Fox Davies Capital Update featuringOil & Gas News

Gulf Keystone Petroleum (BUY, £2.00) (LON:GKP, 93.75p, ? (9.33%)) has negotiated with the Kurdistan Regional Government (KRG) to reorganise the Company's interest in Gulf Keystone Petroleum International (GKPI) following a material default by ETAMIC. Under the agreement the 50% shareholding of GKPI held by ETAMIC reverts to GKP. GKPI will then be a 100% subsidiary of GKP. GKPI will pay $40m to the KRG which is an Infrastructure Support Payment due and owing by ETAMIC, in return for GKPI maintaining its 80% interest in Sheikh Adi and 40% interest in Ber Bahr. Gulf Keystone will make a termination payment of $12m to ETAMIC in full and final settlement of all of their rights. The KRG shall also be entitled to receive an Additional Infrastructure Support Payment to be allocated to social programs, amounting to 40% of GKPI's entitlement to Profit Petroleum derived from GKPI's share of profits in all four production sharing contracts.
 
Gulf Keystone Petroleum (BUY, £2.00) (GKP, 93.75p, ? (9.33%)) also announced that Kalegran Ltd., a 100% subsidiary of MOL Hungarian Oil and Gas Plc. and the operator of the Akri Bijeel block in Kurdistan, concluded a successful oil test in the Bijeel-1 exploration well in the Akri Bijeel block. The tested zone is in the upper Jurassic and flowed at rates of up to 3,200 bopd with associated gas rates of 933,000scf/d. Oil gravity was 18oAPI and flowing wellhead pressure was 420 psi on a 48/64" choke. Drilling operations are still in line with previously announced plans, following completion of the full test cycle, drilling will resume from the current depth of 3831m to a final planned depth of approximately 4400m, pending actual well results.
 
Comment: The first announcement is a positive development for Gulf Keystone with a net value benefit that we estimate to be about US$225m. Another positive is that it removes Etamic, an unknown quantity, as a joint venture partner. Offsetting those positives is the requirement for additional funding to cover projects costs, those costs are fully recoverable once production starts under PSC terms but will necessitate a higher capital increase than initially anticipated. The second announcement is great news, despite the small fully diluted interest for the Company in the licence, as it de-risks the two other nearby licences of Sheikh Adi and…

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