Gulf Keystone Petroleum Limited (LON:GKP) is well capitalised and worthy of a ‘buy’ recommendation, according to broker Cantor Fitzgerald.
Cantor analyst Sam Wahab today, following an update on Gulf Keystone’s payments from Kurdistan, repeated his view on the company, which comes with a 270p price target – some 107% above the current price of 130.25p.
Gulf Keystone this morning confirmed it had received US$15mln as its latest payment from the Kurdistan Regional Government (KRG), for exports in October, and it “continues to work” with the KRG to agree the final form of the invoices for May to October.
Following the latest payment, Gulf Keystone says its cash balance now stands at US$106.1mln.
“GKP is now a well-capitalised entity, with sufficient financial resources to grow its production base for sale to the export market,” Wahab said in a note.
He highlights that GKP has emerged from a turbulent period of corporate activity and has effectively transformed its balance sheet – by shedding debt, diluting equity, and divesting assets. Now, he says, the company can focus on the Shaikan field.
Wahab also notes that Shaikan currently produces around 33,000 barrels of oil per day (bopd), and GKP previously guided for 31,000 to 35,000 bopd, but the key issue remains to be the uncertainty over the payments coming from the Kurdish authorities.
The arrears owed for past deliveries will now stand at around US$64mln, according to the analyst, who also notes that once trucking costs and pipeline tariffs are taken GKP’s realised sales price is around US$20 per barrel.
Nonetheless, Wahab remains somewhat bullish on the stock (on a valuation basis at least).
“2016 saw the company complete a substantial restructuring of its financial position, against the backdrop of challenging market conditions in terms of commodity pricing and civil uncertainty in Iraq,” he said.
“Our updated valuation highlights the material upside potential of the company’s share price now that these burdens are partially clear.”