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The day we have been waiting for has finally arrived as Gulf Keystone Petroleum (LSE:GKP) has completed the move from the AIM to the Main Market today. Non-Executive Chairman, Simon Murray, observed that “The move up reflects the considerable success that the Company has enjoyed since its IPO, and marks the end of the move up process involving a lot of hard work by the Company and its advisers.” Today also marks only the fifth day this month that GKP has experienced an increase in share price.
GKP shares are up 2.2% to 104.20 at 1:45 pm GMT, and it appears that they have enough strength to hold above 104.00 for the rest of the day after having closed at 102.25 in trading yesterday. Shares were up in early trading, opening at 105.00, moving to 107.50 only eight minutes after the opening bell.
Although the company has suffered from a recent lack of investor confidence, I am certain that there has been some substantial cheering as GKP got off to a good start on the day. The cheering is to be expected. However, it is the applause that GKP really wants to hear, and that only comes after reaching the finish line. In this case, the finish line would be pumping 100,000 bopd at the company’s Shaikan oil field in Kurdistan.
GKP’s departure from the AIM has taken it from being a big fish – it was ranked sixth among AIM constituents – into a pond where it has more room to grow. While it is no longer a big fish by comparison to other Main Market companies, it does stand a good chance that it might be named to the FTSE 250 at the next index review.
Some concerns remain about the company’s recent announcements that it could require additional equity financing to cover short term debt issues through 31 January 2015. In a report released on 19 March, Gulf Keystone indicated that it will require an additional $340 million in capital expenditures to continue to develop the capacity to deliver 66,000 bopd, which is a major milestone in the company’s strategic plan. $210 million will be needed during 2014.
Yesterday GKP indicated that cash to cover those capital expenditures is expected to be generated from four sources in the normal course of business. In what this writer considers an indication of corporate confidence, GKP made no attempt to issue additional shares at today’s transition. It is clear that they do not expect a series of unfortunate events to converge in a perfect storm where all of those four sources implode.
However, the board continues to demonstrate unusual wisdom, preparing to hedge its bets by pursuing debt financing of as much as $250 million to achieve the 66,000 bopd milestone. That seems to have made some observers nervous. At first I could not understand why, but then I realized that, if the scarecrow in the Wizard of Oz needed a brain, it’s possible that at least a few people who have been posting on the ADVFN message boards might need one also. Todd Kozel clearly indicated that “there can be no certainty that a debt transaction will follow the Company’s investor meetings.”
Not once, as far as I have been able to determine, has any representative of Gulf Keystone indicated that it will need to raise cash. It has cited specific amounts of capital expenditures that will be required. It has declared the likely sources of the required capital. It has pointed to the potential of debt financing. But it has never said that it will be necessary.
One last word: It is now 2:40 pm GMT and the GKP share price has risen to 106.45. And that’s without my article being published yet!
