Gulf Keystone Petroleum Ltd. 2019 Half Year Results

Data : 10/09/2019 @ 08:01
Fonte : UK Regulatory (RNS & others)
Titolo : Gulf Keystone Petroleum Ltd (GKP)
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Gulf Keystone Petroleum Ltd. 2019 Half Year Results

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RNS Number : 7359L

Gulf Keystone Petroleum Ltd.

10 September 2019

10 September 2019

Gulf Keystone Petroleum Ltd. (LSE: GKP)

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

2019 Half Year Results Announcement

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 2019.

Highlights to 30 June 2019 and post reporting period

Operational

-- Average production during August was 39,269 bopd, reflecting the positive results from the workover campaign and facilities debottlenecking at PF-1; gross production this month up to 8 September averaged 39,921 bopd.

-- Gross production for the first half of 2019 averaged 29,362 bopd. Average production rates during H1 of 2019 were necessarily affected by wells being off-line for workovers and well maintenance, in addition to the planned shutdown of PF-1 to install facilities as part of the 55,000 bopd expansion project.

-- The first well of the drilling campaign, SH-12, successfully reached total depth ("TD") of 2,112 metres on 23 August. Well results were encouraging with the structure coming in 53 metres higher than prognosis. The well is currently being completed and is expected to be on production later in October.

-- Following completion of SH-12, the rig will move to the second well of the campaign, SH-9. This well is designed to assess the gas reinjection potential of the Jurassic formation; part of the longer-term gas management plan for the Shaikan development.

-- The workover campaign to install electrical submersible pumps ("ESPs") in existing wells has been moved into 2020 to coincide with the availability of new permanent facilities being installed as part of the 55,000 bopd expansion programme. These facilities will allow the wells to be cleaned-up more effectively when the ESPs are installed.

-- The PF-1 pipeline and export station are nearing completion and will be in full operation following commissioning at which point all Shaikan oil will be exported via pipe.

-- A revised Field Development Plan ("FDP"), which addressed additional feedback on gas management, was submitted to the Ministry of Natural Resources ("MNR") in May 2019. We await formal feedback from the MNR and look forward to a constructive dialogue to finalise the FDP as soon as possible. As we have stated in the past, this delay is not slowing operations and progress on the 55,000 bopd work programme.

-- Operations at Shaikan remain safe and secure, with no Lost Time Incidents ("LTI") in over 400 days.

Financial

   --      Revenue of $95.6 million (H1 2018: $116.2 million). 
   --      EBITDA of $59.0 million (H1 2018: $61.6 million). 
   --      Profit after tax of $24.2 million (H1 2018: $26.7 million). 

-- Growth in activity required to bring production to 55,000 bopd led to an increase in cash operating costs and cash operating costs per barrel in line with previous guidance to $18.4 million (H1 2018: $14.1million) and $3.9/bbl (H1 2018: $3.0/bbl) respectively.

-- Net capital investment in Shaikan of $32.4 million (H1 2018: $6.9 million). Full year capital investment guidance stands at $88-104 million net ($110-130 million gross).

   --      Cash balance of $302.7 million at 30 June 2019 and $263.6 million at 9 September 2019. 

Corporate

-- A $50 million dividend was approved at the June AGM. The first tranche of c.$17 million was paid in July 2019, with the second tranche of c.$33 million to be paid on 4 October 2019.

-- A $25 million share buyback programme was announced in July. The Company is pleased to confirm that the first tranche of $15 million was completed on 30 August.

   --      Today, the Company is resuming its buyback programme for the remaining $10 million. 

-- Following completion of the above, the Company will have returned $75 million to its shareholders in 2019.

Outlook

-- Active work programme to continue with the ongoing Jurassic drilling campaign, ESP workovers and completion of the debottlenecking plan with the Company remaining on track to deliver 55,000 bopd in Q2 2020.

-- Total capital expenditure of $200-230 million gross for the 55,000 bopd expansion programme remains in line with earlier guidance.

-- Gross production guidance for 2019 is now expected to be between 30,000-33,000 bopd, compared to previous guidance of 32,000-38,000 bopd. This new guidance considers the delayed start to the drilling campaign, the postponement of the ESP workover campaign and the planned shutdown of PF-2 in October.

Jón Ferrier, Gulf Keystone's Chief Executive Officer, said:

"The first half of 2019 saw high levels of operational activity as we continue to develop Shaikan targeting a significant, phased, production uplift. Despite some operational delays, we have made considerable headway towards our 55,000 bopd production target. Activity has further increased during H2 2019 as we remain on track to achieve this milestone in the first half of 2020. As a consequence of the work to increase production in the longer term, the near-term production guidance for the full year has been reduced. However, the Shaikan reservoir, the cornerstone of our equity story, continues to behave strongly.

The Company has a robust balance sheet which supports operational funding requirements and expansion plans in addition to returning funds to shareholders. The Company is therefore well positioned to deliver on its growth objectives for the benefit of all stakeholders."

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. 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 and CEO Statement

The first half of 2019 has seen high levels of operational activity as the phased expansion of the Shaikan Field towards 55,000 bopd continues. We are pleased to confirm that Gulf Keystone remains on track to achieve the first expansion target of 55,000 bopd in Q2 2020 following the completion of plant debottlenecking and drilling of a series of Jurassic wells. Safe operations remain the focus and against a backdrop of a high operational tempo, no LTIs have occurred during the reporting period.

During H1, gross production at Shaikan was 29,362 bopd (H1 2018: 31,861). This production level reflects the strong performance of the reservoir against the necessary interruptions associated with operations such as well workovers and plant upgrades. Benefits from these earlier works will result in higher production in the second half of the year. Gross production this month up to 8 September averaged 39,921 bopd, reflecting the positive results from the workover campaign and facilities debottlenecking at PF-1. Average production during August was 39,269 bopd. The new well, SH-12, is scheduled to be on stream in October.

Whilst the Company remains on track to benefit from the current work programme with 55,000 bopd to be achieved in Q2 2020, the Company now envisages full year 2019 gross production to be in the 30,000-33,000 bopd range compared with the previous guidance of 32,000-38,000 bopd. This is due to the delayed start of the drilling campaign, the postponement of the ESP workover campaign and the planned shutdown of PF-2 in October; however, the Shaikan reservoir continues to perform strongly.

