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.

It should be remembered that only 4% parted hands in the last 2 days and 1 week to go before news of the listing.Not sure if £1 is the bottom,but we tend to know the worst case and two many reputable firms involved(Ryder Scott,DGA etc)plus large buys by
director recently at much higher prices.
I'm personally waiting ffor the SH-7 result(9 months to the day from spud),which is 3 months away,might top up if i feel it gets juicy?

http://www.malcysblog.com/

Gulf Keystone Petroleum

The long awaited CPR for GKP arrived this morning and I must admit that I was quite surprised at the reaction of the market place although I should give up ever being surprised at anything as far as the company is concerned! The reason for this is that I have been saying for some time that the CPR was always going to be to the right of the sheet for an asset of this complexity and so it proved. I found it interesting that Todd should suggest that as the company has a large retail base that they would address the CPR on a ‘basic level’, I would suggest that IMHO most of the retail base is better informed than some of the professional scribblers in attendance. This was proved when one analyst asked a question saying that why didn’t the company tell him that Shaikan was a complicated asset, only in almost all presentations has this been made perfectly clear.

The report can be seen in its entirety on the website but the big number is 12.5bn barrels with 1.2bn b’s of oil of combined gross 2P and 2C recoverable reserves and resources. The report is by its very nature, conservative and it should be borne in mind that less than 25% of all Shaikan wells are taken into consideration and only in phase 1.

As a baseline, as the company points out, and having monitored the company for many years as well as visiting the asset base, I believe that this CPR is not bad news, at least not as bad as the market has demonstrated. The report is part of the process of a main market listing due on the 24th March and today also sees an operational update in line with my expectations.

Valuing GKP has always been tricky operation, the underlying long term value in the company is not in doubt but the patience of the shareholder base can sometimes be called into doubt, thus taking the shares today to a two year low. The market cap of the company is over £1bn and even on a very conservative basis I believe the assets are worth significantly more than that and even if one allows a discount for over eager PR and expectations if the market doesn’t take that into account somebody else will. If there isn’t a recourse to equity to fund this development, as promised by the company, then equity valuations should not be destroyed any more, indeed I perceive they should go up from here. More in due course if I get some time with the management…

I also reckon that fund raising will bring stability to the sp....way undervalued...

an old truism .... never forget that a price that looks cheap can easily become cheaper still

True and here's a worthy post agreeing.
----------------------------------------------------------
iii--Investor48

Hello Everyone and Hub,


The CPR a report that is by far no means a true valuation of GKP,but sets the base for GKP to move to the main listing and a means for GKP to finance it's 1st phase of it's FDP,turned out to a nightmare for all of us invested in GKP.

Before the RNS of the CPR last Thursday,my chartist friend already warned me that the charts look bad and we are heading towards a new year low.Evidently some new that the OIP and 2P numbers will be not to the market's expectations!Hence the stock had been sold down for a few weeks,albeit in volumes between 2-3million shares per day.

On last Thursday when the CPR numbers were released,the shorters lined up during auction to depress the price creating fear amongst PI's that still have margins on GKP,when GKP is already proven to be a volatile stock the last 5years!

The market punished the stock.Yes,we can attribute it to poor management on SH6 and I will not apologize for saying that the management erred.However the market ignored clearly the 2C numbers on Shaikan and the RNS was crystal clear that the 2C numbers will migrate to 2P once GKP has finalized and submitted the amount required for PF3 and 4,for the next stage of it's FDP to take GKP's production to 90K barrels per day.

When Afren paid for it's Barda Rash block in late 2010,it cost Afren well over 400milion Usd for it's 2C and 3C estimates,with no appraisal wells done for Barad Rash.

But the market choose to ignore the 2C numbers of Shaikan that was clearly larger than the 2P numbers.The CPR does state that it cannot put a value per barrel to the 2C because it is subject to the value of the capex to take GKP's production to 90K barrels per day in Shaikan.

Now I will make a comparison to GKP's valuation in late 2011 when GKP had already raised 2placements of 140p.Then in late 2011,GKP's OIP numbers were lower than 9.2billion barrels for Shaikan as given in the CPR and GKP's SP traded well above 140p!!

Today,we have the SP trading at 103p as per Friday's closed.Clearly there are sellers were had to sell and institutions that are fed up,IMHO.Some sold and hope to buy in lower as the fear spreads.

