TIDMGKP
RNS Number : 1975A
Gulf Keystone Petroleum Ltd.
10 September 2018
10 September 2018
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP" or "the Company")
2018 Half Year Results Announcement
Record profit achieved and on track for production uplift at
Shaikan
Gulf Keystone Petroleum, a leading independent operator and
producer in the Kurdistan Region of Iraq ("Kurdistan" or "Kurdistan
Region") announces its results for the half year ended 30 June
2018.
Highlights to 30 June 2018 and post reporting period
Operational
-- Gulf Keystone's operations in the Kurdistan Region of Iraq
remained safe and secure throughout H1 2018 with plant uptime at
Production Facility 1 ("PF-1") and Production Facility 2 ("PF-2")
of over 99% during H1 2018 and one lost-time incident (the first
for three years) in July 2018.
-- Shaikan achieved gross average production of 31,861 bopd for
H1 2018 and 31,399 bopd for July and August. Our guidance for the
full year remains unchanged at 27,000-32,000 bopd.
-- Cumulative production from Shaikan since inception exceeded
50 million barrels in June 2018. Production and well behaviour
continues to match our expectations and increase our confidence in
the Company's geological model of the field.
-- PF-2 was tied-in to the export pipeline and the export of
crude oil via the pipeline commenced during July 2018, leading to
reduced operating costs and HSSE risk.
-- Agreement reached in June 2018 with Ministry of Natural
Resources ("MNR") of the Kurdistan Regional Government ("KRG") and
our partner, MOL Hungarian Oil & Gas plc ("MOL"), in relation
to investment plans to increase production at Shaikan to 55,000
bopd during the second half of 2019.
-- Construction work for the investment programme has started,
equipment procurement and contract tendering are underway and
overall activity is on schedule.
-- The scope of work for the 55,000 bopd project has been
expanded to include opportunities to accelerate the production
increase and tie-in PF-1 to the export pipeline. While capex
guidance for the original scope remains unchanged, the required
capex for the project has been revised to between $200 million and
$230 million gross to account for the acceleration of those
additional opportunities.
-- The revised Field Development Plan ("FDP") has been drafted
and is being finalised prior to submission later in 2018.
Financial
-- Record profit after tax of $26.7 million (H1 2017: profit after tax of $0.7 million).
-- Continued disciplined cost control with underlying cash
operating costs stable at $14.1m (H1 2017: $14.1m) and underlying
cash operating costs per barrel of $3.0/bbl (H1 2017:
$2.7/bbl).
-- The Group has continued to receive regular oil sales payments
since 1 September 2015, with cash receipts of $107 million net to
GKP during the half year and $147 million net to GKP during the
eight months to 31 August 2018.
-- Net cash generated in operating activities of $61.2 million (H1 2017: $30.1 million).
-- Cash balance of $219 million at 30 June 2018 and $240 million
at 7 September 2018 against $100 million debt principal.
-- Debt refinanced in July 2018, with $100 million Reinstated
Notes redeemed and replaced by $100 million New Notes with
five-year maturity and 10% interest rate.
-- Signing the Crude Oil Sales Agreement in January 2018 was a key milestone for the Company
Corporate
-- Jaap Huijskes appointed Non-Executive Chairman in April 2018.
-- Martin Angle appointed Senior Independent Non-Executive Director in July 2018.
Outlook
-- With construction work underway, the Company remains on track
to increase production at Shaikan to 55,000 bopd in the second half
of 2019.
-- GKP plans to carry out workovers on SH-1 and SH-3 wells by
the end of the year, subject to rig availability.
-- The Company has begun work to tie-in PF-1 to the export
pipeline which is anticipated to be complete mid-2019, leading to
further reduced operating costs and HSSE risk.
-- The Company continues to make progress with the MNR and MOL
to achieve further contractual and commercial clarity in relation
to amendments of the Shaikan PSC, which it anticipates being
concluded during Q4 2018.
Jón Ferrier, Gulf Keystone's Chief Executive Officer, said:
"It is pleasing to note that over the course of the year a
number of key milestones have been achieved, leading to the
recommencement of investment into Shaikan and the anticipated
growth in production from the field.
The signing, and successful implementation, of the Shaikan crude
oil export sales agreement at the start of the year paved the way
for the commercial progress that has been achieved, including the
investment plans but also regarding the amendment to the Shaikan
PSC. Once the revised FDP is submitted to the MNR and there is
clarity around the PSC, we look forward to providing further
details to investors, including capital strategy.
Once again, Shaikan has continued to perform well from an
operational perspective, and in line with our strategic priority,
this has been achieved whilst maintaining our strong safety track
record. With a clear path to future growth, underpinned by a
healthy balance sheet and an outstanding asset, we can look to the
future with confidence".
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 2018 saw Gulf Keystone make significant
progress and achieve a number of key milestones, which have enabled
us to recommence investment into Shaikan and increase production
from the field in the near-term. The period has also seen the
Company continue to deliver operationally, demonstrated by our
strong safety performance and solid first half production figures.
The region has remained stable and the Company has also benefited
from an improved oil price environment, with the average Brent
crude oil price for the first half of the year being over $70 a
barrel (H1 2017: $52/bbl). The resurgence in oil prices also played
a role in the global investment community becoming increasingly
positive on the prospects for the oil and gas sector.
Average gross production from the beginning of the year to 30
June 2018 was 31,861 bopd (H1 2017: 36,664 bopd), at the top end of
our full year guidance for 2018 of 27,000-32,000 bopd. The
Company's health, safety, security and environment ("HSSE")
performance during the year has also been good, despite one lost
time incident ("LTI") arising. This was the first in three years of
uninterrupted production at Shaikan.
The Company made significant commercial progress in the first
half of the year. The signing, and successful implementation, of
the Shaikan crude oil export sales agreement dated 10 January 2018
("Crude Oil Sales Agreement") was key for the business. This
agreement enabled Gulf Keystone to move to a more transparent
invoicing mechanism with the MNR.
In June, Gulf Keystone announced an agreement with its partner,
MOL, and the MNR regarding investment plans to increase gross
production capacity at Shaikan to 55,000 bopd in the second half of
2019. This is a landmark event for us and will see the Company
invest a significant amount of capital into this asset to increase
gross production to 55,000 bopd, before moving on to 75,000 and
110,000 bopd. The 55,000 bopd case, which is self-funded, will
require investment of between $200 million and $230 million gross
($160 million and $184 million net by GKP). Capex guidance for 2018
remains unchanged at $91 million gross ($73 million net by GKP).
The revised 55,000 bopd project scope accelerates production and
reduces transportation costs through the installation of a second
spur line, which we see as a compelling value enhancer for the
business. Along with our partner, MOL, we plan to submit a revised
FDP to the MNR later this year, which will set out the framework
and details of how production increases beyond 55,000 bopd will be
achieved. We expect to communicate this work plan and associated
capex towards the end of the year.
Negotiations around the amendment to the Shaikan PSC are
continuing. Progress on this matter has been made and we remain
positive that these negotiations will conclude this year. Whilst
this is an important workstream, it is key to note that investment
in operational developments remains unaffected by those
negotiations.
Gulf Keystone remains in a strong financial position, with a
cash balance as at 7 September 2018 of $240 million. We remain
committed to strong financial discipline and continue to explore
new ways of optimising our cost base. Given the Company is set to
recommence investment into Shaikan, this pursuit of cost
optimisation in all facets of the business will remain a critical
matter going forward.
In July 2018, the Company successfully concluded an important
refinancing of the Company's existing $100 million Reinstated
Notes. The Company's five year senior unsecured $100 million New
Notes received strong investor demand, both from existing and new
investors and was oversubscribed. The refinancing of this debt
instrument will provide greater financial flexibility, which will
be important in the development of the Shaikan field.
The Company continued to receive regular monthly payments during
the period, with a total of $147.4 million net being paid to GKP
during the eight months to 31 August 2018. From September 2015,
Gulf Keystone has received total payments from the MNR of $429
million net to GKP. The normalising of the payment cycle is an
important advancement and demonstrates the KRG's commitment to the
country's oil industry.
During the period, we were pleased to welcome to the board
Martin Angle, who brings extensive financial, commercial and
boardroom experience to the Company. We would like to thank Philip
Dimmock for his contribution to Gulf Keystone since joining the
Board in 2015 and Keith Lough for his leadership of the Board
during his tenure as Chairman, both of whom stepped off the Board
earlier this year.
We fully appreciate the continued support of all our
stakeholders during what has been a very important period in the
Company's history. Alongside our partner, MOL, and our hosts, the
KRG and the MNR, we remain excited about the next 12 to 18 months,
as we stand poised to realise Shaikan's full potential over the
coming years.
Jaap Huijskes
Chairman
Jón Ferrier
Chief Executive Officer
Operations Review
The first half of the year saw the Shaikan field perform in line
with expectations and average output from 1 January to 30 June 2018
was 31,861 (H1 2017: 36,664) and to 31 August 2018 was 31,743 bopd.
This strong performance to date comes in at the top end of our
production guidance range for 2018 of 27,000-32,000 bopd. In June,
the Company achieved an important production milestone at Shaikan,
with cumulative production at the field exceeding 50 million
barrels from inception to date, reinforcing our confidence in the
Company's geological model.
Gulf Keystone, along with its partner, MOL, and the KRG's MNR
has achieved an important agreement, in relation to investment
plans to increase production at Shaikan, and the joint venture
plans to submit an update to the FDP to the MNR later in 2018. The
revised FDP will provide details of production to date, subsurface
geological understanding, production forecasts and proposed plans
for wells and facilities to develop the Jurassic, Triassic and
Cretaceous reservoirs in the Shaikan block. The revised FDP will
clearly set out the phased approach to increase output from the
field to 55,000 bopd during the second half of 2019, before moving
on to 75,000 and 110,000 bopd. The plans are in line with those
presented in the 2017 Annual Report, albeit with an increase in the
eventual plateau from 100,000 bopd mentioned previously to 110,000
bopd.
Since the agreement with MOL and the MNR was reached in June
2018, the operations team has been working hard to procure
materials and equipment and put contracts in place for services
required for the Company's workover and drilling programme. Civil
works for the 55,000 bopd project commenced in August, with the
construction of roads and drill pads and we anticipate that
drilling can commence in Q1 2019, subject to rig availability. A
tendering process for the rig is currently underway.
The scope of the 55,000 bopd project has been expanded to
include opportunities to enhance production at the SH-1 and SH-3
wells, accelerating the ramp-up to 55,000 bopd and bring forward
the pipeline tie-in of PF-1 to the export pipeline to reduce
transportation costs. While the capex estimates for the original
scope remain unchanged, the required capex has been revised to $200
million to $230 million gross (versus $175 million to $215 million
gross previously) to account for those opportunities. Workovers to
install electric submersible pumps in three of our wells are now
likely to begin in Q1 2019, owing to equipment lead time on
critical items.
