http://www.gulfkeystone.com/ The firms exploration programme in Algeria is going well and "the shares look good value", say the Investors Chronicle. Your comments please. goal.

Lenthy but worth while and clearly a well read investor.

I do not post on this BB because it is habitated ( some people are spending more time here than at home )mostly either by crazy or crazed posters who happily gave incredible credence to Spencer Freeman , despite his admission that he did not own a share in GKP and ipso facto was beyond prosecution for spreading rumuors , because he was not gaining from his statements.Moreover
I do not know how GKP nav could be at 18 pounds to 63 pounds sterling.

When one is valuing an oil company one should always bear in mind the proven reserves and the recovery factor over the lifetime of the PSC, always allowing for the depletion rate, and then deduct further 30% in capex/rex which will also come out of recovered oil,then apportion the PSC share, deduct income tax,if any,to work out NAV based on current market wholesale price of about $75 a barrel,exclusive of transport,refining and retail profit/cost. However,in case of GKP there is a fixed band of return profit.

I must confess I do not own a single GKP share because it is not Isable,but I am involved through my sister and grand niece, who bought thousands of shares in early days on my recommendation and have kept them.

Few days ago my sister asked whether GKP sp hike was due to Exxon takeover rumuor.I told her no, because Todd Kozel had denied it and he would not mislead and invite prosecution and civil suits for damages under strict U.S.A law,as the shares are traded there albeit on pink sheets.

Furthermore, I also told her that until Excalibur case is decided for which 10 days trial in October has been set ( the case must be complicated )no sane company will takeover GKP or its share in Akri Bijel. The matter is sub judice and only fools will go in where angels fear to tread.

So the press and people who have been harping on about takeover are not talking through their heads( unless their knowledge is very limited )but something else.

I informed my sister that the sp rise was due to increased estimate of oil reserves from 8 billion to 13 billion barrels mean figure given out by Todd Kozel, and based on that the NAV is 569p per share, without FTSE 100 listing,or takeover,or market discounting for geopolitical risk,which should be plus or minus 20 to 25% except in the takeover.

I now notice that HSBC analyst has given NAV of 560p per share,but discounted
it by 50% to 280p for geopolitical risk.Is he right? I do not think so. The reasons are simple.

Constitutionally, the control of natural resources in Iraq lies with the provinces ( regions) and the revenue from these resources,including oil and gas,is pooled into national fund, which underpins the national budget, and there is already a mechanism for that.

As there is no oil and gas law empowering the Central Government to award oil and gas contracts , Kurds are justified in invoking their constitutional right
and awarding PSC contracts. Kurdi contracts are legal, until national law negating these contracts is passed by Iraqi parliament. I am supported in this by the pronouncements of Iraqi and International constitution lawyers.

Can a law be passed cancelling these contracts retrospectively? First of all for any such law to be passed the Kurdish support is vital and it will not be forthcoming.Secondly,international community does not allow retrospective law except in emergencies like war or warlike situations. As such Baghdad will have to pay heavy compensation for cancelling existing Kurdi PSCs.

On the question of legality of oil and gas contracts ,Harwami is alleging that if Kurdi PSCs are illegal, then Central Govt.'s service contracts are more so, because it has no contitutional power to give out these contracts, only the provinces have that power. Baghdad's answer that oil service contracts are for
exploiting existing fields and no new law is necessary is not going down well with Kurds, because old laws are dead and the country is now governed by new constitution.

This is of course making oil companies on service contracts very nervous in Southern Iraq because Baghdad is on a sticky wicket and if the matter were to to International Court, Kurds will win the argument hands down.

As such it is almost incumbent that Iraqi govt. must pass new oil and gas law for awarding exploration contracts and Maliki knows this, otherwise oil companies would not touch them with a barge pole Hence the delay in new round of contracts in Southhern Iraq.

Kurds can just sit back and carry on and progress , and let the Shia Iraq continue to suffer and eventually throw out Maliki. Status quo favours Kurdistan and not Baghdad.

