TIDMGKP
RNS Number : 0386U
Gulf Keystone Petroleum Ltd.
31 March 2021
31 March 2021
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP" or "the Company")
2020 Full Year Audited Results Announcement
Return to a balance of growth investment and shareholder
distributions
Gulf Keystone Petroleum, a leading independent operator and
producer in the Kurdistan Region of Iraq ("Kurdistan" or "Kurdistan
Region") announces its audited results for the full year ended 31
December 2020.
Jon Harris, Gulf Keystone's Chief Executive Officer, said:
"Against the backdrop of extraordinary global challenges in
2020, GKP acted decisively to successfully manage the impact of
COVID-19 on our staff, contractors and production operations. We
achieved all of our cost reduction targets and annual average
production of 36,625 bopd, 11% higher than 2019.
We have had a strong start to 2021. The updated independent
Competent Person 's Report reaffirmed the significant upside
production potential of the field with gross 2P reserves + 2C
contingent resources of c.800 MMstb. Average gross production from
Shaikan in 2021 to 29 March is 43,190 bopd, up c. 13% from the
corresponding period in 2020.
Recently, we resumed the 55,000 bopd investment programme and
today we are pleased to be announcing the reinstatement of at least
a $25 million annual dividend, in keeping with our commitment to
balance investment in growth and returns to shareholders."
Highlights to 31 December 2020 and post reporting period
Operational
-- Effectively managing the impact of COVID-19 on production
operations and continue to prioritise the welfare of workforce and
contractors whilst maintaining production momentum.
-- Continued strong safety performance, with no Lost Time
Incident ("LTI") recorded for over 450 days.
-- 2020 a verage gross production of 36,625 bopd, exceeding
revised guidance and the highest annual average production rate to
date from the field.
-- Gross average production from the field in 2021 to date of
43,190 bopd, in line with guidance of 40,000 - 44,000 bopd for the
year.
-- Updated Competent Person's Report ("CPR") published with
c.800 MMstb gross 2P+2C reserves and resources volumes, which was
in line with the 2016 CPR, after adjusting for production over the
period, supporting GKP's view of the geological model.
Financial
-- GKP achieved its 2020 cost reduction targets, reducing Opex
and G&A by more than 20% compared to 2019 and delivering gross
unit Opex of $2.6/bbl, below the low end of the guidance range and
down over 30% versus 2019.
-- Net Capex was $45.9 million net (FY 2019: $90 .0 million)
within the $40-48 million revised guidance range despite the
addition of low-cost, high impact investments during the fourth
quarter that contributed to record 2020 annual average
production.
-- Loss after tax of $47.3 million (FY 2019: $43.5 million
profit) and reduced revenue of $108.4 million (FY 2019: $206.7
million) were driven by a decline in Brent oil prices that averaged
$42/bbl in 2020 compared to $64/bbl in 2019.
-- Consistent payments from the Kurdistan Regional Government
("KRG") for the last eleven months. Repayment mechanism in place to
recover outstanding arrears of $73.3 million net for the period
November 2019 - February 2020 with the first payment of $2.6
million net recently received.
-- Cash balance of $147.8 million at year end (FY 2019: $190.8
million). Cash balance of $161.0 million at 30 March 2021.
-- The Company has hedged c.60% of Q2 and Q3 2021 forecast net
production at a floor price of $35/bbl and $40/bbl respectively,
while retaining full upside exposure.
Outlook
-- Resumption of expansion activity with drilling operations
expected to begin in Q3 resulting in an increase in gross
production towards 55,000 bopd in Q1 2022.
-- Reinstatement of at least a $25 million annual dividend . A
$25 million dividend is subject to shareholder approval at the
Annual General Meeting ("AGM") scheduled for 18 June 2021 and is
expected to be paid in full on 2 July 2021 based on a record date
of 25 June 2021 .
-- With continuing strong oil prices, there may be opportunities
to consider further distributions to shareholders this year.
-- Guidance for 2021 of average gross production of 40,000 to
44,000 bopd, net Capex of $55-$65 million and gross unit Opex of
$2.5 to $2.9/bbl.
This announcement contains inside information for the purposes
of the UK Market Abuse Regime.
Enquiries:
Celicourt Communications: + 44(0) 20 8434 2754
Mark Antelme
Jimmy Lea
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.
CHAIRMAN'S STATEMENT
Gulf Keystone showed tremendous resilience and flexibility in
its prudent and timely response to the global COVID-19 pandemic and
oil price fluctuations in 2020, while meeting revised guidance and
maintaining a strong financial position. The Company is now pleased
to report that it is returning to a balance of investment in
production growth and shareholder distributions through the
resumption of its annual dividend policy of at least $25
million.
GKP has for a number of years prioritised the safety,
environmental and social effects of its business and remains
committed to environmental, social and governance ("ESG")
principles. We look forward to continuing to develop the Shaikan
Field for the benefit of all stakeholders, while striving to lower
our emissions.
2020 began with the Company progressing its expansion of Shaikan
to 55,000 barrels of oil per day ("bopd") and Brent crude oil
prices close to $70/bbl - the stage was set for another twelve
months of successful, safe, production growth. However, as the
global pandemic took hold towards the end of Q1 2020, the situation
changed very quickly and dramatically and the welfare of our team
and those we work with were our immediate priority. Pressure built
further with increased OPEC production as the global economy
faltered resulting in Brent crude oil prices collapsing to as low
as below $10/bbl, its lowest price in over twenty years, and West
Texas Intermediate crude oil briefly trading at negative
prices.
Faced with these unprecedented challenges, the Company responded
swiftly and decisively, protecting our people and those we work
with, contributing to the welfare of the communities close to the
Shaikan Field, and managing the cost base to ensure the financial
health of the Company; all while maintaining safe and stable
production operations. These were remarkable achievements and the
team deserve recognition for their handling of the crisis and the
nimble manner in which they were able to react. It is also worth
noting that the rigorous testing procedures we put in place at the
outset of the pandemic ensuring that COVID-19 did not impact
operations, enabling production to continue uninterrupted
throughout this period.
It is now more than a year since COVID-19 took hold and it is
clear that the steps taken in the early part of 2020 were the right
ones. The decisions that the Board took, including the postponement
of our production growth plans, and measures to protect the
Company's liquidity, were not easy but necessary. Ultimately, the
Board's actions enabled the Company to emerge from the crisis in a
robust financial position and ready to return to our plans to
deliver significant value from Shaikan.
Throughout the year, the field has continued to perform, and we
are pleased to have announced record production figures in January
2021. With today's improved operating environment, underpinned by
higher oil prices, and our robust balance sheet (which is supported
by the ongoing repayment of outstanding invoices), the Company was
pleased to announce it is resuming the 55,000 bopd project and is
targeting to restart drilling activities in Q3 this year.
Over 2019 and Q1 2020, the Company returned approximately $100
million to shareholders through dividends and share buy-back
programmes. We are now pleased to be announcing a return to our
target of paying a proposed dividend of at least $25 million per
year. A dividend of $25 million will be put to shareholders for
approval at the AGM on 18 June 2021 and will be paid to
shareholders on 2 July 2021 based on a record date of 25 June 2021.
The Board continues to balance the needs of the business and
maintaining an appropriate balance sheet, with our ability to
reward shareholders. With continuing strong oil prices, there may
be opportunities to consider further distributions to shareholders
this year.
During 2020, we welcomed Garrett Soden back to the Board of GKP
as a Non-Independent Non-Executive Director representing funds
managed by Lansdowne Partners Austria GmbH. In January 2021, we bid
farewell to Jón Ferrier who retired as CEO. Jón transformed the
Company in his five years as CEO and we thank him for his immense
contribution over his tenure. The Board is pleased to welcome Jon
Harris as our new CEO. In his short time with the Company, he has
made a positive impact and we look forward to the business
continuing to flourish under his leadership.
On behalf of the Board, I would like to express my thanks to the
team at GKP who have shown great resilience. In addition, thank you
to all of our shareholders for their ongoing support. We have a
great opportunity to create value for all our stakeholders, and to
make a positive contribution within Kurdistan.
Jaap Huijskes
Non-Executive Chairman
CEO REVIEW
I am very pleased to address all our stakeholders having
recently joined Gulf Keystone as CEO in January 2021.
GKP successfully managed the extreme impact of the global
COVID-19 pandemic on our staff, contractors and production
operations. We quickly implemented a disciplined approach to
quarantine and testing, ensuring flexibility and support to staff
working remotely and put in place medical and health measures to
ensure that our people were protected.
Safety is our fundamental way of being, as well as representing
good business. Our great safety performance is a testament to the
culture of health, safety, security and environment ("HSSE")
running through the Company. We have now had over 450 Lost Time
Incident ("LTI") free days and not a single recordable case in over
a year . We remain resolutely committed to maintaining this strong
safety performance.
Despite the pandemic, GKP exceeded revised production guidance
for 2020, achieving record annual average production of 36,625
bopd, and another important milestone was also achieved in March
2021 when cumulative production passed 85 million stock tank
barrels ("MMstb"). The Company was also quick to protect its
financial position, reducing Capex by 50% and G&A and Opex by
over 20% compared to 2019; when put in the context that these
decisions were made late in the first quarter, the reductions
represent a significant year-on-year decrease. The Company ended
the year with a strong balance sheet and at 30 March 2021 has cash
of $161 million.
In March 2020, when the Company suspended its investment plans
due to the pandemic, we were on track to achieve the 55,000 bopd
target in Q3 2020. Despite the challenges of operating with
COVID-19, the Company channeled its efforts into identifying and
delivering a number of near-term, low cost, projects, which
successfully increased gross production by 9,000 bopd, for an
aggregate gross cost of less than $3 million, resulting in some of
the highest production rates the field has seen to date.
Throughout the year, Gulf Keystone continued to manage its
business prudently and responsibly. In 2020, the support we were
able to provide local communities was more important than ever.
Amongst a wide array of community initiatives in direct support of
COVID-19, the Company donated personal protective equipment, test
kits and sterilisation equipment to hospitals within the
concession, as well as providing firefighting gear and flood relief
packages.
Maintaining and building on our ethos is essential, enhancing
our corporate social responsibility and the ESG strategy is also a
key priority in 2021. Since joining GKP, I have been pleased to see
an organisation that takes its responsibilities to both people and
the environment seriously. I have been leading a working group to
review, and where necessary, strengthen our approach to ESG. The
Company is committed to best practice and this is evident in our
high levels of disclosure in this year's Sustainability Report. Not
only is ensuring that we have implemented the correct approach to
ESG, it is the right thing to do, and reflective of our corporate
values, given the welcome focus on ESG by a wide range of
stakeholders.
We have had a strong start to 2021. In January, the Company
achieved record average monthly production of over 44,400 bopd,
highlighting how Shaikan continues to perform strongly and
reliably. This solid operational performance is against an
improving backdrop with the oil price having shown signs of a
material, sustained recovery, increasing the cash we are
generating. We are pleased to report that in today's higher oil
price environment, with dated Brent above $50/bbl, the KRG has
honored its pledge to start to repay the amount outstanding for the
invoices of November 2019 to February 2020. We are grateful that
these are now being addressed as it contributes to the Company's
ability to deliver its ambitious plans for 2021 and beyond.
The recently updated Competent Persons Report ("CPR") reaffirmed
the quality of the Shaikan Field with gross 2P+2C reserves and
resources of c.800 MMstb, in line with the previous CPR from 2016
after adjusting for production over the period. The CPR endorsed
our internal view of the asset and clearly underlines the extent of
the field's full potential.
Macro conditions are improving, Shaikan continues to perform
well and the Company is in a strong financial position. The
decision was made to resume the 55,000 bopd expansion project,
which we now expect to complete in Q1 2022. We are committed to
realising the value of Shaikan for the people of Kurdistan and our
investors, and look forward to keeping the market appraised of our
progress towards 55,000 bopd, and then beyond.
In 2021, we are targeting to invest $55 - 65 million net and
gross annual average production of 40,000 - 44,000 bopd, while
maintaining our competitive cost position with gross Opex of $2.5 -
$2.9/bbl.
We are pleased today to be announcing the return to a balance of
growth focused field development investments and shareholder
distributions with the reinstatement of at least a $25 million
annual dividend. A dividend of $25 million will be presented at the
AGM on 18 June 2021 for shareholder approval. The production growth
story combined with the return of surplus cash to shareholders are
the foundations of Gulf Keystone's highly attractive investment
case.
On a personal note, having been CEO since the start of the year,
my firm impression is of a very professional and collaborative
team, with considerable drive and passion for everything they do. I
am extremely pleased to be part of this team and in a company with
such a positive ethos. Many sacrifices have been made because of
COVID-19, especially impacting rotation work patterns. Many people
have spent a considerable amount of time away from their families
over recent months. I extend a sincere thank you to the team for
their dedication, commitment and personal sacrifices in the
interests of the Company. In addition, I would like to thank all of
our stakeholders for their continued support.
