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Shares in Gulf Keystone Petroleum (LON:GKP) tanked as much as 30% in early deals after a third party assessment of its reserves and resources in the Kurdistan region of Iraq disappointed.
The competent persons report (CPR), prepared by ERC Equipoise, is a key component in the planned move up onto the LSE’s official list from AIM, the company said.
It confirms just under 300mln barrels of proved and probable (2P) reserves, as well as about 920mln barrels of contingent (2C) resources. All of the reserves and the bulk of the contingent resources are identified in the Shaikan and Sheik Adi fields.
A total of 12.5bn barrels of gross oil in place were confirmed in the CPR, which is someway shy of prior estimates in the order of 19bn barrels. Indeed, previous estimates put Shaikan’s oil in place alone between 12.4bn and 15bn barrels.
Gulf Keystone described the new CPR as “conservative”. And chief executive Todd Kozel said the third party assessment provides a “baseline” that the group’s future progress can be measured against.
“This report represents a conservative estimate based solely on reserves which are being targeted with 26 wells representing less than 25% of all wells currently envisaged for the Shaikan development,” Kozel said in a statement.
“The CPR does not take into account undrilled and untested horizons and we see a clear route for unlocking the upside to these 2P and 2C numbers through drilling more wells and thus obtaining a better understanding of the oil water contact levels and the actual fracture porosity.
“Meanwhile, conversion from 2C to 2P will be driven by approval of the next phase of the Shaikan development."
City Broker Investec says the new CPR establishes a company valuation of just over US$1bn.
Having had its market price slashed by as much as 29%, to trade at an intraday low of 102.5p per share, GKP was worth less than £1bn.
Jamal Orazbayeva, analyst at Westhouse, highlights that the reserve and resource figures in today’s report fell short of her expectations, and said this was mainly due to lower oil-in-place and a lower recovery factor.
Based on the analysts own assessment, back in November, she had expected 2P reserves to be 400mln barrels and the 2C figure to be 1.7bn barrels.
“The numbers are likely to be on the lower end of expectations and have a negative effect on the share price today,” Orazbayeva said in a note.
“Going forward it is important to note that most of 2P and 2C are in the Jurassic formation (Shaikan has 7 reservoirs) and 2P reserves for Shaikan are based on 26 development wells of the Shaikan FDP Phase 1, which is fewer than 25% of approximately 109 wells currently envisaged for the Shaikan full field development.”
On AIM, at 11:00 am, Gulf Keystone shares were down around 11% at 128p. Earlier today, they changed hands as low as 102.5p.