Gulf Keystone Petroleum is on the slide after more problems in Iraqi Kurdistan.
The company has suspended truck deliveries of crude for overseas markets in favour of local sales because it is still waiting for export payments from the Kurdish government. It said it was in talks with the government about the outstanding money and about a stable payment cycle for future payments. It said the suspension was likely to be a short term measure and added:
The company is actively working towards an early pipeline access solution for Shaikan [its main producing asset] crude which will provide significantly improved margins that trucking to the export market.
It said it was taking a prudent approach to capital expenditure and added:
A number of longer term financing options are currently being progressed by the board.
Falling crude prices have hit oil companies, prompting investments to be cancelled and jobs to be cut.
In Iraq there is also the difficulty of the autonomous Kurdish government’s claim for oil independence, which lead to a temporary agreement with Bagdhad in December after the two sides had been in dispute over the issue.
The news has sent Gulf Keystone’s shares down 4.75p or 9% at 47.75p although they have recovered from their lowest level of 43.25p earlier in the day. Analysts at SP Angel said:
Today’s news from the Company reminds us that it’s difficult enough with the current all price environment, let alone with the geopolitical environment swirling around Kurdistan presently. While Genel have proven that you can export at least 70m barrels a day by truck, a pipeline solution would significantly reduce operating costs and improve deliverability.
There have been a significant number of hurdles for the company to overcome in the past and the current operating environment (made more difficult by ISIL’s involvement) is not conducive to allowing a see-through valuation of the company’s underlying asset.
While we believe that current valuation the company represents an opportune time to invest, such is the discount to where we believe the value of the company lies and so extreme are the topsides threats, that until such times as they stabilise, it’s hard to recommend that anybody but the bravest and most long-term investor increase their exposure to the stock.
Westhouse Securities analyst Jamal Orazbayeva said:
Although the sales into domestic market is expected to be a short term measure until a regular payment cycle can be established for sales via the export route, Gulf’s margins will be diminished further. Gulf is also taking a prudent approach to its capital expenditure in 2015, meaning that the spend on Shaikan development in 2015 will be very limited, and in our view, there’s also more pressure on the balance sheet as the company is progressing a number of longer term financing options. The company has a total of $575mm of debt in high yield and convertible bonds. As previously announced, Gulf will publish its results for the year ended 31 December 2014 on Thursday 9 April 2015.
Aside from the current issue with payments, Gulf is still in a less advantageous position as it still needs access to a pipeline, which once again may take some time to address.
Cantor Fitzgerald was more positive, with analyst Sam Wahab saying:
Historically 100% of Shaikan production was being trucked to the Turkish port of Dortyol and sold to the international market by an authorised transportation and marketing agent of the Kurdish government. These export crude oil deliveries by truck have been temporarily suspended, but this is expected to be a short-term measure, until a regular payment cycle can be established.
Establishing a pattern of regularity for its crude exports remains the focus of the market. We reiterate our view that Gulf is well-funded ahead of an active appraisal campaign at Shaikan in particular (Gulf spudded Shaikan-11 in December 2014, an additional producer, which will be tied to PF-2 through the 11km flow line, already in place). We maintain our buy recommendation and target price of 148p.
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