http://www.gulfkeystone.com/ The firms exploration programme in Algeria is going well and "the shares look good value", say the Investors Chronicle. Your comments please. goal.

Something for the weekend?

From Bah Bah Black Sheep on triple eye


Much talk lately about a deadline for the KRG to award Back-In Rights (BIR) to a third party Company. But, IMO, thoughts about the apparent PSC deadline of 31st December 2011 are misplaced. Furthermore, may I be so bold as to say that focus on 'just' the BIRs is also misplaced! As Bill Clinton might have said - 'It's the 20%, Stu-pid'. Let me try to explain:



1. KRG 20% entitlement and BIR

The KRG have an OPTION for a 20% entitlement in all four of GKP's blocks; in principle, the KRG may exercise this option once commercial viability has been proven. The KRG's 20% optional entitlement is often referred to as a 'carried interest'; this description is accurate during the Exploration and Appraisal phases - where the participating Oil Companies pay for all costs in proportion to their respective 'Working Interests', (the KRG pays nowt). HOWEVER, the KRG's 20% is NOT 'carried' during the Development phase - once the Field has been declared Commercial, (specifically, from the "First Commercial Declaration Date"), the KRG have to pay their 20% share of the forward Development costs. THIS IS IMPORTANT (imo!) and I will come back to this point again later on in this post.

In addition to the KRG's 20% entitlement in all four blocks, the KRG may also award BIRs to a third party Company - but only in the Shaikan and Akri Bijeel blocks. Shaikan BIR =15%. Akri Bijeel BIR =20%. The PSCs show that the deadline for the KRG to award the BIRs falls within the Exploration and/or Appraisal phases; consequently, dilution of Working Interest due to BIR (in Shaikan and Akri Bijeel), precedes the dilution due to the KRG's 20% entitlement (indeed, the latter dilution will not take place if there is no commercial viability!). However, we have to be positive and ASSUME that there will be commercial discoveries when calculating the final fully-diluted Working Interest in each block. IMO, the final fully-diluted Working Interests in each of our blocks are as follows:


SHAIKAN:

Current Working Interests:
GKP: 75%, MOL: 20%, TKI: 5%

Post 15% BIR (multiply above WI's by 0.85):
GKP: 63.75%, MOL: 17%, TKI: 4.25%, BIR holder: 15%

Post 20% KRG entitlement (multiply above WI's by 0.8):
GKP: 51%, MOL: 13.6%, TKI: 3.4%, BIR holder: 12%, KRG: 20%


AKRI BIJEEL:

Current Working Interests:
MOL: 80%, GKP: 20%

Post 20% BIR (multiply above WI's by 0.8):
MOL: 64%, GKP: 16%, BIR holder: 20%

Post 20% KRG entitlement (multiply above WI's by 0.8):
MOL: 51.2%, GKP: 12.8%, BIR holder: 16%, KRG: 20%


SHEIKH ADI:

GKP: 80%, KRG 20%


BER BAHR:

GKP: 40%, GENEL: 40%, KRG: 20%


Some general comments and observations on the above as follows:

- For Shaikan, GKP have informed us in Investor Presentations that "Texas Keystone Inc. (TKI) holds its interest in trust for GKPI pending transfer of its interest". Consequently, GKP's final fully diluted interest - including TKI's share - will be 54.4%

- For Shaikan, the KRG controls a final fully diluted interest of 32% (BIR 12% + KRG 20%). And, to state the obvious - 20% is onehellava lot more than 12% ... I'll come back to this point again later.

- For Akri Bijeel, the KRG controls a final fully diluted interest of 36% (BIR 16% + KRG 20%)

- For Sheikh Adi, the KRG controls a final fully diluted interest of 20%

- For Ber Bahr, the KRG controls a final fully diluted interest of 20%



2. BIR: what, where, who, when?

What and where is easy: BIR is 15% at Shaikan and 20% at Akri Bijeel.

Who and when is, in the absence of recent disclosure, a bit more tricky... We have to go back nearly eighteen months to find GKP's last 'official' statement on this matter in their RNS of 9th August 2010:

" The parties to the Shaikan Block and Akri-Bijeel Block PSCs have agreed to extend the period that the KRG may exercise the Option of Third Party Participation to enable the KRG to nominate a Third Party Participant until 30 June 2011."

