Gulf Keystone, a leading independent operator and producer in the Kurdistan Region of Iraq, today announces its results for the half year ended 30 June 2023.

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

“GKP’s operational and financial performance in the first six months of 2023 was materially impacted by the suspension of Kurdistan crude exports following the closure of the Iraq-Turkey Pipeline in March and continued delays to KRG payments. As a result, we shifted rapidly from a focus on driving profitable production growth to preserving liquidity, suspending all expansion activity and aggressively reducing expenditures across the business.
In July, we commenced local sales and partially restarted production. Since then, we have increased gross average sales to around 23,100 bopd towards the end of August. At current realised prices of around $30/bbl, we are able to cover our current estimated H2 2023 monthly net capex, operating costs and other G&A run rate of about $6 million while increasing our flexibility to manage accounts payable. We continue to actively pursue further increases in local sales and cost reductions and retain the flexibility to reduce operational activity and costs if sustainable local sales do not materialise to an acceptable level.
While no official timeline has been announced, we continue to believe that the suspension of exports will be temporary and that the KRG will resume oil sales payments in due course. In the interim, we remain focused on protecting the interests of GKP’s stakeholders by preserving liquidity and engaging as a company and industry with the KRG and other key parties.”

Highlights to 30 June 2023 and post reporting period

Operational

• Shaikan Field exports remain suspended following the closure of the Iraq-Turkey Pipeline (“ITP”) on 25 March 2023
• Production & trucking operations started at PF-1 in July and expanded to include PF-2 in August to support increasing local sales:
  • c.4,900 bopd gross average sales for the period from 19 to 31 July increased to c.16,300 bopd for the period from 1 to 29 August
    • 1-18 August: c.12,100 bopd; 19-29 August: c.23,100 bopd
  • Average realised prices of around $30/bbl, in line with local market pricing
  • Advance payments received for local sales
  • While the priority remains local sales, GKP retains the option to restart exports quickly once the pipeline reopens
• Gross average production in H1 2023 of 23,256 bopd (H1 2022: 44,941 bopd)
  • Prior to the ITP closure, production and operational activity had been increasing. 2023 gross production averaged 49,165 bopd between 1 January and 24 March 2023 and 53,682 bopd between 1-24 March, including five days in excess of 55,000 bopd
• All expansion activity in the Shaikan Field halted and UK and Kurdistan headcount reduced:
  • All drilling, well workover, facilities expansion and well pad preparation activity remains suspended
  • 55% reduction in expat workforce, with further reductions under review
  • 50% of local workforce on reduced hours in July, partially offset in August due to step up in local sales
  • 20% deferral of Executive and Non-Executive Director salaries and fees from July
• Rigorous focus on safety maintained
  • No Lost Time Incidents for over 225 days
  • Continuing to progress critical safety upgrades and maintenance activity

Financial

• H1 2023 financial performance materially impacted by the suspension of exports and continued delays to KRG payments
  • In response, the Company has moved quickly to preserve liquidity by aggressively reducing capital expenditures and costs while proactively managing accounts payable
• Decline in Adjusted EBITDA and profitability driven by the suspension of exports and lower realised prices in Q1 2023
  • 84% decrease in Adjusted EBITDA to $34.2 million (H1 2022: $208.6 million)
  • Loss after tax of $2.9 million (H1 2022 profit after tax: $162.8 million), reflecting the decrease in Adjusted EBITDA and an impairment charge of $13.9 million (H1 2022: $0.4 million) related to the IFRS expected credit loss determined on overdue receivables from the KRG of $151 million net to GKP for production from the months of October 2022 to March 2023
  • Revenue down 70% to $79.6 million (H1 2022: $263.6 million), reflecting a 48% decrease in gross production in the period to 23,256 bopd and a 39% decrease in weighted average realised prices to $51.3/bbl for crude sales prior to the suspension of exports (H1 2022: $84.3/bbl)
  • Operating costs of $18.9 million (H1 2022: $18.9 million), with increased expenditure in Q1 2023 due to higher production offset by a 36% quarter-on-quarter reduction in Q2 2023 as production was shut-in and non-essential maintenance activity deferred
• Free cash outflow of $9.9 million (H1 2022 free cash flow: $177.3 million), reflecting lower Adjusted EBITDA and delays to KRG payments
  • Revenue receipts of $65.7 million (H1 2022: $272.4 million) related to invoices paid for crude sold in August and September 2022
  • Net capex of $47.0 million (H1 2022: $41.8 million), reflecting completion of SH-17 and SH-18, well workovers, well pad preparation, long lead items and the expansion of production facilities
  • Net capex decreased 67% to $11.7 million in Q2 2023 relative to Q1 2023 as the Company suspended all expansion activity
• $25 million interim dividend paid in March (H1 2022 dividends: $190 million) prior to the cancellation of the proposed final 2022 ordinary annual dividend of $25 million
• Cash balance of $82.1 million at 30 August 2023 with no debt
  • Includes GKP’s entitlement for local crude sales and $8 million related to buyer advance payments collected by GKP

Outlook

• GKP remains focused on preserving liquidity by continuing to reduce costs, exploring opportunities to increase local sales, pursuing other liquidity options, including inventory sales, and proactively managing accounts payable
• Current estimated aggregate net capex, operating costs and other G&A monthly run rate of around $6 million in H2 2023, 65% lower vs the average monthly run rate in Q1 2023
  • Estimated 2023 net capex of $60-$65 million (previous guidance: $70-$75 million), reflecting June net capex $10 million lower than expected due to continued cost reduction efforts
  • Estimated net capex for H2 2023 less than $15 million, comprising safety critical and contractual commitments
• Current local sales volumes and realised prices enable GKP to cover its estimated monthly net capex, operating costs and other G&A of around $6 million and provide increased flexibility to manage accounts payables
• While there appears to be significant local demand for Shaikan Field crude, volumes and prices remain difficult to predict
• If sustainable local sales do not materialise and absent other revenue sources, GKP would take further actions to preserve liquidity
  • Additional opportunities have been identified to reduce the monthly expenditure run-rate by up to $2 million; however, these could potentially delay a timely return to full production
  • GKP may also consider additional sources of liquidity as necessary, including external financing
• While no official timeline has been announced, GKP continues to believe that the suspension of exports will be temporary and that the KRG will resume oil sales payments in due course
  • Political negotiations continue regarding the restart of the Iraq-Turkey Pipeline, the implementation of the approved 2023-2025 Iraqi Budget and the creation of an Iraqi Oil & Gas Law
  • The KRG has assured GKP and other International Oil Companies (“IOCs”) operating in Kurdistan that Production Sharing Contracts will be honoured and receivables will be repaid

Investor & analyst presentations

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

https://brrmedia.news/GKP_HY23

Management will also be hosting an additional webcast presentation focused on retail investors via the Investor Meet Company (“IMC”) platform at 12:00pm (BST) 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

Recordings of both presentations will be made available on GKP’s website.

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