The revised FDP, which addressed feedback from the MNR relating to the management of produced gas, was submitted in May. With our partner Kalegran B.V. (a subsidiary of MOL Hungarian Oil & Gas plc ("MOL")), GKP looks forward to working closely with the new administration in the Kurdistan Regional Government ("KRG") on the subsequent approval process. The revised FDP covers Phase 1 of the Shaikan FDP as well as subsequent phases beyond the 55,000 bopd, including the expansion to 75,000 bopd Jurassic, gas re-injection phase and the 10,000 bopd Triassic pilot. Sanction of the subsequent expansion towards 110,000 bopd will be dependent on the results from

Phase 1. We confirm once again that despite the absence of an approved FDP, GKP and its partner MOL have been preparing the ground for the next phases of the development, notably in relation to certain long lead items and equipment orders. We remain confident that the FDP will be approved by the new MNR administration, although with some uncertainty on the timing of such approval.

The Company remains focused on its approach to Environmental, Social and Governance ("ESG") related matters. From an environmental perspective, the strategic priority remains the gas reinjection project, designed to minimise routine flaring and emissions at Shaikan. The SH-9 well, mentioned in the Operational Review, is an important milestone in this regard. Further, the Company strives to minimise its environmental footprint on the Shaikan area and is actively involved in the remediation of the old drilling sites. From a social standpoint, we continue to be a significant employer in the area surrounding Shaikan and to invest in the training and development of our staff. The Company voluntarily adheres to the UK Corporate Governance Code and published a detailed report on Corporate Governance in the 2018 Annual Report during the period.

As is set out in the Financial Review, the Company continues to be in a robust financial position. With sustained operational activity, along with the introduction of its first dividend and share buyback programme, GKP has been successful in balancing its financial requirements while returning cash to its shareholders. To this date, the Company has purchased 5,225,933 shares for a total amount of $15 million and from today it will resume its buyback programme with $10 million for a total $25 million.

The Company announced in June that Sami Zouari, CFO, would be leaving the Company. We reiterate our thanks to Sami for his immense contribution to GKP. A search for his successor is underway and we will be announcing the new CFO in due course. Garrett Soden is stepping down from the Board of Directors effective today following a review of external Board commitments of individual Directors in accordance with corporate governance guidelines. We would like to thank Garrett for his contribution over the last three years since joining shortly after the Company's financial restructuring and wish him all the best for his future endeavours. The Nomination Committee will seek to appoint an appropriate replacement and will review the composition of the Board Committees as soon as practical.

We would like to thank our hosts, the Kurdistan Regional Government, our staff and contractors for their continued commitment to developing Shaikan for the benefit of all our stakeholders.

Operational Review

Gulf Keystone has made considerable headway with its work programme to increase production at Shaikan with a number of important milestones achieved.

Operations at Shaikan remained safe and secure during the period, with no LTI in over 400 days. Best practice health and safety standards are an integral part of the business and we always aim to be at the forefront of HSSE performance in Kurdistan.

Successful workovers earlier this year on SH-1 and SH-3 resulted in material production uplift; SH-1 increased by more than 100%, to 7,800 bopd, and SH-3 by 40%, to 6,200 bopd. Well SH-12, the first drilled in over four years, was spud in June, reaching its target in the Lower Jurassic Butmah in August. Well results are encouraging with the structure coming in 53 metres higher than previously prognosed. The rig is currently running an ESP completion into the well, before moving location and work begins on the installation and hook-up of surface flowlines and controls. The well is expected to be on production in October.

Following completion of SH-12, the rig will move to the second well in the campaign, SH-9. As stated at the AGM in June, this well aims to assess the feasibility of gas reinjection into the Jurassic formation and is an important part of the longer-term gas management plan for the full development of the Shaikan Field aimed at minimising flaring and emissions. The installation of ESPs in existing wells has been moved into 2020 to coincide with the availability of new permanent facilities being installed as part of the expansion programme. These facilities will allow the wells to be cleaned up more effectively when the ESPs are installed.

Average production rates during H1 were affected by wells being off-line for workovers, necessary well maintenance works and a planned shutdown at PF-1 to install facilities as part of the expansion project. As stated at the AGM, ahead of the drilling of SH-12, a number of necessary upgrades had to be made to the drilling rig in order to ensure it met appropriate standards, safety requirements and had the proper certification; these upgrades delayed spud by three months. Consequently, production averaged 29,362 bopd during the period, with average production during July and August standing at 34,641 bopd and 39,269 bopd respectively, largely reflecting the positive results from the workover campaign and the successful debottlenecking works at PF-1.

Although we expect production in the second half of the year to be higher than in the first half, following the interruptions associated with operational activities, we now envisage 2019 average gross daily production in the 30,000-33,000 bopd range, compared to the previous guidance of 32,000-38,000 bopd. The Shaikan reservoir continues to perform strongly and we maintain our 55,000 bopd production target in Q2 2020.

A 25-day shutdown of PF-2 is planned in October and during this time a number of necessary upgrades will be made to the facility. We have factored in this shutdown to the revised production guidance for 2019, in addition to the 7-day export pipeline system shutdown for maintenance later this month.

The PF-1 pipeline and export station, which links PF-1 to the main export pipeline is nearing completion. Commissioning of the facilities is underway, and the pipeline is expected to be in service over the coming weeks. Subsequently, all Shaikan oil will be exported by pipe, a significant milestone for the field. Not only will this increase operating efficiency but also minimise HSSE risks, eliminate trucking costs and improve netbacks.

Key financial highlights

 
 
                                             Six months   Six months 
                                                  ended        ended 
------------------------------------------ 
                                                30 June      30 June 
                                                   2019         2018 
------------------------------------------  -----------  ----------- 
 
 Gross average production (bopd)                 29,362       31,861 
------------------------------------------  -----------  ----------- 
 
 Realised price ($/bbl)                            44.8         47.9 
------------------------------------------  -----------  ----------- 
 
 Revenue ($m)                                      95.6        116.2 
------------------------------------------  -----------  ----------- 
 
 Operating costs ($m)(1)                         (18.4)       (14.1) 
------------------------------------------  -----------  ----------- 
 
 Operating costs per bbl ($/bbl)(1)               (3.9)        (3.0) 
------------------------------------------  -----------  ----------- 
 
 General and administrative expenses ($m)         (8.2)        (7.6) 
------------------------------------------  -----------  ----------- 
 
 Profit from operations ($m)                       26.2         26.6 
------------------------------------------  -----------  ----------- 
 
 Profit after tax ($m)                             24.2         26.7 
------------------------------------------  -----------  ----------- 
 
 Basic earnings per share (cents)                 10.55        11.65 
------------------------------------------  -----------  ----------- 
 
 EBITDA ($m)(1)                                    59.0         61.6 
------------------------------------------  -----------  ----------- 
 
 Capital investment ($m) (1)                       32.4          6.9 
------------------------------------------  -----------  ----------- 
 
 Net cash ($m) (1)                                198.3        117.0 
------------------------------------------  -----------  ----------- 
 
 Net increase in cash ($m)                          7.2         58.5 
------------------------------------------  -----------  ----------- 
 

(1) Operating costs, operating costs per barrel, EBITDA, capital investment and net cash are either non-financial or non-IFRS measures and are explained in the summary of significant accounting policies.

