TIDMGKP
RNS Number : 6782J
Gulf Keystone Petroleum Ltd.
09 April 2015
Not for release, publication or distribution, directly or
indirectly, in whole or in part in or into the United States or any
jurisdiction other than the United Kingdom and Bermuda where to do
so would constitute a contravention of the relevant laws or
regulations of such jurisdiction. This announcement (and the
information contained herein) does not contain or constitute an
offer to sell or the solicitation of an offer to purchase, nor
shall there be any sale of securities in any jurisdiction where
such offer, solicitation or sale would constitute a contravention
of the relevant laws or regulations of such jurisdiction.
9 April 2015
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone" or "the Company")
2014 Results Announcement
Gulf Keystone, an independent oil and gas exploration and
production company with operations in the Kurdistan Region of Iraq,
today announces its results for the year ended 31 December
2014.
HIGHLIGHTS
Operational
-- 2014 gross production of 6,484,391 barrels of oil (2013:
496,921 barrels of oil) with significant growth expected in
2015
-- Gulf Keystone's operations in the Kurdistan Region remained
secure with production operations and crude oil export deliveries
from the Shaikan field uninterrupted throughout 2014
-- The first production milestone of 40,000 barrels of oil per
day ("bopd") reached in December 2014 following a gradual ramp-up
during the year
-- Current production in excess of 37,000 bopd is being
delivered against the pre-payment of US$ 26 million gross (US$20.8
million net to Gulf Keystone) received for Shaikan crude oil sales
on 25 February 2015, with further payments of a similar nature
anticipated
Financial - as at 31 December 2014
-- Revenues of US$38.6 million achieved (FY13: US$6.7 million);
additional revenue in the region of US$100 million owed but not yet
recognised for crude oil export sales
-- Loss after tax of US$248.2 million (FY13: US$32.0 million)
-- Net proceeds of US$240 million raised from the issue of debt
securities and associated warrants in April 2014
Financial - post period end
-- US$26 million gross (US$20.8 million net) received as
pre-payment for Shaikan crude oil sales in February 2015
-- Successful placing of 85.9 million shares on 31 March 2015,
raising gross proceeds for the Company of US$40 million
-- Discussions ongoing with a number of parties in relation to
possible asset transactions or corporate sale
-- Book Equity Ratio Put Option successfully removed from the
Trust Deed and Conditions of the US$250 million 13.0 per cent
Guaranteed Notes due 2017 at the noteholder meeting on 7 April
2015
-- Cash balance at 8 April 2015 of US$84.7 million (31 Dec 2014:
US$87.8 million) excluding recent share placing proceeds
Outlook
-- Establish a regular payment cycle for past and future Shaikan crude oil export sales
-- Finalise and implement a pipeline access solution for the Shaikan crude
-- Achieve stable Shaikan production rates of 40,000 bopd aiming
to maintain a daily average of 36,000 bopd throughout 2015
-- Manage expenditure in a responsible and prudent manner,
continuing to review and control capital commitments
-- Make decisions on investment in additional production
facilities, development wells and infrastructure required to
increase Shaikan production in line with the approved Shaikan Field
Development Plan
-- Make a decision regarding early production and development of
the Sheikh Adi discovery
Commenting on the Full Year results, Andrew Simon, Interim
Non-Executive Chairman, said:
"2014 was a pivotal year for Gulf Keystone as we completed the
critical transition from explorer to producer. We started the year
with our first crude oil export sales and ended the year by
achieving our objective of producing 40,000 barrels of oil per day
from the Shaikan field, our flagship asset in the Kurdistan Region
of Iraq. This was a significant achievement for an independent
E&P company in a country in the midst of a conflict.
We are committed to rebuilding shareholder value. All avenues
for doing this are being considered, including expansion plans for
Shaikan. As already announced, the Company is continuing to engage
in discussions with interested parties in relation to possible
asset transactions or a sale of the Company, as well as considering
additional routes to secure further funding."
John Gerstenlauer, CEO, said:
"Hitting an important production milestone and achieving a year
of regular crude oil export deliveries confirmed another step
change year for our operational progress at Shaikan, verifying the
presence of a robust international market for our production and
demonstrating our commitment to meeting targets against a
challenging geopolitical backdrop and low international oil
prices.
Following a number of payments received for crude oil exports in
2014 and the most recent pre-payment of US$26 million in February
2015, the arrears amount for crude oil export sales has not
increased significantly in the past six months and we believe that
we are close to achieving a steady and stable payment cycle for
present and future crude oil export sales."
Enquiries:
Gulf Keystone Petroleum: +44 (0) 20 7514 1400
John Gerstenlauer, CEO
Sami Zouari, CFO
Anastasia Vvedenskaya, Head of Investor
Relations
Media Relations and Financial PR
Adviser: +44(0) 20 7520 9266
Mark Antelme
or visit: www.gulfkeystone.com
Notes to Editors:
-- Gulf Keystone Petroleum Ltd. (LSE: GKP) is an independent oil
and gas exploration and production company with operations in the
Kurdistan Region of Iraq.
-- Gulf Keystone Petroleum International (GKPI) holds Production
Sharing Contracts for four exploration blocks in Kurdistan, the
Shaikan, Sheikh Adi, Ber Bahr and Akri-Bijeel blocks.
-- GKPI is the operator of the Shaikan block, which is a major
commercial discovery, with a working interest of 75% and is
partnered with MOL Kalegran Limited (a 100% subsidiary of MOL
Hungarian Oil and Gas plc.) and Texas Keystone Inc., which have
working interests of 20% and 5% respectively.
-- Gulf Keystone plans to move into the large-scale phased
development of the Shaikan field targeting 100,000 bopd of
production capacity during Phase 1 of the Shaikan Field Development
Plan.
Disclaimer
This announcement contains certain forward-looking statements.
These statements are made by the Company's Directors in good faith
based on the information available to them up to the time of their
approval of this announcement but such statements should be treated
with caution due to inherent uncertainties, including both economic
and business factors, underlying such forward-looking information.
This announcement has been prepared solely to provide additional
information to shareholders to assess the Group's strategies and
the potential for those strategies to succeed. This announcement
should not be relied on by any other party or for any other
purpose.
This communication and the information contained herein is not
an offer of securities for sale in the United States. Securities
may not be offered or sold in the United States unless they are
registered or are exempt from registration. Any public offering of
securities to be made in the United States would be made by means
of a prospectus that would contain detailed information about the
company and its management, as well as financial statements. The
company does not intend to register any portion of this offering in
the United States or to conduct a public offering in the United
States or any other jurisdiction. Any public offering of securities
to be made in the United States would be made by means of a
prospectus that would contain detailed information about the
Company and its management, as well as financial statements. Copies
of this communication are not being, and should not be, distributed
in or sent into the United States.
GULF KEYSTONE PETROLEUM LIMITED
Statement of Andrew Simon, Interim Non-Executive Chairman
I am writing to you in my capacity as Interim Chairman,
following Simon Murray's retirement from the Board in March
2015.
2014 was a pivotal year for Gulf Keystone as we completed the
critical transition from explorer to producer. We started the year
with our first crude oil export sales and ended the year by
achieving our objective of producing 40,000 bopd from the Shaikan
field, our flagship asset in the Kurdistan Region of Iraq. This was
a significant achievement for an independent E&P company in a
country in the midst of a conflict.
Shaikan crude oil export deliveries by truck to the Turkish
coast ran mainly without interruption throughout 2014, and resulted
in production of nearly 6.5 million barrels, oil sent for export of
nearly 6 million barrels and 0.5 million barrels of domestic sales.
The world class Shaikan field covers an area of over 283km(2) and
is absolutely key to our asset portfolio in the region which has to
date 12.5 billion barrels of gross hydrocarbons in place and gross
2P reserves and 2C contingent resources of 1.2 billion barrels.
The summer of 2014 saw the ascendance of the Islamic State
insurgency in Iraq and the surrounding region, with the associated
threats to the stability of the region. This resulted in the
precautionary withdrawal of non-essential staff which was carried
out flawlessly, and in spite of which, we barely lost a day's
production, whilst still achieving our year end goal of producing
40,000 bopd.
However, whilst we can be proud of our achievements from an
operational and production stand point, the on-going costs of the
regional conflict, budget negotiations between the Kurdistan
Regional Government ("KRG") and the federal government in Baghdad,
combined with the fall in the oil price, have had a detrimental
effect on our cash receipts. Whilst this has also been the case
with other regional producers the impact on Gulf Keystone has been
felt more severely due to the relative weakness of our balance
sheet. These negative impacts have been a key factor in the
significant weakness in our share price.
The first quarter last year also saw the Company move from AIM
to the Official List, by way of a Standard Listing, and to trading
on the Main Market of the London Stock Exchange plc. ("Main
Market") and whilst we have made progress on many areas of
corporate governance more remains to be done to achieve our
objective of being best in class. Following the transition to the
Main Market, we raised a new bond in April 2014 in order to fulfil
our work program and achieve 40,000 bopd by the end of the
year.
