Gulf Keystone Wraps Up Successful Phase 1 Drilling in Algeria's HBH Permit

Gulf Keystone has announced that drilling and testing of the HBH-6 appraisal well on the Hassi Ba Hamou Permit ("HBH Permit") in Algeria has been completed. The company has also provided an update on operations.

Hassi Ba Hamou

The HBH-6 appraisal well, which was spudded on November 25, 2008, reached a total depth of 930
meters penetrating the Devonian age gas reservoir. During a 48 hour production test a stabilized flow rate of 15,345 cubic meters per hour (12.97 mmscfg per day) was achieved through a 144/64-inch choke. The HBH-6 well is the sixth and final well on the HBH Permit during the first prospecting period and completes the work commitments during this phase.

The drilling rig will now move to drill well RM-2 which will be the first well on the HBH Permit to be drilled during the second prospecting period. This well is expected to spud within a month. No further announcement on the RM-2 well is planned until the well has been completed.

The HBH Permit, which contains the HBH gas field and RM-1 discovery, was awarded in April 2005. It comprises five blocks within an area of 18,380 square kilometers in the Bechar Basin in Algeria's
Western Desert.

GKN and GKS Field

As previously announced the GKN-1 well was shut-in in early June 2008 in order to facilitate maintenance, repair and a spur line extension to the oil transportation line, workover of the GKN-1 well, and upgrade of the facilities to handle expected increased production when the GKS-2 well is brought onstream. Currently this work is pending agreement with Sonatrach (Algeria's National Oil Company) and approval from the authorities in Algeria to recommence oil production.

During the second half of 2008 Sonatrach entered into a one year evergreen agreement to purchase Gulf
Keystone's share of production from the GKN and GKS fields (60% interest). This agreement covered production from October 10, 2007. The first payment covering production to April 10, 2008 was received in early January 2009 being settled in accordance with a formula reflecting the prevailing price for the month of November 2008. A further payment covering production between April 11 and early June 2008 is expected in February 2009 and will reflect the prevailing price for the month of January 2009.

In the interim results for the six months ended June 30, 2008, issued on September 25, 2008, the Company recognized revenues of $4.3 million in connection with this contract. The subsequent agreement with Sonatrach has resulted in a lower oil price being obtained for much of this supply due to falling world oil prices. As a consequence, the revenue reported will need to be restated at a number reflecting the prevailing November and January prices when known.

The GKN and GKS field are located in North Algeria, South East Constantine Basin.

Kurdistan, Iraq

The highly prospective Shaikan Block is situated near the city of Dihok, approximately 85 kilometers North-West of Erbil and covers an area of 283 square kilometers. Shaikan was covered in 2008 by 171 kilometers of 2D seismic and analysis of that seismic data has already resulted in a first ready to drill prospect being identified by the Company.

A drilling rig has been contracted with Weatherford Drilling International (BVI) Ltd. The new build NOV IDEAL 1500HP rig is now expected to arrive in country before the end of February of this year with a target date for the commencement of drilling by early second quarter 2009.

The acquisition of a well head and casing is complete with long lead items now in stock at our pipe yard near Maraiba, Kurdistan. In addition, preparation of the Shaikan-1 drilling site is complete. Contracts for ancillary well site services have either been signed or are pending finalization.


The Akri-Bijeel Block is adjacent to the Shaikan Block and covers an area of 889 square kilometers. Acquisition of 442 kilometers of 2D seismic was completed in August 2008 and processing of the seismic data is underway. It is intended to drill the first Akri-Bijeel well following completion of Shaikan-1 using the same rig.

Todd Kozel, Executive Chairman, Gulf Keystone, commented, "We are delighted with the result of the HBH-6 appraisal well on the HBH Permit, Algeria. This is the fourth successful well from our now completed six well drilling program, which included the RM-1 discovery to the southeast of the HBH gas field. The success of this drilling program justifies our decision to proceed to the second prospecting period early, and underlines the high prospectivity of the HBH Permit.

"This early success is also a welcome start to what I expect to be a busy drilling year for Gulf Keystone. We continue to make rapid progress in both of our key areas of operation and eagerly anticipate the start of phase two drilling on the HBH Permit, and