TIDMGKP
RNS Number : 8474X
Gulf Keystone Petroleum Ltd.
01 September 2022
1 September 2022
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP", "the Group" or "the Company")
2022 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 2022.
Jon Harris, Gulf Keystone's Chief Executive Officer, said:
" With the strengthening oil price and increased production, we
have delivered strong profitability and cash flow generation in the
first half of the year. As we progress towards approval of the
Field Development Plan, we have continued to develop the Shaikan
Field and recently resumed drilling with the spud of SH-16. We have
paid a record $190 million of dividends in 2022 and are pleased
today to announce an incremental interim dividend of $25 million,
increasing total dividends declared this year to $215 million.
While delivering a sector leading dividend yield, we have also
maintained a strong balance sheet, redeeming our $100 million bond
leaving the Company debt free.
Looking ahead to the rest of the year, we are focused on
progressing towards FDP approval and achieving our production and
opex guidance as we continue to optimise production from the field
while maintaining a rigorous focus on costs. We have raised our
2022 capex guidance to $110-$120 million as we have added the
drilling of SH-16 and are progressing initial procurement
activities for the installation of water handling facilities, which
will enable us to unlock additional production from our wells in
the future.
We remain focused on balancing investment in growth with
shareholder returns. Continued robust cash generation provides
flexibility to consider funding future capital expenditures and
further distributions to shareholders, while preserving adequate
liquidity."
Highlights to 30 June 2022 and post reporting period
Operational
-- Strong safety performance, with no Lost Time Incident ("LTI") recorded for 315 days
-- 2022 year to date gross average production increased by 3.6%
to c.45,000 bopd as compared to the FY 2021 average of 43,440
bopd
-- Continued to progress delivery of our 2022 work programme:
o SH-15 drilled and brought online in April 2022 in record
time
o SH-16 (formerly SH-M) and SH-N well pad completed in
preparation for resumption of drilling
o Well workovers and interventions completed on two wells to
optimise production rates
o Progressing preparatory work for the expansion of the
production facilities, including procurement activities for the
installation of water handling capacity
-- Resumed drilling activities late August with the spud of SH-16:
o Targeting production start-up into PF-2 towards the end of the
year
Financial
-- Free cash flow more than doubled to $177.3 million (H1 2021:
$66.7 million), driven by the strengthening oil price and continued
production growth, enabling the Company to deliver against its
strategic commitment of balancing investment in growth with
shareholder returns
-- Dividends declared of $215 million in 2022, providing
shareholders with a sector-leading dividend yield of 36% based on
GKP's closing price on 30 August 2022
-- Significant increase in Adjusted EBITDA and profitability in H1 2022:
o Adjusted EBITDA up 122% to $208.6 million (H1 2021: $93.8
million)
o Profit after tax up 151% to $162.8 million (H1 2021: $64.8
million)
o Realised price up 93% to $84.3/bbl (H1 2021: $43.7/bbl)
o Gross average production increased 3% to 44,941 bopd (H1 2021:
43,516 bopd)
o Revenue up 102% to $263.6 million (H1 2021: $130.7
million)
o Gross Opex per barrel of $2.9/bbl (H1 2021: $2.4/bbl), at low
end of 2022 guidance of $2.9-$3.3/bbl
-- Net capex of $41.8 million (H1 2021: $14.1 million),
primarily related to the drilling of SH-15, well interventions and
workovers, well pad construction, procurement of flowlines and
plant expansion activities
-- $354.4 million net to GKP received year to date from the
Kurdistan Regional Government ("KRG") for crude oil sales and
revenue arrears, with the arrears balance related to the November
2019 to February 2020 invoices fully recovered
-- $100 million outstanding bond redeemed in August, leaving the
Company debt-free and eliminating annual interest costs of $10
million
-- Robust balance sheet maintained with cash balance of $112.0 million at 31 August 2022
Outlook
-- 2022 gross average production guidance reiterated at 44,000-47,000 bopd
o Continuing to optimise production through prudent management
of existing well stock, delivery of well workover and intervention
programme and addition of SH-16
-- Gross Opex guidance of $2.9-$3.3/bbl remains unchanged
-- Increasing 2022 net capex guidance from $85-$95 million to $110-$120 million
o Primarily driven by the drilling of SH-16 and initial
procurement activities related to the installation of water
handling capacity
-- While timing of Field Development Plan ("FDP") approval
remains uncertain, we continue to engage with the Ministry of
Natural Resources ("MNR") towards project sanction and are
progressing the tendering process for the Gas Management contract.
We are also monitoring the potential impact of global supply chain
pressures and logistical challenges on the costs and schedule of
the FDP
-- We continue to monitor the long running dispute between the
Federal Iraqi Government and the KRG on the management of oil and
gas assets in Kurdistan. Our operations currently remain
unaffected
Shareholder distributions
-- The Company has announced an ordinary dividend policy of at
least $25 million per year and, with free cash flow, is committed
to maximising distributions taking into account various factors,
including investment levels required to achieve production targets,
deliver profitable growth and satisfy PSC obligations, and preserve
adequate liquidity to manage geopolitical, KRG payment and market
uncertainties
-- Today we are declaring an interim dividend of $25 million,
increasing total dividends declared in 2022 to $215 million:
o $25 million interim dividend is equivalent to 11.561 US cents
per Common Share of the Company and is expected to be paid on 7
October 2022, based on a record date of 23 September 2022 and
ex-dividend date of 22 September 2022
-- Assuming timely payment of invoices and continuing strong oil
prices, we expect continued robust cash flow generation, which
would provide flexibility to consider funding future capital
expenditures and further distributions to shareholders, while
preserving adequate liquidity
-- With continued progress towards implementing the FDP, the
Company expects to firm up the future estimated timing and levels
of investment and review the dividend policy
Investor & analyst presentation
Gulf Keystone's management team will be presenting the Company's
2022 Half Year Results at 10:00am (BST) today via live audio
webcast:
https://stream.brrmedia.co.uk/broadcast/62f6364cb629a70556524626
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) no. 596/2014 (as it forms part of
domestic law by virtue of the European Union (Withdrawal) Act
2018).
Enquiries:
Gulf Keystone: +44 (0) 20 7514 1400
Aaron Clark, Head of Investor Relations aclark@gulfkeystone.com
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
In the first six months of the year, we delivered record
production and free cash flow, demonstrating the leverage the low
cost Shaikan Field has to increases in the oil price. We are
focused on delivering our strategy, balancing investment in the
field while rewarding our shareholders. This year, we have
delivered a sector-leading dividend yield. We continue to make good
progress towards FDP approval and have significant financial
flexibility after the recent repayment of our $100 million bond
leaving us debt-free.
As ever, safety has been the bedrock of our performance and I'm
very pleased to report we have been operating for 315 LTI-free
days, even as we continue to increase activity.