The tie-in of the 400m spur pipeline from PF-2 to the Atrush
export pipeline system was completed on 23 July 2018 and all
production from PF-2 (c.14,500 bopd) is now being exported via this
pipeline. Oil from PF-1 is currently being trucked to the DNO
facility at Fishkhabour for export via Turkey. However, in the next
month, we will cease trucking the oil to Fishkhabour and start to
truck the oil within the Shaikan block from PF-2 to PF-1, where we
are constructing a temporary unloading facility, so that the oil
from PF-1 can be injected into the Atrush export pipeline system,
along with the oil from PF-2. Additionally, we have recently agreed
terms with KAR Group for the installation of a 16 kilometre
pipeline from PF-1 into the export pipeline system. Work has
started on this project and we anticipate completion mid-2019,
which would result in all of Shaikan's production being exported by
pipeline and the elimination of the trucking of crude oil,
providing cost savings and HSSE benefits.
In summary, the Company remains on schedule to increase
production at Shaikan to 55,000 bopd in the second half of
2019.
HSSE
Safe operations continue to be of the utmost importance to Gulf
Keystone and remains a priority for the business, both for those
working out in the field and for the communities that live close to
our operations in the Kurdistan Region of Iraq. The Company
achieved plant uptime of over 99% during the first half of the
year, enabling the business to achieve output at the top end of
guidance for 2018. Our safety performance during the period was
good, with one LTI recorded in July 2018, the first for three
years. As ever, we continue to invest significant time and resource
in our safety training, to help ensure a safe working environment
for all.
Stuart Catterall
Chief Operating Officer
Financial Review
Summary of key financial highlights
Six months Six months
ended ended
30 June 30 June
2018 2017
Unaudited Unaudited
------------------------------------------- ----------- -----------
Gross average production (bopd)(1) 31,861 36,664
------------------------------------------- ----------- -----------
Revenue 116.2 78.3
Cash receipts assured ($m)(1) 116.2 72.0
Offset of payables to the MNR ($m)(1) - 6.3
------------------------------------------- ----------- -----------
Underlying cash operating costs ($m)(1) 14.1 14.1
------------------------------------------- ----------- -----------
Underlying cash operating costs per
bbl ($/bbl)(1) 3.0 2.7
------------------------------------------- ----------- -----------
General and administrative expenses
($m) 7.6 9.7
------------------------------------------- ----------- -----------
Profit from operations ($m) 26.6 6.3
------------------------------------------- ----------- -----------
Finance costs ($m) (5.6) (5.9)
------------------------------------------- ----------- -----------
Profit after tax ($m) 26.7 0.7
------------------------------------------- ----------- -----------
Basic earnings per share (cents) 11.65 0.29
------------------------------------------- ----------- -----------
Additions to oil and gas properties
($m) 6.9 4.1
------------------------------------------- ----------- -----------
Cash and cash equivalents ($m) 219 119
------------------------------------------- ----------- -----------
Net increase in cash and cash equivalents
($m) 58.5 25.7
------------------------------------------- ----------- -----------
(1) Gross average production, revenue categories, underlying
cash operating costs and net debt are either non-financial or
non-IFRS measures and are explained later in this section.
Revenue and production
Following the signing of the Crude Oil Sales Agreement in
January 2018, the Group has received payments for oil sold
according to its revenue entitlements. A regular monthly payment
cycle is now well-established.
During the six months ended 30 June 2018, gross liftings were
5.8 million barrels (H1 2017: 6.7 million barrels). Shaikan crude
oil was sold into the export market by trucking it to the delivery
point at Fishkhabour for injection into the export pipeline and
into the domestic market by truck from the delivery point at the
Shaikan field. By 30 June 2018, the Company had ceased sales into
the domestic market. During July 2018, the Company commenced two
new routes/channels for selling crude oil into the export market by
injecting into its newly commissioned spur into the Atrush pipeline
and by trucking approximately 130km from Shaikan to South Khurmala
for injection into the export pipeline.
Throughout the half year ended 30 June 2018, the Group received
six payments covering the seven months of oil sales from September
2017 to March 2018 and totalling $136.7 million gross ($107.3
million net). As at 30 June 2018, the Group also recognised revenue
receivables amounting to $57.8 million (H1 2017: $48.0 million) on
its balance sheet in relation to oil sales during the three months
from April to June 2018.
Owing to historic 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 2018
amounted to $116.2 million (H1 2017: $78.3 million) with $116.2
million (H1 2017: $72.0 million) for assured receipts and $nil (H1
2017: $6.3 million) recognised by offsetting payables to the MNR
against amounts due for previously unrecognised revenue.
The Group's production is sold under its oil sales agreement
with the KRG at a discount to the price of Brent crude oil. For the
six months ended 30 June 2018, the average discount for quality and
transportation costs was $22.8/bbl (H1 2017: $19.8/bbl) and the
average realised price was $47.8/bbl (H1 2017: $31.8/bbl).
Operating costs, depreciation and expenses
Underlying cash operating costs (defined in the non-IFRS
measures section on page 8) remained stable at $14.1 million (H1
2017: $14.1 million), resulting in underlying cash operating costs
per bbl of $3.0 (H1 2017: $2.7).
DD&A charges on production and development assets amounted
to $34.9 million (H1 2017: $41.1 million), with the decrease owing
to the decline in production volumes.
General and administrative expenses during the period were $7.6
million (H1 2017: $9.7 million). The decrease has been generated
through efforts to further increase efficiencies and reduce
costs.
Impairment of property plant and equipment
Management carried out an impairment indicator review of the
Group's oil and gas assets as at 30 June 2018 with no impairment
indicators identified as at 30 June 2018.
Finance costs
Finance costs of $5.6 million (H1 2017: $5.9 million) are in
respect of the Reinstated Notes.
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
$0.21 million (H1 2017: credit of $0.04 million).
Cash flow
Net cash generated in operating activities was $61.2 million (H1
2017: $30.1 million). The increase is mainly due to increased cash
receipts for revenue.
