indicated a cost of Phase 1 of the proposed FDP (I believe the numbers have been removed from the latest presentations) of $800-925 million over three years. Let's assume this is front-loaded 40/40/20. So year 1 is $370 million. Obviously this exceeds the $267 million envelope for Contractor Cost Recovery. At $85 oil, same production, the envelope is $330 million. At 55k of production and $75 Brent the envelope is $306 m, while that base level of production and $85 Brent supports an envelope of $379 m.

IMHO the company should absolutely avoid an excessive rebuilding of the CRP. This is one of the reasons why its is very important that the company not embark on a massive capex programme until they have a sufficient base level of production to support the rapid recovery of that expenditure via Cost Recovery. Discipline is important. Of course, as noted above, one would hope there are some early gains in production and so the envelope expands as FDP capex is incurred but it's still useful to run those numbers.

So from the above we have a sense of how much capex can be supported in any given year without building greatly the Cost Recovery pool (as was forced to be the case in the company's early years).

As we know, the Contractor has to fund capex and direct expenditure first and recover it later with the lag being payment terms. So some rebuilding of the CRP is necessary. But how much? Obviously it depends on the rate of expenditure and how long it takes for payments to be received. The two contractors require capital to fund this. (They also lose out on receipts as when production is diverted to Cost Recovery they no longer get Profit Oil

FFS Straycat. Get a grip. Spend some time on the quantum needed. Retained earnings/cash is equity!

Straycat, I do - very much so. But let's assume they fund it with equity. They don't need the numbers you keep bounding about. All they need - regardless of the source of capital - is discipline.

"as a borrower"

Straycat, you haven't been able to figure out how much capital they need. Work that out properly and only then consider where that capital might need to come from.

One little interesting (and mind saving) thing about discounting the future: if the discount rate is high then way, way in the future is immaterial - it discounts to a rounding error. Take, for example, a 20% RRoE (the company has no debt). A $1 cash flow 20 years out is worth 2.6c (1/1.2^20) and so is basically immaterial to the sum of the discounted values from prior years. The earlier years matter so much more to the current value... (and that's ignoring relative probabilities of near term events versus long term)

"because a $250m-$300m revolving facility would come at too high a price for me"

They don't need that much - from whatever source...

Straycat, I posted figures useful for predicting production receipts. As the variables associated with those (price and volume) have become certain I have updated them. For now, production for Sep/Oct/Nov are unknown but price is known (with reasonable accuracy).

OF COURSE the greater the confidence in future production the greater value one might ascribe to the share price today. However (1) production has continually disappointed (regardless of what Opu would have you believe) and so (2) it's not surprising that, say, a doubling of production is not yet impounded in the stock price. If they aren't doing well in the near term they're not going to get paid for what might be possible over the long term. As I have stated, personally I won't pay for enormous potential future growth until I have greater confidence in management's track record now. The December Update hopefully will provide clarity on recent production and near term production goals. I doubt you are going to get much more than that (except an announcement that they are going to pay more cash OUT of the company). You will always have great uncertainty as to the field's potential.

It amazes me that people don't spend more time thinking about what might, or might not be, in the price today. At £2, are we being asked to pay for 48k of production? 55k? 110k? What about a broad brush assumption re the long-term price of oil going forward? $80? $70? 60? After all, if the share price currently impounds 110k production but we're struggling to get to 55k that might give pause.

The easiest part of valuing GKP is working out what cash it is likely to have at year end and what will be in invoices/receivables (near cash). FWIW using my Brent price assumptions (only need an assumption for Dec), capex and opex guidance from the company and production I reckon that's about £1.08 per FD share plus/minus. Use a range if you prefer. It will be even easier after the update. More than half the current value of the company doesn't depend on the oil price at all. (Of course if they pay some of that out then...)

Then there's the residual CRP. This is down to rounding error on a value per share basis after December's billings. Maybe 7 or 8p per FD share. You could almost forget about it. Again, DYOR.

All that's left after that is the value of the Profit Oil stream. Do your own little model (as simple or complex as you prefer) of what you think that's worth and also play with it to get an idea of what might be in or not in the current share price. From that you can determine just how hard you need to think about future progress.

Good luck!

For the month of November. Production (and price) is everything. If they're not rebounding strongly from August's figures towards 48k or beyond then we're not doing well at all. The next FDP is rather meaningless. They can already get incremental capex approval without it. Success begets greater approval. But if sinking money into the field doesn't yield oil then we are all in big trouble.

For now I have pencilled in the following for Sep-Dec

46,500
47,000
47,500
48,000

Together with the already published figures they yield an average production rate of 45.7k for the year vs a guidance range of 44-47k. I wouldn't pay for more than 48k of production until they're demonstrating real success on improving volumes. We once hoped for 55k. Even getting that would be a great improvement on the current situation.

Nov average Brent comes in at $91.4154, quite a bit less than the $95 I had penciled in when I posted previous expectations of receipts. Let's see what the company says about production volumes. (I have 47.5k penciled in - a big uplift on the last reported figures which was 44.8k for August.)

Dec 22E cash AND invoices (up to and including December production) is approx £1.08 per share. That's assuming a big uplift in production Sep-Dec versus Aug.

Relax. Opu has underwritten the company receiving $65 million a month from November onwards. If the KRG doesn't pay enough he will top up payments from his ISA.

Opu for CEO!! He thinks it's easy!

(Let's first see if they can get to 48k...)

Feel free to conspire away

It's been 4 months now. I wonder why...

ValueS is correct. To add some data points see below. The owner of Lansdowne Partners Austria GmbH has been active although much less so lately. There's likely not yet much of an incentive to sell given the amount of capital being returned without selling and still good company prospects. As for buying more, too many eggs in one basket and all that. That said, we've not had an updated shareholder analysis for almost 4 months now so who knows what key shareholders have been doing lately (if anything).

32.54 million as of 15 March 2021
31.18 million as of 1 April 2020
29.28 million shares as of 3 April 2018
24.4 million as of 15 March 2017.

Note the % ownership is distorted some by the company buybacks

Victor384 would rather copy and paste conspiracy speculation than do a little digging.

Within 1% of expected...

Let's first agree they don't need $900 million of capital and that the need is a small fraction of that. If we can't agree that then there's no point discussing possible ways to fund that need.

Even if they funded it all with expensive equity - let's assume they really didn't have a choice - that doesn't buy 'freedom'. You sound like a delusional Brexiteer with that narrative!!!

Once again: Good luck and cheer up - no need to be so dour!