Gulf Keystone Petroleum (LON:GKP) shares gained just over 2 per cent today as investors focused on the group’s plans to develop the giant Shaikan oil field.
This morning Gulf Keystone told investors that its development plan envisages production of up to 40,000 barrels a day as soon as next year.
Shaikan is already producing oil via its extended well test facilities – currently tied to the Shaikan 1 and Shaikan 3 wells. And the development plan will see the group build upon this capacity, ultimately to the 400,000 barrel a day level.
In 2011, Gulf Keystone produced and sold just over 200,000 barrels of oil. Under its contractual arrangements with the Kurdistan authorities GKP’s net entitlement production totalled 166,000 barrels, up from around 30,000 in the prior year.
And the oil was sold at an average of US$41.61 a barrel, which increased from US$26.78 a barrel in the year before. The company says this test production shows it can realise revenues from Shaikan, and it also provides valuable technical, commercial and marketing information for the future.
The Shaikan field is currently believed to contain between 8 and 13.4 billion barrels of oil (mean estimate: 10.5 billion). However chief executive Todd Kozel believes the scale of Shaikan could continue to grow.
“We believe the existing numbers for the Shaikan discovery remain conservative and look forward to completing the appraisal programme and targeting Shaikan's untapped resources,” Kozel said today.
“As 2012 looks set to be another fantastic year for the company, we look forward to reporting further operational success as we achieve our goal of developing our world class acreage.”
Gulf Keystone says the development of this world class asset remains the group’s operational focus.
“During 2012, we will complete the appraisal programme of the Shaikan field, explore deep untapped resources of this structure and prepare to move to the first phase of the large-scale development in 2013,” the company said in this morning’s 2011 results statement.
“Prior to that we will complete the preparation of the Shaikan Field Development Plan and submit it for approval to the Ministry of Natural Resources of the Kurdistan Regional Government.”
Analysts at Fox Davies however say the value of the Shaikan asset will not be fully reflected in the GKP share price until an oil export route is operational, as the domestic Kurdistan market would be too small to support the group’s plan for the full development.
The City broker says this is one remaining risk and it relates to timing. That said the broker’s 350p price target, some 75 per cent higher than the current price, ‘adequately reflects’ this risk.
“Kurdistan is locked in long struggle with Iraqi government over the right to control and export its natural resources.
“Under this backdrop, the recent agreement between Kurdistan and Turkey to build new oil and gas pipeline and commence oil and gas trade is a landmark development given Baghdad consent was not taken. The proposed oil and gas pipeline will open up alternate monetization option for the Kurdish oil and gas reserves.”
Elsewhere Seymour Pierce analyst Dougie Youngson repeated his ‘buy’ recommendation of the stock with a more bullish 520p a share target.
He told clients that today’s results statement presented few surprises and said ‘the company continues to make good progress at Shaikan’.
In the past twelve months Gulf Keystone completed two major upgrades to the field’s oil-in-place numbers, adding a total of 6 billion barrels to its previous estimates.
This came as a result of the group’s successful appraisal drilling. The programme is still ongoing and results continue to impress. Indeed in recent months Gulf Keystone released the findings of the Shaikan 4 well which it described as the ‘best to date’ and shortly after Shaikan 6 confirmed the deepest oil find on the field so far.
Appraisal and exploration work also continues on the group’s other assets in Kurdistan with venture partner Genel currently drilling a well on the Ber Bahr block, and a separate drilling programme is underway on the Sheikh Adi block.
Meanwhile it is continuing its efforts to sell a 20 per cent stake in the Akri-Bijeel block. Today the firm said that talks are ongoing with several interested bidders.