Gulf Keystone Petroleum starts drilling Sheikh Adi-1 oil and gas exploration well in Kurdistan

Kurdistan focused oil and gas producer Gulf Keystone Petroleum (LON:GKP) has commenced the drilling of Sheikh Adi-1, the first exploration well on the Sheikh Adi block immediately to the West of the Shaikan block, where a giant oil field was discovered last year.

The estimated resource potential of the Sheikh Adi structure is in excess of one billion barrels.

Gulf Keystone has an 80% working interest in the block and is carrying the Kurdistan Regional Government's 20% working interest.
The well is designed to drill through the Cretaceous, Jurassic and the Triassic age rocks, to a planned total depth, depending on well results, of 3,850 meters.

The well design for Sheikh Adi-1 has been modified to drill through the geopressured sections of the Triassic formation. This high pressure interval forced the cessation of drilling on Shaikan-1, at the point when the well experienced the inflow of significant volumes of oil and gas from this section of the Triassic.

Drilling is expected to take six months.

In mid-July, London-based stockbroker Daniel Stewart & Co commented “This is another positive update from Gulf Keystone indicating that it is operationally on track to have some production at Shaikan ... Results from the test on the reservoir will be an important indicator for future production and recovery rates. There will be an extent to which some of the test results can be translated across to the other adjacent blocks”.

Gulf Keystone has raised US$165 million back in May through a fully subscribed institutional placing to fund the 2010 and early 2011 work programmes in the Kurdistan region in Iraq.

The major Shaikan-1 discovery was the company’s first exploration well in Kurdistan, and it provided GKP with its key operational highlight in 2009. To date, the well has an independently assessed resource in the range of 1.9bn barrels to 7.4bn barrels, with further upside potential identified.

Shares in the company were up 4.2% by midday on the news.