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Gulf Keystone Restructures To Shore Up Balance Sheet

Iraq Oil Field

The Iraqi-Kurdistan-focused energy company Gulf Keystone Petroleum has announced that it has appointed a new chairman, as the company begins a restructuring process designed to address its debt load.

Headquartered in London, Gulf Keystone’s efforts are in developing the Shaikan oil field in the northern, Kurdish region of Iraq. Gulf Keystone has said that the restructuring effort would help to boost production in the area from 40,000 to 55,000 barrels of oil per day.

As part of the restructuring plan, former chairman Andrew Simon will step aside from his position as chairman. His seat will be filled by Keith Lough.

Lough’s task will be finding a way to convert $500 million in debt. Simon commented that shareholders and operators in the area have had difficulty coping with lower oil prices and Gulf Keystone’s $600 million debt load.

CEO Jon Ferrier commented: “Without the restructuring and the improved liquidity delivered by the transaction, the company cannot avoid insolvency or capture the significant future potential of the Shaikan field," The restructuring should lower Gulf Keystone’s debt from $600 million to $100 million.

In the restructuring plan, the holders of the $250 million bond will retain $100 million in reinstated notes and have a 65.5 percent share of the company’s ownership. Those who own $325 million in convertible bonds will have 20 percent ownership.

Related: India Taking Advantage Of Crude’s Weakness

At the same time, the company is also being taken over by its bondholders in the wake of Gulf-Keystone’s announcement that it would exchange the $500 million in debt for shares. The move would severely impact its equity shareholders. Current shareholders would be reduced to five percent ownership after the exchange.

Some of those shareholders include Capital Group, Prudential, Barclays and BlackRock. Sources indicate that London firm Sothic Capital was set to acquire a major stake in Gulf Keystone. Other players who would pick up large parts of the company include GLG Partners and Taconic Capital.

Low oil prices and an ongoing feud with the Iraqi central government over federal budget payments to the Kurdistan Regional Government (KRG) and the KRG’s unilateral oil exports have made it difficult for the Kurdish authorities to pay their producers on time.

In late May, Gulf Keystone received a US$6 million partial payment for their products, causing its London-listed stock to slip.

The KRG controls some 12 billion barrels of oil on its territory, with an upside potential of 60 billion barrels, and estimated reserves of some 45 billion barrels, along with 22 trillion cubic feet of natural gas.

Lincoln Brown for Oilprice.com

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