Iraq: Gulf Keystone Petroleum provides operational and corporate update

Gulf Keystone Petroleum, a leading independent operator and producer in the Kurdistan Region of Iraq, has provided an operational and corporate update ahead of its AGM.

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

'Gulf Keystone entered 2023 following a year of strong operational and financial performance and continued delivery against the Company’s disciplined strategy of investing in profitable production growth, sustainable shareholder returns and maintaining a strong balance sheet. Following the suspension of Kurdistan crude exports on 25 March 2023 and continued delays to oil sales payments, our focus has shifted to aggressively reducing all costs to preserve liquidity, while maintaining safe operational readiness to quickly restart production. We are now exploring potential options to sell our crude to local buyers.

While no timeline has been publicly announced, we continue to believe the suspension of exports will be temporary and that the KRG will resume more normalised payments. We are encouraged by the ongoing engagement between the KRG, Iraq and Turkey and note the approval earlier this week of the Iraqi Federal budget, which is a step in the right direction towards formal recognition of Kurdistan production by Iraq and potentially paves the way for monthly budget transfers from Iraq to the Kurdistan Regional Government (“KRG”). We continue to closely monitor the situation.'

Operational

• Production from the Shaikan Field remains shut-in following the suspension of exports and closure of the Iraq-Turkey Pipeline on 25 March 2023
  • The suspension has resulted in a gross production deferment to date of around 4.3 million barrels, or approximately 11,800 bopd on a full-year basis (2023 gross average production guidance prior to suspension: 46,000 - 52,000 bopd)
• Almost all operational activity in the Shaikan Field has stopped since the pipeline closure in order to preserve liquidity
  • Production facilities currently ready to resume production
  • All drilling and well workover activity halted, with the drilling rig released following the completion and hook-up of SH-18
  • All expansion activity suspended, including the installation of water handling
  • Progressing critical safety upgrades and maintenance activity
  • No Lost Time Incidents for over 150 days
• Currently exploring opportunities to sell Shaikan Field crude to local buyers
  • Potential opportunities to initially sell a portion of PF-1 production at prices in line with the local market
  • Logistics in place to quickly restart trucking operations

Financial

• The Company continues to engage with the KRG regarding outstanding receivables for the months of October 2022 to March 2023 totalling $151 million net on the basis of the KBT pricing mechanism
• Net capital expenditures to the end of May 2023 are estimated at $49 million, including completion of SH-17 and SH-18, well workovers, well pad preparation, long lead items and expansion of production facilities
• Cash balance of $93 million at 15 June 2023

Outlook

• The Company continues to believe that the suspension of exports will be temporary and that the KRG will resume more normalised payments
  • While no official timeline to restart pipeline operations has been announced, the Company understands that discussions between the KRG, the Iraqi Ministry of Oil and the Turkish authorities remain ongoing
  • The KRG announced that it had reached an agreement with the Iraqi government on measures to allow the resumption of oil exports through Turkey, and also reported that Iraq's State Oil Marketing Organization (“SOMO”) had officially requested Turkish authorities to allow Kurdistan’s oil exports via the country's Ceyhan port
  • Iraq’s parliament recently approved the 2023-2025 Federal Iraqi budget, a step towards formal recognition of Kurdistan production by Iraq and potentially paving the way for monthly budget transfers from Iraq to Kurdistan
  • The Company continues to monitor the situation and is currently ready to resume production
• The Company remains focussed on preserving liquidity while proactively managing existing accounts payable
• Lowering net capital expenditures, operating costs and G&A to a monthly run rate of around $6 million net from July 2023
  • 2023 net capex currently estimated at $70-$75 million (previously revised guidance of $80-$85 million)
    • Estimated $49m net capex Jan-May 2023; estimated $20-$25m of safety critical and contractual commitments remaining for Jun-Dec 2023
  • 20% deferral of Executive Director salaries & Non-Executive Director fees and reduced staffing and contractor levels
  • Final 2022 ordinary annual dividend of $25 million cancelled, as announced on 23 May 2023, with the reinstatement of distributions to be considered once regular KRG payments resume
• Continuing to review additional liquidity options, including local crude and inventory sales and further cost reductions

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Source: Gulf Keystone Petroleum