Moving then to only six months or so ago, we have an 'unofficial official' statement from the 2011 AGM by way of theperpetualoptimist:
http://www.iii.co.uk/investment/detail?code=cotn%3AGKP.L&display=discussion&action=detail&id=8405431

"The KRG has told GKP that KNOC have the BiRs to Shaikan but this has not yet been officially confirmed. The deadline of 30th June for the BiRs allocation is still in place."

Then we can refer back to just two months ago and that 'special' Presentation in Manchester where Chris Garrett let slip about "the KNOC Back-in Rights".

And finally, now that the KRG have kindly published the PSC's, we can confuse ourselves even further with reference to the additional deadline of 31st December 2011 (Article 4.11A).


FWIW, my own comments and conclusions concerning the current status of BIR are as follows:

- since September 2010, (yes, the past 15+ months), Shamaran's Kurdistan Activity map has shown the "Post 20% BIR" status for Akri Bijeel (refer tabulation above) with the particpants being: MOL 64%, GKPI 16%, KEPCO: 20%. 'KEPCO' is Kurdistan Exploration and Production Company. I emailed GKP IR in September 2010 and was tersely informed that the status remained as per their RNS of 9th August 2010. They stated categorically that neither the 20% BIR nor the 20% KRG entitlement had been awarded at Akri Bijeel, and that investors would be duly informed by RNS when the status changed. There has been no RNS on this matter since that time - hence the status has not yet 'officially' changed. i.e. the KRG have not yet informed GKP. But the Shamaran rumour-mill map does in fact suggest that the BIR have been, perhaps 'temporarily', placed in the care of KEPCO (at least as far as Akri Bijeel is concerned).

- given that GKP have NOT issued an RNS concerning BIR in 2012 thus far, the second contractual deadline of 31st December 2011 would appear to be non-relevant. The primary contractual deadline was 30 June 2011, and based on GKP's comments at the AGM ("The KRG has told GKP that KNOC have the BiRs to Shaikan but this has not yet been officially confirmed") and Chris Garrett's slip ("the KNOC Back-in Rights") it seems likely that the KRG have also 'temporarily' placed Shaikan's BIRs into the care of another Kurdistan Company. Nothing to do with Korea - Kurdistan National Oil Company was mooted several years ago as being on the wish-list of the KRG (and why not, every self-respecting country should have one!). IMO only of course. But the FACT - as evidenced by the absence of an RNS on this topic - remains that the KRG have still not 'officially' informed GKP about the 'final' recipient(s) of the BIR's.

- The KRG have a perfect role model in Exxon when it comes to 'disclosure' (or rather, the lack thereof). Does anyone seriously expect that either the KRG or GKP will make any kind of announcement in this area - ahead of someone managing to find their tongue?



3. Exxon

Thus far, we only have the 'known knowns' - that Exxon have signed PSC contracts for six Exploration blocks in Kurdistan. Even the areal extent of each of these six blocks is 'open to interpretation' if you compare the maps of Shamaran and PCI:
http://www.shamaranpetroleum.com/i/pdf/Kurdistan_Oil_Gas_Activity.pdf
http://www.petroceltic.ie/~/media/Files/P/Petroceltic/presentation/2011/kurdistan-update.pdf?

- Al Qush is due west of Shaikan, and consequently must be viewed as 'extraordinarily prospective' (at least at the eastern end)! Shaikan definitely runs into Al Qush. Indeed, IMO, as much as 20-25% of the Shaikan anticline volumes may spill over into Al Qush. And, IMO, the pathway that links Shaikan with Sheikh Adi also runs through Al Qush. I have commented about the Al Qush connection in many previous posts - I will endeavour to make an update post at some point to further justify those two IMO's. The previous 'occupant' at Al Qush was Komet with an 80% interest - the implication being that the KRG retained their usual 20% entitlement. However, according to Shamaran's latest map, Exxon is now the proud owner of a 100% interest - hmmmm, a change of 'policy' by the KRG with regard to their usual 20% entitlement? On a separate matter, some sources report that Al Qush is in "disputed territory", (between the KRG and ICG), but I find this hard to believe given that the KRG have controlled this area since 2003. In the limit, the KRG could always 'pull-back' from the eastern-end with no loss of anticlinal contents if you know what I mean, (also refer next section on Baeshiqa for other similes).

