Image source: Gulf Keystone

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".