GKP Shares lower following update

Ahead of Friday's 2022 Annual General Meeting ("AGM"), Gulf Keystone Petroleum (GKP), provided an operational and corporate update.

Shares in the company closed down 4.4 percent.

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

"Following a year of strong operational and financial performance in 2021, our leverage to the oil price, low-cost production base and focus on capital discipline have continued to drive significant cash flow generation from the Shaikan Field in 2022. We have declared sector-leading dividends of $190 million year to date, $75 million of which is subject to shareholder vote at today's AGM, while continuing to invest in the high growth potential of the Shaikan Field. We also remain focused on maintaining a robust balance sheet and today we are pleased to announce our intention to call the $100 million outstanding bond, leaving the Company debt free.

"Year to date production has averaged c.44,900 bopd. We are prudently managing our wells to avoid traces of water and, as a result, we are tightening 2022 gross production guidance to 44,000 - 47,000 bopd. The installation of water handling facilities will unlock upside production potential and we continue to explore acceleration options in a supply constrained market. In the near-term, we continue to progress our well workover and intervention programme to optimise production. While timing of approval remains uncertain, we also continue to make positive progress on the FDP as we prepare to resume drilling and ramp up production.

 "Ahead of our AGM later today, I would like to thank our shareholders, employees and other stakeholders in Kurdistan for their continued commitment and support. Together, we are focused on safely delivering the significant value of the Shaikan Field."

Operational

  • Continued strong focus on safety, with no Lost Time Incident ("LTI") recorded for over 240 days
  • Gross average production in 2022 year to date of c.44,900 bopd; gross average production in June of c.45,900 bopd, as at 22 June 2022
  • Year to date gross average production impacted by:
    • SH-12 reperforated and brought back online in June at a reduced rate after being shut-in at the beginning of the year
    • SH-14 production remains constrained following acid stimulation earlier in the year
    • SH-15 brought online in April after being drilled in record time and is currently producing towards the lower end of the anticipated range
  • While the industry is currently experiencing equipment lead time pressures in a supply constrained market, we are continuing to review options to accelerate installation of water handling facilities that would enable further production ramp up from existing wells
  • Progressing well workover and intervention programme to optimise near-term production

Financial 

  • Significant cash flow generation in 2022 year to date, with $348.8 million ($273.1 million net to GKP) received from the Kurdistan Regional Government ("KRG") for crude oil sales and revenue arrears. The outstanding arrears balance has been fully recovered
  • $190 million of dividends declared in 2022, a sector-leading dividend yield of 26% based on GKP's closing price on 22 June 2022
    • $115 million paid to shareholders to date; additional $75 million, including the previously declared ordinary and special dividends, to be paid in July following approval at AGM
  • Robust balance sheet, with a cash balance of $247.0 million at 23 June 2022

Outlook 

  • Tightened 2022 gross average production guidance to 44,000 - 47,000 bopd
  • Gross Opex guidance of $2.9-$3.3/bbl remains unchanged
  • Net capital expenditure guidance of $85-$95 million remains unchanged
  • While timing of FDP approval remains uncertain, we continue to progress towards sanction with the MNR. The Company is preparing to resume drilling to ramp-up production from the Jurassic reservoir and will update capital expenditure guidance in due course
  • We continue to monitor the long running dispute between the Federal Iraqi Government and the KRG on the management of oil and gas assets in Kurdistan. Our operations currently remain unaffected and we continue to work closely with the KRG, our advisers and other stakeholders to protect the Company's interests
  • Remain focused on balancing investment in growth with shareholder returns, while preserving adequate liquidity:
    • Intention to call $100 million bond after the step down in July 2022 of the call premium from 4% to 2% of principal
    • Assuming timely payment of invoices and strong oil prices, we expect continuing robust cash flow generation in 2022 providing flexibility to consider further shareholder distributions and an increase in capital expenditure to resume drilling

:

Update on ordinary and special dividend per share rate

Gulf Keystone will be seeking shareholder approval at today's AGM to pay total dividends of $75 million, comprising the $25 million annual ordinary dividend declared on 30 March 2022 and the $50 million special dividend declared on 25 May 2022.

  • The annual ordinary dividend of $25 million is equivalent to 11.56 US cents per Common Share of the Company and is expected to be paid on 15 July 2022, based on a record date of 1 July 2022
  • The special dividend of $50 million is equivalent to 23.12 US cents per Common Share of the Company and is expected to be paid on 29 July 2022, based on a record date of 15 July 2022

The Company will disclose the pounds sterling rate per share for both dividends prior to their payment dates.

Update on Iraqi Federal Supreme Court ("FSC") Ruling

Further to Gulf Keystone's disclosure in its Annual Report and Accounts for the year ended 31 December 2021 regarding the FSC ruling, the Iraqi Ministry of Oil recently commenced legal proceedings with respect to the validity of Production Sharing Contracts ("PSCs") issued under the Kurdistan Region of Iraq Oil and Gas Law, an escalation in the long running dispute between the Federal Iraqi Government and the KRG on the management of oil and gas assets in Kurdistan. The Company has been advised that the Iraqi Ministry of Oil has raised a case in the Baghdad Commercial Court against several IOCs, including Gulf Keystone. Gulf Keystone also understands that the Iraqi Ministry of Oil has also written to contractors and service providers requesting them to cease working in Kurdistan.

Gulf Keystone notes the KRG's public assertion that the actions taken by the Iraqi Ministry of Oil are unlawful and that "it will take all constitutional, legal, and judicial measures to protect and preserve all contracts made in the oil and gas sector". Further, on 4 June 2022, the Judicial Council of the Kurdistan Region of Iraq stated that the Kurdistan Region of Iraq Oil and Gas Law "remains in full force" and that the Iraq Federal Supreme Court "lacks the constitutional authority" to invalidate the Law. Also, on 13 June 2022, the Ministry of Natural Resources stated that "the contracts entered into between the IOCs and the Kurdistan Regional Government are entirely in accordance with the 2007 Oil and Gas Law". The Company notes that the KRG has itself launched criminal and civil lawsuits which seek to protect the validity of the PSCs.

The Company continues to work closely with the KRG, its advisers and other stakeholders to protect its interests and will provide further updates on the matter as and when it is able and necessary to do so, recognising that this is a live legal matter and Gulf Keystone is not party to the resolution discussions between the Federal Iraqi Government and the KRG.

Gulf Keystone's operations currently remain unaffected.

(Source: GKP)

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