Member Info for PUTUP

"Either my maths is out"

Way out. Unfortunately.

Slightly less than expected due to the backdated tariff charge but generally no real surprise. Ho hum.

Actually, I just took another look at my notes and model. The disclosed (gross) amount of the CRP in the 2021 annual report includes costs until year end, but receipts only up to and including the receipt for August 21 production. So I adjusted this figure for Sep-Dec billings to get to a pro forma amount to start the 2022 year.

Yes. To model invoices you need two know how much CRP is left after the prior month's invoice even if that invoice hasn't been paid. But you've reminded me of a very important question: when the company discloses the CRP balance is this based on the invoiced or received amount? If only the latter then it will normalise even faster in invoicing.

My model currently has an average of 47,650 for the 2nd half. Hopefully they'll at least do as well as that. My comments re volume were in relation to expectations up to June/July that HobGoblin22 had been modeling.

"in particular I assume oil averages in 4Q"

missed "$90"

"3) In terms of cash as I understand $247mm was the amount as of [Link Removed]. Minus $107mm (bond redemption), minus $75mm (divs) this leaves 65mm. I see the Cost recovery pool after April Payment at around $211mm (dropping to 114 after May-June expected payments). Is it similar to what you expect?"

I estimate an actual cash position as of the end of July of around $90m (excl May, June and July production in billings). I estimate GKP's share of the CRP is down to around $100m as of the end of July production ($127m as of end June). They're not at 47k of production yet. 45.9k for June.

I have limited time right now but will endeavour too answer your questions when I can.

"PUTUP, couple more questions if you do not mind
1) I am trying to model R-factor. I take Gross revenue receipts from YE 2021 ($1,478mm), Gross costs ($1,543mm). I see that gross capex is roughly 90mm/0.8 = 112.5mm (as per 90mm net guidance), Opex is $3.1 (midpoint of guidance) per bbl, Shaikan G&A is $4.1mm pa (as per YE2021 results). These 3 items get added to Costs. Gross receipts (e.g. 48.7mm per April) get added to Gross revenue receipts. I see contractor share below 28% now dropping to 26.8% at year end (assuming Brent stays @100, production is at 47kbd). Seems similar to your numbers?"

Remember that costs are added when incurred but receipts come in with a lag (when actually received). So you can work out the costs added in each actual month and then lag receipts. I have different Brent and production assumptions to you (in particular I assume oil averages in 4Q) but basically I model the WI in profit oil (shared between GKP, MOL and KRG) as circa 27.9% at the end of July and declining to 26% by year end.

2) as a result of lower Brent assumptions I get a small balance o/s as of December's billings. The higher the oil price and production the faster the CRP normalises obviously.

Gotta run.

Agreed. It's not at all surprising that the company will push for the FDP, particularly now that the CRP is close to normalisation, and that the KRG might not want to rush. KRG/Iraq own the field, own the reserves, and control the field's development. GKP is there to provide input and execute the plan, and they are paid a percentage of revenues to do so.

One further caveat. The below is not updated for the company's disclosure regarding "adjustments proposed by the KRG to pipeline tariff charges, which are now linked in part to Dated Brent." The company invoices according to the adjustments. So the formula I posted overstates slightly the receipt for a given month (seemingly by about 3% currently).

Royalty 10%
GKP working interest Cost Oil 80%
GKP working interest Profit Oil 61.5% MOL 18.5% and KRG 20%
GKP Capacity building charge on its share of profit oil 20%
R factor 1 (you need to model this)
Working Interest Share of Profit Oil 30% (and hence this)
Profit oil % 60%

Profit oil is 60% of Net Revenue (only if have significant Cost Recovery balance)
Net revenues are gross less 10% royalty

https://www.eia.gov/dnav/pet/hist/rbrteD.htm

Forecasted Receipts to GKP
Month Aug
Brent average for month 95.00 (use your assumption)
Discount 21.2
Days in month 31
Production bopd 46,900 (use your assumption)

Gross Field Sales 107.3
Royalty 10.7
Net Sales 96.6
Total Profit Oil 57.9

CRP beg balance + month's costs 112.0 (you need to model this)
(1) GKP Cost Recovery 30.9 (80% of 40% of net sales if CRP balance big enough. Merely recovery of prior expenditure.)