We also remain focused on delivering our broader sustainability
strategy priorities. We are progressing the Gas Management Plan
tendering process, which underpins our target of more than halving
our emissions intensity by 2025. We are investing heavily in local
employment and suppliers. We have also completed a number of
impactful local community projects this year, notably developing
and funding a hydroponic fodder facility to support local
agriculture, developing local skills and providing equipment to
enable business start-ups with our NGO partners. In addition, we
are preparing to provide enhanced grain seed to over 500 local
farmers to improve crop yields.
Gross average production in 2022 has averaged c.45,000 bopd, an
increase compared to 2021 gross average production of 43,440 bopd.
Current investment activity is focused on drilling, optimising
production and preparing for future production growth with water
handling capability.
SH-15 was drilled in record time and brought online in April. To
date, the well workover and intervention programme has optimised
production from two wells. We are also progressing preparatory
activities for the expansion of the production facilities,
including initial procurement activities for water handling
facilities, and we recently completed the construction of the well
pad that will be used to drill both SH-16 (formerly SH-M) and SH-N.
SH-16 was spudded in August and will, on completion, be tied into
PF-2.
As per previous announcements, we continue to monitor the long
running dispute between the Federal Iraqi Government and the KRG on
the management of oil and gas assets in Kurdistan, including any
potential restrictions placed on service contractors by the Iraqi
Ministry of Oil and exports of crude oil . Our operations currently
remain unaffected and we continue to work closely with the KRG, our
advisers and other stakeholders to protect the Company's
interests.
Looking ahead to the remainder of 2022, we are on track to meet
our gross average production guidance of 44,000 - 47,000 bopd and
our gross Opex guidance of $2.9-$3.3/bbl. We are also increasing
our net Capex guidance from $85-$95 million to $110-$120 million,
primarily reflecting the addition of SH-16 and initial procurement
activities related to the installation of water handling
capacity.
We continue to maintain an active dialogue with the MNR and,
while timing remains uncertain, we are progressing towards approval
of the FDP. With continued progress towards implementing the FDP,
the we expect to firm up the future estimated timing and levels of
investment and review our dividend policy, which we understand is
critical to our shareholders. In the meantime, with timely payments
and continuing strong cash flow we will continue to consider
funding future capex and additional distributions, while preserving
adequate liquidity.
I would like to thank our teams in Kurdistan and the UK for
their continued commitment to GKP and hard work in the year to
date. We are excited about the future and the whole organisation is
focused on the sustainable development of the Shaikan Field for the
benefit of all stakeholders.
Jon Harris
Chief Executive Officer
Operational Review
I'm delighted to have joined Gulf Keystone as Chief Operating
Officer. In my first four months at the Company, I have been
impressed by the ability and ambition of our teams in Kurdistan and
the UK and the opportunity we have to drive growth and value from
the Shaikan Field for the benefit of our stakeholders. I am excited
about the path ahead.
Our operational activity in the first half of the year has
focused on safely drilling and ramping up new wells, optimising
production through the delivery of the well workover and
intervention programme and preparing our field infrastructure for
future production growth. As operational activity continues to
increase, we remain focused on our strong safety performance. To
date, we have achieved 315 days without an LTI.
Gross average year to date production from the Shaikan Field has
been c.45,000 bopd, slightly higher than gross average production
of 43,440 bopd in 2021. Production has been supported by the ramp
up of new wells, notably SH-13 and SH-14 in January and recently
SH-15, offsetting natural field decline. In addition, output has
been constrained ahead of the planned installation of water
handling as we prudently manage wells to avoid traces of water.
After completion of the pad that will be used to drill both
SH-16 and SH-N, we were pleased to spud SH-16 late August and are
targeting production start-up of the well towards the end of the
year into PF-2.
We are also progressing preparatory activities for the expansion
of the production facilities, including the installation of water
handling. While the timing of installation remains uncertain, given
we are in the initial stages of procurement and due to ongoing
equipment lead time pressures in a supply constrained market, we
expect that the installation of water handling facilities will
enable increased production from existing wells.
This activity is enabling us to maintain momentum as we work
towards approval of the FDP. We are working closely with the MNR to
optimise the FDP and we submitted a revised plan in June.
Simultaneously, we have been progressing the tender process for the
Gas Management Plan. We are closely monitoring the market
environment and potential impact of global supply chain pressures
and logistical challenges on the FDP's costs and schedule.
Looking ahead to the rest of the year, we remain focused on
delivering our gross average production guidance of 44,000-47,000
bopd as we continue to optimise production from our existing wells
and drill SH-16.
John Hulme
Chief Operating Officer
Financial Review
Key financial highlights
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
---------------------------------- -------- ----------- ----------- -------------
Gross average production(1) bopd 44,941 43,516 43,440
---------------------------------- -------- ----------- ----------- -------------
Dated Brent(2) $/bbl 107.6 64.9 70.8
---------------------------------- -------- ----------- ----------- -------------
Realised price(1,3) $/bbl 84.3 43.7 49.7
---------------------------------- -------- ----------- ----------- -------------
Revenue $m 263.6 130.7 301.4
---------------------------------- -------- ----------- ----------- -------------
Operating costs $m 18.9 15.0 34.4
---------------------------------- -------- ----------- ----------- -------------
Gross operating costs per
barrel(1) $/bbl 2.9 2.4 2.7
---------------------------------- -------- ----------- ----------- -------------
Other general and administrative
expenses $m 6.1 5.4 13.6
---------------------------------- -------- ----------- ----------- -------------
- Incurred in relation
to Shaikan Field $m 2.1 2.1 4.1
---------------------------------- -------- ----------- ----------- -------------
- Corporate G&A $m 4.0 3.3 9.5
---------------------------------- -------- ----------- ----------- -------------
Share option expense $m 11.5 6.5 8.5
---------------------------------- -------- ----------- ----------- -------------
Adjusted EBITDA(1) $m 208.6 93.8 222.7
---------------------------------- -------- ----------- ----------- -------------
Profit after tax $m 162.8 64.8 164.6
---------------------------------- -------- ----------- ----------- -------------
Basic earnings per share cents 75.9 30.5 77.1
---------------------------------- -------- ----------- ----------- -------------
Revenue and arrears receipts(1) $m 272.4 106.4 221.7
---------------------------------- -------- ----------- ----------- -------------
Net capital expenditure(1) $m 41.8 14.1 50.8
---------------------------------- -------- ----------- ----------- -------------
Free cash flow(1) $m 177.3 66.7 122.2
---------------------------------- -------- ----------- ----------- -------------
Dividends (4) $m 189.8 50.0 100.0
---------------------------------- -------- ----------- ----------- -------------
Cash and cash equivalents $m 231.8 189.5 169.9
---------------------------------- -------- ----------- ----------- -------------
Face amount of the Notes $m 100.0 100.0 100.0
---------------------------------- -------- ----------- ----------- -------------
Net cash(1) $m 131.8 89.5 69.9
---------------------------------- -------- ----------- ----------- -------------
(1.) Gross average production, realised price, gross operating
costs per barrel, Adjusted EBITDA, net capital expenditure, revenue
receipts, free cash flow and net cash are either non-financial or
non-IFRS measures and, where necessary, are explained in the
non-IFRS measures section.
