Is Gulf Keystone Petroleum Limited a top small-cap recovery play for 2018?

Is 2018 set to be the year Gulf Keystone Petroleum Limited (LON: GKP) finally makes a comeback?

| More on:

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.

Small-cap, Iraq-focused oil producer Gulf Keystone (LSE: GKP) has a chequered past, but it’s beginning to look as if the firm is moving on from its previous mistakes. 

After undergoing a momentous restructuring at the end of 2016, the company’s management spent much of 2017 trying to stabilise the business. A low oil price has hampered efforts to rebuild, but now that the price has recovered to levels not seen since the end of 2014, Gulf Keystone’s outlook has improved considerably. 

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Putting the past behind it 

Today, the company announced that in 2017 production hit 35,298 barrels of oil per day, which was in the middle of last year’s guidance of 32,000 to 38,000 bopd. However, for 2018, management is expecting production to come in at a slightly lower rate of between 27,000 to 32,000 as it continues to work on a delayed investment plan for the year.

The company is looking to “significantly increase investment in Kurdistan to step up gross production to 55,000 bopd in the near to medium term, a material step towards development of the full potential of the field and production around ca.100,000 bopd,” according to CEO Jón Ferrier. 

There’s plenty of headroom available on the balance sheet to pursue this production plan. At the end of June, the firm had net debt of $2m with cash reserves of more than $100m. Since this date, Gulf Keystone has continued to receive payments from the authorities for oil exports and its net cash position has improved to $47.2m

Gulf Keystone has a plan in place to grow and has the cash to pursue development. However, the firm will only be able to succeed if the political situation in Iraq stabilises. Unfortunately, it does not look as if this is going to happen anytime soon. So, while the company’s outlook has improved dramatically over the past 12 months, I’m hesitant to say that it’s in the clear just yet. 

Production stability 

A better oil price recovery play for your portfolio might be Amerisur Resources (LSE: AMER). Focused on South America, specifically the relatively politically stable regions of Ecuador and Colombia, Amerisur has a much brighter outlook than Gulf Keystone. 

For the past few years, the company has been consolidating its position in the regions it operates, buying new prospects and investing in operations to improve efficiency. 

These efforts are starting to pay off. It exited the year with production of 7,000 bopd, compared to the average daily production for the year of 4,862 bopd. Based on this higher output, coupled with higher oil prices and fatter margins thanks to the commissioning of a new pipeline, City analysts expect Amerisur’s net profit to hit £3.1m for 2017, rising 11-fold to £38m for 2018. Based on these forecasts, the shares are trading at a forward P/E of just under 10. There’s also $20m of net cash on the balance sheet. 

Overall, if you’re looking for a small-cap oil producer to add to your portfolio, I’d choose Amerisur over Gulf Keystone, thanks to its rapidly growing production and profitability.  

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

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

Best British dividend stocks for July

We asked our freelance writers to share the top income stocks they’d buy in July, which included Dividend Aristocrats and…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »