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LONDON (Alliance News) - Gulf Keystone Petroleum Ltd on Monday ended a long-running saga by confirming its exit from the Akri-Bijeel block in Iraq, from which it had been trying to exit for well over a year, after its partner and operator of the block relinquished the licence.
MOL Hungarian Oil and Gas PLC, the operator of the Akri-Bijeel block in Kurdistan region of Iraq, has relinquished the licence covering the block. Gulf Keystone owned a 20% stake in the block, which was at the exploration and appraisal phase.
MOL Hungarian said the decision was the result of a comprehensive assessment of the block potential, and Gulf Keystone confirmed it signed the relinquishment and termination agreement of the production sharing contract that covers the block alongside MOL Hungarian at the end of 2015.
The first exploration well on the block was drilled in 2010 and led to an oil discovery being made, with 2.4 million barrels of probable gross oil-in-place being declared. Another well was drilled to target the Bakrman structure, which was also declared a discovery in early 2013. In October 2014, after MOL declared the field a commercial discovery, the field development plan for Akri-Bijeel was approved by authorities.
However, at the end of 2014 Gulf Keystone booked a USD144.1 million impairment against the Akri-Bijeel block because it deemed it to be a non-core asset as it looked to sell its 20% stake despite the discovery wells yielding positive production results whilst being tested.
An extended well test on the first discovery on the block produced 3,500 barrels per day but this then dropped to only 2,000 barrels a day by the end of 2014. Gulf Keystone was hoping the attractive production rates realised during testing would make selling its stake much easier.
However, by the end of the first half of 2015, Gulf Keystone was still saddled with the asset and booked a further impairment of USD3.6 million against the block.
Following the news on Monday, Gulf Keystone's non-producing assets in Iraq comprise of the Gulf Keystone-operated Sheikh Adi block, which has a declared oil discovery, and the Ber Bahr oil discovery in which the company holds a 40% stake.
Gulf Keystone is looking for the optimal path to development and production at the Sheikh Adi block whilst planning the drilling of the Ber Bahr-2 appraisal well in the second half of 2016.
More importantly, the loss of the Akri-Bijeel block won't affect Gulf Keystone's main operation, which remains the Shaikan field in the Kurdistan region of the country. Gulf Keystone exited 2015 with a production rate of over 36,000 barrels of oil per day from that field and is still working on formalising a permanent payment plan from the regional government for the oil it exports out of the country through the Iraq-Turkey pipeline.
Gulf Keystone, alongside fellow regional producer Genel Energy PLC, have received payments from the government for four consecutive months, but are both still owed large backpayments as the pair continue to negotiate with authorities.
At the end of June 2015, Gulf Keystone was owed a total of USD283.0 million from the local authorities. Of that total, USD117.0 million was in unbooked revenues and USD166.0 million was associated with past costs relating to options held by the government and other third parties.
The regional government previously had informed Gulf Keystone that, on top of the monthly payments it made for the current production exported out of Iraq, it would start to make backpayments during 2016.
At the end of October, the regional government owed around a total of USD700.0 million to foreign companies operating in the area, of which around USD400.0 million was owed to Genel Energy, which produced around 89,000 gross barrels a day in the first half of 2015 - suggesting Genel and Gulf Keystone are two of the largest foreign producers in the region.
Gulf Keystone shares were trading up 0.8% to 13.10 pence per share on Monday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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