Ensuring the highest standards of safety is imperative for all
companies, even more so for an oil company. The temporary
withdrawal of the Company's non-essential personnel in August 2014,
and our general approach to HSSE, demonstrates our commitment to
safe practices wherever we operate.
Tragically there has been a huge refugee influx into the
Kurdistan Region and I am pleased and proud that we have been able
to make some contribution to the humanitarian relief effort that is
underway near our areas of operation. We want to see our
relationship with the KRG extend well beyond the exploitation of
the region's natural resources, specifically by being a responsible
corporate citizen.
From a corporate perspective, we have seen a number of changes
at the Board level. Firstly, I would like to thank Simon Murray,
our outgoing chairman, who played a key role in taking the business
forward during the last 20 months in difficult circumstances. Todd
Kozel, who stepped down at the last AGM, was one of the founders of
the Kurdistan Region's oil industry and without him the Company
would not exist.
John Gerstenlauer, the Company's COO for over six years, stepped
up into the role of CEO and oversaw the achievement of the
production output of 40,000 bopd. I would like to reiterate the
thanks already given to those directors who stepped down from the
Board during the year.
Equally, we welcomed a number of new Non-Executive Directors in
Joseph Stanislaw, V Uthaya Kumar and Maria Darby-Walker, all of
whom bring a wealth of different experiences to the Board. Finally,
in early 2015 we appointed Sami Zouari as Chief Financial Officer.
He brings a track record from operations in the oil industry as
well as an eminent career in corporate finance and significant
contacts in the Middle East. We now look forward to a greater
period of stability on the Board whilst searching for a full time
Chairman.
I would like to thank all our staff and contractors, both in the
Kurdistan Region and the UK, for their hard work and dedication in
what have been exceptionally difficult circumstances during this
past year.
Looking to the future, we have three key objectives. Firstly, to
be the best business partner to our host government the KRG. Our
ability to produce and sell oil is inextricably linked to the
well-being and future prosperity of the Kurdish people. Our firm
commitment is to move from 40,000 bopd to 70,000 bopd and
ultimately to 100,000 bopd. The only way to achieve this will be to
find a modus operandi that will enable the Company to be paid for
past and future oil sales on a regular basis, which will allow us
both to invest in future facilities and production and address our
capital structure.
At the time of writing this report we have successfully
concluded an equity fundraising and our bondholders have consented
to the removal of the book-to-equity covenant which would have
jeopardized our successful US$40.7 million equity raise in April
2015. This capital raise will strengthen our finances in the short
term while we are working to secure regular revenue streams from
production. And so our second objective is to put the Company on a
sounder financial footing for the longer term.
In addition, as we have announced, the Company is continuing to
engage in discussions with interested parties in relation to
possible asset transactions or a sale of the Company, as well as
consider additional routes to secure further funding.
Thirdly, we are committed to rebuilding shareholder value for
our supportive shareholders who have recently suffered from the
significant decline in our share price. Again all options for doing
this are being considered by your Board including our expansion
plans for Shaikan. Whilst the geo-political situation, lack of
revenue receipts and a fall in the oil price have not helped, we
are also aware that these should not be viewed as excuses and it is
beholden on us, your Board, to deliver value for shareholders,
including our new investors who subscribed to the recent share
placing and whom I am happy to welcome today.
You have mine and the entire Board's commitment to pursue all
these objectives to the best of our ability and to do so whilst
observing the highest standards of corporate governance. There is
an undeniable mutuality of interest for all our principle
stakeholders. I look forward to welcoming as many of you as
possible to our AGM.
Andrew Simon
Interim Non-Executive Chairman
Statement of John Gerstenlauer, Chief Executive Officer
2014 was a year of significant production growth for Gulf
Keystone as we increased momentum and continued to ramp up our
operations from the Shaikan field, achieving our first full year of
crude oil export deliveries and realising important milestones.
Early in the year the Company received the first third party
evaluation of its assets in the Kurdistan Region of Iraq. The
Competent Persons Report (CPR), prepared by ERC Equipoise Limited,
provided an estimation of the Company's Reserves, Contingent
Resources and Prospective Resources, identifying baseline numbers
of 12.5 billion barrels of gross oil in place and 1.2 billion
barrels of oil of combined gross 2P and 2C recoverable reserves and
contingent resources across the Company's portfolio of assets in
the Kurdistan Region comprising the Shaikan, Sheikh Adi,
Akri-Bijeel and Ber Bahr blocks. The publication of such a report
not only recognised Gulf Keystone's transition from exploration to
production company but being based merely on the limited drilling
and development work done also revealed the scale and very
significant upside potential of our assets for future increases to
these numbers as field development work moves forward.
Immediately after the publication of the CPR, we made the
transition from AIM to the Main Market, a move we felt fitting for
our position as an established and growing E&P player. This
move was followed in April by a successful debt offering of US$250
million in three-year senior unsecured notes due April 2017. Having
met these momentous objectives early in the year the Board and
management could continue 2014 with a focus on delivering
strategy.
The beginning of 2014 witnessed the commencement of Shaikan
crude oil export deliveries, trucked to the Mediterranean coast in
Turkey to be sold to the international market. The first shipment
from the Turkish coast took place in late January 2014 and over the
year our crude oil export deliveries totalled nearly 6 million
barrels, equating to a daily average of over 16,800 bopd enabled by
our two production facilities PF-1 and -2, each capable of
producing 20,000 bopd. Starting the year with levels near to 10,000
bopd, by the end of Q1 production had reached 16,000 bopd and
20,000 bopd by June. Sustaining a year of solid production, we hit
our 40,000 bopd target in late December. This prominent milestone
was realised following the successful installation of flowlines to
tie in producers Shaikan-7 and -8 to PF-1 which now has five wells
in total, and a third well at PF-2, Shaikan-10. Shaikan-11 an
additional production well, recently completed ahead of time and
under budget, is due to increase levels of production at PF-2 in
the near term and will bring the total number of wells at PF-2 to
four.
We realised a total of US$10.4 million net for domestic sales
during the year and received payment for export volumes of US$28.2
million net in 2014. In addition, we continue to work with the
Ministry of Natural Resources of the Kurdistan Regional Government
in order to establish a payment cycle for future crude oil export
sales and significant amounts in arrears amassed over the
years.
The Company's financial position has been strengthened by the
successful share placing in April 2015, which resulted in gross
proceeds of US$40,693,235. However we continue to take a prudent
approach to our capital expenditure in 2015. Our strategy for the
near term is to maintain steady production and sales, finalise a
pipeline access solution for Shaikan and get a steady stream of
revenues, which in turn will allow us to invest in further
development of the Shaikan field in line with Phase 1 of the
approved Field Development Plan.
Despite the recently challenging geopolitical backdrop and the
low oil price environment that have affected the Kurdistan Region
and the oil industry as a whole, our operational story has remained
stoic. We have absorbed the impact of plunging oil prices due to
our low operating costs and sustained near uninterrupted production
and construction operations throughout 2014, and at the height of
this challenging year when the Islamic State (IS) insurgence posed
a serious security threat to Iraq. With our focus unchanged in the
face of various obstacles, we were not only able to continue but
increase production and reach our year end 40,000 bopd target,
while ensuring our staff were safe and secure, and meaningfully
supporting the humanitarian relief effort in the Kurdistan
Region.
Hitting an important production milestone and achieving a year
of regular crude oil export deliveries confirmed another step
change year for our operational progress at the Shaikan field,
verifying the presence of a robust international market for our
product and demonstrating our commitment to meeting targets and
aligning ourselves with stakeholder expectations. We look forward
to the normalisation of the payment cycle for our production and
welcome the recent pre-payment of US$26 million gross received in
February 2015.
I would like to thank my fellow Board members and management
team for their continued dedication and drive. I would also like to
take this opportunity to thank all our employees and contractors,
especially the team in the Kurdistan Region who have shown
resilience while working in what has at times been a tentative
environment. Finally I would like to thank the KRG for working so
closely with Gulf Keystone, as partners, in order to achieve our
mutual goals.
We are proud of what has been achieved in what has proved a
testing geopolitical scenario in 2014 and early 2015 and feel that
40,000 gross barrels of oil per day is an excellent base for future
production growth.
John Gerstenlauer
Chief Executive Officer
Operational Review
Despite an extremely challenging environment Gulf Keystone's
major operational targets have all been achieved for 2014.
Operationally 2014 was an exceptional year for progress, during
the course of which development of Shaikan was high paced and we
were successful in realising our stated goals. By early 2014
Shaikan PF-1 had achieved stable production levels of 10,000 bopd
and, as predicted with the commissioning of PF-2, in June this
increased to over 20,000 bopd, until achieving our cumulative
production target of 40,000bopd in December after flowlines were
laid allowing further wells to come online at both Shaikan
production facilities. With the 2014 Shaikan production milestone
achieved, further well capacity brought online and a stable export
route in place, production growth from the field is set to
continue.
On the Sheikh Adi block, we successfully completed and flow
tested appraisal well Sheikh Adi -3 and we continue to work with
our host government and partner to determine the optimal path to
development and production of the discovery.
