Member Info for PUTUP

You're smoking crack 1p

Agh Arma, valuation analysis has never been your strong point...

They've announced dividends so far this year of $190 million. Already the stock is ex $140 million of those dividends. There's 3 trading days before it's ex $190 million. The company has an Enterprise Value of $0.4 billion. Care to give a timeframe as to when we get to $2 billion or $4 billion? After all, you are sooooo certain.

Also, how much free cash flow do you think the company generates at, say, 50k average daily production and, say, $85 Brent? (Perhaps you've been practicing your analytical skills these last few months.) How much of that free cash flow do you think they can pay out next year? How much if Brent averages $100 for the year?

Nope. They're paying out a lot of excess capital and will continue to do so. Pro forma for June production receipts the company has an enterprise value of $406 million.

Not in my lifetime (and I plan on being around for quite awhile longer). Understand the company's fundamentals and then derive a Brent price and production volume required to justify £10 per share. Likely?

Well said BB

"Certainly the market isn't taking a view either way, as far as I can see. We are just following roughly the ups and down of Brent."

Much worse than that when you consider that half the market cap of the company is completely insensitive to the price of Brent....

Opu your view is biased because you are running your small position in an ISA. Imagine others who pay income tax on dividends. If the company returns half its worth via dividends, the share price halves accordingly, and the tax man takes a big chunk of the half. They're out of pocket in a big way. (A revaluation of the profit oil cash flow stream is highly unlikely to make up for the repatriation of 50% of the company's value.)

I guess no one has picked up on the error below...

Cash as of 23 June 2022 $247.0
Cash receipt for Apr sales $39.2
Cash receipt for May/June sales $98.6
Dividend $(25.0)
Est. Pro forma cash end June $384.8

The correct summation is $359.8 million. (My spreadsheet formula missed capturing the $25m divi.) So that flows through the numbers. £1.33 per share (FD) for pro forma cash. Subtracting off the debt of $107 million (principal plus last interest payment plus $2m penalty for early redemption) and you get to 93p per share (FD). With circa 57p per share in the CRP pro forma for receipt of funds for June production sales there's roughly £1.51 of the current share price is coming from net cash plus the 'near cash' of the CRP, implying a market valuation for future profit oil of circa 93p per share.

damofarl, I think it rather obvious that a cancellation of GKP's contract would be a disaster for shareholders currently marking their stakes to market at today's price. If the license is revoked revenue ceases altogether! (although hopefully we would be paid our receivables for past production). But the Iraqi's need people to produce the oil today and develop the field for the future. Let's hope that GKP management manage the highly sensitive task of ensuring EVERYONE thinks they're best-suited to do that.

As people watch events with concern and watch fluctuations in the oil price, it is useful also to realise that 93p per share is sitting in net cash and receivables and a further 57p of CRP recovery likely occurs in just the next 4 months of operations as well as the share of profit oil associated with such. Some of the share price swings experienced recently imply rather severe changes in views on the valuation of future profit oil share.

Broadford Bay rightly noted that pro forma for the announced dividends and bond redemption and interest there isn't currently a lot sitting in the bank (less than $65 million) but receipts for Apr/May/Jun production will add another circa $136 million that can be distributed. And of course with each further month there is more (even if Opu's predictions of $65 million per month receipts is dreaming). If I were management I'd slow capex dramatically until there is more clarity. There's plenty of room to distribute further capital in either dividend or, preferably, buyback form. But only a dumbar*e would calculate a yield on that. The historical cost recovery pool doesn't get to be recovered (and paid out) again and again.

I don't care about what price is used in any buyback. I only care about the quantum of capital returned, my share of it and, if I decide to take it, matching within reason share sales to correlate with company buys.

It would be a great result for GKP if they were to effectively 'transfer' their existing PSC with the KRG to one with the Federal government. Doing so without p*ssing everyone off is the task ahead for JH. In the interim, no further significant investment and keep returning capital to shareholders.

I'm tempted to reinvest the proceeds from my sales at 320p

I estimate, roughly, the value of the profit oil from 50k production at $85 Brent (discounted at an attractive 20% required rate of return) to be circa £1.55 per share (FD). Add to that the value of the profit oil stream over the remainder of this year using the numbers provided. (And, of course, you might have differing views as to the broad assumptions I've made re 50k and $85 Brent and discount rate.)

Of course, if GKP's license to operate the field is revoked then all bets are off. Even in that case hopefully the company gets paid for production up until the point the contract is cancelled. But note that's still £1.03 per share. With each month we recover more of there remaining 57p per share.

