Recent results from Gulf Keystone’s (LON:GKP) Shaikan-2 well in Kurdistan de-risks “great big chunks of the structure”, according to the company’s chief operating officer John Gerstenlauer.
The short-term flow rate of the well was in excess of 10,000 barrels a day, falling to a sustained rate of 8,064 barrels, while the quality of the oil - at an API of 26 - was much better than that seen at the producing Shaiken-1 and Shaikan-3 wells.
"This is a big, big thing for us and de-risks great big chunks of the structure,"Gerstenlauer told Proactive Investors.
"If you take this in conjunction with the early looks at the 3D seismic, it is all looking extremely good for our oil volumes."
The Gulf Keystone operations chief was speaking after the release of full-year results, which revealed the company had sold just over 24,000 barrels of oil since the start of this year into the domestic market.
The outlook for GKP and other companies in northern Iraq has improved markedly with the resumption of oil exports earlier this year.
Kurdistan is now exporting around 80,000 barrels per day, which could rise to 200,000 bpd by the end of 2011.
"There would be an expectation that Gulf Keystone would participate at some stage,” said finance director Ewen Ainsworth.
The group is in the process of expanding its on-site storage capacity, while the crude could be transported by road initially to an export handling facility.
However longer-term it may consider building its own spur into the main pipeline.
This could cost anywhere between US$50 and US$100 million to construct, with Ainsworth hinting GKP may consider bank financing to complete the project.
"We have certainly seen a growing interest from the large European banks that do project financing being interested in doing something in Kurdistan at some point,” the GKP finance director said.
"So, that dialogue has started. But I think we are bit away from getting that sort of thing in Kurdistan at this stage."
The company has an ambitious programme this year, which includes the Shaikan-2 and the Shaikan-4 well, where drilling begins later this quarter.
Elsewhere, the Sheikh Adi-1 well has reached the Jurassic zone and Bekhme-1, on the Akri-Bijeel block, was spudded last month. Drilling will commence on Ber Bahr later this year.
It has slightly less than US$172 million in cash to fund its latest campaign.
But at the current frenetic rate of progress analysts expect the cash to run out by the end of the year. However Ainsworth reckons the funding takes the company well into 2012.
When drilling stops on Shaikan it has 12 months to come up with a development plan. “This is the point of optimal value,” Ainsworth points out.
Elsewhere, there is a natural pause in work on Sheikh Adi as it considers whether to begin a second phase of exploration.
Meanwhile, a useful source of income could be provided by the aforementioned oil sales, while funds might be raised if other companies back into the Shaikan and Akri-Bijeel blocks.
"There are various third party rights on Shaikan and Akri-Bijeel," the GKP finance director adds.
"So a third party can back in nominated by the KRG (Kurdistan Regional Government) and they would have to pay the back-costs based on the percentage acquired.
"They were round about US$20 million at the January 1. The work programme and expenditure has gone on from there.
"We don’t see the end of this year as the point where the funds run out.
“We see it as time point in 2012. And that really depends on the rate of drilling.
"Ber Bahr 1 was originally down for the second quarter of this year.
"Now it looks like it’s going to be end of the third quarter. So there has been a shift in the exploration profile."
Earlier the company revealed it had won an injunction against Excalibur Ventures, which is claiming up to 30 per cent of the company’s blocks in Kurdistan.
The order prevents Excalibur from pursuing its arbitration proceedings in the International Chamber of Commerce until a final determination on its claim has been made in the English Commercial Court.
This latest litigation update appears to have calmed nerves among investors, with the shares rising 5 pence to 163 pence by early afternoon trade.