Strong 2023 production, recently exceeding 55,000 bopd

2022 CPR confirms 817 MMstb of gross 2P reserves + 2C resources, with 100% replacement of production

Record 2022 free cash flow and profitability drove sector leading dividend yield

Gulf Keystone, a leading independent operator and producer in the Kurdistan Region of Iraq, today announces its results for the full year ended 31 December 2022 and the 2022 Competent Person’s Report.

Jon Harris, Gulf Keystone’s Chief Executive Officer, said:

“We delivered strong operational and financial performance in 2022 in line with our clear strategy of balancing investment in profitable production growth with sustainable shareholder returns, while maintaining a robust balance sheet and prudent liquidity levels. Higher oil prices and production, combined with continued capital discipline and cost control, enabled us to generate record profitability and cash flow, funding increased investment in future production growth, record dividends of $215 million and the repayment of our $100 million bond resulting in a debt-free balance sheet.  

The benefits of our 2022 investment programme and progress on executing the Jurassic scope of the Shaikan Field Development Plan contributed to a material increase in gross average production to around 53,500 bopd in March 2023, hitting a new record of over 55,000 bopd in the last few days, an important milestone for GKP. In addition, we are pleased that the 2022 CPR has confirmed the Shaikan Field’s significant growth potential and gross 2P + 2C reserves and resources of 817 MMstb, with 100% reserves replacement since the 2020 CPR.

Looking ahead we are reviewing our forward capital programme in light of continued delays to KRG payments to ensure that we maintain a prudent financial position as we continue to develop the Jurassic reservoir and advance towards approval of the FDP. As ever, we remain committed to balancing growth with shareholder returns and financial strength, confirmed by our declaration today of a final 2022 ordinary annual dividend of $25 million, increasing total dividends declared in 2023 to $50 million.”

Highlights to 31 December 2022 and post reporting period

Operational

• Zero Lost Time Incidents (“LTIs”) in 2022, despite significant increase in operational activity
  • Following an LTI in January 2023 during drilling operations, remedial actions have been implemented
• Gross average production for 2022 of 44,202 bopd (2021: 43,440 bopd), in line with annual guidance
• Executing the Jurassic scope of the Field Development Plan (“FDP”) with the agreement of the Ministry of Natural Resources (“MNR”), with 2022 activity laying the foundation for higher future production
  • Drilled and brought online SH-15 and SH-16, the first two Jurassic wells in the FDP sequence, on schedule and on budget, and partially drilled SH-17
  • Prepared well pads and flowlines to enable a continuous drilling programme
  • Completed initial engineering and construction works and procurement of long lead items for production facility expansion and installation of water handling
• Realising benefits of 2022 investments with recent material increase in production to record highs
  • 2023 year to date gross average production of c.48,900 bopd, with gross average production in March to date of c.53,500 bopd and production of c.55,000 bopd in the last few days
  • Production growth driven by continued ramp up of SH-16 following start-up in December 2022, start-up of SH-17 in February 2023, and our well workover programme
  • Minor impact from temporary suspension of pipeline exports in February 2023 following the tragic earthquakes in Turkey and Syria
• Continuous drilling programme delivering improvements in drilling performance
  • SH-17 drilled, completed and brought onstream in February 2023, under budget and ahead of schedule
  • Drilling of SH-18 progressing well with expected start up in Q2 2023, in line with prior guidance

