TIDMGKP
RNS Number : 0976R
Gulf Keystone Petroleum Ltd.
19 September 2017
19 September 2017
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP" or "the Company")
2017 Half Year Results Announcement
Gulf Keystone Petroleum, a leading independent operator and
producer in the Kurdistan Region of Iraq ("Kurdistan" or "Kurdistan
Region"), today announces its results for the half year ended 30
June 2017.
Highlights to 30 June 2017 and post reporting period
Operational
-- Gulf Keystone's operations in the Kurdistan Region remained
safe and secure throughout H1 2017 with plant uptime at PF-1 and
PF-2 of over 99% with no lost-time incidents.
-- Shaikan achieved average daily production of 36,664 bopd.
-- Cumulative production from Shaikan has now exceeded 40 million barrels.
-- In March 2017, Shaikan-8 ("SH-8") was brought back on-stream.
-- In April 2017, ERC Equipoise verified remaining gross Shaikan
2P reserves of 615 MMstb, as at 31 December 2016.
-- With gross production of c.35,350 bopd in Q3 2017 so far,
gross production guidance for 2017 remains at 32,000-38,000
bopd.
-- Operational strategy for investment into Shaikan has been matured throughout 2017.
Financial
-- Cash flow positive through H1 2017.
-- The Group has continued to receive regular payments from the
Ministry of Natural Resources ("the MNR") of $15 million gross ($12
million net to GKP) with cash receipts of $84 million net to GKP
year to date.
-- Continued cost control with gross operating costs per barrel of $3/bbl (H1 2016:$4/bbl).
-- Profit after tax of $0.7 million (H1 2016 (as restated): loss after tax of $232.6 million).
-- As at 30 June 2017, the Group estimates an unrecognised
revenue receivable of $33 million net to GKP with regards to unpaid
export sales (December 2016: $25 million) and $76 million net to
GKP for the past costs associated with the Shaikan Government
Participation Option (December 2016: $71 million).
-- Cash balance at 30 June 2017 of $118.8 million against $100 million debt principal.
-- Cash balance at 18 September of $133.8 million.
-- April 2017, decision taken to pay Reinstated Notes coupon of
$5.1 million at 10% interest rate. The decision regarding the
October 2017 coupon will be communicated to the market in due
course.
Outlook
-- The Company is progressing in its ongoing discussions with
the MNR regarding commercial and contractual conditions, in
particular those around regular payments conforming to the Shaikan
Production Sharing Contract ("PSC") and crude marketing
arrangements.
-- GKP is preparing to make further investments to maintain
plateau production at the nameplate capacity of 40,000 bopd with a
view to increasing to 55,000 bopd, and beyond, subject to MOL and
MNR approvals, a regular payment cycle from the MNR and a
commercially acceptable investment environment.
Jón Ferrier, Gulf Keystone's Chief Executive Officer, said:
"The first half of the year was a period of solid operational
delivery, which has seen the Shaikan field continue to perform in
line with expectations.
The Company continues its dialogue with the MNR with the
objective of achieving contractual and commercial clarity. Whilst
continuing to maintain a rigorous and disciplined approach to its
cost base, Gulf Keystone remains cash flow positive and well placed
to continue to invest in increasing production from Shaikan."
Enquiries:
Gulf Keystone Petroleum: +44 (0) 20 7514 1400
Jón Ferrier, CEO
Sami Zouari, CFO
Celicourt Communications: +44(0) 20 7520 9266
Mark Antelme
Jimmy Lea
or visit: www.gulfkeystone.com
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
Notes to Editors:
-- Gulf Keystone Petroleum Ltd. (LSE: GKP) is a leading
independent operator and producer in the Kurdistan Region of Iraq
and the operator of the Shaikan field with current production
capacity of 40,000 barrels of oil per day
-- Further information on Gulf Keystone is available on its website www.gulfkeystone.com
Disclaimer
This announcement contains certain forward-looking statements
that are subject to the risks and uncertainties associated with the
oil & gas exploration and production business. These statements
are made by the Company and its Directors in good faith based on
the information available to them up to the time of their approval
of this announcement but such statements should be treated with
caution due to inherent risks and uncertainties, including both
economic and business factors and/or factors beyond the Company's
control or within the Company's control where, for example, the
Company decides on a change of plan or strategy. This announcement
has been prepared solely to provide additional information to
shareholders to assess the Group's strategies and the potential for
those strategies to succeed. This announcement should not be relied
on by any other party or for any other purpose.
Chairman and CEO Statement
The first half of the year has been a period of solid
operational delivery, which has seen the Shaikan field continue to
perform in line with expectations. This has been against a backdrop
which, despite some more positive developments, such as the
recently announced defeat of Daesh in nearby Mosul, remains
challenging. The oil price has continued to be somewhat volatile
and was most recently adversely impacted by both US shale
production and questions over OPEC's influence over pricing.
However, now in the region of $50 per barrel, the price of crude
has continued to show some signs of recovery from the lows of 2016.
These macro factors are highly relevant as they have been part of
the turbulence that has buffeted Gulf Keystone's recent past and,
frustratingly, continue to overlay some uncertainty with regards to
our future.
We are pleased to report first half average gross daily
production of 36,664 bopd and c.35,350 bopd in Q3 2017 so far, as
well as confirming that we remain on track to meet our guidance for
the full year for average gross daily production of between
32,000-38,000 bopd.
Compared to the second half of 2016, which saw the completion of
the Company's balance sheet restructuring and the associated high
number of market disclosures, this reporting period has been more a
time of quiet delivery. In April, the Company was pleased to
announce that ERC Equipoise verified gross Shaikan 2P reserves of
615 million barrels of oil (as at 31 December 2016), which
reaffirms Shaikan's prominent position in the Kurdistan Region.
The negotiations around the amendment to the Shaikan PSC have
continued throughout the period and beyond. Whilst progress is
being made, the Board recognises that these discussions are taking
time to conclude. The lack of commercial visibility is a hindrance
and prevents us from progressing our preferred strategic direction
of further investing in Shaikan, in order to increase production.
However, the Board notes the recent positive developments regarding
the commercial terms agreed between the Ministry of Natural
Resources ("the MNR") and other international producers and draws
comfort from this positive momentum. The ongoing geo-political
uncertainty of the region is clearly one factor to impact these
negotiations. The Board will continue to keep progress around the
amendment to the Shaikan PSC under close scrutiny.
The MNR has continued to pay Gulf Keystone for its Shaikan crude
oil sales, however the recent payment delays have been
disappointing. Whilst recognising that a conventional payment cycle
in accordance with the Shaikan PSC is yet to be fully established,
the Company has now received 20 payments since September 2015.
During the reporting period, and post period end, a total of $84
million net has been paid to Gulf Keystone.
As you will read in the Chief Financial Officer's report, Gulf
Keystone's balance sheet remains healthy with a cash balance as at
18 September 2017 of $133.8 million. Whilst continuing to maintain
a rigorous and disciplined approach to its cost base, Gulf Keystone
remains cash flow positive and well placed to invest in increasing
production from Shaikan, once the required commercial framework
exists for that to happen.
The safety of Gulf Keystone personnel, contractors, partners and
those living close to our operations remains our utmost priority
and this most important goal was achieved throughout the period.
There is no room for complacency and training and education remain
central to our HSSE policy implementation.
Shaikan remains a stable and predictable asset which is set to
produce for many decades to come. The Board believes that Gulf
Keystone has a strong stand-alone future, working with its partners
to continue to increase production and therefore create value for
all stakeholders. However, the Board also recognises its fiduciary
duty to consider approaches from interested parties.
We would again like to thank those working in the field and in
our offices in both Erbil and London, as well as our partner, MOL,
and our partner and host, the Kurdistan Regional Government ("KRG")
and the MNR. In addition, we would like to thank our shareholders
for their ongoing support and patience.
Keith Lough
Chairman
Jón Ferrier
Chief Executive Officer
Operations Review
The six months ended 30 June 2017 saw the Shaikan field continue
to perform well, and predictably. Shaikan achieved an average daily
production of 36,664 barrels of oil per day during the period.
Cumulative production from Shaikan has now exceeded 40 million
barrels. This is a significant milestone and highlights the field's
now established and stable production. During the period, ERC
Equipoise estimated gross Shaikan's 2P remaining reserves of 615
MMstb (as at 31 December 2016). This not only puts Shaikan in the
top class of producing assets, but also highlights that, despite
operational progress enjoyed to date, Shaikan's long life as a
producing field has only just begun.
With such milestones, Gulf Keystone's knowledge of the reservoir
continues to improve. The encouraging trend is that as production
increases the reservoir continues to perform well. Pressure data
gathered from downhole gauges which were installed in each well
were recovered in April. Furthermore we recently completed a
detailed characterisation study of the reservoir fracturing which
is a key parameter that affects our future predictions of field
performance. Both the pressure data and the reservoir fracture
study were in line with previous forecasts of performance from the
Upper Jurassic Reservoir (from where most of the oil is produced)
and have helped to underpin the Company's confidence in its
understanding of Shaikan's subsurface geology.
In March, the SH-8 well was successfully brought back on-stream.
This followed a temporary shut in due to an amount of drilling
fluids being lost into the reservoir and being produced back from
the well. Since production from SH-8 recommenced, the well has
continued to produce at a rate of approximately 1,800 bopd. With
only traces of drilling fluids showing since its return to
production, it is likely that the drilling fluids have drained away
from SH-8 and we are very pleased to have been able to keep the
well on production. As part of our investment programme however we
are looking at facilities improvements that could allow us to
clean-up wells such as SH-8 more quickly and reduce the associated
production deferrals.
During the period the Company was made aware of a change in the
export route for Shaikan crude as the MNR announced that it would
commence exporting all Shaikan crude production via trucks to
Turkey, as opposed to the previous export route of Shaikan crude
being injected into the Kirkuk-Ceyhan export pipeline at
Fishkhabour. This was part of the MNR's overall crude export
strategy and saw no change in economic terms to the Company, which
continues to receive a fixed payment of gross $15 million per month
for sales of Shaikan crude. The Company is continuing its
discussions with the MNR regarding commercial and contractual
conditions.
Throughout the period, and subsequently, a focus has been on the
operational strategy for investment into Shaikan. This is in order
to maintain production at the 40,000 bopd capacity level, and then
to expand production to 55,000 bopd and to subsequent medium term
production targets beyond that. The development of these plans has
been matured throughout 2017 and remains one of the key workstreams
of the operations team. This focus of effort is designed to ensure
that as soon as the commercial framework is agreed with the MNR and
our partner MOL, the necessary investment can be made and the
operational plan executed as quickly as possible.
With production operations continuing to run well, Gulf Keystone
remains on track to meet full year gross production guidance of
between 32,000 - 38,000 bopd.
HSSE
The safety of those working with us and of the communities
living close to our operations remains our number one priority.
During the first half of the year, with plant availability of more
than 99%, there were zero Lost-time Incidents reported and zero
vehicle accidents. Our safety performance ranks well amongst peers
in the international oil & gas industry. However, whilst the
safety culture remains strong, there is no room for complacency.
This was brought home with two recordable safety incidents during
the period and one High Potential near-miss Incident. We continue
to invest time and resource in training to ensure safe working
practices.
Stuart Catterall
Chief Operating Officer
Financial Review
Summary of key financial highlights
Six months
ended
30 June
Six months 2016
ended Unaudited/
30 June As restated
2017 (note
Unaudited 16)
------------------------------------- ----------- -------------
Gross average production (bopd)(1) 36,664 33,000
------------------------------------- ----------- -------------
Revenue 78.3 102.1
Cash receipts assured ($m)(1) 72.0 52.9
Offset of payables to the MNR
($m)(1) 6.3 49.2
------------------------------------- ----------- -------------
Underlying gross field cash
operating costs per bbl ($/bbl)(1) 3 4
------------------------------------- ----------- -------------
Profit from operations ($m) 6.3 14.0
------------------------------------- ----------- -------------
Finance costs ($m) (5.9) (35.7)
------------------------------------- ----------- -------------
Impairment expense ($m) - (215.7)
------------------------------------- ----------- -------------
Profit/ (loss) after tax ($m) 0.7 (232.6)
------------------------------------- ----------- -------------
Basic earnings /(loss) per
share (cents) 0.29 (2,413.78)
------------------------------------- ----------- -------------
Net increase in cash and cash
equivalents 25.7 31.3
------------------------------------- ----------- -------------
Additions to oil and gas properties
($m) 4.1 3.8
------------------------------------- ----------- -------------
Net debt ($m)(1) (2.0) (500.3)
------------------------------------- ----------- -------------
(1) Gross average production, revenue categories, underlying
gross field cash operating costs per bbl and net debt are non-IFRS
measures and are explained later in this section.
Revenue and production
Gross liftings for the period were 6.7 million barrels (H1 2016:
6.0 million barrels). Shaikan oil was trucked to Fishkhabour for
injection into the export pipeline until February 2017. At the end
of February, the MNR began exporting all Shaikan crude production
via trucks to Turkey, an arrangement that still stands. While this
temporary route is in place, the MNR has confirmed that the
economic benefit to the Group will remain unchanged and that they
intend to take full responsibility for any additional
transportation costs.
During the period, the Group received five payments of $12
million net from the MNR for oil sales, three of the payments
related to 2016 oil sales. As at 30 June 2017, the Group recognised
four months of revenue receivables of $48 million (H1 2016: $12.5
million) on its balance sheet in relation to liftings from March to
June 2017.
Due to continued uncertainty relating to the payment mechanism
for sales to the export market, the Group recognises its revenues
when the cash receipt is assured (see note 4). Based on this,
revenues recognised in the six month period to 30 June 2017
amounted to $78.3 million (H1 2016: $102.1 million) including $72.0
million (H1 2016: $52.9 million) for assured receipts and $6.3
million (H1 2016: $49.2 million) recognised by offsetting payables
to the MNR against amounts due for previously unrecognised revenue.
Unrecognised revenue arrears at 30 June 2017 are estimated at $33
million (H1 2016: $28 million).
The Group's production is sold under its oil export arrangements
with the KRG at a field-specific quality discount to the price
of Brent crude oil and after transportation costs. The Group
continues to assume Shaikan quality discount at $14.7/bbl and
transportation costs at $5.2/bbl. Based on these assumptions, the
realised price for 2017 export sales is estimated at $32/bbl (H1
2016: $20/bbl). This remains subject to audit and reconciliation,
and the establishment of a retroactive quality bank for Kurdistan
crude oil.