Jon Harris
Chief Executive Officer
OPERATIONAL REVIEW
During 2020, the Company made decisive strategic changes to
successfully manage the impact of COVID-19 and achieve a number of
operational milestones during the period.
The Company had a strong start to the year and was on-track to
achieve its target of ramping up production to 55,000 bopd in Q3
2020 at Shaikan. However, with the outbreak of the COVID-19
pandemic, the Company suspended its expansion programme and
focussed on protecting the health of its staff, contractors and
local communities, in order to achieve safe and reliable production
operations. GKP successfully managed the impact of COVID-19 on
production operations and continued its strong safety record, with
no LTIs during the year and on 24 February 2021 achieved one year
with zero recordable incidents. Plant availability remained high
during the period and the Company achieved average gross production
of 36,625 bopd, exceeding the top end of the revised guidance range
and the highest annual average production rate to date from the
field.
Despite having suspended the expansion programme, once the
initial crisis period had settled, we identified three
opportunities that could be completed at very low cost to
materially boost the field's production. The first was the hook-up
of SH-9 with this well being brought on stream as an oil producer
in December. The other two initiatives were the re-completion of
SH-12 in the main Upper Jurassic reservoir and the further
debottlenecking of PF-1 to increase production capacity beyond the
27,500 bopd anticipated in the 55,000 bopd project, to over 30,000
bopd. These initiatives increased gross production at Shaikan by
approximately 9,000 bopd for a total cost of less than $3 million
gross. This led to GKP recording its highest ever monthly
production average of 44,405 bopd in January 2021.
On the 55,000 bopd expansion programme, a significant proportion
of the capital expenditure has already been incurred and the
groundwork laid for the Company to complete the project. With
cumulative gross costs of $160 million to the end of 2020, the
Company remains on track to achieve the original total project
guidance of $200-230 million gross. GKP was pleased to announce
that it is restarting the project and has begun to remobilise its
team. Assuming services and equipment are available as required,
given the potential impact of COVID-19, we aim to restart drilling
in Q3 this year and to ramp up towards 55,000 bopd in Q1 2022. The
drilling campaign will start with SH-13, followed by the SH-I well,
which will be drilled from the same pad as SH-13. In addition, the
debottlenecking of PF-2 will be completed and electric submersible
pumps ("ESPs") will be fitted into two of the existing wells.
The Company has set the target of achieving average daily gross
production guidance of 40,000 to 44,000 bopd in 2021. To date, GKP
is on track to meet this guidance, having delivered average
production for the year to 29 March of 43,190 bopd. Despite the
restart of our investment programme, we are maintaining production
guidance unchanged as the additional production from this programme
will only start to show a benefit in Q1 2022.
The Company, and its partner Kalegran B.V. (a subsidiary of MOL
Hungarian Oil & Gas plc) ("MOL"), were making good progress
with the Ministry of Natural Resources ("MNR") on preparation of a
revised Field Development Plan ("FDP"), including the Gas
Management Plan ("GMP"), up until March 2020, when the workstream
was paused due to the outbreak of COVID-19. The GMP is designed to
significantly reduce the routine flaring of associated gas which
would materially lower emissions and currently includes the
development of surface facilities to sweeten the gas and remove
sulphur.
Although a year was effectively lost as a result of the
pandemic, following the appointment of the new Minister of Natural
Resources, GKP and MOL are re-engaging with the MNR to discuss
various options to optimise and reduce the cost of the GMP. The GMP
is a vital part of the FDP, which once approved will enable the
partners to deliver sustainable, cost effective and low risk
production growth for many years to come.
Competent Persons Report ("CPR")
In February 2021, GKP issued a revised CPR from its reserves
auditor, ERCE, reaffirming the significant Reserves and Resources
potential of the Shaikan Field. Four years on from the previous
CPR, Jurassic 2P reserves of 505 MMstb remain almost unchanged
(allowing for production), which is reassuring and supports our
view on the Geological model of the Jurassic reservoir.
Gross 2P+2C reserves and resources were c.800 MMstb at 31
December 2020. Based on the CPR and using gross January 2021
average production, Shaikan has a gross 1P reserves life index of
c.15 years and a gross 2P reserves life index of over 30 years. By
the end of March 2021, we had produced over 85 MMstb gross.
ESG
While ESG is a relatively new term, the underlying components
have always been important to us and we are committed to its
principles. We are very proud of the social and economic
contribution we make in Kurdistan, which as a region, is heavily
reliant on the natural resources sector for revenue.
While further details can be found later in the Sustainability
Report on some of the ESG initiatives we conducted during the year,
I would like to touch on a few notable areas this past year.
Firstly, we are proud that as at December 2020, 84% of our
employees were local (up from 74% in 2019). We have one of the
highest percentages of local employees in the oil and gas sector in
Kurdistan and, since 2018, over 70 local employees have been
promoted to more senior positions.
Despite the challenges presented by the COVID-19 pandemic, we
were also able to continue with a range of community investment
activities. This included building a water supply network, drilling
a water well, the provision of wool clippers and shears to local
farmers, providing the local fire department with equipment and
supplying medical personal protective equipment to the local
villages. It is anticipated that over 450 people will benefit from
the water project and in excess of 130 sheep breeders in 13
villages received wool shears. During the year, the Company spent
over $200,000 on corporate social responsibility initiatives.
On the environmental side, GKP is committed to reducing routine
flaring at Shaikan and retains its aspiration to reduce scope 1 and
2 CO(2) emissions per barrel by more than 50% by 2025. Clearly
though, a year has been lost as a result of the COVID-19 pandemic
and progress towards the goal is subject to the finalisation of the
GMP with MOL and the KRG. Whilst we are re-engaging with the MNR to
review and finalise the GMP, we are also considering a number of
other projects in our opportunity register that can reduce our
environmental impact. The Company looks forward to updating the
market further on its operational progress over the course of
2021.
Stuart Catterall
Chief Operating Officer
FINANCIAL REVIEW
Key financial highlights
Year ended Year ended
31 December 31 December
2020 2019
Gross average production(1) bopd 36,625 32,883
------------------------------- -------- ------------- -------------
Dated Brent(1) $/bbl 42.0 64.6
------------------------------- -------- ------------- -------------
Realised price(1) $/bbl 20.9 42.9
------------------------------- -------- ------------- -------------
Revenue $m 108.4 206.7
------------------------------- -------- ------------- -------------
Operating costs $m 27.4 37.4
------------------------------- -------- ------------- -------------
Gross operating costs per
barrel(1) $/bbl 2.6 3.9
------------------------------- -------- ------------- -------------
General and administrative
expenses $m 13.5 19.5
------------------------------- -------- ------------- -------------
- Incurred in relation to
Shaikan Field $ 5.8 10.0
------------------------------- -------- ------------- -------------
- Corporate G&A $ 7.7 9.5
------------------------------- -------- ------------- -------------
Adjusted EBITDA(1) $m 56.7 122.5
------------------------------- -------- ------------- -------------
(Loss)/profit after tax $m (47.3) 43.5
------------------------------- -------- ------------- -------------
Basic (loss)/earnings per
share cents (22.45) 19.25
------------------------------- -------- ------------- -------------
Capital investment(1) $m 45.9 90.0
------------------------------- -------- ------------- -------------
Revenue receipts(1) $m 101.1 155.7
------------------------------- -------- ------------- -------------
Cash and cash equivalents $m 147.8 190.8
------------------------------- -------- ------------- -------------
Net decrease in cash and cash
equivalents $m 43.0 104.6
------------------------------- -------- ------------- -------------
Face amount of the Notes $m 100.0 100.0
------------------------------- -------- ------------- -------------
(1.) Gross average production, dated brent, realised price,
gross operating costs per barrel, Adjusted EBITDA, capital
investment and revenue receipts are either non-financial or
non-IFRS measures and, where necessary, are explained in the
summary of significant accounting policies.
Gulf Keystone continues to maintain a sharp focus on capital
discipline. A track-record of strict cost control and a flexible
phased development programme enabled the Company to reduce capital
expenditures, operating costs and general and administrative
expenses quickly and significantly in 2020, in response to the
impact of COVID-19 and decline in oil prices. The Company strives
to maintain a robust financial profile through the economic cycle
and is committed to a balance of investment in profitable
production growth and distributions to shareholders.
In Q1 2020, the Company was on-track to achieve its target of
growing production to 55,000 bopd and it completed the second
tranche of its share buy-back programme bringing total capital
distributions in 2019 and 2020 to $99.0 million. With the impact of
COVID-19 and the decline in oil price, the Company took decisive
steps to preserve liquidity, including suspension of the expansion
and dividend programme and implementation of a hedging programme
that has resulted in hedging c.60% of production at a floor price
of $35/bbl for H2 2020 and H1 2021 and $40/bbl for Q3 2021, while
retaining full upside to increasing oil prices.
The Company recognised a loss after tax for the first time since
its restructuring in 2016 driven by the significant decline in the
dated Brent price (2020: $47.3 million loss; 2019: $43.5 million
profit).
Adjusted EBITDA
The impact of the decline in oil price resulted in a significant
reduction in Adjusted EBITDA from $122.5 million in 2019 to $56.7
million in 2020. Gulf Keystone was able to mitigate the oil price
impact by focusing on what it controls, increasing production and
reducing operating costs and general & administrative
expenditures ("G&A").
Average 2020 production was 36,625 bopd, the highest annual
average from the field to date and up 11% from 2019. However, the
benefit of higher production was more than offset by the decline in
oil price.
During the year, the Company established and achieved aggressive
cost reduction targets. Operating costs decreased by 27% to $27.4
million (2019: $37.4 million) driven by cost savings initiatives
and a deferral of non-critical maintenance activity. Gross
operating costs decreased from $3.9/bbl in 2019 to $2.6/bbl, below
the guidance range of $2.7-$3.1/bbl. In 2021, operating costs are
expected to increase with production; however, the Company is
targeting to maintain unit operating costs.
G&A decreased by 31% to $13.5 million (2019: $19.5 million)
with savings achieved in both Corporate and Shaikan G&A. Cost
savings initiatives contributed c.23% of the decrease. The
remaining decrease is driven principally by the impact of the
decline in GKP's share price on the tax provision for share-based
compensation and higher capitalisation of costs.
The pipeline from PF-1 to the main regional export pipeline was
commissioned in December 2019, eliminating the cost of
transportation by trucks (2020: $nil; 2019: $12.0 million).
Cash flows
Cash decreased over the year by $43.0 million from $190.8
million to $147.8 million. The Group has notes outstanding with a
principal balance of $100.0 million (2019: $100.0 million) that do
not mature until July 2023 resulting in a net cash balance of $47.8
million at 31 December 2020.
The Group generated cash from operating activities of $36.8
million (2019: $83.7 million). The decrease was primarily driven by
the reduction in Adjusted EBITDA.
In March 2020, the KRG informed the Company and other IOCs in
Kurdistan that payments for oil sales from November 2019 to
February 2020 would be deferred. As at 31 December 2020, the Group
had $73.3 million net of overdue invoices in relation to this
period.
In December 2020, the Company received an arrears repayment
proposal from the KRG that would result in a monthly repayment
amount calculated as 50% of the difference between the average
monthly dated Brent price and $50/bbl multiplied by gross Shaikan
crude oil sales volumes. Further to the proposal, in March 2021,
the first arrears repayment of $2.6 million net was received for
January 2021 production. The Company remains in a constructive
dialogue with the KRG to finalise the repayment terms.
During 2020, GKP invested net capital expenditures of $45.9
million (2019: $90.0 million) in the Shaikan Field. Expenditures
were within the $40-48 million net guidance range despite adding
activity to recomplete SH-12, tie-in SH-9 as an oil producer and
further debottleneck PF-1 that contributed to record annual average
production. Additionally, trade accounts payable associated with
investing activities were reduced by $12.1 million during the
year.
As at 31 December 2020, there were $548 million gross of
unrecovered costs, subject to potential cost audit by the KRG.
Cumulative revenues were $1,182 million and cumulative costs were
$1,439 million, resulting in an R-factor of 0.82.
During the year, the Company completed the final tranche of the
share buy-back programme, repurchasing $20.2 million of common
shares. The Company subsequently cancelled 18.1 million treasury
shares and retained one million treasury shares to fulfil potential
future exercises of share-based awards.
The Group performed a cash flow and liquidity analysis based on
which the Directors have a reasonable expectation that the Group
has adequate resources to continue to operate for the foreseeable
future. Thus, the going concern basis of accounting is used to
prepare the financial statements.
Outlook
The Company has a strong balance sheet with cash and cash
equivalents of $161.0 million at 30 March 2021.
We are pleased to have recently announced that we are resuming
the 55,000 bopd expansion project. We are now planning to invest
$55 - 65 million net in 2021 to complete routine works deferred
from 2020 and increase production towards 55,000 bopd in Q1 2022.
