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Gulf Keystone Full Year Numbers - What you smell is Toast, 1p best case target

By Tom Winnifrith, The Sheriff of AIM | Thursday 17 March 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.

As a bear of Gulf Keystone (GKP) since 180p, I note that the shares are now just 11p after the publication of results which are at every level just a disaster - even today this is a storming sell. Where to start?

First, I note that cash is now just $50 million having been $56 million nine days ago. Between now and the end of April there will be - probably - just one more payment of $12 million (net) made to Gulf by the KRG. Costs are $8 million and change a month and so that is a net outflow of a few quid but there is then the semi-annual interest payment of $26.4 million. I put it to you that by May Day cash will be down to $23 million. Remember that number.

The next worrying point is output. You will remember that 40,000 bopd was just step 1. Well last year it was 30,500, it peaked at 39,773 in September and is now running at 37,000 to 39,000 a day but we are now looking at 31,000-35,000 bopd for the full year and there is a warning that later in the year we will see natural declines. Unless of course cash is forthcoming, Gulf happily explains that a capex programe of just $71 -$88 million can push output back to 40,000-50,000 bopd. Great. Except that Gulf has no cash, is a net burner of cash and has $575 million of debt due for repayment next year which it has not got a cat in hell's chance of repaying.

With $71-88 million I reckon I might be in with a chance with Cheryl Cole. As it happens I dont owe $575 million and am not burning cash so am actually better placed with Cheryl than Gulf is with its expansion programme. Here's hoping.

Back in the real world, Gulf is thus forced to admit: " The Company continues to actively review options to secure new funding and restructure the Company's balance sheet, to ensure it is able to continue as a going concern."

That is the rub. Unless more money is injected into Gulf pronto output will just tail off and it is fucked. But right now bondholders do not have a hope of getting their cash back. So why on earth should a new equity investor get to come in - even if one wanted to - if bondholders have to take a haircut. The only way to take this forward is for a massive debt for equity swap followed by bond holders stumping up some more cash. In other words for existing shareholders to be more or less diluted down to zippo. That is not only the only way out for Gulf it is the best case scenario for shareholders.

Post dilution shareholders will own maybe 1% of the enlarged equity, if that. If you think that Gulf on a debt fre basis is worth £1 billion ( I am not sure that I do but I humour its moronic shareholders) that would imply that the current equity is worth £10 million. Yet at 11p the market capitalisation is still £110 million. Since a debt free Gulf is patently not worth £11 billion it is a slam dunk sell. I would suggest a target price post reconstruction of 1p. Without a reconstruction it is 0p.

Afren, you know the next name in the sequence.

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  1. alcira16247


    Hat tip for calling this one dead right from the beginning, despite the protestations of the collective brain numbed!

    As even the much more financially sound asset richer Genel is finding, its tough going whilst not only being hit with the lower prices for crude but doubly so when geographically operating in such an area of turmoil and open conflict.

    Purely on the present huge geo-political risks in the area makes investing in any EP company hazardous in the extreme. Operating dependent on the goodwill of the Kurds or Turks….. me thinks not!

    Contrast these regional operators difficulties with the uplifting bullish statement released today from Soco International (SAI)? Cash rich, no debt, mega low operating costs, exciting productive assets and not least paying out a dividend together with a promise of a special payment in H2…….. which other second tier EP can boast such results? (Directors of Bowleven, please note how a proper EP company respects and rewards shareholders and not themselves!)

    Err…. best of all ….. they don’t operate in the ruddy Middle East, either!

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