www.gulfkeystone.com
Gulf Keystone Petroleum Ltd. (AIM: GKP) is an independent oil and gas exploration and production company focused on exploration in the Kurdistan Region of Iraq. It holds a majority working interest in the Shaikan, Sheikh Adi and Ber Bahr exploration blocks and a further interest in the Akri-Bijeel block. Gulf Keystone is the Operator of the Shaikan and Sheikh Adi Production Sharing Contracts. Following a major discovery at Shaikan in 2009 and a discovery at Akri-Bijeel in 2010, the Company is undertaking an ambitious 2011-2012 exploration and appraisal programme across the four adjacent blocks. Gulf Keystone is also focused on continuing domestic oil sales and increasing oil export operations in order to move towards the Company’s production target of over 5,000 barrels of oil per day (“bopd”), increasing to 10,000 bopd thereafter.
Gulf Keystone is a likely takeover target, says Daniel Stewart
Gulf Keystone Petroleum (LON:GKP) is likely to become a takeover target due to its “astonishing reserve potential”, according to research by Daniel Stewart’s oil and gas expert Richard Nolan.
Following an analyst field trip to the Kurdistan region of Northern Iraq, Nolan reflected on the company’s current resource base and its merits as a takeover candidate.
Nolan highlighted that the size of the Shaikan discovery (4.2 billion barrel mean resource) has been a ‘well known theme’ and ongoing drilling could expand the resource further.
The analyst emphasised that up-coming drilling could add 500 million barrels of oil, from two shallow zones.
According to Nolan the ‘mere addition’ of 500 million barrels - which would otherwise represent a significant find all by itself - shows the “sheer scale” of the Shaikan discovery.
Crucially, further drilling may provide a substantial increase to the Shaikan resource, to between 18bn and 20bn barrels - should the company determine an oil/water contact point at 2,230m - a level suggested by pressure data.
Nolan estimates that the Shaikan-2 well will target the oil-water contact point in Q1 2011, and provide more clarity on this aspect of the analyst’s investment thesis.
“A similar analysis across all of the blocks could see resources of 60bnbbl or more and with a recovery rate of about 30%.”
He added: “Gulf Keystone could be sitting on a giant on an equal footing to the Kirkuk field which has been producing for more than seventy years and still flows at 400,000 - 500,000b/d ... Any company with Gulf Keystone’s size of potential reserves will surely appear on the acquisition radar of many NOC’s and IOC’s."
That said, Nolan described the Gulf Keystone’s investment case as ‘a race against time’, with the analyst highlighting a need to accelerate drilling.
Nolan emphasised that major IOCs (International Oil Companies) and NOCs (National Oil Companies) have had reserve replacement issues for several years. According to Nolan, Gulf Keystone can maximise value by proving up resources on its other blocks, before it becomes a bid target.
“At present Gulf Keystone has good information on Shaikan. They could make a compelling argument to any prospective buyer to pay for those assets ... It would be a more difficult discussion for the other blocks”.
[If] Gulf Keystone becomes a target, then they should be doing as much as possible to prove their resources, especially drilling.”
The analyst believes it is “highly probable” that a new rig will be secured on a short-term contract to accelerate drilling. “To make up for lost time and to increase value, getting the rig now makes a lot of sense else Gulf Keystone runs the risk of leaving a lot of value on the table.”
