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It’s been a month since I last wrote about Gulf Keystone Petroleum (LSE:GKP). Well, not exactly a month, but it was last month. To be precise in was on 31 July, just three days ago. The stimulus for the story was a 12.62% increase and turnaround on the theretofore declining GKP share price.
Friday’s News Was Operational
One day does not establish a trend. Neither does two, but two days are a hopeful indicator. Last Friday’s increase followed GKP’s most recent operations report, which cited continued operational progress despite the odds against it.
Today GKP’s share price has bolted upward by another 20.55% to close at 34.96. Shares opened precisely where they closed on the 31st, then floundered until 11:45 a.m. when it peaked at 36.63 and remained above 33.00 for the remainder of the day on abnormally heavy trading of 17.9 million shares.
Today’s News Is Existential
Friday’s good news came from Gulf Keystone itself. Today’s comes from the Kurdish Regional Government. What’s more, it is important to the prosperity and vital the existence of oil exploration and production for GKP and others in the region.
Cash flow is vital to any company, but it has been a major concern for oil producers operating in the Shaikan oil fields of Kurdistan. When cash is not flowing into a business, it doesn’t really matter how efficient its operations are, because the day is going to approach when it will have no more fuel to keep the engine running.
Getting paid for the oil produced and shipped has been the bigger problem (if you don’t count the peril of potential terrorist attacks) for GKP and others. The source of cash from operations is the KRG. However, an ongoing dispute between the Kurds and Baghdad over oil rights has effectively dammed the flow of available cash. And that’s not the only financial woes that the KRG has had while it is fighting to maintain its sovereignty and its own existence.
Today the Kurdish government made a written commitment to begin paying the oil companies operating in the region as of next month, September 2015.
In its statement, the KRG noted that “Crude oil export is the principal revenue earner for the Kurdistan Region. But, it is also recognized that it is difficult for the IOCs to sustain oil export at its current levels, let alone increase it as planned, without receiving their financial dues,” as well as citing the patience, perseverance, and positive approach of the oil producers.
For that, “the KRG will on a monthly basis allocate a portion of the revenue from its direct crude oil sales to the producing IOCs, to cover their ongoing expenses. Furthermore, as export rises in early 2016, the KRG envisages making additional revenue available to IOCs to enable them to begin to catch up on the past receivables due under their production sharing contracts.”
GKP’s CEO, Jón Ferrier, commented with subdued optimism, “Today’s statement made by the … our host government and long-standing partner, represents a further important step towards the establishment of a regular payment cycle for Shaikan crude oil sales pursuant to the Shaikan Production Sharing Contract.”
Today’s news is most certainly good, and the stock market activity for GKP share is almost certainly an indication that some investors are seeing an excellent opportunity, but it may take just as much investor perseverance and patience for GKP to regain is once lofty price. A steady income stream should, however, allay fears of current shareholders of have their holdings diluted by additional rounds of raising funding.
