1 September 2022

 

 

Gulf Keystone Petroleum Ltd. (LSE: GKP)

("Gulf Keystone", "GKP", "the Group" or "the Company")

 

2022 Half Year Results Announcement

 

Gulf Keystone, a leading independent operator and producer in the Kurdistan Region of Iraq, today announces its results for the half year ended 30 June 2022.

 

Jon Harris, Gulf Keystone's Chief Executive Officer, said:

"With the strengthening oil price and increased production, we have delivered strong profitability and cash flow generation in the first half of the year. As we progress towards approval of the Field Development Plan, we have continued to develop the Shaikan Field and recently resumed drilling with the spud of SH-16. We have paid a record $190 million of dividends in 2022 and are pleased today to announce an incremental interim dividend of $25 million, increasing total dividends declared this year to $215 million. While delivering a sector leading dividend yield, we have also maintained a strong balance sheet, redeeming our $100 million bond leaving the Company debt free.

Looking ahead to the rest of the year, we are focused on progressing towards FDP approval and achieving our production and opex guidance as we continue to optimise production from the field while maintaining a rigorous focus on costs. We have raised our 2022 capex guidance to $110-$120 million as we have added the drilling of SH-16 and are progressing initial procurement activities for the installation of water handling facilities, which will enable us to unlock additional production from our wells in the future.

We remain focused on balancing investment in growth with shareholder returns. Continued robust cash generation provides flexibility to consider funding future capital expenditures and further distributions to shareholders, while preserving adequate liquidity."

 

Highlights to 30 June 2022 and post reporting period

 

Operational

 

·      Strong safety performance, with no Lost Time Incident ("LTI") recorded for 315 days

·      2022 year to date gross average production increased by 3.6% to c.45,000 bopd as compared to the FY 2021 average of 43,440 bopd

·      Continued to progress delivery of our 2022 work programme:

o  SH-15 drilled and brought online in April 2022 in record time

o  SH-16 (formerly SH-M) and SH-N well pad completed in preparation for resumption of drilling

o  Well workovers and interventions completed on two wells to optimise production rates

o  Progressing preparatory work for the expansion of the production facilities, including procurement activities for the installation of water handling capacity

·      Resumed drilling activities late August with the spud of SH-16:

o  Targeting production start-up into PF-2 towards the end of the year

 

Financial

 

·      Free cash flow more than doubled to $177.3 million (H1 2021: $66.7 million), driven by the strengthening oil price and continued production growth, enabling the Company to deliver against its strategic commitment of balancing investment in growth with shareholder returns

·      Dividends declared of $215 million in 2022, providing shareholders with a sector-leading dividend yield of 36% based on GKP's closing price on 30 August 2022

·      Significant increase in Adjusted EBITDA and profitability in H1 2022:

o  Adjusted EBITDA up 122% to $208.6 million (H1 2021: $93.8 million)

o  Profit after tax up 151% to $162.8 million (H1 2021: $64.8 million)

o  Realised price up 93% to $84.3/bbl (H1 2021: $43.7/bbl)

o  Gross average production increased 3% to 44,941 bopd (H1 2021: 43,516 bopd)

o  Revenue up 102% to $263.6 million (H1 2021: $130.7 million)

o  Gross Opex per barrel of $2.9/bbl (H1 2021: $2.4/bbl), at low end of 2022 guidance of $2.9-$3.3/bbl

·      Net capex of $41.8 million (H1 2021: $14.1 million), primarily related to the drilling of SH-15, well interventions and workovers, well pad construction, procurement of flowlines and plant expansion activities

·      $354.4 million net to GKP received year to date from the Kurdistan Regional Government ("KRG") for crude oil sales and revenue arrears, with the arrears balance related to the November 2019 to February 2020 invoices fully recovered

·      $100 million outstanding bond redeemed in August, leaving the Company debt-free and eliminating annual interest costs of $10 million

·      Robust balance sheet maintained with cash balance of $112.0 million at 31 August 2022

 

Outlook

 

·    2022 gross average production guidance reiterated at 44,000-47,000 bopd

o  Continuing to optimise production through prudent management of existing well stock, delivery of well workover and intervention programme and addition of SH-16  

