Gulf Keystone Posts Interim Results for First Half 2009
Gulf Keystone Petroleum Ltd. has issued its interim results and operational update for the six months ended June 30, 2009.
- Loss after tax $5.6 million (1H08: $18.2 million)
- Loss per share $0.01 (1H08: $0.07)
- Cash of $16.7 million at June 30, 2009 (1H08: $29.6 million)
OPERATIONAL SUMMARY -- FIRST HALF
- Shaikan-1 well spudded on April 27, 2009
- HBH-6 appraisal well tested gas at 12.97 mmscf per day
- RM-2 appraisal well plugged and abandoned
- Further acquisition of 2D seismic and extended well test on RM-1 discovery
OPERATIONAL SUMMARY -- POST PERIOD END
- Significant oil discoveries at Shaikan-1 well, in the Sargelu, Alan, Mus and Butmah formations
- Appointment of independent E&P consultant, Dynamic Global Advisors, to assess Shaikan discoveries
- Gulf Keystone Petroleum International awarded interests in the Sheikh Adi and Ber Bahr Blocks
- Revised range of oil-in-place volumes of between 2.0 and 4.0 billion barrels
- Strategic decision to suspend investment in its projects and undertake an exit from Algeria
- Assets held for sale, subject to approvals from the Algerian Government and the Company's partners BG North Sea Holdings plc ("BG") and Sonatrach
- Arbitration proceedings commenced against BG, the operator of the HBH Permit
CORPORATE DEVELOPMENTS -- FIRST HALF
- Secured £30 million Standby Equity Distribution Agreement ("SEDA") with YA Global Master SPV Ltd
- £2.4 million ($3.5 million) drawn down under SEDA facility in exchange for 16,149,465 new common shares
- Placing of 15,660,000 new common shares for gross proceeds of £2.28 million ($3.3 million)
CORPORATE DEVELOPMENTS -- POST PERIOD END
- Announcement of new strategic partner Etamic Limited ("Etamic")
- Placing of 75,600,000 new common shares for £6.8 million ($11.3 million) before expenses
Todd Kozel, Executive Chairman & Chief Executive Officer of Gulf Keystone said, "2009 has already been a busy, and I am delighted to say, successful year. Although our exploration success and strong corporate progress has materialized in recent weeks, it was the culmination of much hard work throughout the first half.
"I should like to thank everyone in Gulf Keystone and our industry partners for their efforts. We look forward to building on the outstanding exploration platform we have created in Kurdistan on behalf of our shareholders. I am very excited about our Company's future."
Executive Chairman and Chief Executive Officer's Statement
I am pleased to be able to report on the excellent progress made by Gulf Keystone during the first half of 2009, on events post period end and the near-term outlook for the Company.
Award of Two Production Sharing Contracts -- Sheikh Adi & Ber Bahr
On July 20, 2009, GKPI announced it had been awarded significant interests in two further Production Sharing Contracts ("PSCs") for the exploration, development and production of hydrocarbons in the Sheikh Adi and Ber Bahr Blocks of the Kurdistan Region of Northern Iraq.
Etamic, the Company's new strategic partner, successfully negotiated for the award of the Sheikh Adi PSC and the assignment of an interest in the Ber Bahr PSC to GKPI. GKPI proposed and it was agreed that Etamic secure the award of an 80% participating interest in Sheikh Adi and a 40% participating interest in Ber Bahr for GKPI in exchange for the issue of new shares in GKPI conferring Etamic a 50% equity interest in GKPI.
This strategic investment partnership is part of the planned expansion of Gulf Keystone's exploration portfolio in Kurdistan. This is consistent with the Company's stated intention to mitigate the risks of its exploration activity.
The PSCs have been acquired under more favourable terms than the Company's existing Shaikan and Akri-Bijeel blocks. Etamic will fund 50% of the costs to be incurred by GKPI on Sheikh Adi and Ber Bahr following the current drilling campaign on the two existing PSCs. Etamic will also contribute its share of GKPI's future exploration and development costs following the drilling of Shaikan-1 and Bijeel-1.
GKPI now holds PSCs in four exploration blocks in the highly prospective oil province of Kurdistan. Together these form one of the largest acreage positions in the region with a total area under licence of 1,702 square kilometers.
Exploration drilling -- Shaikan Block
The Shaikan-1 well spudded on April 27, 2009 and has consequently encountered oil in the Sargelu, Alan, Mus and Butmah formations.
Post the period under review, on August 6, 2009, the Company reported that 21 to 22 API oil was tested at various rates between 5,000 to 8,000 barrels of oil per day over approximately a 60 meter zone. This provided Gulf Keystone with grounds for an oil-in-place estimate of between 1.5 and 3.0 billion barrels of oil encountered.
