TIDMGKP
RNS Number : 8798X
Gulf Keystone Petroleum Ltd.
03 September 2020
3 September 2020
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP", "the Group" or "the Company")
2020 Half Year Results Announcement
Continued strong production operations
Ne ar -term production uplift opportunities identified
Gulf Keystone Petroleum, a leading independent operator and
producer in the Kurdistan Region of Iraq ("Kurdistan" or "Kurdistan
Region"), announces its results for the half year ended 30 June
2020.
Jón Ferrier, Gulf Keystone's Chief Executive Officer, said:
"We moved decisively to protect the business and preserve
liquidity in response to COVID-19 and the decline in oil prices. We
are actively managing the impact of COVID-19 and working to protect
our staff. The Shaikan Field continues to perform well with
production up more than 25% compared to H1 2019.
While waiting to resume the 55,000 bopd project, the Company has
identified a number of simple, low-cost, high-impact investments
that have the potential to increase the current base level of gross
production by approximately 5,000 bopd and, subject to a
satisfactory operating environment, could be implemented in the
near-term.
We continue to maintain a tight focus on cost control and
further savings will be reflected in the full year results.
With our current measures in place, we are pleased to provide
2020 gross production guidance of 35,000 to 36,000 bopd. With
continued improvement in macro and operating conditions, we are
well positioned to deliver the long-term potential of the Shaikan
Field and look forward to resuming shareholder distributions over
time."
Highlights to 30 June 2020 and post reporting period
Operational
-- Operations at Shaikan continue safely and reliably, with no
Lost Time Incidents ("LTIs") reported during 2020.
-- The Shaikan reservoir continues to perform in line with
expectations, with current gross production of c.36,000 bopd and
average 2020 gross production to 1 September 2020 of 36,272
bopd.
-- At the time of suspension of investment plans in March 2020,
key drilling and facilities activities were on track to achieve the
55,000 bopd target in Q3 2020.
-- GKP is preparing to return to production growth, and has
identified a number of quick payback projects, which are expected
to increase gross production by c.5,000 bopd for an aggregate gross
cost of c.$3 million. Planning is ongoing and, subject to a
satisfactory operating environment, could be implemented in the
near-term.
-- The Company remains committed to operating sustainably.
Throughout the pandemic, the Company has continued to actively
support the communities around Shaikan and has donated essential
equipment to nearby hospitals.
Financial
-- H1 2020 revenue of $49.9 million (H1 2019 - $95.6 million)
and Adjusted EBITDA of $27.5 million (H1 2019 - $59.0 million)
resulted from the decline in oil prices, partially offset by
increased production. Such factors combined with increased
depreciation, depletion and amortisation ("DD&A") due to
production growth drove a loss after tax of $33.1 million (H1 2019
- $24.2 million profit).
-- Opex per barrel in H1 2020 was $2.6/bbl, below guidance of
$2.7 - $3.1/bbl. Operating costs and general and administrative
("G&A") expenses savings of 12% contributed to expense
reductions compared to H1 2019, and further savings are expected in
H2 2020 with the significant reduction in activity and continuing
focus on cost control.
-- Net capex in H1 2020 was $38.5 million. H2 2020 net capex is
expected to be minimal, comprised principally of long-lead time
deliveries that will expedite the eventual restart of growth
activities. Full year net capex is expected to be within the
original $40-48 million guidance range.
-- To protect cash flows, Gulf Keystone hedged c.70% of its H2
2020 net production at a floor price of $35/bbl while retaining
full upside exposure.
-- In Q1 2020, the Company completed the second tranche of its
share buyback programme bringing total 2019 and 2020 capital
distributions to $99 million.
-- Since March 2020, the Kurdistan Regional Government ("KRG")
has paid for the last five months of oil sales in the following
month as per its commitment to international oil companies
("IOCs").
-- The Company has a strong balance sheet with $140 million of
cash at 2 September 2020 and no debt repayment until mid-2023.
Corporate
-- As previously announced, Jón Ferrier, CEO, has informed the
Board of his intention to retire from the Company upon appointment
of a successor and after a period of handover. The search process
for a new CEO is underway.
-- The Company announced the re-appointment of Garrett Soden to
the Board of GKP as a Non-Independent Non-Executive Director
representing funds managed by Lansdowne Partners Austria GmbH.
Outlook
-- After successfully managing the impacts of COVID-19 over the
last several months, the Company is pleased to provide 2020 gross
production guidance of 35,000 bopd to 36,000 bopd.
-- GKP is well positioned to restart its drilling programme to
achieve 55,000 bopd when circumstances permit.
-- In line with its stated growth strategy, GKP continues to
progress growth opportunities at Shaikan and will also consider
potential value accretive inorganic options on an opportunistic
basis.
-- The Company remains in a constructive dialogue with the KRG
and will continue to seek the timely settlement of the overdue
November 2019 to February 2020 invoices totaling $73.3 million
(net). The KRG has committed that with the continuing improvement
in the price of dated Brent above $50/bbl outstanding arrears will
be reviewed.
-- GKP remains committed to maintaining its strong financial
position and, as conditions continue to improve, returning to a
balance of production growth and shareholder distributions.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
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.
CEO Statement
Shaikan's continuing stable low-cost production performance has
been a welcome constant against the backdrop of recent
unprecedented global uncertainties. COVID-19 continues to have a
profound impact on economies, movements of people, supply chains
and the general operating environment. While Brent oil prices have
rebounded to around $45/bbl from lows of below $20/bbl, uncertainty
remains on the trajectory of the overall recovery of longer-term
prices.
2020 started well with an active investment programme and the
Company was on track to achieve 55,000 bopd in Q3 2020. From March
2020, as the COVID-19 pandemic took hold, the Company moved quickly
to ensure the welfare of its people, protect the business and
preserve liquidity. The Shaikan Field benefits from a flexible
development plan and the Company rapidly and decisively took steps
to significantly scale back its operations and reduce costs.
Suspension of growth plans to achieve 55,000 bopd resulted in
targeted 2020 net capex being reduced by c.50% versus 2019. Opex
and G&A were quickly addressed and we are on track to achieve
our annualised target reduction of c.20% over 2019. The Company has
completed the previously announced 40% reduction of its workforce,
who were substantially focused on the 55,000 bopd expansion
project. These timely interventions protected the Company's strong
balance sheet, positioning it well to navigate through current
uncertainties and be ready to return to growth.
Throughout the period, the Company maintained safe operating
practices. GKP immediately implemented stringent protocols and
testing procedures specifically for COVID-19, which have been
adapted over time as the pandemic evolves. GKP is currently over
250 days LTI free.
Kurdistan has been impacted by the combination of the rapid
spread of COVID-19 and the fall in the oil price. As a consequence
of the financial pressures facing the region, payment of invoices
to all the IOCs for November 2019 to February 2020 crude oil sales
(aggregating $73.3 million net to GKP) remain outstanding.
The Government pledged to pay monthly oil sales invoices from
March 2020 in the following month, and we are pleased to confirm
this commitment is being honoured. Gulf Keystone recognises that
these are exceptional times and is encouraged by the KRG's
assurance that all historic invoices will be paid. The Company
remains in a constructive dialogue with the KRG and will continue
to seek the timely settlement of historic invoices. The KRG has
committed that with the continuing improvement in the price of
dated Brent above $50/bbl outstanding arrears will be reviewed.
Gulf Keystone, along with the strong support of the Ministry of
Natural Resources of the Kurdistan Regional Government ("MNR"), is
successfully navigating the operational challenges associated with
COVID-19 and is pleased today to provide 2020 gross production
guidance of 35,000 to 36,000 bopd.
As part of its risk management strategy, the Company has
protected the downside of another potential downturn in oil prices
by hedging 70% of 2020 second half production at a minimum price of
$35/bbl, while retaining exposure to price upside.
Extensive operational planning is underway to execute simple,
low-cost, rapid payback opportunities that are expected to deliver
c.5,000 bopd for an aggregate cost of c.$3 million gross. Execution
of these projects has the potential to be implemented in the
near-term but is subject to a satisfactory operating
environment.
With continued improvements in the macro environment, regular
monthly payments, further clarity around outstanding revenue
arrears from the KRG and confidence in the operating environment,
GKP, in line with its growth strategy, will look to restart its
drilling programme to achieve 55,000 bopd. Furthermore, GKP will
also consider potential value accretive inorganic options on an
opportunistic basis.
Environment, social and governance ("ESG") remains a priority
for the Company. With the recent reductions to our national
workforce, GKP worked closely with local communities to maintain
the strong relationships fostered over the past ten years. In
support of the KRG's COVID-19 response, GKP donated medical
equipment, including Personal Protective Equipment, test kits and
sterilisation equipment to hospitals in the Shaikan area.
Prior to COVID-19, Gulf Keystone was amongst a small number of
E&P companies offering investors both a compelling self-funded
production growth story as well as a yield on their investment
through a dividend policy and share buybacks. The Company recently
returned nearly $100 million to investors with the completion of
the share buyback programme in March 2020. GKP continues to keep
its capital distributions policy under review and with an improved
oil price environment and outlook, the Company looks forward to
resuming capital distributions.
As previously announced, after five years, I have decided to
retire which will take effect once my successor has been appointed
and after a period of handover. The search process is underway. The
Company also announced the re-appointment of Garrett Soden to the
Board of GKP as a Non-Independent Non-Executive Director
representing funds managed by Lansdowne Partners Austria GmbH.
This has been a period with considerable challenges, which the
Company has successfully managed and is well positioned to
capitalise on improving conditions. The professionalism and
commitment of the Gulf Keystone team and its contractors has been
outstanding. We sincerely thank them, as well as our hosts, the
KRG, for their support.
Jón Ferrier
Chief Executive Officer
Operational Review
The year started with strong operational momentum with
significant progress on facilities debottlenecking and drilling
activities. The Company was on-track to achieve 55,000 bopd in Q3
2020 when the expansion project was suspended in March.
Key components to the 55,000 bopd project were all well
progressed at the time of suspension:
-- Facilities debottlenecking to reach a production processing
capacity of 55,000 bopd was within three weeks of completion;
-- SH-13 was suspended just above the reservoir section with
less than one month of work remaining to bring the well onstream .
The well was drilled quicker than planned, benefiting from
improving performance as lessons learned from our drilling campaign
were applied;
-- SH-L, the next well after SH-13, was planned to be spudded
from the same drilling pad and was expected to be drilled and
completed in two months; and
-- SH-9 only required final commissioning to be brought on
stream as an oil producer, providing increased production
confidence to PF-1.
Given the flexible nature of our capital programme, the Company
was able to react quickly and safely to unprecedented events. The
Capex programme was reduced by c.50% from 2019 and cost savings
were implemented to reduce G&A and Opex by at least 20%. In H1
2020, Opex per barrel was $2.6, below full year guidance of $2.7 to
$3.1/bbl.
Despite the challenges imposed by COVID-19, production
operations have continued safely and reliably throughout the period
with strong logistics support from the MNR. No LTIs have been
reported during 2020.
The Shaikan reservoir continues to perform well despite a
significantly reduced programme of additional wells and workovers.
Average 2020 gross production to 1 September 2020 is 36,272 bopd,
with current production at c. 36,0 00 bopd. The Company continues
to proactively manage the impact of COVID-19 on operations and we
are pleased to provide gross production guidance for 2020 of 35,000
to 36,000 bopd.
Gulf Keystone has taken advantage of the pause in development
activity to refine its plans and develop potential growth
opportunities:
-- a comprehensive review of seismic and new well data is
underway to enhance our understanding of the subsurface that will
optimise future well placement and reservoir planning; and
-- a register of low cost, rapid payback projects has been
developed. The top three projects - SH-9 final commissioning ,
completion of SH-12 in the main Upper Jurassic reservoir and
further debottlenecking of PF-1 to increase production capacity
from the current 24 ,000 bopd to over 30 ,000 bopd - are expected
to increase gross production by approximately 5,000 bopd for a
total cost of c.$3 million gross. The Company is currently planning
the projects with the final timing of execution dependent on a
satisfactory operating environment.
In addition to these near-term measures, with continued
improvements in the macro environment, regular monthly payments,
further clarity around outstanding revenue arrears from the KRG and
confidence in the operating environment, GKP will look to restart
its drilling programme to achieve 55,000 bopd.
GKP remains committed to being at the forefront of best practice
with regards to all aspects of ESG. The Company retains its plan to
reduce CO(2) emissions from operations by more than one-half with
the implementation of the Shaikan Field Development Plan and looks
forward to providing further updates in due course.
Throughout the pandemic, GKP has supported local communities and
donated essential medical equipment to nearby hospitals. The recent
reduction of employees from local communities has been handled
sensitively and our good relations with stakeholders built up over
the last decade preserved, positioning us well for the restart of
operations. We continue to develop local staff with a full suite of
online training and have provided virtual seminars for 140
engineering students at local universities and colleges.
