25th Sep 2006 07:01
Gulf Keystone Petroleum Ld25 September 2006 GULF KEYSTONE PETROLEUM LIMITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 Gulf Keystone Petroleum Limited ("Gulf Keystone" or the "Company"), anindependent oil & gas exploration company operating in the Republic of Algeria,today announces its interim results for the period ending 30 June 2006. Highlights • BG joins as strategic partner to the HBH licence • Adoption of a significantly accelerated exploration and appraisal programme for HBH • HBH seismic programme to commence in October • Block 126a licence extension granted for testing of GRJ-2 oil discovery • Significant progress towards granting of GKN/GKS production licence • Upstream initiatives accelerated by successful £13.4 million placing Todd Kozel, CEO of Gulf Keystone said: "The first half of 2006 witnessed a transformation in the Company's prospects.The introduction of BG as a strategic partner, both for HBH and for our pursuitof new gas in Algeria, together with the refinancing of the Company and thebuilding of a first rate management team have placed the Company in a strongposition going forward. I look forward, with great optimism to the next phase ofthe Company's growth" Enquiries Gulf Keystone Petroleum: 020 7514 1400Todd Kozel, CEOBill Guest, PresidentJonathon Cooper, FD Citigate Dewe Rogerson: 020 7638 9571Media enquiries: Martin Jackson / George CazenoveAnalyst enquiries: Kate Delahunty / Nina Soon Or visit: www.gulfkeystone.comGulf Keystone Petroleum Limited Chairman's Statement 2006 has, so far, proven to be a pivotal period in Gulf Keystone Petroleum'sdevelopment. The recent introduction of BG Group plc ("BG") as a partner in ourkey Hassi Ba Hamou licence has been an important step in the execution of theCompany's strategy. In addition, the Company has made significant progresstowards securing a Production Licence for its Block 126a oil discoveries and wehave completed the building of a highly experienced and capable management team.Finally, we completed a successful funding which has provided us with theresources to immediately accelerate various upstream initiatives. Hassi Ba Hamou Concession The 18,380 sq km onshore concession was awarded to Gulf Keystone in April 2005and includes the HBH gas discovery and a number of significant leads andprospects. On the basis of a subsequent full technical and economic review, GulfKeystone and SONATRACH identified a significant potential gas resource basewithin this large licence area and in 2006 RPS Energy Limited ("RPS"), as partof a wider independent assessment of Gulf Keystone's resource base, carried outa review of the concession. RPS estimated that the HBH field containsrecoverable gas reserves of 995 bcf with a Low Estimate of 406 bcf and a HighEstimate of 1690 bcf (these are classified as "Contingent Resources", pendingcommercialisation of gas). RPS also confirmed a minimum of four undrilled leadsand prospects containing a further potential 1,935 bcf in place (Meanunrisked case) with a Low Estimate of 500 bcf and a High Estimate of 3,758 bcf(1). As a consequence, it was concluded by the Company that a substantially greaterexploration and appraisal work programme would be needed to optimally evaluatethe licence area. Consistent with the Company's portfolio management strategy,BG has therefore joined Gulf Keystone and SONATRACH as a strategic partner inthe licence to support this expanded and accelerated work programme and to leadthe rapid commercialisation of gas from this area. Under the farm-out agreement, BG will acquire 49% of Gulf Keystone's interest inHBH and assume the role of operator. Following completion of this transaction,which is conditional upon final ratification by the relevant Algerianauthorities, Gulf Keystone will hold a 38.25% interest, BG a 36.75% interest andSonatrach a 25% interest in HBH. Gulf Keystone and BG have additionally agreed to study the potential for furtherco-operation with respect to gas exploration, appraisal and development projectswithin Algeria This important transaction with BG, the terms of which are required to be keptconfidential, not only allows the Company to radically accelerate theexploration and appraisal of this highly prospective area, it also places theCompany in a strong position to develop further its upstream business. Of equalsignificance, bringing this transaction to a successful conclusion will reflectthe continuing strong and collaborative relationship that the Company enjoyswith its Algerian partners. The work programme that the HBH partnership now plan to carry out during theremaining two years of the first exploration period includes the acquisition of2,000kms of 2D seismic data, 500 sq km of 3D seismic data, and the drilling ofat least six exploration and appraisal wells. A seismic contract has alreadybeen concluded with Global Geophysical Services Limited and the extensiveprogramme of acquisition is expected to begin