Gulf Keystone Petroleum PLC (LON:GKP) has reported its first profit since its entry to the Kurdistan region of Northern Iraq, with net profit stated at US$14.1mln, though the outlook remains contingent on a deal being done with the authorities on crude sales.
The oiler is promising to restart investments into the Shaikan oil field, subject to an agreement with the Kurdistan regional government over crude oil sales.
In January, the Shaikan crude oil sales agreement was signed and it was described by the company today as an ‘important commercial event” and a key milestone which has moved GKP closer to finalising commercial negotiations with the authorities.
Investment is needed to reinvigorate the field operations, which presently see declining output, and the company intends to provide the funds once certain commercial and contractual matters are finalised with the KRG.
GKP, in its full year financial results statement, reported gross production of 35,298 barrels of oil per day for 2017 - which was midway in its guidance of 32,000 to 38,000 bopd – and it generated some US$172mln of revenue, down from US$194mln in the preceding year.
READ: Gulf Keystone gives lower production guidance as commercial uncertainty continues in Northern Iraq
In the first quarter of 2018, meanwhile, the field yielded gross production of 31,588 bopd and the guidance for the full year is in the range of 27,000 to 32,000 bopd flowing from the field.
“We are confident that once we are able to restart investment into Shaikan we will be able to lift production towards our near-term target of 55,000 bopd, a step towards the full field development,” said Jón Ferrier, GKP chief executive.
In terms of the financial results, GKP highlighted that the cash component of reported revenue had increased by 28%, amounting to US$157mln in 2017 and it said positive cash flow was driven by steady operating activities and payments from the Kurdistan Regional Government (KRG).
Eleven payments were made by the KRG during 2017, totalling some US$132mln and the company ended December with a cash balance of US$160mln. In the first quarter it received a further US$75mln from the KRG and, by April 1, it had US$203mln of cash and US$100mln of debt.
“Receipts from the KRG are steady, with current year receipts of $59.3m,” stockbroker Cantor Fitzgerald said in a note.
“Outlook is better, with ample cash to fund development at Shaikan which should arrest production declines and unlock further value.”
Canaccord Genuity, meanwhile, said: “The company is in good shape for the investment phase, which looks likely to start once the final amendments to the PSA and other commercial discussions are concluded.”
“Once field reinvestment begins the focus will be on an initial return to 40 kbopd gross production, expansion to 55 kbopd to follow in 2019 with only modifications to existing facilities required (est gross capex $175-215m incl 25% contingency).
“The company believes the existing facilities can be further debottlenecked to 75 kbopd on the way to field peak of 100 kbopd full field target.”
- UPDATED to include details of Shaikan Crude Sales Agreement