Gulf Keystone Petroleum Ltd (GKP) Operational & Corporate
Update 30-Jan-2023 / 07:00 GMT/BST Dissemination of a Regulatory
Announcement, transmitted by EQS Group. The issuer is solely
responsible for the content of this announcement.
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30 January 2023
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP" or "the Company")
Operational & Corporate Update
Gulf Keystone, a leading independent operator and producer in
the Kurdistan Region of Iraq ("KRI" or "Kurdistan"), today provides
an operational and corporate update. The information contained in
this announcement has not been audited and may be subject to
further review.
Jon Harris, Gulf Keystone's Chief Executive Officer, said:
"2022 was a strong year for GKP, in which we made progress on
multiple fronts that will position the company to maximise
long-term value from the Shaikan Field. We laid the initial
groundwork for a material increase in production levels in 2023 and
2024, while progressing towards key project sanction milestones of
the Shaikan Field Development Plan. In addition, we paid record
dividends to our shareholders of USD215 million, bringing total
shareholder distributions to USD415 million since 2019, while at
the same time strengthening our balance sheet through repayment of
our USD100 million bond.
Looking ahead, we are positive about the outlook for oil prices,
although we remain vigilant about the challenges facing the global
economy and the recent delays to KRG payments. Consequently, as we
move towards FDP approval and transition to increased investment in
profitable production growth from the Jurassic reservoir to drive
cash generation, we have put in place a flexible capital programme
for 2023 that is responsive to the external environment. This will
enable the Board to prudently manage the balance between our
liquidity levels, growth investment and distributions to maximise
total risk adjusted returns for shareholders. To underline the
Board's continued commitment to reviewing the return of excess cash
to shareholders as we progress, we are pleased to announce the
declaration of an interim dividend of USD25 million."
Operational
-- 2022 was a Lost Time Incident ("LTI") free year with only one
minor recordable incident. Following over440 days without an LTI,
an incident occurred during drilling operations in January 2023.
The safety of ourworkforce is our priority and we are currently
carrying out an investigation
-- Gross average production in 2023 year to date of c.47,800
bopd(1), with the recent increase driven by thegradual ramp up of
SH-16, which was brought online in December 2022
-- Ongoing drilling programme expected to drive production
growth:? SH-17 drilled and completed in early 2023, under budget
and ahead of schedule; currently being hookedup to commence
production in Q1 2023, in line with guidance ? SH-18 (formerly
SH-P) recently spudded, with first production expected in Q2 2023,
as previouslyannounced
-- Gross average production for 2022 of 44,202 bopd in line with
guidance, up from 43,440 bopd in 2021: ? Incremental production
driven by:? The benefit of SH-13 and SH-14 production, brought
on-stream in December 2021 ? Start-up of SH-15 in April 2022 and
SH-16 in December 2022 ? Mostly offset by:? Prudent management of
well production rates to avoid trace amounts of water production
ahead ofinstallation of water handling capacity, including the
shut-in of SH-12 for most of H1 2022 ? The temporary shut-in of one
well during Q4 2022 due to an isolated ESP electrical failure ? In
line with expectations and our development plan, continued base
natural decline currentlyestimated at 6-10% per annum across the
Shaikan Field, which remains low relative to the industry
evenfollowing production of around 115 million barrels to date
Financial
-- 2022 net capex of c.USD115 million comprised of:? Drilling
costs of c.USD65 million, including the SH-15 and SH-16 wells that
were drilled and broughtonline during the year, and SH-17 which was
completed in early 2023 ? Facilities and future well pad
preparation costs of c.USD35 million, including early work related
tothe expansion of PF-1 and PF-2 with water handling capacity and
installation of flowlines connecting the newwell pads to the
production facilities ? Well work over and intervention costs of
c.USD15 million
-- 2022 gross Opex per barrel of c.USD3.2/bbl, in line with 2022
guidance of USD2.9-USD3.3/bbl, despite increasedactivity and
industry cost inflation
-- During 2022, GKP received USD450 million from the Kurdistan
Regional Government ("KRG") for crude oil salesand repayment of
historic revenue arrears
-- GKP recently received net USD39 million from the KRG for
