Member Info for theoryman

@C*ckeye, depends what you think is there to start with and what each well adds to the understanding of the field. Doesn’t just apply to oil fields, it’s the same for any system where what is actually there is hidden from view.

The sample size of wells is small but it would be very interesting to get a detailed breakdown of what the expectations were for each well and what they found.

As posted before from the Chinese 2018 Uranium study, “ In the Shakan oilfield, the productivities of the carbonate reservoirs are very different in different intervals and different wells, making petroleum geologists very confused. ”

@BB, they have to stay a bit clear of SH 2,10,11 & 12 and well away from SH-6 when trying to boost production to PF-2.

There is no way SH-13 & 14 are on the previously expected Eastern boundaries of the field, more like middle 1/3rd IMO.

All those two wells confirm IMO, is that the field is complex and not well understood from the exploration viewpoint.

To my mind there is no competency issue here, where they drilled was reasonable, it’s just that the outcomes are very disappointing.

What will be important is how they deal with making full use of PF-2 given the under utilisation it will be experiencing at the moment. Another drill to boost production to it, if so where?

As done with previous Update, answers are in [ brackets ]

Av. production for 2021 [ 43440 bopd, top end guidance ]
Progress re SH-13 [Acid stimulation completed]
Progress re SH-14 [ Acid stimulation currently in progress ]
Progress re SH-15 [ drilling progressing well, expected hook up Q2 2022]
Progress re installation of the two ESPs [ No mention ]

Total cash received 2021 [ $221 million net, Jan payments received too late to be included in 2021 accounts ]

Invoices for Nov & Dec 21 [ No mention ]

Cash balance at EOY. [ No mention ]

Dividend/buyback strategy [ $50 million interim Div, no further detail. ]

CRP [ No mention ]

R factor [ No mention ]

Outlook based on specific content of above, progress re FDP…

SH-13 &14 production below expectations.

SH-12 temporarily shut down, plans to optimise production given early appearance of trace water - has happened to other wells on field and has been dealt with successfully in previous cases.

Cash balance 21/01/22 of $228 million, with $28.6 million net arrears from Jan & Feb 2020 still to be received.

No new deadline for reaching the previous target of 55k bopd.

Guidance for this year is now gross 44k to 50k bopd, which is after including expected production from SH-15 and benefits of well work overs.

FDP, continuing to engage with MNR.

Seems best to wait for next Update - based on previous four years, due before end of Jan.

Av. production for 2021
Progress re SH-13
Progress re SH-14
Progress re SH-15
Progress re installation of the two ESPs

Total cash received 2021
Invoices for Nov & Dec 21
Cash balance at EOY.
Dividend/buyback strategy
CRP
R factor

Outlook based on specific content of above, progress re FDP..

@FH1, how on Earth have you come to that conclusion?

My analysis shows that with the 5Ps not causing problems, then at LEAST for the first 9 months of 2022, GKP will still be operating in Cash Cow Type 1 mode.

Highly cash generative due to boost to PO from significant chunk of CO having no previous costs to repay because the DFE wiped out the debt it should be repaying.

The analysis takes now, tries to work out when the boost will stop and what the consequences will be under different scenarios.

Under the low cost environment of steady 55k bopd, with the CRP working normally, the company is STILL cash generative but not at the level some are hoping for or relying on.

Cash Cow Type 2 is not about negativity, it’s a potential situation that could occur and is ignored at an investor’s peril IMHO. It’s not deramping to refer to it but it certainly might put the dampers on some investors hopes. No apologies about raising it , it’s just one component of doing a risked analysis.

IF the company then gets involved in expansion to 75k, then the PO will drop further as costs get repaid through CO but as PUTUP has pointed out, those staggered costs get repaid in months rather than years. What’s negative about that?

Guess what happens then when the expansion is completed?

Correct, the PO now rises above where it was before the expansion started. Again, what’s negative about that?

[ Production PoO Payments Politics PSC(R factor in particular)]

@JMarsh1, I owe you, readers of this BB and the company, an unreserved apology wrt to information I posted the other day - it was wrong.

I posted that the difference between using the previously agreed PSC values of WI 80% & CBC 40%, as required in the accounts, and hence by the Auditors; compared to that which the company was using in the invoices it sent to the MNR of WI 61.5% and CBC 20% was “at least revenue neutral”.

It should have read “at least receipt neutral”, since the above paragraph is on reflection, revenue NEGATIVE.

There are then further compensating effects that turn this negativity back to at least neutral in terms of the receipts.

Since my previous model using 80&40 was often working to 0% error in predicting receipts and the new one using 61.5&20 is still OK to within 0.5%, then I’ll stick with it.

