2024 Half Year Results Announcement

29 August 2024

Gulf Keystone Petroleum Ltd. (LSE: GKP)

(“Gulf Keystone”, “GKP”, “the Group” or “the Company”)

2024 Half Year Results Announcement

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 2024.

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

“We have safely delivered a solid operational and financial performance in the first half of 2024, with robust local sales combined with sustained capital and cost discipline supporting our return to profitability and free cash flow generation in the period. Cash flow has enabled us to strengthen our balance sheet and restart shareholder distributions, with $25 million returned to shareholders in 2024 to date.

Looking ahead, we continue to engage with government stakeholders to push for an exports restart solution, with significant potential value to be unlocked for Kurdistan, Iraq and the Company. In the interim, we remain focused on maximising shareholder value from local sales. To capitalise on continued strong demand, we are pursuing incremental opportunities to optimise production and improve process safety and reliability. We also continue to review the Company’s capacity for additional dividends or buybacks to build on our track record of shareholder returns.”

Highlights to 30 June 2024 and post reporting period

Operational

• Continued strong safety track record, with no Lost Time Incidents for over 590 days
• Gross average production increased 69% to 39,252 bopd in H1 2024 (H1 2023: 23,256 bopd), reflecting robust local market demand for Shaikan Field crude
• Gross average production of c.41,400 bopd in 2024 year to date
  • Local market demand rebounded in February and has remained high
  • Strong gross average production in July of c.47,900 bopd and in August to date of c.48,200 bopd
  • Realised prices have fluctuated between $25/bbl - $28/bbl and are currently at c.$27/bbl
• Shaikan Field reservoir and operations have continued to perform well following the smooth ramp up of production at the beginning of 2024 and the subsequent transition to 24/7 truck loading
• No operational impact from regional tensions; we continue to closely monitor the security environment and take precautions to protect the organisation

Financial

• Successful return to profitability and free cash flow generation in H1 2024 following a challenging 2023, driven by pre-paid local sales and capital and cost discipline
• Adjusted EBITDA increased 6% to $36.4 million (H1 2023: $34.2 million) as higher production and cost reductions offset the decline in realised prices related to the transition from exports to discounted local sales
  • Revenue decreased 11% to $71.2 million (H1 2023: $79.6m) as the increase in H1 2024 production was more than offset by the 49% decline in average realised price to $26.3/bbl (H1 2023: $51.3/bbl)
  • Gross operating costs per barrel decreased 25% to $4.2/bbl (H1 2023: $5.6/bbl), reflecting higher production and cost control
• Net capital expenditure of $7.8 million (H1 2023: $47.0 million) reflecting the Company’s focused 2024 work programme of safety critical upgrades and production optimisation expenditures
• Monthly average net capex, operating costs and other G&A in H1 2024 of $6.2 million, in line with guidance
• Free cash flow generation of $26.6 million (H1 2023 free cash outflow: $9.9 million) enabled the Company to strengthen its balance sheet and restart shareholder distributions
  • $25 million returned to shareholders in 2024 year to date, comprising a $10 million share buyback (initiated in May and completed in July) and $15 million interim dividend (paid in July)
• Cash balance of $102.3 million as at 30 June 2024 (31 December 2023: $81.7 million); latest balance as at 28 August 2024 of $98.2 million

Outlook

• GKP remains focused on maximising shareholder value from local sales and unlocking significant potential additional value from the restart of Kurdistan exports

Local sales and production

• The Company sees continued robust local sales demand in the near term while longer term market dynamics remain uncertain
• The Shaikan Field is producing close to its maximum capacity reflecting prudent reservoir management in the current investment constrained environment
• Planned safety-critical upgrades and maintenance are scheduled for November 2024, requiring the shutdown of PF-1 for c.3 weeks with an expected gross production impact of c.26,000 bopd, as previously announced
• The Company continues to exercise capital and cost discipline to maximise free cash flow while maintaining production capacity to respond to local market demand and the restart of exports

• Average monthly aggregate net capex, operating costs and other G&A run rate in 2024 now expected to be c.$7 million
• Reflects incremental expenditures on production optimisation, process safety & reliability and associated resources to capitalise on continued local sales demand following the strong performance year to date
• Net capex and operating costs expected to be weighted to H2 2024, as safety critical upgrades are completed as part of the planned PF-1 shutdown; estimated 2024 net capex remains c.$20 million