Revenues

H1 2019 revenue stands at $95.6 million (H1 2018: $116.2 million). This decrease is the result of a lower Brent price and production. All sales were made under the terms of the Crude Oil Sales agreement signed in early 2019 and effective until 31 December 2020.

Operating costs, depreciation, other cost of sales and administrative expenses

The Group's operating costs increased to $18.4 million (H1 2018: $14.1 million) as the Group undertook certain one-off maintenance projects and incurred additional transportation costs for trucking oil from PF-1 to PF-2 for injection into the spur pipeline (the pipeline was not operational in H1 2018). The Group also started incurring costs associated with the preparation for the future production ramp up, mostly in relation to hiring additional personnel. Operating costs per bbl stand at $3.9 bbl, which is at the lower end of the previously disclosed guidance of $3.8-4.6/bbl.

Other cost of sales components include depletion and amortisation of oil and gas assets, capacity building charge, production bonuses, and certain other cost of sales such as the cost of trucking oil to Fishkhabour and oil inventory movements. Cost of sales decreased to $61.3 million (H1 2018: $81.9 million), which was mostly driven by the production bonus of $16.0 million in June 2018 (H1 2019: $nil) and a lower depletion and amortisation charge.

General and administrative expenses ("G&A") have increased by 7% from $7.6 million in H1 2018 to $8.2 million in H1 2019, below the previously disclosed guidance of c.10% increase in 2019. The increase is attributable to the Kurdistan office, which contributed $4.2 million (H1 2018: $3.6 million) of this amount. The increase in the G&A reflects the rise in Shaikan development activity. Corporate G&A remained unchanged in spite of the increased activity. The G&A amount includes $0.8 million of share-based payments (H1 2018: $0.5 million) and $0.4 million (H1 2018: $0.2 million) of depreciation costs.

The movements in these components have resulted in a modest decrease of 4% in the EBITDA, which stands at $59.0 million (H1 2018: $61.6 million).

Net finance costs and other gains

The Group incurred net finance costs of $1.9 million (H1 2018: $4.2 million). The improvement is driven by active cash management resulting in higher interest earned of $3.6 million (H1 2018: $1.5 million).

A solid financial foundation underpinning the Group's strategy

Cash flows

In 2019, the Group received payments for sales of Shaikan oil of $89.8 million (H1 2018: $107.4 million), incurred operational cash outflows of $34.8 million (H1 2019: $46.2 million) and spent $47.8 million on investment activities (H1 2018: $2.6 million) of which $36.7 million related to Shaikan development activities and $11.1 million to the exit costs of Algerian operations, resulting in a net cash increase of $7.2 million (H1 2018: $58.5 million).

The cash balance at 30 June 2019 stood at $302.7 million (31 December 2018: $295.6 million), providing a strong base for the Shaikan investment programme.

At the June AGM, shareholders approved the distribution of a total cash dividend of $50.0 million for the year ended 31 December 2018. The first tranche of c.$17 million was paid on 5 July, with the second tranche of c.$33 million to be paid on 4 October 2019. The ex-dividend date is 19 September 2019 and the record date is 20 September 2019. The first tranche paid was 5.68p per common share, which is equivalent to 7.26 US cents per common share. The full $50.0 million dividend payable was recognised in current liabilities as at 30 June 2019. As stated earlier, the buyback was successfully implemented from 8 July 2019 to 30 August 2019 for a total amount of $15.0 million. The Company is today resuming the buyback for an additional $10.0 million for a total of $25 million as announced on 8 July 2019.

Capital investment

In H1 2019, additions to Shaikan oil and gas asset amounted to $32.4 million net to GKP. This investment covered the work on two tubing workovers, well civils, drilling of SH-12 from early June, PF-1 spur pipeline, various studies and production facilities debottlenecking projects.

Capital investment into Shaikan will continue this year with the Group's work programme aimed at achieving the target of 55,000 bopd. In addition, the Company has initiated certain workstreams in relation to the subsequent phases of the development which include expansion to 75,000 bopd and the gas re-injection project, although the investment decision has not been finalised. In 2019, the gross capital expenditure is expected to stand at $88-104 million net ($110- 130 million gross). A higher level of capital expenditure is expected in H2 2019 with continuous drilling, wells civils, flowlines, the completion of PF-1 spur pipeline and debottlenecking work.

GULF KEYSTONE PETROLEUM LIMITED

Half Year Report for the six months ended 30 June 2019

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 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, contractual PSC payments and transportation costs.

 
                                          Six months     Six months    Year ended 
                                               ended          ended   31 December 
                                        30 June 2019   30 June 2018          2018 
                                           Unaudited      Unaudited       Audited 
                                           $ million      $ million     $ million 
-------------------------------------  -------------  -------------  ------------ 
 
Cost of sales                                   61.3           81.9         154.5 
Depreciation of oil & gas properties          (32.4)         (34.8)        (70.7) 
Transportation costs                           (3.2)          (8.8)        (14.3) 
Production bonus                                   -         (16.0)        (16.0) 
Capacity building payments                     (7.1)          (8.3)        (17.0) 
Working capital movement                       (0.2)            0.1         (5.8) 
Operating costs                                 18.4           14.1          30.7 
                                       =============  =============  ============ 
 

Gross operating costs per barrel

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

 
                                       Six months     Six months    Year ended 
                                            ended          ended   31 December 
                                     30 June 2019   30 June 2018          2018 
                                        Unaudited      Unaudited       Audited 
 
Gross production (MMbbls)                     5.3            5.8          11.5 
Gross operating costs ($ million)            20.5           17.4          36.8 
Gross operating costs per barrel 
 ($ per bbl)                                  3.9            3.0           3.2 
 

GULF KEYSTONE PETROLEUM LIMITED

Half Year Report for the six months ended 30 June 2019

EBITDA

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 2019   30 June 2018          2018 
                                           Unaudited      Unaudited       Audited 
                                           $ million      $ million     $ million 
-------------------------------------  -------------  -------------  ------------ 
 
Profit from operations                          26.2           26.6          78.2 
Depreciation of oil & gas properties            32.4           34.8          70.7 
Other Depreciation and amortisation              0.4            0.2           0.4 
                                       -------------  -------------  ------------ 
EBITDA                                          59.0           61.6         149.3 
                                       =============  =============  ============ 
 
