Gulf Keystone Petroleum Ltd (LON:GKP) shares crashed on Thursday after the cash strapped Kurdistan oil producer revealed output from the Shaikan field would go into decline without new investment.
The company said it would need to spend US$71mln on the field in order to maintain production at 40,000 barrels of oil per day, and to grow production to 55,000 bopd, as previously targeted, a capital investment of US$88mln would be needed.
On Tuesday, the company told investors it had US$69.5mln of cash following receipt of the latest payment from the Kurdistan Regional Government.
The company’s financial position is under the weight of debts amounting to US$575mln which are due to mature next year, and have US$26mln coupon payments due this month.
In today’s statement Gulf Keystone said would exercise a ‘grace period’ under its debt arrangement, which will set back the April 18 coupon payment to early May.
Gulf Keystone said the announcement was intended to ‘build a common foundation’ ahead of stakeholder discussions regarding its need for a near-term fundraising, as well as the company’s upcoming debt obligations and a possible restructuring of its balance sheet.
Jón Ferrier, Gulf Keystone chief executive, said the aim is to ensure an orderly market, and said the investor update was an important step as the company embarks on stakeholder discussions.
“We are working to achieve the best possible way to restructure our balance sheet,” he said in a statement.
“Addressing our funding needs will ensure the company's longer term future and ability to continue developing the Shaikan field for the benefit of all our stakeholders."
Gulf Keystone shares lost 2.48p, 35.4%, to trade at 4.52p each. At that level the group’s equity is worth just over £44mln.
Providing detail regarding operations at Shaikan, the company said that three electric submersible pumps will have to be installed into existing production wells in order to maintain production at 40,000 bopd. And to increase output to 55,000 bopd an additional production facility would need to be built.
It is expected that the capital investment would take place in the second half of 2016, assuming such funding can be secured.
These scenarios are anticipated as interim measures ahead of a further phase of Shaikan’s field development, which must be agreed with the authorities in Kurdistan.
The company also noted that its general and administration costs for 2016 are expected to be US$19mln.