There’s no denying that Gulf Keystone Petroleum (LSE: GKP)(NASDAQOTH: GFKSY.US) is one of the biggest cheap-oil casualties in the sector, after its shares plunged to a new 52-week low of 36.5p on Thursday — we’re now looking at an 81% price crash since September 2013.
The big problem for Gulf Keystone, exploring and developing its infrastructure in the Kurdistan region of Iraq, is that it is not yet profitable and is still burning cash — and its earlier capital provisions were based on getting $100 or so per barrel for the oil it’s already shipping.
A year ago, the City’s analysts were forecasting 2015 revenue of £296m for Gulf — but as the oil price has crashed by half, to around $50 per barrel, that’s been scaled back drastically and we’re now looking at a prediction of just £136m.
No profit in sight
Forecasts for earnings per share (EPS) are even scarier, with an estimate of 19.4p a year ago being slashed to just 0.3p per share today — and that’s down from a consensus of 1.2p just a week ago, since oil exports from Kurdistan were suspended amid claims that exported oil revenues were not making their way back to the company from the Kurdistan government. Selling locally will generate quick cash, but at lower prices than the global market.
The chances of any positive earnings showing up this year are looking increasingly slim, and the 7.8p EPS currently being forecast for 2016 is also surely coming under pressure.
Killer debt
Gulf’s high level of debt is the real killer, with $52.8m in debt repayments due by the end of June, and around $690m due in the four years following that. At first-half time last June the company had just $177m in cash and equivalents on its books, and there’s only one direction that figure can have gone since. Full-year results are not due until 9 April, and it’s looking increasingly unlikely that Gulf will be able to meet its short-term debt obligations without a fresh injection of capital.
So what’s going to happen?
A week ago, chief executive John Gerstenlauer was talking of “a number of longer term financing options” being considered, and one of those must surely be a big equity issue — trying to borrow more money would most likely be prohibitively expensive. Gulf has considerable assets, and its production costs have been estimated at under $10 per barrel, so there will likely be takers — although with the political difficulties of dealing with dodgy governments in such a volatile area, they’d need an attractive deal.
I wouldn’t buy
Gulf Keystone seems likely to survive, but after a new round of refinancing there might be precious little left for current shareholders.