Gulf Keystone Petroleum: Half-Year Report

September 22, 2016

Operational highlights

Security situation and HSSE performance

  • All operations in the Kurdistan Region of Iraq remain safe and secure with no significant HSSE incidents during the period

Production and sales

  • Strong production performance resulted in gross production of 6.0 million barrels in the period to 30 June 2016 (H1 2015:4.7 million barrels), an increase of 28% on H1 2015

  • Average daily gross production rates for the period were 33,000 bopd. Production was restricted in February and March 2016 due to lack of export pipeline availability. Production rates were otherwise strong, averaging between 36,000-40,000 bopd. The Group remains on track to meet its annual gross production guidance of between 31,000-35,000 bopd

  • An updated Shaikan CPR was published on 31 August 2016 showing stable Proved plus Probable (2P) gross field oil Reserves of 622 MMstb and 2C Contingent Resources of 239 MMstb, both as at 30 June 2016

  • All oil sales were made via the Kirkuk-Ceyhan export pipeline throughout the reporting period, ensuring higher realised prices, lower transportation costs and reduced HSSE exposure

  • The Group’s improved liquidity is expected to allow the implementation of the Group’s near-term investment plan to maintain gross production at 40,000 bopd with the potential to increase to 55,000 bopd subject to MOL and MNR approvals, the continuation of the regular payment cycle from the MNR and a commercially acceptable investment environment

Financial highlights

  • Balance sheet restructuring transaction (“Restructuring”) announced on 14 July 2016. Subject to completion, the new capital structure will have significantly lower debt, reducing from over $600 million (including unpaid interest due on 18 April 2016) to $100 million post Restructuring, through the conversion of debt to equity

  • Improved liquidity and cash position expected from capital raise of $25 million through the Open Offer, removal of the debt service reserve account freeing up $32.5 million of cash for general liquidity (subject to completion of the Restructuring), and regular payments from the MNR

  • Restructuring is on track and expected to complete on or around 14 October 2016
    • resolution to increase authorised share capital approved by the shareholders at the Special General Meeting on 5 August 2016
    • 90% and 84% of the Guaranteed Noteholders and Convertible Bondholders, respectively, have agreed to the Restructuring under the Restructuring Agreement
    • prospectus in relation to Open Offer published on 31 August 2016
    • Open Offer closed on 15 September 2016 raising the full amount of $25 million (subject to the completion of the Restructuring)

  • Positive cash flow of $46.7 million generated from operations during the period. Cash and cash equivalents at 20 September 2016 of $68 million

  • Gross payments of $97.5 million received in 2016 to date following the Kurdistan Regional Government (“KRG”) committing to a regular payment cycle to international oil companies

  • Revenues of $102.1 million recognised in 1H 2016 (H1 2015: $30.1 million; FY2015: $86.2 million). This includes $51.2 million recognised in relation to a part of the previously unrecognised revenue arrears and $50.9 million for H1 2016 liftings.

  • Management of cost base with cash spend on capital items in H1 2016 of $15.7 million, compared to $52.2 million in FY2015. Gross operating costs per barrel of $4/bbl (FY2015: $5/bbl).

  • Gross profit of $25.8 million for the period due to recognition of revenue relating to prior years’ liftings

  • Impairment of $40.0 million following the relinquishment of the Sheikh Adi and Ber Bahr blocks

  • Loss after tax for H1 2016 of $59.9 million (H12015: $77.7 million; FY2015: $135.0 million)

  • The Group’s share of unrecognised revenue arrears is estimated at $28 million as at 30 June 2016 (net of payables to the MNR and May and June 2016 receivables, subject to audit and reconciliation).

  • Subject to the execution of the Second Shaikan PSC Amendment, the Group estimates back-costs associated with the Government Participation Option of $ 61 million net to GKP as at 30 June 2016

Corporate developments

  • The Group continues to work towards the execution of the Second Shaikan PSC Amendment implementing the terms of the Bilateral MNR Agreement

  • Mr Keith Lough appointed Non-Executive Chairman in July 2016

  • As disclosed in the 2015 Annual Report, the Group relinquished the Sheikh Adi Block and terminated the Sheikh Adi PSC in March 2016

  • The relinquishment of the Ber Bahr Block is being finalised

  • Mr Tony Peart retired from his position as the Company’s Legal and Commercial Director after 8 years with Gulf Keystone effective 6 September 2016


  • Continued safe and secure operations with the focus on achieving commercial sustainability

  • Additional liquidity and regular revenue receipts will allow the Group to finance its ongoing operations and near-term investment plans

  • Completion of the Restructuring

Jón Ferrier (pictured), Chief Executive Officer, said:

Upon completion of the Restructuring we will be able to effectively relaunch Gulf Keystone. We will benefit from an enhanced balance sheet, a well understood field which continues to perform above expectations and a clear path to significantly increasing production and growing value over time.
“With a regular payment schedule, Gulf Keystone will be in the strongest position it has been in for a number of years and faces the future with renewed confidence.”