2021 annual average gross production is expected to be 40,000 -
44,000 bopd. Additionally, we are targeting gross Opex of $2.5 -
$2.9/bbl.
Also, in line with our commitment to balance investment in
production growth and distributions to shareholders, we are pleased
to announce that we are reimplementing an annual dividend policy
with the target of paying at least $25 million per year. A dividend
of $25 million is subject to approval at the AGM on 18 June 2021
and will be paid to shareholders on 2 July 2021 based on a record
date of 25 June 2021. Looking forward, to the extent oil prices
remain strong, there may be opportunities to consider further
distributions this year.
Ian Weatherdon
Chief Financial Officer
Consolidated income statement
For the year ended 31 December 2020
Notes 2020 2019
$'000 $'000
----- --------- ---------
Revenue 2 108,449 206,741
Cost of sales 3 (121,507) (137,891)
Impairment of trade receivables 13 (6,776) (293)
--------- ---------
Gross (loss)/profit (19,834) 68,557
General and administrative expenses 4 (13,547) (19,531)
--------- ---------
(Loss)/profit from operations (33,381) 49,026
Finance revenue 6 1,278 6,046
Finance costs 6 (14,087) (11,153)
Foreign exchange losses (841) (661)
--------- ---------
(Loss)/profit before tax (47,031) 43,258
Tax (expense)/credit 7 (311) 271
--------- ---------
(Loss)/profit after tax for the year (47,342) 43,529
--------- ---------
(Loss)/profit per share (cents)
Basic 8 (22.45) 19.25
Diluted 8 (22.45) 18.37
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
$'000 $'000
-------- ------
(Loss)/profit after tax for the year (47,342) 43,529
Items that may be reclassified to
the income statement in subsequent
periods:
Cash flow hedge - fair value movements (1,732) -
Exchange differences on translation
of foreign operations 707 597
-------- ------
Total comprehensive (expense)/income
for the year (48,367) 44,126
======== ======
Consolidated balance sheet
As at 31 December 2020
Notes 2020 2019
$'000 $'000
----- --------- ---------
Non-current assets
Intangible assets 9 933 454
Property, plant and equipment 10 374,702 407,602
Trade receivables 13 59,096 -
Deferred tax asset 17 617 849
435,348 408,905
--------- ---------
Current assets
Inventories 12 36,527 31,040
Trade and other receivables 13 37,832 103,181
Derivative financial instruments 18 977 -
Cash and cash equivalents 147,826 190,762
--------- ---------
223,162 324,983
--------- ---------
Total assets 658,510 733,888
========= =========
Current liabilities
Trade and other payables 14 (69,123) (83,981)
(69,123) (83,981)
--------- ---------
Non-current liabilities
Trade and other payables 14 (1,058) (1,989)
Borrowings 15 (98,633) (98,192)
Provisions 16 (35,671) (29,807)
--------- ---------
(135,362) (129,988)
--------- ---------
Total liabilities (204,485) (213,969)
--------- ---------
Net assets 454,025 519,919
========= =========
Equity
Share capital 19 211,371 229,430
Share premium 19 842,914 871,675
Treasury shares 19 (2,592) (29,749)
Cost of hedging reserve (1,732) -
Exchange translation reserve (2,514) (3,221)
Accumulated losses (593,422) (548,216)
Total equity 454,025 519,919
========= =========
The financial statements were approved by the Board of Directors
and authorised for issue on 30 March 2021 and signed on its behalf
by:
Jon Harris
Chief Executive Officer
Ian Weatherdon
Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2020
Attributable to equity holders of the Company
Cost of Exchange
Share Share Treasury hedging translation Accumulated Total
Notes capital premium shares reserve reserve losses equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 January
2019 229,430 920,728 - - (3,818) (593,523) 552,817
--------- -------- ---------- -------- ------------ ------------- ------------
Net profit for the
year - - - - - 43,529 43,529
Exchange difference
on translation of
foreign operations - - - - 597 - 597
--------- -------- ---------- -------- ------------ ------------- ------------
Total comprehensive
income for the year - - - - 597 43,529 44,126
--------- -------- ---------- -------- ------------ ------------- ------------
Employee share schemes 23 - - - - - 1,860 1,860
Share buy-back 19 - - (29,831) - - - (29,831)
Dividend Paid 24 - (49,053) - - - - (49,053)
Share options exercised - - 82 - - (82) -
Balance at 31 December
2019 229,430 871,675 (29,749) - (3,221) (548,216) 519,919
--------- -------- ---------- -------- ------------ ------------- ------------
Net loss for the year - - - - - (47,342) (47,342)
Cash flow hedge -
fair value movements - - - (1,732) - - (1,732)
Exchange difference
on translation of
foreign operations - - - - 707 - 707
--------- -------- ---------- -------- ------------ ------------- ------------
Total comprehensive
(expense)/income for
the year - - - (1,732) 707 (47,342) (48,367)
--------- -------- ---------- -------- ------------ ------------- ------------
Employee share schemes 23 - - - - - 2,637 2,637
Share buy-back 19 - - (20,164) - - - (20,164)
Share options exercised 23 - - 501 - - (501) -
Share cancellation 19 (18,059) (28,761) 46,820 - - - -
Balance at 31 December
2020 211,371 842,914 (2,592) (1,732) (2,514) (593,422) 454,025
========= ======== ========== ======== ============ ============= ============
Consolidated cash flow statement
For the year ended 31 December 2020
Notes 2020 2019
$'000 $'000
---------------------------- ---------
Operating activities
Cash generated from operations 20 50,873 87,892
Interest received 1,278 5,897
Interest paid 6 (10,000) (10,068)
Payment of put option premium (5,371) -
Net cash generated from operating
activities 36,780 83,721
---------------------------- ---------
Investing activities
Exit costs of Algerian operation - (11,060)
Purchase of intangible assets (458) (390)
Purchase of property, plant and
equipment 20 (57,899) (96,926)
Net cash used in investing activities (58,357) (108,376)
---------------------------- ---------
Financing activities
Payment of dividends - (49,053)
Share buy-back (20,164) (29,831)
Payments in lieu of share options
exercises - (99)
Payment of leases (1,317) (972)
Net cash used in financing activities (21,481) (79,955)
---------------------------- ---------
Net decrease in cash and cash equivalents (43,058) (104,610)
Cash and cash equivalents at beginning
of year 190,762 295,566
Effect of foreign exchange rate
changes 122 (194)
Cash and cash equivalents at end
of the year being bank balances
and cash on hand 147,826 190,762
============================ =========
Summary of significant accounting policies
General information
The Company is incorporated in Bermuda (registered address:
Cedar House, 3(rd) Floor, 41 Cedar Avenue, Hamilton, HM12,
Bermuda). On 25 March 2014, the Company's common shares were
admitted, with a standard listing, to the Official List of the
United Kingdom Listing Authority ("UKLA") and to trading on the
London Stock Exchange's Main Market for listed securities.
Previously, the Company was quoted on Alternative Investment Market
("AIM"), a market operated by the London Stock Exchange. In 2008,
the Company established a Level 1 American Depositary Receipt
programme in conjunction with the Bank of New York Mellon, which
has been appointed as the depositary bank. The Company serves as
the holding company for the Group, which is engaged in oil and gas
exploration, development and production, operating in the Kurdistan
Region of Iraq.
Amendments to International Financial Reporting Standards
("IFRS") that are mandatorily effective for the current year
In the current year, the Group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an
accounting period that begins on or after 1 January 2020. Their
adoption has not had any material impact on the disclosures or on
the amounts reported in these financial statements.
Amendments to The Group has adopted the amendments included
References to in Amendments to References to the Conceptual
the Conceptual Framework in IFRS Standards for the first time
Framework in in the current year. The amendments include
IFRS Standards consequential amendments to affected Standards
so that they refer to the new Framework. Not
all amendments, however, update those pronouncements
with regard to references to and quotes from
the Framework so that they refer to the revised
Conceptual Framework. Some pronouncements are
only updated to indicate which version of the
Framework they are referencing to (the IASC
Framework adopted by the IASB in 2001, the
IASB Framework of 2010, or the new revised
Framework of 2018) or to indicate that definitions
in the Standard have not been updated with
the new definitions developed in the revised
Conceptual Framework.
The standards which are amended are IFRS 2,
IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS
34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC
20, IFRIC 22, and SIC-32.
Amendments to The Group has adopted the amendments to IFRS
IFRS 3 Definition 3 for the first time in the current year. The
of a business amendments clarify that while businesses usually
have outputs, outputs are not required for
an integrated set of activities and assets
to qualify as a business. To be considered
a business an acquired set of activities and
assets must include, at a minimum, an input
and a substantive process that together significantly
contribute to the ability to create outputs.
The amendments remove the assessment of whether
market participants are capable of replacing
any missing inputs or processes and continuing
to produce outputs. The amendments also introduce
additional guidance that helps to determine
whether a substantive process has been acquired.
The amendments introduce an optional concentration
test that permits a simplified assessment of
whether an acquired set of activities and assets
is not a business. Under the optional concentration
test, the acquired set of activities and assets
is not a business if substantially all of the
fair value of the gross assets acquired is
concentrated in a single identifiable asset
or group of similar assets.
The amendments are applied prospectively to
all business combinations and asset acquisitions
for which the acquisition date is on or after
1 January 2020.
-------------------------------------------------------
Amendments to The Group has adopted the amendments to IAS
IAS 1 and IAS 1 and IAS 8 for the first time in the current
8 Definition year. The amendments make the definition of
of material material in IAS 1 easier to understand and
are not intended to alter the underlying concept
of materiality in IFRS Standards. The concept
of 'obscuring' material information with immaterial
information has been included as part of the
new definition.
The threshold for materiality influencing users
has been changed from 'could influence' to
'could reasonably be expected to influence'.
The definition of material in IAS 8 has been
replaced by a reference to the definition of
material in IAS 1. In addition, the IASB amended
other Standards and the Conceptual Framework
that contain a definition of 'material' or
refer to the term 'material' to ensure consistency.
-------------------------------------------------------
New and revised IFRSs issued but not yet effective
At the date of approval of these financial statements, The Group
has not applied the following new and revised IFRSs that have been
issued but are not yet effective and in some cases had not yet been
adopted by the EU:
IFRS 17 Insurance Contracts
IFRS 10 and IAS Sale or Contribution of Assets between an
28 (amendments) Investor and its Associate or Joint Venture
Amendments to IAS Classification of Liabilities as Current
1 or Non-current
Amendments to IFRS Reference to the Conceptual Framework
3
Amendments to IAS Property, Plant and Equipment-Proceeds before
16 Intended Use
Amendments to IAS Onerous Contracts - Cost of Fulfilling a
37 Contract
Annual Improvements Amendments to IFRS 1 first time adoption
Standards 2018-20 of IFRS, IFRS 9 financial instruments IFRS
16 Leases.
The directors do not expect that the adoption of the Standards
listed above will have a material impact on the financial
statements of the Group in future periods.
Statement of compliance
The financial statements have been prepared in accordance with
IFRS as adopted by the European Union.
Basis of accounting
The financial statements have been prepared under the historical
cost basis, except for the valuation of hydrocarbon inventory and
the valuation of certain financial instruments, which have been
measured at fair value, and on the going concern basis.
Equity-settled share-based payments are recognised at fair value at
the date of grant, but are not subsequently revalued. The principal
accounting policies adopted are set out below.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chairman's Statement, the Chief Executive
Officer's Review and the Operational Review. The financial position
of the Group at the year end and its cash flows and liquidity
position are included in the Financial Review.
As at 30 March 2021, the Group had $161.0 million of cash. The
Group continues to closely monitor and manage its liquidity. Cash
forecasts are regularly produced and sensitivities run for
different scenarios including, but not limited to, the impact of
COVID-19 on the Group's operations, commodity prices, different
production rates from the Shaikan block, cost contingencies,
disruptions to revenue receipts, etc. To preserve liquidity in
response to macroeconomic challenges, the Group capitalised on the
flexible nature of its development programme and cost structure,
and reduced capital expenditures, its work force and running costs
in 2020. The Group's forecasts, taking into account the applicable
risks, stress test scenarios and potential mitigating actions, show
that it has sufficient financial resources for the 12 months from
the date of approval of the 2020 Annual Report and Accounts.
Based on the analysis performed, the directors have a reasonable
expectation that the Group has adequate resources to continue to
operate for the foreseeable future. Thus, the going concern basis
of accounting is used to prepare the annual consolidated financial
statements.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and enterprises controlled by the Company
(its subsidiaries) made up to 31 December each year. Control is
achieved where the Company has the power to govern the financial
and operating policies of an investee entity, so as to obtain
benefits from its activities.
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
non-IFRS measures and a description of how they are calculated is
set out below. Additionally, a reconciliation of the 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 (unaudited)
Gross operating costs are divided by gross production to arrive
at operating costs per bbl.
