Member Info for PUTUP

He did well on that

GKP has been in this uptrend since mid September last year. Ebbing and flowing, but steadily moving higher as confidence in pipeline reopening (and receivable recovery) grew and became priced into the stock. Nothing special about 18 December.

And if you were so inclined (I'm not - other than selling at 320p and then, later, some more on the announcement of the move to KBT pricing, a couple of years ago now, at 207p after a good dollop of divis, I have held onto the position I accumulated throughout 2020/early 2021) there were good points to trade out and then back in along the way. For those so inclined the question is, as ever, what to do today: are we overextended in the short term or not? That is the question for those with shorter term mindsets.

Another bearish player

If I didn't think we'd recover the arrears I would be selling and banking my profits at these levels...

Currently I am modeling GKP recovering $57 million this year and the balance over the next two years (mostly in 2026). Removing that would hurt my YE fair value target enormously (minus 51p per share).

* Hold FOR good return

"Or Buy on the rumours and sell on the fact. In this case the later I’d suggest. "

Certainly feels that way. Reopening and substantial arrears recovery this year are already baked into the current price IMO. Technicals look very extended. Would love to be wrong but I've only rarely been so with GKP. Hold of good return but the girls are getting very giddy.

Who knows? The first leg down in the stock was as a result of that additional discount (followed later by pipeline closure). It would be great news if it was the case. However, I wouldn't pay for that upside before it's announced. Broadford Bay is right to be cautious regarding the composition/grade of oil SOMO would like to export. (FWIW I am using $9 for the KBT discount for now, on top of the $23.20 before that.) One of the jobs of management is to get the discount to Brent lowered (in whatever way, be it transport costs, less middleman pilfering etc) - or said more plainly, to get the best price possible for Shaikan oil. They will be judged on how well they do. Exports have to start before we can see how much we can export and at what price.

The entitlement does basically double IF they can recover the cost oil in the arrears when exporting via SOMO. As we have discussed before, there's a good chance of recovering such costs in arrears via local sales via the KRG, but it is far from clear that it will be possible with SOMO. For now, I have arrears being recovered over 24 months from April but as I have highlighted, exports potentially allow for faster recovery. Again, we will have to see how things go in that regard. (I disagree with binned/filtered Straycat in his view that the arrears won't be recovered... assuming he still holds that very bearish view. I think you and I are more closely aligned with respect to the recovery of arrears.)

Regarding the arrears, I'm currently assuming that GKP recover $57 million in 2025. A return to exports might allow an even faster recovery which would provide some upside.

Yup, unfortunately the oil companies are not parties to discussions to date. Long way to go before everything is sorted out but I believe it will be. A restart of exports around April would be fortuitous timing with the drop in receipts associated with the run-out of the CRP (pre-arrears) compensated by the extra receipt of exports rather than local sales leaving receipts (pre arrears recovery) essentially flat. Let's see how things unfold. A lot is already baked into the current share price which is a good sign of investor confidence that things will be resolved soon.

(Anyone expecting a dividend announcement before March are nuts...)

Girls getting giddy again. Resistance at 165. RSI extended again. Continue to hold but don't be surprised if it pulls back a little again. Pipeline reopening and substantial arrears recovery already in the price. I expect both this year. With a slightly better outlook for Brent and a weaker sterling my YE fair value target has ticked up slightly to 188p (from 185). Discount that to end January and you get 160p. Ho hum. Par for the course so far.

New Russia Sanctions May Tighten Supply Side

Sanctions have historically had mixed impacts on oil production. Still, new US sanctions on Russia's oil industry went further than expected. It will take some time to digest these measures, but this creates downside risk to oil supply, at least for a period.

Key Takeaways

New sanctions announced on two Russian oil majors, 157 tankers and dozens of traders, oilfield service providers, insurance companies and energy officials

Sanctioned tankers carried ~1.5 mb/d of crude oil and 0.2 mb/d of refined product in 2024, according to Vortexa data

Key destinations were China and India, which received >85% of these flows

Sanctions were authorised under CAATSA legislation, which means any reversal would need to go through Congress

Much remains uncertain, but this introduces downside risk to Russia's supply; hence we make modest upwards revisions to price forecasts

Brent ($/bbl)

1Q25 2Q25 3Q25 4Q25 2026

New 77.5 75.0 72.5 72.5 70.0

Previous 72.0 70.0 70.0 70.0 70.0

Tiny. Volumes are anemic.

