Dubai:
DNO ASA, the oil explorer focused on Iraq’s Kurdistan, offered to pay $300 million for regional peer Gulf Keystone Petroleum Ltd., which just completed a debt-restructuring deal with bondholders.
DNO’s cash and share offer represents a 20 per cent premium to the price of 1.09 cents at which Gulf Keystone proposed issuing shares to bondholders on July 14, the company said in a statement Friday. The cash element of the proposal totals $120 million, it said. The offer would also value the securities of bondholders at 111 per cent of their face value compared with the 99 per cent they are getting under the planned restructuring, DNO said.
Gulf Keystone’s board is reviewing the proposal from DNO and will update the market in due course, it said in a statement Friday.
“It’s an opportunistic bid from DNO, which is made possible by the recent bondrestructuring,” Tim Hurst-Brown, a research analyst at Mirabaud Securities LLP, said by phone.
Bondholders in Gulf Keystone agreed to swap more than $500 million of debt for equity earlier this month. Without the deal, the company said it would have been unable to avoid insolvency. The restructuring came after the company suffered from a collapse of oil prices in the past two years as well as erratic payments for exports from the government of the Kurdish region of Iraq.
Oil Slump
Gulf Keystone had a market capitalisation of as much as $5.8 billion in February 2012 when Brent oil prices traded near $120 a barrel compared with about $50 million Thursday. Its value dropped in tandem with crude prices but failed to recover once oil started rising again early this year.
After the restructuring proposed earlier this month, guaranteed bondholders would own 65.5 per cent of the company upon the completion, while convertible note-holders would hold 20 per cent. The oil producer will seek approval from at least 75 per cent of bondholders for the transaction, which will reduce total debt to $100 million from more than $600 million through UK courts, in a process known as a scheme of arrangement.
The deal would be better for bondholders than equity holders since the terms value the bonds at a premium to their current price, according to Mirabaud’s Hurst-Brown.
Gulf Keystone’s $250 million of guaranteed bonds are quoted at about 107 cents on the dollar, close to the offer price of 111 cents set by DNO, according to two people familiar with the matter, who asked not to be named because the prices aren’t public. The notes traded at 65 cents on June 3, Bloomberg datashow.
Unattractive Bid
“If you’re an equity holder, it’s not an attractive bid,” Hurst-Brown said. It’s pitched below the adjusted price of Gulf Keystone’s offer to sell new shares to existing investors, also announced on July 14, he said.
DNO owns a 55 per cent stake in the Tawke field, which produced an average of 117,757 barrels of oil a day in May. Gulf Keystone has a 75 per cent interest in the Shaikan field, which has a production capacity of 40,000 barrels of oil a day.
A combination of Shaikan and Tawke would make “absolute sense,” said Hurst-Brown. “It gives DNO a big resource to grow into in Kurdistan, and obviously they understand all the political risk, so they won’t have to get over that hurdle.”
International oil companies present in Iraq’s Kurdistan have had to contend with a challenging environment in the past two years. Islamic State militants took over parts of Iraq, forcing local Kurdish authorities to deploy more funds to fight the insurgency. That decision weighed heavily on the region’s budget and led local authorities to miss payments to foreign oil companies for their oil exports for most of 2015. They only resumed steady payments from September.
Shares of Gulf Keystone rose as much as 31 per cent, before paring gains to trade 24 per cent higher at 4.85 pence as of 1:17pm in London. DNO gained 1.5 per cent to 8.48 kroner in Oslo while Genel Energy Plc, another Kurdistan-focused explorer, advanced 7.7 per cent to 98.5 pence.
