NEW YORK (Bloomberg) — Gulf Keystone Petroleum Ltd., the Bermuda-based company searching for oil and gas in Algeria and Iraq, said it will delay drilling in Africa on expectation that field service costs will drop this year.

The company together with BG Group Plc and Sonatrach will start drilling its RM-2 well in Algeria within a month. The partners have to complete exploration obligations by drilling two more wells and conduct seismic studies on the HBH concession by late summer 2010.

"We are planning on the basis currently that we are in for a protracted period of low oil prices" and industry costs "will start to come down", chief financial officer Ewen Ainsworth said yesterday in a phone interview. After drilling RM-2 well "we will most probably take a break from drilling".

Gulf Keystone, founded by investors from the US and the United Arab Emirates, plans to spend as much as $60 million in Algeria to explore for gas. It raised $50 million in a share sale in July, which will fund its operations through this year, according to Ainsworth.

The partners will continue Algerian exploration "slightly later, than we've intended in order to be able to put in place these cost reductions," Ainsworth said.

Gulf Keystone expects to begin drilling in northern Iraq's Shaikan Block in the early part of the second quarter. The company holds 75 percent in the project in Kurdistan.

"We will start to look at potential of farming that acreage out," Ainsworth said. "That's something which is ongoing."