Member Info for theoryman

What follows is based on my earlier experiences as a gambler and recently working with people who have met serious financial difficulties as a result of gambling - I don’t expect it to be popular!

Maybe they do want to do something else with it but how have they got themselves into the situation where they need to take it out of the investment pot under the conditions I have outlined?

Given that GKP is considered by the Institutions that hold it, as being in their high risk portfolios e.g. one below their highest risk, hopefully investors in the share have every other base well and truly covered before they put any money into it.

So if there is a need for cash, I would hope there was slack within their distributed wealth to extract it from elsewhere. If there isn’t then what are they doing investing in high risk shares in the first place?

Bugsy, glad to see at least one LTH who is committed to the re-investing strategy.

I do not understand those deeply underwater LTH who want to remove the cash. I would not hold a share in the first place if I wasn’t willing to automatically re-invest the dividend.

If an existing LTH hasn’t got the belief that the share is offering value at the ex-div price, why should anyone else?

I have re-invested both the anticipated dividends from cash reserves on each ex-div date. One one hand I have benefitted from the first extra shares getting the second dividend and the size of the holding has increased but the value of the increased holding has taken an equivalent % drop.

Time for the gallow’s humour comment. If that is repeated over the next five years, the only investors who will get to break even are those who are significantly in profit at the moment.

The key date is the record date, which is tomorrow and that reflects ownership of the shares at Close yesterday - those owners keep the dividend if they sell today or in the future.

It therefore follows that anyone who buys today or in the future does not get this dividend, hence the ex-div tag.

The chart I use was rebased last night in anticipation of this morning’s drop from the ex-div effect.

FH1, what happens to the share price is not necessarily a measure of how successful the buy-back or dividend was.

Since the last dividend the share price has dropped more than the dividend, does that necessarily mean it was a failure?

When you wrote, “ Share buybacks proved to be a failure last time round as sp sank while they were buying.”, couldn’t that be a positive to the LTH?

It meant they bought more shares back with the fixed amount of money than if the price had risen. Thus further increasing the concentration of the value of the company in the hands of those who did not sell into it.

147king, there are the different combinations of effectiveness versus efficiency from the viewpoint of the company versus individual investor to consider.

I don’t remember anyone writing about the comparative efficiencies of the processes from the company’s point of view.

I’d expect each method to have at least different associated costs of completion and different tax implications for the company - hence there is the chance they would not be equally efficient ways of returning capital.

147king, both methods return capital from the company to shareholders but do so in very different ways.

Whenever has PUTUP said they have the same net effect in terms of their capital EFFICIENCY?

BB, thanks for that Clause, I have a file somewhere with a flowchart in it that summarises what that says in words - for a moment I thought I was losing it big time!

@VS, I thought the CO route always remains active and will return costs from the Cost Pool even if they are below the max allowed by the PSC. The surplus gets redirected down the PO route.

@titan, in my probabilistic driven analysis, 177p needs to hold for the higher probability option to keep alive. The problem is trading is very thin and random single small trades at below spread can make it look like the support has given - I filter them out but if there are enough I wave the white flag. Define enough TM. Well it depends…

@PUTUP, from memory the quoted Cost Pool figure was the gross one for the Contractors and not the nett one to GKP - maybe worth checking.

The presentations and results often contain a mix of gross and nett figures, which seems surprising to me but there is probably a good financial reason.

PUTUP, one fool with 10 mins to spare, rip this to shreds….

Using round numbers to keep the Maths easy, not meant to reflect the GKP PSC but merely the process and underlying thinking.

Suppose a company pays $2 a barrel for oil in the ground anywhere where a PSC operates, then they are paying money for an asset they do not own - the people retain ownership.

It is however a producing asset, one you do not own but are allowed to benefit from if conditions allow.

Assume the government decides not to be involved as a contractor and the PSC means the production is split 50/50 between the contractor and the government.

The Contractor’s share generates revenue which is a mix of Cost Oil and Profit Oil. (CO+PO)

The contractor can reclaim the lifting costs of the Government share directly but all their other agreed costs have to work their way through the Cost Pool and CO.

The price paid was for the whole field but only 50% is the producing asset as far as the contractor is concerned. So if they paid $2 per barrel for the whole field they effectively paid $4 per barrel for the bit which they can profit from - as far as the rest is concerned they work as agents for the Government for no loss/gain.

The only profit can come from the PO component of the Contractor’s Oil. The easy part is extracting those costs which are not recoverable through CO, they must be met from the PO.

The difficult bit is modelling the possible effects of the PoO and the additional associated skewed risk of non-payment.

So all that needs to be done then is see the distribution of prices generated by the model and the accompanying probability of them happening - keeping in mind the $4 per barrel.

I realise that is not they way the Industry has worked in the past or is doing at the moment but it might change - amazing how paying too much for producing assets can focus the mind on alternative ways of thinking.

TOTAL had an 18% share of 350 million barrels of the good stuff but they wanted out and the marker knew it - nowhere near being a distressed seller but certainly a motivated one.

They have sold the chance to profit in the future from their 63 million barrel share in return for $155 million now.

This is the most recent real valuation for oil in the ground in Kurdistan, as opposed to those theoretical ones produced by analysts.

Going rate at the moment, under all known conditions, appears to be $2.5 per barrel for the light sweet stuff. What correcting factor, if any, should be applied for the Shaikan heavy sour?

Now compare that with what the Shaikan contractors are getting through the PSC at the moment, as their share of the Profit Oil per Total barrels lifted - hmmm, luvvly jubbly.

Hang on, I have suddenly switched from comparing one type of oil in the ground to another at market - that’s allowed though because the outcome is positive!

