TIDMGKP
RNS Number : 1839Q
Gulf Keystone Petroleum Ltd.
28 August 2014
Not for release, publication or distribution, directly or
indirectly, in whole or in part in or into the United States or any
jurisdiction other than the United Kingdom and Bermuda where to do
so would constitute a contravention of the relevant laws or
regulations of such jurisdiction. This announcement (and the
information contained herein) does not contain or constitute an
offer to sell or the solicitation of an offer to purchase, nor
shall there be any sale of securities in any jurisdiction where
such offer, solicitation or sale would constitute a contravention
of the relevant laws or regulations of such jurisdiction.
28 August 2014
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone" or "the Company")
Half Year Report for the six months ended 30 June 2014
Gulf Keystone, an independent oil and gas exploration,
development and production company with operations in the Kurdistan
Region of Iraq ("Kurdistan Region"), today announces its results
for the six months ended 30 June 2014.
Operational highlights
-- Gulf Keystone's operations in the Kurdistan Region remain
secure and production and crude oil sales from the Shaikan field
have not been interrupted in any material way
-- Ramp-up of Shaikan production in H1 2014 from 10,000 gross
barrels of oil per day ("bopd") to rates of in excess of 20,000
gross bopd through the tie-in of an additional producing well to
Shaikan PF-1 and the commencement of production operations from
Shaikan PF-2
-- Crude oil export deliveries by truck to Turkey in H1 2014
totalled 2.2 million barrels gross with total gross production from
Shaikan to date fast approaching 5.5 million barrels
-- Initial payments for the export crude oil sales received with
the realised price at the Shaikan facility estimated as
US$51-56/bbl. Through an ongoing dialogue with the Ministry of
Natural Resources of the Kurdistan Regional Government ("MNR" and
"KRG"), the Company is seeking to establish a regular payment cycle
for past and future Shaikan crude oil export sales
-- Gross domestic sales for H1 2014 of 0.1 million barrels with
a realised price of US$42/bbl
-- Agreement of the Field Development Plan ("FDP") for the
Akri-Bijeel Block by the MNR in August with production from the
Bijell and Bakrman discovery areas expected by MOL Kalegran
Limited, the operator, to reach 35,000 gross bopd in 2015
Financial highlights
-- Revenues of US$18.7 million achieved for H1 2014 (1H13: $nil;
FY13: $6.7 million); additional revenue in the region of US$35
million owed but not yet recognised for H1 2014 crude oil export
sales
-- Loss after tax for H1 2014 of $29.8 million (1H13: $26.4 million; FY13: $32.0 million)
-- Net proceeds of US$240 million raised from the issue of debt
securities and associated warrants in April 2014
-- Cash and cash equivalents at 26 August 2014 of US$177 million
Outlook
-- Company continues to target 40,000 bopd of Shaikan production
by year end through the tie-in of three additional producing wells
(Shaikan-7, -8 and -10), although certain consequences of the
recent security situation, including the current short term limited
availability of some international contractors, may cause this to
move to Q1 2015
-- Conclude discussions with the MNR on the establishment of a
regular and predictable payment cycle for past and future Shaikan
crude oil export sales in order to generate steady revenues, which
is of critical importance to Gulf Keystone's funding position
-- Manage expenditure in a responsible and prudent manner,
continuing to review and control capital commitments. Once a steady
flow of revenues has been established, make decisions on investment
in additional production facilities, development wells and
infrastructure in order to increase Shaikan production in line with
the approved Shaikan Field Development Plan
-- Continue to review options regarding the Company's 20%
working interest in the Akri-Bijeel Block and explore other funding
options available
-- Complete the appraisal of the Sheikh Adi discovery, submit
the appraisal report and make a decision regarding early production
and development
Simon Murray, Non-Executive Chairman of Gulf Keystone, said:
"Despite the recent security crisis in Iraq, which clearly
affected the lives of many people in the Kurdistan Region and
refugees from elsewhere in Iraq, I strongly believe that Gulf
Keystone's footprint as one of the key oil producers in this
strategically important area is assured. With the continued support
of the Ministry of Natural Resources, we are positive about
increasing our production to the stated goal of 40,000 bopd,
receiving payment for all entitlement barrels produced to date and
entering a new phase of value generation."
John Gerstenlauer, Chief Executive Officer of Gulf Keystone,
commented:
"Our operations in the Kurdistan Region, where we have been
present since 2007, are progressing well with the two existing
Shaikan production facilities producing in the range of 20,000 to
25,000 bopd and crude oil export deliveries continuing essentially
uninterrupted since late November 2013 to date. We are currently
discussing with our hosts and stakeholders in the Kurdistan Region
the plan for monetizing all past and future Shaikan production
through achieving a stable payment cycle to progress in line with
the approved Shaikan Field Development Plan."
The management team will host a conference call for analysts at
noon UK time today. Shortly after the call, an audio webcast will
be made available on the Company's website
www.gulfkeystone.com.
Enquiries:
Gulf Keystone Petroleum: +44 (0) 20 7514 1400
John Gerstenlauer, Chief Executive Officer
Anastasia Vvedenskaya, Investor
Relations
Bell Pottinger +44 (0) 20 3772 2500
Mark Antelme / Henry Lerwill
or visit: www.gulfkeystone.com
Notes to Editors:
-- Gulf Keystone Petroleum Ltd. (LSE: GKP) is an independent oil
and gas exploration, development and production company focused on
exploration in the Kurdistan Region of Iraq.
-- Gulf Keystone Petroleum International (GKPI) holds Production
Sharing Contracts for four exploration blocks in Kurdistan, the
Shaikan, Sheikh Adi, Ber Bahr and Akri-Bijeel blocks.
-- GKPI is the operator of the Shaikan Block, which is a major
commercial discovery, with a working interest of 75% and is
partnered with MOL Kalegran Limited (a 100% subsidiary of MOL
Hungarian Oil and Gas plc.) and Texas Keystone Inc., which have
working interests of 20% and 5% respectively. Texas Keystone Inc.
holds its interest in trust for Gulf Keystone, pending transfer of
its interest to the Company.
-- Gulf Keystone is moving into the large-scale phased
development of the Shaikan field targeting 100,000 bopd of
production capacity during Phase 1 of the Shaikan Field Development
Plan following its approval in June 2013.
Disclaimer
This announcement contains certain forward-looking statements.
These statements are made by the Company's 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 uncertainties, including both economic
and business factors, underlying such forward-looking information.
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.
This communication and the information contained herein is not
an offer of securities for sale in the United States. Securities
may not be offered or sold in the United States unless they are
registered or are exempt from registration. Any public offering of
securities to be made in the United States would be made by means
of a prospectus that would contain detailed information about the
company and its management, as well as financial statements. The
company does not intend to register any portion of this offering in
the United States or to conduct a public offering in the United
States or any other jurisdiction. Any public offering of securities
to be made in the United States would be made by means of a
prospectus that would contain detailed information about the
Company and its management, as well as financial statements. Copies
of this communication are not being, and should not be, distributed
in or sent into the United States.