 
 

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 2019   30 June 2018          2018 
                                      Unaudited      Unaudited       Audited 
                                      $ million      $ million     $ million 
--------------------------------  -------------  -------------  ------------ 
 
Additions to oil and gas assets            32.4            6.9          35.7 
Capital investment                         32.4            6.9          35.7 
                                  =============  =============  ============ 
 
 

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

 
                               Six months     Six months    Year ended 
                                    ended          ended   31 December 
                             30 June 2019   30 June 2018          2018 
                                Unaudited      Unaudited       Audited 
                                $ million      $ million     $ million 
--------------------------  -------------  -------------  ------------ 
 
Outstanding New Notes             (100.0)        (100.0)       (100.0) 
Interest accrual                    (4.4)          (2.0)         (4.4) 
Cash and cash equivalents           302.7          219.0         295.6 
                            -------------  -------------  ------------ 
Net cash                            198.3          117.0         191.2 
                            =============  =============  ============ 
 

GULF KEYSTONE PETROLEUM LIMITED

Half Year Report for the six months ended 30 June 2019

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 2018 Annual Report and Accounts. The principal risks are listed below:

 
 Strategic                   HSSE and CSR       Operational      Financial 
 Political, social           HSSE risks         Field delivery   Liquidity and 
  and economic instability                       risk             funding capability 
                            -----------------  ---------------  -------------------- 
 Disputes regarding          Gas flaring        Reserves         Export payment 
  title or exploration                                            mechanism 
  and production 
  rights 
                            -----------------  ---------------  -------------------- 
 Business conduct            Security                            Commodity prices 
  and anti-corruption 
                            -----------------  ---------------  -------------------- 
 Export route availability   Corporate social 
                              responsibility 
                              risks 
                            -----------------  ---------------  -------------------- 
 Stakeholder expectations 
                            -----------------  ---------------  -------------------- 
 

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

10 September 2019

GULF KEYSTONE PETROLEUM LIMITED

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 2019 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 17. 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.

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.

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 1, 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 2018 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.

Deloitte LLP

Statutory Auditor

London, United Kingdom

10 September 2019

GULF KEYSTONE PETROLEUM LIMITED

Condensed Consolidated Income Statement

for the six months ended 30 June 2019

 
                                    Six months 
                                         ended           Six months           Year ended 
                                       30 June                ended          31 December 
                                          2019         30 June 2018                 2018 
                             Notes   Unaudited            Unaudited              Audited 
                                         $'000                $'000                $'000 
---------------------------  -----  ----------  -------------------  ------------------- 
 
Continuing operations 
Revenue                        5        95,606              116,171              250,554 
Cost of sales                  6      (61,250)             (81,905)            (154,534) 
---------------------------  -----  ----------  -------------------  ------------------- 
Gross profit                            34,356               34,266               96,020 
 
General and administrative 
 expenses                              (8,169)              (7,644)             (17,813) 
Profit from operations                  26,187               26,622               78,207 
 
Finance revenue                7         3,628                1,450                4,441 
Finance costs                  7       (5,549)              (5,645)             (13,873) 
Other gains                    8         (112)                4,081               10,925 
---------------------------  -----  ----------  -------------------  ------------------- 
Profit before tax                       24,154               26,508               79,700 
 
Tax credit                                  50                  208                  189 
---------------------------  -----  ----------  -------------------  ------------------- 
Profit after tax                        24,204               26,716               79,889 
---------------------------  -----  ----------  -------------------  ------------------- 
 
Profit per share (cents) 
Basic                          9         10.55                11.65                34.84 
Diluted                        9         10.06                11.58                33.87 
---------------------------  -----  ----------  -------------------  ------------------- 
 

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2019

 
                                           Six months     Six months    Year ended 
                                                ended          ended   31 December 
                                         30 June 2019   30 June 2018          2018 
                                            Unaudited      Unaudited       Audited 
                                                $'000          $'000         $'000 
-------------------------------------   -------------  -------------  ------------ 
 
Profit for the period                          24,204         26,716        79,889 
Items that may be reclassified 
 subsequently to profit or loss: 
 Exchange differences on translation 
 of foreign operations                           (12)          (298)         (800) 
--------------------------------------  -------------  -------------  ------------ 
Total comprehensive income 
 for the period                                24,192         26,418        79,089 
--------------------------------------  -------------  -------------  ------------ 
 
 

GULF KEYSTONE PETROLEUM LIMITED

Condensed Consolidated Balance Sheet

as at 30 June 2019

 
                                                   30 June     30 June  31 December 
                                                      2019        2018         2018 
                                 Notes           Unaudited   Unaudited      Audited 
                                                     $'000       $'000        $'000 
------------------------------  ------  ------------------  ----------  ----------- 
Non-current assets 
Intangible assets                                      445          41           84 
Property, plant and equipment     11               381,546     389,782      380,537 
Deferred tax asset                                     607         599          559 
------------------------------  ------  ------------------  ----------  ----------- 
                                                   382,598     390,422      381,180 
------------------------------  ------  ------------------  ----------  ----------- 
 
Current assets 
Inventories                                         19,854      17,515       14,190 
Trade and other receivables       12                67,497      80,991       67,909 
Cash and cash equivalents                          302,701     219,025      295,566 
                                                   390,052     317,531      377,665 
------------------------------  ------  ------------------  ----------  ----------- 
Total assets                                       772,650     707,953      758,845 
------------------------------  ------  ------------------  ----------  ----------- 
 
 
Current liabilities 
Trade and other payables          13              (73,221)    (83,181)     (81,478) 
Dividends payable                                 (50,000)           -            - 
Provisions                                               -     (4,155)      (4,155) 
                                                 (123,221)    (87,336)     (85,633) 
------------------------------  ------  ------------------  ----------  ----------- 
 
Non-current liabilities 
Other borrowings                  14              (97,987)    (97,380)     (97,795) 
Provisions                                        (23,647)    (24,448)     (22,600) 
                                                 (121,634)   (121,828)    (120,395) 
------------------------------  ------  ------------------  ----------  ----------- 
Total liabilities                                (244,856)   (209,164)    (206,028) 
------------------------------  ------  ------------------  ----------  ----------- 
 
Net assets                                         527,795     498,789      552,817 
------------------------------  ------  ------------------  ----------  ----------- 
 
