Gulf Keystone Petroleum Ltd provides an operational update on the preparations for its 2010 drilling campaign in the Kurdistan Region of Iraq ("Kurdistan").
Gulf Keystone also announces that it has completed a fully subscribed placing (the "Placing") of 20,915,034 new common shares of $0.01 (the "Placing Shares") at a placing price of 76.5p per share (the "Placing Price") raising gross proceeds of approximately £16 million ($24 million). These shares were placed by the Company and broker Fox-Davies Capital Limited with existing and new institutional shareholders. The net proceeds will be utilised towards funding the Company's ongoing operations in Kurdistan. Further funding will be required during the course of 2010 and the Company is considering its best funding strategy with its advisers.
Gulf Keystone plans to commence the acquisition of 3D seismic over the Shaikan structure during the first quarter of 2010. This work will be conducted by Terraseis.
The acquisition of 3D seismic over the Sheikh Adi structure is planned in the event of a successful Sheikh Adi exploration well and following on from the seismic programme on Shaikan.
Shaikan-1 well work-over
Gulf Keystone plans to deploy a work over rig on Shaikan-1 to conduct short term tests of several previously tested Jurassic targets, using an electric submersible pump. In addition, Gulf Keystone will perform a long term, extended well test (18 to 24 months) in order to deliver production from the initial, upper Jurassic discovery zone in Shaikan-1. Based on the current evaluated data, the Company believes that this extended well test will provide for the production and sale of approximately 8,000 to 10,000 bopd into the domestic Kurdistan oil market.
The bidding process for the work over rig on Shaikan-1 and the construction of oil production and truck loading facilities near the Shaikan-1 well site has been finalised and it is expected that these contracts will be awarded shortly.
Shaikan-2 appraisal well
As previously announced, the Shaikan-2 appraisal well is planned to evaluate the Cretaceous, Jurassic and all zones in the Triassic in which total oil in place volumes of 1.9 (P90) to 7.4 (P10) billion barrels with a mean value of 4.8 billion barrels were discovered. The casing and wellhead design has been modified to allow the evaluation of all these zones including the upper Permian which lies immediately below the Triassic and which contains the high pressure zone that forced a halt to Shaikan-1 drilling.
Construction of the well location has been completed at a site 9km to the east southeast of Shaikan-1. Current plans are to spud this well in the second quarter of 2010. This well is expected to be drilled by the same Weatherford 842 rig that drilled Shaikan-1 and that is currently drilling the Bijeel-1 well on the Akri Bijeel block.
Shaikan-3 appraisal well
In addition to the previously announced programme, a shallow appraisal well, Shaikan-3, targeting the Cretaceous zone, is expected to be drilled near the Shaikan-1 location. Shaikan-3 is planned to spud in the second quarter of 2010 utilising the above mentioned work-over rig, following testing operations on Shaikan-1.
Shaikan-4 appraisal well
A location has been identified for the Shaikan-4 appraisal well approximately 6km west of Shaikan-1. This well will appraise all zones down to and including the upper Permian. Current plans are to spud in the fourth quarter of 2010 using the Weatherford 842 rig following the drilling of the Shaikan-2 appraisal well.
Sheikh Adi exploration well
The first exploration well on the Sheikh Adi block, to explore all zones down to and including the upper Permian, is planned to spud in the third quarter of 2010. The well location has been selected and construction of the well site has begun. The AOS Discoverer 1 rig has been contracted for drilling.
Akri Bijeel exploration well
The Bijeel-1 exploration well on the Akri Bijeel block, operated by MOL's subsidiary Kalegran, is currently being drilled by Weatherford Rig 842. The well spudded on 11 December 2009, and is forecast to take a total of approximately four to five months to complete. Kalegran reported a successful oil test in the Bijeel-1 well, subsequently announced by the Company on 9 March 2010. The tested zone is in the upper Jurassic and flowed at rates of up to 3,200 bopd with associated gas rates of 933,000 scf/d. Oil gravity was 18 degrees API and flowing wellhead pressure was 420 psi on a 48/64" choke.
Interim Capital Raising
Gulf Keystone also announces that it has today completed a fully subscribed placing (the "Placing") of 20,915,034 new common shares of $0.01 (the "Placing Shares") at a placing price of 76.5p per share (the "Placing Price") raising gross proceeds of approximately £16 million ($24 million). These shares were placed by the Company and broker Fox-Davies Capital Limited with existing and new institutional shareholders. The Company continues to review further sources of funding to meet its ongoing capital requirements and will update the market at the appropriate time.
Use of Proceeds
Together with the Company's existing cash balances and funds, which may be available under the SEDA facility, the Placing proceeds will be applied towards funding the ongoing activities in the Kurdistan region of Iraq. For the avoidance of doubt the Placing does not trigger any payments due under the arrangements announced by the Company on 10 March 2010. The Company continues to monitor its ongoing funding requirements and funding strategy with its advisers and will make further announcements as appropriate.
Admission of New Shares
Application has been made for the Placing Shares to be admitted to trading on AIM with dealing expected to commence on 19 March 2010.
Following the Placing there will be 516,575,489 common shares of $0.01 in issue.
Todd Kozel, CEO of Gulf Keystone said:
"Since the completion of drilling operations on Shaikan-1, GKP's operational team has worked exceptionally hard through the winter to have our well sites drill-ready for 2010 and to secure the required extended lead-time items such as casing, tubing and wellhead equipment. This is an impressive effort and we are currently on schedule for the 2010 work programme. The short term Jurassic tests and the extended well test on the discovery zone in Shaikan-1 are expected to provide comprehensive data on potential recovery factors and to provide Gulf Keystone with our first oil production revenue in Kurdistan.
"We are very pleased to be commencing the first stage of our drilling campaign which has the prospect of substantially furthering the Company's resource base. The capital raised today, together with our other financial facilities, allows us to begin our programme."