·      Gross Opex guidance of $2.9-$3.3/bbl remains unchanged

·      Increasing 2022 net capex guidance from $85-$95 million to $110-$120 million

o  Primarily driven by the drilling of SH-16 and initial procurement activities related to the installation of water handling capacity

·      While timing of Field Development Plan ("FDP") approval remains uncertain, we continue to engage with the Ministry of Natural Resources ("MNR") towards project sanction and are progressing the tendering process for the Gas Management contract. We are also monitoring the potential impact of global supply chain pressures and logistical challenges on the costs and schedule of the FDP

·      We continue to monitor the long running dispute between the Federal Iraqi Government and the KRG on the management of oil and gas assets in Kurdistan. Our operations currently remain unaffected

 

Shareholder distributions

 

·      The Company has announced an ordinary dividend policy of at least $25 million per year and, with free cash flow, is committed to maximising distributions taking into account various factors, including investment levels required to achieve production targets, deliver profitable growth and satisfy PSC obligations, and preserve adequate liquidity to manage geopolitical, KRG payment and market uncertainties

·      Today we are declaring an interim dividend of $25 million, increasing total dividends declared in 2022 to $215 million:

o  $25 million interim dividend is equivalent to 11.561 US cents per Common Share of the Company and is expected to be paid on 7 October 2022, based on a record date of 23 September 2022 and ex-dividend date of 22 September 2022

·      Assuming timely payment of invoices and continuing strong oil prices, we expect continued robust cash flow generation, which would provide flexibility to consider funding future capital expenditures and further distributions to shareholders, while preserving adequate liquidity

·      With continued progress towards implementing the FDP, the Company expects to firm up the future estimated timing and levels of investment and review the dividend policy

 

Investor & analyst presentation

 

Gulf Keystone's management team will be presenting the Company's 2022 Half Year Results at 10:00am (BST) today via live audio webcast:

 

https://stream.brrmedia.co.uk/broadcast/62f6364cb629a70556524626

 

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) no. 596/2014 (as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018).

 

 

Enquiries:

 

Gulf Keystone:	+44 (0) 20 7514 1400
Aaron Clark, Head of Investor Relations	[email protected]
FTI Consulting	+44 (0) 20 3727 1000
Ben Brewerton Nick Hennis	[email protected]

 

or visit: www.gulfkeystone.com

 

Notes to Editors:

 

Gulf Keystone Petroleum Ltd. (LSE: GKP) is a leading independent operator and producer in the Kurdistan Region of Iraq. Further information on Gulf Keystone is available on its website www.gulfkeystone.com 

 

Disclaimer

 

This announcement contains certain forward-looking statements that are subject to the risks and uncertainties associated with the oil & gas exploration and production business. These statements are made by the Company and its Directors in good faith based on the information available to them up to the time of their approval of this announcement but such statements should be treated with caution due to inherent risks and uncertainties, including both economic and business factors and/or factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. This announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. This announcement should not be relied on by any other party or for any other purpose.

 

 

CEO review

 

In the first six months of the year, we delivered record production and free cash flow, demonstrating the leverage the low cost Shaikan Field has to increases in the oil price. We are focused on delivering our strategy, balancing investment in the field while rewarding our shareholders. This year, we have delivered a sector-leading dividend yield. We continue to make good progress towards FDP approval and have significant financial flexibility after the recent repayment of our $100 million bond leaving us debt-free. 

 

As ever, safety has been the bedrock of our performance and I'm very pleased to report we have been operating for 315 LTI-free days, even as we continue to increase activity.

 

We also remain focused on delivering our broader sustainability strategy priorities. We are progressing the Gas Management Plan tendering process, which underpins our target of more than halving our emissions intensity by 2025. We are investing heavily in local employment and suppliers. We have also completed a number of impactful local community projects this year, notably developing and funding a hydroponic fodder facility to support local agriculture, developing local skills and providing equipment to enable business start-ups with our NGO partners. In addition, we are preparing to  provide enhanced grain seed to over 500 local farmers to improve crop yields.

 

Gross average production in 2022 has averaged c.45,000 bopd, an increase compared to 2021 gross average production of 43,440 bopd. Current investment activity is focused on drilling, optimising production and preparing for future production growth with water handling capability.