Equity 
Share capital                     15               229,430     229,430      229,430 
Share premium account             15               870,728     920,728      920,728 
Exchange translation reserve                       (3,830)     (3,316)      (3,818) 
Accumulated losses                               (568,533)   (648,053)    (593,523) 
------------------------------  ------  ------------------  ----------  ----------- 
Total equity                                       527,795     498,789      552,817 
------------------------------  ------  ------------------  ----------  ----------- 
 

GULF KEYSTONE PETROLEUM LIMITED

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2019

 
 
                                                Share      Exchange 
                                      Share   premium   translation  Accumulated       Total 
                                    capital   account       reserve       losses      equity 
---------------------- 
                            Notes     $'000     $'000         $'000        $'000       $'000 
----------------------  ---------  --------  --------  ------------  -----------  ---------- 
Balance at 1 January 
 2018 (audited)                     229,430   920,728       (3,018)    (675,254)     471,886 
---------------------------  ----  --------  --------  ------------  -----------  ---------- 
 
Net profit for the 
 period                                   -         -             -       26,716      26,716 
Other comprehensive 
 income for the period                    -         -         (298)            -       (298) 
---------------------------  ----  --------  --------  ------------  -----------  ---------- 
Total comprehensive 
 income for the period                    -         -         (298)       26,716      26,418 
Share-based payment 
 charge                                   -         -             -          485         485 
Balance at 30 June 
 2018 (unaudited)                   229,430   920,728       (3,316)    (648,053)     498,789 
---------------------------  ----  --------  --------  ------------  -----------  ---------- 
 
Net profit for the 
 period                                   -         -             -       53,173      53,173 
Other comprehensive 
 income for the period                    -         -         (502)            -       (502) 
---------------------------  ----  --------  --------  ------------  -----------  ---------- 
Total comprehensive 
 income for the period                    -         -         (502)       53,173      52,671 
Share-based payment 
 charge                                   -         -             -        1,357       1,357 
Balance at 31 December 
 2018 (audited)                     229,430   920,728       (3,818)    (593,523)     552,817 
---------------------------  ----  --------  --------  ------------  -----------  ---------- 
 
 
 
Net profit for the 
 period                       -         -        -     24,204    24,204 
Other comprehensive 
 loss for the period          -         -     (12)          -      (12) 
----------------------  -------  --------  -------  ---------  -------- 
Total comprehensive 
 (loss)/income for 
 the period                   -         -     (12)     24,204    24,192 
Dividend                      -  (50,000)        -          -  (50,000) 
Share-based payment 
 charge                       -         -        -        786       786 
Balance at 30 June 
 2019 (unaudited)       229,430   870,728  (3,830)  (568,533)   527,795 
----------------------  -------  --------  -------  ---------  -------- 
 

GULF KEYSTONE PETROLEUM LIMITED

Condensed Consolidated Cash Flow Statement

for the six months ended 30 June 2019

 
                                                     Six months     Six months    Year ended 
                                                          ended          ended   31 December 
                                                   30 June 2019   30 June 2018          2018 
                                            Note      Unaudited      Unaudited       Audited 
                                                          $'000          $'000         $'000 
------------------------------------------  ----  -------------  -------------  ------------ 
Operating activities 
Cash generated in operations                 10          56,566         64,708       161,483 
Interest received                                         3,491          1,450         4,441 
Interest paid                                           (5,022)        (5,000)       (7,713) 
Net cash generated in operating 
 activities                                              55,035         61,158       158,211 
------------------------------------------  ----  -------------  -------------  ------------ 
 
Investing activities 
Exits costs of Algerian operation                      (11,060)              -             - 
Purchase of intangible assets                             (392)              -          (66) 
Purchase of property, plant and 
 equipment                                             (36,337)        (2,635)      (20,589) 
Net cash used in investing activities                  (47,789)        (2,635)      (20,655) 
------------------------------------------  ----  -------------  -------------  ------------ 
 
Financing activities 
Issue costs of new notes                                      -              -       (2,366) 
Net cash from financing activities                            -              -       (2,366) 
------------------------------------------  ----  -------------  -------------  ------------ 
 
Net increase in cash and cash equivalents                 7,246         58,523       135,190 
Cash and cash equivalents at beginning 
 of period                                              295,566        160,456       160,456 
Effect of foreign exchange rate 
 changes                                                  (111)             46          (80) 
------------------------------------------  ----  -------------  -------------  ------------ 
Cash and cash equivalents at end 
 of the period being bank balances 
 and cash on hand                                       302,701        219,025       295,566 
------------------------------------------  ----  -------------  -------------  ------------ 
 

In early 2019, the Group paid $11.1 million in final settlement of liabilities relating to its exit from activities in Algeria.

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019

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 and production, operating in the Kurdistan Region of Iraq.

2. Basis of preparation

The Annual Report and Accounts of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed Group financial statements for the six months period ended 30 June 2019 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 2019 half-yearly financial report are the same as those adopted in the 2018 annual report and accounts, other than the implementation of new IFRS reporting standards.

The financial information for the year ended 31 December 2018 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.

Critical accounting judgements and key sources of estimation uncertainty remain consistent with those disclosed in the 2018 annual report and accounts.

Adoption of new and revised accounting standards

As of 1 January 2019, a number of accounting standard amendments and interpretations became effective, as noted in the 2018 Annual Report and Accounts (pages 90 and 91). 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 2019.

The Group has implemented IFRS 16 for the year commencing 1 January 2019. On adoption the Group has recognised lease liabilities in relation to leases previously classified as 'operating leases' under the principles of IAS 17. These liabilities have been measured at the present value of the remaining lease payments, discounted using the interest rate implicit in the lease (if available) or the Group's incremental borrowing rate of 10.0 per cent.

In accordance with transition provisions in IFRS 16 the modified retrospective approach has been adopted, with the cumulative effect of initially applying the new standard recognised on 1 January 2019. Comparative figures for 2018 have not been restated, as permitted under the specific transaction provisions in the standard.

The financial impact of this adoption has been to increase assets by $0.4 million and liabilities by $0.4m. The effect on the Group's income statement was immaterial.

Going concern

The Group continues to closely monitor and manage its liquidity risk. Cash forecasts are regularly produced and sensitivities run for different scenarios. The Group has $263.6 million of cash at 9 September 2019. The Group's forecasts, taking into account the risks applicable to the Group, show that the Group will be able to have sufficient financial headroom for the twelve months from the date of approval of the half year financial statements.

Based on the analysis performed, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the half year financial statements.

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019 continued

3. Dividend

At the Company's annual general meeting on 21 June 2019, the shareholders approved the distribution of a total cash dividend of $50 million for the year ended 31 December 2018. The first tranche of c.$17 million was paid in July 2019, with the second tranche of c.$33 million to be paid on 4 October 2019.