GULF KEYSTONE PETROLEUM LIMITED
Chairman's Statement
The first half of 2014, and the period since, has been another
chapter of good progress for Gulf Keystone, both from an
operational and corporate perspective. Despite the recent
escalation of the security situation in Iraq, our operations in the
Kurdistan Region remain secure, which is a testament to the work of
our strong team on the ground. We continue to monitor the situation
in close cooperation with the Kurdistan Regional Government ("KRG")
whose continued support is paramount for our efforts to continue
and increase production in 2014 and beyond.
We are privileged to be at the helm of one of the world's most
significant development projects today. With an oil in place number
for our acreage of 12.5 billion barrels, the Shaikan field remains
the prize oil asset of the Kurdistan Region. Its ongoing
development is of great importance to the region and the Company
alike. We are focused on moving ahead from our initial production
targets towards the full field development for the mutual benefit
of the people of the Kurdistan Region and our shareholders.
Perhaps the clearest measure of our continuing progress is that
over the period we have significantly ramped up Shaikan production,
achieving average rates in excess of 20,000 gross barrels of oil
per day ("bopd") in June, more than twice the level seen at the
start of the year. Given that we commenced commercial production
from Shaikan field as recently as July 2013 and had no production
for a number of months before then, this is real progress. As you
will read, our experienced team in the Kurdistan Region are working
tirelessly to develop Shaikan, bring further increases in
production and ensure that Shaikan crude oil export sales remain
continuous. I would like to thank the management team and everyone
on the ground who helped maintain the pace of the Company's
production operations despite the recent challenging
circumstances.
Today, we are producing from two new production facilities,
which are capable of handling 40,000 gross bopd. With the continued
support from the KRG's Ministry of Natural Resources ("MNR"), we
will progress towards this production target and contributing to
the MNR's overall near term goal of 400,000 bopd of oil export
sales from the Region. We are encouraged that first payments for
the Shaikan crude oil export sales have now been made. The Company
is currently in discussions with the MNR seeking to establish a
stable and predictable payment cycle for past and future Shaikan
crude oil export sales.
Followers of the Company will have seen a number of further
announcements at a corporate level. The Board changes over the
period reflect the growth in the business. The ability to attract
Non-Executive Directors of the calibre of Dr Joseph Stanislaw and
Mr V Uthaya Kumar, our two most recent additions to the Board, is a
clear endorsement of the Company and its significant potential.
Earlier in the summer, we welcomed John Gerstenlauer to the role
of CEO. Having joined the Company in 2008 as Chief Operating
Officer, John has played a critical role in the success of the
business, having supervised the drilling of every well since we
commenced operations in the Kurdistan Region and being the leader
of the team that made one of the largest on-shore discoveries in
the last 20 years.
As I write, the geopolitical situation across Iraq is dominating
the news and our thoughts are with the people of the Kurdistan
Region and those thousands of refugees who fled their homes
elsewhere in Iraq to seek shelter and support in the region. The
Board remains extremely confident in the ability of the KRG, with
the full support of the international community, to ensure that the
security situation is controlled, our production can be increased,
the integrity of our assets preserved and international export
routes remain open for the sale of Kurdistan oil.
Gulf Keystone is committed to continuing to play its part in
ensuring that the natural resources of the Kurdistan Region are
successfully developed and to support the KRG in this shared
goal.
On behalf of the Board I would like to reiterate my thanks to
the government and people of the Kurdistan Region, and all of Gulf
Keystone's team for their levels of professionalism and dedication
to our business.
Simon Murray
Non-Executive Chairman
Chief Executive Officer's Review
For Gulf Keystone, the first half of 2014 has been marked by two
significant events on the operational front. Firstly, we have
successfully achieved the initial ramp-up of production from the
Shaikan field, our key asset in the Kurdistan Region of Iraq, to
above 20,000 bopd on average, reaching 25,000 bopd for the first
time on June 4(th) , 2014. Since the commencement of early
production operations in October 2010, Shaikan total gross
production is now fast approaching 5.5 million barrels.
Secondly, we commenced export sales of Shaikan crude oil through
trucked deliveries to Turkey, thus tapping international markets
for the first time. With over 3.5 million barrels of Shaikan crude
oil trucked and fifteen cargoes lifted from Turkish ports on the
Mediterranean coast for sale to international buyers since January,
through to August 28(th) , we are optimistic about market appetite
for Shaikan crude oil. Our current task is to reach a comprehensive
agreement with the MNR on the monetization of all our production
for the benefit of the Kurdistan region, as well as our
shareholders and other stakeholders.
On the corporate front, we completed the Company's transition
from AIM to the Official List, by way of a Standard Listing, and to
trading on the Main Market of the London Stock Exchange plc. in
March. This move was followed in April by a successful debt
offering of US$250 million in three-year senior unsecured notes due
April 2017, privately placed in accordance with Reg S/144A with
institutional investors in Europe, the US and Asia. In August 2014,
we appointed Deutsche Bank AG, London Branch the Company's
corporate broker.
Shaikan Block (75% working interest; Operator)
Production and sales
Since the beginning of 2014, Shaikan production has seen a
substantial increase from 10,000 gross bopd in January to average
rates well in excess of 20,000 gross bopd in June. This has been
achieved through the tie-in of an additional producing well,
Shaikan-4 to the first Shaikan production facility (PF-1) and the
commencement of production operations at Shaikan PF-2, currently
producing from two wells, Shaikan-2 and -5. The ramp-up of
production to 40,000 bopd will continue in a stepped manner once
three additional wells, Shaikan-7, -8 and -10 have been tied into
the existing production facilities. In order to achieve this, a
number of flowlines, including two 15 km long twin lines to connect
Shaikan-10 and eventually the new Shaikan-11 well to PF-2, will
have to be laid. The flowlines for Shaikan-10 and -11 have recently
arrived at the PF-2 location and the flowlines for Shaikan-7 and -8
are currently in transit and expected to arrive in country in the
near future.
While we are confident with respect to the gradual ramp-up in
Shaikan production and of achieving our current average production
guidance for 2014 of between 20,000 and 25,000 gross bopd, we are
conscious that a number of consequences of the recent security
crisis in Iraq may affect the pace of the increase in production.
These include the availability of international contractors to
conduct debottlenecking work at PF-1 and -2 and to drill
Shaikan-11, an additional PF-2 well.
Further development
We remain committed to implementing the approved Phase 1 of the
Shaikan FDP, which will take us from the near-term production
target of 40,000 bopd to 66,000 bopd before progressing to the
Phase 1 target of 100,000 bopd. This step up in production will
require additional production facilities, development wells and
infrastructure. While we are planning to drill our next development
well, Shaikan-11 by early 2015, a steady flow of revenues needs to
be established in order for the Company to make a decision to
invest in PF-3 and its associated development wells drilling and
infrastructure. Similarly, plans to drill a deep exploration well
into the deeper Triassic and the Permian, side-track and re-test
the Shaikan-6 well and prepare a review of the Shaikan FDP to
include Cretaceous, Triassic and potentially Permian developments,
will be reassessed in 2015.
