Manchester and Beyond

Author Gramacho View Profile | Add to favourites | Ignore
Date posted 2011-10-18 11:49
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This note details some of the discussion at Manchester. Further background and my thoughts are captured within the paragraphs bounded in parentheses thus [ ].

This post has been a bit slow in the making as I am currently on extended vacation in Portugal. Hence further posts will be limited for a while.

NOTES AND COMMENTS FROM PRESENTATION
Slide 5 Company Highlights
"We will probably sell our AB interests to raise some more money." [Have to be careful here whether the “probably” qualification used by CG is significant or whether he just means subject to an acceptable bid. This is discussed later in the post presentation chat section.]

Slide 6 Company Forward Growth Strategy
10-12 geologists, engineers and facilities staff have been hired. [On a project this size this is just the initial team, more staff will be required as the project ramps up.]

Slide 7 2011/12 Work Program
[In the London Proactive presentation in August Ewen said we would see a new phase of exploration on both Akri Bijeel and Sheikh Adi and the extent of this was revealed in slide 7. He also mentioned a development program which I took to be an EWT=Extended Working Time in the Akri Bijeel block but this was not mentioned in the Manchester presentation.]

Chris indicated that in March next year GKP could have 7 rigs running in Kurdistan in which it has an interest.

[OMG this should have been one of the highlights of the evening. 7 rigs FFS=fee for service, no one else in Kurdistan comes close to this. Some of the majors in the south will exceed this but they are drilling close spacing in fill wells and working over wells in mature fields. All of GKPs wells are essentially exploration wells as they are so far apart. IMO there is not a single operator in the UK Nth Sea that will be involved with 7 wells drilling concurrently, perhaps Statoil in the Norwegian sector but no one else. I suppose the proposed sale of Akri Bijeel has undermined this but don’t be surprised if negotiations on the sale are not complete until end 2Q/early 3Q. IMO the price could be rising by $100m+ per month as wells progress and encounter new oil discoveries.]

Sh-2 is testing [further discussion Slide 14] and is nearing completion after which the Weatherford rig will move to the far east end of anticline to drill Sh-6 (location shown in Slide 10). It is sufficiently far down dip at Jurassic level that it offers the best opportunity of finding the OWC. [Even if the well does not find the contact, which would be the case if the interval around -2230m SS is not a reservoir quality rock, IMO it should find oil sufficiently deep to raise the P50 close to the “filled to spill case”.]

SA-1 is complete. Mikey Admin’s note covered the use of the workover rig for testing. The Discoverer-1 rig is currently rigging up at Sh-5.

Chris mentioned a bigger rig may be needed for Sh-7 in order to drill to the Permian. This was mentioned in my post of 5th Sept “Conversation with John G re Sh2, 4 and More”. Chris later mentioned that although Shaikan 7 is shown as contingent and they have not yet contracted a rig, he felt they are committed to drilling the well.

The MOL rig has reached TD and just getting ready to start the testing program.

[Bekhme-1 was spudded on 25th Mar and was said to be “approaching TD” in the GKP mid year report of 14 Sept.]

The rig will go to Aqra-1. It is an exploration well in the shallow part of the section and an appraisal of Bijeel in the deeper part.

[This is an interesting comment in that you rarely have this scenario. Usually it is the deeper part of the section that is the exploration target because a discovery has already been made at a shallower depth. But we are dealing with MOL here and they appear to do many things *rse backwards lol! The other point of interest is that the Aqra surface location is shown between the two main surface anticlines marked on Slide 19. On the face of it not an obvious place to drill for a shallow exploration target. However if you look at the surface terrain depicted in the link below Aqra is a surface anticline.

[IMG]http://i53.tinypic.com/331dmxv.png[/IMG]

It will be interesting to see if they find water or oil in the shallow section. If oil is found that could suggest Bekhme and Bakrman are connected and really one humongous field. If water is found they could obtain one or more aquifer pressure points for comparison with oil pressure points which hopefully they will obtain in Bekhme and Bakrman if discoveries are made. It should be possible to get an approximate estimate of the oil water contact in each anticline. The issue would be obtaining an uncontaminated water sample to measure/estimate the water composition and density to predict the water pressure gradient.]

