Is Gulf Keystone Petroleum Limited A Better Bet Than Premier Oil PLC And Tullow Oil plc?

If your oil share prices are crashing along with the price of oil, you might like to take a look at Gulf Keystone Petroleum (LSE: GKP) instead.

Oil prices started to drop towards the end of June last year, but by the end of September a barrel of Brent Crude still cost more than $100 and was still up on the start of the year. But since then, it’s slumped to around the $50 mark, and plenty of oil shares have gone with it.

Nose-diving shares

Over the same period, Tullow Oil (LSE: TLW) shares have shed 39% to 399p, taking their 12-month loss to 52%. Unlike Gulf Keystone, Tullow has already been churning out profits and pays a modest dividend, and though there is a loss per share expected for the year just ended, analysts are forecasting growth for 2015 and 2016. But the shares are on a forward P/E of 26 this year, dropping only as far as 16 next.

Premier Oil (LSE: PMO) has done even worse, with a 56% price fall since the end of September, to 148p. Premier is bringing in the cash and has a 3% dividend yield expected for 2014, and its shares are on a P/E of only around 6 based on 2015 forecasts. But though its operations further afield are still looking good, it’s pretty much impossible for Premier to make a profit from the North Sea at current prices — and that’s led to big falls in earnings forecast for the next two years.

But in contrast to these two, Gulf Keystone (LSE: GKP) shares are actually up, by 4%, over the same timescale to 64p. But why? There are at least two reasons.

Rapidly-rising production

For one, extracting oil from the Kurdistan region of Iraq is significantly cheaper than from other parts of the world, like deep under the sea, and production is expected to ramp up rapidly in the coming months and years. In a mid-December update, Gulf told us that the installation of flow lines to several more wells was complete at its main fields at Shaikan, and that its total production would increase from around 24,000 barrels per day.

On 5 January, we got confirmation that production had been ramped up to 40,000 barrels per day by 27 December. And another well, Shaikan-11, has been spudded and will be linked to the new flowlines.

Another reason the price has been steady recently is that it was already badly depressed due to fears of unrest — we are, after all, talking about Iraq here. In fact, over the past 12 months the price has fallen by 64%!

Low valuation

But first profits are expected to roll in this year, and earnings per share should more than treble ny 2016 to put the shares on a P/E of under 6 — if forecasts prove accurate.

If I was the kind of investor who went for smaller oilies, I’d be taking a close look at Gulf Keystone at today’s share price.

Whether or not you invest in oil, if you follow a very simple approach to investing, you should be well on the way to financial security.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.