REG - Gulf Keystone Petrol - 2023 Half Year Results Announcement
31/08/2023 07:00
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RNS Number : 8711K Gulf Keystone Petroleum Ltd. 31 August 2023
31 August 2023
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP", "the Group" or "the Company")
2023 Half Year Results Announcement
Gulf Keystone, a leading independent operator and producer in the Kurdistan
Region of Iraq, today announces its results for the half year ended 30 June
2023.
Jon Harris, Gulf Keystone's Chief Executive Officer, said:
"GKP's operational and financial performance in the first six months of 2023
was materially impacted by the suspension of Kurdistan crude exports following
the closure of the Iraq-Turkey Pipeline in March and continued delays to KRG
payments. As a result, we shifted rapidly from a focus on driving profitable
production growth to preserving liquidity, suspending all expansion activity
and aggressively reducing expenditures across the business.
In July, we commenced local sales and partially restarted production. Since
then, we have increased gross average sales to around 23,100 bopd towards the
end of August. At current realised prices of around $30/bbl, we are able to
cover our current estimated H2 2023 monthly net capex, operating costs and
other G&A run rate of about $6 million while increasing our flexibility to
manage accounts payable. We continue to actively pursue further increases in
local sales and cost reductions and retain the flexibility to reduce
operational activity and costs if sustainable local sales do not materialise
to an acceptable level.
While no official timeline has been announced, we continue to believe that the
suspension of exports will be temporary and that the KRG will resume oil sales
payments in due course. In the interim, we remain focused on protecting the
interests of GKP's stakeholders by preserving liquidity and engaging as a
company and industry with the KRG and other key parties."
Highlights to 30 June 2023 and post reporting period
Operational
· Shaikan Field exports remain suspended following the closure of
the Iraq-Turkey Pipeline ("ITP") on 25 March 2023
· Production & trucking operations started at PF-1 in July and
expanded to include PF-2 in August to support increasing local sales:
o c.4,900 bopd gross average sales for the period from 19 to 31 July
increased to c.16,300 bopd for the period from 1 to 29 August
§ 1-18 August: c.12,100 bopd; 19-29 August: c.23,100 bopd
o Average realised prices of around $30/bbl, in line with local market
pricing
o Advance payments received for local sales
o While the priority remains local sales, GKP retains the option to restart
exports quickly once the pipeline reopens
· Gross average production in H1 2023 of 23,256 bopd (H1 2022:
44,941 bopd)
o Prior to the ITP closure, production and operational activity had been
increasing. 2023 gross production averaged 49,165 bopd between 1 January and
24 March 2023 and 53,682 bopd between 1-24 March, including five days in
excess of 55,000 bopd
· All expansion activity in the Shaikan Field halted and UK and
Kurdistan headcount reduced:
o All drilling, well workover, facilities expansion and well pad preparation
activity remains suspended
o 55% reduction in expat workforce, with further reductions under review
o 50% of local workforce on reduced hours in July, partially offset in
August due to step up in local sales
o 20% deferral of Executive and Non-Executive Director salaries and fees
from July
· Rigorous focus on safety maintained
o No Lost Time Incidents for over 225 days
o Continuing to progress critical safety upgrades and maintenance activity
Financial
· H1 2023 financial performance materially impacted by the
suspension of exports and continued delays to KRG payments
o In response, the Company has moved quickly to preserve liquidity by
aggressively reducing capital expenditures and costs while proactively
managing accounts payable
· Decline in Adjusted EBITDA and profitability driven by the
suspension of exports and lower realised prices in Q1 2023
o 84% decrease in Adjusted EBITDA to $34.2 million (H1 2022: $208.6 million)
o Loss after tax of $2.9 million (H1 2022 profit after tax: $162.8 million),
reflecting the decrease in Adjusted EBITDA and an impairment charge of $13.9
million (H1 2022: $0.4 million) related to the IFRS expected credit loss
determined on overdue receivables from the KRG of $151 million net to GKP for
production from the months of October 2022 to March 2023
o Revenue down 70% to $79.6 million (H1 2022: $263.6 million), reflecting a
48% decrease in gross production in the period to 23,256 bopd and a 39%
decrease in weighted average realised prices to $51.3/bbl for crude sales
prior to the suspension of exports (H1 2022: $84.3/bbl)
o Operating costs of $18.9 million (H1 2022: $18.9 million), with increased
expenditure in Q1 2023 due to higher production offset by a 36%
quarter-on-quarter reduction in Q2 2023 as production was shut-in and
non-essential maintenance activity deferred
· Free cash outflow of $9.9 million (H1 2022 free cash flow: $177.3
million), reflecting lower Adjusted EBITDA and delays to KRG payments
o Revenue receipts of $65.7 million (H1 2022: $272.4 million) related to
invoices paid for crude sold in August and September 2022
o Net capex of $47.0 million (H1 2022: $41.8 million), reflecting completion
of SH-17 and SH-18, well workovers, well pad preparation, long lead items and
the expansion of production facilities
o Net capex decreased 67% to $11.7 million in Q2 2023 relative to Q1 2023 as
the Company suspended all expansion activity
· $25 million interim dividend paid in March (H1 2022 dividends: $190
million) prior to the cancellation of the proposed final 2022 ordinary annual
dividend of $25 million
· Cash balance of $82.1 million at 30 August 2023 with no debt
o Includes GKP's entitlement for local crude sales and $8 million related to
buyer advance payments collected by GKP
Outlook
· GKP remains focused on preserving liquidity by continuing to reduce
costs, exploring opportunities to increase local sales, pursuing other
liquidity options, including inventory sales, and proactively managing
accounts payable
· Current estimated aggregate net capex, operating costs and other
G&A monthly run rate of around $6 million in H2 2023, 65% lower vs the
average monthly run rate in Q1 2023
o Estimated 2023 net capex of $60-$65 million (previous guidance: $70-$75
million), reflecting June net capex $10 million lower than expected due to
continued cost reduction efforts
o Estimated net capex for H2 2023 less than $15 million, comprising safety
critical and contractual commitments
· Current local sales volumes and realised prices enable GKP to cover
its estimated monthly net capex, operating costs and other G&A of around
$6 million and provide increased flexibility to manage accounts payables
· While there appears to be significant local demand for Shaikan
Field crude, volumes and prices remain difficult to predict
· If sustainable local sales do not materialise and absent other
revenue sources, GKP would take further actions to preserve liquidity
o Additional opportunities have been identified to reduce the monthly
expenditure run-rate by up to $2 million; however, these could potentially
delay a timely return to full production
o GKP may also consider additional sources of liquidity as necessary,
including external financing
· While no official timeline has been announced, GKP continues to
believe that the suspension of exports will be temporary and that the KRG will
resume oil sales payments in due course
o Political negotiations continue regarding the restart of the Iraq-Turkey
Pipeline, the implementation of the approved 2023-2025 Iraqi Budget and the
creation of an Iraqi Oil & Gas Law
o The KRG has assured GKP and other International Oil Companies ("IOCs")
operating in Kurdistan that Production Sharing Contracts will be honoured and
receivables will be repaid
Investor & analyst presentations
GKP's management team will be hosting a presentation for analysts and
investors at 10:00am (BST) today via live audio webcast:
https://brrmedia.news/GKP_HY23 (https://brrmedia.news/GKP_HY23)
Management will also be hosting an additional webcast presentation focused on
retail investors via the Investor Meet Company ("IMC") platform at 12:00pm
(BST) today. The presentation is open to all existing and potential
shareholders and participants will be able to submit questions at any time
during the event.
https://www.investormeetcompany.com/gulf-keystone-petroleum-ltd/register-investor
(https://www.investormeetcompany.com/gulf-keystone-petroleum-ltd/register-investor)
Recordings of both presentations will be made available on GKP's website.
This announcement contains inside information for the purposes of the UK
Market Abuse Regime.
