Canaccord Genuity lowers Gulf Keystone to 'sell' on Shaikan prospects

14th Mar 2014 10:14

Canaccord Genuity has cut its rating for oil explorer Gulf Keystone Petroleum (GKP) from 'hold' to 'sell' after an audit of its Shaikan project in Iraq found lower-than-expected reserves.The target price has been nearly halved from 195p to just 100p.A first Competent Persons Report (CPR) into GKP's total assets - a requirement for its planned move from AIM to the full list later this month - found it has 12.5bn barrels of gross oil in place and 1.2bn barrels of recoverable reserves and resources, the company said on Thursday.However, the oil in place estimated at Shaikan was only 9.38bn barrels, below the 13.7bn initially predicted. In addition, Canaccord pointed out that the recovery factor was also much lower than earlier estimates at just 11%.The broker said that while Shaikan "remains the jewel" of GKP's portfolio, it looks "smaller and more complex than before and its other assets of Sheikh Adi, Akri Bijeel and Ber Bahr "provide only slender support to the resource figure".Canaccord said: "Not much of this is disputed by GKP, although the company still maintains that there is plenty of upside to be had from the licences, though most of that will only be demonstrated with extensive production history. "Shaikan itself is revealed by the CPR to be a very complex development with still plenty that is unknown, and we wonder whether the exploration-oriented GKP is best placed to carry through the field's development."The broker added that financing also remains a concern for the company given that cash - estimated at around $90m - is likely to run "very low" by the summer due to ongoing drilling and little operating cash flow. In addition, there is already a $325m outstanding convertible note, the broker said."Finally, we are still unclear about the long-term marketing of Shaikan crude, and we question now if the field really has the scale to appeal to a potential buyer."The stock was trading 5% lower at 114.25p by 11:06 on Friday, following a 16% slump the day before.BC