REG-Gulf Keystone Petroleum Ltd Operational & Corporate Update
30/01/2023 07:15
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Gulf Keystone Petroleum Ltd (GKP)
Operational & Corporate Update
30-Jan-2023 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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30 January 2023
Gulf Keystone Petroleum Ltd. (LSE: GKP)
(“Gulf Keystone”, “GKP” or “the Company”)
Operational & Corporate Update
Gulf Keystone, a leading independent operator and producer in the
Kurdistan Region of Iraq (“KRI” or “Kurdistan”), today provides an
operational and corporate update. The information contained in this
announcement has not been audited and may be subject to further review.
Jon Harris, Gulf Keystone's Chief Executive Officer, said:
“2022 was a strong year for GKP, in which we made progress on multiple
fronts that will position the company to maximise long-term value from the
Shaikan Field. We laid the initial groundwork for a material increase in
production levels in 2023 and 2024, while progressing towards key project
sanction milestones of the Shaikan Field Development Plan. In addition, we
paid record dividends to our shareholders of $215 million, bringing total
shareholder distributions to $415 million since 2019, while at the same
time strengthening our balance sheet through repayment of our $100 million
bond.
Looking ahead, we are positive about the outlook for oil prices, although
we remain vigilant about the challenges facing the global economy and the
recent delays to KRG payments. Consequently, as we move towards FDP
approval and transition to increased investment in profitable production
growth from the Jurassic reservoir to drive cash generation, we have put
in place a flexible capital programme for 2023 that is responsive to the
external environment. This will enable the Board to prudently manage the
balance between our liquidity levels, growth investment and distributions
to maximise total risk adjusted returns for shareholders. To underline the
Board’s continued commitment to reviewing the return of excess cash to
shareholders as we progress, we are pleased to announce the declaration of
an interim dividend of $25 million.”
Operational
• 2022 was a Lost Time Incident (“LTI”) free year with only one minor
recordable incident. Following over 440 days without an LTI, an
incident occurred during drilling operations in January 2023. The
safety of our workforce is our priority and we are currently carrying
out an investigation
• Gross average production in 2023 year to date of c.47,800 bopd(1),
with the recent increase driven by the gradual ramp up of SH-16, which
was brought online in December 2022
• Ongoing drilling programme expected to drive production growth:
◦ SH-17 drilled and completed in early 2023, under budget and ahead
of schedule; currently being hooked up to commence production in
Q1 2023, in line with guidance
◦ SH-18 (formerly SH-P) recently spudded, with first production
expected in Q2 2023, as previously announced
• Gross average production for 2022 of 44,202 bopd in line with
guidance, up from 43,440 bopd in 2021:
◦ Incremental production driven by:
▪ The benefit of SH-13 and SH-14 production, brought on-stream
in December 2021
▪ Start-up of SH-15 in April 2022 and SH-16 in December 2022
◦ Mostly offset by:
▪ Prudent management of well production rates to avoid trace
amounts of water production ahead of installation of water
handling capacity, including the shut-in of SH-12 for most
of H1 2022
▪ The temporary shut-in of one well during Q4 2022 due to an
isolated ESP electrical failure
▪ In line with expectations and our development plan,
continued base natural decline currently estimated at 6-10%
per annum across the Shaikan Field, which remains low
relative to the industry even following production of around
115 million barrels to date
Financial
• 2022 net capex of c.$115 million comprised of:
◦ Drilling costs of c.$65 million, including the SH-15 and SH-16
wells that were drilled and brought online during the year, and
SH-17 which was completed in early 2023
◦ Facilities and future well pad preparation costs of c.$35
million, including early work related to the expansion of PF-1
and PF-2 with water handling capacity and installation of
flowlines connecting the new well pads to the production
facilities
◦ Well work over and intervention costs of c.$15 million
• 2022 gross Opex per barrel of c.$3.2/bbl, in line with 2022 guidance
of $2.9-$3.3/bbl, despite increased activity and industry cost
inflation
• During 2022, GKP received $450 million from the Kurdistan Regional
Government (“KRG”) for crude oil sales and repayment of historic
revenue arrears
• GKP recently received net $39 million from the KRG for August 2022
crude oil sales. Discussions are ongoing with the KRG regarding
payments for September to November 2022 crude oil sales, which are
overdue
• Continuing engagement with the Ministry of Natural Resources (“MNR”)
regarding proposed amendments to the Shaikan Lifting Agreement,
including a change in reference price for Shaikan crude oil sales from
Dated Brent to the local Kurdistan Blend benchmark (“KBT”), effective
1 September 2022