At Bakrman-1 MOL has made progress on getting the location ready and it will bring in a second rig.

EWT(Extended Working Time) upgrade and expansion: eng work is done and the mods and upgrade are out to tender.

The pipeline is to be worked with the KRG, possibly with other operators. [Not clear what this means in practice.]

[Missing from this slide is the time line for the 3D interpretation and processing/reprocessing. The London presentation indicated interpretation continuing through end November. A few folk seem to be getting hot and bothered about a perceived delay this but IMO it is not a big issue. We have heard the most important piece of news coming out of the 3D seismic, i.e. the size of the Shaikan container has, if anything, increased slightly. Yes they will reprocess the seismic but that’s not uncommon. The Geos have to try different processing options to try to extract the maximum info from the data set. There is not a lot of past experience in the region that will have established the best techniques and optimum processing parameters to provide the ideal processed data set. Geos are never satisfied which is a good thing as long as they do something positive with what they have.

The full benefit of the 3-D will be seen when it is matched to the well results from Sh-2 through Sh-6. It should then be possible to place the Sh-7 well and pick development well locations with some confidence. IMO there is no point in trying to revise the Shaikan OIP now purely on the basis of the 3-D. It does not predict a number of the factors that drive OIP e.g. oil saturations, porosity and oil formation volumes factors. For that we need more wells and oil samples and they are on the way. Having said all that, I am sure it would be appreciated if GKP would demonstrate to its shareholders that it is deriving benefit from money it has spent on the 3-D.]

Slide11: Shaikan
Section is still the old 2-D data, the 3D data looks better.

Slide 13: Shaikan
Shaikan 1 tested 18-55 API oil. The range of APIs and rates seen in Sh-1 has been confirmed by Sh-2. They have found 53 API and 16 API in Sh-2. [We know the KC-C tested 36API and the lower KC-B tested 40 API so either the upper KC-B or more likely the KC-A has tested 53API.]

GKP has completed testing of the Triassic and is now working its way through the Jurassic Butmah. In Sh-1 only the upper part of the Butmah was tested although there were shows all the way through it. In Sh-2 the bottom and middle have been tested and the top is going to be tested.

[IMO this is good news. According to DGA and RSC, the Butmah has the highest OIP of any single formation and so it is important that as much of it as possible is tested to confirm just how much of it is pay. The 5 Sept RNS stated that there would be up to 5 additional tests so this would indicate testing is nearing completion. There may also be a Mus interval test to conduct before testing is complete although that would probably be a sixth test since 5th Sept and would contradict the RNS. In any event we can look forward to a mega RNS on testing results.]

Chris recalled the story of how the flare and smoke from the flare from Sh-2 could be seen from Erbil some 200km away and why they had then to put out the press release quickly because everyone would know (there was a major field extension) before GKP wanted to make an announcement.

[There is still a misunderstanding about this by some folk who appear to think GKP were trying to delay news or hide something. IMO the intent would have been to wait until the test was complete and a reliable/representative well rate was achieved after clean up of fluids lost to the reservoir. However the widespread visibility of the flare meant that it would have been an open secret in Kurdistan that the major step out of Shaikan had been successful which could have led to a “disorderly market” in the shares.]

CG described Sh-2 as being under engineered to take the pressure in the Triassic.
.
Sh-4 is in the Triassic. 9-5/8” casing has been set at the bottom of the Triassic Kurre Chine B and the well has been logged. The top part of the Jurassic looks very good [as previously announced] and the bottom part “is still being analysed”. Chris indicated the well is probably going to be drilled to the KC-C. [Further comments in Post Meeting Chat section.]

Shaikan 5 will be more crestal. [It will still add to the OIP by increasing the proven area but is unlikely to increase the depth of lowest known oil.]

