Tom Winnifrith’s Sell Tips for Easter No 2 – Gulf Keystone at 36p

Comments

1. ---

   Paul Curtis

   6 April 2015, 03:01

   Tom

   My last post deleted? - TW Note - No.

   I’m very heavily into the bonds at 40 cents and imo attractive risk:reward. Agree I’d be much more nervous about the equity since geared by the bonds.

   However your analysis does not ask why GKP has resumed exports, when cash flow negative, if not confident that will receive some sort of income to cover these costs.

   KRG have revised PSA terms for Genel (now splitting revenues 50:50) to allow Genel to tickover at low oil price just from local sales whilst they wait for export payments. Logical that KRG are also ‘‘looking after’ GKP. The oil producers and the Kurds need each other.

   The recent placing was led by the two main Insitutional shareholders, not private investors. Reasonable to assume these investors were aware of takeover option (appears they booted Murray out, was this because he favoured T5 takeover?) and hence placing price would reflect state of distress. When book building started several weeks ago the guide price was 25-30p. Actual price was 32p, about a 10% discount to prevailing price at time of build.

   Please explain why these long standing Institutions, who I’m confident know much more than us re end game valuations, were so generous if your 10p realistic?

   I don’t want to sound like a GKP nutter but GKP appear to be sitting on a potentially world class asset as verified by Tony Hayward of Genel last Friday. I’m told every major has been in the data room. I would be surprised if a takeover since Shaikan still early stage and bidders will take conservative approach re valuation. Hence I expect any deal to be more farm out with part cash up front and carry geared to field performance.

   Re ISIS, I’m not aware that this is any sort of a threat? Western support now too significant. USA building air base. The pipeline through Turkey may be vulnerable to attack but ISIS can’t ‘capture’ it.

   KRG desperately need GKP’s 40K bopd to get up to the magic 550K bopd and beyond for obvious reasons. Hence I’m expecting, as with Genel, KRG will throw GKP enough crumbs to tick over until regular payments established with Iraq and/or they exceed 550K bopd. Hopefully the Iraq dispute will be resolved shortly, especially since Kurdistan now up to 400K bopd and increasing Western pressure on Iraq to honour its agreement.

   Bottom line is the Kurds need the oil companies to max production and will provide the minimum to keep the oils producing. Obviously this is Phase 1. Phase 2 requires significant capital investment to lift production to next level (and beyond) but this must wait on security of income, back payments and oil price. Again, the Kurds need this investment/production since anything over 550K bopd highly profitable.

2. ---

   Paul Curtis

   6 April 2015, 04:28

   Tom

   Apolgies, I was about to post elsewhere since thought glitch with SP.

   Now added a few links/quotes so if its okay, here is the new ‘improved’ version.

   My reply to Tom Winnifrith who has sell rating on GKP.

   http://www.shareprophets.com/views/11451/tom-winnifrith-s-sell-tips-for-easter-no-2-gulf-keystone-at-36p

   Tom

   I’m heavily into the bonds at 40 cents and imo attractive risk:reward. Agree I’d be much more nervous about the equity since geared by the bonds.

   However your analysis does not ask why GKP has resumed exports, when cash flow negative, if not confident that will receive some sort of income to cover these costs?

   KRG have revised PSA terms for Genel (now splitting revenues 50:50 on domestic sales) to allow Genel to cover OPEX whilst they wait for export payments. Logical that KRG are also ‘‘looking after’ GKP. The oil producers and the Kurds need each other. Malcy’s Blog suggested $15m per month (see 2nd April, www.malcysblog.com).

   The recent placing was led by the two main Insitutional shareholders, not private investors. Reasonable to assume these investors were aware of takeover options (Press reports claim they booted Murray out, was this because he favoured T5 takeover?) and hence placing price would reflect state of distress. Placing price of 32p, about a 10% discount to prevailing price at time of build, does not imply distress. And PI’s were scaled back to only 22%.

   Please explain why these long standing Institutions, who I’m confident know much more than us re end game valuations, were so generous if your 10p realistic?

   I don’t want to sound like a GKP nutter but they appear to be sitting on a potentially world class asset as verified last Friday by Tony Hayward of Genel on Bloomberg who said the issue with Shaikan is not the quality in terms of the scale but the capital investment required to develop in large volumes. I’m told every major has been in the data room. However, I would be surprised if a takeover since Shaikan still early stage and bidders will take conservative approach re valuing the massive upside potential. Hence I’d expect shareholders to be better served by farm out with part cash up front and development carry geared to field performance.

   Re ISIS, I’m not aware that this is any sort of a real threat? Western support now too significant. USA building air base. The pipeline through Turkey may be vulnerable to attack but ISIS can’t ‘capture’ it.

   KRG desperately need GKP’s 40K bopd to get up to the magic 550K bopd and beyond for obvious reasons. Hence I’m expecting, as with Genel, KRG will throw GKP enough crumbs to tick over until regular payments established with Iraq and/or they exceed 550K bopd. Hopefully the Iraq dispute will be resolved shortly, especially since Kurdistan now up to 400K bopd and increasing Western pressure on Iraq to honour its agreement.

   Bottom line is the Kurds need the oil companies to max production and will provide the minimum to keep the oils producing. Obviously this is Phase 1. Phase 2 requires significant capital investment to lift production to next level (and beyond) but this must wait on security of income, back payments and oil price. Again, the Kurds need this investment/production since exporting over 550K bopd highly profitable.

   My principle concern is the Boardroom shenanigans.

3. ---

   shaun

   6 April 2015, 09:52

   Kurds need the oil companies yes….but do they need GKP? Why not let GKP go bust and another company come in, snap up the assets and develop?

4. ---

   Paul Curtis

   6 April 2015, 13:45

   Because illogical. What does KRG want? Maximising current production and fast tracking the investment in new capex to dramatically increase production imo.

   Is that best achieved by letting GKP go bust, a bondholder restructuring that takes ages and then GKP walking wounded. At same time what message does it send to other oil companies that the KRG wants to invest in Kurdistan? That it lets one of its top players go bust despite KRG being at fault!

   Much better so be as supportive as possible and hope an Exxon shortly buys or farms in and has the confidence to commit to large scale capex programme