Member Info for Straycat

The VCP was a construct originally conceived to reward Jon Ferrier, Sami Zouari and ‘other key drivers’ for their loyalty post reconstruction.

It was wrapped up in an almost unfathomable set of trigger conditions and legalese that can only have been designed by Corporate lawyers briefed to make it too hard to interrogate without full disclosure on the part of the Board.
I.E. Jaap Huijskes.
No chance of that happening...ever.

I know, I tried.

Following the 2018 results Jaap Huijskes shut it down having demonstrated his part of the bargain to JF and SZ’s satisfaction.
There are no other beneficiaries of the scheme.
And it’s still running for the residual beneficiaries, namely JF and SZ.

SZ resigned in 2019 after its closure.
JF ‘retired’ at the end of 2020 under a cloud.

Both will be very satisfied with the outcome of their endeavours.

No further analysis required…we know what we’re dealing with here.

IMO, DYOR and good luck.

Excruciating has posted the same basic message 31 times in the last 100 posts on this board.
Plus his back up team to ensure multiple agreement...it's not hard to see what's going on here.

Ha!
Morning and I hope you slept well.
So we can both agree that the self funded FDP is affordable, certainly to a level of $200m-$250m in 2022 on any reasonable assumptions.
The issue then comes down to what is an acceptable equity return. As you say:-
‘…that doesn’t mean the investment will generate adequate returns to equity and thus should be pursued.
Let’s look at that more closely.
Accepting the FDP negotiations go GKP’s way, then the self funding plan to 110k bopd is predicated on a significant upfront investment totalling ca. $450m to 75k bopd, over the next three years, with no material production benefits during the initial stages.
But we agree it’s affordable on reasonable assumptions.
And given JH’s half year statement committing a further $65m, by end 2021, that capex figure will be closer to $380m-$400m at the start of 2022.
So I’m simply positing a scenario where next year we deliver self funded capex of up to $250m for that next massive investment step.
And at the same time accept the fact that unless/until the Field responds with increased productivity towards 75k bopd, we live within our means.
Means which include a significant dividend payment of at least $50m in 2022 on my analysis.
And it looks like there are still significant shareholders’ returns to be made on the road to 110k bopd imo.
And every year, as long as we keep investing...

Nevertheless, and put simply, this is not an investment for ‘short termers’ in the context of a seven/eight year roll out. As investors we're going to have to face the fact that there will be hundreds of millions of dollars going out for a couple of years and the only evidence will be in the asset register.
TM made a really good point recently about the major shareholders not reinvesting their dividends. And you’ve got to ask yourself about their real commitment to the cause. Because at the moment they’re not exactly exhibiting much interest in the GKP ‘project’ are they?
I understand why that is, their resetting their future relationship with GKP on more favourable terms, but as for any serious further commitment to a 110k future, are these really the investors to take us there?
And maybe the answer lies in the underlying question to all of this.

Is it worth it?

And on that point, my simple question for you is; given the complexity/challenges/risks attached to those investments(as far as we can see), what is an acceptable return in your view?
You’ve expressed your reservations in previous contributions without detailing what an acceptable return looks like. Tough and complex question, but it helps me understand your position better.
Or are you adamantly against further financial risk (which I doubt)?

'Of course I made a key assumption which is that things plateau at 55k bopd.'

Whereas mine assume another capex injection of up to $250m next year, a down payment on the on the way to 75k bopd. I accept this may be excessive, but my point is that it's affordable given 55k and $70+
Incidentally, if you stand your projections for next year up against likely out turns this year you're going to struggle to make any sense of your P&L.
But I guess any way you look at the numbers the basic issue is still the same; do we pursue the FDP and its serious capex demands or not.
If we do then the path is financially clear though difficult and less predictable.
If not then what's the management plan for the future course of the business apart from capital returns to shareholders until the R factor bites?
At the moment there is only a Plan A.

Okay I get that analysis and it makes a lot of sense.

But if you look at the forecast receipts next year @ 55k bopd and $70+pb you can see $300m - $350m coming back in receipts, as a minimum. This on top of closing 2021 cash balances over $200m.
In addition we’re looking at a profit stream next year in the order of $150m - $175m potentially.
At that performance level, clearly both major capex and shareholder returns are possible in tandem.
Next year in the order of say $250m capex (probably not necessary in 2022) and say $100m in capital returns to shareholders.
If it's capex then it's reflected in the Balance Sheet. If it's returns to shareholders then the P&L can easily carry the burden.

So what makes you nervous? What risk factors are spooking you?

Got it.

Of course, if we swing into major investment mode then your concerns about the diminishing CRP disappear for a while.

And in investment terms, balancing major capex and return of capital to shareholders is perfectly possible in the current climate @ 55k and $70+, without materially affecting the balance of the current arrangements, as long as profits allow.

All self funded. Such a sexy proposition...but attached to investment risks GKP don't currently face.

For the purposes of the CRP, what do you consider to be a cost?

ValueS,
Valid argument and certainly the one the KRG are using to block further Field development.
But GKP have countered these KRG's objections on two previous occasions and yet other barriers have been placed in their way.
In negotiating terms, if the KRG wish to improve their position, withholding development unless/until the terms of the agreements are adjusted is their best offensive weapon.
I believe they're obfuscating to enhance their negotiating posture.
And if that's right, then with what JH is doing with the 'interim' dividend package is likely to get their attention.
They'll see that for what it is; a direct threat to the whole development project if there is continued stalling of the FDP.
You're right though; who knows?

I love it when you talk dirty like that...are you trying to seduce me?

