TIDMGKP
RNS Number : 8711K
Gulf Keystone Petroleum Ltd.
31 August 2023
31 August 2023
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP", "the Group" or "the Company")
2023 Half Year Results Announcement
Gulf Keystone, a leading independent operator and producer in
the Kurdistan Region of Iraq, today announces its results for the
half year ended 30 June 2023.
Jon Harris, Gulf Keystone's Chief Executive Officer, said:
"GKP's operational and financial performance in the first six
months of 2023 was materially impacted by the suspension of
Kurdistan crude exports following the closure of the Iraq-Turkey
Pipeline in March and continued delays to KRG payments. As a
result, we shifted rapidly from a focus on driving profitable
production growth to preserving liquidity, suspending all expansion
activity and aggressively reducing expenditures across the
business.
In July, we commenced local sales and partially restarted
production. Since then, we have increased gross average sales to
around 2 3,100 bopd towards the end of August. At current realised
prices of around $30/bbl, we are able to cover our current
estimated H2 2023 monthly net capex, operating costs and other
G&A run rate of about $6 million while increasing our
flexibility to manage accounts payable. We continue to actively
pursue further increases in local sales and cost reductions and
retain the flexibility to reduce operational activity and costs if
sustainable local sales do not materialise to an acceptable
level.
While no official timeline has been announced, we continue to
believe that the suspension of exports will be temporary and that
the KRG will resume oil sales payments in due course. In the
interim, we remain focused on protecting the interests of GKP's
stakeholders by preserving liquidity and engaging as a company and
industry with the KRG and other key parties."
Highlights to 30 June 2023 and post reporting period
Operational
-- Shaikan Field exports remain suspended following the closure
of the Iraq-Turkey Pipeline ("ITP") on 25 March 2023
-- Production & trucking operations started at PF-1 in July
and expanded to include PF-2 in August to support increasing local
sales:
o c.4,900 bopd gross average sales for the period from 19 to 31
July increased to c.16,300 bopd for the period from 1 to 29
August
-- 1-18 August: c.12,100 bopd; 19-29 August: c.23,100 bopd
o Average realised prices of around $30/bbl, in line with local
market pricing
o Advance payments received for local sales
o While the priority remains local sales, GKP retains the option
to restart exports quickly once the pipeline reopens
-- Gross average production in H1 2023 of 23,256 bopd (H1 2022: 44,941 bopd)
o Prior to the ITP closure, production and operational activity
had been increasing. 2023 gross production averaged 49,165 bopd
between 1 January and 24 March 2023 and 53,682 bopd between 1-24
March, including five days in excess of 55,000 bopd
-- All expansion activity in the Shaikan Field halted and UK and Kurdistan headcount reduced:
o All drilling, well workover, facilities expansion and well pad
preparation activity remains suspended
o 55% reduction in expat workforce, with further reductions
under review
o 50% of local workforce on reduced hours in July, partially
offset in August due to step up in local sales
o 20% deferral of Executive and Non-Executive Director salaries
and fees from July
-- Rigorous focus on safety maintained
o No Lost Time Incidents for over 225 days
o Continuing to progress critical safety upgrades and
maintenance activity
Financial
-- H1 2023 financial performance materially impacted by the
suspension of exports and continued delays to KRG payments
o In response, the Company has moved quickly to preserve
liquidity by aggressively reducing capital expenditures and costs
while proactively managing accounts payable
-- Decline in Adjusted EBITDA and profitability driven by the
suspension of exports and lower realised prices in Q1 2023
o 84% decrease in Adjusted EBITDA to $34.2 million (H1 2022:
$208.6 million)
o Loss after tax of $2.9 million (H1 2022 profit after tax:
$162.8 million), reflecting the decrease in Adjusted EBITDA and an
impairment charge of $13.9 million (H1 2022: $0.4 million) related
to the IFRS expected credit loss determined on overdue receivables
from the KRG of $151 million net to GKP for production from the
months of October 2022 to March 2023
o Revenue down 70% to $79.6 million (H1 2022: $263.6 million),
reflecting a 48% decrease in gross production in the period to
23,256 bopd and a 39% decrease in weighted average realised prices
to $51.3/bbl for crude sales prior to the suspension of exports (H1
2022: $84.3/bbl)
o Operating costs of $18.9 million (H1 2022: $18.9 million),
with increased expenditure in Q1 2023 due to higher production
offset by a 36% quarter-on-quarter reduction in Q2 2023 as
production was shut-in and non-essential maintenance activity
deferred
-- Free cash outflow of $9.9 million (H1 2022 free cash flow:
$177.3 million), reflecting lower Adjusted EBITDA and delays to KRG
payments
o Revenue receipts of $65.7 million (H1 2022: $272.4 million)
related to invoices paid for crude sold in August and September
2022
o Net capex of $47.0 million (H1 2022: $41.8 million),
reflecting completion of SH-17 and SH-18, well workovers, well pad
preparation, long lead items and the expansion of production
facilities
o Net capex decreased 67% to $11.7 million in Q2 2023 relative
to Q1 2023 as the Company suspended all expansion activity
-- $25 million interim dividend paid in March (H1 2022
dividends: $190 million) prior to the cancellation of the proposed
final 2022 ordinary annual dividend of $25 million
-- Cash balance of $82.1 million at 30 August 2023 with no debt
o Includes GKP's entitlement for local crude sales and $8
million related to buyer advance payments collected by GKP
Outlook
-- GKP remains focused on preserving liquidity by continuing to
reduce costs, exploring opportunities to increase local sales,
pursuing other liquidity options, including inventory sales, and
proactively managing accounts payable
-- Current estimated aggregate net capex, operating costs and
other G&A monthly run rate of around $6 million in H2 2023, 65%
lower vs the average monthly run rate in Q1 2023
o Estimated 2023 net capex of $60-$65 million (previous
guidance: $70-$75 million), reflecting June net capex $10 million
lower than expected due to continued cost reduction efforts
o Estimated net capex for H2 2023 less than $15 million,
comprising safety critical and contractual commitments
-- Current local sales volumes and realised prices enable GKP to
cover its estimated monthly net capex, operating costs and other
G&A of around $6 million and provide increased flexibility to
manage accounts payables
-- While there appears to be significant local demand for
Shaikan Field crude, volumes and prices remain difficult to
predict
-- If sustainable local sales do not materialise and absent
other revenue sources, GKP would take further actions to preserve
liquidity
o Additional opportunities have been identified to reduce the
monthly expenditure run-rate by up to $2 million; however, these
could potentially delay a timely return to full production
o GKP may also consider additional sources of liquidity as
necessary, including external financing
-- While no official timeline has been announced, GKP continues
to believe that the suspension of exports will be temporary and
that the KRG will resume oil sales payments in due course
o Political negotiations continue regarding the restart of the
Iraq-Turkey Pipeline, the implementation of the approved 2023-2025
Iraqi Budget and the creation of an Iraqi Oil & Gas Law
o The KRG has assured GKP and other International Oil Companies
("IOCs") operating in Kurdistan that Production Sharing Contracts
will be honoured and receivables will be repaid
Investor & analyst presentations
GKP's management team will be hosting a presentation for
analysts and investors at 10:00am (BST) today via live audio
webcast:
https://brrmedia.news/GKP_HY23
Management will also be hosting an additional webcast
presentation focused on retail investors via the Investor Meet
Company ("IMC") platform at 12:00pm (BST) today. The presentation
is open to all existing and potential shareholders and participants
will be able to submit questions at any time during the event.
https://www.investormeetcompany.com/gulf-keystone-petroleum-ltd/register-investor
Recordings of both presentations will be made available on GKP's
website.
This announcement contains inside information for the purposes
of the UK Market Abuse Regime.
Enquiries:
Gulf Keystone: +44 (0) 20 7514 1400
Aaron Clark, Head of Investor Relations aclark@gulfkeystone.com
& Corporate Communications
FTI Consulting +44 (0) 20 3727 1000
Ben Brewerton GKP@fticonsulting.com
Nick Hennis
or visit: www.gulfkeystone.com
Notes to Editors:
Gulf Keystone Petroleum Ltd. (LSE: GKP) is a leading independent
operator and producer in the Kurdistan Region of Iraq. Further
information on Gulf Keystone is available on its website
www.gulfkeystone.com
Disclaimer
This announcement contains certain forward-looking statements
that are subject to the risks and uncertainties associated with the
oil & gas exploration and production business. These statements
are made by the Company and its Directors in good faith based on
the information available to them up to the time of their approval
of this announcement but such statements should be treated with
caution due to inherent risks and uncertainties, including both
economic and business factors and/or factors beyond the Company's
control or within the Company's control where, for example, the
Company decides on a change of plan or strategy. This announcement
has been prepared solely to provide additional information to
shareholders to assess the Group's strategies and the potential for
those strategies to succeed. This announcement should not be relied
on by any other party or for any other purpose.