Operating costs, depreciation and expenses
Underlying cash operating costs (defined in the non-IFRS
measures section), amounted to $14.1 million or $3/bbl on a gross
field basis (H1 2016: $16.0 million; $4/bbl). The decrease in
operating costs per barrel is a result of the disciplined
management of operating costs and stable production and liftings
achieved in 2017.
DD&A charges on production and development assets amounted
to $41.1 million (H1 2016: $39.9 million), the increase being
attributed to the increase in production volumes.
General and administrative expenses during the period were $9.7
million (H1 2016: $15.7 million). The decrease has been generated
through efforts to further increase efficiencies and reduce costs
and the absence of professional costs associated with
restructuring.
Impairment of property plant and equipment
Management carried out an impairment review of the Group's oil
and gas assets as at 30 June 2017 with no impairment identified as
at 30 June 2017. The impairment expense in H1 2016 resulted from
the change in accounting policy for oil and gas assets from full
costs to successful efforts (note 16) and the relinquishment of the
Sheikh Adi block in March 2016.
Finance costs
Finance costs of $5.9 million (H1 2016: $35.7 million) mainly
consist of the interest payment in respect of the Reinstated Notes
in H1 2017 and Convertible Bonds and Guaranteed Bonds in H1 2016
(note 6).
Taxation
Substantially all of the Group's operations are in Kurdistan. No
tax charge has been recognised for operations in Kurdistan as,
under the terms of the Shaikan PSC, the KRG will settle Iraq tax
obligations out of its share of profit oil. The Group's subsidiary
presence in the UK gave rise to the tax credit for the period of
$0.04 million (H1 2016: charge of $0.3 million).
Cash flow
Net cash generated in operating activities was $30.1 million (H1
2016: $46.9 million). The decrease is due to lower cash receipts
for revenue, repayment of certain trade and other payables and the
payment of $5.1 million interest (H1 2016: $nil) on the Reinstated
Notes.
Capital expenditure for the period amounted to $4.4 million (H1
2016: $15.7 million), leading to the net overall increase in cash
and cash equivalents during the period of $25.7 million (H1 2016:
$31.3 million increase).
Cash and cash equivalents totalled $118.8 million at 30 June
2017 (30 June 2016: $74.7 million; FY 2016: $92.9 million). Cash
and cash equivalents at 18 September 2017 amounted to $133.8
million.
Corporate Activities
Second Shaikan PSC Amendment
The Group continues to work towards the execution of the Second
Shaikan PSC Amendment implementing the terms of the agreement
signed by the MNR and Gulf Keystone Petroleum International Limited
("GKPI") on 16 March 2016 (the "Bilateral Agreement"). For the
avoidance of doubt, MOL was not party to the Bilateral Agreement.
The Bilateral Agreement, inter alia, records the MNR's approval to
reduce the Group's capacity building charge from 40% to 30% of
profit petroleum, and the MNR's approval of the 2010 assignment to
GKPI of the 5% participating interest in the Shaikan PSC from Texas
Keystone International Limited. It also documents the MNR and
GKPI's intention to implement the Third Party Participation Option
so that a 7.5% participating interest in the Shaikan PSC in
aggregate shall be allocated in favour of GKPI and MOL pro rata to
their respective participating interests and a 7.5% carried
interest in the Shaikan PSC shall be allocated to the MNR. In
addition, the MNR and GKPI stated their intention to recognise the
allocation to the MNR of the Shaikan Government Participation
Option in the Shaikan PSC with effect from 1 August 2012 (subject
to the satisfaction of certain conditions, including the payment by
the MNR of associated past costs attributable to the Shaikan
Government Participation Option).
Completion of the Ber Bahr block relinquishment
The Group, together with the MNR and Genel Energy International
Limited, finalised the terms of relinquishment and termination of
its rights and obligations under the Ber Bahr PSC, which has been
completed in accordance with the executed Relinquishment and
Termination Agreement on 13 July 2017 (note 17).
Algerian assets
The Group continues its work on an orderly exit from its
Algerian interests.
Financial outlook
The Group will work to sustain its strong liquidity position and
continue its efforts to manage costs prudently whilst maintaining
safe and secure operations. We have successfully reduced our
operating costs in H1 2017 to $3/bbl from $4/bbl in H1 2016. Our
operating costs guidance for the year has been revised downwards to
$3-$3.5/bbl from $4/bbl communicated in the 2016 Annual report and
accounts. We are ready to invest in the Shaikan asset, subject to
achieving satisfactory clarity on a number of commercial and
contractual conditions with the MNR (as discussed in the Corporate
Activities section).
Sami Zouari
Chief Financial Officer
Non-IFRS measures
The Group uses certain measures to assess the financial
performance of its business. Some of these measures are termed
"non-IFRS measures" because they exclude amounts that are included
in, or include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with
IFRS, or are calculated using financial measures that are not
calculated in accordance with IFRS. These non-IFRS measures include
financial measures such as revenue categories and net debt and
non-financial measures such as underlying gross field cash
operating costs per bbl and gross average production (bopd).
The Group uses such measures to measure operating performance
and liquidity, in presentations to the Board and as a basis for
strategic planning and forecasting, as well as monitoring certain
aspects of its operating cash flow and liquidity. The Directors
believe that these and similar measures are used widely by certain
investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The non-IFRS measures may not be comparable to other similarly
titled measures used by other companies and have limitations as
analytical tools and should not be considered in isolation or as a
substitute for analysis of the Group's operating results as
reported under IFRS. An explanation of the relevance of each of the
non-IFRS measures and a description of how they are calculated is
set out below. Additionally, a reconciliation of the non-IFRS
measures to the most directly comparable measures calculated and
presented in accordance with IFRS and a discussion of their
limitations is set out below, where applicable. The Group does not
regard these non-IFRS measures as a substitute for, or superior to,
the equivalent measures calculated and presented in accordance with
IFRS or those calculated using financial measures that are
calculated in accordance with IFRS.
Revenue categories
The Group's revenue recognition policy is detailed in note 2.
The Group recognises revenues once the receipt of cash is assured
as well as once it incurs costs payable to the MNR that can be
offset against unrecognised revenue arrears.
Underlying gross field cash operating costs per bbl
Underlying gross field cash operating costs per bbl is defined
as gross operating costs which, in comparison with cost of sales,
exclude depletion and amortisation of oil and gas assets, capacity
building charge, production bonuses, oil stock movements and
certain other cost of sales. Underlying gross field cash operating
costs per bbl is not a measurement of performance under IFRS and
prospective investors should not consider underlying cash operating
costs as an alternative to cost of sales (as determined in
accordance with IFRS) as a measure of the Group's underlying cash
operating costs or any other measures of performance under
IFRS.
The Directors believe that underlying gross field cash operating
costs per bbl is a useful indicator of the operating costs incurred
to produce oil from the Shaikan field.
Net debt
Net debt is defined as current and non-current borrowings plus
unamortised arrangement fees and the equity component of
convertible bonds less cash and cash equivalents. The Directors
believe that net debt is a useful indicator of the Group's
indebtedness, financial flexibility and capital structure because
it indicates the level of borrowings after taking account of
unamortised arrangement fees and the equity component of any
convertible bonds (which represent amounts that the Group is
required to repay to its lenders) and cash and cash equivalents
within the Group's business that could be utilised to pay down the
outstanding borrowings.
