Gulf Keystone Petroleum (LSE:GKP) shares were up over 15% this morning, hitting 250p on the release of an operational and Corporate update. ValueTheMarkets has covered the company’s recovery story over the past six moths or so, first highlighting it was looking like breaking out at 92p back in December.
Gulf Keystone’s 2017 results showed the company had turned a corner and arguably the continued low valuation had been a result of lingering concerns over the geopolitical risks in the region. The oil producer owns an 80% share of the Shaikan field where gross production was around 35k barrels of oil per day (bopd) in 2017. In today’s update, Gulf Keystone has said an agreement has been reached with the Kurdistan Regional Government’s (KRG) Ministry of Natural Resources and MOL Hungarian Oil & Gas plc regarding investment plans to increase gross production capacity to 55k bopd in the next 12 to 18 months.
Gulf Keystone’s Initial Capex in 2018 will be $73m – 80% of gross estimated costs of $91m – for workovers of existing wells, drilling of a new well, facilities improvement and plant debottlenecking. The remainder of the required capital expenditure required in 2019 to hit the 55k bopd target is estimated to be between $175m-$215m gross. Longer-term, the company has plans for further investment to increase production to 75k bopd and then to 110k bopd. They are expecting yo submit a revised Field Development Plan, to the KRG’s Ministry of natural Resources in Q3 2018.
Gulf Keystone’s CEO Jón Ferrier comments: “We are very pleased with the progress we have made in recent months on key commercial and operational matters and are delighted that Gulf Keystone is now back to investment mode, with the objective of achieving 55,000 bopd production capacity in the next 12 to 18 months”
Payments from the KRG – a legacy issue that appears to be resolved – have been received on a regular basis throughout the year with the company’s net payments totaling $107.3m in the year to date.
The company has total liabilities of around $185.4m of which $121.2m is longer term debt, and the company has stated today that its cash balance at 21 June 2018 stands at $222m.
Geopolitical risks of course remain a cautionary factor, but with a couple of years of continued regular payments from the KRG now under its belt, formidable plans for future growth, and a healthy cash balance, Gulf Keystone looks well positioned for continued growth and financial stability.