Norwegian oil and gas firm DNO has unveiled plans to acquire Gulf Keystone Petroleum for a fee of around US$300 million.
"Combining these two companies will create further scale and unlock operational synergies that will reinforce DNO's already formidable presence in Kurdistan," said Bijan Mossavar-Rahmani, DNO's executive chairman.
The terms of the DNO proposal, which would comprise cash and shares, reflect a 20 per cent premium to the share price of US$0.0109 at which, on 14 July 2016, Gulf Keystone issued shares representing 5.6 per cent of its share capital, and also reflect a 20 per cent premium to the price at which Gulf Keystone intends to issue further shares in its restructuring. In addition, for the Gulf Keystone guaranteed noteholders the DNO terms reflect 111 per cent of par value compared to 99 per cent under the contemplated restructuring, and for the convertible bondholders the DNO terms reflect 18 per cent of par value compared to 15 per cent under the contemplated restructuring.
By offering US$120 million in cash (approximately 40 per cent of the consideration), DNO would provide an early exit for those noteholders and bondholders who may be unable or unwilling to hold equity for an extended period. The additional offer of 170 million DNO shares (approximately 13.6 per cent of the post transaction DNO share capital) would provide Gulf Keystone investors with continued exposure to the Shaikan field in addition to DNO's wider portfolio of assets, significantly larger market capitalization, more robust cash flow, stronger balance sheet and proven operating and management capabilities.
DNO has been active in the Kurdistan region of Iraq since 2004 and ranks number one among the international oil companies in oil production (50 per cent), oil exports (60 per cent) and proven oil reserves (50 per cent). DNO holds a 55 per cent stake in and operates the Tawke oil field at a current production level of around 120,000 barrels of oil per day (bopd) of 27 degree API crude. Gulf Keystone holds a 58 per cent stake in and operates the Shaikan oil field at a current level of around 40,000 bopd of 17 degree API crude. Production from Shaikan is transported daily by road tanker to DNO's unloading and storage hub at Fish Khabur for onward pipeline transport to export markets.
"We understand Shaikan's challenges and opportunities and we are well positioned to focus financial, technical, commercial and logistical support to maintain and then grow production at this field to the benefit of both Kurdistan and our investors," Mossavar-Rahmani added.
Gulf Keystone, a Bermuda incorporated and London listed company, has called a special general meeting for 5 August 2016 to consider its contemplated financial restructuring. DNO has written to the board of directors of Gulf Keystone to present its proposal and to facilitate immediate engagement with Gulf Keystone's investors ahead of the meeting to ensure sufficient time for these investors to carefully consider the enhanced terms proposed by DNO.
DNO has retained Pareto Securities AS as financial adviser and Freshfields Bruckhaus Deringer LLP, Advokatfirmaet Thommessen AS and Conyers Dill & Pearman Limited as legal counsel in connection with the transaction.
In a statement released this week, Gulf Keystone said that it was focussed on its own restructuring efforts and would not entertain bids until after that process was compete.
"The Board has concluded that completion of the Restructuring best serves our stakeholders and we will not engage in any additional process that causes the Company to be distracted from that objective. The Company has responded to DNO accordingly," the statement read.