I know, I know. It sounds ridiculous.
And of course there is a catch. That takeover candidate operates in Kurdistan.
But despite the company operating in Iraq and the idea of a takeover price that is 4x the current share price I think there is reason to be interested in this case.
The company is Gulf Keystone Petroleum. It is traded in London under GKP and American Depository Receipts can be purchased through the Pink Sheets under GFKSY.
This article in the Independent has caught some serious attention with the following detail:
“U.S. oil supermajor Exxon Mobil is understood to have sounded out London-listed Gulf Keystone Petroleum (GKP) over a possible deal that could value the Kurdistan-focused group at around £7bn.
GKP has a market capitalization of around £1.5bn and is listed on the junior Aim market, but its chief executive, Todd Kozel, believes the group could eventually go for double-figure billions. GKP is sitting on what is considered to be one of the world's great recent oil finds – Shaikan, about 50 miles north-west of Kurdistan's capital, Erbil – but the regional government is known to want a supermajor on board to properly fund and develop the field.
It is thought that the board would not accept the estimated £8-a-share that Exxon is considering and that a number of other companies, perhaps including China's Sinopec and Californian giant Chevron, are monitoring the situation. There is even some speculation that an informal four-way auction for GKP might be under way, while it is also believed that the company has spoken to at least two smaller businesses about potentially developing its assets in a joint venture.”
Prior to this article GKP was trading at 165 pence. The offer is rumored to be 800 pence. The article also suggested that 800 pence would not be enough to get a deal done.
We have potential for a four-bagger or more just to the potential offer price, and that price could potentially be too low.
Of course, this is far from a sure thing, and a GKP executive denied this article almost immediately:
"The Independent [on Sunday] article is stupid. The Independent's article has no base. If there was a base to what the paper published we would have had to announce it. If we were having discussions to sell at GBP7 a share, we would have been legally announcing that," the Gulf Keystone executive, who asked not to be named, told Dow Jones Newswires.
Exxon said: "It isn't our practice to comment on media reports, rumors or speculation."
I’m inclined to think that the Independent’s story was based on something though, and not a total fabrication. The sheer size difference of the quoted offer price and the stock price make this worth further investigation.
Multi-Billion Barrels of Oil
If the valuation disconnect is as large as this article suggests we should be able to see it fairly easily by looking at the assets that GKP controls. Here is a recap:
Shaikan Field
Estimated Oil in Place – 8 billion to 13 billion barrels
GKP Diluted Ownership – 51%
Sheikh Adi Field
Estimated Oil in Place – 1 billion to 3 billion barrels
GKP Diluted Ownership – 80%
Ber Bahr Field
Estimated Oil in Place – 1.5 billion barrels
GKP Diluted Ownership – 40%
Akri-Bijeel Field
Estimated Oil in Place – 2.4 billion barrels
GKP Diluted Ownership – 13%
Shaikan is obviously the diamond or GKP. Oil fields this large just aren’t discovered very often. I’ve read a few analyst reports and the range of recovery of original oil in place tends to be in the 20% to 35% range.
Assume 20% for Shaikan, use the mid-point of estimated oil in place (10.5 billion barrels) and the amount of recoverable oil is 20% x 10.5 billion = 2.1 billion barrels. GKP will own just over 1 billion barrels of this.
The assumed 35% for Shaikan, use the mid-point of 10.5 billion barrels again, and the amount of recoverable oil is 35% x 10.5 billion = 3.67 billion barrels. GKP will own just over 1.83 billion barrels.
The market cap of the company is roughly GBP 1.5 billion which is USD2.3 billion.
I’ve estimated Shaikan alone has 1 billion to 1.8 billion barrels recoverable to GKP. With a $2.3 billion market cap that is roughly $1.3 to $2.30 per barrel of recoverable oil. And that likely excludes a few hundred million additional barrels in the other fields on top of what Shaikan holds.
Buyout Makes Sense
I don’t think I’d be terribly interested in buying a company that is 100% focused on operations in Kurdistan. But in this case a buyout from a major seems like an obvious result, and the Exxon story likely has some substance.
The Shaikan field is a mega discovery, which is rare in the world of oil exploration today. Especially rare are discoveries that are on land (not in the arctic, not in the deepwater) and thus have low production costs.
Discovery costs are $0.25 per barrel. Lifting costs are $3 per barrel. Do you think Exxon could pay $10 per barrel and still make some money with global oil prices over $100 per barrel?
