Today’s update from Gulf Keystone Petroleum (LSE: GKP) regarding its operations at its key producing asset, Shaikan, is relatively upbeat. Indeed, it shows that the company remains on-track to complete all remaining work so as to reach production capacity of 40,000 gross barrels of oil per day (boepd) from the asset by the end of the calendar year.
Uninterrupted Exports
Furthermore, since 29 November 2013, Gulf Keystone Petroleum has enjoyed uninterrupted exports by truck to the Turkish coast from the Shaikan production facility which, given the relatively unstable political situation in the region, is good news for investors. This means that the company has sold to the international market 4.7 million boepd from the Shaikan facility in this way since the start of 2014.
Payment Prospects
As was highlighted in a release last week, the Kurdistan Regional Government (KRG) intends to make an initial payment of $75 million on account to producers for exports in November 2014. It also intends to put in place a payment programme for subsequent periods. Clearly, this is excellent news for Gulf Keystone Petroleum and should help to improve the company’s cash flow moving forward. As such, shares in the company responded positively to the news and made gains of around 9% following the release last week.
Looking Ahead
Despite recent share price gains, though, Gulf Keystone Petroleum is still down 56% year-to-date. Indeed, investor sentiment has been hit hard by continued instability in the wider region and, although the announcement made by the KRG regarding payments is positive, the situation in the region remains relatively unstable. As such, there could be challenges ahead for the company in terms of maintaining its uninterrupted status when it comes to exports, as well as receiving payment moving forward.
Certainly, military action in the region appears to have provided a degree of relative stability in recent months and Gulf Keystone Petroleum is clearly making excellent progress with regard to increasing its potential output from the Shaikan production facility. Therefore, while the company’s future appears to be brighter than it has been for some time, the situation can change rapidly and, as a result, Gulf Keystone Petroleum remains a potentially high-rewarding, but also very risky investment opportunity.
Furthermore, with the price of oil set to stay low as Saudi Arabian production remains robust, shares in Gulf Keystone Petroleum may not continue their recent rise, that has seen them gain a whopping 54% in just one month, unabated.
While the risk/reward ratio for Gulf Keystone Petroleum may not be as favourable now as it was a few months ago, here at The Motley Fool we believe that everybody can generate market-beating returns by assessing the potential risk and reward of stocks that could be worth buying.