Enquiries:
Gulf Keystone: +44 (0) 20 7514 1400
Aaron Clark, Head of Investor Relations aclark@gulfkeystone.com (mailto:aclark@gulfkeystone.com)
& Corporate Communications
FTI Consulting +44 (0) 20 3727 1000
Ben Brewerton GKP@fticonsulting.com (mailto:GKP@fticonsulting.com)
Nick Hennis
or visit: www.gulfkeystone.com (http://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
(http://www.gulfkeystone.com/)
Disclaimer
This announcement contains certain forward-looking statements that are subject
to the risks and uncertainties associated with the oil & gas exploration
and production business. These statements are made by the Company and its
Directors in good faith based on the information available to them up to the
time of their approval of this announcement but such statements should be
treated with caution due to inherent risks and uncertainties, including both
economic and business factors and/or factors beyond the Company's control or
within the Company's control where, for example, the Company decides on a
change of plan or strategy. This announcement has been prepared solely to
provide additional information to shareholders to assess the Group's
strategies and the potential for those strategies to succeed. This
announcement should not be relied on by any other party or for any other
purpose.
CEO review
Following a year of record profitability, cash generation and shareholder
returns in 2022, as well as strong momentum in the Shaikan Field leading to
record production levels in the first quarter of 2023, GKP's operational and
financial performance in the first six months of 2023 was materially impacted
by the suspension of Kurdistan crude exports on 25 March 2023 and delays to
KRG oil sales payments.
With our 2023 investment programme already under review due to increasing KRG
payment delays, GKP moved swiftly to preserve liquidity following the
suspension of exports. We have aggressively reduced capital expenditures and
costs across the business, suspending all expansion activity in the Shaikan
Field. We also cancelled the 2022 final dividend. These actions have involved
some difficult decisions as we have regrettably had to sharply reduce our
teams. Recognising the impact on our workforce, the Board continues to defer
20% of Executive and Non-Executive Director salaries and fees. We are also
working closely with our suppliers to manage our accounts payable balances and
we thank them for their continued support.
Today, after deep cost cuts and the recent benefit of local sales, the
business is in a much better position to manage the current situation. Our
current estimated average monthly run rate of net capex, operating costs and
other G&A in the second half of the year of around $6 million represents a
65% reduction to the average monthly run rate in Q1 2023.
We have been progressively increasing local sales volumes, reducing crude in
storage and restarting production from a number of wells at both PF-1 and
PF-2. Gross sales averaged around 23,100 bopd for the period from 19 to 29
August, which at current realised prices are sufficient for us to cover our
targeted monthly net capex, operating costs and other G&A run rate as well
as provide increased flexibility to manage our accounts payable. We are
actively pursuing opportunities to increase local sales volumes further,
although prices and sustained demand remain unpredictable. Should sustainable
local sales not materialise, we have identified additional opportunities to
reduce the monthly expenditure run-rate by up to $2 million. However, these
could potentially delay a timely return to full production.
While no official timeline has been provided, we continue to believe that the
suspension of exports will be temporary and that the KRG will resume oil sales
payments in due course. Negotiations are active between the KRG, Iraq and
Turkey regarding the restart of pipeline operations. The KRG and Iraq also
continue to discuss the implementation of the 2023-2025 Iraqi Budget, which
recognises KRG production in exchange for budget transfers to Kurdistan, as
well as the creation of an Iraqi Oil & Gas Law.
The Association of the Petroleum Industry of Kurdistan ("APIKUR"), founded by
GKP and other International Oil Companies ("IOCs") in the region, is actively
engaging with the KRG and other critical stakeholders regarding these issues.
In our discussions, we continue to emphasise the importance of the resumption
of IOC oil sales payments, the repayment of IOC receivables and the protection
of the IOCs' rights under the existing Production Sharing Contracts ("PSCs")
that are governed by English Law. The KRG has assured GKP and the other IOCs
that the PSCs will be honoured and receivables will be repaid in full.
I would like to thank GKP's staff and contractors for their continued
commitment and focus during this challenging time. Despite the ongoing
disruption, we have not compromised our rigorous focus on safety, reflected in
over 225 days without a Lost Time Incident, or our commitment to operational
quality and asset integrity, as we have transitioned smoothly from pipeline to
trucking operations, which was last utilised in 2019. I would also like to
thank our loyal shareholders for their continued support as the Board
continues to protect the Company's interests.
Looking back over GKP's long operating history in Kurdistan since 2007, the
Company has surmounted several challenges to generate profitable growth from
the Shaikan Field's substantial reserves base and economic value for
Kurdistan. We remain focused on what we control with the objective of
returning GKP to cash generative production.
Jon Harris
Chief Executive Officer
30 August 2023
Operational review
In the first half of the year, GKP's operations shifted rapidly from a focus
on profitable growth, with investment in the Jurassic reservoir driving record
levels of production, to the shut-in of production and focus on liquidity
preservation following the suspension of exports on 25 March 2023. Since July,
operational activity has increased to support the commencement of local sales
and a partial restart of production.
Gross average production in the first half of the year was 23,256 bopd, 48%
lower versus H1 2022. Prior to the suspension of exports as of 25 March 2023,
gross average production in 2023 year to date was 49,165 bopd and 53,682 bopd
in March 2023, including five days in excess of 55,000 bopd, reflecting
increasing production from SH-16 and the start-up of SH-17. Following the
closure of the Iraq-Turkey Pipeline on 25 March, production continued at
curtailed rates into storage prior to a full shut-in on 13 April.
As it became apparent that pipeline exports were unlikely to resume
immediately, we moved swiftly to suspend all expansion activity in the Field.
Following the completion of SH-18, we released our drilling rig and suspended
well workover activity. We halted all production facilities expansion
activity, including the installation of water handling, as well as the
preparation of future well pads and flowlines. Despite the disruption, we have
maintained a rigorous focus on safety, continuing to execute critical safety
upgrades and essential maintenance activity. We are pleased to have had no
Lost Time Incidents for over 225 days.
Given reduced activity levels, we were regrettably forced to carry out
significant reductions to the organisation. We have reduced our expat
workforce by 55%, with further reductions under review. 50% of our local
workforce was also on reduced hours in July, partially offset in August due to
the step up in local sales. Nonetheless, we have continued to retain
sufficient operational capability and resource to quickly resume exports when
required and restarted more labour-intensive trucking operations for local
sales.
On 19 July 2023, we commenced local sales from PF-1 and have steadily
increased volumes, starting sales from PF-2 in August. We have sold crude from
storage while restarting a number of PF-1 and PF-2 wells. Between 19-31 July,
gross sales averaged c.4,900 bopd, with gross average sales of c.16,300 bopd
for the period 1-29 August. Gross sales for the period from 19 to 29 averaged
c.23,100 bopd.
Looking ahead, we see strong demand for Shaikan crude providing opportunities
to increase local sales further, although the outlook for sustainable volumes
and prices remains unpredictable. We continue to retain significant
flexibility to dial operational activity up or down, and if we are unable to
maintain sustainable local sales, we would consider additional opportunities
to reduce costs. However, these could potentially delay a timely return to
full production.
By adapting quickly to the new environment, we have been able to preserve
liquidity and quickly seize opportunities to start producing and selling
Shaikan Field crude, putting the business on a firmer footing. We remain
focused on delivering against what is in our control while maintaining high
levels of safety and operational quality.