Whilst the SP remains volatile,this 9.2billion barrels in Shaikan is stills very massive OIP by world standards.This is not going to disappear as the SP moved up and down!!

GKP's SP is at a level now that private equity and a predator will be crunching their numbers and sharpening their pencils to move in to take a meaningful stake.Remember GKP is a PI dominated stock and if the SP continues to drop,it will be a sitting duck for the emergence of a major shareholder.This time around,it is unlike in 2011,GKP has already begun exports,PF1 and 2 in place and it's OIP in Shaikan even at 9.2Billion makes it a very juicy preposition!

The emergence of a major shareholder will see the end of the current management,IMHO.Like the saying,what goes around comes around!

No one knows how many more shares will continue to sell on Monday,but the lower it goes,the more attractive it is to a predator to launch a bid and it will not be long,you will see a major shareholder,though,it may not be successful to take over the company but good enough to be in control!

Hence,ask yourself if GKP is worth at least 100p at the current stage of it's development?As for GKP's recovery rate,the CPR is only an estimate and only, over a long production period on the Shaikan wells, can one determine the rate.

Good luck and best wishes to all

Dirt cheap....it's as if it hasn't been discovered !.....

dalesman
16 Mar'14 - 15:11

Just stuck this on 3i - I hope it helps!

Stepping Back

First of all lets all step back one pace and remember that friends and family along with your health is much more important than GKP! I know this from personal experience.

Now I’ve got that off my chest I think it would be good to revisit the proceedings of the last few days. I’m on holiday at the moment so apologies if this has already been covered.

Like many here I’m not a happy bunny and feel that the events could have been better stage-managed but that’s now in the past and perhaps it would be good to dissect some of the comments from the presentation and look to the future.

This is a long post, you may need a coffee, but do stick with it!

So here, FWIW, are my comments and observations. I have broken them down into manageable chunks.

PRODUCTION

Firstly I have calculated that the income net to GKP from barrels exported so far has reached $16.56 m that is a good starting point, we need official confirmation that we are getting paid.

Secondly the CPR is a baseline report. If you have not read my previous post that set out my expectations pertaining to this report then can I suggest you do so – its available at

http://dalesmann.com/dalesmann-where-should-our-focus-be/

So lets kick off by looking at some of the comments.

LIMITS OF THE CPR REPORT

The most startling admission from John G is that the CPR relates only to three of the four Jurassic reservoirs – the Sargalu, the Alan and the Mus (John G 14.56 min’s in to the presentation). These represent only 39% of the total reservoirs available at Shaikan.

The bar shown on the Shaikan Oil in Place slide also illustrates that the CPR is only looking at the Sargalu, Alan and the Mus as these are the targeted reservoirs in Phase 1 of the Field Development Plan.

THE OIL WATER CONTACT

He then addressed the Oil Water Contact issue.

Firstly there is the evidence from the core samples, which were quote: “OOZING oil”

There was no evidence of water in the core samples; to the contrary, they only seem to have evidence of a reservoir filled with oil. As a layman, I think it is highly unlikely that the core samples showed only oil if water was indeed present. Perhaps Gramacho could comment on this.

My understanding is that the core samples taken from the well before this HP zone was reached gave every indication of an oil rich zone, which was then sealed off by the casing. Drilling then continued down to circa 1975 m. (figs may be approximate due to memory loss) :0)

So how did the well flow water after perforation of the casing at approximately 1450 m instead of the expected oil, given that the core samples from this depth were “oozing oil”? NO WATER!

John G has put forward the scenario that the water was forced upwards from a highly pressurized lower zone, the water penetrating the void behind the casing that had not been cemented.

John G made the point that a water kick was experienced from a high-pressure high-energy water zone and he believes that this water flowed up between the casing and the well bore, exiting the void when the casing was finally perforated.

To me this is the rational explanation! The core was bleeding oil, not bleeding water!

He backed this up by referring to SH2 that came within 50m of the 1400 OWC put forwards by Equipoise. That oil was dry and he makes the comment that water, if it was present in the fractures would have been visible.

Shaikan 4 flowed dry oil from the Butmah, which is below the Sargalu, Alan and the Mus reservoirs (Slide 6). We have been told repeatedly that these reservoirs are in communication so where is the water contact? Page 15 of the CPR :Data indicate that all the Jurassic reservoir intervals are in vertical communication.