(2.) Weighted average GKP sales volume price.
(3.) Realised price excludes pipeline tariff adjustments in
relation to prior periods.
(4.) Includes both paid and declared dividends at period end.
All declared dividends at period end have since been paid.
In the first six months of 2022, the increase in oil price and
continued production growth more than doubled profit after tax and
almost tripled free cash flow. The Company's strong financial
performance enabled further investment in the Shaikan Field and the
declaration of $190 million of dividends, a sector leading dividend
yield. In August 2022, Gulf Keystone repaid its outstanding $100
million bond leaving the Company debt-free with significant
financial flexibility. Also, today we are pleased to announce an
additional $25 million interim dividend.
Adjusted EBITDA
Adjusted EBITDA grew 122% in H1 2022 to $208.6 million (H1 2021:
$93.8 million), driven by a 66% increase in the oil price and
higher production.
Gross average production was 44,941 bopd in H1 2022, up 3% from
43,516 bopd in H1 2021. With the Company's leverage to the
strengthening of Dated Brent from an average of $64.9/bbl in H1
2021 to $107.6/bbl in H1 2022, the realised price per barrel almost
doubled to $84.3/bbl. The increase in the realised priced was
slightly offset by an increase in the average discount to Brent
from $21.2/bbl in H1 2021 to $23.3/bbl in H1 2022, due to
adjustments to pipeline tariffs proposed by the KRG, which are now
linked in part to Dated Brent.
The stronger oil price and increased production resulted in a
doubling of revenue in H1 2022 to $263.6 million (H1 2021: $130.7
million), which was partially offset by a corresponding doubling in
capacity building payments to $20.5 million (H1 2021: $10.3
million), a component of the KRG's entitlement from the Shaikan
Field.
Gulf Keystone remains committed to maintaining a low-cost
structure. In line with the Company's 2022 guidance range of
$2.9-$3.3/bbl, gross operating costs per barrel were $2.9/bbl in H1
2022 (H1 2021: $2.4/bbl). The increase in operating costs in H1
2022 to $18.9 million (H1 2021: $15.0 million) is primarily due to
planned maintenance activities, additional staff to manage
increased production activity and higher fuel costs.
Other general and administrative expenses (G&A), comprising
Shaikan Field and corporate support costs, were higher in H1 2022
at $6.1 million (H1 2021: $5.4 million), reflecting increased
staffing levels to manage increasing activity levels. Share option
expense in the period increased by $5.0 million, principally due to
the final contractual exercise of share option entitlements by
former Directors under the Value Creation Plan ("VCP").
Profit after tax
Profit after tax in H1 2022 increased to $162.8 million (H1
2021: $64.8 million) driven by the increase in Adjusted EBITDA,
slightly offset by a higher depreciation, depletion and
amortisation ("DD&A") expense of $39.5 million (H1 2021: $28.2
million) due to increased production, accelerated cost recovery as
result of recent high oil prices, and updated future capital cost
estimates.
Cash flow
Cash increased in the period from $169.9 million at 31 December
2021 to $231.8 million at 30 June 2022.
The Company generated cash from operating activities of $222.3
million in H1 2022, up from $77.8 million in H1 2021 principally
due to the increase in Adjusted EBITDA.
In H1 2022, Gulf Keystone received revenue receipts from the KRG
of $272.4 million net to GKP for crude oil sales related to the
September 2021 to March 2022 invoices and repayment of arrears
outstanding from November 2019 to February 2020 invoices, which
were fully recovered with payment of the March 2022 invoice. In the
second half of 2022, the Company has so far received a further
$82.0 million net to GKP for crude oil sales related to the payment
of the April and May 2022 invoices.
In the first half of the year, the Company invested net capital
expenditure of $41.8 million (H1 2021: $14.1 million), primarily
related to drilling and completing SH-15, well and workover
activity, wellsite preparation and plant expansion.
Free cash flow generation was $177.3 million in H1 2022, almost
triple the prior year (H1 2021: $66.7 million), enabling the
Company to continue to deliver against its commitment to balance
investment in growth with returns to shareholders. Year to date the
Company has paid $190 million of dividends and today we have
declared an additional interim dividend of $25 million, resulting
in total declared dividends of $215 million which equates to a
sector leading yield of 36% based on the closing share price on 30
August 2022.
In early August 2022, the Company redeemed the $100 million of
notes outstanding leaving the Company debt free with significant
financial capacity. The Company has a robust balance sheet with
cash and cash equivalents of $112.0 million at 31 August 2022.
As at 30 June 2022, there were $260 million gross of unrecovered
costs, subject to potential cost audit by the KRG. The R-factor,
calculated as cumulative gross revenue receipts of $1,838 million
divided by cumulative gross costs of $1,629 million, was 1.13. 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.
Gulf Keystone performed a cash flow and liquidity analysis based
on which the Directors have a reasonable expectation that the
Company has adequate resources to continue to operate for the
foreseeable future. Therefore, the going concern basis of
accounting is used to prepare the financial statements.
Outlook
We are now planning to invest net capital expenditure of
$110-$120 million in 2022. The increase from previous guidance of
$85-$95 million is primarily driven by the drilling of SH-16 and
early procurement activities related to the installation of water
handling capacity.
We remain on track to deliver gross Opex guidance of
$2.9-$3.3/bbl.
While timing of FDP approval remains uncertain, we continue to
progress towards project sanction and award of the Gas Management
Plan contract, against the backdrop of global supply chain cost
pressures and logistical challenges. With continued progress, the
Company expects to firm up future estimated capital expenditure
and, in turn, review financing requirements and dividend
policy.
Assuming timely payment of invoices and continuing strong oil
prices, we expect continued strong cash flow generation, which
would provide flexibility to consider funding future capital
expenditure and further distributions to shareholders, while
preserving adequate liquidity.
Ian Weatherdon
Chief Financial Officer
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
financial non-IFRS measures and a description of how they are
calculated is set out below. Additionally, a reconciliation of the
financial 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 gross operating costs per bbl.
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
Gross production (MMstb) 8.1 7.9 15.9
Gross operating costs ($ million)(1) 23.6 19.1 43.0
------------------------------------- ---------- ------------- ------------
Gross operating costs per barrel
($ per bbl) 2.9 2.4 2.7
===================================== ========== ============= ============
(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
income tax (expense)/credit, finance costs, finance revenue,
depreciation and amortisation and impairment of receivables.
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
$ million $ million $ million
------------------------------------ ---------- ------------- ------------
Profit after tax 162.8 64.8 164.6
Finance costs 5.6 5.7 11.4
Finance revenue (0.1) (0.4) (0.4)
Tax expense/(credit) (0.2) (0.0) (0.9)
Depreciation of oil & gas assets 39.5 28.2 54.1
Other depreciation and amortisation 0.5 0.5 1.0
Impairment of receivables 0.4 (5.0) (7.1)
Adjusted EBITDA 208.6 93.8 222.7
==================================== ========== ============= ============
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 and movements in drilling and other
equipment.