Financial

• Record profitability and cash generation in 2022, driven by a strong increase in the oil price, higher production and our continued focus on cost control
  • Adjusted EBITDA increased by 61% to $358.5 million (2021: $222.7 million)
  • Profit after tax increased 62% to $266.1 million (2021: $164.6 million)
  • Gross Opex per barrel of $3.2/bbl (2021: $2.7/bbl), in line with the Company’s 2022 guidance range of $2.9-$3.3/bbl and reflecting higher operational activity
  • Realised price per barrel increased by 49% to $74.1/bbl (2021: $49.7/bbl)
  • While the Company has not accepted the MNR’s proposed change to the pricing mechanism for Shaikan oil sales, changing the reference price from Dated Brent to the Kurdistan Blend (“KBT”) effective 1 September 2022, revenue from September 2022 to December 2022 has been recognised on this basis, resulting in an average reduction in the realised sales price versus the previous pricing mechanism over the period of approximately $12/bbl or $23.4 million
  • The KBT discount to Dated Brent has tightened since November 2022, with the impact on Shaikan realised prices versus the previous pricing mechanism decreasing to $6/bbl in February 2023
• Increased investment in the Shaikan Field while maintaining capital discipline to drive future profitable production growth
  • Net capital expenditure of $114.9 million (2021: $46.2 million), in line with final 2022 guidance of $110-$120 million
    • $63.4 million: Drilling of SH-15, SH-16 and partial drilling of SH-17 that was completed in early 2023
    • $35.8 million: Early work for the expansion of the production facilities with water handling capacity, as well as future well pad preparation including flowlines
    • $15.7 million: Well workover and interventions to optimise production
  • Strong free cash flow generation funded continued delivery of our strategy to balance growth with shareholder returns while maintaining a robust balance sheet and prudent liquidity levels
    • Free cash flow generation of $266.5 million, more than double the prior year (2021: $122.2 million)
    • Record dividends of $215 million, representing a sector-leading dividend yield of 41% based on the closing share price on 31 December 2022. Since the beginning of 2023, GKP has paid an additional interim dividend of $25 million
    • Redeemed $100 million outstanding bond in August 2022, leaving the Company debt free with significant financial flexibility
    • Cash balance of $118.8 million at 22 March 2023
  • Revenue receipts of $450.4 million net to GKP received from the Kurdistan Regional Government (“KRG”) in 2022 for crude oil sales and repayment of historical revenue arrears
    • While the Company has received $65.7 million net from the KRG in 2023 for August and September 2022 oil sales, overdue receivables for the months of October to December 2022 total $76.0 million net on the basis of the KBT pricing mechanism

2022 Competent Person’s Report

• GKP announces today the 2022 Competent Person’s Report (“2022 CPR”), an updated independent third-party evaluation of the Shaikan Field’s reserves and resources prepared by ERC Equipoise (“ERCE”)
• 2022 CPR incorporates significant incremental information, including an updated field development plan, new wells, production data and further technical analysis, since the previous 2020 CPR also prepared by ERCE
• Gross 2P+2C reserves and resources of 817 MMstb as at 31 December 2022, 52 MMstb higher than the previous 2020 CPR after adjusting for production in 2021 and 2022
  • Gross 2P reserves of 506 MMstb increased 34 MMstb or 7% relative to 2020 CPR volumes adjusted for production, resulting in 100% reserves replacement over the two-year period
  • Increase driven by higher plateau rate of 85,000 bopd from the Jurassic reservoir
  • Gross 1P reserves of 199 MMstb decreased 8 MMstb or 4% relative to 2020 CPR volumes adjusted for production due to prudent management of production rates to avoid traces of water ahead of water handling installation
  • Gross 2C resources of 311 MMstb increased 18 MMstb or 6% relative to 2020 CPR volumes due to higher planned production processing capacity
• 2022 CPR highlights the significant growth potential of the Shaikan Field, with a gross 2P reserves-to-production ratio of 31 years based on 2022 gross average production, and reaffirms our deep understanding and prudent management of the reservoir, which has produced over 117 MMstb to date

Gross reserves and resources⁽¹⁾ based on the 2022 CPR compared to the 2020 CPR are as follows:

The reconciliation of changes in reserves and resources between the 2020 CPR and the 2022 CPR is as follows:

GKP’s 80% net working interest (“WI”)⁽⁴⁾ share of reserves and resources at 31 December 2022 are:

1. Reserves and resources have been calculated in accordance with the June 2018 SPE/WPC/AAPG/ SPEE/SEG/SPWLA/EAGE Petroleum Resources Management System).
2. Contingent resources volumes are classified as such because there is technical and commercial risk involved with their extraction. In particular, there may be a chance that accumulations containing contingent resources will not achieve commercial maturity. The 2C (best estimate) contingent resources presented are not risked for chance of development. All Contingent resource volumes quoted in this document are volumes which could be extracted prior to license expiry.
3. Aggregated 2P+2C estimates should be used with caution as 2C contingent resources are commercially less mature than the 2P reserves.
4. Net working interest reserves and resources do not represent the net entitlement resources under the terms of the Production Sharing Contract (“PSC”).

