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Gulf Keystone, Upstream Interview - my target price is near as damn it 0p

By Tom Winnifrith | Monday 15 February 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

A candid interview with Gulf Keystone (GKP) CEO Jon Ferrier in that must read publication Upstream (HERE) makes clear that this company is very likely to see a shareholder wipeout within a year. The shares are now 14.5p my target price is , near as damn it, 0p but here are the key takeways from Upstream.

Firstly it is clear that cash is incredibly tight. After the payment of the October interest bill on its junk bonds Gulf had $46 million and needs to keep $6 million in the bank to avoid default. Ferrier states ufront that he has essentailly scrapped all capex to avoid that happening.

Gulf was being paid $12 million a month by the Kurds but it is clear that these payments will be reduced because the "Kurds are struggling to pay even its own civil servants and military". At $12 million a month Gulf was clearing $3 million pcm or $18 million a half year before having to fork out $26 million in interest bills. Ferrier indicates that he has now got that cost base down towards $8 million but even so that would not even cover interest bills IF the $12 million payments were maintained. The reality is though that they will be reduced.

Thus Gulf is heading steadily towards running out of cash. But of more pressing concern is the $570 million of debt it must start to repay in 2017. Supporters hope that the Kurds will hand over $294 million in backpayments but this article makes it clear that is not going to happen in time if at all. Ferrier says "I don't expect the KRG to write me a cheque tomorrow but we've got to come to an accomodation on that" Hmmm. As the magazine notes "Unfortuanately the KRG is more likely to sacrifice the golden goose as it has more pressing needs such as paying its military to keep Islamic State jihadists at bay."

The war in the Middle East is intensifying. Turkey will soned by joined by Saudi in bopmbing Kurds in Syria ( while claiming to be attacking ISIS) and I cannot see the KRG in Iraq standing idly by as their kinsman face genocide. As the war becomes more costly the chances of Gulf getting a cent of its $294 million become ever more remote.

At some stage bondholders will just have to accept that Gulf cannot repay. It has assets which in normal times have value but it will be the bondgolders that get to own them via a debt for equity swap. Shareholders will be diluted to oblivion, as near as damn it 0p.

Sadly Gulf shares remain a slam dunk sell.

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  1. Well done Tom
    By Jove I think he’s got it! Damn not dam.

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