Sheikh Adi Block (80% working interest; Operator)
Sheikh Adi-3, the second appraisal well, was drilled earlier
this year in order to investigate the presence of hydrocarbons in
the footwall of the Sheikh Adi Structure, where hydrocarbons had
previously been discovered in the hanging wall by the Sheikh Adi-2
appraisal well. The well reached a total depth of 3,520 metres in
the Triassic Kurre Chine B reservoir where oil was flowed in a DST
but with high water-cut. Further appraisal work will determine
whether there are more favourable locations for any future Triassic
production wells. Meanwhile, a DST in the lower Jurassic Butmah
formation produced water and a DST in the upper Jurassic Mus
interval produced dry oil. The rig has now moved back to Shaikan
and a work-over rig is expected to return to complete the testing
of both the main prospective Alan and Mus interval in the upper
Jurassic and also the overlaying Cretaceous sequence. Sheikh Adi-3
is then expected to be completed as a Jurassic producer. Appraisal
of the Sheikh Adi discovery will be completed in 2015 and a
decision on early development and production will be made then.
Ber Bahr Block (40% working interest)
Genel Energy plc., the operator has reported that a 170km(2) 3D
seismic survey is currently underway on the Ber Bahr Block. The
results of the new seismic and the Ber Bahr-2 appraisal well,
currently scheduled to spud in H1 2015, will help determine the
resource potential and forward activity plan.
Akri-Bijeel Block (20% working interest)
MOL Kalegran Limited, the operator reported that the FDP for the
Akri-Bijeel Block based on the Bijell and Bakrman discoveries has
been agreed by the MNR in August 2014. The operator currently has
four rigs in operation on the block drilling Bijell-2, -4, -6 and
Bakrman-2 wells, as well as an extended well test facility on the
Bijell discovery, which is currently producing with the production
expected to increase to 10,000 bopd. The operator expects to
increase production from the discovery areas to 35,000 bopd in 2015
and 50,000 bopd by 2017-18. We continue to explore options
regarding Gulf Keystone's 20% working interest in the block and
this recent development is encouraging as it provides the market
with an indication of the commercialisation of this asset.
With the support of and cooperation with the MNR and KRG, we are
doing our utmost to ensure that all our personnel and contractors
on the ground are safe and our operations continue around the
clock. I would like to thank my experienced and always reliable
teams in Erbil and at each production location as without them this
effort to continue and increase production and load between 150 and
200 trucks of Shaikan crude oil every day would not be possible. As
a company, our strategy for the near term will be to focus on
Shaikan, our flagship project and a key development for the
Kurdistan Region, to get a steady stream of revenues, which in turn
will allow us to invest in Shaikan's further development and other
exploration, appraisal and development activities across our
portfolio in the region.
John Gerstenlauer
Chief Executive Officer
Financial Review
The first half of 2014 has been a period of progress and change
for Gulf Keystone. The Group has continued its journey from oil
explorer to producer, changing the focus of financial results from
a Group driven solely by capital expenditure to one where revenue,
operating expenditure and production are of critical
importance.
Income statement
Gross production for the first six months of 2014, all from the
Shaikan field, totalled 2.3 million barrels with average daily
production being just under 13,000 bopd. Gross liftings for the
period also totalled 2.3 million barrels, of which 2.2 million
barrels were lifted for the export market and 0.1 million barrels
for the domestic market.
The Group continues to recognise revenue on a cash receipts
basis for sales to the export market and revenue from domestic
sales on an accruals basis, consistent with our producing peers in
the region. Revenue realised for the period was $18.7 million
(1H13: $nil; FY13: $6.7 million), of which, $16.2 million arose
from export sales (1H13: $nil; FY13: $nil) and $2.5 million from
domestic sales (1H13: $nil; FY13: $6.7 million).
The realised price for domestic sales was $42/bbl (2013:
$41/bbl) and in accordance with the terms of the Shaikan PSC,
domestic sales are recognised gross of royalty. The Group has
received its full entitlement for these sales during the
period.
The price realised for export sales recognised has been
estimated as $51-56/bbl. This price is the price achieved at the
Shaikan facility and stated after deductions for trucking and port
storage costs as well as the discount to Brent associated with the
quality of the Shaikan crude. Export sales for the period have been
recognised net of royalty with the KRG deemed to have taken the
royalty "in-kind". The policy of recognising export revenues on a
cash receipts basis has resulted in export sales in the region of
$35 million, based on GKP's current 80% working interest in the
field, being owed but not recognised. Based on the Group's current
working interest and its associated 42% entitlement (i.e. excluding
royalty) to gross oil sales, the Group has received $21-23/bbl per
gross barrel lifted. The revenue recognition policy of export sales
will be re-evaluated once the payment process is better
established. Further details on revenue, and the related judgements
and assumptions, can be found in note 4 to the half year
report.
Cost of Sales for the period was $16.5 million (1H13: $nil;
FY13: $11.9 million). This includes production costs, royalty costs
and the Shaikan asset depreciation charge for the period. On an
entitlement basis, including all export production, cash operating
costs per barrel excluding royalty, production and capacity
payments due to the KRG were $8.9/bbl (FY13: $27.2/bbl). For 1H14,
gross production costs per barrel for the Shaikan field are
approximately $5/bbl (FY13: $19/bbl).
The unit of production method, based on entitlement production,
reserves and costs for the Shaikan Phase 1 development, has been
used to calculate the depreciation, depletion and amortisation
(DD&A) charge for the period. Production and reserves
entitlement associated with unrecognised export sales have been
excluded from DD&A calculation until such time as cash is
received and sales recognised. Further details on cost of sales are
to be found in note 5 to the half year report.
The six months period to 30 June 2014 is a key milestone in the
Group's operations as it is the first time a gross profit has been
recognised from the Shaikan field. Until such time as payments
become regular and predictable, gross profit will be variable. The
Company is continuing to work with the KRG to achieve a regular and
predictable payment cycle. Export infrastructure improvements are
continuing to come online as planned in the region and the KRG is
continuing to advance its export plans.
General and administrative expenses during the period were $23.5
million (1H13: $19.3 million). The increase in administrative costs
of $4.2 million results from an increase in staff and other
overhead costs as the Group continues to expand operations in
Kurdistan. Notably, the capitalisation of Erbil office
administrative and overhead costs has reduced following the
commencement of operation of PF-1 and PF-2. Other additional costs
in 1H14 include listing fees of $3.2 million (1H13: $ nil). These
increases are partially offset by a reduction in share based
payment charges (1H14: $2.3 million; 1H13: $5.5 million) and a
reduction in adviser costs incurred in relation to the Group's
defence against the Excalibur claims, which were still ongoing as
at 30 June 2013.
Other losses of $0.8 million (1H13: $0.5 million loss) comprise
foreign exchange losses of $0.8 million (1H13: $0.1 million loss).
The 2013 comparative also includes a mark-to-market valuation loss
of $0.5 million on forward exchange contracts. Interest revenue has
decreased to $0.1 million (1H13: $0.5 million) due to lower cash
balances during the period and lower interest rates achieved on
deposits.
Finance costs of $6.0 million (1H13: $6.5 million) relate to the
accretion charge on the decommissioning provision (1H14: $0.2
million, 1H13: $0.2 million), interest payable in respect of the
Convertible Bonds of $13.3 million (1H13: $11.2 million) and
interest payable in respect of other borrowings of $8.3 million
(1H13: $nil), offset by capitalisation of borrowing costs
associated with qualifying assets under development of $15.8
million. The cash coupon paid on the convertible bonds in 1H14
amounted to $10.2 million (1H13: $8.6 million).
