Member Info for PUTUP

"The market has still not been officially informed as to whether the WI% remains at 58% or whether it has been increased to 80% - a very significant factor to take into account."

"I cannot see how they arrive at 61.5%, anyone got any ideas?"

More importantly the WI remains at 80% and the CBP at 40% (they have not been reduced).

"Meanwhile let’s look forward to a positive few months ahead."

On this we agree.

Shortsqueezer, how about a nice round 250,000 shares at a 30% discount to £5.94? Cheap as chips aye?

"‘ Gulf Keystone Petroleum is covered by 29 analysts. 6 of those analysts submitted the estimates of revenue or earnings used as inputs to our report’ "

Not one from Simply Wall Street. They don't do fundamental analysis, just computer generated aggregation of publicly available info. But, hey, if you believe the report place your bid at £5.94 in the morning. Or even £5. I will be happy to sell you my entire holding at a 20% discount to this fair value if you've got the wallet to take the trade.

Why would I bother? Simply Wall Street don't even have an analyst covering the stock. Name the analyst - the person (or team) - who prepared the report, who developed an in-depth understanding of the company's investment case and engaged with management on (at least) the key points thereof. This person or team would also engage with key investors on their views. Again, name the lead analyst.

"This company report contains some beta features." LOL. Tells you all you need to know.

Because I like to call BS when I see it. And I doubt that report, or any post here, will influence the value of GKP over the medium term. Most here (or reading here) don't have the wherewithal to move the price in any significant fashion. No one who does will rely on such a poor piece of 'analysis' as linked to below.

[And despite attempting to bring a sense of reasonableness to the discussion here I've done quite well with my GKP investment which is now 2.6x cost. GKP has been great. Carry on.]

If you want to rely on a superficial, computer-generated "analysis" good luck to you. There's no attempt to outline any fundamental valuation analysis. Read it again, this time with a critical eye. If you love it, and are so mesmerized by it, please bid the shares up.

That has to be one of the crudest analyses of "value" I've ever seen. Even the shareholder analysis is as shallow as it gets. Complete cr*p.

I mistyped in my last post. CRP should have been PSC.

I also provided a framework for thinking about valuation from here. If you are not modeling Profit Oil with a clear understanding of the CRP you might as well flip a coin.

"Saying EV > CRP therefore the value of the CRP is currently fully reflected in the share price is the wrong way of judging things."

No it's a sensible sum-of-the-parts calculation. Ignore it at your peril.

"There is some valuation of each component."

Yes. Add them up. You can determine the Enterprise Value of the company easily. Arrears are known. Modeling the CRP isn't hard. Make your own assumptions regarding capex and opex (following management guidance for the short term). I've already provided one method of thinking about Profit Oil in perpetuity. Do your own analysis. Research analysts and astute investors do this every day. Without an understanding of and expectations regarding these components you are flying blind.

"You have no idea what those valuations are and neither do I."

I do and have constructed my own analysis to form a view on valuation. Yes, the numbers make sense - a lot of sense.

"You're effectively taking that future cash, subtracting it from the EV and saying: well the market clearly believes in that cash flow because it's less than the EV, but clearly doesn't have confidence in the cash flow I've put lower down my list because it's valued at the tiny slice of EV left so the only way the share price can go up is if the market gains confidence in that segment because the other segments are fully reflected in the EV. I think the reality is future profit oil, arrears, CRP, even the cash balance, they're all heavily discounted due to - primarily - where it is and who controls that territory."

No. The Enterprise Value of a company is equal to the market value of its capital: FD market cap (value of equity on FD basis) plus Net Debt (one can assume face value for the debt albeit its current value reflecting current interest rates is better). Net Debt is value of debt less cash on the books. You can readily pro forma the last provided cash value of Sep 1 to reflect the last payment receipt. (Don't pro forma for the dividend yet as you would also have to pro forma for the stock going ex div: a wash.)

"On potential future FCF purely from profit oil, obviously we don't know what circumstances will be then, but: 55,000 x 365 x 50 (our oil at $70 brent) x 0.9 (net revenue) x 0.15 (absolute worst case contractor revenue) x 0.8 (our WI) = $108.4M annual revenue. "

You can, as I have posted here, get an idea of the magnitude of this and its value today. Of course things will change but you need to form a view based on sensible assumptions to have any idea re fair value, and adjust that calculation as changes to the assumptions make sense.

"It's more likely we'd get in that position of no growth capex and 0.15 contractor revenue at a much higher production number.."

Maybe. But you ought to form a view based on your assumptions and see if it pans out.

I stated that the value of the historical CRP and arrears are now fully embedded in the company's stock price. Previously they weren't.

You need to consider debt as well. Better to consider the company's enterprise value as a multiple of arrears plus Cost Recovery Pool. Enterprise Value = FD Market Cap plus Net Debt (ie debt less pro forma cash).

The company's EV exceeds Arrears plus (my estimate of) CRP by about 11% now. Fully dilute (as one should) the market cap for all the options that are sure to vest and be exercised and that premium increases.

That means, obviously, the value associated with the historical CRP (and arrears) are fully impounded in the current valuation (as is some valuation for the Profit Oil stream). Future expenditures either capex or opex are recovered only over time (they're added to the CRP and recovered according to the PSC). As a result, without Profit Oil they result in a negative net present value. Profit Oil is what makes those expenditures worthwhile (or not).

In other words, the Enterprise Value of GKP should equal the sum of the following parts:

A. The current CRP
B. Current arrears
C. The negative net present value of current and future opex and capex
D. The net present value of Profit Oil receipts

The CRP is never fully depleted as opex/capex are added to it. But new expenditures need to generate Profit Oil (as noted above). Profit Oil receipts are far from colossal.