Stuart Catterall
Chief Operating Officer
Financial Review
Key financial highlights
Six months Six months Year ended
ended ended
30 June 2020 30 June 2019 31 December
2019
------------- ------------- ------------
Gross average production
(bopd) 37,159 29,362 32,883
Realised price ($/bbl) 19.1 44.8 42.9
Revenue ($m) 49.9 95.6 206.7
Operating costs ($m)(1) (14.2) (16.4) (37.4)
Gross operating costs per
bbl ($/bbl)(1) (2.6) (3.9) (3.9)
General and administrative
expenses ($m) (5.4) (8.2) (19.5)
* Incurred in relation to Shaikan Field ($m) (3.2) (3.8) (10.0)
* Corporate G&A ($m) (2.2) (4.4) (9.5)
Revenue receipts ($m) 52.1 89.8 155.7
Impairment of trade receivables
($m) (12.8) (0.2) (0.3)
(Loss)/profit after tax
($m) (33.1) 24.2 43.5
Basic (loss)/earnings per
share (cents) (15.64) 10.55 19.25
Capital investment ($m)
(1) 38.5 32.4 90.0
Adjusted EBITDA ($m)(1) 27.5 59.0 122.5
Net cash ($m) (1) 39.2 198.3 86.4
Cash and cash equivalents
($m) 143.6 302.1 190.8
Outstanding New Notes ($m) 100.0 100.0 100.0
(1) Operating costs, gross operating costs per barrel, Adjusted
EBITDA, capital investment and net cash are either non-financial or
non-International Financial Reporting Standards ("IFRS") measures
and are explained in the summary of significant accounting
policies.
A key element of Gulf Keystone's strategy is to maintain a
conservative financial position. The Company has a strong balance
sheet, with $139.6 million of cash at 2 September 2020 and no debt
repayment until July 2023, which provides financial flexibility to
continue to successfully navigate through these uncertain
times.
In Q1 2020, the Company completed the second tranche of its
share buyback programme bringing total capital distributions
throughout 2019 and 2020 to $99.0 million. We remain committed to
maintaining our strong financial position and, as conditions
improve, returning to a balance of production growth and
shareholder distributions.
To preserve liquidity, the 2020 capital expenditure programme
was halved from the prior year and concrete progress has been made
on achieving cost reduction targets, all while maintaining high
standards of health and safety.
While we are encouraged by the increase in oil price since April
2020, uncertainty remains around further COVID-19 outbreaks and the
potential impact on oil demand. To protect cash flows from
declining below the Company's aggregate operating costs, G&A
and interest break-even level, Gulf Keystone hedged c.70% of its H2
2020 net production at a floor price of $35/bbl, while retaining
the full upside to increasing oil prices.
Despite the significant decline in oil prices, Gulf Keystone
generated positive Adjusted EBITDA of $27.5 million in H1 2020;
however, the Company recognised a loss after tax for the first half
of 2020 for the first time since its restructuring in 2016.
Revenues
Despite COVID-19 and challenging macro-economic conditions, Gulf
Keystone's average H1 2020 production increased to 37,159 bopd, up
27% from H1 2019 and 13% from FY 2019. However, the benefit of
higher production was more than offset by the decline in dated
Brent oil prices.
Operating costs, depreciation, other cost of sales and
administrative expenses
The Company's operating costs decreased 13% to $14.2 million (H1
2019: $16.4 million; FY 2019: $37.4 million), driven by cost saving
initiatives. Gross operating costs per bbl decreased significantly
to $2.6/bbl (H1 2019: $3.9/bbl; FY 2019: $3.9/bbl), just below 2020
guidance of $2.7-3.1/bbl. Considering scheduled H2 2020 maintenance
activities and full year production guidance, we reaffirm the full
year operating costs per barrel guidance range.
G&A expenses decreased by 34% from $8.2 million in H1 2019
to $5.4 million in H1 2020. Cost savings initiatives contributed
c.9% of the decrease. The remaining decrease is driven principally
by the reduction in accruals due to the impact of the decline in
GKP's share price on the tax provision for share-based compensation
and higher capitalisation of costs due to increased capex activity
as compared to H1 2019.
Aggregate operating costs and G&A savings of 12% contributed
to a reduction in H1 2020 expenditures compared to H1 2019
expenditures. Given that high activity levels were only curtailed,
and staff and cost reduction programmes implemented part way
through H1 2020, costs are expected to continue to decrease in H2
2020. GKP remains on track to achieve its targeted reduction in
operating costs and G&A of at least 20% compared to 2019 and
c.30% on a run-rate basis.
The decline in capacity building payments related to the decline
in oil prices (H1 2020: $3.8 million; H1 2019: $7.1 million; FY
2019: $15.3 million) was more than offset by an increase in
depletion and amortisation of oil and gas assets resulting from
increased production (H1 2020: $41.8 million; H1 2019: $32.4
million; FY 2019: $72.5 million).
Trade receivables
The Company received $52.1 million (net) in H1 2020 from the KRG
(H1 2019: $89.8 million; FY 2019: $155.7 million). Subsequent to 30
June 2020, payments for June and July for a total of $15.4 million
(net) were received.
In March 2020, the KRG informed the Company and other IOCs in
Kurdistan that:
-- from March 2020 and onwards, oil sales will be paid in the following month; and
-- outstanding trade receivables related to November 2019 to February 2020 would be deferred.
Since March 2020, the KRG has honoured its commitment and paid
the last five months of oil sales in the following month.
The Company remains in a constructive dialogue with the KRG and
will continue to seek the timely settlement of the overdue November
2019 to February 2020 invoices totaling $73.3 million (net) . The
KRG has indicated that with the continuing improvement in the price
of dated Brent above $50 /bbl , payment terms of these outstanding
amounts will be reviewed.
While the Company expects to recover the full $73.3 million
(net) from the KRG, the recovery terms are not yet known.
Notwithstanding the Company's expectation to recover the full
amount, accounting standard IFRS 9 requires Gulf Keystone to
recognise $12.8 million of expected credit losses ("ECL").
Capital investment
During H1 2020, GKP invested $38.5 million net of capital
expenditures in Shaikan. This investment included completion of
drilling and testing of SH-9, drilling of SH-13 until suspension
just above the reservoir section, preparation for drilling of the
next well, SH-L, on the same pad as SH-13 and facilities
debottlenecking. Minimal activity is planned for the second half of
the year and overall 2020 capital investment is expected to be
within the original $40-48 million net guidance range.
Cash flow and Liquidity
H1 2020 cash generated from operating activities of $24.2
million (H1 2019: $55.0 million; FY 2019: $83.7 million) and
Adjusted EBITDA of $27.5 million (H1 2019: $59.0 million; FY 2019:
$122.5 million) were down principally due to the decline in oil
prices which more than offset the benefits of increased production
and cost reductions.
During the period, the Company completed its share buyback
programme by repurchasing $20.2 million of common shares, bringing
total share buybacks in 2019 and 2020 to $50.0 million. In June
2020, the Company resolved to cancel 18.1 million treasury shares
and retain one million treasury shares to fulfil potential future
exercises of share-based rewards. The process to formalise the
cancelation of the treasury shares is ongoing.
The cash balance at 30 June 2020 stood at $143.6 million (H1
2019: $302.1 million; FY 2019: $190.8 million). The $100.0 million
of New Notes mature in July 2023 and the Company remains well above
financial covenants' minimum thresholds of $15.0 million cash
balance and equity ratio of 40%.
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 half year financial statements (see going concern
section of note 2).
