Member Info for uncertain

I think we knew this was coming. What we can't guess is whether it will cost us $1.2m or make us $25 m over the next year(s)

I think it is a bit of a diversion really. What we really need is the RNS telling us about Q2 output, H1 finances, MJF infill and A5 shenanigans. Expecting that one before long

https://www.bbc.co.uk/news/business-53386423

Hi JR, I don't think I'm a guru! Facts always need interpreting and I offer my interpretation partly because I like to see what other people think about them. Much of what you say in your reply is of course true, and we all know the frustrations of holding this share. CASP managed to get about $60 in January and $50 in February, so we are not back to precovid levels yet, neither is there yet confidence about whem that will happen.

Neither of us have mentioned the role of the seller in all of this of course.

Hi JR, interpreting graphs is a tricky business. You are quite right of course, the graph drops in quite a straight line from January onwards after the nonsense with the reporting of the A5 flows. The set of points on the graph are undeniably facts. However concerns about covid in the markets came earlier than you suggest. In fact the price of oil dropped off a cliff from mid February onwards. The drop in CASP sp due to the A5 debacle was then compounded by the drop in oil prices and it is difficult to separate out these two effects

What you can do is look back over the last three years and see the trading rang,e which has been between 6p and 12p, ignoring a few outliers for brief periods at either end of the range. Hence my argument that anything below 6p was covid related.

My argument is also related to the facts. I am just using rather more facts than you, while acknowledging that facts on their own, without interpretation, can tell a misleading story.

Quite clearly the drop in the share price below 6p is covid related, mediated by the consequent drop in the price of oil. Overstating your case weakens it JR.

Well, JR, slightly less offensive and therefore worth a reply. Your comments about the performance of CASP during Covid and the January debacle over A5 are of course difficult to argue with. The share has performed very badly this year, partly due to bad management communication practices, partly due to a continued failure with the deeps, but mainly due to the virus which beyond anyone's control.

Also you have sensibly diversified during this period into better performing shares. Congratulations and good luck. Also welcome back with your small reinvestment here. Some of us perhaps have not made such good decisions, or more likely we just have a different attitude towards risk and uncertainty, a different preference about the relative difficulties of trading versus holding during difficult periods.

Rather than trying to play a game of brag about these matters, can we please concentrate on the future which is what is important now. Brent seems to be holding in the $42/$43 area and I am relatively optimistic it will move up towards $50 in the next few months. CASP on the other hand we are just guessing about as usual. I am waiting for an RNS on July 23rd which I think will contain bad news about Q2 finances for obvious reasons, but good news about MJF current output, and maybe the return of Yelemes output. The news on A5 is anybody's guess, but if they have got it flowing again then the SP should respond well.

I am now in standby mode, waiting for the RNS

https://uk.reuters.com/article/uk-health-coronavirus-kazakhstan-pneumon/kazakhstan-denies-chinese-reports-of-pneumonia-deadlier-than-coronavirus-idUKKBN24B0A0

Bit of a mystery about this illness in Kazakhstan

Well, after some sensible moderation, I'll just say again

Brent seems to be getting used to being over $43

There are many opportunities out there and good luck to those who are following them. I am staying with CASP largely because I have put quite a lot of effort into understanding the situation here, and I remain optimistic that there will eventually be a good outcome. Whether that will be this year or next year, I couldn't say, but with patience I think things will come good.

Information about H1 will probably come towards the end of the month just before the AGM, based on past experience. We will be able to assess the situation better at that stage.

Sorry, the last paragraph shouold read "appraisal accounting methodology to project accounting methodology".

Also the interims are due soon. I have no idea what detail they will go into but i anticipate a loss for the first half of the year of between $1m and $2m. I aslo expect this to be offset by a corresponding profit in the second half of the year. Acceleration of the investment programme should therefore start in the Spring 2021 unless we flow a deep before then

Hi Coffee, I've been out for a very pleasant walk in the Peak District, so sorry not to have got back to you. I think you are rather missing the point. Now that we have better information about cost of sales because we have gone over from an appraisal accounting methodology to a project accounting methodology, it is possible to calculate contribution to overheads tax and capital costs, after cost of sales and selling costs (check the 2019 accounts).

