GKP Update 16.

The city and financial institutions  are well aware of the growing disquiet among private investors at the lack lustre performance of GKP post the DGA report. I have spoken to an awful lot of Brokers over the last 72 hours trying to sound out what their feelings are with regards to the probable outcome of this Gigantic find (with more to come) for private investors. The responses have varied greatly. But one consensus that keeps cropping up is that Come the final curtain most of the shares now in private hands will be in the hands of the Institutions. This rumour is being touted through-out the market. Every trading day private investors buckle under the stress and pressure of a fluctuating SP.

The whispers here as i said vary in their outlook. But i believe that the main reason for the stagnation at the moment firmly rests with the GKP Board. They have battened down the hatches re’ news flow the release of the DGA report was confirmed through my contacts, which have always been on the money, as Thursday 14th Jan 2010. However being privvy to this i had to be circumspect with the  last update. I posted Monday as the date with the rider telling the readership that it could just as” easily be Thursday/Friday” . I knew it was due as did some of the oil section at one or two of the Brokerages. On late wednesday night the rumour was circulating on the Blackberries that the report was to be released the following morning.

I fully expected it to rocket as did my section. I am now of the opinion that this stock is being held back by the company board who are playing a dangerous game with several suitors/institutions. There is a game of Brinkmanship going on between the GKP board and the city. (There are two outcomes that are being played out behind the scenes here One is Takeover/Partnering the second is Production/Funding.) In an otherwise stable enviroment these machinations would enhance the SP, however GKP are as some here tout operating in a war torn country that in a nutshell is why this share hasn’t gone ballistic. You know and i know that Kurdistan is  safer than the Green zone in Baghdad and the security is very well maintained. The problem is we aren’t responsible for hundreds of millions of dollars, funds are only investing cautiously though this is slowly increasing as the political situation begins to ease.

Todd and his board are playing a blinder here. They know what they have got, time is not on the side of a PI but it certainly is on the side of GKP. Kozel knows he is sat on a huge fortune and as every week goes by it gets bigger. A recent comment made to me about a conversation muted to of taken place goes like thus; “We pay no attention to the daily sp  i couldn’t tell you what it is this morning i only check when we are drawing down on the seda”  That whisper has come from the horses’ mouth. This means that GKP know that the SP will rocket when they are good and ready to choose which path THEY want to take! Once chosen this is going to infuse the city with oil fever. It is a waiting game we are waiting for Kozel et-all to come off the fence. When it happens it will happen very quickly.

Good luck

Up the Revolution!

Daniel

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18 Responses

  1. Hotchick99 says:

    Thanks Dan,

    A great update, and to be honest, its just what i was thinking, but theyre not getting hold of my shares, i will hold, until the point of it sky rocketing.

    Thanks, and all the best with your investment too!

    Amanda – AKA Hotchick99

    • Jay053 says:

      I would hold until after it sky rocketing hotchick!!
      Dont sell out before!!

      ” i will hold, until the point of it sky rocketing”

      • miopus says:

        Have you sold any GKP in order to buy other shares more cheaply, Jay053 ?

        • Jay053 says:

          Yes, ive sold 10% of my holding,, as i topped up after GDA came out,, saw it at 114 waited for the dip,, and bought at just over £1, Bringing my average up alot,, then it didnt do much and went to 95,,, I thought this isnt right and sold the 10% at 98p so Im still holding 90%,,, the 10% went into two other shares which I hope will preform short term,, and then I will hopefully Buy back that 10% plus some extra in GKP,,, in FEB maybe

          If GKP rockets beforeI dont mind as i still hold the 90%,, and im sure to gain in the other stocks!!
          Thats how Im trading it in the short term,,
          I dont usually trade, this may pay off and may not!

          Anyone else I would suggest should HOLD! Ride the lows, Because very big highs are comming!!

          the comment I made to hotchick, was just me being sarcastic and light hearted!! think I should invest in the new ”sarkmark”

          JAY

  2. steve says:

    Excellent summation of the present situation Dan and very much appreciated. Why do you say ? “company board are playing a dangerous game with several suitors/institutions” are you concerned that playing hardball could be counter productive and backfire?

