TIDMGKP
RNS Number : 5712K
Gulf Keystone Petroleum Ltd.
23 April 2020
23 April 2020
Gulf Keystone Petroleum Ltd. (LSE: GKP)
("Gulf Keystone", "GKP", "the Group" or "the Company")
2019 Full Year Results Announcement
2019 production growth targets met, $99 million returned to
shareholders
2020 focus on preservation of liquidity
Gulf Keystone Petroleum, a leading independent operator and
producer in the Kurdistan Region of Iraq ("Kurdistan" or "Kurdistan
Region") announces its results for the year ended 31 December
2019.
Jón Ferrier, Gulf Keystone's Chief Executive Officer, said:
"2019 saw a step change in activity at Shaikan; we delivered
production and controlled expenditures in line with guidance,
returned just under $100 million to our shareholders, and
maintained a strong balance sheet with cash of $164 million at 22
April 2020.
The current oil price and macro-economic uncertainty continues
to have profound, far-reaching effects. We have taken concrete
steps to protect value and assure the viability and financial
strength of our business, both for today and the longer-term. As
previously announced, we have suspended guidance and, while we were
on-track to achieve 55,000 bopd in Q3 2020, we have stopped further
expansion activity and are currently demobilising the team until
circumstances improve. While we have secured ongoing production
operations, we continue to closely monitor market dynamics and will
take appropriate further actions to preserve value.
We continue to focus on strict financial discipline and
maintaining our strong balance sheet. GKP remains underpinned by
Shaikan, which continues to perform in line with expectations, and
we look forward to resuming expansion activity and delivering the
underlying value of the field for all stakeholders upon resolution
of the outstanding payments from the Kurdistan Regional Government
("KRG") and an improvement in economic conditions."
Highlights to 31 December 2019 and post reporting period
Operational
-- Robust safety performance during a period of increased operational activity.
-- GKP remains committed to the welfare of all personnel and the
safety of our operations. To limit the risk and transmission of
COVID-19, only location essential personnel are working at GKP
sites and offices.
-- Average gross production in 2019 of 32,883 bopd, in line with original guidance.
-- Gross production from the field in 2020 to date of c.38,000 bopd.
-- As a result of COVID-19, the focus on cost control and
overdue payments from the KRG, operations have been reduced to
focus on minimum safety critical activities required for
production.
-- Once macro conditions improve, including resolution of
outstanding payments from the KRG, the Company will restart
expansion activity to increase production to 55,000 bopd.
Financial
-- In 2019, the Company achieved its production, capital
expenditures, operating costs and G&A costs guidance.
-- Profit after tax of $43.5 million (FY 2018: $79.9 million)
and revenue of $206.7 million (FY 2018: $250.6 million) were down,
as Brent oil prices averaged $64 per barrel in 2019 compared to $71
per barrel in 2018.
-- Net capital investment in Shaikan of $90.0 million (FY 2018: $35.4 million).
-- Maiden dividend and share buyback programmes returned $79
million in 2019. Subsequent completion of the share buyback
programme brought total returns to $99 million.
-- Cash balance of $190.8 million at year end (2018: $295.6 million).
Outlook
-- The Company is actively focused on maintaining a robust
financial position and is targeting a major reduction of costs
across the business, while maintaining a strong focus on safety and
long-term asset reliability. These actions are being taken in
response to the current oil price environment and in anticipation
of a protracted recovery:
o net Capex for 2020 include expenditures incurred to date and
remaining firm commitments andare expected to be $40-$48 million
($50-$60 million gross), a c.50% reduction compared to 2019;
o targeted Opex and G&A savings of at least 20%; and
o in process of reducing expatriate workforce by c.60%.
-- The KRG has committed to paying for monthly production by the
15(th) day of each following month starting with March 2020, for
which payment was recently received. Dialogue with the KRG is
continuing relating to payment of outstanding invoices for November
2019 to February 2020 aggregating $93.7 million gross ($73.3
million net to GKP).
-- Guidance for 2020 suspended until the outlook becomes clearer.
-- Resumption of distributions is dependent on an improvement in
macro-economic conditions, resolution of outstanding payments from
the KRG and a clear operational outlook.
-- With a strong balance sheet, limited capital commitments and
an existing low-cost production base, GKP is well placed to
navigate through these challenging conditions and, if necessary, to
withstand a lower oil price throughout 2020 and 2021.
The Company's 2019 Full Year Results presentation is available
on the investor relations section of the website:
https://www.gulfkeystone.com/
Enquiries:
Celicourt Communications: + 44(0) 20 8434 2754
Mark Antelme
Jimmy Lea
or visit: www.gulfkeystone.com
Notes to Editors:
Gulf Keystone Petroleum Ltd. (LSE: GKP) is a leading independent
operator and producer in the Kurdistan Region of Iraq. Further
information on Gulf Keystone is available on its website
www.gulfkeystone.com
Disclaimer
This announcement contains certain forward-looking statements
that are subject to the risks and uncertainties associated with the
oil & gas exploration and production business. These statements
are made by the Company and its 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 risks and uncertainties, including both
economic and business factors and/or factors beyond the Company's
control or within the Company's control where, for example, the
Company decides on a change of plan or strategy. This announcement
has been prepared solely to provide additional information to
shareholders to assess the Company'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.
CHAIRMAN'S STATEMENT
During 2019, the Company increased investment in Shaikan to grow
production and delivered material returns to shareholders. The
Company maintained a sharp focus on operational delivery to achieve
production guidance and made good progress on development
activities to increase production at Shaikan to 55,000 bopd. Over
the last 12 months, the Company returned c.$100 million to
shareholders through the combination of dividends and value
accretive share buy-back programmes, whilst maintaining a strong
balance sheet throughout.
The Kurdistan Region of Iraq ("KRI") remained a safe and secure
environment for us throughout 2019. The Company has closely
monitored the Coronavirus ("COVID-19") situation, taken appropriate
actions and the priority remains the welfare of staff, contractors
and local communities, and safe operations. While Brent crude
averaged approximately $64 per barrel over the course of 2019,
slightly down from 2018's average oil price of $71 per barrel,
recent events have pushed current crude oil prices down to below
$20 per barrel. The impact of COVID-19 on oil demand and surplus
global oil supply are expected to place continued pressure on oil
prices for several more months.
With the extraordinary impact of the recent global outbreak of
COVID-19, delay in payments from the Kurdistan Regional Government
("KRG") and the economic backdrop, the Company suspended guidance
and stopped expansion activities, which were otherwise on track to
achieve 55,000 bopd in Q3 2020.
Gulf Keystone is in a strong financial position and has
flexibility to manage through what is expected to be an extended
period of uncertainty, with a large cash position, low-cost
production and limited capital expenditure commitments. The Company
continues to respond to the evolving macro environment and has
implemented a number of cost-saving initiatives; Capex forecast for
2020 is down significantly from 2019 and we are targeting Opex and
G&A savings of 20% to further bolster liquidity.
The Board recognises the importance of distributions to
shareholders and intends to consider the appropriateness and timing
of the ordinary dividend and any share buyback once macro-economic
conditions improve, outstanding payments from the KRG are resolved
and there is a clearer operational outlook.
With the oil and gas sector in Kurdistan being the single
largest contributor to the region's economy and future growth, the
Company is closely aligned with our host's strategic focus on the
continuing safe and sustainable operations and development of the
sector. We share a common purpose with the Ministry of Natural
Resources ("MNR") to develop the Shaikan Field over time. The
eventual improvement of the investment environment and resolution
of outstanding payments from the KRG will provide the foundation
for the resumption of investment in Shaikan.
Gulf Keystone is committed to high standards across all aspects
of Environment, Social and Governance ("ESG"). These are issues
that have never been more important to get right, not only for the
respect of our planet and those who we work with and around, but
also because of the need for companies to remain relevant to
investors, who are increasingly conscious of ESG related matters.
We have identified four key priorities for our sustainability
initiatives, those being: reducing emissions; the safety and
development of our people; the safety and development of the local
communities; and the quality of the local environment. Our
Sustainability Report which will be included in the 2019 annual
report will set out the framework and culture in place to address
these areas, including some case studies of what we have, and
intend to achieve.
The year saw changes to the Board. In June 2019, we announced
that CFO, Sami Zouari would be leaving the Company and in
September, Garrett Soden stepped down from the Board as a
Non-Executive Director. I would like to reiterate my thanks to both
Sami and Garrett for their significant contributions to the
Company. We were very pleased to welcome Ian Weatherdon as CFO in
January 2020, who brings a wealth of sector finance experience to
the Board and senior management team.
On behalf of the Board, it leaves me to thank all our
stakeholders for their continued support. While there are many
challenges ahead of us, with a strong balance sheet, we are well
placed to successfully manage through these turbulent times and
deliver the significant underlying value of the Shaikan asset for
the benefit of all stakeholders. Finally, I wish you and your
families good health.
Jaap Huijskes
Non-Executive Chairman
CEO STATEMENT
2019 was a milestone year for the Company, seeing a step change
in operational activity at Shaikan. Our focus during the period
continued to be on creating value for our shareholders by achieving
safe and sustainable production growth, whilst also returning
c.$100 million to our shareholders over the last 12 months and
maintaining a robust financial position, with cash of $164 million
as at 22 April 2020. The start of 2020 however has been marked by a
series of extraordinary events of geopolitical significance,
principally the COVID-19 pandemic and the precipitous drop in the
oil price related in part to a collapse in global demand as
economies went into shutdown.
Looking back on 2019, and building on the commercial foundations
laid in 2018, the Company achieved a number of important
operational targets, meeting guidance and yielding significant
results for the business. As operator of the Shaikan Field, the
Company manages its development, remaining focused on capital
discipline and controlling costs. The Shaikan Field is a low-cost
asset; at current production levels breakeven can be achieved to
cover all operating, general and administrative costs and interest
payments with a Brent price just below $35 per barrel.
The Shaikan Field performed in line with expectations, enabling
Gulf Keystone to achieve full-year gross average production of
32,883 bopd, within the original 2019 gross production guidance of
32,000 - 38,000 bopd.
The first well of a multi-well drilling campaign, SH-12, was
completed and subsequently brought online in November. The SH-9
well, originally designed to test the reservoir crest, was spud in
October and ultimately completed as an oil producer. We also
performed tubing workovers on the SH-1 and SH-3 wells that led to
material production uplifts.
Other operational targets achieved during the period, include
the planned maintenance and debottlenecking works at PF-1 and PF-2
- which were completed in June and October respectively - and the
commissioning of the PF-1 export pipeline in December. This was
particularly important as it marked the end of export by trucking
from the field, resulting in increased operating efficiencies,
lower transportation costs and the elimination of Health, Safety,
Security and Environment ("HSSE") risks associated with the
transportation of the crude oil by road tankers, as well as the
reduction in carbon emissions.
On commercial matters, in February 2019 the Company renewed its
Crude Oil Sales Agreement with the KRG for a further 24 months. In
recent months, we have experienced delays in receipt of payments
from the KRG. While we have received payment for March 2020
production, Gulf Keystone remains in dialogue with the KRG, who
recently provided a proposal with regard to the payment timing of
outstanding invoices for the period November 2019 to February
2020.
The Company recently suspended guidance and stopped further
expansion activity, which was otherwise on track to deliver 55,000
bopd in Q3 2020 as guided.
While we have secured ongoing production operations, we continue
to closely monitor market dynamics and will take appropriate
further actions to preserve value . The Shaikan Field continues to
perform well with average 2020 gross production to date of c.38,000
bopd.
Gulf Keystone aims to operate to high ESG standards. While the
term 'ESG' is relatively new, Gulf Keystone has been successfully
conducting activities under this banner since its arrival in
Kurdistan in 2007. The oil industry is integral to the national
economy where oil and gas revenues are a large part of the KRG's
annual budget and underpins the social fabric of the region; both
part of the 'S' of 'ESG'. Gulf Keystone directly plays its part in
positively contributing to society as a significant employer in the
region actively developing its local workforce who are key to the
success of the business.
