Right now I’m analysing some of the markets most popular companies to establish if they are attractive long-term buy and forget investments.
Today I’m looking at Gulf Keystone Petroleum (LSE: GKP) (NASDAQOTH: GFKSY.US)
What is the sustainable competitive advantage?
Gulf Keystone Petroleum’s competitive advantage is the company’s key asset, the Shaikan oil field, which sets it apart from its similar-sized peers.
Indeed, the Shaikan field is currently the world’s largest, onshore, independent oil field and is thought to contain around 2.7 billion barrels of recoverable resources. Actually, thanks to the Shaikan field, Gulf Keystone Petroleum’s oil reserves are greater than those available to many of the company’s peers.
In particular, at the end of 2012, larger peer Tullow Oil, only had 0.8 billion barrels of proved and probable oil reserves.
In addition, Gulf Keystone Petroleum has an interest in an estimated 19 billion barrels of probable oil reserves located within Kurdistan.
What’s more, Kurdistan is one of the lowest cost-per-barrel oil production regions in the world and in some places oil is literally seeping through the sand. With such a large discovery in place, Gulf Keystone Petroleum is likely to achieve strong economies of scale.
Company’s long-term outlook?
There are several risks that could affect Gulf Keystone Petroleum over the long term, the most important of which is the company’s ongoing court case with Excalibur Ventures and Rex Wempen who is contesting ownership of the Shaikan field.
That said, the case concluded back in March and written judgement is expected during the next few weeks.
Still, even if Gulf Keystone Petroleum loses, the company only stands to lose 30% of its interest in the Shaikan field, an insignificant amount considering the size of the project.
The second factor that raises concern about the company’s outlook is Kurdistan. Kurdistan is technically part of Iraq but is basically autonomous, which has led to some tensions between the territory and Iraq’s central government in Baghdad.
These disruptions have previously taken the form of blockades to prevent oil from Kurdistan reaching western markets. However, a pipeline to bordering Turkey should be finished by the end of the year, which should alleviate tensions.
I believe that Gulf Keystone Petroleum would make a good share to buy and forget, albeit more speculative than usual.
While the company lacks many of the key points that would usually be required for a highly defensive buy and forget share, the company has some world leading assets, which require time to develop and could prove to be highly lucrative.
So overall, I rate Gulf Keystone Petroleum as a good share to buy and forget.
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In the meantime, please stay tuned for my next FTSE 100 verdict
> Rupert does not own any share mentioned in this article.
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