- Baeshiqa is a 'new' block assignment south of the Hunt/Afren Ain Sifni block. This block is also allegedly in "disputed territory". But it may not be as 'disputed' as some people make out - because there is a huge difference in block areal extent if you compare the Shamaran and PCI maps. There is also a large difference in the Ain Sifni block areal extent between the Shamaran and PCI maps - the PCI map shows that the western end of Ain Sifni has been 'released' or 'given-up'. The PCI map of Ain Sifni is correct - just go to the Afren website and check if you don't believe me. So I would also conclude that the PCI map is also more likely to be correct (than Shamaran) with regard to the Baeshiqa block areal extent. Why is this important? Well, it would seem that the KRG have already voluntarily pulled in their horns and moved their block boundaries back behind the de-facto 'green line' (the present-day facts-on-the-ground boundary delineating definite Kurdish controlled lands). Nice move KRG - Shari will be p155ed when he finds out that he's been mouthing off about nothing again. Further corroberation can be found by viewing the surface topography of the small area shown in the PCI map - it's hilly (has got the anticlines in it lol) - whereas the rest of the alleged block area according to the Shamaran map is in the Nineveh plains. (Without wishing to offend anyone, my simplistic view is that the Kurds are 'hill/mountain people', whereas the deserts and plains have been historically inhabited by the Arabs, Assyrians and Turkmen). Finally, again no sign of Kurd partners (Exxon 100% according to Shamaran).

- Qara Hanjeer, a very nice looking looong block, sandwiched between Kirkuk (oil) and Chemchemal (gas/condensate). Nice neighbourhood, what do you think GRH1 - can you tell whether it's oil or gas?! But is it a 'new' block? Heavens no, it previously had that nice 'temporarily reserved' tag on it - KEPCO. Well there you go Shari - why has it taken four years for you to receive the enlightenment from which you now suddenly proclaim "disputed territory"? Not a hope mate, Qara Hanjeer is well behind the de-facto 'green line'. And of course, 100% Exxon again (leave that here now - all six blocks are Exxon 100%).

- Pirmam, a nice looking block, surrounded by Austrians, Indians and Cowboys - sorry, Americans (just find it on the Shamaran map yourselves). But it is a bit small (area-wise).

- Betwata, north-east of Hess/PCI Shakrok block. Starting to get a bit 'iffy' here - high mountains, probable breached seals and potential oilfield graveyard (IMO only). But you never know...

- Penjwin, next to Iran border. Very iffy now - not just a potential oilfield graveyard (as above), but also looking rather 'strategic' LOL. Good luck Exxon.

So, IMO, Exxon's 'known knowns' consist of - much less than would first appear from the declaration of 'SIX blocks'! Al Qush is defintely a good'un if you're interested in the neighbour, and Qara Hanjeer must be worth a punt given its zip code (between Kirkuk and Chemchemal). Baeshiqa is small area-wise (assuming PCI map is correct) and heavy oil may be expected (similar structures trending north-west from Afren's Bardarash). Pirmam looks good - but is small area-wise. Betwata and Penjwin both rank as 'outsiders' in my book. AND, all six blocks are pure Exploration (although maybe not Al Qush lol!) with associated Exploration risks. My conclusion? No way did Exxon jeopardise West Qurna for this lot. When will we be told about the 'unknown knowns'? You know, the Jewel in the Crown bit (or rather, bits of)?



4. Mark Leftly

We started out hating you - but you're our best mate now. I think it's time for an 'unemotional' review:

A. 24th April 2011 "Gulf Keystone's boss has his shares frozen in $100m divorce battle":
http://www.independent.co.uk/news/business/news/gulf-keystones-boss-has-his-shares-frozen-in-100m-divorce-battle-2274004.html

B. 24th April 2011 ""Kozel vs Kozel":
http://www.independent.co.uk/news/business/analysis-and-features/kozel-vs-kozel-2274016.html

C. 22nd May 2011 "Directors in loss-making Gulf Keystone earn over $1.1m each":
http://www.independent.co.uk/news/business/news/directors-in-lossmaking-gulf-keystone-earn-over-11m-each-2287379.html

