Is It Still Safe to Buy Gulf Keystone Petroleum?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market could be overheating.

So right now I'm analyzing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today's uncertain economy.

Today I'm looking at Kurdistan focused oil company Gulf Keystone Petroleum to determine whether the shares are still safe to buy at 150 pence.

So, how's business going?
So far, 2013 has been an exciting year for Gulf Keystone. The company and its partners have discovered oil in five locations within four of the firm's exploration blocks. The most recent discovery was at the Ber Bahr 1 well, which GKP holds a 40% interest in and operates with its partners Genel Energy and the Kurdistan regional government.

Elsewhere, the company is in the process of driving up production from its 75% holding in the Shaikan oil field, one of the largest oil and gas developments in the world with a projected 13.7 billion barrels of oil in place. Gulf Keystone is targeting production of 40,000 barrels of oil per day by the end of this year and 150,000 by 2015.

In addition, the company has several other oil wells under development within Kurdistan, some of which are expected to yield several billion barrels of oil for the company.

However, away from the oil fields, Gulf Keystone is fighting a court case with Excalibur Ventures, over the rights to a stake in Gulf Keystone's oil bearing assets. City analysts estimate that there is a 25% chance that Gulf Keystone will lose the case, which could potentially cost the company $1.6 billion.

Expected growth
Gulf Keystone made a loss during 2012. However, if the company manages to achieve its production targets this year, City analysts expect the company to turn a pre-tax profit of £41 million and earnings per share of 0.51 pence. Additionally, if production targets are met next year, analysts predict earnings of 13.7 pence per share for 2014.

Shareholder returns
Unfortunately, Gulf Keystone does not offer its shareholders any type of cash return through either a dividend or share repurchase program.

As I have written above, Gulf Keystone made a loss during 2012, therefore it is not possible for me to calculate a historic P/E figure for the company. That said, based on City estimates I am able to calculate that the firm trades at a forward P/E of 305, which is set to fall to 11.3 in 2014, if Gulf Keystone meets its production targets.

Foolish summary
Overall, Gulf Keystone is set to grow rapidly over the next few years but the company is still facing headwinds in the form of potential litigation and oil-well development. Furthermore, despite predictions for future profit, the firm is still making a loss.

So, at this moment in time, I feel that Gulf Keystone Petroleum does not look safe to buy at 150 pence.

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In the meantime, please stay tuned for my next FTSE 100 verdict


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Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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