GKP Dalesman 17 Jan ' New DGA report'

Hi All
It has taken me some time to come to a view on what happened last week.The following is something of a ramble, it may be well off the mark but to me there is a certain logic to the arguments I put forward and I will be fascinated to see how much of the following turns out to be drivel and how much turns out to be true.

Lets start with the DGA report.From a personal perspective it delivered in spades. I posted a few days before warning of over optimistic values and expectations; I expected an increase in OIP and an increase in the mean figure. We got both, far beyond my expectations. On the other hand, to some extent it can be argued that there was nothing new in the DGA report. We had the CEO already stating in a public forum that the potential OIP was probably in the range 11 - 15 Billion. DGA comes out with 13 billion, slap bang in the center of TKs expectations. So the DGA report supported and reinforced the credibility of our CEO. This is important and I will return to this point shortly.

The report itself is thorough. Not to say rigorous. It details each of the major reservoirs and reports on the potential in terms of OIP. Remember DGA is working for GKP but it has its own reputation to protect. DGA will be around when GKP is history. The findings of this report reflect this fact. The findings are, and must be conservative. DGA needs to protect itself in this respect. Credibility is all to them as independent analysts, they need to maintain and BE SEEN TO ALL AS INDEPENDENT ARBITORS. There is a difference between report 1 and report 2 put out by DGA. This was picked up on 3i. It concerns the small print at the back. Report 2 is full of caveats, risk disclaimers and backside covering by DGA. Have a look - they are certainly there! Why?Todd Kozel in the CNN interview talked about managing expectations. Is this the only reason for commissioning the DGA report? I think not.

Lets recap: TK goes on CNN and announces 15 billion OIP at Shaikan. He also says that the seal to the west is probably in Sheikh Adi possibly BB. Are these just the remarks of an excited CEO with 'an oilman's dream' on his hands? In my mind the answer to this is no. They are carefully calculated and deliberately placed in the market place. Not the market of the city, rather the oil mans market. Subsequently the DGA report verifies what may to some have seemed at the time to be over optimistic statements on Shaikan. Remember we have yet to find the oil/water contact and in DGAs opinion the OIP figures are likely to be on the high side of their valuations.

Returning to the DGA report - IMHO its primary function is not to manage market expectations but to provide credibility in take over talks / farmins. The caveats certainly read that way. They, DGA, are covering their own backsides as they know that their report has/is being used as a lever in TO / farm out discussions. I suspect that these talks are at a preliminary stage, but I am now utterly convinced that talks are on going.So everything that TK has said re Shaikan has been backed up by DGA. His speculative remarks on the extent of the Shaikan find, particularly the western closure, must also be taken seriously. His comments are now endorsed by DGA.Does TK care what has happened to the SP?This leads us to the vexed question of funding. The last SEDA draw down was small. This is, IMHO, significant. I calculated at the time that it was just enough to keep going, funding GKPs commitment at Akri Bejeel. The price struck was for the first time, not at a discount to the SP. Had the SEDA people been convinced by TK that the DGA report would result in an uplift to the SP? We will probably never know. What that particular draw down said to me was lets obtain the minimum amount to keep us going because we know that something is in the pipeline. GKP expected things to change.

The question here is did the BOD expect the DGA report to lift the SP to a higher plateau from which they could then draw down further funds reducing dilution or did they not care what the SP is short term, as events pending will change the circumstances dramatically in any event.Remember the director’s interests are closely aligned with our own - they don't like dilution either. The Asher buy seems to imply that the BOD did not expect the SP to remain under £1 for too long. I’m quite sure that they are also aware of the fickle nature of their PI share base.The SEDA provider on the other hand has a vested interest in keeping the SP down. There is no doubt in my mind that YA have been shorting the SP knowing that GKP needs funds. They effectively have a strangle hold on the SP, aided and abetted by PIs who are here only for short-term gain. We are our own worst enemies in this respect. The MM knows that PIs have a track record of selling on news. If this is all there is to interpreting the last SEDA drawdown then the MM and YA have played a blinder! As an aside – if this is the case the quicker a placement comes the better.

We need clarity going forward.Now all this short term anxiety and hand wringing by posters on this and other boards may not be of any concern to TK particularly If he is in advanced talks concerning a farmout for example, which will provide the necessary funding going forward. It is in everyone’s interests to only draw down the minimum amount needed to continue operations.

Now to speculation! To me it makes perfect sense to bring on board a big hitter. GKP has a history of doing this – BG in Algeria. They think strategically. It would not surprise me to see this happen again. This would allow GKP to go for the Sheik Adi Prize – which in my book is the big one.To this end I would not be at all surprised if a farm out partner is not announced soon. The other possibility is Algeria. If the sale of Algeria is pending, again a minimal draw down of the SEDA facility would also makes sense. I await with interest the next news on funding.I have said nothing about the political situation. Every indicator is that there is now political expediency coming to the fore. It will be solved!Ramble over!In conclusion, I do think that there are things happening behind the scenes.

And I for one am very happy not to be out over the weekend!:0)

Cheers Dalesman