Reserves and Resources
The March 2014 CPR identified 12.5 billion barrels of gross oil
in place and 1.2 billion barrels of oil of combined gross
2P and 2C recoverable reserves and resources across the Shaikan,
Sheikh Adi, Ber Bahr and Akri-Bijeel blocks. All 2P
reserves and the majority of 2C contingent resources have been
identified within the Company-operated assets of
Shaikan and Sheikh Adi, and most of these, based on current
information, are in the Jurassic formation. 299 million
barrels of gross 2P oil reserve in the Jurassic formation of the
Shaikan field, with 163 million barrels of net 2P reserves
to Gulf Keystone, have been assigned on the basis of the planned
26 development wells of the Shaikan FDP Phase 1. These wells, which
will mainly target the Sargelu, Alan and Mus formations only in the
Jurassic, represent fewer than
25% of the approximate 100+ wells envisaged for the full field
development of Shaikan.
The CPR is an important baseline indication of resources and
reserves, with potential for future increases through the
full implementation of Phase 1 of the Shaikan FDP and its
further project phases, which will include the drilling of a
substantial number of development wells, acquisition of
additional production data from the existing and additional
production facilities and further exploration drilling in and
development of the Cretaceous, Triassic and potentially
Permian formations. The CPR does not take into account
undrilledand untested horizons, which we intend to target with a
further deep exploration well on Shaikan, and we see a clear route
for unlocking the upside to these initial 2P and 2C numbers through
drilling more wells and thus obtaining a better understanding of
the oil water contact levels, the actual fracture porosity and the
likely production mechanism. We also anticipate that our 2C
contingent resources
will be converted to 2P reserves as the next phase of the
Shaikan development is approved.
Shaikan (75% working interest; Operator)
Crude oil export deliveries
Shaikan crude oil is sold to international markets via trucked
deliveries to the Turkish coast. One hundred percent of our
production is currently being exported this way and truck loading
continues to operate effectively with over 250 trucks being loaded
on some days which equates to approximately 41,000 bopd. Even at
these levels however, this is not a 24 hour operation, meaning
there remains capacity in the current system for volumes to
increase.
Total export deliveries from Shaikan totalled 5.9 million bbls,
or 901k tonnes, in 2014 with a maximum daily delivery of an
extremely encouraging 57,450 bopd achieved in December.
During the first two months of 2015 we exported 871,000 bbls
from Shaikan, aiming to maintain stable average production rates
from Shaikan of 36,000 bopd for export throughout 2015 based on 90%
plant availability
Drilling
The Shaikan-7 well, originally drilled for deep exploration, was
unable to achieve its objective due to a number of mechanical
complications in the course of the drilling operations. The well
has now been completed to produce from either the upper or lower
Jurassic and is currently the only well producing from the deeper
Butmah reservoir, flowing into PF-1. The Company remains committed
to drilling an exploration well to target the deeper Triassic and
Permian potential.
Shaikan-10, the Company's first development well and ninth
producer, was successfully completed, flow tested for a short
period and tied into PF-2 to provide the third well into the
facility. Shaikan-10 is demonstrating excellent productivity from
the limited flow data gained to date. Two kilometres away
subsurface is the Shaikan-11 well which spudded in December 2014 to
provide further feedstock to PF-2. Add to this the now tied-in
Shaikan-8 at PF-1, and there are currently nine wells available for
production on Shaikan. The Company has converted all but one of its
appraisal wells to producers, demonstrating our commitment to
ensuring economic efficiency.
Production, flowlines and facilities
Work has progressed well during the year in bringing further
capacity online. Shaikan PF-1 has been online since July 2013
meaning that during Q1 2014 levels of production were stable at
around 10,000 bopd. When PF-2 came on stream in May, with oil from
wells Shaikan-2 and Shaikan-5 flowing in June, production rose
above 20,000 bopd. With a similar processing train to PF-1, but
with a larger footprint and more storage, PF-2 is operating well.
In order to ramp-up production further, an 11 km trench was
excavated from the Shaikan-10 and -11 well site to the facility,
into which four flowlines and an umbilical have been laid. In
anticipation of high production volumes from these wells, the
flowlines were duplicated, successfully hydrotested and brought
online with Shaikan -10 oil before the end of 2014, which was key
to reaching our 40,000 bopd prodcution milestone.
Surface manifold and flowlines have been laid for new wells
Shaikan-7 and -8 and additional flowlines for existing wells
Shaikan-1 and -3 granting extra capacity, which will be utilised
once the 3 1/2 " tubing in these wells is replaced with 5" tubing
during 2015.
The amine gas sweetening system to allow associated gas to be
used as fuel for the production facilities, has been tested at both
facility sites and commissioning continues. Also a rolling
programme of plant debottlenecking and upgrades in order to enhance
facility performance is underway as we move forward with Phase I of
Shaikan Field Development Plan execution.
Continued growth in well capacity by the addition of wells, the
commissioning of PF-2 and the proof of concept in the route to
market, with well in excess of 40,000 bopd being trucked on several
occasions, places Gulf Keystone in good stead for future
development of the Shaikan field. We remain committed to
implementing the approved Phase 1 of the Shaikan FDP, which will
take us beyond our current 40,000 bopd to up to 70,000 bopd before
progressing to the Phase 1 target of 100,000 bopd. The step up in
production from where we currently stand will require additional
production facilities, development wells and infrastructure,
including a Central production facility (CPF) Phase 1. The Company
has now produced nearly 3% of its Shaikan 2P reserve and looks
forward to further development of this remarkable asset going
forward.
Sheikh Adi (80% working interest; Operator)
After making the Jurassic discovery with the Sheikh Adi-2 well
in November 2012, the Company and the KRG, our partner in the
block, moved forward with an appraisal programme for the field to
appraise Jurassic targets and
evaluate the Triassic upside. Key to this was the drilling and
testing of the Sheikh Adi-3, which spudded in December
2013 in a region close to the western flank of Shaikan. The well
successfully tested hydrocarbons achieving rates of up to 270
bbls/d from the Jurassic, proving the first commercial rates from
the footwall part of the structure and was suspended awaiting
future production. In parallel, reprocessing of the seismic data
volume and integration with neighbouring data has allowed much
improved definition of the structure, both in terms of extent and
layering. We continue to work with our host government and partner
to determine the optimal path to development and production of this
asset.
Other Assets
Ber Bahr (40% working interest)
The Ber Bahr-1exploration well made a commercial Jurassic
discovery in 2013 after being successfully side-tracked and tested
2,100 bopd of 15 degree API oil from the Jurassic Sargelu
formation. Genel Energy plc, the operator, stated that the results
of the Ber Bahr-1 well confirmed the existence of a commercial oil
discovery. A 160km(2) 3D seismic survey was completed in September
2014 and initial interpretation of this data confirms a potentially
large accumulation in the Jurassic reservoirs. An appraisal well,
Ber Bahr-2, is planned in 2016 to delineate the reservoir and
define the oil water contact of the existing discovery.
Akri-Bijeel (20% working interest)
In 2014, MOL Hungarian Oil and Gas plc, the operator of the
Akri-Bijeel block, declared the block commercial based on the
discoveries made by the Bijell-1 well in the Jurassic in 2010 and
the Bakrman-1 well in the Triassic in February 2013. The Field
Development Plan for the Bijell and Bakrman discoveries was
approved by the MNR in late 2014.
In line with the Company's decision to undertake a gradual
strategic exit from Algeria, our remaining limited activities in
Algeria will continue to focus on an orderly exit from the small
GKN/GKS oil fields in the Ferkane area.
John Stafford
Vice President Operations
Financial Review
Results for the Year
Operating Results
2014 has been a period of significant progress and transition
for Gulf Keystone. The Group has continued to transform from an oil
explorer to producer, changing the focus of financial results from
capital expenditure to revenue, operating expenditure and
production. However, this has been affected by the lack of a stable
payment cycle for the increasing production.
Gross production for the year totalled 6,484,391 barrels of oil
(2013: 496,921 barrels of oil). Production averaged 18,000 barrels
of oil per day, reaching 40,000 gross barrels of oil per day on 27
December 2014.
Gross liftings were 6.5 million barrels of oil (2013: 304,680
barrels of oil). Of these liftings 6 million barrels were lifted
for the export market and 0.5 million barrels for the domestic
market. Revenue realised for the period was $38.6 million, of which
$28.2 million arose from export sales (2013: $Nil) and $10.4
million from domestic sales (2013: $6.7 million).
The Group continues to recognise revenue on a cash receipts
basis for sales to the export market and revenue from domestic
sales on an accruals basis. As the payment mechanism for sales to
the export market is currently developing within the Kurdistan
Region of Iraq, the Group considers that, at this point in time,
revenue can be only reliably measured at the point of cash receipt.
The realised price for domestic sales was $43/bbl (2013: $41/bbl)
and in accordance with the terms of the Shaikan PSC, domestic sales
are recognised gross of royalty.
Export sales for the period have been recognised net of royalty
with the KRG deemed to have taken the royalty "in-kind". This is
based on the Group's current working interest and its associated
42% entitlement (i.e. excluding royalty) to gross oil sales. The
practice of recognising export revenues on a cash receipts basis
has resulted in crude sent for export in the region of $100
million, based on GKP's current 80% working interest in the field,
being owed but not recognised. The revenue recognition policy for
export sales will be re-evaluated once a payment cycle is better
established. Further details on revenue, and the related judgements
and assumptions, can be found in the Summary of Significant
Accounting Policies, Critical accounting estimates and judgements
and note 2 to the consolidated financial statements.