CEO review
Following a year of record profitability, cash generation and
shareholder returns in 2022, as well as strong momentum in the
Shaikan Field leading to record production levels in the first
quarter of 2023, GKP's operational and financial performance in the
first six months of 2023 was materially impacted by the suspension
of Kurdistan crude exports on 25 March 2023 and delays to KRG oil
sales payments.
With our 2023 investment programme already under review due to
increasing KRG payment delays, GKP moved swiftly to preserve
liquidity following the suspension of exports. We have aggressively
reduced capital expenditures and costs across the business,
suspending all expansion activity in the Shaikan Field. We also
cancelled the 2022 final dividend. These actions have involved some
difficult decisions as we have regrettably had to sharply reduce
our teams. Recognising the impact on our workforce, the Board
continues to defer 20% of Executive and Non-Executive Director
salaries and fees. We are also working closely with our suppliers
to manage our accounts payable balances and we thank them for their
continued support.
Today, after deep cost cuts and the recent benefit of local
sales, the business is in a much better position to manage the
current situation. Our current estimated average monthly run rate
of net capex, operating costs and other G&A in the second half
of the year of around $6 million represents a 65% reduction to the
average monthly run rate in Q1 2023.
We have been progressively increasing local sales volumes,
reducing crude in storage and restarting production from a number
of wells at both PF-1 and PF-2. Gross sales averaged around 23,100
bopd for the period from 19 to 29 August, which at current realised
prices are sufficient for us to cover our targeted monthly net
capex, operating costs and other G&A run rate as well as
provide increased flexibility to manage our accounts payable. We
are actively pursuing opportunities to increase local sales volumes
further, although prices and sustained demand remain unpredictable.
Should sustainable local sales not materialise, we have identified
additional opportunities to reduce the monthly expenditure run-rate
by up to $2 million. However, these could potentially delay a
timely return to full production.
While no official timeline has been provided, we continue to
believe that the suspension of exports will be temporary and that
the KRG will resume oil sales payments in due course. Negotiations
are active between the KRG, Iraq and Turkey regarding the restart
of pipeline operations. The KRG and Iraq also continue to discuss
the implementation of the 2023-2025 Iraqi Budget, which recognises
KRG production in exchange for budget transfers to Kurdistan, as
well as the creation of an Iraqi Oil & Gas Law.
The Association of the Petroleum Industry of Kurdistan
("APIKUR"), founded by GKP and other International Oil Companies
("IOCs") in the region, is actively engaging with the KRG and other
critical stakeholders regarding these issues. In our discussions,
we continue to emphasi se the importance of the resumption of IOC
oil sales payments, the repayment of IOC receivables and the
protection of the IOCs' rights under the existing Production
Sharing Contracts ("PSCs") that are governed by English Law. The
KRG has assured GKP and the other IOCs that the PSCs will be
honoured and receivables will be repaid in full.
I would like to thank GKP's staff and contractors for their
continued commitment and focus during this challenging time.
Despite the ongoing disruption, we have not compromised our
rigorous focus on safety, reflected in over 225 days without a Lost
Time Incident, or our commitment to operational quality and asset
integrity, as we have transitioned smoothly from pipeline to
trucking operations, which was last utilised in 2019. I would also
like to thank our loyal shareholders for their continued support as
the Board continues to protect the Company's interests.
Looking back over GKP's long operating history in Kurdistan
since 2007, the Company has surmounted several challenges to
generate profitable growth from the Shaikan Field's substantial
reserves base and economic value for Kurdistan. We remain focused
on what we control with the objective of returning GKP to cash
generative production.
Jon Harris
Chief Executive Officer
30 August 2023
Operational review
In the first half of the year, GKP's operations shifted rapidly
from a focus on profitable growth, with investment in the Jurassic
reservoir driving record levels of production, to the shut-in of
production and focus on liquidity preservation following the
suspension of exports on 25 March 2023. Since July, operational
activity has increased to support the commencement of local sales
and a partial restart of production.
Gross average production in the first half of the year was
23,256 bopd, 48% lower versus H1 2022. Prior to the suspension of
exports as of 25 March 2023, gross average production in 2023 year
to date was 49,165 bopd and 53,682 bopd in March 2023, including
five days in excess of 55,000 bopd, reflecting increasing
production from SH-16 and the start-up of SH-17. Following the
closure of the Iraq-Turkey Pipeline on 25 March, production
continued at curtailed rates into storage prior to a full shut-in
on 13 April.
As it became apparent that pipeline exports were unlikely to
resume immediately, we moved swiftly to suspend all expansion
activity in the Field. Following the completion of SH-18, we
released our drilling rig and suspended well workover activity. We
halted all production facilities expansion activity, including the
installation of water handling, as well as the preparation of
future well pads and flowlines. Despite the disruption, we have
maintained a rigorous focus on safety, continuing to execute
critical safety upgrades and essential maintenance activity. We are
pleased to have had no Lost Time Incidents for over 225 days.
Given reduced activity levels, we were regrettably forced to
carry out significant reductions to the organisation. We have
reduced our expat workforce by 55%, with further reductions under
review. 50% of our local workforce was also on reduced hours in
July, partially offset in August due to the step up in local sales.
Nonetheless, we have continued to retain sufficient operational
capability and resource to quickly resume exports when required and
restarted more labour-intensive trucking operations for local
sales.
On 19 July 2023, we commenced local sales from PF-1 and have
steadily increased volumes, starting sales from PF-2 in August. We
have sold crude from storage while restarting a number of PF-1 and
PF-2 wells. Between 19-31 July, gross sales averaged c.4,900 bopd,
with gross average sales of c.16,300 bopd for the period 1-29
August. Gross sales for the period from 19 to 29 averaged c.23,100
bopd.
Looking ahead, we see strong demand for Shaikan crude providing
opportunities to increase local sales further, although the outlook
for sustainable volumes and prices remains unpredictable. We
continue to retain significant flexibility to dial operational
activity up or down, and if we are unable to maintain sustainable
local sales, we would consider additional opportunities to reduce
costs. However, these could potentially delay a timely return to
full production.
By adapting quickly to the new environment, we have been able to
preserve liquidity and quickly seize opportunities to start
producing and selling Shaikan Field crude, putting the business on
a firmer footing. We remain focused on delivering against what is
in our control while maintaining high levels of safety and
operational quality.
John Hulme
Chief Operating Officer
30 August 2023
Financial review
Key financial highlights
Three months Six months Six months Year ended
ended 31 ended ended 31 December
March 2023 30 June 30 June 2022
2023 2022
Gross average production (1) bopd 46,228 23,256 44,941 44,202
------ ------------ ---------- ------------
Dated Brent (2) $/bbl 81.2 NA 107.6 101.4
------ ------------ ---------- ------------
R ealised price (1) $/bbl 51.3 NA 84.3 74.1
------ ------------ ---------- ------------
Discount to Dated Brent $/bbl 29.9 NA 23.3 27.2
------ ------------ ---------- ------------
Revenue $m 79.6 79.6 263.6 460.1
------ ------------ ---------- ------------
Operating costs $m 11.5 18.9 18.9 41.9
------ ------------ ---------- ------------
Gross operating costs per
barrel (1) $/bbl 3.5 5.6 2.9 3.2
------ ------------ ---------- ------------
Other general and administrative
expenses $m 5.0 9.1 6.1 12.2
------ ------------ ---------- ------------
Share option expense $m 1.0 8.4 11.5 13.8
------ ------------ ---------- ------------
Adjusted EBITDA (1) $m 58.6 34.2 208.6 358.5
------ ------------ ---------- ------------
Profit/(loss) after tax $m 32.1 (2.9) 162.8 266.1
------ ------------ ---------- ------------
Basic earnings/(loss) per
share cents 14.8 (1.3) 75.9 123.5
------ ------------ ---------- ------------
Revenue and arrears receipts
(1)(3) $m 65.7 65.7 272.4 450.4
------ ------------ ---------- ------------
Net capital expenditure (1) $m 35.3 47.0 41.8 114.9
------ ------------ ---------- ------------
Free cash flow (1) $m 10.8 (9.9) 177.3 266.5
------ ------------ ---------- ------------
Dividends $m 25.0 25.0 189.8 215
------ ------------ ---------- ------------
Cash and cash equivalents $m 105.4 84.9 231.8 119.5
------ ------------ ---------- ------------
Face amount of the Notes $m 0.0 0.0 100.0 0.0
------ ------------ ---------- ------------
Net cash (1) $m 105.4 84.9 131.8 119.5
------ ------------ ---------- ------------
(1) Gross average production, realised price, gross operating
costs per barrel, Adjusted EBITDA, revenue and arrears receipts,
net capital expenditure, free cash flow and net cash are either non
-- financial or non-IFRS measures and, where necessary, are
explained in the summary of non-IFRS measures.
