2020 AGM Shareholder Q&A
The questions set out below have been taken from the posts by shareholders to the Group’s website and are reproduced without alteration. Shareholder submissions that were statements rather than questions are not included.
Q1 Could you please itemize the production for each MJF well.
R1 Daily production numbers fluctuate as wells are take into and out of production for routine workovers and as choke sizes are adjusted, therefore reporting production on a particular day is likely to be misleading.
The aggregate production capacity of the 8 wells completed to date on the MJF structure is broadly 1,800 – 2,000 bopd.
New Well 151 is reaching its planned total depth and is expected to enter production in August 2020.
Q2 Your recent RNS’s states “Caspian Sunrise has received confirmation that the 3,750,000 ordinary shares due to Kuat Oraziman in lieu of pay has been accepted” Could you please tell me what period of time this awards accounts for? Am I correct in assuming it is for 3 months?
R2 The share purchases by directors announced on 8 July 2020, were funded by monies owed by the company for a mixture of base pay, base pay at reduced levels, expenses and deferred pay up to 30 June 2020.
Kuat Oraziman, our CEO, has never drawn cash for his salary entitlements with the amounts due added to the Oraziman family loans. As part of the recently announced share purchases Kuat Oraziman agreed to take his outstanding pay for the six months to 30 June in the form of shares.
As the Oraziman family owned 44.1% of the Company’s shares before the completion of the Caspian Explorer acquisition, any additions to his holding needed to be cleared before issue by the UK Takeover Panel.
The announcement on 14 July 2020, that his 3,750,000 shares had been accepted, was that the consent had been granted by the UK Takeover Panel that these shares may be issued.
Q3 When do you anticipate smaller investors will see shareholder value?
Q3 Our focus is on the medium / longer term development of the Group and in particular developing our assets to the point that meaningful dividend payments can be made to shareholders.
The export price is already broadly three times greater than the lows in April 2020, but the prices set by the Atyrau refineries for domestic production remain at all-time lows.
Logic suggests shareholders who chose not to wait or who are not able to wait for any deep wells success and /or the start of dividend payments, are likely to miss out on much of the potential gains.
We expect production volumes to grow in absolute terms. We also expect the proportion of that growing production eligible for export sales to increase.
Now the acid has finally reached Kazakhstan we expect to start the much delayed acidization treatments of each of our existing BNG four deep wells in August 2020.
Q4 When money is so hard would it be easy stop with deep wells form now and drill many MJF wells can become easy money.
R4 To date we have followed a dual track policy of seeking to develop both the shallow and deep prospects at BNG.
The short term commercial case for the shallow fields is compelling with relatively easy and quick drilling and swift payback periods. Our plan is to continue to develop the shallow prospects at the BNG Contract Area.
As regards the deep wells, we have drilled four to date at an aggregate cost of more than $50 million, and have spent significant additional amounts in attempting to get these wells to flow consistently at commercial rates.
The impact of any deep well success is expected to dwarf the success of our shallow wells as both the production volumes and more importantly the underlying reserves from deep structure successes should transform the Group’s value. The lifespan of wells on the deep structures is also expected to be materially longer than for wells on the shallow structures.
The imminent acidization treatments do not require rig movements and are relatively quick and cheap to undertake. Now the acid is in Kazakhstan we expect to start the much delayed acidization work in August 2020.
We will review the pace at which we develop the deep structures at BNG following these acid treatments.
Q5 Firstly I’d like to know why you allow Mr Carver who is clearly not very technical write your RNS update which either do not provide much technical data or in fact, incorrect or very misleading data?
To state these are exciting times in various updates are insulting to a private shareholder that has invested over £100,000 only to see the following update met by failure, especially given Mr Carver hasn’t actually bought any shares in the company himself, or at least been declared to the market which does not install confidence in what he is saying.
I would like to see professionally written technical data regarding the Well updates and some share buying by management rather than free shares given to them. My investment is for the longer term but with many companies I’ve invested in I have good communication with the investor relations department and the ceo.
In this instance I have never once had a reply to my emails from your email addresses provided on your website which leads me to ask this question.
If you value investors in your company, why do you not respond to there questions via your company email address.?
I have invested my ISA allowance, my kids ISA allowance my wife’s ISA allowance and my private investment company in your company and nobody will take the time to respond to an email. What’s the point in having an email contact if nobody cares to reply.
Do you have a competent persons email address that deals with investor relations?
R5 The technical content in our announcements
We strive to remain a low cost operator focused on delivering medium / longer terms shareholder value. In part we do this by avoiding expensive internal or external investor relations staff.
Our technical staff are all based in Kazakhstan, and their principal focus is on the success of the developments of our existing contract areas. They do however review all shareholder communications, as required under the AIM Rules.
In comparison with many our peers we believe we have announced a far greater level of technical detail on a more frequent basis.
The style of the announcements is designed to speak to the majority of private investors, who are not technical.
All communications of price sensitive information, including technical information, need to be reviewed and cleared by our Nominated Adviser before release. Establishing a direct contact between our technical experts, internal or external, would break that obligation. It would also favour individual shareholders over shareholders as a whole.
Directors share purchases
On 8 June 2020, we announced that all Caspian Sunrise directors had bought shares in the Company for in aggregate approximately £286,000.
The aggregate shareholding of the Caspian Sunrise board and its connected parties represents 44.7% of the shares in issue.
In addition to its shareholdings the Oraziman family has advanced more than of $4 million by way of unsecured loans.
Communications with the company
I was not aware of the issues with your emails and will look into it.