D. 16th Oct 2011 "Kozel v Kozel: Finance director accused in $100m divorce":
http://www.independent.co.uk/news/business/news/kozel-v-kozel-finance-director-accused-in-100m-divorce-2371186.html

E. 13th Nov 2011 "Chevron to join slick of oil supermajors in Kurdistan":
http://www.independent.co.uk/news/business/news/chevron-to-join-slick-of-oil-supermajors-in-kurdistan-6261405.html

F. 11th Dec 2011 "Kozel's $100m divorce settlement will unfreeze his GKP stock":
http://www.independent.co.uk/news/business/news/kozels-100m-divorce-settlement-will-unfreeze-his-gkp-stock-6275208.html

G. 18th Dec 2011 "Exxon woos GKP to gain Kurdish base":
http://www.independent.co.uk/news/business/news/exxon-woos-gkp-to-gain-kurdish-base-6278531.html


Well folks, I aint gonna do the spoon-feeding for you here - just read each link again and form your own opinion on the veracity of Mark Leftly's articles. I did. Much as I disliked reading about the divorce dirt, (apart from the ETAMIC and 9p placing revelations lol!), I cannot find anything that is materially incorrect in A, B, C, D and F. There was just a tad of truth-stretching in C (the massive numbers for Todd's remuneration were indeed about right - just that most of it came from performance rewards rather than 'salary'). IMO, given that the guy has also put his (significant) reputation on the line with regard to his claims in articles E and G - my own conclusion is that he has GREAT contacts. And at least one of these contacts has probably been feeding him constantly since day-1 (go figure for yourselves, I'm saying nowt more here).



5. Mark Leftly and the KRG's 20% entitlement

This is about one of the - as yet undisclosed - 'unknown knowns'. i.e. what else did the KRG give Exxon to get them to 'sign up'? Over to you Mark Leftly, and this extract from article E:

======

"However, it is believed that the Shaikan field, which is estimated to hold an extraordinary 10.5 billion barrels of oil, is actually the subject of one of the six licences that Exxon has taken. The details of the six licences did not emerge on Friday. But, sources suggest that Dr Ashti Hawrami, Kurdistan's Minister for Natural Resources, plans to open today's conference by revealing the specifics of the deal.

It seems likely that Exxon has taken a 20 per cent stake in Shaikan. The Kurdistan government had an option of taking this stake once the field was proven to be commercially viable, and it is this that has been sold on rather than a portion of Gulf Keystone's undiluted 75 per cent holding.

Gulf Keystone owns other interests in Kurdistan, and sources close to the company believe that at least another two of Exxon's six interests relate to these fields. However, this could not be confirmed yesterday."

======

Wow, that middle paragraph. How could a journalist make a connection - that requires a strong dose of lateral thinking - to the KRG's 20%? He could not have made that up. We all, (myself included), have only been thinking about BIR when it comes to considering what the KRG may award to a third party Company. We have taken as read that the KRG will of course maintain their 20% entitlement in ALL Kurdy blocks - why wouldn't they? I'll say that again - why wouldn't they? In a word - money. I'm sure that the KRG do still nurture dreams about a (Kurdistan) National Oil Company - be that KNOC or KEPCO or both - but the harsh reality is that KEPCO/KNOC will have to pay 20% of all Development costs - from the "First Commercial Declaration Date" - just like all the other PSC participants. The problem is - they just don't have the wherewithall to do this for a MASSIVE project in the near-term. They will have no choice other than foreign investment when it comes to funding the Shaikan Development in the near-term (2013), IMO. It actually seems rather obvious when you think about it.

And now that I've started thinking about the KRG's 20% entitlement, Mark Leftly's third paragraph above also makes sense. The "sources close to the company" who believe that "another two of Exxon's six interests" relate to GKP's "other interests in Kurdistan": are 'they' also talking about the KRG's 20% entitlement when it comes to Ber Bahr and Sheikh Adi? These two blocks, if/when proven to be part of the same SH-SA-BB mega-structure, will of course need to be developed as part and parcel of the same Development Plan. N'est-ce pas?

Thank you Mr Leftly - for forcing me to think. Your sources are sound, IMO.