    Thanks as always

    steve

  3. MarkMark69 says:

    Thanks Dan.
    As long as they keep drilling, keep SEDA and get Algeria sold, I am happy. Looks like that is what TK is focused on if what you say is true about the horses mouth comments. The real value will come once (not if) politics and contract issues are resolved. A sell out before then would not be in our interest.
    All the best
    Mark

  4. Jay053 says:

    GKP Update 12

    ”Rumour here is that most of the small Private Investors will be gone before Takeover/Production happens”

    • stewart says:

      Dan,

      That says to me you are saying they will try and force the price down or it will be some time before matters resolved, have I read that correct

      Regards

      Stewart

  5. berkshireknight says:

    HI Dan,
    Thanks for your last post. The key point you mention echos what I have been saying in that the city doesnt trust GKP at the moment. DGA report not substantiating TK CNN claims etc etc. One question about your post though, you suggest GKP are holding back the SP; can you explain to me how they can affect normal market forces of buying and selling.

    Thanks as always
    BK

  6. Bungee23 says:

    keeping hold of my shares – wll part withthem at £3.87, and not a penny less.

  7. Hotchick99 says:

    My thoughts are, if the SP does go down, i wont be selling, i will just buy more. As they say “Fortune favours the brave” – and I like to think i’m brave – just hope i dont crack under the pressure!!! GLA

  8. Robert O says:

    Dan. Great post , I think it will do a lot to allay the bewilderment
    & disillusionment felt by Private investors post report !
    I was encouraged recently when Robert GATES ,US (secDef)
    on a visit to Kurdistan said that America wanted the state to
    be autonomous in developing its oil industry _ I know the
    US have a vested interest but all good for the investor
    in GKP? I personally made 2 large investments some
    months ago in (1 GKP now sitting on a world class
    oil find (2 Songbird Est(Canary Wharf) now debt free
    I bought more shares in both on Fri Good luck Rob

    • aj says:

      Hi Rob,

      May I say a very good post regarding both Gulf keystone Petroleum and Songbird Estates so I just thought I’d note some updates on Songbird Estates recent news / trades below.

      The buying continued on Friday with the following trades:

      Please note this doesn’t include many of the other notable buys in the £50,000 region. I have also noted many late reported trades coming through for substantial amounts of money one recently being a ‘buy’ trade dated the 13th January for £82,000 for a purchase of 50,000 shares.

      The significant buys on Friday are listed below –

      £82,500.00
      £82,376.50
      £574,000.00
      £733,247.28

      Total Investment: £1,472,123.78

      Also regarding Songbird Estates plc on the 4th January 2010 they announced three new Directors were brought to the board from Qatar Holding LLC (“Qatar Holding”). This is highly significant and again reinforces the view as expressed in the Daily Mail article by Geoff Foster.

      I also expect they must be getting close to their target increase in holding of 29.9pc so we can hopefully anticipate an RNS in due course. I then expect a take over offer regarding Songbird Estates to follow.

      Also to note regarding Gulf Keystone Petroleum the Director purchase on the 27th November 2009 Jeremy Asher, a non-executive director of the Company, purchased 2,000,000M common shares in the Company at a price of 94p per share. Following the purchase he has a beneficial interest in 14,000,000M Gulf Keystone Petroleum shares, representing approximately 2.9% of the Company’s issued share capital.

      This again underlines a huge confidence in the company and its prospects and is the information that investors should take note of and not necessarily the daily variances in the share price. Gulf keystone Petroleum has a very busy 12 months ahead with a multiple drilling campaign and a heavy release of news ahead. The ‘word’ is now patience and those that show some patience will be the ones to be rewarded. The assets are indeed ‘world class’.

      Its all looking very positive going forward and ‘patience’ will bring home the greatest rewards, best wishes to you, AJ.

  9. randalf says:

    the question for me, and maybe dan could help out here, is I just don’t know how they can persuade us to bail out of GKP at the moment.

    they could drop the price but that risks people either increasing their holding or reducing their average. This would probably be me.

    They could allow the price to stagnate, but if GKP manage the news output well (and they have so far), this strategy could only work for a very limited time.

