You might have spotted today’s 14% rise in the share price of Gulf Keystone Petroleum (LSE: GKP) and found yourself thinking: why didn’t I buy it when I had the chance?
The truth is there was a very good reason why you didn’t buy. In good times or bad, this is a hugely volatile holding.
Although to many investors, that’s its charm.
Shaikan All Over
GKP is back with a bang after announcing that it its Shaikan operation in Kurdistan is on track to produce 40,000 barrels of oil per day (bopd) by the end of 2014.
That’s a leap from today’s 23,000 bopd, and comes fast on the heels of last week’s announcement that the Kurdistan regional government’s ministry of natural resources will begin repayments to producers for exports.
Well Of Hope
Long-term investors will be breathing more easily, because they have gushed losses over the last year. Last time I took a close at Gulf Keystone Petroleum, almost one year ago, its shares were trading at 171p.
Even after today’s dash for glory, its stock costs just 77p.
The sharp fall in its share price over the last year was partly down to the Islamic State (IS) militancy, which threaten Kurdish borders, and a report in March that the Shaikan field only held 299m barrels, of which just 163m belonged to GKP.
Investors ignored management protests that it had only drilled 25% of its target 109 wells, which could dramatically increase the reserves.
Patience Is A Virtue
The world turns, and if you had bought GKP’s shares last month, you would be sitting on a 56% profit.
The good news started rolling in October, when the Kurdish regional government approved the field development plan for the Akri-Bijeel block, part owned by GKP.
That’s the company’s reward for years of exploration and patience.
But the volatility of GKP’s share price performance only underlines why smaller oil companies are only for those with strong nerves and vast reserves of patience.
Recent good news is a respite, but no guarantee of a full-blooded turnaround in the company’s fortunes.
Anything could happen in Iraq, although it does seem the West is committed to arming Kurdistan against the ravages of IS.
If you think IS will burn itself out, and Kurdistan will edge closer to statehood, Gulf Keystone Petroleum is still a lot cheaper than it was despite today’s share price surge.
But brace yourself for more volatility, because in this corner of the world, it won’t be far away.