John Hulme
Chief Operating Officer
30 August 2023
Financial review
Key financial highlights
Three months ended 31 March 2023 Six months Six months Year ended
ended ended 31 December 2022
30 June 2023 30 June 2022
Gross average production((1)) bopd 46,228 23,256 44,941 44,202
Dated Brent((2)) $/bbl 81.2 NA 107.6 101.4
Realised price((1)) $/bbl 51.3 NA 84.3 74.1
Discount to Dated Brent $/bbl 29.9 NA 23.3 27.2
Revenue $m 79.6 79.6 263.6 460.1
Operating costs $m 11.5 18.9 18.9 41.9
Gross operating costs per barrel((1)) $/bbl 3.5 5.6 2.9 3.2
Other general and administrative expenses $m 5.0 9.1 6.1 12.2
Share option expense $m 1.0 8.4 11.5 13.8
Adjusted EBITDA((1)) $m 58.6 34.2 208.6 358.5
Profit/(loss) after tax $m 32.1 (2.9) 162.8 266.1
Basic earnings/(loss) per share cents 14.8 (1.3) 75.9 123.5
Revenue and arrears receipts((1)(3)) $m 65.7 65.7 272.4 450.4
Net capital expenditure((1)) $m 35.3 47.0 41.8 114.9
Free cash flow((1)) $m 10.8 (9.9) 177.3 266.5
Dividends $m 25.0 25.0 189.8 215
Cash and cash equivalents $m 105.4 84.9 231.8 119.5
Face amount of the Notes $m 0.0 0.0 100.0 0.0
Net cash((1)) $m 105.4 84.9 131.8 119.5
(1) Gross average production, realised price, gross operating costs per
barrel, Adjusted EBITDA, revenue and arrears receipts, net capital
expenditure, free cash flow and net cash are either non‑financial or
non-IFRS measures and, where necessary, are explained in the summary of
non-IFRS measures.
(2) Weighted average GKP sales volume price. For the period three months
ended 31 March 2023 reflects sales to the date of pipeline suspension on 25
March 2023.
(3) Arrears receipts relate to historic receivables settled in H1 2022;
all receipts in 2023 were for current invoices.
Building on the Company's strong financial performance in 2022, in which GKP
generated record profitability and cash flow, distributed $215 million of
dividends to shareholders and repaid its $100 million outstanding bond, the
Company was on track for another strong year in 2023 until the suspension of
crude exports on 25 March 2023. The suspension and continued delays in KRG
payments materially impacted the Company's financial performance in the first
six months of 2023. In response, the Company moved quickly to preserve
liquidity by aggressively reducing capital expenditures and costs across the
business while proactively managing accounts payable.
On 19 July, GKP commenced local oil sales and is focused on continuing to
increase sales volumes. Local sales are prepaid by the buyer eliminating
counterparty credit risk. At current sales volumes and prices, associated
revenues cover current estimated monthly net capex, operating costs and other
G&A of around $6 million, while providing increased flexibility to manage
accounts payables.
Adjusted EBITDA
Adjusted EBITDA declined by 84% to $34.2 million in H1 2023 (H1 2022: $208.6
million), driven by the suspension of exports and lower realised prices in the
first quarter of the year.
Gross average production was 23,256 bopd in H1 2023 (H1 2022: 44,941 bopd),
48% lower versus the prior reporting period reflecting the shut-in of Shaikan
Field production for the majority of the second quarter. Gross average
production in the first quarter of the year was 46,228 bopd, reflecting
increasing levels of production and operational activity prior to the closure
of the Iraq-Turkey Pipeline.
Shaikan crude sales in H1 2023 generated revenue of $79.6m, a 70% reduction
versus the prior period (H1 2022: $263.6 million), with no revenue generated
in the second quarter. Production in the first quarter of the year prior to
the suspension of exports was sold at an average realised price of $51.3/bbl,
39% lower relative to the prior period (H1 2022: $83.5/bbl). The decrease was
primarily driven by a reduction in the average Dated Brent price for sales in
the period to $81.2/bbl (H1 2022: $107.6/bbl) and an increase in the average
discount to $29.9/bbl (H1 2022: $23.3/bbl). The discount to Brent reflected
the average price for Kurdistan Blend ("KBT") sold by the KRG
at Ceyhan in Turkey, adjusted for a quality discount and transportation
costs for use of export pipelines.
The Company continued to maintain a rigorous focus on costs, with aggressive
action taken to reduce expenses in Q2 2023 to preserve liquidity.
Operating costs of $18.9 million in H1 2023 were flat relative to the prior
period (H1 2022: $18.9m), with costs in Q1 2023 of $11.5 million related to
higher production offset by a 37% quarter-on-quarter decrease to $7.4 million
in Q2 2023, driven by the shut-in of production and deferred non-essential
maintenance activity. The increase in gross operating costs per barrel to
$5.6/bbl in H1 2023 (H1 2022: $2.9/bbl) reflected the shut-in of production
for the majority of the second quarter.
After adjusting Other G&A expenses of $9.1 million for non-recurring
corporate costs of $2.1 million, Other G&A expenses were $7.0 million up
from $6.1 million in H1 2022 due to an increase in non-cash depreciation and
amortisation of $0.9m related to the implementation of a new ERP system. The
increase in Other G&A expenses in Q1 2023 due to increasing development
and operational activity were offset by cost reductions implemented in Q2
2023.
Share option expense in the first half of the year of $8.4 million primarily
reflected the vesting of the 2020 LTIP award, the majority of which was
non-cash. The 27% decrease versus the prior period (H1 2022: $11.5 million)
reflected the final vesting of the Value Creation Plan ("VCP") in 2022.
Profit/(loss) after tax
The Company generated a loss after tax of $2.9 million (H1 2022: profit after
tax of $162.8 million), including an IFRS impairment charge of $13.9 million
(H1 2022: $0.4 million) related to the expected credit loss on overdue
receivables from the KRG.
Cash flows
GKP's net cash from operating activities decreased to $31.7 million in the
first half of the year (H1 2022: $222.3 million), primarily reflecting the
suspension of exports and associated decrease in EBITDA as well as the
continued delays to KRG payments.
In H1 2023, GKP received revenue receipts from the KRG of $65.7 million (H1
2022: $272.4 million) related to invoices for crude sold in August and
September 2022. The Company continues to engage with the KRG regarding the
overdue receivables for the months of October 2022 to March 2023 totalling
$151 million, net of capacity building payments, on the basis of the KBT
pricing mechanism.
Net capital expenditure in H1 2023 was $47.0 million (H1 2022: $41.8 million),
reflecting the completion of SH-17 and SH-18, well workovers, well pad
preparation, long lead items and the expansion of production facilities. Net
capex decreased 67% to $11.7 million in Q2 2023 relative to Q1 2023 as the
Company suspended all expansion, drilling and well workover activity to
preserve liquidity.
The Company paid a $25 million interim dividend at the beginning of March
2023. Following the suspension of exports, the Board reviewed and subsequently
cancelled the proposed final 2022 ordinary annual dividend of $25 million. We
continue to believe dividends are important to reward shareholders and will
review reinstating the dividend when the environment and our liquidity
position improve.
With a free cash outflow in H1 2023 of $9.9 million (H1 2022 free cash flow:
$177.3 million) and the payment of the interim dividend of $25 million, GKP's
cash balance decreased from $119.5 million at 31 December 2022 to $84.9
million at 30 June 2023. GKP remains focused on reducing costs, preserving
liquidity and increasing local sales. The Company's cash balance at 30 August
2023 was $82.1 million, including GKP's entitlement for local crude sales and
$8 million related to buyer advance payments collected by GKP.
As at 30 June 2023, there were $224 million gross of unrecovered costs,
subject to potential cost audit by the KRG. The R-factor, calculated as
cumulative gross revenue receipts of $2,166 million divided by cumulative
gross costs of $1,838 million, was 1.18. The unrecovered cost pool and
R-factor are used to calculate monthly cost oil and profit oil entitlements,
respectively, owed to the Company from crude oil sales. The Company's current
net entitlement is 36% of gross sales revenue.
Outlook
Looking ahead to the remainder of 2023, the Company remains focused on
preserving its liquidity while proactively managing accounts payable.
Currently, the estimated aggregate net capital expenditures, operating costs
and other G&A monthly run rate is around $6 million for H2 2023. This
represents a 65% decrease relative to the average monthly run rate in Q1 2023
of $17.3 million and a 22% decrease versus the average monthly run rate in Q2
2023 of $7.7 million, as the Company continues to drive cost reductions across
the business. The run rate assumes full production at both PF-1 and PF-2. In
the event the Company does not achieve sustainable local sales, additional
opportunities have been identified to reduce the monthly expenditure run-rate
by up to $2 million, albeit which could potentially delay a timely return to
full production.
