Member Info for Straycat

On 21/1/2020 the OpUp stated that cash was at $192m.

Since that time GKP have bought another $10m worth of shares leaving the cash balance (inc. other operational disbursements) at c.a. $180m.
GKP are owed for shipments since October 1st 2019. This will be in the order of $90m.
That’s $270m or so either with us or awaiting payment (we should chase up payment for October invoices as a matter of priority, Ian Weatherdon note).

So today we’re valued at little more than our cash and cash receivables.

As a consequence no value is conferred on our operational assets whatsoever.
And it’s been broadly the same story ever since the Restructure in 2016.

Ignoring the absurdity of that proposition, and bearing in mind the declared production uplifts already achieved to 42k bopd with the imminent move to 55k bopd and then beyond, the burning question for the Board is what to do about it?

Both JF and JH are probably pretty p1ssed off about this treatment and it may be that the buyback policy is their tangible response.

Forget about what they’ve said and look at what they’ve already done.

The shares are being driven off the market on a daily basis, at discounted prices, sitting in treasury and unavailable for general market trading.
As of last night GKP had spent $46m buying back 16.4m shares into treasury. By the end of this final Programme phase they will have spent $50m on c.a.19m shares, or just over 8% of the issued stock.

This is a tangible expression by the Board of their belief in the future of GKP right now just as the Markets are looking the other way.
And they may not have finished yet. Every night, in every Repurchase RNS, we are reminded that:-

‘The Company will make further announcements in due course following the completion of any further purchases pursuant to the Programme.’

Certainly the cash flow forecasts suggest that, just as in the last eight months, further funds can be allocated to buyback without disrupting either the dividend payments or the ongoing capex developments beyond 55k bopd.

So bring it on GKP, there’ll be another request for buyback authority at or before the AGM imo, and it can’t come soon enough for me.
At the current rate of repurchase we could have another 15-20m cheap shares off the market by the end of this year. That amounts to some 15%-20% of the issued stock.
And if that doesn’t do it, and as long as it doesn’t impinge upon either the dividend pay outs or the capex funding, the Company should just keep on buying until the realisation finally dawns imo.

Then we’ll see what the true value of GKP is.

It may be a slow burn (unlike cancellation) but it will eventually take us to the same place.

Your calcs look good to me Mikey, but your conclusion's wrong.
If you're right about the Capacity Building Tax reducing to 30% in advance of any finalisation of the 2nd PSC Amendment (which I doubt) then the payment should be a monthly tax payment of :-
$129.6k * 30% = $38,880 per $m receipts or $583,200 on a monthly payment of $15m.

Mikey,
You know we're not all out to get you, it's just that you really don't do yourself any favours do you?
I won't wait for an apology...life's too short.

Ha!
You need to read last night's RNS Michael.

gotabesirius,

Sorry about Mikey's intemperate tone....he doesn't get out much and it makes him cranky AND wrong.

Under the terms of the second phase buyback for $25m we’d spent $18.56m buying 7,207,403 common shares.
That leaves $6.44m to spend, and using the current VWAP of $1.877 this gets us another 3.4m shares into treasury. At the current run rate that’ll take another 22-23 trading days.
When it’s finished we’ll have bought back c.a. 10m shares to add to the 8.7m we bought back during phase one and the total buyback will have been for c.a. 18.7m shares, or 8% of the shares in issue.

But the footnote states that the reduction to 30% is 'SUBJECT TO the finalisation of the Second Shaikan PSC amendment.....'

What makes you think that notwithstanding that subjectivity nevertheless the MNR have acceded to the reduction to 30%?

Mikey,

Not having a professional linguist to hand;

‘(i) KRG entitled to a capacity building payment representing 40% of GKPI/TKI profit oil
(to be reduced to 30% subject to the finalisation of the Second Shaikan PSC amendment pursuant to the 16 March 2016 Bilateral Agreement between GKP and the MNR)’

What exactly does that mean in the context of the Second Amendment finalisation?

Also I note that in their ops update of 22/6/2018;
‘The Company continues its dialogue with the MNR and MOL in order to achieve further contractual and commercial clarity in relation to amendments of the Shaikan PSC which it anticipates being concluded in Q3 2018.’

Do we know what went wrong?

As far as the PSC is concerned the 2018 full year accounts revealed that:-

‘With imminent growth in production, the Company expects to accelerate recovery of the c.a. $500m outstanding petroleum cost pool (gross).’

