Could Gulf Keystone Petroleum Limited Be The Perfect Portfolio Partner To Royal Dutch Shell Plc?

gulf keystone

2014 has been a very different experience for investors in Gulf Keystone (LSE: GKP) than it has been for their counterparts in Shell (LSE: RDSB). That’s because, while the former has seen its share price fall by 59%, the latter is up 9% year to date.

The future, though, could be bright for both companies and they could be worth combining in your portfolio. Here’s why.

Great Differences

Clearly, Gulf Keystone and Shell are very different companies. They are of hugely different sizes, with Shell’s market cap being £197 billion and Gulf Keystone’s being just £626 million. Furthermore, their respective qualities as investments are worlds apart, too.


For example, Shell offers relative stability in the highly uncertain world of oil exploration and production. It has a vast level of diversification that helps it to maintain a relatively consistent level of profit and, as we have seen during the course of 2014, its cash flow is also going from strength to strength. This is being aided via a disposal programme that aims to turn Shell into a leaner, more efficient and more profitable company in future.

Gulf Keystone

Meanwhile, Gulf Keystone is a far more speculative investment opportunity. Although its recent interim results showed that the company is making progress, it remains susceptible to further unrest in the Kurdistan region, where it has a large operational presence.

Indeed, Gulf Keystone offers far less diversification than Shell but it could also offer more upside potential. That’s because the company is forecast to post a pre-tax profit of £80 million in the current year and, with oil majors seeing their cash flow improve steadily in recent months, there is speculation that Gulf Keystone could be the subject of a takeover approach.

Looking Ahead

Both companies trade at price to earnings (P/E) ratios that appear to offer decent value for money (Shell has a P/E of 10.7, while Gulf Keystone’s is 12.7), and the two stocks could also have bright futures as investments. For Shell, an increasing dividend should help to keep demand for its shares very buoyant (it currently yields an impressive 4.6%) and its new strategy of slimming down the business should mean a continuation of improved sentiment moving forward.

For Gulf Keystone, the future could also be bright. Its recent update showed that good progress was being made at the Shaikan field and the company is on track to meet its target of 40,000 bopd by the end of the year. This, as well as more takeover rumours, could improve sentiment and send shares in the company higher.

So, with a potent mix of income, value, growth prospects, improving sentiment and takeover potential, Shell and Gulf Keystone could make for a profitable combination in Foolish portfolios. However, they're not the only stocks that could boost your portfolio returns, as highlighted in our latest free and without obligation report: Where We Think The Smart Money Is Headed.

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Peter Stephens owns shares of Royal Dutch Shell. 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.