2023 net capital expenditures are now estimated to be $60-$65 million for 2023
(prior guidance: $70-$75 million), driven by a $10 million reduction in net
capex in June 2023. Less than $15 million of safety critical and contractual
commitments are estimated to be remaining in the second half of the year.
Current local sales volumes and average realised prices of around $30/bbl
enable GKP to cover estimated monthly net capital expenditures, operating
costs and other G&A of around $6 million in H2 2023 and provide increased
flexibility to manage GKP's accounts payable balance. We continue to target
ramping local sales further as we have seen strong demand.
The Company remains focused on measures to improve its liquidity position,
including increasing local sales, further cost reductions and inventory sales.
The Directors have a reasonable expectation that the Group has adequate
resources to continue to operate for 12 months from issuance of the condensed
set of financial statements in the half-yearly report for the six months ended
30 June 2023.
Nonetheless, given the current uncertainty over the timing of the pipeline
reopening and therefore the settlement of outstanding amounts due from the
KRG, and the fact that the outlook for local sales volumes and pricing is
considered difficult to predict, the Directors have considered these factors
could give rise to a need to implement mitigating factors including further
cost reductions, inventory sales or external financing, to enable the Group to
continue as a Going Concern.
The Directors have therefore concluded that a material uncertainty exists as
explained more fully in the financial statement Going Concern disclosure.
Ian Weatherdon
Chief Financial Officer
30 August 2023
Non-IFRS measures
The Group uses certain measures to assess the financial performance of its
business. Some of these measures are termed "non-IFRS measures" because they
exclude amounts that are included in, or include amounts that are excluded
from, the most directly comparable measure calculated and presented in
accordance with IFRS, or are calculated using financial measures that are not
calculated in accordance with IFRS. These non‑IFRS measures include
financial measures such as operating costs and non-financial measures such as
gross average production.
The Group uses such measures to measure and monitor operating performance and
liquidity, in presentations to the Board and as a basis for strategic planning
and forecasting. The Directors believe that these and similar measures are
used widely by certain investors, securities analysts and other interested
parties as supplemental measures of performance and liquidity.
The non-IFRS measures may not be comparable to other similarly titled measures
used by other companies and have limitations as analytical tools and should
not be considered in isolation or as a substitute for analysis of the Group's
operating results as reported under IFRS. An explanation of the relevance of
each of the non-IFRS measures and a description of how they are calculated is
set out below. Additionally, a reconciliation of the non-IFRS measures to the
most directly comparable measures calculated and presented in accordance with
IFRS and a discussion of their limitations is set out below, where applicable.
The Group does not regard these non-IFRS measures as a substitute for, or
superior to, the equivalent measures calculated and presented in accordance
with IFRS or those calculated using financial measures that are calculated in
accordance with IFRS.
Gross operating costs per barrel
Gross operating costs are divided by gross production to arrive at operating
costs per barrel.
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December
2022
Gross production (MMstb) 4.2 8.1 16.1
Gross operating costs ($ million)((1)) 23.6 23.6 52.3
Gross operating costs per barrel ($ per bbl) 5.6 2.9 3.2
(1) Gross operating costs equate to operating costs (see note 5) adjusted
for the Group's 80% working interest in the Shaikan Field.
Adjusted EBITDA
Adjusted EBITDA is a useful indicator of the Group's profitability, which
excludes the impact of costs attributable to tax expense)/(credit), finance
costs, finance revenue, depreciation, amortisation, impairment of receivables
and provision against inventory held for resale.
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December
$ million $ million 2022
$ million
(Loss)/profit after tax (2.9) 162.8 266.1
Finance costs 0.9 5.6 9.7
Finance income (2.1) (0.1) (0.6)
Tax expense/(credit) 0.4 (0.2) (0.3)
Depreciation of oil and gas assets 20.6 39.5 80.2
Depreciation of other PPE assets and amortisation of intangibles 1.3 0.5 1.4
Impairment of receivables 13.9 0.4 2.0
Provision against inventory held for resale 2.1 - -
Adjusted EBITDA 34.2 208.6 358.5
Net capital expenditure
Net capital expenditure is the value of the Group's additions to oil and gas
assets excluding the change in value of the decommissioning asset or any asset
impairment.
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December
$ million $ million 2022
$ million
Net capital expenditure (note 10) 47.0 41.8 114.9
Net cash
Net cash is a useful indicator of the Group's indebtedness and financial
flexibility because it indicates the level of cash and cash equivalents less
cash borrowings within the Group's business. Net cash is defined as cash and
cash equivalents, less current and non-current borrowings and non-cash
adjustments. Non-cash adjustments include unamortised arrangement fees and
other adjustments.
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December
$ million $ million 2022
$ million
Cash and cash equivalents 84.9 231.8 119.5
Outstanding Notes - (99.4) -
Unamortised issue costs - (0.6) -
Net cash 84.9 131.8 119.5
Free cash flow
Free cash flow represents the Group's cash flows, before any dividends, share
buybacks and notes redemption, including related fees.
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December
$ million $ million 2022
$ million
Net cash generated from operating activities 31.7 222.3 374.3
Net cash used in investing activities (41.3) (44.7) (107.4)
Payment of leases (0.3) (0.3) (0.4)
Free cash flow (9.9) 177.3 266.5
Principal risks & uncertainties
The Board determines and reviews the key risks for the Group on a regular
basis. The principal risks, and how the Group seeks to mitigate them, for the
second half of the year are largely consistent with those detailed in the
management of principal risks and uncertainties section of the 2022 Annual
Report and Accounts. The principal risks are listed below:
Strategic Operational Financial
Political, social and economic Health, safety and Liquidity and funding
instability environment ("HSE") risks capability
Business conduct and Reserves Oil revenue payment
anti‑corruption mechanism
Disputes regarding title or Gas flaring Commodity prices
exploration and production
rights
Export route availability Security
Risk of economic sanctions Field delivery risk
impacting the Group
Stakeholder misalignment
Global pandemic
Climate change
Cyber security
The Group notes the following updates to risks and uncertainties since the
2022 Annual Report and Accounts:
Closure of export pipeline
The Iraq Turkey Pipeline ("ITP") was shut down on 25 March 2023 following the
ICC arbitration ruling in favour of Iraq over Turkey. The Group continues to
believe this shut-in is temporary but despite ongoing discussions on its
re-opening, it remains closed with no timeline on the resumption of exports
through the pipeline. This increases the risk to the Company's liquidity and
funding capability.
Enactment of Iraqi Budget Law 2023-2025
The Group has noted the enactment of the Iraqi Budget Law 2023-2025 which
provides some details on the future of oil exports from the Kurdistan Region
of Iraq. This law does not provide sufficient detail on the mechanics or
economics of these oil exports, and in particular the payment mechanism. There
has been concern that the monthly proposed budget transfers from Iraq to
Kurdistan will be sufficient to cover the contractual entitlements due to
International Oil Companies ("IOCs") under their Production Sharing Contracts
("PSCs").
Proposed new Iraqi Oil and Gas Law
The Group has noted that the Government of Iraq and the Kurdistan Regional
Government are in discussions on an Iraqi Oil and Gas Law to govern the oil
industry in the Kurdistan Region of Iraq. The Group has a PSC, governed by
English Law, in place and, in common with other IOCs, would expect the rights
under this to be fully respected in the enactment of any new oil and gas law.
As the IOCs are not party to these discussions, there is a risk that these
contractual rights may not be fully recognised and the IOCs may have to take
formal steps to preserve their legal rights and entitlements.
Responsibility statement
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared in
accordance with UK-adopted IAS 34 'Interim Financial Reporting';
b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events and their impact during
the first six months and description of principal risks and uncertainties for
the remaining six months of the year); and
c) the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein).
By order of the Board
Jon Harris
Chief Executive Officer
30 August 2023
INDEPENDENT REVIEW REPORT TO GULF KEYSTONE PETROLEUM LIMITED
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated statement of changes in
equity, the condensed consolidated cash flow statement and the related
explanatory notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting.
