Gulf Keystone Petroleum Regulatory News (GKP)

12 Sep 2007 07:03

Gulf Keystone Petroleum Ld12 September 2007 12th SEPTEMBER 2007 GULF KEYSTONE PETROLEUM LIMITED ("GULF KEYSTONE" OR THE "COMPANY") INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 Gulf Keystone Petroleum Limited (AIM: GKP), an independent oil & gas explorationcompany operating in the Republic of Algeria, today announces its interimresults for the period ended 30 June 2007. Highlights • Management Committee approval of GKN/GKS development plan• Successful workover and test of HEK-3, stabilised flow rate of 1,040 bopd• Unsuccessful workover of GRJ-2 and subsequent impairment• Ratification of the Block 108/128 licence in January• Significant progress on the HBH seismic programme• Drilling contract awarded for six well programme on HBH• Gulf Keystone pursuing independent future post termination of RAK amalgamation• Board restructured Todd Kozel, Executive Chairman & CEO of Gulf Keystone said: "I believe that Gulf Keystone is well positioned to grow as an independent oil &gas company. We have in place a highly experienced core management and technicalteam, on which we will build further, and we are confident of making strong andrapid progress towards our twin objectives of crystallising further value fromour Algerian portfolio and diversifying our activities outside Algeria." Enquiries Gulf Keystone Petroleum: 020 7514 1400Todd Kozel, Executive Chairman and CEOJon Cooper, FD Citigate Dewe Rogerson: 020 7638 9571Media enquiries: Martin Jackson / George CazenoveAnalyst enquiries: Kate Delahunty Hoare Govett: 020 7678 8000Andrew Foster Tristone: 020 7399 2470Simon Ashby-Rudd Or visit: www.gulfkeystone.com GULF KEYSTONE PETROLEUM LIMITED ("GULF KEYSTONE" OR THE "COMPANY") Executive Chairman and Chief Executive Officer's Statement I am pleased to be able to report on the progress made by Gulf Keystone in itsexploration and production business during the first half of 2007. On the 25th June 2007, the SONATRACH / Gulf Keystone Joint Management Committeefor Block 126a unanimously approved the declaration of commerciality for GKN andGKS fields. Gulf Keystone now awaits the final approval of Al-Naft, the agencyin charge of the exploration and production sector in Algeria. Upon receipt of this final approval from Al-Naft, SONATRACH and Gulf Keystonewill work together to establish a Groupement (partnership) to manage this fielddevelopment. The field development plan envisages producing oil from the GKN-1well (currently producing at approximately 1,000 barrels of oil per day ("bopd")gross) and bringing the GKS-2 well on stream as soon as practicable. GulfKeystone will be entitled to its share of production from GKN-1 followingAl-Naft approval. As part of the Development Plan, SONATRACH and Gulf Keystone intend to build a2.3 kilometre pipeline to connect GKS-2 to the existing evacuation pipeline sothat this well can begin production. The GKS-2 well produced 4,586 barrels ofoil and 4.61 million cubic feet of gas per day when it was tested in 2005. Theexpected initial production rate for GKS-2 is an average of 2,000 bopd gross,which when combined with GKN-1 should initially provide total production ofapproximately 3,000 bopd gross. Under the new legislation introduced in 2005,flaring is now prohibited and the implementation of a gas management solution isrequired and has been presented to SONATRACH. The two fields will then bedeveloped in a staged process through the acquisition of 3-D seismic survey anda developmental drilling program jointly conducted by SONATRACH and GulfKeystone. The Company completed a two well workover and testing operation of potential oildiscoveries in Blocks 129 (well HEK-3) and 126a (well GRJ-2). In Block 129, the HEK-3 well achieved a stabilised flow rate of 1,040 bopd, andthe test produced a large amount of good quality engineering data. This,combined with the produced volume of oil and the long flow and shut in periods,will provide valuable data for reservoir evaluation and field development studypurposes. Production optimisation studies are being carried out to analyseoptions for further increasing well productivity with a view to the possibleearly development of this discovery. In this regard, consideration will be givento pump and/or gas lift options to further improve both the rate and deliverypressure of the well. The Company carried out a test of well GRJ-2, located on Block 126a, which wasdrilled by Gulf Keystone in late 2005. During initial drilling, the wellencountered encouraging hydrocarbon indications, from both core and log data inCenomanian / Turonian carbonates, the same reservoir interval that is producingin the GKN-1 well. Gulf Keystone tested two potential reservoir zones andperformed an injectivity and step rate test followed by matrix acidisation (minifrac) in both zones. The aim of the test program was to connect the fracture and/or the matrix permeability in the surrounding reservoir, and thereby accessmoveable hydrocarbons. Whilst technically operations were performedsuccessfully, no hydrocarbons flowed into the wellbore under test. Althoughthere will be no further operations on the GRJ structure, we will, as part ofour wider ongoing technical assessment of the northern blocks, now review allgeological, geophysical and engineering data that was collected during thisoperation to establish the likely reasons for lack of commercial flow from thisparticular well. Operationally, the Company continues to make important strides forward on itsintensive programme of exploration and appraisal activities. On the regionallyextensive HBH area, located in Central Algeria, significant progress has beenmade with the seismic acquisition programme. The acquisition of 2,000 line kmsof 2D seismic is now 65% complete with 1,311 kms acquired by late August. It isexpected that this programme will be completed by November. Early fieldprocessed, seismic lines from this first phase of 2D seismic acquisition remainencouraging. The acquisition of 3D seismic is now 33% complete with 177km2 ofthe 533km2 seismic acquired. There is a six well exploration and appraisalprogramme for the HBH licence area. The first drilling on the HBH area will bean appraisal well on the HBH discovery, scheduled for Q4 this year with theremaining 3 exploration wells and 2 appraisal wells being drilled during thecourse of 2008. To that end, a rig tender for this drilling programme has beenundertaken and the HBH partners, SONATRACH, BG and Gulf Keystone Petroleum, haveawarded the drilling contract to Saipem to drill all 6 wells on the HBH licencearea. The partners are now in discussion as to whether there is a requirementfor a second rig to further accelerate the exploration and appraisal programmeon the HBH licence area. The Company reports a loss after taxation of US$27.57 million (2006: lossUS$6.88 million) for the six months ended 30 June 2007. This loss is after acharge of US$22.9 million as a result of an impairment test on Block 126afollowing the failure to find commercial levels of hydrocarbons in GRJ. Net cash generated for the period of $37.6m, reflected the collection of $55mfrom the partial disposal of HBH in the prior year, which added significantly tothe group's cash reserve. Net cash used in operating activities for the periodwas $10.8m. In common with many exploration companies, the Group raises financefor its exploration and appraisal activities in discrete tranches to finance itsactivities for specific periods. The directors actively monitor the cashrequirements of the business, and further funding is raised as and whenrequired. The group's existing cash reserves, which stood at $97.0m at 30 June2007, are expected to be sufficient to cover known commitments and requirementson existing projects, at least through to the latter part of 2008. When any ofthe projects move into development, specific financing may be required to enabledevelopment to take place. The Block 108/128 licence, which was negotiated and agreed during July 2005, wasratified in January 2007 by publication in the Algerian official gazette. Thepublication marked the commencement of the first (three year) exploration andappraisal phase of the licence. Following the termination of the Amalgamation with RAK Petroleum, Gulf Keystonewill now continue to pursue its independent future. In addition to its existingactivities in Algeria, Gulf Keystone continues to focus efforts on the furtherdevelopment of its business and the expansion of its portfolio in other selectedareas of the Middle East and North Africa. I would like to thank Bill Guest, Roger Parsons, Sheik Sultan, Jon Cooper andIain Patrick for their respective contributions to the Company, during theirtenures and to welcome Ali Al Qabandi as an Executive Board member. The Boardintends to appoint two new independent non-executive directors and a new FinanceDirector. These new appointments will complete the restructuring of the Board,and no further appointments are being contemplated at this time. The Board isactively searching for suitable candidates to these positions and will updateshareholders in due course. Todd Francis KozelExecutive Chairman & Chief Executive Officer Condensed Consolidated Income StatementFor the six months ended 30 June 2007 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 (Restated - Note 5) $000 $000 $000 NoteContinuing OperationsOther Income/(expense):Gain on sale of assets 269 - 61,103Impairment of intangible exploration 3 - -assets (22,932)General and administration expenses (7,226) (7,653) (16,589)Profit/(Loss) from operations (29,889) (7,653) 44,514 Interest expense (22) - (229)Interest revenue 2,601 892 2,160Profit/(Loss) before tax (27,310) (6,761) 46,445Tax expense 4 (258) (120) (136)Profit/(Loss) after tax for the (27,568) (6,881) 46,309period Profit/(Loss) per share (cents)Basic 6 (10.09) (2.71) 17.69Diluted 6 (10.09) (2.71) 16.74 Condensed Consolidated Balance SheetAs at 30 June 2007 30 June 2007 30 June 2006 31 December 2006 (Restated - Note 5) $000 $000 $000 Non-current assetsProperty, plant and equipment 27,821 27,066 26,782Intangible assets 3,875 19,066 19,955Financial assets 5,866 - 5,597 37,562 46,132 52,334 Current assetsInventories 5,897 5,091 4,711Trade and other receivables 4,543 2,772 59,999Cash and cash equivalents 97,017 39,208 59,328 