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Gulf Keystone Petroleum Limited Up On Positive Shaikan Production Update

Having regularly updated the market with its progress in the Kurdistan region of Iraq in previous months, 2015 has kicked off with yet more encouraging news flow from Gulf Keystone Petroleum (LSE: GKP).

The latest news (released today) is a production update of its operations at Shaikan, which is its key producing asset in the Kurdistan region of Iraq. The key takeaways are that the existing Shaikan production facilities are now producing from seven wells, with Shaikan-8 expected to come online this month. In addition, the company recently spudded Shaikan-11, an additional producer, and this will be tied to the production facilities via a flowline that is already in place.

Furthermore, total daily production has now reached the company’s 40,000 gross barrels of oil per day target and, as further evidence of the company’s success in producing and exporting oil from the region, on 29 December a record number of 354 trucks were loaded at its production facilities. Together, they carried a total of 58,000 gross barrels of crude to Turkey for export. This is extremely positive news for the company and represents a 300% increase in production since January 2014, with Gulf Keystone Petroleum continuing to target ever higher production from its operations at Shaikan.

Positive News Flow

Of course, such strong production and export numbers are being backed up by an improved financial outlook for the company. For example, the Kurdistan Regional Government (KRG) recently initiated payments to oil producers in the region, with Gulf Keystone Petroleum receiving its first payment of $15 million last month. This is due to be the first in a series of payments and gives the company a brighter financial outlook.

In addition, Gulf Keystone Petroleum has been able to deliver excellent operational updates despite a highly challenging situation in Iraq. Certainly, its share price has been hit hard by declining investor sentiment and a falling oil price over the last year (its shares are down 63% during the period), but the company continues to perform exceptionally well, with it targeting production of 60,000 bopd over the medium term.

Looking Ahead

Despite this, there remain a number of key challenges that may hold back the company’s share price performance during 2015. For example, further weakness in the price of oil could cause sentiment to decline, while the situation in Iraq appears likely to remain unpredictable throughout the course of the year. In addition, disappointment with regard to payments from the KRG and setbacks regarding production could also impact on Gulf Keystone Petroleum’s share price in the months ahead.

So, while today’s update represents yet more positive news flow for the company, its share price may continue to disappoint over the short to medium term. Certainly, its longer-term prospects appear to be relatively bright, but there remain a number of risks on the horizon that could mean that investors are able to buy a slice of Gulf Keystone Petroleum at a keener price than is the case today.

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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.