Gulf Keystone eyes profit on export hopes

Gulf Keystone Petroleum said it could swing to a profit next year if it begins exporting oil from Kurdistan as it considers building a pipeline to help it commercialise its huge oil reserves.

The company said its full-year pretax loss narrowed to $26 million from $96m in 2009, after it switched its attention to the huge discovery it made at the Shaikan well in the semi-autonomous Kurdistan region of Iraq in 2009, and away from Algeria.

Gulf Keystone is currently working on upgrading its facilities to enable it to begin exporting oil from Kurdistan should payment issues around oil exports from the region be resolved.

"We are waiting on word from the Kurdistan Regional Government (KRG) as to whether we want to resume domestic sales or just hold tight until we're able to export," Chief Operating Officer John Gerstenlauer said in an interview with Reuters on Monday.

Should the company start exporting oil, it will likely become profitable. "I would anticipate that based on the much larger volumes and the fact that we would be getting a world oil price rather than a domestic price we would have profit," said Finance Director Ewen Ainsworth.

"But I would be a bit hesitant to say that means we would have profit next year," he cautioned, adding that profitability would be determined by the numbers and timing involved.

Some companies began exporting oil from Kurdistan in February after years of wrangling between Kurdistan and Baghdad halted exports, but the key issue of payments has still not been resolved.

An Iraqi government official said earlier in April that the two sides are likely to reach an agreement in the second half of 2011.

Gulf Keystone said it will be ready to start trucking oil to the export pipeline in six months time with initial output volumes of between 15,000 barrels of oil per day (bopd) to 20,000 bopd possible.

Gulf Keystone is planning to build a pipeline to transport oil to the export pipeline which goes from Kurdistan through Turkey to enable it to export higher volumes in the longer term once Baghdad and Kurdistan reach an agreement on payments.

Gerstenlauer said it would cost between $80m and $100m to build a pipeline and take around 18 months. The company would need to raise funds to build the pipeline, said Gerstenlauer, adding that it is currently fully funded for its activities for this year.

Exploration wells being drilled by Gulf Keystone this year could see its already huge reserves in Kurdistan boosted further should a well on the Ber Bahr block be successful.

"Structurally speaking, size-wise it's close to being twice the size of Shaikan," Gerstenlauer said of Ber Bahr.

Shares in Gulf Keystone traded up 2.7 per cent to 162 pence at 1244 GMT valuing the company at around £1.2bn ($1.96bn).