From page 33 of the CPR they state that Oil has been tested down to a depth estimated to be somewhere between 1,350 and 1,400 m TVDSS
in the Jurassic, but no oil has been recovered in a successful flow test from the Jurassic below this.

THE MOBILITY FACTOR

We learn that the mobility factor between oil and water is 25:1, water therefore will flow much more readily than oil, so the water could have replaced and / or restricted the expected oil from flowing into the well bore, oil, which was proved to have been there, because it was clearly evident in the cores and on the shakers.

It is the higher OWC that has negatively impacted our reserves figures. From the presentation every 10 m gives an additional 13 million RECOVERABLE barrels. There are hundreds of meters between the two OWC given by Equipoise.

To remedy this GKP need to urgently prove up the lower OWC – you have to ask why they have not done so prior to the CPR? They obviously knew the problem.

FRACTURE ORIENTATION

John Stafford moved the discussion on to examine the dominant orientation of the fracture systems.

He explained that the majority of these fractures were vertical. From page 15 of the CPR data indicate that all the Jurassic reservoir intervals are in vertical communication.

All the wells drilled so far have been vertical wells.

We know from Genel just what impact horizontal drilling can have on production.

With some horizontal wells intercepting a greater number of vertical fractures the production figures will IMO, rise exponentially and with it the recovery factor as the fracture system is more fully understood. Perhaps a geologist could comment on this.

We have already got 10,000+ bopd from vertical wells.

FRACTURE POROSITY

We now turn to the fracture porosity. I was aghast at what John G said on this point.

He said that Equipoise chose 0.4% as this was the highest that they the CPR authors had come across in the past.

Not that they had looked at the evidence before them. No, they Equipoise had applied 0.4% as the mid range case because that was the highest they had ever experienced.

John G then went onto say that with a little bit of research there were papers out there that document 0.7 to 0.8% fracture porosity. (0.7% was used as the high end case – page 26 of the CPR)

He continued by saying that an additional 0.2% would yield a further 800 mbls

He then said that in his extensive experience the fracture porosity at Shaikan was the highest that he had ever seen. Logic therefore says that an additional 1.6 billion barrels could have been missed out by Equipoise in this report.

What would that have done to the figures?

SHAIKAN 7

We then heard that Shaikan 7 had successfully drilled through the Cretaceous, the Jurassic and was now in the Triassic Kurre Chine B interval, almost at the point where the well becomes an exploration well!

What is even more impressive is that GKP, while having had problems drilling this well, have been able to maintain a 17 inch casing at this deep level, allowing further reductions in casing size as we enter the lower Triassic and the Permian.

Gibso will be able to fill in the technical details on why this is important but my interpretation is that by maintaining the large diameter casing into the Kurre Chine it gives GKP the ability to fully case and flow test the Permian. In addition, diagnostic tools will have plenty of room to operate at depth.

THE CPR REPORT DOES NOT ADDRESS THE POTENTIAL OF THE LOWER TRIASSIC AND THE PERMIAN!

John G also made the point that the API was high and the oil from the Triassic was very valuable.

LOOKING FOR THE UPSIDE

We were then told to look at the CPR as a baseline from which GKP can climb.

John G reiterated the experience of Genel at Tawke and Taq Taq where the recovery factor has climbed into the 30% range, along with increased reserve figures as production data refines the knowledge of the fracture system and the matrix. The same will happen at Shaikan (A recovery factor of 12% was used by Equipoise at Shaikan)

Genel has reported they expect a 35% RF to be achieved at Tawke to the north of Shaikan.

Given this guidance the current share price is a complete joke.

John G stated that GKP still believes in the DGA / Scott Rider 13.7 billion barrels at Shaikan and it is only the conservatism of Equipoise on the variables discussed above that has held back the valuation.

ISOTHERM

Finally John Stafford explained the significance of the isotherm line shown on slide 6. Basically this is the thermal limit above which, temperature (which increases with depth) no longer enhances the ability of the oil to flow freely. Temperature helps the oil to flow by increasing the viscosity.

There is A LOT of movable oil in the Cretaceous that has not been included in the Equipoise case.

Indeed John Stafford said that 70% of the difference between the 9.215 billion barrels and the 13.7 billion that have previously been announced by DGA was attributed to the Cretaceous above the isotherm.