Capex for the period amounted to $2.6 million (H1 2017: $4.4
million), leading to the net overall increase in cash and cash
equivalents during the period of $58.5 million (H1 2017: $25.7
million increase).
Cash and cash equivalents totalled $219 million at 30 June 2018
(30 June 2017: $119 million; 31 December 2017: $160 million). Cash
and cash equivalents at 7 September 2018 amounted to $240
million.
Corporate Activities
Shaikan PSC Amendment
The Group continues to negotiate with the KRG and MOL to amend
the terms of the Shaikan PSC and expects to execute an amendment
agreement during Q4 2018.
Completion of debt refinancing
During July 2018, the Company completed a debt refinancing
transaction, whereby it issued $100 million of New Notes and
redeemed in full the $100 million of Reinstated Notes. The key
terms of the New Notes are summarised in note 16.
Algerian assets
The Group continues its work on an orderly exit from its
Algerian interests.
Financial outlook
Following a record profit after tax of $26.7 million during the
period, the Group will continue to work to sustain its strong
liquidity position and continue its efforts to manage costs
prudently whilst maintaining safe and secure operations. We kept
our operating costs in H1 2018 stable at $14.1 million, the same as
in H1 2017. We have commenced our investment in the Shaikan asset
and we look forward to the increased production volumes that this
investment will bring.
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 underlying cash
operating costs and non-financial measures such as 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
and once it incurs costs payable to the MNR that can be offset
against unrecognised revenue arrears.
Underlying cash operating costs
Underlying cash operating costs, in comparison with cost of
sales, excludes depletion and amortisation of oil and gas assets,
capacity building charge, production bonuses, and certain other
cost of sales, such as the cost of transporting the KRG's share of
the oil sales. Underlying cash operating costs, and underlying cash
operating costs per bbl, are not measurements 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 cash operating costs, and
underlying cash operating costs per bbl, are useful indicators of
the operating costs incurred to produce oil from the Shaikan
field.
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------- ------------- ------------- ------------
Cost of sales 81,905 62,388 126,996
Depreciation of oil & gas properties (34,760) (41,079) (79,785)
Transportation costs (4,211) - (1,169)
------------- ------------- ------------
Oil production costs 42,934 21,309 46,042
Production bonus (16,000) - -
Capacity building payments (8,278) (7,200) (17,200)
Costs of transporting GKP's share
of oil (4,599) - (1,277)
Underlying cash operating costs 14,057 14,109 27,565
============= ============= ============
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
2017 Annual Report and Accounts. The principal risks are listed
below:
Strategic HSSE and CSR Operational Financial
Political, social HSSE risks Field delivery Liquidity and
and economic instability risk funding capability
----------------- --------------- --------------------
Disputes regarding Gas flaring Reserves Export payment
title or exploration mechanism
and production
rights
----------------- --------------- --------------------
Business conduct Security Commodity prices
and anti-corruption
----------------- --------------- --------------------
Export route availability Corporate social
responsibility
risks
----------------- --------------- --------------------
Stakeholder expectations
----------------- --------------- --------------------
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
Jón Ferrier
Chief Executive Officer
7 September 2018
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 2018 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
16. 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 Financial
Reporting Council. 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 Guidance 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 Financial Reporting Council 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 2018 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
7 September 2018
Condensed Consolidated Income Statement
for the six months ended 30 June 2018
Six months
ended Six months Year ended
30 June ended 31 December
2018 30 June 2017 2017
Notes Unaudited Unaudited Audited
$'000 $'000 $'000
--------------------------- ----- ---------- ------------- ------------
Continuing operations
Revenue 4 116,171 78,308 172,372
Cost of sales 5 (81,905) (62,388) (126,996)
--------------------------- ----- ---------- ------------- ------------
Gross profit 34,266 15,920 45,376
General and administrative
expenses (7,644) (9,659) (21,304)
Profit from operations 26,622 6,261 24,072
Interest income 4 1,450 80 702
Finance costs 6 (5,645) (5,892) (11,023)
Other gains 7 4,081 170 314
--------------------------- ----- ---------- ------------- ------------
Profit before tax 26,508 619 14,065
Tax credit 208 37 61
--------------------------- ----- ---------- ------------- ------------
Profit after tax 26,716 656 14,126
--------------------------- ----- ---------- ------------- ------------
Profit per share (cents)
Basic 8 11.65 0.29 6.16
Diluted 8 11.58 0.28 6.12
--------------------------- ----- ---------- ------------- ------------
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2018
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------- ------------- ------------- ------------
Profit for the period 26,716 656 14,126
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations (298) 744 1,281
-------------------------------------- ------------- ------------- ------------
Total comprehensive income
for the period 26,418 1,400 15,407
-------------------------------------- ------------- ------------- ------------
Condensed Consolidated Balance Sheet
as at 30 June 2018
30 June 30 June 31 December
2018 2017 2017
Notes Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------ ------ ---------- ---------- -----------
Non-current assets
Intangible assets 41 82 63
Property, plant and equipment 10 389,782 452,295 417,473
Deferred tax asset 599 364 403
------------------------------ ------ ---------- ---------- -----------
390,422 452,741 417,939
------------------------------ ------ ---------- ---------- -----------
Current assets
Inventories 17,515 15,531 17,190
Trade and other receivables 11 80,991 51,624 61,710
Cash and cash equivalents 219,025 118,848 160,456
317,531 186,003 239,356
------------------------------ ------ ---------- ---------- -----------
Total assets 707,953 638,744 657,295
------------------------------ ------ ---------- ---------- -----------
Current liabilities
Trade and other payables 12 (83,181) (51,532) (57,038)
Provisions (4,155) (7,190) (7,197)
(87,336) (58,722) (64,235)
------------------------------ ------ ---------- ---------- -----------
Non-current liabilities
