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GKP Gulf Keystone Petroleum Ltd

129.30
0.60 (0.47%)
31 Oct 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Gulf Keystone Petroleum Ltd LSE:GKP London Ordinary Share BMG4209G2077 COM SHS USD1.00 (DI)
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.60 0.47% 129.30 129.30 129.80 131.00 128.10 128.80 1,056,650 16:35:04
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Oil And Gas Field Expl Svcs 123.51M -11.5M -0.0516 -32.95 286.61M

Gulf Keystone Petroleum Ltd. Half Yearly Report (3684O)

19/09/2013 7:00am

UK Regulatory


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RNS Number : 3684O

Gulf Keystone Petroleum Ltd.

19 September 2013

Not for release, publication or distribution in or into the United States or jurisdictions other than the United Kingdom and Bermuda where to do so would constitute a contravention of the relevant laws of such jurisdiction.

19 September 2013

Gulf Keystone Petroleum Ltd. (AIM: GKP)

("Gulf Keystone" or "the Company")

Half Year Report for the six months ended 30 June 2013

Commencement of Commercial Production from Shaikan

Gulf Keystone, the independent oil and gas exploration and production company with operations in the Kurdistan Region of Iraq, today announces its results for the six months ended 30 June 2013.

HIGHLIGHTS

Operational - to 30 June 2013 and post period end

Shaikan Block (75% working interest; Operator)

-- Shaikan Field Development Plan ("Shaikan FDP") was approved by the Ministry of Natural Resources of the Kurdistan Regional Government in June 2013

-- The first Shaikan production facility ("Shaikan PF-1"), capable of producing 20,000 barrels of oil per day ("bopd"), was fully commissioned in July

-- Shaikan commercial production began in mid-July, with 12,400 bopd achieved by early September

-- Gross production from Shaikan PF-1 from 24 July 2013 to 1 September 2013 totalled 183,000 barrels, with 179,063 barrels sold into the domestic market

-- Construction of the second Shaikan production facility (PF-2), capable of producing 20,000 bopd, is ongoing; its mechanical completion expected in October 2013, followed by production operations by the end of 2013

-- Project initiated for gas compressing equipment required to move beyond the near-tem production target of 40,000 bopd to the initial Shaikan FDP's target of 100,000 bopd

   --          Drilling of Shaikan-10, the first development well, spudded in July 2013 and is ongoing 

-- Drilling of Shaikan-7, the first deep exploration well, targeting previously undrilled mid to lower Triassic and Permian horizons, spudded in June 2013 and is ongoing; potential to add between 1 and 5 billion barrels of gross oil-in-place to already discovered resources

-- Significant progress made on the development of the regional independent export infrastructure, expected to be completed by the end of 2013

Sheikh Adi Block (80% working interest; Operator)

-- Further to the approval of the programme to appraise Jurassic targets and evaluate the Triassic upside, construction of the drilling location for the Sheikh Adi-3 appraisal well is ongoing

   --      Acquisition of 70km of additional 2D seismic data has been completed 

Ber Bahr Block (40% working interest)

-- Further to the successful side-track of the original Ber Bahr-1 exploration well in May 2013, the operator's estimates of recoverable reserves are between 50 and 100 million barrels

   --           Appraisal and early production expected in 2014 

-- Following the new Triassic oil discovery in January 2013, Bakrman-1 is being side-tracked after an extended well test in the Triassic formation on the Bakrman structure; initial results indicate a significant reservoir

-- Commissioning of an extended well test ("EWT") facility for the Bijell discovery is awaiting the completion of the Bijell-1 discovery well as a producer

   --           Drilling of two additional appraisal wells Bijell-7 and Bijell-2 is ongoing 
   --           Sale process of the Company's 20% working interest in the Akri-Bijeel block continues 

Financial - as at 30 June 2013 and post period end

   --           Loss after tax: $26.4 million (2012: $31.4 million) 
   --           Loss per share: $0.03 (2012: $0.04) 

As at 30 June 2013, cash and cash equivalents: $141.2 million (30 June 2012: $130.4 million, 31 December 2012: $253.7 million). As at 16 September 2013, cash and cash equivalents: $101.2 million

Corporate Developments - to 30 June 2013 and post period end

-- On 10 September 2013, the English Commercial Court in London dismissed all the claims asserted by Excalibur Ventures LLC ("Excalibur") against Gulf Keystone, two of its subsidiaries (the "Companies") and Texas Keystone Inc. and decided all issues in favour of the Companies and Texas Keystone Inc.

-- Gulf Keystone engaged Deutsche Bank AG, London Branch to act on an exclusive basis in connection with the proposed move from AIM, a market operated by the London Stock Exchange, to the standard segment of the Official List, which is expected to be completed before the end of 2013

   --           Simon Murray, C.B.E. was appointed Independent Non-Executive Chairman of the Board 

-- Five additional Non-Executive Directors were appointed to the Company's Board and search process for one other independent Non-Executive Director is on-going

OUTLOOK

-- Increase production from the Shaikan PF-1 to 20,000 bopd by the end of 2013 to generate steady revenues

-- Complete, commission and start production at Shaikan PF-2, ramping up production to additional 20,000 bopd, following the completion of flowlines to connect PF-2 to the Shaikan-2, -5 and -10 wells

-- Apply cash-neutral approach to growing operations, including the development drilling campaign to drill up to eight wells on Shaikan in 2014 and investment decisions on additional Shaikan production facilities

(PF-3 and -4)

-- Obtain and evaluate results of the Shaikan-7 exploration well, targeting deeper Triassic and Permian horizons in the Shaikan block

-- Appraise the Sheikh Adi discovery and continue to target additional exploration prospects on the block

Todd F Kozel, CEO of Gulf Keystone, commented:

"As a result of having the Shaikan FDP approved, and in line with the Kurdistan Regional Government's stated production targets for the Shaikan discovery, we are delighted to have entered the first phase of commercial production, which was eagerly awaited by the Company's shareholders. It is an important milestone and another highlight of the four years of hard work since striking oil in August 2009. With the protracted Excalibur litigation behind us and the key uncertainty about the Company's future removed, we are working hard to deliver on all of our stated objectives and are very pleased to have appointed Deutsche Bank to advise the Company on achieving our goal to move to the Main Market by the end of 2013."

The presentation to analysts will be available on the Company's website at www.gulfkeystone.com from 10.00 a.m. (UK time) today 19 September 2013.

Enquiries:

 
 Gulf Keystone Petroleum                +44 (0) 20 7514 1400 
 Todd Kozel, Chief Executive Officer 
 Anastasia Vvedenskaya, Investor 
  Relations 
 
 Strand Hanson Limited                  +44 (0) 20 7409 3494 
 Stuart Faulkner / James Harris 
  / Rory Murphy 
 
 Mirabaud Securities LLP                +44 (0) 20 7878 3362 
 Peter Krens 
 
 Bell Pottinger                         +44 (0) 20 7861 3232 
 Mark Antelme / Henry Lerwill 
 

or visit:http://www.gulfkeystone.com/

John Gerstenlauer, the Company's Chief Operating Officer, who has 36 years of relevant experience within the sector and meets the criteria of a qualified person under the AIM note for mining, oil and gas companies, has reviewed and approved the technical information contained in this announcement. Mr. Gerstenlauer is a member of the Society of Petroleum Engineers.

Notes to Editors:

-- Gulf Keystone Petroleum Ltd. (AIM: GKP) is an independent oil and gas exploration and production company focused on exploration in the Kurdistan Region of Iraq.

-- Gulf Keystone Petroleum International (GKPI) holds Production Sharing Contracts for four exploration blocks in Kurdistan, including the Shaikan, Sheikh Adi, Ber Bahr and Akri-Bijeel blocks.