Slide 14 Shaikan 1 and 3 EWT
Chris briefly discussed the thorny issue of production without revealing much.

[IMO the lack of a clear explanation why production has been so low is the most contentious issue at present.

Initial problems with export were discussed in my post of 5th Sept “Conversation with John G re Sh2, 4 and More”. Here is the relevant extract.

“There have been two main reasons for the delay in establishing continuous exports. The first is as discussed by Ewen at Proactive i.e. the requests by the KRG for domestic production. The second has been problems trying to achieve export spec oil by chemical means. The first H2S scavenger did not perform according to the chemical company’s assurances which I assume were based on lab tests. The scavenger was incompatible with the crude. This resulted in a batch of oil having to be sold in small quantities over a period. Meanwhile the topsides upgrade project to achieve pipeline spec is going ahead full speed.

JG advises that they will announce export when it is on a regular, sustained basis.“

My interpretation of this is that they had a storage tank full or part full of off spec crude. In an FPSO=FPSO - Floating Production Storage and Offloading vessel


Read more: http://www.answers.com/topic/oil-field-acronyms#ixzz1c0BjfzIJ

you could route crude to an off spec tank but in this scenario there is only one tank and the crude in that tank had to be sold in small batches as far as export is concerned. There was also a political element that GKP has no control over and which obviously is sensitive.

What is not clear is why production to the domestic market is low. You would think that when the KRG agreed to resume exports this would have led to a shortfall in supplies to the domestic market. It is not clear why this did not lead to a domestic contract with consistent demand for Shaikan crude. One would expect GKP to be able to report monthly production by this stage but it does not appear to be happening leading to distrust on the part of PIs which can’t be good. ]

Slide 15
The dev well plan is what it says it is “Conceptual” so the picture should not be taken too literally. An extensive fracture analysis has been done. Decisions have to be made regarding vertical, horizontal and inclined wells and the direction of deviation relative to the axis of the anticline((A fold with strata sloping downward on both sides from a common crest.
)). [If you recall one of the key findings of the Mirabaud report was that the principal fracture orientation at Shaikan is not parallel to the axis of the anticline reducing the risk that fracture intensity will reduce away from the spine of the field. In other words, provided the orientation of the wells is optimised, there is a chance wells will have good productivity over most of the structure.]

Slide 17
A second well will be drilled in SA to the north of the first one.

Slide 18: Ber Bahr
[This is the standard Ber Bahr slide that has been around for a while but with the updated reduced OIP estimate from Genel. Please note how Lake Dohuk is represented in the surface map. One would think that the lake could play a large part in any development as it appears to be about 10 km from E to W and 7.5km from N to S at its widest points. This would suggest land access for drilling BB appraisal and development wells would be severely constrained and that one or more drilling platforms might be required. Now go to slide 16 and blow it up to 200% (or better still go to slide 15 of the Sept forward strategy presentation) which shows a satellite view of the lake. Note that Lake Dohuk is only about 1km from E-W and 3km from N-S! The BB slide is completely unrepresentative of the Lake, fortunately! Perhaps it served as a useful ruse to deter bidders lol!]

Slide 19: Akri Bijeel
Chris said the Akri Bijeel Block is highly prospective.
[Did anyone else notice the significant emphasis on HIGHLY in the tone of his voice? A reflection of the Bijeel discovery but perhaps also of Bekhme-1 findings? He rarely used that change of emphasis elsewhere in the presentation.]

Slide 20: 3 Year and 6 Mo Share Price Performance
This slide is one that Ewen used in London but Chris made the point that the GKP sp has held up very well since the beginning of August in comparison with many AIM oil stocks which have dipped 40% [as the market reacted to Greece etc.] whereas the GKP price has only fallen by 4% .


QUESTIONS FROM THE FLOOR

Most of the questions have been covered but for the benefit of those at the back of the room I want to mention that when Chris summarised this question to the room he omitted the political element contained within the full question.