In the absence of new oil and gas law , will Shia govt. march into Kurdistan and force its will? The answer is no.There are lot of Kurds in the border areas
of Iran ( hence oil smuggling),Turkey and Syria - where even Assad has not dared -who will gladly take to arms and furthermore Sunni Jordan,Saudi Arabia,Turkey, and Kuwait will come to Kurds rescue in addition to Iraqi Sunnis.

Can Maliki count on Iran ? Not on your nelly or his nelly, because that will give U.S.A and perhaps Israel a pretext to knock out Iranian nuclear reactors and annihilate its army.It is therefore obvious that Maliki is cornered politically and legally from denying the Kurds the right over their natural resources. I therefore do not see any geopolitical risk to PSCs and this was made abundantly clear by the oil companies including GKP at their interm and AGMs.

HSBC analyst is therefore wrong in his conclusion and should not have discounted GKP by 50% to 280p.However that is his problem for which he will be answerable to his clients.

The next scare has been the recent press report, which has been regurgitated over the world and spat out, that Sharastani has asked Exxon to decide on Kurdi
PSCs and it has requested few more days for the decision. The devil is in the detail and there is nothing to indicate that Exxon is being forced to decide soon for Baghdad or Erbil.The words are clear:

" The Central Government is waiting for Exxon to respond to our letters and in the light of Exxon's response, Baghdad will take a decision."

Baghdad has not asked Exxon to decide but to reply, and I think Exxon will tell Baghdad to take a running jump, because it has not broken any national oil and gas law by going into Kurdistan - none exists. The legality of PSCs is a matter between Baghdad and Erbil.

Concerning the condition in service contracts/tenders that companies should not
practice their trade in Kurdistan,it is an unreasonable restriction and will be thrown out by WTO and International Court for Arbitration ( footballer Bosman rule springs to my mind ). In fact some companies which have due to this restriction not gone into Kurdistan may demand compensation from Baghdad.

Will Exxon decide to leave Kurdistan ? I do not think so. It can just sit back and let Baghdad cancel its existing service contract and then go to the International Court of Arbitration and get damages of billions of dollars and use the monedy on PSCs etc. Exxon is in a win win situation and that is why other oil companies are thinking about going into Kurdistan.

I do not see any risk on that front either.

I hope I have allayed some of your fears and misgivings. The recent massive fall was not due to panick selling by private investors but by HSBC and other funds with hedgies on their backs selling out, but equally there were others who were happy to take the shares. It is a battle between big boys and you should just watch the action unless you are trading as a small fry.Come December 2012 almost all of you will be laughing all the way to your bank.

I will not indulge in any argument or banter because I do not have the time.You should either take the post as it is or leave it,or just forget about it.

Finally you must do your own research . IMHO,DYOR

niceonecyril

Who did you say wrote this last articular ?

Must say I like that last post cyril.,.

still a big risk hence i am out.....trade in betweeeeeeeeeen.

Interesting article, but there are a great many 'I do not see' & 'I do not think' statements which are not facts, but opinions. Well put together, but does not change my opinion, in particular given that the sp has sunk back to the sub 280p level.

Posts under the user name of 5professor.

Oilman is a good source.

just out on iii

I am sorry but due to these boards wanting all info spelling out to them ....no riddles
And the fact that the company watches all posts They are not thick.
It does not take a lot to work out where it's come from.
All I will say is we are getting bigger.

DO NOT TRADE ON WHAT I SAY

All the best
Oilman63

< http://ceraweek.rmxpres.com/webcast/data/Cera20124EFHI03061420/main.htm#

Hawrami's presentation is very illuminating
Reading between the lines it is clear to me that Shaikan is indeed a huge find and very relevant to the 1m (2014) then 2m bpd by (2018)targets
"I anticipate a lot of (consolidation)movement in the market this year," he said in the Q&A
On the contracts and Bagdhad debate he said there will be a resolution: "2012 will reach agreements with all concerned contracts will be honoured and finalised" ec, etc
Well worth the listen

noc is he the nutty professor?

No its Eddie Murphy

From NT, SH6 flying,drilling like lightening,no water?

TNP/EM

Comment
Hi Lucian.
I think you have missed the fact that the said reserves have been indepentently verified. The oil is there. The risk here, and it’s huge, is Iraqi politics.

