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If Jaap Huijskes was so adamant in his Chairman's letter that any shares not required for the vesting of staff share option plans would be cancelled, then how come they're still being bought back into treasury?
Are there more options to cover of which we are unaware?
And why are we having to guess?
Why couldn't they tell us the scope of the buyback from the outset?

Mikey,

If ever you needed a reminder why trust is at such a premium with this lot then read on and weep.

This chronology tells its own sorry tale of lies and deceits:-

28/3/2019 – SZ responds to analyst question by answering that share buyback had been considered by the Board but was deemed ‘unnecessary’ at the time;

By end May, a change of heart, just before SZ starts his long, weary ’stepping down’……

23/5/2019 – Jaap Huijskes asks for buy back authority SPECIFICALLY:-
‘to satisfy the vesting of staff share option plans’ and that
‘if they are not required for this they will be cancelled.’

By June AGM Special Resolution passed making no reference to staff options at all AND cancellation was back on the table:-
21/6/2019 Special Resolution 13 (passed unanimously):-

‘(b) By deleting Bye-law 4 and replacing it with the following:
The Board may, at its discretion and without the sanction of a Resolution (i) authorise the purchase by the Company of its own shares for cancellation or acquire them as Treasury Shares in accordance with the Companies Acts on such terms as the Board shall think fit……’


See how, in a few short months no need for buyback has morphed into full authority to buy back for treasury and/or cancellation as many as they want!!!

This flipflop approach to serious financial strategy making is simply embarrassing.
None of these characters are fit for purpose, and yet our GKP future sits with them.

An open request to JF and his monkeys….please don’t make those treasury shares available for performance.
You’re not worth it.

It’s a possibility, but on the available evidence it carries no more weight than that they’re building a war chest for employee option share rewards.
The speculation all comes from the lack of Board transparency.
However, given the appointment of Ian Weatherdon I’m persuaded, on the balance of probabilities, that any sale is some way off.

.

And here comes that Yellow Submarine, on course for Pepperland to defeat the Blue Meanies, armed only with peace, love and some excruciating lyrics….

For those of you who like your fairy stories, and still believe in Man’s intrinsically altruistic nature, try this…..

Another possible reason for buyback to treasury.

The Companies Act 2006 726 (3) and Bermuda Companies Act 1981 42B (11) are both clear that no distribution of the company’s assets, whether cash, dividend or anything else, can be made to the company in respect of treasury shares.
So;
IF
Company A agrees sale valuing it at £200.
And it has 200 common shares and no treasury shares.
Then the sale price per common share is £1.
Giving a total acquisition outlay of £200.

WHEREAS IF
Company B agrees a sale valuing it at £200.
And it has 100 common shares and 100 treasury shares.
Then the sale price per common share is now £2.
And the total acquisition outlay is still £200.

Because there can be no distribution of company assets to treasury shares.
Clearly the buyer doesn’t pay himself with his own money for the shares he now owns.
And if he did, he’d just be paying himself.
He just cancels them.

This is one possible explanation for GKP’s continued accumulation of treasury shares.
GKP are concentrating the sale value into fewer common shares.
And on sale announcement we all WIN because of that concentration!
Of course this elegant and altruistic Board approach depends critically on:-
1) GKP having been sold, and
2) GKP caring about their PI contingent.

Unfortunately there is no compelling evidence for either.


IMO. DYOR

Hi C0ckeye,
I don’t know why GKP are buying back shares into treasury now.
I just note they are, and I wonder why.

Seems to me GKP would be much better cancelling any bought back shares now they’ve more than covered the staff share awards, vested or not.
There would be an almost instant impact on the sp imo, and just imagine what the sp would look like now if they’d taken that approach from the outset, having taken more than 5% of GKP stock off the market for good.

The fact that they seem hell bent on this course of buying back to treasury leads me to conclude that they have a greater purpose for those treasury shares, unknown to us.

Anyone got any thoughts?

Surely it can't be a prelude to more staff share incentives? Surely not.

Last financial year we bought back 10.5m ordinary shares into treasury at a VWAP of £2.29.
The share price closed 2019 at £2.125 resulting in a trading loss of $1.7m. Add to that the 82k shares redeemed in the year (under the zero cost SRP vesting rules) and the combined effect of those two actions was to adversely impact the P&L by nearly £2m.