August 2022 crude oil sales. Discussions areongoing with the KRG
regarding payments for September to November 2022 crude oil sales,
which are overdue
-- Continuing engagement with the Ministry of Natural Resources
("MNR") regarding proposed amendments to theShaikan Lifting
Agreement, including a change in reference price for Shaikan crude
oil sales from Dated Brent tothe local Kurdistan Blend benchmark
("KBT"), effective 1 September 2022
-- Record dividends paid in 2022 of USD215 million, representing
a sector-leading dividend yield of 41%(2)
-- Cash balance of USD151 million(3) with no outstanding
debt
Outlook
-- As we move towards approval of the Field Development Plan
("FDP"), we are focused on driving profitableproduction growth by
expanding the production facilities and continuing our drilling
campaign in the Jurassicreservoir, capitalising on the attractive
returns resulting from the quick payback of investment under the
PSC(4)following the recent recovery of the majority of our historic
costs, while continuing to return excess cash toshareholders,
underlined by our declaration of a USD25 million interim dividend,
payable on 3 March 2023
-- In line with our rigorous focus on capital discipline and
maintaining a robust balance sheet, we havebuilt flexibility into
our work programme, predicating investment levels on the timeliness
of KRG payments and oilprices:? Improvements in KRG payment timing
and a continuation of the robust oil price environment wouldenable
us to continue drilling beyond SH-18 and update our guidance ? A
deterioration in market conditions, including continued delays to
KRG payments, would lead us toreview potential reductions in our
work programme and guidance
-- In 2023, we will bring SH-17 and SH-18 online to target
double digit percentage production growth, whilelaying the
foundation for an inflection in annual average production growth in
2024 by preparing well pads andflowlines to enable continuous
drilling and advancing the expansion of our production facilities,
including theinstallation of water handling capacity
-- We remain confident in the Shaikan Field's significant
production growth potential. We are preparing aCompetent Person's
Report ("CPR") as at 31 December 2022, which will provide an
updated independent third-partyevaluation of Shaikan's reserves and
resources. We expect to announce the results of the CPR in Q1
2023
2023 guidance
-- Gross average production in 2023 is expected to be 46,000 to
52,000 bopd, representing an 11% increasefrom 2022 at the
mid-point:? Reflects anticipated contributions from SH-17 and
SH-18, the benefits of well workovers, continuedprudent management
of well production rates to avoid trace amounts of water
production, and natural fielddeclines ? If we continue to drill
beyond SH-18, we would expect to review production guidance
-- 2023 net capital expenditure guidance of USD160-USD175
million:? USD30-USD35 million: Completion of SH-17, drilling of
SH-18 and well workover programme to optimiseproduction ?
USD45-USD50 million: Long lead items and preparing well pads to
enable continuous drilling beyond SH-18 ? USD85-USD90 million:
Continued expansion of production facilities, targeting by H2 2024
an increase intotal field capacity from c.60,000 bopd currently to
85,000 bopd and installation of water handling capacity,potentially
enabling the increase in production rates from constrained wells ?
We continue to manage pressures in a supply constrained market
-- 2023 gross Opex guidance of USD3.0-USD3.4/bbl, underpinned by
the Company's continued focus on strict costcontrol
-- Monitoring discussions between the Federal Iraqi Government
and the KRG on the management of oil and gasassets in Kurdistan
following the Iraqi Federal Supreme Court ruling in February 2022.
GKP operations currentlyremain unaffected
Shaikan Field Development Plan
-- The FDP is expected to enhance the sustainability and
longevity of the company's capacity for shareholderdistributions,
while generating material economic value for Kurdistan and
significantly reducing flaring throughthe Gas Management Plan, a
requirement of the PSC
-- Capitalising on the Shaikan Field's significant growth
potential and current estimated 2P reserves toproduction ratio of
c.29 years, the FDP is expected to increase Jurassic gross
production plateau up to 85,000 bopdand test the Triassic
reservoir, targeting initial pilot production of up to 10,000
bopd
-- As we move towards FDP approval, we have agreed with the MNR
to proceed with execution of the Jurassicreservoir expansion to
increase profitable production and cash flow generation, with
investment levels predicatedon timely payments from the KRG and a
robust oil price environment
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