Gulf Keystone Petroleum (LSE: GKP) is an oil and gas exploration company, which operates in the Kurdistan region of Iraq.
A series of setbacks the firstCompetent Persons Report on the company only confirmed a much lower than hoped-for volume of reserves, the loss of five directors(including founder Todd Kozel), and parts of Iraq close to Gulf Keystones operations being seized by theIslamic State militia has resulted in the companyshare price plummeting 63% so far in 2014.
So, what reasons might there be to buy shares in the company? Or, of you already own some, why might you want to hold on them, or even sell?
Yesterday the company announced that itsworking on bringing three more production wells on-line before the end of the year, and that its looking forward to reaching its target of 40,000 gross barrels of oil per day. It also said that, despite the continuing hostile working environment, staffing levels in the Kurdistan Region have now returned to normal
The update saw Gulf Keystones share price jump almost 15% by lunchtime yesterday, although its since fallen back to around 3%above Tuesdays close.
True, its always going to a high-risk investment, but if Gulf Keystone canmeet its production target, and if further wells show that reserves are close to expected, improved market sentiment could push the share price up significantly, making now an excellent time to have bought.
If youve been holding Gulf Keystone for a while having originallybought in the full knowledge that it was a risky proposition you may well take the view that, as things are now starting to look more positive, holding onto your shares makes sense.
Theres always going to be a huge downside to this sort of investment the reserves may not prove to be as large as was hoped, the situation in Iraq could easily get much worse before it gets better, or a completely unexpected problem could strike at any time but you knew that to begin with.
However,with the share price having fallen so far, the potential upside (albeit on a now much-reduced amount of your original investment) is arguably that much greater.
And theres always the chance (butdefinitely no certainty, of course)that an oil-giant might make a bid forGulf Keystone, which could put a healthy premium on its value.
Its an oilcompany thats operating in a war zone.What betterreason do you want?
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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.