Member Info for PUTUP

Not pulling rank. Just letting you know my experience.

"The bankruptcy risk/dilution risk changes when cash leaves the company"

Same if they dividend it out. But not necessarily, in either case, when they're distributing EXCESS capital. GKP has capital sitting in cash way in excess of its needs. That is THE very reason it is paying it out. They have the capacity to do about another $275-300m and then things normalise to paying out what they're actually earning in free cash flow.

A company doesn't trade in its own capital. The company IS the sum of the shareholders. Those that sell into a buyback are, well, selling and those that don't are buying more. Each is responsible for their own decision. As an investor you aren't divorced from making valuation judgements each and every day. They're your responsibility. How those decisions go will depend on future events and the ever-changing flow of facts and opinions affecting a share price.

Accounting is accounting. Cash is reality.

I'm done. You've shown an inordinate capacity not to listen and reflect. I would highly suggest, as I have done already, that you reflect some more. You will likely ignore it. That won't make me wrong. Good luck. Seriously, I wish you well Nobull.

"The investment is the DCF value added, as represented by the stake bought back. This DCF value is then distributed among the remaining shareholders when the shares are cancelled. "

It's interesting that someone who admits they have little experience in this arena chooses to argue so vigorously with someone who has been paid to advise on such issues for more than the last 35 years.

The "stake bought back". The company is buying its own shares. They are removed from circulation. The value of the company (ceteris paribus) goes down by the value of the cash leaving the company - number of shares bought x price they were bought at. Even before they are cancelled, we remove such shares from the calculation of the company's equity value as they are no longer in circulation. (Otherwise a company could 'create value' by simply issuing itself its own shares which is clearly nonsense). There's no asset sitting in the company to compensate for the cash distributed. Only cash is distributed. [The dividend equivalent is the share price going ex, again to reflect the cash leaving the company. The share count doesn't change but the price adjusts to reflect the fact the company has less cash, less value.] Cash goes down, equity value goes down to compensate. There is no investment. The company isn't trading against its own shareholders in its shares. The only people investing are those individuals who forego the cash distribution, ie don't sell into the buyback, and as a result increase their ownership in the company at the buyback price. If everyone participates in the buyback pro rata to their holding (which is the case if one did a compulsory buyback) the ownership structure of the company remains unchanged. In either case, the value of the company falls by the value of the cash distributed.

With a dividend, you don't elect to participate or not. Participation is compulsory and pro rata to ownership. The company's value falls by the value of the cash no longer in the company and the price adjusts ex dividend to reflect this (ceteris paribus). Ownership percentages don't change because participation in the distribution is compulsory and pro rata. Only when some people decide to 'forego' the dividend by reinvesting it do ownership percentages change. Those that do, again, increase their ownership at the ex dividend price. (The only difference between these people and those electing not to participate in the buyback is (a) they have control over timing, and hence price, and (b) taxes.)

"Well someone had better tell Jaap and the GKP Board that."

Jaap is not a financial guy. Yes, they screwed up the communication. (Even though I doubt Jaap wrote that communication himself.) They were poorly advised. Not the first time. And now they're completely gun shy about buybacks and holding stock in treasury or an EBT to offset the requirement for new issuance to meet options. Shame.

Sometimes you've got to separate the comms from the reality.

Please keep us all updated on what the perfect intrinsic price is.

"A buyback is an investment"

LOL! Company buys back shares and parts with cash. Company cancels shares bought back. Company has parted with cash for nothing in return. Where's the investment?

"Compare to one of my other interesting stocks Panr
Still in the exploration stage !!!!
Very little cash!!!!!
No production to talk about!!!!!"

PANR might well be worth a sell. How about putting your finger on at least one big difference between Pantheon and GKP? If and when PANR finds oil in Alaska they get 100% of the net proceeds (100% working interest). GKP on the other hand gets between 9% and 18%. Maybe, just maybe, that's kind of relevant to valuation. And perhaps any oil 'n gas found by PANR won't be sold at a $21/bll discount. Of course, basic facts such as these shouldn't get in the way of a good rant aye?

"I think it would be great if our CFO was forced to disclose his assumptions as to why a buyback was likely to be value-accretive before he does one. "

He doesn't because they're not. How do you possibly expect sending money out of a company for nothing in return to create value within the company? That's like expecting a dividend to create value. Dividends and buybacks distribute value; they don't create it.

"No idea"

Well how are you going to determine whether a buyback at price x is above or below this number? How is anyone else?

I assure you, anyone who does any sort of valuation (whether DCF or some other approach) may well come up with a different figure than another person. They're forming their view only. There is no universal 'right answer'. Your valuation will reflect your view and my valuation will reflect mine. Warren Buffet might have an altogether different view. We might have different insight as to future performance, different discount rates because of our different risk/return expectations. Or, we might agree - but someone else won't. Management might have better insight on future performance, but still have to assess/guess an appropriate cost of capital (at the very least). That cost of capital might be different from one investor to the next. And whatever views we or anyone else come up with at any point in time, you can be assured that they're quite likely to change tomorrow as facts/perceptions change.

There is no one universal correct 'intrinsic price'. There are many views as to what a company's valuation OUGHT to be. But at any point in time there is an exchange which provides a clearing price for where those differing views overlap and it determines its current, actual valuation...

"They lied to activate the vcp as the figures they set themselves to achieve failed miserably in the first year."

Hmm. How's that given the first test for vesting was a 3 year period?