6. Conclusions

A. Maybe I was a bit ott when I stated in the introduction that 'It's the 20%, Stu-pid'. I was just trying to emphasise that, for Shaikan, the KRG's 20% entitlement is much more significant than the (nominal) 15% BIR which reduce to only 12% when fully diluted. Both are of course important - and when added together - give the KRG a nice chunky 32% for use as a 'sweetener'. Did the Tiger get the cream? And/or - for our friends across the pond - will the Tiger also eat the canary?

B. Concerning our previous perceived concerns that the KRG may be 'pushing their luck' when trying to convince the ICG that a 20% KRG stake is 'in the interests of ALL Iraqis': did another leg just drop off your chair Shari?


GLA,

BBBS

P.S. Regarding the "final" 'known unknown' - who is actually going to take-over GKP - putting articles E and G together, I'll go with Exxon. Or Sinopec. Or Chevron. Or Total. Or ENI combo..

P.P.S. Nice rise yesterday - did someone let the Tiger out of the bag?

interesting action today on rkh, afr and gkp

manquarie put out a strong upgrade today on rkh and afr but no mention of gkp
afr is up, but the books are evenly balanced
rkh is having a little burst for glory but on low volume - unless there is more hidden behind the scenes
gkp is nicely ahead with a strong order book at 3:1 (like yesterday)

in say a week's time, we'll know if we have allowed ourselves to be mugged and jumped off a cliff with the rest of the lemmings, or it'll be champagne for having called it correctly

I'm in all three.....

on reflection, so am i

Monday might bring some news,with AFR,GENL and DNO presenting?

On the move.

Source is now saying a £14 a share offer is about to be lodged officially with GKP. Said to be a reliable source, not an HP sauce.

Who knows ? Not me.

Yes i just came across this,well'll know come Monday?


triples - 6 Jan'12 - 23:05 -

Nowt much - just some iii poster (very reliable) has said that an offer of $19bn for the whole of GKP has been tabled and another iii poster (moderately reliable) has said that he has been told that GKP has 'gone', ie, sold - the whole lot.

We'll have to wait 'til Monday now.

My question would be if the above two posts are correct why has the sp not been pushed far higher by more (perhaps) informed city folk. I'm not wishing to put a damper on the talk, I hope they are right for all holders to benefit greatly.
2517

An offer is possible but more likely to be £4,£5 or £6....let's be reasonable...oil in the ground is not valued as much as it has been pumped.

cycril .... no BB is remotedly reliable .... even some company announcements are more than a little suspect (DES!)

remotely

.

Worth a read,a little rampy and fanciful but by a respected pi.




Lets look at a $19b offer for the company.

The first thing to do is to is to increase the shares in issue to a new total, to fully reflect the options awarded to Todd and other directors.

There are 853m shares currently in issue, they increases to 893m on exercise of the options.

Dividing $19b by 893m = $21.28 / share

Current exchange rate $1.55=£1

So $21.28 /1.55 = £13.73 / share.

How can the NAV reflect this figure?

Three little tweaks is all that is needed.

Tweak 1 –the OIP figures.

John B. Gerstenlauer has said that we can expect two further upgrades of OIP at Shaikan.

Lets assume that the pattern continues of the P10 figure becoming the new P50 figure, so 13.500b becomes the new P50. And perhaps 15.billion barrels becomes the new P90.

On the second iteration the 15b would become the new P50 and perhaps 18billion the new P90. I think these figures will already be postulated by after the 3 D seismic, pressure gradients and core samples have been analysed by GKP but SH5 /6 may still be needed to prove them up.

Lets plug these figures into my NAV. My base figure is very similar to BBBs at $6.01 after a yearly discount has been applied over a 30year term. (25 yrs + 5 year allowed extension) This figure is then reduced further as I apply a 85% risking on Shaikan to get $5.11/ barrel. This figure is based on a $100 long term oil price assumption.

Tweak 2 – the long term price assumption

This long term price of oil over the 25/30 years of the contract seems to me ,and indeed to Goldman Sachs to be a little on the low side. So the next tweak is to increase the Oil price assumption to $120 over the term of the contract. (I personally think this is also conservative.) This increases the price paid for a Shaikan barrel to $6.11 – again in or around BBBS ballpark figure of $6 for a 2P barrel at Shaikan.