The tax expense of $1.7 million (1H13: $0.5 million) is related
to UK activities and comprises $1.0 million of corporate income tax
and $0.7 million change in deferred tax asset associated with
share-based payments.
The results for the first half of 2014 show an increased loss
after tax of $29.8 million (1H13: $26.4 million) reflecting the
increase in administrative and tax expense discussed above.
Cash flow
Net cash inflow from operating activities after general and
administrative expenses was $21.3 million (1H13: $22.3 million
outflow). The loss from operations of $21.3 million (1H13:
$19.3million) was adjusted for non-cash expenditure of $11.7
million (1H13: $5.9 million), which included share-based payment
and depreciation and amortisation charges as well as an increase in
provision for abandonment costs in Algeria. The working capital
adjustments totalled to a $30.9 million cash inflow (1H13: $8.9
million outflow) increasing the operational cash inflow.
The significant decrease in receivables is primarily
attributable to the receipt of outstanding court costs of GBP17.5
million, net of GBP0.6 million outstanding legal fees, payable to
the Group following the dismissal of all claims asserted by
Excalibur Ventures LLC against the Group. Tax paid in 1H 2014 was
$nil (1H13: $0.4 million) and interest received was $0.1 million
(1H13: $0.2 million). Net cash inflow from operating activities
after tax and interest, including the $10.2 million semi-annual
coupon payment for the convertible bonds, was $11.2 million (1H13:
$31.1 million outflow).
Cash used in investing activities totalled $109.7 million (1H13:
$81.5 million), which comprises $52.4 million spent on intangible
assets (1H13: $90.0 million) and $57.3 million (1H13: $0.1 million)
spent on property, plant and equipment. The majority of the spend
on property plant and equipment relates to expenditure on the
Shaikan asset, which was reclassified from intangible assets to
property, plant and equipment at 30 June 2013. Additions include
work on the completion and commissioning of PF-2 and the drilling
and completion of the Shaikan-7 well.
Intangible expenditure primarily comprises additions to Sheikh
Adi, Akri Bijeel and Ber Bahr assets. This includes the drilling of
the Sheikh Adi-3 well, a number of wells drilled on the Akri Bijeel
block as well as construction of surface facilities, and geological
studies and the commencement of seismic acquisition over the Ber
Bahr block. Further information on oil and gas assets can be found
in notes 9 to 11 to the half year report.
The Company raised $240.1 million in net proceeds from the issue
of debt securities consisting of $250 million three-year senior
unsecured loan notes (the "Notes"), carrying a coupon of 13% per
annum payable on a biannual basis and freely tradeable and
detachable warrants relating to 40 million common shares in the
Company. Further details can be found in note 12 to the half year
report.
The net overall increase in cash and cash equivalents during the
period was $141.7 million (1H13: $110.4 million decrease). Foreign
exchange losses on cash balances were $0.1 million (1H13: $2.1
million loss). Cash and cash equivalents totalled $223.5 million at
30 June 2014 (30 June 2013: $141.2 million; 31 December 2013: $82.0
million). As at 26 August 2014, cash and cash equivalents totalled
$177.1 million.
Financial strategy and outlook
Our medium and long term strategy remains to fully realise the
potential of our assets through the funding of high-impact
exploration, appraisal and development programmes so as to generate
value and returns for our stakeholders. At this time, the primary
focus of the Company is to continue to work with the KRG to secure
a regular and predictable payment cycle as well as to achieve our
stated production target of 40,000 bopd gross from the Shaikan
field. Receipt of cash revenues from export sales is critical to
the on-going business. Achieving these aims will enable us to make
considerable progress towards our goal of fully financing our
activities from production cash flows and to support the Company's
growth strategy with a robust, well-funded business. Allied to
this, we will work to manage our cost base prudently and
responsibly and review and control capital commitments as we
continue to build our organisational capacity.
As part of our discussions with the KRG, we are seeking
clarification of the status and exercise of the Shaikan Government
and Third Party Participation Options, which the Group is currently
carrying, and the associated reimbursement of costs that if
received would enhance cash resources. The Group also continues to
explore options for its 20% working interest in the Akri-Bijeel
block and additional funding options available. Further details
regarding our current funding strategy can be found in note 2
'Going concern'.
The Company continues to affect an orderly exit from its
Algerian operations and is continuing the discussions with
Sonatrach regarding the withdrawal from Block 126a (GKN and GKS
oilfields under the Ferkane Permit).
Gulf Keystone plans to consolidate its current position by
reaching production of 40,000 bopd gross from the Shaikan field and
establishing regular and stable cash payments for liftings. The
Company will then look to grow the value of the business through
further field development and/or corporate transactions.
Mary Hood
Interim Chief Financial Officer
Principal risks and uncertainties
Gulf Keystone's business may be impacted by various risks
leading to, among other possible impacts, failure to meet
shareholder expectations and to achieve strategic targets for
growth, loss of financial standing and reputation. Not all of these
risks are wholly within the Company's control and the Company may
be affected by risks which are not yet manifest or reasonably
foreseeable. The Board determines and reviews the key risks for the
Group on a regular basis. For all the known risks facing the
business, Gulf Keystone attempts to minimise the likelihood and
mitigate the impact.
The Group has identified its principal risks for the next 6
months as being:
- political and regional risk;
- liquidity and credit risk;
- capital availability;
- meeting shareholder expectations;
- organisational capability;
- risks associated with infrastructure and export market;
- business conduct and bribery act;
- field delivery risk including a successful delivery of the Shaikan Field Development Plan;
- health, safety environment and security; and
- prohibition on flaring and undeveloped options for monetising natural gas discoveries
Further information detailing the possible impact of these risks
and the ways in which these risks are mitigated is provided on
pages 34 to 37 of the 2013 Annual Report and Accounts. The
political and regional risk has increased since 31 December 2013 as
a result of the insurgency in Iraq, which has impacted on the
Kurdistan region. The Company's operations have not been
significantly disrupted to date, and the Company continues to
produce and truck oil, but the current situation significantly
increases the risk to the Company's physical assets and personnel.
A widening of the conflict could potentially pose a threat to the
Company's entire operations and its ongoing viability.
