Member Info for PUTUP

To me today feels like the day before yesterday. I suspect that, for whatever reason, one of the top 10 shareholders is reducing their holding. Whoever it is, they're being quite aggressive which suggests they have volume to move and in a thinly-traded, poorly-sponsored stock that comes at a price. But who really knows? It will be some months before we get a shareholder analysis report that either confirms or rejects my hypothesis. If you think the stock is massively undervalued, buy some more and take advantage of the seller. If not, sit back and watch.

Not enough change down the back of your couch?

Or perhaps both Brent and GKP are down 3%.

Even at $75 Brent and just 55k of production, Shaikan produces $1.1bn of oil sales. ($75-21.1)*365*55,000. So it's easy to say 'Shaikan is worth billions' (if Brent substantially exceeds $21.1). But to whom? GKP doesn't receive the gross sale proceeds of production. Far from it. Yet again, you need to understand the PSC. That contract governs who gets what.

GLA LTH As long as GKP keeps expanding production and the oil price remains firm I'll be happy - whether they pay the cash flow out as dividends or not.

You can value GKP. If you put the effort in. And that's what matters.

Well, I'd like to think that Opu, truthsayer and ****eye find a bit of spare change (maybe they can check down the back of their couches) and bid the stock up. Today really felt like someone in need of liquidity. That is likely an opportunity for others who don't. But it demonstrates how much the company needs new solid institutional support. That can be hard to find. In the interim, the best hope for a solid bid is the company itself. But if key shareholders wish to continue to take profits we are far more likely to see dividends, unfortunately.

FYI looking at the share price can be a little deceiving. You should really look at market cap adjusted for distributions. There's been a lot of dividends, buybacks AND dilution from share issuance.

Doesn't feel like shorting to me. Just a big guy having to raise cash, perhaps to cover losses elsewhere... An opportunity for Opu, ****eye and truthsayer to step up. Put your money where your mouth is.

Opu, I care about what Shaikan is worth to GKP. You can't work out the value of Shaikan to GKP without having a view on the R Factor and a multitude of other items. I've already provided my price target awhile ago. It's moved up since to reflect the increased spot price in the short term and the consequent faster cost recovery. As I've said before, I'm not prepared to pay anything today for production beyond 55k. That might change as we get better visibility but even if the FDP is approved I don't expect us to move much beyond 55k in the next two years. Luckily for now I'm not being asked to. Currently (as of end Feb) the company's net cash, CRP (near-cash) and arrears are worth about £1.75 a share (+/-). Much more challenging is to figure out what the Profit Oil stream is worth as that is earnt over many years and not just one. Currently the market is valuing it around 45p whereas I'd value that around £1.50-1.75 a share. I'd be very happy if you bid the share to £3 cum any further dividends.

"Trouble is, Brent Crude's up 33+% in the last four weeks, yet GKP is down 5%."

You omit the impact of the dividend. The stock hit all-time post-restructuring highs today. It has further to run; just not the pinky-in-mouth billions Opu would have you believe.

"Ultimately, it will be 9%ish of that revenue, a point i think we will reach by year end. "

Damofarl, the R Factor doesn't move that fast. While I now expect the CRP to halve by June without very large investment, and to go to zero well before year end, I expect the R Factor to be only circa 1.1 by end of June. Don't worry too much about the R Factor. Focus instead on the CRP. Unfortunately, the truthsayers and opus of this world can shout their ignorance of company fundamentals all they want but don't have the wherewithal to move the stock price much. Steady as she goes. Good luck!

No. Even as the price of oil rises the PSC still applies. I have for a very long while said the CRP is 'near cash'. As the price of oil rises that becomes more so - it is recovered sooner. (At $115 Brent and 47k production it is being recovered at more than $30m a month - a net of c$8m in costs added and $39m in costs recovered.) Once it is fully recovered you have profit oil only, our share of which is currently 18.45% declining to 9.225% as the R Factor moves from 1 to 2. If you don't understand this (and aren't modeling it) you will become cannon fodder for those that do. This isn't a 'years away' issue.

Have a good night!

You have no clue. Good luck to you.

" with USA senator now calling for a total Ban on Russian Oil imports"

USA senator being the important bit. The US has can afford to change its mix of imports more easily than other countries can. Currently less than 5% of US imports come from Russia. (And the US is a net exporter.) Europe doesn't have the same luxury. Since the invasion there's already been a good deal of self-sanctioning of Russian oil even though formal sanctions have avoided so and so there's a lot in the price.

https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm

"GKP could generate Billions of dollars over the next couple of years"

Show us your calculations. Unfortunately it can't over the next couple of years as the CRP (and production capacity) places a big cap on revenues and cash generation. Hyperbole won't attract stable equity sponsorship.

damofarl

"Post CO depletion, R2 being reached we will receive 9.2% of 45k bbls per day going forward? i.e totally disregarding the currently considerably higher receipts due to CO element, that 5 years production (production/oil price/govt variations not withstanding) receipts will equal current market cap?"

