Gulf Keystone’s potentially company-making find in Iraqi Kurdistan is getting to be one of the most analysed wells around even though it is still some way from full appraisal.
Dynamic Global Advisers (DGA), independent reservoir consultants, has published an update that supercedes the earlier report, Gulf Keystone’s ‘Shaikan 1-B Discovery, Kurdistan, Iraq Report 1- The Preliminary Jurassic Evaluation’, issued on October 21 2009 while the exploration well was still being drilled.It documents DGA’s preliminary evaluation of the Jurassic resources only.
GK Said at the time: "Given the materiality of the discovery, the company felt it prudent to seek independent evaluation of Shaikan-1 well despite being at an early stage of evaluation and testing."
GF has no production. It pulled out of Algeria after a difficult relationship with the authorities there and its joint venture partner BG, so that it could concentrate on Kurdistan. It felt that despite the DGA’s earlier report there were still some answers which could be addressed about Shaikan-1.
The latest report documents DGA’s evaluation of the hydrocarbon-bearing formations logged and tested in the Shaikan1-B well from 885 to 2,950 metres MD (Measured depth). The Shaikan 1-B well in this deeper drilling discovered significant amounts of oil and gas in the Cretaceous, the Triassic as well as the shallower Jurassic formations. DGA estimates the oil resources to be between 1.9 billion barrels of oil (P90) and 7.4 billion barrels of oil (P10) with a mean value of 4.2 billion barrels of oil. Gas resources range from 0.4 tcf (P90) to 1.5 tcf (P10) with a mean value of 0.8. The high side (P1) as opposed to the mean (P50) resources are estimated at 13 billion barrels and 2.7 tcf of gas.
However, the Shaikan 1-B well had to be stopped several hundreds of metres above the planned TD due to an influx of high-pressure gas while drilling. GK plans to test the Lower Kurra Chine Formation as well as the Upper Permian with the Shaikan-2 well in 2010. Seismic data shows even deeper closures below the Lower Kurra Chine Formation that are prospective.
Potential resources for these deeper formations are 1.0 to 5.0 billion of barrels and 6.0 - 14 tcf, which is in addition to the P1 upside estimate of 13.0 billion barrels. DGA believes that this further greatly reduces the geological risks in the Sheikh Adi, Akri Bijell and the Ber Bahr blocks, Gulf Keystone’s adjacent opportunities. The Shaikan discovery proves the presence of hydrocarbon source and migration in the area.
Leaving aside these adjacent opportunities which are still well down the line in terms of being drilled, what does this new report mean? Well, broker Fox-Davies Capital commenting on the findings says: "The previous estimates from DGA were 1- 5 billion barrels of oil in place (OIP), hence a mean estimate of 3 billion barrels of OIP which compares to the current estimate of 4.2 billion barrels. Our own estimates for the equivalent stratigraphic section were 2.5 to 5.5 billion barrels with a mean of 4 billion barrels, hence very close to the revised DGA number.
So Fox-Davies agrees that there has been an upgrade of the oil-in-place through drilling to deeper levels. What F-D does not refer to, but mentions obliquely, is that the nature of the oil changed as the drillbit went deeper. The Jurassic discovery was blighted a bit by the heavy nature of the crude (17- 22 degree API). This can affect recovery rates. A limited flow test on the deeper drilling yielded up to 2,000 barrels a day of 40-degree plus API oil. This pushed up the notional recovery rate. Without specifically mentioning the low recovery rate for the Jurassic, FD assumes a notional recovery rate of from all formations looked at of just under 30 per cent. This would mean F-D reckons a best estimate for mean resources of abut 1.2 million barrels of oil. This is a lot of oil for a small company. This level potential of reserves justifies the current share price of 98 pence, according to F-D.
F-D is however more hedged on possible upside. It says: "We take comfort there is recognised upside potential in addition to the latest upgrade in OIP. Prospective resources of 3 billion barrels of oil with a 25 per cent probability of success could add up to 100 pence in value. Although there is no ready market for gas, the identified gas volumes should provide a cheap source of energy for future field development and eventually could be used domestically".
The operative word here is "could", for as F-D goes on to say: "However, there is still a lot of appraisal to be done in order to firm up reserves and upside. Also we believe the probability of of success of 67 per cent we assign to Shaikan is fair but not shy and a similar comment applies to the 50 per cent we assign to the three other licences, where we estimate an aggregate 1.8 billion barrels of prospective resources" So Gulf Keystone could repeat could be worth 200p.
This article was originally published by Oilbarrel.com. Oilbarrel.com offers a free weekly newsletter which covers the oil and gas industry.
For more articles like this, click here to register for FREE
P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.
