Petroceltic chasing "Shaikan-type" play in Kurdistan, says chief executive

Petroceltic (LON:PCI) chief executive Brian O’Cathain said the company was “very fortunate” to grab its highly prospective acreage in Kurdistan.

 And he reckons the door has now slammed shut on smaller firms attempting stake their claim in this emerging oil territory. 

In late July the junior explorer teamed up with American firm Hess Corp (NYSE:HES) to snap up two licences in the semi-autonomous region of northern Iraq, which was recently described as “the last great oil frontier” by former BP boss Tony Hayward.

 “We were delighted to pick up the two blocks,” O’Cathain said in an interview with Proactive Investors.

“They are excellent blocks with five anticlines – three on one and two on the other – any one of which could potentially contain in excess of 1 billion barrels of oil in place.

“It is the same petroleum system and target horizon as in the adjacent Gulf Keystone’s Shaikan block. 

“It is the Shaikan type play that we are chasing, particularly in the Triassic which has been proved up by Gulf Keystone, and other Operators in the area.” 

“We are only a few kilometres away from Shaikan so we are very optimistic.”

He added: “The Kurdistan assets have the potential to be absolutely huge for Petroceltic, even though our equity in the projects is relatively modest at 20 per cent. 

“The fact that we have 20 per cent of what could potentially be 4 or 5 major discoveries is very significant.

“We are very excited about it and we are delighted to have acquired these assets just before the door effectively closed for smaller companies.”

A wave of similar deals followed Petroceltic’s move into Kurdistan, though the investments were being made by larger explorers.  Murphy, Marathon, Hess, TAQA, Repsol, and Maersk are now all involved in the area.

And Vallares’ £3 billion merger with Turkish firm Genel give us a hint of things to come as this particular niche in the oil sector consolidates.

“I don’t think there’ll many more small companies getting the chance to enter Kurdistan now,” O’Cathain said. 

“I think any future activity will revolve around consolidation, rather than new entrants.”

Petroceltic’s initial work in Kurdistan will involve seismic exploration. Then in early 2013 it plans to follow this by drilling at least two major exploration wells.

While it may seem some way off, O’Cathain and his team are by no means sitting on their hands until then. 

On the contrary, Petroceltic has a very busy few months ahead of it in Algeria where it is developing the Ain Tisila gas field – the group’s flagship asset which is quickly approaching ‘world class’ proportions.

O’Cathain said: “Ain Tsila is on track now to become a world class resource. It is a very large discovery and we are delighted to be associated with it,” O’Cathain.

Indeed a farm-out deal with ENEL – Europe’s second largest utility company – was a telling endorsement of the project’s potential.

The deal to sell an18.375 per cent stake in the Isarene licence, which hosts Ain Tsila, for at least US$101.75 million (including back costs) was initially struck in April this year and Petroceltic is now awaiting its first payday under the agreement.

“We are expecting the ENEL deal to close in the next four weeks,” O’Cathain explained.

“At that point we’ll have around US$100 million in receivable (cash) due to us from ENEL, hopefully by the end of this year. We’ll also have another payout from ENEL next year, how much will depend on the size of the resource that’s proved up. 

“That figure could be anything from US$30 to US$75 million depending on the level of reserves.”

On the ground Petroceltic continues to make good progress with the appraisal of the Ain Tsila gas discovery, which is currently estimated to contain around 10 trillion cubic feet of gas in place (mid case, in house estimate).

Notably the most recent operations have thrown up some of the best results on the field to date, with the highlight being the AT-8 well.

“AT-8 was a fantastic result, an absolutely stunning well. It gave us a great test result,with 38.6 million cubic feet (of gas) per day flowing from the well. If it had been completed as a development well it could done in excess of 50 million cubic feet a day, which is a great amount to get out of a single well.”

“In terms in energy (or oil) equivalent it did very well, it works out at around 8,000 barrels a day. That is a fantastic rate for an Ordovician gaswell in Algeria.”

Following on from AT-8, work continues on the AT-7 and 9 wells.  The later is now pretty much at target depth in the horizontal section, according to O’Cathain. 

The well is now being prepared for logging and subsequently testing operation. Meanwhile AT-7 is still being tested. O’Cathain emphasised that the AT-7 and 9 results are expected in the near future.

All this testing will help inform the final discovery report for Ain Tsila, which is on track and is expected to be completed by January. After that O’Cathain expects the partners will also complete a new competent persons report by the end of the first half of 2012.

Petroceltic still has a 56 per cent stake in Isarene, but O’Cathain is not against the idea of selling more project equity when the time is right.

“A further farm-out is something we are giving active consideration to at the moment. 

“With the permission of Sonatrach, with have been having some discussions with a number of new possible partners, but there’s nothing formal yet.”

Closing the ENEL farm-out is the most obvious and immediate catalysts for stock as the proceeds will help fund Petroceltic’s current commitments and it will also open up the possibility of further additions to the group’s exciting portfolio.

Indeed O’Cathain told us that early talks have already taken place. “We have some new venture activity which is dependent on the closing of the ENEL deal, once that closes we’ll hopefully be announcing these deals,” he said.

“We looking at both new territories as well as existing ones. At the moment it’s hard to say. Nothing is ever done, until it’s done. We haven’t concluded any deals yet.

“Some of the things we are looking at, obviously we’re not currently in a position to make any capital commitments on just yet, until we’ve closed the ENEL deal. But when that’s done we’ll have the firepower to take on new deals, so we hope to add to the portfolio in the not too distant future.