Gulf Keystone forced into restructuring

LONDON, July 15, 2016 – Gulf Keystone said on Thursday it would start a restructuring campaign that will see it convert debt into equity in an effort avoid liquidation under the guidance of a new non-executive chairman, Keith Lough.

The company, which operates the Shaikan field in the Kurdistan Region of Iraq, has been burdened by debt and limited liquidity an account of lower oil prices, and on July 1, Gulf Keystone defaulted on April 2016 coupon payments.

With its ability to “service, refinance and/or repay” the guaranteed notes and convertible bonds due to mature in April 2017 and October 2017, respectively, “severely impaired,” the company now seeks to convert more than USD 500 million of debt into equity as part of a debt reduction programme. Gulf Keystone aims to bring down its debt from more than USD 600 million to around USD 100 million.

This is to be followed by diluting shareholders’ ownership of Gulf Keystone to 5%. Shareholders can re-invest by participating in a USD 25-million open offer, the company’s tool to improve liquidity. The equity raised is to be invested in the Shaikan field in order to increase production from 40,000 bopd to 55,000 bopd.

“Without the restructuring and the improved liquidity delivered by the transaction, the company cannot insolvency or capture the significant future potential of the Shaikan field,” CEO Jón Ferrier said in a press release.

“Our shareholders, and those of the other Kurdistan-focused operators, have suffered significant value destruction over recent months, as a result of the low oil price and extraordinary regional geo-politics,” outgoing chairman Andrew Simon said. “For us this has been further compounded by a debt burden of over USD 600 million repayable next year. To address the liquidity and significant leverage situation faced by the company, we have to restructure the balance sheet now,” he added.

Lough, in his first comments on the developments, noted, “I look forward to working with my fellow directors and all at GKP as we focus on restoring value in the company. I would also like to reiterate what has been said about the proposed restructuring. The deal effectively saves the company and, whilst not without cost, is the only credible option which allows us to move forward with the Shaikan project.”

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