And then:-

‘the Company has spoken in the past of discussions with
the MNR and MOL which could potentially lead to an amendment of the existing Shaikan Production Sharing Contract (PSC) where the MNR is seeking a carried interest that is common with many other PSCs in the Kurdistan Region of Iraq. Should a new PSC amendment be concluded, the Company is confident that the revised fiscal terms are expected to be at least value neutral to GKP. This matter has no reason to impede development progress, investment and increasing production from Shaikan, as evidenced by our considerable activity in 2018 which continues apace in 2019.’

Those statements tell us that:-

(a) There is a natural rate of recovery without production increases…..what is it?;
(b) No production increases = no accelerated recovery of the $500m cost pool…so what’s the relationship between accelerated production and accelerated recovery?;
(c) The amended PSC will probably have no positive impact on GKP since the Board are likely to settle for it being ‘value neutral’.

In any event, I’d be surprised if the FDP isn’t wrapped up in this negotiation as well.
From the MNR point of view it’s a very effective bargaining chip given the level of GKP’s financial commitment already made to the development plan.

The relaunch of GKP on 28/3/2019 at the Capital Events Day was an unmitigated disaster.
Sami Zouari had masterminded (and then presented) the whole thing in his position as CFO.
This was effectively a relaunch of GKP on the back of record sales and profits, a massive and growing bank balance, and a self funded reinvestment plan spanning an 8-10 year period at an estimated cost of $1.2bn-$1.4bn.
The Company was now debt free AND was launching an exciting new dividend policy to attract and retain investment as GKP looked to transform its P&L and Balance Sheet by increasing its size four fold.

The only thing missing was a share buyback using Company funds to demonstrate its confidence in itself and its future.
By SZ’s own volition the matter had been discussed at Board level but was deemed unnecessary at that time.
It seems likely that it was SZ who resisted it because only seven weeks later, with the share price shipping water and listing at around £2.40 Jaap Huijskes navigated shareholder authority to commence a buyback, the very thing that SZ had only just finished describing as unnecessary a few weeks earlier.
A week on and Sami was ‘stepping down’ without explanation……he had designed and taken full credit for what turned out to be a stellar misjudgement of market sentiment towards the Company.
And a month after that what’s turned into a $50m buyback commenced.

Eight months on and as of last night there were 14,847,152 common shares held in treasury, representing 6% of all shares in issue.
And by the end of this buyback initiative there will be c.a. 20m shares there (assuming no more staff award redistributions).
These shares will not receive a dividend (as per GKP Investor Relations written responses to shareholder concerns and S726 (3) Companies Act 2006).
Nor do they have any voting rights.
And most staff share options are not ready for vesting yet.
So what are they there for?

In all official RNS correspondence on this matter, the Board continually refers to the ‘focus on capital allocation’ and the buyback initiative being ‘an accretive use of funds’.

Taking that rationale at face value, it now looks to me like the Board have decided to buy their shares back into favour, with 6% in treasury already and more to come while they’re cheap, before the major announcements to follow about performance uplifts, information known only to them.
I wouldn’t be at all surprised to read another announcement on additional buyback in the coming weeks, maybe with the publishing of the full year results, or at the AGM.
Because when they announce their new dividend arrangements for 2020 coupled with further buybacks and a dramatic and sustained uplift in production volumes, the Markets will be forced to a re-evaluation of GKP as an investment prospect.
If not, GKP just carry on buying themselves back on the cheap as allowed under FCA rules.

Either way the residual PIs should be the beneficiaries.

IMO. DYOR.

The worse news is that Simply Wall St have used the wrong currency to report JF's earnings.

IN FACT the currency used in the 2018 full year Remuneration Committee report was £ Sterling, not US$.

So read it again and weep.

Yesterday both Mikey and everhopeful cast doubt on JF’s abilities, and it’s not the first time these doubts have surfaced.
Last year we held a straw poll to guage bb opinion on his suitability….a lot’s changed since then.

So is JF value for money right now?

In 2018 full year accounts total employee payroll was $29,7m or £23.0m (@ an XR of 1.30).
JF’s earnings represented 4% of this figure and breaks down for 2018 as follows:-

1) Salary - £450k
2) Pension - £68k
3) Benefits - £25k
4) Cash Bonus - £430k

Total £973k

In addition he has been awarded 3.8m options under the now defunct VCP. There were two awards, one for 1.7m options at a strike rate of £1.69 per share, and one for 2.1.m at a strike rate of £2.56.
These options vest naturally over the next three years.