-- GKPI is the Operator of the Shaikan Block, which is a major commercial discovery, with a working interest of 75% and is partnered with Kalegran Ltd. (a 100% subsidiary of MOL Hungarian Oil and Gas plc.) and Texas Keystone Inc., which have working interests of 20% and 5% respectively. Texas Keystone Inc. holds its interest in trust for Gulf Keystone, pending transfer of its interest to the Company.

-- Gulf Keystone is moving into the large-scale phased development of the Shaikan field targeting 150,000 barrels of oil per day of production within three years, following the approval of the Shaikan Field Development Plan, announced on 26 June 2013.

Disclaimer

This announcement contains certain forward-looking statements. These statements are made by the 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 uncertainties, including both economic and business factors, underlying such forward-looking information. 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.

Not for release, publication or distribution, directly or indirectly, in or into the United States or jurisdictions other than the United Kingdom and Bermuda where to do so would constitute a contravention of the relevant laws of such jurisdiction. This announcement (and the information contained herein) does not contain or constitute an offer of securities for sale, or solicitation of an offer to purchase securities, in the United States or jurisdictions other than the United Kingdom and Bermuda where to do so would constitute a contravention of the relevant laws of such jurisdiction. The securities referred to herein have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States unless the securities are registered under the Securities Act, or an exemption from the registration requirements of the Securities Act is available. No public offering of the securities will be made in the United States.

Joint Statement of Non-Executive Chairman and Chief Executive Officer

The first half of 2013 was another period of intense activity, during which time Gulf Keystone continued to build upon its position as a leading operator in the Kurdistan Region of Iraq and to grow as a company. We are delighted to have been able to complete two important tasks. Firstly, as a result of having the Shaikan Field Development Plan ("Shaikan FDP") approved and in line with the Kurdistan Regional Government's ("KRG") stated production targets for the Shaikan discovery, we have entered the first phase of commercial production, which was eagerly awaited by the Company's shareholders. It is an important milestone and another highlight of the four years of hard work since striking oil in August 2009. Secondly, while making progress in achieving our goal to move to the Main Market by the end of 2013, we are very pleased to have appointed an adviser of Deutsche Bank's calibre to assist us in this process.

The approval of the Shaikan FDP shortly before the end of the reporting period represented a major milestone as we close in on our strategic objective of transitioning from a pure exploration company to a well-balanced exploration and production ("E&P") operator. The approval, the first of its kind awarded in the region since 2007, was the culmination of many months of hard work, paving the way to commercial production from the Shaikan field, oil sales and revenue generation.

As we seek to establish ourselves as leaders of the upstream oil industry in the Kurdistan Region of Iraq, we were extremely honoured to be recognised by the Ministry of Natural Resources of the KRG ("MNR") for our "outstanding work during the exploration phase". We reiterate here our gratitude to the MNR for their support as we work hand in hand to help the region achieve its overall oil export target of one million barrels per day by the end of 2015.

As a Company with strong long-standing links to the Kurdistan Region of Iraq, we felt it was important to show solidarity with the KRG's decision to provide emergency relief to the large number of displaced people who have arrived in the region from Syria in recent months. Gulf Keystone pledged $1.00 per each barrel produced from 1 September 2013 for a period of one year to assist the KRG in their humanitarian relief effort.

On 4 July 2013, at the well-attended Investor Day in London, we told our audience that Shaikan commercial production was imminent. In mid-July, we completed and commissioned the first Shaikan production facility (PF-1) and delivered first commercial production to the domestic market. The second of the two new production facilities at Shaikan (PF-2) is nearing completion. Coupled with the already operating PF-1, our cumulative production capacity will be 40,000 bopd. As previously announced, we expect this level to increase to 150,000 bopd as we drill more development and production wells and put in place additional production and processing facilities required for the development of Shaikan.

Gulf Keystone's planned ramp up in production dovetails with the Kurdistan Region's ongoing pipeline infrastructure development and we have been very encouraged by recent progress, in particular on a regional oil pipeline for direct crude exports to Turkey. The Company has been awaiting a sustained export solution since 2007 and such remarkable achievement in the development of Kurdistan-controlled pipeline infrastructure is an extremely positive step for Gulf Keystone.

Across its portfolio, Gulf Keystone continued its drilling campaign, designed to continue proving up the value of our acreage.

The year began with a new discovery on the Akri-Bijeel Block. The Bakrman-1 exploration well was the first well to target the Bakrman structure and this success was the second discovery on the block, following the 2010 Bijell discovery. On the Ber Bahr block, the first exploration well confirmed a Jurassic commercial discovery in May.

On the 1.9 billion barrel Sheikh Adi field, following the Jurassic discovery with the Sheikh Adi-2 exploration well at the end of 2012, preparations are underway for the appraisal programme. This is designed to target both the Jurassic and Triassic with the Sheikh Adi-3 appraisal well in 2014. Further exploration work is also planned at Sheikh Adi as we continue to assess the extent that the Shaikan field extends into the Sheikh Adi block.

At the time of writing, drilling continues at the Shaikan-7 deep exploration well, and our first development well, Shaikan-10. This heralds the start of a potentially three rig development and production campaign on track to start next year.

We welcomed to the Board of Gulf Keystone our five new Non-Executive Directors and, under the guidance of Field Marshal the Lord Guthrie of Craigiebank, Deputy Chairman and Chairman of the Nominations Committee, we look forward to announcing one additional non-executive director in due course.

10 September marked the end of the protracted litigation process as the English Commercial Court dismissed all the claims asserted by Excalibur Ventures LLC ("Excalibur") against Gulf Keystone and two of its subsidiaries (together "the Companies") and Texas Keystone Inc. ("Texas Keystone").

With nearly twenty wells drilled and billions of barrels of resources discovered, Gulf Keystone has proven itself as one the most active operating companies in the Kurdistan Region of Iraq. The transition towards full scale production operations and the concurrent pipeline developments underpin the operational progress. Significant corporate developments are equally positive. With the uncertainty of the long running litigation now behind us, a strong board in place and the imminent move to the Main Market, the Board of Directors have great confidence about the future of our Company and are working hard to deliver on all of the Company's stated objectives.

Simon Murray

Independent Non-Executive Chairman

Todd F. Kozel

Chief Executive Officer

Operational Review

Gulf Keystone achieved a significant milestone in its operations in the Kurdistan Region of Iraq, when in June 2013 the MNR approved the FDP for the Shaikan field, which the Company operates. This event, together with the drilling of Shaikan-10, the Company's first development well, has signalled the beginning of the staged large-scale development of this word-class discovery and the move to commercial production from this prize asset.

In the context of the significant progress made on the independent regional pipeline infrastructure, expected to be completed by the end of 2013, we look forward to delivering Shaikan crude to the export market in 2014 and ramping-up Shaikan production to meet the KRG's ambitious production and export targets.

Following the approval of the Appraisal Programme for the Sheikh Adi discovery, the Company's other operated asset in the region, work began on the drilling location for the first appraisal well, which will be drilled in 2014. In May 2013, Genel Energy, the operator of the Ber Bahr block, confirmed a commercial discovery as a result of the successful side-track of the first exploration well drilled in 2012. MOL Hungarian Oil and Gas plc, the operator of the Akri-Bijeel block, continued to test the Jurassic and Triassic horizons with Bakrman-1, where a new Triassic discovery was made earlier in the year, as well as to work to commence test production operations from the Bijell-1 discovery.

Shaikan (75% working interest; Operator)

Approval of the Field Development Plan

The work on the Shaikan FDP commenced in the summer of 2011 and was completed and submitted for review and approval by the regulatory authorities in January 2013. In late June 2013, the MNR approved the Shaikan FDP, giving Gulf Keystone the right to commence commercial production and outlining a number of production milestones for the field. The Shaikan FDP envisages the first initial phase with production building up to 20,000-40,000 bopd and then progressing to 150,000 bopd within three years from the date of the approval of the Shaikan FDP and to 250,000 bopd by 2018.