I’m going to have a think and do some more work on this one. Here is an interview with the CEO from this August on CNBC for those who are interested:
And of course there is a catch. That takeover candidate operates in Kurdistan.
But despite the company operating in Iraq and the idea of a takeover price that is 4x the current share price I think there is reason to be interested in this case.
The company is Gulf Keystone Petroleum. It is traded in London under GKP and American Depository Receipts can be purchased through the Pink Sheets under GFKSY.
This article in the Independent has caught some serious attention with the following detail:
“U.S. oil supermajor Exxon Mobil is understood to have sounded out London-listed Gulf Keystone Petroleum (GKP) over a possible deal that could value the Kurdistan-focused group at around £7bn.
GKP has a market capitalization of around £1.5bn and is listed on the junior Aim market, but its chief executive, Todd Kozel, believes the group could eventually go for double-figure billions. GKP is sitting on what is considered to be one of the world's great recent oil finds – Shaikan, about 50 miles north-west of Kurdistan's capital, Erbil – but the regional government is known to want a supermajor on board to properly fund and develop the field.
It is thought that the board would not accept the estimated £8-a-share that Exxon is considering and that a number of other companies, perhaps including China's Sinopec and Californian giant Chevron, are monitoring the situation. There is even some speculation that an informal four-way auction for GKP might be under way, while it is also believed that the company has spoken to at least two smaller businesses about potentially developing its assets in a joint venture.”
Prior to this article GKP was trading at 165 pence. The offer is rumored to be 800 pence. The article also suggested that 800 pence would not be enough to get a deal done.
We have potential for a four-bagger or more just to the potential offer price, and that price could potentially be too low.
Of course, this is far from a sure thing, and a GKP executive denied this article almost immediately:
"The Independent [on Sunday] article is stupid. The Independent's article has no base. If there was a base to what the paper published we would have had to announce it. If we were having discussions to sell at GBP7 a share, we would have been legally announcing that," the Gulf Keystone executive, who asked not to be named, told Dow Jones Newswires.
Exxon said: "It isn't our practice to comment on media reports, rumors or speculation."
I’m inclined to think that the Independent’s story was based on something though, and not a total fabrication. The sheer size difference of the quoted offer price and the stock price make this worth further investigation.
Multi-Billion Barrels of Oil
If the valuation disconnect is as large as this article suggests we should be able to see it fairly easily by looking at the assets that GKP controls. Here is a recap:
Shaikan Field
Estimated Oil in Place – 8 billion to 13 billion barrels
GKP Diluted Ownership – 51%
Sheikh Adi Field
Estimated Oil in Place – 1 billion to 3 billion barrels
GKP Diluted Ownership – 80%
Ber Bahr Field
Estimated Oil in Place – 1.5 billion barrels
GKP Diluted Ownership – 40%
Akri-Bijeel Field
Estimated Oil in Place – 2.4 billion barrels
GKP Diluted Ownership – 13%
Shaikan is obviously the diamond or GKP. Oil fields this large just aren’t discovered very often. I’ve read a few analyst reports and the range of recovery of original oil in place tends to be in the 20% to 35% range.
Assume 20% for Shaikan, use the mid-point of estimated oil in place (10.5 billion barrels) and the amount of recoverable oil is 20% x 10.5 billion = 2.1 billion barrels. GKP will own just over 1 billion barrels of this.
The assumed 35% for Shaikan, use the mid-point of 10.5 billion barrels again, and the amount of recoverable oil is 35% x 10.5 billion = 3.67 billion barrels. GKP will own just over 1.83 billion barrels.
The market cap of the company is roughly GBP 1.5 billion which is USD2.3 billion.
I’ve estimated Shaikan alone has 1 billion to 1.8 billion barrels recoverable to GKP. With a $2.3 billion market cap that is roughly $1.3 to $2.30 per barrel of recoverable oil. And that likely excludes a few hundred million additional barrels in the other fields on top of what Shaikan holds.
Buyout Makes Sense
I don’t think I’d be terribly interested in buying a company that is 100% focused on operations in Kurdistan. But in this case a buyout from a major seems like an obvious result, and the Exxon story likely has some substance.
The Shaikan field is a mega discovery, which is rare in the world of oil exploration today. Especially rare are discoveries that are on land (not in the arctic, not in the deepwater) and thus have low production costs.
Discovery costs are $0.25 per barrel. Lifting costs are $3 per barrel. Do you think Exxon could pay $10 per barrel and still make some money with global oil prices over $100 per barrel?
I’m going to have a think and do some more work on this one. Here is an interview with the CEO from this August on CNBC for those who are interested:
