Interim Results
Gulf Keystone Petroleum Ld
30 September 2005
FOR IMMEDIATE RELEASE 30 SEPTEMBER 2005
GULF KEYSTONE PETROLEUM LIMITED
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005
Gulf Keystone Petroleum Limited ("Gulf Keystone" or the "Company"), the
independent oil & gas exploration company operating in the Republic of Algeria,
today announced its interim results for the period ending 30 June 2005.
Highlights
• Award of 8 new exploration and appraisal blocks in Algeria
• Presidential Decrees approving contracts on 6 of the new blocks
• Much improved test results on GKS-2 after a successful workover
• Successful completion of contractual commitments on Block 126a
• Cash balance of $79m as at 30 June 2005
• Loss per share down to 1.15c from 2.5c
• First time adoption of IFRS in line with best practice
Todd Kozel, CEO of Gulf Keystone said:
"Gulf Keystone has made significant operational progress. We were successful in
being awarded new acreage in Algeria and have already had the majority of the
new contracts ratified. Our excellent test results on block 126a are a major
step towards moving the GKS structure into commercial production."
Enquiries
Gulf Keystone Petroleum: 020 7514 1400
Todd Kozel, CEO
Caroline Brown, CFO
Evolution Securities: 020 7071 4300
Rob Collins
Citigate Dewe Rogerson: 020 7638 9571
Media: Martin Jackson / Rachel Lankester
Analysts: Nina Soon
or visit: www.gulfkeystone.com
Gulf Keystone Petroleum Limited
Chairman's Statement
The first half of 2005 has seen further significant growth and development of
the Company. We have successfully acquired eight new exploration and appraisal
blocks in Algeria and the contracts on six of these blocks have already been
approved by Presidential Decree. We have completed our contractual commitments
on block 126a and successful new test results from this block have moved the GKS
structure closer to commercial production.
Following its flotation on AIM in September 2004, Gulf Keystone has now
established a UK service company based in London. The Company has also chosen
to adopt International Financial Reporting Standards early in line with all
listed companies in the EU and with best practice.
New Blocks 129, 108/128 and HBH
In April 2005, Gulf Keystone expanded its acreage position in Algeria by
acquiring the exploration and appraisal rights to eight additional blocks in
Algeria upon signing three new contracts with the Algerian Ministry of Energy
and Mines. The new contracts cover the Bottena (Block 129), Ben Guecha (Block
108 and 128b) and Hassi Ba Hamou Perimeters (Blocks 317b1, 322b3, 347b, 348 and
349b, collectively HBH). Gulf Keystone will have the benefit of the existing
discoveries on these blocks and will actively pursue the perceived exploration
upside of all the new blocks. 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 the new contracts, for six new blocks comprising the Hassi Ba Hammou
Perimeter and the Bottena Perimeter, have now been approved by Presidential
Decrees. Gulf Keystone is currently developing and preparing to implement a new
work programme to appraise and explore its new blocks.
Progress on existing Block 126a
During the first half of 2005, Gulf Keystone successfully completed its
contractual commitments on block 126a with the acquisition of 600km of seismic
data and the drilling of one additional exploration well, RTBW-1. RTBW-1 was
unsuccessful in terms of discovering commercial quantities of hydrocarbons and
has been abandoned. During the period, the Company also successfully
sidetracked its GKS-3 well and submitted an application for a production licence
for GKN and a provisional exploitation authority to produce from GKS.
This month, a Halliburton snubbing unit completed a successful test on the GKS-2
well which was discovered by SONATRACH in 1994. Initial testing for production
at GKS-2 by SONATRACH at that time showed maximum flow rates of 2,737 bopd and
2,241 mcfd. A workover of the well by Gulf Keystone was necessary to
re-complete the well because it was temporarily abandoned. Gulf Keystone
conducted flow tests over a three day period from perforations over the Turonian
and Cenomanian reservoirs, at intervals between 3,685 meters and 3,794 meters.
Production testing of the well resulted in a measured flow rate of 4,586 barrels
of oil per day and 4.61 million cubic feet of gas per day at a flowing wellhead
pressure of 1,774 pounds per square inch through a 40/64 inch choke. The
Halliburton snubbing unit has now moved from GKS-2 to the Company's GKS-3
discovery well, a distance of 1 kilometre, for acid stimulation, testing, and
completion of the pay zone.
Finally, Gulf Keystone has now successfully spudded the GRJ-2 appraisal and
exploration well. Drilling is currently at almost 2,000m and the well is
expected to complete at 3,300m.
Results for the six months ended 30 June 2005
The results for the period have been prepared under International Financial
Reporting Standards ("IFRS") for the first time and all numbers presented for
comparative periods are also under IFRS. The largest impact of the adoption of
IFRS on the financial results is the inclusion of an expense calculated on the
basis of the fair value of employee share options, amounting to a charge of
$108,000 against the 2004 year end income statement. The full financial
effects of these changes on the previously reported results are contained in the
detailed financial section of this Interim Statement.
In the six months ended 30 June 2005, general and administration costs were
$4.1m compared with $2.2m for the same period last year. This was due to the
higher level of drilling and operating activity, set up and maintenance costs
for the UK subsidiary and its London office, and the expense of share option
grants made since flotation. After interest receivable of $1.2m (-), the loss
for the half year was $2.9m ($2.2m). The loss per share was reduced to 1.15c
(2.5c) reflecting the increased number of shares outstanding for the period.