Year ended Year ended
31 December 31 December
2020 2019
Gross production (MMbbls) 13.4 12.0
Gross operating costs ($ million)(1) 34.2 46.7
Gross operating costs per barrel
($ per bbl) 2.6 3.9
(1) Gross operating costs equate to operating costs (see note 3)
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.
Year ended Year ended
31 December 31 December
2020 2019
$ million $ million
----------------------------------- ------------ ------------
(Loss)/profit after tax (47.3) 43.5
Finance costs 14.1 11.2
Finance revenue (1.3) (6.0)
Tax expense/(credit) 0.3 (0.3)
Depreciation of oil and gas assets 82.8 72.5
Depreciation of other PPE assets
and amortisation of intangibles 1.3 1.3
Impairment of receivables 6.8 0.3
------------ ------------
Adjusted EBITDA 56.7 122.5
============ ============
Capital Investment
Capital investment is the value of the Group's additions to oil
and gas assets excluding any movements in decommissioning
assets.
Year ended Year ended
31 December 31 December
2020 2019
$ million $ million
-------------------------------------- ------------ ------------
Additions to oil and gas assets (note
10) 45.9 90.0
Capital investment 45.9 90.0
============ ============
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 current and non-current borrowings plus
non-cash adjustments, less cash and cash equivalents. Non-cash
adjustments include unamortised arrangement fees and other
adjustments.
Year ended Year ended
31 December 31 December
2020 2019
$ million $ million
---------------------------------- ------------ ------------
Outstanding Notes (98.6) (98.2)
Unamortised issue costs (note 15) (1.4) (1.8)
Accrued interest (4.4) (4.4)
Cash and cash equivalents 147.8 190.8
Net cash 43.4 86.4
============ ============
Joint arrangements
The Group is engaged in oil and gas exploration, development and
production through unincorporated joint arrangements; these are
classified as joint operations in accordance with IFRS 11. The
Group accounts for its share of the results and net assets of these
joint operations. Where the Group acts as Operator of the joint
operation, the gross liabilities and receivables (including amounts
due to or from non-operating partners) of the joint operation are
included in the Group's balance sheet.
Sales revenue
The recognition of revenue, particularly the recognition of
revenue from export sales of crude oil, is considered to be a key
accounting judgement.
All oil is sold by the Shaikan Contractor (GKP and MOL) to the
KRG, who in turn resell the oil. The selling price is determined in
accordance with the principles of the crude oil export sales
agreement ("Crude Oil Sales Agreement"), based on the dated Brent
crude price less a quality discount and transportation costs. The
sales agreement also specifies the delivery point, the KRG's
contribution to transportation costs and payment terms relating to
export sales of crude oil. The Crude Oil Sales Agreement has been
governing Shaikan crude oil sales from 1 October 2017 onwards.
As the payment mechanism for sales is developing within the
Kurdistan Region of Iraq, the Group currently considers that
revenue can best be reliably measured when the cash receipt is
assured. The assessment of whether cash receipt is reasonably
assured is based on management's evaluation of the reliability of
the KRG's payments to the international oil companies operating in
the Kurdistan Region of Iraq.
The value of sales revenue is determined after taking account of
the following:
-- In 2020, all crude oil sales were made via the Kurdistan
Export Pipeline. The point of sale is the point that the crude oil
is injected into the Kurdistan Export Pipeline;
-- In 2019, for the crude oil sales via Fishkhabour route, the
point of sale is the point that the crude oil is unloaded into the
export pipeline at Fishkhabour;
-- GKP recognises revenue for its share of the revenue on a
cash-assured basis and these amounts of recognised revenue may be
lower than the Company's entitlement under the Shaikan PSC, giving
rise to unrecognised revenue amounts; and
-- From 15 November 2017 until December 2019, the Group
performed transportation services in respect of the KRG's share of
export oil sales. It recharged all of these transportation costs at
nil mark-up to the KRG and these recharged transportation costs are
recognised as revenue.
During PSC negotiations with the MNR, it was tentatively agreed
that the Shaikan Contractor would provide the KRG a 20% carried
working interest in the PSC. This would result in a reduction of
GKP's working interest from 80% to 61.5% and, to compensate for
such decrease, a reduction in the Capacity Building Payments
expense from 40% to 20%. While the PSC has not been formally
amended, it was agreed that GKP would invoice the KRG for oil sales
based on the proposed revised terms from October 2017. Since
revenue is recognised on a cash assured basis, the financial
statements reflect the proposed revised terms. Relative to the PSC
terms, the proposed revised invoicing terms result in a decrease in
both revenue and cost of sales and on a net basis is slightly
positive for the Company. The Company is in dialogue with the MNR
to confirm whether they would like to proceed with an amendment to
the PSC or revert to invoicing on the basis of the PSC.
Income tax arising from the Company's activities under its PSC
is settled by the KRG on behalf of the Company. However, the
Company is not able to measure the amount of income tax that has
been paid on its behalf and, therefore, the notional income tax
amounts have not been included in revenue or in the tax charge.
Finance revenue
Interest revenue is accrued on a time basis, by reference to the
principal outstanding and at the effective rate of interest
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the nancial asset
to that asset's net carrying amount on initial recognition.
Property, plant and equipment other than oil and gas assets
Property, plant and equipment ("PPE") is stated at cost less
accumulated depreciation and any accumulated impairment losses.
Depreciation is provided at rates calculated to write each asset
down to its estimated residual value over its expected useful life
as follows:
Fixtures and equipment - 20% straight-line
Intangible assets other than oil and gas assets
Intangible assets, other than oil and gas assets, have finite
useful lives and are measured at cost and amortised over their
expected useful economic lives as follows:
Computer software - 33% straight-line
Oil and gas assets
Pre-licence costs
Costs incurred prior to having obtained the legal rights to
explore an area are expensed directly to the income statement as
they are incurred.
Exploration and evaluation costs
The Group follows the successful efforts method of accounting
for exploration and evaluations ("E&E") costs. Expenditures
directly associated with evaluation or appraisal activities are
initially capitalised as intangible assets in cost pools by well,
field or exploration area, as appropriate. Such costs include
licence acquisition, technical services and studies, exploration
and appraisal well drilling, payments to contractors, interest
payable and directly attributable administration and overhead
costs.
These costs are then written off as exploration costs in the
income statement unless the existence of economically recoverable
reserves has been established and there are no indicators of
impairment.
E&E costs are transferred to development and production
assets within property, plant and equipment upon the approval of a
development programme by the relevant authorities and the
determination of commercial reserves existence.
Development and production assets
Development and production assets are accumulated on a
field-by-field basis and represent the cost of developing the
commercial reserves discovered and bringing them into production,
together with the E&E expenditures incurred in finding
commercial reserves transferred from intangible E&E assets as
outlined above.
The cost of development and production assets includes the cost
of acquisition and purchases of such assets, directly attributable
overheads, and costs for future restoration and decommissioning.
These costs are capitalised as part of the property, plant and
equipment and depreciated based on the Group's depreciation of oil
and gas assets policy.
Depreciation of oil and gas assets
The net book values of producing assets are depreciated
generally on a field-by-field basis using the unit of production
("UOP") basis which uses the ratio of oil and gas production in the
period to the remaining commercial reserves plus the production in
the period. Production associated with unrecognised export sales
revenue is included in the depreciation, depletion and amortisation
("DD&A") calculation. Costs used in the calculation comprise
the net book value of the field, and any anticipated costs to
develop such reserves.
Commercial reserves are proven and probable ("2P") reserves
together with, where considered appropriate, a risked portion of 2C
contingent resources, which are estimated using standard recognised
evaluation techniques. The reserves estimate used in 2020 is based
on values from ERC Equipoise - CPR August 2016 and confirmation
letter dated April 2017. CPR volume estimates at 31 December 2016
were adjusted by GKP for production from 2017 to 2020 inclusively.
An updated CPR was received in February 2021 and will be used as
the basis for the calculation of DD&A from 2021 onwards.
Impairment of PPE and intangible non-current assets
At each balance sheet date, the Group reviews the carrying
amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset, or group of assets, is estimated in order to
determine the extent of the impairment loss (if any).
For assets which do not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
Any impairment identified is immediately recognised as an
expense.
Borrowing costs
Borrowing costs directly relating to the acquisition or
construction of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for
their intended use or sale, are capitalised and added to the cost
of those assets, until such time as the assets are substantially
ready for their intended use or sale.
Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the income statement
in the period in which they are incurred.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities,
based on tax rates and laws that are enacted or substantively
enacted by the balance sheet date.
As described in the revenue accounting policy section above, it
is not possible to calculate the amount of notional tax to be shown
in relation to any tax liabilities settled on behalf of the Group
by the KRG.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill or from the initial
recognition of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part assets to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted by the balance sheet date. Deferred tax is
charged or credited in the income statement, except when it relates
to items charged or credited directly to equity, in which case the
deferred tax is also recognised in equity.
Foreign currencies
The individual financial statements of each company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the
consolidated financial statements, the results and the financial
position of the Group are expressed in US dollars, which is the
functional currency of the Group, and the presentation currency for
the consolidated financial statements.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency are recorded at the rates of exchange
prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in
foreign currencies are retranslated at the rates prevailing on the
balance sheet date. Non-monetary assets and liabilities carried at
fair value that are denominated in foreign currencies are
translated at the rates prevailing at the date when the fair value
was determined. Gains and losses arising on retranslation are
included in the income statement for the year.
On consolidation, the assets and liabilities of the Group's
foreign operations which use functional currencies other than US
dollars are translated at exchange rates prevailing on the balance
sheet date. Income and expense items are translated at the average
exchange rates for the period. Exchange differences arising, if
any, are recognised in other comprehensive income and accumulated
in equity in the Group's translation reserve. On the disposal of a
foreign operation, such translation differences are reclassified to
profit or loss.
Inventories
Inventories, except for hydrocarbon inventories, are stated at
the lower of cost and net realisable value. Cost comprises direct
materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to
their present location and condition. Cost is calculated using the
weighted average cost method. Hydrocarbon inventories are recorded
at net realisable value with changes in hydrocarbon inventories
being adjusted through cost of sales.
Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group has become a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables are measured at amortised cost using the
effective interest method less any impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial assets at fair value through profit and loss
Financial assets are held at fair value through profit and loss
("FVTPL") when the financial asset is either held for trading or it
is designated as FVTPL. Financial assets at FVTPL are stated at
fair value, with any gains or losses arising on re-measurement
recognised in profit or loss. The net gain or loss recognised in
profit or loss incorporates any dividend or interest earned on the
financial asset and is included in the other gains and losses line
in the income statement.
Derivative financial instruments
The Group may utilise derivative financial instruments to manage
its exposure to oil price risk.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently
re-measured to their fair value at each balance sheet date. The
resulting gain or loss is recognised in the profit or loss
immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in
profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a
financial asset whereas a derivative with a negative fair value is
recognised as a liability. A derivative is presented as a
non-current asset or a non-current liability if the remaining
maturity of the instrument is more than twelve months and it is not
expected to be realised or settled within twelve months. Other
derivatives are presented as current assets or current
liabilities.
Hedge accounting
The Group uses hedge accounting for certain derivative
instruments. The Group uses cash flow hedge accounting when hedging
the exposure to variability in cash flows that is either
attributable to a particular risk associated with a recognised
asset or liability or a highly probable forecast transaction or the
foreign currency risk in an unrecognised firm commitment.
At the inception of the hedge relationship, the Group formally
designates and documents the relationship between the hedging
instrument and the hedged item, along with its risk management
objectives and its strategy for undertaking the hedge transaction.
Furthermore, at the inception of the hedge and on an ongoing basis,
the Group documents whether the hedging instrument is highly
effective in offsetting changes in fair values or cash flows of the
hedged item attributable to the hedged risk, which is when the
hedging relationship meets all of the following hedge effectiveness
requirements:
- there is an economic relationship between the hedged item and the hedging instrument;
- the effect of credit risk does not dominate the value changes that result from the economic relationship; and
- the hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the
Group uses to hedge that quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness
requirement relating to the hedge ratio but the risk management
objective for that designated hedging relationship remains the
same, the Group adjusts the hedge ratio of the hedging relationship
(i.e. rebalances the hedge) so that it meets the qualifying
criteria again.
The Group designates only the intrinsic value of option
contracts as a hedged item, i.e. excluding the time value of the
option. The changes in the fair value of the aligned time value of
the option are recognised in other comprehensive income and
accumulated in the cost of hedging reserve. If the hedged item is
transaction-related, the time value is reclassified to profit or
loss when the hedged item affects profit or loss. If the hedged
item is time-period related, then the amount accumulated in the
cost of hedging reserve is reclassified to profit or loss on a
rational basis - the Group applies straight-line amortisation.