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;
(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,
John Gerstenlauer
Chief Executive Officer
27 August 2014
Condensed Consolidated Income Statement
for the six months ended 30 June 2014
Six months
ended Six months Year ended
30 June ended 31 December
2014 30 June 2013 2013
Notes Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------- ----- ---------- ------------- ------------
Continuing operations
Revenue 4 18,700 - 6,696
Cost of sales 5 (16,506) - (11,950)
--------------------------- ----- ---------- ------------- ------------
Gross profit/(loss) 2,194 - (5,254)
Other operating expenses
General and administrative
expenses (23,500) (19,256) (15,843)
Loss from operations (21,306) (19,256) (21,097)
Other gains and losses (795) (543) (1,186)
Interest revenue 59 463 828
Finance costs 6 (6,015) (6,537) (10,392)
--------------------------- ----- ---------- ------------- ------------
Loss before tax (28,057) (25,873) (31,847)
Tax expense (1,717) (528) (118)
--------------------------- ----- ---------- ------------- ------------
Loss after tax (29,774) (26,401) (31,965)
--------------------------- ----- ---------- ------------- ------------
Loss per share (cents)
Basic 7 (3.42) (3.06) (3.69)
Diluted 7 (3.42) (3.06) (3.69)
--------------------------- ----- ---------- ------------- ------------
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2014
Six months Six months Year ended
ended ended 31 December
30 June 2014 30 June 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------- ------------- ------------- ------------
Loss for the period (29,774) (26,401) (31,965)
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations 1,121 (1,973) 279
------------------------------------- ------------- ------------- ------------
Total comprehensive loss for
the period (28,653) (28,374) (31,686)
------------------------------------- ------------- ------------- ------------
Condensed Consolidated Balance Sheet
as at 30 June 2014
30 June 30 June 31 December
2014 2013 2013
Notes Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------------- ------ ---------- ---------- --------------------------
Non-current assets
Intangible assets 9 256,963 196,906 220,963
Property, plant and equipment 10 571,754 445,431 516,437
Deferred tax asset 3,109 4,464 3,680
--------------------------------- ------ ---------- ---------- --------------------------
831,826 646,801 741,080
--------------------------------- ------ ---------- ---------- --------------------------
Current assets
Assets held for sale 11 132,374 77,283 103,086
Inventories 22,188 30,062 20,654
Trade and other receivables 5,021 11,870 34,023
Cash and cash equivalents 223,509 141,156 81,972
383,092 260,371 239,735
--------------------------------- ------ ---------- ---------- --------------------------
Total assets 1,214,918 907,172 980,815
--------------------------------- ------ ---------- ---------- --------------------------
Current liabilities
Trade and other payables (109,220) (85,837) (100,795)
Derivative financial instruments - (410) -
Provisions (7,197) (4,185) (4,185)
Liabilities directly associated
with assets classified as held
for sale 11 (2,264) (1,217) (1,378)
Current tax liabilities (1,037) (17) -
--------------------------------- ------ ---------- ---------- --------------------------
(119,718) (91,666) (106,358)
--------------------------------- ------ ---------- ---------- --------------------------
Non-current liabilities
Convertible bonds 12 (299,910) (246,165) (296,725)
Other borrowings 12 (219,657) - -
Provisions (16,880) (12,178) (15,365)
(536,447) (258,343) (312,090)
--------------------------------- ------ ---------- ---------- --------------------------
Total liabilities (656,165) (350,009) (418,448)
--------------------------------- ------ ---------- ---------- --------------------------
Net assets 558,753 557,163 562,367
--------------------------------- ------ ---------- ---------- --------------------------
Equity
Share capital 7,975 7,962 7,975
Share premium account 796,099 793,609 796,099
Share option reserve 57,844 34,779 33,486
Convertible bonds reserve 18,684 22,852 21,488
Exchange translation reserve 1,849 (1,524) 728
Accumulated losses (323,698) (300,515) (297,409)
--------------------------------- ------ ---------- ---------- --------------------------
Total equity 558,753 557,163 562,367
--------------------------------- ------ ---------- ---------- --------------------------
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2014
Attributable to equity holders of the Group
---------------------------------------------------------------------
Share Share Exchange Convertible
Share premium option translation Accumulated bond reserve Total
Capital account reserve reserve losses equity
Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000
----- -------- -------- -------- ------------ ----------- ------------- -------
Balance at 1 January
2013 (audited) 7,847 791,479 29,280 449 (276,849) 25,485 577,691
Net loss for the
period - - - - (26,401) - (26,401)
Other comprehensive
loss for the period - - - (1,973) - - (1,973)
------------------------- ----- ------- ------- ------- --------- ------- --------
Total comprehensive
loss for the period - - - (1,973) (26,401) - (28,374)
Transfer relating
to share-based payments - - (166) - 166 - -
Share-based payment
charge - - 7,067 - - - 7,067
Deferred tax on
share-based payment
transactions - - (1,402) - - - (1,402)
Share issue 115 2,130 - - - - 2,245
Convertible bond
equity amortisation - - - - 2,633 (2,633) -
Own shares held
by EBT(1) - - - - (64) - (64)
Balance at 30 June
2013 (unaudited) 7,962 793,609 34,779 (1,524) (300,515) - 557,163
Net loss for the
period - - - - (5,564) - (5,564)
Other comprehensive
income/(loss) for
the period - - - 2,252 - - 2,252
------------------------- ----- ------- ------- ------- --------- ------- --------
Total comprehensive
income/(loss) for
the period - - - 2,252 (5,564) - (3,312)
Transfer relating
to share based payments - - (5,923) - 5,923 - -
Share-based payment
charge - - 5,501 - - - 5,501
Deferred tax on
share-based payment
transactions - - (871) - - - (871)
Share issue 13 2,490 - - - - 2,503
Issue of convertible
bond - - - - - 1,383 1,383
Convertible bond
equity amortisation - - - - 2,747 (2,747) -
Balance at 31 December
2013 (audited) 7,975 796,099 33,486 728 (297,409) 21,488 562,367
Net loss for the
period - - - - (29,774) - (29,774)
Other comprehensive
income/(loss) for
the period - - - 1,121 - - 1,121
------------------------- ----- ------- ------- ------- --------- ------- --------
Total comprehensive
income/(loss) for
the period - - - 1,121 (29,774) (28,653)
Transfer relating
to share-based payments - - (681) - 681 - -
Share-based payment
charge - - 2,894 - - - 2,894
Deferred tax on
share-based payment
transactions - - (17) - - - (17)
Convertible bond
equity amortisation - - - 2,804 (2,804) -
Issue of warrants - - 22,162 - - - 22,162
Balance at 30 June
2014 (unaudited) 7,975 796,099 57,844 1,849 (323,698) 18,684 558,753
------------------------- ----- ------- ------- ------- --------- ------- --------
(1) Employee Benefit Trust ("EBT").
Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2014
Six months
Six months ended Year ended
ended 30 June 31 December
30 June 2014 2013 2013
Notes Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------------------- ----- ----------------------- ---------- ------------
Operating activities
Cash generated/(used) in operations 8 21,309 (22,308) (25,072)
Tax paid - (444) (675)
Interest received 59 245 828
Convertible bond coupon payments (10,156) (8,594) (17,188)
--------------------------------------- ----- ----------------------- ---------- ------------
Net cash generated/(used) in operating
activities 11,212 (31,101) (42,107)
--------------------------------------- ----- ----------------------- ---------- ------------
Investing activities
Purchase of intangible assets (52,341) (89,953) (131,844)
Purchase of property, plant and
equipment (57,322) (137) (59,008)
Decrease in liquid investments - 8,600 8,600
--------------------------------------- ----- ----------------------- ---------- ------------
Net cash used in investing activities (109,663) (81,490) (182,252)
--------------------------------------- ----- ----------------------- ---------- ------------
Financing activities
Proceeds on issue of share capital - 2,180 4,748
Proceeds on issue of convertible
bond - - 49,189
Proceeds on issue of other borrowings 240,114 - -
--------------------------------------- ----- ----------------------- ---------- ------------
Net cash generated by financing
activities 240,114 2,180 53,937
--------------------------------------- ----- ----------------------- ---------- ------------
Net (decrease)/increase in cash
and cash equivalents 141,663 (110,411) (170,422)
Cash and cash equivalents at beginning
of period 81,972 253,713 253,713
Effect of foreign exchange rate
changes (126) (2,146) (1,319)
--------------------------------------- ----- ----------------------- ---------- ------------
Cash and cash equivalents at end
of the period being bank balances
and cash on hand 223,509 141,156 81,972
--------------------------------------- ----- ----------------------- ---------- ------------
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2014
1. General information
The condensed Group financial statements for the six months
period ended 30 June 2014, comprising Gulf Keystone Petroleum Ltd
and its subsidiaries (together, "the Group"), 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.