Other borrowings 13 (97,380) (99,312) (97,067)
Provisions (24,448) (24,200) (24,107)
(121,828) (123,512) (121,174)
------------------------------ ------ ---------- ---------- -----------
Total liabilities (209,164) (182,234) (185,409)
------------------------------ ------ ---------- ---------- -----------
Net assets 498,789 456,510 471,886
------------------------------ ------ ---------- ---------- -----------
Equity
Share capital 14 229,430 229,430 229,430
Share premium account 14 920,728 920,728 920,728
Exchange translation reserve (3,316) (3,555) (3,018)
Accumulated losses (648,053) (690,093) (675,254)
------------------------------ ------ ---------- ---------- -----------
Total equity 498,789 456,510 471,886
------------------------------ ------ ---------- ---------- -----------
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2018
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
2017 (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
------- ------- ------- --------- -------
Net profit for the
period - - - 13,470 - 13,470
Other comprehensive
income for the period - - 537 - - 537
------- ------- ------- --------- -------
Total comprehensive
income for the period - - 537 13,470 - 14,007
Share-based payment
charge - - - 1,369 - 1,369
Balance at 31 December
2017 (audited) 229,430 920,728 (3,018) (675,254) -471,886
------- ------- ------- --------- -------
Net loss for the
period - - - 26,716 - 26,716
Other comprehensive
loss for the period - - (298) - - (298)
------- ------- ------- --------- -------
Total comprehensive
(loss)/income for
the period - - (298) 26,716 - 26,418
Share-based payment
charge - - - 485 - 485
Balance at 30 June
2018 (unaudited) 229,430 920,728 (3,316) (648,053) -498,789
---------------------- ------- ------- ------- --------- -------
Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2018
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
Note Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------------ ---- ---------- ---------- ------------
Operating activities
Cash generated in operations 9 64,708 35,148 85,300
Interest received 1,450 80 702
Interest paid 13 (5,000) (5,111) (10,111)
Net cash generated in operating
activities 61,158 30,117 75,891
------------------------------------------ ---- ---------- ---------- ------------
Investing activities
Purchase of intangible assets - - -
Purchase of property, plant and
equipment (2,635) (4,397) (8,856)
Net cash used in investing activities (2,635) (4,397) (8,856)
------------------------------------------ ---- ---------- ---------- ------------
Financing activities
Net increase in cash and cash equivalents 58,523 25,720 67,035
Cash and cash equivalents at beginning
of period 160,456 92,870 92,870
Effect of foreign exchange rate
changes 46 258 551
------------------------------------------ ---- ---------- ---------- ------------
Cash and cash equivalents at end
of the period being bank balances
and cash on hand 219,025 118,848 160,456
------------------------------------------ ---- ---------- ---------- ------------
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 June 2018
1. General information
The Company is incorporated in Bermuda (registered address:
Cumberland House, 9th Floor, 1 Victoria Street, Hamilton, Bermuda).
The Company's common shares are listed on the Official List of the
United Kingdom Listing Authority and are traded on the London Stock
Exchange's Main Market for listed securities. The Company serves as
the holding company for the Group, which is engaged in oil and gas
exploration and production, operating in the Kurdistan Region of
Iraq.
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
2017.
The condensed Group financial statements for the six months
period ended 30 June 2018 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
IFRSs, 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 2017. The condensed Group interim financial statements for
the six months ended 30 June 2018 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 Company's Board of Directors on 7 September
2018. 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 2017
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.
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 2018 are
consistent with those applied in the preparation of the
consolidated financial statements of the Group for the year ended
31 December 2017.
Adoption of new and revised accounting standards
As of 1 January 2018, a number of accounting standard amendments
and interpretations became effective, as noted in the 2017 Annual
Report and Accounts (pages 74 and 75). 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
2018.
The following new accounting standards are in issue:
- 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 has implemented IFRS 9 and IFRS 15 from 1 January 2018
and is currently evaluating the impact of adopting IFRS 16 from 1
January 2019.
IFRS 9 Financial Instruments
The Group adopted IFRS 9 Financial Instruments with effect from
1 January 2018. IFRS 9 addresses the classification, measurement
and recognition of financial assets and financial liabilities,
introduces a new impairment model for financial assets, as well as
new rules for hedge accounting. It replaces the old standard of IAS
39 in its entirety.
The Group has performed an assessment of potential impact of
adopting IFRS 9 based on the financial assets and financial
liabilities as at the date of initial application of IFRS 9 (1
January 2018) and has concluded that the adoption of IFRS 9 did not
have an impact on the financial statements of the Group, other than
in relation of expected credit losses for the payment assured trade
receivables where the effect was insignificant.
IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 with effect from 1 January 2018. IFRS
15 establishes a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers. The
core principle of IFRS 15 is that an entity should recognise
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or
services. Specifically, IFRS 15 introduces a five-step approach to
revenue recognition:
-- step 1: identify the contract(s) with a customer;
-- step 2: identify the performance obligations in the
contract;
-- step 3: determine the transaction price;
-- step 4: allocate the transaction price to the performance
obligations in the contract; and
-- step 5: recognise revenue when (or as) the entity satisfies a
performance obligation.
Under IFRS 15, an entity recognises revenue when (or as) a
performance obligation is satisfied, i.e. when 'control' of the
goods or services underlying the particular performance obligation
is transferred to the customer.
Far more prescriptive guidance has been added in IFRS 15 to deal
with specific scenarios. Furthermore, extensive disclosures are
required by IFRS 15.
In April 2016, the IASB issued clarifications to IFRS 15 in
relation to the identification of performance obligations,
principal versus agent considerations, as well as licensing
application guidance.
