Stockbroker Cantor Fitzgerald has repeated a ‘buy’ recommendation for Gulf Keystone Petroleum Limited (LON:GKP) despite news that changes are being made to the group’s crude export arrangements.
With a 270p price target Cantor sees some 120% upside to Gulf Keystone’s current price.
Crude oil produced at GKP’s Shaikan crude will soon be trucked all the way to Turkey, rather than be transported by pipeline, because the Kurdistan authorities have taken steps to manage the quality of its export oil.
Talks between GKP and the KRG continue regarding commercial and contractual conditions, including key issues such as payment schedules and long term crude marketing arrangements.
Sam Wahab, analyst at Cantor Fitzgerald, highlighted that the new arrangement is expected to be temporary and that GKP won’t be financially disadvantaged by it.
Indeed, the company earlier said that the economic benefit it receives from the KRG will be the same, despite the changes. It highlighted that the authorities intend to take full responsibility, at its own cost, for the extra transport costs.
"This new export route arrangement confirms there is a market for Shaikan crude as a standalone product while also ensuring Gulf Keystone, and our partner MOL, remain financially and commercially neutral under this arrangement,” said chief executive Jón Ferrier.
“We continue an active dialogue with the MNR to achieve satisfactory commercial and contractual clarity around payments and marketing which remain key to achieving production growth and realising full value potential."
As a result, GKP expects it will continue to receive a fixed payment of US$15mln per month from the KRG for crude sales.
In a note, Wahab added: “Following a turbulent period of corporate activity last year, GKP has effectively transformed its balance sheet, shedding debt, diluting equity, and divesting assets.
“The company’s core focus remains on its flagship Shaikan field where payments for its output have been reintroduced in recent months.
“We note that GKP is now a well-capitalised entity, with sufficient financial resources to grow its production base for sale to the export market.”