Gulf Keystone shareholders wait for news from court case

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For shareholders in Kurdistan oil explorer, Gulf Keystone Petroleum (GKP), nerves were somewhat frayed last week with the shares dropping to185p on Thursday as the 12 week court battle with Rex Wempen and Excalibur Ventures kicks off. Wempen is claiming that GKP’s Todd Kozel conned him out of a $900 million stake in the giant Shaikan oil field – that’s gotta hurt!

Hopes of an early out of court settlement were dashed but many are confident that this is a sign of confidence in GKP’s case (although I suppose you could read it the other way re Wempen’s confidence too). Brokers Matrix recently saidthat in the worst-case scenario (if GKP loses this case), the valuation of the stock could be slashed by 50p, reducing its current target price of 190p to 140p. However, this case is likely to drag on for some time, and we think that a risked 10-20p of negativity could be built into the stock medium term”.

Rumours have been rife surrounding a take over of GKP, but many of them seem unlikely at this stage. The usual stories of an imminent Exxon Mobil bid continue to lurk behind the scenes but until the Excalibur litigation is resolved one way or the other, this seems an outside bet. A more likely positive outcome is progress on the continued dispute between the KRG (Kurdistan Regional Government) and Baghdad over oil contracts and revenue sharing.

The building of a new export oil pipeline between Kurdistan and Turkey offers the greatest opportunity for significant revenue growth for the company. WH Ireland highlighted that “The company is on track to achieve 150,000 barrels per day output by 2015 and importantly has an array of funding options at its disposal to fund development including the sale of its 20% working interest in the Akri-Bijeel block, debt options and with early production from Shaikan set to reach 40k barrels per day by the first half of 2013 and this could provide valuable cash flows (assuming Baghdad continues payments).”

With the shares rebounding to the 190p handle on Friday, the shares remain risky with the court case hanging over it. However, with a $300 million convertible bond issue recently closed and disposal opportunities to give the company a high degree of funding certainty as well as exploration upside the risk/reward ratio at these levels is looking the best for some time. There is sure to be huge volatility ahead as the litigation progresses but any hint of good news may dramatically close the gap with net asset value. A court win will open the door for the long promised FTSE 100 listing. 

Contrarian Investor UK

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