We aspire to be at the forefront of "HSSE" performance in
Kurdistan, evidenced by our strong safety track record. Whilst, as
previously reported, it was disappointing to incur our first Lost
Time Incident ("LTI") in 530 days, an open HSSE reporting culture
along with safe and reliable operations are of the utmost
importance to the Company.
In order to materially lower its emissions, the Company is
committed to the elimination of routine flaring of associated gas
and, with our partner Kalegran B.V. (a subsidiary of MOL Hungarian
Oil & Gas plc ("MOL")), is reviewing a number of gas management
solutions. Following the results of the SH-9 well, the Company has
agreed with MOL and the MNR that currently the most feasible option
for the phased reduction of routine flaring involves the
development of surface facilities to sweeten the gas and to remove
sulphur. The Company will also look to replace diesel power
generation with gas, and potentially supply the remaining gas for
power generation elsewhere in the region. The phased elimination of
routine flaring is expected to gradually halve CO2 emissions from
today's levels of 38 kg per bbl by 2025, contingent upon the
restart of the investment programme. The parties are currently
working together on integrating this revised gas management
solution into a new Field Development Plan ("FDP") which is
expected to be submitted to the MNR in due course. This will be
followed by a period of consultation, prior to approval.
We remain focused on maintaining a conservative financial
profile while generating value for our shareholders. We believe
that our conservative approach enables us to manage through
turbulent times and that our plan to deliver material production
growth at Shaikan, balanced with the return of excess capital to
investors, underpins our investment case. We continue to take
concrete steps to protect value and assure the viability and
financial strength of our business, both for today and the
longer-term.
I would like to give my thanks to the KRG, our partner MOL, our
staff and all who have helped us deliver solid progress over the
past year and I look forward to keeping all our stakeholders
updated during the course of 2020.
Jón Ferrier
Chief Executive Officer
FINANCIAL REVIEW
Key financial highlights
Year ended Year ended
31 December 2019 31 December 2018
$'000 $'000
Gross average production (bopd) 32,883 31,563
Realised price ($/bbl) 42.9 49.0
Revenue 206.7 250.6
Operating costs ($m)(1) (37.4) (30.7)
Operating costs per bbl ($/bbl)(1) (3.9) (3.2)
General and administrative
expenses ($m) (19.5) (17.8)
Incurred in relation to the
Shaikan Field (10.0) (7.9)
Corporate G&A (9.5) (9.9)
Profit from operations ($m) 49.0 78.2
Profit after tax ($m) 43.5 79.9
Basic earnings per share (cents) 19.25 34.84
EBITDA ($m)(1) 122.2 150.1
Capital investment ($m)(1) 90.0 35.4
Net cash ($m)(1) 86.4 191.2
Net (decrease)/increase in
cash ($m) (104.6) 135.2
Revenue receipts ($m) 155.7 224.7
(1) Operating costs, operating costs per barrel, EBITDA, capital
investment and net cash are either non-financial or non-IFRS
measures and are explained in the summary of significant accounting
policies.
A key element of Gulf Keystone's strategy is to maintain a
conservative financial position. The Company has a strong balance
sheet, with $164.1 million of cash at 22 April 2020 and no debt
repayment until 2023, which provides financial flexibility to
navigate through these uncertain times.
Revenues
2019 revenue was $206.7 million (2018: $250.6 million). The
year-on-year decrease was driven by a lower Brent price, which led
to a lower realised oil price of $42.9 per bbl (2018: $49.0 per
bbl). There were no MNR liability offsets recognised in 2019 (2018:
$16.2 million). All sales were made under the terms of the Crude
Oil Sales Agreement signed in early 2019 which covers the period
until 31 December 2020.
Operating costs, depreciation, other cost of sales and
administrative expenses
The Group's operating costs increased to $37.4 million (2018:
$30.7 million) due to plant maintenance and costs associated with
the ramp up of production. While gross operating costs per bbl
increased to $3.9 per bbl from $3.2 per bbl - as the increase in
production lagged behind the increase in costs - costs per bbl were
at the bottom of the stated 2019 guidance of $3.8 - $4.6 per
bbl.
Other cost of sales components included: depreciation, depletion
and amortisation ("DD&A") of oil and gas assets, capacity
building charge, production bonuses, and certain other costs such
as trucking and oil inventory movements. Cost of sales decreased to
$138.2 million (2018: $154.5 million), which was mostly driven by
the final production bonus of $16.0 million in 2018 (2019: nil).
Trucking costs have now been eliminated with the completion of the
pipeline from PF-1 to the main regional export pipeline which
became operational in December 2019.
General and administrative expenses ("G&A") increased from
$17.8 million in 2018 to $19.5 million in 2019, with the Shaikan
Field related G&A contributing $10.0 million (2018: $7.8
million) of this amount. The increase is in line with guidance of a
10% increase. The rise in the Shaikan Field G&A goes hand in
hand with higher levels of activity in the field. The G&A
amount includes $1.9 million of share-based payments (2018: $1.8
million) and $0.8 million (2018: $0.4 million) of depreciation
costs.
Net finance costs and other gains
The Group incurred finance costs of $11.2 million (2018: $13.9
million) and generated $6.0 million in interest income (2018: $4.4
million).
In 2018, a release of past liabilities in relation to Algerian
operations resulted in a $10.2 million gain. Other losses in 2019
consisted of an exchange loss of $0.7 million (2018: $0.7 million
gain).
A solid financial foundation underpinning the Group's
strategy
Cash flows
The Group generated cash from operating activities of $83.7
million (2018: $158.2 million). The reduction in revenue coupled
with the expected increase in costs, related principally to the
ramp-up of production, resulted in Group EBITDA of $122.2 million,
down from $150.1 million in 2018.
The Group finished the year with a cash balance of $190.8
million (2018: $295.6 million) after incurring significant asset
development costs and distributing capital to its shareholders. The
Group has notes outstanding with a principal balance of $100.0
million that do not mature until July 2023.
In 2019, the Group received revenue payments of $155.7 million
(2018: $224.7 million). As at the end of 2019, there were five
months of oil revenue outstanding (2018: three months) amounting to
$90.2 million (2018: $53.2 million). Subsequent to year-end, the
Company has received payments for three of those outstanding
months, totalling $47.8 million. The Company remains in dialogue
with the KRG regarding the payment timing of the currently
outstanding invoices of November 2019 to February 2020, aggregating
$93.7 million gross ($73.3 million net to GKP). The KRG has
committed to paying for monthly production by the 15th day of each
following month starting with March 2020, for which payment was
recently received.
At the June 2019 Annual General Meeting ("AGM"), shareholders
approved the distribution of a total cash dividend of $50.0
million. The total dividend amount paid was $49.1 million as the
dividend attributable to treasury shares held by the Group as a
result of share buy-back was not paid out.
To the date of this report, the Group had completed two share
buy-back programmes for an aggregate amount of $50.0 million. In
2019, the Group bought back 10.5 million shares for a cost of $29.8
million. At year-end, the second buy-back programme was in progress
and the remaining $20.2 million of buy-backs were completed in
March 2020.
Capital investment
In 2019, net capital investment in Shaikan amounted to $90.0
million, within the stated 2019 guidance of $88-104 million.
Investment included the export pipeline from PF1 to the main
regional export pipeline, SH-12 and SH-9 wells, SH-1 and SH-3
workovers, production facilities expansion work, various studies
and reservoir engineering including certain long lead items for the
75,000 bopd programme.
In line with Gulf Keystone's strategy of maintaining a
conservative financial position, the Company has delayed further
expansion of Shaikan until the macro-economic environment improves,
including resolution of outstanding KRG payments.
Net 2020 capital expenditure forecast include expenditures
incurred to date and remaining firm commitments and are estimated
to be $50 - $60 million ($40 - $48 million net), a c.50% reduction
from 2019. While Gulf Keystone has a low-cost structure, the
Company is targeting operating costs and G&A reductions of at
least 20% and is in the process of reducing its expatriate
workforce by c.60%.
Ian Weatherdon
Chief Financial Officer
OPERATIONAL REVIEW
It is hard to start any review of operations without
acknowledging the impact that the COVID-19 pandemic has had to date
and could have going forward. The Company's production operations
continue despite the challenges imposed by COVID-19, with average
gross production in 2020 to date of c.38,000 bopd. As previously
announced, the Company has suspended its expansion programme. At
the time of suspension, we were on track to deliver 55,000 bopd in
Q3 2020.
In 2019, the Company significantly increased activity in the
field. The project to expand production to 55,000 bopd began in
earnest with activities including two well workovers, facilities
expansion, pipeline installation and the restart of drilling
activities. We delivered average gross production for the year of
32,883 bopd; within our original guidance of 32,000 - 38,000 bopd.
The Shaikan Jurassic reservoir continues to perform in line with
expectations, achieving a significant milestone early in 2020 with
total gross cumulative production of 70 Million Stock Tank Barrels
("MMstb"). As at 31 December 2019, remaining estimated 2P reserves
were 578 MMstb.
To prepare for the increase in total processing capacity to
55,000 bopd and commensurate ramp-up in production in Q3 2020,
initial debottlenecking activities were completed as planned at
PF-1 in June 2019 and at PF-2 in October 2019. The remaining
debottlenecking activities, including installation of the pumps,
coolers and separation vessels were mostly completed in early 2020,
however some remaining work and commissioning was outstanding at
the time that we had to suspend construction as a precaution for
COVID-19. No further shutdowns of the processing facilities will be
required for the eventual completion of activities.
Another significant achievement during the year was the
completion and connection of the PF-1 pipeline and export station
to the main regional export pipeline on 10 December 2019. This
means all oil is now exported via pipeline from Shaikan, providing
greater operating efficiencies, lower HSSE risks and CO2 emissions,
an end to trucking costs and improved netbacks by c.$1 per
barrel.
The 2019 drilling programme started later than planned due to
necessary re-certification work on the drilling rig to meet Gulf
Keystone's safety standards. Despite the delayed start, we saw
improvements in operating efficiencies through the year. In
November 2019, we completed the drilling of SH-12 and brought the
well on-stream with an electrical submersible pump ("ESP"). This
well was perforated in the deeper Butmah reservoir to test the
response from that zone, and the main SAM reservoir remains to be
perforated. The deferral of that activity is the main reason
production rates from the field are reduced, with current
production at c.36,000 bopd.
The 2019 workovers on the SH-1 and SH-3 wells resulted in
material production uplifts. Production from SH-1 increased by 105%
to 7,800 bopd and SH-3 by 40% to 6,200 bopd. Both wells continue to
perform well.
In order to assess the gas reinjection potential of the Jurassic
horizon and possible impact on the longer-term gas management plan,
the drilling sequence was changed to drill SH-9 following SH-12.
Results from the well indicate a more complex structure at the
crest of the field and the location of the secondary gas cap was
not found. As a consequence, SH-9 has been completed as an oil
producer, providing additional well capacity to PF-1.
In order to maintain field development and production momentum
throughout 2019, Gulf Keystone evaluated various gas management
options. In consideration of the results of SH-9, MOL and the MNR
have agreed in principle to change the base case gas management
plan to the sweetening and export of produced gas along with
elemental sulphur recovery from the waste stream. The sweet gas
would be used to reduce the burning of diesel to generate power at
the Shaikan PFs, with the remainder potentially supplied to local
power stations or for other domestic requirements.
The FDP, which defines the phased development of the field to
deliver the vision of 110,000 bopd, is being revised to reflect the
new gas management project, with the intent to resubmit it in due
course to the MNR for review and subsequent approval. While the
revised base case gas management plan has been agreed in principle,
the Company, MOL and the MNR will continue to work together to
consider other gas handling solutions. These solutions may reduce
costs, accelerate the timing of reduced flaring and/or optimise the
ramp-up of production.
With the restart of the investment programme, gas management
project activities will follow the MNR's approval of the FDP. With
this approval, preparations will commence for FEED ("Front End
Engineering and Design"). Currently, FEED is not expected to begin
until 2021 at the earliest, and the current total estimated
duration of the project has been extended by three years to 60-66
months. Initial capital cost estimates for the revised solution are
about $275-$375 million (+/-40% accuracy), up $50 - $75 million
compared to the previous gas reinjection plan. Despite this, the
NPV of the project is not expected to be adversely impacted; in
fact near-term cash flow is improved due to continued production
and the deferral of capital expenditures.