(2) Weighted average GKP sales volume price. For the period
three months ended 31 March 2023 reflects sales to the date of
pipeline suspension on 25 March 2023.
(3) Arrears receipts relate to historic receivables settled in
H1 2022; all receipts in 2023 were for current invoices.
Building on the Company's strong financial performance in 2022,
in which GKP generated record profitability and cash flow,
distributed $215 million of dividends to shareholders and repaid
its $100 million outstanding bond, the Company was on track for
another strong year in 2023 until the suspension of crude exports
on 25 March 2023. The suspension and continued delays in KRG
payments materially impacted the Company's financial performance in
the first six months of 2023. In response, the Company moved
quickly to preserve liquidity by aggressively reducing capital
expenditures and costs across the business while proactively
managing accounts payable.
On 19 July, GKP commenced local oil sales and is focused on
continuing to increase sales volumes. Local sales are prepaid by
the buyer eliminating counterparty credit risk. At current sales
volumes and prices, associated revenues cover current estimated
monthly net capex, operating costs and other G&A of around $6
million, while providing increased flexibility to manage accounts
payables.
Adjusted EBITDA
Adjusted EBITDA declined by 84% to $34.2 million in H1 2023 (H1
2022: $208.6 million), driven by the suspension of exports and
lower realised prices in the first quarter of the year.
Gross average production was 23,256 bopd in H1 2023 (H1 2022:
44,941 bopd), 48% lower versus the prior reporting period
reflecting the shut-in of Shaikan Field production for the majority
of the second quarter. Gross average production in the first
quarter of the year was 46,228 bopd, reflecting increasing levels
of production and operational activity prior to the closure of the
Iraq-Turkey Pipeline.
Shaikan crude sales in H1 2023 generated revenue of $79.6m, a
70% reduction versus the prior period (H1 2022: $263.6 million),
with no revenue generated in the second quarter. Production in the
first quarter of the year prior to the suspension of exports was
sold at an average realised price of $51.3/bbl, 39% lower relative
to the prior period (H1 2022: $83.5/bbl). The decrease was
primarily driven by a reduction in the average Dated Brent price
for sales in the period to $81.2/bbl (H1 2022: $107.6/bbl) and an
increase in the average discount to $29.9/bbl (H1 2022: $23.3/bbl).
The discount to Brent reflected the average price for Kurdistan
Blend ("KBT") sold by the KRG at Ceyhan in Turkey, adjusted for a
quality discount and transportation costs for use of export
pipelines.
The Company continued to maintain a rigorous focus on costs,
with aggressive action taken to reduce expenses in Q2 2023 to
preserve liquidity.
Operating costs of $18.9 million in H1 2023 were flat relative
to the prior period (H1 2022: $18.9m), with costs in Q1 2023 of
$11.5 million related to higher production offset by a 37%
quarter-on-quarter decrease to $7.4 million in Q2 2023, driven by
the shut-in of production and deferred non-essential maintenance
activity. The increase in gross operating costs per barrel to
$5.6/bbl in H1 2023 (H1 2022: $2.9/bbl) reflected the shut-in of
production for the majority of the second quarter.
After adjusting Other G&A expenses of $9.1 million for
non-recurring corporate costs of $2.1 million, Other G&A
expenses were $7.0 million up from $6.1 million in H1 2022 due to
an increase in non-cash depreciation and amortisation of $0.9m
related to the implementation of a new ERP system. The increase in
Other G&A expenses in Q1 2023 due to increasing development and
operational activity were offset by cost reductions implemented in
Q2 2023.
Share option expense in the first half of the year of $8.4
million primarily reflected the vesting of the 2020 LTIP award, the
majority of which was non-cash. The 27% decrease versus the prior
period (H1 2022: $11.5 million) reflected the final vesting of the
Value Creation Plan ("VCP") in 2022.
Profit/(loss) after tax
The Company generated a loss after tax of $2.9 million (H1 2022:
profit after tax of $162.8 million), including an IFRS impairment
charge of $13.9 million (H1 2022: $0.4 million) related to the
expected credit loss on overdue receivables from the KRG.
Cash flows
GKP's net cash from operating activities decreased to $31.7
million in the first half of the year (H1 2022: $222.3 million),
primarily reflecting the suspension of exports and associated
decrease in EBITDA as well as the continued delays to KRG
payments.
In H1 2023, GKP received revenue receipts from the KRG of $65.7
million (H1 2022: $272.4 million) related to invoices for crude
sold in August and September 2022. The Company continues to engage
with the KRG regarding the overdue receivables for the months of
October 2022 to March 2023 totalling $151 million, net of capacity
building payments, on the basis of the KBT pricing mechanism.
Net capital expenditure in H1 2023 was $47.0 million (H1 2022:
$41.8 million), reflecting the completion of SH-17 and SH-18, well
workovers, well pad preparation, long lead items and the expansion
of production facilities. Net capex decreased 67% to $11.7 million
in Q2 2023 relative to Q1 2023 as the Company suspended all
expansion, drilling and well workover activity to preserve
liquidity.
The Company paid a $25 million interim dividend at the beginning
of March 2023. Following the suspension of exports, the Board
reviewed and subsequently cancelled the proposed final 2022
ordinary annual dividend of $25 million. We continue to believe
dividends are important to reward shareholders and will review
reinstating the dividend when the environment and our liquidity
position improve.
With a free cash outflow in H1 2023 of $9.9 million (H1 2022
free cash flow: $177.3 million) and the payment of the interim
dividend of $25 million, GKP's cash balance decreased from $119.5
million at 31 December 2022 to $84.9 million at 30 June 2023. GKP
remains focused on reducing costs, preserving liquidity and
increasing local sales. The Company's cash balance at 30 August
2023 was $82.1 million, including GKP's entitlement for local crude
sales and $8 million related to buyer advance payments collected by
GKP.
As at 30 June 2023, there were $224 million gross of unrecovered
costs, subject to potential cost audit by the KRG. The R-factor,
calculated as cumulative gross revenue receipts of $2,166 million
divided by cumulative gross costs of $1,838 million, was 1.18. The
unrecovered cost pool and R-factor are used to calculate monthly
cost oil and profit oil entitlements, respectively, owed to the
Company from crude oil sales. The Company's current net entitlement
is 36% of gross sales revenue.
Outlook
Looking ahead to the remainder of 2023, the Company remains
focused on preserving its liquidity while proactively managing
accounts payable.
Currently, the estimated aggregate net capital expenditures,
operating costs and other G&A monthly run rate is around $6
million for H2 2023. This represents a 65% decrease relative to the
average monthly run rate in Q1 2023 of $17.3 million and a 22%
decrease versus the average monthly run rate in Q2 2023 of $7.7
million, as the Company continues to drive cost reductions across
the business. The run rate assumes full production at both PF-1 and
PF-2. In the event the Company does not achieve sustainable local
sales, additional opportunities have been identified to reduce the
monthly expenditure run-rate by up to $2 million, albeit which
could potentially delay a timely return to full production.
2023 net capital expenditures are now estimated to be $60-$65
million for 2023 (prior guidance: $70-$75 million), driven by a $10
million reduction in net capex in June 2023. Less than $15 million
of safety critical and contractual commitments are estimated to be
remaining in the second half of the year.
Current local sales volumes and average realised prices of
around $30/bbl enable GKP to cover estimated monthly net capital
expenditures, operating costs and other G&A of around $6
million in H2 2023 and provide increased flexibility to manage
GKP's accounts payable balance. We continue to target ramping local
sales further as we have seen strong demand.
The Company remains focused on measures to improve its liquidity
position, including increasing local sales, further cost reductions
and inventory sales.
The Directors have a reasonable expectation that the Group has
adequate resources to continue to operate for 12 months from
issuance of the condensed set of financial statements in the
half-yearly report for the six months ended 30 June 2023.
