For many investors, 2015 has been a very challenging year. Thats because the FTSE 100 has fallen by over 2% since the turn of the year and, with its future being highly uncertain, investors are rather nervous about what the future may hold.
However, this loss pales in comparison to the 73% fall in share price of Gulf Keystone Petroleum (LSE: GKP). It has suffered greatly from the decline in the price of oil and in investor sentiment towards the sector over the last couple of years, but its shares have also tumbled as a result of political challenges in the region in which it operates.
Clearly, northern Iraq/Kurdistan is a relatively unstable region at the present time and its political future is unclear. As such, investor sentiment towards Gulf Keystone has slumped, with further concerns being brought about by a lack of clarity regarding payments for exported oil which are due to Gulf Keystone. Although the Kurdistan Regional Government (KRG) has promised to make payments in the past and has begun to do so, Gulf Keystone was owed $298.4m for past oil exports as at 30 September.
Today, though, Gulf Keystone has announced the receipt of $15m from the KRG for oil export sales in November. This follows similar payments made in September and October, which have allowed the company to meet its debt payment obligations in April and October. Furthermore, Gulf Keystone expects that these payments will continue in a regular manner and, crucially, it now expects the $298.4m in arrears to be considered for payment in 2016.
In addition, Gulf Keystone has reiterated is previous production guidance of 30,000 34,000 barrels of oil per day (bopd), with the company in the process of cutting costs across its operations. And, with a 114% increase in proven and probable (2P) reserves this year, its future suddenly appears to be considerably brighter.
Certainly, Gulf Keystone is moving in the right direction and, with a superb asset base, has the potential to increase its production and generate a significant amount of profitability in the long run. The problem for investors, though, is that the timing still appears to be relatively unfavourable. Thats at least partly because of the challenges of a low oil price, but also because of the high degree of uncertainty regarding the outlook for the region which has the potential to directly impact on the companys operational activities and also on its receipt of further income.
Moreover, with a number of high-quality oil companies trading at heavily discounted prices and offering (in many cases) profitability, dividends, excellent asset bases and operations in more stable regions, there appear to be better options available elsewhere for investors. As such, and with Gulf Keystones share price falling by 10% even after todays news, to me it appears to be a stock worth watching rather than buying at the present time.
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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.