Of course at the moment only contingent resources are ‘booked’ but the fracture report is due out in February ; this will inform the recovery factor and I would not be surprised if the initial findings are not already know to our BOD. At this point 2c could become 2P reserves and the translation could be very soon. The price/barrel used in these calculations then become realistic, even conservative.

As long term readers of this board will realise the recovery factor is a key variable. We should look forwards to what could be achieved using horizontal drills and enhanced recovery methods over the 25/30 year contract period. I am leaving the RF at 30% - for now!

Tweak 3 OIP at Ber Bhar.

Here I am using a 44% COS on the drill (Hayward) which results in $3.46/barrel. The OIP has been tweaked upwards to a conservative 5bbls an increase of 3.1b over GKP guidance 4.5b on Genel’s pre drill guidance.

Bekhme has been reduced to 3bbls (step out planned 5km from current drill site) Akri Bijeel remains at 2.4 billion. 3billion is inserted for Barkman and 1 billion for Aqra. I maintain a 25% COS across the block which gives $1.92/barrel for these contingent resources.

Sheik Adi has 3bbls up from 1.9bbls looking towards the SA 2 drill costed at $3.46/barrel

The result gives £13.89 against an alleged offer of £13.73.

It seems to me there is plenty of upside left for the next man! The OIP figures, when added up come to 32.4 bbls of OIP across all blocks and with BBBS hinting at 100bbls, Exxon/ Chevron/ Total etc will be paying for only 33% of the true potential.

So all in all, CJ’s £19 billion for the company seems very do-able! A screenshot of the tweaked NAV can be viewed at dalesmann.com and for those who have bought the workbooks, it is but a moment to tweak the figures and drool :0)

Finally, I have had personal contact with CJ via an e-mail, subsequent to his post. He is a man not prone to making outrageous statements, a kind and thoughtful man , a real gentleman who has been a severe critic of TK and the KRG. I hold him in the highest esteem both as a man and as a very credible well-connected source.

As always we will have to wait for developments and as always I implore you to do your own research – no advice given etc.

I have a feeling that Happy Days are here again!

Kind regards

Dalesmann

Now this i can believe.


Schlumberger testing on SH-4...according to oilman63 over on tother BB

I was told this by Schlumberger at the SPE conference

And by john Stafford of gkp

All the best
Oilman63

For all those that say the proposed takeover offers are too high and it never happens, I would remind people it does.

Take for example OSH (Oasis Healthcare) an unloved stock I purchased at 9p. Takeover offers came when the price was 16p. Eventually it was taken over at 94p a share.

600% over when the talk of takeovers started.

If this follows the same principle we will see the price rise, to 220, then 240, then 300 then 400 (as big boys behind the scenes build their stakes ahead of what they expect to happen) and then talk of takeovers and offers will increase and so will the share price until by the time if becomes official the share price will be much nearer the rumoured figures.

If you believe its going to get taken over then just keep holding and resisting the temptation to sell - for the ultimate prize.

http://ikjnews.com/?p=1372

9 January 2012



Gulf Keystone Petroleum Ltd. (AIM: GKP)

("Gulf Keystone" or "the Company")



Kurdistan Operational Update

Gulf Keystone today provides an update on its ongoing exploration and appraisal programme in the Kurdistan Region of Iraq, which includes the Shaikan block, a major discovery with independently audited gross oil-in-place volumes of between 8 billion barrels to 13.4 billion barrels calculated on the P90 to P10 basis with a mean value of 10.5 billion barrels.

Shaikan-4 Appraisal Well



Gulf Keystone continues a well testing programme for the Shaikan-4 appraisal well, drilled 6 km to the west of the Shaikan-1 discovery well, targeting several formations in the Jurassic and Triassic. One well test in the Triassic has been completed and six further tests are planned. Once the testing programme has been completed in all target formations the Company will make the appropriate announcement.



Shaikan-5 Appraisal Well



The Shaikan-5 appraisal well, 6 km to the north-east of the Shaikan-2 appraisal well, is currently drilling at a measured depth of 1,008 metres. After slower than expected drilling progress due to temporary hole stability issues encountered in the shallow formations, the well is now drilling ahead to the estimated total depth ("TD") of 3,500 metres subject to technical conditions.



