Gulf Keystone Issues Operational Review

Gulf Keystone, whose shares are up 75% over the past six weeks, has issued its Operational Summary for the First Half of the year:

Kurdistan Region of Iraq

· 150% (P90) – 45% (P10) increase in gross oil in place numbers for the Shaikan discovery with a range of 4.9 billion (P90) to 10.8 billion (P10) barrels, following independent evaluation by Dynamic Global Advisors
· Shaikan-2 appraisal well drilling with test, core and log data indicating a net oil column of 126 metres and an aggregate flow rate of over 8,000 bopd, with additional flow tests still to be completed
· Shaikan-4 appraisal well spudded on 27 May 2011 and is currently drilling in the top of the Triassic.  Only the Cretaceous and upper Jurassic have been logged thus far with 278 metres of net oil column
· Shaikan-1 & -3 production wells are tied into the Company’s Extended Well Test facility and are capable of producing up to 18,000 bopd following acid treatment.  Entitlement sales during 1H 2011 total 37,203 barrels
· Sheikh Adi-1 exploration well drilling with core and log data indicating 256 metres of net oil column
· Bekhme-1 exploration well spudded on 21 March 2011 on the Akri-Bijeel block
· A dedicated Development team has been recruited and begun the initial work of preparing the Shaikan Field Development Plan, which will be submitted to the Kurdistan Regional Government of Iraq in 2013

Financial Summary

· Loss after tax $10.3 million (1H10: $3.1 million)
· Loss per share $0.01 (1H10: $0.01)
· Cash, cash equivalents and liquid investments of $137.6 million at 30 June 2011 (1H10: $161.7 million; 2010: $211.4 million)

Operational Summary – Post Period End

Kurdistan Region of Iraq

· Gross oil in place numbers announced for Sheikh Adi following independent evaluation by Dynamic Global Advisors assessed at 1 billion (P90) to 3 billion (P10) barrels
· Sheikh Adi-1 exploration well reached TD in the Kurre Chine C section of the middle Triassic and will now be suspended pending further testing once fracture treatment parameters and logistics have been finalised.  The rig will now move to the Shaikan-5 location
· Shaikan-2 reached TD in the Kurre Chine C section of the middle Triassic.  Extensive flow testing has been undertaken in the Triassic giving an aggregate flow rate of over 15,000 bopd with additional Jurassic testing to follow.  The rig will then move to the Shaikan-6 location
· Shaikan-4 appraisal well currently drilling below 2,880 metres in the top of the Triassic.   Cretaceous and Jurassic log and core data indicates 278 metres of net pay above the Butmah formation in the Jurassic
· Shaikan-5 appraisal well drilling location completed and awaiting the arrival of the Discoverer I rig from Sheikh Adi
· Bekhme-1 exploration well drilling below 4,800 metres

Forward Strategy

· Explore and appraise aggressively the Shaikan, Sheikh Adi and Ber Bahr blocks in the Kurdistan Region of Iraq to prove up the resource base with increased production to follow
· Complete the preparation of the Shaikan Field Development Plan for submission and approval by the Ministry of Natural Resources of the Kurdistan Regional Government
· A route has been selected for a dedicated pipeline to connect the Shaikan Field to the Kirkuk-Ceyhan export pipeline.  The Company has completed a feasibility study on a pipeline capable of transporting a minimum of 440,000 bopd, which is being submitted for necessary comments and approvals.  Once the necessary approvals have been obtained, Front End Engineering and Design (“FEED”) work and ordering of long lead items will commence
· Actively pursuing a move from AIM to a Premium Listing on the Official List of the London Stock Exchange, subject to obtaining necessary approvals
· Appointment to the Board of three additional high-calibre Non-Executive Directors
· The Company has made a strategic decision to rationalize its asset portfolio and is to seek a buyer for its 20% interest in the Akri-Bijeel block.  This decision will facilitate an increased focus on the ambitious programme of appraisal and Extended Well Test production at Shaikan and the Shaikan pipeline project, as well as on the exploration and appraisal of Sheikh Adi and the drilling of the first exploration well on Ber Bahr

Todd F Kozel (pictured), Executive Chairman and CEO of Gulf Keystone, commented:

During the first half of 2011 Gulf Keystone has overseen a number of major developments in its operations in the Kurdistan Region of Iraq.  In addition to two remarkable sets of independently audited gross oil-in-place numbers for Shaikan and Sheikh Adi, we have seen significant progress in our ambitious exploration and appraisal programme across the four blocks in Kurdistan.  At the same time, we have witnessed a number of positive developments in the oil sector of Iraq, including the resumption of oil exports from the Kurdistan Region of Iraq and the arrival in the region of several large international oil companies.  Given our success to date, and with a clear forward strategy mapped out, Gulf Keystone is set to grow as a company.  In addition to its already firm position as a leading E&P player in the Kurdistan Region of Iraq, as at 12 September 2011, the Company had a market capitalisation of £1.2 billion which would place it comfortably in the higher echelons of the FTSE 250 index if it were currently eligible.

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