Shares in Gulf Keystone Petroleum (LSE: GKP) rocketed 20% higher at lunchtime, after the firm said that it would delay its next interim management statement.
The reason? Gulf Keystone’s statement suggested that it could be on the cusp of delivering some good news, relating to “constructive discussions currently taking place in Erbil with the Kurdistan Regional Government’s Ministry of Natural Resources (MNR)”.
What does this mean?
The sudden share price hike and mysterious delay has naturally stoked takeover rumours, but in my view, the most obvious source of good news from the MNR is that it is going to start paying more promptly for exported oil.
At the end of June, Gulf was owed around $35m for exported oil, a figure that’s likely to have risen considerably since then.
Ramping up exports
So far, oil operations in Kurdistan have been largely unaffected by the conflict in Iraq, and news has emerged this week that Kurdistan has nearly finished upgrading the capacity of its oil export pipeline to Turkey to 700,000 barrels of oil per day. According to the reports, Kurdistan now plans to increase exports from their current level of 280,000 bopd to 400,000 bopd by the end of the year.
Although Gulf Keystone doesn’t currently channel its exports through this pipeline, it hopes to in future, and the firm has made it clear that continuing production growth — which the Kurdish government needs to balance its books — is dependent on more regular payment cycles for exported oil.
There’s more good news
Despite continued legal opposition from Iraq, Kurdistan has continued to export oil from the Turkish port of Ceyhan. Between 18m and 20m barrels of oil are thought to have been exported since May, with exports now running at two tankers per week.
Many of these cargos have been discharged and sold without it becoming clear who the buyers are, but China appears to be one repeat customer, while Gulf’s partner in the Shaikan field, Hungarian firm MOL, is also thought to have purchased at least one load.
There have also been rumours suggesting that Gulf is in negotiations with MOL to sell its entire output to the firm — although this hasn’t been confirmed by either party.
Buy Gulf Keystone?
Gulf Keystone is likely to remain a volatile and high-risk stock, in my view, but the outlook appears to be brightening, and I personally continue to rate the stock as a hold.
