Gulf Keystone Petroleum Ltd.
Not for release, publication or distribution, directly or indirectly, in whole or in part in or into the United States or any jurisdiction other than the United Kingdom and Bermuda where to do so would constitute a contravention of the relevant laws or regulations of such jurisdiction. This announcement (and the information contained herein) does not contain or constitute an offer to sell or the solicitation of an offer to purchase, nor shall there be any sale of securities in any jurisdiction where such offer, solicitation or sale would constitute a contravention of the relevant laws or regulations of such jurisdiction.
14 April 2016
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone" or "the Company")
Interim Investment Scenarios, Liquidity Management Update and Grace Period Utilisation
Gulf Keystone today publishes further details on potential interim investment scenarios to build a common foundation for stakeholder discussions on the Company's need for near-term fundraising, upcoming debt obligations and possible restructuring of the Company's balance sheet. In this context Gulf Keystone announces, following discussions with the Company's advisors, its current intention to utilise the grace periods for the upcoming 18 April 2016 coupon payments in respect of its Convertible Bonds and Guaranteed Notes, which expire on 2 May and 3 May 2016, respectively.
Without additional capital expenditure Shaikan wells may begin to exhibit natural declines later in 2016. The potential interim investment scenarios aim to maintain Shaikan production at 40,000 barrels of oil per day ("bopd") with an option to increase production to 55,000 bopd. As communicated on 17 March 2016 in the 2015 Results Announcement, these scenarios have been developed to bridge to and complement the revised Shaikan Field Development Plan ("FDP") currently being reviewed by the Company's partners.
Commenting on today's announcement, Jón Ferrier, CEO said:
"The additional detail on the potential interim investment scenarios being released today ensures an orderly market, and represents an important step as we prepare to embark upon detailed discussions with stakeholders. We are working to achieve the best possible way to restructure our balance sheet. Addressing our funding needs will ensure the Company's longer term future and ability to continue developing the Shaikan field for the benefit of all our stakeholders."
The potential interim investment scenarios provided below are unaudited and should in no way be construed as targets or forecasts.
Scenario Assumptions
As highlighted in the 2015 Results Announcement on 17 March 2016, the interim investment scenarios can be executed within 12 months of committing to a gross capex programme of either $71 million in order to maintain Shaikan production at around 40,000 bopd or $88 million for the option to increase production to 55,000 bopd, both including 30% capex contingency. Any decision to proceed with the interim investment scenarios will require approvals by the Kurdistan Ministry of Natural Resources (MNR) and our Shaikan JV partner MOL Hungarian Oil and Gas plc (MOL). Further details are as follows:
Maintain 40,000 bopd scenario
Increase to 55,000 bopd scenario
· Average gross production does not take into account any potential external disruptions to operations or the effects of other operational disruptions.
· Subject to the completion of the proposed PSC amendment agreement as outlined in the 16 March 2016 bilateral Agreement between the Company and the MNR, Gulf Keystone's net share of Shaikan capex and production costs will be 64%, which is the basis for Gulf Keystone's 64% net share of costs under these scenarios.
· 'Net Shaikan project capital expenditure' includes costs for:
o Maintain 40,000 bopd scenario: installation of three Electric Submersible Pumps ("ESP") in existing production wells, one new well, trunk line tie-in and other items;
o Increase to 55,000 bopd scenario: as above, plus the installation of an additional production facility.
· Subject to available funding the majority of 2016 Shaikan project capex would be committed in the second half of 2016.
· The above capex scenarios do not include expenditure to initiate the revised Shaikan FDP which may commence before 2020 subject to available financing as well as MNR and MOL approvals.
· 'Other net capital expenditure' includes:
o Costs associated with the installation of air-assisted flares, several small projects to improve Shaikan production facilities, technical studies and the installation of additional ESPs post 2017;
o Capitalised G&A;
o Residual costs related to exits from Sheikh Adi, Ber Bahr and Akri Bijeel; and,
o Other corporate capex.
· Production bonuses and capacity building payments are excluded from net production costs. Production bonuses in the amount of $10 million and $20 million are due to the MNR by Gulf Keystone and MOL once Shaikan cumulative production reaches 25 million barrels and 50 million barrels, respectively.
