In its interim report, the Kurdistan-focused oil and gas explorer and producer highlighted the significant increase in gross oil in place numbers for the Shaikan discovery in the Kurdistan region of northern Iraq following an independent evaluation and an oil discovery on the Bijeel-1 well, with flow rates of up to 3,200 bopd (barrels of oil per day).
The company called the first half of the year a time of preparation, both financially and operationally, for the execution of an exploration and appraisal effort in Kurdistan to prove up resources and quickly add value to the successful discovery well at Shaikan.
“The results of the Shaikan-1 well and the subsequent (operator) MOL discovery on Akri-Bijeel, not only open the door to the huge potential of those individual discoveries but also carry major de-risking implications for all the other exploration prospects in that area of Kurdistan,” said chief operating officer (COO) JB Gerstenlauer.
The seismic programme is expected to be completed in October and data is set to be processed and evaluated in 2011.
Post-period activities included the spudding the Sheikh Adi-1 exploration well and Shaikan-3 appraisal well in August and September respectively.
In July, the company commenced additional testing of the Shaikan-1 Jurassic formation, resulting in flow rates of 4,650 bopd from the Butmah section and 1,250 bopd from the Mus section. The latter marked a tenfold increase over the 128 bopd measured during the initial test in 2009.
Seismic and geological data for the Ber Bahr structure is undergoing evaluation in advance of exploration drilling location selection and construction with an anticipated spud date during 2011.
“2010 has seen an unprecedented level of activity for Gulf Keystone.
“Our extensive drilling programme is aimed at proving up last year's immense discovery, and we look forward to the first test production from Shaikan-1 in the coming weeks,” said executive chairman and chief executive officer Todd Kozel.
Meanwhile, the Shaikan-2 well location is fully prepared for commencement of drilling currently planned for the fourth quarter of 2010, and the Shaikan-4 well location is largely complete.
“It will take a few months to reach a steady oil rate from the testing of Shaikan-1 as the production facilities are fully commissioned, personnel trained and the testing programme executed.
“The first deliveries of test production for sale are imminent and greatly anticipated and the associated revenues will further bolster the company's finances,” said finance director KE Ainsworth.
The company added that the extensive exploration and appraisal activities offered the potential for “significant further value creation”.
In Algeria, Gulf Keystone negotiated a settlement agreement with BG North Sea Holdings for the immediate stay of arbitration between the companies and its withdrawal from the Hassi Ba Hamou permit for a cash payment of US$10 million from BG.
On the corporate front, the company’s achievements included a successful share issue to raise US$189 million, resulting in a significant increase of the cash balance from US$16.7 million in H1 2009 to US$161.7 million at 30 June. Gulf Keystone has also issued 8.2 million new common shares between January and May as part of the Standby Equity Distribution Agreement (SEDA) with YA Global Master SPV for proceeds of US$10.8 million.
The issue of new common shares during the period raised net proceeds of US$192.1 million.
A foreign exchange gain led to a reduction of post-tax losses from US$5.6 million to US$3.1 million for the first half.
Net cash outflow from cash used in operations was US$15.5 million compared to an inflow of US$5.8 million in H1 2009.
The capex (capital expenditures) of US$39 million mainly reflected expenditures on exploration activities in Kurdistan, while the capex of US$29.4 million in H1 2009 included expenditures in Algeria.
Daniel Stewart & Company (DS&C) was equally bullish about Gulf Keystone’s prospects. In a research note released this morning, the broker said that proving the reserves across the company’s four blocks was the key driver for the company.
DS&C stated that confidence that Shaikan-3 would encounter additional volumes in the Cretaceous was high.
However, resource figures will be significantly impacted by the discovery of the oil water contact point by Shaikan-2, said the broker.
“If pressure gradient extrapolations for the oil water contact point are correct, then volumes across the four blocks could be in the 50b-60 billion barrel range.
“Of course we will need to know more about the Ber Bahr structure to better understand the volumetric potential,” added DS&C.
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