Commencement of commercial production

Following the approval of the Shaikan FDP, the Company commenced commercial production operations at Shaikan. The Shaikan PF-1 was fully commissioned and tested by mid-July, which included emptying two storage tanks of 37,500 barrels of oil produced earlier in the year in the course of the Shaikan extended well test ("EWT") operations. Since late July 2013, there has been a steady ramp-up of production resulting in total gross production of 183,000 barrels as at 1 September 2013, at which point production had increased to 12,400 bopd.

Production from the Shaikan PF-1 was temporarily suspended on 4 September 2013 at the request of the competent authority for reasons not connected with the Company. The Company, following dialogue with the competent authority, believes that production is to resume shortly. Once the work on the flowlines to the Shaikan-4 well has been completed, the Company will reach the stated production target of 20,000 bopd. Shaikan-4 is the third producing well, which will be tied to the Shaikan PF-1 and the work on 8km of the connecting flowlines is expected to be completed in October 2013.

The construction of the second Shaikan production facility, which will be tied to the Shaikan-2, -5 and -10 wells, is ongoing. Shaikan PF-2 will be mechanically complete in October and is expected to become operational by the end of 2013 and increase Shaikan production to the second stated production target of 40,000 bopd thereafter. Contracts have been awarded for the work on the flowlines to connect the two existing producing wells and Shaikan-10, once it has been drilled and completed as a producer.

Implementation of Shaikan FDP

In July 2013, we spudded Shaikan-10, launching a development drilling campaign as part of the approved Shaikan FPD. The well is being drilled with the Weatherford 842 rig, which previously drilled Shaikan-8, also part of the agreed phased development. This rig also drilled the Shaikan-1 discovery well in 2009 and the Bijell-1 discovery well in 2010.

Shaikan-10, which is expected to be complete before the end of 2013, will be followed by an active development and production drilling programme, which is expected to target up to eight wells in 2014.

At least eight producing wells will be drilled in order to move from the immediate short-term production target of 40,000 bopd to the first Shaikan FDP milestone of 100,000-150,000 bopd. The timing of the further development drilling campaign and major investment decisions on the construction of additional Shaikan production and processing facilities are contingent on steady oil sales and revenue flow as a result of the production from Shaikan PF-1 and -2. We envisage that two additional facilities (Shaikan PF-3 and -4), equipped with gas and water handling capabilities and gas compression facilities, will be a 18 months project requiring between $200 and 250 million of investment per facility. At this stage, we have initiated a separate project to procure gas compressing equipment required to move beyond the near-tem production target of 40,000 bopd.

Pipeline infrastructure

Significant momentum has been gained since the beginning of 2013 in the development of the regional pipeline infrastructure from the Kurdistan Region of Iraq to Turkey. The completion of the oil pipeline infrastructure is expected by the end of 2013 and we have reached an important agreement with the MNR on the construction of a spur pipeline to connect Shaikan to the regional oil pipeline. The 15km pipeline connection will be running from the Shaikan PF-2 location to blending facilities and pumping stations, which are expected to be put in place in 2015.

Additional exploration upside

Shaikan-7, the first deep exploration well on the Shaikan block, spudded in June 2013 to evaluate the previously undrilled mid to lower Triassic and Permian horizons. The well is being drilled with the Weatherford Rig 319 (3,000HP) close to the crest of the Shaikan structure, approximately 1km east of the Shaikan-1 discovery well.

Following a number of side-tracks, casing is currently being set at the bottom of the Cretaceous at a depth of 1,250 metres. This vertical well is planned to reach a total depth below 4,500m in the Permian and is expected to take about nine months. Exploring this additional exploration potential may lead to discovering as much as between 1 and 5 billion barrels of additional oil in place resources.

Sheikh Adi (80% working interest; Operator)

After making the Jurassic discovery with the Sheikh Adi-2 well in November 2012, the Company and the KRG, its partner in the block, unanimously agreed to move to an appraisal programme for the Sheikh Adi field to appraise Jurassic targets and evaluate the Triassic upside. Currently, the construction of the drilling location for the Sheikh Adi-3 appraisal well is ongoing and the well is expected to be drilled in 2014.

Acquisition of 70km of additional 2D seismic data has been completed and, after drilling the first appraisal well on the block, we plan to target two additional exploration leads, comprising potential extensions of the Atrush and Swara Tika discoveries. The Company is enthusiastic about the forthcoming appraisal programme and additional exploration work, as it is the Company's belief that the Shaikan field shows signs of a significant extension into the Sheikh Adi block.

Ber Bahr (40% working interest)

In May, Genel Energy, the operator of the block, announced that a successful side-track of the original Ber Bahr-1 exploration well confirmed the existence of a commercial oil discovery. As a result, Ber Bahr-1 made a discovery achieving a sustainable flow rate of 2,100 stock tank barrels ("STB") per day of 15 API oil from the Middle Jurassic age Sargelu formation. The operator's current estimates of the recoverable reserves for the Ber Bahr discovery are between 50 and 100 million barrels. Appraisal plans include shooting 160km(2) of 3D seismic in Q3 2013, followed by an appraisal well in 2014. According to the operator, early oil production is expected to begin from the middle of 2014.

Akri-Bijeel (20% working interest)

After significant progress was achieved in 2012 and early 2013 in the course of an extensive exploration and appraisal programme of the massive Akri-Bijeel block, the operator has been focussing on two key activities. Following the Bakrman-1 Triassic oil discovery, an EWT was conducted in the Triassic. As a result of the well test, the operator decided to side-track the well and re-test multiple Jurassic zones. Initial Triassic test results indicate a significant reservoir. The operator continues to appraise the Bijell discovery with the Bijell-2 and -7 wells, while the commissioning of an EWT facility is awaiting the completion of the Bijell-1 well as a producer, which is on-going.

In line with the Company's decision to undertake a gradual strategic exit from Algeria, our remaining limited activities in Algeria will continue to focus on an orderly exit from the small GKN/GKS oil fields in the Ferkane area.

John Gerstenlauer

Chief Operating Officer

Financial Review

In the first half of 2013, Gulf Keystone concentrated its efforts on achieving a number of operational and corporate milestones including the preparation, submission and approval of the Shaikan FDP, the construction and completion of the Shaikan PF-1, successful defence against the litigation launched by Excalibur and preparation for the proposed move from AIM to the standard segment of the Official List ("Main Market").

The Company worked to ensure that the Shaikan PF-1 was ready to ramp up production as soon as the Shaikan FDP was approved by the MNR. While the facility was undergoing a number of upgrades, it was not possible for Gulf Keystone to generate production and sales in the first half of 2013. Following the FDP approval, announced on 26 June 2013, the Company started its first commercial production on 24 July 2013 reaching total gross production of 183,000 bbl and 12,400 bopd by 1 September 2013. The Company also achieved steady oil sales of an average 5,150 bopd in August 2013. Production from the Shaikan PF-1 was temporarily suspended on 4 September 2013 at the request of the competent authority for reasons not connected with the Company. The Company, following dialogue with the competent authority, believes that production is to resume shortly.

Following the approval of the Shaikan FDP, the exploration and evaluation costs incurred in relation to the Shaikan field were transferred to development and production assets within property, plant and equipment.

Income statement

General and administrative expenses during the period were $19.3 million (1H12: $34.1 million). The decrease in administrative costs of $14.8 million results from lower advisers' fees incurred in relation to the Group's defence against the claim made by Excalibur as well as lower costs associated with the share bonus awards and the options awarded under the Company Share Options Plan and Long Term Incentive Plan (1H13: $5.5 million; 1H12: $10.7 million).

