Agreement with BG Group

Gulf Keystone Petroleum Ld
04 August 2006

4th August 2006



                          GULF KEYSTONE PETROLEUM LTD

                       ("Gulf Keystone" or the "Company")



BG TO JOIN GULF KEYSTONE AND SONATRACH AS A STRATEGIC PARTNER IN HASSI BA HAMOU
                               PERIMETER, ALGERIA







Gulf Keystone Petroleum Limited, an independent oil and gas exploration company
operating in the Republic of Algeria, today announces a major expansion of its
exploration and appraisal activities, in partnership with SONATRACH, within
Algeria and the introduction of BG North Sea Holdings Limited ("BG"), a
subsidiary of BG Group Plc, as strategic partner in the Hassi Ba Hamou Perimeter
exploration, appraisal and exploitation contract ("HBH").



Gulf Keystone and its partner SONATRACH, the Algerian state oil company, have
signed an agreement with BG under which BG will be introduced as a partner in
the HBH Perimeter, onshore Algeria.  In addition, agreement has been reached by
all parties on a significant expansion of the planned exploration and appraisal
activities on HBH.



HBH was awarded to Gulf Keystone in April 2005, following the 6th International
Licensing Round, with the HBH Contract becoming effective in September 2005.
HBH covers 18,380 km2 in the Allal Dome area of Central Algeria, a gas prone
area that includes the Hassi Ba Hamou gas discovery and a number of leads and
prospects.



On the basis of a subsequent full technical and economic review of the area,
SONATRACH and Gulf Keystone have identified a significant potential gas resource
base within the HBH Perimeter. As a consequence, SONATRACH and Gulf Keystone
have concluded that a materially increased work programme will be required to
fully evaluate its potential.  The work programme that the partnership, Gulf
Keystone, SONATRACH and BG, have now therefore committed to carry out during the
first exploration and appraisal phase of the HBH Contract will include the
acquisition of 2,000 kms of 2D seismic, 500 km2 of 3D seismic, and the drilling
of at least six exploration and appraisal wells.



Under the agreement, BG will acquire 49% of Gulf Keystone's interest in HBH and
assume the role of Operator. Following completion of this transaction, which is
conditional upon the final approval of the relevant Algerian authorities ("
Completion"), Gulf Keystone will hold a 38.25% interest, BG a 36.75% interest
and SONATRACH a 25% interest in HBH.



Gulf Keystone and BG have additionally agreed to study the potential for further
co-operation with respect to gas exploration, appraisal and development projects
within Algeria.



The commercial terms of this transaction are required to be kept confidential.





Mr. Bill Guest, President of Gulf Keystone, commented:



"This is a strategically important transaction for Gulf Keystone.



We are delighted that BG is joining SONATRACH and Gulf Keystone as a partner in
this highly prospective area, the comprehensive evaluation of which we will now
be able to accelerate.  BG brings a highly complementary technical and
operational expertise and is firmly focussed on the rapid commercialisation of
gas from this and potentially other concession areas within Algeria.



Completion of this transaction will place the Company in a strong position to
further develop its business."



Enquiries

Gulf Keystone Petroleum: 020 7514 1400
Todd Kozel, CEO
Bill Guest, President
Jon Cooper, Finance Director



Citigate Dewe Rogerson: 020 7638 9571
Media enquiries: Martin Jackson / George Cazenove
Analyst enquiries: Nina Soon
or visit: www.gulfkeystone.com



The latest copy of the Company presentation entitled "The next phase of growth"
is available on the Company's website.






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