    Or they could push the price up and drop it quickly so PI’s cash their chips in rather than risk losing what could be very large profits. (has this already happened with the jump to 130p and the equally fast drop to 88p???)

    any comments guys?

    • Jay053 says:

      And a small version of that just happened,, 114 down to 95,, it will be interesting to see what the SP does this comming week!! Im guessing up slightly monday morning,, then down down down!!

    • Brokerman says:

      Randalf
      There are various devices used by marketeers to trigger stop losses as i’m sure most of you are aware.

      There’s already been an awful lot of PI’s buckling under the stress of holding gkp at a gain. The main manipulation when it comes will involve sleight of hand. Those that sell hoping to get back in on a drop will be disappointed.The only way they will get back any stock will be to buy it at an inflated price higher than what they sold their stock thus their holding will have decreased compared to their original.
      Another device is to begin an artificial rise (just prior to any major announcement that may be expected) lets say that gkp hit 125/130 over the next couple of days, how MANY PRIVATE INVESTORS WOULD cash in their chips? Answer? An awful bloody lot! Then the news hits and the sp rockets and we are all left out in the cold! The only way back in is to buy less stock at a higher price either way the MM’s gain.
      Then there’s the life boat scenario where PI’s confidence begins to wane this could be triggered by a piece of bad news on a drill or a bombing or even a note such as the INFAMOUS EVOLUTION one of late. Confidence starts to drain and investors start to jump ship then just as you are sat in the life boat counting your blessings; GKP speed away into the sunset carrying all the big players with their recently acquired new stock (your stock).
      It’s just a question of waiting it out and beating the Demons down.

      Daniel

  10. miopus says:

    A touch of gravitas from Gramacho on iii :-

    This note discusses DGAs Resource Evaluation of Shaikan a.k.a. “The Discovery Report”. It presents mostly good news and recognises upside but could have gone further in revealing the full upside potential of the structure which is arguably now in the range 15 BBO – 20 BBO plus significant condensate and gas. I will also comment on the market reaction to the report from the standpoint of the resource additions and provide some thoughts about issues to be investigated going forward.

    1 MARKET REACTION
    It was an open secret that the Shaikan structure has a significant probability of containing more than the mean estimate of 2.8 BBO in the prelim DGA report. On reflection I think it is not surprising that there was a muted reaction in share price to an increase in the mean resources to 4.2 BBO presented in the Discovery Report. The upward revision was due to about a 10% increase in the zones previously evaluated and ¾ BBO of untested and unknown, but likely heavy oil in the Sarmord which, until it is tested, will carry a risk that it can’t produce at good rates. On the face of it the news was not transformational. We might have hoped for 30-50% increase in share price but the OIP increase was not enough to overcome market concern about the political situation.

    But dig a little deeper and there is cause for considerable optimism that Mean OIP will head so far upwards during 2010 that there will be intense interest in being a part of this investment opportunity. There comes a point that the potential rewards are so high that it is difficult to remain an outsider (as the DES share price illustrates).

    2 UPSIDE HIGHLIGHTED BY DISCOVERY REPORT
    DGA rightly pointed out (p37) that “Significant upside potential exists for the structure. This upside includes additional pay that was not identified due to” (a) “poor log responses over rugose zones and an interval not logged (1000 to 1313 m MD) and” (b) “from deeper formations still in structural closure that were not penetrated by the well.”

    a) Upside in the Drilled Section
    Consider point (a) above carefully. DGA is saying that there are intervals other than the interval not logged in which there may be additional pay. This is discussed more fully in the introduction and caveats to the petrophysical section on p 17-18. The degree of conservatism cannot be quantified at present but this will become clearer if GKP collects substantially more core in Sh-2. The amount of core collected in Sh-1 was rather limited but understandable given the uncertainties in reservoir depths prior to drilling the well.

    The interval not logged is mainly the Garagu formation. Is there oil in the Cretaceous Garagu formation and will it flow?