• Record dividends paid in 2022 of $215 million, representing a
sector-leading dividend yield of 41%(2)
• Cash balance of $151 million(3) with no outstanding debt
Outlook
• As we move towards approval of the Field Development Plan (“FDP”), we
are focused on driving profitable production growth by expanding the
production facilities and continuing our drilling campaign in the
Jurassic reservoir, capitalising on the attractive returns resulting
from the quick payback of investment under the PSC(4) following the
recent recovery of the majority of our historic costs, while
continuing to return excess cash to shareholders, underlined by our
declaration of a $25 million interim dividend, payable on 3 March 2023
• In line with our rigorous focus on capital discipline and maintaining
a robust balance sheet, we have built flexibility into our work
programme, predicating investment levels on the timeliness of KRG
payments and oil prices:
◦ Improvements in KRG payment timing and a continuation of the
robust oil price environment would enable us to continue drilling
beyond SH-18 and update our guidance
◦ A deterioration in market conditions, including continued delays
to KRG payments, would lead us to review potential reductions in
our work programme and guidance
• In 2023, we will bring SH-17 and SH-18 online to target double digit
percentage production growth, while laying the foundation for an
inflection in annual average production growth in 2024 by preparing
well pads and flowlines to enable continuous drilling and advancing
the expansion of our production facilities, including the installation
of water handling capacity
• We remain confident in the Shaikan Field’s significant production
growth potential. We are preparing a Competent Person’s Report (“CPR”)
as at 31 December 2022, which will provide an updated independent
third-party evaluation of Shaikan’s reserves and resources. We expect
to announce the results of the CPR in Q1 2023
2023 guidance
• Gross average production in 2023 is expected to be 46,000 to 52,000
bopd, representing an 11% increase from 2022 at the mid-point:
◦ Reflects anticipated contributions from SH-17 and SH-18, the
benefits of well workovers, continued prudent management of well
production rates to avoid trace amounts of water production, and
natural field declines
◦ If we continue to drill beyond SH-18, we would expect to review
production guidance
• 2023 net capital expenditure guidance of $160-$175 million:
◦ $30-$35 million: Completion of SH-17, drilling of SH-18 and well
workover programme to optimise production
◦ $45-$50 million: Long lead items and preparing well pads to
enable continuous drilling beyond SH-18
◦ $85-$90 million: Continued expansion of production facilities,
targeting by H2 2024 an increase in total field capacity from
c.60,000 bopd currently to 85,000 bopd and installation of water
handling capacity, potentially enabling the increase in
production rates from constrained wells
◦ We continue to manage pressures in a supply constrained market
• 2023 gross Opex guidance of $3.0-$3.4/bbl, underpinned by the
Company’s continued focus on strict cost control
• Monitoring discussions between the Federal Iraqi Government and the
KRG on the management of oil and gas assets in Kurdistan following the
Iraqi Federal Supreme Court ruling in February 2022. GKP operations
currently remain unaffected
Shaikan Field Development Plan
• The FDP is expected to enhance the sustainability and longevity of the
company’s capacity for shareholder distributions, while generating
material economic value for Kurdistan and significantly reducing
flaring through the Gas Management Plan, a requirement of the PSC
• Capitalising on the Shaikan Field’s significant growth potential and
current estimated 2P reserves to production ratio of c.29 years, the
FDP is expected to increase Jurassic gross production plateau up to
85,000 bopd and test the Triassic reservoir, targeting initial pilot
production of up to 10,000 bopd
• As we move towards FDP approval, we have agreed with the MNR to
proceed with execution of the Jurassic reservoir expansion to increase
profitable production and cash flow generation, with investment levels
predicated on timely payments from the KRG and a robust oil price
environment
• While timing of FDP approval remains uncertain, we are making good
progress towards key project sanction milestones:
◦ Finalisation of technical scope and future work programme, which
is substantially complete
◦ Optimisation of phasing of the work programme to facilitate
accelerated cost recovery, dependent on oil prices and timing of
KRG payments
◦ Finalisation of commercial negotiations, including a potential
update to the PSC with the target of ensuring any changes are at
minimum value neutral for GKP
◦ Conclusion of the Gas Management Plan (“GMP”) tendering process
and, as appropriate, financing arrangements
• The Company will continue to update the market and intends to host a
Capital Markets Day as we move closer towards FDP approval
Financial framework & shareholder distributions
• As the Company transitions to increased investment in profitable
production growth from the Jurassic reservoir through a flexible