Nonetheless, given the current uncertainty over the timing of
the pipeline reopening and therefore the settlement of outstanding
amounts due from the KRG, and the fact that the outlook for local
sales volumes and pricing is considered difficult to predict, the
Directors have considered these factors could give rise to a need
to implement mitigating factors including further cost reductions,
inventory sales or external financing, to enable the Group to
continue as a Going Concern.
The Directors have therefore concluded that a material
uncertainty exists as explained more fully in the financial
statement Going Concern disclosure.
Ian Weatherdon
Chief Financial Officer
30 August 2023
Non-IFRS measures
The Group uses certain measures to assess the financial
performance of its business. Some of these measures are termed
"non-IFRS measures" because they exclude amounts that are included
in, or include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with
IFRS, or are calculated using financial measures that are not
calculated in accordance with IFRS. These non -- IFRS measures
include financial measures such as operating costs and
non-financial measures such as gross average production.
The Group uses such measures to measure and monitor operating
performance and liquidity, in presentations to the Board and as a
basis for strategic planning and forecasting. The Directors believe
that these and similar measures are used widely by certain
investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The non-IFRS measures may not be comparable to other similarly
titled measures used by other companies and have limitations as
analytical tools and should not be considered in isolation or as a
substitute for analysis of the Group's operating results as
reported under IFRS. An explanation of the relevance of each of the
non-IFRS measures and a description of how they are calculated is
set out below. Additionally, a reconciliation of the non-IFRS
measures to the most directly comparable measures calculated and
presented in accordance with IFRS and a discussion of their
limitations is set out below, where applicable. The Group does not
regard these non-IFRS measures as a substitute for, or superior to,
the equivalent measures calculated and presented in accordance with
IFRS or those calculated using financial measures that are
calculated in accordance with IFRS.
Gross operating costs per barrel
Gross operating costs are divided by gross production to arrive
at operating costs per barrel.
Six months
ended Six months Year ended
30 June ended 31 December
2023 30 June 2022 2022
------------------------------------- ---------- ------------- ------------
Gross production (MMstb) 4.2 8.1 16.1
Gross operating costs ($ million)(1) 23.6 23.6 52.3
------------------------------------- ---------- ------------- ------------
Gross operating costs per barrel ($
per bbl) 5.6 2.9 3.2
------------------------------------- ---------- ------------- ------------
(1) Gross operating costs equate to operating costs (see note 5)
adjusted for the Group's 80% working interest in the Shaikan
Field.
Adjusted EBITDA
Adjusted EBITDA is a useful indicator of the Group's
profitability, which excludes the impact of costs attributable to
tax expense)/(credit), finance costs, finance revenue,
depreciation, amortisation, impairment of receivables and provision
against inventory held for resale.
Year ended
Six months Six months
ended ended 31 December
30 June
2023 30 June 2022 2022
$ million $ million $ million
------------------------------------- ----------- ------------- ------------
(Loss)/profit after tax (2.9) 162.8 266.1
Finance costs 0.9 5.6 9.7
Finance income (2.1) (0.1) (0.6)
Tax expense/(credit) 0.4 (0.2) (0.3)
Depreciation of oil and gas assets 20.6 39.5 80.2
Depreciation of other PPE assets and
amortisation of intangibles 1.3 0.5 1.4
Impairment of receivables 13.9 0.4 2.0
Provision against inventory held for
resale 2.1 - -
------------------------------------- ----------- ------------- ------------
Adjusted EBITDA 34.2 208.6 358.5
------------------------------------- ----------- ------------- ------------
Net capital expenditure
Net capital expenditure is the value of the Group's additions to
oil and gas assets excluding the change in value of the
decommissioning asset or any asset impairment.
Year ended
Six months Six months
ended ended 31 December
30 June
2023 30 June 2022 2022
$ million $ million $ million
---------------------------------- ----------- ------------- ------------
Net capital expenditure (note 10) 47.0 41.8 114.9
---------------------------------- ----------- ------------- ------------
Net cash
Net cash is a useful indicator of the Group's indebtedness and
financial flexibility because it indicates the level of cash and
cash equivalents less cash borrowings within the Group's business.
Net cash is defined as cash and cash equivalents, less current and
non-current borrowings and non-cash adjustments. Non-cash
adjustments include unamortised arrangement fees and other
adjustments.
Year ended
Six months Six months
ended ended 31 December
30 June
2023 30 June 2022 2022
$ million $ million $ million
-------------------------- ----------- ------------- ------------
Cash and cash equivalents 84.9 231.8 119.5
Outstanding Notes - (99.4) -
Unamortised issue costs - (0.6) -
-------------------------- ----------- ------------- ------------
Net cash 84.9 131.8 119.5
-------------------------- ----------- ------------- ------------
Free cash flow
Free cash flow represents the Group's cash flows, before any
dividends, share buybacks and notes redemption, including related
fees.
Year ended
Six months Six months
ended ended 31 December
30 June
2023 30 June 2022 2022
$ million $ million $ million
--------------------------------------------- ----------- ------------- ------------
Net cash generated from operating activities 31.7 222.3 374.3
Net cash used in investing activities (41.3) (44.7) (107.4)
Payment of leases (0.3) (0.3) (0.4)
--------------------------------------------- ----------- ------------- ------------
Free cash flow (9.9) 177.3 266.5
--------------------------------------------- ----------- ------------- ------------
Principal risks & uncertainties
The Board determines and reviews the key risks for the Group on
a regular basis. The principal risks, and how the Group seeks to
mitigate them, for the second half of the year are largely
consistent with those detailed in the management of principal risks
and uncertainties section of the 2022 Annual Report and Accounts.
The principal risks are listed below:
Strategic Operational Financial
Political, social and Health, safety and Liquidity and funding
economic environment ("HSE") capability
instability risks
--------------------- ----------------------
Business conduct and Reserves Oil revenue payment
anti -- corruption mechanism
--------------------- ----------------------
Disputes regarding Gas flaring Commodity prices
title or
exploration and production
rights
--------------------- ----------------------
Export route availability Security
--------------------- ----------------------
Risk of economic sanctions Field delivery risk
impacting the Group
--------------------- ----------------------
Stakeholder misalignment
--------------------- ----------------------
Global pandemic
--------------------- ----------------------
Climate change
--------------------- ----------------------
Cyber security
--------------------- ----------------------
The Group notes the following updates to risks and uncertainties
since the 2022 Annual Report and Accounts:
Closure of export pipeline
The Iraq Turkey Pipeline ("ITP") was shut down on 25 March 2023
following the ICC arbitration ruling in favour of Iraq over Turkey.
The Group continues to believe this shut-in is temporary but
despite ongoing discussions on its re-opening, it remains closed
with no timeline on the resumption of exports through the pipeline.
This increases the risk to the Company's liquidity and funding
capability.
Enactment of Iraqi Budget Law 2023-2025
The Group has noted the enactment of the Iraqi Budget Law
2023-2025 which provides some details on the future of oil exports
from the Kurdistan Region of Iraq. This law does not provide
sufficient detail on the mechanics or economics of these oil
exports, and in particular the payment mechanism. There has been
concern that the monthly proposed budget transfers from Iraq to
Kurdistan will be sufficient to cover the contractual entitlements
due to International Oil Companies ("IOCs") under their Production
Sharing Contracts ("PSCs").
Proposed new Iraqi Oil and Gas Law
The Group has noted that the Government of Iraq and the
Kurdistan Regional Government are in discussions on an Iraqi Oil
and Gas Law to govern the oil industry in the Kurdistan Region of
Iraq. The Group has a PSC, governed by English Law, in place and,
in common with other IOCs, would expect the rights under this to be
fully respected in the enactment of any new oil and gas law. As the
IOCs are not party to these discussions, there is a risk that these
contractual rights may not be fully recognised and the IOCs may
have to take formal steps to preserve their legal rights and
entitlements.
Responsibility statement
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared
in accordance with UK-adopted IAS 34 'Interim Financial
Reporting';
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
and their impact during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year); and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Jon Harris
Chief Executive Officer
30 August 2023
INDEPENT REVIEW REPORT TO GULF KEYSTONE PETROLEUM LIMITED
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 2023 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
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 2023 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 ow statement and the related
explanatory notes.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting.
