Last time I looked at Gulf Keystone Petroleum (LSE: GKP) it was burning through its dwindling cash reserves while wondering whether it would ever get paid by the semi-autonomous Kurdish Regional Government (KRG). The money is coming now — at least some of it is. A handy $15m gross should be wired to the company’s account over the next few days, with further payments in the pipeline. All being well, it should soon move towards regular monthly payouts.
Shipping Out
This is great news for a company whose prime revenue lifeline has come from the tiresome task of trucking oil shipments via Turkey. The last KRG payment was in December last year, also for $15m. But there is still a long way to go. Management reckons it is owed $283m, and still cannot be sure it will ever be paid. Meanwhile, GKP will continue to burn through cash while it waits to see if the KRG makes good on its pledge to pump out additional revenues as shipments rise in the first half of next year.
We know the oil is there. GKP’s Shaikan field can produce up to 70,000 barrels per day, but continuing payment worries may explain why the share price rallied just 5% after the recent announcement. The KRG has been in dispute with the Iraqi government over oil revenues and has a rather pressing need for the cash itself, which it needs to finance the war against Islamic State. Throw in the crash in the oil price, and you have trouble upon trouble. No wonder the share price is still down more than 60% this year, despite recent good news.
Soco To Go
The problems afflicting Soco International (LSE: SIA) look relatively manageable by comparison. Yes, it’s had a rough year, the share price down an equally painful 65%, but few oil stocks have come through 2015 unscathed. While GKN has been scratching around for $15m from its paymasters, Soco was strong enough to dish up $51m of first-half dividends, which suggests a strong financial position.
Nevertheless, Soco has been drilling through its cash pile. Cash flow was negative in the first half, on lower prices and production, with revenues falling to $117m, down from $246m in the first half of 2014. Operating profits fell to $28.7m, down from $174m. Investors were alarmed by the plunge in free cash from £64.8m to a negative $19.9m, but that was largely due to development project expenditure on its H5 wellhead platform in Vietnam.
And The Winner Is…
Soco’s management remains confident, however, stating that future cash flow projections should secure its operational existence “for the foreseeable future”. Production has now started at its H5, nicely ahead of schedule, and management remains committed to rewarding shareholders and pursuing further growth. No debt on the balance sheet, low operating costs and attractive Vietnam production economics continue to makes Soco a more solid proposition than GKP. Risk-takers may disagree.