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LONDON (Alliance News) - Gulf Keystone Petroleum Ltd on Friday said it has reached an agreement that will give it breathing space to continue talks about its urgent need to raise funds in the near term and to restructure its balance sheet.
Gulf Keystone delayed over USD26.0 million of coupon payments that had been due on April 18 and related to its convertible bonds and guaranteed notes that are due to be repaid on May 2 and May 3, respectively, as the company continued to search for some much-needed funding.
The company was able to delay those coupon payments using a grace period, but further extensions had to be agreed with its note holders.
Gulf Keystone on Friday said it has now managed to strike a deal with the Ad Hoc Committee comprised of some of the holders of those notes and bonds, alongside its partner on the Shaikan field in the Kurdistan region of Iraq, but the extension will only give Gulf Keystone around a month to address its financial position.
Ultimately, the standstill agreement runs to May 20, but this could be extended until the end of May. Notably, Gulf Keystone did not state if it has control over that extension or whether that decision would fall to the committee.
Importantly, the standstill agreement has only been signed with a "significant proportion" of note and bond holders, meaning some holders have still not agreed to extend Gulf Keystone's upcoming deadlines. Gulf Keystone did not state what proportion of holders have signed the agreement, but said it is "less than 75% of the principal amount".
After the expiry of the relevant grace periods on May 2 and May 3, respectively, the continuing failure to make coupon payments under the bonds and notes will constitute an event of default, Gulf Keystone said.
That means the holders that have not signed the standstill agreement, which hold over 25% of the overall principal amount owed under the bonds and notes in question, could demand Gulf Keystone immediately pay the outstanding amount.
The holders that have signed that standstill agreement have agreed "not to vote in favour" of such a proposal, but Gulf Keystone did not reveal whether this would mean it would have to pay a portion of the outstanding amount or if the support of the holders that have signed the agreement will be enough to stop any amount having to be paid.
Gulf Keystone said it will make a further announcement in due course.
The ongoing challenges being faced by Gulf Keystone has seen its share price decline steeply, which is also being exacerbated by lower oil prices and the current investor sentiment within the wider oil and gas market, with the company's shares currently trading around 68% lower than at the end of 2015.
On Friday, Gulf Keystone shares were trading down 2.1% to 5.09 pence apiece.
Regardless of the deal, Gulf Keystone will be eager to try to source a financing solution before those payments become due as it has further coupon payments due in October this year and further payments due in 2017, meaning the situation is not short term.
Unfortunately, the company's balance sheet is not the only problem at Gulf Keystone as its Shaikan field needs investment this year to prevent natural field declines, meaning the company needs even further funds if it wants to maintain production.
Gulf Keystone would need to source between USD45.4 million to USD56.3 million to fund its share of investment on Shaikan to maintain production from the field, with production growth looking even less likely in the short term.
Gulf Keystone previously said it may return to the equities market if it cannot secure the funds needed across the business from elsewhere.
One of the reasons Gulf Keystone finds itself in its current position is due to the funds it is owed by the Kurdistan regional government for oil that has previously been exported out of the country from the company's fields. The government has been making regular payments for ongoing exports, alongside making some back payments for previous exports, throughout late 2015 and in 2016, but a formal payment cycle is still not in place, leaving uncertainty about the consistency and reliability of those all-important payments.
By Samuel Agini; samagini@alliancenews.com; @samuelagini. Updated by Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance.
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