Accordingly, certain information and note disclosures normally
included in annual financial statements prepared in accordance with
International Financial Reporting Standards ("IFRS"), as adopted by
the European Union, have been omitted or condensed as is normal
practice and are to be read in conjunction with the Group's
financial statements for the year ended 31 December 2013. The
condensed Group interim financial statements for the six months
ended 30 June 2014 have not been audited or reviewed by the
Company's external auditors and were approved by the Board of
Directors on 27 August 2014. An electronic version of the half year
report has been posted on the Group's website www.gulfkeystone.com.
Hard copies are available by writing to Gulf Keystone Petroleum
Limited, c/o Gulf Keystone Petroleum (UK) Limited, 16 Berkeley
Street, London, W1J 8DZ, United Kingdom.
The financial information for the year ended 31 December 2013
does not constitute the Group's financial statements for that year,
but it is derived from those accounts. The auditors have reported
on those accounts and their report was not modified but drew
attention by way of emphasis of matter over the uncertainty of the
Group's ability to continue as a going concern.
2. Accounting policies
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 set of
financial statements included in this half year financial report
has been prepared in accordance with International Accounting
Standard 34 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure and Transparency Rules (DTR) of
the Financial Conduct Authority. The same accounting policies,
presentation and methods of computation are followed in this
condensed set of financial statements as applied by the Group in
its Annual Report and Accounts for the year ended 31 December
2013.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chairman's Statement and Chief Executive
Officer's Review. The financial position of the Group as at 30 June
2014 and its cash flows and liquidity position are included in the
Financial Review.
In April 2014, the Group issued $250 million debt securities,
raising net proceeds of $240.1 million. With the proceeds of this
debt issue, the Group is on track to achieve its production target
of 40,000 bopd through stepped production increases as wells are
tied in to the facilities.
Following the attainment of the 40,000 bopd target, the Group
will continue the development of the Shaikan Block in accordance
with the FDP. This development requires substantial capital
expenditures for the foreseeable future, being at least the next 12
months. In addition, following the recent announcement by MOL Plc.,
the operator of the Akri-Bijeel Block, regarding the agreement of
the FDP for the Block by the Ministry of Natural Resources, the
Group envisages incurring significant capital expenditure on this
Block unless the asset is sold or the Group's funding interest is
otherwise reduced.
In 1H 2014, the Group continued to consistently achieve revenues
from domestic sales and to lift oil for exports. While the payments
for domestic revenues were received regularly, the inflow of cash
from export sales has been inconsistent throughout the period with
the Group not receiving its full entitlement to date. While such
entitlement is contractual, the process for receiving consistent
payments in a timely manner has not yet been established. The Group
sees this matter as its main priority and continues to engage the
KRG with this intent.
The Group is dependent on existing cash resources, which
totalled $177 million at 26 August 2014, together with production
revenues from its interest in the Shaikan Block, in order to meet
its future working capital and capital expenditure requirements.
The receipt of revenues from export sales is, therefore, critical
for the Group's ability to continue as a going concern.
The Group's management has a number of options whereby it can
affect the rate of spend of the Group's cash resources. As operator
of the Shaikan and Sheikh Adi blocks, the Group has significant
control over the rate at which it incurs expenditure on these
blocks, including commitments incurred to increase production
capacity from 40,000 to 66,000 bopd. Akri-Bijeel is considered to
be a non-core asset to the Group's portfolio and management
continues its efforts to explore options for the Group's 20%
working interest in this Block.
Further, existing cash resources may be enhanced over the next
12 months from the date of this report if, under the terms of the
Shaikan and Akri-Bijeel PSCs, the exercise of the Government
Options and/or the Third Party Options for either or both of
Shaikan and Akri-Bijeel take place. At 31 July 2014, the associated
reimbursement of costs would result in cash receipts to the Group
in excess of $165 million, as well as a reduction in future
expenditures following the dilution of the Group's working
interest.
Whilst the Directors believe that one or more of the above
events are likely to occur, if none of these events occur, and the
Group is unable to otherwise enhance its existing cash resources,
then the Directors would expect the Group to require additional
working capital in the foreseeable future. Owing to the criticality
of cash receipts from export revenues to the Group's ability to
continue as a going concern, the Directors consider that in light
of the inconsistency of payments received in the six month period
to 30 June 2014, and, that while a stable and reliable payment
process for export sales is not yet fully established, a material
uncertainty exists over the Group's ability to continue as a going
concern.
Further, it is noted that while our operations in the KRG remain
secure and the Directors remain confident in the ability of the
KRG, with the full support of the international community, to
ensure that the security situation is controlled, the geopolitical
situation across Iraq has changed since the release of the 2013
Annual Report and Accounts. Should it significantly deteriorate,
there exists the possibility that the Group's assets may be
materially adversely affected or sales may be disrupted.
Based on the forecasts and projections prepared at the time of
preparation of this half year report and considering the
uncertainties described above and the options available to the
Group, the Directors have a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future. For these reasons, they continue to adopt the
going concern basis in preparing this half year report.
Changes in accounting policy
In 2013, a number of new standards and interpretations became
effective as noted in the 2013 Annual Report and Accounts (page
92). The adoption of these standards and interpretations has not
had a material impact on the financial statements of the Group.
Since the 2013 Annual Report and Accounts was published no
significant new standards and interpretations have been issued. The
following new and revised standards that impact Gulf Keystone
Petroleum became effective during 2014:
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IAS 28 (revised) Investment in Associates and Joint Ventures
The adoption of these standards has not had a material impact on
the financial statements of the Group.
3. Segment information
There has been no change in the basis of segmentation or in the
basis of measurement of segment profit or loss during the period.
The accounting policies of the reportable segments are consistent
with the Group's accounting policies, which are described in the
Group's latest annual financial statements.
The operations of the Group comprise one class of business, oil
and gas exploration, development and production and the sale of
hydrocarbons and related activities. The reportable segments in
accordance with IFRS 8 are therefore the three geographical regions
that the Group operates within as described below:
- Kurdistan Region of Iraq - the Group's operations in the
Kurdistan Region, comprising the Shaikan, Akri-Bijeel, Sheikh Adi
and Ber Bahr Blocks and the Erbil office.
- United Kingdom - the United Kingdom office, which provides
geological, geophysical and engineering services to the Group.
- Algeria - the Algiers office and the Group's operations in Algeria.
Corporate 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.