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
$ million $ million $ million
----------------------------------------- ---------- ------------- ------------
Additions to oil & gas assets (note
11) 41.8 14.1 46.2
Decrease of drilling and other equipment
classified as oil and gas assets - - 4.6
----------------------------------------- ---------- ------------- ------------
Net capital expenditure 41.8 14.1 50.8
========================================= ========== ============= ============
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.
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
$ million $ million $ million
---------------------------- ---------- ------------- ------------
Cash and cash equivalents 231.8 189.5 169.9
Outstanding Notes (note 14) (99.4) (98.9) (99.1)
Unamortised issue costs (0.6) (1.1) (0.9)
Net cash 131.8 89.5 69.9
============================ ========== ============= ============
Free cash flow
Free cash flow represents the Group's cash flows, before any
dividends or share buy-backs.
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
$ million $ million $ million
-------------------------------------- ---------- ------------- ------------
Net cash generated from operating
activities 222.3 78 .0 178.6
Net cash used in investing activities (44.7) (11.0) (55.7)
Payment of leases (0.3) ( 0.4 ) ( 0. 7)
Free cash flow 177.3 66.7 122.2
====================================== ========== ============= ============
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 consistent with
those detailed in the management of principal risks and
uncertainties section of the 2021 Annual Report and Accounts. The
principal risks are listed below:
Strategic Operational Financial
Political, social Health, Safety and Liquidity and funding
and economic instability Environment ("HSE") capability
--------------------- ----------------------
Disputes regarding Gas flaring Oil revenue payment
title or exploration mechanism
and production rights
--------------------- ----------------------
Business conduct and Security Commodity prices
anti-corruption
--------------------- ----------------------
Export route availability Field delivery
--------------------- ----------------------
Economic sanctions Reserves
impacting the Group
--------------------- ----------------------
Stakeholder misalignment
--------------------- ----------------------
Climate change and
sustainability
--------------------- ----------------------
Global pandemic (e.g.
COVID-19)
--------------------- ----------------------
Cyber security
--------------------- ----------------------
The Company previously reported that the Iraqi Federal Supreme
Court ("FSC") in February 2022 had ruled that the Kurdistan Oil and
Gas Law ("KROGL") was unconstitutional and that the Iraqi Ministry
of Oil had commenced proceedings in the Baghdad Commercial Court
against International Oil Companies ("IOCs"), including Gulf
Keystone, operating in the Kurdistan Region of Iraq ("KRI") seeking
to nullify the Production Sharing Contracts ("PSCs") issued under
the KROGL. The Company understands that the Baghdad Commercial
Court has yet to reach any determination on the case involving Gulf
Keystone, and that the MNR has sought to join the case as a third
party. The Company further understands that the Iraqi Ministry of
Oil has sought to inhibit service contractors from operating in
both Federal Iraq and the KRI, advising that it will move to
"blacklist" any such contractor from Federal Iraq which seeks to
operate in both jurisdictions.
The dispute between the KRG and the Federal Iraqi Government on
the management of oil and gas reserves in the KRI has been the
subject of a long running dispute between them. The KRG has made
repeated declarations that the KROGL is validly constituted and
that the PSCs issued continue to be valid and have full effect.
Furthermore, the KRG has initiated its own legal proceedings
against the Federal Iraqi Government in the Erbil Courts and there
have been a number of rulings which have affirmed the validity of
the PSCs. Media reports indicate that high level political
discussions are ongoing between the KRG and the Federal Iraqi
Government with a view to resolving the matter.
The Company's operations in the Shaikan Field are currently
unaffected but the matter is being closely monitored, including any
potential impact on the restrictions placed on the export of crude
oil, service contractors or any other parties by the Iraqi Ministry
of Oil. At this stage it is not reasonably possible to predict the
outcome of judicial proceedings or the ongoing discussions between
the KRG and the Federal Government of Iraq, nor is it possible to
predict any potential future impact on operations or the financial
performance of the Company pending resolution of the matter.
The Company is also aware of the ongoing arbitration case
between the Federal Government of Iraq and the Turkish Government
on the management of the Iraq to Turkey pipeline.
The Company's oil revenues are calculated according to an agreed
formula with the Kurdistan Regional Government. It is possible that
factors including, but not limited to, crude quality, geopolitical
events, global supply, and production levels could impact,
positively or negatively, the formula used in making this
calculation.
The Company monitors the effect of any economic sanctions
imposed and the potential impact, if any, these may have on the
Company and its operations. The Company believes it is not
currently materially affected by any economic sanctions but will
continue to review this on an ongoing basis.
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
31 August 2022
INDEPENT REVIEW REPORT TO GULF KEYSTONE PETROLEUM LIMITED
Conclusion
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 2022 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated statement of changes in equity, the
condensed consolidated cash flow statement and related notes 1 to
18.