KRG Profit Oil 40.6 KRG also has % share of WI Profit Oil
Working Interest Profit Oil 17.4

(2) GKP Profit Oil 10.7 (61.5% of WI Profit Oil. Unsurprisingly called Profit Oil as it is this revenue stream which generates profits for the company post payment of CBC, corporate overhead and finance costs. )
(3) GKP CBC 2.1

GKP Net receipt 39.5 (1)+(2)-(3)
% Cost Recovery 78.3%


HobGoblin22, here's an example that should help you. Note, the R factor is now greater than 1 (in contrast to what I have above) and so the Contractor share of Profit Oil is less than 30% - I reckon about 27.5% currently - and the amount that can be recovered via Cost Oil is always the minimum of the CRP balance and the amount that can (otherwise) be recovered via the 40% Cost Oil mechanism. Soon this minimum will become important. You can also use the above to calculate just how much the Contractor can spend on recoverable costs (capex + opex lifting costs + direct Shaikan G&A) per month without building the CRP up beyond 3 months of receivables. It is the KRG that funds the FDP (and, unsurprisingly, it is the KRG that decides when, generally, to incur the investment).

(Hopefully the formatting works in the post)

"Positivity with you is like a red rag to a bull"

I think it HIGHLY positive that GKP doesn't need massive financial resources to execute the FDP

"which requires hundreds of millions to fund, when being silent about how GKP would fund its share of FDP funding costs"

Herein lies the fundamental misunderstanding. Understand the PSC.

Surreyscot, you really have no idea. Companies employ PR consultants. If you want, use the fancier name of 'communications consultant'. When companies have corporate actions such as a merger or acquisition these consultants continue that function through the event, arranging interviews with, for example, the Lex column in the FT and occasionally having (generally superficial) input on press releases. They DO NOT advise the company with respect to the M&A process itself. Their role in any M&A deal is merely a continuation of their role on an ordinary basis. So, yes, it's fair for them to mention various corporate actions they've been involved in, but don't mistake their role or their appointment for an "expert in M&A". They're not. Not even close.

As a press relations advisor. Certainly not as the financial advisor.

(I'm intimately familiar with a number of the deals on his resume.)

If you think FTI Consulting are an M&A advisor you are deeply mistaken

Yes. A lot.

'Profits' are much less than 20% of receipts. Note I said: " the bulk of the cash available "

You need to look at free cash flow not accounting profits; the latter being grossly distorted. Look at the last receipt. How much was recovery of prior expenditure (no gain on that)? How much was from Profit Oil? What expenses (unrecoverable via cost oil) need to be covered by that profit oil component? How much is left after those expenses have been deducted?

When JH returns excess capital to shareholders, which he surely will (decision already taken), how much of that was derived from profit oil less expenses? How much is giving back to investors money that they paid in previously?

No Clue Opu

Yes, it is like a literal 'cash machine'. Just like a high street cash machine the bulk of the cash available is that which was deposited in. So most retail shareholders are just getting their deposits back. The smart cookies who saved the company in the restructuring were well aware of the off-balance sheet asset called the CRP (created by the 'deposits' of pre-restructuring shareholders). They, alongside all post restructuring investors, have been collecting this asset (the deposits of pre-restructuring shareholders) ever since. The cash actually created by the company is a small sliver of the total cash flow. The bulk of the current month invoice is to recover investments from last year - and soon to be that spent earlier this year. Money out, money in.

So you can call the company a 'cash machine' but it's not creating cash in the manner which would normally lead one to assign that moniker from an investment case point of view.

"nevertheless by the end of September GKP will have ca. $250m in the bank."

"Assuming the May- and June Revenues are both received before end-Sept, the cash at bank will then amount to about $160M."

Actual cash in bank, I agree with BB. If we add in the invoices up to and including September then add another $90 (very rough numbers).

But little of this is uncertain except as regards what the price of Brent will be post today (out of the company's control) and what production volumes will be (the only thing we can expect the company to focus on). Paying out the CRP as it is recovered (and earned profit oil) has been the mission statement since restructuring. Nothing new here. More interesting is just what, if any, progress the company is making on production volumes - that alone will drive sustainable share price performance in the face of ex-divs.