Operating costs on a per barrel basis, excluding royalty,
inventory movements, and depreciation, depletion and amortisation
costs were $11.8 per barrel on an entitlement basis (2013: $27.2
per barrel).
The unit of production method, based on entitlement production,
reserves and costs for the Shaikan development, has been used to
calculate the depreciation, depletion and amortisation (DD&A)
charge for the year. Production and reserves entitlement associated
with unrecognised crude sent for export have been included in the
DD&A calculation. The depreciation charge relating to these
assets for 2014 was $38.4 million (2013: $2.4 million), and is
recorded within cost of sales; see notes 3 and 11 to the
consolidated financial statements for further details.
The Gross loss for the year was $43.3 million (2013: $5.3
million). The increased loss has been driven by the disparity
between recognising export revenue on a cash receipt basis and
expenses on a full production basis.
Non-Operating Results
An impairment charge of $144.1 million has been recognised in
2014 (2013: $Nil). The impairment has been recognised on the
Akri-Bijeel Block which the Company deems to be a non-core
asset.
General and administrative expenses for 2014 were $39.0 million
(2013: $15.8 million), an increase of $23.2 million. This can be
primarily attributed to the large Excalibur receipts in 2013 and
the reduction in Long Term Incentive Plan and bonus expense, as
discussed below.
On 13 December 2013, the English Commercial Court (the "Court")
handed down its full judgment dismissing all the claims asserted by
Excalibur Ventures LLC ("Excalibur") and deciding all issues in
favour of the Group and Texas Keystone (the "Defendants). The Court
ordered that the full sum paid into the Court as security for the
Defendant's costs be paid out to the Defendants and the amount
received by the Company (GBP17.5 million, net of outstanding legal
fees of GBP0.6 million) was credited against 2013 administrative
expenses. The Company received this amount in January 2014. The
Company was awarded a further GBP3.2 million, and Texas Keystone,
an additional GBP2.4 million to be recovered from Excalibur and
their financial backers, following an assessment of costs on an
indemnity basis, of which GBP1.4 million has been recognised in
2014, following receipt in early 2015.
The costs associated with the share bonus awards and the options
awarded under the Company Share Options Plan and Long Term
Incentive Plan decreased from $12.6 million in 2013 to $4.9
million, reflecting no new grants during the year. Of these costs,
$0.7 million has been included within intangible assets and
property plant and equipment (2013: $2.9 million), as these
employment costs are directly attributable to technical staff
working on capital oil and gas projects. In addition, cash bonuses
for senior management have reduced by $4.6 million to $3.0 million
(2013: $7.6 million), in line with Group remuneration policy and
with no new awards granted to Executive Management for the year
ended 31 December 2014.
Other gains of $0.1 million (2013: other losses of $1.2 million)
comprise foreign exchange gains.
Interest revenue remains low in accordance with prevailing
interest rates and has reduced from 2013 due to a lower average
cash balance (2014: $0.1 million; 2013: $0.8 million). Finance
costs of $19.8 million (2013: $10.4 million) are made up of the
accretion charge on the decommissioning provision of $0.5 million
(2013: $0.4 million), interest payable in respect of the
Convertible Bonds of $26.9 million (2013: $23.4 million) and
interest payable on the new Bonds issued during the year of $29.1
million. Of the interest expense on both the Convertible and
Guaranteed Bonds $36.7 million (2013: $13.4 million) was
capitalised within tangible and intangible assets.
The tax cost for 2014 is $2.1 million (2013: $0.1 million) and
arises on UK activities. No tax cost has been recognised for
operations in Kurdistan. Under the terms of the PSC, the KRG will
settle Iraq tax obligations out of its share of profit oil.
The results for 2014 show an increased loss after tax of $248.2
million (2013: $32.0 million) reflecting the impairment recognised
in the Akri-Bijeel block, the lack of a regular payment cycle in
addition to the increased operations and its funding needs.
Cash Flow
Net cash outflow from oil and gas operations after operational
and administrative expenses was $0.8 million (2013: $25.1 million).
The loss from operations of $226.4 million (2013: $21.1 million)
was adjusted for non-cash charges of $190.2 million (2013: $13.0
million), that includes share-based payments, impairment charges
and depreciation, depletion and amortisation costs. Non-cash
expenditure was reduced by a decrease in share-based payment
expense from $9.8 million to $4.0 million, but offset by an
increase in depreciation to $39.0 million (2013: $3.0 million),
including the charge to the Shaikan oil and gas assets. See note 21
to the consolidated financial statements for further details.
Working capital adjustments result in a $35.4 million cash
inflow (2013: $17.0 million outflow) reducing operational cash
outflow relative to accounting loss from operations. The increases
in inventories and payables are in line with the level of the
Company's activities during the year, while the significant
decrease in receivables results from the outstanding Court costs
receivable, which was paid in early 2014.
Bond coupon payments of $36.6 million were made during 2014
(2013: $17.2) and are included within cash used in operating
activities.
Tax paid in 2014 was $0.2 million (2013: $0.7 million) and
interest received was $0.1 million (2013: $0.8 million). Net cash
outflow from operating activities after tax and interest was $37.4
million (2013: $42.1 million).
Cash used in investing activities totalled $197.4 million (2013:
$182.3 million), which comprises $86.8 million spent on intangible
assets (2013: $131.8 million) and $110.6 million (2013: $59.0
million) spent on property, plant and equipment with no movement in
liquid investments (2013: $8.6 million decrease). The spend on
property, plant and equipment has increased following the transfer
of the Shaikan assets from intangible assets to property, plant and
equipment at 30 June 2013. The majority of the cash spent on
intangible assets relates to the Company's exploration activities
in the Kurdistan Region of Iraq, including the drilling, testing
and workovers of wells on the Sheikh Adi, Ber Bahr and Akri-Bijeel
blocks. Overall, cash spend on intangible assets and property plant
and equipment was comparable to 2013 (2014: $197.4 million; 2013:
$190.9 million).
Cash generated by financing activities amounted to $240.1
million (2013: $53.9 million) and primarily results from the
placing of $250 million 13.0 percent guaranteed notes during April
2014. In 2013, significant funds were raised through the "tap"
issue of the $50 million convertible bonds during November
2013.
The net overall increase in cash and cash equivalents during the
period was $5.3 million (2013: $171.7 million decrease). Foreign
exchange gains on cash balances were $0.6 million (2013: $1.3
million loss).
Cash and cash equivalents totalled $87.8 million at 31 December
2014 (31 December 2013: $82.0 million).
Corporate Activities
During 2014, the Company obtained admission to trading on the
London Stock Exchange plc's ("LSE") Main Market for listed
securities. The admission to the Official List occurred at 8.00am
on 25 March 2014. Trading in the Company's common shares on AIM was
simultaneously cancelled.
Other and Further Events
The Company continues to explore options for the disposal of its
20% working interest in the Akri-Bijeel block together with its
appointed corporate advisers, whom are responsible for coordination
of, and advice on, the process. The disposal process remains
ongoing at the date of this report, with the Group continuing to
actively market its interest. The block was declared commercial in
October 2013 by the operator, MOL. Early production has commenced
from the Extended Well Test ("EWT") facility following the tie-in
of Bijell-1B, with initial production at around 3,500 barrels per
day, reducing to 2,000 barrels per day by 31 December 2014. These
developments, together with the Bakrman discovery in 2013, all
enhance the prospect of a successful conclusion to the disposal
process. The Akri-Bijeel intangible asset (2014: $8.6 million;
2013: $103.1 million), including the associated working capital
balances, continues to be classified as an asset held for sale.
Further details of this asset, and the facts and circumstances of
the proposed sale, are given in note 12 to the consolidated
financial statements.
The Company continues to effect an orderly exit from its
Algerian operations and continues the discussions with Sonatrach
regarding the exit from Block 126a (GKN and GKS oilfields under the
Ferkane Permit).
Financial Strategy and Outlook for 2015
Given the macro geo-political challenges that today are
affecting Gulf Keystone and the Kurdistan Region, where our core
assets are located, we are focused on ensuring the best course
possible through this period for the benefit of all stakeholders.
Whilst we continue to work closely with the KRG, our host and
partner, on establishing a stable payment cycle for Shaikan
production, we need to maintain and enhance our liquidity in the
near term.
As such, and due to the impairment of the non-core Akri-Bijeel
Block, which has been held for sale by the Company, we believe that
it was appropriate to seek the removal of the Book to Equity Ratio
Put Option covenant, which allowed the Company to raise $40 million
of equity via a private placement as a short term funding solution,
while working on several mid to long term funding alternatives.
This successful placement will strengthen the Company's
financial position in the short term while discussions with
interested parties in relation to possible asset transactions or a
sale of the Company. The Board is currently assessing a number of
longer-term funding options to progress to the next Shaikan
production target of up to 70,000 bopd, which will also be
sustained by a regular payment cycle in relation to past and future
production.
