Member Info for theoryman

PUTUP, it’s a “sort of tax” called a Capacity Building Charge. I think it arises from the changes to the PSC that were supposed to be concluded by end 2018.

I’ll have a look tomorrow and see if I can track back where it first arises.

carpatthis, using someone else’s failure to stick to a contract is no defence for doing the same.

If GKP have an issue with the MNR’s conduct then they could go to International Arbitration, unlike DANA they chose not to.

One company produces all the gas the KRG use to generate their much needed electricity, they also produce the gas condensate component of the Kurdish Blend.

The other produces heavy sour oil.

Which one has the leverage?

Probably beast for GKP to stick to their side?

carpatthis, the basic design of a PSC is there to stop that happening indefineately.

Two things get in the way:-

1 Any excess CO gets re-routed down the PO limb of the flowchart. (Picture that as happening when the historic cost pool is used up and has moved into Opex recirculating mode.)

2 As the revenue keeps going up and up but with minimal extra costs, the R-factor increases and eventually when it gets >2 only 15% of the PO gets to the Contractors. GKP then has to pay tax of 30% on their share of the PO as lead contractor.

The MNR would have 10% royalty + 85% of the PO + 30% of GKPs PO.

Probably not wanted you wanted to read but IMO the above does represent how PSC’s were designed to shift the initial risk to the Contractor but stop them profiteering once the field was up and running.

Edit

110kx30.5x12 gives circa 40 million barrels a year.

Was going to it as 365 then swapped to 12x30 as g79 did then used 30.5 as average month and then hit wrong button....

g79, hope no-one thinks those numbers relate to GKP’s potential revenue under those conditions.

110k*30.5*365 gives circa 40 million barrels a year from the field.

Then the is the Oil Agreement to apply of (Brent-21)

Then there is the PSC to apply which roughly equates to GKP taking revenue from 38% of the barrels produced.

So @$55 it becomes 40 x (55-21) x 0.38 million $ = $520 million

That calculation is the easy bit, it’s what needs to be done to get there which is slightly more challenging.

opulentia, could you share with us your calculations for the time it will take to repay the $73 million under a range of scenarios?

For some of us “a little longer” might clash with our life expectancies!

BB, I read the DNO statement to mean that it’s the MNR’s incremental revenue above $50\that is going to be shared 50:50.

In case of Shaikan, the contractors would already get just below 50% of the increment of the field revenue anyway, so raising it to 50% would be a minimal boost.

Let’s hope for a miracle that when the GKP repayment plan starts, the RNS explains exactly what is going to happen in a clear unambiguous way, maybe even including a worked example :)

RtR, communicating information that investors might find useful never has been a strong point of this company.

The R-factor is an important figure in deciding the %s used in the PSC. The last figure I can find is in a 2020 presentation but it for the end of 2018!

There used to be data about agreed historical debt but that suddenly stopped.

At least we know from DNO this morning that they have agreed a temporary plan with the MNR for repaying their missed 4 payments.

Instead of the 100:0 split of any increment arising from >$50 per barrel that I was hoping for, at the moment it will be 50:50 but they are hoping for better.

A, there are two different quantities that you have added but the they shouldn’t ever be added because they are not equivalent.

There are the 4 missed payments totalling circa $73 million that are owed tonGKP.

There might be other payments that were missed in the past that weren’t covered by the top up payments.

There are other historical sums that might or might not be owed - depends on how you interpret the PSC.

The cost pool represents money that can be recovered through the CO component. The cost pool would still exist even if every payment had been made.

The cost pool represents the max you can get back through CO in the future, provided you keep producing - it is not a debt.

Part of it only becomes a debt when the oil for that part is produced but not paid for.

RtR, the cost pool is a way of measuring the previous agreed costs that the contractors have spent - it’s not like a bank account where the money is already sitting.

The Cost Oil is the way that the spend is claimed back from production and returned as cash, think of it as the Contractors getting their own money back.

The MNR have withheld payments but they are made up of two components, the Cost Oil and the Profit Oil. So they have not specifically targeted the Cost Oil revenue stream, they have been very fair and hit both!

Key point however is that the CO is by far the bigger of the two.

g79, it was work on PF-1, see slide 7 of Sept 2020 Presentation of Half Year Results.