In the same report the Remuneration Committee looked to update earnings policy for 2019 and arrived at the following bases on which to incentivise Executive Directors and other PDMRs:-
1) Base salary was to be linked to the strategic objective to ‘attract and retain key executives’.
This element of earnings is to be reviewed each year in light of experience and individual performance in the role. It is benchmarked against other equivalent salaries available for ‘the relevant market median’ and the Committee has total discretion to vary an individual’s salary in ‘exceptional circumstances’ if required to ‘retain or attract high calibre candidates’.
2) Benefits – these too are to be assessed as an aid to retaining or attracting key executives and may include private medical insurance, income protection insurance relocation expenses (where appropriate) and in JF’s case, a car allowance.
3) Pension – another aid to key executive retention as well as providing for retirement. In this way, up to 15% of base salary can be taken as a cash allowance for pension purposes and is not included in base salary or other executive rewards.
4) Bonuses – these are set annually and are paid one year in arrears on ‘the achievement of key targets’. The maximum bonus achievable for JF is set at 125% of base salary and 30% is deferred for three years This element is paid in shares.
All bonuses are entirely at the Committee’s discretion.
5) Shareholder requirements – JF is required to hold a minimum 200% of salary as shares to ‘align the interests of executives and shareholders’ though due to his VCP awards he easily clears this requirement.

6) The VCP was dismantled in 2019 and it was decided at that time that ‘no further awards will be made’.
This is the man charged with ultimate responsibility for delivering a production growth plan which triples the Company’s size over the next six to seven years.

He is also the man who helped engineer the Restructure in 2016 which some would argue was the salvation of the business.

Based on his performance in the last twelve months, is JF worth it?

I don’t think so. Do you?

‘Maybe it’s not having a Market Cap concentration effect because the Shares, whilst out of Circulation and held in Treasury, are still the same amount of Shares in issue..229,429,566..so the status quo is unchanged.’

Spot on Mikey.

The declared Board intention for buyback (per repeated RNSs) was/is as:-
‘an accretive use of funds..’

BUT If the point of the buyback had in fact been to address the woeful share price performance, and concentrate value, then the Board would/should have cancelled those shares immediately on repurchase thereby REDUCING the number of shares in issue.
Not leave them lingering in treasury with no apparent purpose.
Special Resolution 13 authorises them to do just this.
The fact that they have chosen not to begs the question as to why not?

Those treasury shares are clearly not there, as Jaap Huijskes suggested, ‘for the vesting of staff option share plans’ because the majority of these don’t yet vest. And in any case only 583k have been redistributed since the buyback was initiated.
Moreover, if the buyback WAS for staff options cover, then this objective has now been achieved even if the maximum of 11.6m treasury shares were needed, which they aren’t.

Yet some 14m shares now sit in treasury…with no immediate apparent purpose apart from as a drain on cash resource and an to opportunity to short change the dividend otherwise paid to other ordinary shareholders.
And there’s more planned, with over 6% of GKP acquired, the Board intend to take this up to 10% by the AGM.
So as more cash becomes available and we produce more, is it the intention to continue the buyback beyond 10%?
If it is, and they don’t cancel, we’ll be having this same discussion next year because the sp will not have materially moved.

Those treasury shares clearly have some other purpose, for some other time/event.

Everhopeful reckons the treasury shares will be cancelled later when all the politicking is over and as part of a sale process. And he may be right.
But it doesn’t explain why they’re buying back now and in this volume.

Nobody can blame tom’s (or anyone elses) natural scepticism and suspicions with regard to the actions and motives of this Board.

Transparency? I see nothing.

The official reason for the buyback initiative was expressed in the launch RNS on 8/7/2019 as being:-

‘aligned with the Company’s focus on capital allocation and is an accretive use of funds while not impacting the Company’s ability to continue the execution of its existing development programme.’

This despite the Chairman’s previous claim that the buyback policy was required:-

‘to satisfy the vesting of staff share option plans and if they [the treasury shares] are not required for this they will be cancelled.’
Here are some resulting consequences flowing from the Board’s actions in this respect:-

1) A total of 14.6m shares have been repurchased;
2) Only 583k of these treasury shares have been redistributed to staff as having vested;
3) This leaves 14m shares sat in treasury awaiting vesting and redistribution, likely attracting dividends as they do so;
4) Most of those shares do not vest naturally for year(s) to come;
5) They represent over 6% of the Common shares in issue at the time of buyback commencement;
6) They are part of a plan to repurchase $50m in GKP stock. At current run rates and VWAP this will have been completed by the upcoming mid year AGM;
7) By that time GKP will have bought back c.a. 10% of its own stock;
8) On 8/7/2019 the share price stood at £2.21;
9) This morning it opens at £1.80, a drop of 19% in the seven months since buyback inception.

Where is the ‘accretive use of funds’ to be found in any of the outcomes summarised above?