Material uncertainty related to going concern
We draw attention to Note 2 to the condensed consolidated
financial statements which describes the uncertainty surrounding
the settlement of outstanding amounts due from KRG and the
difficulty of predicting volumes and pricing for local sales, both
of which could give rise to the need for the Group to implement
mitigating factors to enable it to continue as a going concern. As
stated in Note 2, these events or conditions, along with the other
matters as set out in note 2, indicate that a material uncertainty
exists which may cast significant doubt on the Group's ability to
continue as a going concern. Our conclusion is not modified in
respect of this matter.
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410, however future events or conditions
may cause the Group to cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statement in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
London, UK
30 August 2023
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Condensed consolidated income statement
For the six months ended 30 June 2023
Notes Six months Six months Year ended
ended ended 31 December
30 June 30 June 2022
2023 Unaudited 2022 Unaudited Audited
$'000 $'000 $'000
---------------- ---------------- -------------
Revenue 4 79,555 263,603 460,113
Cost of sales 5 (51,156) (79,129) (158,651)
Impairment charge on trade
receivables 11 (13,939) (427) (1,960)
---------------- ----------------
Gross profit 14,460 184,047 299,502
Other general and administrative
expenses 6 (9,080) (6,112) (12,202)
Share option related expense 7 (8,372) (11,463) (13,756)
(Loss)/profit from operations (2,992) 166,472 273,544
Finance income 2,057 55 648
Finance costs (873) (5,649) (9,655)
Foreign exchange (losses)/gains (668) 1,729 1,232
---------------- ---------------- -------------
(Loss)/profit before tax (2,476) 162,607 265,769
Tax (expense)/credit (390) 207 325
---------------- ---------------- -------------
(Loss)/profit after tax (2,866) 162,814 266,094
================ ================ =============
(Loss)/profit per share (cents)
Basic 8 (1.32) 75.89 123.52
Diluted 8 (1.32) 72.85 118.62
================ ================ =============
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2023
Six months
ended Six months Year ended
30 June ended 31 December
2023 30 June 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
(Loss)/profit for the period (2,866) 162,814 266,094
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations 903 (2,113) (1,950)
---------- ------------- ------------
Total comprehensive (expense)/income
for the period (1,963) 160,701 264,144
========== ============= ============
Condensed consolidated balance sheet
As at 30 June 2023
30 June 31 December
Notes 2023 2022
Unaudited Audited
$'000 $'000
---------- -----------
Non-current assets
Intangible assets 3,641 4,307
Property, plant and equipment 10 463,468 436,443
Trade receivables 11 102,177 -
Deferred tax asset 1,252 1,576
---------- -----------
570,538 442,326
---------- -----------
Current assets
Inventories 12 14,159 6,372
Trade and other receivables 11 58,995 176,203
Cash and cash equivalents 84,935 119,456
----------
158,089 302,031
---------- -----------
Total assets 728,627 744,357
========== ===========
Current liabilities
Trade and other payables 13 (131,207) (128,561)
Non-current liabilities
Trade and other payables 13 (194) (325)
Provisions (43,896) (42,546)
(44,090) (42,871)
---------- -----------
Total liabilities (175,297) (171,432)
---------- -----------
Net assets 553,330 572,925
========== ===========
Equity
Share capital 14 222,443 216,247
Share premium account 14 503,165 528,125
Exchange translation reserve (3,815) (4,718)
Accumulated losses (168,463) (166,729)
---------- -----------
Total equity 553,330 572,925
========== ===========
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2023
Share Exchange
Share premium translation Accumulated Total
capital account reserve losses equity
$'000 $'000 $'000 $'000 $'000
-------- --------- ------------ ----------- ---------
Balance at 1 January 2022
(audited) 213,731 742,914 (2,768) (432,173) 521,704
-------- --------- ------------ ----------- ---------
Profit after tax for the period - - - 162,814 162,814
Exchange difference of translation
of foreign operations - - (2,113) - (2,113)
-------- ---------
Total comprehensive income/(loss)
for the period - - (2,113) 162,814 160,701
Dividends - (189,831) - - (189,831)
Share issues 2,517 - - (2,517) -
Employee share schemes - - - (154) (154)
Balance at 30 June 2022 (unaudited) 216,248 553,083 (4,881) (272,030) 492,420
Profit after tax for the period - - - 103,280 103,280
Exchange difference of translation
of foreign operations - - 163 - 163
Total comprehensive income/(loss)
for the period - - 163 103,280 103,443
Dividends - (24,958) - - (24,958)
Employee share schemes (1) - - 2,021 2,020
Balance at 31 December 2022
(audited) 216,247 528,125 (4,718) (166,729) 572,925
Loss after tax for the period - - - (2,866) (2,866)
Exchange difference of translation
of foreign operations - - 903 - 903
Total comprehensive (loss)/income
for the period - - 903 (2,866) (1,963)
Dividends - (24,960) - - (24,960)
Share issues 6,196 - - (6,196) -
Employee share schemes - - - 7,328 7,328
Balance at 30 June 2023 (unaudited) 222,443 503,165 (3,815) (168,463) 553,330
======== ========= ============ =========== =========
Condensed consolidated cash flow statement
for the six months ended 30 June 2023
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Note Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ---------- ------------
Operating activities
Cash generated in operations 9 29,617 227,271 383,846
Interest received 2,057 55 648
Interest paid - (5,000) (10,194)
Net cash generated in operating
activities 31,674 222,326 374,300
---------- ---------- ------------
Investing activities
Purchase of intangible assets - (1,411) (2,074)
Purchase of property, plant and
equipment 10 (41,301) (43,367) (105,291)
Net cash used in investing activities (41,301) (44,778) (107,365)
---------- ---------- ------------
Financing activities
Payment of dividends 14 (24,960) (114,831) (214,789)
Payment of leases (262) (255) (458)
Notes redemption - - (100,000)
Notes repayment fee - - (2,000)
Net cash used in financing activities (25,222) (115,086) (317,247)
---------- ---------- ------------
Net (decrease)/increase in cash
and cash equivalents (34,849) 62,462 (50,312)
Cash and cash equivalents at beginning
of period 119,456 169,866 169,866
Effect of foreign exchange rate
changes 328 (532) (98)
---------- ---------- ------------
Cash and cash equivalents at
end of the period being bank balances
and cash on hand 84,935 231,796 119,456
========== ========== ============
1. General information
The Company is incorporated and domiciled in Bermuda (registered
address: Cedar House, 3(rd) Floor, 41 Cedar Avenue, Hamilton 12,
Bermuda). The Company's common shares are listed on the Official
List of the United Kingdom Listing Authority and are traded on the
London Stock Exchange's Main Market for listed securities. The
Company serves as the holding company for the Group, which is
engaged in oil and gas exploration, development and production,
operating in the Kurdistan Region of Iraq.
2. Summary of material accounting policies
These interim financial statements should be read in conjunction
with the audited financial statements contained in the Annual
Report and Accounts for the year ended 31 December 2022. The Annual
Report and Accounts of the Group were prepared in accordance with
United Kingdom adopted International Accounting Standards. The
condensed set of financial statements included in this half yearly
financial report have been prepared in accordance with United
Kingdom adopted International Accounting Standard 34 'Interim
Financial Reporting' 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 2023 half-yearly
financial report are the same as those adopted in the 2022 Annual
Report and Accounts, other than the implementation of new IFRS
reporting standards.
The financial information included herein for the year ended 31
December 2022 does not constitute the Group's financial statements
for that year but is derived from those Accounts. The auditor's
report on these Accounts was unqualified and did not include a
reference to any matters to which the auditor drew attention by way
of emphasis of matter.
Adoption of new and revised accounting standards
As of 1 January 2023, a number of accounting standard amendments
and interpretations became effective. 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
2023.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the CEO Statement, Operational Review and Financial
Review, which includes the financial position of the Group at the
period end and its cash flows and liquidity position.
On 25 March 2023 the International Court of Arbitration in Paris
ruled on the long running Iraq-Turkey Pipeline ("ITP") arbitration
case in Iraq's favour. This resulted in Turkey providing
instructions to shut-in the export pipeline significantly impacting
the Group's operations, a situation that continues as of the date
of these financial statements. The Group understands that
negotiations between the Iraq and Turkey governments are ongoing to
re-open the ITP. Also, Federal Iraq recently passed the Budget for
2023-2025, which formally recognises KRG production and is expected
to result in regular monthly budget transfers from Iraq to the
Kurdistan Regional Government ("KRG"). Negotiations between Iraq
and the KRG are ongoing to implement the budget and agree the
amount of such monthly budget transfers.
