Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gulf Keystone Petroleum Ltd (GUKYF, Financial) achieved a solid operational and financial performance in the first half of 2024, with no lost time incidents for over 590 days.
- The company returned to profitability and free cash flow generation, facilitated by robust local sales volumes and sustained capital and cost discipline.
- Gulf Keystone Petroleum Ltd (GUKYF) strengthened its balance sheet and restarted shareholder distributions, returning $25 million to shareholders via dividends and buybacks year to date.
- The Shaikan field is producing close to its maximum capacity, responding well to the ramp-up in local market demand.
- Adjusted EBITDA increased by 6% to $36 million in the first half of the year, driven by strong production and cost control.
Negative Points
- The Iraq-Turkey pipeline remains closed, impacting the company's ability to export and sell at international prices.
- Realized prices for local sales are significantly discounted, with crude sold at $25 to $28 per barrel, almost a $60 discount to Brent.
- The company faces unpredictability in the local market, with volumes and prices driven by local supply and demand dynamics.
- Production is expected to be impacted by a temporary shutdown of PF-1 in November, resulting in a loss of around 26,000 barrels of oil per day for three weeks.
- The company has over $150 million in outstanding export sales receivables, with repayment dependent on the reopening of the export pipeline.
Q & A Highlights
Q: When do we expect to get repaid the receivables currently owed by the Kurdistan Regional Government (KRG)?
A: Jon Harris, CEO: The recovery of receivables is dependent on the reopening of the export pipeline. Historically, it took about 15-16 months to recover receivables once exports resumed. We hope for a similar mechanism to be put in place once the pipeline reopens.
Q: Are we seeing any support from Western countries in discussions with the KRG and Iraq regarding the pipeline reopening?
A: Jon Harris, CEO: Yes, we are receiving support from the US and European countries for reopening the pipeline.
Q: Would Gulf Keystone consider continuing local sales even if exports resume?
A: Gabriel Papineau-Legris, CFO: Yes, we would consider it. While exports offer higher realized prices, local sales provide immediate cash flow, which is beneficial for investment decisions. We would evaluate both options when the time comes.
Q: Why didn't the company decide to make a distribution today, given the current cash balance?
A: Gabriel Papineau-Legris, CFO: We aim to balance distributions with field activities and provide clearer guidance on future distributions. We are working with the Board to explore different scenarios and remain committed to returning excess capital to shareholders.
Q: How does the company decide between buybacks and dividends?
A: Gabriel Papineau-Legris, CFO: We maintain active dialogue with shareholders to gauge preferences. We balance cash returns via dividends with buybacks when we see attractive valuations, aiming to strike a balance that benefits all shareholders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