 

SH-15 was drilled in record time and brought online in April. To date, the well workover and intervention programme has optimised production from two wells. We are also progressing preparatory activities for the expansion of the production facilities, including initial procurement activities for water handling facilities, and we recently completed the construction of the well pad that will be used to drill both SH-16 (formerly SH-M) and SH-N. SH-16 was spudded in August and will, on completion, be tied into PF-2.

 

As per previous announcements, we continue to monitor the long running dispute between the Federal Iraqi Government and the KRG on the management of oil and gas assets in Kurdistan, including any potential restrictions placed on service contractors by the Iraqi Ministry of Oil and exports of crude oil. Our operations currently remain unaffected and we continue to work closely with the KRG, our advisers and other stakeholders to protect the Company's interests.

 

Looking ahead to the remainder of 2022, we are on track to meet our gross average production guidance of 44,000 - 47,000 bopd and our gross Opex guidance of $2.9-$3.3/bbl. We are also increasing our net Capex guidance from $85-$95 million to $110-$120 million, primarily reflecting the addition of SH-16 and initial procurement activities related to the installation of water handling capacity.

 

We continue to maintain an active dialogue with the MNR and, while timing remains uncertain, we are progressing towards approval of the FDP. With continued progress towards implementing the FDP, the we expect to firm up the future estimated timing and levels of investment and review our dividend policy, which we understand is critical to our shareholders. In the meantime, with timely payments and continuing strong cash flow we will continue to consider funding future capex and additional distributions, while preserving adequate liquidity.

 

I would like to thank our teams in Kurdistan and the UK for their continued commitment to GKP and hard work in the year to date. We are excited about the future and the whole organisation is focused on the sustainable development of the Shaikan Field for the benefit of all stakeholders.

Jon Harris

Chief Executive Officer

 

 

Operational Review

I'm delighted to have joined Gulf Keystone as Chief Operating Officer. In my first four months at the Company, I have been impressed by the ability and ambition of our teams in Kurdistan and the UK and the opportunity we have to drive growth and value from the Shaikan Field for the benefit of our stakeholders. I am excited about the path ahead.

 

Our operational activity in the first half of the year has focused on safely drilling and ramping up new wells, optimising production through the delivery of the well workover and intervention programme and preparing our field infrastructure for future production growth. As operational activity continues to increase, we remain focused on our strong safety performance. To date, we have achieved 315 days without an LTI. 

 

Gross average year to date production from the Shaikan Field has been c.45,000 bopd, slightly higher than gross average production of 43,440 bopd in 2021. Production has been supported by the ramp up of new wells, notably SH-13 and SH-14 in January and recently SH-15, offsetting natural field decline. In addition, output has been constrained ahead of the planned installation of water handling as we prudently manage wells to avoid traces of water.

 

After completion of the pad that will be used to drill both SH-16 and SH-N, we were pleased to spud SH-16 late August and are targeting production start-up of the well towards the end of the year into PF-2.

 

We are also progressing preparatory activities for the expansion of the production facilities, including the installation of water handling. While the timing of installation remains uncertain, given we are in the initial stages of procurement and due to ongoing equipment lead time pressures in a supply constrained market, we expect that the installation of water handling facilities will enable increased production from existing wells.

 

This activity is enabling us to maintain momentum as we work towards approval of the FDP. We are working closely with the MNR to optimise the FDP and we submitted a revised plan in June. Simultaneously, we have been progressing the tender process for the Gas Management Plan. We are closely monitoring the market environment and potential impact of global supply chain pressures and logistical challenges on the FDP's costs and schedule.

 

Looking ahead to the rest of the year, we remain focused on delivering our gross average production guidance of 44,000-47,000 bopd as we continue to optimise production from our existing wells and drill SH-16.

