Friday, January 9, 2015

GKP: Mustapha Bearish. Gutheil Bullish

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.

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