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Gulf Keystone Petroleum to take full
control of Kurdistan operating subsidiary
11.3.2010
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March 11, 2010
ERBIL-Hewlêr,
Kurdistan region 'Iraq', — Gulf Keystone
Petroleum (AIM: GKP) is set to increase its
interests in Kurdistan by assuming 100% control of
its GKPI operating subsidiary, following a material
default by the company’s investment partner in
Kurdistan, ETAMIC. Subject to total expenditure of
US$52m the company will increase its net interests
in each of the four Kurdistan based oilfields -
Shaikan, Sheikh Adi, Ber Bahr and Akri Bijeel.
After extensive negotiations with the Kurdistan
Regional Government (KRG), Gulf Keystone has agreed
the main components of a re-organisation of its
interests in GKPI, the proposed reorganisation is
subject to KRG approval and discussions remain
ongoing.
According to London-based stockbroker, Fox-Davies
Capital the news represents a very positive
development for Gulf Keystone, as it clarifies the
PSC structure and also contributes a net value
increase to the broker’s risked NAV. Fox-Davies said
it continues to be very confident on the investment
story, retaining its ‘Buy’ rating on the stock and
targeting 200p per share.
In July 2009, Gulf Keystone agreed the ETAMIC
partnership as part of its acquisition of interests
in Ber Bahr and the Sheikh Adi. ETAMIC, a
middle-eastern investment fund, successfully
negotiated the award of the Sheikh Adi PSC
(Production Sharing Contract) and the assignment of
an interest in the Ber Bahr PSC. Subsequently, Gulf
Keystone issued new shares in GKPI to ETAMIC,
representing 50% of the subsidiary’s equity.
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Gulf Keystone Petroleum to take full control of
Kurdistan operating subsidiary |
Currently under the new
agreement, ETAMIC’s 50% shareholding in GKPI will
revert to Gulf Keystone, making the Kurdistan based
company Gulf Keystone’s wholly-owned subsidiary.
Consequently, the company will pay ETAMIC’s overdue
US$40m Infrastructure Support Payment to the KRG.
This payment relates to the Sheikh Adi and Ber Bahr
oilfields,www.ekurd.netand
subject to the payment, GKPI will retain its
interests in the oilfields, of 80% and 40%
respectively. The company is also required to make a
termination payment of US$12m to ETAMIC in full and
final settlement of all of their rights to the joint
venture.
The KRG is also entitled to an Additional
Infrastructure Support Payment, amounting to 40% of
GKPI's entitlement to ‘Profit Petroleum’ derived
from all four of its Kurdistan PSCs.
Fox-Davies noted that previously, GKPI’s ‘Profit
Oil’ was split 70% for KRG and 30% for the company,
of which Gulf Keystone would receive 15% net.
Subsequently under the new agreement the KRG will
receive 82% of Profit Oil (70% + 40% of GKPI’s
profit oil), as such Gulf Keystone will now receive
18% net, a 3% absolute increase in its ‘Profit Oil’
entitlement and a 20% increase on the share
previously due to Gulf Keystone.
As a result of the deal, Gulf Keystone has
effectively doubled its working interests throughout
its Kurdistan operations. Upon completion of the
reorganisation, the company’s current interests
(subject to certain back-in rights and profit
sharing agreements) are - 75% of Sheikan Oilfield,
80% of Sheikan Adi, 40% of Ber Bahr and 20% in Akri
Bijeel.
Gulf Keystone said it will update the market once
final agreements have been signed by all relevant
parties. Additionally the company recognised that
additional funding would be required, and said it is
considering its funding strategy in this regard.
The Fox-Davies analyst estimates that the deal’s net
benefit to Gulf Keystone is US$225m or 25p per
share, which is partly compensated by a larger than
expected funding requirement.
Yesterday, Gulf Keystone closed the trading day
strongly after the group announced that the operator
of the Akri Bijeel, concluded a successful oil test
in the Bijeel-1 exploration well. The tested zone is
in the upper Jurassic and flowed at rates of up to
3,200 barrels of oil per day with associated gas
rates of 933,000 standard cubic feet of gas per day.
Oil gravity was 18 degrees API and flowing wellhead
pressure was 420 psi on a 48/64" choke.
Drilling operations are still in line with
previously announced plans. Following completion of
the full test cycle, drilling will resume from the
current depth of 3,831 metres to a final planned
depth of approximately 4,400 meters, pending actual
well results.
The Bijeel-1 well is targeting prospective intervals
in the Cretaceous and the Jurassic.The well is the
first exploration well being drilled on the Akri
Bijeel block which is adjacent to Gulf Keystone’s
Shaikan block. In December, Gulf Keystone was
forecasting that the well would take approximately
four to five months to complete.
In relation to the Akri Bijeel test, Fox-Davies said
it is an interesting result because the targeted
prospect was different from Shaikan. Furthermore,
the stockbroker noted that the oil quality is
similar to the one encountered in Shaikan at this
level and is flowing at very decent rates. It looks
like a structure in that part of the world has been
charged by a very prolific source rock, Fox-Davies
said.
Fox-Davies believes that the most interesting part
of the well is yet to come as it penetrates the
deeper section, where the broker expects lighter oil
and gas to be present. According to the analyst
report, the result also de-risks the two other
nearby licences of Sheikh Adi and Ber Bahr in which
Gulf Keystone has a substantial interest.
Gulf Keystone Petroleum.Gulf Keystone is an
independent company whose objectives are to explore,
develop and produce oil and gas primarily in North
Africa and the Middle East. The company currently
has exploration and appraisal rights over six blocks
and two producing fields totalling approximately
17,600 square kilometres in the Republic of Algeria.
In January 2008, the company received Development
Plan approval for the GKN and GKS oil fields
triggering an entitlement to a share of production
effective from 10 October 2007. This is a first for
Gulf Keystone marking our evolution into an
exploration and production company. The company also
secured interests in two production sharing
contracts in the Kurdistan Region of Northern Iraq
in November 2007 and this region has the potential
to be a world class hydrocarbon province.
Copyright, respective author or news agency,
Proactiveinvestors co.uk
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