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Gulf Keystone: was that a profits warning?

By Ben Turney | Thursday 9 July 2015

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.

This morning’s announcement from Gulf Keystone (GKP) had the decided whiff of a profits’ warning about it. It is extremely frustrating when companies dress bad news up. I appreciate the importance shoring up sentiment has, but if a company has to warn shareholders that it is going to miss its financial targets it surely must be an inviolable principle of transparent markets that it explicitly says so. Today’s example from Gulf could prove to be a perfect case in point and doesn’t bode well for new CEO Jón Ferrier’s attitude towards investor relations.

When Ferrier’s predecessor, John Gerstenlauer took the helm he delivered a full and frank summary of the business in his first video presentation. Gerstenlauer built on this good start with a series of forthright, straightforward announcements. When there were problems he acknowledged these clearly. It was a shame that the oil market tanked in the way it did and the loonies rampaging through the region were in the ascendency. Had Gerstenlauer faced more favourable conditions his tenure could have been more fondly remembered. Unfortunately for him it is generally associated with the share price cratering.

With the appointment of Ferrier to the hot seat, there was (is?) some hope that he can build on Gerstenlauer’s hard work to move the company forward. Today’s RNS has, however, left an uneasy feel.

Titled “Shaikan Operational Update”, shareholders have been informed “adverse market conditions” mean “daily production average for the year is expected to be between 30,000 and 34,000 bopd.”

There is no escaping that this is bad news. The logical conclusion to draw from that is that Gulf expects to miss its financial targets. Perhaps I am being a little harsh on the company here, but the 8.5% rally in the company’s share price suggests the market hasn’t put two and two together. At 35.25p, last seen, Gulf is valued at £344million. This is underpinned slightly by the company’s $72.1million cash, but with questions remaining over the reliability of the Kurdish payment cycle, the debt burden it still carries (with those tricky covenants) and ongoing concerns about regional stability, for Gulf to miss its financial targets for the year is a worrying sign.

Gulf says its “half year results for the period ended 30 June 2015 will be announced on Thursday 27 August 2015”. It did not explicitly say it has downgraded its estimates. If it turns out that August’s announcement brings with it a nasty surprise to the downside, this could do a great deal of damage to already battered sentiment.

This would be a great shame, not least because of the efforts made by the previous management team in attempting to usher in a new era of transparency. As I wrote in my last piece on Gulf, the company is in a fight for survival and if it is to stand a chance of making it through this difficult period it is going to need the support of its shareholders. Let’s hope today’s announcement doesn’t represent to the smoke and mirrors of the bad old days. 

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  1. Paul Curtis


    BOPD delivered is secondary issue (wellhead performance looks excellent?). Earnings a complete irrevelance.

    The only concern now is survival until Kurdistan can provide regular payments and oil price better margins.

    Today’s update was therefore positive, especially since macro picture looking better re Turkey accepting independent Kurdish sales. And KRG now have no excuses not to pay the oil companies something since they’ve said their justification for independent sales was to pay the oil companies!



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