Its been a rough few years forGulf Keystone Petroleum(LSE: GKP) and the companys shareholders. Indeed, even though the oil explorer and producer has made significant operational progress since 2012, corporate scandal and geopolitics have weighed on the corporations shares.
And now, after several years of mismanagement,it looks as if Gulf Keystone is on its last legs. The company is living from hand-to-mouth, relying on payments from the KurdistanRegionalGovernment to keep it afloat as receipts from oil production struggle to cover operating, admin and finance costs.
Burning cash
Gulf Keystonesprecarious cash position has become increasingly concerning over the past few months. With regular updates from management, the company has kept investors abreast ofits financial situation. And while theres cash in the bank, the level of capital available to the company is dwindling.
Gulf Keystone desperately needs money to sustain its operations. The company has been able to sell some oil into the domestic market but its still burning through cash reserves at an alarming rate.
For example, at the beginning of April, Gulf Keystone had a cash balance of around $127m, including the proceeds of a placing, which raised $40.7m. Atthe end of August the company reported a cash balance of$63.9m, which included $32.5m to meet debt service obligations. Bymid-October,the groups cash balance had risen to $76.2m (including payments from the KRG), $26.4m of which was earmarked for debt interest payments. Thenat the beginning of this month, Gulf Keystones cash balance had dwindled to$54.6m. That was down by $72.4m from the position reported at the beginning of April, despite the fact that the company has received$45m from the KRG since September.
Whats more, Gulf Keystone is overloaded with debt. At the end of the first half, the companys debt pile amounted to $520m. Unless the price of oil returns to $100 a barrel very quickly, its clear that the company is going to struggle to pay off this debt.Gulf Keystones debt service obligations of $32.5m, as reported during August, were $2.4m more than the companys $30.1m in revenue reported for the first half of the year.
Taking a step back
Its easy to cross your fingers and believe Gulf Keystone is on track to stage a dramatic recovery sometime soon, but the figures suggest a different outcome.
The companys cash balance is falling, and unless theres a dramatic recovery in the price of oil, its going to be almost impossible for Gulf Keystone to report a profit. Meanwhile, the companys cash balance continues to get smaller every day.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