No payment of monthly invoices due from the KRG has been
received since March 2023 and amounts due for sales since October
2022 remain outstanding. Although the KRG has provided assurances
that they plan to settle receivable balances, uncertainty remains
over the timing of payment of these balances (see Note 11 for
additional information). In accordance with accounting standards a
credit loss provision has been provided to reflect the ongoing
uncertainty.
Following the shut-in of the pipeline, the Group has
aggressively reduced expenditures and continues to seek further
cost savings while pursuing inventory sales and managing payment of
trade payables. Since period end, the group has commenced local
sales (see note 16), which is expected to improve the liquidity
position of the group. All local sales are prepaid by the buyer
eliminating counterparty credit risk. However, the outlook for
local sales volumes and pricing remains difficult to predict. As at
30 August 2023, the Group had $82.1 million of cash and no debt. To
assess the Group's potential future liquidity position, the
Directors have considered various sensitivities.
Taking into account the above, the Group expects to have
sufficient cash from the date of this report to meet ongoing
obligations for 12 months from issuance of these interim financial
statements, unless no further payments from the KRG are received or
local sales are curtailed or stopped. In such instances the Group
would consider or require additional sources of liquidity,
including further cost reductions, inventory sales or external
financing, to fund any operations and working capital requirements
over the next 12 months. Given the current uncertainty over the
timing of the pipeline reopening and therefore the settlement of
outstanding amounts due from the KRG, and the fact that the outlook
for local sales volumes and pricing is considered difficult to
predict, the Directors have considered these factors could give
rise to a need to implement mitigating factors to enable the Group
to continue as a Going Concern. The Directors have therefore
concluded that a material uncertainty exists which may cast
significant doubt on the Group's ability to continue as a Going
Concern and therefore it may be unable to realise its assets and
discharge its liabilities in the normal course of business. These
financial statements do not include any adjustments that might
result if the Group is unable to continue as a going concern.
Based on the analysis performed, the Directors have a reasonable
expectation that the Group has adequate resources to continue to
operate for 12 months from issuance of these interim financial
statements. Thus, the going concern basis of accounting is used to
prepare the 2023 half year financial statements.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of revision and future periods if
the revision affects both current and future periods.
Critical accounting judgements and key sources of estimation
uncertainty remain consistent with those disclosed in the 2022
Annual Report and Accounts, with the exception that the expected
credit loss and impairment estimates are now considered key sources
of estimation uncertainty. Although methodologies remains
consistent with the approach for year ended 2022, scenarios and
inputs have been updated in line with assumptions as at 30 June
2023.
Critical accounting judgement
Revenue
The recognition of revenue is considered to be a key accounting
judgement. Further details of this judgement are provided in the
sales revenue accounting policy as disclosed in the 2022 Annual
Report and Accounts.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities, are discussed below.
Expected credit loss
The recoverability of receivables is a key accounting judgement.
The difference between the nominal value of receivables and the
expected value of receivables after allowing for counterparty
default risk gives the expected credit loss (ECL). Management have
considered scenarios for recovering receivables and assigned
probabilities to these scenarios. A weighted average has been
applied to receipt profiles, upon which a counterparty default
allowance has been applied to derive the ECL. This ECL is offset
against current and non-current receivable amounts as appropriate
within the balance sheet with the change in the receivable balance
during the period recognised in the income statement. In making
this judgement, management has estimated the timing of the receipt
of KRG receivables which will be dependent upon uncertain future
events, in particular the expected timing of the re-opening of the
ITP.
Carrying value of producing assets
The Group's accounting policy on impairment remains consistent
with that disclosed in the 2022 Annual Report. The Group's sole CGU
as at 30 June 2023 was the Shaikan Field with a carrying value of
$421 million.
The Group performed an impairment trigger assessment and
concluded that the shutdown of the Iraq Turkey Pipeline ("ITP") in
March 2023 following the ITP Arbitration ruling was a potential
indicator of impairment. Accordingly, an impairment evaluation was
completed, and it was concluded that no impairment write-down was
required.
In accordance with accounting standards, the impairment
assessment was prepared based on available information combined
with management estimates as at 30 June 2023. This includes a
number of key assumptions, some of which have a high degree of
uncertainty. Notably, the date of the re-opening of the ITP was and
remains uncertain. The key areas of estimation in assessing the
potential impairment indicators are as follows:
- It has been assumed for the impairment calculation base case
that the ITP would reopen in October 2023 leading to resumption of
exports. This was management's assumption as at 30 June 2023 and
the re-opening date remains uncertain at the date of this report.
We have therefore applied sensitivities of up to a further one-year
delay in the re-opening of the ITP with no impairment being
necessary;
- The Group's netback price was based on the Dated Brent forward
curve as at 30 June 2023 for the period 2023 to 2029 with inflation
of 2% per annum thereafter, less transportation costs and quality
adjustments. The Dated Brent forward curve at 31 December was used
for the year end comparative. See note 4 for details linking Dated
Brent to realised prices;
$/bbl - nominal 2023 2024 2025 2026 2027 2028
30 June 2023 - base
case 77.4 73.0 70.6 68.7 66.9 65.5
----- ----- ----- ----- ----- -----
30 June 2023 - stress
case 73.7 65.7 63.5 61.8 60.3 58.9
----- ----- ----- ----- ----- -----
31 December 2022 -
base case 83.4 78.2 74.5 71.7 69.6 68.1
----- ----- ----- ----- ----- -----
31 December 2022 -
stress case 75.1 70.4 67.1 64.5 62.6 61.3
----- ----- ----- ----- ----- -----
- Operating costs and capital expenditures were based on
financial budgets and internal management forecasts;
- Cost assumptions used in the assessment were based on an
updated Jurassic development plan, contingent upon regular payments
in line with contractual requirements commencing in 2024. Following
the closure of the ITP in March 2023 the capital programme of both
drilling and facility expansion required to ramp up production has
been deferred by around a year compared to the 31 December 2022
base case assumption. Cost assumptions incorporated management's
experience and expectations, including the nature and location of
the operations and the associated risks. The impact of near-term
inflationary pressures were also considered and no impairment was
identified;
- The Group's assessment of the potential impacts of climate
change and the associated risks have not changed since year end.
The International Energy Agency's ("IEA") most recent Announced
Pledges Scenario ("APS") and Net Zero Emissions ("NZE") climate
scenario oil prices and carbon taxes were used to evaluate the
potential impact of the principal climate change transition risks.
Under the APS and NZE scenarios without incremental carbon tax
there was no impairment. However, while the IEA oil price
assumptions incorporate carbon prices, it has not disclosed the
assumed average carbon intensity per barrel of production.
Therefore, the Group has performed a sensitivity to conservatively
include IEA carbon pricing on all production which results in no
impairment under the APS scenario. Under the NZE scenario, there
was a potential impairment; however, if the Group's assumed future
average carbon intensity per barrel of production is in fact at or
below the undisclosed IEA carbon intensity per barrel of
production, there would have been no impairment;
- Discount rates that are adjusted to reflect risks specific to
the Shaikan Field and the Kurdistan Region of Iraq. The post-tax
nominal discount rate was estimated to be 15% as used in the base
case and unchanged from 31 December 2022. The impact of an increase
in discount rate to 20% was considered as a sensitivity to reflect
potential increased geopolitical risks and no impairment was
identified; and
- Commercial reserves and production profiles used relate solely
to 2P reserves and are consistent with the assessment within the
Competent Person's Report ("CPR") dated 31 December 2022.
3. Geographical information
The Chief Operating Decision Maker, as per the definition in
IFRS 8, is considered to be the Board of Directors. The Group
operates in a single segment, that of oil and gas exploration,
development and production, in a single geographical location, the
Kurdistan Region of Iraq. The financial information of the single
segment is materially the same as set out in 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 the related notes.
Information about major customers
In 1H 2023 oil sales were made solely to the KRG (FY 2022:
solely to the KRG).
4. Revenue
Six months
ended Six months Year ended
30 June ended 31 December
2023 30 June 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Oil sales 79,555 263,603 460,113
========== ============= ============
The Group accounting policy for revenue recognition is set out
in its 2022 Annual Report, with revenue recognised upon transfer of
control of crude oil at the delivery point, being the export
pipeline.
