At a shade short of $45 a barrel for Brent Crude, oil prices are at their highest since early December, despite the failure of recent OPEC meetings aimed at securing a freeze in production levels. A statement from the International Energy Agency that this year will see a big fall in non-OPEC production has helped, as has the knowledge that OPEC countries are hurting so they’ll have to do something sooner or later.
But is the latest mini-recovery too little, too late, to save Gulf Keystone Petroleum (LSE: GKP)? I fear so. There’s cash finally trickling in from the Kurdistan Regional Government, but at $12m net to Gulf per month it’s small. The outstanding arrears ($298.4m at 30 September 2015) have yet to be tackled. Payments should switch to a variable basis dependent on the price of oil, so will that help Gulf meet its debt obligations?
The company faces repayments of $250m in April 2017 and $325m in October 2017, so even if all arrears are paid by then, we’d still need a bigger rise in the oil price to make that possible — or alternative funding, which the company is working all-out to try to achieve.
But when I look at Gulf Keystone I’m reminded of Afren, whose only hope was a restructuring that would have led to creditors taking almost the entire company — and even that fell through. With Gulf’s shares down 86% over 12 months, to 5.6p, and down 99% from their 2012 peak, I can’t see there being much, if anything, left for existing shareholders when the debt crunch hits.
Better shape?
Xcite Energy (LSE: XEL) seems to be in better shape, but it too has debt repayments to make. Xcite’s shares have picked up a bit since their January low, to 16p, for a less-bad performance than Gulf — down just 64% since last May and only 96% since 2011’s high.
Xcite has some exciting prospects in its North Sea Bentley oil field, where it managed to get lifecycle costs down to around $30 a barrel. That means every dollar added to the price of a barrel provides a geared-up incentive for potential partners in the Bentley field.
But a problem, in addition to finding the funding to develop Bentley, is a tranche of bond payments that the company needs to make in June — although Xcite says it’s in discussions to “develop financial flexibility” ahead of that date. Will the financing happen in time? I think it’s likely, and any further oil price rises will surely strengthen Xcite’s position.
Risky explorer?
Thirdly, there’s smaller Frontera Resources (LSE: FRR) with a market cap of just £15m and a share price of 0.4p. Frontera, which is focusing on emerging markets around the Black Sea, is still in the capital-raising stage of its existence, and has no profits on the horizon yet.
An issue of 165m new shares was announced in March, followed by a further 120m shares in the firm’s latest operations update. There’s sure to be a fair bit more of the same needed before Frontera starts recording annual profits — and we can’t quantify the eventual dilution yet. But chairman and CEO Steve C Nicandros did describe the stimulation campaign at the South Kakheti Gas Complex’s Oil Window as “extremely exciting“, getting oil from wells that were unproductive using older technology.
Frontera has a long way to go and it’s too risky for me, but oil price rises could boost its chances.