Member Info for PUTUP

A bit over 450 thousand worth. You?

I've doubled my money so far. I expect to triple it.

"Putup.
Your scenario of $26 mil monthly with $20.6 mil as cost recovery is incorrect, this would workout at nearly 80% pool costs per month."

CCC I suggest you actually do your homework. To help you here is a breakdown of December's payment:

Production 43k bopd
31 days
Brent $50
Discount $21.1
Gross Revenue $38.5 million
Royalty $3.9
Net Revenue $34.7
Cost Recovery 40% $13.9
Profit Oil $20.8
Contractor Share $6.2 (30% as R = 0.7)
GKP gets 80% of Cost Recovery $11.1
GKP gets 80% of Profit Oil $5.0
GKP pays 40% CBC $2.0

Net receipt by GKP $14.1 ($11.1+$5-2)

There's a little rounding here and there but it's good enough.

Good luck fellas. If you're not prepared to do your homework be sure to tick the muppet box on March 21st (unless you're in Scotland in which case you have another year).

"Remember mcap was close to $3bln even b4 we were pumping 20kpd."

And how did that work out for you?

How the spoils are shared matters a lot. If we immediately morphed to the $63 oil 55k bopd scenario you outline, with an R factor below 1, GKP would be collecting $26 million a month. Most of that receipt, $20.6 million, would be Cost Recovery. GKP's share of Profit Oil would be about $9.3 million and they'd pay $3.7 million in Capacity Building Charge. (Plus/minus a few $100k.)

That would be great if things stayed that way. But they don't - even with production and the oil price remaining the same. Cumulative Revenues vs Cumulative Costs build to shift the R factor above 1 and the Contractor share of Profit Oil falls. Also, the historical Cost Pool diminishes. When the Cost Pool is recovered all remaining oil sales are Profit Oil. If, for want of an example, we were to redo the foregoing calculation but assume an R factor of 1.5 and 100% Profit Oil (no Cost Recovery), GKP would receive about $6.9 million a month. Rather different aye?

Prove my calculations wrong.

@kaaran I suggest you build a little spreadsheet to reflect the dynamics of the PSC as outlined on pg 26 of the company's Jan 2020 presentation. You only need about 15 lines and a couple of columns. That way you can plug in whatever scenario you like. You might also want to run the scenario where the R factor is still less than 1 and the cost recovery pool is not yet depleted and perhaps consider that your nearer term best possible case. Even that is sobering versus valuations of (now picture Mike Myers as Dr Evil) "billions of dollars".

Those who have actually done their homework will say, and have said already, it's all about finding a cost-effective solution to the gas. The current 55k to 75k bopd $400-450 million expansion plan is highly unlikely to offer sensible risk adjusted returns for shareholders. Until a new and better plan becomes available it doesn't matter how many reserves you've got.

If only those touting massive valuations actually had enough money to place on the bid to make their opinions worth something. They could bid up the shares to astronomical levels and buy mine along the way.

Yup

Now go ahead and model what happens when you run along at 55k bopd and recover the prior capex via cost recovery. (Hint: at $60 oil, 55k bopd production you diminish the cost recovery pool by about $230 million a year.) The R factor shifts rapidly from 0.7 to over 1 and onward towards 2 or greater. Cost recovery oil goes to zero (or at least to the cash flow neutral situation where cost recovery=capex). All sales become Profit Oil and there Contractor share is 15%. What's GKP monthly receipt then? Multiply it by 12, subtract opex at $2.6 per barrel and pin a multiple on it.

Reserves are only a potential asset base. You have to be able to exploit them for sensible risk adjusted return. Given the geopolitical (and other) risk those returns need to be high.

"so we’re going to spend 400mn to get from currently around 44k bopd to 75k bopd over 3 years?"

Capex required to get to 55k bopd is largely covered. So you're talking about $400-450mm to get from 55k to 75k... But the answer to your question is "most likely not." It makes no sense because the returns simply aren't high enough at current oil price levels. Expect this proposed 'plan' to meet fierce resistance from key shareholders.

This is not the way...

"The lack of any gas mangement solution is the issue. This will likely need a political solution rather than one from GKP. Re-injection was bold in a fractured carbonate, but has proven to be non-feasible because the field is too poorly understood. We need gas infrastructure to be build, which is in the pipeline (see an earlier post I wrote here about the US pushing for this). Unfortunately this seems to have stalled because of politics (the Russians have a contract to build a gas pipeline to Turkey but its not even started yet).

I've done some rough sums are I'd say a correct value for GKP today is about £400-450MM . "

Correct re gas for 75k. People keep focussing on whether it makes sense for the KRG. A more important issue is whether it makes sense for us. That capital expenditure (as currently outlined) does not. Not even close. So, to go from 55k to 75k we need an enormous combined effort across all IOCs and the KRG/Baghdad governments. That requires a lot of stars to be aligned.

Your mkt cap expectations are likely a little light but probably not massively off. They're certainly more realistic/sensible than some dreamers here. Good upside to come but not stratospheric stuff.