The initial tranche paid was 5.68p per common share, which is equivalent to 7.26 US cents per common share.

The distribution is eligible under Bermudan Law based on the solvency of the Group. As the Group has negative retained earnings this is considered a return of capital and accordingly is presented as a deduction from share premium.

4. Segment information

For the purposes of resource allocation and assessment of segment performance, the Group is organised into three regional business units - Algeria, Kurdistan and the United Kingdom. These geographical segments are the basis on which the Group reports its segmental information. The chief operating decision maker is the Chief Executive Officer. He is assisted by the Chief Financial Officer and senior management team.

The accounting policies of the reportable segments are consistent with the Group's accounting policies.

Each segment is described in more detail below:

- Kurdistan Region of Iraq: the Kurdistan segment consists of the Shaikan block and the Erbil office, which provides support to the operations in Kurdistan.

- United Kingdom: the UK segment provides geological, geophysical and engineering services to other segments of the Group; and

   -       Algeria:  the Algerian segment consists of the Group's discontinued operations in Algeria. 

The Corporate segment manages activities that serve more than one segment and represents all overhead and administration costs incurred that cannot be directly linked to one of the above segments.

 
                           Algeria   Kurdistan  Corporate    Total 
30 June 2019 (unaudited)     $'000       $'000      $'000    $'000 
-------------------------  -------  ----------  ---------  ------- 
Revenue 
Oil sales                        -      94,063          -   94,063 
Transportation revenue           -       1,543          -    1,543 
------------------------- 
Total revenue                    -      95,606          -   95,606 
-------------------------  -------  ----------  ---------  ------- 
 
Profit/ (loss) from 
 operations                      -      30,173    (3,986)   26,187 
 
Finance revenue                  -       3,088        540    3,628 
Finance cost                     -       (336)    (5,213)  (5,549) 
Other gains and losses           -          14      (126)    (112) 
 
Profit/ (loss) before 
 tax                             -      32,939    (8,785)   24,154 
 
Tax credit                       -           -         50       50 
 
Profit/ (loss) after 
 tax                             -      32,939    (8,735)   24,204 
------------------------- 
Total assets                     -     684,665     87,985  772,650 
-------------------------  -------  ----------  ---------  ------- 
 
 

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019 continued

4. Segment information continued

 
                           Algeria   Kurdistan  Corporate    Total 
30 June 2018 (unaudited)     $'000       $'000      $'000    $'000 
-------------------------  -------  ----------  ---------  ------- 
Revenue 
Oil sales                        -     111,960          -  111,960 
Transportation revenue           -       4,211          -    4,211 
-------------------------  -------  ----------  ---------  ------- 
Total revenue                    -     116,171          -  116,171 
-------------------------  -------  ----------  ---------  ------- 
 
Profit/ (loss) from 
 operations                      -      31,003    (4,293)   26,710 
 
Finance revenue                  -       1,132        318    1,450 
Finance cost                     -       (359)    (5,286)  (5,645) 
Other gains and 
 losses                      3,658          43        292    3,993 
------------------------- 
Profit/ (loss) before 
 tax                         3,658      31,819    (8,969)   26,508 
 
Tax credit                       -           -        208      208 
 
Profit/ (loss) after 
 tax                         3,658      31,819    (8,761)   26,716 
------------------------- 
Total assets                    26     635,868     72,059  707,953 
-------------------------  -------  ----------  ---------  ------- 
 
 
                         Algeria             Kurdistan  Corporate     Total 
31 December 2018 
 (audited)                 $'000                 $'000      $'000     $'000 
-----------------------  -------  --------------------  ---------  -------- 
Revenue 
Oil sales                      -               243,711          -   243,711 
Transportation revenue         -                 6,843          -     6,843 
----------------------- 
Total revenue                  -               250,554          -   250,554 
-----------------------  -------  --------------------  ---------  -------- 
 
Profit/ (loss) from 
 operations                (153)                88,139    (9,779)    78,207 
 
Finance revenue                -                 3,713        728     4,441 
Finance cost                   -                 (723)   (13,150)  (13,873) 
Other gains and losses    10,205                    39        681    10,925 
 
Profit/ (loss) before 
 tax                      10,052                91,168   (21,520)    79,700 
 
Tax credit                     -                     -        189       189 
 
Profit/ (loss) after 
 tax                      10,052                91,168   (21,331)    79,889 
-----------------------  -------  --------------------  ---------  -------- 
Total assets                   -               686,636     72,209   758,845 
-----------------------  -------  --------------------  ---------  -------- 
 

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019 continued

5. Revenue

 
                            Six months     Six months    Year ended 
                                 ended          ended   31 December 
                          30 June 2019   30 June 2018          2018 
                             Unaudited      Unaudited       Audited 
                                 $'000          $'000         $'000 
-----------------------  -------------  -------------  ------------ 
 
Oil sales                       94,063        111,960       243,711 
Transportation revenue           1,543          4,211         6,843 
                         -------------  -------------  ------------ 
                                95,606        116,171       250,554 
                         =============  =============  ============ 
 

The Group accounting policy for revenue recognition is set out in its 2018 annual report, with revenue recognised on a cash-assured basis.

During the six months period ended 30 June 2019, the cash-assured values recognised as oil sales were the Group's share of the invoiced revenue amounting to $94.1 million (H1 2018: $112.0 million; FY 2018: $227.5 million). There were no MNR liability offset revenues in the period (H1 2018: nil; FY 2018: $16.2 million) The oil sales price was calculated using the monthly Brent price less an average discount of $21.69 (H1 2018: $22.8; FY 2018: $22.3) per barrel for quality, pipeline tariff and transportation costs.

From 15 November 2017 onwards, the Group has performed transportation services in respect of the KRG's share of export oil sales. It recharges all these transportation costs at nil mark-up to KRG.

Interest revenue has been presented as part of net finance costs (note 7)

6. Cost of Sales

 
                                          Six months     Six months    Year ended 
                                               ended          ended   31 December 
                                        30 June 2019   30 June 2018          2018 
                                           Unaudited      Unaudited       Audited 
                                               $'000          $'000         $'000 
-------------------------------------  -------------  -------------  ------------ 
 
Oil production costs                          25,663         38,335        69,479 
Depreciation of oil & gas properties          32,358         34,760        70,744 
Transportation costs                           3,229          8,810        14,311 
                                       -------------  -------------  ------------ 
                                              61,250         81,905       154,534 
                                       =============  =============  ============ 
 

Oil production costs represent the Group's share of gross production expenditure for the Shaikan field for the period and include capacity building charges of $7.1 million (H1 2018: $8.3 million; FY 2018: $17.0 million) and Shaikan PSC production bonus of $nil (H1 2018: $16.0 million; FY 2018: $16.0 million). The production bonus became payable in H1 2018 when the gross production milestone of 50 MMbbl was achieved, there are no further production bonuses envisaged under the PSC.