Dynamic Global Advisors, an independent E&P advisory, was appointed on 18 September 2009 to perform an independent assessment of discoveries made in the Company's Shaikan-1 well.
On September 30, 2009, the Company also reported that it had set the intermediate 9-5/8" casing at 2,275 meters on the Shaikan-1 exploration well, completing drilling of the Jurassic portion of the exploration well. These log results combined with knowledge gained from the previously announced interval has raised the estimation of the total barrels of oil in place by the Gulf Keystone internal technical team. Based upon the Company's own internal analysis, this data provides for a revised range of oil-in-place volumes for the Shaikan structure of between 2.0 and 4.0 billion barrels for the oil in place, encountered thus far.
As at 30 September 2009, drilling into the top of the Triassic formations has begun and the Company anticipates reaching a final drilling depth of 3,200 to 3,500 meters, subject to well results.
Forward Work Program
Following the completion of the Shaikan-1 well, the rig will move to the Bijeel-1 well site and commence drilling on this prospect in 4Q 09. It is intended subsequently to bring in a workover rig to undertake an extended well test on the Shaikan-1 well.
The 2010 work program is currently being formulated and remains subject to partner approval. However, it is expected that this will comprise a two to three well appraisal programme on Shaikan and an exploration well on Sheikh Adi. Sheikh Adi is on trend with Shaikan and a high grade target for 2010. The wells to be drilled in 2010 will evaluate the Shaikan discovery and Sheikh Adi.
In addition, plans for 2D and 3D seismic data acquisition are also being formulated for the Shaikan, Sheikh Adi and Ber Bahr PSCs.
Based on the preliminary work program detailed above the current estimate of financing required for Gulf Keystone's share of activity for the remainder of 2009 and to the end of 2010 is $88 million, which the Company intends to finance either by utilisation of the SEDA, further equity placings, the successful sale of the Company's Algerian assets or further farm-out transactions.
It is intended that the Company undertake an exit from Algeria and the assets are currently for sale. Any sale of its interests will be subject to approval by the Algerian governmental authorities and the Company's partners Sonatrach and BG North Sea Holdings Plc ("BG").
Hassi Ba Hamou ("HBH")
During the half year two wells have been completed. The HBH-6 appraisal well tested gas at 12.97 mmscf per day. The RM-2 appraisal well was plugged and abandoned. Additionally, an extended well test of the RM-1 discovery was undertaken together with a 3D seismic acquisition campaign.
It is currently anticipated that subject to partner and governmental approvals and detailed project definition for both the HBH gas field and RM-1 discovery the project will be sanctioned in early 2010.
As announced on July 14, the Company has suspended further investment in the HBH Permit and as a consequence, has opted not to pay certain due cash calls.
Arbitration proceedings commenced against BG, the operator of the HBH Permit, relating to breaches of the joint operating agreement ("JOA") by BG and the exercise of certain rights under the JOA. BG is claiming $7.45 million relating to certain disputed cash calls.
GKN and GKS Field
The GKN oil field remains shut-in and there has been limited activity on this acreage and on the proposed development of the GKS oil field during 2009.
On Ben Guecha Block 108/ 128b the Company has served notice that it will not be completing the minimum work program and as a consequence the exploration license will expire and any outstanding bank guarantee will be released to Sonatrach.
Issue of Equity
On May 6, 2009, the Company secured £30 million by way of a Standby Equity Distribution Agreement ("SEDA") with YA Global Master SPV Ltd, an investment fund managed by Yorkville Advisors, LLC. The SEDA enables Gulf Keystone, entirely at its own discretion for up to 36 months, to draw down funds in tranches in exchange for the issue of new equity on terms related to the prevailing market price at the time of each drawdown. To date, £2.4 million ($3.5 million) has been drawn down from the facility and 16,149,465 new shares have been issued. A further 2,087,740 new common shares of $0.01 each was issued in lieu of cash payments for fees due. The unused facility at the date of this report amounts to £27.6 million.
On May 6, 2009, the Company placed 14,660,000 new common shares of $0.01 each at a price of £0.145 each, raising gross proceeds of approximately £2.1 million ($3.1 million).
On May 20, 2009, the Company issued 1,000,000 new common shares of $0.01 each at a price of £0.1539 each raising gross proceeds of £0.15 million ($0.24 million).
On August 3, 2009, the Company issued 75,600,000 new common shares of $0.01 each at a price of £0.09 each raising gross proceeds of £6.8 million ($11.3 million) before expenses.
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