Payments situation improving
In the update published on 9 July, Gulf Keystone Petroleum Ltd (LONDON:GKP) announced sound operational performance and an improving situation with payments. Production has been consistently high, with rates of over 40mb/d achieved in June. On the key question of payments and offtake, GKP has received a second payment from the recently announced domestic contract, taking cash received to $11.6m (gross). Additionally, the company expects to start trucking to Fyshkhabour for injection into the export pipeline to Ceyhan (realising higher netbacks). Should this occur, GKP will have three avenues for offtake, and we expect it to prioritise the methods that will ensure payments. Due to the production outage in Q115 (due to irregular offtake), production guidance for 2015 has fallen to 30-34mb/d, leading to an adjusted core NAV of 55p/share (from 56p/share).
Payments received continue the trend
The key consideration for GKP and its KRG peers is its ability to be paid for its production. Once a regular payments cycle is established, Shaikan production should comfortably pay for the company’s bond coupon payments and ongoing G&A, leaving capital spare to start contributing to development of the next phase of Shaikan in time. In this vein, it is encouraging to see a further payment from the June announcement, taking gross receipts from that offtaker to $11.6m for 2015 production. The cash position has increased from $68.7m (26 June) to $72.1m.
Three routes to market
The company is investigating the possibility of injecting crude at Fyshkhabour, 120km from Shaikan. This will likely reduce transport costs and increase the realisations. It will also mean the company has three routes to market, reducing the likelihood of disruption and lost revenues. However, we fully expect GKP to prioritise the route that will maximise the revenues, but guarantee payment.
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