John Hulme

Chief Operating Officer

 

Financial Review

Key financial highlights

 

		Six months ended 30 June 2022	Six months ended 30 June 2021	Year ended 31 December 2021
Gross average production1	bopd	44,941	43,516	43,440
Dated Brent2	$/bbl	107.6	64.9	70.8
Realised price1,3	$/bbl	84.3	43.7	49.7
Revenue	$m	263.6	130.7	301.4
Operating costs	$m	18.9	15.0	34.4
Gross operating costs per barrel1	$/bbl	2.9	2.4	2.7
Other general and administrative expenses	$m	6.1	5.4	13.6
- Incurred in relation to Shaikan Field	$m	2.1	2.1	4.1
- Corporate G&A	$m	4.0	3.3	9.5
Share option expense	$m	11.5	6.5	8.5
Adjusted EBITDA1	$m	208.6	93.8	222.7
Profit after tax	$m	162.8	64.8	164.6
Basic earnings per share	cents	75.9	30.5	77.1
Revenue and arrears receipts1	$m	272.4	106.4	221.7
Net capital expenditure1	$m	41.8	14.1	50.8
Free cash flow1	$m	177.3	66.7	122.2
Dividends4	$m	189.8	50.0	100.0
Cash and cash equivalents	$m	231.8	189.5	169.9
Face amount of the Notes	$m	100.0	100.0	100.0
Net cash1	$m	131.8	89.5	69.9

 

^1.       Gross average production, realised price, gross operating costs per barrel, Adjusted EBITDA, net capital expenditure, revenue receipts, free cash flow and net cash are either non-financial or non-IFRS measures and, where necessary, are explained in the non-IFRS measures section.

^2.       Weighted average GKP sales volume price.

^3.       Realised price excludes pipeline tariff adjustments in relation to prior periods.

^4.       Includes both paid and declared dividends at period end. All declared dividends at period end have since been paid.

 

In the first six months of 2022, the increase in oil price and continued production growth more than doubled profit after tax and almost tripled free cash flow. The Company's strong financial performance enabled further investment in the Shaikan Field and the declaration of $190 million of dividends, a sector leading dividend yield. In August 2022, Gulf Keystone repaid its outstanding $100 million bond leaving the Company debt-free with significant financial flexibility. Also, today we are pleased to announce an additional $25 million interim dividend.

 

Adjusted EBITDA

 

Adjusted EBITDA grew 122% in H1 2022 to $208.6 million (H1 2021: $93.8 million), driven by a 66% increase in the oil price and higher production.

 

Gross average production was 44,941 bopd in H1 2022, up 3% from 43,516 bopd in H1 2021. With the Company's leverage to the strengthening of Dated Brent from an average of $64.9/bbl in H1 2021 to $107.6/bbl in H1 2022, the realised price per barrel almost doubled to $84.3/bbl. The increase in the realised priced was slightly offset by an increase in the average discount to Brent from $21.2/bbl in H1 2021 to $23.3/bbl in H1 2022, due to adjustments to pipeline tariffs proposed by the KRG, which are now linked in part to Dated Brent.

 

The stronger oil price and increased production resulted in a doubling of revenue in H1 2022 to $263.6 million (H1 2021: $130.7 million), which was partially offset by a corresponding doubling in capacity building payments to $20.5 million (H1 2021: $10.3 million), a component of the KRG's entitlement from the Shaikan Field.

 

Gulf Keystone remains committed to maintaining a low-cost structure. In line with the Company's 2022 guidance range of $2.9-$3.3/bbl, gross operating costs per barrel were $2.9/bbl in H1 2022 (H1 2021: $2.4/bbl). The increase in operating costs in H1 2022 to $18.9 million (H1 2021: $15.0 million) is primarily due to planned maintenance activities, additional staff to manage increased production activity and higher fuel costs.

 

Other general and administrative expenses (G&A), comprising Shaikan Field and corporate support costs, were higher in H1 2022 at $6.1 million (H1 2021: $5.4 million), reflecting increased staffing levels to manage increasing activity levels. Share option expense in the period increased by $5.0 million, principally due to the final contractual exercise of share option entitlements by former Directors under the Value Creation Plan ("VCP").

 

Profit after tax

 

Profit after tax in H1 2022 increased to $162.8 million (H1 2021: $64.8 million) driven by the increase in Adjusted EBITDA, slightly offset by a higher depreciation, depletion and amortisation ("DD&A") expense of $39.5 million (H1 2021: $28.2 million) due to increased production, accelerated cost recovery as result of recent high oil prices, and updated future capital cost estimates.

 

Cash flow

 

Cash increased in the period from $169.9 million at 31 December 2021 to $231.8 million at 30 June 2022.