Funny, love it...great assessment.

TM,

I omitted you in my tribute to those who try to interpret the PSC and its future trajectory...my apologies.

I'm making a different point though.

I'm more interested in the negotiating dynamic at the forthcoming FDP review.

And the different ambitions at play.

There’s been a lot of excellent analysis recently on the impact of the R factor going forward.
Detailed and rigorous.
But all based around excel spreadsheets (well mine certainly is!) using sometimes quite sophisticated models covering potential outcomes given multivarious scenarios.
And all of it based on a maintenance of the contractual status quo. No other way to do it.
PUTUP and ValueS in particular made valiant efforts to simplify something which is simply not at all simple.

So let’s try it another way…
The PSC is intended to promote major investment in Shaikan. That’s what the R factor is there for.
Right up to 110k bopd.
And GKP signed up to that ca. $1.3bn investment some years ago, claiming it to be self-funding.
Ergo the terms of the PSC created an investment climate that made the development of the Field possible.
Because currently GKP’s capex development costs stand at some $400m or so. Entirely out of cash balances.
And that investment has taken GKP to 55k bopd (albeit delayed). It has also provided a profit stream for the Company, making disbursements to shareholders possible, lately in a significantly different and more aggressive way. I wonder why?
So the PSC and the FDP are deeply intertwined.
Of course the FDP must be conducted with KRG support, given they’re providing the cash in toto.
And that plan has been presented and represented by GKP on several occasions for a variety of reasons.
On each occasion it has suffered rejection.

So does anyone seriously think that the upcoming discussions/negotiations about the FDP are going to take place in isolation? If so then naivety has taken on an entirely different meaning.
Clearly the PSC will be an integral part of the discussions as well.

And that makes the next three months seminal to the future course of GKP development…and therefore to PIs' future investment intentions.
I expect modifications to both the FDP and the PSC, one contingent on the other.

But whatever the outcome of those talks, GKP looks in pretty good shape right now.

GIVMESUNSHINE

Ha! Welcome. Brilliant.
No, not really. If it was easy everyone would invest in the future of GKP.
But the Company is in a period of serious transition; it's finally recognising its strength in its relationship with the KRG.
And it looks like the investment fraternity is finally waking up to the fact.
Good luck with your investment decision...just look at the Balance Sheet for your comfort.

Think you might have got a bit ahead of yourself there Armas!
Nevertheless, while cash isn't profit, your point about the asset being wholly undervalued is as true now as it was at any time since restructure. Cash balances have, at times, got close to matching he market cap of the business.
Some will argue that the marcap is a fair reflection of the risks inherent in this investment.
I'm not one of them.
I genuinely believe we're on the cusp of something quite unique, whichever way we decide to proceed.

So what's your model showing for full year revenues?

The question related to income per annum.
So you need to strip back the arrears in your monthly calculation (assuming they pay in full) to reflect the outstanding unpaid debt.
The arrears is currently $45m, not the $100m as implied in your monthly calculation of revenues.
That gives an annualised revenue figure closer to $500m.
I'm at $450m, but like I keep saying; let's not quibble...at these levels difficult decisions need to be taken about Company forward strategy.
Because it's a cash monster and that cash needs dealing with. Legitimately!!!

Apologies for the double post.
Not a clue!!

Good point TM,
Garett Soden's views on that ( as a non-independent Non Executive Director representing Lansdowne's perceived best interests) will matter.
And I would be surprised if Lansdowne were acting without reference to other major shareholder support as well.
Obviously Lansdowne haven't been re-investing their dividends; nor have any of the others. Certainly not through any formal routes.
So maybe the grown-ups will continue to look at dividends as the best way to reset their relationship with GKP.

But back in the trenches, JH has a major upcoming negotiation on his hands.
And in negotiating terms, that policy continuance of stripping out large chunks of cash at will might be very inflammatory during the FDP discussions.
At least buyback provides a fig leaf for GKP; they can deploy the argument that they are concentrating shareholder value while at the same time demonstrating their commitment to further investing in the future of the business.
What better way to show true commitment than to buy back shares in your own Company?
Making a positive statement of intent to shareholders and the Markets alike.
As well as showing the KRG their belief in their business and the proposition to further develop the Field.
Rather than face the accusation that they have no real interest in the 110k proposition anymore, and instead have decided to rape and pillage the Field at the KRG's expense.

Exciting times.

Good point TM,
Gareth Soden will have a significant view on that as a non-independent Non Executive Director representing Lansdowne's perceived best interests in the matter...and I would be surprised if Lansdowne were acting without reference to other major shareholder support as well.
Obviously Lansdowne haven't been re-investing their dividends, nor have any of the others. Certainly not through any formal routes.
So maybe the grown-ups will continue to look at dividends as the best way to reset their relationship with GKP.
But in negotiating terms, that policy continuance of stripping out large chunks of cash at will would be very inflammatory during the upcoming FDP discussions.
At least buyback provides a fig leaf for GKP; they could argue they were concentrating shareholder value and further investing in the future of the business, rather than face the accusation that they had no real interest in the 110k proposition, and instead had decided to rape and pillage the Field at the KRG's expense.

Hey Jens,
So why do you say the KRG are working in tandem with GKP?
Genuinely interested, because if that's right, then the next MASSIVE question would have to be:-
To invest or not to invest more than $800m over the next seven+ years in the enterprise to 110k bopd and all the risks of failure/prizes for success attached.
Or manage investor expectations down to 55k+ bopd and serious short term returns.

BTW, I have no idea, I don't have enough information. But I bet JH has by now...