GULF KEYSTONE PETROLEUM LIMITED
Half Year Report for the six months ended 30 June 2020
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 operating performance
and liquidity in presentations to the Board and as a basis for
strategic planning and forecasting, as well as monitoring certain
aspects of its operating cash flow and liquidity. 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 is shown of the
non-IFRS measures to the most directly comparable measures
calculated and presented in accordance with IFRS. 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.
Operating costs
Operating costs is a useful indicator of the Group's costs
incurred to produce Shaikan oil. Operating costs, in comparison
with cost of sales, exclude certain non-cash accounting adjustments
and contractual production sharing contract ("PSC") payments.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$ million $ million $ million
------------------------------------- ---------- ---------- --------------
Cost of sales 60.2 61.1 137.9
Depreciation of oil & gas properties (41.8) (32.4) (72.5)
Transportation costs - (5.2) (12.0)
Capacity building payments (3.8) (7.1) (15.3)
Working capital movement (0.4) - (0.7)
Operating costs 14.2 16.4 37.4
========== ========== ==============
The 30 June 2019 transportation costs balance was restated to
include the cost of transporting oil from PF-1 to PF-2
pipeline.
Gross operating costs per barrel
Gross operating costs are divided by gross production to arrive
at operating costs per bbl.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
Gross production (MMbbls) 6.8 5.3 12.0
Gross operating costs ($ million) 17.7 20.5 46.7
---------- ---------- --------------
Gross operating costs per barrel
($ per bbl) 2.6 3.9 3.9
========== ========== ==============
GULF KEYSTONE PETROLEUM LIMITED
Half Year Report for the six months ended 30 June 2020
Adjusted EBITDA
Adjusted EBITDA is a useful indicator of the Group's
profitability, which excludes the impact of costs attributable to
income tax (expenses)/credit, finance costs, interest revenue,
depreciation and amortisation and other gains and losses.
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Unaudited Unaudited Audited
$ million $ million $ million
------------------------------------- ------------- ------------- ------------
(Loss)/Profit after tax (33.1) 24.2 43.5
Finance Costs 5.7 5.5 11.2
Interest Revenue (1.0) (3.6) (6.0)
Tax charge/(credit) 0.5 (0.1) (0.3)
Depreciation of oil & gas properties 41.8 32.4 72.5
Impairment of receivables 12.8 0.2 0.3
Other depreciation and amortisation 0.8 0.4 1.3
------------- ------------- ------------
Adjusted EBITDA 27.5 59.0 122.5
============= ============= ============
Capital investment
Capital investment is the value of the Group's additions to oil
and gas assets excluding any movements in decommissioning
assets.
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Unaudited Unaudited Audited
$ million $ million $ million
-------------------------------- ------------- ------------- ------------
Additions to oil and gas assets 38.5 32.4 90.0
Capital investment 38.5 32.4 90.0
============= ============= ============
Net Cash
Net cash is a useful indicator of the Group's indebtedness,
financial flexibility and capital structure because it indicates
the level of cash and cash equivalents less cash borrowing with the
Group's business. Net cash is defined as current and non-current
borrowings plus non-cash adjustments, less cash and cash
equivalents
31 December
30 June 2020 30 June 2019 2019
Unaudited Unaudited Audited
$ million $ million $ million
-------------------------- ------------ ------------ -----------
Outstanding New Notes (98.4) (98.0) (98.2)
Unamortised issue costs (1.6) (2.0) (1.8)
Interest accrual (4.4) (4.4) (4.4)
Cash and cash equivalents 143.6 302.7 190.8
------------ ------------ -----------
Net cash 39.2 198.3 86.4
============ ============ ===========
GULF KEYSTONE PETROLEUM LIMITED
Half Year Report for the six months ended 30 June 2020
Principal risks and uncertainties
The Board determines and reviews the key risks for the Group on
a regular basis. The principal risks, and how the Group seeks to
mitigate them, at half year are consistent with those detailed in
the management of principal risks and uncertainties section of the
2019 Annual Report and Accounts. The principal risks are listed
below:
Strategic Operational Financial
Political, social and economic Health, Safety, Security and Environment Liquidity and funding capability
instability ("HSSE") risks
----------------------------------------- ---------------------------------
Disputes regarding title or exploration Gas flaring Export payment mechanism
and production rights
----------------------------------------- ---------------------------------
Business conduct and anti-corruption Security Commodity prices
----------------------------------------- ---------------------------------
Export route availability Field delivery risk
----------------------------------------- ---------------------------------
Stakeholder expectations Reserves
----------------------------------------- ---------------------------------
Climate change and sustainability
----------------------------------------- ---------------------------------
Global pandemic (including COVID-19
impact)
----------------------------------------- ---------------------------------
Cyber security
----------------------------------------- ---------------------------------
The Board continues to actively monitor the effect of COVID-19
on the macro environment and the Group's operations. The primary
risks associated with COVID-19 are considered separately and are
also embedded within the existing principal risks, including HSSE,
Field delivery risk, Liquidity and funding capability and Commodity
prices.
