Gulf Keystone, Bowleven, Afren and Lenigas Updates

Plenty of news from some of the favourite AIM and small cap LSE oil and gas companies over the last few days.

Gulf Keystone Petroleum fell 6% to 77p today after issuing its first half financial results, and was lower still earlier in the day. The company reassured that despite the recent advances by Isis insurgents in Northern Iraq, apart from a small reduction in output for one day in early August, production from the company’s key Shaikan field has been unaffected by security tensions in the area. However the departure of key non-essential personnel needed to ramp up production from the current 20,000 barrels a day to the hoped for 40,000 barrels per day by the end of 2014 may slip into Q1 2015 if “certain consequences of the recent security situation, including the current short-term limited availability of some international contractors”.

One of the main issues affecting the availability of personnel has been the cancellation of flights by Western airlines into Kurdistan and travel advisories are still in place by many governments which actively discourages travel to Iraq. However, in recent days a  resumption of suspended flights by international operators including Austrian Airlines, Turkish and Middle Eastern airlines has eased the logistical problems facing the company in arranging the return of foreign workers.

The other main challenge that GKP is facing is payment for the oil it produces which is a key factor given the considerable debt it has taken on to finance the development of the first part of the Shaikan field. The company reported revenues of $18.7m for the first half of this year, with a further $35m owed for export sales. The firm says that it is trying to establish a regular payment cycle with the Kurdistan Ministry of Natural Resources despite the impasse between the Kurdistan regional government and federal government. Resolving this particular issue is key right now.

The company’s cash resources were $177 million on the 26th August, after raising $240 million after expenses in a bond issue in April meaning that it needs the Ministry of Natural Resources to start delivering the cash it owes the company or potentially face putting back additional development wells or production facilities. With the RNS saying that they intend to “Manage expenditure in a responsible and prudent manner, continuing to review and control capital commitments. Once a steady flow of revenues has been established, make decisions on investment in additional production facilities, development wells and infrastructure in order to increase Shaikan production in line with the approved  Shaikan Field Development Plan.”

A stable production ramp up and payment cycle should soothe any nerves, but with the Isis rampage in Northern Iraq still very much ongoing despite being curtailed by US airstrikes there are clearly some risks, particularly when its comes to the contractors delivering on the 40,000 barrel per day target in 2014. With total gross production from Shaikan to date  approaching 5.5 million barrels, a safer operating environment and a cooling of geo-political risk will undoubtedly help lift the shares from the lowly 77p. But John Gerstenlauer, the new Chief Executive Officer and replacement for Todd Kozel won’t have an easy task ahead if things slip any further due to circumstances completely out of his control. The company has escaped largely unscathed so far from an operational perspective, shareholders will be hoping that continues for the foreseeable future.

On Tuesday, Bowleven caused a further slip in its share price to around 33p when it announced that  the company had agreed to an extension to the longstop date by 2 months to complete the Etinde farm out with Lukoil  i.e. 31 October 2014.The main condition still to be met is approval by the Cameroon government of the transfer of the equity interest and operatorship. The approval of the Etinde EEAA by the Cameroon government and termination of the Petrofac stategic alliance have been met and this remains the remaining hurdle. Still, despite the progress, a little annoying for shareholders that things have slipped and with the lack of urgency demonstrated by the EEAA approval in the Cameroon government there could be a few niggling doubts about whether Kevin Hart, Chief Executive, can deliver in full by the end of October. Given the man’s track record anything’s possible!

Nigeria focused, Afren, fell a further 11% to 99p today after it announced it was suspending two more executives as part of its ongoing investigation into potentially irregular payments  that led to its chief executive, Osman Shahenshah and chief operating officer, Shahid Ullah, being suspended and the shares falling over 35% around a month ago. Associate directors Iain Wright and Galib Virani were named and puts further question marks on the company’s financial health and ethics.  An investigation by Willkie Farr & Gallagher, had led to the Shahenshah and Ullah being implicated in the “receipt of unauthorised payments potentially for the benefit of the CEO and COO”.

On Thursday, Afren said its board had been made aware by Wright and Virani, that they had also “received payments which are linked to the previously identified unauthorised payments for the benefit of the CEO and COO”. The RNS read that “During such continued independent review on the Board’s behalf by Willkie Farr & Gallagher (UK) LLP, the Board were made aware by Iain Wright and Galib Virani that they have received payments which are linked to the previously identified unauthorised payments for the benefit of the CEO and COO. These payments were not made by the Company. No conclusive findings have yet been reached and the investigation is ongoing. ”

The company however reassured that given the findings so far that ” The Board remains of the view that this will not negatively affect the Company’s stated financial and operational position. ” If so the interims tomorrow should be fine but the board of Afren looks like a hotbed of corruption given the investigation to date and a real scar on the company’s battered reputation. A murky affair for this formerly up and coming oil producer.

Finally, early this week Chairman David Lenigas announced he is resigning from Leni Gas and Oil to focus on other efforts given the recent success of the Trinidad Goudron drilling campaign which has seen the shares move from 0.85p to 3.5p in a couple of months. Given the executive team on board at LGO with Chief Exeucutive, Neil Ritson and new non-exec Chairman Stephen (Steve) Thomas Horton should do just fine despite Lenigas’s departure, especially as he remains a consultant to the business. As Lenigas himself says, “”The original objective of LGO was to create an oil production company with over 1,000 bopd and the Company is now poised to significantly exceed these original expectations as new wells are drilled and come on to production from the Goudron Field in Trinidad. ” LGO has certainly been a success story of AIM in 2014 with the share price appreciation in stark contrast to many other AIM oil and gas stocks.

Contrarian Investor UK

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