ESG
Since commencing operations in Kurdistan, we have aspired to be
at the forefront of ESG initiatives. We will present, through the
Sustainability Report - part of the 2019 Annual Report, a detailed
review of the work we have undertaken in this area, the goals we
are seeking to attain, and the culture and governance we have in
place to attain these goals. We are focusing on: a) reducing
emissions; b) the safety and development of our people; c) the
safety and development of the local communities; and d) the quality
of the local environment. The gas management solution forms a key
part of the Company's commitment to reduce emissions. Given the
current relatively high volume of gas being routinely flared, not
addressing the issue of flaring is simply not an option and is
where the Company is focusing considerable efforts in order to
bring about the single biggest change to its environmental
footprint. The Company plans to reduce routine flaring by
implementing the gas management plan, which is expected to
significantly lower all emissions. We have a target to reduce our
CO2 emissions from a current level of c.38kg/bbl to less than half
this figure by 2025, contingent upon the restart of the investment
programme. This will put us below the global average for CO2
emissions per barrel produced. Furthermore, the Company continues
to remediate inactive drilling sites through the use of landscaping
and has an effective waste management programme in place with
cradle-to-grave traceability.
The energy sector plays an important role in the Kurdistan
economy and Gulf Keystone is proud of its considerable
contributions to the development of the region. Significant
historical and continuing investments, and the sharing of oil
production with the KRG have had a positive impact on local
communities and the economy. The Company also employs a local
employee workforce. During 2019, c.75% of Kurdistan-based staff
were local employees and around a third were from the local
villages surrounding Shaikan. GKP is committed to the development
of staff, including management development and engineering
apprenticeship programmes. The Company has also adopted proactive
community investment programmes in agriculture and education with
initiatives including training farmers on agriculture practices;
training and equipment for beekeeping and English-language
training.
Stuart Catterall
Chief Operating Officer
Consolidated Income Statement
For the year ended 31 December 2019
Notes 2019 2018
$'000 $'000
----- --------- ---------
Revenue 2 206,741 250,554
Cost of sales 3 (138,184) (154,534)
--------- ---------
Gross profit 68,557 96,020
General and administrative expenses 4 (19,531) (17,813)
--------- ---------
Profit from operations 49,026 78,207
Finance revenue 7 6,046 4,441
Finance costs 7 (11,153) (13,873)
Other (losses) and gains 6 (661) 10,925
--------- ---------
Profit before tax 43,258 79,700
Tax credit 8 271 189
--------- ---------
Profit after tax for the year 43,529 79,889
--------- ---------
Profit per share (cents)
Basic 9 19.25 34.84
Diluted 9 18.37 33.87
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
2019 2018
$'000 $'000
------ ------
Profit after tax for the year 43,529 79,889
Items that may subsequently be reclassified
to profit or (loss):
Exchange differences on translation
of foreign operations 597 (800)
------ ------
Total comprehensive profit for the
year 44,126 79,089
====== ======
Consolidated Balance Sheet
As at 31 December 2019
Notes 2019 2018
$'000 $'000
----- --------- ---------
Non-current assets
Intangible assets 10 454 84
Property, plant and equipment 11 407,602 380,537
Deferred tax asset 18 849 559
408,905 381,180
--------- ---------
Current assets
Inventories 13 31,040 14,190
Trade and other receivables 14 103,181 67,909
Cash and cash equivalents 190,762 295,566
--------- ---------
324,983 377,665
--------- ---------
Total assets 733,888 758,845
========= =========
Current liabilities
Other payables 15 (83,981) (81,478)
Provisions 17 - (4,155)
(83,981) (85,633)
--------- ---------
Non-current liabilities
Trade and other payables 15 (1,989) -
Borrowings 16 (98,192) (97,795)
Provisions 17 (29,807) (22,600)
--------- ---------
(129,988) (120,395)
--------- ---------
Total liabilities (213,969) (206,028)
--------- ---------
Net assets 519,919 552,817
========= =========
Equity
Share capital 19 229,430 229,430
Share premium 19 871,675 920,728
Treasury shares 19 (29,749) -
Exchange translation reserve (3,221) (3,818)
Accumulated losses (548,216) (593,523)
Total equity 519,919 552,817
========= =========
The financial statements were approved by the Board of Directors
and authorised for issue on 22 April 2020 and signed on its behalf
by:
Jón Ferrier
Chief Executive Officer
Ian Weatherdon
Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Attributable to equity holders of
the Company
----------
Exchange
Share Share translation Accumulated Treasury Total
Notes capital premium reserve losses shares equity
$'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 January
2018 229,430 920,728 (3,018) (675,254) - 471,886
--------- -------- ------------ ------------- ---------- ----------
Net profit for the
year - - - 79,889 - 79,889
Other comprehensive
loss for the year - - (800) - - (800)
--------- -------- ------------ ------------- ---------- ----------
Total comprehensive
(loss) or profit for
the year - - (800) 79,889 - 79,089
--------- -------- ------------ ------------- ---------- ----------
Dividend - - - - - -
Employee share schemes 23 - - - 1,842 - 1,842
Balance at 31 December
2018 229,430 920,728 (3,818) (593,523) - 552,817
--------- -------- ------------ ------------- ---------- ----------
Net profit for the
year - - - 43,529 - 43,529
Other comprehensive
profit for the year - - 597 - - 597
--------- -------- ------------ ------------- ---------- ----------
Total comprehensive
profit for the year - - 597 43,529 - 44,126
--------- -------- ------------ ------------- ---------- ----------
Employee share schemes - - - 1,860 - 1,860
Share buy-back 19 - - - - (29,831) (29,831)
Dividend Paid 24 - (49,053) - - - (49,053)
Share options exercised - - - (82) 82 -
Balance at 31 December
2019 229,430 871,675 (3,221) (548,216) (29,749) 519,919
========= ======== ============ ============= ========== ==========
Consolidated Cash Flow Statement
For the year ended 31 December 2019
Notes 2019 2018
$'000 $'000
----- ---------- --------
Operating activities
Cash generated from operations 20 87,892 161,483
Interest received 5,897 4,441
Interest paid (10,068) (7,713)
Net cash generated from operating activities 83,721 158,211
---------- --------
Investing activities
Exit costs of Algerian operation (11,060) -
Purchase of intangible assets (390) (66)
Purchase of property, plant and equipment (96,926) (20,589)
Net cash used in investing activities (108,376) (20,655)
---------- --------
Financing activities
Payment of Dividends (49,053) -
Share Buy Back (29,831) -
Payments in lieu of share options exercises (99) -
Payment of leases (972) -
Issue costs of new notes - (2,366)
Net cash from financing activities (79,955) (2,366)
---------- --------
Net (decrease)/increase in cash and cash
equivalents (104,610) 135,190
Cash and cash equivalents at beginning
of year 295,566 160,456
Effect of foreign exchange rate changes (194) (80)
Cash and cash equivalents at end of the
year being bank balances and cash on
hand 190,762 295,566
========== ========
In early 2019, the Group paid $11.1 million in final settlement
of liabilities relating to its exit from activities in Algeria.
Summary of Significant Accounting Policies
General information
The Company is incorporated in Bermuda (registered address:
Cumberland House, 9(th) Floor, 1 Victoria Street, Hamilton,
Bermuda). On 25 March 2014, the Company's common shares were
admitted, with a standard listing, to the Official List of the
United Kingdom Listing Authority ("UKLA") and to trading on the
London Stock Exchange's Main Market for listed securities.
Previously, the Company was quoted on Alternative Investment Market
("AIM"), a market operated by the London Stock Exchange. In 2008,
the Company established a Level 1 American Depositary Receipt
programme in conjunction with the Bank of New York Mellon, which
has been appointed as the depositary bank. The Company serves as
the holding company for the Group, which is engaged in oil and gas
exploration, development and production, operating in the Kurdistan
Region of Iraq.
Adoption of new and revised Standards
Amendments to International Financial Reporting Standards
("IFRS") that are mandatorily effective for the current year
In the current year, the Group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an
accounting period that begins on or after 1 January 2019. Their
adoption has not had any material impact on the disclosures or on
the amounts reported in these financial statements.
IFRS 16 Leases IFRS 16 introduces a comprehensive model
for the identification of lease arrangements
and accounting treatments for both lessors
and lessees. IFRS 16 supersedes IAS 17 Leases.
The date for the initial application of
IFRS for the Group is 1 January 2019.
IFRS 16 changes how the Group accounts for
leases previously classified as operating
leases under IAS 17, which were off balance
sheet.
As a result of the adoption of IFRS 16,
the Group:
a) Recognises right-of-use assets and lease
liabilities, initially measured at the present
value of the future lease payments;
b) Recognises depreciation of right-to-use
assets and interest on lease liabilities
in the consolidated statement of profit
and loss;
c) Separates the total amount of cash paid
into a principal portion (presented within
financing activities) and (interest presented
within operating activities) in the consolidated
cash flow statement.
d) For short-term leases (lease term less
than 12 months) and leases of low value,
the Group has opted to recognise lease expense
on a straight line basis as permitted by
IFRS 16.
e) Lease liabilities were measured at the
present value of the remaining lease payments,
discounted using the interest rate implicit
in the lease (if available), or the incremental
borrowing rate at 1 January 2019, or start
of the lease, whichever is earlier.
Under the transition rules of IFRS16 the
Group has adopted the cumulative catch-up
approach. The Group has not restated any
prior year figures and made any necessary
adjustments between assets and liabilities
through opening retained earnings. The Group's
implementation of IFRS 16 has led to the
recognition of right of use assets $405,000
and a lease liability of $465,000 at 1 January
2019. The reconciliation between operating
lease commitments at 31 December 2018 and
the opening balance for the lease liabilities
at 1 January 2019 is as follows:
$'000
Operating lease commitments at
31 December 2018 3,871
Short term leases (3,341)
Effect of discounting (65)
--------
Total lease liabilities recognised
on adoption
of IFRS 16 at 1 Janaury 2019 465
Of which:
Current lease liabilities 447
Non-current liabilities 18
IFRIC 23 Uncertainty The interpretation addresses the accounting
over Income Taxes for income taxes when tax treatments involve
treatments uncertainty that affects the application
of IAS 12 Income Taxes. The judgements and
estimates made to separately recognise and
measure the effect of each uncertain tax
treatment are re-assessed whenever circumstances
change or when there is new information
that affects those judgements. The Group
has re-assessed its tax exposure and the
key estimates taken in determining the positions
recorded for adopting IFRIC 23. As of 1
January 2019, the tax exposure has been
determined by reference to the uncertainty
that the tax authority may not accept the
Group's proposed treatment of tax positions.
The adoption of the interpretation had no
material impact on the group.
--------------------------------------------------------
New and revised IFRSs issued but not yet effective
At the date of authorisation of these financial statements, The
Group has not applied the following new and revised IFRSs that have
been issued but are not yet effective and in some cases had not yet
been adopted by the EU:
IAS 1 and IAS 8 Definition of material
IFRS 3 Definition of a business
IFRS 17 Insurance Contracts
Annual Improvements Amendments to IFRS first time adoption of
Standards 2018-20 IFRS, IFRS 9 financial instruments and illustrative
example accompanying IFRS16.
IFRS 10 and IAS Sale or Contribution of Assets between an
28 (amendments) Investor and its Associate or Joint Venture
The directors do not expect that the adoption of the Standards
listed above will have a material impact on the financial
statements of the Group in future periods.
Statement of compliance
The financial statements have been prepared in accordance with
IFRS as adopted by the European Union.
Basis of accounting
The financial statements have been prepared under the historical
cost basis, except for the valuation of hydrocarbon inventory and
the valuation of certain financial instruments, which have been
measured at fair value, and on the going concern basis.
Equity-settled share-based payments are initially recognised at
fair value, but are not subsequently revalued. The principal
accounting policies adopted are set out below.
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 Chairman's Statement, the Executive Review and
the Operational Review. The financial position of the Group at the
year end and its cash flows and liquidity position are included in
the Financial Review.
