Gulf Keystone Petroleum Ltd (LON: GKP)

Gulf Keystone Petroleum Limited (Gulf Keystone) is a holding company, focused on oil and gas exploration and production. Moreover, the Company operates in the Kurdistan Region of Iraq and through segments, including the Kurdistan Region of Iraq and the United Kingdom.

Recent Trend of Dividend Payments

GKP had resumed the progressive dividend policy of distributing at least USD 25.0 million. Moreover, the Company had declared a special dividend boosted by the robust profitability, taking the total dividends to USD 100 million. The Company had paid an interim dividend of 23.394 US cents per share on 08 October 2021, while the ex-dividend date was 23 September 2021. 

Growth Prospects

• Drilling Campaign: The drilling activities had progressed well with an early restart in June. Meanwhile, the Company expected SH-14 to come onstream in Q4 FY21, while SH-G was expected to come onstream in Q1 FY22.
• Strong Production: GKP had achieved robust year-on-year growth of around 18% in the average gross production to 42,842 bopd for the period till 31 August 2021. Moreover, the Company remained on track to meet the top end of 2021 guidance
• Increased Processing Capacity: The Company had recently completed the debottlenecking of PF-2, taking the total processing capacity of PF-1 and PF-2 to 57,500 bopd.

Key Risks

• Inflation Rate: The UK inflation rate rose by around 5.1% for the 12 months to November 2021. Moreover, it had breached 10-years high ahead of the key Bank of England meeting.
• Covid-19 Pandemic: The new variant of the Covid-19 pandemic, Omicron, had caused a significant decline in the UK Equities.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew by just 0.1% during October 2021.
• Operational Risk: The growth trajectory can be impacted by various factors, such as increasing freight rates and operational risk regarding production stoppages or equipment failures.

Now, we will analyze the Key Fundamental Statistics & Shareholding Pattern of Gulf Keystone Petroleum Ltd.

Lansdowne Partners Austria GMBH is the most significant shareholder as it holds nearly 32.55 million shares as of 30 September 2021.    

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 02 September 2021)

(Source: Company result)

• Significant Jump in Total Revenue: GKP’s total revenue surged by around 162% to USD 130.7 million during H1 FY21.
• Turnaround into Profitability: GKP had witnessed a favourable turnaround and reported a profit after tax of USD 64.8 million for H1 FY21, while it had reported a net loss of negative USD 33.1 million during H1 FY20.
• Robust Cash Balance: The Company’s cash balance stood at USD 177.40 million as of 01 September 2021.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: REFINITIV; Analysis done by Kalkine Group)

On 15 December 2021, at 10:16 AM GMT, GKP’s shares were trading at GBX 176.40, down by around 0.56% from the previous day closing price. Stock 52-week High and Low were GBX 224.50 and GBX 99.10, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, reflecting an upside momentum in the stock price. Moreover, the 14-days RSI of ~39.39 is inching towards the oversold territory.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Business Outlook

The Company had managed to tighten the FY21 average gross production guidance range from 40,000 - 44,000 bopd to 42,000 - 44,000 bopd. Meanwhile, GKP had maintained the gross Opex per barrel guidance of USD 2.5 to USD 2.9/bbl.  The Company had already paid a lucrative special dividend and still identifying opportunities to consider further distributions to shareholders. However, the addition of SH-G had raised the 2021 net Capex guidance from USD 55 million - USD 65 million to USD 75 million - USD 85 million. GKP also aimed to accelerate on the sustainability strategy with a continued focus on more than halving CO2 per barrel by 2025 by eliminating flaring. GKP may undergo sizeable corrections because of the rising interest rates prospect, global inflation, and Omicron variant of the coronavirus. Thus, it may depend on the risk appetite of the investors to take a reasonable position in this company having strong fundamentals.

Considering the robust dividend yield, turnaround into profitability, robust revenue jump during H1 FY21, decent production levels, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Gulf Keystone Petroleum Ltd at the current price of GBX 176.40 (as on 15 December 2021 at 10:16 AM GMT), with lower-double digit upside potential based on 4.11x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*Dividend Yield may vary as per the stock price movement.

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