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 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
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" issued by the Financial Reporting Council for use in the
United Kingdom (ISRE (UK) 2410). A review of interim financial
information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
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 or that the Directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the Directors are
responsible for assessing the Group'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 financial report, we are
responsible for expressing to the Company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our Conclusion, including our Conclusion 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
This report is made solely to the Company in accordance with
ISRE (UK) 2410. Our work has been undertaken so that we might state
to the Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
31 August 2022
Condensed consolidated income statement
For the six months ended 30 June 2022
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
Notes Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Revenue 4 263,603 130,713 301,389
Cost of sales 5 (79,129) (53,516) (111,721)
Impairment (charge)/reversal
on trade receivables 12 (427) 5,034 7,065
----------
Gross profit 184,047 82,231 196,733
Other general and administrative
expenses (6,112) (5,411) (13,643)
Share option related expense 6 (11,463) (6,533) (8,490)
Profit from operations 166,472 70,287 174,600
Finance revenue 55 400 419
Finance costs (5,649) (5,674) (11,353)
Foreign exchange gains/(losses) 1,729 (235) 57
---------- ------------- ------------
Profit before tax 162,607 64,778 163,723
Tax credit/(expense) 7 207 (24) 874
---------- ------------- ------------
Profit after tax 162,814 64,754 164,597
---------- ------------- ------------
Profit per share (cents)
Basic 8 75.89 30.52 77.14
Diluted 8 72.85 28.87 73.04
---------- ------------- ------------
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2022
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Profit for the period 162,814 64,754 164,597
Items that may be reclassified
subsequently to profit or loss:
Fair value losses arising in
the period - (2,013) (2,021)
Cumulative losses arising on
hedging instruments reclassified
to revenue - 2,710 3,753
Exchange differences on translation
of foreign operations (2,113) 279 (254)
---------- ------------- ------------
Total comprehensive income
for the period 160,701 65,730 166,075
---------- ------------- ------------
Condensed consolidated balance sheet
As at 30 June 2022
30 June
2021
30 June Unaudited 31 December
2022 (Restated(1) 2021
Notes Unaudited ) Audited
$'000 $'000 $'000
---------- ------------- -----------
Non-current assets
Intangible assets 10 4,979 2,234 3,583
Property, plant and equipment 11 407,635 393,681 404,205
Trade receivables 12 - 12,641 -
Deferred tax asset 1,465 500 1,385
---------- ------------- -----------
414,079 409,056 409,173
---------- ------------- -----------
Current assets
Inventories 5,423 4,780 6,018
Trade and other receivables 12 163,551 111,628 179,200
Derivative financial instruments - 8 -
Cash and cash equivalents 231,796 189,543 169,866
----------
400,770 305,959 355,084
---------- ------------- -----------
Total assets 814,849 715,015 764,257
========== ============= ===========
Current liabilities
Trade and other payables 13 (101,821) (81,518) (98,800)
Dividends payable (75,000) (25,000) -
(176,821) (106,518) (98,800)
---------- ------------- -----------
Non-current liabilities
Trade and other payables 13 (475) (1,022) (789)
Other borrowings 14 (99,387) (98,872) (99,123)
Provisions (45,746) (38,839) (43,841)
(145,608) (138,733) (143,753)
---------- ------------- -----------
Total liabilities (322,429) (245,251) (242,553)
---------- ------------- -----------
Net assets 492,420 469,764 521,704
========== ============= ===========
Equity
Share capital 15 216,248 213,731 213,731
Share premium account 15 553,083 792,914 742,914
Cost of hedging reserve - (1,035) -
Exchange translation reserve (4,881) (2,235) (2,768)
Accumulated losses (272,030) (533,611) (432,173)
---------- ------------- -----------
Total equity 492,420 469,764 521,704
========== ============= ===========
(1) The comparative consolidated balance sheet at 30 June 2021
has been restated to reflect a reclassification of inventory items
that are to be used in the development of the Shaikan Field to
property, plant and equipment. See note 17 for details regarding
the restatement.
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2022
Share Cost Exchange
Share premium Treasury of hedging translation Accumulated Total
capital account shares reserve reserve losses equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------- --------- -------- ----------- ------------ ----------- ---------
Balance at 1 January
2021 (audited) 211,371 842,914 (2,592) (1,732) (2,514) (593,422) 454,025
-------- --------- -------- ----------- ------------ ----------- ---------
Net profit for the
period - - - - - 64,754 64,754
Cash flow hedge - fair
value movements - - - 697 - - 697
Exchange difference
of translation of foreign
operations - - - - 279 - 279
-------- --------- -------- ----------- ------------ ----------- ---------
Total comprehensive
income for the period - - - 697 279 64,754 65,730
Dividends - (50,000) - - - - (50,000)
Share issues 2,360 - - - - (2,360) -
Employee share schemes - - - - - 9 9
Share options exercised - - 2,592 - - (2,592) -
Balance at 30 June
2021 (unaudited) 213,731 792,914 - (1,035) (2,235) (533,611) 469,764
-------- --------- -------- ----------- ------------ ----------- ---------
Net profit for the
period - - - - - 99,843 99,843
Cash flow hedge - fair
value movements - - - 1,035 - - 1,035
Exchange difference
of translation of foreign
operations - - - - (533) - (533)
Total comprehensive
income/(loss) for the
period - - - 1,035 (533) 99,843 100,345
Dividends - (50,000) - - - - (50,000)
Employee share schemes - - - - - 1,595 1,595
Balance at 31 December
2021 (audited) 213,731 742,914 - - (2,768) (432,173) 521,704
-------- --------- -------- ----------- ------------ ----------- ---------
Net profit for the
period - - - - - 162,814 162,814
Exchange difference
of translation of foreign
operations - - - - (2,113) - (2,113)
Total comprehensive
(loss)/income 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
-------- --------- -------- ----------- ------------ ----------- ---------
Condensed consolidated cash flow statement
for the six months ended 30 June 2022
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
Note Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ---------- ------------
Operating activities
Cash generated in operations 9 227,271 83,487 189,155
Interest received 55 400 419
Interest paid (5,000) (5,000) (10,000)
Payment of put option premium - (1,043) (1,043)
Net cash generated in operating
activities 222,326 77,844 178,531
---------- ---------- ------------
Investing activities
Purchase of intangible assets (1,411) (1,245) (2,725)
Purchase of property, plant and
equipment (43,367) (9,454) (52,959)
Net cash used in investing activities (44,778) (10,699) (55,684)
---------- ---------- ------------
Financing activities
Payment of dividends (114,831) (25,000) (100,000)
Payment of leases (255) (431) (688)
Net cash used in financing activities (115,086) (25,431) (100,688)
---------- ---------- ------------
Net increase in cash and cash
equivalents 62,462 41,714 22,159
Cash and cash equivalents at beginning
of period 169,866 147,826 147,826
Effect of foreign exchange rate
changes (532) 3 (119)
---------- ---------- ------------
Cash and cash equivalents at end
of the period being bank balances
and cash on hand 231,796 189,543 169,866
---------- ---------- ------------
1. General information
The Company is incorporated in Bermuda (registered address:
Cedar House, 3rd Floor, 41 Cedar Avenue, Hamilton 12, Bermuda). The
Company's common shares are listed on the Official List of the
United Kingdom Listing Authority and are traded on the London Stock
Exchange's Main Market for listed securities. The Company serves as
the holding company for the Group, which is engaged in oil and gas
exploration, development and production, operating in the Kurdistan
Region of Iraq.
2. Summary of significant accounting policies
The Annual Report and Accounts of the Group are prepared in
accordance with 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 2022 half-yearly
financial report are the same as those adopted in the 2021 Annual
Report and Accounts, other than the implementation of new IFRS
reporting standards.
The financial information for the year ended 31 December 2021
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 2022, 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
2022.
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.
As at 31 August 2022, the Group had $112.0 million of cash and
no debt, having redeemed the $100 million bond on 2 August 2022 .
The Group continues to closely monitor and manage its liquidity.
Cash forecasts are regularly produced, and sensitivities run for
different scenarios including, but not limited to, commodity
prices, different production rates from the Shaikan block, cost
contingencies, disruptions to revenue receipts, and the impact of
climate change and geopolitical risks on the group's operations,
etc. In the current period, these have included both the Iraqi
Supreme Court ruling on 15 February 2022 and export route
availability as a result of the evolving sanctions situation due to
the Russian invasion of Ukraine. Further details of the Iraqi
Supreme Court ruling and the sanctions situation are provided in
the section on principal risks and uncertainties. The Group's
forecasts, taking into account applicable risks and the stress test
scenarios, show that it has sufficient financial resources for the
12 months from the date of approval of the 2022 half year financial
statements.
Based on the analysis performed, the Directors have a reasonable
expectation that the Group has adequate resources to continue to
operate for the foreseeable future. Thus, the going concern basis
of accounting is used to prepare the 2022 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 2021
Annual Report and Accounts.
Critical accounting judgement
Revenue
The recognition of revenue is considered to be a key accounting
judgement. The Group began commercial production from the Shaikan
Field in July 2013 and historically made sales to both the domestic
and export markets. However, as the payment mechanism for sales to
the export market continues to develop within the Kurdistan Region
of Iraq, the Group considers revenue can only be reliably measured
when the cash receipt is assured. The assessment of whether cash
receipts are assured is based on management's evaluation of the
reliability of the Kurdistan Regional Government (the "KRG")
payments to the IOCs operating in the Kurdistan Region of Iraq. The
Group also recognised payables to the KRG that were offset against
amounts receivable from the KRG for previously unrecognised revenue
in line with the terms of the Shaikan Production Sharing Contract
(the "PSC").
The judgement is not to recognise revenue in excess of the sum
of the cash receipt that is assured and the amount of payables to
the MNR that can be offset against amounts due for previously
unrecognised revenue in line with the terms of the Shaikan PSC,
even though the Group may be entitled to additional revenue under
the terms of the Shaikan PSC. Any future agreements between the
Company and the KRG might change the amounts of revenue
recognised.
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.
Carrying value of producing assets
In line with the Group's accounting policy on impairment,
management performs an impairment review of the Group's oil and gas
assets at least annually with reference to indicators as set out in
IAS 36. The Group assesses its group of assets, called a
cash-generating unit ("CGU"), for impairment, if events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Where indicators are present, management
calculates the recoverable amount using key estimates such as
future oil prices, estimated production volumes, the cost of
development and production, post-tax discount rates that reflect
the current market assessment of the time value of money and risks
specific to the asset, commercial reserves and inflation. The key
assumptions are subject to change based on market trends and
economic conditions. Where the CGU's recoverable amount is lower
than the carrying amount, the CGU is considered impaired and is
written down to its recoverable amount. The Group's sole CGU as at
30 June 2022 was the Shaikan Field with a carrying value of $405.9
million.
The Group performed an impairment trigger assessment and
concluded that the Iraqi Supreme Court ruling in February 2022 was
a potential impairment trigger. Accordingly, a full impairment
evaluation was completed, and it was concluded that no impairment
write-down was required.
The key areas of estimation in assessing the potential
impairment indicators are as follows:
- Commodity prices are based on latest internal forecasts,
benchmarked with external sources of information to ensure they are
within the range of available market and analyst forecasts;
$/bbl - real 2022 2023 onwards
30 June 2022 - base
case $68 $55
----- -------------
30 June 2022 - stress
case $50 $50
----- -------------
31 December 2021 - base
case $81 $55
----- -------------
31 December 2021 - stress
case $80 $50
----- -------------
- The Group continues to develop its assessment of the potential
impacts of climate change and the associated risks, the transition
to a low-carbon future and our ambition to reduce scope one and two
per barrel CO(2) emissions by at least 50% by 2025. The potential
effects of climate change and the Paris Agreement were considered.
It was concluded, based on benchmarking, that the stress case price
deck used in the impairment assessment is reasonable to reflect the
potential impact of meeting
the Paris Agreement targets. The stress case also includes an
estimated cost of the introduction of a carbon tax in
Kurdistan;
- 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%, unchanged from 31
December 2021. The impact of an increase in discount rate to 20%
was considered as a sensitivity to reflect potential increased
geopolitical risks and a higher risk free interest rate;
- Operating costs and capital expenditure are based on financial
budgets and internal management forecasts. Costs assumptions
incorporate management experience and expectations, as well as the
nature and location of the operation and the risks associated
therewith. Base case costs assumptions used in the assessment are
consistent with the June 2022 updated draft FDP submitted to the
MNR. The impact of near-term inflationary pressures were also
considered; and
- Commercial reserves and production profiles used in the
assessment are consistent with the June 2022 draft FDP submitted to
the MNR.
3. Geographical information
The Group's non-current assets excluding deferred tax assets and
other financial assets by geographical location are detailed
below:
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Kurdistan 407,300 392,688 402,787
United Kingdom 5,314 3,227 5,001
---------- ------------- ------------
412,614 395,915 407,788
========== ============= ============
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. As a result, the financial information of
the single segment is 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
All oil sales were made to the KRG.
4. Revenue
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Oil sales 263,603 133,423 305,142
Put option hedging losses reclassified
to revenue - (2,710) (3,753)
263,603 130,713 301,389
========== ============= ============
The Group accounting policy for revenue recognition is set out
in its 2021 Annual Report, with revenue recognised on a
cash-assured basis.
During the six months period ended 30 June 2022, the
cash-assured values recognised as oil sales was $263.6 million (H1
2021: $133.4 million; FY 2021: $305.1 million). The oil sales price
was calculated using the monthly dated Brent price less an average
discount of $23.3 (H1 2021: $21.2; FY 2021: $21.2) per barrel for
quality and pipeline tariffs.
5. Cost of Sales
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Operating costs 18,878 15,033 34,372
Capacity building payments 20,511 10,288 23,529
Changes in inventory valuation 242 (52) (348)
Depreciation of oil and gas assets 39,474 28,223 54,120
Depreciation of operational assets 24 24 48
---------- ------------- ------------
79,129 53,516 111,721
========== ============= ============
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 full entitlement production,
commercial reserves and capital costs for Shaikan. Commercial
reserves are proven and probable ("2P") reserves, estimated using
standard recognised evaluation techniques.
6. Share option related expense
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Share-based payment expense 1,193 902 2,255
Payments related to share options
exercised 8,573 4,060 4,142
Share-based payment related provision
for taxes 1,697 1,571 2,093
11,463 6,533 8,490
========== ============= ============
On the final exercise of the legacy Value Creation Plan ("VCP")
share options by former Directors, the Company elected to make
required tax withholding settlements in cash instead of issuing and
selling additional shares. This together with payment of dividends
accumulated during the vesting period are the main components of
the payments related to share options exercised.
There are no further VCP share options outstanding and the plan
has been terminated.
7. Taxation
Six months
ended Six months Year ended
30 June ended 31 December
2022 30 June 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------- ------------
Corporation tax credit - 103 75
Prior period adjustment - - 28
Deferred tax credit/(expense) 207 (127) 771
207 (24) 874
========== ============= ============
8. Profit per share
The calculation of the basic and diluted profit per share is
based on the following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
Profit after tax ($'000) 162,814 64,754 164,597
---------- ---------- ------------
Number of shares ('000s):
Basic weighted average number of
ordinary shares 214,527 212,138 213,384
------- ------- -------
Basic EPS (cents) 75.89 30.52 77.14
------- ------- -------
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
2022 2021 2021
Unaudited Unaudited Audited
Number of shares ('000s):
Basic weighted average number of
ordinary shares 214,527 212,138 213,384
Effect of dilutive potential ordinary
shares 8,957 12,119 11,962
---------- ---------- ------------
Diluted number of ordinary shares
outstanding 223,484 224,257 225,346
Diluted EPS (cents) 72.85 28.87 73.04
---------- ---------- ------------
Weighted average number of ordinary shares excludes shares held
by Employee Benefit Trustee ("EBT") and the Exit Event Trustee of
0.4 million (H1 2021: 0.1 million; FY 2021: 0.1 million).