S Zouari
Chief Financial Officer
M Hood
Deputy Chief Financial Officer
Consolidated Income Statement
For the year ended 31 December 2014
Notes 2014 2013
$'000 $'000
----- --------- --------
Continuing operations
Revenue 2 38,560 6,696
Cost of sales 3 (81,845) (11,950)
--------- --------
Gross loss (43,285) (5,254)
Other operating expenses
Impairment expense 9 (144,119) -
General and administrative expenses (39,034) (15,843)
--------- --------
Loss from operations 4 (226,438) (21,097)
Other gains and (losses) 73 (1,186)
Interest revenue 2 103 828
Finance costs (19,812) (10,392)
--------- --------
Loss before tax (246,074) (31,847)
Tax charge 5 (2,129) (118)
--------- --------
Loss after tax for the year (248,203) (31,965)
--------- --------
Loss per share (cents)
Basic 6 (28.51) (3.69)
Diluted 6 (28.51) (3.69)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2014
2014 2013
$'000 $'000
--------- --------
Loss for the year (248,203) (31,965)
Items that may subsequently be reclassified
to profit or loss:
Exchange differences on translation
of foreign operations (986) 279
--------- --------
Total comprehensive loss for the period (249,189) (31,686)
========= ========
Consolidated Balance Sheet
As at 31 December 2014
Notes 2014 2013
$'000 $'000
----- ---------- --------------------
Non-current assets
Intangible assets 7 276,290 220,963
Property, plant and equipment 8 593,604 516,437
Deferred tax asset 732 3,680
870,626 741,080
---------- --------------------
Current assets
Assets classified as held for sale 9 8,587 103,086
Inventories 22,854 20,654
Trade and other receivables 16,380 34,023
Cash and cash equivalents 87,835 81,972
135,656 239,735
---------- --------------------
Total assets 1,006,282 980,815
========== ====================
Current liabilities
Trade and other payables (103,985) (100,795)
Provisions (7,197) (4,185)
Liabilities directly associated with
assets classified as held for sale 9 (8,587) (1,378)
(119,770) (106,358)
---------- --------------------
Non-current liabilities
Convertible bonds 10 (303,278) (296,725)
Other borrowings 10 (224,071) -
Provisions (19,559) (15,365)
---------- --------------------
(546,908) (312,090)
---------- --------------------
Total liabilities (666,677) (418,448)
========== ====================
Net assets 339,605 562,367
========== ====================
Equity
Share capital 8,922 7,975
Share premium account 796,099 796,099
Share option reserve 51,017 33,486
Convertible bonds reserve 15,834 21,488
Exchange translation reserve (259) 728
Accumulated losses (532,008) (297,409)
---------- --------------------
Total equity 339,605 562,367
========== ====================
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014
Attributable to equity holders of the Company
----------------------------------------------------------------------------
Share Share Exchange Convertible
Share premium option translation Accumul-ated bonds Total
capital account reserve reserve losses reserve equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 January
2013 7,847 791,479 29,280 449 (276,849) 25,485 577,691
Net loss for the
year - - - - (31,965) - (31,965)
Other comprehensive
income for the year - - - 279 - - 279
--------- ----------- --------- ------------ ------------- ------------ -------------
Total comprehensive
income/(loss) for
the year - - - 279 (31,965) - (31,686)
Transfer relating
to share-based payments - - (6,089) - 6,089 - -
Share-based payment
expense - - 12,568 - - - 12,568
Deferred tax on
share-based
payment transactions - - (2,273) - - - (2,273)
Share conversion
and issue 128 4,620 - - - - 4,748
Own shares held by
EBT - - - - (64) - (64)
Issue of convertible
bonds - - - - - 1,383 1,383
Convertible bonds
equity amortisation - - - - 5,380 (5,380) -
------------- ------------ -------------
Balance at 1 January
2014 7,975 796,099 33,486 728 (297,409) 21,488 562,367
Net loss for the
year - - - - (248,203) - (248,203)
Other comprehensive
loss for the year - - - (987) - - (987)
--------- ----------- --------- ------------ ------------- ------------ -------------
Total comprehensive
income/(loss) for
the year - - - (987) (248,203) - (249,190)
Transfer relating
to share-based payments - - (8,897) - 8,897 - -
Share-based payment
expense - - 4,885 - - - 4,885
Deferred tax on
share-based
payment transactions - - (619) - - - (619)
Share conversion
and issue 947 - - - (914) - 33
Own shares held by
EBT - - - - (33) - (33)
Issue of warrants - - 22,162 - - - 22,162
Convertible bond
equity amortisation - - - - 5,654 (5,654) -
Balance at 31 December
2014 8,922 796,099 51,017 (259) (532,008) 15,834 339,605
========= =========== ========= ============ ============= ============ =============
Consolidated Cash Flow Statement
For the year ended 31 December 2014
Notes 2014 2013
$'000 $'000
----- --------- ---------
Operating activities
Cash generated/(used) in operations 11 (760) (25,072)
Tax paid (210) (675)
Interest received 103 828
Bond coupon payments (36,563) (17,188)
Net cash used in operating activities (37,430) (42,107)
--------- ---------
Investing activities
Purchase of intangible assets (86,809) (131,844)
Purchase of property, plant and equipment (110,623) (59,008)
Decrease/(increase) in liquid investments - 8,600
Net cash used in investing activities (197,445) (182,252)
--------- ---------
Financing activities
Proceeds on issue of share capital - 4,748
Proceeds on issue of convertible bonds 240,114 49,189
Net cash generated by financing activities 240,114 53,937
--------- ---------
Net (decrease)/increase in cash and cash
equivalents 5,239 (170,422)
Cash and cash equivalents at beginning
of year 81,972 253,713
Effect of foreign exchange rate changes 624 (1,319)
--------- ---------
Cash and cash equivalents at end of the
year being bank balances and cash on
hand(1) 87,835 81,972
========= =========
(1) This amount includes $32.5 million held within a Debt
Service Reserve Account as stipulated by the 2014
Notes. The Company has free access to this account, but any
shortfall must be repaid within 5 business days.
Notes to the financial statements
Summary of Significant Accounting Policies
General information
The Company is incorporated in Bermuda and, during 2013, was
quoted on AIM, a market operated by the London Stock Exchange Plc
(registered address: Cumberland House, 9(th) Floor, 1 Victoria
Street, Hamilton, Bermuda). On 25 March 2014, the Company's common
shares of US$0.01 each ("Common Shares") were admitted, with a
Standard Listing, to the Official List of the United Kingdom
Listing Authority ("UKLA") and to trading on the London Stock
Exchange's Plc's Main Market for listed securities. Pursuant to
Rule 41 of the AIM Rules, the Company gave notice that trading in
the Company's Common Shares on AIM was cancelled on the same day.
In 2008, the Company established a Level 1 American Depositary
Receipt programme in conjunction with the Bank of New York Mellon
which has been appointed as the depositary bank. The Company serves
as the holding company for the Group, which is engaged in oil and
gas exploration and production, operating in the Kurdistan Region
of Iraq and the Republic of Algeria.
The financial information for the year ended 31 December 2014
set out in this announcement does not constitute statutory accounts
within the meaning of the Bermuda Companies Act 1981 but has been
extracted from those statutory accounts. Statutory accounts for the
year ended 31 December 2013 were approved by the Board on 26 March
2014 and have been delivered to the Registrar of Companies and
those for 2014 were approved by the Board of Directors on 8 April
2015 and will be delivered to the Registrar following the company's
Annual General Meeting. The auditor has reported on the 2014
accounts; the report was unqualified, but did include a reference
to a matter to which the auditor drew attention by way of emphasis
of matter around going concern.
Basis of preparation
The financial information has been prepared in accordance with
the recognition and measurement criteria of International Financial
Reporting Standards (IFRS) adopted for use in the European Union.
However, this announcement does not itself contain sufficient
information to comply with IFRS. The company will publish full
financial statements that comply with IFRS on 28 April 2015.
Basis of accounting
The financial information has been prepared under the historical
cost basis, except for the valuation of hydrocarbon inventory and
the valuation of certain financial instruments, which have been
measured at fair value, and on the going concern basis.
Equity-settled share-based payments were initially recognised at
fair value, but have not been subsequently revalued; cash-settled
share based payments are recognised at fair value.
Accounting policies
The accounting policies applied in this announcement are
consistent with those of the annual financial statements for the
year ended 31 December 2013, as described in those annual financial
statements. A number of amendments to existing standards and
interpretations were applicable from 1 January 2014. The adoption
of these amendments did not have a material impact on the group's
financial statements for the year ended 31 December 2014.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chairman's Statement, Strategic Review by the
Chief Executive Officer and Operational Review. The financial
position of the Group at the year end and its cash flows and
liquidity position are included in the Financial Review. In
addition, the Annual Report includes the Group's objectives,
policies and processes for managing its capital, its financial risk
management objectives and details of its financial instruments and
hedging activities. It also describes the Group's exposures to
credit risk and liquidity risk.