You have to make a couple more assumptions. Lifting costs per barrel: maybe use low end of company guidance ie a contractor cost of $2.50/barrel (80% of that cost to GKP). Direct Shaikan G&A: GKP booked $2.1m for the first half of 2021. Annual capex. This capex gets recovered via Cost Oil. If Contractor capex is high revenues look higher because of the cost recovery but of course capex is spent so the cash flow generation of GKP is commensurately lower. Revenues are therefore sensitive to this number but cash generation (which matters most) is not. It's important to understand this.

If we pick up your assumption of 45k bopd production, assume $120 Brent (a big assumption in my opinion) $2.50/bll opex, $5.25m direct G&A ($2.1m *2 /0.8) and assume a steady-state maintenance capex of $25m a year then you get GKP revenues of about $186m from which $26m of CBC is withheld. Change the assumptions however you like. From the $160m you have to deduct GKP's 80% share of lifting costs ($32.9m), direct G&A ($4.2) and capex ($20m), plus GKP specific corporate G&A, finance costs etc to get to the company's cash generation. The current FD market cap is about $652m, depending on the FX rate you use.

I suggest you do a little Excel spreadsheet (as I have done) to model what you're after. You only need 20 lines. You can then figure out what you think that 'steady state' is worth per share and, of course, amend as things change.

(Of course, we don't get to an R Factor of 2 and hence 9.225% of profit oil straight away. You could vary this assumption in your short spreadsheet.)

I hope that helps.

""As at 31 December 2020, there were $548 million gross of unrecovered costs, subject to potential cost audit by
the KRG. Cumulative revenues were $1,182 million and cumulative costs were $1,439 million, resulting in an
R-factor of 0.82."

Yes, the Contractor CRP is $548 million - GKP's share is 80% of this. The second sentence is distinct from the first and relates only to the R Factor.

"As it is clear from the above that the difference between cumulative costs and cumulative revenues is only $247 m, while the stated unrecovered costs is $548 m. This is because a considerable part of cumulative revenues came from PO and the remainder from CO. "

Correct

"My understanding of the PSC is that CO is the full 40% of revenue (after 10% royalty) for as long as the R factor is < 1. "

Incorrect. They're two different metrics. The CRP is the limit on Cost Oil. (Once cost recovery has been achieved all the rest of production is Profit Oil.)

Then the R Factor determines the "Contractor" share of Profit Oil. (I have "Contractor" in quotes here as the KRG now shares in this also 61.5/18.5/20.) The "Contractor" share of Profit Oil begins to fall below 30% before the cost recovery pool is fully recovered because of the receipt of Profit Oil. Eventually, well relatively soon, each month GKP will recover its monthly costs (capex, lifting and direct G&A) and then have a small slice of the rest of production (this share starting close to 18.45%, 61.5% of 30%, but falling to 9.225% when the R Factor hits 2). Obviously the R Factor (and perhaps the CRP) will move around as bursts of investment are made.

damofarl, thank you for the kind words

"The R factor = 1.005"

My own estimate is about 0.96 pro forma for December oil sales. What's not clear to me is whether the stated value of 0.82 as of December 2020 included the receipts and costs for all months in 2020 or just those that had been paid. I'm waiting for an updated disclosure before modeling it more carefully.

(You need to make sure you have lifting costs, capex and Direct Shaikan G&A in your calc and receipts pre the deduction of CBC. Also, the calculation needs to be done at the Contractor level.)

Of much more importance is the level of the CRP. I estimate that GKP's share will have fallen to around $300m as of the end of Dec 2021 (pro forma for the receipts associated with Nov and Dec production). Again, I'm not sure if the disclosed value - for the Contractor as of Dec 31 2020 of $548 million (GKP has 80% share) is based on production sales as of that date or just receipts as of that date (with the latter lagging the former). I would expect the balance is calculated on a billed basis ie it is up to date for production and costs all the way up to Dec 31. So I estimate the balance has reduced by a bit over 30% in 2021. Again waiting for FY results in order to refine an estimate going forward. Lifting costs (at about $2.50 per barrel), capex and Direct G&A (GKP booked $2.1m in 1H 21) add to this pool but it is being depleted by about 78% of each monthly receipt. Currently it is falling fast. Monthly receipts sometime in the 4Q will be very interesting at the current run rate.

Not quite. The 15% is shared amongst GKP 61.5% , MOL 18.5% and the KRG 20%. So in your scenario it's 9.2%. But it will be a while before the profit oil share falls to 15%. (At the moment it is 30%.)

"Question boffins

If oil is 120 pb, and we pump 50k bond, 2.2 billion dollars flows a year."

It depends. This year or next year?

And $120 Brent and 50k bopd doesn't produce $2.2bn for starters... It produces $1.8bn and $180m comes straight off that in the form of royalties.

damofarl, the CRP is never fully depleted - there is always the direct costs (lifting and direct G&A) and capex incurred in a particular month. The Contractor can recover that each month up to a maximum of 40% of production field sales after royalties (and post the discount to Brent at which sales are made). When the Contractor has recovered all their Cost Recovery the balance of the production is Profit Oil. The Contractor share of this is determined by the R Factor: 30% if less than 1, sliding to 15% as the R Factor goes to 2.