Receipts are large currently because past expenditure is being recovered. But the value of the CRP is fully reflected in the stock price. The only way up from here is from Profit Oil payment stream fully reflecting the dynamics of the PSC as the CRP depletes to recent expenditure and the R factor swings.

Certainly pre 2016 restructuring. Buyers in or post restructuring got this asset for very little (if anything). One of the reasons the investment has been good for those since.

"remember this capex is money spent today that is recovered, or not, over the next few years"

It's worth highlighting one other point. Ordinarily a company receives the vast bulk of cash generated by capex investment (from which it pays its expenses etc) to recover the capex and generate returns to capital. But with GKP capex recovery and payback periods are extended because only 40% of Net Revenue goes to the contractor for cost recovery. The other 60% is split with the KRG (according to the formula). In other words, we don't get to recover capex and costs first and then split profits after that. So recovery of investment is delayed by the PSC. As a result, returns are lower than would 'normally' be the case. An even greater burden is placed on Profit Oil to generate suitable returns. If you don't understand the Profit Oil dynamic it can only be to your detriment.

""Nor do the large Institutions and Hedge Funds who are falling over each other to buy shares. "

Which ones are these? Name two and the approximate size of their new stakes."

SS, do you intend to answer or do you recognise your post was, yet again, complete BS?

Let's be clear, I believe good news is coming. The share price should be higher. But people ought to understand just why this share is attractive, and why there are risks, and the nature of PSC which drives the company's ability to generate value for shareholders. By all means if you want to invest based on unsupported promises of a takeout and completely unjustifiable values then go ahead. Far better, in my opinion, to invest based on sensible analysis and understanding. I'd estimate GKP's share of the CRP is now down to about $370-80 million. The depletion will slow in the second half due to the increased capex but remember this capex is money spent today that is recovered, or not, over the next few years. Profit oil is the return the company gets for the risk of this investment (and it needs to recover the negative NPV cost of the capex and generate suitable returns to capital). Carry on bickering and speculating.

JH should be judged against his success executing beyond 55k and not against the mere continuation of JF's plan to 55k.

"Nor do the large Institutions and Hedge Funds who are falling over each other to buy shares. "

Which ones are these? Name two and the approximate size of their new stakes.

I do agree re waiting for the RNS

"Apparently it was 53.900 just before results according to certain posters on Advfn."

Interesting considering the company posted results on Sep 2 and the company's presentation has a production figure for Aug 31 of 42.8k. Sep 1 must have been quite a day...

"Your perspective is first that you want to be tax efficient (not an issue for me) and that you want to grow your capital invested as a default rather than to earn a return."

My view is simply that I have $x and I want to grow that to $x+++. So if I like an investment and the quantum of money I have at risk in that investment I want to keep it growing that way. This is why you can view receiving a dividend is just like selling a few; fine if you are ready to sell but not if you want your investment to keep compounding. If you receive a dividend, unless you need it for expenditure you've got to find an investment to put that receipt to work. (What better place than GKP for now unless you've reached your risk limits.) I just want my money working for me and I like my exposure to GKP for now. I don't want to take profits in GKP at these valuation levels. I want to keep my VAR and not have it exchanged for cash that I need to put back to work. Higher up, yes I will like to sell, and higher up I might prefer a dividend or I would sell into a buyback. Capital gains versus dividend income is a factor but not the only driving one. (Tax on dividends reduces my ability keep the same VAR because I need cash to pay the tax man or it's withheld automatically.)

One other thing. When a company is returning large chunks of excess capital (as opposed to modest percentages of annual income) it is very foolish to view those dividends as 'income' and base investment decisions off the dividend yield. The recovery of capital expenditures made prior to the restructuring is a big chunk underpinning GKP's confidence in its special dividends. Profit oil for a period is a much better guide to 'income' than net cash receipts, the bulk of which are cost recovery.

As of now GKP likely still has in excess of $100m of excess cash (on top of the $50 million they're about to pay out). If they paid that out tomorrow as well are they paying out income or returning part of your capital investment?

"Paying a dividend negates all that because the share price has no influence at all over what you get in your dividend."

That's true. Receiving a distribution via a dividend, assuming you want it, is a passive affair - you need do nothing. You get your money and, ceteris paribus, the share price adjusts downward to reflect that. If, on the other hand, you wanted to maintain your value at risk you are required to act - you have to reinvest that dividend (an event subject to the risk that other events might cause you to invest at a price higher than the theoretical ex div price) and, annoyingly, for most there's a leakage to the tax man. But it's the same - albeit in reverse - for the receipt of a distribution via a buyback. If you want to maintain your VAR you need do nothing and your ownership in the company will increase (as the number of share you hold remains the same while the number o/s falls). If, on the other hand, you want your slice of the distribution you have to act and sell into the buyback. Whether you want to increase your ownership of the company at the then price (be it buy reinvesting your dividend by buying more shares or not selling into the buyback) will depend on your views as to whether the stock is cheap. You might be proven right; you might be proven wrong.

" Any temporary price changes do impact the outcome of a buyback, as we've all seen."

I'm not sure what you mean by this. The "outcome" as far as the company is concerned is simply that it bought back $x of shares and paid out (distributed) the same amount of money. The "outcome" for those who took the distribution by selling vs those who increased their ownership by not may, of course, be materially different depending on subsequent events. But regardless of what happens, all the company did was distribute $x. When people get upset that the company bought shares back at a price higher than it is trading at today should only be upset at themselves - they elected not to sell at those higher prices and effectively bought more of the company at those higher prices. Those that sold are happy as Larry. For the company as a whole it doesn't matter.