Gulf Keystone issued a new presentation yesterday after doing an analyst site visit in Kurdistan.
The presentation is by far the most detailed in terms of Shaikan analysis/data made available. Management are clearly excited about Shaikan as the licence block continues to impress beyond even their highest expectations.
OIP upgrades appear a nailed on certainty and with 8.9bln already notched up on a p90, it’s feasible to see this number rising by 50% or more upon wells SH-4, 5 and 6 completion. Possibly higher.
One key point in the presentation that stuck out was the comment regarding production. Management have suggested that they envisage 30kbopd to 40kbopd in regional oil sales in 2012. Considering the company is currently averaging just over 5kbopd and we are a mere sniff away from the half year period – it’s easy to see why an increase of over 35kbopd in the last 6 months seems ambitious. The wells have the capability – and quantities of that level can be trucked. The HUB facilities are currently being upgraded and if they are nearing completion, then perhaps the ramp up in oil production is not that far away at all. It’s possible that GKP have organised the analyst site visit to help get this point over in the flesh. And who could blame them. When funding questions are currently beginning to raise their head again – stating on paper that you are moving to 35kbopd production is just that… words. But when you see the trucks pulling in, the HUB station working and the capacity tanks etc – the picture suddenly hits home. Lets hope the analysts take note.
The presentation also shows the drilling plans for 2012. With SH-5 and 6 set to TD in around 1 to 2 weeks (assuming depths are not extended) and BB-1 already TD’d (at target depth) the company is left with just their minor interests in AB exploration and appraisal drilling. SA-2 is cited to spud in June which will be welcome.
The AB work schedule is busy. 5 wells are planned for 2012 which begs the question on why GKP would sell their AB interest when in no more than 6 months, the licence block will be proven up with so much more data and hopefully oip numbers – thus substantially increasing the value of their share of the asset.
The original purpose for putting their minor interest in AB up for sale was to raise cash to fund the pipeline plans which are currently being tendered out. Could this have changed due to recent SH-4 test results (huge flow rates) and speed to move to higher production?
The market is currently expecting a result on this sale soon after management employed the masters of asset sales – PWP in Feb of this year. Management also stated that they expected the sale to be concluded in April.
The current presentation doesn’t mention any specifics or detail on how the business intends to fund their ops and pipeline should an AB sale not be achieved. If I were an analyst, I would be asking that specific question as cash will certainly be running very low at present due to longer than expected drills on BB-1, SH-5, testing on SH-4 and the unexpected cash burn on AB drills which would not have been required had they sold it as planned.
Based on the AB exploration and appraisal plans – it would certainly make sense to ‘park’ that sale until Q4, but only if you feel confident that production sales will ramp up fast enough to self fund in the near future.
As with many GKP news releases/presentations, more question arise from what has not been said rather than what had been.
The presentation was presented by the COO and the FD. Looking at the nature of the document, it’s lacking in funding detail which begs the question why the FD was there. It is a solid ‘operational’ update but certainly not ‘corporate’.
GKP may have plans for releasing a ‘corporate’ version in due course – and with annual results due soon, as well as questions over the status on FTSE listing and 3rd NED – one would expect a fair bit of corporate news to be delivered in the near future.
The presentation can be found here investor_presentation_may2012