And so it came to pass. Mired in unsustainable debts, with massive capital expenditure commitments and war-hampered cash flows, Gulf Keystone Petroleum (GKP) reached the inevitable showdown with its bondholders on Thursday 14 July, in an agreement that sees equity holders all but wiped out. The news followed months of protracted negotiations, which with each new extended grace period further reduced the chances of an already unlikely takeover attempt.
As it is, the oil producer will live to fight another day as a listed company, but existing shareholders face a considerable 95.5 per cent dilution. In turn, guaranteed noteholders and convertible bondholders will receive a combined 85.5 per cent of the recapitalised equity in exchange for cancelling $500m (£376m) of short-term debt and interest. That reduces Gulf Keystone's current debt to $100m, and leaves the company with enough capital to develop its flagship Shaikan field in Iraqi Kurdistan.
In an announcement billed as a "balance sheet restructuring", the company said guaranteed note holders would be able to retain $100m of their bonds and will receive common shares worth 65.5 per cent of the equity after the deal completes. Convertible bondholders received a smaller 20 per cent portion of the equity, while existing shareholders retain the right to participate in a $25m open offer for 10 per cent of the recapitalised company.
That fundraising will be used to maintain 40,000 barrels of production oil a day, with the potential to increase that figure to 55,000. This may still be a big ask. In April, prior to several payments from the Kurdistan Regional Government, the company predicted its net costs would reach either $46m to maintain production or $56m to pump an additional 10,000 barrels a day.
Separate to the announcement, chairman Andrew Simon announced he will step down and be replaced with non-executive director Keith Lough. Mr Simon said Gulf shareholders, along with "other Kurdistan-focused operators, have suffered significant value destruction over recent months, as a result of the low oil price and extraordinary regional geopolitics", and said the restructuring represented "the best possible outcome for all".
