More trouble for Afren and Gulf Keystone

Just when Afren thought it couldn't get any worse, it has. The bombed-out oil explorer, whose chief executive and chief operating officer are currently suspended as part of a probe into unauthorised payments, has been forced to shut down its Barda Rash field in Iraq because of ongoing violence in the region. Predictably, the share price has taken another pounding - at 91p it's the lowest since 2011. Again, the market asks whether this latest sell-off is overdone.

Westhouse Securities thinks it is. Barda Rash - near the Kurdish border, to the east of Mosul and north of Erbil - only chipped in 1.5% of Afren's total production in the first quarter, so its temporary closure has "very limited impact" in valuation terms, says the broker who retains its 180p target price.

"It is expected that we will return to field operations as soon as it is prudent to do so," said the company. "The suspension is not expected to have a significant impact on the group's cashflow."

It might not if the shutdown is only temporary. If it drags on, there will clearly be a bigger impact.

Analysts at VSA Capital remain positive. "With Afren trading just below its core net asset value the potential for more Nigerian production to come onstream later in the year we remain positive on the company."

Afren's shares have plunged by 39% since news of the boardroom suspensions on 31 July, but fellow Iraq operator Gulf Keystone Petroleum is on the racks, too. Its share price is currently hugging a five-year low at 69p, despite claiming its operations in the Kurdistan region of Iraq, including the ongoing production operations at the Shaikan field "remain safe and secure."

"While there is no immediate threat to any of the company's operations in the region, we continue to monitor the situation closely and operate with increased security as a precaution," it said in a brief statement on Thursday. That may be, but clearly the situation is unpredictable and could change very quickly.

Worries over financing, a reserves downgrade at the core Shaikan field in March - from 13.7 billion barrels to a more modest 9.2 billion barrels - then delays in receiving payments for exports have hit Gulf hard.

Still, with controversial founder and chief executive Todd Kozel having handed over the keys to John Gerstenlauer, Gulf Keystone's chief operating officer since 2008, and trading at less than half the net risked consensus valuation, there's value here. There's a heap of risk, too. One for the brave.

Half-year results are due out on 28 August.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.