Gulf Keystone rallies

While most eyes were on the Budget, Gulf Keystone released a trading update with some much-needed good news. After the oil company received $20.8 million from a third party buyer last month, production and truck loading operations have resumed at its Shaikan field in the Kurdistan region of Iraq, sending the share price up by as much as a fifth.

Gulf, which last week urged bondholders to back a plan to effectively tidy up the heavily indebted business for sale, will ramp up output to installed capacity of 40,000 barrels of oil per day. Another payment "of a similar nature" is anticipated shortly as a precursor to regular payments from the government there.

There's more positive new on operations, too. Shaikan-10, Gulf's first development well and ninth producer, shows excellent productivity and Shaikan-11 seems to have come in early, below budget and is "a potentially prolific producer".

"We remain confident of a regular payment cycle for Shaikan crude being established in the near term," says chief executive John Gerstenlauer.

Gulf said a fortnight ago that it is in talks with potential buyers of the business or assets, and that it was also looking at funding alternatives, including an equity raise. But to do this it must first remove what's called the Book Equity Ratio (BER) put option - the ratio of book equity to total assets - an atypical covenant in high yield debt instruments.

Gulf will hold a meeting in London on 7 April to either pass or reject the Extraordinary Resolution.

The call for this meeting will "strike terror into the hearts of investors," says industry veteran Malcolm Graham-Wood. "Today's action is I suspect, a way for GKP to hang on in there and bondholders need to ensure that this does not lead to further massive value erosion that has already had a negative impact on what is still a fantastic asset."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.