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It’s kind of an “All’s Quiet on the Western Front” day today as all eyes and ears are waiting for the 2:00 pm EDT presentation by Ben Bernanke of the U.S. Federal Reserve Bank that will let the world know what actions the bank will, or will not, take to keep the economy stable. But that’s a story for tomorrow, as most markets will be closed by the time Bernanke pulls his rabbit out of the hat.
Meanwhile, Gulf Keystone Petroleum (LSE:GKP) has begun preparations for a major celebration. They’ve got plenty of time to get ready, because the party won’t take place for another nine months. No, the company is not expecting a baby. It’s expecting a giant.
The spudding of the Shaikan-7 deep exploration well in the Kurdistan region of Iraq began three days ago on 16 June 2013. According to the Iraq-Business News, the well is being drilled about one kilometer east of the Shaikan-1 discovery well. The operation is expected to take nine months to reach the mid-to-lower Triassic and Permian layers at a depth of 4,500 meters, making it “the deepest undrilled horizon to date on the Shaikan structure.”
GKP COO, John Gerstenlauer, said, “With Shaikan-7, we hope to confirm our expectations of major reservoirs beneath the deepest horizon drilled to date and add to what is already recognised as one of the world’s largest onshore conventional oil and gas developments.” This should eventually prove to be a boon to the Company’s share price that has drawn well (no pun intended) back from its 12-month high of 252.75 on 19 September 2012, to 151.00 today. But, that’s the nature of stocks in the oil & gas producer sector.
One analyst said today that “Operationally and financially, the company is well positioned, and (we) therefore maintains our target price of 315 p,” demonstrating that investing in oil typically, of necessity, requires patience and time. Buyers today would realize a 100% gain if GKP were to reach 315.00 within the next year. And that has a great potential to become reality.
The Shaikan field is particularly important to GKP because it owns a 75% stake in its product-sharing agreement with the Kurdistan government. Kurdistan operates as an independent regional government with the nation of Iraq. Third party appraisals estimate reserves of approximately 13.7 billion barrels of oil in place (OIP) in the field.
On 02 May 2013, Gulf Keystone announced that it was “on the verge of moving into a phase of significant production, with the capacity to produce up to 40,000 barrels of oil per day (“bopd”) from Shaikan in the coming months and up to 400,000 bopd in the coming years,” and that it would be “a key contributor in meeting the Kurdistan Regional Government’s oil production targets of 1 million bopd in 2015 and 2 million bopd by 2019.”
To give you an idea of how significant that is from both an economic and a strategic perspective, well, let’s put it this way – that is a lot of oil. But Todd Kozel, Chairman and CEO of GKP also added that the Company believes ” that we have only scratched the surface of the true value of our blocks and our ongoing exploration and appraisal activity is expected to result in further upside.”
As the demand for oil continues to grow, it is not only the capacity of the Shaikan field that is important, it is its location. Close to Russia and to Turkey, and with the construction of a new pipeline to Turkey in the works, GKP is positioned to be able to produce the goods and to deliver them relatively inexpensively to these and other countries with similar growing demands.