Must admit before we were told the reason ,there was a “Now what?” moment.

Can’t pay or won’t pay - pointless IMO agreeing a debt recovery plan with someone who can’t pay.

Assume that once PoO got to $50 they have moved into the want to pay mode, hence the proposal and it will revolve around this figure - that is a big assumption!

How much can they start paying back without hitting the original problems that caused them to withhold payments to all the IOCs, not just GKP?

Looking at it from the point of view of just GKP and its PSC, could someone check my calculation?

If production remains at 43kbopd, then for every $1 above $50 the MNR bank circa an extra $0.7 million total from every path within the PSC.

It was “only” four months payments that were missed but they were biggies, so the time to get the money back is going to a lot longer than that - unless maybe something from this Debt Law materialises.

So at $55, they get circa $3.5 million a month more than at $50, so circa 21 months to repay the missed payments.

Straycat, there is lot in that post that I agree with, especially working together. I don’t need people to agree with me, I need people to present reasons why they think I am wrong. The best teams I have ever worked in were made up of people who looked at the same problem/information in totally different ways, the process was often exhausting but the outcomes were pure gold, well most of the time...

There is one area though where I disagree with both of you. It looks to me as if you are both involving emotions to describe the outcome for the LTH. IMHO emotion should play zero part in deciding whether to invest, how you manage the investment and how you look at the outcome.

When you buy shares off someone you are hoping to buy low and sell high, they on the other hand are hoping they have sold high and maybe will decide to buy back lower. One of you will get the outcome you want and you always have the right to sell if your plan doesn’t work out.

Plan the trade, trade the plan and keep emotion out of it. If you get the outcome you want the temptation is to praise yourself but if you don’t then blame everyone else - in reality it is an outcome you had no control over, so keep the emotion out of it.

PUTUP also commented wrt say 5% of someone’s investment bank going into into GKP. If you look at the Morningstar site, the most concentrated Fund has less than that - the rest were strongly skewed towards 1% and less.

At the moment I have just over 3% of mine invested in GKP, my base is usually 2.5% and to go above that I submit my plan to the Mrs. and await written approval. Those of you who have worked in similar environments will recognise the process, you have seek approval from a higher authority :)

I have held shares in the company over a longer period of time than you but I have never been a LTH - but that’s not for want of trying, this is my fourteenth attempt to become one.

#10 is the transition period until 2023 wrt the $100 million outstanding debt, #11 is the golden era and then #12 and #13 is when things change IMO.

#8 Since restructuring the $100 million has easily been covered by payments of CO, as have the coupon through PO.

#9 The company has not decided to pay the penalty for early redemption so that $100 million from the CO has instead appeared as cash and hence increased profit.

#10 At some stage the company will have to pay the $100 million back either from existing cash and keep the monthly profit high or set aside future CO before 2023 which would keep the cash high but reduce the monthly profit while that happened.

#11 Once the $100 million is out of the way, the whole of the CO component is basically transferring the company’s money from the inaccessible cost pool (several hundred million USD) and turning it into useable income. That will continue until that historic chunk of the cost pool is repaid. In addition there is no need for the PO to pay the bi-yearly coupon.

#12 Any future agreed costs arising from the expansion plans will again resort to being repaid through CO but that would be the company getting its own re-invested money back.

#13 Once that happens it’s the PO component of the payments which the focus will shift to because that becomes the only way the company can create profit from the barrels it produces.

If anyone has time could you run your eye over the following and point out anything which you feel doesn’t ring true - it’s about trying to assess just how much of a cash cow GKP really is now and why that is and what it means about the future.

I am looking at it from a very very biased viewpoint - no matter how I try I can’t override a decade of training as a physicist.

I have numbered each separate point and it is the effect of number 7 that I think is key to understanding my concern.

I’ll post 1-7 first to allow time for people to have a think about the consequences. It would help considerably if anything that anyone agrees/disagrees with is related back to the appropriate #point.

#1 The monthly payments consist of two components, Cost Oil CO and Profit Oil PO.

#2 The CO is paying back agreed costs that previously went into the cost pool.

#3 The PO has to pay for all other costs including paying the coupon on outstanding debts.

#4 The company borrowed money to finance the exploration and move towards production.

#5 Just before the restructuring there was just over $600 million debt, the CO was slowly paying that back whilst the PO would try to cover the finance costs.

