- Improved remittance from the KRG
- Step-up in capex through 2022
Gulf Keystone Petroleum (GKP) returned to statutory profit in 2021, as a one-fifth increase in gross average production to 43,440 barrels of oil per day (bopd), combined with a 138 per cent hike in realised prices to $49.70 (£38.23) a barrel.
Anyone familiar with the company will know that its financial performance is bound-up with the ability of the Kurdistan Regional Government (KRG) to make good on its licensing arrangements. Over two-thirds of revenues for 2021 relate to KRG receipts covering the invoice period from December 2020 to August 2021, along with partial repayment of arrears. Since the start of 2022, GKP has pocketed another $106mn from the KRG, leaving net arrears in the region of $22mn.
The remittance schedule has been somewhat erratic down through the years, but the company is never reluctant to return capital to shareholders when cash flows are positive. Admittedly, the dividend schedule is also a little erratic, but since 2019 the company has distributed $340mn to shareholders, roughly equivalent to half its current market capitalisation.
Subject to well completions, workovers and interventions, GKP is targeting gross average production of 44,000-50,000 bopd in 2022, with net capital expenditure of $85mn-$95mn, against $50.8mn in 2021. Earlier this year, the IC’s technical analyst Michael Taylor observed that “a breakout from the 220p resistance zone would see the stock move into a price area not seen since the autumn of 2019”. That’s already played-out, and the next leg up is towards the 300p mark, so a forward ratio of three times forecast earnings and a prospective dividend yield in double-figures seems compelling given the prospect of enduring elevated oil prices. Buy.
Last IC View: Hold, 176p, 02 Sep 2021
|GULF KEYSTONE PETROLEUM (GKP)|
|ORD PRICE:||254p||MARKET VALUE:||£ 543mn|
|TOUCH:||253-255p||12-MONTH HIGH:||242p||LOW: 139p|
|DIVIDEND YIELD:||8.2%||PE RATIO:||4|
|NET ASSET VALUE:||244¢||NET DEBT:||$70.7mn|
|Year to 31 Dec||Turnover ($mn)||Pre-tax profit ($mn)||Earnings per share (¢)||Dividend per share (¢)|
|£1 = $1.30. NB: Dates above relate to a $65mn interim dividend. An interim dividend for 2022 amounting to $50mn has been declared, though the definitive per share rate will be announced nearer the time of the pay-out. A final dividend worth $25mn will be paid on 15 July 2022 based on a record date of 1 July 2022 (ex-date 30 June).|