A unit-of-production method, based on full entitlement production, commercial reserves and costs for Shaikan full field development, has been used to calculate the DD&A charge for the period. Commercial reserves are proven and probable ("2P") reserves, estimated using standard recognised evaluation techniques.

The breakdown of the transportation costs comparative for the period to June 2018 has been restated by $4.6million to accurately show the full transportation costs, as part of this had previously been shown in oil production costs.

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019 continued

7. Finance costs

 
                                         Six months     Six months    Year ended 
                                              ended          ended   31 December 
                                       30 June 2019   30 June 2018          2018 
                                          Unaudited      Unaudited       Audited 
                                              $'000          $'000         $'000 
------------------------------------  -------------  -------------  ------------ 
 
Notes interest charged during the 
 period (Note 14)                           (5,192)        (5,285)      (13,150) 
Finance lease Interest                         (21)              -             - 
Unwinding of discount on provisions           (336)          (360)         (723) 
                                      -------------  -------------  ------------ 
Total Finance costs                         (5,549)        (5,645)      (13,873) 
Finance Revenue                               3,628          1,450         4,441 
                                      -------------  -------------  ------------ 
Net finance costs                           (1,921)        (4,195)       (9,432) 
                                      =============  =============  ============ 
 

8. Other (losses)/gains

 
                             Six months     Six months    Year ended 
                                  ended          ended   31 December 
                           30 June 2019   30 June 2018          2018 
                              Unaudited      Unaudited       Audited 
                                  $'000          $'000         $'000 
------------------------  -------------  -------------  ------------ 
 
Exchange (losses)/gains           (112)            344           710 
Other gains                           -          3,737        10,215 
                                  (112)          4,081        10,925 
                          =============  =============  ============ 
 

Other gains in prior periods consist of the release of decommissioning liability and reduction of accruals relating to exiting the Algerian project.

9. Profit per share

The calculation of the basic and diluted loss per share is based on the following data:

 
                                          Six months     Six months    Year ended 
                                               ended          ended   31 December 
                                        30 June 2019   30 June 2018          2018 
                                           Unaudited      Unaudited       Audited 
                                               $'000          $'000         $'000 
-------------------------------------  -------------  -------------  ------------ 
Profit 
Profit after tax for the purposes 
 of basic and diluted loss per share          24,204         26,716        79,889 
Weighted average number of shares 
 used: 
 Basic ('000)                                229,317        229,317       229,317 
 Diluted ('000)                              240,564        230,761       235,845 
-------------------------------------  -------------  -------------  ------------ 
 

The average number of ordinary shares in issue excludes shares held by Employee Benefit Trustee ("EBT") and the Exit Event Trustee of 0.1 million (H1 2018: 0.1 million; FY 2018: 0.1 million)

The diluted number of ordinary shares outstanding, including share options, is calculated on the assumption of conversion of all potentially dilutive ordinary shares. As at 30 June 2019, there were 0.3 million share options (H1 2018: 0.3 million; FY 2018: 0.3 million) that were excluded from the calculation of diluted earnings, because they were anti-dilutive.

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019 continued

10. 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 
                                                   2019        2018          2018 
                                              Unaudited   Unaudited       Audited 
                                                  $'000       $'000         $'000 
-------------------------------------------  ----------  ----------  ------------ 
 
Profit from operations                           26,187      26,622        78,207 
 
Adjustments for: 
 Depreciation of property, plant and 
  equipment                                      32,769      34,924        71,081 
 Amortisation of intangible assets                   31          22            46 
 Other gains or losses                                -         694             - 
 Share-based payment expense                        756         485         1,785 
 (Increase)/ decrease in inventories            (5,664)       (325)         3,000 
 (Increase)/decrease in receivables                 549    (19,236)       (4,330) 
 Increase/(decrease) in payables                  1,938      21,522        11,694 
-------------------------------------------  ----------  ----------  ------------ 
Net cash generated in operating activities       56,566      64,708       161,483 
-------------------------------------------  ----------  ----------  ------------ 
 

11. Property, plant and equipment

 
                                           Oil and Gas    Fixtures       Total 
                                                Assets         and       $'000 
                                                 $'000   Equipment 
                                                             $'000 
-----------------------------------------  -----------  ----------  ---------- 
Year ended 31 December 2018 
Opening net book value                         416,908         565     417,473 
Additions                                        6,947         278       7,225 
Depreciation charge                           (34,760)       (164)    (34,924) 
Foreign currency translation differences             -           8           8 
                                           -----------  ----------  ---------- 
Net book value at 30 June 2018                 389,095         687     389,782 
 
Additions                                       28,768         366      29,134 
Depreciation charge                           (35,984)       (173)    (36,157) 
Revisions to decommissioning charge            (2,229)           -     (2,229) 
Foreign currency translation differences             -           7           7 
Net book value at 31December 2018              379,650         887     380,537 
                                           ===========  ==========  ========== 
 
Cost                                           600,048       6,201     606,249 
Accumulated depreciation                     (220,398)     (5,314)   (225,712) 
                                           -----------  ----------  ---------- 
Net book value at 31 December 2018             379,650         887     380,537 
                                           ===========  ==========  ========== 
 
 
 
 
Period ended 30 June 2019 
Opening net book value                       379,650      887    380,537 
Additions                                     32,432      605     33,037 
Revision to decommissioning asset                710        -        710 
Depreciation charge                         (32,358)    (411)   (32,769) 
Foreign currency translation differences           -       31         31 
Closing net book value                       380,434    1,112    381,546 
                                           =========  =======  ========= 
 
At 30 June 2019 
Cost                                         633,190    6,837    640,027 
Accumulated depreciation                   (252,756)  (5,725)  (258,481) 
                                           ---------  -------  --------- 
Net book value                               380,434    1,112    381,546 
                                           =========  =======  ========= 
 

The additions to the Shaikan asset amounting to $32.4 million during the period include the costs of tubing changeovers, well civils and drilling, spur pipeline, various studies and production facilities debottlenecking projects.

