The Kurdistan Regional Government of Iraq ("KRG") has awarded Gulf Keystone's subsidiary Gulf Keystone Petroleum International Limited ("GKPI") significant interests in two Production Sharing Contracts ("PSCs") for the exploration, development and production of hydrocarbon resources in the Sheikh Adi and Ber Bahr blocks of the Kurdistan Region of Northern Iraq.
The Sheikh Adi block is situated north east of Dihok and lies to the west and on trend with the Shaikan structure. The block covers an area of 180 square kilometres. GKPI will operate and have an 80% interest in the Sheikh Adi PSC, which has an initial three-year exploration phase commencing in July 2009. The Company believes that the block has hydrocarbon potential at multiple levels from Cretaceous, Jurassic, Triassic and Permian levels and has a mapped defined undrilled surface anticline covering approximately 32 square kilometres covered by modern seismic data.
The Ber Bahr block covers an area of 350 square kilometres and lies to the north of Dihok and on trend with the Shaikan and Sheikh Adi blocks. The Ber Bahr PSC is operated by Genel Energy International Limited and has an initial two year exploration phase which commenced in March 2009. Gulf Keystone has a 40% interest in the Ber Bahr PSC. The Company believes that the block has hydrocarbon potential at Jurassic, Triassic and Permian levels. The block has a mapped undrilled surface anticline covering an area of approximately 45 square kilometres in 2 lobes and is covered by a modern 2D seismic grid.
The work programmes for both blocks include the drilling of one exploratory well on each block using current, existing and to be acquired data. Both PSCs are subject to a 20% KRG carry and no third party back in rights. Gulf Keystone's technical team anticipates that the potential combined prospective resources of both blocks will be in excess of a billion barrels of oil in place. GKPI will be working towards an accelerated drilling programme with a possible well spud in 2010.
These two new PSCs are in addition to GKPI's existing PSCs, Shaikan (75% interest, operated by Gulf Keystone and on which exploration well Shaikan-1 is currently drilling) and Akri Bijeel (20% interest, operated by MOL).
New Strategic Investment Partner for Kurdistan
As part of the planned expansion of Gulf Keystone's exploration portfolio in Kurdistan, and consistent with the Company's stated intention to mitigate the risks of its exploration activity, the Company began negotiations with prospective strategic investment partners earlier this year. Gulf Keystone is pleased to have reached agreement with ETAMIC to become the Company's new strategic investment partner for the Kurdistan region. ETAMIC is a private investment fund based in the Middle East. ETAMIC successfully negotiated for the award of the new Sheikh Adi PSC and the assignment of an interest in the Ber Bahr PSC. GKPI proposed and it was agreed that ETAMIC merge these interests with GKPI's existing interests in exchange for the issue of new shares in GKPI conferring ETAMIC a 50% equity interest in GKPI. 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.
This represents a major step forward in the execution of Gulf Keystone's strategy of increasing exposure to moderate risk, high reward exploration opportunities and ongoing repositioning of the portfolio, while continuing to search for low risk, brown field opportunities with the capability of delivering sufficient oil or gas production revenue to finance overheads and opportunity evaluation costs.
Todd Kozel, Executive Chairman of Gulf Keystone, commented:
"I am delighted that Gulf Keystone has been able to gain further exposure to Kurdistan, one of the few remaining highly prospective hydrocarbon regions in the world. Our close relationship with the KRG, the fast pace of exploration programmes on our existing blocks and the support of our new strategic investment partner, ETAMIC, were all key factors in our being awarded these new PSCs.
"The agreement with ETAMIC to become our strategic partner in Kurdistan is just one more successful outcome of our stated strategy of mitigating shareholder risk and attracting funding to accelerateour ambitious exploration programmes. We look forward to a long and successful working relationship with ETAMIC.
"The potential of Kurdistan continues to be demonstrated by our fellow operators announcing discoveries, positive reserve updates and export of production from structures which have significant similarities to our own assets. Indeed, I am encouraged by the early results of our own Shaikan-1 well which recently identified a shallow live oil show. I eagerly await further results from this well as we drill down to our primary targets."