You guys could give a old women's hair salon a run for its money on the bickering front... The Blackrock discussion is nothing short of hilarious.

Tick tick tick onward and upward, steady as she goes. Support at 140 and heavy resistance at 190. Everything in between is meh.

LOL indeed. We know from Orient Capital's work published by the company that as of April 1 Blackrock owned 5.16% of the company. On April 1 the stock closed at 66p. The next day they filed for going through 5%. Unfortunately I didn't record the company's publications of Orient Capital's shareholder analysis again until the report as of 15 July. By then Blackrock had sold down enough to no longer appear in the top 10 lines of Orient's list, ie below 2.35%. (I think it unlikely that thy sold their entire stake.) On 15 July the stock closed at 94.50p. Blackrock remained below the 10th largest shareholder in Orient's analyses all the way up to and including January 15 when the 10th largest shareholder (Schroders) had 2.48%. On January 15, the stock closed at 149p. Between Jan 15th and the 1st of Feb Blackrock bought enough stock to go from somewhere below 2.48% to 4.44% (and afterwards another 0.59% to get to 5.03% yesterday). On the 1st of Feb the stock closed at 135p while yesterday it closed at 157.4p.

So... somewhere between 66p and 94.50p they sold at least 2.5% of the company (half their holding) and somewhere between 149p and 157.4p they bought it back. Talk about sell low buy high.

And yet it is good to have their sponsorship back to levels of less than a year ago. (Plus ca change... ) The stock badly needs it. Pro forma for Blackrock's filing today, Orient's analysis covers 65% of the company's ownership. Of that 65%, only 1/3 at best is institutional with the rest UHNW/retail. It's been good to have their buying support the stock over the last couple of weeks. Here's hoping they continue to add or some other party replaces them on the bid.

an extra

even if your statement were correct, and even if we could charge the KRG interest at our old cost of debt, that's 2p a share. Woohoo.

Thanks Theoryman

I might agree were the debt accumulating. But a lot of the sentiment factor you point to improved when they started making the scheduled payments again. That is, I believe that sentiment improvement to have already occurred. My 2p.

My point - in the question I parentheses - is I'm not sure if the stated $73m figure is the amount due to the Contractor or it is the net amount due to GKP reflecting both GKP's 80% contractor share interest and obligation to pay 40% in capacity building charge. Obviously if it is the former then the net value of the receivable to GKP is considerably less than $73m. Perhaps you know the answer?

As for interest, it's rounding error in the grand scheme of things in monetary terms. But I'm sure it is one of the arrows in the quiver at the negotiating table.

For a long while they held at or around 5%. On the April 1 last year they had 5.2% but dropped below the 5% reporting threshold the next day as they sold down with a change of manager. It's nice to see that they've added back again though, a couple of percent recently (and likely a good part of the reason for the recent stock price rise).

$73m is 25p per share (gross)*. So even if (a) everyone had ZERO expectation of repayment, partial or full, and (b) they repaid it all in one go that's the best uplift one might expect from that. I don't think the stock price impounds (a) especially since current payments began again. I believe your other targets too aggressive.

* Do they have to pay CBC from this when received or is it the net amount adjusted for this? Then any holding company tax is due.

Good post theoryman.

While I agree the stock is cheap we all have to remember that it can stay cheap as long as there isn't fresh and overwhelming impetus on the bid. This is where a company buyback can help the spot price a lot.

Also, your last two points seem to be lost on many. If we look at the receipt for December, the breakdown is roughly $11m for cost recovery plus $5m for profit oil less $2m for 'capacity building'. At $60 Brent and keeping 44k bopd those numbers become $15.3m, $6.9m and $2.8m, respectively ($19.4m net) per month. If we assume $60 Brent and raise production to 55k bopd the numbers are $19.1m, $8.6m and $3.4m ($24.3m net) per month.

Focus on the first of these three numbers in each set for a moment. $19.1m, for example, is GKP's share - the contractor cost recovery figure is this grossed up by GKP's 80% share. In a low capex environment we consume the historical cost balance very quickly. At $60 Brent and 55k bopd production we have about 2 years of recovery after which cost recovery is close to zero.

At the same time, turning to the second and third numbers in each series, the R factor (cumulative revs/cumulative costs) pendulum begins to swing quickly such that we end up with just 80% of 15% (rather than 80% of 30%) of profit oil (from which we pay 40% for capacity building). GKP profit oil falls from $8.6 to $4.3 while the CBC falls to $1.7.

Post full cost recovery, its loss is partially offset by the fact that Cost Recovery Oil becomes Profit Oil but we get far less of this than if it is Cost Recovery.

So you can't extrapolate current numbers - even assuming constant production and constant Brent prices - too far into the future.

"Not a beautiful onshore field where it costs about $3 a barrel to extract....."

That too is illusory for reasons just recently expounded...

Many years from now there will be many millions or even billions of oil still in the ground that will remain there forever. Reserves are only worth something to the extent that it makes economic sense to extract them. Valuing GKP with reference to its reserves is fool's gold.