Operational Update

Gulf Keystone Petroleum Ld
08 January 2007





08 January 2007



                          GULF KEYSTONE PETROLEUM LTD
                       ("Gulf Keystone" or the "Company")


                FORMAL APPROVAL OF HBH AND BEN GUECHA CONTRACTS                                                         
                     UPDATE ON GKN / GKS FIELD DEVELOPMENT




Hassi Ba Hamou (HBH)



Following approval by the Algerian Council of Ministers, the introduction of BG
Group into the HBH Contract has been formally ratified by an announcement in the
Official Journal of Algeria. This is the final stage of the approval process
relating to the transaction between Gulf Keystone and BG, announced in August
2006, and paves the way for immediate completion of the transaction with BG. On
completion, BG will acquire a 36.75% interest in the HBH Concession, with Gulf
Keystone retaining a 38.25% interest. SONATRACH will continue to hold a 25%
interest.



Blocks 108 and 128a



The Council of Ministers has, in addition, given its approval to the award of
the contract covering the Ben Guecha Blocks (108 and 128a) which Gulf Keystone
signed in April 2005, and this approval has also now formally been announced in
the Official Journal of Algeria. This announcement formally marks commencement
of the first three year period of this exploration contract and enables Gulf
Keystone immediately to start its exploration and appraisal activities on these
blocks. The remaining work commitment covering the Ben Guecha blocks include the
drilling of one appraisal well on the Ras Toumb field, in which Gulf Keystone
acquired an interest under the 108/128a contract, and the drilling of one
exploration well.



Block 126



SONATRACH and Gulf Keystone have, following extensive discussions, now reached
final agreement on all aspects of the field development plans for the GKS and
GKN oil fields, including detailed plans for gas utilisation. The development
proposal is therefore now with the SONATRACH Executive Committee for its final
approval, which is a critical step leading up to the award of a production
licence covering the development of both fields. On Gazetting of the production
licence, the Company and SONATRACH will be able to commence phased development
operations on both fields and will assume immediate ownership of ongoing oil
production from well GKN-1.



In addition, SONATRACH has signed an amendment to Gulf Keystone's Production
Sharing Contract for Block 126a, which confirms the extension of this contract
for a period of 15 months with effect from 29 April 2006. This extension will
enable Gulf Keystone to proceed with the testing of the GRJ-2 discovery. This is
presently scheduled for early in the second quarter of 2007 utilising Saipem Rig
32.





Update on Operations



Hassi Ba Hamou



On the HBH Concession, work has already commenced on an extensive seismic
acquisition programme. The contractor, Global Geophysical, is currently
surveying the control points for the acquisition of the 2000km 2D survey and
work will continue over the next 10 months. The acquisition of the 500 km(2) 3D
survey, originally planned to follow after the 2D programme, has been
accelerated to run in parallel with the 2D survey to enable drilling to start as
early as possible. Gulf Keystone is currently evaluating tenders from five
drilling contractors for a programme of three appraisal and three exploration
wells on the block which the Company expects to commence in the fourth quarter
of 2007, following interpretation of the seismic data.



Block 129



On Block 129, the environmental impact assessment has been completed. With our
partner, SONATRACH, we have finalised a work programme and budget for 2007. The
expected work programme includes (but is not limited to) the testing of one of
the two discovery wells Hassi El Kerma 1 and Hassi El Kerma 3, the acquisition
of additional 2D seismic and the processing of 412km(2) of 3D seismic acquired
over the DDN discovery.



Blocks 108 / 128a



On Block 108, Gulf Keystone has completed the processing and preliminary
interpretation of 156 km(2) of 3D seismic acquired over the producing RasToumb
field. The inventory of potential prospects is now under detailed review.





Mr. Bill Guest, President of Gulf Keystone commented:



"Formal ratification of Gulf Keystone's agreement with BG Group, and of the
contracts covering Blocks 108 and 128a, represent important milestones in the
further development of the Company's Algerian exploration and production
business.



These, together with the useful progress made towards the award of a production
licence over GKN and GKS, place the Company on a strong financial and
operational footing going into 2007"



Enquiries

Gulf Keystone Petroleum: 020 7514 1400
Todd Kozel, CEO
Bill Guest, President


Citigate Dewe Rogerson: 020 7638 9571
Media enquiries: Martin Jackson / George Cazenove

Analyst enquiries: Kate Delahunty / Nina Soon
or visit: www.gulfkeystone.com


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