Gulf Keystone Petroleum Ltd (GKP)


Gulf Keystone in cash call to reach 40,000 bopd

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Gulf Keystone in cash call to reach 40,000 bopd

Gulf Keystone Petroleum (GKP) has launched a tap issue of convertible bonds in an attempt to boost its cash position by an estimated £50 million.

The AIM-listed oil and gas explorer said it had cash and cash equivalents to the tune of $72.3 million (£45 million) as at 25 October.

It believes the funds raised via the offering will enhance its cash position sufficiently to complete its transition towards a short-term production target of 40,000 barrels of oil per day (bopd).

This is Gulf Keystone's short-term production target at its Shaikan discovery in the Kurdistan region of Iraq.

Following completion of the offering, and excluding any cash generated from the sale of oil, Gulf Keystone expects to have resources to fund its operations at least to the middle of 2014.

It gave further explanation of these operations in its stock exchange statement: "The company believes stable production and oil sales of between 20,000 bopd and 40,000 bopd will underpin the company's cash-neutral approach to growing operations in the short term, while completing its existing commitments on the Shaikan (early development and production; deep exploration), Sheikh Adi (appraisal), Ber Bahr (appraisal and early development) and Akri-Bijeel (exploration, appraisal and early production) blocks in 2014.

"Upon achievement of stable oil production and sales in excess of 20,000 bopd, expected in early 2014, the company intends to access long-term debt funding to take it into the next stage of its development," Gulf Keystone added.

Such long-term funding will be needed for the large-scale development Gulf Keystone has planned for the Shaikan field, which envisages achieving phase one production of 100,000 bopd, which will require drilling on an additional 19 wells and construction of at least two additional production facilities.

Commercial production from the first Shaikan production facility commenced in July 2013 before a temporary suspension occurred in early September. The company is now ramping up to previous levels from two wells Shaikan-1 and -3. It expects connection of the third well, Shaikan-4, to Shaikan production facility-1, to be completed by the year end.

Meanwhile, its second production facility is nearing completion, with first production from it expected in early 2014.

The convertible bond offering is expected to close and settle on 6 November, with an application to admit the new bonds to trading on the EuroMTF market of the Luxembourg Stock Exchange planned before 30 November.

Investor view

Over on the Interactive Investor discussion board, users were divided on whether the fundraising was good news or not.

Some wished Gulf Keystone would work faster to reach its 40,000 bopd, while others were pleased the company seemed to have established milestones mapped out for next year.

Analyst view

But Malcolm Graham-Wood, analyst at VSA Capital, was sure of his opinion on the matter: "The GKP share price has tracked back to below the level it was before the law suit was won [back in September versus Excalibur Ventures) and although there have been some delays, this company is still a store of money, the value going up every time more exploration success is made. Next up will be a CPR and the shares moving to the big board. After that as we move into 2014 real value creation can continue with leaps and bounds."

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