Those reclassified amounts are recognised in profit or loss. If the
hedged item is a non-financial item, then the amount accumulated in
the cost of hedging reserve is removed directly from equity and
included in the initial carrying amount of the recognised
non-financial item. Furthermore, if the Group expects that some or
all of the loss accumulated in cost of hedging reserve will not be
recovered in the future, that amount is immediately reclassified to
profit or loss.
Cash flow hedge
The effective portion of changes in the fair value of
derivatives and other qualifying hedging instruments that are
designated and qualify as cash flow hedges is recognised in other
comprehensive income and accumulated under the heading of cash flow
hedging reserve, limited to the cumulative change in fair value of
the hedged item from inception of the hedge. The gain or loss
relating to the ineffective portion is recognised immediately in
profit or loss and is included in the 'Finance costs' line
item.
The Group discontinues hedge accounting only when the hedging
relationship (or a part thereof) ceases to meet the qualifying
criteria (after rebalancing, if applicable). This includes
instances when the hedging instrument expires or is sold,
terminated or exercised. The discontinuation is accounted for
prospectively. Any gain or loss recognised in other comprehensive
income and accumulated in cash flow hedge reserve at that time
remains in equity and is reclassified to profit or loss when the
forecast transaction occurs. When a forecast transaction is no
longer expected to occur, the gain or loss accumulated in the cash
flow hedge reserve is reclassified immediately to profit or
loss.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
on trade receivables and contract assets, as well as on financial
guarantee contracts. The amount of expected credit losses is
updated at each reporting date to reflect changes in credit risk
since initial recognition of the respective financial
instrument.
The Group always recognises lifetime expected credit losses
(ECL) for trade receivables, contract assets and lease receivables.
The expected credit losses on these financial assets are estimated
based on observed market data and convention, existing market
conditions and forward-looking estimates at the end of each
reporting period, including time value of money where
appropriate.
For all other financial instruments, the Group recognises
lifetime ECL when there has been a significant increase in credit
risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial
recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will
result from all possible default events over the expected life of a
financial instrument. In contrast, 12-month ECL represents the
portion of lifetime ECL that is expected to result from default
events on a financial instrument that are possible within 12 months
after the reporting date.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities.
Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs, which are charged to
share premium.
Borrowings
Interest-bearing loans and overdrafts are recorded at the fair
value of proceeds received, net of transaction costs. Finance
charges, including premiums payable on settlement or redemption,
are accounted for on an accrual basis and are added to the carrying
amount of the instrument to the extent that they are not settled in
the year in which they arise. The liability is carried at amortised
cost using the effective interest rate method until maturity.
Trade payables
Trade payables are stated at amortised cost. The average
maturity for trade and other payables is one to three months.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event which it is probable will
result in an outflow of economic benefits that can be reliably
estimated.
Decommissioning provision
Provision for decommissioning is recognised in full when there
is an obligation to restore the site to its original condition. The
amount recognised is the present value of the estimated future
expenditure for restoring the sites of drilled wells and related
facilities to their original status. A corresponding amount
equivalent to the provision is also recognised as part of the cost
of the related oil and gas asset. The amount recognised is
reassessed each year in accordance with local conditions and
requirements. Any change in the present value of the estimated
expenditure is dealt with prospectively. The unwinding of the
discount is included as a finance cost.
Share-based payments
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
instruments at the grant date. Details regarding the determination
of the fair value of equity-settled share-based transactions are
set out in Note 23. The fair value determined at the grant date of
the equity-settled share-based payments is expensed on a straight-
line basis over the vesting period, based on the Group's estimate
of equity instruments that will eventually vest. At each balance
sheet date, the Group revises its estimate of the number of equity
instruments expected to vest as a result of the effect of
non-market based vesting conditions. The impact of the revision of
the original estimates, if any, is recognised in profit or loss
such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity reserve.
For cash-settled share-based payments, a liability is recognised
for the goods or services acquired, measured initially at the fair
value of the liability. At each balance sheet date until the
liability is settled, and at the date of settlement, the fair value
of the liability is re-measured, with any changes in fair value
recognised in profit or loss for the period. Details regarding the
determination of the fair value of cash-settled share-based
transactions are set out in Note 23.
Leases
The Group assesses whether a contract contains a lease at
inception of the contract. The Group recognises a right-of-use
asset and corresponding lease liability in the consolidated balance
sheet for all lease arrangements longer than twelve months, where
it is the lessee and has control of the asset. For all other
leases, the Group recognises the lease payments as an operating
expense on a straight-line basis over the term of the lease.
The lease liability is initially measured at the present value
of the future lease payments from the commencement date of the
lease. The lease payments are discounted using the interest rate
implicit in the lease or, if not readily determinable, the company
specific incremental borrowing rate.
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using
the effective interest method) and by reducing the carrying amount
to reflect the lease payments made. The lease liability is
recognised in creditors as current or non current liabilities
depending on underlying lease terms.
The right-of-use assets are initially recognised on the balance
sheet at cost, which comprises the amount of the initial
measurement of the corresponding lease liability, adjusted for any
lease payments made at or prior to the commencement date of the
lease and any lease incentive received.
For short-term leases (periods less than 12 months) and leases
of low value, the Group has opted to recognise lease expense on a
straight line basis.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described above, the directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of revision and future periods if
the revision affects both current and future periods.
Critical judgements in applying the Group's accounting
policies
The following are the critical judgements, apart from those
involving estimations (which are presented separately below), that
the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in financial statements.
Revenue
The recognition of revenue, particularly the recognition of
revenue from exports, is considered to be a key accounting
judgement. The Group be gan commercial production from the Shaikan
Field in July 2013 and historically made sales to both the domestic
and export markets. The Group considers that revenue can be only
reliably measured when the cash receipt is assured. The assessment
of whether cash receipts are reasonably assured is based on
management's evaluation of the reliability of the MNR's payments to
the international oil companies operating in the Kurdistan Region
of Iraq. The Group also recognised payables to the MNR that were
offset against amounts receivable from the MNR for previously
unrecognised revenue in line with the terms of the Shaikan PSC.
The judgement is not to recognise revenue in excess of the sum
of the cash receipt that is assured and the amount of payables to
the MNR that can be offset against amounts due for previously
unrecognised revenue in line with the terms of the Shaikan PSC,
even though the Group may be entitled to additional revenue under
the terms of the Shaikan PSC. Any future agreements between the
Company and the KRG might change the amounts of revenue
recognised.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Measurement and recognition of ECL
In March 2020, the KRG informed the Company and other IOCs in
Kurdistan that payments for sales from November 2019 to February
2020 would be deferred. As at 31 December 2020, the Group had $77.3
million of overdue invoices in relation to this period.
In December 2020, the Company received an arrears repayment
proposal from the KRG with the repayment amount being 50% of the
difference between the average monthly dated Brent price and $50
per barrel multiplied by gross Shaikan crude oil sales volumes. The
first payment towards the outstanding balance was received in March
2021.
While the Company continues to expect to recover the full $77.3
million from the KRG, in line with IFRS 9, the Group is required to
calculate an ECL associated with this receivable. The measurement
of the ECL is a function of the gross carrying amount at the
reporting date, the probability of default, and the magnitude of a
potential loss if there is a default. The Group uses judgement in
determining the assumptions for the ECL calculation, based on
observed market data and convention, existing market conditions and
forward-looking estimates at the end of each reporting period.
Additionally, the Group purchased from MOL in 2018 revenue
arrears totalling $9.1 million, while the Group expects to recover
the full amount, it is required to also calculate an ECL associated
with this amount.
The result of the Group's ECL assessment is $8.2 million
adjustment to the trade receivables. The Group provided detailed
disclosure required by IFRS 9 ECL assessment in note 13.
Whilst not a key source of estimation uncertainty, the following
is made as an additional disclosure.
Carrying value of producing assets
In line with the Group's accounting policy on impairment,
management performs an impairment review of the Group's oil and gas
assets at least annually with reference to indicators as set out in
IAS 36. The Group assesses its group of assets, called a
cash-generating unit ("CGU"), for impairment, if events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Where indicators are present, management
calculates the recoverable amount using key estimates such as
future oil prices, estimated production volumes, the cost of
development and production, pre-tax discount rates that reflect the
current market assessment of the time value of money and risks
specific to the asset, commercial reserves and inflation. The key
assumptions are subject to change based on market trends and
economic conditions. Where the CGU's recoverable amount is lower
than the carrying amount, the CGU is considered impaired and is
written down to its recoverable amount.
The Group's sole CGU at 31 December 2020 was the Shaikan Field
with a carrying value of $367.9 million. The Group performed a full
impairment indicator evaluation considering the impact of COVID-19,
the decline in oil prices in 2020, the Group's decision to suspend
the Shaikan expansion project, potential changes to future
development plans and actions to preserve liquidity. The potential
impact of such factors together with other possible changes to key
assumptions and available mitigating actions, showed that no
impairment indicators arose.
The key areas of estimation in the impairment assessment are as
follows:
- Commodity prices are based on latest internal forecasts,
benchmarked with external sources of information to ensure they are
within the range of available market and analyst forecasts;
$/bbl - real 2021 2022 onwards
31 December 2020 - base
case $50 $55
----- -------------
31 December 2020 - stress
case $45 $50
----- -------------
31 December 2019 - base
case $60 $60
----- -------------
31 December 2019 - stress
case $40 $50
----- -------------
- The Group continues to develop its assessment of the potential
impacts of climate change, the transition to a low-carbon future
and our ambition to reduce scope one and two per barrel CO(2)
emissions by at least 50% by 2025. The effects of climate change
and the Paris Agreement on future Brent prices were considered. It
was concluded, based on benchmarking that the stress case price
deck used in the impairment assessment is reasonable assuming the
Paris Agreement 2-degree Celsius target;
- Discount rates that are adjusted to reflect risks specific to
the Shaikan Field and the KRI. The impairment analysis was based on
a post-tax nominal 15% discount rate (2019: 15%);
- Operating costs and capital expenditure that are based on
financial budgets and internal management forecasts. Costs
assumptions incorporate management experience and expectations, as
well as the nature and location of the operation and the risks
associated therewith. Costs assumptions used in the assessment are
consistent with the February 2021 CPR report;
- Commercial reserves and production profiles used in the
assessment are consistent with the February 2021 CPR report;
and
- Timing of revenue receipts.
Notes to the consolidated financial statements
1 Geographical information
The Group's non-current assets excluding deferred tax assets and
other financial assets by geographical location are detailed
below:
2020 2019
$'000 $'000
--------------- ------- -------
Kurdistan 369,761 407,808
United Kingdom 1,910 248
------- -------
371,671 408,056
======= =======
Information about major customers
Included in revenues are $108.4 million, which arose from sales
to the KRG (2019: $206.7 million).
2 Revenue
2020 2019
$'000 $'000
----------------------- ------- -------
Oil sales 108,449 202,871
Transportation revenue - 3,870
------- -------
108,449 206,741
======= =======
The Group accounting policy for revenue recognition is set out
in the 'Summary of significant accounting policies', with revenue
recognised on a cash-assured basis.
During 2020, the cash-assured values recognised as oil sales
were the invoiced revenue for the year amounting to $108.4 million
(2019: $202.9 million). The oil sales price was calculated using
the monthly dated Brent price less an average discount of $21.10
(2019: $21.70) per barrel for quality, pipeline tariff and
transportation costs.
From November 2017 until mid-December 2019, the Group provided
transportation services in respect of the KRG's share of export oil
sales. It recharged all of these transportation costs at nil
mark-up to the KRG.
3 Cost of sales
2020 2019
$'000 $'000
----------------------------------- ------- -------
Operating costs 27,401 37,373
Capacity building payments 8,362 15,317
Changes in inventory valuation 2,923 713
Transportation costs - 11,974
Depreciation of oil and gas assets 82,797 72,514
Depreciation of operational assets 24 -
121,507 137,891
======= =======
Costs relating to the impairment of trade receivables have been
excluded from cost of sales in 2020 and are presented separately on
the income statement. Presentation of 2019 costs of sales has been
aligned with 2020.
Following the completion and connection of PF-1 pipeline to the
main regional export pipeline in December 2019, the Group is no
longer required to incur transportation costs.
A unit-of-production method has been used to calculate the
DD&A charge for the year. This is based on full entitlement
production, commercial reserves and costs for Shaikan. Commercial
reserves are proven and probable ("2P") reserves, estimated using
standard recognised evaluation techniques.
Subsequent to the year end, the Group received a Competent
Person's Report from ERC Equipoise Limited. The report's result in
a lower depreciation, depletion and amortisation (DD&A) per
barrel rate. The new DD&A rate constitutes a change in
accounting estimate and will be reflected in the financial
statements effective 1 January 2021.
4 General and Administrative Expenses
2020 2019
$'000 $'000
------------------------------------------ ------- ------
Depreciation and amortisation 1,325 1,318
Share-based payment expense 2,440 1,910
Share-based payment related provision for
taxes (1,205) 1,929
Auditor's remuneration (see below) 378 253
Other general and admin costs (including
staff costs) 10,609 14,121
13,547 19,531
======= ======
Of the $13.5 million of general and administrative expenses,
$5.8 million (2019: $10.0 million) were incurred in relation to the
Shaikan Field.
