How Much Longer Does Gulf Keystone Petroleum Limited Have Left?

Gulf Keystone Petroleum Limited (LSE: GKP) issued its results for the six months ended 30 June 2015 today, and the release contained a nasty surprise for investors. 

According to the figures, Gulf Keystone is burning through money at a rate that means the company’s coffers will be empty by the end of the year. Cash and cash equivalents at 25 August 2015 amounted to $63.9m, including $32.5m to meet debt service obligations.

At the beginning of April, Gulf Keystone had a cash balance of around $127m, including the proceeds of a placing, which raised gross proceeds of $40.7m. The bottom line; during the past five months Gulf Keystone has burnt through $63m.

Still, the company’s first-half results issued today did contain some good news. Revenues for the first-half increase 61% year-on-year, despite the lower oil price received for sales. A new daily production record of 45,000 barrels of oil per day (bopd) was established on 16 August 2015. Total production during the first-half amounted to 4.7mbopd an increase of 102% year-on-year. The company’s loss before tax for the first quarter amounted to $77.7m, an increase of 160% year on year. 

Further to Gulf Keystone’s strategic update issued during February, management remains in talks with a number of parties about possible asset transactions or corporate sale. 

And there are signs that the company’s financial position will start to improve going forward. Following the Kurdistan Regional Government’s announced on 3 August 2015 regarding expected regular payments, management expects to start receiving regular payments for pipeline export sales during September.

Half of Gulf Keystone’s current production is being is delivered into the export pipeline, with the remainder being delivered by truck to the Turkish coast. The latter route has proven to be a more reliable income generator for Gulf Keystone. Oil deliveries to the Turkish coast have yielded $15.4m net for the firm. 

Commenting on today’s results, Jón Ferrier, Gulf Keystone’s CEO said:

“From an operational perspective Shaikan is continuing to perform strongly…we are making good progress on all fronts at Gulf Keystone and are cautiously optimistic about the future. Chiefly, we are confident that our host government will be able to deliver on their recent pledge to establish a regular payment cycle for our crude from next month, and will start addressing the amount owed in arrears from 2016.”

Uncertain future 

Gulf Keystone’s first-half results contain plenty of both good and bad news. On one hand, the company should start to receive a regular income for its oil sales from next month. However, on the other hand, the company’s cash cushion is shrinking. 

What’s more, Gulf Keystone is still owed a total of $283m (as of 30 June 2015) by the Shaikan Third Party and Government Options. Then there’s the company’s outstanding debt to consider, which includes $300m of convertible bonds and $250m high-interest notes. 

So Gulf Keystone doesn’t have much room for manoeuvre, and the next few months will be critical for the company. If the KRG sticks to its promise to start payments for pipeline export sales during September, it should reduce the pressure on Gulf Keystone’s balance sheet. If no payments materialise, Gulf Keystone might struggle to make ends meet for the rest of the year.

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Rupert Hargreaves 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.