Other losses of $0.5 million (1H12: $4.1 million gain) comprise foreign exchange loss of $0.1 million (1H12: $3.7 million gain), a mark-to-market valuation loss on forward exchange contracts entered into to mitigate the risk associated with converting U.S. Dollars into Sterling (1H13: $0.5 million loss; 1H12: $0.7 million gain). The 2012 comparative also includes a loss on the revaluation of the Standby Equity Distribution Agreement of $0.3m (1H13: $nil). Interest revenue has decreased to $0.5 million (1H12: $0.8 million) due to lower interest rates achieved on deposits.

Finance costs of $6.5 million (1H12: $0.3 million) relate to the accretion charge on the decommissioning provision (1H 2013: $0.2 million, 1H12: $0.3 million) and interest payable in respect of the Convertible Bonds of $11.2 million (2012: $nil) out of which $4.9 million was capitalised within intangible assets. The cash coupon paid on the convertible bond in 1H13 amounted to $8.6 million. The tax expense of $0.5 million (1H12: $1.9 million) is related to UK activities.

The results for the first half of 2013 show a decreased loss after tax of $26.4 million (1H12: $31.4 million) reflecting the decrease in administrative expenses discussed above.

Cash flow

Net cash outflow from oil and gas operations after general and administrative expenses was $22.3 million (1H12: $18.5 million). The loss from operations of $19.3 million (1H12: $34.1million) was adjusted for the non-cash expenditure of $5.9 million (1H12: $12.2 million) which included share-based payments and depreciation and amortisation. The 2012 comparative also includes the provision for overdue receivables in 1H12 (1H13: $nil). The working capital adjustments totalled to an $8.9 million cash outflow (1H12: $3.4 million inflow) increasing the operational cash outflow. The increase in inventories is in line with the high levels of drilling and Shaikan PF construction activities while lower payables reflect the lower administrative and operating expenses. The decrease in receivables is attributable to the receipt of the amounts due for 2012 oil sales and the partial repayment of the loans made to certain Directors of the Company in 2012 (see note 12 to the condensed consolidated financial statements). Tax paid in 1H 2013 was $0.4 million (1H12: $0.8 million) and interest received was $0.2 million (1H12: $0.8 million). Net cash outflow from operating activities after tax and interest was $31.1 million (1H12: $18.4 million).

Cash used in investing activities totalled $81.5 million (1H12: $64.4 million), which comprises $90.0 million spent on intangibles assets (1H12: $86.5 million), $0.1 million (1H12: $1.0 million) spent on property, plant and equipment offset by a reduction in liquid investments of $8.6 million (1H12: $23.1 million). The majority of the $90.0 million spent on intangible assets relates to the Group's exploration and appraisal activities in the Kurdistan Region of Iraq, including the drilling of Shaikan -7 and -10, construction of Shaikan PF -1 and -2, costs related to the preparation and submission of the Shaikan FDP as well as costs incurred on the exploration and appraisal of Akri-Bijeel, Ber Bahr and Sheikh Adi wells.

A total of $2.2 million has been raised through the exercises of options under the Company's share option plan (1H12: $1.1 million).

The net overall decrease in cash and cash equivalents during the period was $110.4 million (1H12: $81.7 million increase). Foreign exchange loss on cash balances was $2.1 million (1H12: $4.0 million gain).

Cash and cash equivalents totalled $141.2 million at 30 June 2013 (30 June 2012: $130.4 million; 31 December 2012: $253.7 million). As at 16 September 2013, cash and cash equivalents totalled $101.2 million.

Corporate activities

On 10 September 2013, the English Commercial Court ("the Court") announced its ruling following the trial of certain contractual and non-contractual claims asserted by Excalibur against the Companies and Texas Keystone. The Court dismissed all the claims asserted by Excalibur and decided all issues in favour of the Companies and Texas Keystone. The hearing was adjourned to a later date for the argument on costs and any application for permission to appeal. To-date Excalibur has made total payments of GBP10.7 million into Court as security for the costs of the Companies and a further GBP6.8 million as security for the costs of Texas Keystone.

As reported in the 2012 Annual Report and Accounts, 7.1 million common shares were issued in 2013, including 6.5 million to the Employee Benefit Trust ("EBT"), to satisfy awards made under the 2010 and 2011 Executive Bonus Scheme that were deemed to have vested. A further 4.4 million common shares were issued in response to option exercises by the Company's employees in February 2013.

Other and Further Events

The Company continues to explore options for the disposal of its 20% working interest in the Akri-Bijeel block and appointed corporate advisers who are responsible for coordination of and advice on the process. The disposal process remains ongoing at the date of this report. The Akri-Bijeel intangible asset (30 June 2013: $77.3 million; 31 December 2012: $64.6 million), including the associated working capital balances, continues to be classified as an asset held for sale.

The Company continues to affect an orderly exit from its Algerian operations and is continuing the discussions with Sonatrach regarding the withdrawal from Block 126a (GKN and GKS oilfields under the Ferkane Permit).

Financial strategy and outlook

Our long term financial strategy remains to maintain the appropriate financial flexibility to fund high-impact exploration, appraisal and development programmes in order to realise the full potential of our multi-billion barrel resources. We will also look to broaden the sources of funding available to Gulf Keystone and consider additional debt financing, whilst ensuring the Company maintains an appropriate capital structure. In the medium term, we are expecting to make considerable progress towards our ultimate goal of fully financing our activities from production cash flows. Further details regarding our current funding strategy can be found in note 2 'Going concern'. We made our first steps towards this goal with the approval of the FDP and commissioning of Shaikan PF-1 which is expected to ramp up the production to 20,000 bopd once the work on the connecting flowlines to the Shaikan-4 well has been completed in October 2013. With the completion of Shaikan PF-2 planned for Q4 2013, our short term production is expected to increase further to 40,000 bopd. Allied to this, we will work to manage our cost base as we continue to build our organisational capacity. Achieving these goals will enable us to support the Company's growth strategy set out in the previous sections of this report with a robust, well-funded business. Gulf Keystone has a strong balance sheet and clear plans to grow the value of the business.

KE Ainsworth

Finance Director

Principal risks and uncertainties

Gulf Keystone's business may be impacted by various risks leading to, among other possible impacts, failure to meet shareholder expectations and to achieve strategic targets for growth, loss of financial standing and reputation. Not all of these risks are wholly within the Company's control and the Company may be affected by risks which are not yet manifest or reasonably foreseeable. The Board determines and reviews the key risks for the Group on a regular basis. For all the known risks facing the business, Gulf Keystone attempts to minimise the likelihood and mitigate the impact.

The Group has identified its principal risks for the next 6 months as being:

   -       meeting shareholder expectations; 
   -       organisational capability; 
   -       political and regional risk; 
   -       risks associated with infrastructure and export market; 
   -       business conduct and bribery act; 
   -       field delivery risk including a successful delivery of the Shaikan Field Development Plan; 
   -       health, safety environment and security; 
   -       capital availability; and 
   -       liquidity and credit risk. 

Further information detailing the possible impact of these risks and the ways in which these risks are mitigated is provided on pages 26 to 27 of the 2012 Annual Report and Accounts. There have been no significant changes in any of the principal risks and uncertainties since year end.

Responsibility statement

The Directors confirm that to the best of their knowledge:

a) the condensed set of financial statements has been prepared in accordance with lAS 34 'Interim Financial Reporting';

b) the Half Yearly Report has been prepared in accordance with the AIM rules of the London Stock Exchange;

c) the Half Yearly Report includes a fair review of the important events of the first six months and description of principal risks and uncertainties for the remaining six months of the year; and

d) the Half Yearly Report includes the disclosure of related parties' transactions and changes therein.

By order of the Board,

TF Kozel

Chief Executive Officer

18 September 2013

Independent review report to Gulf Keystone Petroleum Ltd

We have been engaged by the Company to review the consolidated condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 13. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 1, the annual consolidated financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.

Deloitte LLP

Chartered Accountants

London, United Kingdom

18 September 2013

Condensed Consolidated Income Statement

for the six months ended 30 June 2013

 
                                    Six months 
                                         ended     Six months    Year ended 
                                       30 June          ended   31 December 
                                          2013   30 June 2012          2012 
                             Notes   Unaudited      Unaudited       Audited 
                                         $'000          $'000         $'000 
---------------------------  -----  ----------  -------------  ------------ 
 
Continuing operations 
Revenue                                      -         15,472        32,190 
Cost of sales                                -       (15,472)      (32,190) 
---------------------------  -----  ----------  -------------  ------------ 
Gross profit                                 -              -             - 
 
Other operating expenses 
General and administrative 
 expenses                             (19,256)       (34,061)      (82,137) 
Loss from operations                  (19,256)       (34,061)      (82,137) 
 
Other gains and losses                   (543)          4,064         5,210 
Interest revenue                           463            805         1,199 
Finance costs                  4       (6,537)          (254)       (4,456) 
---------------------------  -----  ----------  -------------  ------------ 
Loss before tax                       (25,873)       (29,446)      (80,184) 
 
Tax expense                              (528)        (1,915)       (1,638) 
---------------------------  -----  ----------  -------------  ------------ 
Loss after tax                        (26,401)       (31,361)      (81,822) 
---------------------------  -----  ----------  -------------  ------------ 
 
Loss per share (cents) 
Basic                          5        (3.06)         (3.68)        (9.61) 
Diluted                        5        (3.06)         (3.68)        (9.61) 
---------------------------  -----  ----------  -------------  ------------ 
 

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2013

 
                                          Six months     Six months    Year ended 
                                               ended          ended   31 December 
                                        30 June 2013   30 June 2012          2012 
                                           Unaudited      Unaudited       Audited 
                                               $'000          $'000         $'000 
-------------------------------------  -------------  -------------  ------------ 
 
Loss for the period                         (26,401)       (31,361)      (81,822) 
Items that may be reclassified 
 subsequently to profit or loss: 
 Exchange differences on translation 
 of foreign operations                       (1,973)             89         1,010 
-------------------------------------  -------------  -------------  ------------ 
Total comprehensive loss for 
 the period                                 (28,374)       (31,272)      (80,812) 
-------------------------------------  -------------  -------------  ------------ 
 
 

Condensed Consolidated Balance Sheet

as at 30 June 2013

 
                                              30 June     30 June  31 December 
                                                 2013        2012         2012 
                                    Notes   Unaudited   Unaudited      Audited 
                                                $'000       $'000        $'000 
---------------------------------  ------  ----------  ----------  ----------- 
Non-current assets 
Intangible assets                    6        196,906     454,755      546,229 
Property, plant and equipment        7        445,431       2,339        2,285 
Deferred tax asset                              4,464       5,613        6,796 
---------------------------------  ------  ----------  ----------  ----------- 
                                              646,801     462,707      555,310 
---------------------------------  ------  ----------  ----------  ----------- 
 
Current assets 
Assets held for sale                 10        77,283      44,923       64,612 
Inventories                                    30,062      18,856       19,783 
Trade and other receivables                    11,870       8,984       23,674 
Liquid investments                                  -       6,428        8,600 
Cash and cash equivalents                     141,156     130,437      253,713 
Derivative financial instruments                    -       1,893          207 
                                              260,371     211,521      370,589 
---------------------------------  ------  ----------  ----------  ----------- 
Total assets                                  907,172     674,228      925,899 
---------------------------------  ------  ----------  ----------  ----------- 
 
 
Current liabilities 
Trade and other payables                     (85,837)    (79,158)     (90,872) 
Derivative financial instruments                (410)       (349)        (168) 
Provisions                           11       (4,185)           -      (4,185) 
Liabilities directly associated 
 with assets classified as held 
 for sale                          10,11      (1,217)           -            - 
Current tax liabilities                          (17)     (1,612)        (444) 
---------------------------------  ------  ----------  ----------  ----------- 
                                             (91,666)    (81,119)     (95,669) 
---------------------------------  ------  ----------  ----------  ----------- 
 
Non-current liabilities 
Convertible bonds                           (246,165)           -    (243,495) 
Provisions                           11      (12,178)     (5,456)      (9,044) 
                                            (258,343)     (5,456)    (252,539) 
---------------------------------  ------  ----------  ----------  ----------- 
Total liabilities                           (350,009)    (86,575)    (348,208) 
---------------------------------  ------  ----------  ----------  ----------- 
 
Net assets                                    557,163     587,653      577,691 
---------------------------------  ------  ----------  ----------  ----------- 
 
Equity 
Share capital                        8          7,962       7,848        7,847 
Share premium account                8        793,609     791,480      791,479 
Share option reserve                           34,779      45,852       29,280 
Convertible bonds reserve                      22,852           -       25,485 
Exchange translation reserve                  (1,524)       (472)          449 
Accumulated losses                          (300,515)   (257,055)    (276,849) 
---------------------------------  ------  ----------  ----------  ----------- 
Total equity                                  557,163     587,653      577,691 
---------------------------------  ------  ----------  ----------  ----------- 
 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2013

 
                              Attributable to equity holders of the Group 
                 --------------------------------------------------------------------- 
                    Share     Share      Exchange                 Convertible 
          Share   premium    option   translation  Accumulated   bond reserve    Total 
        Capital   account   reserve       reserve       losses                  equity 
 
Notes     $'000     $'000     $'000         $'000        $'000          $'000    $'000 
-----  --------  --------  --------  ------------  -----------  -------------  ------- 
 
 
Balance at 1 January 
 2012 (audited)            7,627  790,435    34,065    (561)  (225,492)        -   606,074 
                                                                               - 
Share-based payment 
 charge                        -        -    13,922        -          -        -    13,922 
Deferred tax on 
 share-based payment 
 transactions                  -        -   (2,135)        -          -        -   (2,135) 
Share issue                  220    1,044         -        -          -        -     1,264 
Exchange differences 
 arising on translation 
 of foreign operations         -        -         -       89          -        -        89 
Own shares held                -        -         -        -      (202)        -     (202) 
Net loss for the 
 period                        -        -         -        -   (31,361)        -  (31,361) 
------------------------   -----  -------  --------  -------  ---------  -------  -------- 
Balance at 30 
 June 2012 (unaudited)     7,847  791,479    45,852    (472)  (257,055)            587,651 
------------------------   -----  -------  --------  -------  ---------  -------  -------- 
 
Transfer relating 
 to share based 
 payments                      -        -  (29,591)        -     29,591        -         - 
Share-based payment 
 charge                        -        -    11,977        -          -        -    11,977 
Deferred tax on 
 share-based payment 
 transactions                  -        -     1,042        -          -        -     1,042 
Exchange differences 
 arising on translation 
 of foreign operations         -        -         -      921          -        -       921 
Issue of convertible 
 bond                          -        -         -        -          -   26,561    26,561 
Convertible bond 
 equity amortisation           -        -         -        -      1,076  (1,076)         - 
Net loss for the 
 period                        -        -         -        -   (50,461)        -  (50,461) 
------------------------   -----  -------  --------  -------  ---------  -------  -------- 
Balance at 31 
 December 2012 
 (audited)                 7,847  791,479    29,280      449  (276,849)   25,485   577,691 
 
Transfer relating 
 to share-based 
 payments                      -        -     (166)        -        166        -         - 
Share-based payment 
 charge                        -        -     7,067        -          -        -     7,067 
Deferred tax on 
 share-based payment 
 transactions                  -        -   (1,402)        -          -        -   (1,402) 
Exchange differences 
 arising on translation 
 of foreign operations         -        -         -  (1,973)          -        -   (1,973) 
Share issue               8  115    2,130         -        -          -        -     2,245 
Own shares held 
 by EBT(1)                              -         -        -       (64)        -      (64) 
Convertible bond 
 equity amortisation                    -         -        -      2,633  (2,633)         - 
Net loss for the 
 period                                 -         -        -   (26,401)        -  (26,401) 
------------------------   -----  -------  --------  -------  ---------  -------  -------- 
Balance at 30 
 June 2013 (unaudited)     7,962  793,609    34,779  (1,524)  (300,515)   22,852   557,163 
------------------------   -----  -------  --------  -------  ---------  -------  -------- 
 

(1) Employee Benefit Trust ("EBT").

Condensed Consolidated Cash Flow Statement

for the six months ended 30 June 2013

 
                                                               Six months 
                                                   Six months       ended    Year ended 
                                                        ended     30 June   31 December 
                                                 30 June 2013        2012          2012 
                                         Notes      Unaudited   Unaudited       Audited 
                                                        $'000       $'000         $'000 
---------------------------------------  -----  -------------  ----------  ------------ 
Operating activities 
Cash used in operations                    9         (22,308)    (18,456)      (58,974) 
Tax paid                                                (444)       (751)       (1,667) 
Interest received                                         245         806         1,199 
Interest paid                                         (8,594)           -             - 
---------------------------------------  -----  -------------  ----------  ------------ 
Net cash used in operating activities                (31,101)    (18,401)      (59,442) 
---------------------------------------  -----  -------------  ----------  ------------ 
 
Investing activities 
Purchase of intangible assets                        (89,953)    (86,499)     (191,887) 
Purchase of property, plant and 
 equipment                                              (137)       (977)       (1,345) 
Decrease in liquid investments                          8,600      23,100        20,928 
---------------------------------------  -----  -------------  ----------  ------------ 
Net cash used in investing activities                (81,490)    (64,376)     (172,304) 
---------------------------------------  -----  -------------  ----------  ------------ 
 
Financing activities 
Proceeds on issue of share capital                      2,180       1,063         1,264 
Proceeds on issue of convertible 
 bond                                                       -           -       268,972 
---------------------------------------  -----  -------------  ----------  ------------ 
Net cash generated by financing 
 activities                                             2,180       1,063       270,236 
---------------------------------------  -----  -------------  ----------  ------------ 
 
Net (decrease)/increase in cash 
 and cash equivalents                               (110,411)    (81,714)        38,490 
Cash and cash equivalents at beginning 
 of period                                            253,713     208,103       208,103 
Effect of foreign exchange rate 
 changes                                              (2,146)       4,048         7,120 
---------------------------------------  -----  -------------  ----------  ------------ 
Cash and cash equivalents at end 
 of the period being bank balances 
 and cash on hand                                     141,156     130,437       253,713 
---------------------------------------  -----  -------------  ----------  ------------ 
 

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2013

1. General information

The condensed Group interim financial statements, comprised of Gulf Keystone Petroleum Ltd and its subsidiaries (together, "the Group"), have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting", as adopted by the European Union. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, have been omitted or condensed as is normal practice. The condensed Group interim financial statements for the six months ended 30 June 2013 have been reviewed by the Company's external auditors and were approved by the Directors on 18 September 2013. An electronic version of the half year report has been posted on the Group's website www.gulfkeystone.com. Hard copies are available by writing to Gulf Keystone Petroleum Limited, c/o Gulf Keystone Petroleum (UK) Limited, 16 Berkeley Street, London, W1J 8DZ, United Kingdom.

The financial information for the year ended 31 December 2012 does not constitute the Company's financial statements for that year, but it is derived from those accounts. The auditors have reported on those accounts and their report was not modified but drew attention by way of emphasis to the uncertain outcome of certain legal proceedings. The current status of those legal proceedings is summarised in note 13.

2. Accounting policies

Basis of preparation

The condensed set of financial statements included in this half year financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in this condensed set of financial statements as applied by the Company in its Annual Report and Accounts for the year ended 31 December 2012. The Annual Report and Accounts of the Company are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Joint Statement of the Non-Executive Chairman and Chief Executive Officer and Review of Operations. The financial position of the Group and its cash flows are described in the Financial Review.

The Group is currently dependent upon its existing financial resources and production revenues from its operations in the Kurdistan Region of Iraq. As the Group develops the Shaikan field, it may require additional finance through debt financing, fund raisings, farm-out or sale of its oil and gas interests or other methods. The Group has a number of financing possibilities which the Directors believe the Group will be able to pursue if required. However, the possibility remains that the Group's operations, and the availability of additional finance, could be significantly affected by adverse exploration and appraisal results, geopolitical events in the region, macroeconomic conditions or other risks.

In assessing the applicability of the going concern basis, the Directors have assumed that the production and oil sales from the Shaikan field will achieve the stated short term targets (see Review of Operations and Financial Review) or alternatively, that the Company will be able to raise funds from additional sources of financing by the end of 2013.

Accordingly, based on the forecasts and projections prepared at the time of preparation of this half year report and after making enquiries, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future, being 12 months from the date of approval of the half year report. Consequently, the Directors continue to adopt the going concern basis in preparing this half year report.

Changes in accounting policy

In 2012, a number of new standards and interpretations became effective as noted in the 2012 Annual Report and Accounts (page 51). The adoption of these standards and interpretations has not had a material impact on the financial statements of the Group. Since the 2012 Annual Report and Accounts was published no significant new standards and interpretations have been issued. The following new and revised standards became effective during 2013:

 
 IAS 1              Presentation of Items of Other Comprehensive Income 
                     - Amendments to IAS 1 
 IAS 19 (revised)   Employee Benefits 
 IFRS 7 (amended)   Disclosures - Offsetting Financial Assets and Financial 
                     Liabilities 
 IFRS 13            Fair Value Measurement 
 

The adoption of these standards has not had a material impact on the financial statements of the Group.

In addition, the following standards, which are endorsed by the EU but are not effective until 1 January 2014 will be adopted for the period beginning 1 January 2014:

 
 IFRS 10            Consolidated Financial Statements 
 IFRS 11            Joint Arrangements 
 IFRS 12            Disclosure of Interests in Other Entities 
 IAS 28 (revised)   Investment in Associates and Joint Ventures 
 

The Directors do not expect that the adoption of these standards will have a material impact on the financial statements of the Group in future periods.

3. Segment information

There has been no change in the basis of segmentation or in the basis of measurement of segment profit or loss during the period. The accounting policies of the reportable segments are consistent with the Group's accounting policies, which are described in the Group's latest annual financial statements.

The operations of the Group comprise one class of business, oil and gas exploration, development and production and the sale of hydrocarbons and related activities. The reportable segments in accordance with IFRS 8 are therefore the three geographical regions that the Group operates within as described below:

- Kurdistan Region of Iraq - the Group's operations in the Kurdistan Region, comprising the Shaikan, Akri-Bijeel, Sheikh Adi and Ber Bahr Blocks and the Erbil office.

- United Kingdom - the United Kingdom office, which provides geological, geophysical and engineering services to the Group.

   -       Algeria - the Algiers office and the Group's operations in Algeria. 

Corporate manages activities that serve more than one segment and represents all overhead and administration costs incurred that cannot be directly linked to one of the above segments.

 
                                    Kurdistan    United 
                           Algeria     Region   Kingdom  Corporate  Elimination     Total 
30 June 2013 (unaudited)     $'000      $'000     $'000      $'000        $'000     $'000 
-------------------------  -------  ---------  --------  ---------  -----------  -------- 
Revenue 
Oil sales                        -          -         -          -            -         - 
Inter-segment sales              -          -     5,473          -      (5,473)         - 
-------------------------  -------  ---------  --------  ---------  -----------  -------- 
Total revenue                    -          -     5,473          -      (5,473)         - 
 
(Loss)/profit before 
 tax                          (51)      (653)   (4,255)   (32,186)       11,272  (25,873) 
 
Tax expense                      -          -     (528)          -            -     (528) 
 
(Loss)/profit after 
 tax                          (51)      (653)   (4,783)   (32,186)       11,272    26,401 
Total assets                   175    754,069    25,703  1,009,207    (881,982)   907,172 
-------------------------  -------  ---------  --------  ---------  -----------  -------- 
 
 
                                           Kurdistan         United 
                                Algeria       Region        Kingdom       Corporate  Elimination         Total 
30 June 2012 (unaudited)          $'000        $'000          $'000           $'000        $'000         $'000 
-------------------------  ------------  -----------  -------------  --------------  -----------  ------------ 
Revenue 
Oil sales                             -       15,472              -               -            -        15,472 
Inter-segment sales                   -            -          7,658               -      (7,658)             - 
-------------------------  ------------  -----------  -------------  --------------  -----------  ------------ 
Total revenue                         -       15,472          7,658               -      (7,658)        15,472 
 
(Loss)/profit before 
 tax                            (1,425)      (2,107)          2,582        (28,843)          347      (29,446) 
 
Tax expense                           -            -        (1,915)               -            -       (1,915) 
 
(Loss)/profit after 
 tax                            (1,452)      (2,107)            667        (28,843)          347      (31,361) 
-------------------------  ------------  -----------  -------------  --------------  -----------  ------------ 
Total assets                      1,667      528,648         76,482         813,022    (745,591)       674,228 
-------------------------  ------------  -----------  -------------  --------------  -----------  ------------ 
 
 
                                             United 
                       Algeria  Kurdistan   Kingdom  Corporate  Elimination     Total 
31 December 2012 
 (audited)               $'000      $'000     $'000      $'000        $'000     $'000 
---------------------  -------  ---------  --------  ---------  -----------  -------- 
Revenue 
Oil sales                    -     32,190         -          -            -    32,190 
Inter-segment sales          -          -    16,132          -     (16,132)         - 
---------------------  -------  ---------  --------  ---------  -----------  -------- 
Total revenue                -     32,190    16,132          -     (16,132)    32,190 
 
(Loss)/profit before 
 tax                   (5,112)    (2,350)     (928)   (73,848)        2,054  (80,184) 
 
Tax expense                  -          -   (1,638)          -            -   (1,638) 
 
(Loss)/profit after 
 tax                   (5,112)    (2,350)   (2,566)   (73,848)        2,054  (81,822) 
---------------------  -------  ---------  --------  ---------  -----------  -------- 
Total assets               102    671,680    40,465  1,061,637    (847,985)   925,899 
---------------------  -------  ---------  --------  ---------  -----------  -------- 
 

4. Finance costs

 
                                             Six months  Six months 
                                                  ended       ended    Year ended 
                                                30 June     30 June   31 December 
                                                   2013        2012          2012 
                                              Unaudited   Unaudited       Audited 
                                                  $'000       $'000         $'000 
-------------------------------------------  ----------  ----------  ------------ 
 
Interest payable in respect of convertible 
 bonds                                           11,217           -         4,617 
Unwinding of discount on provisions                 179         254           348 
Capitalised finance costs                       (4,859)           -         (509) 
                                             ----------  ----------  ------------ 
                                                  6,537         254         4,456 
                                             ==========  ==========  ============ 
 

The amount of finance costs capitalised was determined in accordance with IAS 23 by applying the effective interest rate of 9.26% on an annual basis applicable to the borrowings under the convertible bonds to the expenditures on the qualifying asset.

5. Loss per share

The calculation of the basic and diluted loss per share is based on the following data:

 
                                     Six months  Six months 
                                          ended       ended    Year ended 
                                        30 June     30 June   31 December 
                                           2013        2012          2012 
                                      Unaudited   Unaudited       Audited 
                                          $'000       $'000         $'000 
-----------------------------------  ----------  ----------  ------------ 
Loss 
Loss for the purposes of basic and 
 diluted loss per share                (26,401)    (31,361)      (81,822) 
 
 
                                                 30 June         30 June     31 December 
                                                    2013            2012            2012 
                                           Number (000s)   Number (000s)   Number (000s) 
                                               Unaudited       Unaudited         Audited 
----------------------------------------  --------------  --------------  -------------- 
Number of shares 
Weighted average number of common 
 shares for the purposes of basic 
 loss per share                                  862,486         851,361         851,486 
 
Adjustments for: 
  -bonus shares                                      n/a             n/a             n/a 
  -share options                                     n/a             n/a             n/a 
  -warrants                                          n/a             n/a             n/a 
  -ordinary shares held by the Employee 
   Benefit Trust                                     n/a             n/a             n/a 
  -ordinary shares held by the Exit 
   Event Trustee                                     n/a             n/a             n/a 
  -convertible bonds                                 n/a             n/a             n/a 
Weighted average number of common 
 shares for the purposes of diluted 
 loss per share                                  862,486         851,361         851,486 
----------------------------------------  --------------  --------------  -------------- 
 

There is no difference between basic and diluted earnings per share as the Group was loss making in each period and hence the effect of bonus shares, share options, warrants, convertible bonds and common shares held by the Employee Benefit Trustee is anti-dilutive. As at 30 June 2013, 37.5 million share options (2012: 41.9 million), 3.3 million un-issued bonus shares (2012: 6.6 million), 1.0 million warrants (2012: 1.0 million), 10.0 million common shares held by the Exit Event Trustee (2012: 10.0 million), 11.1 million common shares held by the Employee Benefit Trust (2012: 12.9 million) and 62.6 million common shares (2012: 62.6 million) to be issued if the bonds are converted at the initial conversion price of $4.39 were excluded from the loss per share calculation as they were anti-dilutive.

6. Intangible assets

 
                                               Exploration &   Computer 
                                            evaluation costs   software      Total 
                                                       $'000      $'000      $'000 
-----------------------------------------  -----------------  ---------  --------- 
At 31 December 2012 
Cost                                                 545,940        858    546,798 
Accumulated amortisation                                   -      (569)      (569) 
                                           -----------------  ---------  --------- 
Net book value (audited)                             545,940        289    546,229 
                                           =================  =========  ========= 
 
Six months ended 30 June 2013 
Opening net book value                               545,940        289    546,229 
Additions                                             94,192         60     94,252 
Transfer to property, plant and 
 equipment                                         (443,470)          -  (443,470) 
Amortisation charge                                        -       (96)       (96) 
Foreign currency translation differences                   -        (9)       (10) 
Closing net book value (unaudited)                   196,662        244    196,906 
                                           =================  =========  ========= 
 
At 30 June 2013 
Cost                                                 196,662        885    197,547 
Accumulated amortisation                                   -      (641)      (641) 
                                           -----------------  ---------  --------- 
Net book value (unaudited)                           196,662        244    196,906 
                                           =================  =========  ========= 
 

Additions to oil and gas exploration and evaluation costs in the period were $94.2 million and included the drilling of Shaikan -7 and -10, construction of Shaikan PF -1 and -2 and costs related to the preparation and submission of the Shaikan Field Development Plan. Exploration and evaluation costs include intangible assets relating to: Sheikh Adi $140.2 million (2012: $108.6 million) and Ber Bahr $56.5 million (2012: $51.1 million). Other intangible assets (computer software) were $0.2 million (2012: $0.3 million).

Following the approval of the Shaikan Field Development Plan by the Kurdistan Regional Government's Ministry of Natural Resources announced on 26 June 2013, the exploration and evaluation costs incurred in relation to the Shaikan field were transferred to development and production assets within property, plant and equipment.

7. Property, plant and equipment

 
                                                                Development &  Fixtures &    Total 
                                                            Production Assets   Equipment    $'000 
                                                                        $'000       $'000 
-----------------------------------------  ----------------------------------  ----------  ------- 
At 31 December 2012 
Cost                                                                        -       4,939    4,939 
Accumulated depreciation                                                    -     (2,654)  (2,654) 
                                           ----------------------------------  ----------  ------- 
Net book value (audited)                                                    -       2,285    2,285 
                                           ==================================  ==========  ======= 
 
Six months ended 30 June 2013 
Opening net book value                                                      -       2,285    2,285 
Additions                                                                   -         137      137 
Disposals                                                                   -       (139)    (139) 
Transfer from intangible assets                                       443,470           -  443,470 
Depreciation charge                                                         -       (306)    (306) 
Foreign currency translation differences                                    -        (16)     (16) 
                                           ==================================  ==========  ======= 
Closing net book value (unaudited)                                    443,470       1,961  445,431 
                                           ==================================  ==========  ======= 
 
At 30 June 2013 
Cost                                                                  443,470       4,868  448,338 
Accumulated depreciation                                                    -     (2,907)  (2,907) 
                                           ----------------------------------  ----------  ------- 
Net book value (unaudited)                                            443,470       1,961  445,431 
                                           ==================================  ==========  ======= 
 
 

8. Share capital

Share capital and share premium as at 30 June 2013 amounted to $801.6 million (2012: $799.3 million). During the period, 11.5 million common shares were issued to satisfy awards made under the Company's bonus share scheme and an exercise of options under the Company's Share Option Plan.

Subsequent to the period end, a further 475,350 shares were issued at a price of GBP1.40 per share raising GBP665,490 following an exercise of warrants.

9. Reconciliation of loss from operations to net cash used in operating activities

 
                                        Six months  Six months 
                                             ended       ended    Year ended 
                                           30 June     30 June   31 December 
                                              2013        2012          2012 
                                         Unaudited   Unaudited       Audited 
                                             $'000       $'000         $'000 
--------------------------------------  ----------  ----------  ------------ 
Loss from operations                      (19,256)    (34,061)        82,137 
 
Adjustments for: 
 Depreciation of property, plant and 
  equipment                                    306         242           559 
 Amortisation of intangible assets              96          96           175 
 Increase in Algerian decommissioning 
  provision                                      -           -         3,462 
 Share-based payment expense                 5,471      10,662        19,974 
 Provision for overdue receivables               -       1,212         1,212 
 Increase in inventories                  (10,280)     (1,623)       (2,550) 
 Decrease/(increase) in receivables         11,872         927      (14,845) 
 Increase/(decrease) in payables          (10,517)       4,089        15,176 
--------------------------------------  ----------  ----------  ------------ 
Net cash used in operating activities     (22,308)    (18,456)      (58,974) 
--------------------------------------  ----------  ----------  ------------ 
 

10. Asset held for sale

In 2011, as part of the Group's forward strategy to rationalise its asset portfolio, the Board resolved to sell the Group's 20% working interest in the Akri-Bijeel block. The Group subsequently appointed Joint Corporate Advisers responsible for co-ordination of and advice on the sale and this process is on-going.

The Akri-Bijeel intangible asset of $77.3 million (2012: $64.6 million) that is included within the Kurdistan operating segment was classified as an asset held for sale on 30 June 2013. The value of the asset held for sale as at 30 June 2013 includes $2.2 million (2012: $5.9 million) that relates to a prepayment balance to the operator.

Additions to Akri-Bijeel exploration and evaluation costs in the period were $16.4 million and included the drilling of Bakrman-1, Gulak-1, Bijell-2, and Bijell-7 wells as well as seismic studies and construction of surface facilities.

The decommissioning provision associated with the Akri-Bijeel block amounted to $1.2 million as at 30 June 2013 and is included in the liabilities directly associated with assets classified as held for sale (see note 11).

11. Decommissioning provision

 
              Six months  Six months 
                   ended       ended    Year ended 
                 30 June     30 June   31 December 
                    2013        2012          2012 
               Unaudited   Unaudited       Audited 
                   $'000       $'000         $'000 
------------  ----------  ----------  ------------ 
 
Current            4,185           -         4,185 
Non-current       12,178       5,456         9,044 
              ----------  ----------  ------------ 
                  16,363       5,456        13,229 
              ==========  ==========  ============ 
 
 
Decommissioning provision                       $'000 
--------------------------------------------  ------- 
At 1 January 2013                              13,229 
New provisions and changes in estimates         4,172 
Transfer to liabilities directly associated 
 with assets classified as held for sale      (1,217) 
Unwinding of discount                             179 
At 30 June 2013 (unaudited)                    16,363 
                                              ======= 
 

The additions to the decommissioning provision balance arose from new provisions and changes in decommissioning estimates for operated and non-operated fields in the Kurdistan Region of Iraq.

The Group revised the estimates for the inflation and discount rates used to 3% (2012: 4%). The changes in inflation and discount rates did not have impact on the value of the unwinding of discount charge.

The transfer to liabilities directly associated with assets classified as held for sale comprises the decommissioning provision for Akri-Bijeel block.

12. Related party transactions

Directors' transactions

During 2012, the Group issued an interest-bearing loan of $7 million to Todd Kozel and $0.7 million to another Director. The loans were taken out in order to meet the Directors' tax and other liabilities and bore an annual interest charge of 7.5%. In the six months ended 30 June 2013, the $0.7 million loan was repaid in full and the $7 million loan was repaid in part.

In the six months ended 30 June 2013, the Company also paid for certain personal expenses of $1.1 million (2012: $2.8 million) on behalf of Todd Kozel that will be refunded to the Company at its demand during 2013. No interest is charged on these advances. By virtue of their directorships, these individuals are related parties of the Group.

The following amounts were outstanding at the balance sheet date and are included within other receivables:

 
                                         Six months  Six months 
                                              ended       ended    Year ended 
                                            30 June     30 June   31 December 
                                               2013        2012          2012 
                                          Unaudited   Unaudited       Audited 
                                              $'000       $'000         $'000 
---------------------------------------  ----------  ----------  ------------ 
 
Personal expenses of key management 
 personnel to be refunded to the Group        3,938       1,208         2,846 
Loans to key management personnel             2,268           -         7,710 
Interest on loans to key management 
 personnel                                      219           -            68 
                                         ----------  ----------  ------------ 
                                              6,425       1,208        10,624 
                                         ==========  ==========  ============ 
 

Subsequent to 30 June 2013, Todd Kozel has settled $4.4 million of the outstanding balance.

13. Subsequent events

On 10 September 2013, the English Commercial Court ("the Court") announced its ruling following the trial of certain contractual and non-contractual claims asserted by Excalibur Ventures LLC ("Excalibur") against Gulf Keystone and two of its subsidiaries (together "the Companies") and Texas Keystone Inc. ("Texas Keystone"). The Court dismissed all the claims asserted by Excalibur and decided all issues in favour of the Companies and Texas Keystone. The hearing for the argument on costs and any application for permission to appeal will take place at a later date that is to be fixed. To-date Excalibur has made total payments of GBP10.7 million into Court as security for the costs of the Companies and a further GBP6.8 million as security for the costs of Texas Keystone.

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR GGURCBUPWGBR

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