Six months Six months
ended ended
30 June 30 June
2017 2016
Unaudited Unaudited
----------------------------------- ----------- -----------
Current Borrowings(1) - (239.8)
----------------------------------- ----------- -----------
Non-current borrowings(1) (99.3) (314.3)
----------------------------------- ----------- -----------
Unamortised arrangement fees, PIK
interest and equity component of
convertible bonds (2) (21.5) (20.9)
----------------------------------- ----------- -----------
Add: cash and cash equivalents 118.8 74.7
----------------------------------- ----------- -----------
Net debt (2.0) (500.3)
----------------------------------- ----------- -----------
(1) Includes Reinstated Notes in H1 2017 and Guaranteed Notes
and Convertible Bonds in H1 2016.
(2) Unamortised arrangement fees are incurred on creation or
amendment of borrowing facilities. They are capitalised as
incurred, set against the associated liability, and amortised over
the life of the borrowing facility to which they relate.
Under the terms of the Reinstated Notes, the Group has the
option to defer its interest payments until the maturity of the
Reinstated Notes in Payment in Kind ("PIK") at 13% or pay in cash
at 10% until 18 October 2018 (note 13). The net debt calculation
assumes PIK option is elected for the next three interest payments.
The interest payment method will be reassessed prior to each
interest payment date.
On initial recognition the Convertible Bonds were measured at
fair value and included as a component of equity.
Principal risks and uncertainties
The Board determines and reviews the key risks for the Group on
a regular basis. The principal risks and how the Group seeks to
mitigate them, at half year are consistent with those detailed in
the management of principal risks and uncertainties section of the
2016 Annual Report and Accounts. The summary is listed below:
Strategic HSSE and CSR Operational Financial
---------------------- ----------------------- --------------- ---------------
Political, HSSE risks Field delivery Liquidity
social and risks and funding
economic instability capability
---------------------- ----------------------- --------------- ---------------
Disputes regarding Gas flaring Reserves Export payment
title or exploration mechanism
and production
rights
---------------------- ----------------------- --------------- ---------------
Business conduct Security Commodity
and anti-bribery prices
---------------------- ----------------------- --------------- ---------------
Export route Corporate
availability social responsibility
risks
---------------------- ----------------------- --------------- ---------------
Stakeholder
expectation
---------------------- ----------------------- --------------- ---------------
Responsibility statement
The Directors confirm that to the best of their knowledge:
(a) the condensed set of financial statements, which has been
prepared in accordance with IAS 34 "Interim Financial Reporting",
gives a true and fair view of the assets, liabilities, financial
position and loss of the Group as a whole as required by DTR
4.2.4R;
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months of the year and a description of
principal risks and uncertainties for the remaining six months of
the year); and
(c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Sami Zouari
Chief Financial Officer
18 September 2017
Independent Review Report to Gulf Keystone Petroleum Limited
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2017 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated statement of changes in equity, the
condensed consolidated cash flow statement and related notes 1 to
17. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
18 September 2017
Condensed Consolidated Income Statement
for the six months ended 30 June 2017
Six months
ended
30 June
Six months 2016
ended Unaudited/ Year ended
30 June as restated 31 December
2017 (note 2016
Notes Unaudited 16) Audited
$'000 $'000 $'000
---------------------------- ----- ---------- ------------ ------------
Continuing operations
Revenue 4 78,308 102,068 194,409
Cost of sales 5 (62,388) (72,369) (142,827)
---------------------------- ----- ---------- ------------ ------------
Gross profit 15,920 29,699 51,582
General and administrative
expenses (9,659) (15,666) (25,536)
Profit from operations 6,261 14,033 26,046
Interest income 4 80 46 100
Finance costs 6 (5,892) (35,684) (60,182)
Impairment expense 16 - (215,658) (215,658)
Gain on debt extinguishment - - 222,455
Other gains 7 170 4,962 9,931
---------------------------- ----- ---------- ------------ ------------
Profit/ (loss) before
tax 619 (232,301) (17,308)
Tax credit/ (expense) 37 (254) (127)
---------------------------- ----- ---------- ------------ ------------
Profit/ (loss) after
tax 656 (232,555) (17,435)
---------------------------- ----- ---------- ------------ ------------
Profit/ (loss) per share
(cents)
Basic 8 0.29 (2,413.78) (30.82)
Diluted 8 0.28 (2,413.78) (30.82)
---------------------------- ----- ---------- ------------ ------------
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2017
Six months
ended
30 June
Six months 2016
ended Unaudited/ Year ended
30 June As restated 31 December
2017 (note 2016
Unaudited 16) Audited
$'000 $'000 $'000
------------------------------- ---------- ------------ ------------
Profit/ (loss) for the
period 656 (232,555) (17,435)
Items that may be reclassified
subsequently to profit
or loss: Exchange differences
on translation of foreign
operations 744 (1,648) (2,901)
-------------------------------- ---------- ------------ ------------
Total comprehensive
income/ (loss) for the
period 1,400 (234,203) (20,336)
-------------------------------- ---------- ------------ ------------
Condensed Consolidated Balance Sheet
as at 30 June 2017
30 June
2016
Unaudited/
30 June As restated 31 December
2017 (note 2016
Notes Unaudited 16) Audited
$'000 $'000 $'000
------------------------------ ------ ---------- ------------ -----------
Non-current assets
Intangible assets 82 80 99
Property, plant and equipment 10 452,295 525,761 489,379
Deferred tax asset 364 199 310
------------------------------ ------ ---------- ------------ -----------
452,741 526,040 489,788
------------------------------ ------ ---------- ------------ -----------
Current assets
Inventories 15,531 18,410 15,971
Trade and other receivables 11 51,624 13,553 41,565
Cash and cash equivalents 118,848 74,749 92,870
186,003 106,712 150,406
------------------------------ ------ ---------- ------------ -----------
Total assets 638,744 632,752 640,194
------------------------------ ------ ---------- ------------ -----------
Current liabilities
Trade and other payables 12 (51,532) (114,513) (56,284)
Provisions (7,190) (7,457) (7,461)
Other borrowings - (239,795) -
(58,722) (361,765) (63,745)
------------------------------ ------ ---------- ------------ -----------
Non-current liabilities
Convertible bonds - (314,253) -
Other borrowings 13 (99,312) - (98,886)
Provisions (24,200) (23,445) (23,794)
(123,512) (337,698) (122,680)
------------------------------ ------ ---------- ------------ -----------
Total liabilities (182,234) (699,463) (186,425)
------------------------------ ------ ---------- ------------ -----------
Net assets/ (liabilities) 456,510 (66,711) 453,769
------------------------------ ------ ---------- ------------ -----------
Equity
Share capital 14 229,430 9,781 229,430
Share premium account 14 920,728 834,619 920,728
Convertible bonds reserve - 7,359 -
Exchange translation
reserve (3,555) (3,046) (4,299)
Accumulated losses (690,093) (915,424) (692,090)
------------------------------ ------ ---------- ------------ -----------
Total equity 456,510 (66,711) 453,769
------------------------------ ------ ---------- ------------ -----------
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2017
Share Exchange Convertible
Share premium translation Accumulated bond Total
capital account reserve losses reserve equity
Notes $'000 $'000 $'000 $'000 $'000 $'000
----- -------- -------- ------------ ----------- ----------- -------
