A regular payment schedule for Gulf Keystone Petroleum (LSE: GKP) has been a long time coming, and until the cash started rolling in there was a real chance that the company wasn’t going to make it as far as profitability. We won’t see profitability for at least another couple of years, but the net $12m the company received in September was a step along the right road — and now there’s been a second payment.
Gulf confirmed on Thursday that it has received a further net installment of $12m for October, in line with the promises made by the Kurdistan Regional Government (KRG) in recent months. That tops up the company’s cash pile to $76.2m, although it is in the process of paying out $26.4m in interest on current debt.
Share price boost
The news of a second payment from the KRG gave the share price a boost in early trading, and it stands 5% up at 30.5p at the time of writing — though that has to be seen against the backdrop of a 65% fall since mid-November last year.
The two payments so far represent only a small drop in the ocean of Gulf Keystone’s total debt, and it will be some time before the payment arrears start to be addressed by the KRG, but the latest news is very much in the “every little helps” category. In fact, all that’s really needed now is enough cash coming in to keep Gulf’s production development going and its interest payments met until production volumes rise sufficiently to reach the break-even point.
And the assets are certainly there, after this month’s independent audit upped estimates of 1P (proven) reserves by 55% to 306 million barrels gross and 2P (proven plus probable) reserves by 114% to 639 million barrels gross.
Light, tunnel?
On that score, the receipt of two monthly payments in a row is, of course, good news for shareholders — but many will remain cautious due to the wider situation in Iraq. It took a long time for the KRG’s noises about coughing up the cash to turn into reality, and the collapse in the price of oil led to lengthy delays as the government in Iraq understandably had higher priorities for its dwindling exports income — it is, after all, fighting several major insurgencies at the same time.
But the KRG also knows that Gulf can close the export taps again if it needs to, as it has already done once when it took a lower-price hit and switched to selling its oil locally. At the moment, we have something of a golden goose stalemate — Gulf needs the cash that the government would really prefer to use elsewhere, but at the same time the government needs to get the oil from Gulf to export and raise the cash in the first place.
Time to buy?
Overall, with Gulf’s oil assets looking increasingly good and its production volumes growing as planned, and with its output of crucial importance to the solvency of the country, I’m starting to feel optimistic about the company — cautious, but optimistic.