during October. The tenderingprocess for the provision of drilling services from mid 2007 onwards is welladvanced. Northern Blocks (Constantine Basin) Significant progress has been made towards the granting of a Production Licencefor the GKN and GKS oil discoveries located in block 126a. All documentationrelating to the future plans for these two discoveries has now been fullyreviewed by and discussed with our partner SONATRACH and their formalrecommendation relating to the grant of a Production Licence is now with theMinister of Energy and Mines. It has been agreed that GKS and GKN will now be the subject of a singleProduction Licence. The GKN field is already linked by pipeline to the Ras Toumbfield and the GKS field discovery well, GKS-2, will be tied into the GKNpipeline as soon as is practicable following the necessary pipeline capacityupgrades. One additional development well will be drilled on each of thediscoveries as part of the first phase of development. Subsequent phases ofdevelopment will depend on production and other information gained during thisinitial phase. An oil discovery was made on the GRJ structure in 2005. Data from the discoverywell, GRJ-2, indicated that there are three separate potential reservoirintervals which may have the potential to contain hydrocarbons. Testing of thewell was deferred pending formulation of an optimal test programme and thegranting of a licence extension by the Algerian authorities to facilitatecompletion of the work. A licence extension, in relation to the GRJ structure, has now been granteduntil the end of December 2006 and a testing programme has been prepared. Inaddition, the Company has now acquired an option to access a drilling rig forthe operation. The full technical review of the Bottena Perimeter, Block 129 in the south ofthe Constantine Basin adjacent to Block 126a, has now been completed and plansare in place to move forward the evaluation of that block in 2007. With regardto the Ben Guecha blocks, 108 / 128b, the Company looks forward to earlyratification of these licences by the Algerian authorities. Financial Results The Company reports a loss before tax of $8.1 million for the period compared to$1.1 million for the same period last year. This loss is after exploration costsof $1.8 million and general and administrative costs of $6.8 million. Theseexploration costs relate to relinquished acreage. The increased G&A costs overthe comparable period reflect a full period of costs for the UK subsidiary, theLondon office and increased personnel costs. Capital expenditure on exploration and evaluation activities was $0.9 million. At 30 June 2006 the Company had $39 million in cash of which $34.7 million waspledged against the issue of bank guarantees to SONATRACH. The Company has $5million of short term debt. Post period end the Company raised £13.4million(approximately $25 million) before expenses via an issue of 21,600,000 commonshares. Outlook The completion of the transaction with BG will place the Company in a strongposition to accelerate the exploration and appraisal of its existing portfolio,and to begin to expand its upstream business. However, securing a Production Licence for GKN and GKS and achieving early firstoil production remains an important priority, not only to secure income butalso, of equal importance, to demonstrate the Company's continuing ability tocrystallise value from its Algerian portfolio. The Company has now completed the building of its management team with threerecent key appointments; Jon Cooper and Iain Patrick joining in March as,respectively, Finance Director of Gulf Keystone Petroleum Limited and Directorof Commercial and Legal Affairs for Gulf Keystone Petroleum (UK) Limited, andDavid Mackertich joining us in August as Executive Vice President of Explorationand Technical. With this significantly strengthened team, the Company is wellplaced to not only expand its position in Algeria but also to consider a limitednumber of selected upstream opportunities elsewhere in the Middle East and NorthAfrica where the Company considers that it has a potential competitive edge atthe point of access of such opportunities. Roger ParsonsNon-executive Chairman25 September 2006 (1)The methodology employed for this present evaluation, and the classificationof resources set out below, is in line with the guidelines contained in the"Guidance Note for Mining, Oil and Gas companies" issued by AIM in March 2006. The information contained in this announcement has been reviewed by FrancisBoundy, Valuations Director of RPS Energy Limited, who has 15 years ofexperience as a Petroleum Engineer. Consolidated Income Statement 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December 2005 Restated $000 $000 $000 NoteContinuing OperationsRevenue - - -Impairment provision - - (35,145)Exploration Costs (1,847) - -General and administration (6,808) (2,043) (7,325)expensesShare option expense (370) (189) (394)Loss from operations (9,025) (2,232) (42,864) Interest receivable 892 1,161 2,213Loss before tax (8,133) (1,071) (40,651)Tax expense 3 (120) - (135)Loss after tax for the period (8,253) (1,071) (40,786) Loss per share (cents) 4 Basic (3.25) (0.42) (16.08) Diluted (3.25) (0.42) (16.08) Consolidated Balance Sheet 30 June 2006 30 June 2005 31 December 2005 Restated $000 $000 $000 Non-current assetsProperty, plant and 27,066 764 25,594equipmentIntangible assets 29,494 48,895 28,651 56,560 49,659 54,245 Current assetsInventories 5,091 3,208 3,472Trade and other 2,772 1,076 3,386receivablesCash and cash equivalents 39,208 79,322 51,439 47,071 83,606 58,297Total assets 103,631 133,265 112,542 Current liabilitiesTrade and other payables (19,215) (3,648) (20,291)Tax liabilities (120) - (135)Provisions (2,050) - (2,050)Total liabilities (21,385) (3,648) (22,476) Net assets 82,246 129,617 90,066 EquityShare capital 1,638 1,638 1,638Share premium account 135,349 135,349 135,349Share option reserve 872 297 502Exchange translation 6 (16) (57)reserveAccumulated losses (55,619) (7,651) (47,366)Total equity 82,246 129,617 90,066 Consolidated Statement of Changes in Shareholders' Equity Share Share Share Accumulated Cumulative Total capital premium option deficit translation equity reserve reserve $'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 January 2005 1,626 135,349 120 (6,580) - 130,515Loss for the period as previously - - - (2,910) - (2,910)reportedPrior year adjustment - - - 1,839 - 1,839-as restated - - - (1,071) - (1,071) Employee share option expense - - 189 - - 189Currency translation adjustments - - - - (16) (16)Warrants subscribed 12 - (12) - - -Balance at 30 June 2005 1,638 135,349 297 (7,651) (16) 129,617 Loss for the period - - - (39,715) - (39,715)Employee share option expense - - 205 - - 205 Currency translation adjustments - - - - (41) (41)Balance at 31 December 2005 1,638 135,349 502 (47,366) (57) 90,066 Loss for the period - - - (8,253) - (8,253)Employee share option expense - - 370 - - 370Currency translation adjustments - - - - 63 63Balance at 30 June 2006 1,638 135,349 872 (55,619) 6 82,246 Consolidated Cash Flow Statement 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December 2005 Restated $000 $000 $000 Cash flows from operating activitiesLoss from operations (9,025) (2,232) (42,864)Adjustments for: -Depreciation of property, plant & 110 54 142equipmentAmortisation of intangibles 24 - 27Impairment of intangibles - - 35,145Share based payment expense 370 189 394Increase in inventories (1,619) (723) (987)Increase in provision - - 2,050Decrease/(increase) in receivables 615 (651) (2,961)(Decrease)/increase in payables (6,220) (420) 6,922Cash used in operations (15,745) (3,783) (2,132) Operating ActivitiesCash used in operations (15,745) (3,783) (2,132)Interest received 892 1,161 2,213Net cash (used)/generated in operating (14,853) (2,622) 81activities Investing activitiesPurchase of intangible assets (867) (7,214) (37,663)Purchase of property, plant and (1,583) (708) (804)equipmentNet cash used in investing activities (2,450) (7,922) (38,467) Financing activitiesShort term loan 5,009 - -Net cash generated in financing 5,009 - -activities Net decrease in cash and cash (12,294) (10,544) (38,386)equivalentsCash and cash equivalents at beginning 51,439 89,882 89,882of yearEffect of foreign exchange rate 63 (16) (57)changes Cash and cash equivalents at end of 39,208 79,322 51,439period being 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 2006, comprise the Company and itssubsidiary (together the "Group"). The interim report was authorised for issueby the directors on 25 September 2005. The financial information is un-auditedbut has been reviewed by Baker Tilly and their report is set out below. The figures for the year ended 31 December 2005 have been extracted from theannual accounts which contained an unqualified audit opinion. 2. Principal Accounting Policies of the Group This interim financial information has been prepared on the basis of existingaccounting policies and practices consistent with those adopted in the accountsfor the year ended 31 December 2005 and are also consistent with those whichwill be adopted in the 2006 annual financial statements In 2003 and 2004, not all attributable administrative and overhead costs werecapitalised according to the Group's policy. The financial statements to June2005 have been restated to correct this. The impact of this has been to reduceadministrative expenses and loss before tax by $1,839,000 and increaseintangible asset by a corresponding amount. The decrease in loss per share is0.73 cents. The corresponding figures in respect of the full year to 31 December2005 were included in the annual accounts. 3. Taxation Under current laws in Bermuda and Algeria, the Group is not required to paytaxes on either income or capital gains. The tax charge relates to the profit ofthe United Kingdom subsidiary. 