Management obviously have a very delicate task before them endeavoring to thread the needle in the conflict between KRG and Baghdad. IMO they should not be investing until this is all resolved. Furthermore, as each payment is secured they should be repatriating that cash to shareholders (ideally, you won't be surprised to hear me say, via buybacks).

I finally had the chance to update some numbers for the rather weak corporate update of 24 June. And it looks like you guys have been having fun chatting since then.

I had noted at the time that I would have to revise downwards from expectations for production from April onwards. Previously I had:

Month Brent Avge #Days Avge Vol

Mar 117.2452 31 44,900
Apr 104.5753 30 45,500
May 113.3376 31 46,150
Jun 120 30 46,800
Jul 130 31 47,450
Aug 125 31 48,100
Sep 120 30 48,750
Oct 115 31 49,400
Nov 110 31 50,050
Dec 105 31 50,700

June Brent pricing came in ahead of expectations at $123.0078. I've revised my production assumptions downward, incorporating the numbers provided by the company for April-June and lowering the rate of growth thereafter. The following numbers yield an average production for the year of 46,425 which is just under the high end of guidance. (For now I have kept my Brent assumptions the same. Obviously July appears currently to be optimistic.)

Mar 117.2452 31 44,800
Apr 104.5753 30 42,600
May 113.3376 31 44,700
Jun 123.0078 30 45,900
Jul 130 31 46,400
Aug 125 31 46,900
Sep 120 30 47,400
Oct 115 31 47,900
Nov 110 31 48,400
Dec 105 31 48,900

Avg 46,425

The effect of these adjustments is to push out CRP normalisation a month into November (just). So in reality the production assumption changes don't change the theme that the company is swiftly recovering the CRP and turning 'near-cash' to cash and paying that out to shareholders. Because the profit oil element of the investment case is such a smaller element the effects of volume and lower Brent are rather small.

The company updated its cash as of 23 June. We can pro forma this for receipt of April, May and June sales, and the dividend the stock now trades ex for:

Cash as of 23 June 2022 $247.0
Cash receipt for Apr sales $39.2
Cash receipt for May/June sales $98.6
Dividend $(25.0)
Est. Pro forma cash end June $384.8

The $385m is slightly overstated as my forecasts for billings don't factor in the changes to the way transport is billed and the impact of the R factor (as well as costs for the stub of June) but it's close enough for working purposes. Given a fully diluted share count of 225.4 million shares, pro forma cash as of end June is circa GBP1.42 per share (at a ****ty pence sterling of $1.2007).

Debt plus interest and penalty for early redemption is $107 million meaning Net Cash (as of end June) is roughly £1.03 per share. I estimate GKP's share of the CRP at the end of June to be circa $126 million => 57p per share (FD)

So roughly £1.60 of the current share price is coming from net cash plus the 'near cash' of the CRP. The rest, the difference between £2.435 and the 1.6, ie 83p per share, is the implied value the market is giving to the Profit Oil stream. In my opinion this is cheap.

TBC

"How very, very, very, very odd. "

I would rather diversify my investment portfolio than ask GKP management to do so. Far better for them to NOT diversify and to focus intensely on this one asset. I don't want them distracted by anything else. JH is being tested now. He has yet to prove himself.

OMG. The loonie factor just got stepped up a massive notch!

Y’all not being bold enough

(accented for additional sarcasm)

For EVERY share traded there is BOTH a seller and a buyer

Looks like I have to revise downward my expectations for production from May onwards. 50k, let alone 55k , remains elusive. The good news is that high short term Brent prices provide a good buffer in the bridge to 50k. I’m basing my valuation off $85 Brent long term. Over half the company’s valuation is embedded in net cash and the CRP which is still ‘near cash’ and so largely insensitive to both.

As expected. And in the stock price.

Brent average
Mar 117.2452
Apr 104.5753
May 113.3376

Awaiting the latest for June.

Est. Pro forma cash end May $355 million (pro forma for receipt of sales for April and May production)

About to pay out $75 million of this. Hopefully shortly will retire bond which will pay out a further $107 million.

We must be just within days of receiving payment for March production. With an average Brent price of $117.2452 and average daily production of 44.9k likely it will be the first time in the company's history that monthly Profit Oil less CBC Withheld scrapes (barely) into double figures. It won't for April production, but might just make it again for May as with June. Onward.

Opex (at current volumes) and direct Shaikan G&A are only about $4m a month (GKP share). Add another $1m a month for head office. Rough numbers.

It's capex they need to be very disciplined with. No clarity. No spend.

And keep paying out the receipts they do get until they've paid out current net cash and CRP less a buffer to cover the above. All else being equal I'd rather have Baghdad as a counterparty than the KRG but things are rarely equal...

All good reasons to not pay up in advance (in stock price terms) for production much above current levels.