capital programme, the Board remains focused on balancing investment
in growth with sustainable shareholder returns, while maintaining a
robust balance sheet and prudent liquidity levels
• The Company has a policy of paying an ordinary dividend of at least
$25 million per annum, and is committed to distributing excess cash to
shareholders by way of dividends and/or share buybacks
• In determining the level of shareholder distributions, the Board
regularly reviews the Company’s expected liquidity, cash flow
generation and investment needs, based on a rigorous framework that
includes an assessment of the outlook for oil prices, Shaikan
production and future PSC and capital commitments (including costs
associated with the FDP), as well as timeliness of payments from the
KRG, among other factors
• Since 2019, the Company has successfully delivered against this
strategy by growing gross average annual production by 34%,
distributing $415 million to shareholders and maintaining a strong
balance sheet, against a backdrop of commodity price volatility and
the COVID-19 pandemic
• To underline the Board’s continued commitment, the Company is pleased
to announce the declaration of a $25 million interim dividend:
◦ $25 million interim dividend is equivalent to 11.561 US cents per
Common Share of the Company and is expected to be paid on 3 March
2023, based on a record date of 17 February 2023 and ex-dividend
date of 16 February 2023
◦ Shareholders continue to have the option of being paid the
dividend in either GBP or USD, with the default currency GBP
• Closer to FDP approval, the Board expects to provide an update on the
impact of the FDP on the overall financial framework of the Company
Board update
Following the Company’s announcement on 19 December 2022 advising of the
intention of the Chair of the Board, Jaap Huijskes, to step down at the
2023 Annual General Meeting, the Company’s Board and Nomination Committee
has conducted a process for appointing a successor. The Company is pleased
to announce that the current Deputy Chair and Senior Independent Director
(“SID”), Martin Angle, will be appointed Chair of the Board following the
conclusion of the AGM. Ms Kimberley Wood, current independent
non-executive director, will be appointed Deputy Chair and SID at this
time.
Mr Angle has served on the Board since 2018 and, in addition to his Deputy
Chairman and SID roles, also serves as Chair of the Audit and Risk
Committee. He is a highly experienced independent non-executive director
having held senior executive roles in investment banking, industry and
private equity through his career. He is currently Deputy Chair and SID of
Spire Healthcare Group plc and a non-executive director of Ocean
Biomedical Inc.
Ms Wood was also appointed to the Board in 2018 as an independent
non-executive director. She is also Chair of the Remuneration Committee.
An energy lawyer by profession, she held senior roles in a number of law
firms including Norton Rose Fulbright and Vinson and Elkins. She is also
an independent non-executive director of Energean plc, Valeura Energy
Inc., and Africa Oil Corp.
The Company will review its Board Committee membership at the time these
changes become effective. All directors will be subject to annual
re-election at the AGM.
The Company is cognisant of the Financial Conduct Authority’s new listing
rules on board diversity and inclusion and acknowledge that these also
apply to standard listed companies with effect from 2024. It is the
intention of the Company to move to compliance as stipulated in these
rules whilst also taking account of the size and scale of the business.
Audit tender
In line with best practice, the Company has conducted a competitive tender
process to appoint a new auditor as Deloitte LLP, the Company's current
auditor, is approaching the 20-year maximum term. The Company intends to
appoint BDO LLP as auditor for the financial year commencing 1 January
2023. The appointment is subject to shareholder approval at the 2023
Annual General Meeting. Deloitte LLP will undertake the audit of the
Company for the financial year ending 31 December 2022.
Corporate presentation
An updated corporate presentation will be made available today on the
Company’s website on the Presentations page.
Notes
1. As at 28 January 2023
2. Based on GKP’s closing price on 30 December 2022
3. As at 27 January 2023
4. Shaikan Production Sharing Contract
Enquiries:
Gulf Keystone: +44 (0) 20 7514 1400
Aaron Clark, Head of Investor Relations 1 aclark@gulfkeystone.com
FTI Consulting +44 (0) 20 3727 1000
Ben Brewerton
2 GKP@fticonsulting.com
Nick Hennis
or visit: 3 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 4 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.
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ISIN: BMG4209G2077
Category Code: MSCM
TIDM: GKP
LEI Code: 213800QTAQOSSTNTPO15
Sequence No.: 219089
EQS News ID: 1545891
End of Announcement EQS News Service
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References
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1. mailto:aclark@gulfkeystone.com
2. mailto:GKP@fticonsulting.com
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