The Group recognises revenue from the following major
sources:
-- sales of crude oil, and
-- transportation services provided to third parties in relation
to the transport of their share of the crude oil.
The Group has performed an assessment of the impact of adopting
IFRS 15 based on the revenue relationships as at the date of
initial application of IFRS 15 (1 January 2018) and has concluded
that the adoption of IFRS 15 did not have a material quantitative
impact on the financial statements of the Group.
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 will supersede the current lease guidance
including IAS 17 Leases and the related interpretations when it
becomes effective for accounting periods beginning on or after 1
January 2019. The Group plans to adopt IFRS 16 for the year ending
31 December 2019. No decision has been made about whether to use
any of the transitional options in IFRS 16.
The Group has performed a preliminary assessment of the
potential impact of adopting IFRS 16 based on the current leases
and has concluded that the adoption of IFRS 16 will not have a
material impact on the financial statements of the Group. The Group
will perform a further assessment of the potential impact of
adopting IFRS 16 as at 31 December 2018.
Going concern
The Group continues to closely monitor and manage its liquidity
risk. Cash forecasts are regularly produced and sensitivities run
for different scenarios. The Group has $240 million of free cash at
7 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 twelve months from the
date of approval of the half year financial statements.
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 financial statements.
Sales revenue and interest income
The recognition of revenue, particularly the recognition of
revenue from export sales of crude oil, is considered to be a key
accounting judgement.
Under the Production Sharing Contract for the Shaikan block
between the KRG and Gulf Keystone Petroleum International Limited
("GKPI") and Texas Keystone Inc. and Kalegran Limited (a subsidiary
of MOL) signed on 6 November 2017 as amended by subsequent
agreements ("Shaikan PSC"), all oil is sold to the KRG, who in turn
resell the oil either for export in the pipeline at Fishkhabour or
by trucking it to domestic customers. The selling price is
determined in accordance with the principles of the Shaikan PSC,
based on the Brent crude price less a quality discount and
transportation costs.
As the payment mechanism for sales 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 KRG's payments to the international oil companies operating in
the Kurdistan Region of Iraq. In January 2018, the Group signed the
Crude Oil Sales Agreement, which specifies the delivery point,
pricing, KRG's contribution to transportation costs and payment
terms relating to export sales of crude oil and it is effective
from 1 October 2017 until 31 December 2018.
The value of sales revenue is determined after taking account of
the following:
- The point of sale for export sales from 15 November 2017
onwards is the point that the crude oil is unloaded into the export
pipeline at Fishkhabour;
- The point of sale for export sales prior to 15 November 2017
and for domestic sales is at the Shaikan facility;
- GKP recognises revenue for its share of the revenue on a
cash-assured basis and these amounts of recognised revenue may be
lower than the Company's entitlement under the Shaikan PSC, giving
rise to unrecognised revenue amounts;
- From 15 November 2017 onwards, the group has performed
transportation services in respect of the KRG's share of export oil
sales. It recharges all of these transportation costs at nil
mark-up to the KRG and these recharged transportation costs are
recognised as revenue; and
- Under the Shaikan PSC and the bilateral agreement between GKPI
and the MNR dated 16 March 2016 ("Bilateral Agreement"), the Group
is entitled to offset certain costs (including capacity building
payments and production bonuses) against amounts owed by the KRG to
GKPI. In these instances, the group recognises revenue and a
reduction in the liability to the KRG.
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.
Income tax arising from the Company's activities under its
production sharing contract is settled by the KRG on behalf of the
Company. However, the Company is not able to measure the amount of
income tax that has been paid on its behalf and, therefore, the
notional income tax amounts have not been included in revenue or in
the tax charge.
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's accounting policy for oil and gas assets is the
successful efforts basis.
3. 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 block and the Erbil office, which provides support to
the operations in Kurdistan, as well as segmental information
relating to the previously held Akri-Bijeel, Sheikh Adi and Ber
Bahr blocks;
- United Kingdom: the UK segment provides geological,
geophysical and engineering services to other segments of the
Group; and
- Algeria: the Algerian segment consists of the Algiers office
and the Group's previously-discontinued 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 2018 (unaudited) $'000 $'000 $'000 $'000 $'000 $'000
------------------------- ------- --------- -------- --------- ----------- -------
Revenue
Oil sales - 111,960 - - - 111,960
Transportation revenue - 4,211 - - - 4,211
Inter-segment sales - - 2,659 - (2,659) -
------- --------- -------- --------- ----------- -------
Total revenue - 116,171 2,659 - (2,659) 116,171
------- --------- -------- --------- ----------- -------
Profit/ (loss) before
tax 3,658 31,819 40 (8,797) (212) 26,508
Tax credit - - 208 - - 208
Profit/ (loss) after
tax 3,658 31,819 248 (8,797) (212) 26,716
Total assets 26 635,868 13,478 55,451 3,130 707,953
------------------------- ------- --------- -------- --------- ----------- -------
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
31 December 2017
(audited) $'000 $'000 $'000 $'000 $'000 $'000
------- --------- -------- --------- ----------- -------
Revenue
Oil sales - 171,203 - - - 171,203
Transportation revenue - 1,169 - - - 1,169
Inter-segment sales - - 4,337 - (4,337) -
------- --------- -------- --------- ----------- -------
Total revenue - 172,372 4,337 - (4,337) 172,372
------- --------- -------- --------- ----------- -------
(Loss)/profit before
tax (63) 39,885 (2,419) (22,430) (908) 14,065
Tax expense - - 61 - - 61
(Loss)/profit after
tax (63) 39,885 (2,358) (22,430) (908) 14,126
------- --------- -------- --------- ----------- -------
Total assets 31 582,192 14,105 57,335 3,632 657,295
----------------------- ------- --------- -------- --------- ----------- -------
4. Revenue
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------- ------------- ------------- ------------
Oil sales 111,960 78,308 171,203
Transportation revenue 4,211 - 1,169
------------- ------------- ------------
116,171 78,308 172,372
Interest income 1,450 80 702
117,621 78,388 173,074
============= ============= ============
The Group accounting policy for revenue recognition is set out
in the Accounting Policies above, with revenue recognition on a
cash-assured basis. Transportation revenue is the revenue that is
receivable for transportation services provided by the Group in
respect of the KRG's share of export oil sales.
