Gulf Keystone Petroleum has announced its results for the year ended December 31, 2008.
Recent / Upcoming Events
Executive Chairman & Chief Executive Officer's Statement
I am pleased to report another year of good progress by Gulf Keystone Petroleum Limited ("Gulf Keystone"). I believe we are a much stronger company operationally and strategically than a year ago. This can be witnessed in the skills and enthusiasm of our people, the success of our drilling campaign and our prospects for the current year. Financially, realising the funding necessary to secure the Company's future remains a priority, but a number of alternatives are being pursued, and some good progress has already been made.
Progress in Algeria has been dominated by the successful drilling campaign on the Hassi Ba Hamou ("HBH") Permit. This success prompted Gulf Keystone and its partners to elect to commit to Phase 2 of the project, ahead of completion of its Phase 1 commitments.
The HBH Permit contains the HBH gas field, which comprises four blocks within a revised concession area of 12,833 square kilometers in the Bechar Basin, in Algeria's Western Desert.
The HBH Permit drilling programme consisted of a series of six wells, three appraisal and three exploration. We were delighted that four of those six wells were successful, including one new discovery.
The first well in the programme, the HBH-4 appraisal well, spudded in December 2007 and was completed in January 2008 on schedule and to budget. A production test yielded a stabilised flow rate in line with expectations of 12,800 cubic meters per hour (10.8 mmscfg per day) and provided us with valuable information on the resource potential of the permit.
In June 2008, the RM-1 exploration well was successfully drilled on a separate prospect some 50 kilometers to the South East of the HBH gas field and became our first discovery on the HBH Permit. Gas shows during drilling and logging results indicated a 61 meter gas column in sands of Siegenian age. During a production test, the well flowed gas at a stabilized flow rate of 10,266 cubic meters per hour (8.7 mmscf per day).
The HBH-5 appraisal well was successfully completed in November 2008. The well penetrated the Devonian age gas reservoir as predicted by the Gulf Keystone technical team and proved the extension of the HBH gas field to the South East. During a production test a stabilized flow rate of 11,366 cubic meters per hour (9.5 mmscfg per day) was achieved.
The HBH-6 appraisal well, the sixth and final well of the first prospecting period on the HBH Permit, was completed in January 2009. The well penetrated the Devonian age gas reservoir as predicted by the Gulf Keystone technical team and during a production test a stabilised flow rate of 15,345 cubic meters per hour (12.97 mmscfg per day) was achieved. HBH-6 completed the work commitments during this first phase.
HBHN-1, the first exploration well, completed in April 2008, was drilled on an untested structure to the North of the HBH gas discovery. The FEG-1 exploration well, completed in September 2008, was drilled on an untested trap to the South West of the HBH gas discovery. Neither encountered commercial gas volumes and were plugged and abandoned.
Following the success of the RM-1 exploration well in June 2008, Gulf Keystone and its partners agreed to go into the second prospecting period of the HBH Permit. This involves a work program obligation of 500 square kilometers of 3D seismic (or equivalent of 2D), one exploration well and two appraisal wells.
Commencement of Phase 2 work commitments has already begun with the drilling of the RM-2 appraisal well in the first quarter of 2009 and the acquisition of additional 2D seismic which will contribute to our understanding of the RM discovery. RM-2 was drilled to the North of the RM-1 discovery to a depth of 919 meters on a separate and Lower Devonian structure but the reservoir was shown to be water bearing. The well has been plugged and abandoned.
At the start of 2008, the Hydrocarbon National Agency in Algeria ("ALNAFT") approved the proposed Development Plan for the GKN and GKS oil fields (Gulf Keystone: 60% Working Interest, 30% Net Revenue Entitlement) located in North Algeria, South East Constantine Basin, Block 126a. This followed the Declaration of Commerciality by Sonatrach in June 2007. These were significant milestones for Gulf Keystone as the Company became entitled to a share of production revenues from these fields, complementing its exploration prospects.
As part of the Development Plan, Sonatrach and Gulf Keystone intend to build a pipeline to connect GKS-2 to the existing evacuation pipeline so that this well can begin production. The two fields will then be developed in a staged process through the acquisition of a 3D seismic survey and a development drilling program jointly conducted by Sonatrach and Gulf Keystone.
In line with the Development Plan, the GKN-1 well was shut-in early in June 2008 in order to facilitate maintenance, repair, and a spur line extension to the main oil transportation line, a workover of the GKN-1 well, and an upgrade of the facilities to handle the expected increase in production when the GKS-2 well is brought on-stream. Currently this work is pending agreement with Sonatrach and approval from authorities in
We anticipate that the restart of production from GKN-1 and the commencement of production from GKS-2 will contribute a combined 3,000 bopd (gross), 882 bopd (net).
