The message boards are buzzing aboutGulf Keystone Petroleum(LSE: GKP)and understandably so,withthe share price upalmost 20%, to 17.5p, at time of writing. This follows another action-packedday yesterday, when the price leaptmore than 18%. Investors are celebrating the long-awaited news that GKP may soon start to seehundreds of millions of dollars it is owed in back payments by the Kurdish Regional Government (KRG).
Gulf In Class
This should spell good news for another Kurdistan-focused explorerGenel Energy(LSE: GENL), which is also owed hundreds of millions, but investors havent bothered to throw a party on its account. Its share price is up less than 2% this morning.
On Monday, the KRG announced new payment terms for both oil explorers, which included an element for paying off some of the arrears that have been built. This news is more than welcome, although should not be overstated. The KRGwill shift away from the flat monthly payments that started in September, whichhas seen a total of $60m a month flow into Gulf Keystones coffers since then, and$100m into Genel. Instead, it will make payments that reflect the revenuederived from each producing field on a netback basis, using Brent crude as a benchmark.
The KRG saidit would also make a further payment, equivalent to 5% of the respective monthly netback revenue derived from each field, towards the recovery of outstanding entitlements. This ties payments to the oil price and, withBrentcurrently trading at less than $35, Barclays has pointed out that this might mean lower monthly payment levels, although this would be offset by payments to reduce arrears.
Payments are to be made within 10 working days of the end of each month, which could seethefirst money coming throughunder the new structure as soon as10 February.
Gulf Keystone is still waiting onarrears totalling $298.4m.Genels receivable balance is around $400m. Better still, it suggests that the KRG is keen to meet its obligations, no small order given the fight against Daesh, whereitis struggling to pay the wages of front-line fighters. Obviously, it will take time to clear those arrears, and investors should brace themselves for payment shocks or setbacks along the way.
Gulf Keystone, which has a 75% working interest in the Shaikan field, and Genel, which has a stake in the Tawke field operated by DNO and is the operator of Taq Taq, are a play on one of the most politically volatile regions of the world, but at least oil extraction costs are low. Turkish aggression is a growing concern, givenexcitable talk of direct military intervention or a showdown with Putins Russia. On the plus side, the Kurdshave the backing of the US, and aremaking good use of their powerful friend.
Kurdistan presents a world of riskbut it is good to see GKP investors being rewarded for their loyalty. I am still curious as to why Genel hasnt enjoyed the same lift, especially with Barclays saying the news isa positive for all of the companies operating in the region. Perhaps investors simply werent as worried, given its healthy cash position, with cash balances of $455 million at end 2015. Time will tell.
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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.