Responsibility statement
The Directors confirm that to the best of their knowledge:
(a) the condensed set of financial statements, which has been
prepared in accordance with IAS 34 "Interim Financial Reporting",
gives a true and fair view of the assets, liabilities, financial
position and loss of the Group as a whole as required by DTR
4.2.4R;
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months of the year and a description of
principal risks and uncertainties for the remaining six months of
the year); and
(c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Jón Ferrier
Chief Executive Officer
2 September 2020
GULF KEYSTONE PETROLEUM LIMITED
Half Year Report for the six months ended 30 June 2020
Independent Review Report to Gulf Keystone Petroleum Limited
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated statement of changes in equity, the
condensed consolidated cash flow statement and related notes 1 to
16. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
2 September 2020
GULF KEYSTONE PETROLEUM LIMITED
Condensed Consolidated Income Statement
for the six months ended 30 June 2020
Six months
ended Six months Year ended
30 June ended 31 December
2020 30 June 2019 2019
Notes Unaudited Unaudited Audited
$'000 $'000 $'000
-------------------------------- ----- ---------- ------------------- ------------------
Continuing operations
Revenue 4 49,878 95,606 206,741
Cost of sales 5 (60,245) (61,054) (137,891)
Impairment of trade receivables 11 (12,791) (196) (293)
Gross (loss)/profit (23,158) 34,356 68,557
General and administrative
expenses (5,428) (8,169) (19,531)
(Loss)/profit from operations (28,586) 26,187 49,026
Finance revenue 6 997 3,628 6,046
Finance costs 6 (5,707) (5,549) (11,153)
Foreign exchange gains/(losses) 697 (112) (661)
-------------------------------- ----- ---------- ------------------- ------------------
(Loss)/profit before tax (32,599) 24,154 43,258
Tax (expense)/credit 7 (538) 50 271
-------------------------------- ----- ---------- ------------------- ------------------
(Loss)/profit after tax (33,137) 24,204 43,529
-------------------------------- ----- ---------- ------------------- ------------------
(Loss)/profit per share (cents)
Basic 8 (15.64) 10.55 19.25
Diluted 8 (15.64) 10.06 18.37
-------------------------------- ----- ---------- ------------------- ------------------
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2020
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------- ---------- ---------- ------------
(Loss)/profit for the period (33,137) 24,204 43,529
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations (1,099) (12) 597
-------------------------------------- ---------- ---------- ------------
Total comprehensive (loss)/income
for the period (34,236) 24,192 44,126
-------------------------------------- ---------- ---------- ------------
GULF KEYSTONE PETROLEUM LIMITED
Condensed Consolidated Balance Sheet
as at 30 June 2020
30 June 30 June 31 December
2020 2019 2019
Notes Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------ ------ ---------- ---------- -----------
Non-current assets
Intangible assets 462 445 454
Property, plant and equipment 10 406,747 381,546 407,602
Trade receivables 11 72,213 - -
Deferred tax asset 345 607 849
------------------------------ ------ ---------- ---------- -----------
479,767 382,598 408,905
------------------------------ ------ ---------- ---------- -----------
Current assets
Inventories 34,768 19,854 31,040
Trade and other receivables 11 13,322 67,497 103,181
Cash and cash equivalents 143,579 302,701 190,762
191,669 390,052 324,983
------------------------------ ------ ---------- ---------- -----------
Total assets 671,436 772,650 733,888
------------------------------ ------ ---------- ---------- -----------
Current liabilities
Trade and other payables 12 (72,553) (73,221) (83,981)
Dividends payable - (50,000) -
(72,553) (123,221) (83,981)
------------------------------ ------ ---------- ---------- -----------
Non-current liabilities
Trade and other payables (2,096) - (1,989)
Other borrowings 13 (98,407) (97,987) (98,192)
Provisions (31,668) (23,647) (29,807)
(132,171) (121,634) (129,988)
------------------------------ ------ ---------- ---------- -----------
Total liabilities (204,724) (244,855) (213,969)
------------------------------ ------ ---------- ---------- -----------
Net assets 466,712 527,795 519,919
------------------------------ ------ ---------- ---------- -----------
Equity
Share capital 14 229,430 229,430 229,430
Share premium account 14 871,675 870,728 871,675
Treasury Shares (49,812) - (29,749)
Exchange translation reserve (4,320) (3,830) (3,221)
Accumulated losses (580,261) (568,533) (548,216)
------------------------------ ------ ---------- ---------- -----------
Total equity 466,712 527,795 519,919
------------------------------ ------ ---------- ---------- -----------
GULF KEYSTONE PETROLEUM LIMITED
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2020
Share Exchange
Share premium translation Accumulated Treasury Total
capital account reserve losses shares equity
------------------------ -------- -------- ------------ ----------- -------- -----------
$'000 $'000 $'000 $'000 $'000 $'000
------------------------ -------- -------- ------------ ----------- -------- -----------
Balance at 1 January
2019 (audited) 229,430 920,728 (3,818) (593,523) - 552,817
------------------------ -------- -------- ------------ ----------- -------- -----------
Net profit for the
period - - - 24,204 - 24,204
Other comprehensive
income for the period - - (12) - - (12)
------------------------ -------- -------- ------------ ----------- -------- -----------
Total comprehensive
income for the period - - (12) 24,204 - 24,192
Dividend - (50,000) - - - (50,000)
Employee share schemes - - - 786 - 786
Balance at 30 June
2019 (unaudited) 229,430 870,728 (3,830) (568,533) - 527,795
------------------------ -------- -------- ------------ ----------- -------- -----------
Net profit for the
period - - - 19,325 - 19,325
Other comprehensive
income for the period - - 609 - - 609
------------------------ -------- -------- ------------ ----------- -------- -----------
Total comprehensive
income for the period - - 609 19,325 - 19,934
Share Buyback - - - - (29,831) (29,831)
Dividend - 947 - - - 947
Employee share schemes - - - 1,074 - 1,074
Share options exercised - - - (82) 82 -
Balance at 31 December
2019 (audited) 229,430 871,675 (3,221) (548,216) (29,749) 519,919
------------------------ -------- -------- ------------ ----------- -------- -----------
Net (loss) for the
period - - - (33,137) - (33,137)
Other comprehensive
loss for the period - - (1,099) - - (1,099)
------------------------ -------- -------- ------------ ----------- -------- -----------
Total comprehensive
(loss)/income for
the period - - (1,099) (33,137) - (34,236)
Share buyback - - - - (20,165) (20,165)
Employee share schemes 1,194 - 1,194
Share options exercised - - - (102) 102 -
------------------------ -------- -------- ------------ ----------- -------- -----------
Balance at 30 June
2020 (unaudited) 229,430 871,675 (4,320) (580,261) (49,812) 466,712
------------------------ -------- -------- ------------ ----------- -------- -----------
GULF KEYSTONE PETROLEUM LIMITED
Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2020
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Note Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------------------- ---- ---------- ---------- ------------
Operating activities
Cash generated in operations 9 28,082 56,566 87,892
Interest received 1,288 3,491 5,897
Interest paid (5,121) (5,022) (10,068)
Net cash generated in operating
activities 24,249 55,035 83,721
--------------------------------------- ---- ---------- ---------- ------------
Investing activities
Exits costs of Algerian operation - (11,060) (11,060)
Purchase of intangible assets (7) (392) (390)
Purchase of property, plant and
equipment (50,109) (36,337) (96,926)
Net cash used in investing activities (50,116) (47,789) (108,376)
--------------------------------------- ---- ---------- ---------- ------------
Financing activities
Payment of dividends - - (49,053)
Share buyback (20,165) - (29,831)
Payment in lieu of options exercised (330) - (99)
Payment of leases (718) - (972)
Net cash from financing activities (21,213) - (79,955)
--------------------------------------- ---- ---------- ---------- ------------
Net (decrease)/increase in cash
and cash equivalents (47,080) 7,246 (104,610)
Cash and cash equivalents at beginning
of period 190,762 295,566 295,566
Effect of foreign exchange rate
changes (103) (111) (194)
--------------------------------------- ---- ---------- ---------- ------------
Cash and cash equivalents at end
of the period being bank balances
and cash on hand 143,579 302,701 190,762
--------------------------------------- ---- ---------- ---------- ------------
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020
1. General information
The Company is incorporated in Bermuda (registered address:
Cedar House, 3rd Floor, 41 Cedar Avenue, Hamilton 12, Bermuda). The
Company's common shares are listed on the Official List of the
United Kingdom Listing Authority and are traded on the London Stock
Exchange's Main Market for listed securities. 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.