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.
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
2022 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ---------- ------------
Profit from operations 166,472 70,287 174,600
Adjustments for:
Depreciation, depletion and amortisation
of property, plant and equipment (including
the right of use assets) 39,853 28,737 55,111
Amortisation of intangible assets 77 1 25
Share-based payment expense 154 9 1,197
Lease modification - 154 -
Increase/(Decrease) of provision for
impairment of trade receivables 427 (5,034) (7,065)
Put option hedging losses reclassified
to revenue - 2,710 3,752
---------- ---------- ------------
Operating cash flows before movements
in working capital 206,983 96,864 227,620
Decrease/(Increase) in inventories 595 980 (258)
Decrease/(Increase) in trade and other
receivables 23,907 (22,260) (75,259)
(Decrease)/Increase in trade and other
payables (4,214) 7,903 36,977
Income taxes received - - 75
---------- ---------- ------------
Cash generated from operations 227,271 83,487 189,155
---------- ---------- ------------
10. Intangible assets
Computer software
$'000
-----------------
Period ended 30 June 2021
Opening net book value 933
Additions 1,292
Amortisation charge (1)
Foreign currency translation differences 10
-----------------
Net book value at 30 June 2021 2,234
-----------------
Cost 3,282
Accumulated depreciation (1,048)
-----------------
Net book value at 30 June 2021 2,234
-----------------
Period ended 31 December 2021
Additions 1,450
Amortisation charge (24)
Foreign currency translation differences (77)
-----------------
Net book value at 31 December 2021 3,583
-----------------
Cost 4,722
Accumulated depreciation (1,139)
-----------------
Net book value at 31 December 2021 3,583
-----------------
Period ended 30 June 2022
Opening net book value 3,583
Additions 1,925
Amortisation charge (77)
Foreign currency translation differences (452)
-----------------
Net book value at 30 June 2022 4,979
=================
Cost 6,195
Accumulated depreciation (1,216)
-----------------
Net book value at 30 June 2022 4,979
=================
The amortisation charge for computer software has been included
in general and administrative expenses.
11. Property, plant and equipment
Oil Fixtures Right of
and Gas and use Total
Assets Equipment Assets $'000
$'000 $'000 $'000
--------- ---------- -------- ---------
Period ended 30 June 2021
Opening net book value (restated) 402,620 1,187 1,662 405,469
Additions 14,084 139 - 14,223
Disposals at cost - - (1,064) (1,064)
Revision to decommissioning
asset 2,814 - - 2,814
Lease modification - - (107) (107)
Depreciation charge (28,223) (168) (346) (28,737)
Depreciation on disposals - - 1,064 1,064
Foreign currency translation
differences - - 19 19
--------- ---------- -------- ---------
Closing net book value (restated) 391,295 1,158 1,228 393,681
Cost (restated) 795,227 7,299 2,450 804,976
Accumulated depreciation (403,932) (6,141) (1,222) (411,295)
--------- ---------- -------- ---------
Net book value at 30 June
2021 (restated) 391,295 1,158 1,228 393,681
========= ========== ======== =========
Period ended 31 December
2021
Additions 32,081 64 76 32,221
Disposals at cost - - (368) (368)
Revision to decommissioning
asset 4,616 - - 4,616
Lease modification - - 107 107
Depreciation charge (25,897) (183) (266) (26,346)
Depreciation on disposals - - 341 341
Foreign currency translation
differences (1) (6) (40) (47)
Closing net book value 402,094 1,033 1,078 404,205
========= ========== ======== =========
Cost 831,924 7,363 2,246 841,533
Accumulated depreciation (429,830) (6,330) (1,168) (437,328)
--------- ---------- -------- ---------
Net book value at 31 December
2021 402,094 1,033 1,078 404,205
========= ========== ======== =========
Period ended 30 June 2022
Opening net book value 402,094 1,033 1,078 404,205
Additions 41,820 101 - 41,921
Revision to decommissioning
asset 1,468 - - 1,468
Depreciation charge (39,490) (174) (189) (39,853)
Foreign currency translation
differences - (12) (94) (106)
Closing net book value 405,892 948 795 407,635
========= ======= ======= =========
At 30 June 2022
Cost 875,212 7,452 2,152 884,816
Accumulated depreciation (469,320) (6,504) (1,357) (477,181)
--------- ------- ------- ---------
Net book value 405,892 948 795 407,635
========= ======= ======= =========
The additions to the Shaikan asset amounting to $41.8 million
during the period include the costs of completing SH-15, well and
workover activity, wellsite preparation and plant expansion. The
increase in the decommissioning asset represents further
decommissioning obligations that arose on capital projects.
See note 17 for further information on restated balances.
12. Trade and other receivables
Non-current receivables
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
----------- ----------- ------------
Trade receivables - non-current - 12,641 -
Current receivables
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
----------- ----------- ------------
Trade receivables - current 149,328 106,788 174,634
Other receivables 13,228 4,036 3,622
Prepayments and accrued income 995 804 944
163,551 111,628 179,200
=========== =========== ============
Reconciliation of trade receivables
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
----------- ----------- ------------
Gross carrying amount 150,875 122,580 175,754
Less: impairment allowance (1,547) (3,151) (1,120)
----------- ----------- ------------
Carrying value at 30 June 2022 149,328 119,429 174,634
=========== =========== ============
Trade receivables comprise invoiced amounts due from the KRG for
crude oil sales totalling $138.7 million (H1 2021: $113.5 million;
FY 2021: $163.6 million) and a share of Shaikan revenue arrears the
Group purchased from MOL amounting to $12.2 million (H1 2021: $9.1
million; FY 2021: $12.2 million). The amount due from the KRG
includes past due trade receivables of $40.2 million(1) (H1 2021:
$62.2 million; FY 2021: $43.1 million) related to April 2022
production. While the Group expects to recover the full nominal
value of the outstanding invoices and MOL receivable, the ECL on
the trade receivable balance of $1.5 million was provided against
the receivables balance in line with the requirements of IFRS 9
resulting in an expense of $0.4 million in the reporting period (H1
2021: $5.0 million recovery; FY 2021: $7.1 million recovery).
ECL sensitivities
No material changes to the Group's profit before tax arise when
considering reasonably possible changes to the estimates which are
used to calculate the ECL impairment allowance.
Other Receivables
Other receivables includes an amount relating to advances to
suppliers of $9.1 million (H1 2021: $0.1 million; FY 2021: $0.4
million). Of this $9.0 million (H1 2021: nil; FY 2021: $0.4
million) relates to advances for capital expenditure and is
included within investing activities in the condensed consolidated
cash flow statement.
