Which Is Riskier: Gulf Keystone Petroleum Limited Or Falkland Oil and Gas Limited?

Does Gulf Keystone Petroleum Limited (LON: GKP) face bigger hurdles than Falkland Oil and Gas Limited (LON: FOGL)?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Oil explorers come with risk, that’s a given. But sometimes the risk can be atypical, as we’ve seen with Gulf Keystone Petroleum (LSE: GKP)(NASDAQOTH: GFKSY.US). Gulf has found the oil, in very nice quantities, and it has the infrastructure in place to get it out and shipped — but it’s having trouble getting paid by the government of the Kurdistan region of Iraq.

Falklands Oil and Gas (LSE: FOGL), on the other hand, is still looking for the oil. But at least its not under the yoke of a temperamental government — assuming that Argentina’s latest outburst is just hot air.

Neither company is profitable yet, but which is the riskier?

Exploration risk

The risk for Falklands Oil and Gas is really pretty traditional, in that it’s still in the net investment and exploratory phase. The company is the largest of six operating around the Falkland Islands, and has embarked on a new drilling programme of six wells targeting more than 1.3 billion barrels of the stuff.

The risk, as always, is that it will run out of cash before it makes sufficient discoveries, but right now that doesn’t look too worrying — the company’s 2015 operations are well funded, and at 31 December it had around $100m of cash and no debt.

Oh, and the Argentinian legal threats are indeed groundless, as the UN has long ago ruled that it has no legal jurisdiction.

Gulf Keystone, on the other hand, looks like it should be a sure-fire winner — at least on the face of it. In 2014 it produced approximately 6.5 million barrels, and there’s a big increase expected for 2015. In fact, in December it hit its milestone of 40,000 barrels of oil per day. And it’s selling the stuff — except for actually getting paid for it.

Where’s the cash?

With revenue of $38.6m in 2014, the company recorded a loss after tax of $248m — a good part of that being due to the $100m it’s owed for exports but has so far been unable to actually get its hands on. Gulf is having to sell a lot of oil domestically for lower prices, and it has received a $26m pre-payment, so that’s promising.

But the debt is building up, with $240m raised in debt securities and associated warrants a year ago, though the firm only had cash of $85m at its disposal by April this year. Gulf is striving to get a regular export payment cycle established, and that’s going to be crucial to its survival — though the Kurdistan government is hardly the most stable and business-focused in the world.

Chairman Andrew Simon said that “2014 was a pivotal year for Gulf Keystone as we completed the critical transition from explorer to producer“, and 2015 needs to be pivotal in getting paid for what it sells.

So which is it?

Oil exploration is too risky for me, but if I had to choose I’d go for exploration risk of Falklands Oil and Gas rather than the political risk faced by Gulf Keystone.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »

Growth Shares

This UK stock could be like buying Nvidia in 2021

Jon Smith thinks he's missed the boat with Nvidia shares, but flags up a UK stock that has some very…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The FTSE 100’s Intertek delivers a bullish update — can the share price soar?

I’d describe Intertek as a quality business with a decent dividend income, but will the share price shoot the lights…

Read more »

Market Movers

Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for…

Read more »

Investing For Beginners

Down 43% in a year, I think this value stock is primed for a comeback

Jon Smith flags up why a FTSE 250 share has fallen so much in the recent past, but explains why…

Read more »