Member Info for PUTUP

Voluntary cuts to production to be sustained until end of year

The share price clearly isn't low enough to trigger their desire to buy. The purchases they did make were price limited at 125p and the stock hasn't traded at or below that level since. The obvious and simplest answer is normally the right one. 🧐

(I, for one, am glad they're not paying higher prices.)

Not so long ago, when the stock was above 53, I said: "Trading range is 42 to 62. Long way from dips..."

Much closer to dips now...

Still more to go I suspect

Rog, a lot depends on whether exports can restart. For the moment, cash receipts from sales are flattered by excess cost recovery. Next year, hopefully, they will be flattered by recovery of receivables (the bulk of which is cost, i.e. capital, recovery). If we are constrained to local sales then 'profits' will be lower, and recovery of receivables slower, than would likely be the case on export restart - albeit the latter scenario comes with uncertainty around contract terms, while the former is continuation of the status quo but with a much lower sales price. There's still a lot of capital to be returned to shareholders. (GKP has too much deployed.) But 'profit' will be a small slither of returns.

As of October 5, cash adjusted for the dividend was $90 million. I forecast receipts from 4Q production to be about $35 million. 80% of that is cost recovery, ie $28 million, and the rest, $7 million, profit oil less CBC. GKP's share of direct costs incurred is about $16 million, hence $12 million of excess cost/capital recovery. Then deduct some corporate overhead. So about $18 million of free cash flow for the quarter, a whole $12 million of which is excess capital recovery. I expect a 'final' dividend higher than the interim.

Next year, returns of capital (be they in the form of dividends or buybacks) will be enormously dependent on receivable recovery.

"And that capital is constantly being replaced with profits from local sales"

Nope. 80% of the receipts from local sales is recovery of capital. From the 20% one must deduct corporate overhead and any other non-recoverable costs before arriving at 'profit'. 'Profit' is currently less than $3m a month - even in months with circa 48k production. The vast bulk of the money being returned to shareholders in the form of dividends and buybacks is the return of capital. It's not payment of profit.

Nope. With oil on its knees the stock isn't particularly cheap.

@Rog, hopefully you do realize that dividends are far exceeding 'profits'. Your share price (capital) is being incrementally returned to you in cash.

Frankly, I don't want them buying anything above 110p (ie circa 120p adjusted for the dividend). We were below those levels just a month ago and nothing has gotten better since then.

Just as expected, they're being picky. Perhaps a limit of 125p currently.

Trading range is 42 to 62. Long way from dips...

Picky

(thankfully)

Haha no

Things stretched after that. As of January 30, 2023, only Sep-Nov 2022 invoices were considered overdue. GKP finally received payment for September in early March when the move to KBT pricing was agreed. (The move to KBT was the first leg down in the stock value.) Then, of course, we had export shut in on 25th of March.

" prior to the pipeline closing the KRG were approx 6 months in arrears with IOC payments"

Only three months were in arrears. Jan and Feb '23 were within payment terms. (Even Dec '22 might have been.) And March '23 wouldn't even have been invoiced by the IOCs. It is clear, however, that they needed receipts from March '23 sales to pay for Oct '22 IOC invoices - and promptly stopped paying anything when exports ceased.

@ BSMonitor

Management are simply returning excess capital to shareholders. GKP has too much tied up in unproductive

returns and the core business doesn't have a high enough return to justify hanging onto the excess. Shareholders, as a group, are demanding (wisely in my view) that the excess be returned to them.

Different shareholder groups will have differing views on how best to get that done. Some sitting in tax havens, for example, might care little for the day-to-day stock price and demand (just) dividends. The return of capital isn't taxable for them. Others with the same locales may care more for the stock price and/or like to increase their ownership at current levels. They would favour buybacks (or at least a mix). Others, e.g US investors, will find the return of substantial excess capital via dividends extremely costly since such dividends are 'non-qualifying' and subject to full income tax rates whereas extracting capital by selling, even if only pro rata into a buyback, incurs the much lower capital gains tax. All of these groups will, when they get the chance, chirp in the ears of management.

Management can be completely agnostic as to fair value (their personal views are just as subject to being proven wrong as anyone else's by subsequent events) and yet still respond to these factions. It's a key reason why they've elected to do a mix. More to the point, THEY needn't view the stock to be cheap to return capital to shareholders via a buyback. The decision whether to sell and participate in the distribution of capital or not sell and hence increase ownership at the buyback price is one for each individual investor to make.

When executing the buyback portion, the views of those shareholders pushing for it will very likely be front of mind and probably 'live' throughout the process. I believe many were disappointed that the rather robotic execution last time pushed the stock a little too high. I expect such shareholders will endeavour to sway management's execution this time around more so than last. Of course I could be wrong...

And note that language has been dropped in the latest release

The company is merely returning excess capital to shareholders - in the case of the buyback, to those who want to sell at buyback levels. Others increase their ownership at the buyback price. Management aren't making a judgment on valuation. They are leaving that to shareholders. Make your own decisions and own the results of those decisions.

"The sole purpose of the Buyback Programme is to reduce the capital of the Company."

"The Company is committed to returning excess cash to shareholders."

Well it didn't take long for the gap set on Oct 8 to close. That plus a 14-day RSI over 70 were screaming correction. One more day before ex-div. Expect the company to be more picky as to when it buys back stock this time around.

I have a lot of it. You, clearly, not enough.

"Self funding" implies that GKP recoups the required investment (done on behalf of the resource owner) fully - at least within a financial year. That is, no re-building of the CRP. If events require GKP to invest more than it recovers it is having to put more capital to work. Putting more capital to work is not "self-funding".

What would this require?

Let's assume your $850 million figure is split evenly over 5 years ($170 million per annum). (Let's also ignore the initial lag in expenditure recovery due to payment terms as it normalises quickly after one year.) "Self-funding" would require at least the following:

- existing contract terms and a re-opening of exports

- field sales at previous discount to Brent ($32) or better

- Brent averaging $70 or above

- production for the year of 55k bopd or above (vs current 48k bopd)

If any of those fail to occur, the others have to make up for the stumble.

It ought to be painfully obvious that contract discussions, particularly with respect to the rate of cost recovery, are critical. Your confidence in "self-funding" is totally at odds with your view that significant compromises will have to made with respect to contract terms. But by all means be over-confident on self-funding. I'm more cautious. I certainly do hope that we retain our existing contract terms, but I'm not prepared to pay in advance for potential future growth given the level of uncertainty. Not yet. For now, the current stock price isn't demanding that I be bolder anyway. If you're so bold, put your money where your mouth is.