This $500M Oil Company Has Saudi Aramco Costs. I Packed My Bags.
Lifting cost $4.30 per barrel. Saudi Aramco pays $3.50. The state owes this company a quarter of its market value.
"I'm just not interested in explaining to them that we went broke because there was a 0.01% chance that we would go broke."
- Warren Buffett
Every morning before the market opens, I read Value Investors Club. Most days it is a graveyard of sensible ideas. Banks at eight times earnings. Insurance rollups. I drink my coffee and move on.
A few days ago, I read something different. I read it once. Then again. Then I stood up, told my wife I should go to Kurdistan.
She had a point. Then she asked why I had Kyrgyzstan open in the other tab.
That is not a joke about her. I had spent the first forty five minutes researching the wrong continent myself. Kurdistan. Northern Iraq. Easy mistake. Expensive mistake, if you book the flight. 🙂
Why Kurdistan?
There is a company in London called Gulf Keystone Petroleum. It costs $500 million today. Since 2019 it has mailed shareholders $512 million in dividends and buybacks. The company costs less than the checks it has already sent.
The stock costs $2.30 per share. It has no debt. It has 27 years of reserves in one giant field. In its best year it produced $266 million of free cash flow, more than half its current market cap, in twelve months.
And the state owes it money. $122.8 million for oil delivered in 2022 and 2023. That works out to $0.55 per share still owed to the company — a quarter of today’s share price. On top of that, Gulf Keystone already has $0.30 per share in cash sitting on the balance sheet. And there is more. Since last September, it has been paid only $30 per exported barrel while invoicing $51. The unpaid difference keeps accumulating as additional money the government owes the company.
The field lifts one barrel of oil for $4.30.
Saudi Aramco, the most profitable company ever built, put its lifting cost at $3.50. The North Sea needs mid teens. Oil sands need twenty and up.
A small London stock, in northern Iraq, pulls oil out of the ground at a cost that belongs on the same chart as Saudi Arabia. Not the same economics, their crude is lighter and mine is heavy and sour, but the same chart. At these costs, you can stop caring what oil does. This field makes money at numbers that bankrupt Texas.
So yes. Pack your bags. We are going.
Welcome to Kurdistan
Put your phone away, the roaming is terrible anyway, and look out the window.
That city below us is Erbil. People have lived on that Citadel for six thousand years. It was old when the pyramids were new. Down there you will find snow capped mountains, waterfalls, glasses of sweet tea that never stop coming, and hospitality that will embarrass everything you know about Europe. In spring these hills turn green and half of Iraq drives north just to look at them.
I can talk all day. But the single most important piece of due diligence on this trip is not something I can tell you. Because you are not just buying an oil field. You are putting your money into a place, a culture, a political system, and a civilization with thousands of years of history behind it.
This video tells you where your money is actually going.
Jokes aside 🙂
That post from VIC might be the best pitch anyone has ever written. Which is exactly why I did not trust it. So I try to destroy it. Here is your itinerary for the paid tour.
Stop one, the hill. A field so good it survived its own company nearly dying.
Stop two, the border crossing. Where I found the clause the pitch skips.
Stop three, the five receipts. I built a table to prove that oil prices drive this stock.
Stop four, we stop pricing the company in pounds and start pricing it in years.
Stop five, we count craters.
The rest of the tour is for paid passengers only. The ticket costs less than the taxi from Erbil airport.