The person responsible for drilling the BB well (TH) that could have a big impact on GKPs value is someone that probably covets GKP. We have just seen the TD reduced by 1000m in BB but when compared with Shaikan the equivalent horizons in BB are about 600-800m shallower. This means that the pressures in the Triassic are likely to be lower and the chance of getting through the Triassic and seeing the full extent of the new oil potential it has shown, which we have not been able to do in Shaikan (and Sheikh Adi), should be higher. Yet the revised well TD reduces the chance of extending the known oil bearing horizons deeper in the Triassic section and reaching the elusive Triassic dolomite.

CG indicated that 2100m is the commitment depth. He also said he is not the operator but in his view if we are swimming in oil at 2100m are we going to stop?

[IMO there is a potential conflict of interest here. Genel can elect not to explore the full potential of the Triassic thereby not proving the full potential of BB. Any bid for GKP in the event of BB success would only have to factor in oil discovered down to the upper part of the Triassic leaving the Triassic dolomite and anything below as exploration upside thrown in for free.

The PSC commitment does not appear to be depth dependent, it is cost dependent. From memory the PSC commitment is to spend a minimum of about $13.5MM. If there is a depth commitment this must have been reached in licence management meetings presumably with GKP in attendance and with GKPs concurrence which frankly would be good to confirm.

We have tried twice unsuccessfully to get to the Triassic dolomite and now it looks like a major commitment in the shape of a new rig will be required to get there which won’t be until 4Q 2012 in Shaikan 7. It would seem that an opportunity should be taken to get there much sooner in BB-1 where nature has conspired to make it easier to do so. The dolomite is predicted to be at 2300m in BB-1 whereas it was not reached after drilling to 3300m in Sh-2 and 3780m in Sheikh Adi.]

Chris later indicated that the seismic (from which the formation tops will have been picked) is probably the old DNO seismic. [I am not sure if this would call into question the predicted depths. SA-1 is an example of how depths can be different from predicted. The well encountered a repeat section due to faulting that caused tops to be deeper than predicted.]

In response to being asked when investors can see the 3D seismic Chris indicated he doesn’t see any problems with producing some cross sections for the next meeting.

One of the other presenters asked CG “What is the Proven Developed Producing reserves on sustained production?” He explained that the numbers in the public domain are OIP. [GKP is relatively unique for an AIM explorer at this stage in proceedings in that does not speak in terms of 2C Contingent Resources or Reserves. This appears to be deliberate strategy until more information is obtained. ]

POST PRESENTATION CHAT
This has been covered very well by MrAverage1 and Dragon_Ventures. (He should have called himself The Inquisitor lol!) A few more Q&As and thoughts are included below.

GKP decided to drill another well in SA to define the structure as soon as possible. The 3D seismic will be used to pick the location. [Note full extent of the possible eastern extension of BB into the Sheikh Adi Block may not be completely covered by the 3D, refer slide 15 of the Forward Strategy Presentation which shows the 3D outline does not cover the northern part of the SA Block. (It is also shown as a blue line in the top left picture of the BB compilation in a link further on in this post)]

Does core analysis and well test results support good matrix permeabilities?
There is no doubt it is fractured and that is the reason for high rates but there is also matrix porosity. CG also said he did not have the core analysis at his fingertips but certainly some of the matrix has permeability and some is tight .

You are implying that you will not go to the Lower Triassic dolomite in Sh-4?
Shaikan 4 well is designed like the others and we can’t take the chance to go to the dolomite.
[This was followed by some banter regarding John G’s hope that there may be a pressure trend that leads to lower KC-C pressures in the west and hence perhaps an ability to go to the deeper dolomite.]

The new seismic, is it as expected?
3D you get a very good resolution clear picture on flanks where you have tertiary cover. On the crest have a tertiary limestone but also Cretaceous in places [Tertiary has been eroded on parts of the crest.] and have to shoot with dynamite. The picture is not as clear. That is still the case with the 3D but it has filled in a lot of the gaps. [The 2D line spacing was about 5km. I didn’t check the 3D line spacing. Offshore it would be every 12.5 or 25m but I am not sure if that would have been practicable on the Shaikan anticline. Nevertheless it will have been a much, much closer spacing than the 2D.] The structure has not changed.

