The oil boss who wants to bore you
Gulf Keystone’s finance chief tells Francesca Washtell of his plan to quietly repair the oil firm.
From his relaxed demeanour, it’s hard at first to believe Sami Zouari, Gulf Keystone Petroleum’s chief financial officer, when he says he found it an “exhausting” process bringing the company back from the brink.
Earlier this month, the Kurdistanfocused oil group sealed a giant debtfor-equity swap that wiped $500m of $600m worth of debt from its balance sheet, in a move analysts have already dubbed a “phoenix from the ashes” transformation.
When we speak a week later, Zouari says that although the deal was only announced publicly this summer, it had been on his mind since he joined Gulf Keystone in January 2015.
Under the terms of the deal, investors went from owning 100 per cent of the oil producer to just five per cent. Bondholders hold the rest. Following a $25m open offer, dependent on the restructuring being successful, existing shareholders have been able to reinvest in the company and technically own 14.5 per cent of the group.
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When it was announced in July, chief executive Jon Ferrier said it was the only way Gulf Keystone could avoid insolvency and carry on working its Shaikan oil field. “A good restructuring is when everyone is equally unhappy,” Zouari says.
"Indeed it doesn’t create lots of joy, but at some point the decision is made that this is the right structure for everyone, despite criticism."
Zouari describes Gulf Keystone as a company that is being “fully reset”, and not just with respect to its cash situation and its balance sheet.
“And what does that mean? You have proper management, you have a proper board. What we’re aiming for now is to become a normal company. I’d like people to see this as a new company. Or, as the chief executive [Jon Ferrier] likes to put it, a ‘boring’ company, so you know you’re not attracting scrutiny for the wrong reasons.”
For Gulf Keystone, this scrutiny is much more of a sticking point than for other companies.
The group’s reputation took a severe hit three to four years ago, when the scale of executive pay and a slew of corporate governance concerns came to light.
Founder and former chief executive Todd Kozel, former finance director Ewen Ainsworth and multiple non-executive directors stepped down in 2014 after shareholder interventions. Kozel’s annual pay had topped $21m at peak.
The scandal contributed to Gulf Keystone’s share price collapse, falling more than 99 per cent from over 411p at peak in 2012 to almost becoming a penny stock at 1.28p, on its last close on Friday. Investors are still clearly wary of its shares and the debt-for-equity swap.
By Friday its share price has fallen more than 70 per cent from recent peaks of 5p in June, before the restructuring was announced.
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This could change if Gulf Keystone ploughs ahead with its increased output plans. What attracted Zouari and Ferrier, he says, to work for Gulf Keystone, is the quality of the company’s Kurdistan asset.
Harvard-educated Zouari came to the company from seven years of investment banking at BNP Paribas, where he started in Middle East and North Africa commodities and rose to become its head of MENA. Prior to banking, he worked in the industry at Total and said he ultimately returned because his “heart belongs” to the sector.
Gulf Keystone’s onshore field in Iraqi Kurdistan has reserves of more than 620m barrels. At present the key priority is to maintain production at 40,000 barrels per day (bpd), but now that the restructuring has gone through investing in the field and upping output to 55,000 bpd will be the group’s next goal – although there is no fixed timeline just yet.
Compared to other Middle Eastern countries that have oil sectors with more than 60 or 70 years’ worth of experience, Zouari says Kurdistan is still at an “embryonic” stage that bodes well for huge future growth. Gulf Keystone’s fields have been (and are likely to remain) unaffected by so-called Islamic State, but missed payments from the Kurdistan government weighed on the company for a time.
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The regional government, Zouari insists, have done the best they can in trying circumstances, and payments have been fairly regular for more than a year now.
The other issue all oil producers have to contend with now is the price of oil. Halving in value from $100 a barrel in the second half of 2014 – and plummeting to below $28 in January of this year – it has weighed on producers worldwide.
However, Zouari is sceptical that a provisional deal reached by the Organisation of the Petroleum Exporting Countries (Opec) at the end of September will provide much respite for prices.
“Opec for me has lost credibility in every statement they are making at the moment about potential cuts or potential maintenance or caps. We’ve heard it so many times that now the price is not being very sensitive to those declarations,” he says.
Brent crude hitting what analysts have called a “sweet spot” of around $60 would be “good” for Gulf Keystone, Zouari says. Aside from the oil price, an unrelenting debt compromise, over-hauled management and time might be the greatest healers for this oil firm.