As at 22 April 2020, the Group had $164.1 million of cash. The
Group continues to closely monitor and manage its liquidity. Cash
forecasts are regularly produced and sensitivities run for
different scenarios including, but not limited to, changes in
commodity prices, different production rates from the Shaikan
block, cost contingencies, disruptions to revenue receipts, etc. In
response to the recent developments in 2020 around COVID-19
outbreak and oil price decrease, the Group ran a number of stress
tests which included $30/bbl Brent oil price prevailing for the
duration of the going concern period and reduction in the frequency
of revenue receipts from the KRG. The Group's forecasts, taking
into account the applicable risks and the stress test scenarios,
show that it has sufficient financial resources for the 12 months
from the date of approval of the 2019 Annual Report and
Accounts.
Based on the analysis performed, the directors have a reasonable
expectation that the Group has adequate resources to continue to
operate for the foreseeable future. Thus, the going concern basis
of accounting is used to prepare the annual consolidated financial
statements.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and enterprises controlled by the Company
(its subsidiaries) made up to 31 December each year. Control is
achieved where the Company has the power to govern the financial
and operating policies of an investee entity, so as to obtain
benefits from its activities.
Non-IFRS measures
The Group uses certain measures to assess the financial
performance of its business. Some of these measures are termed
"non-IFRS measures" because they exclude amounts that are included
in, or include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with
IFRS, or are calculated using financial measures that are not
calculated in accordance with IFRS. These non-IFRS measures include
financial measures such as operating costs and non-financial
measures such as gross average production.
The Group uses such measures to measure and monitor operating
performance and liquidity, in presentations to the Board and as a
basis for strategic planning and forecasting. The directors believe
that these and similar measures are used widely by certain
investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The non-IFRS measures may not be comparable to other similarly
titled measures used by other companies and have limitations as
analytical tools and should not be considered in isolation or as a
substitute for analysis of the Group's operating results as
reported under IFRS. An explanation of the relevance of each of the
non-IFRS measures and a description of how they are calculated is
set out below. Additionally, a reconciliation of the non-IFRS
measures to the most directly comparable measures calculated and
presented in accordance with IFRS and a discussion of their
limitations is set out below, where applicable. The Group does not
regard these non-IFRS measures as a substitute for, or superior to,
the equivalent measures calculated and presented in accordance with
IFRS or those calculated using financial measures that are
calculated in accordance with IFRS.
Operating costs
Operating costs is a useful indicator of the Group's costs
incurred to produce Shaikan oil. Operating costs, in comparison
with cost of sales, exclude certain non-cash accounting
adjustments, contractual Production Sharing Contract ("PSC")
payments and transportation costs.
Year Ended Year Ended
31 December 31 December
2019 2018
$ million $ million
--------------------------------- ------------ ------------
Cost of sales 138.2 154.5
Depreciation of oil & gas assets (72.5) (70.7)
Production bonus - (16.0)
Capacity building payments (15.3) (17.0)
Transportation costs (12.0) (14.3)
Working capital movement (1.0) (5.8)
Operating costs 37.4 30.7
============ ============
Gross operating costs per barrel (unaudited)
Gross operating costs are divided by gross production to arrive
at operating costs per bbl.
Year Ended Year Ended
31 December 31 December
2019 2018
Gross production (MMbbls) 12.0 11.5
Gross operating costs ($ million) 46.7 36.8
Gross operating costs per barrel
($ per bbl) 3.9 3.2
EBITDA
EBITDA is a useful indicator of the Group's profitability, which
excludes the impact of costs attributable to income tax
(expense)/credit, finance costs, interest revenue, depreciation,
depletion and amortisation and other gains and losses.
Year Ended Year Ended
31 December 31 December
2019 2018
$ million $ million
----------------------------------- ------------ ------------
Profit after tax 43.5 79.9
Finance costs 11.2 13.9
Interest revenue (6.0) (4.4)
Tax credit (0.3) (0.2)
Depreciation of oil and gas assets 72.5 70.7
Depreciation and amortisation 1.3 0.4
Gains from discontinued operations
(Algeria) - (10.2)
EBITDA 122.2 150.1
============ ============
Capital Investment
Capital investment is the value of the Group's additions to oil
and gas assets excluding any movements in decommissioning
assets.
Year Ended Year Ended
31 December 31 December
2019 2018
$ million $ million
-------------------------------- ------------ ------------
Additions to oil and gas assets 90.0 35.7
Capital Investment 90.0 35.7
============ ============
Net Cash
Net Cash is a useful indicator of the Group's indebtedness,
financial flexibility and capital structure because it indicates
the level of cash and cash equivalents less cash borrowings within
the Group's business. Net cash is defined as current and
non-current borrowings plus non-cash adjustments, less cash and
cash equivalents. Non-cash adjustments include unamortised
arrangement fees and other adjustments.
Year Ended Year Ended
31 December 31 December
2019 2018
$ million $ million
-------------------------- ------------ ------------
Outstanding New Notes (98.2) (97.8)
Unamortised issue costs (1.8) (2.2)
Accrued interest (4.4) (4.4)
Cash and cash equivalents 190.8 295.6
Net Cash 86.4 191.2
============ ============
Joint arrangements
The Group is engaged in oil and gas exploration, development and
production through unincorporated joint arrangements; these are
classified as joint operations in accordance with IFRS 11. The
Group accounts for its share of the results and net assets of these
joint operations. Where the Group acts as Operator of the joint
operation, the gross liabilities and receivables (including amounts
due to or from non-operating partners) of the joint operation are
included in the Group's balance sheet.
Sales revenue
The recognition of revenue, particularly the recognition of
revenue from export sales of crude oil, is considered to be a key
accounting judgement.
All oil is sold to the KRG, who in turn resell the oil. The
selling price is determined in accordance with the principles of
the crude oil export sales agreement ("Crude Oil Sales Agreement"),
based on the Brent crude price less a quality discount and
transportation costs. The sales agreement also specifies the
delivery point, KRG's contribution to transportation costs and
payment terms relating to export sales of crude oil. The Crude Oil
Sales Agreement has been governing Shaikan crude oil sales from 1
October 2017 onwards.
As the payment mechanism for sales is developing within the
Kurdistan Region of Iraq, the Group currently considers that
revenue can best be reliably measured when the cash receipt is
assured. The assessment of whether cash receipt is reasonably
assured is based on management's evaluation of the reliability of
the KRG's payments to the international oil companies operating in
the Kurdistan Region of Iraq.
The value of sales revenue is determined after taking account of
the following:
-- For the crude oil sales via Fishkhabour route, the point of
sale is the point that the crude oil is unloaded into the export
pipeline at Fishkhabour;
-- For the crude oil sales via the Kurdish Export Pipeline, the
point of sale is the point that the crude oil is injected into the
Kurdish Export Pipeline;
-- GKP recognises revenue for its share of the revenue on a
cash-assured basis and these amounts of recognised revenue may be
lower than the Company's entitlement under the Shaikan PSC, giving
rise to unrecognised revenue amounts;
-- From 15 November 2017 till December 2020 when all of the
Group's exports started being sold via the Kurdish Export Pipeline,
the Group performed transportation services in respect of the KRG's
share of export oil sales. It recharges all of these transportation
costs at nil mark-up to the KRG and these recharged transportation
costs are recognised as revenue; and
-- Under the Shaikan PSC and the bilateral agreement between
GKPI and the MNR signed on 16 March 2016 ("Bilateral Agreement"),
the Group is entitled to offset certain costs (including capacity
building payments and production bonuses) against amounts owed by
the KRG to GKPI. In these instances, the Group recognises revenue
and a reduction in the liability to the KRG.
To the extent that revenue arises from test production during an
evaluation programme, an amount is charged from exploration and
evaluation costs to cost of sales so as to reflect a zero net
margin.
Income tax arising from the Company's activities under its PSC
is settled by the KRG on behalf of the Company. However, the
Company is not able to measure the amount of income tax that has
been paid on its behalf and, therefore, the notional income tax
amounts have not been included in revenue or in the tax charge.
Interest Revenue
Interest revenue is accrued on a time basis, by reference to the
principal outstanding and at the effective rate of interest
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the nancial asset
to that asset's net carrying amount on initial recognition.
Property, plant and equipment other than oil and gas assets
Property, plant and equipment ("PPE") are stated at cost less
accumulated depreciation and any accumulated impairment losses.
Depreciation is provided at rates calculated to write each asset
down to its estimated residual value over its expected useful life
as follows:
Fixtures and equipment - 20% straight-line
Intangible assets other than oil and gas assets
Intangible assets, other than oil and gas assets, have finite
useful lives and are measured at cost and amortised over their
expected useful economic lives as follows:
Computer software - 33% straight-line
Oil and gas assets
Pre-licence costs
Costs incurred prior to having obtained the legal rights to
explore an area are expensed directly to the income statement as
they are incurred.
Exploration and evaluation costs
The Group follows the successful efforts method of accounting
for exploration and evaluations ("E&E") costs. Expenditures
directly associated with evaluation or appraisal activities are
initially capitalised as intangible assets in cost pools by well,
field or exploration area, as appropriate. Such costs include
licence acquisition, technical services and studies, seismic
acquisition, exploration and appraisal well drilling, payments to
contractors, interest payable and directly attributable
administration and overhead costs.
These costs are then written off as exploration costs in the
income statement unless the existence of economically recoverable
reserves has been established and there are no indicators of
impairment.
E&E costs are transferred to development and production
asset within property, plant and equipment upon the approval of
development programme by the relevant authorities and the
determination of commercial reserves existence.
Development and production assets
Development and production assets are accumulated on a
field-by-field basis and represent the cost of developing the
commercial reserves discovered and bringing them into production,
together with the E&E expenditures incurred in finding
commercial reserves transferred from intangible E&E assets as
outlined above.
The cost of development and production assets includes the cost
of acquisition and purchases of such assets, directly attributable
overheads, and costs for future restoration and decommissioning.
These costs are capitalised as part of the property, plant and
equipment and depreciated based on the Group's depreciation of oil
and gas assets policy.
Depreciation of oil and gas assets
The net book values of producing assets are depreciated
generally on a field-by-field basis using the unit of production
("UOP") basis which uses the ratio of oil and gas production in the
period to the remaining commercial reserves plus the production in
the period. Production associated with unrecognised export sales
revenue is included in the depreciation, depletion and amortisation
("DD&A") calculation. Costs used in the calculation comprise
the net book value of the field, and any further anticipated costs
to develop such reserves.
Commercial reserves are proven and probable ("2P") reserves
together with, where considered appropriate, a risked portion of 2C
contingent resources, which are estimated using standard recognised
evaluation techniques. The reserves estimate is based on values
from ERC Equipoise - CPR August 2016 and confirmation letter dated
April 2017. CPR volume estimates at 31 December 2016 were adjusted
by GKP for production in 2017, 2018 and 2019.
Impairment of PPE and intangible non-current assets
At each balance sheet date, the Group reviews the carrying
amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset, or group of assets, is estimated in order to
determine the extent of the impairment loss (if any).
For assets which do not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
Any i mpairment identified is immediately recognised as an
expense.
Borrowing costs
Borrowing costs directly relating to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are capitalised and added to the cost
of those assets, until such time as the assets are substantially
ready for their intended use or sale.
Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the income statement
in the period in which they are incurred.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities,
based on tax rates and laws that are enacted or substantively
enacted by the balance sheet date.
As described in the revenue accounting policy section above, it
is not possible to calculate the amount of notional tax to be shown
in relation to any tax liabilities settled on behalf of the Group
by the KRG.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill or from the initial
recognition of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part assets to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted by the balance sheet date. Deferred tax is
charged or credited in the income statement, except when it relates
to items charged or credited directly to equity, in which case the
deferred tax is also recognised in equity.
Foreign currencies
The individual financial statements of each company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the
consolidated financial statements, the results and the financial
position of the Group are expressed in US dollars, which is the
functional currency of the Group, and the presentation currency for
the consolidated financial statements.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency are recorded at the rates of exchange
prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in
foreign currencies are retranslated at the rates prevailing on the
balance sheet date. Non-monetary assets and liabilities carried at
fair value that are denominated in foreign currencies are
translated at the rates prevailing at the date when the fair value
was determined. Gains and losses arising on retranslation are
included in the income statement for the year.