However, it is my experience that virtually every enquiry from shareholders involves requests for information that if provided on a selective basis would be a fundamental breach of the AIM Rules. Our strict policy is only to provide information on the Group’s activities to investors as a whole via announcements to the market.
Q6 Can you provide any reassurance that no more transactions issuing equity at these dilutive levels will go through?
R6 As a public company we have to retain the ability to fund ourselves in the best way possible. In the event we need the cash and a share issue is the best way to take it then we would.
That said please consider our record over the past 14 years as a public company, during which, other than at the IPO we have raised cash via direct shares issues only once before. I believe this compares very favourably with many of our peers.
The board accounts for 44.7% of the Company’s shares in issue and the wider Kazakh / Korean consent party holds approximately 77%. These groupings have no interest in seeing their shareholding percentages diluted by unnecessary share issues.
Q7 Why would the management look to make good on their remuneration at such high levels when the rest of the world is taking big discounts?
R7 In a series of announcement starting from 18 March 2020, the board restricted the cash drawn from the business to approximately 25% of its pre Covid-19 entitlements. The deferred element up to 30 June 2020, has been taken in the form of shares.
For the period from July to the publication of the interim results in September 2020, the board has agreed not to accrue any further deferred amounts only drawing 25% of amounts otherwise due..
The position will be reviewed again on the publication of the interim results.
Q8 The CE Explorer transaction is a related party transaction and is just a drain on the cash. Please explain why the transaction went through with no contracts and income due in 2020?
R8 The acquisition of the Caspian Explorer was approved by 99.73%% of shareholders who voted with only 3 shares holders representing 0.26% voting against.
The headline acquisition price was $25 million based on shares issued at 12p per share. At current levels the acquisition price is approximately $6.5 million, compared to its original cost of in excess of $200 million.
The Caspian Explorer’s monthly costs of approximately $100,000 are only payable from completion of the acquisition now expected in Q3 2020.
As regards future income, given the unique nature of the Caspian Explorer’s operating abilities, it would require a prolonged cessation of exploration of the northern Caspian Sea for the Caspian Explorer not to be of interest to potential hirers.
Q9 Can you revert to monthly reporting of the revenue and the relevant oil price you are transacting at?
R9 We are not aware of any of our peers announcing monthly sales price and production volumes.
We stopped announcing monthly export and domestic prices for commercial reasons as we believed those we negotiate with were unlikely to offer the best prices if they know these prices will be announced to all other potential oil producers each month.
We continued to announce monthly production numbers in isolation for a few months but found these incomplete announcements prompted speculation of all that was not included in the announcements.
We plan to make fuller quarterly rather than monthly updates
Q10 Why if there is a significant seller does there seem to be no plan to buy their stock?
R10 Possibly a question better directed to the Company’s brokers.
Our attempts to find the identity of the suspected seller have foundered on the need for compliance reasons to keep his / her / its identity secret.
Any further comment on the position would be speculation.
In general though when we get ongoing sellers, which will happen from time to time, the position generally corrects itself relatively quickly, although this episode seems to be taking longer to correct itself than on previous occasions.
Our focus is on the medium / longer term value creation.
Q11 The company seems to have failed to deliver a deep, is there a plan to focus more on the shallows if the deep campaign continues to cost cash and provide no reward ?
R11 Please see the response to Q4 above.
Q12 Please can you confirm that there will be no more asset acquisitions until there is a commercial deep well in production.
R12 Such a confirmation would be an unnecessary restriction. Any such acquisition considered would be subject to the assessment of the board which represents 44.7% of shares in issue before approved.
If the acquisition is of sufficient size then it would also be subject to shareholder approval at a general meeting.
If the acquisition is a related party transaction those connected would not be allowed to vote either at the relevant board meeting or a shareholder meeting.
All the group’s shareholders have the same objective, which is to maximise shareholder value. To the extent a proposed acquisition did not either meet that requirement or have some other strategic advantage, it would not be pursued.
Q13 Please can you confirm that there are no plans in the forseeable future to delist the company by taking it Private ?
Q14 What current net back is received at $40 and $50 crude prices ?
R14 There are a number of moving parts in the calculation of the net price. These include the costs of lifting, treatment, storage and transportation together with the payments to the Kazakh Government. Additionally, there is a discount between the price of Brent Crude and the oil produced at BNG.
There are also a variety of taxes relating to our operations, some are based on the volume of oil produced, others on its price, others on the Group’s and there are general levies. The timing of each layer of tax various.
These do not include any social payment obligations or payments in relation to historic costs assessments.
There is also a discount for the oil produced at BNG compared to Brent Crude.
For export sales with Brent Crude prices of $40 per barrel our expected net is approximately $21 per barrel and with Brent Crude prices of $50 per barrel our expected net is $25 per barrel.
Q15 If failure on the deep campaign continues, what is the strategy to change the outcome. You state that it’s hard to find the skill levels but what are the plans moving forward
R15 Please see the response to Q4 above.
Q16 I’d like to see the return to monthly reporting of production numbers and financials. Are you planning to revert to the monthly reporting as communicated ?
R16 Please see the response to Q9 above.
Q17 There is a Kazakh seller. What are you doing to assist with the reallocation of stock ?
R17 Please see the response to Q10 above.
Q18 The CExplorer has no work planned for 2020 and a drain on the cash flow at a time when cash is king. Is there a likelihood of contractual revenue in 2021 ?
R18 In addition to the response to Q8 above I would make the following observations.
To date the only costs incurred in connection with the Caspian Explorer are the professional fees incurred in its acquisition. We do not become responsible for ongoing costs until completion of the acquisition, which is expected later in Q3 2020.
At the date of writing, there are no future commitments in place for the hire of the Caspian Explorer.