Gulf Keystone Petroleum shares (LON:GKP) perked up on Monday after the company said local sales of crude from their Kurdistan oil field had increased during September.
Even after Monday morning’s 12% rally, GKP shares are down heavily over the past six months and look good value for investors prepared to take high levels of risk.
Earlier this year, Turkey shut the Kirkuk–Ceyhan export pipeline, also known as the Iraqi–Turkish pipeline, due to infighting between the KRG and the central Iraqi government which resulted in Turkey paying $1.5bn in damages to the central Iraqi government due to the breach of an old oil transit agreement.
The inability of Gulf Keystone Petroleum to make deliveries through the pipeline cut off their revenue and sent shares into freefall.
Gulf Keystone Petroleum is owed $151m by the Kurdistan Regional Government (KRG) for oil shipments between October 2022 to March 2023. The payment of the outstanding amount and the resumption of oil exports are crucial for the future of GKP and shareholder returns.
Hopes exports would soon recommence were given a boost when officials met in August but little has changed since.
Talks between the KRG, the Iraqi Ministry of Oil and Turkish authorities have been ongoing for some time, yet no concrete timeline for resumption of exports has been announced.
Gulf Keystone Petroleum has resorted to local sales to support operations. Today, the company announced crude sales amounted to 28,800 bopd between 1st-24th September, an increase on the 17,200 bopd sold in August.
Local sales pale in comparison to export revenue and the company is undergoing substantial cost-cutting in the absence of payments from the KRG. The company said current localised sales to refineries in Kurdistan are now covering costs.
The company is reasonably well-capitalised as a result of the cost-cutting exercise and securing local crude sales. As of 30th August 2023, Gulf Keystone has cash balances of $82m and no debt. Cash was $80m earlier in August.
Should Gulf Keystone Petroleum receive the $151m owed to them, cash would total over $230m – marginally below the current market cap.
This would make GKP tremendously good value. Bear in mind, that this company was paying a healthy dividend to investors before the pipeline shut this year.
That said, ‘when’ and ‘if’ Gulf Keystone Petroleum receive this payment is a major uncertainty, as is the resumption of export sales.