Clearly buying back to treasury is not having the desired effect if that is defined as adding shareholder value. Yet GKP persist.
If GKP truly wanted to add value through buyback then buying back for cancellation as already provided for by Special Resolution 13 would have the desired effect imo.
The same resolution (13(ii)) gives GKP carte blanche to continue buying back shares for cancellation and/or treasury purposes up to the limit of the law.
I think that legal limit is 90% of its shares before it has to buy itself out but I stand to be corrected.

Why is such authority required, and why up to that limit?


On a related point, last week I posited the idea that there might be a way of engaging in an interactive format with GKP on matters that were worthy of further clarification/interest to us.
This idea received the approbation of 11 bb members.
However, by my reckoning there are currently in excess of 30 ‘active’ bb members, that is to say members that contribute on a more regular basis.
As a consequence a simple majority required 16+ positive responses.
Moreover, it seems to me that the test of what would represent majority approval is two thirds approval rating i.e. 20+.
On that basis my idea fails.

Nevertheless, IF we do want more representation of our views at GKP Board level we should still look to develop a mechanism to achieve this imo.

Precisely to get answers to questions like the ones posed above.
Anyone got any ideas?

Mikey’s in mischievous mood today?

Okay, so let’s see if we can coax him out with a serious question about his time with GKP.
Mikey,
You’ve been a member since 2009 and you’ve posting record is legend during that time.
What is your opinion as to GKP two year share price trajectory if they hit their production targets which are:-
2020 – 55k bopd
2022 – 75k bopd

Serious question for the whole bb actually.

Thanks for that APB98, easyp.
Very helpful.

Hi C0ckeye,
I really can’t thank you enough!
You are truly the gift that keeps on giving…..every post reconfirms your negativity which in turn amplifies my original assessment.
It’s so much more revealing than anything I could have HOPED for!!

On the matter of the 80% W.I. debate, the reason I’ve been pretty relaxed about it is that Mikey’s analysis makes sense to me.
Maybe I will look at it, but never because you want me to.
That would be a wasted effort because you place no value in my opinion.
Or anyone else’s if it sees any future for the business.

Thanks for that most expansive response C0ckeye.
You’ve made my case for me….so much better than I ever could have myself.

On a more serious matter….

ayatollahblair,
I was quoting a C0ckeye post referencing you. I was using it as an example of his constant negativity.
I wasn’t impugning your opinion which only gains greater significance given your history in the region.
Apologies for the confusion.

Quote right d0dger,
Big test of relationship between MNR and GKP.
Tomorrow we’ll know.
My money’s on September payment at least, though October becomes overdue on 1/2/2020.
We’ll see.

While I’m all for a dose of reality on this bb, sometimes I wonder as to the posting intentions of some of the contributors.

This a week’s worth of C0ckeye’s latest postings….no positive posts to be seen anywhere. Nor any positive sentiment.

‘ayatollah knows. If there hasn’t been a HCL before now, there’s a reason for that, and that is – there isn’t going to be one.’

‘There’s never going to be a HCL law, because the absence of one suits both parties and their sectarian scaremongering, but still, I’m not here to be popular.:)’

‘Then your investment and everyone else’s is in a lot of trouble.’

‘Because he’s a liar?’

‘Well said, AntonDec. Anyone who thinks this isn’t the way it’s going to pan out, when, or if, it eventually pans out, is off their rocker….’

‘Does the retired surreyscott and his “30 years” in the industry really have that long for his investment here to be realised? Do any of us?’

‘Anyone want to start taking odds on that?’

‘So in this much mooted scenario, the company isn’t doing that acquirer any favours. Or themselves for that matter. Or us.’

‘Thank you, Mikey. Another glaring example of how the likes of the ‘Big Bear’ know so little about the company they’re invested in. They’d rather listen to the likes of Surreyscot. lol.’

‘ElBigBear, why don’t you call the company and/or Cell Court Comms to ask them to clarify the situation? I did.’

‘The company refuses to confirm whether they have 80% interest in the PSC which would strong suggests they don’t.’

Why would anyone post incessantly about the negative aspects of investing in this share when it can only damage their own shareholding?

The less generous among us might think you were working to an entirely different agenda….

Rightmove have just initiated a two month repurchase programme offering the shareholders a 5% premium against a predetermined average share price to buy back their shares.
Similarly last year RRE got so p1ssed off with their market valuation that they offered a similar deal to their shareholders for cancellation at a 20% premium.
Share buy back shouldn’t be used as a defence mechanism against that Nasty Old Market view of GKP.
Putting the bought back shares in a safe place, away from harm, instils confidence in no one.
We should be taking a much more aggressive stance, putting our belief and confidence in our own brand and buying back for cancellation using our own surplus funds to do it, ahead of dividends.
What better message to send the markets about our conviction and determination to see the true value of the proposition tested in the open market than by buying for cancellation ourselves?

No balls.

IMO.