By Ben Turney | Tuesday 4 November 2014
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Two and a half years ago I wrote this article, outlining the apparent direct relationship between the movement of the price of oil and the introduction of Quantitative Easing. Even though I’ve had this at the back of my mind since, I failed utterly to anticipate the recent price collapse of the black stuff, in response to the withdrawal of QE by the Federal Reserve. This should have been an incredible trading opportunity, not least because the move appears to have wrong-footed so many in the market. In grappling for an explanation, most commentators have settled on a consensus that oil’s fall from Grace is down to fundamental reasons and the lack of global growth. Anyone who has followed the Baltic Dry Index over the last few years will know this is nonsense. Given that the outlook for the price of oil looks decidedly weak, it’s time to revisit three stocks I assessed over the summer and look for any possible signs of encouragement.
Gulf Keystone (GKP)
Gulf Keystone makes me feel sad. One thousand miles separate us, but I can feel Tom’s smug glee at having called this one better than I have. So far, at least…
What gives me small comfort is that Tom’s bearishness about the company isn’t what has made him right, but rather the wider rout in oil stocks (which he didn’t predict either!). There is still hope that CEO John Gerstenlauer and his team can turn things around.
As pleasing as last Thursday’s news of the approval of the Akri-Bijeel Field Development Plan was, the critical issue facing Gulf remains establishing a reliable payment cycle with the Kurdish authorities. Last Wednesday, Gulf announced it would delay publication of its interim management statement until Thursday November 13th in order to synchronise its reporting date with “the other key producers in the Kurdistan Region”. According to Gulf this move was in response to a request from the Kurdistan Regional Government's (KRG) Ministry of Natural Resources (MNR).
Reading the runes of RNS announcements is a treacherous affair, especially in the resource sector. However, I wonder if the postponement of Gulf’s interims might be a sign of a pending breakthrough in discussions with the Kurds. Given that each of the producers has to negotiate with the KRG and MNR, it stands to reason that some of the deals will be agreed quicker than others. If one company were to announce it had reached a deal before the others, I expect this could be disruptive to other negotiations.
I accept this is pure speculation on my part, but it will be very interesting to listen to the analysts’ call after release of the numbers. If Gulf is able to announce it has agreed a payment mechanism and, much more importantly, has received money then this will be a huge game changer for the stock. I am conscious that the Kurds are fighting a costly war against the fundamentalists and am concerned what bearing this might have on their ability to pay their oil producers, so treading carefully with Gulf’s stock at this stage is prudent. At 65p (last seen) there is scope for the shares to retest the recent lows (42.5p intraday) should the company disappoint, but if Mr Gerstenlauer can deliver a positive surprise on the payment front then there is easily 40p’s worth of upside in the stock. And there is also the prospect of the company hitting its 40,000bopd production target by the end of the year to consider.
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