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

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 (LSE:GKP)
Historical Stock Chart

From Oct 2019 to Oct 2024

Click Here for more Gulf Keystone Petroleum Charts.

TIDMGKP

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