Gulf Keystone Petroleum Seeks to Reassure Investors

LONDON -- So far, 2013 hasn't been a great year for Gulf Keystone Petroleum  (LSE: GKP  ) (NASDAQOTH: GFKSY  ) shareholders. Not helped by an ongoing court case and a large share disposal by CEO Todd Kozel to pay off a financing agreement, the shares have slipped from around 200 pence to 135 pence.

Today saw the release of a trading update that may reassure investors that its ambitious plans to monetize its multi-billion barrel discoveries in the Kurdistan region of Iraq remain on track.

Gulf Keystone's main asset is the Shaikan field, where it is aiming to produce 40,000 barrels a day by the end of this year. This will require two production facilities, the first of which is due to be completed by the end of this quarter.

Ramping up production
Looking further ahead, Gulf Keystone hopes to be producing 150,000 barrels a day from Shaikan by the end of 2015, and it is currently waiting for the Field Development Plan it submitted earlier this year to be approved. The company said it was "in constructive talks with the appropriate regulatory authorities concerning their feedback on the proposed way forward".

Of course, the oil produced needs to be transported. According to reports, this year's planned production could be transported by trucks, but the larger quantities planned for 2014 and beyond will require a pipeline. A dedicated Shaikan pipeline is likely to be constructed, but Gulf Keystone also highlighted other options in this update including "a planned oil pipeline to the Fishkabur pump station on the border with Turkey, [which is] expected to complete in 2013".

Exploration continues
Gulf Keystone believes there is a lot more oil yet to be found on its various blocks, and it has an active program of further exploration. Two more wells at Shaikan will begin drilling in May and June.

In the Akri-Bijeel block, testing of the the Bakrman-1 well is close to completion, and two further wells are being drilled to quantify the Bijell discovery. Gulf Keystone only has a 12.5% working interest in this block, and hopes to sell it to fund development elsewhere.

The Sheikh Adi block looks more promising. Following a discovery announced late last year, an appraisal well is being planned, and two further targets are likely to be investigated. Gulf Keystone still believes the Shaikan field may well extend into this block.

The company says it remains fully funded for its 2013 work program, and plans to issue its annual results for 2012 on 20 June 2013. That's seems very late, but presumably Gulf Keystone is hoping that its court case involving Excalibur Ventures' claim on part of its assets will be resolved by then.

Today's update seem to cheer investors somewhat, with the share rising a couple of percentage points to 135 pence, valuing the company at around £1.2bn.

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