The 'Peak Oil' theory says the oil is running out. It's not just a scarce resource, but a disappearing one. So investors are looking not just for exploration discoveries, but for the 'next big thing'. And right now, it looks like Kurdistan could be it.
Kurdistan is extremely underexplored. But it has very large structures, with huge volume potential, and because the oil majors haven't been working there, it's a wide open market for the smaller exploration companies. There are now 25 or more international oil companies working there, and majopr discoveries are being made - for instance DNO's Tawke field, and Heritage's Taq Taq. The Tawke field is already producing, with a pipeline to Turkey completed. Even better, it's a low cost, onshore development - whereas most of the other 'next big things' in oil exploration seem to be horrendously expensive deep water prospects like the Falklands or West African Transform.
But finding the right way to play Kurdistan is tricky. I certainly don't think Sterling Energy is the right pick - the current share price already discounts success on its single exploration well. DNO - listed on Oslo - has just been relieved of its licence. That leaves Heritage Oil and Gulf Keystone - and the latter looks extremely interesting.
If you'd looked at Gulf last year, you would have seen an AIM quoted company with two focus areas, Algeria (gas exploration) and Kurdistan. Both looked interesting, with discoveries in both areas, and near term prospects of value increases. Now, Kurdistan has become such an interesting prospect that the company has decided to sell off the Algerian assets in order to concentrate on its Kurdish exploration programme.
Actually the Algerian assets don't look too bad. Keystone has interests in appraised gas discoveries in both RM and Hassi Ba Hamou fields. At HBH, it has a 38.25% stake in what it believes are 1 TCF gas volumes, and first production was originally expected in line with the installation of new gas line from Hassi R'Mei to central Algeria - a targeted date of 2014. However, further investment in HBH has been suspended following a disagreement with operator BG. Gulf Keystone has filed for arbitration against BG, alleging breach of the joint operating agreement [1] . That's not necessarily the best situation for Gulf Keystone to be trying to find a buyer - particularly since…