#6 Just after restructuring the debt was reduced to $100 million, which compared to 5 above had two effects.

#7 a)The finance costs were significantly reduced and just over $500 million of debt disappeared.

b)The cost pool was still over $600 million but now consisted of two portions, firstly someone else’s money, the $100 million which now needs to be repaid in 2023. The rest suddenly became the company’s as a side effect of the restructuring instead of someone else’s - the ownership flipped as a result of the DfE.

Ammu123, don’t forget there was pipeline damage at the end of Oct & start of Nov.

From the last update RNS we know the daily production at that time was circa 42kbopd and that was 20% above that for Nov as a whole.

So it looks like the Nov production was limited to just 35kbopd. (35*1.2=42)

Based on the previous payments, best guess for the net payment to GKP will be just over $8
million.

The last cash figure was $142 million, so even if there was zero spend since I don’t see how the payment will take it above even $150 million.

Provided nothing else goes wrong, the picture will get much better with the payment for Dec production and on into 2021.

opulentia, thanks for taking the time to outline your thoughts.

I had hoped for more progress from the talks between the ICG and the KRG. Hopefully the agreement includes a workable amount, from the political and economic standpoints of both sides, being repeatedly sent from central funds on a monthly basis.There doesn’t appear to have been any significant progress concerning the money for salaries that wasn’t sent during 2019 and 2020 - even a token gesture would have been a positive but probably a step too far for the ICG at this stage.

The KRG need to do two things with the same limited funds. Keep the people happy in the short term hoping things will get better and use the short term to give the IOCs confidence to restart investing in the medium to long term wrt increasing production.

Unless I have misunderstood the latest budget agreement, there doesn’t seem to be an unexpected lump sum coming the KRG’s way which could have split between the two needs.

Given that so many have so little confidence in the present GKP leadership to stand up to the MNR, maybe we can hope for them becoming part of Team IOC; who then work together in nailing down what is the baseline for restarting investment.

The IOC’s would all be aware of the MNR’s past history, they are the ones that need to show that they can and will stick to an agreement, so I’d go for something along the lines of:-

a) once 33% of everyone’s debts are paid, they all start with the low cost elements required to increase production.
b) once 67% of everyone’s debts are paid, they all move up through the gears.
c) if there are any missed payments, they all finish what it would be prudent to do and then shut up shop and start the process over again...

opulentia, you have made references to various events being completed as GKP moves forward. Given the overwhelmingly positive nature of your posts, I assume the timings are the shortest that you expect.

As an attempt to introduce a bit of balance, what would be your estimates for the longest times taken in the following three situations?

1 The time taken from now until talks between the MNR and GKP turn the proposal, to repay the missing payments, into a concrete plan?

2 The time taken from now until the plan is initiated?

3 The time taken from now until the whole of the circa $73 million is repaid?

When it comes to the restarting the move to 55kbopd, do you think that it will start:-

A) before the repayment of $73 million starts
B) once the repayments start
C) only after all the missing money has been repaid

Hi, it’s certainly a sort of a breakthrough on one level.

Previously, even though the central gov. knew the KRG had forward sold the oil, they punished them financially for not selling the same oil through SOMO as per the 2019 and 2020 budgets.

Now the central government is at least accepting that the KRG are not being disingenuous by breaking the agreement because they simply can’t uphold it at the moment because it has already been sold.

The discount difference is the standard threefold one that has plagued the value that the KRG get for “their” oil for a long time.

1 Difference in quality, not a lot you can do about that in the short term.
2 The trading houses know that the KRG are a distressed seller.
3 The are long standing issues over whether it is “their” oil to sell in the first place.

If, and it is a big IF, the destructive cycle of desperately raising cash through forward selling to the trading houses can be broken and production does end up going through SzOMO ; then discounts 2 & 3 immediately disappear.

Raising production overall does seem a possible way forward but there is the OPEC+ constraint and where is the money coming from to fund the expansion - rock and a hard place comes to mind.

FH1, the bonds are traded instruments, the company would have to go into the market and try to buy them back.

Don’t you think the price to buy might start to rise when the dormant market suddenly comes to life?

So if the company was trying to buy the bonds back and save the paying coupons, assume base $120 million, what final total outlay would in your opinion represent good value?