2020 2019
$'000 $'000
-------------------------------------------------------- ------- -------
Fees payable to the Company's auditor for
the audit of the Company's annual accounts(1) 350 228
Fees payable to the Company's auditor for
other services to the Group
* audit of the Company's subsidiaries pursuant to
legislation 28 25
------- -------
Total audit fees 378 253
Advisory services 45 13
Other assurance services (including half
year review) 151 73
Total fees 574 339
======= =======
(1) The fees payable to the Company's auditor for the audit of
the Company's annual accounts include $43,000 (2019: nil) in
respect of the prior year audit.
5 Staff costs
The average number of employees and contractors (including
Executive directors) employed by the Group was 354 (2019: 407). The
headcount numbers are not adjusted for part-time, shift-work and
rotational working arrangements.
Staff costs were as follows:
2020 2019
$'000 $'000
Wages and salaries 30,705 35,812
Social security costs 1,334 3,454
Share-based payment (see note 23) 2,637 2,224
34,676 41,490
====== ======
Staff costs include severance and various additional costs
incurred due to the impact of COVID-19. Staff costs also include
costs relating to contractors who are long-term workers in key
positions.
6 Finance costs and finance revenue
2020 2019
$'000 $'000
---------------------------------------------- ----------------- ------------------
Notes interest paid during the year (see
note 15) (10,000) (10,000)
Unwinding of finance and arrangement fees (440) (397)
Finance lease interest (221) (67)
Total finance costs for financial liabilities
not classified as at FVTPL (10,661) (10,464)
Put option premium (2,662) -
Unwinding of discount on provisions (see
note 16) (764) (689)
----------------- ------------------
Total finance costs for financial liabilities
classified as FVTPL (3,426) (689)
Total finance costs (14,087) (11,153)
----------------- ------------------
Finance revenue 1,278 6,046
----------------- ------------------
Net finance costs (12,809) (5,107)
================= ==================
In July 2020, the Company purchased a put option effectively
establishing a floor price of $35/bbl dated Brent on approximately
60% of its 2H 2020 production. The cost of the option was $2.7
million and it expired on 31 December 2020.
7 Income tax
2020 2019
$'000 $'000
------------------------------------------- -------- --------
Current year charged (90) -
Deferred UK corporation tax credit (see
note 17) (221) 271
-------- --------
Tax (expense)/credit attributable to the
Company and its subsidiaries (311) 271
======== ========
Under current Bermudian laws, the Group is not required to pay
taxes in Bermuda on either income or capital gains. The Group has
received an undertaking from the Minister of Finance in Bermuda
exempting it from any such taxes at least until the year 2035.
In the Kurdistan Region of Iraq, the Group is subject to
corporate income tax on its income from petroleum operations under
the Kurdistan PSC. Under the Shaikan PSC, any corporate income tax
arising from petroleum operations will be paid from the KRG's share
of petroleum profits. Due to the uncertainty over the payment
mechanism for oil sales in Kurdistan, it has not been possible to
measure reliably the taxation due that has been paid on behalf of
the Group by the KRG and therefore the notional tax amounts have
not been included in revenue or in the tax charge. This is an
accounting presentational issue and there is no taxation to be
paid.
A reduction in the UK corporation tax rate from 19.0% to 17.0%,
effective from 1 April 2020, was substantively enacted during 2016.
On 11 March 2020, the UK government announced in the Budget that it
would reverse the previously enacted reduction in the UK
corporation tax rate, which was due to take effect from 1 April
2020. This was substantively enacted on 17 March 2020. The annual
UK corporation tax rate for the year ended 31 December 2020
remained at 19.0% (2019: 19.0%).
At the Budget 2021 on 3 March 2021, the UK Government announced
that the corporation tax rate in the UK will increase to 25% for
companies with profits above GBP250,000 with effect from 1 April
2023, as well as announcing a number of other changes to allowances
and treatment of losses. These changes are not yet substantively
enacted, and the Group has not yet undertaken a full analysis of
the impact of the changes. Deferred tax is provided for due to the
temporary differences, which give rise to such a balance in
jurisdictions subject to income tax. All deferred tax arises in the
UK.
8 (Loss)/profit per share
The calculation of the basic and diluted profit per share is
based on the following data:
2020 2019
$'000 $'000
-------- -------
(Loss)/profit
(Loss)/profit after tax for basic and
diluted per share calculations (47,342) 43,529
======== =======
2020 2019
Number Number
(000s) (000s)
------------------------------------------ -------- -------
Number of shares
Basic weighted average number of ordinary
shares 210,893 226,178
The Group followed the steps specified by IAS 33 in determining
whether potential common shares are dilutive or anti-dilutive.
Reconciliation of dilutive shares:
2020 2019
Number Number
(000s) (000s)
---------------------------------------------- ------- -------
Number of shares
Basic weighted average number of ordinary
shares outstanding 210,893 226,178
Effect of dilutive potential ordinary
shares - 10,775
Diluted number of ordinary shares outstanding 210,893 236,953
------- -------
The weighted average number of ordinary shares in issue excludes
shares held by Employee Benefit Trustee ("EBT") and the Exit Event
Trustee, and shares held in Treasury following the share buy-back
programmes carried out in 2019 and 2020.
The diluted number of ordinary shares outstanding including
share options is calculated on the assumption of conversion of all
potentially dilutive ordinary shares. During the year ended 31
December 2019, there were 0.3 million share options that were
excluded from the number of potential dilutive ordinary shares.
As the company reported a loss for the year ended 2020, the
exercise of the outstanding share options would reduce the reported
loss per share and, therefore, these share options are
anti-dilutive.
9 Intangible assets
Computer
software
$'000
----------------------------------------- ---------
Year ended 31 December 2019
Opening net book value 84
Additions 390
Amortisation charge (26)
Foreign currency translation differences 6
---------
Closing net book value 454
---------
At 31 December 2019
Cost 1,498
Accumulated amortisation (1,044)
---------
Net book value 454
---------
Year ended 31 December 2020
Opening net book value 454
Additions 458
Amortisation charge (3)
Foreign currency translation differences 24
Closing net book value 933
=======
At 31 December 2020
Cost 1,980
Accumulated amortisation (1,047)
-------
Net book value 933
=======
The amortisation charge of $3,000 (2019: $26,000) for computer
software has been included in general and administrative expenses
(see note 4).
10 Property, plant and equipment
Oil and Fixtures Right Total
Gas and of Use $'000
Assets Equipment Assets
$'000 $'000 $'000
----------------------------- --------- --------------- ------- -------------------
Year ended 31 December 2019
Opening net book value 379,650 887 - 380,537
Additions 90,041 755 3,528 94,324
Disposals at cost - - (35) (35)
Revision to decommissioning
asset 6,518 - - 6,518
Depreciation charge (72,514) (381) (911) (73,806)
Depreciation on disposals - - 15 15
Foreign currency translation
differences 1 49 (1) 49
Closing net book value 403,696 1,310 2,596 407,602
========= =============== ======= ===================
At 31 December 2019
Cost 696,608 7,005 3,492 707,105
Accumulated depreciation (292,912) (5,695) (896) (299,503)
--------- --------------- ------- -------------------
Net book value 403,696 1,310 2,596 407,602
========= =============== ======= ===================
Year ended 31 December 2020
Opening net book value 403,696 1,310 2,596 407,602
Additions 45,854 155 1,721 47,730
Lease modification - - (1,623) (1,623)
Revision to decommissioning
asset 5,100 - - 5,100
Depreciation charge (82,797) (278) (1,044) (84,119)
Foreign currency translation
differences - - 12 12
Closing net book value 371,853 1,187 1,662 374,702
========= =============== ======= ===================
At 31 December 2020
Cost 747,562 7,160 3,602 758,324
Accumulated depreciation (375,709) (5,973) (1,940) (383,622)
--------- --------------- ------- -------------------
Net book value 371,853 1,187 1,662 374,702
========= =============== ======= ===================
The net book value of oil and gas assets at 31 December 2020 is
comprised of property, plant and equipment relating to the Shaikan
block and has a carrying value of $371.9 million (2019: $403.7
million).
The additions to the Shaikan asset during the year include costs
of testing and connecting SH-9 to the production facilities, the
partial drilling of SH-13, SH-12 recompletion, well flowlines
construction, PF-1 and PF-2 debottlenecking activities and
subsurface studies. The increase in the decommissioning asset
represents further decommissioning obligations that arose on
capital projects.
The DD&A charge of $82.8 million on oil and gas assets
(2019: $72.5 million) has been included within cost of sales (note
3). The depreciation charge of $0.3 million (2019: $0.4 million) on
fixtures and equipment and $1.0 million (2019: $0.9 million) right
of use assets has been included in general and administrative
expenses (note 4).
Right of use assets at 31 December 2020 of $1.7 million (2019:
$2.6million) consisted principally of buildings.
For details of the key assumptions and judgements underlying the
impairment assessment and the depreciation, depletion and
amortisation charge, refer to the "Critical accounting estimates
and judgements" section of the Summary of significant accounting
policies.
11 Group companies
Details of the Company's subsidiaries and joint operations at 31
December 2020 is as follows:
Name of subsidiary Place of Proportion Principal
incorporation of ownership activity
interest
------------------------ --------------- -------------- -------------------------
Gulf Keystone Petroleum United Kingdom 100% Management, support,
(UK) Limited geological, geophysical
6th floor and engineering
New Fetter Place services
8-10 New Fetter Lane
London EC4A 1AZ
------------------------ --------------- -------------- -------------------------
Gulf Keystone Petroleum Bermuda 100% Exploration, evaluation,
International Limited development and
Cedar House, 3rd Floor production activities
41 Cedar Avenue in Kurdistan
Hamilton HM12
Bermuda
------------------------ --------------- -------------- -------------------------
Name of joint operation Location Proportion Principal
of ownership activity
interest
------------------------ ---------- -------------- ------------------------
Shaikan Kurdistan 80% Production and
development activities
------------------------ ---------- -------------- ------------------------
12 Inventories
2020 2019
$'000 $'000
------------------------------- ------ ------
Warehouse stocks and materials 36,172 30,135
Crude oil 355 905
------ ------
36,527 31,040
====== ======
Warehouse stock and materials at 31 December 2020 contain write
downs to net realisable value of $2.5 million (2019: $1.0 million)
included in cost of sales.
13 Trade and other receivables
Non-current receivables
2020 2019
$'000 $'000
-------------------------------- ------- -------
Trade receivables - non-current 59,096 -
59,096 -
======= =======
Current receivables
2020 2019
$'000 $'000
-------------------------------- ------- --------
Trade receivables - current 34,021 97,917
Other receivables 2,963 4,458
Prepayments and accrued income 848 806
------- --------
37,832 103,181
======= ========
Reconciliation of Trade Receivables
2020 2019
$'000 $'000
------------------------------- -------- --------
Gross carrying amount 101,302 99,326
Less: Impairment allowance (8,185) (1,409)
Carrying value at 31 December 93,117 97,917
======== ========
Gross trade receivables of $101.3 million (2019: $99.3 million)
are comprised of invoiced amounts due from the KRG for crude oil
sales totalling $92.2 million (2019: $90.2 million) and a share of
Shaikan revenue arrears the Group purchased from MOL in 2018
amounting to $9.1 million. The amount for crude oil sales includes
past due trade receivables of $77.3 million(1) (2019: $47.8
million) related to November 2019 to February 2020 invoices. While
the Group expects to recover the full value of the outstanding
invoices and purchased revenue arrears, the ECL on the overdue
receivable balance of $8.2 million was provided against the
receivables balance in line with the requirements of IFRS 9 of
which $6.8 million was recognised in the reporting period (2019:
$0.3 million).
For March 2020 and subsequent months, the KRG paid for oil sales
in the following month. The December 2020 invoice included in
current trade receivables was received in January 2021. In March
2021, the Group received the first payment in relation to the
arrears from the outstanding November 2019 to February 2020
invoices. This arrears payment was made in line with the KRG's
proposal and corresponded to 50% of the difference between the
January average dated Brent price and $50/bbl multiplied by the
gross Shaikan crude oil volumes sold in January.
(1) The past due invoiced trade receivables amount excludes the
associated capacity building payments due to the KRG which reduce
the amount due to GKP to $73.3 million.
ECL sensitivities
The tables below show information on the sensitivity of the
Group's loss before tax to the estimates used in calculating
impairment allowance on outstanding invoices. Changes in estimates
could have a material impact on the carrying value of the Group's
trade receivables.
