Gulf Keystone, a leading independent E&P operator in the Kurdistan Region of Iraq, today provides an operational and corporate update.
Significant progress has been made since the Field Development Plan ("FDP") for the Shaikan field was approved in June 2013. In July 2013 the Company commenced commercial production, marking Gulf Keystone's transition to an operator with revenue generation. In December 2013 crude oil exports from the Shaikan field commenced.
Gulf Keystone is pleased to announce the commencement of crude oil exports from the Shaikan field.
In line with the Company's marketing strategy, which is being developed in co-operation with the Ministry of Natural Resources of the Kurdistan Regional Government, the first tendered cargo of between 30,000 tonnes (198,300 barrels) and 33,000 tonnes (215,000 barrels) of Shaikan crude was trucked to Turkey in December and will be loading at the port of Dortyol this month.
A second tender is underway for two further cargoes of similar size of Shaikan crude, which are expected to be loaded later this month and during February. Sales realisations are expected to be in accordance with the terms of the Production Sharing Contract for the Shaikan Block ("Shaikan PSC") and will reflect transportation and quality adjustments.
The first Shaikan production facility ("PF-1") is in operation with two wells currently tied to the facility, namely Shaikan-1 and -3. The flowlines from Shaikan-4 to PF-1 are now complete and the well has been worked over as a Jurassic Sargelu producer prior to being tied to PF-1 in early 2014.
Work at the second Shaikan production facility ("PF-2") is nearing completion with electrical and instrumentation work ongoing. The Shaikan-2, -5, and -10 wells have been completed as Jurassic Sargelu producers and the flowlines from these wells to PF-2 are currently being laid.
Current average oil sales from PF-1 stand at between 9,000 and 10,000 barrels per day of export quality crude. The Company will provide an update on well performance and combined production capacity of PF-1 and PF-2 as the additional four wells become operational.
Shaikan Field Development Plan - Phase 1
During Phase 1 of the Shaikan development, the Company will seek to achieve 100,000 bopd of production. As set out in the FDP, the Company will be undertaking an active development drilling campaign as well as installing additional production facilities.
The Shaikan field is expected to be connected to the main export pipeline from the Kurdistan Region of Iraq to Turkey, which was finalised in late 2013. A review of the FDP will include Phase 2 Cretaceous, Triassic and, potentially, Permian development.
A key element of the FDP is the commencement of a sour gas injection project. Shaikan-8 was completed as the first sour gas reinjection well and bids have been tendered for gas compressing equipment required to increase plant production capacity, which is subject to well performance and emissions constraints, from the near-term target of 40,000 bopd to the Phase 1 target of 100,000 bopd. The sour gas injection project is expected to be finalised in 2015.
Financing decisions in order to fund the Phase 1 activities will be made in conjunction with anticipated steady oil production and sales from PF-1 and PF-2 in 2014.
Exploration & Appraisal
Shaikan (75% working interest; Operator)
Drilling of the Shaikan-7 deep exploration well is continuing in the Jurassic formation, after the top drive of the Weatherford 319 rig had to be replaced. The well is currently drilling 17 ½" hole below 2,300 metres in the Butmah reservoir. Shaikan-7 will drill into the Triassic and is then expected to penetrate the Permian with a potential to add to already discovered resources, and first results are expected in Q2 2014.
Sheikh Adi (80% working interest; Operator)
The first well to appraise the Sheikh Adi discovery spudded in December 2013. Sheikh Adi-3 is being drilled with the Weatherford 842 rig to target the Jurassic and Triassic with an additional aim to test the potential connection between the Sheikh Adi and Shaikan fields. The well is currently operating below 1,000 metres in the Cretaceous.
The US$50 million tap issue of convertible bonds in November 2013 confirmed investor interest to invest in the Company's evolving story. The Company's increasing production will provide a recurring revenue stream and the Company believes that this will provide an opportunity for Gulf Keystone to access the debt market under more favourable terms in due course. In order to fund the Company's ongoing capital expenditure requirements and meet its obligations under the terms of the Shaikan PSC, the Company is in discussions with a major international bank to assist with the evaluation of the Company's near term debt financing options.
Following the hearing in the English Commercial Court (the "Court") on 13 December 2013 and the resultant Court Order, the Company has now received £17,500,000, which had been paid into Court as security for the costs of the Company, its two subsidiaries and Texas Keystone Inc. (together the "Defendants") by the funders of Excalibur Ventures LCC ("Excalibur"). Texas Keystone Inc. holds a 5% interest in the Shaikan PSC in trust for Gulf Keystone, pending transfer of its interest to the Company.
According to the Judgment handed down on 13 December 2013, the Court ordered that the Defendants should recover their costs of these legal proceedings and that these costs, if not agreed, should be assessed on an indemnity basis, and that Excalibur must pay interest on the Defendants' costs at the rate of 1.5% per annum, from the date of payment of the invoices until 13 December 2013.
On 13 December 2013, the Court further ordered Excalibur to provide an additional security for the costs of the Defendants in the total amount of £5,612,010 by 31 December 2013, failing which the Defendants were given leave to commence proceedings for recovery of such costs and to the extent necessary, to serve proceedings out of the jurisdiction against Excalibur's funders, namely Psari Holdings Limited, Mr Adonis Lemos, BlackRobe Capital Partners LLC, BlackRobe AEO Investors I, LLC, Platinum Partners Value Arbitrage Fund LP, and Hamilton Capital LLC. The Company understands that Excalibur did not pay the additional security into Court and accordingly the Defendants have made an application under Section 51 of the Senior Courts Act 1981 against Excalibur's funders to recover their costs of these legal proceedings.
Source: Gulf Keystone Petroleum Ltd.