During the six months period ended 30 June 2018, the
cash-assured values recognised as oil sales and transportation
revenue were the group's share of the invoiced revenue amounting to
$116.2 million (H1 2017: $72.0 million) and cost offset revenue
amounting to $nil (H1 2017: $6.3 million). The oil sales price was
calculated using the monthly Brent price less an average discount
of $22.8 (H1 2017: $19.9) per barrel for quality and transportation
costs.
5. Cost of Sales
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------- ------------- ------------- ------------
Oil production costs 42,934 21,309 46,042
Depreciation of oil & gas properties 34,760 41,079 79,785
Transportation costs 4,211 - 1,169
81,905 62,388 126,996
============= ============= ============
Oil production costs represent the Group's share of gross
production expenditure for the Shaikan field for the period and
include capacity building charges of $8.3 million (H1 2017: $7.2
million) and Shaikan PSC production bonus of $16.0 million (H1
2017: $nil). All costs are included, with 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 DD&A calculations.
Transportation costs are the costs incurred on the
transportation services provided by the Group in respect of the
KRG's share of export oil sales. The costs of transporting the
Group's share of export oil sales are included in oil production
costs.
6. Finance costs
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
-------------------------------------- ------------- ------------- ------------
Reinstated notes interest capitalised
(Note 13) 5,285 5,537 10,309
Unwinding of discount on provisions 360 355 714
5,645 5,892 11,023
============= ============= ============
7. Other gains
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
--------------- ------------- ------------- ------------
Exchange gains 344 170 42
Other gains 3,737 - 272
4,081 170 314
============= ============= ============
.
During the six months ended 30 June 2018, following agreement
with the operator, other gains consisted of the release of $3.0
million of the decommissioning liability relating to the Algerian
licence and $0.7 million reduction in accruals for costs of exiting
the Algerian project.
8. Profit per share
The calculation of the basic and diluted loss per share is based
on the following data:
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------ ------------- ------------- ------------
Profit/ (loss)
Profit/ (loss) after tax for the
purposes of basic and diluted loss
per share 26,716 656 (14,126)
Weighted average number of shares
used:
Basic ('000) 229,317 229,232 229,317
Diluted ('000) 230,761 230,964 230,912
------------------------------------ ------------- ------------- ------------
The average number of ordinary shares in issue excludes shares
held by Employee Benefit Trustee ("EBT") and the Exit Event
Trustee.
The diluted number of ordinary shares outstanding including
share options is calculated on the assumption of conversion of all
potentially dilutive ordinary shares. During the six months period
to 30 June 2018, there were 460,000 (H1 2017: 460,000; FY 2017:
460,000) share options that were excluded from the calculation of
diluted earnings, because they were anti-dilutive.
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
2018 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------------------------- ---------- ---------- ------------
Profit from operations 26,622 6,261 24,072
Adjustments for:
Depreciation of property, plant and
equipment 34,924 41,293 80,163
Amortisation of intangible assets 22 24 47
Other gains or losses 694 - (11)
Share-based payment expense 485 1,293 2,710
(Increase)/ decrease in inventories (325) 440 (1,219)
Reversal of provisions - (271) -
(Increase)/decrease in receivables (19,236) (10,109) (20,125)
Increase/(decrease) in payables 21,522 (3,783) (337)
------------------------------------------- ---------- ---------- ------------
Net cash generated by operations 64,708 35,148 85,300
Income tax received - - -
------------------------------------------- ---------- ---------- ------------
Net cash generated in operating activities 64,708 35,148 85,300
------------------------------------------- ---------- ---------- ------------
10. Property, plant and equipment
The net book value at 30 June 2018 includes property, plant and
equipment relating to the Shaikan block with a carrying value of
$389.1 million (30 June 2017: $451.6 million; FY 2017: $416.9
million). The remainder of the balance, with a carrying value of
$0.7 million (30 June 2017: $0.7 million; FY 2017: $0.6 million),
comprises fixtures and equipment.
The additions to the Shaikan asset amounting to $6.9 million
during the period include the costs of various studies and
production facilities improvement projects.
Associated with production, a DD&A charge of $34.8 million
on property, plant and equipment relating to the Shaikan block (30
June 2017: $41.1 million; FY 2017: $196.5 million) has been
included within cost of sales (note 5). A depreciation charge of
$0.1 million on fixtures and equipment (30 June 2017: $0.2 million;
FY 2017: $0.4 million) has been included in general and
administrative expenses.
11. Trade and other receivables
30 June 30 June 31 December
2018 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
-------------------------------- ----------- ----------- ------------
Trade receivables 77,109 48,000 57,887
Other receivables 3,190 3,335 3,261
Prepayments and accrued income 692 289 562
----------- ----------- ------------
80,991 51,624 61,710
=========== =========== ============
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value.
12. Trade and other payables
31 December
30 June 2018 30 June 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------- ------------ ------------ -----------
Trade payables 2,859 2,478 2,687
Other payables 38,189 26,769 26,168
Accrued expenses 42,133 22,285 28,183
------------ ------------
83,181 51,532 57,038
============ ============ ===========
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs.
