Final Results

Gulf Keystone Petroleum Ld 12 May 2005 12 May 2005 Gulf Keystone Petroleum Limited 2004 Preliminary Results UP TO 3.9 BILLION BARRELS OF EXPLORATION UPSIDE Gulf Keystone Petroleum Limited ("Gulf Keystone" or the "Company"), an independent oil & gas exploration company operating in the Republic of Algeria, today announces its preliminary results for the period ending 31 December 2004. Highlights • Raised £60 million through an initial placing and admission to trading on AIM • Drilled two wells, GRJ-1 and RDL-1 • Extended exploration and exploitation licence for Block 126A until 29 April 2006 • Application submitted to management committee for a production licence for GKN and a provisional exploitation authorisation to produce from GKS • Rig currently drilling GKS-3, the first well under a minimum one drilling rig year contract • Significantly expanding acreage position in Algeria from one block covering 5,891 km2 to nine blocks covering 33,216 km2 • The blocks contain 7 discoveries including 2 producing fields and upside exploration that more than doubles the company's reserve potential based on the preliminary evaluation Todd Kozel, Chief Executive Officer of Gulf Keystone said: "Following our recent block award successes, we believe we may now have some 1.5 billion barrels of exploration potential in our Algerian licences. Our intention is to seek to drill continuously for the next 3 years to attempt to prove and develop this substantial reserve and, if successful, convert it into production and cash flow." Enquiries Gulf Keystone Petroleum - available at 020 7638 9571 until 1400hrs Todd Kozel, Chief Executive Officer Evolution Securities (020 7071 4300) Rob Collins Citigate Dewe Rogerson (020 7638 9571) Media: Martin Jackson / George Cazenove Analysts: Kate Delahunty/Nina Soon Gulf Keystone Petroleum Limited 2004 Preliminary Results Chairman's Statement Of fundamental importance to achieving our business objectives was the placing of shares and admission of Gulf Keystone Petroleum to AIM, a market of the London Stock Exchange, in September 2004. The company raised £60 million in the placement, which provided the level of working capital needed to continue the work programme on our current holding, Block 126a. We have submitted documentation to the management committee for a permanent production licence for GKN and a provisional exploitation authorisation to produce from GKS. These wells tested at an aggregate maximum production of 8,595 bopd and 11,781 mcfgd. It is hoped that authorisation well be received before the end of 2005. This funding also enabled us to achieve our strategic initiative to expand our acreage position in Algeria. In April 2005 we acquired the exploration and appraisal rights to eight additional blocks in Algeria upon signing three new contracts with the Algerian Ministry of Energy and Mines covering the Bottena (Block 129), Benguecha (Block 108 and 128) and Hassi Ba Hamou Perimetres (Blocks 3176, 32263, 3476, 348 and 3496). Significantly, these contracts are for blocks that third party estimates indicate may have the potential of an additional 2.5 billion barrels of oil equivalent in place. Two of these contracts, which cover the Bottena and Benguecha Perimetres, are in respect of three blocks adjacent to our current holding, Block 126a - a block that has aggregate estimated remaining proven and probable reserves of approximately 221 MMboe, of which Gulf Keystone's share is approximately 107 MMboe. In aggregate, Gulf Keystone Petroleum now has appraisal and exploration rights covering 33,216 km2. The two contracts covering the Bottena and Hassi Ba Hamou Perimetres were awarded in Algeria's 6th international licensing round against stiff competition. Of the 25 companies that entered, only four were successful - Gulf Keystone Petroleum, BHP Billiton, BP and Shell. The third contract, covering the Benguecha Perimeter, was the result of direct negotiation with SONATRACH and the Algerian Ministry of Energy and Mines. I believe that we have earned these achievements thanks to the diligence and expertise of our management team who has gained a good understanding of the local operating environment as well as a high degree of technical expertise in Algeria's oil and gas sector. Plans are well advanced for the year ahead. We will continue drilling exploratory wells on those prospects showing strong perceived geophysical and geological evidence of commercially viable oil and gas reserves. That means focusing on our existing holdings in Block 126a, where we shall be carrying out further appraisal work, in