Shareholder distributions

• GKP remains committed to returning excess cash to shareholders via dividends or share buybacks, subject to conserving sufficient liquidity to manage the current operating environment and ensuring the Company is able to transition successfully from local sales to the restart of Kurdistan exports and normalisation of Kurdistan Regional Government (“KRG”) payments

Kurdistan exports

• GKP continues to engage with government stakeholders regarding a pipeline exports restart solution with the objective of unlocking significant potential value for shareholders
• GKP remains ready to restart exports, contingent upon reaching agreements on payment surety for future oil exports, the repayment of outstanding exports sales receivables (of which GKP is owed over $150 million net) and the preservation of current contract economics

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_HY_24     

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.

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.

CEO review

Gulf Keystone delivered a solid operational and financial performance in the first half of 2024, with robust local sales and sustained capital and cost discipline generating free cash flow, enabling us to strengthen our balance sheet and reward our shareholders with the restart of distributions. During the period we have been able to maintain our strong safety track record, with over 590 days without a Lost Time Incident.

Gross average production has been c.41,400 bopd in 2024 year to date as at 27 August 2024. Following weaker demand in January due to local refinery constraints and challenges from winter weather, local market demand rebounded in February and has remained robust since. While we experienced minor fluctuations of volumes in April and June from the impact of Eid celebrations on truck availability, we have seen strong gross average production in July and August to date of c.47,900 bopd and c.48,200 bopd respectively. The Shaikan Field reservoir and operations have continued to perform well following the smooth ramp up of production at the beginning of 2024 and subsequent transition to 24/7 truck loading. Realised prices have fluctuated in a range between $25/bbl - $28/bbl and are currently at c.$27/bbl.

We have continued to exercise capital and cost discipline to maximise value creation from local sales. Our performance has enabled us to generate free cash flow of $26.6 million in the first half of 2024 relative to a $9.9 million outflow in the first half of 2023. Consequently, we have been able to strengthen our balance sheet and restart shareholder distributions, with $25 million paid to shareholders in 2024 year to date, comprising a $10 million share buyback and $15 million interim dividend.

We have continued to engage with government stakeholders, both as a single company and in collaboration with other International Oil Companies (“IOCs”) in Kurdistan, to enable an exports restart solution. We have seen some traction, with tripartite negotiations between the Federal Government of Iraq, Kurdistan Regional Government (“KRG”) and IOCs taking place earlier this year.

We continue to believe there are major economic benefits to be unlocked for Kurdistan and Federal Iraq from achieving a solution. Kurdistan production, historically around 400,000 bopd, sold at international prices would provide a significant source of funding for Kurdistan’s share of the Federal Iraqi budget, which otherwise has been funded since the closure of the Iraq-Turkey Pipeline through loans or fiscal revenue generated in Federal Iraq. For GKP, the restart of exports could unlock significant value, potentially more than doubling current realised prices. The repayment of over $150 million net to GKP of outstanding receivables for October 2022 to March 2023 exports sales would bring further upside. We remain ready to restart exports, contingent upon reaching agreements on payment surety for future oil exports, the repayment of outstanding exports sales receivables and the preservation of current contract economics.

Looking ahead to the remainder of the year, we will continue to push for an exports restart solution. In the meantime, we remain focused on maximising free cash flow from local sales while retaining production capacity to capitalise on local market demand and the restart of exports.

We see robust local sales demand in the near term. Longer term, visibility remains low as the market is dictated by the forces of local supply and demand. Consequently, production guidance remains suspended. Nonetheless, at current sales levels we are producing at close to maximum capacity as we prudently manage the reservoir in the current investment constrained environment, optimising well production rates to avoid traces of water and manage field declines estimated at 6-10% per year. We also expect production to be reduced by c.26,000 bopd for around three weeks in November as we execute a shutdown of PF-1 to complete safety critical upgrades.

GKP’s performance continues to be enabled by the dedication and skill of our teams across the Company and I would like to thank all of our staff for their continued hard work. I would also like to thank GKP’s shareholders for their continued support. We are in a fundamentally more positive place relative to a year ago and I believe offer an attractive investment case combining our ability to create shareholder value from local sales and the option of significant potential upside from the restart of exports and normalisation of our operating environment.

Jon Harris

Chief Executive Officer

28 August 2024

Financial review

Key financial highlights