107,457 47,071 124,038Total assets 145,019 93,203 176,372 Current liabilitiesTrade and other payables (4,046) (7,415) (10,835)Tax liabilities (258) (120) (136)Provisions (3,530) (2,050) (2,050)Total liabilities (7,834) (9,585) (13,021) Net assets 137,185 83,618 163,351 EquityShare capital 1,853 1,638 1,853Share premium account 159,063 135,349 159,063Share option reserve 4,883 872 3,535Exchange translation reserve 11 6 (43)Accumulated losses (28,625) (54,247) (1,057)Total equity 137,185 83,618 163,351 Condensed Consolidated Statement of Changes in EquityFor the six months ended 30 June 2007 Share Share Share option Exchange Accumulated Total capital premium reserve translation losses equity account reserve $'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 January 2006 1,638 135,349 502 (57) (47,366) 90,066Loss for the period as previously - - - - (8,253) (8,253)reportedPrior period adjustment - - - - 1,372 1,372Loss for the period (restated - - - - - (6,881) (6,881)Note 5) Share based payment expense - - 370 - - 370Currency translation adjustments - - - 63 - 63Balance at 30 June 2006 1,638 135,349 872 6 (54,247) 83,618 Share conversion and issue 215 - - - - 215Profit for the period - - - - 53,190 53,190Share issue August 2006 - 23,714 - - - 23,714Share based payment expense - - 2,663 - - 2,663Currency translation adjustments - - - (49) - (49)Balance at 31 December 2006 1,853 159,063 3,535 (43) (1,057) 163,351 Loss for the period - - - - (27,568) (27,568)Share based payment expense - - 1,348 - - 1,348Currency translation adjustments - - - 54 - 54Balance at 30 June 2007 1,853 159,063 4,883 11 (28,625) 137,185 Condensed Consolidated Cash Flow StatementFor the six months ended 30 June 2007 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 (Restated - Note 5) $000 $000 $000Cash flows from operating activitiesProfit/(Loss) from operations (29,889) (7,653) 44,514Adjustments for:Depreciation of property, plant & equipment 148 110 212Amortisation of intangibles 36 24 64Impairment of intangibles 22,932 - -Share based payment expense 1,348 370 3,033Unwinding of decommissioning provision (22) - -(Decrease) in inventories (1,186) (1,619) (1,239)Decrease / (increase) in receivables 187 615 (62,210)(Decrease)/increase in payables (6,925) (18,020) 2,208Cash used in operations (13,371) (26,173) (13,418) Operating ActivitiesCash used in operations (13,371) (26,173) (13,418)Interest received 2,601 892 2,160Net cash used in operating activities (10,770) (25,281) (11,258) Investing activitiesProceeds on prior period sale of assets 55,000 - -Purchase of intangible assets (5,987) 9,561 (3,166)Purchase of property, plant and equipment (608) (1,583) (1,401)Net cash generated / (used) in investing 48,405 7,978 (4,567)activities Financing activitiesInterest paid - - (229)Short term loan - 5,009 23,929Net cash generated in financing activities - 5,009 23,700 Net increase/(decrease) in cash and cash 37,635 (12,294) 7,875equivalentsCash and cash equivalents at beginning of 59,328 51,439 51,439periodEffect of foreign exchange rate changes 54 63 14Cash and Cash equivalents at end of period 97,017 39,208 59,328being bank balances and cash Notes to the interim financial information 1. General Information Gulf Keystone Petroleum Limited (the "Company") was incorporated and registeredin Bermuda on 29 october 2001 as an exempted company limited by shares. Thecommon shares of the Company were listed on the Alternative Investment Market ("AIM") on 8 September 2004. The Company maintains its registered office inBermuda. This consolidated interim financial information of Gulf Keystone PetroleumLimited for the six months ended 30 June 2007, comprises the Company and itssubsidiary (together the "Group"). The interim report was authorised for issueby the directors on 12 September 2007. The financial information is un-auditedbut has been reviewed by Deloitte & Touche LLP and their report is set outbelow. The financial information for the year ended 31 December 2006 does notconstitute the company's Annual Report for that year, but it is derived fromthose accounts and is consistent with the accounting policies described therein.The auditors have reported on those accounts and their opinion was unqualified. 2. Principal Accounting Policies of the Group While the financial information contained in this statement has been completedin accordance with the recognition and measurement criteria of InternationalFinancial Reporting Standards ("IFRS"), this announcement does not itselfcontain sufficient information to comply with IFRS. This interim financial information has been prepared on the basis of existingaccounting policies and practices consistent with those adopted in the annualfinancial statements for the year ended 31 December 2006 and are also consistentwith those which will be adopted in the 2007 annual financial statements. 3. Impairment of Intangible Exploration Assets During the current period, an impairment loss was recognised in respect ofintangible exploration assets relating to Block 126a following the failure tofind commercial levels of hydrocarbons in GRJ. 6 months to 6 months to 12 months to 30 June 2007 30 June 2006 31 December 2006 (Restated)Impairment loss recognisedin respect of assets($'000) (22,932) - - 4. Taxation Under current laws in Bermuda and Algeria, the Group is not required to paytaxes on either income or capital gains. The tax charge relates to the profit ofthe United Kingdom subsidiary. 