On consolidation, the assets and liabilities of the Group's
foreign operations which use functional currencies other than US
dollars are translated at exchange rates prevailing on the balance
sheet date. Income and expense items are translated at the average
exchange rates for the period. Exchange differences arising, if
any, are recognised in other comprehensive income and accumulated
in equity in the Group's translation reserve. On the disposal of a
foreign operation, such translation differences are reclassified to
profit or loss.
Inventories
Inventories, except for hydrocarbon inventories, are valued at
the lower of cost and net realisable value. Hydrocarbon inventories
are recorded at net realisable value with changes in hydrocarbon
inventories being adjusted through cost of sales.
Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group has become a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables are measured at amortised cost using the
effective interest method less any impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Liquid investments
Liquid investments comprise short-term liquid investments with
maturities of two to three months.
Financial assets at fair value through profit and loss
Financial assets are held at fair value through profit and loss
("FVTPL") when the financial asset is either held for trading or it
is designated at FVTPL. Financial assets at FVTPL are stated at
fair value, with any gains or losses arising on re-measurement
recognised in profit or loss. The net gain or loss recognised in
profit or loss incorporates any dividend or interest earned on the
financial asset and is included in the other gains and losses line
in the income statement.
Derivative financial instruments
The Group may enter into derivative financial instruments.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently
re-measured to their fair value at each balance sheet date. The
resulting gain or loss is recognised in the profit or loss
immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in
profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a
financial asset whereas a derivative with a negative fair value is
recognised as a liability. A derivative is presented as a
non-current asset or a non-current liability if the remaining
maturity of the instrument is more than twelve months and it is not
expected to be realised or settled within twelve months. Other
derivatives are presented as current assets or current
liabilities.
Impairment of financial assets
Financial assets, other than those valued at FVTPL, are assessed
for indicators of impairment at each balance sheet date. Financial
assets are impaired where there is objective evidence that, as a
result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows
of the investment have been impacted.
For certain categories of financial asset, such as trade
receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a
collective basis. Objective evidence of impairment for a portfolio
of receivables could include the Group's past experience of
collecting payments, an increase in the number of delayed payments
in the portfolio past the average credit period, as well as
observable changes in local or national economic conditions that
correlate with default on receivables.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities.
Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs, which are charged to
share premium.
Borrowings
Interest-bearing loans and overdrafts are recorded at the fair
value of proceeds received, net of transaction costs. Finance
charges, including premiums payable on settlement or redemption,
are accounted for on an accrual basis and are added to the carrying
amount of the instrument to the extent that they are not settled in
the year in which they arise. The liability is carried at amortised
cost using the effective interest rate method until maturity.
Trade payables
Trade payables are stated at amortised cost. The average
maturity for trade and other payables is one to three months.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event which it is probable will
result in an outflow of economic benefits that can be reliably
estimated.
Decommissioning provision
Provision for decommissioning is recognised in full when there
is an obligation to restore the site to its original condition. The
amount recognised is the present value of the estimated future
expenditure for restoring the sites of drilled wells and related
facilities to their original status. A corresponding amount
equivalent to the provision is also recognised as part of the cost
of the related oil and gas asset. The amount recognised is
reassessed each year in accordance with local conditions and
requirements. Any change in the present value of the estimated
expenditure is dealt with prospectively. The unwinding of the
discount is included as a finance cost.
Share-based payments
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
instruments at the grant date. Details regarding the determination
of the fair value of equity-settled share-based transactions are
set out in Note 23. The fair value determined at the grant date of
the equity-settled share-based payments is expensed on a straight-
line basis over the vesting period, based on the Group's estimate
of equity instruments that will eventually vest. At each balance
sheet date, the Group revises its estimate of the number of equity
instruments expected to vest as a result of the effect of
non-market based vesting conditions. The impact of the revision of
the original estimates, if any, is recognised in profit or loss
such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity reserve.
For cash-settled share-based payments, a liability is recognised
for the goods or services acquired, measured initially at the fair
value of the liability. At each balance sheet date until the
liability is settled, and at the date of settlement, the fair value
of the liability is re-measured, with any changes in fair value
recognised in profit or loss for the period. Details regarding the
determination of the fair value of cash-settled share-based
transactions are set out in Note 23.
Leases
The Group assesses whether a contract contains a lease at
inception of the contract. The Group recognises a right-of-use
asset and corresponding lease liability in the statement of
financial position for all lease arrangements longer than twelve
months, where it is the lessee and has control of the asset. For
all other leases, the Group recognises the lease payments as an
operating expense on a straight-line basis over the term of the
lease.
The lease liability is initially measured at the present value
of the future lease payments from the commencement date of the
lease. The lease payments are discounted using the interest rate
implicit in the lease or, if not readily determinable, the company
specific incremental borrowing rate.
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using
the effective interest method) and by reducing the carrying amount
to reflect the lease payments made. The lease liability is
recognised in creditors as current or non current liabilities
depending on underlying lease terms.
The right-of-use assets are initially recognised on the balance
sheet at cost, which comprises the amount of the initial
measurement of the corresponding lease liability, adjusted for any
lease payments made at or prior to the commencement date of the
lease and any lease incentive received.
For short-term leases (periods less than 12 months) and leases
of low value, the Group has opted to recognise lease expense on a
straight line basis.
Critical accounting estimates and judgements
In the application of the Group's accounting policies, which are
described above, the directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of revision and future periods if
the revision affects both current and future periods.
Key estimates
Reserves estimates
Commercial reserves are determined using estimates of
oil-in-place, recovery factors and future oil prices. Future
development costs are estimated using assumptions as to numbers of
wells required to produce the commercial reserves, the cost of such
wells and associated production facilities and other capital and
operating costs. Reserves estimates principally affect the
depreciation, depletion and amortisation charges, as well as
impairment assessments.
Carrying value of producing assets
Oil and gas assets within property, plant and equipment are held
at historical cost value, less accumulated depreciation and
impairments.
Producing assets are tested for impairment whenever indicators
of impairment exist. Management assesses whether such indicators
exist, with reference to the criteria specified in IAS 36
Impairment of Assets, at least annually.
In line with the Group's accounting policy on impairment,
management performs an impairment review of the Group's oil and gas
assets at least annually with reference to indicators as set out in
IAS 36. The Group assesses its group of assets, called a cash
generating unit (CGU), for impairment, if events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Where indicators are present, management calculates
the recoverable amount using key assumptions such as future oil and
gas prices, estimated production volume, pre-tax discount rates
that reflect the current market assessment of the time value of
money and risks specific to the asset, commercial reserves,
inflation and transportation fees. The key assumptions are subject
to change based on market trends and economic conditions. The CGU's
recoverable amount is the higher of the fair value less cost of
disposal and value in use. Where the CGU's recoverable amount is
lower than the carrying amount, the CGU is considered impaired and
is written down to its recoverable amount. The Group's sole CGU at
31 December 2019 was Shaikan with a carrying value of $403.7
million.
Following the results of SH-9, the Group, MOL and the MNR have
agreed in principle to change the base case gas management plan
from gas reinjection to the sweetening and export of produced gas
along with elemental sulphur recovery from the waste stream. These
results, although confirmed in 2020, were considered to provide
further information on the gas management plan at the balance sheet
date. Accordingly, a full impairment valuation was calculated
taking into account this change but no write down was indicated.
The Group also performed additional sensitivity analysis to model
the effects of the significant decrease in oil prices and the
COVID-19 outbreak during 2020. These, together with other possible
changes to key assumptions and available management mitigating
actions, indicated that no impairment would arise.
The assumptions and estimates in the valuation model
include:
- Commodity prices that are based on latest internal forecasts,
benchmarked with external sources of information, to ensure they
are within the range of available analyst forecasts and the
long-term corporate economic assumptions thereafter. For the
impairment analysis, the base case Brent oil price of $60/bbl real
was used, based on conditions prevailing as at 31 December 2019. A
stress test based on Brent oil price of $30/bbl for 2020, $40/bbl
for 2021 followed by $50/bbl real for the full life of field was
included in the assessment.
- Discount rates that are adjusted to reflect risks specific to
the Shaikan Field and the KRI. The impairment analysis was based on
15% discount rate.
- Operating costs and capital expenditure that are based on
financial budgets and internal management forecasts. Costs
assumptions incorporate management experience and expectations, as
well as the nature and location of the operation and the risks
associated therewith.
- Commercial reserves and production profiles; and
- Timing of revenue receipts.
Significant accounting judgement
Revenue
The recognition of revenue, particularly the recognition of
revenue from exports, is considered to be a key accounting
judgement. The Group be gan commercial production from the Shaikan
Field in July 2013 and historically made sales to both the domestic
and export markets. However, as the payment mechanism for sales to
the export market continues to develop within the Kurdistan Region
of Iraq, the Group considers that revenue can be only reliably
measured when the cash receipt is assured. The assessment of
whether cash receipts are reasonably assured is based on
management's evaluation of the reliability of the MNR's payments to
the international oil companies operating in the Kurdistan Region
of Iraq. The Group also recognised payables to the MNR that were
offset against amounts receivable from the MNR for previously
unrecognised revenue in line with the terms of the Shaikan PSC.
The judgement is not to recognise revenue in excess of the sum
of the cash receipt that is assured and the amount of payables to
the MNR that can be offset against amounts due for previously
unrecognised revenue in line with the terms of the Shaikan PSC,
even though the Group may be entitled to additional revenue under
the terms of the Shaikan PSC. Any future agreements between the
Company and the KRG might change the amounts of revenue
recognised.
Notes to the Consolidated Financial Statement
1. Geographical Information
The Group's non-current assets excluding deferred tax assets and
other financial assets by geographical location are detailed
below:
2019 2018
$'000 $'000
--------------- ------- -------
Kurdistan 407,808 380,339
United Kingdom 248 282
------- -------
408,056 380,621
======= =======
Information about major customers
Included in revenues are $206.7 million, which arose from sales
to the Group's largest customer (2018: $250.6 million).
2. Revenue
2019 2018
$'000 $'000
----------------------- ------- -------
Oil sales 202,871 243,711
Transportation revenue 3,870 6,843
------- -------
206,741 250,554
======= =======
The Group accounting policy for revenue recognition is set out
in the Summary of Significant Accounting Policies, with revenue
recognised on a cash-assured basis.
During 2019, the cash-assured values recognised as oil sales
were the invoiced revenue for the year amounting to $202.9 million
(2018: $227.5 million). The MNR liability offset revenue recognised
was nil (2018: $16.2 million). The oil sales price was calculated
using the monthly Brent price less an average discount of $21.7
(2018: $22.3) per barrel for quality, pipeline tariff and
transportation costs.
From November 2017 until mid December 2019, the Group performed
transportation services in respect of the KRG's share of export oil
sales. It recharged all of these transportation costs at nil
mark-up to the KRG.
3. Cost of Sales
2019 2018
$'000 $'000
----------------------------------- ------- -------
Oil production costs 53,696 69,479
Depreciation of oil and gas assets 72,514 70,744
Transportation costs 11,974 14,311
138,184 154,534
======= =======
Oil production costs represent the Group's share of gross
production expenditure for the Shaikan Field for the year and
include capacity building charges of $15.3 million (2018: $17.0
million) and Shaikan PSC production bonus of nil (2018: $16.0
million). All costs are included with no deferral of costs
associated with unrecognised sales in accordance with the Group's
revenue policy. Production and DD&A costs related to revenue
arrears recognised in 2018 have been charged to the income
statement in prior periods when the oil was lifted.
A unit-of-production method has been used to calculate the
DD&A charge for the year. This is based on full entitlement
production, commercial reserves and costs for Shaikan. Commercial
reserves are proven and probable ("2P") reserves, estimated using
standard recognised evaluation techniques.
4. General and Administrative Expenses
2019 2018
$'000 $'000
------------------------------------------- ------- ------
Depreciation and amortisation 1,318 383
Auditor's remuneration for audit fees (see
below) 253 252
Other general and admin costs (including
staff costs) 17,960 17,178
19,531 17,813
======= ======
Of $19.5 million of general and administrative expenses, $10.0
million were incurred in relation to the Shaikan Field (2018: $7.9
million).