Balance at 1
January 2016
(audited/ as
restated (note
16)) 9,781 834,619 (1,398) (686,520) 10,179 166,661
------- ------- ------- --------- ------- ---------
Net loss for
the period - - - (232,555) - (232,555)
Other comprehensive
loss for the
period - - (1,648) - - (1,648)
------- ------- ------- --------- ------- ---------
Total comprehensive
loss for the
period - - (1,648) (232,555) - (234,203)
Share-based
payment charge - - - 831 - 831
Convertible
bond equity
amortisation - - - 2,820 (2,820) -
------- ------- ------- --------- ------- ---------
Balance at 30
June 2016 (unaudited/
as restated
(note 16)) 9,781 834,619 (3,046) (915,424) 7,359 (66,711)
------- ------- ------- --------- ------- ---------
Net profit for
the period (as
restated (note
16)) - - - 215,120 - 215,120
Other comprehensive
loss for the
period - - (1,253) - - (1,253)
------- ------- ------- --------- ------- ---------
Total comprehensive
income/(loss)
for the period
(as restated
(note 16)) - - (1,253) 215,120 - 213,867
Share-based
payment charge - - - 855 - 855
Share conversion
and issue, net
of issue cost 219,649 86,109 - - - 305,758
Transfer of
convertible
bond reserve - - 7,359 (7,359) -
------------------------
Balance at 31
December 2016
(audited) 229,430 920,728 (4,299) (692,090) - 453,769
------- ------- ------- --------- ------- ---------
Net profit for
the period - - - 656 - 656
Other comprehensive
income for the
period - - 744 - - 744
------- ------- ------- --------- -------
Total comprehensive
income for the
period - - 744 656 - 1,400
Share-based
payment charge - - - 1,341 - 1,341
Balance at 30
June 2017 (unaudited) 229,430 920,728 (3,555) (690,093) -456,510
------------------------ ------- ------- ------- --------- -------
Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2017
Year
Six months Six months ended
ended ended 31 December
30 June 2017 30 June 2016 2016
Note Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------------------- ---- ------------- ------------- ------------
Operating activities
Cash generated in operations 9 35,148 46,868 49,619
Interest received 80 46 100
Interest paid (5,111) - -
Net cash generated in operating
activities 30,117 46,914 49,719
----------------------------------- ---- ------------- ------------- ------------
Investing activities
Purchase of intangible
assets - (1,371) (123)
Purchase of property, plant
and equipment (4,397) (14,284) (9,557)
Net cash used in investing
activities (4,397) (15,655) (9,680)
----------------------------------- ---- ------------- ------------- ------------
Financing activities
Proceeds on issue of share
capital - - 23,535
Cost incurred on the Restructuring - (13,884)
Net cash generated by financing
activities - - 9,651
----------------------------------- ---- ------------- ------------- ------------
Net increase in cash and
cash equivalents 25,720 31,259 49,690
Cash and cash equivalents
at beginning of period 92,870 43,641 43,641
Effect of foreign exchange
rate changes 258 (151) (461)
----------------------------------- ---- ------------- ------------- ------------
Cash and cash equivalents
at end of the period being
bank balances and cash
on hand 118,848 74,749 92,870
----------------------------------- ---- ------------- ------------- ------------
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2017
1. General information
The condensed Group financial statements for the six months
period ended 30 June 2017, comprising Gulf Keystone Petroleum Ltd
and its subsidiaries (together, "the Group"), have been prepared in
accordance with International Accounting Standard (IAS) 34,
"Interim Financial Reporting", as adopted by the European Union and
the Disclosure and Transparency Rules (DTR) of the Financial
Conduct Authority (FCA) in the United Kingdom as applicable to
interim financial reporting.
Accordingly, certain information and note disclosures normally
included in annual financial statements prepared in accordance with
International Financial Reporting Standards ("IFRS"), as adopted by
the European Union, have been omitted or condensed as is normal
practice and are to be read in conjunction with the Group's
financial statements for the year ended 31 December 2016. The
condensed Group interim financial statements for the six months
ended 30 June 2017 have not been audited, but have been reviewed by
the Company's external auditor and their report to the Company is
attached. The condensed interim financial statements were approved
by the Board of Directors on 18 September 2017. An electronic
version of the half year report has been posted on the Group's
website www.gulfkeystone.com. Hard copies are available by writing
to Gulf Keystone Petroleum Limited, c/o Gulf Keystone Petroleum
(UK) Limited, 6th Floor, New Fetter Place, 8-10 New Fetter Lane,
London, EC4A 1AZ, UK.
The financial information for the year ended 31 December 2016
does not constitute the Group's financial statements for that year,
but it is derived from those accounts. The auditor's report on
these accounts was unqualified and did not include a reference to
any matters to which the auditor drew attention by way of emphasis
of matter.
2. Accounting policies
Basis of preparation
The Annual Report and Accounts of the Group are prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union. The same accounting policies,
presentation and methods of computation are followed in this
condensed set of financial statements as applied by the Group in
its Annual Report and Accounts for the year ended 31 December
2016.
The nature of the critical accounting judgements and key sources
of estimation uncertainty made by management of the Group and
applied in the accompanying condensed consolidated interim
financial statements for the six months ended 30 June 2017 are
consistent with those applied in the preparation of the
consolidated financial statements of the Group for the year ended
31 December 2016.
The following new accounting standards are in issue but are not
yet effective.
- IFRS 9 Financial Instruments, effective from 1 January 2018
- IFRS 15 Revenue from contracts with customers, effective from 1 January 2018
- IFRS 16 Leases, effective from 1 January 2019
The Group is currently evaluating the impact of adopting these
new accounting standards.
Going concern
The Group closely monitors and manages its liquidity risk.
Regular cash forecasts are produced and sensitivities run for
different scenarios including, but not limited to, changes in
commodity prices, different production rates from the Shaikan Block
and costs contingencies. The Group has taken appropriate action to
reduce its cost base and has $133.8 million of free cash at 18
September 2017. The Group's forecasts, taking into account the
risks applicable to the Group, show that the Group will be able to
have sufficient financial headroom for the 12 months from the date
of approval of the half year results.
Based on the analysis performed, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Thus they
continue to adopt the going concern basis of accounting in
preparing the half year results.
Sales revenue and interest income
The recognition of revenue, particularly the recognition of
revenue from export sales, is considered to be a key accounting
judgement. For all sales, the goods are considered to be delivered
and the title passed at the point of loading at the Shaikan field.
For sales into the local market, it is clear that, at this point of
delivery, economic benefit will flow to the Group and that revenue
and costs can be measured reliably and therefore revenue is
recognised. As the payment mechanism for sales to the export market
is developing within the Kurdistan Region of Iraq, the Group
currently considers that revenue can best be reliably measured when
the cash receipt is assured. The assessment of whether cash receipt
is reasonably assured is based on management's evaluation of the
reliability of the MNR's payments to the international oil
companies operating in the Kurdistan Region of Iraq in line with
the KRG's announcement in February 2016 of its intention to apply
the PSC terms.
