Geopolitics and the oil price are issues over which we have little direct influence
Andrew Simon, Chairman Gulf Keystone
The financial position of Gulf Keystone (LSE: GKP) is weakening.
Yesterday’s half yearly report was typically upbeat for a set of numbers that frankly has strengthened my bearish conviction.
Before I get to those numbers here is a section from note 5 to the accounts that goes to the heart of Gulf Keystone’s financial weakness:
In short GKP have in six months incurred 75% of the cost of sales that they incurred for the whole of 2014.
As this article threads together you will see why this is significant:
That massive pre-tax loss of $77 million exacerbated by additional finance costs is really hurting Gulf Keystone at a time when operations are difficult to say the least.
My views on the value of intangible assets and PPE are well documented but to reiterate intangible assets I value at zero and PPE especially for a loss making company I simply reduce by two-thirds.
All in that values Gulf Keystone’s assets at circa $300 million and given that total liabilities are $700 million that leaves an intrinsic value of minus $400 million.
All this makes the sudden 11% jump in GKP’s share price in response to the RNS rather silly but that’s as much as can be expected from the share price of this stock.
Here’s Andrew Simon on board changes at GKP (emphasis mine):
The last few months has also seen changes on your Board. The previous Chairman stepped down in March and a further four Non-Executive Directors have left the Board. An active search process to appoint a number of Non-Executive Directors to the Board continues. It is our intention to operate with a smaller, lower cost, but high quality Board with relevant oil industry, regional and corporate experience. I will continue to oversee the rebuilding of the Board and to provide stability and continuity for our stakeholders.
These changes are in addition to a new CEO in June of this year and follows a trend of high turnover at GKP for example the appointment of a new CFO earlier in the year.
All eyes are on the first payment of the much touted regular payment cycle for crude oil exports (September 2014) as well as the cash for arrears which have been scheduled to be paid to GKP from the Kurdistan Regional Government in early 2016.
Jón Ferrier, Chief Executive Officer had this to say regarding the current plans management have for Gulf Keystone:
The strategic review process, launched in February 2015, continues. Discussions are on-going with a number of interested parties in relation to possible asset transactions or a corporate sale. We will issue further updates in due course.
I’m not sure who would want to buy Gulf Keystone or any of its assets and past experience in this regard is less than satisfactory:
In 2011, as part of the Group’s forward strategy to rationalise its asset portfolio, the Board resolved to sell the Group’s 20% working interest in the Akri-Bijeel block. The Company has received limited enquiries from interested parties during 1H 2015 relating to the sale of Akri-Bijeel and has determined that the criteria to classify the asset as held for sale are no longer met at 30 June 2015. The Group continues to progress towards an orderly exit of this project. Further details are given in note 11 to the consolidated financial statements.
Indeed note 11 does give further details namely that a $144.1 million impairment of the Akri-Bijeel asset was recorded at 31 December 2014 citing ‘a prolonged period of lower oil prices and the on-going challenges faced by Kurdistan Region of Iraq.’
Time and space does not permit me to catalogue the entirety of Gulf Keystone’s issues but needless to say they are vast.
And seemingly insurmountable.
More on Gulf Keystone
The following two articles give more depth to the bearishness surrounding this stock:
- Once Upon A Time There Lived A Tiny Little Oiler By The Name Of Gulf Keystone
- Gulf Keystine – Short at 32p
Clicking this link will take you to a list of ALL the articles on Gulf Keystone.