2019 2018
$'000 $'000
-------------------------------------------------------- ------- -------
Fees payable to the Company's auditor for
the audit of the Company's annual accounts 228 224
Fees payable to the Company's auditor for
other services to the Group
* audit of the Company's subsidiaries pursuant to
legislation 25 28
------- -------
Total audit fees 253 252
Corporate finance services 13 -
Other assurance services (including half
year review) 73 70
Total fees 339 322
======= =======
5. Staff costs
The average number of employees and contractors (including
Executive directors) employed by the Group was 407 (2018: 362),
reflecting part-time, shift-work and rotational working
arrangements.
Staff costs were as follows:
2019 2018
$'000 $'000
Wages and salaries 35,812 25,582
Social security costs 3,454 2,263
Share-based payment (see note 23) 2,224 1,842
41,490 29,687
====== ======
Staff costs include the costs relating to contractors who are
long-term workers in key positions.
A proportion of staff costs is allocated to cost of sales and a
proportion is capitalised as Oil and gas assets under the Group's
accounting policy for Property, plant and equipment, with the
remainder classified as general and administrative costs in the
income statement. The net staff cost recognised as cost of sales
and general and administrative expense in the income statement is
$28.5m (2018: $25.7m). Capitalised staff costs went up from $4.0
million in 2018 to $13.0 million in 2019, reflecting the increase
in the Group's development activities.
6. Other gains
2019 2018
$'000 $'000
---------------------------- -------------------- ------
Other gains - 10,215
Exchange (losses) and gains (661) 710
(661) 10,925
==================== ======
In 2018, the Group received final clearance from Sonatrach in
relation to Ferkane Permit (Block 126) in Algeria which resulted in
a release of past liabilities and recognition of $10.2 million in
other gains.
7. Finance costs and finance revenue
2019 2018
$'000 $'000
----------------------------------------- -------- -----------------
Notes interest charged during the year
(see note 16) (10,397) (13,150)
Finance Lease interest (67) -
Unwinding of discount on provisions (see
note 17) (689) (723)
-------- -----------------
Total finance costs (11,153) (13,873)
Finance revenue 6,046 4,441
-------- -----------------
Net finance costs (5,107) (9,432)
======== =================
8. Tax
2019 2018
$'000 $'000
------------------------------------------ -------- --------
Current year charged - -
Adjustment in respect of prior year - -
Deferred UK corporation tax credit (see
note 18) 271 189
-------- --------
Tax credit attributable to the Company
and its subsidiaries 271 189
======== ========
Under current Bermudian laws, the Group is not required to pay
taxes in Bermuda on either income or capital gains. The Group has
received an undertaking from the Minister of Finance in Bermuda
exempting it from any such taxes at least until the year 2035.
In the Kurdistan Region of Iraq, the Group is subject to
corporate income tax on its income from petroleum operations under
the Kurdistan PSC. Under the Shaikan PSC, any corporate income tax
arising from petroleum operations will be paid from the KRG's share
of petroleum profits. Due to the uncertainty over the payment
mechanism for oil sales in Kurdistan, it has not been possible to
measure reliably the taxation due that has been paid on behalf of
the Group by the KRG and therefore the notional tax amounts have
not been included in revenue or in the tax charge. This is an
accounting presentational issue and there is no taxation to be
paid.
UK corporation tax is calculated at 19.00% (2018: 19.00%) of the
estimated assessable profit for the year of the UK subsidiary.
Deferred tax is provided for due to the temporary differences,
which give rise to such a balance in jurisdictions subject to
income tax. During the current period no taxable profits were made
in respect of the Group's Kurdistan PSC, nor were there any
temporary differences on which deferred tax is required to be
provided. As a result, no corporate income tax or deferred tax has
been provided for Kurdistan in the period.
All deferred tax arises in the UK.
The tax credit for the year can be reconciled to the profit per
the income statement as follows:
2019 2018
$'000 $'000
------------------------------------------------ --------------------- ----------
Profit before tax 43,258 79,700
===================== ==========
Tax at the Bermudian tax rate of 0% (2018:0%) - -
Effect of different tax rates of subsidiaries
operating in other jurisdictions 271 189
--------------------- ----------
Tax credit for the year 271 189
===================== ==========
9. Profit per share
The calculation of the basic and diluted profit per share is
based on the following data:
2019 2018
$'000 $'000
------- -------
Profit
Profit after tax for the purposes of basic
and diluted profit per share 43,529 79,889
======= =======
2019 2018
Number Number
(000s) (000s)
------------------------------------------- ------- -------
Number of shares
Basic weighted average number of ordinary
shares 226,178 229,317
The Group followed the steps specified by IAS 33 in determining
whether potential common shares are dilutive or anti-dilutive.
Reconciliation of dilutive shares:
2019 2018
Number Number
(000s) (000's)
---------------------------------------------- ------- --------
Number of shares
Basic weighted average number of ordinary
shares outstanding 226,178 229,317
Effect of dilutive potential ordinary
shares 10,775 6,528
Diluted number of ordinary shares outstanding 236,953 235,845
------- --------
The weighted average number of ordinary shares in issue excludes
shares held by Employee Benefit Trustee ("EBT") and the Exit Event
Trustee, and shares held in Treasury following the share buy-back
programmes carried out in 2019.
The diluted number of ordinary shares outstanding including
share options is calculated on the assumption of conversion of all
potentially dilutive ordinary shares. During the year ended 31
December 2019, there were 0.3 million (2018: 0.3 million) share
options that were excluded from the calculation of diluted earnings
because they were anti-dilutive.
10. Intangible assets
Computer
software
$'000
----------------------------------------- ---------
Year ended 31 December 2018
Opening net book value 63
Additions 66
Amortisation charge (46)
Foreign currency translation differences 1
---------
Closing net book value 84
At 31 December 2018
Cost 1,102
Accumulated amortisation (1,018)
---------
Net book value 84
---------
Year ended 31 December 2019
Opening net book value 84
Additions 390
Amortisation charge (26)
Foreign currency translation differences 6
Closing net book value 454
=======
At 31 December 2019
Cost 1,498
Accumulated amortisation (1,044)
-------
Net book value 454
=======
The amortisation charge of $26,000 (2018: $46,000) for computer
software has been included in general and administrative expenses
(note 4).
11. Property, plant and equipment
Oil and Fixtures Right Total
Gas and of Use $'000
Assets Equipment Assets
$'000 $'000 $'000
----------------------------- ------------- ---------- ------- ----------------------
Year ended 31 December 2018
Opening net book value 416,908 565 - 417,473
Additions 35,715 644 - 36,359
Disposals at cost (126,584) (399) - (126,983)
Revision to decommissioning
asset (2,229) - - (2,229)
Depreciation charge (70,744) (337) - (71,081)
Depreciation on disposals 126,584 399 - 126,983
Foreign currency translation
differences - 15 - 15
Closing net book value 379,650 887 - 380,537
============= ========== ======= ======================
At 31 December 2018
Cost 600,048 6,201 - 606,249
Accumulated depreciation (220,398) (5,314) - (225,712)
------------- ---------- ------- ----------------------
Net book value 379,650 887 - 380,537
============= ========== ======= ======================
Year ended 31 December 2019
Opening net book value 379,650 887 - 380,537
Additions 90,041 755 3,528 94,324
Disposals at cost - - (35) (35)
Revision to decommissioning
asset 6,518 - - 6,518
Depreciation charge (72,514) (381) (911) (73,806)
Depreciation on disposals - - 15 15
Foreign currency translation
differences 1 49 (1) 49
Closing net book value 403,696 1,310 2,596 407,602
============= ========== ======= ======================
At 31 December 2019
Cost 696,608 7,005 3,492 707,105
Accumulated depreciation (292,912) (5,695) (896) (299,503)
------------- ---------- ------- ----------------------
Net book value 403,696 1,310 2,596 407,602
============= ========== ======= ======================
The net book value of oil and gas assets at 31 December 2019 is
comprised of property, plant and equipment relating to the Shaikan
block and has a carrying value of $403.7 million (2018: $379.7
million).
The additions to the Shaikan asset during the year include costs
for the work on the export pipeline from PF-1 to Kurdish Export
Pipeline, SH-12 and SH-9 wells, SH-1 and SH-3 workovers, production
facilities expansion work and various studies and reservoir
engineering, as well as certain long lead items for the 75k
programme and recurring capital costs.
The DD&A charge of $72.5 million on oil and gas assets
(2018: $70.7 million) has been included within cost of sales (note
3). The depreciation charge of $1.3 million on fixtures and
equipment and right of use assets (2018: $0.3 million) has been
included in general and administrative expenses (note 4).
Additions during the year include capitalised staff costs of
$13.0 million (2018: $4.0 million).
Right of use assets at 31 December 2019 consisted of $2.5
million of Buildings and $0.1 million of Equipment.
For details of the key assumptions and judgements underlying the
impairment assessment and the depreciation, depletion and
amortisation charge, refer to the "Critical accounting estimates
and judgments" section of the Summary of Significant Accounting
Policies.
12. Group companies
Details of the Company's subsidiaries and joint operations at 31
December 2019 is as follows:
Name of subsidiary Place of incorporation Proportion Principal
of ownership activity
interest
------------------------- ----------------------- -------------- ---------------------
Gulf Keystone United Kingdom 100% Management services,
Petroleum (UK) geological,
Limited geophysical
6th floor and engineering
New Fetter services
Place
8-10 New Fetter
Lane
London EC4A
1AZ
------------------------- ----------------------- -------------- ---------------------
Gulf Keystone Bermuda 100% Exploration,
Petroleum International evaluation,
Limited development
Cedar House, and production
3rd Floor activities in
41 Cedar Avenue Kurdistan
Hamilton HM12
Bermuda
------------------------- ----------------------- -------------- ---------------------
Name of joint operation Place of Proportion Principal
incorporation of ownership activity
interest
------------------------ --------------- -------------- -----------------
Shaikan Kurdistan 80%(1) Production
and development
activities
------------------------ --------------- -------------- -----------------
(1) 75% is held directly by Gulf Keystone Petroleum
International Limited, with 5% originally owned by Texas Keystone,
Inc. ("TKI") held in trust until formal transfer of the share to
GKPI is completed
13. Inventories
2019 2018
$'000 $'000
------------------------------- ---------- ------
Warehouse stocks and materials 30,135 13,534
Crude oil 905 656
---------- ------
31,040 14,190
========== ======
Inventories at 31 December 2019 include write downs to net
realisable value of $1.0 million (2018: $0.6 million) included in
cost of sales.
14. Trade and other receivables
2019 2018
$'000 $'000
-------------------------------- -------- -------
Trade receivables 97,917 61,251
Other receivables 4,458 5,405
Prepayments and accrued income 806 1,253
-------- -------
103,181 67,909
======== =======
Trade receivables comprise invoiced amounts due from the MNR for
crude oil sales totalling $90.2 million as at 31 December 2019
(2018: $53.2 million). This included past due trade receivables of
$47.8 million (2018: $40.9 million). November and December 2019
sales were still outstanding as at the time of this report. During
2018, the Group purchased a share of Shaikan revenue arrears from
MOL amounting to $9.1 million. In line with the requirements of
IFRS 9, the fair value of this receivable stood at $7.7 million as
at 31 December 2019 (2018: $8.0 million). The adjustment to the
fair value is recognised in Cost of sales (note 3).
Included within Other receivables for 2019 is an amount of nil
(2018: $0.4 million) being the deposits for leased assets which are
receivable after more than one year. There are no receivables from
related parties as at 31 December 2019 (2018: $nil) (see note 25).
No impairments of other receivables have been recognised during the
year (2018: $nil).
The directors consider that the carrying amount of trade and
other receivables approximates their fair value and no amounts are
provided against them, except as noted above.
15. Trade and other payables
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs.
The directors consider that the carrying amount of trade
payables approximates their fair value.