Material uncertainty related to going concern
We draw attention to Note 2 to the condensed consolidated financial statements
which describes the uncertainty surrounding the settlement of outstanding
amounts due from KRG and the difficulty of predicting volumes and pricing for
local sales, both of which could give rise to the need for the Group to
implement mitigating factors to enable it to continue as a going concern. As
stated in Note 2, these events or conditions, along with the other matters as
set out in note 2, indicate that a material uncertainty exists which may cast
significant doubt on the Group's ability to continue as a going concern. Our
conclusion is not modified in respect of this matter.
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
30 August 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Condensed consolidated income statement
For the six months ended 30 June 2023
Notes Six months ended Six months ended Year ended
30 June 2023 Unaudited 30 June 2022 Unaudited 31 December 2022
$'000 $'000 Audited
$'000
Revenue 4 79,555 263,603 460,113
Cost of sales 5 (51,156) (79,129) (158,651)
Impairment charge on trade receivables 11 (13,939) (427) (1,960)
Gross profit 14,460 184,047 299,502
Other general and administrative expenses 6 (9,080) (6,112) (12,202)
Share option related expense 7 (8,372) (11,463) (13,756)
(Loss)/profit from operations (2,992) 166,472 273,544
Finance income 2,057 55 648
Finance costs (873) (5,649) (9,655)
Foreign exchange (losses)/gains (668) 1,729 1,232
(Loss)/profit before tax (2,476) 162,607 265,769
Tax (expense)/credit (390) 207 325
(Loss)/profit after tax (2,866) 162,814 266,094
(Loss)/profit per share (cents)
Basic 8 (1.32) 75.89 123.52
Diluted 8 (1.32) 72.85 118.62
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2023
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
(Loss)/profit for the period (2,866) 162,814 266,094
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 903 (2,113) (1,950)
Total comprehensive (expense)/income for the period (1,963) 160,701 264,144
Condensed consolidated balance sheet
As at 30 June 2023
30 June 31 December
Notes 2023 2022
Unaudited Audited
$'000 $'000
Non-current assets
Intangible assets 3,641 4,307
Property, plant and equipment 10 463,468 436,443
Trade receivables 11 102,177 -
Deferred tax asset 1,252 1,576
570,538 442,326
Current assets
Inventories 12 14,159 6,372
Trade and other receivables 11 58,995 176,203
Cash and cash equivalents 84,935 119,456
158,089 302,031
Total assets 728,627 744,357
Current liabilities
Trade and other payables 13 (131,207) (128,561)
Non-current liabilities
Trade and other payables 13 (194) (325)
Provisions (43,896) (42,546)
(44,090) (42,871)
Total liabilities (175,297) (171,432)
Net assets 553,330 572,925
Equity
Share capital 14 222,443 216,247
Share premium account 14 503,165 528,125
Exchange translation reserve (3,815) (4,718)
Accumulated losses (168,463) (166,729)
Total equity 553,330 572,925
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2023
Share Share premium Exchange Accumulated Total
capital account translation losses equity
reserve
$'000 $'000 $'000 $'000 $'000
Balance at 1 January 2022 (audited) 213,731 742,914 (2,768) (432,173) 521,704
Profit after tax for the period - - - 162,814 162,814
Exchange difference of translation of foreign operations - - (2,113) - (2,113)
Total comprehensive income/(loss) for the period - - (2,113) 162,814 160,701
Dividends - (189,831) - - (189,831)
Share issues 2,517 - - (2,517) -
Employee share schemes - - - (154) (154)
Balance at 30 June 2022 (unaudited) 216,248 553,083 (4,881) (272,030) 492,420
Profit after tax for the period - - - 103,280 103,280
Exchange difference of translation of foreign operations - - 163 - 163
Total comprehensive income/(loss) for the period - - 163 103,280 103,443
Dividends - (24,958) - - (24,958)
Employee share schemes (1) - - 2,021 2,020
Balance at 31 December 2022 (audited) 216,247 528,125 (4,718) (166,729) 572,925
Loss after tax for the period - - - (2,866) (2,866)
Exchange difference of translation of foreign operations - - 903 - 903
Total comprehensive (loss)/income for the period - - 903 (2,866) (1,963)
Dividends - (24,960) - - (24,960)
Share issues 6,196 - - (6,196) -
Employee share schemes - - - 7,328 7,328
Balance at 30 June 2023 (unaudited) 222,443 503,165 (3,815) (168,463) 553,330
Condensed consolidated cash flow statement
for the six months ended 30 June 2023
Note Six months Six months Year ended
ended ended 31 December 2022
30 June 2023 30 June 2022 Audited
Unaudited Unaudited
$'000 $'000 $'000
Operating activities
Cash generated in operations 9 29,617 227,271 383,846
Interest received 2,057 55 648
Interest paid - (5,000) (10,194)
Net cash generated in operating activities 31,674 222,326 374,300
Investing activities
Purchase of intangible assets - (1,411) (2,074)
Purchase of property, plant and equipment 10 (41,301) (43,367) (105,291)
Net cash used in investing activities (41,301) (44,778) (107,365)
Financing activities
Payment of dividends 14 (24,960) (114,831) (214,789)
Payment of leases (262) (255) (458)
Notes redemption - - (100,000)
Notes repayment fee - - (2,000)
Net cash used in financing activities (25,222) (115,086) (317,247)
Net (decrease)/increase in cash and cash equivalents (34,849) 62,462 (50,312)
Cash and cash equivalents at beginning of period 119,456 169,866 169,866
Effect of foreign exchange rate changes 328 (532) (98)
Cash and cash equivalents at end of the period being bank balances and cash on 84,935 231,796 119,456
hand
1. General information
The Company is incorporated and domiciled in Bermuda (registered address:
Cedar House, 3(rd) Floor, 41 Cedar Avenue, Hamilton 12, Bermuda). The
Company's common shares are listed on the Official List of the United Kingdom
Listing Authority and are traded on the London Stock Exchange's Main Market
for listed securities. The Company serves as the holding company for the
Group, which is engaged in oil and gas exploration, development and
production, operating in the Kurdistan Region of Iraq.
2. Summary of material accounting policies
These interim financial statements should be read in conjunction with the
audited financial statements contained in the Annual Report and Accounts for
the year ended 31 December 2022. The Annual Report and Accounts of the Group
were prepared in accordance with United Kingdom adopted International
Accounting Standards. The condensed set of financial statements included in
this half yearly financial report have been prepared in accordance with United
Kingdom adopted International Accounting Standard 34 'Interim Financial
Reporting' and the Disclosure and Transparency Rules (DTR) of the Financial
Conduct Authority (FCA) in the United Kingdom as applicable to interim
financial reporting.
The condensed set of financial statements included in this half yearly
financial report have been prepared on a going concern basis as the Directors
consider that the Group has adequate resources to continue operating for the
foreseeable future.
The accounting policies adopted in the 2023 half-yearly financial report are
the same as those adopted in the 2022 Annual Report and Accounts, other than
the implementation of new IFRS reporting standards.
The financial information included herein for the year ended 31 December 2022
does not constitute the Group's financial statements for that year but is
derived from those Accounts. The auditor's report on these Accounts was
unqualified and did not include a reference to any matters to which the
auditor drew attention by way of emphasis of matter.
Adoption of new and revised accounting standards
As of 1 January 2023, a number of accounting standard amendments and
interpretations became effective. The adoption of these amendments and
interpretations has not had a material impact on the financial statements of
the Group for the six months ended 30 June 2023.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the CEO
Statement, Operational Review and Financial Review, which includes the
financial position of the Group at the period end and its cash flows and
liquidity position.
On 25 March 2023 the International Court of Arbitration in Paris ruled on the
long running Iraq-Turkey Pipeline ("ITP") arbitration case in Iraq's favour.
