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The 2013 Outlook for Gulf Keystone Petroleum

LONDON -- Shareholders in Kurdistan-focused oil explorer Gulf Keystone Petroleum  (LSE: GKP  ) had a roller-coaster ride in 2012, after the company's share price peaked at 465 pence in February before plunging down to a low of 139 pence.

This crazy spike was the result of unfounded takeover rumors, but there's no doubting that the firm has a world-class oil asset in its Shaikan field and should soon become a serious takeover target, or a major independent producer.

I think that 2013 could be the year that Gulf Keystone starts to fulfill its true investment potential, as several major road blocks are likely to be cleared from the company's path.

1. Legal dramas
Gulf Keystone is currently locked in a legal dispute with a small company called Excalibur Ventures, which had an early role in Gulf Keystone's introduction to Kurdistan. Excalibur is claiming that an agreement dating back to 2006 entitles it to a 30% share of Gulf Keystone's subsequent discoveries.

This court case is expected to conclude this month and courtroom reports suggest that Excalibur is likely to leave empty-handed.

For Gulf Keystone, winning this case will remove an obstacle to any takeover bid and could even pave the way for a move to the FTSE 250, which would give it greater exposure to large institutional investors.

2. Local politics
The second big problem that has faced the company is a ban on oil exports caused by contractual disputes between the Kurdistan Regional Government and Iraq's central government.

Some progress has been made in recent months and exports have recently started flowing from the region once more. Plans to build a new pipeline to increase export capacity are also under way.

3. Too big to ignore
Kurdistan has an estimated 45 billion barrels of oil, and most of the companies involved in exploring the region have had some success -- but despite this, Gulf Keystone's Shaikan asset remains the biggest. Shaikan contains an estimated 14 billion barrels of oil in place and Gulf Keystone owns 51% of it, as well as operating the field.

Assuming that 25% of that oil can be recovered, that equates to just 90 pence per barrel at Gulf Keystone's current £1.6 billion market capitalization.

It would be surprising if ChevronExxonMobil, or Total -- all of whom are now operating in Kurdistan -- were not tempted to make an offer for Shaikan, especially given that production costs are likely to be low in comparison to deep-sea oil fields.

Is Gulf Keystone a buy?
Of course, whether Gulf Keystone's likely courtroom victory, cheap oil and growing political support now combine to make this share a buy or a sell remains your decision.

In fact, if Gulf Keystone is already in your portfolio, you may wish to click here and read the Fool's exclusive oil and gas report to help you determine whether you should take any further action.

The free report explains the factors you need to consider -- and the risks you might encounter -- when evaluating oil and gas explorers.


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