It’s an expensive business drilling for oil, particularly in Kurdistan.
Having raised $165m less than four months ago, Gulf Keystone Petroleum has tapped its shareholders for more cash – this time it $170m at 140p a share.
Here’s executive Chairman, Todd Kozel, talking about the capital raise on Monday morning:
“As a Board we are very pleased to have successfully completed today’s fund raising and are delighted with the response from existing shareholders, as well as from a number of new blue chip institutional investors. This strengthening of our balance sheet marks another important step towards our full understanding of the true scale of the world class Shaikan Field. With access to a third dedicated drilling rig, we will now be able to complete the appraisal drilling campaign earlier than previously envisaged. Furthermore, we are looking forward to continuing our exploration work across the Ber Bahr and Akri-Bijeel Blocks, whilst also enjoying the financial flexibility to be able to move quickly should other opportunities arise.
Blue chip investors and world class fields! Nice.
Now, the company (which recently parted company with its PR advisor Brunswick) says it needs the cash to contract a third drilling rig and to accelerate the appraisal of its Shaikan discovery.
However, some analysts are surprised by the timing of the fund raising. Keith Morris of Evolution Securities says it is hard to explain.
(emphasis ours)
We find the size and timing of this latest raise hard to fathom and believe the company is taking full advantage of a share price that has seen an extraordinary recovery over the past three months (+113%) and in truth we would have preferred more appraisal work to have been completed before this raise. As a result though, Shiakan-5, 6 and 7 have been added to the programme and full appraisal of the Shaikan structure is expected by H1 2012. There is no news on how drilling of the shallow Shaikan-3 appraisal well or Bijeel-1 wells are progressing.
While Canaccord Genuity notes that investors still aren’t any nearer to knowing the size of the Shaikan field or how much oil can be recovered.
GKP announced over the weekend that it has raised £109m at 140p/share, a small 2% discount to Friday’s close. The cash will be used to hire a third rig in Kurdistan, with the immediate focus being the appraisal of the Shaikan oil discovery. The delayed Shaikan-2 and 4 wells will now be drilled as well as three new wells (5, 6 and 7). Exploration on other blocks will also be accelerated. There remains uncertainty over the size of the find with the group still quoting a P90/P10 reserves range of 1.9 to 7.4 barrels of oil in place with a mean P50 of 4.2bn barrels. Moreover there is no indication yet of recovery factors – this could be anything from low teens to 50% or better. It sounds like it won’t be any time soon that this band will be narrowed as appraisal drilling will now not complete until end H1 2012.
Still, the market doesn’t appear to care. Gulf Keystone shares are racing ahead on Monday morning and the company now commands a valuation of over a £1bn (excluding today’s issue).
Daniel Stewart reckons the rise can be explained quite easily:
Previously we mused that Gulf Keystone would return to the market and raise additional funds especially if they contracted for a third rig. In our view this is a very positive development for the company. Drilling operations in the region are difficult and tend to get expensive. This fund raise reduces the fiscal concern (if any) that their might have been for the company to fund Shaikan appraisal work and further exploration
Which is a fair point. But what about the valuation?
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Via Reuters, a brief history of Gulf Keystone’s equity offerings:
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Update: Comment from Mirabaud Securities, which organised today’s fund raising. Note the comment on potential takeover. Perhaps this is the end game; sell the business and let someone else deal with the Kurdish/Iraq political situation. But who be interested RAK Petroleum? What about Heritage Oil. Or would they all be put off by the price tag?
The fundraising materially strengthens Gulf Keystone’s balance sheet, enabling the company to accelerate activity across its portfolio, while also maintaining the financial flexibility to pursue value-added, bolt-on acquisitions in-country, should they arise. The addition of a third operated deep rig for Shaikan and two fully funded exploration wells on the non-operated blocks should maintain the pace of news flow over the coming 12 months. Ultimately, we expect Gulf Keystone to fall prey to a larger rival and today’s fundraising should ensure that shareholder value is maximised before exports restart and Kurdistan is opened up. To this end, we view it as a key step forward.
Related link:
Oil explorers pass round the hat (updated)- FT Alphaville