Then again compare it with what the IOCs get in Iran under the TSCs - who signed those contracts on their behalf?

Ooops about the Oops, because BB chose the qualifying date ,which is a day after it goes ex-div, my calculations are correct.

If I wanted to try and cause a bit of unease, that’s not the day I would have chosen…

Oops, forgot I was using a rebased chart - please all do what you normally do and ignore my basic number work :)

Comment about the gap still stands though!

Working to the nearest 1p, not a lot IMO.

Close on 25th June was 190p.

Close last night was 184p.

Divi leading to Income gain was 8p.

Capital gain was -6p.

Total return is therefore 8p-6p=2p

What is more interesting, well to me and avid gap watchers is what happened to the one from June 11th?

Without rebasing for the divi it got closed, which is extremely unfair, the downward trend was given an 8p boost by the ex-div drop.

If however you rebased the the prior prices to reflect the % drop caused by the divi, then the price after the divi needs to get to 172.8p before the gap close even starts.

LS, a couple of those are also potential problems IMO, one in particular could be devastating.

“confirmation of FDP agreement & gas plan”

Would be nice if reaction was OK, let’s get on with it. What if everyone, including potential suitors, goes, “HOW MUCH?!”

“confirmation of oil & gas law”

The O&G Law will have to bring together aspects of the Constitution where there are long running diametrically opposed interpretations of some clauses. Remember there is a Supreme Court case which is suspended pending clarification being provided by said law being passed. The court is being asked to consider whether the KRG had the right to issue the PSCs in the first place and then go on to sell the products.

What if, Law introduced, KRG lose case, ramifications, least of our concerns could be TSC anyone…?

VS, just checked using the $5.5 million payment for oil produced in Feb., my suggestion is OK to within 0.1, usual culprit is the adjusted down 80% WI.

It was 50% of 78% of 28 days times 41.6 kbopd times (PoO-50) where PoO was $62.28

VS, that’s what I thought was happening when I read the info but the payment that arrived was bigger than expected, so I worked back and came up with the version I referred to.

I’ll check tonight that I haven’t been looking at a corrected correction and ended up with your version

Just realised why the MNR might have stopped the original debt repayment agreement at 50% of production at (PoO-50).

Could someone check my thinking?

They take 53% of the production through the PSC and their revenue is derived from (PoO-x) where x is the unknown discount, the Contractors get 47% @ (PoO-21).

So they keep everything from $50 and below as before but once it gets above $50 they start to pay off the debt.

They agreed to effectively take the extra revenue from their 53% above the $50 level and use it to pay the Contractors 50% at their rate.

Now when the PoO was only just above $50 and they were used to surviving on that anyway, they were left with 3% as a bonus and the top up was a token gesture towards paying off the debts in circa 4 years.

Once it got to 60, 65, 70…, they were still left with 3% of the increasing bonus and some small change.

The debt repayments would have increased rapidly, maybe even getting the time to complete back below a year.

It appears that they had inadvertently “capped” themselves at a revenue derived from a fixed $50 plus a really small variable bonus if the oil price rose - oops!

Nobull, once read that most of the quants in the US were Russian theoretical physicists - the maths is very transferable e.g. statistical mechanics.

A trend is a random walk on a slope, a gap is a jump, after a gap the slope usually reverses and the gap gets closed but sometimes it keeps the same direction, steepens and you get a runaway gap - build the model!

I would be very careful about using any text book ideas with GKP. There are both pluses and minuses but it is borderline unique - think outlier rather than mainstream normal.

If any equation fails to produce the expected outcome then go back to root cause analysis. Start with the following, is the data OK, is the equation wrong or it’s neither of those, it’s simply being used in a situation where it shouldn’t be?

CCC has just posted something about the O&G Law. Come up with the potential extreme side effects in the present political environment and then after the next round of elections - then have a go at assessing the probabilities :)

Fairly obvious we see things from very different angles, thanks for sharing your views.

Nobull, I need time to put something together on the later points but here are my thoughts on the earlier ones.

GKP’s share price is dependent on many factors, the simple ones such as production levels or (PoO-21) seem to be swamped by the others. We could both probably come up a list of what those other factors are, chances are though we would come up with two different lists, different rankings and different levels of significance even if our two ordered lists were identical.

The PSC is reasonable when compared to others, what you don’t like about it is just a by-product of how it works. Different people prefer TSCs or RSCs but others don’t, the locals decide which it is going to be, after that the IOC is either in or out.

The crude from Shaikan sells at such a substantial quality discount to Brent, the low opex is a counterbalance which aids commerciality.

I focus on the revenue from Profit Oil received by the Contractors divided by the Total Production that the Contractors achieve. That gets around the circulating costs through the Cost Pool and the costs reimbursed directly to the Contractors by the MNR.

It doesn’t matter how frequently Charts are right, what matters is do you make more money overall from the ones that work compared to the ones that don’t. I have no idea which trades will work and which ones won’t but I have a system that I use to evaluate the value on offer.

To me it’s just the same as rolling a dice. If there are 10 faces on the dice, 3 say win and 7 say lose but the payoff if successful is 4-1 then there is value.

I agree about randomness being a lot more patterned than people realise. In fact that is one of the basic ideas used in fraud detection but don’t tell anybody.

Suppose someone uses a system and the outcome is profitable, how do you tell if they have hit pay dirt or are have been just very very lucky? There was a piece on Radio 4 news about Andrew Bolton who was retiring from having run Fidelity Special Situations with incredible long term success. Two experts waxed lyrical about his performance, one finished by saying he was probably the most talented fund manager of his generation and the other cheekily added, “Or the luckiest!” Beware any mathematical approach which says it can differentiate in matters like this, if it does then find the hidden assumption.