Chicken

While we await a response from Mary, it's good to see Norges now up to 5.24%...

"A similar amount later in the year would pay out all the free cash flow I expect to be generated in 2025."

Just to clarify, I should have said "free cash flow from continuing operations". Additional free cash flow will, I expect, be generated from arrears recovery.

From the company on 11 December 2024:

"The Company is finalising its work programme for 2025 and expects to provide capital and cost guidance as part of an Operational & Corporate Update announcement in January 2025.

Expect disciplined and flexible programme focused on safety, reliability and maintaining the production capacity of existing wells, with activity levels similar to 2024."

This will be an interesting update. Some here expect the company to charge forward with production expansion at a rapid rate. I'm more conservative in the short term as I do not expect the company to agree a field development plan which demands that they invest in the Cost Recovery Pool until they have recovered at least a very significant portion of the arrears. Furthermore I expect the company to remain in capex conservation mode for as long as the pipeline is closed. Management would seem to agree.

As I await this update, I currently have $40 million pencilled in for gross capex for 2025. ($20 million per half versus just over $15 million incurred in 2H 2024.) This may be a little bit high but capex doesn't move valuation much due to cost recovery. Management currently face a delicate balancing act. On the one hand, they desperately need more water handling equipment in order to maintain 48k production levels, let alone recover to the previous goal of 55k barrels per day. (Going beyond this will likely require drilling.) On the other hand, they're reluctant to incur greater investment while they are owed so much. I'd expect they've been considering all number of alternatives, including purchasing used equipment or even leasing the necessary equipment in order to save expenditure and bandaid the situation until investment is more justifiable.

Unsurprisingly given the above, I have flat expectations for production of 48k barrels per day for 2025 even if the pipeline reopens as early as the beginning of the second quarter. This is in line with the statement from the company in December. It will be interesting to see if they now have greater confidence in growing production beyond current levels and whether that confidence grows throughout 2025. It would be nice to have confidence in a return to c55k in the near term end 2025/early 2026). Significant growth, however, remains some years out.

That said, the company still retains too much capital. The last of the CRP is being recovered, albeit much more slowly as a result of local sales rather than exports, and this and any recovered arrears (minimal until April) should be returned to shareholders. While I think a greater amount ought to be returned, currently I expect management to announce a dividend of $30 million (a bit over 11p per share at current exchange rates) in March. ($50 million would be a more suitable figure.) A similar amount later in the year would pay out all the free cash flow I expect to be generated in 2025.

Good luck to all those with sensible expectations.

Bot, you should thrash that view out with the analysts at Morgan Stanley. Their current base case projection for Brent for 2026 is $70. (And, yes, I'd rate their view more than yours.) But by all means bid the stock up to reflect your extremely bullish view. We are all waiting for you to do so.

"The best thing is the SP keeps going up"

Yes. Firstly (finally - or rather right-on-time) to my YE 24 target and now steadily towards my YE 25 target which will be updated regularly as new information arises. (It shouldn't surprise you or anyone else that my YE '25 target - cum dividend - is circa 20% above my YE '24 one given I have made clear that I am using a 20% discount rate. That is, currently, the return I require for this risk. Each investor may have different needs.)

Currently, the stock is fully valued against my current expectations and required return and hence I consider it a Hold. That does not mean it doesn't go up cum dividend. On the contrary, I expect a 20% return this year. To be considered a Buy it would have to offer an expected return significantly above my required 20%. (As an aside, I do think that return will be delivered by dividends and hence we will ultimately likely see little or less price appreciation this year on an ex dividend basis.) Were it to jump to 185p in the very short term I would be forced to reconsider my expectations and where they are conservative or, more likely, trim my holding.

I know you'll struggle with such basic concepts and mathematics...

Ask the company... A simple email to IR

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