Is Vallares going to bring anything to the picture? [Like $10Bn lol!]
Anastasia “They will have their own perspective.”

There was some discussion about the release of data from BB during which CG indicated they do get daily reports from BB-1 which is standard industry procedure. Hence GKP will be kept very up to date with progress. The spud announcement was released simultaneously.

At what point would they test northern structure in SA that could be an extension of BB?
SA2 will be within the 3D and within the same structure. It is probably slightly north east. “We need to test the Jurassic in the hanging wall.”

Is it designed to investigate the high pressure?
I think the rig is adequate to test this well. [This still leaves open the question of whether SA2 could reach the Triassic dolomite. As the rig schedule stands Sh-7 would spud about 1 month after SA-2. If it were to make better progress than SA-2, because say the Cretaceous is less troublesome, then Sh-7 might reveal the dolomite pressure regime and give an indication if it could be drilled safely at SA-2.]

In Ber Bahr the 2D seismic covers only the south of the block. The Surface anticline looks like it has been eroded in the north of the block and was a bigger structure at one time. You guys indicated that BB may be 1.5x the size of Shaikan. Was this was based purely on seismic in the south?

Chris initially passed on this indicating he had not worked on it. When pressed further about the 3D perspective presentation he stated “That was based on the seismic we had” and inferred it was the data shot by DNO [prior to the break up of their former mega block].

[What I was getting at without explaining myself very well is illustrated in the attached link which is a Ber Bahr compilation.

[IMG]http://i52.tinypic.com/wan8ep.png[/IMG]

In the Nov 10 presentation (top right picture) an anticline is depicted in the northern part of the BB block and north of the seismic (top left picture). I am not clear if this is:
a) A surface anticline that is expressed also at subsurface level and is therefore another subsurface target or
b) The remaining part of a much larger surface anticline that has been eroded at the surface to leave three separate present day surface anticlines but one very large anticline at the subsurface level
c) Simply the surface expression of a fault.

The terrain view in the link below shows three possible anticlines in the BB block. The two southern expressions are covered by seismic in the BB block but not the northern one. There is some coverage of the northern one in the adjacent block to the west (Murphy’s Dohuk Central Block).

[IMG]http://i51.tinypic.com/35mo9oi.png[/IMG]

The above discussion illustrates that the seismic in BB from which the GKP interpretation was made is pretty sparse. There is probably room for more than one interpretation and it is no surprise that pre drill estimates by Genel should be on the conservative side.]

Anastasia said he appointment of extra NEDs linked to the move to the main market but not surprisingly would not be drawn on a date. Chris is not on the Board so he felt he could not comment on the roles of the two additional NEDs yet to be appointed.

Have they finished the special core analysis?
We just got a specialist petrophysicist who has taken over the program. [Without that and insights from a spell of continuous production the question of what is the optimal way to produce Shaikan remains open. Chris said that everything is on the table.]

The Triassic was meant to be gas!
There is definitely some oil there. Chris explained that what they originally called the Triassic dolomite is quite thick in an offset well (Jabal Kand). DGA were able to use that information to calculate a rough volume at Shaikan. He said that hasn’t gone away it is just that GKP has found some more pay that they are calling the Kurre Chine C and they haven’t yet reached the dolomite.

[BTW the attached link indicates the Lower Triassic Geli Khana contains a gas generative source rock in the Jebel Kand area which would explain why DGA made a gas estimate for Shaikan Lower Triassic and Permian.

www.uni-sci.org/htmls/geo-m.Wuria%20Jihad%20Jabbar.doc

But note an earlier post of mine dated 22 August which indicated there is cause to believe the source rocks in the Shaikan Lower Triassic area should be in the oil temperature window. The question is whether the rocks are oil prone, oil and gas prone or gas prone.]