addition to other exploration activities. Also this year we will develop and implement a new work programme to appraise and explore the eight new blocks. Concurrent with our planned exploration and appraisal activities, we will be endeavouring to pursue partnership opportunities with new and existing operators in Algeria and elsewhere in North Africa and the Middle East, where it is to our mutual advantage To close, I must reiterate that this past year Gulf Keystone Petroleum has taken significant steps forward. We have consolidated our position in Algeria, won new contracts against tough competition and identified significant exploration and appraisal prospects. We are ready to move forward to the next stage and view the future with confidence. Roger Parsons Non-executive Chairman Chief Executive - Review of operations I am delighted to be able to report a pivotal year of progress for Gulf Keystone. One which marks a significant turning point for the organisation. During the past year, Gulf Keystone completed the drilling of two exploration wells, GRS-1 and RDL-1 on Block 126a. Gulf Keystone also completed 120 kilometres of 2-D seismic on the block which satisfied the work commitment for the first exploration period. Upon completion of the work programme Gulf Keystone applied and was granted an extension of the contract on Block 126a until April 2006. Also in 2004, Gulf Keystone submitted to the management committee documentation for the GKN-1 permanent production licence and documentation for a provisional licence for GKS-2. Of all the activities that have taken place, the key achievement has been the award of three further contracts Gulf Keystone in Algeria. This adds an additional eight blocks to Gulf Keystone's position in Algeria. Gulf Keystone won these contracts against fierce international competition. 25 companies placed a total of 35 bids for the nine blocks available. Only four were awarded contracts: BP (three blocks), Shell (two blocks), BHP (two blocks) and Gulf Keystone (two blocks). It is a tremendous achievement and one which increases our holding to nine blocks overall and the size of our total holdings in the Republic of Algeria to 33,216 square kilometres. The new blocks have great potential for the future of our enterprise. We will not only be able to exploit certain of the existing discoveries on these blocks, but also pursue actively the exploration upside. We have estimated that the drilling and seismic commitment will cost approximately $39.5 million. Bottena perimeter (block 129) Covering an area of 4,368 square kilometres, the Bottena perimeter is in the South Constantine Basin, situated next to the eastern border of our existing holding (block 126a) extending towards the Tunisian border. The licence area also contains the Djebel Onk field (excluded from the licence) and the Hassi El Kerma (HEK) field. This latter field was discovered in 2001 and is one that SONATRACH identifies as containing 178 million barrels of oil in place (27 million barrels defined as proven and probable). This is more than two and a half times larger than the resources they attribute to Djebel Onk, which has to date produced 9 million barrels of oil. SONATRACH recently drilled two additional structures on the permit area, DDN (2000) and HCZ (2002) and estimate that these structures contain a combined 182 million barrels of oil in place. Using its 5,300 kilometres of 2D seismic, SONATRACH has mapped an additional two prospects and 21 leads to which they assign estimated oil in place resources of more than 750 million barrels. Finally, SONATRACH has drilled four wells on what was the first hydrocarbon discovery in the basin (1954), the Djebel Foua Field. SONATRACH has previously tested gas at rates greater than 8 million cubic feet per day from depths above 3,000 feet. This field is only twenty kilometres from the Trans-Mediterranean Pipeline. Gulf Keystone intend to appraise the discoveries Hassi El Kerma and Djebel Foua, drill one exploration well and acquire additional 2D and 3D seismic on the Bottena Perimeter. Hassi Ba Hamou perimeter (blocks 317b1-322b3-347b-348-349b) The second contract blocks awarded are in the Bechar Oued Namous basin. Called the Hassi Ba Hamou perimeter, and covering an area of 18,380 kilometres, it contains one existing gas field, HBH, which SONATRACH's engineers estimate contains over 1 trillion cubic feet of gas in place. The HBH Field was discovered in 1965 before the existence of the gas pipeline which now crosses the block, and has thus never been developed and put into production. The HBH-1 discovery