Outlook

• Given continued delays to KRG payments, we are currently reviewing our forward capital programme and 2023 net capital expenditure guidance of $160-$175 million
  • With further clarity around KRG payments, we would consider continued drilling following SH-18
  • With continued payment delays, we would review reductions to our capital programme
• Looking ahead, subject to timely KRG payments and oil prices, we are focused on transitioning towards capitalising on the significant growth potential of the Shaikan Field, as confirmed by the 2022 CPR, and attractive returns on capital from the accelerated payback of investment as we recover our historic costs
  • Targeting step up in production levels through execution of the Jurassic scope of the FDP, drilling additional Jurassic wells and expanding the production facilities
  • While timing of FDP approval remains uncertain, we continue to advance towards key project sanction milestones, including the conclusion of the Gas Management Plan (“GMP”) tendering process and, as appropriate, financing arrangements
• We are committed to balancing profitable production growth, shareholder returns and a robust balance sheet according to our disciplined financial framework, in line with our historic track record
  • Following payment of $25 million interim dividend in March, we are pleased to announce declaration of a final 2022 ordinary annual dividend of $25 million, in line with the Company’s dividend policy
  • Subject to approval at the AGM on 16 June 2023, we expect to pay final dividend on 21 July 2023, based on a record date of 7 July 2023 and ex-dividend date of 6 July 2023
  • Total dividends declared in 2023 of $50 million, equating to an 11% yield for year to date 2023, based on the closing share price on 22 March 2023
  • The Board remains committed to distributing excess cash to shareholders via dividends and/or share buybacks and will continue to review distributions based on our disciplined financial framework, as outlined in our 30 January 2023 trading update, which includes regular assessment of the Company’s expected liquidity, cash flow generation and investment needs
• Continue to monitor discussions between the Federal Iraqi Government and the KRG on the management of oil and gas assets in Kurdistan following the Iraqi Federal Supreme Court ruling in February 2022. GKP’s operations currently remain directly unaffected

2023 guidance

• 2023 guidance remains dependent on timely KRG payments and oil prices. The Company will consider adjustments to the capital programme based on how the business environment evolves
• We remain focused on delivering 2023 gross average production of 46,000-52,000 bopd, representing a 11% increase from 2022 at the mid-point
  • Reflects anticipated contributions from SH-17 and SH-18, as well as the benefits of well workovers
  • Continue to manage natural field declines, well production rates ahead of water handling installation and higher gas production from one of our wells near the gas cap, in line with our reservoir modelling
• Current 2023 net capital expenditure guidance of $160-$175 million:
  • $30-$35 million: Completion of SH-17, drilling and completion of SH-18 and well workover programme to optimise production
  • $45-$50 million: Long lead items and preparing well pads to enable continuous drilling
  • $85-$90 million: Continued expansion of production facilities, targeting by H2 2024 an increase in total field capacity from c.60,000 bopd currently to 85,000 bopd and installation of water handling capacity, potentially enabling the increase in production rates from constrained wells
• 2023 gross Opex guidance of $3.0-$3.4/bbl unchanged, underpinned by the Company’s continued focus on strict cost control

Investor & analyst presentation

GKP’s management team will be hosting a presentation for analysts and investors at 10:00am (GMT) today via live audio webcast:

https://brrmedia.news/GKP_FY2022

Management will also be hosting an additional webcast presentation focused on retail investors via the Investor Meet Company (“IMC”) platform at 12:00pm (GMT) today. The presentation is open to all existing and potential shareholders and participants will be able to submit questions at any time during the event.

https://www.investormeetcompany.com/gulf-keystone-petroleum-ltd/register-investor

This announcement contains inside information for the purposes of the UK Market Abuse Regime.

Enquiries:

or visit: www.gulfkeystone.com

Notes to Editors:

Gulf Keystone Petroleum Ltd. (LSE: GKP) is a leading independent operator and producer in the Kurdistan Region of Iraq. Further information on Gulf Keystone is available on its website www.gulfkeystone.com

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.

Read the full announcement here