GKP Zengas 21 Jan ' events unfolding '

ZENGAS - 21 Jan'10 - 14:06 - 67012 of 67024

Just going back to Reliance and the analyst talking about eyebrows being raised about the speed at which they are raising money (on top of their $4b+ cash pile).

Let's say your in Kurdistan/Iraq and your 2 blocks - ie Rovi and Sarta don't throw up as much oil as hoped.

You either exit the country basically empty handed or consider buying your neighbour at a few dollars per barrel, or you seek to buy those assets while still cheap and consolidate your position and integrate economies of scale with your existing blocks. This could apply to any potential bidder though.

Your neighbour has 4 blocks.
One block has potentially 18 billion barrels of oil and 5 billion bls gas (independently assessed of GKP).
At 30% oil and 70% gas recovery = potentially 5.4 biilion oil + 3.5 billion bls gas = 8.9 bbilion boe recovery.
Maybe with modern technology (and future technologies) you can increase that oil recovery at some future date which brings your purchase price away down ?

On those top figures - 25% net to GKP from Shaikan is potentially 1350 million bls oil and 875 million bls gas (2.2 billion boe).

Beleive me, you sit up and take notice if this is where you are operating or even aspire to operate when an independant accredited assessor issues that kind of report !!

At $3 or $4/b - the oil is potentially worth $4- $5.4 billion with gas even at 50c/boe = another $450m.

All told - Shaikan could be potentially worth between $4.5b and almost $6b to GKP.

Now realistically that quantity may not all be there, but DGA tells us the potential is there for it.

So if you are watching GKP, whether Chinese, Korean, Indian (and remember your country needs energy resource security - ie your government and not your company !!!). Huge, easily developed oil resources of this nature don't come around very often and at the cheapest capex/opex costs anywhere. I'm sure GKP is being watched closely. The independent DGA report is only 7 days old.

A number of things -

Do you then worry about a competitor nabbing those assets from your grasp while you are next door?.
Do you bid a few billion $$ soon (perhaps $2-$3b and prove up the rest of the potential yourself for another $120m+ or so, or pay perhaps 2 - 3 times that, 6-9 months later.

With an early bid of $2-$3 billion range - for any buyer, they'd be bidding on the assumption that there is up to 9 b/bo in place with the rest as free upside if it comes in - ie all that extra oil/gas for free but against the risk of maybe not as much being there until further drilling confirms it - all a careful balancing act.

DGA however already says the 'potential' alone already exists (ie 13 b/bo) to current drilled depth as no water exists. (A £3 bid for GKP if it were to happen would be eqivalent to just $2.4b - around what the rumoured Indian talks were in the summer and supposedly unaccepatable, though denied at the time by GKP - but not by the Indians).

As a potential buyer, you also know that GKP have a net 40% of the Sheik-Adi block which was acquired due to closure from the Shaikan anticline being determined in Sheik-Adi. Sheik-Adi has significant historical data (we don't know what it is, but Morfina turns up the fact that there is an existing oil well adjacent to the planned drill site).

If Sheik-Adi had 2.5 billion bls in place and with a 30% RF - that's potentially another 300 billion bls net to GKP if successful on those parameters - ie possibily representing another $1b - $1.2b of value to GKP using $3-$4/b range. This potential, though not guaranteed could come basically free on an early bid. Whose to say afterall that S-A might not hold 5-10 billion bls ?

Goverments on Energy security will factor in the cost of getting oil years down the road - whose to say they wouldn't see the value worth factoring in at $5-$8/b ?, when looking at something so strategic as energy security.
It's not just simply all about getting oil for the lowest $ per barrel price.

There's still Berbarh and Akri-Bijeel for GKP.

I've no doubt that TK saying the company was the most important person at the dance right now is perfectly true and shouldn't be underestimated. The DGA report has only come out. GKP won't imo have the muscle to develop fields of this size which will require perhaps a few billion $$ of investment and will be realistic about this, hence why he said something to the order that the company may not be around in 6 months or so ( a month or so ago).

The tenders are all out there - all systems go but only a measly £1.5m ($2.4m) drawn over a month ago.
Perhaps there's no reason to draw down more than needed and no need to commit to funding while he still has £16.9m ($27m) available and perhaps some potential suitors are now engaged in studying the DGA report.

As someone else posted, TKs' apparently not concerned about the s/p otherwise he could have been drawing like crazy when the s/p was up near 130p and stayed in the 110/115 range for a number of weeks - imo indicative, that he beleives the company is worth a hell of a lot more.

The independant DGA report was only released 7 days ago. Maybe dance partners were waiting for this ?
You definitely would want independant 3rd party accredited research other than what GKP have said, if you were to carry out any DD.

Could we see -
An equity placing in the company taken by a major ?
An early bid?
A percentage of the block sold ?
A standard institutional placing ?
More Seda drawdown ?
An increased Seda facility ? (unlikely imo).
Algerian asset sale nearing completion ?

We're surrounded by existing powerful industry players and definitely not lightweights by any stretch of the imagination. Reliance Industries, MOL (who are part of a seperate $8b Kurdish gas investment consortium) and HUNT - not to mention the extensive particapation of KNOC with $2.1b in capacity building bonues (are they going to forfeit that to politics and their countrymen signing a deal in Iraq itself ?). The Chinese are a few blocks up from us after spending $7.5b on Addax (580 mmbo worldwide).

I still maintain that any deep pocketed bidder can assume more risk weighed against any political outcome. In recent weeks, RAK have increased their stake in DNO (circa £700m+£200m debt) who have nothing as near indicative of the potential amount of oil that GKP may possess.

All food for thought. I hope the true potential gets the chance to be exploited but unfortunately the potential for bigger players is now too much to ignore in respect of a bid. Perhaps an equity stake by a major could help fend that off for now.