2. Summary of significant accounting policies
The Annual Report and Accounts of the Group are prepared in
accordance with IFRSs as adopted by the European Union. The
condensed Group financial statements for the six months period
ended 30 June 2020 have been prepared in accordance with
International Accounting Standard ("IAS") 34, "Interim Financial
Reporting", as adopted by the European Union and the Disclosure and
Transparency Rules (DTR) of the Financial Conduct Authority (FCA)
in the United Kingdom as applicable to interim financial
reporting.
The condensed set of financial statements included in this half
yearly financial report have been prepared on a going concern basis
as the Directors consider that the Group has adequate resources to
continue operating for the foreseeable future.
The accounting policies adopted in the 2020 half-yearly
financial report are the same as those adopted in the 2019 Annual
Report and Accounts, other than the implementation of new IFRS
reporting standards.
The financial information for the year ended 31 December 2019
does not constitute the Group's financial statements for that year
but is derived from those Accounts. The auditor's report on these
Accounts was unqualified and did not include a reference to any
matters to which the auditor drew attention by way of emphasis of
matter.
Adoption of new and revised accounting standards
As of 1 January 2020, a number of accounting standard amendments
and interpretations became effective, as noted in the 2019 Annual
Report and Accounts (pages 116 and 117). The adoption of these
amendments and interpretations has not had a material impact on the
financial statements of the Group for the six months ended 30 June
2020.
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 CEO Statement and the Operational Review. The
financial position of the Group at the period end and its cash
flows and liquidity position are included in the Financial
Review.
As at 2 September 2020, the Group had $139.6 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 and commodity prices, different
production rates from the Shaikan block, cost contingencies,
disruptions to revenue receipts, etc. To preserve liquidity in
response to macroeconomic challenges, Gulf Keystone capitalised on
the flexible nature of its development programme and cost
structure, and reduced capital expenditures, its work force and
running costs. The Group's forecasts, taking into account the
applicable risks and the stress test scenarios, show that it has
sufficient financial resources for the 12 months from the date of
approval of the 2020 half year financial statements.
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 half year financial
statements.
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020
Critical accounting estimates and judgements
In the application of the Group's accounting policies, 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 accounting judgements and key sources of estimation
uncertainty remain consistent with those disclosed in the 2019
Annual Report and Accounts.
Key estimates
Reserves estimates
Commercial reserves are determined using estimates of
oil-in-place, recovery factors and future oil prices. Future
development costs are estimated using assumptions as to numbers of
wells required to produce the commercial reserves, the cost of such
wells and associated production facilities and other capital and
operating costs. Reserves estimates principally affect the DD&A
charges, as well as impairment assessments.
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 30
June 2020 was the Shaikan Field with a carrying value of $402.0
million.
The Group performed a full impairment evaluation considering the
impact of COVID-19, the decline in oil prices, the Group's decision
to suspend the Shaikan expansion project, potential changes to
future development plans and recent actions to preserve liquidity.
The potential impact of such factors together with other possible
changes to key assumptions and available management mitigating
actions, indicated that no impairment would arise.
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 2020 2021 2022 onwards
H1 2020 - base
case 42 47 55
----- ----- -------------
H1 2020 - stress
test 35 40 50
----- ----- -------------
FY 2019 - base
case 60 60 60
----- ----- -------------
FY 2019 - stress
test 30 40 50
----- ----- -------------
- 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;
- 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;
- commercial reserves and production profiles; and
- timing of revenue receipts.
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020 continued
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 30 June 2020, the Group had $77.3
million of overdue invoices in relation to this period.
The Company remains in a constructive dialogue with the KRG and
will continue to seek the timely settlement of overdue invoices.
The KRG has indicated that with the continuing improvement in the
price of dated Brent above $50/bbl, payment terms of these
outstanding amounts will be reviewed.
While the recovery terms are not yet known, 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 impairment calculation, based on observed
market data and convention, existing market conditions and
forward-looking estimates at the end of each reporting period.
The result of the Group's assessment is $12.8 million adjustment
to the trade receivables. The Group provided detailed disclosure
required by IFRS 9 ECL assessment in note 11.
Significant accounting judgement
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. However, as the payment mechanism for sales to
the export market continues to develop within the Kurdistan Region
of Iraq, 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 IOCs 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.
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020 continued
3. Geographical information
The Group's non-current assets excluding deferred tax assets and
other financial assets by geographical location are detailed
below:
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
--------------- ---------- ---------- -------------
Kurdistan 407,017 381,528 407,808
United Kingdom 192 463 248
---------- ---------- -------------
407,209 381,991 408,056
========== ========== =============
Information about major customers
Included in revenues is $49.9 million which arose from sales to
the Group's largest customer (H1 2019: $95.6 million;
FY 2019: $206.7 million).
4. Revenue
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------- ---------- ---------- --------------
Oil sales 49,878 94,063 202,871
Transportation revenue - 1,543 3,870
---------- ---------- --------------
49,878 95,606 206,741
========== ========== ==============
The Group accounting policy for revenue recognition is set out
in its 2019 Annual Report, with revenue recognised on a
cash-assured basis.
During the six months period ended 30 June 2020, the
cash-assured values recognised as oil sales was $49.9 million (H1
2019: $94.1 million; FY 2019: $202.9 million). The oil sales price
was calculated using the monthly dated Brent price less an average
discount of $21.1 (H1 2019: $21.7; FY 2019: $21.7) per barrel for
quality, pipeline tariff and transportation costs.
From 15 November 2017 until mid-December 2019, the Group
performed transportation services in respect of the KRG's share of
export oil sales. Transportation costs were charged to the KRG with
no mark-up. Following the completion and connection of the PF-1
pipeline to the main regional export pipeline, all oil has been
exported via pipeline with no further transportation services
required.
5. Cost of Sales
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------- ---------- ---------- --------------
Oil production costs 18,472 23,509 53,403
Depreciation of oil & gas properties 41,773 32,358 72,514
Transportation costs - 5,187 11,974
---------- ---------- --------------
60,245 61,054 137,891
========== ========== ==============
Oil production costs represent the Group's share of gross
production expenditure for the Shaikan Field for the period and
include capacity building payments of $3.8 million (H1 2019: $7.1
million; FY 2019: $15.3 million). 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. The 30 June 2019 transportation costs balance
was restated to include the cost of transporting oil from PF-1 to
the PF-2 pipeline.
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020 continued
6. Finance costs
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------------------------- ---------- ---------- --------------
Notes interest charged during the
period (Note 13) (5,215) (5,192) (10,397)
Finance lease Interest (122) (21) (67)
Unwinding of discount on decommissioning
provision (370) (336) (689)
---------- ---------- --------------
Total finance costs (5,707) (5,549) (11,153)
Finance revenue 997 3,628 6,046
---------- ---------- --------------
Net finance costs (4,710) (1,921) (5,107)
========== ========== ==============
7. Taxation
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
---------------- ---------- ---------- --------------
Corporation tax (90) - -
Deferred tax (448) 50 271
(538) 50 271
========== ========== ==============
8. Profit per share
The calculation of the basic and diluted loss per share is based
on the following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------------------------- ---------- ---------- ------------
(Loss)/Profit after tax for the purposes
of basic and diluted loss per share (33,137) 24,204 43,529
Weighted average number of shares:
Basic ('000) 211,934 229,317 226,178
Diluted ('000) 211,934 240,564 236,953
----------------------------------------- ---------- ---------- ------------
Weighted average number of shares excludes 19.1 million (H1
2019: nil; FY 2019:10.5 million) ordinary shares held in treasury
as well as shares held by Employee Benefit Trustee ("EBT") and the
Exit Event Trustee of 0.1
million (H1 2019: 0.1 million; FY 2019: 0.1 million).