This resulted in Turkey providing instructions to shut-in the export pipeline
significantly impacting the Group's operations, a situation that continues as
of the date of these financial statements. The Group understands that
negotiations between the Iraq and Turkey governments are ongoing to re-open
the ITP. Also, Federal Iraq recently passed the Budget for 2023-2025, which
formally recognises KRG production and is expected to result in regular
monthly budget transfers from Iraq to the Kurdistan Regional Government
("KRG"). Negotiations between Iraq and the KRG are ongoing to implement the
budget and agree the amount of such monthly budget transfers.
No payment of monthly invoices due from the KRG has been received since March
2023 and amounts due for sales since October 2022 remain outstanding. Although
the KRG has provided assurances that they plan to settle receivable balances,
uncertainty remains over the timing of payment of these balances (see Note 11
for additional information). In accordance with accounting standards a credit
loss provision has been provided to reflect the ongoing uncertainty.
Following the shut-in of the pipeline, the Group has aggressively reduced
expenditures and continues to seek further cost savings while pursuing
inventory sales and managing payment of trade payables. Since period end, the
group has commenced local sales (see note 16), which is expected to improve
the liquidity position of the group. All local sales are prepaid by the buyer
eliminating counterparty credit risk. However, the outlook for local sales
volumes and pricing remains difficult to predict. As at 30 August 2023, the
Group had $82.1 million of cash and no debt. To assess the Group's potential
future liquidity position, the Directors have considered various
sensitivities.
Taking into account the above, the Group expects to have sufficient cash from
the date of this report to meet ongoing obligations for 12 months from
issuance of these interim financial statements, unless no further payments
from the KRG are received or local sales are curtailed or stopped. In such
instances the Group would consider or require additional sources of liquidity,
including further cost reductions, inventory sales or external financing, to
fund any operations and working capital requirements over the next 12 months.
Given the current uncertainty over the timing of the pipeline reopening and
therefore the settlement of outstanding amounts due from the KRG, and the fact
that the outlook for local sales volumes and pricing is considered difficult
to predict, the Directors have considered these factors could give rise to a
need to implement mitigating factors to enable the Group to continue as a
Going Concern. The Directors have therefore concluded that a material
uncertainty exists which may cast significant doubt on the Group's ability to
continue as a Going Concern and therefore it may be unable to realise its
assets and discharge its liabilities in the normal course of business. These
financial statements do not include any adjustments that might result if the
Group is unable to continue as a going concern.
Based on the analysis performed, the Directors have a reasonable expectation
that the Group has adequate resources to continue to operate for 12 months
from issuance of these interim financial statements. Thus, the going concern
basis of accounting is used to prepare the 2023 half year financial
statements.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, the Directors are
required to make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of revision and future periods if the revision affects both current and future
periods.
Critical accounting judgements and key sources of estimation uncertainty
remain consistent with those disclosed in the 2022 Annual Report and Accounts,
with the exception that the expected credit loss and impairment estimates are
now considered key sources of estimation uncertainty. Although methodologies
remains consistent with the approach for year ended 2022, scenarios and inputs
have been updated in line with assumptions as at 30 June 2023.
Critical accounting judgement
Revenue
The recognition of revenue is considered to be a key accounting judgement.
Further details of this judgement are provided in the sales revenue accounting
policy as disclosed in the 2022 Annual Report and Accounts.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty that may have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities, are discussed below.
Expected credit loss
The recoverability of receivables is a key accounting judgement. The
difference between the nominal value of receivables and the expected value of
receivables after allowing for counterparty default risk gives the expected
credit loss (ECL). Management have considered scenarios for recovering
receivables and assigned probabilities to these scenarios. A weighted average
has been applied to receipt profiles, upon which a counterparty default
allowance has been applied to derive the ECL. This ECL is offset against
current and non-current receivable amounts as appropriate within the balance
sheet with the change in the receivable balance during the period recognised
in the income statement. In making this judgement, management has estimated
the timing of the receipt of KRG receivables which will be dependent upon
uncertain future events, in particular the expected timing of the re-opening
of the ITP.
Carrying value of producing assets
The Group's accounting policy on impairment remains consistent with that
disclosed in the 2022 Annual Report. The Group's sole CGU as at 30 June 2023
was the Shaikan Field with a carrying value of $421 million.
The Group performed an impairment trigger assessment and concluded that the
shutdown of the Iraq Turkey Pipeline ("ITP") in March 2023 following the ITP
Arbitration ruling was a potential indicator of impairment. Accordingly, an
impairment evaluation was completed, and it was concluded that no impairment
write-down was required.
In accordance with accounting standards, the impairment assessment was
prepared based on available information combined with management estimates as
at 30 June 2023. This includes a number of key assumptions, some of which have
a high degree of uncertainty. Notably, the date of the re-opening of the ITP
was and remains uncertain. The key areas of estimation in assessing the
potential impairment indicators are as follows:
- It has been assumed for the impairment calculation base case that
the ITP would reopen in October 2023 leading to resumption of exports. This
was management's assumption as at 30 June 2023 and the re-opening date remains
uncertain at the date of this report. We have therefore applied sensitivities
of up to a further one-year delay in the re-opening of the ITP with no
impairment being necessary;
- The Group's netback price was based on the Dated Brent forward curve
as at 30 June 2023 for the period 2023 to 2029 with inflation of 2% per
annum thereafter, less transportation costs and quality adjustments. The Dated
Brent forward curve at 31 December was used for the year end comparative. See
note 4 for details linking Dated Brent to realised prices;
$/bbl - nominal 2023 2024 2025 2026 2027 2028
30 June 2023 - base case 77.4 73.0 70.6 68.7 66.9 65.5
30 June 2023 - stress case 73.7 65.7 63.5 61.8 60.3 58.9
31 December 2022 - base case 83.4 78.2 74.5 71.7 69.6 68.1
31 December 2022 - stress case 75.1 70.4 67.1 64.5 62.6 61.3
- Operating costs and capital expenditures were based on financial
budgets and internal management forecasts;
- Cost assumptions used in the assessment were based on an updated
Jurassic development plan, contingent upon regular payments in line with
contractual requirements commencing in 2024. Following the closure of the ITP
in March 2023 the capital programme of both drilling and facility expansion
required to ramp up production has been deferred by around a year compared to
the 31 December 2022 base case assumption. Cost assumptions incorporated
management's experience and expectations, including the nature and location of
the operations and the associated risks. The impact of near-term inflationary
pressures were also considered and no impairment was identified;
- The Group's assessment of the potential impacts of climate change and
the associated risks have not changed since year end. The International Energy
Agency's ("IEA") most recent Announced Pledges Scenario ("APS") and Net Zero
Emissions ("NZE") climate scenario oil prices and carbon taxes were used to
evaluate the potential impact of the principal climate change transition
risks. Under the APS and NZE scenarios without incremental carbon tax there
was no impairment. However, while the IEA oil price assumptions incorporate
carbon prices, it has not disclosed the assumed average carbon intensity per
barrel of production. Therefore, the Group has performed a sensitivity to
conservatively include IEA carbon pricing on all production which results in
no impairment under the APS scenario. Under the NZE scenario, there was a
potential impairment; however, if the Group's assumed future average carbon
intensity per barrel of production is in fact at or below the undisclosed IEA
carbon intensity per barrel of production, there would have been no
impairment;
- Discount rates that are adjusted to reflect risks specific to the
Shaikan Field and the Kurdistan Region of Iraq. The post-tax nominal discount
rate was estimated to be 15% as used in the base case and unchanged from 31
December 2022. The impact of an increase in discount rate to 20% was
considered as a sensitivity to reflect potential increased geopolitical risks
and no impairment was identified; and
- Commercial reserves and production profiles used relate solely to 2P
reserves and are consistent with the assessment within the Competent Person's
Report ("CPR") dated 31 December 2022.
3. Geographical information
The Chief Operating Decision Maker, as per the definition in IFRS 8, is
considered to be the Board of Directors. The Group operates in a single
segment, that of oil and gas exploration, development and production, in a
single geographical location, the Kurdistan Region of Iraq. The financial
information of the single segment is materially the same as set out in the
condensed consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated statement of changes in
equity, the condensed consolidated cash flow statement and the related notes.