Management makes the following assumptions in arriving at the
value of sales revenue:
- point of sale is the Shaikan facility;
- cash is received and revenue is recognised for all sales, net
of royalty, as the royalty is taken
"in-kind" by the KRG;
- cash receipts from the MNR represent the non-governmental
contractors' share of revenue; and,
- where appropriate, payables to the MNR are offset against
amounts due for previously unrecognised revenue in line with the
terms of the Shaikan PSC.
To the extent that revenue arises from test production during an
evaluation programme, an amount is charged from evaluation costs to
cost of sales so as to reflect a zero net margin.
Under IAS 12 'Income Taxes', where income tax arising from the
Group's activities under production sharing contracts is settled by
a third party on behalf of the Group, and where the Group would
otherwise be liable for such income tax, the associated sales are
required to be shown gross including the notional tax, and a
corresponding income tax charge shown in the statement of
comprehensive income. However, due to the uncertainty over the
payment mechanism for oil sales in Kurdistan and the fact that
there is no sufficiently well-established tax regime in place in
the Kurdistan Region of Iraq, it has not been possible to measure
reliably the taxation due that has been paid on behalf of the Group
by the KRG. Therefore the notional tax amounts have not been
included in revenue or in the tax charge. This is an accounting
presentational issue and there is no taxation to be paid.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective rate of interest
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the nancial asset
to that asset's net carrying amount on initial recognition.
Oil and gas assets
The Group changed its accounting policy for oil and gas assets
from modified full cost to successful efforts in 2016. This change
resulted in the write off of the costs associated with the Sheikh
Adi and Ber Bahr blocks by the Group. The benefit of this voluntary
change in the accounting policy is ensuring that the balance sheet
reflects only the assets that will bring future economic benefits
to the Group. In addition, the successful efforts method is more
widely adopted by listed oil companies and therefore the change in
the policy will make the Group's financial statements more
comparable to those of its peers (note 16).
Adoption of new and revised accounting standards
As of 1 January 2017, a number of accounting standard amendments
and interpretations became effective, as noted in the 2016 Annual
Report and Accounts (pages 82 and 83). The adoption of these
amendments and interpretations has not had a material impact on the
financial statements of the Group for the six months ended 30 June
2017.
3. Segment information
There has been no change in the basis of segmentation or in the
basis of measurement of segments' profit or loss during the period.
The accounting policies of the reportable segments are consistent
with the Group's accounting policies, which are described in the
Group's latest Annual Report.
The operations of the Group comprise one class of business: oil
and gas exploration, development and production and the sale of
hydrocarbons and related activities. The reportable segments in
accordance with IFRS 8 are therefore the three geographical regions
that the Group operates within as described below:
- Kurdistan Region of Iraq: the Kurdistan segment consists of
the Shaikan Block and the Erbil office which provides support to
the operations in Kurdistan, as well as segmental information
relating to the previously held Ber Bahr block (note 16);
- 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.
The Corporate segment manages activities that serve more than
one segment and represents all overhead and administration costs
incurred that cannot be directly linked to one of the above
segments.
United
Algeria Kurdistan Kingdom Corporate Elimination Total
30 June 2017
(unaudited) $'000 $'000 $'000 $'000 $'000 $'000
--------------- ------- --------- -------- --------- ----------- -------
Revenue
Oil sales - 78,308 - - - 78,308
Inter-segment
sales - - 2,578 - (2,578) -
------- --------- -------- --------- ----------- -------
Total revenue - 78,308 2,578 - (2,578) 78,308
------- --------- -------- --------- ----------- -------
Profit/ (loss)
before tax 20 13,095 (398) (11,788) (310) 619
Tax credit - - 37 - - 37
Profit/ (loss)
after tax 20 13,095 (361) (11,788) (310) 656
Total assets 20 553,739 13,794 66,582 4,609 638,744
--------------- ------- --------- -------- --------- ----------- -------
United
Algeria Kurdistan Kingdom Corporate Elimination Total
30 June 2016
(unaudited/
as restated
(note 16)) $'000 $'000 $'000 $'000 $'000 $'000
--------------- ------- --------- -------- --------- ----------- ---------
Revenue
Oil sales - 102,068 - - - 102,068
Inter-segment
sales - - 3,868 - (3,868) -
------- --------- -------- --------- ----------- ---------
Total revenue - 102,068 3,868 - (3,868) 102,068
------- --------- -------- --------- ----------- ---------
Loss before
tax (56) (188,681) (58) (43,334) (172) (232,301)
Tax expense (1) - (253) - - (254)
Loss after tax (57) (188,681) (311) (43,334) (172) (232,555)
Total assets 66 578,773 14,422 1,237,908 (1,198,417) 632,752
--------------- ------- --------- -------- --------- ----------- ---------
United
Algeria Kurdistan Kingdom Corporate Elimination Total
31 December
2016 (audited) $'000 $'000 $'000 $'000 $'000 $'000
------- --------- -------- --------- ----------- --------
Revenue
Oil sales - 194,409 - - - 194,409
Inter-segment
sales - - 5,542 - (5,542) -
------- --------- -------- --------- ----------- --------
Total revenue - 194,409 5,542 - (5,542) 194,409
------- --------- -------- --------- ----------- --------
(Loss)/profit
before tax (662) (170,330) (1,164) 154,964 (116) (17,308)
Tax expense - - (127) - - (127)
(Loss)/profit
after tax (662) (170,330) (1,291) 154,964 (116) (17,435)
------- --------- -------- --------- ----------- --------
Total assets 38 546,163 12,864 75,675 5,454 640,194
---------------- ------- --------- -------- --------- ----------- --------
4. Revenue
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------- ---------- ----------- ------------
Oil Sales 78,308 102,068 194,409
Interest revenue 80 46 100
78,388 102,114 194,509
========== =========== ============
During the period to 30 June 2017, the Group sold Shaikan oil to
the export market generating revenue of $72.0 million (H1 2016:
$52.9 million). The Group also recognised $6.3 million (H1 2016:
$49.2 million) of revenue arrears by offsetting payables to the MNR
against amounts due for previously unrecognised revenue. 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.
Management has used the following assumptions in arriving at the
value of sales revenue during the year:
-- point of sale is the Shaikan facility;
-- cash is received and revenue is recognised for all sales, net
of royalty, as the royalty is taken "in-kind" by the KRG;
-- deductions for transportation costs as well as the discount
to Brent, for the quality of the crude, have been estimated at
c.$20/bbl based on the discussions with the MNR and are subject to
audit and reconciliation, and the establishment of a retroactive
quality bank for Kurdistan crude exports delivered through the
international pipeline to Turkey;
-- cash receipts by GKPI as the operator represent the
non-governmental contractors' share of revenue; and
-- the Group's current working interest in the Shaikan Block is 80%.
5. Cost of Sales
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
-------------------------- ---------- ---------- ------------
Production costs 21,309 32,453 61,191
Depreciation of oil & gas
properties 41,079 39,916 81,636
62,388 72,369 142,827
========== ========== ============
Production costs represent the Group's share of gross production
expenditure for the Shaikan field for the period and include
capacity building charges of $7.2 million (H1 2016: $8.5 million)
and Shaikan PSC production bonus of $nil (H1 2016: $8.0 million).