 

The Company generated cash from operating activities of $222.3 million in H1 2022, up from $77.8 million in H1 2021 principally due to the increase in Adjusted EBITDA.

 

In H1 2022, Gulf Keystone received revenue receipts from the KRG of $272.4 million net to GKP for crude oil sales related to the September 2021 to March 2022 invoices and repayment of arrears outstanding from November 2019 to February 2020 invoices, which were fully recovered with payment of the March 2022 invoice. In the second half of 2022, the Company has so far received a further $82.0 million net to GKP for crude oil sales related to the payment of the April and May 2022 invoices.

 

In the first half of the year, the Company invested net capital expenditure of $41.8 million (H1 2021: $14.1 million), primarily related to drilling and completing SH-15, well and workover activity, wellsite preparation and plant expansion.

 

Free cash flow generation was $177.3 million in H1 2022, almost triple the prior year (H1 2021: $66.7 million), enabling the Company to continue to deliver against its commitment to balance investment in growth with returns to shareholders. Year to date the Company has paid $190 million of dividends and today we have declared an additional interim dividend of $25 million, resulting in total declared dividends of $215 million which equates to a sector leading yield of 36% based on the closing share price on 30 August 2022. 

 

In early August 2022, the Company redeemed the $100 million of notes outstanding leaving the Company debt free with significant financial capacity. The Company has a robust balance sheet with cash and cash equivalents of $112.0 million at 31 August 2022.

 

As at 30 June 2022, there were $260 million gross of unrecovered costs, subject to potential cost audit by the KRG. The R-factor, calculated as cumulative gross revenue receipts of $1,838 million divided by cumulative gross costs of $1,629 million, was 1.13. The unrecovered cost pool and R-factor are used to calculate monthly cost oil and profit oil entitlements, respectively, owed to the Company from crude oil sales.

 

Gulf Keystone performed a cash flow and liquidity analysis based on which the Directors have a reasonable expectation that the Company has adequate resources to continue to operate for the foreseeable future. Therefore, the going concern basis of accounting is used to prepare the financial statements.

 

Outlook

We are now planning to invest net capital expenditure of $110-$120 million in 2022. The increase from previous guidance of $85-$95 million is primarily driven by the drilling of SH-16 and early procurement activities related to the installation of water handling capacity.

 

We remain on track to deliver gross Opex guidance of $2.9-$3.3/bbl.

 

While timing of FDP approval remains uncertain, we continue to progress towards project sanction and award of the Gas Management Plan contract, against the backdrop of global supply chain cost pressures and logistical challenges. With continued progress, the Company expects to firm up future estimated capital expenditure and, in turn, review financing requirements and dividend policy.

 

Assuming timely payment of invoices and continuing strong oil prices, we expect continued strong cash flow generation, which would provide flexibility to consider funding future capital expenditure and further distributions to shareholders, while preserving adequate liquidity.

 

 

Ian Weatherdon

Chief Financial Officer

 

 

Non-IFRS measures

 

The Group uses certain measures to assess the financial performance of its business. Some of these measures are termed "non-IFRS measures" because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS. These non-IFRS measures include financial measures such as operating costs and non-financial measures such as gross average production.

 

The Group uses such measures to measure and monitor operating performance and liquidity, in presentations to the Board and as a basis for strategic planning and forecasting. The directors believe that these and similar measures are used widely by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity.

 

The non-IFRS measures may not be comparable to other similarly titled measures used by other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Group's operating results as reported under IFRS. An explanation of the relevance of each of the financial non-IFRS measures and a description of how they are calculated is set out below. Additionally, a reconciliation of the financial non-IFRS measures to the most directly comparable measures calculated and presented in accordance with IFRS and a discussion of their limitations is set out below, where applicable. The Group does not regard these non-IFRS measures as a substitute for, or superior to, the equivalent measures calculated and presented in accordance with IFRS or those calculated using financial measures that are calculated in accordance with IFRS.

 

Gross operating costs per barrel

 

Gross operating costs are divided by gross production to arrive at gross operating costs per bbl.

 

	Six months ended 30 June 2022	Six months ended 30 June 2021	Year ended 31 December 2021
Gross production (MMstb)	8.1	7.9	15.9
Gross operating costs ($ million)1	23.6	19.1	43.0
Gross operating costs per barrel ($ per bbl)	2.9	2.4	2.7

 

¹Gross operating costs equate to operating costs (see note 5) adjusted for the Group's 80% working interest in the Shaikan Field.