On 25 March 2023 the International Court of Arbitration in Paris
ruled on the long running Iraq-Turkey export pipeline arbitration
case in Iraq's favour (see note 2). This led to the shut-in of the
export pipeline; from 25 March 2023 to the end of the reporting
period there have been no oil sales or revenue. All revenue
reported in the six months period ended 30 June 2023 occurred from
1 January 2023 to 25 March 2023.
Since 1 September 2022 there has been no lifting agreement in
place between the Shaikan Contractor and the KRG. The KRG proposed
a new pricing mechanism based upon the average monthly Kurdistan
blend ("KBT") sales price realised by the KRG at Ceyhan; formerly
the pricing mechanised was based upon Dated Brent. The Company has
not accepted the proposed contract modification and continued,
until suspension of the export pipeline, to invoice the KRG for oil
sales based on the pre-1 September 2022 pricing formula.
Considering the uncertainty with respect to the variable
consideration within the pricing mechanism, the Company has
concluded that it is an appropriate judgement to recognise revenue
based on the proposed contract modification for the six-month
period to 30 June 2023.
In H1 2023, the oil sales price was calculated using the monthly
KBT price less a weighted average discount of $16.1/bbl (H1 2022:
Dated Brent less weighted average discount of $23.3/bbl;
July-August 2022: Dated Brent less weighted average discount of
$23.4/bbl; September-December 2022: KBT less weighted average
discount of $16.2/bbl) for quality and pipeline tariffs. In H1
2023, the value of KBT was lower than Dated Brent by a weighted
average of $13.9/bbl (H1 2022: Not applicable; July-August 2022:
Not applicable; September-December 2022: $18.5/bbl).
The revenue impact of using the proposed KBT pricing mechanism
instead of Dated Brent for the period is estimated to be a
reduction of $12.0 million (H1 2022: nil; FY 2022: $23.4 million).
Taking into account the associated reduction in capacity building
payments results in a total reduction of profit after tax for the
year of $11.4 million (H1 2022: nil; FY 2022: $21.7 million). Any
difference between the proposed and final pricing mechanism will be
reflected in future periods.
5. Cost of Sales
Six months
ended Six months Year ended
30 June ended 31 December
2023 30 June 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Operating costs 18,858 18,878 41,835
Capacity building payments 5,713 20,511 34,927
Changes in oil inventory value (1,188) 242 555
Depreciation of oil and gas assets 20,559 39,498 80,225
Contract termination costs 5,143 - -
Provision against inventory held
for sale 2,071 - -
Impairment of surplus drilling stock - - 1,109
---------- ------------- ------------
51,156 79,129 158,651
========== ============= ============
A unit-of-production method has been used to calculate the
depreciation, depletion and amortisation ("DD&A") charge for
oil and gas assets. This is based on entitlement production,
commercial reserves and capital costs for Shaikan. Commercial
reserves are proven and probable ("2P") reserves, estimated using
standard recognised evaluation techniques. For purposes of
calculating the DD&A per barrel of production effective 1
January 2023, a Competent Person's Report from ERC Equipoise
Limited with 2P reserves estimates at 31 December 2022 was used in
conjunction with the Group's economic forecasts to determine
entitlement production, commercial reserves and capital costs for
Shaikan.
During the six-month period to 30 June 2023 GKP exited a number
of contracts; associated costs are accounted for as contract
termination costs.
6. Other general and administrative expenses
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
----------- ----------- -------------
Depreciation and amortisation 1,331 473 1,600
Other general and administrative
costs 7,750 5,640 10,602
9,081 6,113 12,202
=========== =========== =============
The increase of other general and administrative costs from H1
2022 to H1 2023 is primarily due to non-recurring corporate
costs.
7. Share option related expense
Six months
ended Six months Year ended
30 June ended 31 December
2023 30 June 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Share-based payment expense 7,328 8,573 8,690
Payments related to share options
exercised 764 1,193 3,266
Share-based payment related provision
for taxes 280 1,697 1,800
8,372 11,463 13,756
========== ============= ============
The six-month period to June 2023 includes $5.0 million for the
exercise of share dividend entitlements related to the options
granted in 2020. These were predominantly settled in shares rather
than cash and no further exercise costs will be incurred in
relation to the 2020 scheme. The year to December 2022 includes the
final settlements in relation to the Value Creation Plan (VCP)
which totalled $9.5 million of the $13.8 million expense. There are
no further VCP share options outstanding and the plan has been
terminated.
8. Earnings per share
The calculation of the basic and diluted profit per share is
based on the following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
(Loss)/profit after tax ($'000) (2,866) 162,814 266,094
---------- ---------- ------------
Number of shares ('000s):
Basic weighted average number of
ordinary shares 216,927 214,527 215,420
------- ------- -------
Basic (loss)/earnings per share
(cents) (1.32) 75.89 123.52
======= ======= =======
The Group followed the steps specified by IAS 33 in determining
whether outstanding share options are dilutive or
anti-dilutive.
Reconciliation of dilutive shares:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
Number of shares ('000s):
Basic weighted average number of
ordinary shares 216,927 214,527 215,420
Effect of dilutive potential ordinary
shares 11,547 8,957 8,909
---------- ---------- ------------
Diluted number of ordinary shares
outstanding 228,474 223,484 224,329
Diluted (loss)/earnings per share
(cents) (1) (1.32) 72.85 118.62
========== ========== ============
(1) The dilutive number of ordinary shares relates to
outstanding share options and is calculated on the assumption of
conversion of all potentially dilutive ordinary shares. During a
period where a company makes a loss, anti-dilutive shares are not
included in the loss per share calculation as they would reduce the
reported loss per share.
Weighted average number of ordinary shares excludes shares held
by Employee Benefit Trustee of 3.4 million (H1 2022: 0.4 million;
FY 2022: 0.1 million).
9. Reconciliation of profit from operations to net cash
generated in operating activities
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ---------- ------------
(Loss)/profit from operations (2,992) 166,472 273,544
Adjustments for:
Depreciation, depletion and amortisation
of property, plant and equipment (including
the right of use assets) 21,010 39,853 80,883
Amortisation of intangible assets 815 77 859
Share-based payment expense 7,328 154 1,866
Increase of provision for impairment
of trade receivables 13,939 427 1,960
Provision against inventory held for
sale 2,071 - -
Impairment of PPE items - - 1,109
---------- ---------- ------------
Operating cash flows before movements
in working capital 42,171 206,983 360,221
(Increase)/Decrease in inventories (9,858) 595 (354)
(Increase)/Decrease in trade and other
receivables (8,906) 23,907 11,640
Decrease/(Increase) in trade and other
payables 6,143 (4,214) 12,339
Income taxes received 67 - -
---------- ---------- ------------
Cash generated from operations 29,617 227,271 383,846
========== ========== ============
10. Property, plant and equipment
Oil and Fixtures Right of
Gas and use Total
Assets Equipment Assets $'000
$'000 $'000 $'000
--------- ---------- -------- ---------
Year ended 31 December
2022
Opening net book value 402,094 1,033 1,078 404,205
Additions 114,909 1,595 - 116,504
Impairment of surplus drilling
stocks (1,109) - - (1,109)
Revision to decommissioning
asset (2,161) - - (2,161)
Depreciation charge (80,177) (359) (347) (80,883)
Foreign currency translation
differences - (12) (101) (113)
Closing net book value 433,556 2,257 630 436,443
Cost 943,563 8,946 2,145 954,654
Accumulated depreciation (510,007) (6,689) (1,515) (518,211)
--------- ---------- -------- ---------
Net book value at 31 December
2022 433,556 2,257 630 436,443
========= ========== ======== =========
Period ended 30 June 2023
Opening net book value 433,556 2,257 630 436,443
Additions 47,035 436 16 47,487
Revision to decommissioning
asset 517 - - 517
Depreciation charge (20,559) (329) (122) (21,010)
Foreign currency translation
differences - 5 26 31
Closing net book value 460,549 2,369 550 463,468
========= ========== ======== =========
At 30 June 2023
Cost 991,115 9,387 2,187 1,002,689
Accumulated depreciation (530,566) (7,018) (1,637) (539,221)
--------- ---------- -------- ---------
Net book value 460,549 2,369 550 463,468
========= ========== ======== =========
The additions to the Shaikan asset amounting to $47.0 million
during the period include the costs of completing SH-17 and the
drilling and completion of SH-18, well workovers, well pad
preparation, long lead items and expansion of production
facilities.
The increase in the decommissioning asset represents further
decommissioning obligations that arose on capital projects.