At what point will a reserves report be produced?
Not until we have a development report and some production.

Chris said GKP will use the 3-D to pick the best place for Sh-7 to get to the Permian

Anastacia said that Tony Hayward will be attending the conference that GKP is sponsoring in Erbil in November and she expects this may generate few stories. [Oh to be a fly on the wall at that one!]

The Inquisitor asked whether Genel would drill-test-drill on BB or drill to TD and test. Chris explained GKPs approach. GKP have had lot of problems with open hole testing and have had to repeat the tests. They know now that they can case and test. “We know we can treat the formation damage because have had success acidizing. “

[The reason for OH testing=((OH - Openhole Log
)) was to conduct a test before too much formation damage occurs from drilling. It was not clear to me which route Genel will chose. There tends to be more pressure to test as you go on a discovery well but it remains to be seen whether Genel will adopt that approach.]

For those of you who are also invested in PCI (or who might be thinking of do so) I asked Chris what he thought of the Dinarta Block immediately north of Akri Bijeel.
HKN have struck in an anticline to the north of Shaikan (Swara Tika) and he doesn’t see any reason why the Dinarta Block should not work for Petroceltic.


I had a concern as to whether the prolific Sargelu is missing in Sh-2 based on a DGA slide shown at the strategy presentation which suggested the top interval was the Alan formation. However Chris assured me that is not the case, and the Sargelu is present.

Finally we discussed the AB sale. He indicated that he did not know anything about a possible change in GKPs timeframe for the sale but did say that the longer GKPs stays in the block then assuming they make discoveries probably the value is going to go up.

OVERALL THOUGHTS
As far as the presentation went you lot were the investor equivalent of a hostile northern working men’s club where the audiences had a reputation for taking no prisoners lol! I think Chris was in the wrong place at the wrong time i.e. after a period of sp stagnation.

There was a fair smattering(Superficial or piecemeal knowledge:) of good news coming out of the Dublin/Manchester presentations. The overall activity level (up to 7 concurrent wells) is immensely impressive. Bekhme-1 will definitely be factored into the Akri Bijeel price. If MOL gets its act together there will be an opportunity for any new discoveries at Aqra-1 and Bakrman-1to be factored in also. Both wells should be drilling the Jurassic during Q2 2012. Although the well results may not be in the public domain, if the Jurassic has been logged GKP will be in possession of the logs and bidders will be made aware of the nature of any discovery under a confidentiality agreement.

Shaikan-7, although currently classed as contingent looks as though it will get the go ahead and with a larger rig and the appropriate well design we should get to the Permian picking up the Triassic dolomite on the way.

We did not learn much more about Sh-2 and Sh-4 it was rightly held tight by CG. Sh-2 may turn out not to have as much pay as Sh-1 but we already know it is prolific and has at least one Jurassic interval with a higher gravity oil than Sh-1. We already know Sh-4 is a spectacular well.

Chris made the comment that Shaikan 1 was the best well he had ever seen.
However this statement from the mid year report suggests he may have to revise this when Sh-4 is complete. Well logs and core data thus far in the mid to upper Jurassic show a massive oil column with net pay intervals of 278 metres, even better than those seen on Shaikan-1.

The continued delay in establishing consistent production remains a significant concern and importantly a lost opportunity to be acquiring production data from Shaikan. GKP has installed EWT equipment but an EWT is not being conducted! The key questions appear to be?

Has a suitable temporary chemical solution (H2S scavenger) been found to enable export?

Why would the KRG not permit a modest amount of export to proceed, e.g. 3-5000 bbl/d ? It is small beer in comparison to the total exports that have been permitted. Is it part of a strategy that no new fields will be placed on production to exert pressure on Baghdad?

Why hasn’t a modest continuous production to the domestic market been established?

Chris indicated that they are working within the parameters given to them. [It is safe to conclude that if they were allowed to produce every day there is no doubt GKP could do it.]

That’s all. I’m off to enjoy Gramacho and the Algarve

Regards and GLA,

Gramacho