In a Dec. 10 research note, Pareto Securities analyst Tom Erik Kristiansen reported that Gulf Keystone Petroleum Ltd. (GKP:LSE) announced a $25 million share buyback and increased its 2019 production guidance. "Overall, we view today's news as significantly positive," he wrote.
The analyst addressed both developments.
Regarding the share buyback, the Gulf Keystone will increase the total amount of share buybacks it announced this year to US$50 million, the same amount that the company paid in 2019 in dividends. This equates to 20% of its enterprise value and 17% of its market cap. The energy firm not only did this but, also, continued to invest capital in increasing production. "We find this highly impressive," commented Kristiansen.
As for its current financial status, oil and gas producer has a cash balance of US$206 million. "This also implies that Gulf Keystone will maintain a robust balance sheet," Kristiansen indicated. In addition, the company is due to receive another export payment soon.
As for full-year 2019 production guidance, Kristiansen relayed that Gulf Keystone reverted back to its initial production estimate for Shaikan, located in Iraq's Kurdistan region, to 32,000–38,000 barrels per day (32–38 MMbbl/d) gross from 30–33 MMbbl/d (the company had lowered guidance to this range earlier this year). This change back to the higher guidance resulted from strong production from the first well drilled in the Shaikan field, which began on Nov. 13.
During that month, output averaged 40.58 MMbbl/d. Now, Shaikan production is higher, at around 40 MMbbl/d, denoting "stronger than expected production from the well," Kristiansen highlighted. "This has also been the case for existing wells at the field, implying that the field continues to perform better than expected."
Kristiansen noted that Gulf Keystone's planned Shaikan production ramp-up to 50 MMbbl/d will be pushed back another quarter, now until Q3/20, because the company had to revise the drilling schedule. "While negative," he added, "we continue to argue that the main risk is timing related (further delays cannot be ruled out given the track record) with recent production results further supporting that the field will get to 55 MMbbl/day as soon as more wells comes onstream."
Once Shaikan reaches 55 MMbbl/day of production, Pareto expects the energy company will generate US$160 million per year of free cash flow. The firm has a Buy rating and a GBp350 per share target price on Gulf Keystone.
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