This was a surprise to me as this was the first time I had heard that any of the upper cretaceous had been counted in past volumes. Doing the math’s, that’s 3.3 billion barrels of STOIP that are still there however obtaining oil from this zone will take ERM to extract.

This oil accumulation has not been included in the CPR.

A previous post of mine documented how Steam flood schemes have been successfully applied to reservoirs in the Middle East that exhibit very low fracture porosity especially in fractured carbonates. These reservoirs have initially a minute recovery factor applied to them, as low as 0.3%.

Shell transformed these prospects by the application of Enhanced Recovery Methods (steam flooding) to achieve a 30% RF. Such a strategy does not form any part of the ERC report.

Indeed the upside potential has been stripped out of the report.

BLENDING

In the question and answer section we learnt that the blending station at the end of the yet to be built spur would mean that a 1:1 mix with the oil coming up from Taq Taq would result in exportable oil quality equivalent to Kirkuk sourced oil with a composite API of 31.

The CPR report gave a figure of 18 API for the Jurassic, which is at the very top end of the heavy oil category, or at the lower end of the medium oil classification.

MOL’S REACTION

It was interesting to note that MOL immediately denounced the Equipoise assessment of Akri Bijeel and John G stated that the in house understanding of the block would have increased by 3 to 4 times the rock volume used by Equipoise. Certainly MOL was not impressed!

I think the same degree of skepticism given by MOL could be applied to the whole report.

So what do we draw from all this?

1. In my post put out before the CPR was issued I made the case that the report would be very conservative – they always are. The CPR firm Equipoise cannot be shown to be over egging the pudding in any way! They can’t even be seen to be ploughing a middle furrow. So as predicted we got a very conservative report, where each and every variable was minimized.

2. The DGA figures are in all probability more realistic – they had, quote “day to day access to the data” where ERC just took ‘snapshots’. The actual OIP numbers, fracture system and RF are more likely to be closer to the DGA and Rider Scott figures. IMO a major will understand this. Time will tell. For obvious reasons GKP need to prove up these figures as a matter of urgency.

3. The ERC case is a baseline on which to build. There is huge upside potential not addressed by Equipoise.

4. The CPR was needed to allow a) A FTSE listing and b) Resource base lending. As such I believe it will be proved to have done its job.

5. The SP got considerably clobbered because the CPR firm has been ultra conservative and people panic, who can blame them!.


IMO clarity is urgently needed on the OWC issue.

The SP is nowhere near a true representation of the potential of the company no matter what Cannacord say! I hold all my shares God help me and still believe in a pay day.

Good luck to all.

All my own opinion, please DYOR.

Kind regards,

Dalesman

Sub one pound.....never thought we would ever see this....nuts...

only briefly.,.

I intend to return,but i'm waiting for it to settle down.Rather pay a higher price than try and quess the bottom,sub £1 was always possible without any news?

Gack up already i see.

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A volitile day,thats for sure.Best leave it to settle down,mind you could take weeks,A traders dream,just need the balls and knowhow for good pickings.imo

i'm an arsehole - just in case you hadn't noticed! - so bought a modest number at 104.75

Considering buying at some stage, now only looking for when is the best time

Does that mean this thread is also soon to become your spawning ground and unreadable??

Have you got anything to say about GKP?
otherwise move on and get shorted



today's drop to under 100p was a sign of ...... tell you later

The suspense....

Think I'll just add Panto to my squelch list along with his other alter-egos..

I will squelch?

Do it
too much mouth and no trousers for you sake


bought at spread 103.75p v 104p

Lets see how it opens on the OTC

http://www.bloomberg.com/news/2014-03-17/dno-jumps-most-in-month-as-new-wells-push-tawke-output-to-record.html
DNO International ASA (DNO), a Norwegian oil producer focused on northern Iraq, gained the most in a month in Oslo after two new horizontal wells increased output at its Tawke field in the Kurdistan region of Iraq to a record.
The company rose 5.7 percent, the biggest gain since Feb. 20, to 23.17 kroner by 9:38 a.m. About 1.9 million shares were traded, a third of the average three-month daily volume. DNO began output from the wells at a combined flow rate of 37,000 barrels of oil daily, pushing Tawke’s production to a record 129,000 barrels a day on March 5, it said today in a statement.
http://www.bloomberg.com/news/2014-03-17/dno-jumps-most-in-month-as-new-wells-push-tawke-output-to-record.html