Just look at the size of Shaikan(take the distance between wells),

SH-1 and SH-3: Both close to the green blob labelled Shaikan-1B
SH-2: Shaikan-B Location (around 9 km east of SH-1/3)
SH-4: Shaikan-D Location (around 6 km west of SH-1/3)
SH-5: Shaikan-G Location (around 15 km north-east of SH-1/3)
SH-6: Shaikan-C Location (around 18 km east of SH-1/3)


From S 4 is 6km to the left of 1/3 and 6 is 18km to the right, 24 KMS and no water???

So can we say we are past the estimated Oil water contact @ 2230m TVDSS?
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
way past just had to stop for a bit to wipe the oil off the drill bit that we did not know was there.


This well needed to be stepped out a lot wider
As I said last night this is bigger than we think

All the best
Oilman

hsbc--little devils---from iii.
===============================================================================

09:16


HSBC report $/bbl_Solved


Robbean

2

hi Everyone,

I was struggling to make sense of HSBC's valuation and $ / bbl figure in their report ($2.33/bbl), which was well below figures we have been using. Well, I had a closer look at the report and found a sneaky little paragraph that explains the difference and leads to a very different conclusion...

HSBC state (p.44): "The key pricing measure that is pertinent to this report is the prices that companies are able to realise on domestic sales. At present the companies achieve USD50-70/bbl. We have assumed this discount will continue and so we assume the domestic price for liquids will run at a 50% discount to our oil price forecast."

So the $/bbl figures they quote include BOTH the 40% tax discount AND a further 50% reduction to reflect the domestic sales situation. This means that if and when exports resume, HSBC will then attribute $4.66 / bbl post tax, or $7.77 pre-tax.

I don't think I'm quite comparing like with like but this is very similar to Dalesman's NPV30 figure (albeit post-tax) of $7.33 and 2P value of $4.62 / bbl. The post-tax value also corresponds closely with JG's valuation figure, calculated from his remarks in New York to be $4.62 / bbl.

So what? Well you would be forgiven for thinking this was their discount for political risk... But no. A separate section detailing HSBC's valuation methods indicates ANOTHER 50% reduction for political risk. Put the two together and we have an effective 75% discount due to the politics/lack of exports, which is essentially a single issue.

Where does this leave us?
HSBC state (p.65): "Using the methodology set out in the valuation section, we derive an asset value for the company of 492p/share. On top of this we add risked exploration upside of 47p/share (full details of the breakdown of this valuation are given later). As we mentioned earlier, we have assumed a 50% discount to NAV for the political risk. This yields a target price of 280p."

At this point, they conveniently fail to mention the 50% discount they have already applied to their $ / bbl figure. Remove this and we are left with an unrisked asset value of 984p, or 492p when discounting by 50% for political risk. Adding exploration upside we have 1078p and 539p, respectively.

I think it's fair to say HSBC are understating the case when they say:
"We believe we have taken a conservative view on the valuations of the companies. There is scope for these valuations to increase as the political tensions ease and the ability to export improves." (p.45)

It would have been nice if they had added "In fact, a complete resolution of the politics and resumption of exports would increase our valuation four-fold, based on present OiP figures. With updates due any time from Sh-4, 5, and 6, we rate GKP a STONKING BUY at these levels"

But this wouldn't have served their clients who wanted in at the lowest possible price now, would it?

I hope this helps anyone else who has struggled to reconcile the figures in the report and those of Dalesman, BBBS, TPO, Gramacho and others who have studied the PSC terms. Not least because the report has been used as a catalyst to send the sp tumbling.

Good luck all- Rob


Time for walkies, gracie.

Seems theirs a little bit of Squeeky bottom time,due to Exxons presentation today.

http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-EventDetails&EventId=4680210#

What it should do is to clear up the question of KRG v ICG,once and for all.

bet it doesn't ..... what you hear and see is irrelevant compared to what you do not

Your probably right, just picking up on several posts from a few nervy PI's.

Exxons presentation is on webcast,picking up on comments,they have confirmed KRG contracts?

ut @ 286.5P.