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Gulf Keystone Petroleum Limited Gets A Boost From Court Ruling

oilGulf Keystone Petroleum (LSE: GKP) has won yet another victory over Excalibur Ventures and its partners. Indeed, news has emerged today that Lord Justice Christopher Clarke has ordered the nine parties who funded Excalibur’s lawsuit, to pay Gulf Keystone’s outstanding legal costs. 

This ruling comes after Gulf Keystone won the billion-dollar dispute over its oilfields in Iraqi Kurdistan. Excalibur failed, in what has been called an “opportunistic” attempt, to claim a $1.65bn share of oilfields owned by Gulf Keystone. So far, Gulf Keystone has already recovered £17.5m in legal costs and this latest ruling should, draw a line under the whole debacle.

However, while this is great news for Gulf Keystone and the company’s shareholders, the company can’t afford to celebrate just yet as it is in the middle of ramping up production.

Production targets

Gulf Keystone is currently in the middle of increasing its oil production to a targeted 40,000 barrels per day. The company is expecting to hit this target during the first quarter of 2015, if everything goes to plan and there are no further disruptions to the company’s operations within Iraq. 

According to management the foundations are already in place for this production increase. So, Gulf Keystone’s earnings should be set for a boost next year after a full-year of production at 40,000 bopd. 

Further, the company is targeting production of 66,000 bopd by the first quarter of 2016.

Based on the company’s current production targets for 2015, City analysts believe that Gulf Keystone will report its maiden profit next year. Current City figures are calling for the company to report earnings per share of 6.2p for 2015, which implies that Gulf Keystone is currently trading at a 2015 P/E of 8.6. 

Stumbling block 

Nevertheless, despite these lofty production targets, Gulf Keystone has yet to agree a regular payment plan for its crude with the Kurdish Regional Government. 

However, according to management there should be an agreement, regarding payment, in place by the end of the year. Still, it’s likely that investors will be wary of the company until it has established an payment plan with the regional government, which according to recent figures, still owes the company £21m for crude exports.  

Until a payment plan is in place, Gulf Keystone is being forced to sell its crude into the Kurdish domestic market, for which it is receiving a below market price. 

But when a payment plan is in place, the company has stated that it will begin export the majority of its crude. There’s no doubt that the company will be able to achieve a higher selling price for its oil in the international market. 

It’s up to you

Overall, today’s news is yet another piece of good news for Gulf Keystone, as the company continues to progress with its development plans.

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Rupert Hargreaves 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.