Kurdistan United
Algeria Region Kingdom Corporate Elimination Total
30 June 2014 (unaudited) $'000 $'000 $'000 $'000 $'000 $'000
------------------------- ------- --------- -------- --------- ----------- --------
Revenue
Oil sales - 18,700 - - - 18,700
Inter-segment sales - - 5,575 - (5,575) -
------------------------- ------- --------- -------- --------- ----------- --------
Total revenue - 18,700 5,575 - (5,575) 18,700
(Loss)/profit before
tax (3,541) (3,991) 3,726 (38,423) 14,172 (28,057)
Tax expense - - (1,717) - - (1,717)
(Loss)/profit after
tax (3,541) (3,991) 2,009 (38,423) 14,172 (29,774)
1,214,
Total assets 74 1,028,639 25,393 1,305,026 (1,144,214) 918
------------------------- ------- --------- -------- --------- ----------- --------
Kurdistan United
Algeria Region Kingdom Corporate Elimination Total
30 June 2013 (unaudited) $'000 $'000 $'000 $'000 $'000 $'000
------------------------- ------- --------- -------- --------- ----------- --------
Revenue
Oil sales - - - - - -
Inter-segment sales - - 5,473 - (5,473) -
------------------------- ------- --------- -------- --------- ----------- --------
Total revenue - - 5,473 - (5,473) -
(Loss)/profit before
tax (51) (653) (4,255) (32,186) 11,272 (25,873)
Tax expense - - (528) - - (528)
(Loss)/profit after
tax (51) (653) (4,783) (32,186) 11,272 26,401
------------------------- ------- --------- -------- --------- ----------- --------
Total assets 175 754,069 25,703 1,009,207 (881,982) 907,172
------------------------- ------- --------- -------- --------- ----------- --------
United
Algeria Kurdistan Kingdom Corporate Elimination Total
31 December 2013
(audited) $'000 $'000 $'000 $'000 $'000 $'000
--------------------- ------- --------- -------- --------- ----------- --------
Revenue
Oil sales - 6,696 - - - 6,696
Inter-segment sales - - 11,745 - (11,745) -
--------------------- ------- --------- -------- --------- ----------- --------
Total revenue - 6,696 11,745 - (11,745) 6,696
(Loss)/profit before
tax (556) (8,618) (2,106) (35,054) 14,487 (31,847)
Tax expense - - (118) - - (118)
(Loss)/profit after
tax (556) (8,618) (2,224) (35,054) 14,487 (31,965)
--------------------- ------- --------- -------- --------- ----------- --------
Total assets 85 886,079 29,717 1,089,439 (1,024,505) 980,815
--------------------- ------- --------- -------- --------- ----------- --------
4. Revenue
During the period to 30 June 2014, the Company sold Shaikan oil
domestically and on the export market, following the commencement
of exports in late November 2013. Revenue from domestic sales for
the period to 30 June 2014 amounted to $2.5 million (30 June 2013:
$nil) and revenue from export sales amounted to $16.2 million (30
Jun 2013: $nil). Revenue for commercial sales is recognised in line
with the terms of the Shaikan PSC, the applicable sales contracts
and the Group's accounting policy.
The price achieved on domestic sales in 2014 was $42/bbl (2013:
$41/bbl). In arriving at the value of domestic sales revenue,
management have used the following assumptions:
-- Point of sale is the Shaikan facility;
-- Revenue is recognised on an accruals basis;
-- Revenue is recognised gross of any royalty due in accordance
with the terms of the Shaikan PSC; and
-- Company's current working interest in the Shaikan block is 80%.
The estimated realised price for export sales recognised for the
first half of the year was $51-56/bbl. Management has used the
following assumptions in arriving at the value of export sales
revenue during the period:
-- Point of sale is the Shaikan facility;
-- Revenue is recognised on a cash receipts basis;
-- Cash is received and revenue is recognised, net of royalty,
royalty is taken "in-kind" by the KRG;
-- Deductions for trucking and port storage costs as well as the
discount to Brent received have been estimated based on available
information;
-- Cash receipts by GKPI as the operator represent the
non-governmental contractors' share of revenue; and
-- Company's current working interest in the Shaikan block is 80%.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------- ---------- ---------- ------------
Oil Sales 18,700 - 6,696
Interest revenue 59 463 828
18,759 463 7,524
========== ========== ============
5. Cost of Sales
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------- ---------- ---------- ------------
Production costs 10,118 - 8,685
Royalty costs 408 - 888
Depreciation of oil & gas properties 5,980 - 2,377
16,506 - 11,950
========== ========== ============
Following approval of the Shaikan FDP on 25 June 2013 and the
commencement of commercial production, a grossmargin was recognised
for the Shaikan field for the first time in 2H 2013. Prior to this
date, all revenues were accounted for as test production, with an
equal and offsetting amount in cost of sales. Consequently, no
charge to cost of sales was recognised during the six months to 30
June 2013 as there were no oil sales during this period.
A unit of production method, based on entitlement production,
reserves and costs for Shaikan field Phase 1 development, has been
used to calculate the depreciation, depletion and amortisation
(DD&A) charge for the period. Consistent with 2H13, production
and reserves entitlement associated with unrecognised export sales
have been excluded from the DD&A calculation until such time as
cash is received and sales recognised. A depreciation charge of
$6.0 million has been recorded within cost of sales for the period
to 30 June 2014 (31 Dec 2013: $2.4 million).
Production costs represent the Group's share of gross production
costs for the Shaikan field for the period together with any
consolidation adjustments; all costs are included with no deferral
of costs associated with unrecognised export sales.
6. Finance costs
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------------- ---------- ----------------------- ------------
Interest payable in respect of convertible
bonds 13,285 11,217 23,433
Interest payable in respect of other
borrowings 8,277 - -
Unwinding of discount on provisions 249 179 378
Capitalised finance costs (15,796) (4,859) (13,419)
6,015 6,537 10,392
========== ======================= ============
7. Loss per share
The calculation of the basic and diluted loss per share is based
on the following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------------------- ---------- ---------- ------------
Loss
Loss after tax for the purposes of
basic and diluted loss per share (29,774) (26,401) (31,965)
30 June 30 June 31 December
2014 2013 2013
Number (000s) Number (000s) Number (000s)
Unaudited Unaudited Audited
---------------------------------------- -------------- -------------- --------------
Number of shares
Weighted average number of common
shares for the purposes of basic
loss per share 869,517 862,486 865,480
Adjustments for:
-bonus shares n/a n/a n/a
-share options n/a n/a n/a
-warrants n/a n/a n/a
-ordinary shares held by the Employee
Benefit Trust n/a n/a n/a
-ordinary shares held by the Exit
Event Trustee n/a n/a n/a
-convertible bonds n/a n/a n/a
Weighted average number of common
shares for the purposes of diluted
loss per share 869,517 862,486 865,480
---------------------------------------- -------------- -------------- --------------
The Group followed the steps specified by IAS 33 in determining
whether potential common shares are dilutive or anti-dilutive. It
was determined that all of the potential common shares including
bonus shares, share options, convertible bonds and common shares
held by the Employee Benefit Trust ("EBT") and the Exit Event
Trustee have an anti-dilutive effect on loss per share. As a
result, there is no difference between basic and diluted earnings
per share.
