Gulf Keystone Court Case – hotting up

For the past 5 weeks, the court has largely been preoccupied with the cross examination of the key witness statements with the Wempen brothers (Excalibur) taking the stand first. The press were there on the first day ready with pens/daggers (both very much the same) out and ready to conjure up a headline story. After a brief flurry of snipes aimed at the GKP CEO, the likes of the FT, The Times and Independent among a few, seem to have gone very silent.

This comes as little surprise when you hear reports from investors attending court citing comments like ‘it’s like a boxing match and Excalibur are getting beaten to a pulp’.

The english press are not too fond of the success story – and have proven in the past to be fairly harsh on GKP as a company per se. Strange as the ‘minnow to giant’ really should have suited them down a treat. Placing the UK press lack of fondness aside, the real truth why the papers are blank at present on this case is simply because GKP appear to be winning and winning with style.

As the Wempen’s head back to the US for a much needed break (thanks giving day) they will not be the only ones who feel a little punch drunk.

Unexpectedly, GKP’s counsel asked for the backers names to be made public in court yesterday. After all – it’s a public court and the case is not being held in private. So it’s only fair that the parties involved in stumping up the £9mln+ required to get this case to court – be known.

According to reports from investors in the public box, Rex Wempen appeared visibly shocked at the idea of naming these people or firms. As if their confidentiality carried some importance? Or some value. It seemed he was reluctant to give the names. But did however offer to write them down on a piece of paper and show Counsel and the Judge. This didn’t go down too well and after some forceful reminders of being ‘under oath’, Rex spilled the beans to the world. After this event the Excalibur Counsel was left looking rather flushed. I imagine he had  quite a few voicemails to catch up on after court yesterday.

So what’s the big deal about revealing the backers? Well, the parties involved appear to be 3rd party litigation specialists. They are a bit like vultures who see the courts as a playing ground for what can only be described as brinkmanship. They simply want to gain a settlement in most cases and by forcing larger companies into court, they hope the prospect of ‘dirty linen’ being aired is enough to see an early settlement offer. In some cases it often works. Simply being a nuisance or holding up a potential merger or acquisition due to the uncertainty of a court case – can have merits for other parties involved. It’s potentially a mine field out there once you start to think about everyone that could gain from such a court situation. In Gulf Keystone’s case – as a publically listed and traded company, the price has been heavily suppressed by this case. Someone wanting to buy into GKP’s stock at a cheaper price, may well be interested in funding this case. Surely that’s not legal? Well, it’s certainly very hard to prove direct share dealing or benefits in the open markets. Even harder to trace when traded through a number of broker houses across the globe.

Hence knowing the backers and moreover, their award goals or percentage of the winnings – can shed light on their intent. Today, the court did not disclose the % terms of the 3rd party backers which was disappointing. But that might come out early next week when the case resumes.

For now, the backers’ names are out there in the public domain. This appears to have kicked off a major rally in the shares today as the stock recovered around 20p at one point to sit at around 200p. The share price had dropped as low as 170p from 240p ranges when the case started.

So why such a rally? Well, it could be down to a number of factors. But when you realise that the bulk of the ‘backers’ are indeed HEDGE FUND related, you soon realise that the ‘trading’ of GKP is more than likely linked to this case. And today’s volume was close to 17mln after seeing on average around 2.5mln traded each day as the norm since the case began.

Running for the hills? Or simply winding down a hedge? Who knows? But lets consider the ‘currency’ or worth of ‘anonymity’.

Like anything that has value – there’s something to bargain against. For instance, if the 3rd party litigation participants wanted to remain unknown, then should a settlement ever come into the equation, it’s easy to haggle and honour that anonymity in exchange for a smaller pay out. But why is ‘anonymity’ important to them? Well, can you imagine what courts and companies around the world would think if they saw a 3rd party involvement that they recognised or were known for being nothing but a menace? Part of their power is in remaining concealed, hidden and unknown.

In short – GKP could have kept the names of the backers tucked in their back pocket for a time when they might need it. Eg; we’ll settle for this amount based on keeping anonymity – Eg backers named kept out of the public etc.

But GKP’s recent attack on the backers anonymity and public declaration perhaps sends the backers the biggest shock wave message of all. And that’s that GKP have no interest in keeping anonymity as they have no interest in settling this case. GKP clearly feel they can win and the past weeks appear to have given them the confidence to play the anonymity declaration earlier than many thought.

The volume today was certainly high enough and out of the blue to suggest that the Wempen’s are not the only ones that are taking flight today.

The case still has a long way to go (or does it) based on the schedule/planned witness statements and further disclosures. It had been cited to end in early December but has already over-run by some weeks due to some rather long-winded responses from Rex Wempen, who seems to struggle with giving a simple yes or no answer.

With court fees already set to increase – the backers may be keen to avoid spending more than the £9mln already placed into court. It’s possible that the sum could double if the case runs its full course.

And to this end, it is probably not surprising to see Clifford Chance (working for Excalibur) down to a skeleton case team. In fact, Clifford Chance highlighted the fact today to the court that they felt heavily outnumbered by GKP’s legal team when it came to numbers of bodies involved.

Not surprisingly, the Judge gave them little sympathy as it was Clifford Chance that brought this case to court – not GKP.

Perhaps they’ll be able to garner a few interns to help them along the way? Either that – or they may need to go back to the backers cap in hand. And i’m not sure they’ll be too happy with shelling more cash out at this stage.

To sign off – I should say that a major acknowledgment needs to go out to GKP’s Lawyer – a Mr Jonathan Gaisman. He has been astonishingly good. He is clearly in a very elite class in his line of business. His supporting team should also be noted.

And last but by no means least – A massive thank you to the investors that pay for their own travel, hotel rooms and other expenses simply to attend court and send back their feedback for all investors to benefit from. You know who you are. Thank you.

The above is opinion based and without prejudice. Court reports from individuals attending are their own personal opinions and not factual evidence.