In terms of cash flow, using either model makes very very little difference to the numbers output for the receipts, the CO:PO and hence the conclusions drawn.

It might make a difference to the value of the CRP and the rate at which it is emptying - resulting from costs either being recovered by that mechanism or directly through an invoice. Hopefully the Jan update will provide current values and clear the matter up once and for all.

@JMarsh, pity you didn’t post up what would be necessary to get a handle on what your communication with the company was and what their response was - might be good enough for you but what about the 8 people who Recd my request? (The other day you thought the number of Recs gave a post significance, obviously a one way process!)

The information used by myself comes from company documentation, so it will be interesting to find out why it is factually incorrect.

There could well be a time delay between things changing and the company informing us. Take for example the 61.5%, in use from 2017 but makes first appearance that I can find in 2021 - can anyone else find an earlier reference?

@FH1, my analysis is not special in any way shape or form.

All it requires is a basic knowledge of what drives every PSC and then find the figures that apply to this particular one.

After that it is GCSE Pass level numeracy to arrive at the outputs in terms of CO and PO for any combination of inputs. It really is BODMAS without the O.

I have previously taken the October numbers through this PSC with every step explained, including underlying assumptions.

What surprises me is if I am making it up, why no-one has taken my analysis apart.

I don’t just post numbers, I show how I have arrived at them - that is the mathematical equivalent of putting my head above the parapet :)

FH1, I like the linking of the two avatars, better class than the manipulations of PUTUP’s one that were posted yesterday :)

Hope the irony of the situation doesn’t get missed.

Our calculations are based on numbers e.g. 61.5%, that are in the public domain even though it was on Page 117 of the 2020 results.

JMarsh1’s post has yet to be backed up by any verifiable evidence that their answer even exists or applies to those numbers or the conclusions drawn from them - let’s wait for his posting of the relevant information.

Hope he doesn’t use the excuse it was a private exchange, such emails from the company are not labelled Private and Confidential. The person writing them expects them to end up in the public domain and hence why they are so carefully worded.

@JMarsh1, you are new to this board so might be unaware of how previous communication with the company has been dealt with before.

After blocking out any personal details, could you please post your original question and their response.

You have accused posters of making numbers up, even though they come from information in the public domain..

Having done that, unless your information is put in the public is lends you open to the accusation that you are making this up.

Even if you aren’t, it needs clarifying which numbers are being made up and by whom. It could well be that the rampers on here and elsewhere are the culprits.

For those who do not trade Oil, those are the Futures for CLH and not Brent - realised that might cause confusion even though the chart is clearly labelled as such.

The focus should be on the trend in the prices as the months get further ahead.

Interesting to compare that figure with what anyone can choose to trade at in the future.

https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.quotes.html

In addition there is the latest EIA report.

EIA Report 12/01/22

In our January 2022 Short-Term Energy Outlook (STEO), we forecast that crude oil prices will fall from 2021 levels. In the fourth quarter of 2021, the price of Brent crude oil, the international pricing benchmark, averaged $79 per barrel (b). We forecast that the price of Brent will average $75/b in 2022 and $68/b in 2023.

So hopefully anyone running a model based on $85 and above, will run it at $75 and below as well and vice versa - no place with something as important as this for biased positivity or negativity.

Another way of seeing the effect of only circa $110 million a year being recoverable through Cost Oil - one version of a low cost environment.

Assuming typical month of 30.5 days @ 55k bopd @ $(85-21).

Under present “high cost” version the key figures in $ millions would be :-

Receipt=39.5 with CO=30.9 and PO= 8.6

Under the second set of “low cost” assumptions.

Receipt=20.6 with CO=7.7 and PO=12.8 (rounding errors)

Drop in annualised receipts = 12*(39.5-20.6)=227 which I think is my equivalent to PUTUP’s (230).

At present a significant chunk of the monthly CO of 30.9 adds to the PO of 8.6 to enhance the rate at which cash builds up.(Side effect of DFE on CRP).

Under the second set, NONE of the CO=7.7 behaves like that. Even though the PO is higher, 12.8 compared to 8.6, as a result of more barrels going down the PO route, the rate of cash build up drops rapidly. (Side effect no longer applies, CRP working normally.)

@DubiuosInvestor, the 36.8 is the sum of the CO of 28.8 and PO of 8.0 assuming that the R factor is <=1.

That assumption is based on solid historic figures for the numbers used to derive it initially and then recalculated for the known changes since.

Hopefully the next update will include its current value along with the level of the CRP.

IF the company remains in a low cost but high production state for any significant length of time, then it will start to become something to keep an eye on.

When combined with the CRP normalising then the effect will be very noticeable.

@ValueS has done some work on the R factor, maybe worth having a look for it.

