What You Were Selling Last Week: Gulf Keystone Petroleum Limited

gulf keystoneOne of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful”. Or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been selling recently might well provide us with some ideas for investments that may be past their prime

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been selling in the past week or so, and what might have made them decide to do so.

No bed of roses

It’s really not been a good year so far for shareholders in Gulf Keystone Petroleum (LSE: GKP).

Last year wasn’t exactly a bed of roses — Gulf Keystone’s share fell by as much as 35% at one point in 2013, but it clawed its way back up (and down and up again) to end the year only slightly below its start-of-year level.

But 2014 has been a disaster.

To begin with, the  first Competent Persons Report (CPR) on Gulf Keystone, published by ERC Equipoise in March this year, only confirmed “proved and probable” reserves in the Shaikan and Sheihk Adi fields of  299m barrels of oil, putting Gulf Keystone’s share at just 163m barrels. The report also put the gross oil in place at  12.5bn barrels — over a third lower than previous estimates, and less than had been estimated for Shaikan alone. 

The market reacted badly to the report’s contents and Gulf Keystone’s share price dropped close to 30%.

Director departures

The situation wasn’t improved when three board members — finance director Ewen Ainsworth and three non-executive directors— left Gulf Keystone in June, followed in July by the departure from the board of highly controversial CEO and founder, Todd Kozel, together with yet another non-exec.

That said, Kozel’s stepping down as CEO would have been greeted with pleasure by many shareholders, who had long been dismayed by his more than somewhat generous remuneration package, and his replacement, John Gerstenlauer, is an industry veteran, having started his career with a division of Shell in 1978.  

By the middle of July, Gulf Keystone’s share price was down nearly 50% since the start of the year.

The fog of war

But if all the company-related bad news weren’t enough, Gulf Keystone now finds itself on the edge of what amounts to a war zone, as Islamic State — the jihadist militia formerly known as ISIS — tries to impose its caliphate on Iraq by force.

Although Islamic State has recently seized some key oilfields in Kurdistan, Gulf Keystone’s operations are probably not under direct threat. Even so, having a war going on next door can only complicate matters, and Gulf Keystone could well be indirectly affected by any problems with infrastructure caused by the mounting conflict, and by the inevitable disruption to business in Iraq in general.

As a consequence of the above — and despite gaining a main-market listing and starting commercial production this year — Gulf Keystone’s share price is now down 56% so far in 2014, compared with a FTSE All-Share index that has barely moved either way), and there are no immediate reasons why it should go up significantly again any time soon. 

So, perhaps some shareholders had simply had enough last week, and decided to put their money into a less troubled venture, thereby securing Gulf Keystone the number one spot in our latest Top Ten Sells list*.

There may be an argument to be made that perhaps things can’t really get worse, and maybe now is the time to bag an oil share at a bargain price. If things were to start going Gulf Keystone’s way, its share price could rocket. 

But, of course, things can always get worse, so you’d need to think very carefully before deciding what to do.

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Jon Wallis 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.

* based on aggregate data from The Motley Fool ShareDealing Service.