Does GKP's Health Depend on Talabani's Health?

PUBLISHED: 21 Dec 2012 @ 02:18 | Comments (1) | More info about Lou Gutheil

It has not been a good year for the Gulf Keystone Petroleum (LSE:GKP) share price. Having recorded a record high of 425.00 on 20 February, the share price has slipped dramatically during the balance of the year. As of midday today the price was at 172.00 and continuing to decline. It is now 18.00 below 30 December 2011. It’s apparent that investors are concerned about something.

At first I though it might have something to do with the Mayan calendar. We’ll know for sure tomorrow. The more I thought about it, that didn’t make sense, unless some blokes think that they can take it with them. I know a guy who won’t go Christmas shopping until tomorrow, because he doesn’t want to waste his money if there is no one around for Christmas. Once heart rates return to normal on Saturday we’ll be able to see how big an issue Iraqi President Talabani’s health might be for GKP. Talabani suffered a stroke on Monday and has been in a coma. Today he was transported to a hospital in Germany for further treatment.

Let’s ponder for a minute or two about the situation in which GKP finds itself and why Talabani’s health might or might not matter.

In July 2009 GKP decided to begin a withdrawal from its operations in Algeria, ostensibly “to focus on its extensive operation in the Kurdistan Region of Iraq.” I don’t know what the real underlying reason for that decision were, but I do know that it had something to do with money and nothing to do with jumping from the proverbial frying pan into the fire.

Let’s put it this way. If you were going to start an oil and gas exploration company where would you choose to explore? I mean other than the obvious answer, “Where the oil is.” let me rephrase that. Would you pick a place like Iraq to place all your bets? More definitively, would you pick the hotly contested and politically volatile Region of Kurdistan? Add those two together and you have “unstable + more unstable = very unstable.” Would you pick a place just a few kilometers from the Syrian and Turkish borders to establish your primary sites? Okay, I’ll give GKP a break on this one in that the war in Syria did not officially break out until 2010, but it wasn’t hard to see it coming. GKP had to be thinking that the potential upside outweighed the potential downside risk. Not all investors like that much risk.

Locating near the Turkish border was a practical necessity for two reasons: That’s where the oil fields are and that is where the pipeline begins it journey across Turkey to to port of Ceyhan. With the pipeline running virtually along the Syrian border as it leaves Iraq, it sits in danger of saboteurs and spill over from the Syrian civil war.

Add to this that the central Iraqi government is in heated “debate” with Kurdistan. Seems that the federal government does not like the fact that, in the reconstruction of Iraq, the Kurds were allowed to control the oil in their region, i.e., the revenues flow to the Kurds instead of the central government. Read the ADVFN story “Iraqi President in Coma. Is Iraqi Oil in Jeopardy?” that was published on our site yesterday to see how diversion of what would normally be federal revenue impacts the Iraqi federal government.

So here is the issue with Talabani’s health. He may be the Iraqi president, but he is also a Kurd. The Prime Minister of Iraq, Nuri al-Maliki, is a Shia Muslim. The two men do not exactly see eye-to-eye. Whilst al-Maliki, who is also the commander-in-chief of the Iraqi army, has lined up troops along the border of Kurdistan, threatening to invade, President Talabani has been trying to play the role of peacemaker on behalf of his Kurdish constituents.

In the past several weeks, several bombs have exploded in Kirku, Kurdistan. The Kurds have lined up their soldiers at the border to confront the Iraqi army. The Kurds have declared that if even one of their soldiers is killed, “It is war.”

There are many more contributing circumstances which space does not permit us to discuss. Suffice it to say that GKP and other major oil companies like ExxonMobil have developed operations in a tinderbox that might be on the verge of blowing up in their faces. The question is, “Does keeping the peace depend upon the continuing health and influence of Iraqi President Talabani?” It could. It very well could.

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