Current liabilities
2019 2018
$'000 $'000
---------------------------------------- ------------------ -----------------
Trade payables 6,982 11,857
Other payables 29,268 19,552
Current lease liabilities (see note 21) 1,265 -
Accrued expenses 46,466 50,069
83,981 81,478
================== =================
There is $4.4 million interest payable included in Accrued
expenses as at 31 December 2019 (2018: $4.4m) (see note 16).
Other payables include $10.0 million (2018: $10.0 million) in
relation to the Sheikh Adi PSC bonus that was payable on the
declaration of commerciality. It is likely that this liability will
be offset against unrecognised Shaikan revenue arrears, in
accordance with the principles agreed under the Bilateral Agreement
between the Group and the MNR.
Non-current liabilities
2019 2018
$'000 $'000
-------------------------------------- ------------------- ------
Non-current lease liability (see note
21) 1,989 -
1,989 -
=================== ======
16. Long term borrowings
2019 2018
$'000 $'000
------------------------------------------- -------- ---------
Liability component at 1 January 102,156 99,084
Interest charged during the year 10,397 13,150
Interest paid during the year (10,000) (7,713)
Exchange or redemption of Reinstated Notes - (100,000)
Issue of New Notes at fair value - 97,635
Liability component at 31 December 102,553 102,156
======== =========
Liability component reported in:
2019 2018
$'000 $'000
------------------------------------ -------- --------
Current liabilities: (see note 15) 4,361 4,361
Non-current liabilities 98,192 97,795
102,553 102,156
======== ========
On 14 October 2016, the Company issued $100 million of
guaranteed notes ("Reinstated Notes"). The unsecured Reinstated
Notes were guaranteed by Gulf Keystone Petroleum International
Limited, one of the Company's subsidiaries, and their key terms are
summarised as follows:
- maturity date was 18 October 2021. At any time prior to
maturity, the Reinstated Notes were redeemable by the Company in
part or full at par and could therefore be refinanced without any
prepayment penalty;
- the Company had the option to defer its interest payments
until the maturity of the Reinstated Notes in payment in kind at
13% or pay in cash at 10% until 18 October 2018. From 19 October
2018, the Company would be mandatorily liable to pay interest in
cash at 10%; and
- the Company was permitted to raise up to $45 million of
additional indebtedness at any time on market terms to fund capital
and operating expenditure.
In July 2018, the Group redeemed all of the $100 million
Reinstated Notes at a price equal to 100 per cent of the principal,
plus accrued and unpaid interest on the Notes up to and including
the Redemption Date. The Group also successfully completed the
private placement of a 5-year senior unsecured $100 million bond
issue (the "New Notes"). The unsecured New Notes are guaranteed by
Gulf Keystone Petroleum International Limited and Gulf Keystone
Petroleum (UK) Limited, two of the Company's subsidiaries, and
their key terms are summarised as follows:
- maturity date is 25 July 2023;
- at any time prior to maturity, the New Notes are redeemable by
GKP in part or full with a prepayment penalty;
- the interest rate is 10% per annum with semi-annual payment dates; and
- the Company is permitted to raise up to $200 million of
additional indebtedness at any time on market terms to fund capital
and operating expenditure, subject to certain requirements.
The New Notes are traded on the Norwegian Stock Exchange and the
fair value at the prevailing market price as at the balance sheet
date was:
Market 2019 2018
price
$'000 $'000
----------- -------- -------- --------
New Notes $104.91 104,910 102,750
104,910 102,750
-------- --------
As of 31 December 2019, the Group's remaining contractual
liability comprising principal and interest based on undiscounted
cash flows at the maturity date of the New Notes is as follows:
2019 2018
$'000 $'000
------------------------- ------- -------
Within one year 10,000 10,000
Within two to five years 125,639 135,639
-------
135,639 145,639
======= =======
17. Provisions
2019 2018
$'000 $'000
----------------------- ------ ------
Current provisions - 4,155
Non-current provisions 29,807 22,600
29,807 26,755
====== ======
Current Provisions Non-current
(Algeria) Provisions
(Kurdistan) Total
Decommissioning provision $'000 $'000 $'000
--------------------------- ------------------ ------------ --------------
At 1 January 2019 4,155 22,600 26,755
New provisions and changes
in estimates - 6,518 6,518
Unwinding of discount - 689 689
Settlement of provisions (4,155) - (4,155)
At 31 December 2019 - 29,807 29,807
================== ============ ==============
The provision for decommissioning is based on the net present
value of the Group's share of expenditure which may be incurred in
the removal and decommissioning of the wells and facilities
currently in place and restoration of the sites to their original
state. The expenditure on the Shaikan block in Kurdistan is
expected to take place over the next 23 years.
18. Deferred tax asset
The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current
and prior reporting periods. The deferred tax assets arise in the
United Kingdom.
Accelerated Share-based Tax losses Total
tax depreciation payments carried $'000
$'000 $'000 forward
$'000
-------------------------- ----------------- ----------- ---------- --------
At 1 January 2018 (68) 136 335 403
(Charge)/credit to income
statement 37 202 (50) 189
Exchange differences 1 (18) (16) (33)
----------------- ----------- ---------- --------
At 31 December 2018 (30) 320 269 559
(Charge)/credit to income
statement 4 470 (203) 271
Exchange differences (1) 11 9 19
----------------- ----------- ---------- --------
At 31 December 2019 (27) 801 75 849
================= =========== ========== ========
19. Share capital
2019 2018
$'000 $'000
----------------------------------------- ------- ---------
Authorised
Common shares of $1 each (2018: $1 each) 231,605 231,605
Non-voting shares of $0.01 each 500 500
Preferred shares of $1,000 each 20,000 20,000
Series A Preferred shares of $1,000 each 40,000 40,000
------- ---------
292,105 292,105
======= =========
Common shares
--------------------------------------------------
Share Share
No. of Amount capital premium
shares
'000 $'000 $'000 $'000
------------------------- ------- --------- ------------------ ----------
Balance 31 December 2017 229,430 1,150,158 229,430 920,728
Balance 31 December 2018 229,430 1,150,158 229,430 920,728
Dividend paid - (49,053) - (49,053)
Balance 31 December 2019 229,430 1,101,105 229,430 871,675
======= ========= ================== ==========
The company announced on 8 July 2019 that it would undertake a
buy back programme to purchase shares up to a maximum value of $25
million. This programme was successfully completed on 8 October
2019 and a second buy back programme for $25 million was commenced
on 10 December 2019. By 31 December 2019, the Company had under
both programmes bought back a total of 10,497,603 shares for a
total consideration of $29,831,168. The second tranche of the
buyout was successfully completed on 13 March 2020. During 2019,
82,000 shares were issued from treasury to satisfy share options
exercises.
At 31 December 2019, a total of 10,415,603 common shares were
held in treasury with a value of $29.7m.
At 31 December 2019, a total of 0.1 million common shares at
$1.0 each were held by the EBT and Exit Event Trustee (2018: 0.1
million at $1.0 each). These common shares were included within
reserves.
Rights attached to share capital
The holders of the common shares have the following rights
(subject to the other provisions of the Byelaws):
(i) entitled to one vote per common share;
(ii) entitled to receive notice of, and attend and vote at,
general meetings of the Company;
(iii) entitled to dividends or other distributions; and
(iv) in the event of a winding-up or dissolution of the Company,
whether voluntary or involuntary or for a reorganisation
or otherwise or upon a distribution of capital, entitled
to receive the amount of capital paid up on their common
shares and to participate further in the surplus assets
of the Company only after payment of the Series A Liquidation
Value (as defined in the Byelaws) on the Series A Preferred
Shares.
20. Reconciliation of Profit from operations to Cash generated
from operations
2019 2018
$'000 $'000
------------------------------------------ ---------- --------
Profit from operations 49,026 78,207
Adjustments for:
Depreciation, depletion and amortisation
of property, plant and equipment 73,806 71,081
Amortisation of intangible assets 26 46
Share-based payment expense 1,910 1,785
(Increase) in inventories (16,850) 3,000
(Increase) in receivables (35,123) (4,330)
Increase in payables 15,097 11,695
---------- --------
Cash generated from operations 87,892 161,483
========== ========
21. Lease Liabilities
2019
$'000
---------------------------------------- -------
Analysed as:
Current liabilities 1,265
Non-current liabilities 1,989
-------
3,254
=======
Lease Maturity Analysis
Year 1 -
Year 2 -
Year 3 3,254
Amounts payable under leases
Within one year 1,348
In the second to fifth year inclusive 2,031
-------
3,379
Less future interest charges (125)
Net present value of lease obligations 3,254
-------
22. Commitments
Exploration and development commitments
Additions to property, plant and equipment are generally funded
with the cash flow generated from the Shaikan Field. As at 31
December 2019, capital commitments in relation to the Shaikan Field
were estimated to be $35.3 million (2018: $29.9 million).
23. Share-based payments
2019 2018
$'000 $'000
----------------------------------------- ------ ------
Total share options charge 2,224 1,842
Capitalised share options charge (314) (57)
------ ------
Share options charge in Income Statement 1,910 1,785
====== ======
Value Creation Plan ("VCP")
The VCP was approved by shareholders in December 2016 and, as of
31 December 2019, two awards of Performance Units have been made to
the CEO and former CFO. No further awards of Performance Units are
envisaged. Any outstanding awards under the VCP will be allowed to
run-off and vest subject to the Company achieving the performance
criteria of 8% compound annual growth in Total Shareholder Return
("TSR") on each of five annual Measurement Dates and the plan
limits in place, in accordance with the VCP rules.
On 30 April 2019, nil-cost options over 2,087,756 shares were
granted to the CEO and nil-cost options over 1,565,817 shares were
granted to the former CFO. The overall cap on the VCP scheme has
been attained and there will be no further awards of options under
the VCP. As defined under the rules of the VCP and subject to the
achievement of performance conditions, up to 50% of the number of
shares granted under the nil-cost options will vest following the
Measurement Date for the financial year ending on 31 December 2019,
50% of the remainder of the number of Shares granted under the
nil-cost options may vest following the Measurement Date for the
financial year ending on 31 December 2020 with up to the remainder
of the number of Shares granted under the nil-cost options vesting
following the Measurement Date for the financial year ending on 31
December 2021.
2019 2018
Number of Weighted Number of Weighted
share options average share options average
'000 exercise '000 exercise price
price (in pence)
(in pence)
--------------------------- ----------------------- ----------- --------------- ---------------
Outstanding at 1 January 3,364 - - -
Granted during the
year 3,653 - 3,364 -
Outstanding at 31 December 7,017 - 3,364 -
Exercisable at 31 December - - - -
======================= =========== =============== ===============
The options outstanding at 31 December 2019 had a weighted
average remaining contractual life of 7 years.
A charge of $0.8 million (2018: $0.6 million) in relation to the
VCP is included in the total share options charge.
Staff Retention Plan
At the 2016 Annual General Meeting ("AGM"), shareholders
approved the adoption of the Gulf Keystone Petroleum 2016 Staff
Retention Plan ("SRP"), which is designed to reward members of
staff through the grant of share options at a zero exercise
price.
The exercise of the awarded options is not subject to any
performance conditions and can be exercised at any time after the
three year vesting period but within ten years after the date of
grant. If options are not exercised within ten years, the options
will lapse and will not be exercisable. If an employee leaves the
company during the three years from the date of grant, the options
will lapse on the date notice to leave is given to the company.
Should an employee be regarded as a good leaver, the options may be
exercised at any time within a period of six months from departure
date.
2019 2018
Number of Weighted Number of Weighted
share options average share options average
'000 exercise '000 exercise price
price (in pence)
(in pence)
--------------------------- ---------------------- ----------- --------------- ---------------
Outstanding at 1 January 1,440 - 1,595 -
Exercised during the
year (248) - - -
Forfeited during the
year (63) - (155) -
Outstanding at 31 December 1,129 - 1,440 -
Exercisable at 31 December 627 - - -
====================== =========== =============== ===============
The weighted average share price at the date of exercise for
share options exercised during 2019 was GBP2.09.
During 2019 no options (2018: nil) were granted to employees
under the Group's SRP.
A charge of $0.4 million (2018: $0.8 million) in relation to the
SRP is included in the total share options charge.
