Chief Operating Officer's Review
On the heels of the giant oil field discovery in Gulf Keystone's-operated Shaikan Block during the second half of 2009, our 2010 work program is one of exploration and appraisal in Shaikan and exploration drilling in the Gulf Keystone-operated Sheikh Adi Block immediately to the west of Shaikan and in the MOL-operated Akri-Bijeel Block to the north east of Shaikan.
The Genel-operated Ber Bahr Block is currently expected to spud during the first quarter of 2011.
The resounding success of the Shaikan-1 exploration and discovery well during August and September of 2009 (aggregate well test rates from five zones in excess of 20,000 barrels of oil equivalent per day ("boepd")) must, of course, be followed by a comprehensive program of appraisal and further evaluation.
During the first half of 2010 the work program to properly appraise the Shaikan discovery was initiated as follows:
· Full 3D seismic coverage of the Shaikan structure began in early April with a targeted completion for the data acquisition phase of October 2010. Full processing and evaluation of the acquired 3D seismic data will extend well into 2011.
· During the first half of 2010, in order to re-test additional Jurassic age productive zones in the Shaikan-1 (the Butmah at 1,783 metres to 1,814 metres and the Mus at 1,627 metres to 1,667 metres) and complete the well in the Sargelu formation, Gulf Keystone contracted a workover rig and all the necessary support services. The workover rig has subsequently arrived and successfully executed the mentioned re-tests and installed the Sargelu formation completion equipment. Forward plans for the rig were to move slightly to the north east and drill the shallow Shaikan-3 appraisal well through the Cretaceous age intervals that were not adequately evaluated during the initial drilling of Shaikan-1 due to lost circulation problems. Shaikan-3 spudded in early September.
· The Jurassic age Sargelu formation (1,450 metres to 1,510 metres) which was initially tested at 7,450 bopd through a limited and restrictive test facility during the initial drilling of Shaikan-1 will be put on extended well test to gain valuable reservoir performance and oil recovery data. Oil from this test will be trucked to Erbil and sold into the domestic Kurdistan market. Initial test production is now targeted to start in September 2010.
· In preparation for the extended production test of the Sargelu formation a facility site was selected and site preparations were completed approximately two kilometres south of the Shaikan-1 location. The construction of the production facilities, storage tanks, production flowlines and truck loading facilities were contracted for and commenced during the first half of 2010. Both domestic construction, and the facilities and equipment being built in Canada, are on schedule for a September 2010 start-up.
· Drilling locations were selected and constructed for the drilling of the Shaikan-2 and Shaikan-4 deep appraisal wells. The Shaikan-2 location is nine kilometres to the east of Shaikan-1 and Shaikan-4 is six kilometres to the west. Even this 15 kilometre spread in exploration and appraisal well coverage only accounts for about half the length of the potential Shaikan oil field. Additional appraisal drilling will be necessary in 2011. Both appraisal wells are designed to safely penetrate the Cretaceous age formations, the Jurassic intervals as well as the high pressure Triassic formations that forced a halt to the drilling of the Shaikan-1 discovery well. All casing and wellhead equipment necessary for the drilling of these wells has been purchased.
· The Shaikan-2 well will be drilled first and is located on the flank of the Shaikan structure in order to find the Jurassic-level oil water contact and give us valuable data as well as the possibility of a regional water level that would have significant upside oil volume implications for all four exploration blocks in which Gulf Keystone has an interest. Shaikan-2 will be drilled by the same drilling rig that drilled Shaikan-1. The initiation of drilling is contingent on final testing of MOL's successful exploration well in the Akri-Bijeel Block (GKPI working interest of 20%). Well spud is now expected in late October 2010.
· The Shaikan-4 well will either be drilled following Shaikan-2 or a third drilling rig is currently being considered. A further drilling rig would likely result in a fourth quarter 2010 spud date for Shaikan-4.
At the date of writing, the drilling rig is onsite and drilling operations were initiated on 4 August 2010. The well is designed to penetrate and evaluate all formations through the Triassic and is expected to take about six months to drill (80% GKPI working interest).
The operator of the Akri-Bijeel Block, Kalegran (a subsidiary of the Hungarian E&P company MOL) drilled a discovery well in the Bijeel structure during the first half of 2010. The initial discovery zone tested at 3,200 bopd in March 2010. The presence of additional prospective oil intervals led to the need for additional testing.
A series of subsurface problems necessitated that the well be sidetracked through the prospective interval in order to safely conduct the needed testing and evaluation program. Drilling of the sidetrack is complete and evaluation activities are ongoing. When the rig is released it will move to the Shaikan-2 location.
The success of the first exploration well will be followed up by additional exploration wells on the potentially much larger Bekhme and Bakrman structures in the north east and north west corners (respectively) of the Akri-Bijeel Block. At the very least, the presence of significant hydrocarbon volumes in the Bijeel-1 structure serve to de-risk the exploration potential of the much larger Bekhme structure immediately to the north.
Genel is continuing to evaluate seismic and geological data for the Ber Bahr structure in advance of exploration drilling location selection and construction with an anticipated spud date during 2011.
In Algeria, our limited activities continue to focus on a full exit from our involvement in both the small GKN/GKS oil fields in the Ferkane area of northern Algeria and from the HBH/RM gas development operated by BG in central Algeria.
The first half of 2010 has been a time of preparation, both financially and operationally, for the execution of an exploration and appraisal effort in Kurdistan that is designed to prove up resources and add value as quickly and efficiently as possible as a follow up to the Company's successful discovery well at Shaikan. The results of the Shaikan-1 well and the subsequent MOL discovery on Akri-Bijeel, not only open the door to the huge potential of those individual discoveries but also carry major de-risking implications for all the other exploration prospects in that area of Kurdistan.
Chief Operating Officer