4. Loss per share Loss per share has been calculated in accordance with IAS 33 Earnings per share,by dividing the loss attributable to shareholders by the weighted average numberof shares in issue during the financial period. The calculation of basic anddiluted loss per share is based on the following losses and number of shares: 6 months to 6 months to 12 months to 30 June 2006 30 June 2005 31 December 2005 Restated Loss for the financial period 8,253 1,071 40,786($'000) Weighted average number of 253,732,140 253,388,732 253,677,757shares Basic loss per share (cents) 3.25 0.42 16.08 5. Subsequent events Gulf Keystone Petroleum Limited has announced a major expansion of itsexploration and appraisal activities, in partnership with SONATRACH, withinAlgeria and the introduction of BG North Sea Holdings Limited ("BG"), asubsidiary of BG Group Plc, as strategic partner in the Hassi Ba Hamou Perimeterexploration, appraisal and exploitation contract ("HBH"). Gulf Keystone and its partner SONATRACH, the Algerian state oil company, havesigned an agreement with BG under which BG will be introduced as a partner inthe HBH Perimeter, onshore Algeria. In addition, agreement has been reached byall parties on a significant expansion of the planned exploration and appraisalactivities on HBH. Under the agreement, BG will acquire 49% of Gulf Keystone's interest in HBH andassume the role of Operator. Following completion of this transaction, which isconditional upon the final approval of the relevant Algerian authorities("Completion"), Gulf Keystone will hold a 38.25% interest, BG a 36.75% interestand SONATRACH a 25% interest in HBH. On August 17th, Gulf Keystone announced the successful completion of a Placingfor a total of 21,600,000 new common shares of US$0.01 each (the 'PlacingShares'), representing approximately 8.5 percent of Gulf Keystone's existingissued share capital, by Hoare Govett Limited and Tristone Capital Limited withinstitutions at a price of 62 pence per share, raising approximately £13.4million before expenses. The Placing Shares were issued credited as fully paid and rank pari passu in allrespects with the existing common shares of Gulf Keystone, including the rightto receive all dividends and other distributions declared, made or paid afterthe date of issue of the Placing Shares. The placing shares were admitted totrading on AIM on 22 August 2006. 6. Bank guarantee As part of the contractual terms of the Algerian contracts, the Group has givenbank guarantees to SONATRACH of $34.7 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, $15.6 million for the Ben Guecha ("108/128b Contract") work programmeand $13.1 million for the Hassi Be Hamou (Blocks 317b, 322b3, 347b, 348 and349b) work programme. These guarantees are against the exploration andevaluation programmes stipulated in the contracts and are reduced as the workprogrammes are completed. 7. 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 copies ofthe Interim Statement are available c/o Gulf Keystone Petroleum (UK) Limited, 16Berkeley Street, London 1WJ 8DZ. INDEPENDENT REVIEW REPORT TO GULF KEYSTONE PETROLEUM LIMITED Introduction We have been instructed by the group to review the financial information for thesix months ended 30 June 2006 which comprises Consolidated Income Statement,Consolidated Balance Sheet, Consolidated Statement of Changes In Shareholders'Equity and Consolidated Cashflow Statement and the related notes. We have readthe other information contained in the interim statement and considered whetherit contains any apparent misstatements or material inconsistencies with thefinancial information. This report, including the conclusion, has been prepared for and only for thegroup for the purpose of their interim statement and for no other purpose. We donot, therefore in producing this report, accept or assume responsibility for anyother purpose or to any other person to whom this report is shown or into whosehands it may come save where expressly agreed by our prior consent in writing. Directors' responsibilities The interim statement, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the AIM MarketRules which require that the accounting policies and presentation applied to theinterim figures must be consistent with those adopted in the group's annualaccounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom, as if thatBulletin applied. A review consists principally of making enquiries of groupmanagement and applying analytical procedures to the financial information andunderlying financial data and based thereon, assessing whether the disclosedaccounting policies have been consistently applied unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly, we do notexpress 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 2006 Baker TillyChartered Accountants2 Bloomsbury StreetLondon WC1B 3ST 25 September 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Gulf Keystone Petroleum