Gulf Keystone Petroleum (LON:GKP) said today it aims to be exporting 10,000 barrels of oil a day within eight months from its facilities in the Kurdistan region of Northern Iraq.
The forecast came as it began making the changes necessary to ramp up output to 5,000 barrels of crude initially from wells one and three on the Shaikan Field, which are on extended test.
“We feel that today's news is another important step in Gulf Keystone's, as well as Kurdistan's aim of increasing oil production and accessing the international market,” said Dougie Youngson, an oil sector analyst at the broker Arbuthnot.
He rates the shares ‘buy’ with an aggressive 279 pence price target. At 1.30 pm the stock was barely changed at 148.3 pence, up just 0.3 pence.
Richard Nolan, an analyst at City firm Daniel Stewart, reckons the muted response reflects worries over how and when GKP will be paid for its oil.
“The conclusion from our research is that operators should receive payment and that the market concerns on this topic are too elevated,” he added.
To date some 3,700 barrels have been delivered for storage before being directly injected in the export pipeline out of Kurdistan.
Before beginning this commissioning phase the storage tank at the export facility was emptied of approximately 21,000 barrels of oil.
GKP is developing a number of significant oil discoveries in the Kurdistan region of northern Iraq.
On the ground it is carrying out both appraisal and exploration drilling, it currently has rigs working on four wells.
City broker Evolution Securities believes the oil exports ought to provide a catalyst for the share price, alongside success with the drill bit.
Importantly, Evo pointed out that at the current price Gulf Keystone is underpinned by its oil discoveries at Shaikan, Bijeel and cash on the balance sheet.
This means the exploration drilling campaigns at Sheikh Adi, Bekhme and Ber Behar are ‘thrown in for free’.
The broker highlighted that Gulf Keystone’s oil exports could quickly rise from a 5,000 start-up to 18,000 barrels a day by the end of 2011, and then rise to around 40,000 barrels a day by the end of 2012.
More importantly however, Evolution sees the potential for a big increase in the Shaikan oilfield’s resource.
The broker highlighted that the ‘main takeaway’ from its recent visit to Northern Iraq was the fact that GKP’s current appraisal drilling aims to increase mean resources from 7.5 billion barrels to over 10 billion barrels of oil-in-place.
Indeed Evolution analyst David Farrell reckons this appraisal programme could add another 44 percent to the existing ‘central’ resource figure.
Aside from appraisal drilling, GKP is also carrying out exploration work in other prospective oilfields nearby. It currently has rigs working on four wells.
At Shaikan GKP is drilling two deep appraisal wells, Shaikan-2 and Shaikan-4. The Sheik-Adi exploration well was spudded back in August 2010 and more recently, in March 2011, GKP’s joint venture partner MOL spudded the Bekhme-1 well on the Akri-Bijeel block.
Looking ahead to upcoming well results Farrell said: “Over the next three months or so, we expect the Shaikan-2 appraisal and Sheikh Adi-1 exploration wells to both reach target depth.
“The results from the upper section of the Shaikan-2 well have already helped contribute to an upwards revision to the structure’s resource size so success in the lower sections should hopefully have a similar effect.”
Farrell notes that Sheikh Adi-1 has encountered oil shows in many of the formations de-risked by Shaikan and further testing will occur in due course, with acid stimulation expected to lead to more impressive flow rates.
The Shaikan-4 well, spudded in May 2011, is expected to take six months to complete – reaching the target formations within two to three months. Farrell emphasised the well’s importance whilst pointing out that it prove-up rather than expand existing resources.
“Shaikan-4 is likely to narrow the range of resource estimates around the mean number rather than add much incrementally to overall resource estimates,” the analyst added.
The Shaikan oil is found in several layers from near surface Jurassic age reservoirs and they go much deeper, in fact GKP hasn’t determined the lowest known oil point within the Shaikan structure yet.
This is expected to come through either Shaikan-2, or perhaps not until the planned Shaikan-5 well is drilled.
In the meantime GKP has already brought the top Jurassic reservoirs into production, generating cash-flows that support its very active drill programme.
At first produced oil was being sold into the local market in the Kurdistan region of northern Iraq.
But as oil exports have resumed from Kurdistan in recent months GKP is preparing to sell its oil into the international market.
The company’s chief operating officer, John Gerstenlauer, said today: "Gulf Keystone is making good progress toward commencing oil exports from our Shaikan facilities at the initial intended rate of 5,000 barrels of oil a day following the current commissioning phase.
“We look forward to delivering stabilized export volumes of Shaikan crude for shipment via the Kirkuk-Ceyhan pipeline."