July started off badly for oil investors. The oil price had been stable at around $60 per barrel for a couple of months, but it’s now crunched back down to the $52 level. Following that, Premier Oil (LSE: PMO) shares have reversed their end-of-June upwards blip, and Gulf Keystone (LSE: GKP) has slipped even further.
But both of them released upbeat trading updates on Thursday morning, and their prices picked up a little in response.
New discoveries
Premier Oil rose 3.8% in early trading to 142p after chief executive Tony Durrant told of “a strong production performance in the first half“, in an update ahead of first-half results due on 20 August — although the excitement did wear off pretty quickly, and by the time of writing we’re looking at a gain of only 1.3%, to 138.6p.
The company managed an average production of 60,300 barrels per day in the first six months, though its full-year guidance of 55,000 per say was reiterated, as scheduled maintenance plus expected declines in some fields will take a toll — but in the longer term, recent discoveries at Zebedee and Isobel Deep in the Falklands region should more than make up for that.
Gulf production
Over at Gulf Keystone we saw a more sustained gain, with the price up 4.2% to 33.9p by late morning, after the company’s pre-AGM update told us that production at its Shaikan field in the Kurdistan region of Iraq remains stable.
Improvements in capacity could take it to more than 43,000 barrels per day, but it’s apparently being held back by market constraints and is expected to remain between 36,000 and 40,000 barrels per day between now and the end of the year. Average daily production for the full year should come in around 30-40,000 barrels.
But the critical thing for Gulf’s long-term profitability is getting paid for its oil, and the Kurdish government has so far been somewhat stubborn on that front. The company is working “towards our primary objective of establishing a regular payment cycle“, in the words of chief executive Jón Ferrier, although we’ve been hearing that for some time now and it hasn’t yet happened.
Which is best?
The uncertainty over Gulf Keystone’s ability to get the cash flowing raises serious questions about its financing between now and such time as it achieves profitability, and fears that current shareholders could be diluted out in future fund-raisings is enough to make me steer clear.
But Premier is a different proposition, and I reckon its recent Falklands findings could set it up for a healthy future.