As the company reported a loss for the six months ending 30 June
2020, the exercise of the outstanding share options would reduce
the reported loss per share and, therefore, these share options are
anti-dilutive.
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020 continued
9. Reconciliation of profit from operations to net cash
generated in operating activities
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------------------------- ---------- ---------- ------------
(Loss)/profit from operations (28,586) 26,187 49,026
Adjustments for:
Depreciation of property, plant and
equipment 42,570 32,769 73,806
Amortisation of intangible assets 6 31 26
Other gains or losses - - -
Share-based payment expense 1,098 756 1,910
Impairment of receivables 12,791 196 293
(Increase) in inventories (3,728) (5,664) (16,850)
Decrease/(Increase) in receivables 2,574 353 (35,416)
Increase in payables 1,357 1,938 15,097
--------------------------------------------- ---------- ---------- ------------
Net cash generated in operating activities 28,082 56,566 87,892
--------------------------------------------- ---------- ---------- ------------
10. Property, plant and equipment
Oil and Fixtures Right of use Total $'000
Gas and Assets
Assets Equipment $'000
$'000 $'000
------------------------------ --------- ---------- ------------ -----------
Period ended 30 June 2019
Opening net book value 379,650 887 - 380,537
Additions 32,432 201 404 33,037
Revisions to decommissioning
charge 710 - - 710
Depreciation charge (32,358) (183) (228) (32,769)
Foreign currency translation
differences - 31 - 31
--------- ---------- ------------ -----------
Net book value at 30 June
2019 380,434 936 176 381,546
Additions 57,609 554 3,124 61,287
Disposal at cost - - (35) (35)
Revisions to decommissioning
asset 5,808 - - 5,808
Depreciation charge (40,156) (198) (683) (41,037)
Depreciation on disposals - - 15 15
Foreign currency translation
differences 1 18 (1) 18
Net book value at 31 December
2019 403,696 1,310 2,596 407,602
========= ========== ============ ===========
Cost 696,608 7,005 3,492 707,105
Accumulated depreciation (292,912) (5,695) (896) (299,503)
--------- ---------- ------------ -----------
Net book value at 31 December
2019 403,696 1,310 2,596 407,602
========= ========== ============ ===========
Period ended 30 June 2020
Opening net book value 403,696 1,310 2,596 407,602
Additions 38,541 56 1,640 40,237
Disposals at cost - (492) - (492)
Revision to decommissioning
asset 1,491 - - 1,491
Depreciation charge (41,773) (112) (685) (42,570)
Depreciation on disposals - 492 - 492
Foreign currency translation
differences - (13) - (13)
Closing net book value 401,955 1,241 3,551 406,747
========= ====================== ======= =========
At 30 June 2020
Cost 736,640 6,442 5,132 748,214
Accumulated depreciation (334,685) (5,201) (1,581) (341,467)
--------- ---------------------- ------- ---------
Net book value 401,955 1,241 3,551 406,747
========= ====================== ======= =========
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020 continued
10. Property, plant and equipment (continued)
The additions to the Shaikan asset amounting to $38.5 million
during the period include the costs of testing of SH-9, the partial
drilling of SH-13, 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.
11. Trade and other receivables
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------------- ----------- ----------- ------------
Trade receivables - non-current 72,213 - -
Trade receivables - current 7,961 59,737 97,917
Other receivables 4,725 6,852 4,458
Prepayments and accrued income 636 908 806
----------- ----------- ------------
85,535 67,497 103,181
=========== =========== ============
Reconciliation of Trade Receivables
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
-------------------------------- ----------- ----------- ------------
Gross carrying amount 94,375 61,049 99,326
Less: Impairment allowance (14,200) (1,312) (1,409)
Carrying value at 30 June 2020 80,175 59,737 97,917
=========== =========== ============
Trade receivables comprise invoiced amounts due from the KRG for
crude oil sales totalling $85.3 million
(H1 2019: $51.7 million; FY 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 due from the KRG includes
past due trade receivables of $77.3 million(1) (H1 2019: $19.0
million; FY 2019: $47.8 million) related to November 2019 to
February 2020 invoices. Since the timing of receipt of the past due
receivables and the Shaikan revenue arrears purchased from MOL is
uncertain, the amounts were classified as non-current assets. While
the Group expects to recover the full nominal value of the
outstanding invoices and MOL receivable, the ECL on the overdue
receivable balance of $14.2 million was provided against the
receivables balance in line with the requirements of IFRS 9 of
which $12.8 million was recognised in the reporting period (H1
2019: $0.2 million; FY 2019: $0.3 million).
For March 2020 and subsequent months, the KRG has paid for oil
sales in the following month. The June 2020 invoice included in
current trade receivables as at 30 June 2020 was received in July
2020.
(1) The past due trade receivables amount excludes the
associated capacity building payments due to the KRG which reduce
the net amount due to GKP to $73.3 million.
ECL sensitivities
The tables below show information on the sensitivity of the
carry amounts of the Groups financial assets to the estimates used
in calculating impairment allowance on outstanding invoices. These
estimates have a significant risk of causing material adjustments
to the carrying value of the Group's trade receivables.
The table below demonstrates the sensitivity of the Group's
profit before tax to movements in the loss given default for
financial assets, with all other variables held constant:
2020
Increase/decrease in loss given default $'million
--------------------------------------- --------------------------
+10% (0.1)
-10% 0.1
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020 continued
11. Trade and other receivables (continued)
ECL sensitivities (continued)
The table below demonstrates the sensitivity of the Group's
profit before tax to the default spread, with all other variables
held constant
2020
Increase/decrease probability of default $'million
---------------------------------------- --------------------------
+10% (1.2)
-10% 1.3
The table below demonstrates the sensitivity of the Group's
profit before tax to estimated recovery period with all other
variables held constant
2020
Increase/decrease in recovery period $'million
------------------------------------- --------------------------
+ 12 months (5.7)
- 12 months 6.5
Other receivables
Included within Other receivables is an amount of $0.4 million
(H1 2019: $0.4 million; FY 2019 $0.4 million) being the deposits
for leased assets which are receivable after more than one year.
There are no receivables from related parties as at 30 June 2020
(H1 2019: nil; FY 2019: nil). No impairments of other receivables
have been recognised during the first half of the year (H1 2019:
nil; FY 2019: nil).