well flowed at an initial rate of approximately 3 million cubic feet per day from porous sands above 3,200 feet depth. SONATRACH's interpretation of the previously acquired 4,069 kilometres of 2D seismic has identified eight additional prospects and leads with combined exploratory potential of an additional 4.4 trillion cubic feet of gas in place. Gulf Keystone intend to appraise the existing discovery, HBH-1, drill two exploration wells, acquire 100 square kilometres of 2D seismic and acquire 400 kilometres of 3D seismic during the first three year phase of the contract. Ben Guecha (blocks 108/128) The contract for these blocks, which established a joint venture between SONATRACH and Gulf Keystone, was a direct negotiation outside of the recent international bid round. The primary focus of the JV partners on the Benguecha permit will be the further appraisal of the Ras Toumb field and the exploration for additional reserves. SONATRACH's interpretation of its previously acquired 4,457 kilometres of 2D seismic on the permit has identified 7 additional prospects and leads, one of which, OSD, SONATRACH has completed drilling and logging of the well and has temporarily abandoned the well awaiting testing equipment. The further re-working and testing of this well, OSD-1, will be conducted by the newly formed SONATRACH/Gulf Keystone joint venture. We have committed to drill 2 wells on the permit over the next three years as a minimum work program. Importantly, this award of the Benguecha Permit outside the international bid round was further confirmation of the strong and mutually beneficial relationship that exists between Gulf Keystone, the Algerian Ministry of Energy and Mines and SONATRACH and was the first direct negotiation exploration block award that SONATRACH has signed outside the usual bid rounds. Further progress on Block 126a In addition to the proposed exploratory work on our new blocks, we will be concentrating our main efforts on Gulf Keystone's existing Block 126a - a block which Scott Pickford has estimated has remaining proven and probable aggregate reserves of approximately 221 million barrels of oil equivalent (MMboe), of which our share is approximately 107 MMboe. We have begun drilling operations on re-entry and sidetrack of GKS-3 in order to complete the objective section that well-logs indicate had better porosity and oil saturations than the GKS-2 field discovery well. We hope to encounter the reservoir section between the 3,500m and 4,000m depth. To better stimulate the well, we are also intending to re-drill the reservoir so as to be able to use a high volume completion technique. On completion of GKS-3, Gulf Keystone the rig will be moved to the SONATRACH-drilled GKS-2 well - the discovery well on our GKS structure - for re-completion. GKS is estimated by Scott Pickford to contain 29.6 MMboe recoverable reserves net to Gulf Keystone. We have the Saipem rig contracted for 12 months with an option to extend for an additional year. In addition, the 3D seismic programme in the south western part of the block is under way and should be completed by the end of June 2005. Our objective is to firm up drilling locations for exploration wells such as RTB-W, on trend with the existing Ras Toumb field in block 108 and hope to commence drilling the RTB-W exploration well by the end of the 3rd Quarter of 2005. Following this we hope to drill the GRJ-2 appraisal well. Outlook We are now embarking on a programme of development drilling which we hope will help us start to realise the potential of our holdings in the Republic of Algeria. We shall also continue to investigate opportunities in Algeria, in North Africa and the Middle East. We close the year with capital in place to finance the ongoing exploration and expected production. I'm confident and optimistic about the year ahead. Todd Kozel Chief Executive Officer Gulf Keystone Petroleum Limited PROFIT AND LOSS ACCOUNT for the year ended 31 December 2004 Notes 2004 2003 $'000 $'000 TURNOVER - - Net operating expenses (5,561) (3,921) OPERATING LOSS (5,561) (3,921) Other interest receivable and similar income 1,928 100 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (3,633) (3,821) Taxation 2 - - LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (3,633) (3,821) LOSS PER SHARE Basic and diluted 3 2.6 cents 4.2 cents The operating loss for the period arises from the Company's continuing operations. No separate Statement of Total Recognised Gains and Losses has been presented as all such gains and losses have been dealt with in the profit and loss account. Gulf Keystone