"The minimum return of 8% p.a. has to be maintained over the VCP period or earned nil cost options that have not vested will lapse:

* where the 8% return has been achieved for the first 3 plan years of the VCP performance period 50% of the cumulative balance will vest at the end of plan year 3. If the return has not been achieved no nil cost options will vest at this point but they will not lapse;
* where the 8% return has been achieved for the first 4 plan years of the VCP performance period 50% of the cumulative balance will vest at the end of plan year 4. If the return has not been achieved no nil cost options will vest at this point but they will not lapse; and
* where the 8% return is not achieved over the full 5 year VCP performance period all unvested nil cost options will lapse. It should be noted that the 50% of the cumulative balance vesting at the end of plan year 3 and/or plan year 4 in the circumstances set out above would not lapse."

https://wp-gulfkeystone-2020.s3.eu-west-2.amazonaws.com/media/2020/02/Proposed-consolidation-of-common-shares-and-notice-of-2016-AGM.pdf

At any rate, the VCP is administered and overseen by a third party. So you think they were corrupted into a false vesting as well?

And what is the magical "intrinsic price" of GKP right now?

"Average share price is the average of the market value for a share for the 30-day period following the announcement of the Company’s financial results for the previous financial year"

So perhaps confirmation on the morning of May 2.

It must be just a matter of days before we hear of the last vesting under the VCP. Certainly the stock performance is there for it. A further 3.5 million shares to be issued (under the block listing application). A good reminder to use the fully diluted share count when thinking about value...

GN!

They have a pretty big investment banking arm. Hence my reference to prime brokerage (financing for investment clients such as hedge funds). But who knows? I don't think it matters much. (FYI the threshold is 5% for non-UK companies.)

Hi. I've only tracked the top 10. SocGen have not appeared in that since I've done so. The UBS position was 2.74% as of 31 Dec and it might simply be that the holding held at UBS was transferred to SocGen (prime brokerage?). Dunno. (Or perhaps Opu holds his ISA at SocGen!)

correction:

Dimensional up a tad, Acadian also

Blackrock have sold down a chunk
Insinger back to where they were in October
UBS gone from top 10, replaced by SocGen
Dimensional up a tad, Acadian down

Looks like we are only going to get these quarterly now...

The UK - and particularly the current UK Prime Minister - is irrelevant with respect to European (let alone) global 'energy security'. Boffin Boris having a meeting doesn't matter one dot. It's all for show.

Selling GKP's oil isn't an issue. The current price of Brent is reflective of that. Producing it is a whole different kettle of fish. We await any further updates with respect to production progress towards 50k (formerly 55k). Perhaps concurrent with the AGM? Hopefully there's some good news before then. FDP - maybe by the end of the year. It's undoubtedly inextricably entwined with the KRG vs Baghdad tussle and not particularly 'near-term' given GKP still haven't fulfilled the current plan.

GLA. Hopefully you enjoyed the Easter break. It's a grind to 50k and even more so to 80k.

I suspect I won't be the only one writing this down... Want to put a wager on it?

Yes. That's why I chose the name when all you guys were bleating about this and that during 2020 but not prepared to buy.

In which month do you expect your earlier prediction of $65m a month for the next 12-18 months to start? Just so we can put the prophecy to the test.

"you can’t admit that the value of the cash lost to the company doing a buyback is greater than the face value of the cash actually spent on the buyback"

If the cash is excess to the company's needs - that being the reason for the distribution of the capital - the loss is the face value of the cash plus the trivial amount of interest earnt on it sitting in the bank. For all intents and purposes, discounting the low interest earned at the much higher cost of capital the difference is meaningless. (I specifically mentioned this in earlier posts. That for simplicity purposes we can ignore the trivial interest earnt by excess cash.) If you think the company needs the capital then you'd think it ought not distribute it - in any way, shape or means, buyback, dividend or otherwise.

I think we've exhausted this. I've tried. Carry on as you see fit. Terry Smith is wrong. The excess cash needs to be earning at least the cost of capital to generate value. When it is excess, it is not doing so - by definition. It is losing value sitting on deposit in the company and better deployed by shareholders elsewhere. What rate of interest do you think GKP earns on its cash? How does that compare with your expected return on capital?

Good luck!

Hopefully you can see it's the decision to participate in the buyback or not that matters - not the buyback distribution itself. (Just as with a dividend, it’s the decision to reinvest or not that matters.) Whether that decision ends up being a smart one or not will depend not only on the factors that were taken into account at that time (maybe you had better foresight at the time than I did) but also on each and every thing that happens after that point in time whether foreseen or not. By not participating YOU are consciously deciding to forego your share of the distribution and own more.

Most of us are here because we think GKP could be worth more at some point in the future than its current market value. If you think the stock is expensive you’d be wise to sell now. A buyback at today’s levels would, we should conclude, be a good thing because we think it’s undervalued, would not participate while others do (else there is no buyback) and so doing we increase our ownership. (Just as some of us have reinvested dividends, in effect foregoing the distribution to increase our ownership in the company.) But we might not end up being right. These decisions are solely our individual responsibilities. If, for example, the price of oil plunges and the stock declines we can’t go back and say “management shouldn’t have bought back shares at the then market price of the company because it has now been proven overvalued.” It was our decision to forego the cash distribution, not sell some of our shares and thereby increase our relative shareholding. We are responsible for it. The company merely distributed cash and via a mechanism that allowed people to chose whether to participate or not.

A buyback, just like a dividend, doesn’t create nor destroy value. It’s just a distribution of cash. It doesn’t affect the future cash flows of the company (except interest on cash foregone). [If the distribution (whether by dividend or buyback) were to change your view on risk and hence discount rate or the ability of the company to generate the forecast cash flows you’d be questioning the return of capital regardless of the form in which it is being done.] How YOU act upon a buyback may well affect your future wealth but you face those sorts of decisions every day as GKP events unfold.

If the foregoing doesn’t work for you then I don’t know what will. But hopefully it does. All the best.

(I don’t participate on ADVFN)