The price of oil is falling once again today, extending losses that have cut the price of the world’s most traded commodity in half over the past six months.
At time of writing, Brent crude is trading at $53 per barrel, down around 2% on the day, while the price of WTI has fallen to $43.50 per barrel, 1% lower on the day.
However, even though the price of oil appears to be in free-fall, Xcite (LSE: XEL) and Gulf Keystone Petroleum (LSE: GKP) are bucking the trend. Shares of Xcite and Gulf Keystone have gained as much as 10% today.
Budget day
It seems as if investors are clamouring to get their hands on Xcite’s shares ahead of George Osborne’s budget statement tomorrow.
Indeed, many analysts expect the Chancellor to unveil a wave of tax cuts for North Sea producers in tomorrow’s statement. It believed that the cuts will be made in an attempt to stimulate exploration and production within the region.
Key to this package is likely to be a headline cut to the region’s supplementary tax charge, an additional 30% levy on producers profits paid on top of a 30% corporate tax rate.
For Xcite, this could be a game-chaining announcement.
A cut in the supplementary tax rate would improve the economics of the company’s key Bentley heavy oil field. A lower level of tax would mean a higher rate of return from the field, which in turn would make the prospect more attractive to prospective partners.
North Sea operators currently pay in the region of 62% to 81% on profits from production on existing fields so even a small cut in the tax rate could make a big difference and complete change Xcite’s outlook.
News ahead
While Xcite rises off the back of budget speculation, Gulf Keystone is pushing higher as traders speculate that the company could be gearing up to restart exports once again.
Gulf Keystone abandoned exports of oil from Kurdistan at the beginning of February, citing delays in payment from the region’s autonomous government. Since then, there has been little in the way of news from the company regarding the negotiations to restart exports.
Additionally, investors are awaiting news from the company regarding its debt restructuring and possible sale to a larger peer.
Nevertheless, as usual investors should approach Gulf Keystone with caution following today’s double-digit gain that has no fundamental support. Even though rumours may suggest that news is just around the corner, these rumours often turn out to have no substance behind them.
With this being the case, it’s clear that Gulf Keystone is a risky stock. There’s no guarantee that an offer will be made for the company, and as a standalone entity its future is uncertain. So, if you are thinking about buying Gulf Keystone, you need to be prepared for volatility — this is a high-risk/high-reward company, not suitable for widows and orphans.