Gulf Keystone (LON:GKP) has now spudded the crucial and eagerly awaited Shaikan-2 deep appraisal well.
Investors welcomed the news, with shares gaining 5.5 percent immediately after the news, and they will now await a series of results and updates in the coming months.
It is the first deep appraisal well to be drilled on the substantial Shaikan oil discovery in the Kurdistan region of Northern Iraq.
The well follows up the initial Shaikan-1 well, which propelled Gulf Keystone to become one of the most talked about, and invested in, stocks on London’s AIM market.
"We are very excited to finally be spudding our first deep appraisal well on the Shaikan structure,” chief operating officer John Gerstenlauer said.
Based on the results from the initial Shaikan discovery an independent report was compiled. It put Shaikan’s oil in place resources at around 1.9 billion barrels and saw upside to 7.2 billion - in a P90 to P10 range.
Shaikan-1 tested five levels from 1,450 metres through to 2,850 metres - with a combined rate of more than 20,000 of oil barrels a day.
But Gulf Keystone had to stop drilling at the lowest levels because of a very high pressure zone that was above the tolerance of the well design.
This deep appraisal well has been designed to overcome this challenge.
Shaikan-2 has been drilled through the geopressured sections of the Triassic age rocks, as well as the Cretaceous, Jurassic and the Triassic all the way down to the Permian, with target depth of 5,000 metres.
Drilling and testing is expected to take six months.
Gerstenlauer said: “In the success case, we hope for, as a minimum, a significant increase in our current P90 volume of 1.9 billion barrels of oil in place, thus narrowing the possible range of oil in place numbers,
“In the upside case, we would, of course, also hope for a further upward movement of our P10 volume which is currently independently estimated at 7.4 billion barrels of oil in place."
Fox-Davies Lionel Therond emphasised the well’s importance in a note to clients.
“(Shaikan-2) is a crucial well for Gulf Keystone that should help narrow down the uncertainty on oil-in-place estimates,” Therond said.
“Laterally it should provide a better understanding of the structural development, i.e. the size of the trap, as well as reservoir properties and in particular the extent and intensity of the fracture system.”
The analyst stressed that this is a critical element for assessing recovery factors.
Therond maintained his ‘buy’ recommendation for Gulf Keystone, targeting 200 pence per share.