Interactive Investor

Gulf Keystone Petroleum to hit year-end target

13th November 2014 10:27

Lee Wild from interactive investor

Gulf Keystone Petroleum's delayed trading update was brief and to the point. Crucially, the oil company has confirmed that production at its flagship Shaikan field in the Kurdistan region of Iraq should hit the 40,000 gross barrels of oil per day (bopd) target by the end of 2014.

Currently, total production levels are stable, averaging 23,000 gross bopd from three wells at PF-1 and two wells at PF-2. Civil works to connect the Shaikan-7 and -8 wells to PF-1 are ongoing and trenching work on the 15 km connection between the Shaikan-10 well and PF-2 is complete. Flowlines are currently being laid.

All of Gulf's output is being trucked to the Turkish coast for export. So far this year, that's nineteen tanker cargoes totalling 4.7 million gross barrels. And there's good news on the payments side, too. 

"The KRG recognises that, for the continuing growth of the Kurdistan oil industry, it is necessary that contractors receive payments in line with their contractual entitlements," said the Kurdistan Regional Government last week. "With further production increases, producers will receive their full contractual entitlements."

This month, the KRG will make an initial payment of $75 million (£47.6 million) on account to producers for exports, with further payments to follow on a regular basis.

"Gulf Keystone's production operations and export oil sales have continued uninterrupted in 2014," says Gulf chief John Gerstenlauer. "All current production is being exported by truck and these exports are set to increase in the coming months as we are nearing our production target of 40,000 bopd."

"If payments are being made as well as told by Genel then things are also surely looking up for GKP," said oil industry expert Malcolm Graham-Wood.

Analysts at Westhouse Securities have reservations:

For GKP, progress on Shaikan is essential…The announcement made by the Kurdistan Regional Government's Ministry of Natural Resources on 7 November 2014…is a positive and may ease some concerns over cash revenue generation. GKP continues to truck and the timing of the access to infrastructure is still an outstanding issue. Overall, progress as expected and no change to our view. (Neutral, Target price 85p)

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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