Anyone remember the buyback rationale as expressed in the launch RNS?:-
‘The Buyback Programme is aligned with the Company’s focus on capital allocation and will be an accretive use of funds whilst not impacting the Company’s ability to continue the execution of its current investment programme.’

If only 82k staff option shares were redeemed in the year, why did we buy back 10.5m into treasury?

In fact to date, since commencement of the buyback initiative last July we have bought back 13,126,360 shares, only 583,000 of which have been redeemed under the various staff share option scheme rules.
This is because most of those treasury shares (apart from the SRP element) do not mature for a year(s) to come.
Yet every day we are buying hundreds of thousands of shares unnecessarily, and every day we drop them into treasury where they are lost to the ongoing activities of the business.
Meanwhile there has been no ‘accretive use of funds’ with the share price stubbornly fixed at or around the £2.00 level.
Over 5% of the Company’s ordinary shares have now been given this treatment with another $13.5m to spend, or circa 6m-7m shares to buy back before the AGM.
It may be that up to 10% of the Company will have been bought back to treasury by then. Cheaply.

And for what?

Surely by now GKP should have realised that treasury buy back is not adding sp value (if that was ever their real intention), whereas buyback for cancellation almost certainly would. The share price tells us that.
Normally cancellation would at least be worth consideration.
Indeed the bye-laws were specifically adjusted to incorporate this possibility under Special Resolution 13.
Why not use it, because under any analysis it seems likely that GKP have by now entirely covered any staff share option exposure?
The consensus seems settled at a maximum 11.6m treasury shares needed for all outstanding awards whenever they vest.
With 13.5m already purchased it would appear that job is done.

It looks like GKP are now buying back for another purpose.

One that means they are prepared to carry on driving shares off the market and into treasury where they are now just sitting and waiting for some other planned event.

We just don’t know what. Or when. Or why.

IMO.

bigboffer,
Yes you’re right.
But Scirocco Energy (formerly Solo) is established for the purposes of:-

“pursuing opportunities to be a relevant substantial gas producer in the broad European gas market”.

This a quote from an interview given by Tom Reynolds (Scirocco CEO) to Proactive on 9/10/2019.

Interesting that Tom’s boss Alistair Ferguson has such an interest in another potential gas producer don’t you think? And Scirocco’s resident M&A specialist, Jon Fitzpatrick as well?

Still, what do they know?

Apologies bigboffer, that'll teach me to do my own research!!

There’s so many posts on this site I didn’t trace back to see if I was guilty of repetition, so apologies if this is ‘old news’.

Alistair Ferguson and Jon Fitzpatrick are both significant shareholders in Block with 21m and 15m shares respectively.
Given the notification timing, the majority of AF’s holding were probably acquired for c.a. 11p in June 2019, whereas JF probably paid around 7p for his in late October.
AF is also Executive Chairman of Solo Energy where JF sits alongside him as a Non Exec Director.
Interestingly JF owns 3.5% of Solo and AF has less with a 2.7% holding.
Two knarled old experienced ‘energy men’ think Block’s got a future, enough to invest millions at what looks like a premium right now.
I take some comfort in that.
All we need to know is some of what they know, and an RNS can’t be far off.

IMO. DYOR.

Pareto’s not enough though is it?
We had a great investment success story to tell on Tuesday.
With circa. $200m invested during 2019 we're really starting to reap the production rewards.
Predicted volumes for 2020 are anywhere from 30% - 45% UP on 2019 actuals.
And with 40k bopd now in the bag we’re already outperforming last year by over 20%.
55k is still on track for Q3 and that’s just another staging post to 75k and beyond.
In short, by the end of 2020 we’ll be nearly twice the production beast that we are now, generating a cash pile so much bigger than our self funding growth plans require.
And there’s so much more coming down the track.

Yet GKP’s opening statement summarising the contents of their operational and corporate update the other day said only that:-

‘2019 gross production met; development activity continues.’