 

Adjusted EBITDA

 

Adjusted EBITDA is a useful indicator of the Group's profitability, which excludes the impact of costs attributable to income tax (expense)/credit, finance costs, finance revenue, depreciation and amortisation and impairment of receivables.

 

	Six months ended 30 June 2022	Six months ended 30 June 2021	Year ended 31 December 2021
	$ million	$ million	$ million
Profit after tax	162.8	64.8	164.6
Finance costs	5.6	5.7	11.4
Finance revenue	(0.1)	(0.4)	(0.4)
Tax expense/(credit)	(0.2)	(0.0)	(0.9)
Depreciation of oil & gas assets	39.5	28.2	54.1
Other depreciation and amortisation	0.5	0.5	1.0
Impairment of receivables	0.4	(5.0)	(7.1)
Adjusted EBITDA	208.6	93.8	222.7

 

 

Net capital expenditure

 

Net capital expenditure is the value of the Group's additions to oil and gas assets excluding the change in value of the decommissioning asset and movements in drilling and other equipment.

	Six months ended 30 June 2022	Six months ended 30 June 2021	Year ended 31 December 2021
	$ million	$ million	$ million
Additions to oil & gas assets (note 11)	41.8	14.1	46.2
Decrease of drilling and other equipment classified as oil and gas assets	-	-	4.6
Net capital expenditure	41.8	14.1	50.8

 

Net cash

 

Net cash is a useful indicator of the Group's indebtedness and financial flexibility because it indicates the level of cash and cash equivalents less cash borrowings within the Group's business. Net cash is defined as cash and cash equivalents less current and non-current borrowings and non-cash adjustments. Non-cash adjustments include unamortised arrangement fees and other adjustments.

	Six months ended 30 June 2022	Six months ended 30 June 2021	Year ended 31 December 2021
	$ million	$ million	$ million
Cash and cash equivalents	231.8	189.5	169.9
Outstanding Notes (note 14)	(99.4)	(98.9)	(99.1)
Unamortised issue costs	(0.6)	(1.1)	(0.9)
Net cash	131.8	89.5	69.9

 

Free cash flow

 

Free cash flow represents the Group's cash flows, before any dividends or share buy-backs.

	Six months ended 30 June 2022	Six months ended 30 June 2021	Year ended 31 December 2021
	$ million	$ million	$ million
Net cash generated from operating activities	222.3	78 .0	178.6
Net cash used in investing activities	(44.7)	(11.0)	(55.7)
Payment of leases	(0.3)	(0.4)	(0.7)
Free cash flow	177.3	66.7	122.2

Principal risks & uncertainties

 

The Board determines and reviews the key risks for the Group on a regular basis. The principal risks, and how the Group seeks to mitigate them, for the second half of the year are consistent with those detailed in the management of principal risks and uncertainties section of the 2021 Annual Report and Accounts. The principal risks are listed below:

 

Strategic	Operational	Financial
Political, social and economic instability	Health, Safety and Environment ("HSE")	Liquidity and funding capability
Disputes regarding title or exploration and production rights	Gas flaring	Oil revenue payment mechanism
Business conduct and anti-corruption	Security	Commodity prices
Export route availability	Field delivery
Economic sanctions impacting the Group	Reserves
Stakeholder misalignment
Climate change and sustainability
Global pandemic (e.g. COVID-19)
Cyber security

 

The Company previously reported that the Iraqi Federal Supreme Court ("FSC") in February 2022 had ruled that the Kurdistan Oil and Gas Law ("KROGL") was unconstitutional and that the Iraqi Ministry of Oil had commenced proceedings in the Baghdad Commercial Court against International Oil Companies ("IOCs"), including Gulf Keystone, operating in the Kurdistan Region of Iraq ("KRI") seeking to nullify the Production Sharing Contracts ("PSCs") issued under the KROGL. The Company understands that the Baghdad Commercial Court has yet to reach any determination on the case involving Gulf Keystone, and that the MNR has sought to join the case as a third party. The Company further understands that the Iraqi Ministry of Oil has sought to inhibit service contractors from operating in both Federal Iraq and the KRI, advising that it will move to "blacklist" any such contractor from Federal Iraq which seeks to operate in both jurisdictions.

