The misery continues for those holding shares in Kurdistan-focused oil explorer Gulf Keystone Petroleum (LSE: GKP). Such is the company’s plight that even good news its turns out to be bad for private investors.

Gulf widens

Last week, Gulf Keystone asked long-suffering investors to throw it a lifeline with an open offer of 20 shares for every nine existing ones, offering up to 2.29m shares at 0.8314p each. That’s a hefty discount on today’s price of less than 3p but private investors seem unwilling to throw yet more good money after bad, making it difficult to raise the estimated £15m to £19m required. The shares fell almost 30% on news of the $25m open offer last week.

Now latest reports suggest the company’s largest shareholder, Los Angeles-based Capital Group, has agreed to underpin the emergency 2bn share offering. This should help keep the company afloat while it restructures its hefty debt pile, but there’s a price to pay as the move will dilute the equity holdings of existing shareholders. Once again, investors are quickly feeling the pain. Gulf Keystone’s share price has been fluctuating today but the trend has been further downwards. It was down 30% just prior to mid-day, before recovering slightly.

Shaikan but not stirred

While most oil explorers have been punished by the plunging oil price, Gulf Keystone also has to contend with one of the most severe political risks on the planet, with operations close to the front line with Islamic State. It has also been dogged by a massive late payment problem, as the cash-strapped Kurdistan Regional Government owes it hundreds of millions of dollars in arrears, although this year it has been banking regular payments of around $15m a month for oil from its key 40,000 barrels of oil a day Shaikan field.

Shaikan has attracted the attentions of Norwegian rival DNO, which is also based in Kurdistan and has offered to snap up the company for $300m (£226m), at a 20% premium to the restructuring share offer. Gulf is trying to fend off this foray while simultaneously pushing through a multimillion-dollar restructuring plan.

Key numbers

The company has a lot more on its plate besides, having defaulted on a $26m debt payment in April. There’s further trouble ahead, as it also faces a meaty repayment of $250m in April 2017 followed by another $325m in October that same year. Investors are being put through the wringer, with a company that was once valued at £3bn now capitalised at just £30.46m. Today’s share price is a fraction of its 52-week high of 37p.

Some investors may be willing to take yet another punt on Gulf Keystone, as Capital Group gives it an opportunity to secure its long-term future and finalise its much-needed restructuring, while the noose tightens around Islamic State. It remains tempting, especially with more than 1bn barrels of oil still sitting in the Shaikan reservoir (against 25m produced to date).

Anyone who has been following the Gulf story won’t need telling that this is a high-risk play, and investor appetite does appear to have drained away into the sand. Brave investors may see this as an opportunity. I’m not that brave. 

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.