What's this you're saying Col??
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I think Colin is refering to the option price on forward sales of oil that PPP had to sell. Based on current price, they are a steel, but were required to get the backing of the banks when the price of oil was a lot lower.
Correct.
Digger: To try and answer your question: In the 2007 Annual Report PPP state that they hedged by way of put options approx.719,000 barrels, being 50% of the FIRST THREE YEARS budgeted production and 22% of its total share of reserves (estimated at only 32 mill barrels for total project, at Report date). Hedging was to ensure that PPP would receive a minimum US$50 per barrel for up to 719,000 barrels, "even if the oil price dropped below that level ON THE RELEVANT DATES. The cost of these put options was partly offset by selling call options, which might require the company to deliver no more than 187,600 barrels at US$92 if oil rose above that price."
So, with PPP's share of total production for the past year being 1.42m barrels they would be well beyond the 719,000 barrels. HOWEVER, the picture could be somewhat clouded by the fact that they refer to RELEVANT DATES and THE FIRST THREE YEARS PRODUCTION, indicating to me that the options maturities were probably spread over a three year period; hopefully the call options were all activated as soon as the oil price reached US$92 and one would hope that they have all been extinguished by now, but it would be difficult to estimate how much these would have cost the company (i.e. the difference between the exercise price and what they could have got for the oil on the open market) without knowledge of what the Tapis prices were on exercise dates.
I haven't hunted for the half-yearly report, which presumably updated the options situation. But the 2008 Report should reveal all.
I don't know how much it cost them to arrange the options (I can't see any separately identified figure in the 2007 Accounts).
But, all in all, and relative to their gross receipts from TUI for the year just finished (est. around NZ$200m) I don't think the overall figure (options costs plus lost opportunity costs) would be great.
Incidentally, I'm happy with the 244 I got for my PRC (closing price 235) but unfortunately I paid 36 for the PPP and they ended on 35 - but, like Edmonds Baking Powder, they are sure to rise!
Thanks Colin for your summary.It all just goes to once again prove that forward selling is an excellent way to make money for someone else.Enought said i trust now even the thickest of the thick have learned there lesson on that one.When i was a dairy farmer the company used to regurally lose us millions each year on forward selling.The banks used to require it and were behind the screen in on the steal
NZO have set a target of expanding production. Can you see any other companies who have; a share register that is open, a producing asset understood by NZO, and can be bought below " value" (whatever that is"
Also the directors will look good for a couple of years because " we have boosted production by xxx well on the target to xxx" (best we all have some free options)
Digger, I think you still need to take into account that PPP forward sold because they had to for the bank to lend them the money they needed, (as I understand it). If they had not had that insurance in place, the bank would not have given them the money, and they would have had to sell their share of TUI, (I guess), as they would not have been able to fund their share of the development.
They basically had no choice in doing it.