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Gulf Keystone Petroleum Limited’s Kurdish Adventure Continues To Fray Nerves

If you’re investing in a company that is drilling for oil in Kurdistan, you clearly aren’t after a quiet life.

So investors in oil explorer Gulf Keystone Petroleum (LSE: GKP) will probably take Friday’s 17% drop in the share price on the chin. If you don’t have a stiff upper lip when you first invest in this stock, you quickly grow one.

Monday saw another 7% loss of value, knocking the share price to around 46p, almost 70% down on one year ago.

Shaikan All Over

The reason for the latest setback is a dust-up over non-payment by the Kurdistan Regional Government (KRG), which is the last thing Gulf Keystone needed, given its hefty $577m of debt.

The good news is that the KRG doesn’t deny owing the money and has pledged to pay up: we just don’t know when and how.

Gulf Keystone suspended its crude oil exports, although it has restarted domestic sales at its Shaikan field. This means some cash is coming into the coffers, but it’s not as lucrative as the crude shipped by truck through Turkey.

To add to the uncertainty, we don’t actually know how much KRG owes.

As if the falling oil price wasn’t already doing enough damage to the investment case…

Show Me The Money

Investing in Gulf Keystone Petroleum was always going to be like this. With more than 20% knocked off the share price in a couple of days, investors could just have been handed a buying opportunity.

It would be far worse if KRG was walking away from its commitments, but it is currently in talks with Gulf Keystone to rebuild a stable payment cycle for future exports.

Chief executive John Gerstenlauer said he remains confident that this will be established “in the near term”, and expects to receive payment for all past and ongoing Shaikan sales.

Cash Call

This latest setback is a shame, though, just as Gulf Keystone was nearing a breakthrough, with Shaikan on course to produce 40,000 barrels of oil per day.

There is further uncertainty over Gulf Keystone’s ongoing bid for long-term financing. Gerstenlauer claims to be progressing certain options, but the timing isn’t great.

Investors are pulling out of oil exploration at the moment, rather than taking risky bets. That may change if Brent Crude punches through the $60 a barrel ceiling and sentiment brightens, but that remains a big ‘if’.

Gulf Keystone’s new chief financial officer, experienced oil and gas investment banker Sami Zouari, has his work cut out. Nobody likes investing in a company that is burning through its cash. I hope your nerves are up to it.

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Harvey Jones 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.