This was followed by a series of bland factual bullet points with no contextual assessment whatsoever.
We read all about the December road crash and its impact on LTI free days, but nothing about cost savings generated by the commissioning of the export sales pipeline.

In his commentary, the best JF could come up with by way of support was that GKP had:-

‘benefited from the increased operational tempo.’ and
‘we are pleased to confirm today that we have achieved our original 2019 gross production guidance’.

I don’t think he does enthusiasm.

Which is all very well, but if he can’t enthuse about GKP’s major production step changes and continued capex investments as they occur, then who can?
Who’s pushing our investment case?
At this exciting stage in our progress we’ve a right to know more, and more frequently, than a quarterly ops update allows. It’s simply not enough to catalogue and summarise progress once every three or four months. GKP field development is much more dynamic than that right now.

Edit :
Opening Balance - $175m (year end close, pre 8/12/2019 payment of $17m).
S/B Opening Balance - $175m ( year end close, pre 8/1/2020 payment of $17m).
Apologies.

To begin with let’s deal with 2019.
Sales will come in at around $215m and we’ll break even…it’s a stepping stone.

On to today’s operational RNS.

To my mind the latest operational update is a very positive statement of intent. And anyone who doubts GKP’s commercial capacity should read this.

It provides us with enough forward indicators to enable a cursory look at possible 2020 P&L outcomes @ 43k bopd, 45k bopd and 48k bopd respectively.

43k bopd;

Sales - $280m-$300m.
Profits - $70m-$80m (pre dividend).
Receipts - $290m- $310m (incl. 2019 clawback payments @ $44m).
Capex - $180m-$220m.

45k bopd;

Sales - $290m-$310m.
Profits - $75m-$85m (pre dividend).
Receipts - $310m- $330m (incl. 2019 clawback payments @ $44m).
Capex - $180m-$220m.

48k bopd;

Sales - $310m-$330m.
Profits - $80m-$90m (pre dividend).
Receipts - $320m- $340m (incl. 2019 clawback payments @ $44m).
Capex - $180m-$220m.

Key Assumptions:-
No change to Crude Oil Sales Agreement during 2020;
POO maintained @ 2019 levels.

Using the above P&L parameters, worst case cash flow analysis looks like this:-

At 43k bopd;
Opening Balance - $175m (year end close, pre 8/12/2019 payment of $17m).
Receipts - $290m-$310m (Incl.2019 clawback payments @ $44m).
Capex spend - $180m-$220m.
General & Admin - $20m.
Closing Balance - $225m-$245m.

At 45k bopd;

Opening Balance - $175m (year end close, pre 8/12/2019 payment of $17m).
Receipts - $310m-$330m (Incl.2019 clawback payments @ $44m).
Capex spend - $180m-$220m.
General & Admin - $20m.
Closing Balance - $240m-$260m.

At 48k bopd;
Opening Balance - $175m (year end close, pre 8/12/2019 payment of $17m).
Receipts - $320m-$340m (Incl.2019 clawback payments @ $44m).
Capex spend - $180m-$220m.
General & Admin - $20m.
Closing Balance - $250m-$270m.

It’s worth noting that I’ve taken $220m as the capex spend for cash flow forecasting purposes. But the range is between $180m -$220m. So any capex saving will fall straight back into the bank balance.

Summary.

At GKP worst case, 2020 production forecasts deliver record profits (pre dividend) and significant surplus cash over 2019 close.
Best case results show revenues breaching $300m developing pre dividend profits approaching $100m.
And surplus cash starts to become an embarrassment.

In every scenario the current planned capex sits easily within GKP’s cash flow scope.

GKP definitely need a new plan for that cash, whether it’s more buy back, bigger dividends, accelerated capex or something else.

I really hope Ian Weatherdon is up to the job.

All IMO. DYOR. This crude analysis MUST NOT be relied upon for investment purposes.

I'll run some forecast P&L and Balance Sheet projections.
Take me a little while.

oilheadgame,
GKP appear to be paying (loosely) to end of three months following date of invoice terms.
With a couple of notable exceptions (quickly caught up) this was their performance for 2019.
12th Dec 2019 RNS stated both August and September invoices would be paid in January.
August has been paid, we await September.
Technically, October invoices will shortly become due at end of January as well. No mention of them.

