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LONDON (Alliance News) - Iraq-focused oil producer Gulf Keystone Petroleum Ltd on Thursday said it will delay repaying over USD26.0 million of coupon payments due at the start of next week to allow the company more time to restructure its balance sheet and to secure funding.
Gulf Keystone shares were trading down 26% to 5.15 pence per share on Thursday afternoon, meaning the shares have lost more than two thirds of their value since the start of 2016 and more than 90% since the start of 2015.
Gulf Keystone is set to hold talks with its shareholders about securing near-term funding, about its upcoming debt obligations, and about a possible restructuring of its balance sheet following the deterioration in the company's financial position in 2015.
Gulf Keystone is facing "material uncertainties" caused by the delay in securing arrears it is owed from the Kurdistan regional government for the oil it produces in Iraq, lower oil prices, and large debt repayments due this year and next that the company will struggle to satisfy.
Following talks with its advisers, the London Main Market-listed company said it intends to use the grace period for the upcoming April 18 bond coupon payments related to its convertible bonds and guaranteed notes, which will expire on May 2 and May 3, respectively.
That coupon payment is for USD26.4 million, but the company also has another coupon payment due in October this year and more payments due in 2017, meaning this is not just a one-off issue.
However, its balance sheet is not Gulf Keystone's only issue, as it reiterated Thursday that, without further investment, its Shaikan field in the Kurdistan region of Iraq will likely start to show natural output declines towards the end of 2016.
Importantly, that means the company will have to invest in order just to maintain production, let alone grow the amount of oil it pumps out of the ground. Gulf Keystone previously said it may return to the equities market if it cannot secure the funds needed across the business from elsewhere.
Gulf Keystone outlined the possible investment scenarios that would allow it to maintain production at Shaikan at 40,000 barrels of oil per day, with an option to increase this to 55,000. However, previously, the company had said the funds needed to carry this out would be reliant on payments from the Kurdistan regional government.
That range of production would come at a cost of USD71.0 million to USD88.0 million, including a 30% contingency payment. Importantly, that is the gross payment, of which Gulf Keystone would be liable for around 64%.
Importantly, there are several company-specific items that will be covered by Gulf Keystone's net costs, including the expense of exiting from the Sheikh Adi, Ber Bahr and Akri Bijeel fields, capitalised administrative expenses and other corporate capital expenditure.
Those net general and administrative costs are expected to be in the region of USD19.0 million in 2016, whilst returning to a normal trade payment cycle will need an "exceptional increase" in working capital of USD18.0 million over three years.
That increase in working capital would be broken down into USD13.0 million in the second half of this year, USD3.0 million in 2017 and USD2.0 million in 2018, it said.
To keep production at 40,000 barrels a day, Gulf Keystone would need to install three electric submersible pumps in wells that are already producing, drill one new well, and tie-in a trunk line. To push it up to 55,000 barrels a day, a new production facility would need to be added to the field.
Gulf Keystone said, subject to funding, the majority of that work and capital expenditure would be applicable to the second half of 2016, and the plan is completely separate to the revised field development plan for Shaikan that is meant to be launched prior to 2020.
Incoming funds from the regional government will assist with the plan, with Gulf Keystone securing a USD13.6 million share for the oil exported out of Iraq during March. Total sales amounted to 672,788 barrels in the month, and USD400,000 of that payment was earmarked for clearing backpayments owed to the company by Kurdish authorities.
Last month, Gulf Keystone said it was owed around GBP93.0 million from the regional government in backpayments, though this would have dropped a little following the payments that have been received during the month. However, Gulf Keystone also owes the government USD49.0 million, suggesting it is waiting to receive only around a net USD44.0 million.
In addition, Gulf Keystone has a contingent liability of USD27.0 million in relation to the sale of test production in the period prior to the approval of the Shaikan field development plan.
"The additional detail on the potential interim investment scenarios being released today ensures an orderly market, and represents an important step as we prepare to embark upon detailed discussions with stakeholders," said Jon Ferrier, Gulf Keystone's chief executive.
"We are working to achieve the best possible way to restructure our balance sheet. Addressing our funding needs will ensure the company's longer term future and ability to continue developing the Shaikan field for the benefit of all our stakeholders," he added.
The composition of those stakeholders changed a little earlier this week when the Prudential PLC's asset management arm M&G Investments sold its entire stake in the business, offloading 49.2 million shares, or a 5.0% stake.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance. Updated by Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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