The Motley Fool

Has Gulf Keystone Petroleum Limited Turned The Corner?

gulf keystoneIt’s not been a great year overall for Gulf Keystone Petroleum (LSE: GKP), the oil explorer and producer working in the Kurdistan region of Iraq. The latest turmoil in the country, coupled with the advances made by the Islamic State forces and legal challenges to its oilfields posed by Excalibur Ventures, had led to a 75% fall in the share price since the start of the year to just 43p by 15 October.

Storming back

But since then, the good news has been coming thick and fast, and the shares have recovered 67% to 72p.

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Excalibur’s claims to a share of Gulf Keystone’s fields has been dismissed, and the latest ruling has ordered the parties who funded the lawsuit to pay Gulf Keystone’s outstanding legal costs — the firm has already recovered £17.5m in costs.

On a wider scale, the security situation in Kurdistan has improved significantly, and the company is back up to full staffing requirements in the region.

But perhaps the most important news of late concerns the delay of Gulf Keystone’s third-quarter interim update. On 29 October, the company told us that its Q3 statement, which was scheduled for 30 October, will be put back to 13 November pending the outcome of “constructive discussions currently taking place in Erbil with the Kurdistan Regional Government’s Ministry of Natural Resources” and to coordinate with the reporting scheduled of other producers in the region.

Steady cash, we hope

Most observers assume these “constructive discussions” mean that Gulf Keystone and the Kurdish government are close to an agreement on payments for oil. With around $35m owed to Gulf Keystone by the end of June, and doubtless more since then, the lack of a regular and prompt payment cycle has been a bit of  thorn in the company’s side.

With further news that Kurdistan is set to raise its exports from 280,000 barrels per day to 400,000 by the end of the year, coupled with the ongoing upgrading of its pipeline to Turkey to carry up to 700,000 barrels per day, progress at the current talks will come as a big relief to Gulf shareholders.

Then on 30 October we heard that Gulf’s Hungarian partner MOL has had its plans for the development of its Akri-Bijeel block in Kurdistan approved — Gulf has a 20% stake.

Gulf Keystone is not expected to start recording profits until next year, although there should only be a small loss in 2014. But the firm has assured the markets that it’s in a strong financial position and is not going to need further funds.

The start of something big?

All in all, this suggests 2014 is the end of the beginning for Gulf Keystone, and that anyone investing at today’s low share prices could be looking back in a decade’s time at a very canny decision — but you do need a strong stomach for the additional risks in the region on top of the usual oily uncertainties.

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Alan Oscroft 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.