11. Trade and other receivables
Non-current receivables
30 June 31 December
2023 2022
Unaudited Audited
$'000 $'000
----------- ------------
Trade receivables - non-current 102,177 -
=========== ============
Current receivables
30 June 31 December
2023 2022
Unaudited Audited
$'000 $'000
----------- ------------
Trade receivables - current 52,430 158,032
Other receivables 4,867 16,828
Prepayments and accrued income 1,698 1,343
----------- ------------
Total current receivables 58,995 176,203
----------- ------------
Total receivables 161,172 176,203
=========== ============
Reconciliation of trade receivables
30 June 31 December
2023 2022
Unaudited Audited
$'000 $'000
----------- ------------
Gross carrying amount 171,626 161,112
Less: impairment allowance (17,019) (3,080)
----------- ------------
Carrying value at 30 June 2023 154,607 158,032
=========== ============
Trade receivables comprise amounts due, based upon KBT pricing,
from the KRG for crude oil sales from October 2022 to March 2023
totalling $159.4 million (FY 2022: $148.9 million) and a share of
Shaikan revenue arrears the Group purchased from MOL amounting to
$12.2 million (FY 2022: $12.2 million). All trade receivables due
from the KRG are past due (FY 2022: $99.1 million) . Trade
receivables have been classified as non-current if, based on the
weighted average expected receipt profile, they are expected to be
received more than 12 months from the balance sheet date. Excluding
the capacity building payments due to the KRG, the net cash amount
due to GKP is $ 151.7 million (FY 2022: $145.3 million) . The ECL
on the trade receivable balance of $17.0 million was provided
against the receivables balance in line with the requirements of
IFRS 9 resulting in an expense of $13.9 million in the reporting
period (H1 2022: $0.4 million; FY 2022: $2.0 million).
ECL sensitivities
Considering the receipt profile scenarios, the only input
variable to materially change profit before tax, when changed by a
reasonably possible amount, is the timing of receipt. If the
receipt of past-due trade receivables was delayed by 12 months
beyond the scenarios modelled, then the ECL would increase by $10.5
million.
Other Receivables
Other receivables includes an amount relating to advances to
suppliers of $0.7 million (FY 2022: $11.5 million). Of this $0.7
million (FY 2022: $10.6 million) relates to advances for capital
expenditure and is included within investing activities in the
condensed consolidated cash flow statement.
12. Inventories
30 June 31 December
2023 2022
Unaudited Audited
$'000 $'000
----------- ------------
Warehouse stocks and materials 6,459 6,074
Inventory held for sale 6,213 -
Crude oil 1,487 298
14,159 6,372
=========== ============
Due to the deferral of the capital investment programme the
Group is attempting to sell certain drilling equipment and such
amounts at 30 June 2023 have been classified as inventory held for
sale.
13. Trade and other payables
Current liabilities
30 June 31 December
2023 2022
Unaudited Audited
$'000 $'000
Trade payables 24,270 3,499
Accrued expenditures 23,800 40,642
Amounts due to KRG not expected to be cash
settled 73,560 70,740
Capacity building payment due to KRG on
trade receivables 7,716 7,131
Other payables 1,446 6,164
Finance lease obligations 415 385
Total current liabilities 131,207 128,561
========== ===========
Amounts due to the KRG not expected to be cash settled of $73.6
million (FY 2022: $70.7 million) are included as liabilities, but
it is likely that they will be offset against unrecognised historic
revenue arrears. As detailed on page 137 of the 2022 Annual Report,
under the Shaikan PSC and the 2016 Bilateral Agreement, the Group
is entitled to offset certain costs against amounts owed by the KRG
to GKPI. Included within this amount is $36.0 million (FY 2022:
$34.2 million) relating to the difference between the capacity
building rates of 20%, as applied to current invoicing, and 30% as
per the Bilateral Agreement.
Non-current liabilities
30 June 31 December
2023 2022
Unaudited Audited
$'000 $'000
---------- -----------
Non-current finance lease liability 194 325
========== ===========
14. Share capital
Common shares
--------------------------------------------
No. of Share Share
shares capital premium Amount
000 $'000 $'000 $'000
------- --------------- -------- --------
Issued and fully paid
Balance 1 January 2023 (audited) 216,247 216,247 528,125 744,372
Dividends - - (24,960) (24,960)
Share issues 6,196 6,196 - 6,196
------- --------------- -------- --------
Balance 30 June 2023 (unaudited) 222,443 222,443 503,165 725,608
======= =============== ======== ========
Dividends of $25.0 million consist solely of an interim dividend
paid in March 2023.
15. Contingent liabilities
The Group has a contingent liability of $27.3 million (FY 2022:
$27.3 million) in relation to the proceeds from the sale of test
production in the period prior to the approval of the original
Shaikan Field Development Plan ("FDP") in June 2013. The Shaikan
PSC does not appear to address expressly any party's rights to this
pre-FDP petroleum. The sales were made based on sales contracts
with domestic offtakers which were approved by the KRG. The Group
believes that the receipts from these sales of pre-FDP petroleum
are for the account of the Contractor, rather than the KRG and
accordingly recorded them as test revenue in prior years. However,
the KRG has requested a repayment of these amounts and the Group is
involved in negotiations to resolve this matter. The Group has
received external legal advice and continues to maintain that
pre-FDP petroleum receipts are for the account of the Contractor.
This contingent liability forms part of the Shaikan PSC amendment
negotiations and it is likely that it will be settled as part of
those negotiations.
16. Post-interim events
Following the end of the reporting the period, the Group
commenced sales to the local market on 19 July 2023. Average sales
in the period from 19 to 31 July were c. 4,900 bopd, increasing to
c.16,300 bopd for the period from 1 to 29 August, with r ealised
prices achieved of around $30 per barrel in line with local market
pricing. GKP's current net entitlement is 36% of gross sales
revenue. For contracts entered into by the Group directly with
buyers, funds are received in advance of local sales.
GLOSSARY (See also the glossary in the 2022 Annual Report and
Accounts)
2P Proved plus probable reserves
APS Announced Pledges Scenario
------------------------------------------------
bbl Barrel
------------------------------------------------
bopd Barrels of oil per day
------------------------------------------------
Capex Capital expenditure
------------------------------------------------
CGU Cash-generating unit
------------------------------------------------
COVID-19 Coronavirus
------------------------------------------------
CPR Competent Person's Report
------------------------------------------------
DD&A Depreciation, depletion and amortisation
------------------------------------------------
DTR Disclosure and Transparency Rules
------------------------------------------------
EBITDA Earnings before interest, tax, depreciation
and amortisation
------------------------------------------------
EBT Employee benefit trust
------------------------------------------------
ECL Expected credit losses
------------------------------------------------
ESG Environmental, social and governance
------------------------------------------------
FCA Financial Conduct Authority
------------------------------------------------
FDP Field Development Plan
------------------------------------------------
G&A General and administrative
------------------------------------------------
FY Financial year
------------------------------------------------
GKP Gulf Keystone Petroleum Limited
------------------------------------------------
GMP Gas Management Plan
------------------------------------------------
Group Gulf Keystone Petroleum Limited and its
subsidiaries
------------------------------------------------
HSE Health, safety and environment
------------------------------------------------
IAS International Accounting Standards
------------------------------------------------
IEA International Energy Agency
------------------------------------------------
IFRS International Financial Reporting Standards
------------------------------------------------
IOC International oil companies
------------------------------------------------
ITP Iraq-Turkey pipeline
------------------------------------------------
KBT Kurdistan blend
------------------------------------------------
KRG Kurdistan Regional Government
------------------------------------------------
LTI Lost time incident
------------------------------------------------
MMbbls Million barrels
------------------------------------------------
MMstb Million stock tank barrels
------------------------------------------------
MNR Ministry of Natural Resources of the Kurdistan
Regional Government
------------------------------------------------
MOL Kalegran B.V. (a subsidiary of MOL Group
International Services B.V.)
------------------------------------------------
NGO Non Governmental Organisation
------------------------------------------------
Notes The $100 million unsecured, guaranteed
notes issued on 25 July 2018 by GKP and
redeemed in full on 2 August 2022
------------------------------------------------
NZE Net Zero Emissions
------------------------------------------------
Opex Operating costs
------------------------------------------------
PF-1 Production Facility 1
------------------------------------------------
PF-2 Production Facility 2
------------------------------------------------
PSC Production sharing contract
------------------------------------------------
Shaikan PSC PSC for the Shaikan block between the KRG,
Gulf Keystone Petroleum International Limited,
Texas Keystone, Inc and MOL signed on 6
November 2007 as amended by subsequent
agreement
------------------------------------------------
VCP Value Creation Plan
------------------------------------------------
$ US dollars
------------------------------------------------
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END
IR KBLFXXVLZBBB
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