Interactive Investor

Gulf Keystone at full-strength in Iraq

1st October 2014 11:47

Lee Wild from interactive investor

Gulf Keystone Petroleum shares received a rare boost on Wednesday with a brief update on production and sales at its flagship Shaikan field in the Kurdistan region of Iraq. Staffing levels are, at least, back to normal after recent violence forced management to warn that plans to double production there could be delayed.

Since the end of August, production has averaged 23,000 barrels of oil per day (bopd), still some way short of the 40,000 bopd target. Management has already admitted that it's unlikely to achieve that level of production until the first quarter of 2015, but has failed to shed any further light on a possible date.

About 70% of current production is being trucked to export terminals at the Turkish port of Dortyol and sold by the Kurdistan regional government's Ministry of Natural Resources (MNR). However, GKP still hasn't been paid for any of this, and talks with MNR about a payment cycle for past and future Shaikan exports "are progressing."

(Click to enlarge: Source: GKP)

(Click to enlarge: Source: Caerus Associates)

The other 30% is being sold to local buyers - they've bought about 220,000 barrels since 28 August. That's generated $9.4 million in gross revenue of which GKP has received $5.9 million.

Westhouse Securities need more convincing. "We remain cautious on GKP and see Genel Energy as a better way to play the resource opportunity in Kurdistan." It rates Genel a 'buy' with 1,100p target price.

GKP has tested technical support and around 62p, which has held up for now. Clearly, ramping up to 40,000 bopd and agreeing payments with the MNR will make the shares more investible. Until then, and with war raging on its doorstep, the share price will likely remain incredibly volatile.

A third-quarter update is pencilled in for 30 October.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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