5. Restatement of prior year exploration and evaluation costs Under the terms of various of the Group's production sharing agreements,SONATRACH is entitled to receive an amount of any future production to the valueof $11.8m as cost recovery for past exploration expenditures. However, if nocommercially exploitable deposits are discovered, the Group does not oweSONATRACH for the data acquired. In June 2006, such obligations had beenrecorded as liabilities with the associated cost included in non-current assets.In these interims, the Group has restated its results to derecognise thisliability and associated asset, on the basis that these amounts are moreappropriately regarded as an integral part of the future production attributableto SONATRACH under the production sharing contract. This is consistent with thetreatment at 31 December 2006. The effect of the restatement of prior year exploration and evaluation costs onthe 30 June 2006 comparatives is as follows: Income Statement Half year as previously reported 30 June 2006 Impact of restatement As restated ($'000) ($'000) ($'000) Operating loss (9,025) 1,372 (7,653) Balance Sheet Half year as previously reported 30 June 2006 Impact of restatement As restated ($'000) ($'000) ($'000) Non-current assetsProperty, plant and equipment 27,066 - 27,066Intangible assets 29,494 (10,428) 19,066 56,560 (10,428) 46,132 Current assetsInventories 5,091 - 5,091Trade and other receivables 2,772 - 2,772Cash and cash equivalents 39,208 - 39,208 47,071 - 47,071Total assets 103,631 (10,428) 93,203 Current liabilitiesTrade and other payables (19,215) 11,800 (7,415)Tax liabilities (120) - (120)Provisions (2,050) - (2,050)Total liabilities (21,385) 11,800 (9,585) Net assets 82,246 1,372 83,618 6. Loss per share Loss per share has been calculated in accordance with IAS 33 Earnings per share,by dividing the loss attributable to shareholders by the weighted average numberof shares in issue during the financial period. The calculation of basic anddiluted loss per share is based on the following losses and number of shares: 6 months to 6 months to 12 months to 30 June 2007 30 June 2006 31 December 2006 (Restated)Profit/(Loss) for the financialperiod ($'000) (27,568) (6,881) 46,309 Weighted average number of shares 273,247,694 253,732,140 261,769,050Weighted average number of shares 273,247,694 253,732,140 276,679,257(diluted)Basic Profit/(loss) per share (10.09) (2.71) 17.6917(cents) Diluted Profit/(loss) per share (10.09) (2.71) 16.74(cents) 7. Bank guarantee As part of the contractual terms of the Algerian contracts, the Group has givenbank guarantees to SONATRACH of $21.6 million. These are cash backed guaranteeswhich effectively reduce the free cash available that the Group has on itsbalance sheet. That is $6 million for the Bottena ("129 Contract") workprogramme and $15.6 million for the Ben Guecha ("108/128b Contract") workprogramme. These guarantees are against the exploration and evaluationprogrammes stipulated in the contracts and are reduced as the work programmesare completed. 8. Subsequent events On 23 July 2007, five directors declared their intention to leave the company.Under the terms of the company's Share Option Plan any options granted that hadnot vested at the date of resignation will be forfeited. As a result, the sharebased payment expense relating to these options was reversed in the incomestatement in July 2007. 9. Further information An electronic version of the Interim Statement has been sent to the London StockExchange and posted to the Group's website: www.gulfkeystone.com. Hard copiesof the Interim Statement are available c/o Gulf Keystone Petroleum (UK) Limited,16 Berkeley Street, London 1WJ 8DZ. INDEPENDENT REVIEW REPORT TO GULF KEYSTONE PETROLEUM LTD Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the income statement, thebalance sheet, the cash flow statement, the statement of changes in equity andrelated notes 1 to 9. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company, in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare also responsible for ensuring that the accounting policies and presentationapplied to the interim figures are consistent with those applied in preparingthe preceding annual accounts except where any changes, and the reasons forthem, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. Deloitte & Touche LLPChartered AccountantsLondon 11 September 2007 Notes: A review does not provide assurance on the maintenance and integrity ofthe website, including controls used to achieve this, and in particular onwhether any changes may have occurred to the financial information since firstpublished. These matters are the responsibility of the directors but no controlprocedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination offinancial information differs from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange