2021 Full Year Results Announcement

30 March 2022

Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP", "the Group" or "the Company")

2021 Full Year Results Announcement

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 2021.

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

"I am pleased to report a year of strong operational and financial delivery in 2021. With a 19% increase in gross average production to 43,440 bopd, our leverage to the recovery in oil prices and continued cost and capital discipline, we generated substantial revenue and free cash flow.

We continued to deliver on our strategy of balancing investment in sustainable growth and shareholder returns, as we resumed drilling activities and submitted a draft Field Development Plan to the Ministry of Natural Resources while also returning $100 million of dividends to our shareholders in 2021. Following the $50 million dividend that we paid in February 2022, we are pleased to announce today the declaration of an additional $90 million of dividends. This brings aggregate shareholder distributions declared since 2019 to $340 million.

Looking ahead to the remainder of 2022, we remain focused on delivering gross annual production of 44,000-50,000 bopd by bringing SH-15 online in Q2 2022 and optimising production with well interventions and workovers. While constructive engagement continues with the MNR on the FDP, timing of approval remains uncertain and further progress is required before we fully execute FDP activity.

Following my first year as GKP's CEO, I would like to personally thank the Company's teams in Kurdistan and the UK for all of their efforts. We are in a strong position and I am excited about safely delivering the significant growth potential of the Shaikan Field to drive sustainable value for all of our stakeholders."

Highlights to 31 December 2021 and post reporting period

Operational

· Continued strong focus on safety in 2021 despite one previously reported lost time incident ("LTI"); currently no LTIs recorded for over 160 days 

· Third consecutive year of production growth with 2021 gross average production of 43,440 bopd, towards the upper end of our tightened guidance range of 42,000-44,000 bopd and a 19% increase versus 2020

· 2022 YTD gross average production of c.45,500 bopd, following milestone achievement in February 2022 of 100 MMstb cumulative production since inception

· Successfully restarted drilling activities in June, resulting in two new wells, SH-13 and SH-14, coming online towards the end of the year

· After acid stimulations, current SH-13 production in line with expectations while we continue to explore options to further increase SH-14 production

· Following the early appearance of trace quantities of water, SH-12 is currently shut-in while we investigate near-term production options ahead of installation of planned water handling facilities   

· Spudded SH-15, which is currently being hooked up ahead of targeted start-up in Q2 2022

Draft Shaikan Field Development Plan ("FDP")

· Submitted draft FDP to Ministry of Natural Resources in November 2021 comprising plan to increase Phase 1 gross production plateau to between 85,000-95,000 bopd while eliminating routine flaring and significantly reducing carbon intensity

· While final timing of approval remains uncertain due to the complexity of the project, we are providing today an interim update on progress to date on Phase 1 of the draft FDP. As we continue to review opportunities to further optimise the project, final details and cost estimates may vary and we expect to provide an update upon FDP approval

· Expected components of Phase 1 of draft FDP:

o  Expand Jurassic gross production plateau up to 85,000 bopd

o  Test Triassic reservoir, targeting gross production plateau of up to 10,000 bopd

o  Concurrently, execute Gas Management Plan to eliminate routine flaring through gas reinjection, underpinning target of more than halving scope 1 and 2 emissions per barrel by 2025

· From FDP approval, expected duration of Phase 1 Jurassic and Triassic projects is 36 to 42 months and the Gas Management Plan is 18 to 24 months

· Total Phase 1 gross Capex currently estimated to be $800-$925 million, up c.$160 million from previous FDP with the objective of increasing production towards 95,000 bopd through project optimisations

Financial

· Strong free cash flow generation of $122.2 million (2020: $(22.9) million)

· Total dividends of $100 million paid in 2021, including a 2020 annual dividend of $25 million, a special dividend of $25 million and an interim dividend for 2021 of $50 million. An additional $50 million interim dividend was paid to shareholders in February 2022

· Revenue almost tripled to $301.4 million (2020: $108.4 million), contributing to a return to profit after tax of $164.6 million (2020: $47.3 million loss)

· Adjusted EBITDA increased by almost four times to $222.7 million (2020: $56.7 million) driven by higher gross production, leverage to the recovery in oil prices and the Company's continued strict control of costs:

o  Gross average production increased 19% to 43,440 bopd (2020: 36,625 bopd)

o  Realised price more than doubled to $49.7/bbl (2020: $20.9/bbl)

o  Gross Opex per barrel of $2.7/bbl (2020: $2.6/bbl), in line with 2021 guidance of $2.5-$2.9/bbl

· Revenue receipts of $221.7 million in 2021 from the KRG for crude oil sales related to the December 2020 to August 2021 invoices and partial repayment of arrears related to the outstanding November 2019 to February 2020 invoices

· Since the beginning of 2022, the Company has received a further $106.4 million net to GKP for crude oil sales and arrears related to the September 2021 to November 2021 invoices. As at 29 March 2022, the outstanding arrears balance is $21.9 million net to GKP

· Net Capex of $50.8 million (2020: $45.9 million), primarily related to the completion of the SH-13 and SH-14 wells and debottlenecking of PF-2

· Robust cash balance of $182.7 million at 29 March 2022

Outlook

· Remain focused on delivering 2022 gross average production of 44,000-50,000 bopd reflecting the anticipated production contribution from SH-15 and the benefits of well intervention and workover activities

· 2022 net capital expenditure guidance of $85-$95 million:

o  Includes completion of SH-15 drilling, well interventions and workovers, and activity that enables us to expedite the FDP following approval 

o  With progress on the FDP, the Company expects to resume drilling and increase 2022 capital guidance

· Gross Opex guidance of $2.9-$3.3/bbl, driven by increased operational activity and the continued catch up of previously scheduled work programmes deferred due to COVID-19

· Today declaring $90 million of dividends, representing further delivery against GKP's strategic commitment of balancing investment in sustainable growth with shareholder returns:

o  $25 million final 2021 ordinary dividend subject to approval at AGM on 24 June 2022

o  $65 million interim dividend, expected to be paid on 13 May 2022, based on a record date of 29 April 2022 and ex-dividend date of 28 April 2022

o  The Company will disclose the US dollar and pounds sterling rate per share for both dividends prior to their ex-dividend dates

· Assuming timely payment of invoices and continuing strong oil prices, we are expecting strong cash flow generation in 2022. This would provide flexibility to fund a potential increase in capital expenditure, with progress on the FDP, and the opportunity for further distributions to shareholders, while preserving adequate liquidity and maintaining a robust balance sheet

Investor & analyst presentation

Gulf Keystone's management team will be presenting the Company's 2021 Full Year Results at 10:00am (BST) today via live audio webcast:

https://webcasting.brrmedia.co.uk/broadcast/6221e42cfa16d9059b846ad1

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

Enquiries:

or visit: www.gulfkeystone.com

Please click on the associated PDF document to view the full announcement.

http://www.rns-pdf.londonstockexchange.com/rns/4740G_1-2022-3-29.pdf
 

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