Making a commercial success of Kurdistan’s prolific oil fields is not proving to be easy for Gulf Keystone Petroleum (LSE: GKP) (NASDAQOTH: GFKSY.US) and Genel Energy (LSE: GENL).
The opening of an export pipeline from Kurdistan to the Turkish port of Ceyhan was meant to be a turning point, but so far it hasn’t delivered.
The first two tanker loads of exported Kurdish oil are currently adrift in the Mediterranean, unable to find buyers, while neighbouring Iraq appears to be descending into civil war.
Unsurprisingly, the share prices of both Genel and Gulf Keystone have suffered this week — but why has Gulf Keystone’s share price fallen by 13%, while Genel has dropped just 6%?
Shareholder differences
One explanation is that Genel is largely owned by committed institutional shareholders, including founder Nathaniel Rothschild’s vehicle NR Holdings, which has an 8% stake.
In contrast, many of Gulf Keystone’s biggest shareholders are the nominee accounts of retail brokers like Hargreaves Lansdown and Halifax Share Dealing, behind which lie thousands of apparently panicked private investors.
Genel shareholders simply aren’t selling — at the time of writing, the volume of Genel shares traded today is just 50% higher than average, whereas Gulf Keystone’s volume is six times higher than average.
Will Kurdistan be sucked in?
Interestingly, the situation in Iraq could end up helping Kurdistan’s oil industry.
The ISIS rebel forces in Iraq have so far avoided a confrontation with Kurdish forces, which are said to be much better organised than their Iraqi equivalents.
Iraq might also realise that it needs a friend in the north. Iraq’s oil minister, Abdul Kareem Luaibi, said at yesterday’s Opec meeting that the uprising could increase the chances of the Iraqi government agreeing an oil export deal with Kurdistan.
Genel vs. Gulf Keystone
The difference in share price volatility between Gulf Keystone and Genel tells the story of the companies’ histories.
Genel has been a highly professional and well-funded outfit, right from the start. In contrast, Gulf Keystone has, at times, appeared to be something of a cowboy operation, with both funding and corporate governance issues.
In my opinion, Genel remains attractive, while Gulf Keystone has largely resolved its issues, and is now a far more investable firm, with a clear development plan.
My concern is that while Genel has enough spare cash to deal with unforeseen delays and problems, Gulf Keystone doesn’t, leaving shareholders vulnerable if things don’t go exactly to plan.