2014 has been hugely challenging for Gulf Keystone Petroleum (LSE: GKP) (NASDAQOTH: GFKSY.US), with its share price having fallen by 58% since the turn of the year. A combination of a plummeting oil price and uncertainty regarding its operations in Iraq/Kurdistan have combined to weaken investor sentiment and lead to major losses for its investors.
Looking ahead, though, could the company deliver significantly better share price performance in 2015? Or, is it all set to be ‘more of the same’ over the next year?
Middle East Operations
As the company announced relatively recently, its operations in the Kurdistan region of Iraq are progressing reasonably well. Gulf Keystone is currently on-track to hit production of 40,000 bopd by the end of the year and, over the medium term, is anticipating an uplift in production to 60,000 bopd.
Clearly, this will depend upon the company’s ability to deliver sufficient investment and, on that front, it seems to be making progress. For example, it announced this week the receipt of its first payment of $15 million from the Kurdistan Regional Government (KRG) for oil production from the Shaikan field. Although this is a fraction of the total amount outstanding, it is a positive step for Gulf Keystone and, according to the KRG, more payments will follow in the coming months.
Of course, more payments mean not only an improvement in Gulf Keystone’s cash flow (which could aid investment so as to increase total production), they should also help to boost sentiment in the stock which, as its performance in 2014 has shown, is relatively weak. Clearly, the uncertain outlook for the region has been a major factor in this and, looking ahead, it is difficult to see 2015 being significantly more settled than 2014 has been. As a result, sentiment in Gulf Keystone could remain relatively weak in the coming months.
Oil Price
Also holding back shares in Gulf Keystone is a lower oil price. As with the uncertainty in Iraq, a lower oil price is an external factor over which Gulf Keystone has no control. However, it appears as though a glut of oil is likely to keep the price pegged back during the early part of 2015. As such, further falls in the share prices of oil stocks cannot be ruled out, with it seeming unlikely that there will be any sustained rise in the price of oil during the course of 2015. This could have a further negative impact on Gulf Keystone’s share price performance in 2015.
Looking Ahead
Despite this, Gulf Keystone has significant future potential. As announced recently, it has enjoyed a year of uninterrupted exports by truck to the Turkish coast from its Shaikan production facility. That’s despite a highly uncertain backdrop in the region, which bodes well for 2015 since further challenges in the region may not hurt the company’s production capacity as much as the market currently seems to expect.
However, with a weak oil price that is set to move lower and there being a fair chance of further unrest in Iraq during 2015, Gulf Keystone may not prove to be a star performer over the coming year. It’s certainly a stock to keep an eye on, but a keener price may be on offer in the coming months should sentiment remain at a low ebb.