In accordance with the Bilateral Agreement, the Group received
payments during 2016 from the MNR in excess of entitlements under
the Shaikan PSC amounting to $16.2 million and the amount of the
Sheikh Adi PSC bonus that was payable on the declaration of
commerciality was reduced to $10.0 million. Both of these
liabilities are included in other payables, but these liabilities
form part of the ongoing Shaikan PSC amendment negotiations and it
is likely that they will be offset against unrecognised revenue
arrears, because, under the Shaikan PSC and the Bilateral
Agreement, the Group is entitled to offset certain costs against
amounts owed by the KRG to GKPI. In these instances, the Group
recognises revenue that has previously been unrecognised and a
reduction in the liability to the KRG.
13. Other borrowings
On 14 October 2016, the Company issued $100 million of
guaranteed notes ("Reinstated Notes"). The unsecured Reinstated
Notes are guaranteed by Gulf Keystone Petroleum International
Limited, one of the Company's subsidiaries, and their key terms are
summarised as follows:
- 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; and
- the Company will be permitted to raise up to $45 million of
additional indebtedness at any time on market terms to fund capital
and operating expenditure.
The liabilities associated with Reinstated Notes are presented
in the following tables:
30 June 30 June 31 December
2018 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
----------------------------------------- ---------- ---------- -----------
Liability at the beginning of the period 99,084 98,886 98,886
Interest charged during the period 5,285 5,537 10,309
Interest paid during the period (5,000) (5,111) (10,111)
Liability at the end of period 99,369 99,312 99,084
========== ========== ===========
Liability reported in:
30 June 30 June 31 December
2018 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------- ---------- ---------- -----------
Current liabilities 1,989 - 2,017
Non -current liabilities 97,380 99,312 97,067
99,369 99,312 99,084
========== ========== ===========
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 price 30 June
2018
$'000
Reinstated Notes $1.00689 100,689
============= ========
As of 30 June 2018, 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
2018 2017 2017
Unaudited Unaudited Audited
$'000 $'000 $'000
------------------------- ---------- ---------- -----------
Within one year 10,000 - 10,000
Within two to five years 125,000 157,033 130,000
135,000 157,033 140,000
========== ========== ===========
14. Share capital
Common shares Share Share
No. of shares Amount capital premium
000 $'000 $'000 $'000
--------------------------------- ------------- --------- ------------------- -------
Issued and fully paid
Balance 1 January 2018 (audited) 229,430 1,150,158 229,430 920,728
------------- --------- ------------------- -------
Balance 30 June 2018 (unaudited) 229,430 1,150,158 229,430 920,728
============= ========= =================== =======
15. Contingent Liabilities
The Group has a contingent liability of $27 million (2016: $27
million) 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
address expressly 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 the Group is currently involved in negotiations to
resolve this matter. The Group has received external legal advice
and does not consider that a probable material payment is payable
to the KRG. This contingent liability forms part of the ongoing
Shaikan PSC amendment negotiations and it is likely that it will be
settled as part of those negotiations.
16. Events after the balance sheet date
During July 2018, the Company completed a debt refinancing
transaction, whereby it issued $100 million of New Notes and
redeemed in full the $100 million of Reinstated Notes. The
unsecured New Notes are guaranteed by Gulf Keystone Petroleum
International Limited and Gulf Keystone Petroleum (UK) Limited, two
of the Company's subsidiaries, and their key terms are summarised
as follows:
- maturity date is 25 July 2023;
- at any time prior to maturity, the New Notes are redeemable in
part or full with a prepayment penalty; and
- the interest rate is 10% per annum with semi-annual payment dates.
GLOSSARY (See also the glossary in the 2017 Annual Report and
Accounts)
Bilateral Agreement the bilateral agreement between GKPI and
the MNR dated 16 March 2016
bopd barrels of oil per day
--------------------------------------------------
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)
--------------------------------------------------
CPR Competent Persons Report
--------------------------------------------------
Crude Oil Sales Agreement the Shaikan crude oil export sales agreement
dated 10 January 2018
--------------------------------------------------
CSR corporate social responsibility
--------------------------------------------------
FDP Field Development Plan
--------------------------------------------------
First Shaikan Amendment First amendment to the Shaikan PSC executed
on 1 August 2010.
--------------------------------------------------
Group Gulf Keystone Petroleum Limited and its
subsidiaries
--------------------------------------------------
HSSE health, safety, security and environment
--------------------------------------------------
KRG Kurdistan Regional Government
--------------------------------------------------
LTI lost time incident
--------------------------------------------------
MNR Ministry of Natural Resources of the Kurdistan
Regional Government
--------------------------------------------------
MOL MOL Hungarian Oil and Gas Plc
--------------------------------------------------
New Notes the $100 million unsecured, guaranteed notes
issued on 25 July 2018 by GKP with a maturity
date of 25 July 2023
--------------------------------------------------
PF-1 Production Facility 1
--------------------------------------------------
PF-2 Production Facility 2
--------------------------------------------------
PSC production sharing contract
--------------------------------------------------
Reinstated Notes the $100 million unsecured, guaranteed notes
issued on 14 October 2016 by GKP with a
maturity date of 18 October 2021 that were
redeemed in full by GKP during July 2018
--------------------------------------------------
Second Shaikan Amendment the second proposed amendment to the Shaikan
PSC formally implementing the terms of the
Bilateral MNR Agreement (including the First
Shaikan Amendment)
--------------------------------------------------
Shaikan PSC the Production Sharing Contract for the
Shaikan block between the Kurdistan Regional
Government of Iraq and Gulf Keystone Petroleum
International Limited and Texas Keystone
Inc. and Kalegran Limited (a subsidiary
of MOL) signed on 6 November 2017 as amended
by subsequent agreements
--------------------------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKCDKOBKKACK
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