Petroleum Limited BALANCE SHEET 31 December 2004 Notes 2004 2003 $'000 $'000 FIXED ASSETS Intangible assets 38,973 22,393 Tangible assets 80 49 Investments - - 39,053 22,442 CURRENT ASSETS Stock 2,485 869 Debtors 425 64 Cash at bank and in hand 89,882 6,975 92,792 7,908 CREDITORS: Amounts falling due within one year (4,068) (11,434) NET CURRENT ASSETS/(LIABILITIES) 88,724 (3,526) NET ASSETS 127,777 18,916 CAPITAL AND RESERVES Called up share capital 1,626 24,493 Share premium account 135,349 - Convertible warrants 12 - Profit and loss account (9,210) (5,577) SHAREHOLDERS' FUNDS 4 127,777 18,916 SHAREHOLDERS' FUNDS MAY BE ANALYSED AS: Equity interests 127,777 - Non equity interests - 18,916 127,777 18,916 Gulf Keystone Petroleum Limited CASH FLOW STATEMENT for the year ended 31 December 2004 Notes 2004 2003 $'000 $'000 Cash (outflow)/inflow from operating activities 5a (7,215) 3,913 Returns on investments and servicing of finance 5b 1,928 100 Capital expenditure and financial investment 5b (24,300) (18,381) CASH OUTFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING (29,587) (14,368) Financing 5b 112,494 20,363 INCREASE IN CASH IN THE PERIOD 82,907 5,995 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2004 2003 $'000 $'000 Increase in cash in the period 82,907 5,995 NET FUNDS AT 1 JANUARY 2004 6,975 980 NET FUNDS AT 31 December 2004 5c 89,882 6,975 Gulf Keystone Petroleum Limited NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2004 1 BASIS OF PREPARATION The financial information for the year ended 31 December 2004 has not been audited and does not constitute the Company's statutory financial statements within the meaning of S240 of the Companies Act 1985. This preliminary announcement was approved by the Board on 11 May 2005. The statutory financial statements for the year ended 31 December 2004 have not been filed with the Registrar of Companies nor reported on by the Company's auditors. It is expected that these will be circulated to shareholders in June 2005 and that the Annual General Meeting will be convened for 27th June 2005. The comparative results for the year ended 31 December 2003 are an abridged version of the audited financial statements which were prepared under United States Accounting Standards and on which the auditors issued an unqualified audit report. 2 TAXATION Under current laws in Bermuda and Algeria the company is not required to pay taxes on either income or capital gains. 3 LOSS PER ORDINARY SHARE The calculation of basic and diluted loss per ordinary share is based on the following losses and number of shares. 2004 2003 $'000 $'000 Loss for the financial period 3,633 3,821 2004 2003 No. of shares No. of shares Weighted average number of shares 138,101,277 90,000,000 Due to the loss incurred in the year, there is no dilutive effect from the issue of share options and warrants. Gulf Keystone Petroleum Limited NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2004 4 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS 2004 2003 $'000 $'000 Loss for the financial period (3,633) (3,821) Issue of share capital 120,952 14,951 Issue of convertible warrants 12 - Issue costs (8,470) - Net addition to shareholders' funds 108,861 11,130 Opening shareholders' funds 18,916 7,786 Closing shareholders' funds 127,777 18,916 Gulf Keystone Petroleum Limited NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2004 5 CASH FLOWS 2004 2003 $'000 $'000 a Reconciliation of operating loss to net cash outflow from operating activities Operating loss (5,561) (3,921) Depreciation 12 12 Increase in stock (1,616) - Increase in debtors (361) (456) Increase in creditors 311 8,278 Net cash outflow from operating activities (7,215) 3,913 b Analysis of cash flows for headings netted in the cash flow 2004 2003 $'000 $'000 Returns on investments and servicing of finance Interest received 1,928 100 Net cash inflow from returns on investments and servicing of finance 1,928 100 Capital expenditure and financial investment Purchase of tangible fixed assets (43) (12) Purchase of intangible fixed assets (24,257) (18,369) Net cash outflow from capital expenditure and financial investment (24,300) (18,381) Financing Proceeds from issue of share capital and warrants 120,964 20,363 Share issue costs (8,470) - Net cash inflow from financing 112,494 20,363 At 1 January Cash- At 31 December 2004 flow 2004 c Analysis of net funds $'000 $'000 $'000 Cash at bank and in hand 6,975 82,907 89,882 This information is provided by RNS The company news service from the London Stock Exchange

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