Shaikan-6 Appraisal Well



The Shaikan-6 appraisal well, 9 km to the east of the Shaikan-2 appraisal well, has drilled to a measured depth of 362 metres and 26" casing has been set. The well will drill to the estimated TD of 3,800 metres subject to technical conditions.



Shaikan Extended Well Test



As part of the ongoing Extended Well Test ("EWT") on the Shaikan block, the output from the Shaikan-1 & 3 EWT facility has been at an average level of 2,520 barrels gross of oil per day from the latter part of November through to the end of 2011, totalling 103,328 barrels gross as of 31 December 2011.



At the end of 2011, Shaikan test production levels were in excess of 4,000 barrels gross of oil per day and are due to increase further after the ongoing upgrade of the Shaikan-1 & 3 EWT facility has been completed and additional test production facilities have been designed and built. The upgraded and additional EWT facilities will allow test production of Shaikan crude to export specification and a subsequent ramp-up of the Company's export operations.

Gulf Keystone is the Operator of the Shaikan block with a working interest of 75 per cent and is partnered with Kalegran Ltd. (a 100 per cent subsidiary of MOL Hungarian Oil and Gas Plc.) and Texas Keystone Inc., which have working interests of 20 per cent and 5 per cent respectively.

Akri-Bijeel Block



According to the Operator's Akri-Bijeel block operational update and 2012 outlook issued on 28 December 2011, the exploration and appraisal programme will continue with two exploration wells (Barkman-1 and Gulak-1) and four appraisal wells (Aqra-1, Bijell-2, Qalati-1 and Qandagul-1) to be drilled in 2012. Following the completion of the Bekhme-1 exploration well testing programme, after the well reached TD at 5,000 metres in the Triassic, the rig is currently moving to the Aqra-1 appraisal well drilling location with the well expected to be tested in H2 2012.



While no commercial inflow of hydrocarbons was encountered in Bekhme-1, new data gained during the well testing programme is a significant contribution to the continuously improving knowledge of this unexplored region, decreasing uncertainty for the remaining Akri-Bijeel prospects.



In addition to the envisaged acquisition of a significant amount of 3D seismic data over the Bijell discovery area, an extended well test is planned for the Bijell-1 discovery well in 2012, similar to the ongoing successful Shaikan-1 & 3 extended well test. The Operator plans to build a surface facility with 10,000 barrels of oil equivalent gross capacity and a 30,000 barrels storage capacity by Q3 2012.



Gulf Keystone has a 20 per cent working interest in the Akri-Bijeel block operated by Kalegran Ltd., a 100 per cent subsidiary of MOL Hungarian Oil and Gas Plc., which holds 80 per cent working interest in the block. Operator's P50 resource estimate for the Akri-Bijeel block is 2.4 billion barrels of oil-in-place.



Ber Bahr-1 Exploration Well



The first exploration well on the Ber Bahr block is drilling at a measured depth of 2,418 metres in the Triassic to the estimated TD of 3,000 metres subject to technical conditions.



Gulf Keystone has a 40 per cent working interest in the Ber Bahr block operated by Genel Energy, which holds a 40 per cent working interest in the block. The Kurdistan Regional Government has a 20 per cent carried interest in the Ber Bahr Production Sharing Contract. The Operator's resource estimate for the Ber Bahr block is 1.5 billion barrels of oil equivalent-initially-in-place.



John Gerstenlauer, Gulf Keystone's Chief Operating Officer commented:



"As an important addition to Gulf Keystone's aggressive exploration and appraisal campaign, the Shaikan Extended Well Test provides us with an opportunity to continue to gain new data and better understanding of this world-class discovery in the Kurdistan Region of Iraq. This early test production is also important to enhance the Company's already extensive commercial and marketing relationships on the ground in anticipation of further optimization of the Shaikan test production facilities and the commencement of the Bijell-1 extended well test on the Akri-Bijeel block in 2012."

The first exploration well on the Ber Bahr block is drilling at a measured depth of 2,418 metres in the Triassic to the estimated TD of 3,000 metres subject to technical conditions.
BB's original TD was 2100mtrs so 900mtrs deeper?