 

The dispute between the KRG and the Federal Iraqi Government on the management of oil and gas reserves in the KRI has been the subject of a long running dispute between them. The KRG has made repeated declarations that the KROGL is validly constituted and that the PSCs issued continue to be valid and have full effect. Furthermore, the KRG has initiated its own legal proceedings against the Federal Iraqi Government in the Erbil Courts and there have been a number of rulings which have affirmed the validity of the PSCs. Media reports indicate that high level political discussions are ongoing between the KRG and the Federal Iraqi Government with a view to resolving the matter. 

 

The Company's operations in the Shaikan Field are currently unaffected but the matter is being closely monitored, including any potential impact on the restrictions placed on the export of crude oil, service contractors or any other parties by the Iraqi Ministry of Oil. At this stage it is not reasonably possible to predict the outcome of judicial proceedings or the ongoing discussions between the KRG and the Federal Government of Iraq, nor is it possible to predict any potential future impact on operations or the financial performance of the Company pending resolution of the matter.

 

The Company is also aware of the ongoing arbitration case between the Federal Government of Iraq and the Turkish Government on the management of the Iraq to Turkey pipeline.

 

The Company's oil revenues are calculated according to an agreed formula with the Kurdistan Regional Government.  It is possible that factors including, but not limited to, crude quality, geopolitical events, global supply, and production levels could impact, positively or negatively, the formula used in making this calculation.

 

The Company monitors the effect of any economic sanctions imposed and the potential impact, if any, these may have on the Company and its operations. The Company believes it is not currently materially affected by any economic sanctions but will continue to review this on an ongoing basis.

 

Responsibility statement

 

The Directors confirm that to the best of their knowledge:

 

a)   the condensed set of financial statements has been prepared in accordance with UK-adopted IAS 34 'Interim Financial Reporting';

 

b)   the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events and their impact during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

 

c)   the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

 

By order of the Board

 

Jon Harris

Chief Executive Officer

31 August 2022

 

INDEPENDENT REVIEW REPORT TO GULF KEYSTONE PETROLEUM LIMITED

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 18.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with United Kingdom adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".

Conclusion Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that the Directors have inappropriately adopted the going concern basis of accounting or that the Directors have identified material uncertainties relating to going concern that are not appropriately disclosed.

This Conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410; however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of the Directors

The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly financial report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our Conclusion, including our Conclusion Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the Company in accordance with ISRE (UK) 2410. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Deloitte LLP

Statutory Auditor

London, United Kingdom

31 August 2022

Condensed consolidated income statement

For the six months ended 30 June 2022

 

	Notes	Six months ended 30 June 2022 Unaudited	Six months ended 30 June 2021 Unaudited	Year ended 31 December 2021 Audited
		$'000	$'000	$'000
Revenue	4	263,603	130,713	301,389
Cost of sales	5	(79,129)	(53,516)	(111,721)
Impairment (charge)/reversal on trade receivables	12	(427)	5,034	7,065
Gross profit		184,047	82,231	196,733
Other general and administrative expenses		(6,112)	(5,411)	(13,643)
Share option related expense	6	(11,463)	(6,533)	(8,490)
Profit from operations		166,472	70,287	174,600
Finance revenue		55	400	419
Finance costs		(5,649)	(5,674)	(11,353)
Foreign exchange gains/(losses)		1,729	(235)	57
Profit before tax		162,607	64,778	163,723
Tax credit/(expense)	7	207	(24)	874
Profit after tax		162,814	64,754	164,597
Profit per share (cents)
Basic	8	75.89	30.52	77.14
Diluted	8	72.85	28.87	73.04

 

 

 

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2022

 

		Six months ended 30 June 2022 Unaudited	Six months ended 30 June 2021 Unaudited	Year ended 31 December 2021 Audited
		$'000	$'000	$'000
Profit for the period		162,814	64,754	164,597
Items that may be reclassified subsequently to profit or loss:
Fair value losses arising in the period		-	(2,013)	(2,021)
Cumulative losses arising on hedging instruments reclassified to revenue		-	2,710	3,753
Exchange differences on translation of foreign operations		(2,113)	279	(254)
Total comprehensive income for the period		160,701	65,730	166,075

