Gulf Keystone Petroleum hailed what it called a “value-transforming” discovery yesterday when it said that its prospect in northern Iraq could yield twice as much oil as had been estimated, sending its shares up 70 per cent.

Gulf Keystone, after drilling its Shaikan-1 exploration well in the Kurdish region of the country to a depth of 1,710 metres, has increased its estimate of potential oil-in-place to between 1.5 billion and three billion barrels.

The UK-listed oil minnow has been in the spotlight in recent weeks after reports that the Indian Oil Corporation and Oil India joint venture would bid $2.2 billion (£1.3 billion) for the company, which had a market valuation of only £52 million at the time. Several news agencies ran the story, boosting Gulf Keystone’s share price, before it was found to be wrong.

A fundraising quickly followed the denial of bid talks, helping to secure the cash-strapped company’s future, and news of the latest discovery has reignited passion for the stock. Shares in the AIM-listed oil explorer rocketed 37¼p to 90p yesterday, valuing the business at £431 million. Indeed, shares hit an intraday high of 109p, more than eight times higher than at the start of the month when its survival was in doubt. The fundraising raised £6.8 million at a discounted level of 9p — a tenth of yesterday’s closing price.

The Kurdistan find is crucial to the company’s prospects after it took the decision to pull out of its Algerian exploration project earlier this year, a process that is ongoing.

The upgrade comes only two weeks after it revealed the discovery of a potential reserve of 1.5 billion barrels at the well, which is located near the city of Dihok in northern Iraq. The new find is part of the same reservoir.

Todd Kozel, its executive chairman, said: “Even at this early stage, the commerciality of this discovery is substantially strengthened by our upward revision of the oil-in-place estimate. The Shaikan-1 is proving to be a value-transforming discovery for Gulf Keystone.”

There is still much work to do until the reserves are proven and exports of oil from the Kurdish region of Iraq remain problematic. Although contracts have been struck by the Kurdish regional government, the Iraqi national government in Baghdad has yet to approve them.

Keith Morris, an Evolution Securities analyst, raised his price target to 54p from 20p after news of the latest find. He said that based on a typical 25 per cent recovery factor, the well could yield between 375 million and 750 million barrels of oil. Gulf Keystone would be entitled to a 27 per cent stake because to the rights of its joint venture partners and the Kurdish regional administration.

However, the sequence of events over the past month has left some observers wondering whether there was more to the bid talk than was first apparent. “It’s an encouraging find, but reading between the lines, they could be making sure the full potential of the assets are reflected in the share price,” one Gulf Keystone watcher said.

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