GKP Zengas 30 Jan 'Analysis of finance needs'

ZENGAS - 30 Jan'10 - 19:13 - 68530 of 68535

To those calling for the supposed financing to be done and it's weighing on us - why not be patient.

There are many things to consider but only the company can decide on their best course of action and judge the way forward. We've had no problems raising financing to date and successfully increasing the value of the shares even with dilution. I've no doubt that they will succeed again as the directors have not sold and 1 director more recently buying 2m 8 weeks ago at 94p.

With production scheduled for May/June - I would think that the 3rd party interests could be decided soon.

Not only are we carrying pro-rata the KRGs 20% but also pro-rata the 15% 3rd party interest at Shaikan.

Seda drawdown during the past week was £4m. (approx $6.5m).
Seda remaining £12.94m (approx $21m).
Seda facility was £30m when arranged in May 2009 and could just as easily be increased if need be.

Capital needed was $73m as of November 2009 (after the 13/11 Seda drawdown).
Since that - almost $9m has been drawn on the Seda.
That reduces the capital required as in the presentation - down to $64m.

There's been perhaps almost $60m already spent at Shaikan by GKP.

Once the 3rd party is awarded to anyone other than us, that would be circa $9m we'd get back from them immediately (if awarded before MAY).

That would take our capital requirements down to about $55m - whilst having $21m left in the Seda and Algeria still for sale.

GKPs figure of needing circa $73m in the November presentation is also on the basis of us carrying the 3rd party interest costs until awarded. The future costs associated with Shaikan in that estimate are at least another $40m - so that could shave another $6m off our capital needs, if the 3rd party player is introduced at Shaikan (before May).

That could leave us with needing about $49m from here.

(We also have about $2m in 3rd party back-in costs for Akri-Bijeel provided there's a commercial discovery).

In my opinon we might at this time really only need circa $50m then - while also having Algeria for sale and a payment from whoever is awarded the 3rd party back in rights.

We have $21m available with the Seda.

Sheik-Adi/Shaikan 3d seismic is not scheduled until May 2010.
Shaikan -2 scheduled May.
Sheik-Adi -1 scheduled July 2010.
Shaikan- 3 scheduled October 2010.

The capital needed prior to May drillng is for Akri-Bijeel/Overheads, Shaikan testing/Production facilities = circa $23m and we have drawn down almost $9m since that presentation - thus needing another circa $14m - while having $21m left in the Seda.

There's absolutely no real need to have capital raised possibly prior to mid April and by which times we could have the Akri-Bijeel results and maybe something on the Algerian asset - so there could yet be a window of 2-3 months before we need that capital.
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First production is also showing as May (though i think it could be June before we see it).

I think we are in a very comfortable position financially.

If the 3rd party interest is awarded to another player before May - this definitely will reduce our capital needs !!!

That's why i think the 3rd party interest has to be sorted in the next few months - hopefully prioor to May. After all we are doing the majority of the hard work and i'm sure GKP don't want to see us possibly proving everything up only for a 3rd party to come in and get 15% easy pickings while they pay us maybe $20m. It wouldn't surprise me if GKP want this issue resolved prior to spudding Shaikan 2 in May.

But the other IMPORTANT scenario is this -

TK/AQ/AS and DGA are saying the potential is 18 billion barrels of oil and another 5 b/boe (gas) in place at Shaikan.

Now for the 3rd party interest - ie 15% of that figure above, represents potentially 2.7 b/bo and 750 mmboe (gas ) in place.

Using 30% and 70% potentially on oil/gas as recoverable - that's a potentially RECOVERABLE 810 mmbo and 525 mmboe (gas) in respect of the 15% interest that is up for grabs. Be mindful of Adnan Samarrais respectable successful career, contacts and being chosen by the current Kurdistan oil minister on the Kirkuk study.

Even if the figures are only half of that, the 15% interest represents a potential phenomenal amount of oil and gas for any incoming 3rd party. This is a figure that majors/super majors would be proud of !

With the company now knowing the potential, it would be unthinkable that such a vast amount of potential relating to that 15%, is not fought for tooth and nail by our company. Remember this data has only been verified recently by DGA and would also form the basis for the KRG pricing/valuing the 3rd party 15% interest.

There could be a real bargaining/deal making process going on - hence why we're in no rush or perhaps even in a position to do a deal or announce on major funding.

I'm sure not only would GKP wish to get their hands on the 15%, but also Etaminc and Mol.

Perhaps the KRG will award the 15% amongst the current partners.
The 15% could be priced at up to $200m given it's potential and now that a discovery is made.
A third of that figure could set GKP back circa up to $70m on that basis ?.

Let's face it - if you are prepared to participate in the Akri-Bijeel prospect at only 6.% net, why would you not want to grab a third, half or all of that 15% in Shaikan that has already thrown up a significant major discovery. and perhaps be looking at raising the finance to secure part of it.

One thing is - the KRG won't part with it for nothing and the sheer scale of the potential will make that 15% pricey - so imo it would have to be a fairly major player to stomp up that cash as well as the ongoing costs.

Personally i would be surprised given the sheer potential of Shaikan especially after the DGA report, if GKP is not already seriously considering securing a share of the 15% 3rd party interest as part of a wider or more complex deal that only a few here are considering. Imo it makes no sense to pass over this huge potential additional amount of oil and gas, but yet go and drill Berbar and Sheik-Adi at much greater costs where they have yet to find those kind of oil estimates.

What could likely influence the delay in any 3rd party award will be the testing of the remaining 70% of the zones discovered and the shallow adjacent well to Shaikan 1 to test the 313m section in between two discovered oil zones - this would make a substantial difference to the overall figures and to how the KRG see fit in placing a valuation on the 15% 3rd party interest.

I would stop worrying about why GKP haven't raised finance (they don't need it yet from what what i can see). and there are other factors to consider which i've stated that may be influencing this. Remember the report is only a few weeks old. With the directors buy of 2m at 94p 8 weeks ago in addition to the amounts already held by TK etc - i'm expecting this to be worth much more than where we now sit.