Also included within Other receivables is an amount of $0.4
million (H1 2021: $0.5 million; FY 2021 $0.4 million) being the
deposits for leased assets which are receivable after more than one
year. There are no receivables from related parties as at 30 June
2022 (H1 2021: nil; FY 2021: nil). No impairment of other
receivables has been recognised during the first half of the year
(H1 2021: nil; FY 2021: nil).
(1) The past due trade receivables amount excludes the
associated capacity building payments due to the KRG which reduces
the net amount due to GKP to $ 38.1 million (H1 2021: $58.9
million; FY 2021: $41.0 million).
13. Trade and other payables
Current liabilities
30 June 30 June 2021 31 December
2022 Unaudited 2021
Unaudited $'000 Audited
$'000 $'000
---------- ------------ -----------
Trade payables 3,421 1,448 6,494
Accrued expenditures 28,839 19,828 25, 960
Other payables 69,181 59,854 65,927
Finance lease obligations 380 388 419
101,821 81,518 98,800
========== ============ ===========
Accrued expenditures include $4.4 million interest payable as at
30 June 2022 (H1 2021: $4.4 million, FY 2021: $4.4 million), also
detailed in note 14.
Other payables include $63.9 million (H1 2021: $51.0 million, FY
2021: $56.4 million) of amounts payable to the KRG that are not
expected to be paid, but rather offset against revenue due from the
KRG related to pre-October 2017 oil sales, which have not yet been
recognised in the financial statements. Within this amount, $29.4
million (H1 2021: $18.2 million, FY 2021: $22.6 million) relates to
a non-cash payable for the difference between the capacity building
rate of 20% and 30%, as detailed on page 114 of the 2021 Annual
Report.
Non-current liabilities
30 June 31 December
2022 30 June 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ------------ -----------
Non-current finance lease liability 475 1,022 789
14. Long-term borrowings
In July 2018, the Company completed the private placement of a
5-year senior unsecured $100 million bond (the "Notes"). The
unsecured Notes are guaranteed by Gulf Keystone Petroleum
International Limited and Gulf Keystone Petroleum (UK) Limited, two
of the Company's subsidiaries, and the key terms are summarised as
follows:
- maturity date is 25 July 2023;
- at any time prior to maturity, the New Notes are redeemable in
part, or full, with a prepayment penalty;
- the interest rate is 10% per annum with semi-annual payment dates; and
- the Company is permitted to raise up to $200 million of
additional indebtedness at any time on market terms to fund capital
and operating expenditure, subject to certain requirements.
The liabilities associated with Notes are presented in the
following tables:
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ---------- -----------
Liability at the beginning of the period 103,482 102,993 102,993
Interest charged during the period 5,266 5,238 10,489
Interest paid during the period (5,000) (5,000) (10,000)
Liability at the end of period 103,748 103,231 103,482
========== ========== ===========
Liability component reporting in:
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ---------- -----------
Current liabilities (note 13) 4,359 4,359 4,359
Non-current liabilities 99,387 98,872 99,123
103,748 103,231 103,482
========== ========== ===========
The Notes are traded on the Norwegian Stock Exchange and the
fair value at the prevailing market price as at the close of
business on the reporting date was:
Market 30 June
price 2022
$'000
Notes 102.25 102,250
As of 30 June 2022, the Group's remaining contractual liability
comprising principal and interest based on undiscounted cash flows
at the maturity date of the Notes is as follows:
30 June 30 June 31 December
2022 2021 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
---------- ---------- -----------
Within one year 10,000 10,000 10,000
Within two to five years 100,639 110,639 105,639
110,639 120,639 115,639
========== ========== ===========
Subsequent to the period end the Notes were redeemed leaving the
Group debt-free. See note 18 for further details.
15. Share capital
Common shares
Share Share
No. of shares Amount capital premium
000 $'000 $'000 $'000
------------- --------- ------------------- ---------
Issued and fully paid
Balance 1 January 2022 (audited) 213,731 956,645 213,731 742,914
Share issue 2,517 2,517 2,517 -
Dividends - (189,831) - (189,831)
------------- --------- ------------------- ---------
Balance 30 June 2022 (unaudited) 216,248 769,331 216,248 553,083
------------- --------- ------------------- ---------
Dividends of $189.8 million consist of dividends paid of
$114.8million and both an ordinary dividend of $25.0 million and a
special dividend of $50.0 million, as approved at the June 2022
Annual General Meeting, that were paid after the period end. See
note 18 for further dividends declared after the reporting
period.
16. Contingent liabilities
The Group has a contingent liability of $27.3 million (H1 2021
and FY 2021: $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 currently 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 ongoing
Shaikan PSC amendment negotiations and it is likely that it will be
settled as part of those negotiations.
17. Restatement
The Group has identified that inventory balances as at 30 June
2021 contained certain equipment to be used in the development of
the Shaikan Field, which will be consumed over a period in excess
of one year. The Group determined that this equipment met the
definition of property, plant and equipment as defined by "IAS 16 -
Property, plant and equipment" and has restated the 30 June 2021
financial statements to reflect this reclassification. This
restatement is consistent with the prior year restatement
highlighted in Note 28 of the 2021 Annual Report and Financial
Statements. As such, the 31 December 2021 comparative does not
require any adjustment.
Comparative figures for the reclassification have been presented
in the balance sheet as detailed below. There is no impact to the
income statement or statement of cash flows.
Balance sheet
30 June 2021 Reclassification 30 June 2021
As previously of inventory Restated
reported
$'000 $'000 $'000
--------------- ----------------- -------------
Property, plant and equipment 362,914 30,767 393,681
Inventories 35,547 (30,767) 4,780
18. Subsequent events
The Group redeemed the $100 million bond on 2 August 2022 and
also paid a 2% early redemption fee. The Group is now
debt-free.
On 31 August 2022 an interim dividend of $25.0 million was
declared.
GLOSSARY (See also the glossary in the 2021 Annual Report and
Accounts)
2P proved plus probable reserves
bbl barrel
------------------------------------------------
bopd barrels of oil per day
------------------------------------------------
Capex capital expenditure
------------------------------------------------
CGU cash-generating unit
------------------------------------------------
COVID-19 Coronavirus
------------------------------------------------
DD&A depreciation, depletion and amortisation
------------------------------------------------
EBITDA earnings before interest, tax, depreciation
and amortisation
------------------------------------------------
ECL expected credit losses
------------------------------------------------
ESG environmental, social and governance
------------------------------------------------
FDP Field Development Plan
------------------------------------------------
G&A general and administrative
------------------------------------------------
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
------------------------------------------------
IFRS International Financial Reporting Standards
------------------------------------------------
IOC International oil companies
------------------------------------------------
KRG Kurdistan Regional Government
------------------------------------------------
KRI Kurdistan Region of Iraq
------------------------------------------------
LTI lost time incident
------------------------------------------------
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
------------------------------------------------
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 KFLFXLVLXBBQ
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