Share options outstanding at the end of the year have the
following expiry date and exercise prices:
Expiry date Exercise price
(pence) Options ('000)
2019 2018 2019 2018
11 December 2026 - - 628 939
9 January 2027 - - 250 250
30 June 2027 - - 206 206
30 July 2027 - - 45 45
1,129 1,440
======== =======
The options outstanding at 31 December 2019 had a weighted
average remaining contractual life of 7 years.
Long Term Incentive Plan
Gulf Keystone Petroleum 2014 Long Term Incentive Plan ("LTIP")
is designed to reward members of staff through the grant of share
options at a zero exercise price, that vests three years after
grant, subject to the fulfilment of specified performance
conditions. These performance conditions are 50% TSR over the
vesting period and 50% the Group's TSR relative to a bespoke group
of comparators.
2019 2018
Number of Weighted Number of Weighted
share options average share options average
'000 exercise '000 exercise price
price (in pence)
(in pence)
--------------------------- ---------------- ----------- --------------- ---------------
Outstanding at 1 January 1,614 - - -
Granted during the
year 1,233 - 1,786 -
Forfeited during the
year (218) - (172) -
Outstanding at 31 December 2,629 - 1,614 -
Exercisable at 31 December - - - -
================ =========== =============== ===============
The options outstanding at 31 December 2019 had a weighted
average remaining contractual life of 9 years.
The aggregate of the estimated fair values of the options
granted in 2019 is $1.0 million.
A charge of $1.0 million (2018: $0.5 million) in relation to the
LTIP is included in the total share options charge.
Equity-settled share option plan
The Group's share option plan provides for an exercise price at
least equal to the closing market price of the Group shares on the
date prior to grant. Awards made under the Group's share option
plan have a vesting period of at least three years except for
awards made under the legacy Long Term Incentive Plan, which vest
in equal tranches over a minimum of three years subsequent to the
achievement of a number of operational and market-based performance
conditions. Options expire if they remain unexercised after a
period of 10 years from the date of grant. The options granted in
2015 were made under the recruitment remuneration policy, vest in
three equal tranches over two years, and expire if they remain
unexercised after a period of 7 years from the date of grant.
Options are forfeited if the employee leaves the Group before the
options vest. The company has not made any awards during 2019 under
this scheme.
2019 2018
Number of Weighted Number of Weighted
share options average share options average
'000 exercise '000 exercise price
price (in pence)
(in pence)
Outstanding at 1 January 326 11,492.6 360 10,149.7
Expired during the
year (26) - (34) -
Outstanding at 31 December 300 11,492.1 326 11,492.6
Exercisable at 31 December 300 11,492.1 326 11,492.6
=============== =========== =============== ===============
The options outstanding at 31 December 2019 had a weighted
average exercise price of GBP115 (2018: GBP115) and a weighted
average remaining contractual life of 1 year (2018: 2 years).
A charge of nil (2018: nil) in relation to the equity-settled
share option plan is included in the total share options
charge.
Share options outstanding at the end of the year have the
following expiry date and exercise prices:
Expiry date Exercise price
(pence) Options ('000)
2019 2018 2019 2018
15 March 2019 3,000 3,000 - 15.9
30 July 2019 3,000 3,000 - 10.0
24 Jun 2020 7,500 7,500 156.3 156.3
22 September 2020 14,750 14,750 2.5 2.5
6 February 2021 17,500 17,500 94.4 94.4
19 June 2021 14,625 14,625 5.5 5.5
7 July 2021 14,625 14,625 2.5 2.5
14 July 2021 14,625 14,625 2.5 2.5
21 July 2021 14,625 14,625 5.0 5.0
19 September 2021 15,250 15,250 2.5 2.5
26 October 2021 14,625 14,625 2.5 2.5
21 January 2022 5,500 5,500 15.0 15.0
20 March 2022 19,450 19,450 4.0 4.0
20 March 2022 25,000 25,000 2.5 2.5
8 July 2023 15,875 15,875 2.5 2.5
24 April 2024 9,975 9,975 2.5 2.5
300.2 326.1
======== =======
24. Dividend
At the Company's AGM on 21 June 2019, the shareholders approved
the distribution of a total cash dividend of $50 million for the
year ended 31 December 2018. The first tranche of c.$17 million was
paid in July 2019, with the second tranche of c.$32 million paid in
October 2019. The first tranche paid was 5.68p per common share,
which is equivalent to 7.26 US cents per common share. The second
tranche paid was 11.61p per common share, which is equivalent to
14.53 US cents per common share. The total dividend paid was $49.1
million as the dividend attributable to treasury shares held by the
Group as a result of share buy-back was not paid out. The
distribution is eligible under Bermudan Law based on the solvency
of the Group. As the Group has negative retained earnings this is
considered a return of capital and accordingly is presented as a
deduction from share premium.
25. Related party transactions
The Group has a related party relationship with its
subsidiaries. The Company and its subsidiaries, in the ordinary
course of business, enter into various sales, purchase and service
transactions with joint operations in which the Group has a
material interest. These transactions are under terms that are no
less favourable to the Group than those arranged with third
parties.
Remuneration of key management personnel
The remuneration of the Directors and Officers, the key
management personnel of the Group, is set out below in aggregate
for each of the categories specified in IAS 24 Related Party
Disclosures. Those identified as key management personnel include
the Directors of the Company and the key personnel:
J Ferrier - CEO
S Zouari - former CFO
J Barker - HR Director
S Catterall - Chief Operations Officer
R Deutscher - Country Manager - Kurdistan Region of Iraq
N Kernoha - Head of Finance
G Papineau-Legris - Commercial Director
A Robinson - Legal Director and Company Secretary
M Parsley - Subsurface Manager
The values below are calculated in accordance with IAS 19 and
IFRS 2.
2019 2018
$'000 $'000
------------------------------ ------ ------
Short-term employee benefits 4,898 5,444
Share-based payment - options 1,618 1,132
6,516 6,576
====== ======
Further information about the remuneration of individual
Directors is provided in the Directors' Emoluments section of the
Remuneration Committee Report.
26. Financial instruments
2019 2018
$'000 $'000
-------------------------- ------- -------
Financial assets
Cash and cash equivalents 190,762 295,566
Loans and receivables 102,375 66,656
293,137 362,222
======= =======
Financial liabilities
Trade and other payables 85,970 81,478
Borrowings 98,192 97,795
184,162 179,273
======= =======
All financial liabilities, except for Borrowings (see note 16)
and non-current lease liability (see note 15), are due to be
settled within one year and are classified as current
liabilities.
The maturity profile and fair values of the New Notes are
disclosed in note 16. The maturity profile of all other financial
liabilities is indicated by their classification in the balance
sheet as "Current" or "Non-current". Further information relevant
to the Group's liquidity position is disclosed in the Directors'
Report under "Going Concern".
Fair values of financial assets and liabilities
With the exception of the New Notes, the Group considers the
carrying value of all its financial assets and liabilities to be
materially the same as their fair value. The fair value of the New
Notes, as determined using market values at 31 December 2019, was
$104.9 million (2018: $102.8 million) compared to the carrying
value of $98.2 million (2018: $97.8 million).
No material financial assets are impaired at the balance sheet
date. All financial assets and liabilities, with the exception of
derivatives, are measured at amortised cost.
Capital Risk Management
The Group manages its capital to ensure that the entities within
the Group will be able to continue as going concerns while
maximising the return to stakeholders through the optimisation of
the debt and equity structure. The capital structure of the Group
consists of cash, cash equivalents, New Notes and equity
attributable to equity holders of the parent. Equity comprises
issued capital, reserves and accumulated losses as disclosed in
Note 19, the Consolidated Statement of Comprehensive Income and the
Consolidated Statement of Changes in Equity.
Capital Structure
The Group's Board of Directors reviews the capital structure on
a regular basis and will make adjustments in light of changes in
economic conditions. As part of this review, the Board considers
the cost of capital and the risks associated with each class of
capital.
Significant Accounting Policies
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised, in respect of each class of financial asset, financial
liability and equity instrument are disclosed in the Summary of
Significant Accounting Policies.
Financial Risk Management Objectives
The Group's management monitors and manages the financial risks
relating to the operations of the Group. These financial risks
include market risk (including commodity price, currency and fair
value interest rate risk), credit risk, liquidity risk and cash
flow interest rate risk.
The Group currently has no currency risk or other hedges against
financial risks. The Group does not use derivative financial
instruments for speculative purposes.
The risks are closely reviewed by the Board on a regular basis
and, where appropriate, steps are taken to ensure these risks are
minimised.
Market risk
The Group's activities expose it primarily to the financial
risks of changes in foreign currency exchange rates, oil prices and
changes in interest rates in relation to the Group's cash
balances.
There have been no changes to the Group's exposure to other
market risks or any changes to the manner in which the Group
manages and measures the risk. The Group currently does not hedge
against the effects of movement in oil prices or foreign currency
rates. The risks are monitored by the Board on a regular basis.
The Group conducts and manages its business predominantly in US
dollars, the operating currency of the industry in which it
operates. The Group also purchases the operating currencies of the
countries in which it operates routinely on the spot market. Cash
balances are held in other currencies to meet immediate operating
and administrative expenses or to comply with local currency
regulations.
At 31 December 2019, a 10% weakening or strengthening of the US
dollar against the other currencies in which the Group's monetary
assets and monetary liabilities are denominated would not have a
material effect on the Group's net current assets or profit before
tax.
Interest rate risk management
The Group's policy on interest rate management is agreed at the
Board level and is reviewed on an ongoing basis. The current policy
is to maintain a certain amount of funds in the form of cash for
short-term liabilities and have the rest on relatively short-term
deposits, usually between one and three months, to maximise returns
and accessibility. The Group must pay interest on its New Notes
semi-annually in cash at 10%.
Based on the exposure to the interest rates for cash and cash
equivalents at the balance sheet date, a 0.5% increase or decrease
in interest rates would not have a material impact on the Group's
profit for the year or the previous year. A rate of 0.5% is used as
it represents management's assessment of a reasonable change in
interest rates.
Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. As at 31 December 2019, the maximum exposure to credit risk
from a trade receivable outstanding from one customer is $98
million (2018: $61 million).
The credit risk on liquid funds is limited because the
counterparties for a significant portion of the cash and cash
equivalents at the balance sheet date are banks with good credit
ratings assigned by international credit-rating agencies.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board of Directors. It is the Group's policy to finance its
business by means of internally generated funds, external share
capital and debt. The Group seeks to raise further funding as and
when required.
27. Contingent liabilities
The Group has a contingent liability of $27.3 million (2018:
$27.3 million) in relation to the proceeds from the sale of test
production in the period prior to the approval of the original
Shaikan Field Development Plan ("FDP") in July 2013. The Shaikan
PSC does not appear to address expressly any party's rights to this
pre-FDP petroleum. The sales were made based on sales contracts
with domestic offtakers which were approved by the KRG. The Group
believes that the receipts from these sales of pre-FDP petroleum
are for the account of the Contractor (GKP and MOL), rather than
the KRG and accordingly recorded them as test revenue in prior
years. However, the KRG has requested a repayment of these amounts
and the Group is currently involved in negotiations to resolve this
matter. The Group has received external legal advice and does not
consider that a probable material payment is payable to the KRG.
This contingent liability forms part of the ongoing Shaikan PSC
amendment negotiations and it is likely that it will be settled as
part of those negotiations.
28. Subsequent Events
Subsequent to year end, global oil prices have fallen
significantly. Contributors to the fall include the negative impact
on demand related to the global outbreak of the COVID-19 virus and
surplus oil supply. It is not possible to reliably estimate the
length or severity of these global developments, and hence their
potential financial and operational impact. If the current
situation prevails for an extended period of time, this could have
a significant adverse impact on the Company's financial results for
future periods.
For further information on the Group's assessment of the impact
these events may have on the Group's going concern, impairment and
viability assessments, please refer to the going concern and
carrying value of producing assets sections under the summary of
significant accounting policies and the Viability Statement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKBBQKBKBAQB
(END) Dow Jones Newswires
April 23, 2020 02:00 ET (06:00 GMT)
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