By John Lee.
Shares in Gulf Keystone Petroleum (GKP) were trading down more than seven percent on Thursday morning, after it issued an update on operational and corporate activity and 2023 guidance following the shut-in of the Iraq-Turkey pipeline on 25 March 2023.
Jon Harris, Gulf Keystone's Chief Executive Officer, said:
"Gulf Keystone was on track to deliver another year of strong profitable production growth and robust cash flow generation until the Iraq-Turkey pipeline arbitration award resulted in the suspension of pipeline exports. March production prior to the pipeline suspension averaged c.53,700 bopd with plans to bring on SH-18 in Q2 2023 and ongoing facilities expansion activities.
"The lack of crude oil exports for a month has further exacerbated delays in KRG payments to international oil companies with uncertainty on when consistent monthly payments will resume and when the current overdue amount of $102 million net to GKP will be paid.
"While we continue to believe that the pipeline shut-in is temporary and the KRG will resume more normalised payments, we are prudently taking action to preserve liquidity by targeting a reduction of costs across the business. We are closely monitoring the situation and will take further appropriate action as required."
- Up to the Iraq-Turkey pipeline shut-in on 25 March 2023, gross average production in 2023 of c.49,200 bopd and in March 2023 of c.53,700 bopd, including five days in excess of 55,000 bopd
- Following the suspension of exports, GKP produced at reduced rates into storage facilities prior to shutting in production at PF-1 on 31 March 2023 and at PF-2 on 13 April 2023
- The suspension has resulted in a gross production deferment to date of around 1.6 million barrels, or approximately 4,400 bopd on a full-year basis
- The Company continues to believe that the suspension of exports will be temporary and is ready to resume production immediately, although no official timeline to restart pipeline operations has been publicly announced by the Kurdistan Regional Government ("KRG")
- The Company understands that discussions between the KRG and the Iraqi Ministry of Oil are ongoing to implement the framework agreement announced on 4 April 2023
- Upon the resumption of exports, production will be gradually ramped up with the objective of safely returning to full export capacity
- The drilling of SH-18 was recently completed and the well is now being hooked-up. We expect the well to be available for start-up in Q2 2023, in line with prior guidance
- The Company continues to engage with the KRG regarding the delays to oil sales payments
- While the Company has received $66 million net from the KRG in 2023 for August and September 2022 oil sales, overdue receivables for the months of October 2022 to January 2023 total $102 million net on the basis of the KBT pricing mechanism
- Net capital expenditures to the end of April 2023 are estimated at $45 million net, including completion of SH-17 and SH-18, well workovers, well pad preparation, long lead items and expansion of production facilities
- Cash balance of $99 million at 26 April 2023
- Given the ongoing suspension of exports and continued delays to KRG payments, the Company is focussed on preserving liquidity and is targeting a reduction of costs across the business, while maintaining a strong focus on safety and long-term asset reliability
- Consequently, the Company is significantly reducing planned net capital expenditures to focus on only safety critical and unavoidable contractual commitments
- While our review is ongoing, we currently expect May to December 2023 net capital expenditures of $35-40 million
- Full year 2023 net capital of expenditures are currently estimated at $80-85 million (prior guidance: $160-$175 million)
- The Company is implementing initiatives to reduce Opex and G&A. However, until pipeline operations resume and the overall production impact from the export suspension is known, the Board is suspending production and gross Opex per barrel guidance
- As part of its ongoing review, the Board is considering the previously declared final 2022 ordinary annual dividend of $25 million
- The Board continues to review the implications of the current situation and is considering necessary operational, financial and legal measures to protect the Company's interests during this period
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