Gulf Keystone. Energy Intelligence

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Here’s an interesting find from an online organisation that i came across this afternoon.

There’s no charge here. It’s a summary of the findings of representatives who traveled to Kurdistan recently. Please also click on the reuters link. Very interesting.

Daniel

Copyright © 2010 Energy Intelligence Group, Inc.

Memo/AIM/Sec/Kurdistan.N04819

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The Perils, and Potential, of Kurdistan
Copyright © 2010 Energy Intelligence Group, Inc.
Tuesday, August 31, 2010

UK-listed Gulf Keystone Petroleum sees stellar oil potential across its blocks in the Kurdish region of northern Iraq, and is about to begin producing oil from Shaikan-1, its first well drilled there. But the company still has a long way to go before it can actually prove up and realize the potential it sees in the region as operational and political conditions remain challenging.

The potential is truly huge, senior executives and operational staff said to analysts and journalists on a recent tour of the company’s Kurdish operations (EIF Jun.2,p6). The company says there could be 1.9 billion barrels of oil in place on a P90 basis at the Shaikan field, but that this is only the tip of the iceberg. Shaikan is next to the Sheikh Adi block in the west and Akri Bijeel to the east, while the Ber Bahr license is further to the west next to Sheikh Adi. Gulf Keystone owns a significant interest in all four — 75% on Shaikan, 80% on Sheikh Adi, 20% of Akri Bijeel and 40% of Ber Bahr — and believes that the structure already found at Shaikan could extend further across all these blocks.

The size of such a field would rival that of the Kirkuk network of fields just south of the area, Gulf Keystone Drilling Manager Mike Chisnall told Energy Intelligence Finance. Chisnall is one of a number of operational staff who moved to Gulf Keystone’s operations from the nearby Taq Taq field following Sinopec‘s acquisition of the field’s part-owner Addax Petroleum last year, and he believes that the potential in Gulf Keystone’s blocks will dwarf that of the two producing fields in the Kurdish region — Taq Taq and Tawke. “I like working on this [field] because we are finding more oil,” he added.

The company has lined up a drilling program to prove up reserves across the blocks, but with an emphasis on Shaikan, where the company plans to drill the Shaikan-2 appraisal well later this year, plus Shaikan-4 and Shaikan-3 wells after that. The company is currently waiting for its contracted Weatherford Rig 842, which drilled Shaikan-1 but moved across to the Bijeel-1 well on the Akri Bijeel block, operated by Gulf Keystone’s partner Mol. While Mol found oil at Bijeel-1, operational problems are slowing progress, meaning that Gulf Keystone’s Shaikan-2 well could be delayed, potentially beyond the third-quarter target date for drilling that the company has already stated.

And this is not the end of the potential challenges coming up (EIF Nov.25,p2). The associated gases found with the oil include a large concentration of hydrogen sulfide (H2S) — anywhere from 15-25% of the total volume. This is not unusual for the region, but adds an extra complication to production efforts, with operations likely to be suspended at any sudden discharge of the deadly gas, as well as the compulsory evacuation of local villages at the same time. And while the lethal gas could be removed and burnt off or stored, this will add to production costs. This is just “an additional complication,” Chief Operating Officer John Gerstenlauer said. “It’ll increase the operating cost by maybe 20%, but as it is so low-cost anyway, this won’t make much of a difference.”

The other and more pressing concern is the political situation in the region — with Iraqi politicians yet to definitively agree an oil and gas law. The Kurdistan Regional Government (KRG) has its own oil and gas law, but at the moment is still adhering to a draft Iraq Revenue Sharing Law that grants the KRG 17% of net oil revenues from all regions in the country. The central government is still in flux at the minute after a closely fought general election. The major political parties are trying to sort out a coalition government that commands enough support to rule, but it is uncertain how long this process will take. What is certain, though, is that no progress in passing a country-wide oil law will be made until a coalition is formed.

But Gulf Keystone will be able to sell its first output from Shaikan-1 to local refiners, with the Kurdish region in Iraq including a number of facilities that can take the crude. Gerstenlauer said the crude will be sold at a price determined at auction in Erbil; such auctions are held every quarter and involve all producers and refiners in the region. The most recent price secured at these auctions was $255 per ton, which equates to roughly $40 per barrel, he added. This means that if Gulf Keystone is able to secure a similar price when it begins selling into the market, then the company will net around $10/bbl for the crude it produces. Initial production will be between 8,000-10,000 barrels per day, trucked into Erbil via a single stretch of highway.

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