Gulf Keystone Petroleum Regulatory News (GKP)

19 December 2022

Gulf Keystone Petroleum Ltd. (LSE: GKP)

(“Gulf Keystone”, “GKP” or “the Company”)

Operational, Corporate & AGM Update

Gulf Keystone, a leading independent operator and producer in the Kurdistan Region of Iraq (“KRI”), today provides an operational, corporate and AGM update.

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

“Our leverage to strong oil prices, low-cost production base and focus on capital discipline has led to significant cash flow generation in 2022, enabling us to deliver sector leading dividends of $215 million, repay our $100 million bond leaving us debt-free and continue to invest in Shaikan Field production growth.

2022 production is expected to be at the lower end of our 44,000 – 47,000 bopd guidance range, recently impacted by the temporary shut-in of one well due to an isolated Electrical Submersible Pump (“ESP”) electrical failure, which has just been worked over and restarted. We are currently producing c.44,400 bopd as we gradually ramp up production from both the restarted well and SH-16, which was brought online earlier this month.

To drive production and cash flow growth, we are maintaining drilling momentum, recently spudding SH-17 and subsequently planning to drill SH-P. We are reviewing our 2023 work programme with our partner and look forward to providing production, capex and opex guidance in the new year.

Jaap Huijskes, GKP’s Non-Executive Chairman, has expressed his intention to retire from the Board following the 2023 AGM. I would like to thank him for his outstanding contributions to the company over the past five years and in particular his guidance during my tenure.”

Operational

• Continued strong focus on safety, with no Lost Time Incident (“LTI”) recorded for over 420 days
• Gross average production in 2022 year to date of c.44,100 bopd; current production of c.44,400 bopd as at 17 December 2022
  • Production recently impacted by temporary shut-in of one well caused by an isolated ESP electrical failure
  • Following a prompt workover, the well has just been restarted and is gradually ramping up. All other well ESPs continue to function without any issues
  • Ahead of installation of water handling facilities, we continue to prudently manage our wells to avoid traces of water and optimise production

• Maintaining drilling momentum:
  • SH-16 drilled, completed and brought online this month on schedule and on budget
  • While the SH-16 well has good productivity, production is currently constrained due to the temporary use of a SH-12 flowline. We are planning to further ramp up production following installation of a dedicated flowline into PF-2 in Q1 2023
  • SH-17, situated on the same well pad as SH-16, was recently spudded with first production targeted into PF-2 in Q1 2023
  • Plan to drill SH-P, the next well in the sequence, following completion of SH-17; SH-P will be drilled from the existing SH-9 well pad and will produce into PF-1 with targeted start up in Q2 2023

• Carefully managing ongoing equipment lead time and cost pressures in a supply constrained market to progress preparatory work for the expansion of the production facilities, including water handling capacity procurement activities

Financial

• Significant cash flow generation in 2022 year to date, with $450.4 million net to GKP received from the Kurdistan Regional Government (“KRG”) for crude oil sales and revenue arrears
• Record dividends paid in 2022 of $215 million, representing a sector-leading dividend yield of 41% based on GKP’s closing price on 16 December 2022
• Robust, debt-free balance sheet, with a cash balance of $116.9 million at 16 December 2022

Outlook

• 2022 gross average production expected to be at lower end of 44,000 – 47,000 bopd guidance range, recently impacted by the temporary shut-in of one well caused by an isolated ESP electrical failure. The well was recently brought back online after a work over and production is gradually being ramped up
• 2022 net capital expenditure guidance of $110-$120 million unchanged, with additional costs related to the drilling of SH-17 offset by phasing of production facility expansion procurement activities
• 2022 gross Opex guidance of $2.9-$3.3/bbl unchanged
• While timing of FDP approval remains uncertain, we continue to engage with the Ministry of Natural Resources (“MNR”) towards project sanction and are progressing the tendering process for the Gas Management project that will materially reduce emissions
• We are currently in the process of agreeing the 2023 work programme with our partner and look forward to providing production, capex and opex guidance in the new year
• The Company is currently negotiating with the MNR to amend the Shaikan Lifting Agreement, including a change in reference price for Shaikan crude oil sales from Dated Brent to the local benchmark KBT (“Kurdistan Blend”), effective 1 September 2022. The final outcome and impact on realised prices remain uncertain and further updates will be provided as appropriate
• Assuming timely payment of invoices and strong oil prices, we expect continued robust cash flow generation, which would provide flexibility to continue to invest in the Shaikan Field and consider further distributions to shareholders, while preserving adequate liquidity

Board changes

Jaap Huijskes, the Company’s Non-Executive Chair, has expressed his intention to retire from the Board and will not seek re-election at the 2023 AGM. In line with our succession plan, we are reviewing alternatives, including commencing a process to appoint a new Non-Executive Chair with Mr Huijskes remaining as Chair until the AGM to ensure a smooth transition. The Company would like to thank Mr Huijskes for his leadership and guidance over the past five years, a period which has seen significant progress by the Company.

Update on Federal Iraqi Government & KRG dispute regarding Kurdistan oil & gas assets

In our 2022 Half Year Results Announcement, we reported the Iraqi Ministry of Oil had commenced proceedings in the Baghdad Commercial Court against various International Oil Companies ("IOCs") operating in the KRI, including GKP, seeking to nullify the Production Sharing Contracts ("PSCs") issued under the Kurdistan Oil and Gas Law ("KROGL"). Since then, the Company has learned from media reports that, on 23 October 2022, the Court issued decisions in absentia against Gulf Keystone and two other IOCs. Gulf Keystone did not have legal representation in the Court. Media has also reported similar judgements issued against several other IOCs.

The KRG continues to affirm that KROGL is validly constituted and the PSCs issued are valid and in full force and effect. Media reports indicate that high level political discussions are ongoing between the KRG and the recently appointed Federal Iraqi Government with a view to resolving the matter. The Company's operations in the Shaikan Field are currently unaffected. However, the matter continues to be closely monitored, including any potential impact on the restrictions placed on the export of crude oil, service contractors or any other parties by the Iraqi Ministry of Oil.

The Company is also aware of the ongoing arbitration case between the Federal Government of Iraq and the Turkish Government on the management of the Iraq to Turkey pipeline.

AGM update

At the Company's Annual General Meeting ("AGM") held on 24 June 2022, all resolutions were successfully passed. However, resolutions 2 and 7, being the re-election of the Company's Chairman and Chief Financial Officer, failed to attain the support of 80% of the shareholders who voted. Voting turnout continued to be low relative to prior years, with approximately 52% of the total shareholder register voting. The Company continues to look at ways to increase voting turnout at future general meetings.

Substantially all the votes against resolutions 2 and 7 were from a single major shareholder, who voted against the re-election of the same Directors at the 2021 AGM. The Company also notes that the proxy agencies Glass Lewis and ISS were in favour of all resolutions, including resolutions 2 and 7. In accordance with Provision 4 of the 2018 UK Corporate Governance Code, the Board has consulted with the single shareholder, and, as part of this exercise, also consulted with the Company's other major shareholders. Feedback received from the single shareholder encompassed issues principally related to the Company's operational progress, organisational structure and capital allocation.

The Board has carefully considered all feedback and has addressed issues, to the extent possible or necessary. The independent members of the Board continue to hold every confidence in both the Chairman and Chief Financial Officer, recognising the value and contribution each bring to the Company.

The Company will continue to engage with the major shareholder in question and welcomes ongoing engagement and feedback from all shareholders.

Enquiries:

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 Group'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.