@TruthSayer, Ops and Corporate sometime in Jan in last four years, no reason to expect any difference. Reaching 55k has been a moving target, both forwards and backwards.

Best outcome is that with SH-13 & 14 plus the two ESPs has been achieved or it’s a near term slam dunk, worst case is even with those and SH-15 it doesn’t get achieved.

When it comes to the $100 million profit concern, remember that is only after GKP changes from Cash Cow type1 to Cash Cow type 2 when the CRP normalises.

As previously stated the timing of that event depends on many variables.

@JMarsh1, prepared this last night and was going to go with your suggestion but SS stuck his oar in , so back to those numbers I posted up yesterday and where they take us - a total mismatch between PO and cash generation.

October had 31 days @ 45,645 bopd with Av PoO = $83.54.

Receipt = 36.8% of 31*45,645*(83.54-21) = $32.5 million.

The actual receipt turned out to be $32.6 million, so model met its target of being within 1% tolerance - see previous references to annual Payments to Government RNS.

22% of the receipts are PO, which is $7.2 million, which all things being equal and a miracle 12 payments being made, annualises to $86 million.

So how come last year when there were fewer payments, lower production and lower PoO, the company had such a great cash generating year?

It’s a direct consequence of the DFE on the CRP, which turned the Cost Recovery Pool into what I picture as a “Cash Generating Pool”.

When will this stop and normal CRP working resumes where the CO is not profit generating but merely “cash recycling”?

My best estimate is in Q4 2022 - at least three sources of uncertainty to take account of.

It might be sooner if the bumper receipts continue to paid regularly and even increase, due to rises in both production and the PoO. As ever, it will take longer if the payments get put back, there are production problems or PoO drops.

DI, this is unwordy as I can make it, let’s hope it’s not unworthy of the importance of the topic :)

Start with 100 barrels, 10 removed on top for Royalty leaving 90.

CO at present is 40% of 90 giving gross 36.

Leaving 54 to go down PO route, gets reduced to gross 16.2 because the Gov takes 70% before it gets to the Contractors.

N.B. For future reference that 70% is the MINIMUM take for when R<=1. It increases on a linear sliding scale to 85% when R reaches 2.

CO WI 80% net to GKP but PO net to GKP is now only 61.5%

CO 28.8 = 80% of 36 and before CBC the PO 10.0 = 61.5% of 16.2 but the latter now only gets reduced to PO= 8.0 by CBC being reduced to 20%. {At least revenue neutral tinkering.}

GKP’s net share of total production is therefore 36.8% = 28.8+8.0

GKP’s receipts are mainly CO based, with only 8.0/36.8 or 22% being derived from PO.

At the moment the continuing rapid build up of cash is being driven by a significant chunk of the CO behaving as if it were PO - obviously this cannot continue ad infinitum. It will stop abruptly once the long term effect of the DFE on the CRP no longer functions.

@damofarl, thanks providing your views as a basis for discussion. You have kept it simple by focussing on reinvesting or diversifying rather than extracting the cash to fund lifestyle choices; I’ll do the same.

When it comes to using dividends to diversify elsewhere then why do that?

A share like GKP, given its risk ratings over time, should already be part of a widely diversified portfolio based on risked values - no one knows in advance which if any will deliver a profit, each is there on its own merits.

If it doesn’t pass the criteria for being held, then it shouldn’t be in there in the first place. If it does, then IMO it warrants the dividend being reinvested to benefit from the compounding effect - I do that without exception, always have done and always will do.

Choosing to move the money to another share seems perverse to me. In order to justify doing it, there would have to be a clearly demonstrable difference in the value offer by other shares, so why stay in the first share, get rid it’s the runt of the of a big litter :)

Buybacks do the work for me, my % holding of the company as a whole rises, any dividends per share are bigger with fewer shares in circulation and any future offer is concentrated in the hands of those like me who did not sell into the buybacks.

I agree that dividends can act as a carrot to attract dividend chasers but what if the frequency of the dividends decrease, not as a result of the way the company is performing but as a consequence of the T&Cs under which it operates? ( In this, case potential changes caused by the normalisation of the CRP and the workings of the PSC in a sustained low cost environment.)

Opulentia, I fully understood the point of your post.

My response was intended to be a parody of the sort of posts that do arise if someone tries to add a touch of realism and caution.

Onepoundfish, HYR presentation Slide 6, left hand side.

Until it is confirmed otherwise, I am working on 55k being reached through the extra from SH 13&14 moving it towards AND the deployment of the two ESPs finishing it off.

SH-15 was, and still is IMO, icing on the cake. It was not originally intended to part of the drive to 55k, could well help maintain it during work overs elsewhere though at a later date - always good to have a bit of slack in the system.