Article by Lou Gutheil:
Call it fate. Call it irony. Call it coincidence. Call it
whatever you want to call it, but on the day that I decide to catch up with
Gulf Keystone Petroleum (LSE:GKP), my esteemed colleague, Azeez Mustapha has
also published his Annual Trading Forecast on Gulf Keystone. But wait. We do
not have the same perspective – He is
bearish; I am bullish - and there are good reasons for that. Before I delve
into that, let me note that the GKP share price is up 1.91% to 66.75 as we near the end of the LSE day.
Why Azeez is Bearish
on GKP
It’s all in the perspective. Azeez takes a technical,
analytic approach. His bearishness is based on historical numbers and patterns
of the stock itself. In other words, if Pattern A exists and Pattern X has is
beginning to appear, the alignment of the earth and the sun will soon produce
an eclipse.
Now, I am not poking fun at or demeaning Azeez or his
approach in any way. I hold him in high respect both as an analyst and as a
person of integrity. The difficulty that I have with analysis of patterns to
predict the future is that it works well with universal natural laws and, in
industry, with process control. As I have said in the past, at the end of the
analysis, there is a reason why we say that past history is not necessarily an
indicator of future performance. I encourage you to read his article to see
what his analysis indicates.
Why I am Bullish on
GKP
My business background is largely in operations. I
understand and accept statistical analysis as a necessity for evaluating what
is happening and for indicating the need for potential corrective action. But I
have never used it to predict the future. There are just too many other very
real, and often unknown, factors that affect the future more than the past
does. For that reason, I prefer to assess a company’s, past, present and future
based on their “story.”
Here is a sampling of
key components of the GKP story:
GKP has a market cap of £586 million.
GKP operations are focused on Shaikan oil deposit in
Kurdistan, which has 12.5 billion barrels of oil in place.
Kurdistan and Iraq (of which Kurdistan is an independent
state) have major political conflicts that disrupt the shipment of Kurdish oil
to market and have severely delayed payments for oil that has been delivered.
Kurdistan is a military target of the Islamic State.
GKP has to truck its oil over rough and desolate terrain to
port in Turkey until a pipeline can be completed.
BUT . . .
GKP has consistently met its milestones and KPI, including
attaining its production of goal of 40,000 bopd on time, despite all of the
above.
GKP’s production and export sales have increased by almost
300% from January through December 2014.
On 29 December 2014, 354 trucks (a record number) carrying
58,000 gross barrels of crude left GKP’s facility in Shaikan headed for the
Turkish port. Also, as I reported in December, GKP received its first payment
for its exports, in the amount of $15 million USD. It is estimated that the
government still owes GKP $35 million for shipments from the first half of
2014. Estimates for the final six months of the year exceed $50 million.
Oil Barrel news described GKP as having “a risk profile that
continues to mean that it is not one for the fainthearted,” but also noted that
the company has “strong underlying fundamentals.” I see GKP as a company that
continues to be managed well in the face of adversity, and adversity is pretty
much what it has face in Shaikan all along.
That, my friends is “the story.” And that is why I am
bullish on GKP.
Learn from the Generals of the Markets: http://www.amazon.co.uk/Learn-Generals-Market-Azeez-Mustapha/dp/1908756314
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