Information about major customers
In 1H 2023 oil sales were made solely to the KRG (FY 2022: solely to the KRG).
4. Revenue
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Oil sales 79,555 263,603 460,113
The Group accounting policy for revenue recognition is set out in its 2022
Annual Report, with revenue recognised upon transfer of control of crude oil
at the delivery point, being the export pipeline.
On 25 March 2023 the International Court of Arbitration in Paris ruled on the
long running Iraq-Turkey export pipeline arbitration case in Iraq's favour
(see note 2). This led to the shut-in of the export pipeline; from 25 March
2023 to the end of the reporting period there have been no oil sales or
revenue. All revenue reported in the six months period ended 30 June 2023
occurred from 1 January 2023 to 25 March 2023.
Since 1 September 2022 there has been no lifting agreement in place between
the Shaikan Contractor and the KRG. The KRG proposed a new pricing mechanism
based upon the average monthly Kurdistan blend ("KBT") sales price realised by
the KRG at Ceyhan; formerly the pricing mechanised was based upon Dated Brent.
The Company has not accepted the proposed contract modification and continued,
until suspension of the export pipeline, to invoice the KRG for oil sales
based on the pre-1 September 2022 pricing formula. Considering the uncertainty
with respect to the variable consideration within the pricing mechanism, the
Company has concluded that it is an appropriate judgement to recognise revenue
based on the proposed contract modification for the six-month period to 30
June 2023.
In H1 2023, the oil sales price was calculated using the monthly KBT price
less a weighted average discount of $16.1/bbl (H1 2022: Dated Brent less
weighted average discount of $23.3/bbl; July-August 2022: Dated Brent less
weighted average discount of $23.4/bbl; September-December 2022: KBT less
weighted average discount of $16.2/bbl) for quality and pipeline tariffs. In
H1 2023, the value of KBT was lower than Dated Brent by a weighted average of
$13.9/bbl (H1 2022: Not applicable; July-August 2022: Not applicable;
September-December 2022: $18.5/bbl).
The revenue impact of using the proposed KBT pricing mechanism instead of
Dated Brent for the period is estimated to be a reduction of $12.0 million (H1
2022: nil; FY 2022: $23.4 million). Taking into account the associated
reduction in capacity building payments results in a total reduction of profit
after tax for the year of $11.4 million (H1 2022: nil; FY 2022: $21.7
million). Any difference between the proposed and final pricing mechanism will
be reflected in future periods.
5. Cost of Sales
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Operating costs 18,858 18,878 41,835
Capacity building payments 5,713 20,511 34,927
Changes in oil inventory value (1,188) 242 555
Depreciation of oil and gas assets 20,559 39,498 80,225
Contract termination costs 5,143 - -
Provision against inventory held for sale 2,071 - -
Impairment of surplus drilling stock - - 1,109
51,156 79,129 158,651
A unit-of-production method has been used to calculate the depreciation,
depletion and amortisation ("DD&A") charge for oil and gas assets. This is
based on entitlement production, commercial reserves and capital costs for
Shaikan. Commercial reserves are proven and probable ("2P") reserves,
estimated using standard recognised evaluation techniques. For purposes of
calculating the DD&A per barrel of production effective 1 January 2023, a
Competent Person's Report from ERC Equipoise Limited with 2P reserves
estimates at 31 December 2022 was used in conjunction with the Group's
economic forecasts to determine entitlement production, commercial reserves
and capital costs for Shaikan.
During the six-month period to 30 June 2023 GKP exited a number of contracts;
associated costs are accounted for as contract termination costs.
6. Other general and administrative expenses
Six months Six months Year ended
ended
ended
30 June 2023
30 June 2022 31 December
Unaudited
Unaudited
2022
$'000
$'000
Audited
$'000
Depreciation and amortisation 1,331 473 1,600
Other general and administrative costs 7,750 5,640 10,602
9,081 6,113 12,202
The increase of other general and administrative costs from H1 2022 to H1 2023
is primarily due to non-recurring corporate costs.
7. Share option related expense
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Share-based payment expense 7,328 8,573 8,690
Payments related to share options exercised 764 1,193 3,266
Share-based payment related provision for taxes 280 1,697 1,800
8,372 11,463 13,756
The six-month period to June 2023 includes $5.0 million for the exercise of
share dividend entitlements related to the options granted in 2020. These were
predominantly settled in shares rather than cash and no further exercise costs
will be incurred in relation to the 2020 scheme. The year to December 2022
includes the final settlements in relation to the Value Creation Plan (VCP)
which totalled $9.5 million of the $13.8 million expense. There are no
further VCP share options outstanding and the plan has been terminated.
8. Earnings per share
The calculation of the basic and diluted profit per share is based on the
following data:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Unaudited Unaudited Audited
(Loss)/profit after tax ($'000) (2,866) 162,814 266,094
Number of shares ('000s):
Basic weighted average number of ordinary shares 216,927 214,527 215,420
Basic (loss)/earnings per share (cents) (1.32) 75.89 123.52
The Group followed the steps specified by IAS 33 in determining whether
outstanding share options are dilutive or anti-dilutive.
Reconciliation of dilutive shares:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Unaudited Unaudited Audited
Number of shares ('000s):
Basic weighted average number of ordinary shares 216,927 214,527 215,420
Effect of dilutive potential ordinary shares 11,547 8,957 8,909
Diluted number of ordinary shares outstanding 228,474 223,484 224,329
Diluted (loss)/earnings per share (cents) ((1)) (1.32) 72.85 118.62
((1)) The dilutive number of ordinary shares relates to outstanding share
options and is calculated on the assumption of conversion of all potentially
dilutive ordinary shares. During a period where a company makes a loss,
anti-dilutive shares are not included in the loss per share calculation as
they would reduce the reported loss per share.
Weighted average number of ordinary shares excludes shares held by Employee
Benefit Trustee of 3.4 million (H1 2022: 0.4 million; FY 2022: 0.1 million).
9. Reconciliation of profit from operations to net cash generated in operating
activities
Six months Six months Year ended 31 December 2022
ended ended Audited
30 June 2023 30 June 2022 $'000
Unaudited Unaudited
$'000 $'000
(Loss)/profit from operations (2,992) 166,472 273,544
Adjustments for:
Depreciation, depletion and amortisation of property, plant and equipment 21,010 39,853 80,883
(including the right of use assets)
Amortisation of intangible assets 815 77 859
Share-based payment expense 7,328 154 1,866
Increase of provision for impairment of trade receivables 13,939 427 1,960
Provision against inventory held for sale 2,071 - -
Impairment of PPE items - - 1,109
Operating cash flows before movements in working capital 42,171 206,983 360,221
(Increase)/Decrease in inventories (9,858) 595 (354)
(Increase)/Decrease in trade and other receivables (8,906) 23,907 11,640
Decrease/(Increase) in trade and other payables 6,143 (4,214) 12,339
Income taxes received 67 - -
Cash generated from operations 29,617 227,271 383,846
10. Property, plant and equipment
Oil and Gas Fixtures and Right of use
Assets Equipment Assets Total
$'000 $'000 $'000 $'000
Year ended 31 December 2022
Opening net book value 402,094 1,033 1,078 404,205
Additions 114,909 1,595 - 116,504
Impairment of surplus drilling stocks (1,109) - - (1,109)
Revision to decommissioning asset (2,161) - - (2,161)
Depreciation charge (80,177) (359) (347) (80,883)
Foreign currency translation differences - (12) (101) (113)
Closing net book value 433,556 2,257 630 436,443
Cost 943,563 8,946 2,145 954,654
Accumulated depreciation (510,007) (6,689) (1,515) (518,211)
Net book value at 31 December 2022 433,556 2,257 630 436,443
Period ended 30 June 2023
Opening net book value 433,556 2,257 630 436,443
Additions 47,035 436 16 47,487
Revision to decommissioning asset 517 - - 517
Depreciation charge (20,559) (329) (122) (21,010)
Foreign currency translation differences - 5 26 31
Closing net book value 460,549 2,369 550 463,468
At 30 June 2023
Cost 991,115 9,387 2,187 1,002,689
Accumulated depreciation (530,566) (7,018) (1,637) (539,221)
Net book value 460,549 2,369 550 463,468
The additions to the Shaikan asset amounting to $47.0 million during the
period include the costs of completing SH-17 and the drilling and completion
of SH-18, well workovers, well pad preparation, long lead items and expansion
of production facilities.
