Shares in Gulf Keystone Petroleum (LON:GKP) were up as much as 15 per cent in early trade after the explorer unveiled a significant upgrade to the oil in place volumes for the Shaikan block in Northern Iraq.
An independent review by Dynamic Global Advisors estimates the Kurdistan field contains 8 billion barrels of crude calculated on a P90 basis – meaning the oil has a 90 per cent certainty of being produced. The figure rises from 4.9 billion barrels previously.
Following the analysis carried out by Houston-based DGA the P10 value increases to 13.4 billion barrels and the mean value to 10.5 billion barrels.
This is the second very significant upgrade to the Shaikan resource estimate this year and the third since 2009.
It is based on preliminary data acquired from Shaikan-4 and 3D seismic taken from the Shaikan and Sheikh Adi blocks. DGA also included the new Triassic discovery made with the Shaikan-2 appraisal well.
Chief operating officer John Gerstenlauer said: “Once again, the company’s management and board of directors are delighted to validate our world-class discovery at Shaikan in the Kurdistan region of Iraq.
“This third successive upgrade of the Shaikan gross oil-in-place range by Dynamic Global Advisors is a new step towards completing our understanding of this exceptional asset.
“The process of assessing Shaikan started on 6 August 2009, when we announced our first significant discovery in Kurdistan.
“This assessment is far from being concluded as we have just spudded Shaikan-5 and prepare to drill Shaikan-6 in early 2012.
“These additional appraisal wells will provide us with valuable information about the flanks of the massive Shaikan structure, while the Shaikan-7 well will target the Permian, the deepest undrilled horizon of the structure. The Shaikan appraisal programme is being completed in parallel with the ongoing work on the Shaikan field development plan.”
After an initial spike to 153 pence, the stock settled at 141.60 pence by 11.45 am to record a gain of 8.35 pence.
City broker Evolution tweaked its valuation up by 10 pence a share to 210 pence following today’s update.
However it has also taken a more conservative view on potential recoveries at Shaikan.
Analyst Richard Griffith added: “We would expect further upgrades in 2012 with de-risking events such as FDP approval, export route clarification and development funding.”
Shaikan is the company’s most advanced prospect and has the potential to be the world’s next super-giant oil find. The company currently holds a 75 per cent interest.
According to analysts the nearby Ber Bahr field could be even bigger. Here the first exploration well was spudded last month.
It is operated by Turkish outfit Genel Energy, which has a 40 per cent interest, as has Gulf Keystone. The remainder is owned by the Kurdistan Regional Government.
At the same time Bekhme-1, the second exploration well on the Akri-Bijeel block, drilled 20 kilometres to the north-east from the Bijell 1 discovery well, is currently testing in the Triassic.
Gulf Keystone has a 20 percent working interest in the Akri-Bijeel, which is operated by of MOL Group, which holds an 80 percent working interest in the block.
The company recently announced plans to sell its interest in this field to concentrate on other prospects.
Gulf Keystone has made remarkable progress in the last 18 months with a high impact drilling programme that wouldn’t look out of place at one of the larger independents.
A recent US$200 million share placing underlined the shareholder support the company enjoys and has allowed the explorer to move full throttle into the next phase of development.
In a research note published last week, American investment bank Citi said Kurdistan is set for a “major period of news flow” as independent exploration companies embark on ambitious drilling campaigns in the semi-autonomous region.
Based on data from the US Geological Society, Kurdistan could hold over 50 billion barrels of oil – which means it is comparable in scale to Libya.
Counterbalancing this excitement is uncertainty over the production sharing contracts being issued by Kurdistan, which are still being disputed by the authorities in Baghdad.
These concerns are further exacerbated by the news that some oil companies aren’t receiving full payment for their oil exports.
“Both issues are unlikely to be resolved until an Iraqi oil and gas law is ratified, in our view,” Citi said in the recent note penned by Michael Alsford and Mukhtar Garadagh.