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Does Gulf Keystone Petroleum Limited’s Update Mark The Perfect Time To Buy?

gulf keystone

2014 has been hugely challenging for investors in Gulf Keystone Petroleum (LSE: GKP), with shares in the oil and gas exploration company falling by 62% since the turn of the year. The key reason for the fall is weak sentiment, brought on to a large extent by continued uncertainty in Iraq and the Kurdistan region in which Gulf Keystone Petroleum operates.

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However, after a positive update today, shares in the company are up 7% at the time of writing. Could this be the turning point and, more importantly, is Gulf Keystone Petroleum worth buying right now?

On Target

The thrust of today’s update is that the company is on track to meet previous guidance. After a turbulent few months, staffing levels are back to normal and the company remains focused on achieving the target of 40,000 barrels of oil per day (bopd) of production capacity from the Shaikan production facilities. This is in line with guidance provided in the recent half-year report and, since then, production from the field has been stable, which is positive news for investors after a turbulent few months.

Looking Ahead

Today’s update is a big step in the right direction for Gulf Keystone Petroleum. Clearly, it has no control over the stability of Iraq and the surrounding regions, but today’s release shows that it can operate as normal and deliver a degree of stability even while the region is relatively unstable at present. This bodes well for the company’s bottom line, which is due to show a profit in the current financial year, as well as next year.

Improved Sentiment

As a result, the market’s confidence in the company’s ability to deliver on its previous guidance should improve significantly due to today’s update. Certainly, it remains a high-risk play, but the market may come to the view that if it can operate at normal staffing and production levels under present circumstances, it is capable of delivering strong performance in the long run.

Indeed, it appears as though sentiment is the key to the performance of Gulf Keystone Petroleum’s share price over the short to medium term. Certainly, a worsening of the situation in Iraq would have a major negative impact on the share price, but if the company can deliver on its forecasts then shares could head northwards at a brisk pace. After today’s update, the market should have a lot more confidence in the company to do this and, as a result, further share price gains could be on the cards.

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Peter Stephens 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.