T5 set for summer deal with Gulf Keystone

T5 Oil and Gas — the Dublin and London-based exploration firm headed up by former Tullow Oil directors — is expected to take control of loss-making UK explorer Gulf Keystone before the summer.

The transaction is likely to take the form of a $50m (€47m) reverse takeover, with Gulf paying that much in its own shares for T5 and the latter, through that shareholding, effectively taking control of the London firm and inserting its own board and management.

The much-touted deal was thought to have been sidelined by Gulf’s recent $40m capital raise and the departure of chairman Simon Murray who was in favour of talking to takeover or investment partners as the preferred rescue remedy for the business.

However, it is felt within the industry that Gulf — which has an attractive asset base in Kurdistan, but is debt-laden and loss-making — will need much more investment and that the capital raise is effectively just a ‘stop-gap’ measure.

T5 has remained firmly interested; with the firm’s chances apparently being further strengthened by supposed rival bidder Genel Energy becoming more of a target in the market itself. While Royal Dutch Shell’s near £50bn move for BG Group has stolen the headlines, it is felt M&A activity in a sector rocked by the slump in oil prices is only beginning.

Earlier this week, Gulf Keystone reported after-tax losses of $248.2m for 2014 (up from $32m), although revenues grew from almost $7m to just under $39m.

The company’s interim non-executive chairman, Andrew Simon said Gulf remains committed to rebuilding shareholder value.

“All avenues for doing this are being considered... the company is continuing to engage in discussions with interested parties, in relation to possible asset transactions or a sale of the company, as well as considering additional routes to secure further funding,” he said.

Speaking yesterday, T5’s head, former Tullow Oil chairman Pat Plunkett, declined to say if he was confident a deal would be done. According to one industry source, however, even though the likes of Exxon Mobil had been touted as possible suitors for Gulf, T5 and Genel were more realistic and T5 is now the most realistic. The same source suggested a deal could be completed this side of the summer.

Mr Plunkett said the process is not moving forward at present, but his company would like to see it progress. He added that the deal model would allow Gulf’s existing shareholders maintain their interest, whereas a traditional takeover obviously would not, and that T5 could broaden Gulf’s portfolio —both in terms of geographical spread and asset base. Gulf is, currently, very reliant on outstanding payments from the Kurdistan Regional Government.

Meanwhile, Mr Plunkett also said this year will see T5 become very active in the marketplace. The company is eyeing firms and assets in need of investment, from which it will build a portfolio of licences, and has identified around six investment/reverse takeover targets active in the African and Middle-Eastern regions.

Earlier this year, T5 distanced itself from speculation that it might look to seize control of London-based/African-focused explorer, Afren. The investment firm is not interested in mounting any hostile bids for potential targets.