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Gulf Keystone raises Shaikan oil-in-place estimate to up to 7.4 billion barrels

Gulf Keystone Petroleum (AIM: GKP) has upped the range of oil in place for the Shaikan structure in Iraq’s Kurdistan region to a gross 1.9 to 7.4 BBO (billion barrels of oil) with a mean of 4.2 BBO in place after data from the Cretaceous, Jurassic and Triassic formations of the Shaikan-1 well tested to a depth of 2,950 metres was independently evaluated by Dynamic Global Advisors.

In addition, the review put the upside potential to 13 BBO in place in addition to the deeper prospective resources below 2,950 metres, which are estimated at 1 to 5 BBO and 6 to 14 tcf (trillion cubic feet).

The previous estimate by Dynamic Global Advisors after testing the well to a depth of 2,055 metres put the range of oil in-place for the structure at 1.0-5.3 BBO with a mean of 2.8 BBO.

The Shaikhan-1 well has discovered a significant resource of oil and gas in the Cretaceous Sarmord, Jurassic Barsarin, Sargelu, Alan, Mus, Butmah, Baluti and Triasic Kurre Chine formations. The company said the discovery greatly reduced geologic risks in the company’s Sheikh Adi, Akri Bijeel and the Ber Bahr blocks, proving hydrocarbon source and migration in the area.

“This report independently corroborates the world class quality of the discoveries and provides invaluable data for our next test wells appraising these finds. We are delighted with the results of the final DGA report evaluating Shaikan-1 and we look forward to realizing as much of the upside potential of this discovery as possible,” said executive chairman Todd Kozel.

At the end of November, Gulf Keystone reported that Shaikan-1 had reached total depth of 2,950 meters in the Triassic Zone, and had tested approximately 10,000 barrels of oil equivalent per day from that zone, which exceeded even the most optimistic prognosis held at the start of drilling. Gulf Keystone stated that the test data collected in the first test indicated that the first Triassic zone could have flowed at up to 14,000 boepd, while the previous test results from the Jurassic zone indicated production of 7,000 bopd. The company said at the time that production rates of about 24,000 boepd from the well were entirely realistic.

Recent operational developments at the company’s projects included the spudding of the Bijeel-1 well in the Akri Bijeel block in mid December. The well will target prospective intervals in the Cretaceous and the Jurassic. The well is the first exploration well to be drilled on the Akri Bijeel block which is adjacent to the Shaikan block and in which Gulf Keystone holds a 20% interest. The well is planned to a target depth of approximately 4,300 metres and is forecast to take approximately four to five months to complete.

Broker Fox-Davies Capital (FD-Capital) has recently upped its target price for Gulf Keystone to 200 from 175 pence after the announcement of another discovery in the Triassic formation, calling the Shaikan-1 well “unstoppable.”

The broker left the probability of success estimate unchanged at 67% for Shaikan-1 and 50% for the company’s other three licenses. The impact of the resource revision is about 26 pence.

The target price represents a hefty premium to the stock’s current trading price of 105.5 pence, which was reached after the 7.5 percent rise in early deals today following the latest update.

Disclosure: The author holds no positions in the company