The increase in the decommissioning asset represents further decommissioning
obligations that arose on capital projects.
11. Trade and other receivables
Non-current receivables
30 June 2023 31 December
Unaudited 2022
$'000 Audited
$'000
Trade receivables - non-current 102,177 -
Current receivables
30 June 2023 31 December
Unaudited 2022
$'000 Audited
$'000
Trade receivables - current 52,430 158,032
Other receivables 4,867 16,828
Prepayments and accrued income 1,698 1,343
Total current receivables 58,995 176,203
Total receivables 161,172 176,203
Reconciliation of trade receivables
30 June 2023 31 December
Unaudited 2022
$'000 Audited
$'000
Gross carrying amount 171,626 161,112
Less: impairment allowance (17,019) (3,080)
Carrying value at 30 June 2023 154,607 158,032
Trade receivables comprise amounts due, based upon KBT pricing, from the KRG
for crude oil sales from October 2022 to March 2023 totalling $159.4 million
(FY 2022: $148.9 million) and a share of Shaikan revenue arrears the Group
purchased from MOL amounting to $12.2 million (FY 2022: $12.2 million). All
trade receivables due from the KRG are past due (FY 2022: $99.1 million).
Trade receivables have been classified as non-current if, based on the
weighted average expected receipt profile, they are expected to be received
more than 12 months from the balance sheet date. Excluding the capacity
building payments due to the KRG, the net cash amount due to GKP is $151.7
million (FY 2022: $145.3 million). The ECL on the trade receivable balance of
$17.0 million was provided against the receivables balance in line with the
requirements of IFRS 9 resulting in an expense of $13.9 million in the
reporting period (H1 2022: $0.4 million; FY 2022: $2.0 million).
ECL sensitivities
Considering the receipt profile scenarios, the only input variable to
materially change profit before tax, when changed by a reasonably possible
amount, is the timing of receipt. If the receipt of past-due trade receivables
was delayed by 12 months beyond the scenarios modelled, then the ECL would
increase by $10.5 million.
Other Receivables
Other receivables includes an amount relating to advances to suppliers of $0.7
million (FY 2022: $11.5 million). Of this $0.7 million (FY 2022: $10.6
million) relates to advances for capital expenditure and is included within
investing activities in the condensed consolidated cash flow statement.
12. Inventories
30 June 2023 31 December
Unaudited 2022
$'000 Audited
$'000
Warehouse stocks and materials 6,459 6,074
Inventory held for sale 6,213 -
Crude oil 1,487 298
14,159 6,372
Due to the deferral of the capital investment programme the Group is
attempting to sell certain drilling equipment and such amounts at 30 June 2023
have been classified as inventory held for sale.
13. Trade and other payables
Current liabilities
30 June 31 December
2023 2022
Unaudited Audited
$'000 $'000
Trade payables 24,270 3,499
Accrued expenditures 23,800 40,642
Amounts due to KRG not expected to be cash settled 73,560 70,740
Capacity building payment due to KRG on trade receivables 7,716 7,131
Other payables 1,446 6,164
Finance lease obligations 415 385
Total current liabilities 131,207 128,561
Amounts due to the KRG not expected to be cash settled of $73.6 million (FY
2022: $70.7 million) are included as liabilities, but it is likely that they
will be offset against unrecognised historic revenue arrears. As detailed on
page 137 of the 2022 Annual Report, under the Shaikan PSC and the 2016
Bilateral Agreement, the Group is entitled to offset certain costs against
amounts owed by the KRG to GKPI. Included within this amount is $36.0 million
(FY 2022: $34.2 million) relating to the difference between the capacity
building rates of 20%, as applied to current invoicing, and 30% as per the
Bilateral Agreement.
Non-current liabilities
30 June 2023 31 December
Unaudited 2022
$'000 Audited
$'000
Non-current finance lease liability 194 325
14. Share capital
Common shares
No. of shares Share capital Share premium Amount
000 $'000 $'000 $'000
Issued and fully paid
Balance 1 January 2023 (audited) 216,247 216,247 528,125 744,372
Dividends - - (24,960) (24,960)
Share issues 6,196 6,196 - 6,196
Balance 30 June 2023 (unaudited) 222,443 222,443 503,165 725,608
Dividends of $25.0 million consist solely of an interim dividend paid in March
2023.
15. Contingent liabilities
The Group has a contingent liability of $27.3 million (FY 2022: $27.3 million)
in relation to the proceeds from the sale of test production in the period
prior to the approval of the original Shaikan Field Development Plan ("FDP")
in June 2013. The Shaikan PSC does not appear to address expressly any party's
rights to this pre-FDP petroleum. The sales were made based on sales contracts
with domestic offtakers which were approved by the KRG. The Group believes
that the receipts from these sales of pre-FDP petroleum are for the account of
the Contractor, rather than the KRG and accordingly recorded them as test
revenue in prior years. However, the KRG has requested a repayment of these
amounts and the Group is involved in negotiations to resolve this matter. The
Group has received external legal advice and continues to maintain that
pre-FDP petroleum receipts are for the account of the Contractor. This
contingent liability forms part of the Shaikan PSC amendment negotiations and
it is likely that it will be settled as part of those negotiations.
16. Post-interim events
Following the end of the reporting the period, the Group commenced sales to
the local market on 19 July 2023. Average sales in the period from 19 to 31
July were c. 4,900 bopd, increasing to c.16,300 bopd for the period from 1 to
29 August, with realised prices achieved of around $30 per barrel in line with
local market pricing. GKP's current net entitlement is 36% of gross sales
revenue. For contracts entered into by the Group directly with buyers, funds
are received in advance of local sales.
GLOSSARY (See also the glossary in the 2022 Annual Report and Accounts)
2P Proved plus probable reserves
APS Announced Pledges Scenario
bbl Barrel
bopd Barrels of oil per day
Capex Capital expenditure
CGU Cash-generating unit
COVID-19 Coronavirus
CPR Competent Person's Report
DD&A Depreciation, depletion and amortisation
DTR Disclosure and Transparency Rules
EBITDA Earnings before interest, tax, depreciation and amortisation
EBT Employee benefit trust
ECL Expected credit losses
ESG Environmental, social and governance
FCA Financial Conduct Authority
FDP Field Development Plan
G&A General and administrative
FY Financial year
GKP Gulf Keystone Petroleum Limited
GMP Gas Management Plan
Group Gulf Keystone Petroleum Limited and its subsidiaries
HSE Health, safety and environment
IAS International Accounting Standards
IEA International Energy Agency
IFRS International Financial Reporting Standards
IOC International oil companies
ITP Iraq-Turkey pipeline
KBT Kurdistan blend
KRG Kurdistan Regional Government
LTI Lost time incident
MMbbls Million barrels
MMstb Million stock tank barrels
MNR Ministry of Natural Resources of the Kurdistan Regional Government
MOL Kalegran B.V. (a subsidiary of MOL Group International Services B.V.)
NGO Non Governmental Organisation
Notes The $100 million unsecured, guaranteed notes issued on 25 July 2018 by GKP and
redeemed in full on 2 August 2022
NZE Net Zero Emissions
Opex Operating costs
PF-1 Production Facility 1
PF-2 Production Facility 2
PSC Production sharing contract
Shaikan PSC PSC for the Shaikan block between the KRG, Gulf Keystone Petroleum
International Limited, Texas Keystone, Inc and MOL signed on 6 November 2007
as amended by subsequent agreement
VCP Value Creation Plan
$ US dollars
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