Following commencement of first commercial production in July
2013 and sales thereafter along with the commencement of the export
of crude oil in December 2013 from the Shaikan Block, the Group has
entered a critical phase in its development as it transitions from
pure explorer to oil producer. This requires significant capital
and operating expenditure to be incurred during the next 12 months
and the Group also needs to make significant coupon payments on its
convertible bonds and 2014 Notes.
The Group's cash balances at 8 April 2015 were $84.7 million,
excluding $40 million (gross) raised in early April 2015 through
the placing of 85,900,000 new Common Shares (see note 12). The
Group's key producing asset is its interest in the Shaikan Block in
Kurdistan and, in order to meet its projected funding requirements
for the foreseeable future, being 12 months from the date of this
report, it has been assumed that the Group is able to establish a
stable and reliable pattern of cash receipts from oil sent for
export from its interest in Shaikan.
To date, a stable and reliable payment process for export
deliveries has not been established. If this continues, the
Directors expect the Group to require additional working capital by
the end of August 2015.
In order to address this potential shortfall in working capital,
the Group has recently engaged in discussions with a number of
parties in relation to possible asset transactions and further
equity financing (together the "mitigating actions"). In the longer
term, together with the establishment of a stable and reliable
payment process for export deliveries additional funding is also
possible via the exercise of the Shaikan Government Option and/or
the Shaikan Third Party Option under the terms of the Shaikan
PSC.
The Directors have concluded that the lack of a stable and
reliable payment process for export deliveries and the early stage
of the mitigating actions outlined above create a material
uncertainty that casts significant doubt upon the Group's ability
to continue as a going concern. Nevertheless, based on the
forecasts and projections prepared at the time of preparation of
this announcement and after making enquiries, and considering the
uncertainties described above, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For these
reasons, they continue to adopt the going concern basis in
preparing this announcement. The financial information does not
include any adjustments that might be required if they were
prepared on a basis other than that of a going concern.
Notes to the Consolidated Financial Statements
1. Segment information
For the purposes of resource allocation and assessment of
segment performance, the Group is organised into three regional
business units - Algeria, Kurdistan and the United Kingdom. These
geographical segments are the basis on which the Group reports its
segmental information. The chief operating decision maker is the
Chief Executive Officer. He is assisted by the Chief Financial
Officer and senior management team.
The accounting policies of the reportable segments are
consistent with the Group's accounting policies.
Each segment is described in more detail below:
- Kurdistan Region of Iraq: the Kurdistan segment consists of
the Shaikan, Akri-Bijeel, Sheikh Adi and Ber Bahr blocks and the
Erbil office which provides support to the operations in
Kurdistan;
- United Kingdom: the UK segment provides geological,
geophysical and engineering services to the Gulf Keystone Group;
and
- Algeria: the Algerian segment consists of the Algiers office
and the Group's operations in Algeria.
Corporate manages activities that serve more than one segment.
It represents all overhead and administration costs incurred that
cannot be directly linked to one of the above segments.
United
31 December 2014 Algeria Kurdistan Kingdom Corporate Elimination Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------- -------- ---------- --------- ---------- ------------ ----------
Revenue
Oil sales - 38,560 - - - 38,560
Inter-segment sales - - 10,661 - (10,661) -
-------- ---------- --------- ---------- ------------ ----------
Total revenue - 38,560 10,661 - (10,661) 38,560
Cost of sales
Production costs - (42,238) - - 454 (41,784)
Royalty Costs - (1,672) - - - (1,672)
Oil and gas properties
depreciation expense - (38,389) - - - (38,389)
-------- ---------- --------- ---------- ------------ ----------
Gross profit/ (loss) - (43,739) 10,661 - (10,207) (43,285)
-------- ---------- --------- ---------- ------------ ----------
General and administrative
expenses
Impairment charge - (132,903) - - (11,217) (144,119)
Allocated general and
administrative expenses (3,924) (11,277) (9,613) (22,384) 8,920 (38,279)
Depreciation and amortisation
expense - (548) (207) (1) - (756)
-------- ---------- --------- ---------- ------------ ----------
Loss from operations (3,924) (188,467) 841 (22,385) (12,504) (226,438)
Other gains and (losses) (4) (249) - 326 - 73
Interest revenue - - 5 99 - 103
Finance costs - (534) (2) (55,932) 36,657 (19,812)
(Loss)/profit before
tax (3,928) (189,250) 844 (77,892) 24,153 (246,074)
-------- ---------- --------- ---------- ------------ ----------
Tax expense - - (2,129) - - (2,129)
(Loss)/profit after
tax (3,928) (189,250) (1,285) (77,892) 24,153 (248,203)
-------- ---------- --------- ---------- ------------ ----------
Capital expenditure - 359,072 114 - - 359,185
Total assets 52 946,313 21,074 1,271,385 (1,232,542) 1,006,282
-------- ---------- --------- ---------- ------------ ----------
United
31 December 2013 Algeria Kurdistan Kingdom Corporate Elimination Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------- -------- ---------- --------- ---------- ------------ ---------
Revenue
Oil sales - 6,696 - - - 6,696
Inter-segment sales - - 11,745 - (11,745) -
-------- ---------- --------- ---------- ------------ ---------
Total revenue - 6,696 11,745 - (11,745) 6,696
Cost of sales
Production costs - (8,829) - - 144 (8,685)
Royalty Costs - (888) - - - (888)
Oil and gas properties
depreciation expense - (2,377) - - - (2,377)
-------- ---------- --------- ---------- ------------ ---------
Gross profit/ (loss) - (5,398) 11,745 - (11,601) (5,254)
-------- ---------- --------- ---------- ------------ ---------
General and administrative
expenses
Allocated general and
administrative expenses (552) (2,353) (13,636) (11,161) 12,657 (15,045)
Depreciation and amortisation
expense - (580) (217) (1) - (798)
Loss from operations (552) (8,331) (2,108) (11,162) 1,056 (21,097)
Other gains and (losses) (4) (162) - (1,032) 12 (1,186)
Interest revenue - 253 105 573 (103) 828
Finance costs - (378) (103) (23,433) 13,522 (10,392)
(Loss)/profit before
tax (556) (8,618) (2,106) (35,054) 14,487 (31,847)
-------- ---------- --------- ---------- ------------ ---------
Tax expense - - (118) - - (118)
(Loss)/profit after
tax (556) (8,618) (2,224) (35,054) 14,487 (31,965)
-------- ---------- --------- ---------- ------------ ---------
Capital expenditure - 229,271 77 - - 229,348
-------- ---------- --------- ---------- ------------ ---------
Total assets 85 886,079 29,717 1,089,439 (1,024,505) 980,815
-------- ---------- --------- ---------- ------------ ---------
Geographical information
The Group's information about its segment assets (non-current
assets excluding deferred tax assets and other financial assets) by
geographical location is detailed below:
2014 2013
$'000 $'000
--------------- ------- -------
Algeria - -
Kurdistan 869,420 737,047
Bermuda 1 2
United Kingdom 473 351
------- -------
869,894 737,400
======= =======
Information about major customers
Included in revenues arising from the Kurdistan Segment are
revenues of approximately $28.2 million (2013: $5.5 million) and
$10.4 million (2013: $1.1 million) which arose from sales to the
Group's two largest customers.
2. Revenue
2014 2013
$'000 $'000
----------------- ------ ------
Oil sales 38,560 6,696
Interest revenue 103 828
38,663 7,524
====== ======
During 2014, the Company sold Shaikan oil domestically and on
the export market, following the commencement of exports in late
November 2013. Revenue from domestic sales for the year amounted to
$10.4 million (2013: $6.7 million) and revenue from export sales
amounted to $28.2 million (2013: $nil). Revenue for commercial
sales is recognised in line with the terms of the Shaikan PSC, the
applicable sales contracts and the Group's accounting policy.
The price achieved on domestic sales in 2014 was $42.5/bbl
(2013: $41.2/bbl). In arriving at the value of domestic sales
revenue, management have used the following assumptions:
-- Point of sale is the Shaikan facility;
-- Revenue is recognised on an accruals basis;
-- Revenue is recognised gross of any royalty due in accordance
with the terms of the Shaikan PSC; and
-- Company's current working interest in the Shaikan block is 80%.
The estimated realised price for export sales was $29/bbl.
Management has used the following assumptions in arriving at the
value of export sales revenue during the period:
-- Point of sale is the Shaikan facility;
-- Revenue is recognised on a cash receipts basis;
-- Cash is received and revenue is recognised, net of royalty,
as the royalty is taken "in-kind" by the KRG;
-- Deductions for trucking and port storage costs as well as the
discount to Brent, for the quality of the crude, received have been
estimated based on available information;
-- Cash receipts by GKPI as the operator represent the
non-governmental contractors' share of revenue; and
-- Company's current working interest in the Shaikan block is 80%.
3. Cost of Sales
2014 2013
$'000 $'000
------------------------------------- ------ ------
Production costs 41,784 8,685
Royalty costs 1,672 888
Depreciation of Oil & Gas Properties 38,389 2,377
81,845 11,950
====== ======
A unit of production method, based on full entitlement
production, commercial reserves and costs for Shaikan field full
development, has been used to calculate the depreciation, depletion
and amortisation (DD&A) charge for the year. Production and
reserves entitlement associated with unrecognised export sales have
been included in the full year DD&A calculation. A depreciation
charge of $38.4 million has been recorded within cost of sales for
the year (2013: $2.4 million).