The table below demonstrates the sensitivity of the Group's loss
before tax to movements in Dated Brent, with all other variables
held constant:
2020
$'million
Decrease / (increase)
to loss before
Increase/decrease in Brent price tax
-------------------------------- ---------------------------
+5% 2.0
-5% (5.5)
The table below demonstrates the sensitivity of the Group's loss
before tax to movements in the default spread, with all other
variables held constant:
2020
$'million
Decrease / (increase)
to loss before
Increase/decrease probability of default tax
---------------------------------------- -------------------------
+10% (0.8)
-10% 0.8
The Group's loss before tax was not sensitive to movements of
+/-10% in production level or loss given default.
Other receivables
Included within Other receivables is an amount of $0.4 million
(2019 $nil) being the deposits for leased assets which are
receivable after more than one year. There are no receivables from
related parties as at 31 December 2020 (2019: nil). No impairments
of other receivables have been recognised during the year (FY 2019:
nil).
14 Trade and other payables
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs.
The directors consider that the carrying amount of trade
payables approximates their fair value.
Current liabilities
2020 2019
$'000 $'000
---------------------------------------- ------- ------
Trade payables 2,212 5,373
Accrued expenditures 14,481 27,468
Other payables 51,612 49,875
Current lease liabilities (see note 21) 718 1,265
Tax liabilities 100 -
69,123 83,981
======= ======
The Group changed the presentation of current liabilities in
2020 and the 2019 balances have been restated accordingly.
Accrued expenditures include $4.4 million interest payable as at
31 December 2020 (2019: $4.4 million), see note 15.
Other payables include $46.5 million (2019: $41.4 million) of
amounts payable to the KRG that are not expected to be paid, but
rather offset against revenue due from the KRG related to
pre-October 2017 oil sales, which have not yet been recognised in
the financial statements.
Non-current liabilities
2020 2019
$'000 $'000
-------------------------------------- ------ ------
Non-current lease liability (see note
21) 1,058 1,989
1,058 1,989
====== ======
15 Long term borrowings
2020 2019
$'000 $'000
-------------------------------------- -------- --------
Liability component at 1 January 102,553 102,156
Interest expense, including unwinding
of finance and arrangement fees 10,440 10,397
Interest paid during the year (10,000) (10,000)
Liability component at 31 December 102,993 102,553
======== ========
Liability component reported in:
2020 2019
$'000 $'000
----------------------------------- -------- --------
Current liabilities (see note 14) 4,360 4,361
Non-current liabilities 98,633 98,192
102,993 102,553
======== ========
In July 2018, the Group completed the private placement of a
5-year senior unsecured $100 million bond issue (the "Notes"). The
unsecured Notes are guaranteed by Gulf Keystone Petroleum
International Limited and Gulf Keystone Petroleum (UK) Limited, two
of the Company's subsidiaries, and the key terms are summarised as
follows:
- maturity date is 25 July 2023;
- at any time prior to maturity, the Notes are redeemable by GKP
in part or full with a prepayment penalty;
- the interest rate is 10% per annum with semi-annual payment dates; and
- the Company is permitted to raise up to $200 million of
additional indebtedness at any time on market terms to fund capital
and operating expenditure, subject to certain requirements.
During the year, the Group was not in breach of any terms of the
Notes.
The Notes are traded on the Norwegian Stock Exchange and the
fair value at the prevailing market price as at the balance sheet
date was:
Market 2020 2019
price
$'000 $'000
------- -------- -------- --------
Notes $102.50 102,500 104,910
As at 31 December 2020, the Group's remaining contractual
liability comprising principal and interest based on undiscounted
cash flows is as follows:
2020 2019
$'000 $'000
----------------- ------- -------
Within one year 10,000 10,000
Within two years 115,639 125,639
-------
125,639 135,639
======= =======
16 Provisions
Decommissioning provision 2020 2019
$'000 $'000
---------------------------------------- ------ ------
At 1 January 29,807 22,600
New provisions and changes in estimates 5,100 6,518
Unwinding of discount 764 689
At 31 December 35,671 29,807
====== ======
The provision for decommissioning is based on the net present
value of the Group's share of expenditure, inflated at 2.0% (2019:
2.0%) and discounted at 2.0% (2019: 2.0%), which may be incurred in
the removal and decommissioning of the wells and facilities
currently in place and restoration of the sites to their original
state. The expenditure on the Shaikan block in Kurdistan is
expected to take place over the next 22 years.
17 Deferred tax asset
The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current
and prior reporting periods. The deferred tax assets arise in the
United Kingdom.
Accelerated Share-based Tax losses Total
tax depreciation payments carried $'000
$'000 $'000 forward
$'000
-------------------------- ----------------------- ----------- ---------- -------
At 1 January 2019 (30) 320 269 559
(Charge)/credit to income
statement 4 470 (203) 271
Exchange differences (1) 11 9 19
----------------------- ----------- ---------- -------
At 31 December 2019 (27) 801 75 849
(Charge)/credit to income
statement (85) (66) (70) (221)
Exchange differences (3) (3) (5) (12)
----------------------- ----------- ---------- -------
At 31 December 2020 (115) 732 - 617
======================= =========== ========== =======
18 Financial instruments
2020 2019
$'000 $'000
--------------------------------- ------- -------
Financial assets
Cash and cash equivalents 147,826 190,762
Loans and receivables 97,776 102,375
------- -------
245,602 293,137
Derivative financial instruments
Put options used for hedging 977 -
246,579 293,137
======= =======
Financial liabilities
Trade and other payables 70,081 85,970
Borrowings 98,633 98,192
168,714 184,162
======= =======
All financial liabilities, except for Borrowings (see note 15)
and non-current lease liability (see note 14), are due to be
settled within one year and are classified as current
liabilities.
All financial instruments apart from the Notes, which are
recognised at amortised cost, are recognised at FVTPL.
Fair value hierarchy levels 1 to 3 are based on the degree to
which the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included with Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market date (unobservable
inputs).
All of the Group's financial instruments are Level 2, except the
Notes which are Level 1. There were no transfers between fair value
levels during the year.
The maturity profile and fair values of the Notes are disclosed
in note 15. The maturity profile of all other financial liabilities
is indicated by their classification in the balance sheet as
"Current" or "Non-current". Further information relevant to the
Group's liquidity position is disclosed in the Directors' Report
under "Going Concern".
Fair values of financial assets and liabilities
With the exception of the Notes, and the receivables from the
KRG which the Group expects to recover in full (see note 13), the
Group considers the carrying value of all its financial assets and
liabilities to be materially the same as their fair value. The fair
value of the Notes, as determined using market values at 31
December 2020, was $102.5 million (2019: $104.9 million) compared
to the carrying value of $98.6 million (2019: $98.2 million).
The financial assets balance includes an $8.2 million provision
against trade receivables (see note 13). All financial assets and
liabilities, with the exception of derivatives, are measured at
amortised cost.
Capital Risk Management
The Group manages its capital to ensure that the entities within
the Group will be able to continue as going concerns while
maximising the return to stakeholders through the optimisation of
the debt and equity structure. The capital structure of the Group
consists of cash, cash equivalents, Notes and equity attributable
to equity holders of the parent. Equity comprises issued capital,
reserves and accumulated losses as disclosed in Note 19 and the
Consolidated Statement of Changes in Equity.
Capital Structure
The Group's Board of Directors reviews the capital structure on
a regular basis and will make adjustments in light of changes in
economic conditions. As part of this review, the Board considers
the cost of capital and the risks associated with each class of
capital.
Significant Accounting Policies
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised, in respect of each class of financial asset, financial
liability and equity instrument are disclosed in the Summary of
Significant Accounting Policies.
Financial Risk Management Objectives
The Group's management monitors and manages the financial risks
relating to the operations of the Group. These financial risks
include market risk (including commodity price, currency and fair
value interest rate risk), credit risk, liquidity risk and cash
flow interest rate risk.
The Group currently hedges against commodity price risk by
purchasing put options. In 2020, the Group purchased put options
that effectively provide a floor price of $35/bbl for c.60% of its
2H 2020 and 1H 2021 net entitlement production. The Group does not
hedge any other financial risks. The Group does not use derivative
financial instruments for speculative purposes.
The risks are closely reviewed by the Board on a regular basis
and, where appropriate, steps are taken to ensure these risks are
minimised.
Market risk
The Group's activities expose it primarily to the financial
risks of changes in, oil prices, foreign currency exchange rates
and changes in interest rates in relation to the Group's cash
balances.
There have been no changes to the Group's exposure to other
market risks. The risks are monitored by the Board on a regular
basis.
The Group conducts and manages its business predominantly in US
dollars, the operating currency of the industry in which it
operates. The Group also purchases the operating currencies of the
countries in which it operates routinely on the spot market. Cash
balances are held in other currencies to meet immediate operating
and administrative expenses or to comply with local currency
regulations.
At 31 December 2020, a 10% weakening or strengthening of the US
dollar against the other currencies in which the Group's monetary
assets and monetary liabilities are denominated would not have a
material effect on the Group's net current assets or profit before
tax.
Interest rate risk management
The Group's policy on interest rate management is agreed at the
Board level and is reviewed on an ongoing basis. The current policy
is to maintain a certain amount of funds in the form of cash for
short-term liabilities and have the rest on relatively short-term
deposits, usually between one and three months, to maximise returns
and accessibility. The Group must pay interest on its Notes
semi-annually in cash at 10% per annum.
Based on the exposure to the interest rates for cash and cash
equivalents at the balance sheet date, a 0.5% increase or decrease
in interest rates would not have a material impact on the Group's
profit for the year or the previous year. A rate of 0.5% is used as
it represents management's assessment of a reasonable change in
interest rates.
Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. As at 31 December 2020, the maximum exposure to credit risk
from a trade receivable outstanding from one customer is $101.3
million (2019: $99.3 million). Although the Group is confident in
the recovery of the trade receivables balance, a provision of $8.2m
(2019: $1.4 million) was recognised against the trade receivables
balance.
The credit risk on liquid funds is limited because the
counterparties for a significant portion of the cash and cash
equivalents at the balance sheet date are banks with investment
grade credit ratings assigned by international credit-rating
agencies.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board of Directors. It is the Group's policy to finance its
business by means of internally generated funds, external share
capital and debt. The Group seeks to raise further funding as and
when required.
Fair value of derivative instruments
All derivatives are used to hedge against commodity price risk
and are recognised at fair value on the balance sheet with
valuation changes recognised immediately in the income statement
unless the derivatives have been designated as a cash flow hedge.
Fair value is the amount for which the asset or liability could be
exchanged in an arm's length transaction at the relevant date.
Where available, fair values are determined using quoted prices in
active markets. To the extent that market prices are not available,
fair values are estimated by reference to market-based transactions
or using standard calculation techniques for the applicable
instruments and commodities involved.
For derivatives designated as a cash flow hedge, the movements
in the fair value of the derivatives are recognised in other
comprehensive income. Derivatives' maturity and the timing of their
recycling into income or expense coincide.
The Group's derivative instruments' value was as following:
2020 2019
$'000 $'000
----------------------------------------------- ------ ------
Derivatives that are designated and effective
as hedging instruments carried at fair value:
Put option 977 -
977 -
====== ======
In order to manage the Group's oil price risk, put options were
entered into during the year. The first tranche related to H2 2020,
was entered into at a cost of $2.7 million, which has been
recognised as a finance cost (see note 6). A second tranche related
H1 2021 was entered into at a cost of $2.7 million and hedges 1.6
Mbbl of oil with a floor price of $35/bbl. The fair value of the
second tranche at 31 December 2020 was $1.0 million with a
revaluation loss of $1.7 million recognised in the Consolidated
statement of comprehensive income.
19 Share capital
2020 2019
$'000 $'000
----------------------------------------- ------- -----------------
Authorised
Common shares of $1 each (2019: $1 each) 231,605 231,605
Non-voting shares of $0.01 each 500 500
Preferred shares of $1,000 each 20,000 20,000
Series A Preferred shares of $1,000 each 40,000 40,000
------- -----------------
292,105 292,105
======= =================
Common shares
-------------------------------------------------
Share Share
No. of Amount capital premium
shares
'000 $'000 $'000 $'000
------------------------- -------- --------- ------------------ --------
Balance 1 January 2019 229,430 1,150,158 229,430 920,728
Dividend paid - (49,053) - (49,053)
Balance 31 December 2019 229,430 1,101,105 229,430 871,675
Shares cancelled (18,059) (46,820) (18,059) (28,761)
Balance 31 December 2020 211,371 1,054,285 211,371 842,914
======== ========= ================== ========
The company announced on 8 July 2019 that it would undertake a
buy-back programme to purchase shares up to a maximum value of $25
million. This programme was successfully completed on 8 October
2019 and a second buy-back programme for $25 million was commenced
on 10 December 2019 and successfully completed on 13 March 2020.
Following the buy-back programme completion, the Company held
19,059,064 shares in treasury of which 18,059,064 were cancelled in
late 2020.
At 31 December 2020, a total of 1,000,000 (2019:10,415,603)
common shares were held in treasury with a value of $2.6 million
(2019: $29.7 million)
At 31 December 2020, a total of 0.1 million common shares at $1
each were held by the EBT and Exit Event Trustee (2019: 0.1 million
at $1 each). These common shares were included within reserves.