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019 continued

12. Trade and other receivables

 
                                      30 June      30 June   31 December 
                                         2019         2018          2018 
                                    Unaudited    Unaudited       Audited 
                                        $'000        $'000         $'000 
--------------------------------  -----------  -----------  ------------ 
 
 Trade receivables                     59,737       77,109        61,251 
 Other receivables                      6,852        3,190         5,405 
 Prepayments and accrued income           908          692         1,253 
                                  -----------  -----------  ------------ 
                                       67,497       80,991        67,909 
                                  ===========  ===========  ============ 
 

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

13. Trade and other payables

 
                                               31 December 
                   30 June 2019  30 June 2018         2018 
                      Unaudited     Unaudited      Audited 
                          $'000         $'000        $'000 
-----------------  ------------  ------------  ----------- 
 
Trade payables            3,275         2,859       11,857 
Other payables           26,907        38,189       19,552 
Finance Leases              211             -            - 
Accrued expenses         42,828        42,133       50,069 
                   ------------  ------------ 
                         73,221        83,181       81,478 
                   ============  ============  =========== 
 

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs.

There is $4.4 million interest payable included in accrued expenses as at 30 June 2019 (30 June 2018: $2.0 million. FY 2018: $4.4 million)

As at 30 June 2019, other payables included $10.0 million (H1 2018: $10.0 million; FY 2018: $10.0 million) in relation to the Sheikh Adi PSC bonus that was payable on the declaration of commerciality. It is likely that this liability will be offset against unrecognised Shaikan revenue arrears, in accordance with the principles agreed under the Bilateral Agreement between the Group and the MNR. As at 30 June 2018, the other payables balance also included $16.2 million of payments received in excess of the Group's revenue entitlements from the MNR under the bilateral Agreement. In December 2018, this amount was transferred to revenue as an offset of past revenue arrears.

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019 continued

14. Other borrowings

In July 2018, the Group redeemed $100 million Reinstated Notes, issued in October 2016, at a price equal to 100 per cent of the principal, plus accrued and unpaid interest on the Notes up to and including the Redemption Date. The Group also successfully completed the private placement of a 5-year senior unsecured $100 million bond issue (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 their 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.

The liabilities associated with Reinstated Notes are presented in the following tables:

 
                                              30 June     30 June  31 December 
                                                 2019        2018         2018 
                                            Unaudited   Unaudited      Audited 
                                                $'000       $'000        $'000 
-----------------------------------------  ----------  ----------  ----------- 
 
Liability at the beginning of the period      102,156      99,084       99,084 
Interest charged during the period              5,192       5,285       13,150 
Interest paid during the period               (5,000)     (5,000)      (7,713) 
Exchange or redemption of Reinstated 
 notes                                              -           -    (100,000) 
Issue of new notes at fair value                    -           -       97,635 
                                           ----------  ----------  ----------- 
Liability at the end of period                102,348      99,369      102,156 
                                           ==========  ==========  =========== 
 

Liability reported in:

 
                             30 June     30 June  31 December 
                                2019        2018         2018 
                           Unaudited   Unaudited      Audited 
                               $'000       $'000        $'000 
------------------------  ----------  ----------  ----------- 
 
Current liabilities            4,361       1,989        4,361 
Non-current liabilities       97,987      97,380       97,795 
                             102,348      99,369      102,156 
                          ==========  ==========  =========== 
 

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        $1.04663   104,663 
 

As of 30 June 2019, 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 
                                 2019        2018         2018 
                            Unaudited   Unaudited      Audited 
                                $'000       $'000        $'000 
-------------------------  ----------  ----------  ----------- 
 
Within one year                10,000      10,000       10,000 
Within two to five years      130,639     125,000      135,639 
                              140,639     135,000      145,639 
                           ==========  ==========  =========== 
 

GULF KEYSTONE PETROLEUM LIMITED

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2019 continued

15. Share capital

 
                                        Common shares                      Share     Share 
                                   No. of shares     Amount              capital   premium 
                                             000      $'000                $'000     $'000 
---------------------------------  -------------  ---------  -------------------  -------- 
Issued and fully paid 
Balance 1 January 2019 (audited)         229,430  1,150,158              229,430   920,728 
 Dividend (see note 3)                         -          -                    -  (50,000) 
 
Balance 30 June 2019 (unaudited)         229,430  1,150,158              229,430   870,728 
                                   -------------  ---------  -------------------  -------- 
 

16. Contingent Liabilities

The Group has a contingent liability of $27 million (2018: $27 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 in July 2013. The Shaikan PSC does not appear to address expressly any party's rights to this pre-Development Plan petroleum. This suggests strongly that there must have been some other agreement, understanding or arrangement between GKP and the KRG as to how this pre-Development Plan petroleum would be lifted and sold. 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-Development Plan 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.

17. Events after the balance sheet date

In July 2019 the Group announced its intention to commence a share buyback programme using the Group's existing cash resources to make market purchases of Gulf Keystone common shares for a maximum consideration of

$25.0 million.

The first stage of that programme to purchase Gulf Keystone shares for an initial amount of $15.0 million was initiated on 8 July 2019 and completed on 30 August. The company is now resuming the buyback for an additional $10.0 million.

GULF KEYSTONE PETROLEUM LIMITED

GLOSSARY (See also the glossary in the 2018 Annual Report and Accounts)

 
 Bilateral Agreement         the bilateral agreement between GKPI and 
                              the MNR dated 16 March 2016 
 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) 
                            -------------------------------------------------- 
 Crude Oil Sales Agreement   the Shaikan crude oil export sales agreement 
                              valid between 1 January 2019 and 31 December 
                              2020 
                            -------------------------------------------------- 
 CSR                         corporate social responsibility 
                            -------------------------------------------------- 
 DD&A                        depreciation, depletion and amortisation 
                            -------------------------------------------------- 
 EBITDA                      earnings before interest, tax, depreciation 
                              and amortisation 
                            -------------------------------------------------- 
 EBT                         employee benefit trust 
                            -------------------------------------------------- 
 ESG                         Environmental Social Governance 
                            -------------------------------------------------- 
 ESP                         electrical submersible pump 
                            -------------------------------------------------- 
 FDP                         Field Development Plan 
                            -------------------------------------------------- 
 First Shaikan Amendment     First amendment to the Shaikan PSC executed 
                              on 1 August 2010. 
                            -------------------------------------------------- 
 G&A                         general and administrative 
                            -------------------------------------------------- 
 Group                       Gulf Keystone Petroleum Limited and its 
                              subsidiaries 
                            -------------------------------------------------- 
 HSSE                        health, safety, security and environment 
                            -------------------------------------------------- 
 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 
                            -------------------------------------------------- 
 TD                          total depth 
                            -------------------------------------------------- 
 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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September 10, 2019 02:01 ET (06:01 GMT)

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