Political instability in Kurdistan makes future uncertain

Gulf Keystone, Kurdistan

The Shaikan Field shown in blue near Iraq’s northern border.

In its fourth quarter results, Gulf Keystone Petroleum (ticker: GKP, GulfKeyston.com), which operates in Iraq’s northern Kurdish region, said it may not be able to make payments to bondholders. Political instability in the region, combined with lower oil prices has left it, along with other operators in the Kurdistan region, without a definite source of income.

The Kurdistan Regional Government committed to regular payments of oil exports last month after disputes with the Iraqi central government, but there is still over $1 billion outstanding owed to Gulf Keystone and other oil companies.

Gulf Keystone reported $93 million in arrears for past sales of crude oil from the Shaikan oil fields and a further $85 million for the KRG’s share of past costs on development in the field.

This disruption to Gulf Keystone’s cash flow has left the company unsure if it can make repayments to its bondholders. The company owes $26.4 million to bondholders due in April and October of this year, as well as $250 million due April 2017 and $325 million due in October of next year.

Gulf Keystone CEO Jon Ferrier said “strenuous efforts are currently underway to strengthen the balance sheet,” but it remains unclear how the company will repay the $601.4 million it owes over the next two years.

The company’s full-year results showed a net loss of $135 million, and GKP CFO Sami Zouari said there was “low likelihood” of an asset transaction in the near future, given the company’s debt burden, current oil prices and geopolitical challenges in Iraq.

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