Should you buy Gulf Keystone Petroleum Limited after its open offer is oversubscribed?

Gulf Keystone(LSE: GKP) has today released details of its open offer. It provides guidance as to whether now is a good time to buy the stock, or whether investors should stick to a less risky peer such as BHP Billiton(LSE: BLT).

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Gulf Keystone's open offer was oversubscribed and valid acceptances were received in respect of the entirety of the open offer shares. This means that Gulf Keystone has raised around $25m as part of its balance sheet restructuring plan announced in July. This paves the way for a $500m restructuring package that would drastically improve the company's long-term outlook. It could also allow the takeover of the company by DNO ASA to take place.

Clearly, Gulf Keystone's financial standing has been an Achilles heel for a number of months. Part of the reason for this is the slow payments for oil exports. Although some have been received of late, Gulf Keystone is still owed millions in back payments.

Allied to this is the risk the company faces due to its geographic location. It has performed extremely well in terms of operating under intense geopolitical risks in Northern Iraq. But when combined with its lack of full payment and the risks to the oil price, it has caused its shares to fall by 93% in the last year.

Looking for stability?

Looking ahead, the difficulty the company faces in terms of geopolitical risk is unlikely to go away any time soon. As such, it may be prudent for investors to focus on a more stable and well diversified resources company such as BHP Billiton.

BHP is also enduring a difficult period and is selling off parts of its asset base. However, this should create a more streamlined and efficient business that's better able to cope in a low commodity price environment. Alongside this, BHP has been able to reduce costs and improve productivity so as to prepare itself for a long period of depressed commodity prices.

The impact of such measures is set to be felt as soon as in the current financial year. BHP's bottom line is forecast to rise by 122% this year and this puts it on a price-to-earnings growth (PEG) ratio of only 0.2. This indicates that it offers significant upside potential, while Gulf Keystone remains lossmaking and is forecast to remain in the red in both the current year and next year.

Certainly, BHP faces the risk that commodity prices will fall, just as Gulf Keystone does. However, its stronger financial outlook, greater geographical and commodity diversity as well as its lower cost business model mean that even though today's news from Gulf Keystone is positive, BHP remains a superior buy for the long term, in my opinion.

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Peter Stephens owns shares of BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.