This shows that the contribution covered overheads and tax ( I'm putting that at $2.7m pa for the license but i believe this is being challenged) in January and February and left about $300k pcm surplus on average. This was when domestic prices were about $18 and international prices averaged $55 and output pcm was just over 40K barrels pcm

The contribution is a good measure of underlying profitability, but of course has to be enough to cover overheads and tax. Anything left over after that can be put towards capital expenditure.

The right questions to ask now are therefore firstly what is contribution pcm and secondly what is it being spent on. I have attempted to create a small spreadsheet model which gives a reasonably good answer to the first question.

I think it is fairly obvious that the answer to the second question is that we are trying to cover the losses which we inevitably incurred during the covid period. If we manage to do that then we may be able to pay back some loans (some of which are currently financing MJF drilling activity). Only after that can we accelerate out investment activities.

Which of these we will be able to finance can to some extent be forecast by plugging different assumptions about output, domestic and international prices and export percentages into the model.

The reason why your recent contributions have not been particularly relevant (although factually accurate) is that you are still working on the appraisal accounting methodology and the company has now moved to project appraisal accounting. Listing items of overhead that have already been plugged into the model, or calculating the cost of various bits of capital expenditure which lie outside the model, I'm afraid, as I said earlier, missing the point.

Brent ticking up nicely tonight.

The last month for which we have full information is February. The information we had in that month included output for the month, % of output exported and both international and domestic prices. Since then one or more of these pieces of information has been missing

For January and February it is possible use the average cost of sales and the selling costs per barrel from the 2019 accounts to calculate that in both of these months a contribution of over $1m was made to overheads, tax and drilling expenditure. This would have been enough to fund a full MJF infill programme.

In March and April we have output figures but neither export percentage figures nor domestic and international prices (although we know the latter were about $25). In May we have a figure of 1700 bopd from half way through the month but no final figure. We do know that any output in May was sold at domestic prices at "less than $10".

This information should be updated soon in a Q2 report, probably shortly before the AGM. However it is clear that in March and April, while operating and selling costs were probably covered, contribution would have been inadequate to cover overheads. In May an operating loss of about $0.5m can be deduced from the little information available. My best guess is that an overall loss of about $2m will have been made in this period. Ihave not factored in any reduction of costs in this period because we really are only guessing at what they might have acheived here

My calculations for June based on a return to the 60 40 international domestic split, suggest that we are back to covering overheads assuming 1700 bopd is being maintained. Obviously in order to offset the losses in the spring then we need an increase in output. Fortunately the resumption of the infill programme and workovers on existing wells should deliver this.

My calculationis suggest that if we can return to 2000 bopd (as CC has suggested should be easily achieved)then we should cover overheads for the year and leave a small profit before tax (although we are unsure what tax will be at present - CASP are disputing this with the government)

For an ability to accelarate investment and pay for new drills undertaken during the year we need the oil price to move upwards towards $50, or output to rise above 2000 bopd or some combination of the two.

Adrianz, you will be glad to know that I have moved on from my back of an envelope approach and researched all outputs prices costs and export percentages where they are available from RNSs or elsewhere

The figure of $35 for Brent in the accounts, below which drilling would have to stop ("if sub $35 for a considerable period of time") applies to March and Apri this year. In May CASP oil was sold entirely to the domestic market "for less than $10 a barrel". During this three month period it is certain that large losses will have been made which the rest of the year will have difficulty in offsetting, and that this led to considerably scaling back of activity to conserve cash.

From June there is the intention, noted in the accounts, of returning to 60% international sales, and since Brent has been above $35 during this period, then presumably the finances should be OK, apart from the consequences of any liabilities that occurred in the spring.

The accounts for 2019 are difficult to interpret in terms of profitability because selling at international prices only applies to the last 4 months of the period. The average price per barrel received in 2019 comes in at about $24 as opposed roughly $18 for the previous year, despite oil prices having been above 2019 levels for much of 2018. Presumably had international prices been available for the whole of 2019 then this average price would have been noticeably higher and it is likely that the profit after tax would have been positive.