    In the Sh-1 pre-drill prognosis shown in the April 09 Oil Barrel presentation, GKP attributed oil reserves to the Garugu. Of course the well has turned out different to that prognosis as the Butmah was shown there as a seal whereas we now know it is a formation with low N:G but which nevertheless contains a reservoir interval with >1 BBO. However consider this:

    1.Oil shows were encountered whilst drilling the Garagu.
    2.The Tawke Field flows from the Cretaceous (and Pliocene) so this may be a good sign but note that its oil is a higher API gravity (27o) than is likely to be encountered in Sh-1 and may flow more readily.
    3.The Garagu is described as a limestone. EVERY other limestone formation in the well above and below contains oil or gas.
    4.The Garagu has a similar gross thickness (197m) to the Sarmord. If the net:gross ratio is similar then there could be another ¾ BBO to add using DGA’s current analysis methodology and considerably more if full to spill (discussed later).

    Note that the Sarmord and Garagu are behind two strings of casing and cement in Sh-1. GKP will not want to destroy the pressure integrity of these strings to test them given that a long term test of the other more important oil zones is to be conducted and that the well will ultimately be a development well for the Jurassic reservoirs. The Sarmond and Garagu are more likely to be tested in Sh-2 or Sh-3.

    b) Upside in the Deeper Undrilled Sections
    Turning to point (b), the gas condensate upside in the undrilled Triassic and gas in the Permian, I was surprised that they quantified the upside at the levels they did. It was a giant leap to go from a mean resource estimate based on well results of 690BCF and 200 MMBO in the Upper Kurra Chine A and B and Lower Kurra Chine to 5-14TCF and 1-5BBO including the Permian. They have estimated an additional 200m of net pay in the undrilled section. This is almost as much pay as has been identified so far in the drilled section!

    Perhaps they have used local and regional information e.g. the Jabal Kand-1 well to estimate the net reservoir quality rock likely in the undrilled section. Look again at the GKP version of the pressure plot (Macquarie slide 15) showing the presence of permeable zones throughout a 700m interval commencing at 3050 m SS in JK-1. Are these points from the Butmah are or they from the Triassic? Slide 15 is entitled Jurassic Pressure Data. Strictly speaking those points below 3050m SS should not be on the plot if they are not from the Jurassic in JK-1. However they may have been Triassic and included to support why the JK-1 water gradient line was drawn where it was. We know the Triassic Kurra Chine is 1150m thick in JK-1 so these points could be from this formation.

    We also know drilling was terminated due to the higher reservoir pressure encountered. Note how the Kurre Chine B gas pressure is well to the right of the water gradient in JK-1 in Fig 16 on p24. The higher pressure could be the result of a very tall column of gas condensate. Pressure increases above the normal aquifer pressure by roughly 0.7 psi for every m of gas column below.

    The gas condensate is extremely rich in liquids. The condensate will be valuable. Pricing condensate is a bit of a specialist subject but to give you an indication Australian NW shelf condensate has traded at only a $2 discount to Brent. There may be complications with this one. It may have a high sulphur content; I am not sure if sulphur attaches itself to condensate or only to longer chain HCs in crude oil.

    3 UPSIDE ONLY PARTIALLY REVEALED BY DISCOVERY REPORT
    If you remember in my first post I mentioned to check whether there would be a change in the underlying assumptions regarding reservoir area used in the preliminary report versus the final discovery report. This was all about the distribution of reservoir area in the Monte Carlo simulations of the Jurassic oil reservoirs. In the preliminary report the reservoir area was set equal to the spill point area in only 1 in 100 iterations of the models. However, the Jurassic test pressures in Sh-1 indicated, by comparison with JK-1 aquifer pressures, that the downdip oil water contact could be coincident (give or take inherent depth uncertainties) with the spill point.

    It was encouraging to see the pressure plot in the Discovery Report (p24) and acknowledgement of its potential significance “If the oil gradient line is extrapolated down to where it intersects the area water gradient line, a possible oil-water contact can be inferred at -2375 m subsea.” However the frequency with which reservoir area is set to spill point area remains 1 in 100 iterations in the Discovery Report.

    I won’t reiterate the entire discussion from my 4th January post (check out here if you wish <> ) about the implications of this but to summarise:

    a) Assuming the pressure data is telling us the Jurassic reservoirs are full to spill leads to a Jurassic OIP estimate of 13.5BBO (Barsarin thro Mus 8.4BBO and Butmah 5.1 BBO).

    b) Should the Sarmord also be full to spill it would contain 3.2 BBO. This is more speculative as no pressure data is available.

