Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
We are only a week away from GKP’s exit from the AIM and its entrance into the Main Market. The share price of Gulf Keystone Petroleum (LSE:GKP) closed last Monday, 10 March 2014, at 149.00. But something dramatic happened during the week. GKP’s share priced plunged to 120.25 on Thursday, 13 March, and again on Friday to 103.25. That is a 30.9% drop in two days. Why did this happen? And, what does it mean?
Why it Happened
It’s really quite simple. Investors got scared.
As a required step on its way to its Main Market listing, a third part audit, also known as a competent person’s report (CPR), was conducted to verify GKP’s assessment of its assets in reserve. The outcome of the study was released on 13 March, and investors disappeared faster than you can say Malaysian Airlines. A complete copy of the graphic CPR report is available on the company website.
Investors were driven by fears based on the CPR saying that there were only 9.1 billion barrels of oil in place in the Shaikan oil field, as opposed to the 13.7 billion from previous estimates. Plus, whereas earlier estimates indicated that there are 19 billion barrels in place in Kurdistan, the CPR said that the number is closer to 12.5 billion.
What Investors Are Not Taking Into Account
Again, it is really simple. They are hearing only what their own investing fears allow them to hear. They are certainly not hearing what Todd Kozel quite clearly said, “The release of this Competent Person’s Report marks a significant milestone in the evolution of Gulf Keystone. This report represents a conservative estimate based solely on reserves which are being targeted with 26 wells representing less than 25% of all wells currently envisaged for the Shaikan development. The CPR does not take into account undrilled and untested horizons and we see a clear route for unlocking the upside to these numbers through drilling more wells and thus obtaining a better understanding of the oil water contact levels and the actual fracture porosity.”
What Does It Mean?
First and foremost, it means that there are still investors who are driven by fear, an investment strategy at the bottom of most lists of best investment practices and an emotional motivation generally consider to be less than desirable.
It also means, in my humble opinion, that, all things considered, Gulf Keystone just went from being an attractive investment to being a very attractive investment. Please note, that this is my opinion, and not a recommendation. I just point out the facts as I see them. It’s up to you to decide what to do with them.
I continue to be impressed in every respect with GKP as a company. Far much more, in fact, than I am with any single report on its own, especially one that takes in to account only 25% of the area which the company plans to develop. Everything operational appears to indicate that GKP could become one of the greatest successes in oil and gas exploration in our lifetime.
It appears that GKP’s share price is winning the struggle to hold its ground at the 103.00 mark today, experiencing only minor changes in price today on 9.5 million trades. Some less fearful analysts are seeing this as a time to buy.
