Gulf Keystone Petroleum (LSE: GKP) shares dropped nearly 5% this morning after the firm announced that the firm’s chief executive, John Gerstenlauer, was leaving.
Under Mr Gerstenlauer’s control, Gulf has increased production to its target of 40,000 bopd. However, the firm’s financial problems have not been resolved.
Mr Gerstenlauer, who took control after the departure of founder Todd Kozel, will be replaced by former Maersk Oil executive Jón Ferrier.
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Mr Ferrier has considerable business experience in the oil industry and has previously worked in Kurdistan, according to Gulf Keystone. His appointment may help to speed up the strategic review announced in February, when the company told investors it was “with a number of parties in relation to possible asset transactions or a sale of the Company”.
Despite production restarting in March, there has been no further news on a possible sale since February, suggesting no progress has been made. Given this, Mr Ferrier’s appointment may be good news for shareholders.
However, he will face the same problems as his predecessor. Gulf Keystone has a shortage of cash, difficulty collecting payment for its oil, and too much debt.
Major investment will be needed if Shaikan is to realise its potential of 100,000 bopd, yet oil prices remain low. I suspect Gulf will continue to find it difficult to raise the necessary cash, especially given the ongoing ISIS conflict in the region.
Even at today’s low price of 35p per share, I believe there are better buys elsewhere.
What about Bowleven?
One possibility is Cameroon-based oil and gas firm BowLeven (LSE: BLVN).
The firm received $165m of cash in March after the completion of a farm-out deal for its Etinde gas asset. Bowleven currently has no debt and a market value of £100m, which means the firm’s share price is completely covered by net cash.
That’s pretty remarkable, considering that Bowleven also has mean net contingent resources of 58 million barrels of oil equivalent.
In addition to this, the firm’s partners, Lukoil and New Age, are also carrying Bowleven for $40m of appraisal drilling on Etinde. Following this, Bowleven could receive further payments of up to $40m, if certain milestones are met.
Bowleven has also just started drilling Zingana, the first of two onshore exploration wells planned for this year on the Bomono prospect. These wells are targeting mean oil in place of 50-100m barrels, plus mean gas-in-place of 5 billion cubic feet.
Although recoverable oil and gas volumes are always much lower than in-place volumes, any success here would be worthwhile, as local markets exist for both gas and oil.
The problem with Bowleven is that many investors remain mistrustful of the firm’s management, led by CEO Kevin Hart. They are seen as having taken large pay packets while presiding over a two-year decline that has seen the shares fall from 100p to just 31p.
There’s a risk that Bowleven’s management will continue to spend cash without delivering any material benefits to shareholders. Even if things go well, considerable patience may be required.
Today’s best buy?
There’s no doubt in my mind that Bowleven is trading well below fair value: investors brave enough to buy now could reap generous rewards.