    So there is a potential 16.7 BBO in the Jurassic and Cretaceous Sarmord. As discussed earlier the Garagu is likely to be oil bearing and hence it could contain another 2-3 BBO. So there is a potential OIP in the 15 – 20 BBO range EXCLUDING the 1-5 BB condensate and 6 to 16 TCF estimate supplied by DGA.

    Wait it doesn’t stop there. This may have been mentioned in a post last year but the Discovery Report maps and slide 16 of the Macquarie presentation reaffirmed that there is closure to the north west of Sh-1 on the downthrown side of the Northern fault in multiple horizons. The figure showing the appraisal/early dev well targets has a well in this closure. This area is outside those used to develop the OIP estimates.

    OK, this all sounds great but remember that most of the OIP is still potential, albeit with reasonable justification, and future well results could be disappointing.

    4 DOWNSIDES/AREAS OF CONCERN
    a) Look at slides 11 and 16 of the Macquarie presentation. The terrain is very rugged. Hopefully there will be sufficient suitable places to locate development rigs. Otherwise there will be numerous difficult trajectory wells to drill. Whilst costs are recoverable well durations could be long and this will extend the period to achieve plateau production which will affect NPV estimates. Note also that Sh-1 was deviated. I don’t know the well history but it is called Sh-1B possibly indicating a sidetrack. Are there drilling concerns?

    b) There is lots of H2S and CO2 in the associated gas and the Triassic gas discovery is very sour. 20% of the gas is not saleable so reduce GIP estimates by 20% to obtain useable gas. Have that H2S come out of your cooker and you would be dead in seconds! GKP will have had to take strict precautions when testing the well (breathing apparatus etc). The H2S/CO2 will have cost implications but more importantly the crude is probably high in sulphur so expect a sizeable discount to Brent crude price, possibly about 8-10%.

    c) The rich condensate has a downside. Producing a rich gas condensate normally leads to drop out of the condensate in the reservoir and in the area around the wellbore. This causes a severe reduction in gas production rates and in the ratio of condensate to gas (CGR) and hence condensate rates. It would be necessary to re-inject the gas to maximise condensate recovery and sell the gas later when most of the condensate has been extracted.

    d) As Sh-1 left us with so many questions, Sh-2 has numerous unknowns and uncertainties to resolve. Expect the well to take a long time if GKP do it right. There should be numerous cores to take which involves tripping in and out of the hole (pulling the drill string out and rerunning it) far more frequently than conventional drilling. The well will be 1500 – 2000 m deeper than Sh-1 and drilling will be slower as depths increase. Patience will be required! Hopefully TK will authorise a steady stream of news as hole intervals are drilled and logged.

    The release of news revealing the growth in the OIP potential is being managed by GKP. They don’t want to run the risk of disappointing the market by declaring they have 10+ BBO mean OIP discovery and then having to retrace when the independent reports are released.

    BACK TO POLITICS
    The disappointment that the SP did not rise significantly is understandable. My reaction is to be patient and wait until the political situation is sorted and the discovery is sufficiently appraised to reveal its full potential. Shaikan on its own would make a significant contribution to helping Kurdistan reach its desired aim of reaching 1 MM bbl/d production (durby’s post “Latest Development …. “ of 17/1/10) and would provide insurance for Iraq regarding its desired aim of increasing oil revenues by raising production levels to 12 MM bbl/d. In assessing success case field value I will be modelling the field with a number of production scenarios to include peak production rates between 300 – 800 kbbl/d. Shaikan should increase the probability of everyone achieving their targets and its early development should therefore be supported by all parties.

    CONCLUSION
    In conclusion loads of good news to be encouraged by, some concerns but nothing to get too worried about. Roll on testing, an AB update and most of all Sh-2. That will be the most eagerly anticipated well in the industry!

    As ever if you require any clarifications let me know.

    All the best,

    Gramacho

    • Brokerman says:

      Yes this chap posts great knowledge.
      Excellent poster.
      Ask him if he’d like to write an article for the blog Mio. I’m sure he’s got some great stories to tell about his time working in the oil business.
      Have you had any thoughts on writing a piece?

      Dan

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