Rights attached to share capital
The holders of the common shares have the following rights
(subject to the other provisions of the Byelaws):
(i) entitled to one vote per common share;
(ii) entitled to receive notice of, and attend and vote at,
general meetings of the Company;
(iii) entitled to dividends or other distributions; and
(iv) in the event of a winding-up or dissolution of the Company,
whether voluntary or involuntary or for a reorganisation
or otherwise or upon a distribution of capital, entitled
to receive the amount of capital paid up on their common
shares and to participate further in the surplus assets
of the Company only after payment of the Series A Liquidation
Value (as defined in the Byelaws) on the Series A Preferred
Shares.
20 Cash flow reconciliation
Notes 2020 2019
$'000 $'000
----- ---------- ------------
Cash flows from operating activities
(Loss)/profit from operations (33,381) 49,026
Adjustments for:
Depreciation, depletion and amortisation
of property, plant and equipment (including
the right of use assets) 84,119 73,806
Amortisation of intangible assets 3 26
Impairment of trade receivables 13 6,776 293
Share-based payment expense 23 2,440 1,910
Lease modification (97) -
Operating cash flows before movements
in working capital 59,860 125,061
Increase in inventories (5,487) (16,850)
Increase in trade and other receivables (523) (35,416)
(Decrease) / increase in trade and other
payables (2,977) 15,097
---------- ------------
Cash generated from operations 50,873 87,892
---------- ------------
Reconciliation of property, plant and equipment additions to
cash flows from purchase of property, plant and equipment:
2020 2019
$'000 $'000
-------------------------------------------- -------- --------
Associated cash flows
Additions to property, plant and equipment 47,730 94,324
Movement in working capital 12,087 6,444
Non-cash movements
Finance lease additions (1,721) (3,528)
Capitalised share option charges (197) (314)
Purchase of property, plant and equipment 57,899 96,926
-------- --------
21 Lease Liabilities
2020 2019
$'000 $'000
-------------------------------------------------------------------------------------------------------------------------------- ------- -------
Analysed as:
Current liabilities 718 1,265
Non-current liabilities 1,058 1,989
------- -------
1,776 3,254
======= =======
Lease Maturity Analysis
Year 1 209 -
Year 2 48 -
Year 3 - 3,254
Year 4 1,519 -
Amounts payable under leases
Within one year 720 1,348
In the second to fifth year inclusive 1,396 2,031
------- -------
2,116 3,379
Less future interest charges (340) (125)
Net present value of lease obligations 1,776 3,254
------- -------
22 Commitments
Exploration and development commitments
Additions to property, plant and equipment are generally funded
with the cash flow generated from the Shaikan Field. As at 31
December 2020, capital commitments in relation to the Shaikan Field
were estimated to be $0.6 million (2019: $35.3 million).
23 Share-based payments
2020 2019
$'000 $'000
----------------------------------------- ------ ------
Total share options charge 2,637 2,224
Capitalised share options charge (197) (314)
------ ------
Share options charge in Income Statement 2,440 1,910
====== ======
Value Creation Plan ("VCP")
The VCP was approved by shareholders in December 2016. On 30
April 2019, an additional 2,087,756 nil-cost share options were
granted to the former CEO and an additional 1,565,817 nil-cost
share options were granted to the former CFO. As at 31 December
2019, 7.0 million nil-cost share options were outstanding under the
VCP. There will be no further awards under the plan.
Outstanding awards will vest subject to the Company achieving a
Total Shareholder Return ("TSR") of at least 8% compound annual
growth, in accordance with the VCP rules. Up to 50% of the
outstanding share options will vest following the Measurement Date
for the financial year ending on 31 December 2019, 50% of the then
outstanding share options will vest following the Measurement Date
for the financial year ending on 31 December 2020, and the
remainder of the outstanding share options will vest following the
Measurement Date for the financial year ending on 31 December
2021.
The requisite TSR was not achieved following the Measurement
date for the financial year ended 31 December 2019 and no share
options vested. The measurement date for the financial year ended
31 December 2020 has not yet passed as at the date of this
report.
2020 2019
Number of Weighted Number of Weighted
share options average share options average
'000 exercise '000 exercise price
price (in pence)
(in pence)
--------------------------- ----------------------- ----------- --------------- ---------------
Outstanding at 1 January 7,017 - 3,364 -
Granted during the
year - - 3,653 -
Outstanding at 31 December 7,017 - 7,017 -
Exercisable at 31 December - - - -
======================= =========== =============== ===============
The options outstanding at 31 December 2020 had a weighted
average remaining contractual life of 2 years.
A charge of $0.8 million (2019: $0.8 million) in relation to the
VCP is included in the total share options charge.
Staff Retention Plan
At the 2016 Annual General Meeting ("AGM"), shareholders
approved the adoption of the Gulf Keystone Petroleum 2016 Staff
Retention Plan ("SRP"), which is designed to reward members of
staff through the grant of share options at a zero exercise
price.
The exercise of the awarded options is not subject to any
performance conditions and can be exercised at any time after the
three year vesting period but within ten years after the date of
grant. If options are not exercised within ten years, the options
will lapse and will not be exercisable. If an employee leaves the
company during the three years from the date of grant, the options
will lapse on the date notice to leave is given to the company.
Should an employee be regarded as a good leaver, the options may be
exercised at any time within a period of six months from departure
date.
2020 2019
Number of Weighted Number of Weighted
share options average share options average
'000 exercise '000 exercise price
price (in pence)
(in pence)
--------------------------- --------------- ----------- --------------- ---------------
Outstanding at 1 January 1,129 - 1,440 -
Exercised during the
year (156) - (248) -
Forfeited during the
year - - (63) -
Outstanding at 31 December 973 - 1,129 -
Exercisable at 31 December 973 - 627 -
=============== =========== =============== ===============
The weighted average share price at the date of exercise for
share options exercised during 2020 was GBP1.43.
During 2020 no options (2019: nil) were granted to employees
under the Group's SRP.
A charge of $0.1 million (2019: $0.4 million) in relation to the
SRP is included in the total share options charge.
Share options outstanding at the end of the year have the
exercise price of nil and the following expiry dates:
Expiry date Options ('000)
2020 2019
11 December 2026 516 628
9 January 2027 250 250
30 June 2027 207 206
30 July 2027 - 45
973 1,129
======= ========
The options outstanding at 31 December 2020 had a weighted
average remaining contractual life of 6 years.
Long Term Incentive Plan
The Gulf Keystone Petroleum 2014 Long Term Incentive Plan
("LTIP") is designed to reward members of staff through the grant
of share options at a zero exercise price, that vests three years
after grant, subject to the fulfilment of specified performance
conditions. These performance conditions are 50% TSR over the
vesting period and 50% the Group's TSR relative to a bespoke group
of comparators.
2020 2019
Number of Weighted Number of Weighted
share options average share options average
'000 exercise '000 exercise price
price (in pence)
(in pence)
--------------------------- ----------------- ----------- --------------- ---------------
Outstanding at 1 January 2,629 - 1,614 -
Granted during the
year 4,752 - 1,233 -
Forfeited during the
year (127) - (218) -
Outstanding at 31 December 7,254 - 2,629 -
Exercisable at 31 December - - - -
================= =========== =============== ===============
The options outstanding at 31 December 2020 had a weighted
average remaining contractual life of 2 years.
The aggregate of the estimated fair values of the options
granted in 2020 is $2.6 million.
A charge of $1.7 million (2019: $1.0 million) in relation to the
LTIP is included in the total share options charge.
Equity-settled share option plan
The Group's share option plan provides for an exercise price at
least equal to the closing market price of the Group shares on the
date prior to grant. Awards made under the Group's share option
plan have a vesting period of at least three years except for
awards made under the legacy Long Term Incentive Plan, which vest
in equal tranches over a minimum of three years subsequent to the
achievement of a number of operational and market-based performance
conditions. Options expire if they remain unexercised after a
period of 10 years from the date of grant. The options granted in
2015 were made under the recruitment remuneration policy, vest in
three equal tranches over two years, and expire if they remain
unexercised after a period of 7 years from the date of grant.
Options are forfeited if the employee leaves the Group before the
options vest. The company has not made any awards during 2020 under
this scheme.
2020 2019
Number of Weighted Number of Weighted
share options average share options average
'000 exercise '000 exercise price
price (in pence)
(in pence)
Outstanding at 1 January 300 11,492.1 326 11,492.6
Expired during the
year (159) - (26) -
Outstanding at 31 December 141 15,847.2 300 11,492.1
Exercisable at 31 December 141 15,847.2 300 11,492.1
=============== =========== =============== ===============
The options outstanding at 31 December 2020 had a weighted
average exercise price of GBP159 (2019: GBP115) and a weighted
average remaining contractual life of less than one year (2019: 1
year).
A charge of nil (2019: nil) in relation to the equity-settled
share option plan is included in the total share options
charge.
Share options outstanding at the end of the year have the
following expiry date and exercise prices:
Expiry date Exercise price
(pence) Options ('000)
2020 2019 2020 2019
24 June 2020 - 7,500 - 156.3
22 September 2020 - 14,750 - 2.5
6 February 2021 17,500 17,500 94.4 94.4
19 June 2021 14,625 14,625 5.5 5.5
7 July 2021 14,625 14,625 2.5 2.5
14 July 2021 14,625 14,625 2.5 2.5
21 July 2021 14,625 14,625 5.0 5.0
19 September 2021 15,250 15,250 2.5 2.5
26 October 2021 14,625 14,625 2.5 2.5
21 January 2022 5,500 5,500 15.0 15.0
20 March 2022 19,450 19,450 4.0 4.0
20 March 2022 25,000 25,000 2.5 2.5
8 July 2023 15,875 15,875 2.5 2.5
24 April 2024 9,975 9,975 2.5 2.5
141.4 300.2
======== =======
24 Dividend
The Group was focussed on preservation of liquidity due to the
impact of COVID-19 and the decline in oil prices and did not pay a
dividend in 2020. The $49 million dividend paid in 2019 related to
the year ended 31 December 2018. In line with our commitment to
balance investment in production growth and distributions to
shareholders, the Group is reimplementing an annual dividend policy
with the target of paying at least $25 million per year. A dividend
of $25 million is subject to approval at the AGM in June 2021 and
will be paid to shareholders on 2 July 2021 based on a record date
of 25 June 2021.
25 Related party transactions
The Group has a related party relationship with its
subsidiaries. The Company and its subsidiaries, in the ordinary
course of business, enter into various sales, purchase and service
transactions with joint operations in which the Group has a
material interest. These transactions are under terms that are no
less favourable to the Group than those arranged with third
parties.
Remuneration of key management personnel
The remuneration of the Directors and Officers, the key
management personnel of the Group, is set out below in aggregate
for each of the categories specified in IAS 24 Related Party
Disclosures. Those identified as key management personnel include
the Directors of the Company and the key personnel:
J Ferrier - Former CEO (resigned 31 January 2021)
I Weatherdon - CFO (appointed 13 January 2020)
S Zouari - Former CFO (resigned 2 December 2019)
S Catterall - Chief Operations Officer
G Papineau-Legris - Chief Commercial Officer
J Barker - HR Director
R Deutscher - Country Manager - Kurdistan Region of Iraq
N Kernoha - Head of Finance
M Parsley - Subsurface Manager
A Robinson - Legal Director and Company Secretary
The values below are calculated in accordance with IAS 19 and
IFRS 2.
2020 2019
$'000 $'000
------------------------------ ------ ------
Short-term employee benefits 4,822 4,898
Share-based payment - options 1,273 1,618
6,095 6,516
====== ======
Further information about the remuneration of individual
Directors, including the leaver arrangements for the previous CEO,
is provided in the Directors' Emoluments section of the
Remuneration Committee Report.
26 Contingent liabilities
The Group has a contingent liability of $27.3 million (2019:
$27.3 million) in relation to the proceeds from the sale of test
production in the period prior to the approval of the original
Shaikan Field Development Plan ("FDP") in July 2013. The Shaikan
PSC does not appear to address expressly any party's rights to this
pre-FDP petroleum. The sales were made based on sales contracts
with domestic offtakers which were approved by the KRG. The Group
believes that the receipts from these sales of pre-FDP petroleum
are for the account of the Contractor, rather than the KRG and
accordingly recorded them as test revenue in prior years. However,
the KRG has requested a repayment of these amounts and the Group is
currently involved in negotiations to resolve this matter. The
Group has received external legal advice and does not consider that
a probable material payment is payable to the KRG. This contingent
liability forms part of the ongoing Shaikan PSC amendment
negotiations and it is likely that it will be settled as part of
those negotiations.
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END
FR DKKBPDBKBKNN
(END) Dow Jones Newswires
March 31, 2021 02:00 ET (06:00 GMT)
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