12. Trade and other payables
Current liabilities
31 December
30 June 2020 30 June 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
-------------------------- ------------ ------------ -------------
Trade payables 9,841 3,275 6,982
Accrued expenses 31,613 42,828 46,466
Other payables 29,448 26,907 29,268
Finance lease obligations 1,561 211 1,265
Taxation payable 90 - -
72,553 73,221 83,981
============ ============ =============
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs. Other payables
included $10.0 million (H1 2019: $10.0 million; FY 2019: $10.0
million) in relation to the Sheikh Adi PSC bonus that was payable
on the declaration of commerciality. Accrued expenses included
$16.0 million (H1 2019: $16.0 million; FY 2019: $16.0 million) in
relation to 2018 production bonus. It is likely that these
liabilities will be offset against unrecognised Shaikan revenue
arrears, in accordance with the principles agreed under the
Bilateral Agreement between the Group and the MNR.
There is $4.4 million interest payable included in accrued
expenses as at 30 June 2020 (H1 2019: $4.4 million; FY 2019: $4.4
million).
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020 continued
12. Trade and other payables (continued)
Non-current liabilities
31 December
30 June 2020 30 June 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------ ------------ ------------ -------------
Non-current finance lease liability 2,096 - 1,989
2,096 - 1,989
============ ============ =============
13. Long-term borrowings
In July 2018, the Group completed the private placement of a
5-year senior unsecured $100 million bond (the "New Notes"). The
unsecured New 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 New Notes are redeemable 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.
The liabilities associated with New Notes are presented in the
following tables:
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------------------------- ---------- ---------- -----------
Liability at the beginning of the period 102,553 102,156 102,156
Interest charged during the period 5,215 5,192 10,397
Interest paid during the period (5,000) (5,000) (10,000)
Liability at the end of period 102,768 102,348 102,553
========== ========== ===========
Liability reported in:
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------ ---------- ---------- -----------
Current liabilities 4,361 4,361 4,361
Non-current liabilities 98,407 97,987 98,192
102,768 102,348 102,553
========== ========== ===========
The New Notes are traded on the Norwegian Stock Exchange and the
fair value at the prevailing market price as at the close of
business on the reporting date was:
Market price 30 June
2019
$'000
New Notes $0.94250 94,250
GULF KEYSTONE PETROLEUM LIMITED
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2020 continued
13. Long-term borrowings (continued)
As of 30 June 2020, the Group's remaining contractual liability
comprising principal and interest based on undiscounted cash flows
at the maturity date of the Reinstated Notes is as follows:
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------- ---------- ---------- -----------
Within one year 10,000 10,000 10,000
Within two to five years 120,639 130,639 125,639
130,639 140,639 135,639
========== ========== ===========
14. Share capital
Common shares Share Share
No. of shares Amount capital premium
000 $'000 $'000 $'000
--------------------------------- ------------- --------- ------------------- -------
Issued and fully paid
Balance 1 January 2020 (audited) 229,430 1,101,105 229,430 871,675
Balance 30 June 2020 (unaudited) 229,430 1,101,105 229,430 871,675
------------- --------- ------------------- -------
The common shares in issue include 19,059,064 shares held in
treasury (H1 2019: nil; FY 2019: 10,415,603 shares). On 18 June
2020, the Company resolved to cancel 18,059,064 shares held in
treasury, leaving one million shares in treasury.
15. 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 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 (GKP and MOL), 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.
16. Subsequent events
In July 2020, the Company entered into dated Brent oil price
hedges by purchasing put options at a cost of $2.7 million. For
each of the months from July - December 2020, the option provides
the Company the right, to in effect sell c.70% of its entitlement
production at the strike price of $35/bbl, while retaining the full
upside to increasing oil prices.
GULF KEYSTONE PETROLEUM LIMITED
GLOSSARY (See also the glossary in the 2019 Annual Report and
Accounts)
Bilateral Agreement the bilateral agreement between GKPI and
the MNR dated 16 March 2016
bbl barrel
--------------------------------------------------
bopd barrels of oil per day
--------------------------------------------------
capex any expenditure or obligation in respect
of expenditure which, in accordance with
accounting principles applied by the Company
in the preparation of its audited Accounts,
is treated as capital expenditure (and including
the capital element of any expenditure or
obligation incurred in connection with any
finance lease)
--------------------------------------------------
CGU cash-generating unit
--------------------------------------------------
COVID-19 Coronavirus
--------------------------------------------------
Crude Oil Sales Agreement the Shaikan crude oil export sales agreement
valid between 1 January 2019 and 31 December
2020
--------------------------------------------------
DD&A depreciation, depletion and amortisation
--------------------------------------------------
E&P exploration and production
--------------------------------------------------
Adjusted EBITDA Adjusted earnings before interest, tax,
depreciation and amortisation
--------------------------------------------------
EBT employee benefit trust
--------------------------------------------------
ECL expected credit losses
--------------------------------------------------
ESG environment, social and governance
--------------------------------------------------
FDP Field Development Plan
--------------------------------------------------
First Shaikan Amendment First amendment to the Shaikan PSC executed
on 1 August 2010.
--------------------------------------------------
G&A general and administrative
--------------------------------------------------
GKP Gulf Keystone Petroleum Limited
--------------------------------------------------
GKPI Gulf Keystone Petroleum International Limited
--------------------------------------------------
Group Gulf Keystone Petroleum Limited and its
subsidiaries
--------------------------------------------------
HSSE health, safety, security and environment
--------------------------------------------------
IAS International Accounting Standards
--------------------------------------------------
IFRS International Financial Reporting Standards
--------------------------------------------------
IOC International oil companies
--------------------------------------------------
KRG Kurdistan Regional Government
--------------------------------------------------
LTI lost time incident
--------------------------------------------------
MNR Ministry of Natural Resources of the Kurdistan
Regional Government
--------------------------------------------------
MOL Kalegran B.V. (a subsidiary of MOL Hungarian
Oil & Gas plc)
--------------------------------------------------
New Notes the $100 million unsecured, guaranteed notes
issued on 25 July 2018 by GKP with a maturity
date of 25 July 2023
--------------------------------------------------
PF-1 Production Facility 1
--------------------------------------------------
PF-2 Production Facility 2
--------------------------------------------------
PSC production sharing contract
--------------------------------------------------
Second Shaikan Amendment the second proposed amendment to the Shaikan
PSC formally implementing the terms of the
Bilateral MNR Agreement (including the First
Shaikan Amendment)
--------------------------------------------------
Shaikan PSC the Production Sharing Contract for the
Shaikan block between the Kurdistan Regional
Government of Iraq and Gulf Keystone Petroleum
International Limited and Texas Keystone
Inc. and Kalegran Limited (a subsidiary
of MOL) signed on 6 November 2017 as amended
by subsequent agreements
--------------------------------------------------
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END
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