Output per day was only 1388 bopd in contrast to the 1616 in 2018. Output in 2020 seems to have been around 1700 bopd although we don't have the figures for May yet. With new wells coming on stream in the summer and autumn, they may average closer to 2000 bopd

The accounting system switched from an appraisal basis in 2018 to a production basis in 2019. I believe that this means that the cost of sales figure is a more realistic figure, but if anyone is more knowledgeable about the nature of this change I would appreciate some advice. It comes in at $13.8 per barrel as opposed to $18.2 per barrel in 2018, but I think this is because some costs have been stripped out due to the different accounting methodology.

Thanks for the link Adrianz. As you say there is partial information all over the place. I will spend a bit more time on it later this week. I also intend to spend a little time looking at the 2019 accounts in detail.

Adrianz, I checked the two MJF licence RNS's but couldn't find the figures you referred to. I would appreciate it if you could give me the right date for the RNS

Many thanks

Hi coffee. I like humour better. It did take me quite a long time to get through the RNS, but we still didn't get down to 1p or 2p did we.

Adrianz, we certainly weren't making any money in the spring. Thanks for the reference to the MJF licence RNS. I'll look that up and think it over.

Hi Adrianz. Good points. I wouldn't classify my spreadsheet as research. As i said earlier today it is a "simple" spreadsheet and simply multiplies output with an guess at contribution per barrel to estimate underlying profit and then combines inputs from the number of shares and the P/E ratio to arrive at an estimate of a reasonable SP. It has the advantage that you can mess around with the assumptions to see what the range of reasonable outcomes might be. Anyone with reasonable spreadsheet skills could cobble together something similar.

As a model it works more for the medium and long term. CASP is, as I am sure you know, a volatile share and can fluctuate quite widely the short term. A few bears can always do some damage here in the short term as you rightly observe.

As for why the output has fallen, I think the answer is quite simple: the strategy of pouring revenue into the deeps has been unsuccessful to date. The current strategy of MJF infill should slowly remedy that, together with a small increase when Yelemes comes back on stream.

IMO the SP should rerate later this year provided Brent steadies or rises and as new MJF wells come on stream. The deeps have always been the speculative aspect of the share and that continues to be the case. I am hopeful that new approaches will crack the problem but that is neither research nor analysis of course
DYOR

Well Coffee, lets have a look at that one shall we? You said we would be revisiting 1p or 2p and I said that seemed mostly unlikely. We haven't. I went a little further and said it seemed unlikely we would revisit 3p and of course I was wrong about that. But then the cause for that was the RNS which revealed that CASP had been doing much less under lockdown than most of us had supposed.

I am happy to admit I was wrong about 3p. Are you willing to admit you were wrong about 1p and 2p? By the way my spreadsheet helped me reassure myself that 3p was an undervaluation under most reasonable assumptions, and that it would probably climb back slowly over the summer and into the autumn. You can quote me on that later.

Of course the thing about spreadsheets is that they suffer from GIGO. What I would really like is an informed discusssion about what reasonable asssumptions for CASP might look like. The starting point for good research is finding out what you don't know. For instance I am fairly ignorant about the Kazakh tax regime. once Brent goes well above $40, I believe we pay more tax but I am ignorant about the details.

My experience on other boards leads me to believe that pooling information and analysis is to the benefit of all

Coffee it would sit better when you ask for contributions of research from other people if you were less rude and abusive when other people make such an effort. As far as I am concerned your manners are more of a problem than your ramping / deramping.

I am currently using a simple spreadsheet model in relation to CASP which gives me sensitivity analysis in relation to different assumptions about output , contribution per barrel, P/E ratio, shares in issue. I find it helpful to interpret whether the current share price is realistic, backward looking or forward looking. I did something similar with CEY for several years and shared the outputs. With CEY I put exchange rate assumptions into the model as well, but that seems a bit too sophisticated for CASP at present.