G&A and Trade Payables Assumptions
· Net G&A is estimated to be $19 million in 2016. Such G&A expenses relate to the Company's operations, exclude one-time exceptional costs and are assumed to increase by 5-6% per annum with inflation and business growth.
· Returning to normal trade payment cycle will result in an exceptional increase in working capital of around $18 million over the next 3 years ($13 million in H2 2016, $3 million in 2017, and $2 million in 2018).
Further Information on March Payment
The Company provides further information below to illustrate the components of the MNR payment in relation to the March 2016 export sales as announced in the 12 April 2016 press release:
In $m |
Cash receipts from the MNR |
Gulf Keystone's share |
PSC entitlements |
5.5 |
4.3 |
Payment towards revenue arrears |
0.6 |
0.4 |
Top-ups |
8.9 |
8.9 |
Total |
15.0 |
13.6 |
· March sales of 672,788 barrels of oil.
· Average Brent price of $38.4/bbl.
· Realised price adjustments of $14.7/bbl for Shaikan quality discount for exports and $5.7/bbl for pipeline and transportation deductions, subject to audit and the establishment of a retroactive quality bank for Kurdistan crude exports delivered through the international pipeline to Turkey.
· Monthly cash receipts comprise PSC entitlements, Payment towards revenue arrears and Top-ups. The below assumptions are subject to completion of the proposed PSC amendment agreement.
PSC entitlements
o PSC entitlements reflect proposed PSC amendments outlined in the 16 March 2016 bilateral agreement between the Company and the MNR.
o Gulf Keystone's entitlement to cost oil for the March payment is assumed to be 80%. The Company's share of cost oil as per the PSC can range between 64% and 80% depending on the recovery rate of production costs, exploration costs and development costs.
o Gulf Keystone's capacity building payment of 30% of the Company's share of profit oil is deducted from PSC entitlements.
Payment towards revenue arrears
o An amount equal to 5% of gross revenue after the adjustments for Shaikan quality differential and transportation costs is expected to be received monthly towards the recovery of outstanding entitlements for past oil deliveries.
o Gulf Keystone's share of the payment towards revenue arrears is assumed 69%, subject to audit. This percentage is based on the contractors' respective outstanding net revenue arrears as of 31 December 2015, which takes into account the Company's capacity building payment liabilities.
Top-ups
o Monthly top-ups are allocated against the past costs due from the MNR under the Shaikan Government Participation Option.
o Gulf Keystone's share of the March top-up payments is assumed to be 100%, under the 16 March bilateral agreement.
o Monthly receipts of up to $15 million are expected to include top-ups and to continue until Gulf Keystone's past costs associated with the Shaikan Government Participation Option are repaid in full.
o Subject to MOL's confirmation of its position with regard to a potential acceptance of the Shaikan Government Participation Option, Gulf Keystone may be entitled to 80% of top-up payments instead of 100%.
Enquiries:
Gulf Keystone Petroleum: |
+44 (0) 20 7514 1400 |
Jón Ferrier, CEO |
|
Sami Zouari, CFO |
|
Anastasia Vvedenskaya, Head of Investor Relations |
+44 (0) 20 7514 1411 |
|
|
Celicourt Communications: |
+44(0) 20 7520 9266 |
Mark Antelme Jimmy Lea |
|
or visit: www.gulfkeystone.com
Notes to Editors:
· Gulf Keystone Petroleum Ltd. (LSE: GKP) is a leading independent operator and producer in the Kurdistan Region of Iraq and the operator of the Shaikan block, which is a major producing field.
· Following the establishment of a regular payment cycle for all oil sales and arrears, and a positive economic outlook, Gulf Keystone plans to move into the large-scale phased development of the Shaikan field targeting 110,000 bopd of production capacity.
Disclaimer
This announcement contains certain forward-looking statements. These statements are made by the Company's Directors in good faith based on the information available to them up to the time of their approval of this announcement but such statements should be treated with caution due to inherent uncertainties, including both economic and business factors, underlying such forward-looking information. This announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. This announcement should not be relied on by any other party or for any other purpose.