As at 30 June 2014, 36.8 million share options (31 Dec 2013:
37.5 million), 3.3 million un-issued bonus shares (31 Dec 2013: 3.3
million), 40.0 million warrants (31 Dec 2013: nil), 10.0 million
common shares held by the Exit Event Trustee (31 Dec 2013: 10.0
million), 9.4 million common shares held by the Employee Benefit
Trust (31 Dec 2013: 9.4 million) and 74.0 million common shares (31
Dec 2013: 74.0 million) to be issued if the bonds are converted at
the initial conversion price of $4.39 were excluded from the loss
per share calculation as they were anti-dilutive.
8. Reconciliation of loss from operations to net cash used in
operating activities
Six months
Six months ended Year ended
ended 30 June 31 December
30 June 2014 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------------------- ------------- ---------- ------------
Loss from operations (21,306) (19,256) (21,097)
Adjustments for:
Depreciation of property, plant and
equipment 6,278 306 2,981
Amortisation of intangible assets 89 96 194
Increase in Algerian decommissioning
provision 3,013 - -
Share-based payment expense 2,301 5,471 9,838
Increase in inventories (1,534) (10,280) (871)
Decrease/(increase) in receivables 28,680 11,872 (10,561)
Increase/(decrease) in payables 3,788 (10,517) (5,556)
--------------------------------------- ------------- ---------- ------------
Net cash generated/(used) in operating
activities 21,309 (22,308) (25,072)
--------------------------------------- ------------- ---------- ------------
9. Intangible assets
The net book value at 30 June 2014 includes intangible assets
relating to Ber Bahr $65.0 million (31 December 2013: $61.1
million) and Sheikh Adi $191.9 million (31 December 2013: $159.6
million). The remainder of the balance, with a carrying value of
$0.1 million (31 December 2013: $0.2 million), is comprised of
computer software.
The additions to oil and gas exploration and evaluation costs in
the year include the continued drilling of the Sheikh Adi-3 well
and geological studies together with the commencement of seismic
acquisition over the Ber Bahr block.
10. Property, plant and equipment
The net book value at 30 June 2014 includes property, plant and
equipment relating to the Shaikan block, which has a carrying value
of $570.1 million (31 Dec 2013: $514.6 million). The remainder of
the balance, with a carrying value of $1.6 million (31 Dec 2013:
$1.8 million) is comprised of fixtures and equipment.
Additions to property, plant and equipment were $61.6 million,
of which $61.5 million related to the Shaikan block. Additions
include construction work on the Shaikan production facilities,
enhancing the operation of PF-1 and the bringing of PF-2 into
operation as well as work associated with the tie-in of wells to
these production facilities and the completion of the Shaikan-7
well.
Associated with production, a depreciation, depletion and
amortisation charge of $6.0 million was recognised on the Shaikan
oil and gas properties (30 Jun 2013: $nil; 31 Dec 2013: $2.4
million), which has been included within cost of sales (note 5). A
depreciation charge of $0.3 million was recognised on fixtures and
equipment (30 Jun 2013: $0.3 million), which has been included in
general and administrative expenses.
11. Asset held for sale
In 2011, as part of the Group's forward strategy to rationalise
its asset portfolio, the Board resolved to sell the Group's 20%
working interest in the Akri-Bijeel block. The Group subsequently
appointed Joint Corporate Advisers responsible for co-ordination of
and advice on the sale and this process is on-going.
The Akri-Bijeel intangible asset of $132.4 million (31 Dec 2013:
$103.1 million) that is included within the Kurdistan operating
segment has been classified as an asset held for sale as at 30 June
2014. The value of the asset held for sale as at 30 June 2014
includes $9.6 million (31 Dec 2013: $7.1 million) that relates to a
prepayment balance to the operator.
Additions to Akri-Bijeel exploration and evaluation costs in the
period were $26.8 million and included the drilling of Bakrman-2,
Bijell-2, Bijell-4 and Bijell-6 wells, site preparation for
Bijell-8 and Bijell-10 as well as seismic processing and geological
studies and the construction of surface facilities.
The decommissioning provision associated with the Akri-Bijeel
block amounted to $2.3 million as at 30 June 2014 and is included
in the liabilities directly associated with assets classified as
held for sale (31 Dec 2013: $1.4 million).
Management consider that the criteria to classify the asset as
held for sale continue to be met, notwithstanding the fact that
this asset was classified as held for sale at 31 December 2011,
2012 and 2013. The Group continues to actively market its interest
in Akri Bijeel and on 14 August 2014, the operator, MOL, announced
that it has agreed upon its field development plan (FDP) with the
Kurdish Ministry of Natural Resources. The FDP relates to two
commercial discovery areas in the Akri-Bijeel block - the Bijell
and the Bakrman areas. Early production continues from Extended
Well Test ("EWT") facility.
12. Long term borrowings and warrants
On 17 April 2014, the Group issued debt securities consisting of
$250 million three-year senior unsecured loan notes (the "Notes"),
carrying a coupon of 13% per annum payable on a biannual basis and
freely tradeable and detachable warrants relating to 40 million
common shares in the Company. The Notes are guaranteed by Gulf
Keystone Petroleum International Ltd and have a maturity date of 18
April 2017. Each warrant entitles the holder, subject to certain
conditions, to purchase a common share in the Company on payment of
the exercise price of $1.70. The warrants expire on 18 April
2017.The Notes and warrants have been listed on the Official List
of the Luxembourg Stock Exchange for trading on the Euro MTF market
of the Luxembourg Stock Exchange.
The Notes
The Notes are recognised initially at fair value, net of
transaction costs incurred and are subsequently carried at
amortised cost under the effective interest method. Interest is
calculated by using the effective annual interest rate which was
calculated to be 19.7%.
The liabilities associated with both the new bonds and the
existing convertible bonds are presented in the following
tables:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------------------- ---------- ---------- ------------
Liability at the beginning of the
period 300,900 247,028 247,028
Liability of new bonds at issue 217,952 - 47,627
Interest charged during the period
* on convertible bonds 13,285 11,217 23,433
* on other bonds 8,277 - -
Interest paid during the period
* on convertible bonds (10,156) (8,594) (17,188)
-
* on other bonds - -
---------- ---------- ------------
Liability at the end of period 530,258 249,651 300,900
========== ========== ============
Liability reported in:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
---------------------------------------- ---------- ---------- ------------
Interest payable in current liabilities 10,691 3,486 4,175
Non-current liabilities 519,567 246,165 296,725
530,258 249,651 300,900
========== ========== ============
Assuming that the existing convertible bonds and the newly
issued Notes are not purchased and cancelled, redeemed or converted
prior to their respective maturity dates, the Group's remaining
contractual liability comprising principal and interest, based on
undiscounted cash flows at the maturity date of the bonds are as
follows.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------- ---------- ---------- ------------
Within one year 52,813 17,188 20,313
Within two to five years 690,781 335,156 385,937
743,594 352,344 406,250
========== ========== ============
The Warrants
The warrants were recognised as an equity instrument in
accordance with IAS 39. The warrants were measured at fair value as
at the date of issue, which was determined to be $22.2 million. The
fair value of the warrants was treated as part of the Notes' issue
cost.
The assumptions used in the valuation of the warrants included a
share price of 99.75p, an exercise price of $1.70 as per the issue
prospectus, a risk free rate of 0.8%, a time to expiry of 36 months
and a share price volatility of 50%.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGUQCRUPCPPM
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