Production costs represent the Group's share of gross production
costs for the Shaikan field for the period; all costs are included
with no deferral of costs associated with unrecognised export
sales.
4. Loss from operations
2014 2013
$'000 $'000
------------------------------------------------ ------- --------
Loss from operations has been arrived at
after charging:
Depreciation of property, plant and equipment 39,018 2,981
Amortisation of intangible assets 111 194
Credit in relation to Excalibur litigation (2,138) (18,973)
Staff costs 25,381 26,289
Auditor's remuneration for audit services 155 158
Operating lease rentals 2,051 1,769
5. Tax
2014 2013
$'000 $'000
------------------------------------------ -------- -------
Corporation tax
Current year credit/(charge) 445 706
Adjustment in respect of prior years (400) (12)
Deferred UK corporation tax expense (2,174) (812)
-------- -------
Tax expense attributable to the Company
and its subsidiaries (2,129) (118)
======== =======
Under current Bermudian laws, the Group is not required to pay
taxes in Bermuda on either income or capital gains. The Group has
received an undertaking from the Minister of Finance in Bermuda
exempting it from any such taxes at least until the year 2035.
Any corporate tax liability in Algeria is settled out of
Sonatrach's share of oil under the terms of the Algerian PSCs and
is therefore not reflected in the tax charge for the year.
In the Kurdistan Region, the Group is subject to corporate
income tax on its income from petroleum operations under the
Kurdistan PSCs. The rate of corporate income tax is currently 15%
on total income. However, any corporate income tax arising from
petroleum operations will be paid from the Kurdistan Regional
Government's share of petroleum profits.
The tax currently payable is based on taxable profit for the
year earned in the United Kingdom by the Group's UK subsidiary. UK
corporation tax is calculated at 21.49% (2013: 23.25%) of the
estimated assessable profit for the year of the UK subsidiary.
On 20 March 2013, the UK Government announced a reduction in the
main rate of UK corporation tax from 23 to 21% effective from 1
April 2014 in the Finance Bill 2013 as well as an additional
reduction to 20% on 1 April 2015.
Deferred tax is provided for due to the temporary differences
which give rise to such a balance in jurisdictions subject to
income tax. During the current period no taxable profits were made
in respect of the Group's Kurdistan PSCs, nor were there any
temporary differences on which deferred tax is required to be
provided. As a result, no corporate income tax or deferred tax has
been provided for Kurdistan in the period.
In addition to the deferred tax charge to the income statement,
a $0.6 million deferred tax charge (2013: $2.3 million charge)
relating to estimated excess tax deductions related to share-based
payments has been recognised directly in equity. All deferred tax
arises in the UK.
The expense for the year can be reconciled to the loss per the
income statement as follows:
2014 2013
$'000 $'000
------------------------------------------------ ----------- ---------
Loss before tax (246,074) (31,847)
=========== =========
Tax at the Bermudian tax rate of 0% - -
(2013: 0%)
Effect of different tax rates of subsidiaries
operating in other jurisdictions (2,129) (118)
----------- ---------
Tax charge for the year (2,129) (118)
=========== =========
6. Loss per share
The calculation of the basic and diluted loss per share is based
on the following data:
2014 2013
$'000 $'000
--------------------------------------------- --------- --------
Loss
Loss after tax for the purposes of basic and
diluted loss per share (248,203) (31,965)
2014 2013
Number Number
(000s) (000s)
--------------------------------------------- --------- --------
Number of shares
Basic weighted average number of shares 870,578 868,785
The Group followed the steps specified by IAS 33 in determining
whether potential Common Shares are dilutive or anti-dilutive. It
was determined that all of the potential Common Shares including
bonus shares, share options, convertible bonds and Common Shares
held by the Employee Benefit Trustee ("EBT") and the Exit Event
Trustee have an anti-dilutive effect on loss per share. As a
result, there is no difference between basic and diluted earnings
per share.
As at 31 December 2014, 35.8 million share options (2013: 37.5
million), no unissued bonus shares (2013: 3.3 million),10.3 million
common shares held by the EBT (2013: 9.4 million), 10.0 million
common shares held by the Exit Event Trustee (2013: 10.0 million),
40.0 million warrants (2013: nil) and 74.0 million common shares to
be issued if the convertible bonds are converted at the initial
conversion price of $4.39 (2013: 74.0 million) were excluded from
the loss per share calculation as they were anti-dilutive.
Reconciliation of anti-dilutive shares:
2014 2013
Number Number
(million) (million)
--------------------------------------------- ---------- ----------
Number of shares
Share Options 35.8 37.5
Unissued bonus share - 3.3
Common Shares held by the EBT 10.3 9.4
Common Shares held by the Exit Event Trustee 10.0 10.0
Warrants outstanding 40.0 -
Common Shares to be issued on conversion of
convertible bonds 74.0 74.0
Total potentially anti-dilutive shares 170.1 134.2
7. Intangible assets
Exploration
&
evaluation Computer
costs software Total
$'000 $'000 $'000
---------------------------------- ----------- --------- ---------
Year ended 31 December 2013
Opening net book value 545,940 289 546,229
Additions 118,286 110 118,396
Amortisation charge - (194) (194)
Transfer of Shaikan assets
to property, plant and equipment (443,470) - (443,470)
Foreign currency translation
differences - 2 2
Closing net book value 220,756 207 220,963
=========== ========= =========
At 31 December 2013
Cost 220,756 977 221,733
Accumulated amortisation - (770) (770)
----------- --------- ---------
Net book value 220,756 207 220,963
=========== ========= =========
Year ended 31 December 2014
Opening net book value 220,756 207 220,963
Additions 55,487 (45) 55,442
Amortisation charge - (111) (111)
Foreign currency translation
differences - (3) (3)
Closing net book value 276,243 47 276,290
======= ===== =======
At 31 December 2014
Cost 276,243 928 277,171
Accumulated amortisation - (881) (881)
------- ----- -------
Net book value 276,243 47 276,290
======= ===== =======
The net book value at 31 December 2014 includes intangible
assets relating to: Ber Bahr $74.2million (2013: $61.1 million),
and Sheikh Adi $202.1 million (2013: $159.6 million).
The additions to oil and gas exploration and evaluation costs in
the year include the drilling of Sheikh Adi-3 and acquisition and
processing of 3D seismic data on the Ber Bahr block.
The amortisation charge of $111,000 (2013: $194,000) for
computer software has been included in general and administrative
expenses.
8. Property, plant and equipment
Oil & Gas Fixtures & Total
Properties Equipment $'000
$'000 $'000
-------------------------------- ------------------------------- ---------------------------------- --------
Year ended 31 December 2013
Opening net book value - 2,285 2,285
Additions - - -
Disposals 73,545 118 73,663
Depreciation charge (2,377) (604) (2,981)
Transfer of Shaikan exploration
and evaluation assets from
intangibles 443,470 - 443,470
Closing net book value 514,638 1,799 516,437
=============================== ================================== ========
At 31 December 2013
Cost 517,015 5,073 522,088
Accumulated depreciation (2,377) (3,274) (5,651)
------------------------------- ---------------------------------- --------
Net book value 514,638 1,799 516,437
=============================== ================================== ========
Year ended 31 December 2014
Opening net book value 514,638 1,799 516,437
Additions 115,684 547 116,231
Disposals - - -
Depreciation charge (38,389) (629) (39,018)
Foreign currency translation
differences - (45) (45)
Closing net book value 591,932 1,672 593,604
=============================== ================================== ========
At 31 December 2014
Cost 632,699 5,620 638,319
Accumulated depreciation (40,766) (3,948) (44,714)
------------------------------- ---------------------------------- --------
Net book value 591,932 1,672 593,604
=============================== ================================== ========
The net book value of Oil & Gas properties at 31 December
2014 is comprised of property, plant and equipment relating to the
Shaikan block and has a carrying value of $591.9 million (2013:
$514.6 million).
The additions to the Shaikan block in the year include continued
construction of the second Shaikan production facility - PF-2, the
drilling of Shaikan -7 and -11, tie in of Shaikan-2, -4, -5, -7,
-8, -9 and -10, wells to PF-1 and PF-2.
The depreciation, depletion and amortisation charge of $38.4
million on oil and gas properties (2013: $2.4 million) has been
included within cost of sales (note 3).
The depreciation charge of $0.6 million on fixtures and
equipment (2013: $0.6 million) has been included in general and
administrative expenses.
9. Asset classified as held for sale
In 2011, as part of the forward strategy to rationalise its
asset portfolio, the Group announced the intention to sell the
Group's 20% working interest in the Akri-Bijeel block. The Group
subsequently appointed Joint Corporate Advisers responsible for
co-ordination of and advice on the sale and this process is
ongoing.