 

 

Condensed consolidated balance sheet

As at 30 June 2022

 

	Notes	30 June 2022 Unaudited	30 June 2021 Unaudited (Restated1)	31 December 2021 Audited
		$'000	$'000	$'000
Non-current assets
Intangible assets	10	4,979	2,234	3,583
Property, plant and equipment	11	407,635	393,681	404,205
Trade receivables	12	-	12,641	-
Deferred tax asset		1,465	500	1,385
		414,079	409,056	409,173
Current assets
Inventories		5,423	4,780	6,018
Trade and other receivables	12	163,551	111,628	179,200
Derivative financial instruments		-	8	-
Cash and cash equivalents		231,796	189,543	169,866
		400,770	305,959	355,084
Total assets		814,849	715,015	764,257
Current liabilities
Trade and other payables	13	(101,821)	(81,518)	(98,800)
Dividends payable		(75,000)	(25,000)	-
		(176,821)	(106,518)	(98,800)
Non-current liabilities
Trade and other payables	13	(475)	(1,022)	(789)
Other borrowings	14	(99,387)	(98,872)	(99,123)
Provisions		(45,746)	(38,839)	(43,841)
		(145,608)	(138,733)	(143,753)
Total liabilities		(322,429)	(245,251)	(242,553)
Net assets		492,420	469,764	521,704
Equity
Share capital	15	216,248	213,731	213,731
Share premium account	15	553,083	792,914	742,914
Cost of hedging reserve		-	(1,035)	-
Exchange translation reserve		(4,881)	(2,235)	(2,768)
Accumulated losses		(272,030)	(533,611)	(432,173)
Total equity		492,420	469,764	521,704

 

¹The comparative consolidated balance sheet at 30 June 2021 has been restated to reflect a reclassification of inventory items that are to be used in the development of the Shaikan Field to property, plant and equipment. See note 17 for details regarding the restatement.

Condensed consolidated statement of changes in equity

For the six months ended 30 June 2022

 

	Share capital	Share premium account	Treasury shares	Cost of hedging reserve	Exchange translation reserve	Accumulated losses	Total equity
	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Balance at 1 January 2021 (audited)	211,371	842,914	(2,592)	(1,732)	(2,514)	(593,422)	454,025
Net profit for the period	-	-	-	-	-	64,754	64,754
Cash flow hedge - fair value movements	-	-	-	697	-	-	697
Exchange difference of translation of foreign operations	-	-	-	-	279	-	279
Total comprehensive income for the period	-	-	-	697	279	64,754	65,730
Dividends	-	(50,000)	-	-	-	-	(50,000)
Share issues	2,360	-	-	-	-	(2,360)	-
Employee share schemes	-	-	-	-	-	9	9
Share options exercised	-	-	2,592	-	-	(2,592)	-
Balance at 30 June 2021 (unaudited)	213,731	792,914	-	(1,035)	(2,235)	(533,611)	469,764
Net profit for the period	-	-	-	-	-	99,843	99,843
Cash flow hedge - fair value movements	-	-	-	1,035	-	-	1,035
Exchange difference of translation of foreign operations	-	-	-	-	(533)	-	(533)
Total comprehensive income/(loss) for the period	-	-	-	1,035	(533)	99,843	100,345
Dividends	-	(50,000)	-	-	-	-	(50,000)
Employee share schemes	-	-	-	-	-	1,595	1,595
Balance at 31 December 2021 (audited)	213,731	742,914	-	-	(2,768)	(432,173)	521,704
Net profit for the period	-	-	-	-	-	162,814	162,814
Exchange difference of translation of foreign operations	-	-	-	-	(2,113)	-	(2,113)
Total comprehensive (loss)/income for the period	-	-	-	-	(2,113)	162,814	160,701
Dividends	-	(189,831)	-	-	-	-	(189,831)
Share issues	2,517	-	-	-	-	(2,517)	-
Employee share schemes	-	-	-	-	-	(154)	(154)
Balance at 30 June 2022 (unaudited)	216,248	553,083	-	-	(4,881)	(272,030)	492,420