GKP Unknown ' Summary of 2nd DGA report '

Shaikan Update link here from the long awaited independent (DGA) report covering Jurassic and Triassic sections of Shaikan

http://www.investegate.co.uk/Article.aspx?id=201001140700075

Previous RNS on DGA report on upper Jurassis section is also linked here

http://www.investegate.co.uk/Article.aspx?id=200910220700131

Key findings:
• The range of oil in-place for the Shaikan structure has been increased to a gross 1.9 (P90) to 7.4 (P10) billion barrels of oil, with a mean of 4.2 billion barrels of oil in place. Previous estimates were 1.0 (P90) and 5.0 (P10). In addition, there is upside potential (P1) up to a total of 13 billion barrels of oil in place.
• There are also prospective resources below 2,950 meters (lower Triassic and Permian). The DGA Executive Summary states that: "Potential resources for these deeper formations are ~ 1 to 5 BBO and 6 to 14 TCF, which is in addition to the P1 upside estimate of 13 BBO".
• In addition the DGA Executive Summary confirms that: "This discovery greatly reduces the geologic risks in the Sheikh Adi, Akri Bijeel and the Ber Bahr blocks, Gulf Keystone's adjacent opportunities. The Shaikan discovery proves the presence of hydrocarbon source and migration in the area.
• The Shaikan-1 well has discovered a significant resource of oil and gas in the Cretaceous Sarmord, Jurassic Barsarin, Sargelu, Alan, Mus, Butmah, Baluti and Triassic Kurre Chine formations

As TGG says some pretty mind boggling numbers here

(i) Mean OIIP = 4.2 billion bbls
(ii) P90 OIIP = 1.9 billion bbls
(iii) P10 OIIP =7.4 billion bbls
(iv) Additional undrilled potential under Triassic zone (up to 5 billion barrels oil or 14 TCF gas)
(v) Derisks all adjacent plays soem of which GKP share is significantly higher than that of Shaikan (no KRG back in right ...etc)

It is considered by certain posters on ADVFN and iii that the DGA report is conservative and numbers are higher. I am of a similar opinion but DGA is all that can be used for valuations for now.

I also wish, given that he has a bit of “previous” that TK would stop talking up P1 numbers (13 billion OIIP). These are 1% probability numbers FFS, and is it not industry etiquette/practice to big up beyond P10.

So Valuations!!! Well, with approx 500 million shares in issue, using $4/bbl in the ground, GKP have (approx) 27% net working interest, mean OIIP of 4.2 billion bbls and a 30% recovery factor then its

Shaikan only
4 x 0.27 x (4.2 x 0.3)
= $1.36 billion
= $2.72/sh
= 161p/sh

Add in

(i) cash in bank ($20m)
(ii) other undrilled prospects (I havn’t bothered with exact amounts but there is a strong feeling by GKP (and others) that Shaikan extends into some of the adjacent blocks as a continuous oil filled structure) so add same volumes again as Shaikan and set the technical risk at 30% but assign a net (to GKP) ownership is closer to 40%.
(iii) a bit for Algeria (say $50m)
(iv) then factor in political risk (say 70% COS that licenses stay exactly as they are) then you can get comfortably just over 200p share
What next
(i) Akri Bijeel drill – ongoing-result due in March/April. GKP have a net 10% in this.
(ii) Shaikan-2 appraisal well – add more resources to Shaikan and move P50 to P90, P10 to P50, and fro Todd move some of his “P1” (13 billion OIIP) to P10.
(iii) Shaikan Extended Well Test – confirm reserves of Shaikan by producing for several months
(iv) Raise cash via placing – imminent, should happen within next month or 2 as GKP need to book drilling rigs for 2010 exploration drilling
(v) Possibly, cash permitting, drill Sheikh Adi (and maybe also Ber Bahr)
(vi) Iraqi elections (March 2010) and possible resolution of Oil Law to also include KRG awarded Kurdistan PSA/PSCs. Thorny tricky one. I cant see a quick final resolution but I can see export taps and money as per KRG contracts being paid in short term.
(vii) GKP sold off. Not as bullish about this event as I used to be as the prize here is huge and gets bigger, the sales tag/price will be huge, political risk is large so plenty of due diligence for companies to mull over.