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On the surface it seems like good news once again - as has been the case since September 2015 - the KRG has agreed to hand over $15 million ( $12 million net) to Gulf Keystone (GKP) in fact today's RNS is a disaster.
In prior months the $15 million was a payment for output in the prior month. This time it is a payment for Shaikan crude oil exports in January 2016 of $5.8 million gross. In addition to the monthly entitlement, a payment of US$9.2 million gross is being made towards the recovery of the arrears owed by the KRG which stood at $294 million.
In other words monthly payments for production have been slashed by almost two thirds.
What does this mean for Gulf? You will remember that with costs now running at just over $8 million pcm (see HERE) and with an interest bill of $26.6 million a half year, at a cashflow level Gulf will still be burning cash. My guess is that cash on the balance sheet - which stood at $48 million after the last half yearly interest payment in October, will be c $40 million as at April 2016.
Debt comes in two tranches of bonds. $250 million repayable in April 2017 and $275 million repayable on 18 October 2017. Now let us assume that the KRG carries on paying as it plans to do in February for another 14 months. At that point in April 2017 the balance sheet will show:
Cash c$30 million.
Amounts owed by KRG $156 million.
Bonds due for immediate repayment $250 million
Bonds due for repayment in October $275 million.
Supporters, such as twitter lunatic Paul Curtis, are tweeting wildly about how all Gulf needs now is lots of capex to ramp up output. Such folks must be on heroin. Capex right now is zilch becuase Gulf has no spare cash.
When he has finished shooting up Paul might start dreaming that oil prices go up. But the reality is that unless they rocket ahead soon to $65+ and the KRG passes this all on there is not a cat in hell's chance of Gulf being able to repay the April 2017 bond let along the October one.
Gulf had been hoping that the KRG would repay the $294 million at once AND maintain monthly payments at a level that came close to covering costs & interest. That is clearly not going to happen and that means that even with zero capex, come next April this is toast and shareholders will get wiped out.
Supporters can carry on chasing the dragon, they can speculate about all sorts of what ifs, the grim reality is - as the 21% yield on the bonds implies - Gulf equity is totally worthless.
The target price for the shares is 0p.
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