Armasmaximilian,

2020 dividend has been suggested at 2019 levels; $25m +$25m.
All dependent on cash flow and poo.
Ref : Gabriel Papineau - Legris at Hong Kong oil investment forum in May 2019.

BD,

Your professionals are right. No dividend is payable on treasury shares.

Whether they include treasury shares in the calculation or not is irrelevant.

The only thing that matters according to both U.K. and Bermudan company law is whether the dividend HAS BEEN PAID on those shares.
By GKP’s own volition (via Investor Relations written in reply to queries on this) no dividend will be received by the treasury on those bought back shares.
So it is perfectly possible for GKP to add the treasury shares into the calculation AS LONG AS they don’t pay a dividend on them.
The effect is simply to dilute the dividend payment made to us common shareholders, down from $50m to $49.1m.
GKP are not in contravention of company law because they are not taking the dividend that they have calculated.

Reference my post of Saturday @ 18.09 p.m. for details.

antiquenick,

September paid, October overdue and not paid, November due by month end.

The fact that there has been no corrective RNS from GKP for wrongly including treasury shares in the dividend calculation is a measure of their confidence that the dividend calculation is correct.
Either that or they know it’s wrong but, for whatever reason, are not prepared to put it right. Possible but unlikely imo.

Company law is clear and unambiguous on this matter, insisting that no dividend shall be paid out on treasury shares.
Whether it’s the Bermuda Companies Act 1981 42B(11) or the U.K. Companies Act 2006 S724(3), either way the matter is dealt with in the same way, even using the same wording:-

‘No dividend may be paid, and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) may be made to the company, in respect of the treasury shares.’

So, on the face of it, by including treasury shares in the dividend calculation GKP are acting in contravention of company law.
But the key phrase here is that ‘no dividend may be paid’.
By representing that they are NOT RECEIVING the dividend payment on the treasury shares that their calculation generates, GKP can argue that they are in fact fully compliant with Company law which specifies only that ‘no dividend may be paid……in respect of treasury shares.’
Investor Relations covered this issue in their written response to the many queries on the matter:-
Dear xxxxx,
The calculation of dividend per share includes treasury shares as we need to base it on the entire issued share capital, however, they will not receive a dividend payment.
Kind Regards,
Investor Relations’

Whether or not they have included treasury shares in the calculation is totally irrelevant. Because according to company law the critical issue is not whether treasury shares have been included in the calculation.

The critical issue is that no dividend has been paid on those treasury shares. And If no dividend has been paid (IR = ‘not receive’) then no contravention has occurred.

Unfortunately this approach results in GKP having changed the absolute value of the dividend payment to common shareholders down from $50m to $49.1m.
A near 2% devaluation.
If GKP are right in their contention then they will not be issuing any RNS correction.
Notwithstanding that, where’s the RNS explaining why they have adjusted company policy in this unorthodox manner?
Wouldn’t it be nice if they told us why they felt the need to apply the dividend in this way…….all for a measly $900k.

Hi BD,

C0ckeye rightly poses the question of what to do for explanations of Board behaviour when you’ve lost trust in both them and their PR agency.
You point to the example of the payment of dividends to treasury shares.
When challenged on this matter, all IR could/would say was:-
‘As stated in the Dividend Payment RNS announced on 20 September 2019, the Company confirms that the calculation was made by its registrars and is satisfied that the calculation is correct. The calculation of dividend per share includes the entire issued share capital, including treasury shares.’
(courtesy of ‘grunties’ on II.)
What are you supposed to do with that as a response? What to do about this stonewall approach to shareholder concerns?
I have no answer.
Do you?
Or anyone else for that matter?
Theoryman, the net effect of their stated position is that we've all been short changed on the second tranche payment, whether or not they chose to take the dividend.
Did you get a chance to challenge them on their interpretation? Or was that all they'd say on the matter.

Hi C0ckeye,
I haven’t contacted Celicourt because frankly I’ve lost faith in them. And I don’t think I’m on my own there.
I’m pretty sure IR wouldn’t help.
Where else to go for satisfaction? Dunno. Got any ideas?