During 2008 Sonatrach entered into a one year agreement, with an extension option, to purchase Gulf Keystone's share of production from the GKN and GKS fields. This agreement covered production from October 10, 2007. The first invoicing of crude to Sonatrach took place in November 2008. The full payment was received by February 2009, with settlement in accordance with a formula reflecting the prevailing crude price in the month of invoicing.
No activity took place on Block 108 / 128b during 2008.
The license for Block 129 expired in September 2008 and the Block was relinquished.
Since the award of an interest in the Shaikan and Akri-Bijeel Production Sharing Contracts ("PSCs") in November 2007, Gulf Keystone and its partners have made rapid progress in becoming established in Kurdistan and executing our planned work program.
We and our partners have been especially delighted with the strength of our relationship with the Kurdistan Regional Government ("KRG") and the support we have received. Indeed, we were pleased to jointly host with the KRG a very successful visit by investors, media and 'City' analysts to the country in June 2008. This included warm and positive meetings with senior KRG ministers and a tour of the Gulf Keystone facilities, including the blocks where numerous examples of oil seeps proved a particular attraction.
The Shaikan Block is situated approximately 85 kilometers North West of Erbil and covers an area of 283 square kilometers. The Shaikan Block is operated by Gulf Keystone with a participating interest of 75% in partnership with MOL Hungarian Oil and Gas Public Limited Company (20%) and Texas Keystone Inc. (5%).
The acquisition of 171 kilometers of 2D seismic data using a combination of vibrator and dynamite sources was completed in April 2008, which was ahead of schedule and under budget. This satisfies the seismic acquisition obligation under the exploration phase of the PSC.
Analysis of that seismic data has already resulted in a first, ready-to-drill prospect. An interpretation of the data by the Company's internal technical team has confirmed the existence in the subsurface, at the depth of prospective reservoir zones, of the large anticline, which is visible at the surface outcrop, and which, at the surface, is some 26 kilometers in length and five kilometres in width.
Based on this seismic data and analogues in the region, and should a discovery well be drilled, potential un-risked in place contingent volumes in this prospect are up to two billion reservoir barrels of oil as estimated by the Gulf Keystone technical team.
In August 2008, Gulf Keystone and its partners announced that Weatherford Drilling International (BVI) Ltd ("WDI"), had been contracted to supply a drilling rig for a minimum two well program in Kurdistan and a further three optional wells.
With our partners, a stock and pipe yard has since been established near Maraiba in the Shaikan Block to serve both the Shaikan and Akri-Bijeel operations. The acquisition of a well head and casing is complete with long lead items now in stock at the pipe yard.
The WDI new build NOV IDEAL 1500HP rig arrived in Kurdistan in February 2009. The first exploration well, Shaikan-1, spudded on April 27, 2009 and is expected to be drilled to a depth of 3,500 meters. The well will target reservoir zones which include zones where oil has been discovered elsewhere in Kurdistan and Northern Iraq, namely the Qamchuqa, Sekhaniyan and Kurra Chine. Given the widely acknowledged prospectivity of Shaikan and the good seismic indications, we are looking forward to the results of the first well with increasing excitement.
As part of Gulf Keystone's established portfolio management strategy, management is reviewing a number of options including a possible farm-out and sale of some of the Company's 75% interest in the Shaikan Block.
The Akri-Bijeel Block, in which Gulf Keystone has a 20% interest, is adjacent to the Shaikan Block, and covers an area of 889 square kilometers and is operated by our partner.
Acquisition of 442 kilometers of 2D seismic was completed in August 2008 and the processing and interpretation of the seismic data is for the most part complete.
A well location has been selected and it is intended to drill the first Akri-Bijeel well following completion of Shaikan-1 using the same NOV IDEAL 1500HP rig.
I do believe the outlook has never been more exciting for Gulf Keystone.
The spudding of our first exploration well in Kurdistan, on the highly prospective Shaikan Block, was perhaps one of the most significant milestones in the Company's history to date and we eagerly await the results of the drilling. This will be quickly followed by an exploration well on the similarly prospective Akri-Bijeel Block. A discovery success on either of these wells could materially change the value of Gulf Keystone.
Realizing the funding to deliver the opportunities within the Company's portfolio remains a priority and a range of realistic funding solutions are being pursued.
I look forward to reporting back to shareholders as we progress through the 2009 drilling program.
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