Headlines
• Circle Oil (LON:COP – SUSP) – (1.5 – 8.0p) – Financial Update: We continue to be a supporter of the Management team, and we continue to see value in the portfolio, but whether equity holders see any of that value remains to be seen and is within the gift of the creditors. Net of balance sheet effects, our valuation range is $13.8mm – 76.8mm (1.5 – 8.0p); we are not providing a Recommendation at this moment in time.
• In Brief:
o Gulf Keystone (LON:GKP – 3.25p) – Restructuring Provides Space
News Items
Circle Oil (LON:COP – SUSP) – (1.5 – 8.0p) – Financial Update
While today's news, which effectively states that all is continuing as before and there is no improvement in the flow of payables from the Egyptian General Petroleum Corporation (“EGPC”), which is the Egyptian state oil company.
In this regard, today’s news that everything is progressing as before is strangely comforting, principally due to the fact that we believe that the Company has a fair chance of being successful in attempts to restructure its debt, at the very least the attendant covenants.
We have slightly amended the way in which we disclose our valuation of companies, which we will detail at a later time. Our valuation range for the Company is between 1.5p (“Core” producing and appraisal/development assets utilising the forward curve) and 8.0p (whole company at SP Angel Oil Curve), after the balance sheet effect of the debt.
This assumes of course that the debt is allowed to be traded out, and that the EGPC payables are remitted to the Company in a timely fashion. However, as we have often said, the debt is the key determinant here, and if the creditors work with the Company, our valuation is tenable. However, the creditors seek to assert their rights under the terms of the loan note, or agree to be converted in to equity, then these values will be significantly affected.
We continue to be a supporter of the Management team, and we continue to see value in the portfolio, but whether equity holders see any of that value remains to be seen and is within the gift of the creditors. Net of balance sheet effects, our valuation range is $13.8mm – 76.8mm (1.5 – 8.0p); we are not providing a Recommendation at this moment in time.
In Brief
• Gulf Keystone (LON:GKP – 3.25p) – Restructuring Provides Space: Today's news, while effectively wiping out existing shareholders in the short term, does provide significant relief to the balance sheet. In the longer run, however, providing the oil price recovers to a reasonable level and geopolitical situation stabilises (we believe that there is significant goodwill towards the fledgling democracy that is Kurdistan), GKP along with the other Kurdistan operators should be beneficiaries in that, which will see a recovery in the share price from these levels. Furthermore, now that the balance sheet has been cleaned up and the Company placed on a more secure footing, we believe that GKP will become an acquisition target, especially as such depressed valuations. We are placing the Company on our Watchlist, in the expectation that the share price to trade upwar ds from the level it settles at post the completion of the balance sheet restructuring.