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ADVFN is keeping a close watch on AIM-listed Gulf Keystone Petroleum (LSE:GKP) as it progresses toward its admission to the Main Market, a move that is scheduled for 24 March. The Gulf Keystone share price is continuing to decline, falling another 9.72% to 130.00 as of noon today, despite a favorable operational report released this morning, proving once again that cause and effect are not necessarily closely related in time and space.
The report states that “The Company’s focus is on the ramp-up of commercial production from the existing Shaikan facilities. The move to 40,000 bopd of production capacity will allow further expansion of export crude oil sales. The additional cash generated, in addition to the Company’s near term debt financing options where the Company is making progress in its discussions, will facilitate the move to the next stage of the Shaikan project execution.” This is significant in that it indicates that GKP’s plan appears to be unfolding as it should.
Wells number 1 and 3 in the Shaikan oil field have been operational and tied in to GKP’s original Shaikan production facility (PF-1). In addition the company announced that it has also tied well number 4 into the production plant.
Shaikan-2 and Shaikan-5 have been tied in to GKP’s second production facility (PF-2) which is in the processing of being commissioned. During Q2 2014 the company expects to process 10,000 bopd, followed by the tying in of Shaikan-10, which will make even more production possible.
As production levels reach the milestone of 40,000 bopd, which GKP fully anticipates doing during 2014, the company is already preparing for the next milestone, which will increase production to the 100,000 bopd milestone. The company says that, “This next stage will require construction of additional production facilities with gas injection and water handling capabilities, as well as the drilling of a substantial number of development and production wells.”
From my perspective, one of the standout items in the report is the $400,000 per month cost savings achieved by configuring PF-1 so that the company can use its own product to fuel its own facilities instead of using diesel fuel as it has been to this point. The required equipment should be operational soon, as it is currently in the tie-in process.
2014 plans to reach both the 40,000 and 100,000 bopd milestones also include bringing the Shaikan-7 deep exploration well on line with PF-1. GKP is also considering reconfiguring Shaikan-8 for production with a tie-in to PF-1. Yet another well is scheduled to be drilled with four lines tying it into PR-2.
I happen to have an affinity for companies that focus on efficiency, so it catches my attention when a company creates a $400,000 per month cost savings. But even more so when it reveals that yet another part of its plan is to increase the size of the tubing from Shaikan-1 and Shaikan-3 wells from 3-1/2″ to 4-1/2″. I’m no rocket scientist, but I can Google. That 1″ difference can increase flow by more than 500%.
Gulf Keystone knows where it is going and it appears to know how to get there.