Following an economic assessment of the Akri-Bijeel field using
the Net Present Value method, an impairment of $144.1 million has
been recognised, to reduce its carrying value to the Company's best
estimate of its fair value less costs to sell, taking in to
consideration the recent steep fall in prevailing oil prices and
the latest status of the drilling programme.
The Akri-Bijeel asset of $8.5 million (2013: $103.1 million),
which is included within the Kurdistan operating segment, is
expected to be sold within 12 months and has been classified as an
asset held for sale as at 31 December 2014 and presented separately
in the balance sheet. The value of the asset held for sale as at 31
December 2014 includes $Nil (2013: $7.1 million prepayment) that
relates to a prepayment balance to the operator. The additions in
the year include the drilling of Bakrman-2, Bijell-2, Bijell-4 and
Bijell-6 wells, the workovers of Bijeel-1, as well as seismic
processing and geological studies and the construction of surface
facilities.
Further amounts of $6.3 million (2013: $Nil) and $2.2 million
(2013: $1.4 million), representing respectively a payables balance
to the operator and the net present value of the decommissioning
costs associated with this asset is presented separately on the
balance sheet as a liability directly associated with assets
classified as held for sale at 31 December 2014.
Akri-Bijeel Assets: 2014 2013
$'000 $'000
------------------------ ------- --------
Intangible assets 8,587 96,007
Prepayment to operator - 7,079
------- --------
8,587 103,086
------- --------
Akri-Bijeel Liabilities: 2014 2013
$'000 $'000
------------------------------------ ------- -------
Decommissioning provisions 2,298 1,378
Payables/(prepayments) to operator 6,289 -
8,587 1,378
======= =======
Management consider that the criteria to classify the asset as
held for sale continue to be met, notwithstanding the fact that
this asset was classified as held for sale at 31 December 2011,
2012 and 2013. The Group continues to actively market its interest
in Akri Bijeel and in November 2014, the operator, MOL, announced
that it has agreed upon its field development plan (FDP) with the
Kurdish Ministry of Natural Resources. The FDP relates to two
commercial discovery areas in the Akri-Bijeel block - the Bijell
and the Bakrman areas. Early production continues from Extended
Well Test ("EWT") facility.
10. Long term borrowings and warrants
On 17 April 2014, the Group issued debt securities consisting of
$250 million three-year senior unsecured loan notes (the "Notes"),
carrying a coupon of 13% per annum payable on a biannual basis and
freely tradeable and detachable warrants relating to 40 million
Common Shares in the Company. The Notes are guaranteed by Gulf
Keystone Petroleum International Ltd and have a maturity date of 18
April 2017. Each warrant entitles the holder, subject to certain
conditions, to purchase a common share in the Company on payment of
the exercise price of $1.70. The warrants expire on 18 April 2017.
The Notes and warrants have been listed on the Luxembourg Stock
Exchange. The warrants were recorded within equity at their fair
value at the date of issuance of $22.2 million and the remaining
proceeds of the Notes, net of additional issue costs, were recorded
as a non-current liability.
The liabilities associated with both the new Notes and the
existing convertible bonds are presented in the following
tables:
2014 2013
$'000 $'000
------------------------------------------ --------- -----------------------
Liability component at 1 January 300,900 247,028
Liability component of the Notes at issue 217,952 47,627
Interest charged during the year
* on convertible bonds 26,866 23,433
* on 2014 Notes 29,066 -
Interest paid during the year
* on convertible bonds (20,313) (17,188)
* on 2014 Notes (16,250) -
--------- -----------------------
Liability component at 31 December 538,222 300,900
========= =======================
Liability component reported in:
2014 2013
$'000 $'000
----------------------------------------- -------- --------
Interest payable in current liabilities 10,872 4,175
Non-current liabilities 527,350 296,725
538,222 300,900
======== ========
The interest charged for the year has been calculated by
applying an effective interest rate on an annual basis to the
liability component for the period since the bonds were issued. The
effective interest rate for the initial $275 million convertible
bond issue in October 2012 is 9.26%. The effective interest rate
for the $50 million tap issue is 7.20%. Each year, an amount equal
to the difference between the total interest charge and the coupon
rate charge (at 6.25% per annum) is transferred within equity from
the convertible bonds reserve to accumulated losses. The effective
interest rate for the 2014 Notes is 19.7%.
As the Notes are actively traded on the Luxembourg Stock
Exchange, it is considered more appropriate to disclose fair value
at the prevailing market price as at the close of business on the
reporting date:
Market 2014
price
$'000
------------------- ------- ---------
Convertible bonds $0.60 196,489
2014 Notes $0.78 193,138
389,627
======= =========
Assuming that the existing convertible bonds and the newly
issued Notes are not purchased and cancelled, redeemed or converted
prior to their respective maturity dates, the Group's remaining
contractual liability comprising principal and interest, based on
undiscounted cash flows at the maturity date of the bonds are as
follows.
2014 2013
$'000 $'000
------------------------- ------- --------
Within one year 52,813 20,313
Within two to five years 664,375 385,937
-------
717,188 406,250
======= ========
The Warrants
The warrants were recognised as an equity instrument in
accordance with IAS 39. The warrants were measured at fair value as
at the date of issue, which was determined to be $22.2 million. The
fair value of the warrants was treated as part of the Notes' issue
cost.
The assumptions used in the valuation of the warrants included a
share price of 99.75p, an exercise price of $1.70 as per the issue
prospectus, a risk free rate of 0.8%, a time to expiry of 36 months
and a share price volatility of 50%.
At 31 December 2014, the 2014 Notes included a Book Equity Ratio
(BER) Put Option. The BER is the ratio of Group equity to total
assets. Under the terms of this Put Option if the BER is below 0.4
for 60 days following the date the Company releases its annual
accounts, the Company is required to make an offer to purchase the
2014 Notes. At 31 December 2014 the BER was below 0.4, which led
the Company to commence discussions with the 2014 Note holders,
seeking to remove the BER Put Option. The status of these
discussions is outlined in note 12.
11. Reconciliation of loss from operations to net cash used in
operating activities
2014 2013
$'000 $'000
------------------------------------------------ ---------- ---------
Loss from operations (226,438) (21,097)
Adjustments for:
Depreciation, depletion and amortisation
of property, plant and equipment 39,018 2,981
Amortisation of intangible assets 111 194
Increase in Algerian decommissioning provision 3,012 -
Share-based payment expense 3,969 9,838
Impairment of assets held for sale 144,119 -
Increase in inventories (2,199) (871)
Decrease/(Increase) in receivables 21,291 (10,561)
Increase/(decrease) in payables 16,355 (5,556)
---------- ---------
Net cash used in operating activities (760) (25,072)
========== =========
12. Events after the balance sheet date
On 31 March 2015 the Company raised gross proceeds of
US$40,693,235 through a conditional placing of 85,900,000 new
Common Shares at a placing price of 32p per share ("Placing
Shares").
The Placing Shares represent 8.78 per cent. of the enlarged
issued share capital of the Company. The Placing Shares are fully
paid and rank pari passu in all respects with the existing Common
Shares including the right to receive all dividends and other
distributions declared, made or paid after the date of issue.
The admission of the placing shares became effective, and
commenced trading on the Main Market of the LSE, at 8.00 a.m. on 7
April 2015.
Consent solicitation
On 7 April 2015, the Company announced that it had successfully
completed the consent solicitation to remove the book equity ratio
covenant from the Trust Deed constituting the 2014 Notes (see note
10) and from the conditions contained therein. Holders representing
over 90% of the principal amount of 2014 Notes outstanding
participated in the Consent Solicitation, with over 99% of votes
cast in favour of the Proposed Amendments. The Extraordinary
Resolution was passed at the noteholder meeting which took place on
7 April 2015, and the proposed amendments have been
implemented.
The Company will pay a consent fee of US$5.00 for each US$1,000
in principal amount of 2014 Notes to holders whose Consent was
validly delivered prior to 3.00 p.m. (London time) on 2 April 2015
and accepted pursuant to the terms of the Consent Solicitation
Memorandum.
The complete terms and conditions of the Consent Solicitation
are described in the Consent Solicitation Memorandum dated 12 March
2015 issued by the Company, as supplemented by the Supplements
dated 24 March 2015 and 30 March 2015 (together, the "Consent
Solicitation Memorandum"). The Company has agreed to the following
terms: (i) retaining the Company's Debt Service Reserve Account at
one year of scheduled interest payments for the Notes (instead of
stepping down to six months of interest payments in October 2015);
(ii) granting a security interest in favour of the holders of the
Notes and the Company's 6.25 per cent. Convertible Bonds due 2017
(the "Convertible Bonds") over the shares of Gulf Keystone
Petroleum International Limited, subject to negotiation of the
terms of the security and intercreditor documentation; (iii)
reducing certain of the Company's grace periods under the Trust
Deed for certain events of default and including additional
notifications to the Trustee; and (iv) beginning a dialogue with a
committee of holders of the Notes if and when the Company's cash
balance drops below US$50 million (including amounts in the Debt
Service Reserve Account) for a period of five consecutive business
days.
13. Publication of financial statements
It is anticipated that the full Annual Report and Financial
Statements will be published on 28 April 2015. Copies will be
available from this date at the group's UK office.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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