There is no deferral of costs associated with unrecognised sales in
accordance with the Group's revenue policy. Production and
depreciation, depletion and amortisation ("DD&A") costs related
to revenue arrears recognised in 2017 have been charged to the
income statement in prior periods when the oil was lifted.
A unit-of-production method, based on full entitlement
production, commercial reserves and costs for Shaikan full field
development, has been used to calculate the DD&A charge for the
period. Commercial reserves are proven and probable ("2P")
reserves, estimated using standard recognised evaluation
techniques. Production and reserves entitlement associated with
unrecognised sales in accordance with the Group's revenue policy
have been included in the full year DD&A calculation.
6. Finance costs
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------------- ---------- ---------- ------------
Interest payable in respect
of convertible bonds - 13,908 22,203
Interest payable in respect
of guaranteed bonds - 21,862 35,232
Effective interest on reinstated
notes (Note 13) 5,537 - 2,481
Unwinding of discount on
provisions 355 346 699
Capitalised finance costs - (432) (433)
5,892 35,684 60,182
========== ========== ============
7. Other gains
Other gains consist of foreign exchange gains.
8. Profit/ (loss) per share
The calculation of the basic and diluted loss per share is based
on the following data:
Six months
ended
30 June
Six months 2016
ended Unaudited/ Year ended
30 June As restated 31 December
2017 (note 2016
Unaudited 16) Audited
$'000 $'000 $'000
---------------------------- ---------- ------------ ------------
Profit/ (loss)
Profit/ (loss) after tax
for the purposes of basic
and diluted loss per share 656 (232,555) (17,435)
Weighted average number of
shares used:
Basic ('000) 229,232 9,634 56,565
Diluted ('000) 230,964 9,634 56,565
---------------------------- ---------- ------------ ------------
On 9 December 2016, all common shares have been consolidated on
a 100:1 basis. As a result, prior interim weighted average number
of shares has been restated.
30 June
2016 31 December
30 June
2017 Number(1) 2016(1)
Number Number
('000) ('000) ('000)
Unaudited Unaudited Audited
-------------------------------- ---------- ---------- -----------
Number of shares
Share options 1,534 - 1,761
Warrants outstanding - 400 400
Common shares held by the
EBT 98 36 98
Common shares held by the
Exit Event Trustee 100 100 100
Total potentially anti-dilutive
shares 1,732 536 2,359
-------------------------------- ---------- ---------- -----------
(1) For the periods ended 30 June 2016 and 31 December 2016, the
impact of share options, warrants, and common shares held by the
Employee Benefit Trust ("EBT") and the Exit Event Trustee has an
anti-dilutive effect on the loss per share. As a result, there is
no difference between basic and diluted earnings per share.
The calculation of diluted earnings per share excludes 0.4
million (H1 2016: 0.4 million) share options that were non-dilutive
for the period because the exercise price of these options exceeded
the average fair value of the shares during the period. These share
incentives could potentially dilute earnings per share in the
future.
9. Reconciliation of profit from operations to net cash
generated in operating activities
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------ ---------- ---------- ------------
Profit from operations 6,261 14,033 26,046
Adjustments for:
Depreciation of property,
plant and equipment 41,293 40,195 82,176
Amortisation of intangible
assets 24 5 38
Share-based payment expense 1,293 809 1,255
Decrease in inventories 440 134 2,573
Reversal of provisions (271) - -
Write off of exploration costs - 875 -
(Increase)/decrease in receivables (10,109) 462 (22,129)
Decrease in payables (3,783) (9,827) (40,522)
------------------------------------ ---------- ---------- ------------
Net cash generated by operations 35,148 46,686 49,437
Income tax received - 182 182
------------------------------------ ---------- ---------- ------------
Net cash generated in operating
activities 35,148 46,868 49,619
------------------------------------ ---------- ---------- ------------
10. Property, plant and equipment
The net book value at 30 June 2017 includes property, plant and
equipment relating to the Shaikan Block with a carrying value of
$451.6 million (30 June 2016: $524.7 million; FY 2016: $488.6
million). The remainder of the balance, with a carrying value of
$0.7 million (30 June 2016: $1 million; FY 2016: $0.7 million),
comprises fixtures and equipment.
The additions to the Shaikan assets of $4.1 million during the
period include the costs of various studies and production
facilities improvement projects.
Associated with production, a DD&A charge of $41.1 million
was recognised on the Shaikan oil and gas asset (30 June 2016:
$39.9 million; FY 2016: $81.6 million), which has been included
within cost of sales. A depreciation charge of $0.2 million was
recognised on fixtures and equipment (30 June 2016: $0.3 million;
FY 2016: $0.5 million), which has been included in general and
administrative expenses.
11. Trade and other receivables
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------- ----------- ----------- ------------
Trade receivables 48,000 12,494 36,000
Other receivables 3,335 525 4,976
Prepayments and accrued
income 289 534 589
----------- ----------- ------------
51,624 13,553 41,565
=========== =========== ============
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value and no amounts are
provided against them.
12. Trade and other payables
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------- ---------- ---------- -----------
Trade payables 2,478 10,152 2,922
Other creditors 26,769 35,015 26,917
Accrued expenses 22,285 69,346 26,445
---------- ----------
51,532 114,513 56,284
========== ========== ===========
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs.
In accordance with the Bilateral MNR Agreement signed between
GKPI and the MNR on 16 March, 2016, the Group has received
cumulative payments on account for back-costs of approximately
$16.2 million (FY 2016: $16.2 million) in recognition of the Group
and MNR's intention, subject to the satisfaction of certain
conditions, to recognise the allocation to MNR of the Shaikan
Government Participation Option with effect from 1 August 2012. The
treatment of the Shaikan Government Participation Option is subject
to the execution of a revised Shaikan PSC and the amounts received
have been included in Other creditors until this has been
finalised.
13. Other borrowings
On 14 October 2016, the Company issued $100 million of new
guaranteed notes ("Reinstated Notes"). The unsecured Reinstated
Notes are guaranteed by Gulf Keystone Petroleum International
Limited, the Company's subsidiary and their terms are the same as
the Guaranteed Notes subject to the following amendments:
- Maturity date is 18 October 2021. At any time prior to
maturity, the Reinstated Notes are redeemable in part or full at
par and can therefore be refinanced without any prepayment
penalty;
- The Company has the option to defer its interest payments
until the maturity of the Reinstated Notes in PIK at 13% or pay in
cash at 10% until 18 October 2018. From 19 October 2018, the
Company is mandatorily liable to pay interest in cash at 10%;
- The aggregate principal amount of the Reinstated Notes shall
be increased by the amount of such PIK interest on the date such
interest is due and interest will accrue on the increased principal
amount from such date;
- The Company will be permitted to raise up to $45 million of
additional debt at any time on market terms to fund capital and
operating expenditure;
- Certain other amendments, including inter alia, the removal of
security, removal of the Debt Service Reserve Account requirement
and the extension of the grace periods in respect of certain events
of default under the Reinstated Notes
The liabilities associated with Reinstated Notes are presented
in the following tables:
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------------- ---------- ---------- -----------
Liability at the beginning
of the period 98,886 555,374 555,374
Interest charged during the
period 35,770 57,435
Effective interest on Reinstated
Notes 5,537 - 2,481
Interest paid during the period (5,111) - -
Extinguishment of liability
and related interest during
the year - - (612,809)
Issue of Reinstated Notes - - 96,405
Liability at the end of period 99,312 591,144 98,886
========== ========== ===========
Liability reported in:
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------- ---------- ---------- -----------
Current liabilities - 276,891 -
Non -current liabilities 99,312 314,253 98,886
99,312 591,144 98,886
========== ========== ===========
For the period ended 30 June 2017, the Company recognised $0.4
million of interest expense on the Reinstated Notes which was
capitalised into the Reinstated Notes within Other borrowings (H1
2016: $nil; FY 2016: $2.4 million). The interest payment method
will be reassessed prior to each interest payment date. Any
difference from what was capitalised or accrued for the period
ended 30 June 2017 and the actual interest payment method selected
will be adjusted prospectively.
The Reinstated Notes are actively traded on the Luxembourg Stock
Exchange and the fair value at the prevailing market price as at
the close of business on the reporting date was:
Market 30 June
price 2017
$'000
Reinstated Notes $1.002 100,198
======= ========
As of 30 June 2017, the Group's remaining contractual liability
comprising principal and interest based on undiscounted cash flows
at the maturity date of the Reinstated Notes is as follows:
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------- ---------- ---------- -----------
Within one year - 329,219 -
Within two to five years 157,033 335,156 167,241
157,033 664,375 167,241
========== ========== ===========
On 18 April 2017, the remaining warrants of 0.4 million at $1.0
each have expired.
14. Share capital
Common shares Share Share
No. of
shares Amount capital premium
000 $'000 $'000 $'000
----------------------- ------- --------- ------------------- -------
Issued and fully paid
Balance 1 January 2017
and 30 June 2017 229,430 1,150,158 229,430 920,728
======= ========= =================== =======
15. Contingent Liabilities
The Group has a contingent liability of $27 million (net to GKP)
in relation to the proceeds from the sale of test production in the
period prior to the approval of the Shaikan Field Development Plan
in July 2013. The Shaikan PSC does not appear to expressly address
any party's rights to this pre-Development Plan petroleum. This
suggests strongly that there must have been some other agreement,
understanding or arrangement between GKP and the KRG as to how this
pre-Development Plan petroleum would be lifted and sold. The sales
were made based on sales contracts with domestic offtakers which
were approved by the KRG. The Group believes that the receipts from
these sales of pre-Development Plan petroleum are for the account
of the Contractor (GKP and MOL), rather than the KRG and
accordingly recorded them as test revenue in prior years. However,
the KRG has requested a repayment of these amounts and we are
currently involved in discussions with them to resolve this
matter.
16. Change in accounting policy
As noted in the 2016 Annual Report and Accounts (page109), the
Group changed its accounting for its oil and gas assets from
modified full cost to successful efforts in the second half of
2016. As a result, the Group has restated its H1 2016 and FY 2015
Consolidated Financial statements.
The effect of the change in accounting policy has been adjusted
by restating each of the affected financial statement line items
for the prior interim period, as follow:
31 December 30 June 2016
2015
$'000 $'000
------------------------------ ----------- ------------
Consolidated Balance Sheet
Intangible assets (decrease) (78,987) (172,681)
Consolidated Income Statement
Impairment expense (increase) (78,987) (175,658)
Cost of sales (decrease) - 3,852
General and administrative
expenses (increase) - (875)
Loss per share (increase)
Basic (cents) (843.07) (1792.33)
Diluted (cents) (843.07) (1792.33)
17. Events after the balance sheet date
The Group, together with the MNR and Genel Energy International
Limited, finalised the terms of relinquishment and termination of
its rights and obligations under the Ber Bahr PSC, which has been
completed in accordance with the executed Relinquishment and
Termination Agreement on 13 July 2017. As stated in the agreement,
no party will have any further rights, duties, liabilities or other
interest. The KRG fully and finally released each contractor from
any and all obligations, costs, liabilities, claims, actions,
proceedings and demands. The Ber Bahr exploration asset was fully
written off in 2015.
GLOSSARY (See also the glossary in the 2016 Annual Report)
Bilateral MNR the bilateral agreement between
Agreement GKPI and the MNR dated 16 March
2016
-------------------------- -------------------------------------------
Capex any expenditure or obligation in
respect of expenditure which, in
accordance with accounting principles
applied by the Company in the preparation
of its audited accounts, is treated
as capital expenditure (and including
the capital element of any expenditure
or obligation incurred in connection
with any finance lease)
-------------------------- -------------------------------------------
CSR corporate social responsibility
-------------------------- -------------------------------------------
First Shaikan First amendment to the Shaikan
Amendment PSC executed on 1 August 2010.
-------------------------- -------------------------------------------
General Debt Basket the provision in the Reinstated
Notes that will permit the Company
or GKPI to incur up to $20 million
of additional indebtedness at any
time outstanding
-------------------------- -------------------------------------------
HSSE health, safety, security and environment
-------------------------- -------------------------------------------
KRG Kurdistan Regional Government
-------------------------- -------------------------------------------
Majority Participating Participating Holders holding in
Holders aggregate at least 50.01% of the
aggregated principal amount of
the Notes and the convertible bonds
held by the Participating Holders
at the relevant time
-------------------------- -------------------------------------------
MNR Kurdistan's Ministry of Natural
Resources
-------------------------- -------------------------------------------
MOL MOL Hungarian Oil and Gas Plc
-------------------------- -------------------------------------------
OPEC The Organisation of the Petroleum
Exporting Countries
-------------------------- -------------------------------------------
PSC production sharing contract
-------------------------- -------------------------------------------
Reinstated Notes the $100 million of guaranteed
notes issued pursuant to the Notes
Reinstatement
-------------------------- -------------------------------------------
Second Shaikan the second proposed amendment to
Amendment the Shaikan PSC formally implementing
the terms of the Bilateral MNR
Agreement (including the First
Shaikan Amendment)
-------------------------- -------------------------------------------
Shaikan Government under the terms of the Shaikan
Participation PSC, the KRG has the option (the
Option "Shaikan Government Participation
Option") to participate through
a public company duly registered
and incorporated in Kurdistan and
regulated by the KRG under the
Kurdistan Oil and Gas Law in an
undivided interest in the petroleum
operations (and all other rights,
obligations and liabilities of
the Shaikan Contractors) of the
Shaikan Block as a component of
the Shaikan Contractors (a "Shaikan
Contractor Entity"). The Shaikan
Government Participation Option
is over an interest of between
5 and 20% and (subject to such
extension as may be agreed by the
parties) within 180 days of the
first Commercial Discovery being
declared. Pursuant to the Second
Shaikan Amendment the Shaikan Government
Participation Option will be formally
exercised and the implementation
of the First Shaikan Amendment
will be formally recognised
-------------------------- -------------------------------------------
Third Party Participation the option under the terms of the
Option Shaikan PSC allowing the KRG to
nominate a third party as a Shaikan
Contractor Entity, resulting in
such party having an undivided
interest in the petroleum operations
of the Shaikan Block (such interest
referred to as the "Third Party
Interest").
-------------------------- -------------------------------------------
Third Party Interest an undivided interest of between
5% and 15% in Shaikan Block's petroleum
operations, to be taken up by an
entity nominated by the KRG, who
has the option to do so (such option
referred to as the "Third Party
Participation Option")
-------------------------- -------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FVLLFDKFXBBV
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