Intangible assets have increased to $44.3m ($30.2m) due to the Company's
programme of drilling, testing and evaluation on the existing block 126a. Net
assets have increased significantly to $125.0m from ($29.7m as at 30 June 2004),
principally due to the proceeds of £60m raised at the time of flotation to
provide working capital. Net cash has declined over the period by $10.6m
($4.0m) and as at 30 June 2005 cash balances totalled $79.3m ($2.9m as at 30
June 2004).
Outlook
I believe that Gulf Keystone is well positioned to exploit its strategy as an
independent exploration and production company operating in Algeria by
continuing to grow its proven and probable reserves by a programme of drilling,
testing and evaluation.
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.
Roger Parsons
Non-executive Chairman
29 September 2005
Consolidated Income Statement
6 months ended 6 months ended 12 months ended
30 June 2005 30 June 2004 31 December 2004
Restated Restated
$000 $000 $000
Note
Revenue - - -
Operating expenses
General and administration costs (4,071) (2,246) (5,669)
Operating Loss (4,071) (2,246) (5,669)
Interest receivable 1,161 - 1,928
Loss before taxation (2,910) (2,246) (3,741)
Taxation 3 - - -
Loss for the period (2,910) (2,246) (3,741)
Loss per share (cents) 4
Basic (1.15) (2.5) (2.71)
Diluted (1.15) (2.5) (2.71)
Note: The operating loss for the period arises from the Group's continuing
operations.
Consolidated Balance Sheet
6 months ended 6 months ended 12 months ended
30 June 2005 30 June 2004 31 December 2004
Restated Restated
$000 $000 $000
Non-current assets
Intangible assets 44,321 30,180 38,973
Property, plant and equipment 761 43 80
Total non-current assets 45,082 30,223 39,053
Current assets
Inventory 3,208 448 2,485
Trade and other receivables 1,076 64 425
Cash and cash equivalents 79,322 2,931 89,882
Total current assets 83,606 3,443 92,792
Total assets 128,688 33,666 131,845
Current liabilities
Trade and other payables (3,648) (3,925) (4,068)
Total liabilities (3,648) (3,925) (4,068)
Net assets 125,040 29,741 127,777
Equity
Share capital 1,638 37,564 1,626
Share premium 135,349 - 135,349
Other reserve 297 - 120
Exchange translation reserve (16) -
Retained deficiency (12,228) (7,823) (9,318)
Total equity 125,040 29,741 127,777
Consolidated Cash Flow Statement
6 months ended 6 months ended 12 months ended
30 June 2005 30 June 2004 31 December 2004
Restated Restated
$000 $000 $000
Cashflows from operating activities
Loss for the period (4,071) (2,246) (5,669)
Depreciation 54 6 12
(Increase)/decrease in inventories (723) - (1,616)
(Increase)/decrease in trade and other (651) 421 (361)
receivables
(Decrease)/increase in trade and other payables (420) (7,509) 311
(Decrease)/increase currency revaluation (16) - -
(Decrease)/increase share option charge 189 - 108
Interest receivable 1,161 - 1,928
Net cash outflow from operating activities (4,477) (9,328) (5,287)
Cashflows from Investing activities
Purchase of property, plant and equipment (708) - (43)
Purchase of intangible assets (5,375) (7,787) (24,257)
Net cash outflow from investing activities (6,083) (7,787) (24,300)
Cashflows from financing activities
Proceeds from the issue of share capital - 13,071 112,494
Net cash generated from financing activities - 13,071 112,494
Net (decrease)/increase in cash and cash (10,560) (4,044) 82,907
equivalents
Cash and cash equivalents at start of period 89,882 6,975 6,975
Cash and cash equivalents at end of period 79,322 2,931 89,882
Consolidated Statement of Changes in Shareholders' Equity
Share Share Other Cumulative Retained Total
capital premium reserve translation deficit equity
adjustment
$'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 January 2004 24,493 - - - (5,577) 18,916
Loss for the period - - - - (2,246) (2,246)
Preferential shares 13,072 - - - - 13,072
Balance at 30 June 2004 37,565 - - - (7,823) 29,742
Loss for the period - - - - (1,495) (1,495)
Share conversion and issue (35,939) 135,349 - - - 99,410
Warrants issued - - 12 - - 12
Employee share options scheme - - 108 - - 108
Balance at 31 December 2004 1,626 135,349 120 - (9,318) 127,777
Loss for the period - - - - (2,910) (2,910)
Employee share option scheme - - 189 - - 189
Exercise of warrants 12 - (12) - - -
Currency translation adjustments - - - (16) - (16)
Balance at 30 June 2005 1,638 135,349 297 (16) (12,228) 125,040
Notes to the interim accounts
1. General Information
Gulf Keystone Petroleum Limited (the "Company") was incorporated and registered
in Bermuda on 29 october 2001 as an exempted company limited by shares with the
name Gulf Keystone Petroleum Algeria, Ltd. It changed its name to Gulf Keystone
Petroleum Limited on 20 May 2004. The common shares of the Company were listed
on AIM, a market operated by the London Stock Exchange, on 8 September 2004.
The Company maintains its registered office in Bermuda.
These consolidated interim financial statements of Gulf Keystone Petroleum
Limited for the six months ended 30 June 2005, comprise the Company and its
subsidiary (together the "Group"). The interim report was authorised for issue
by the directors on 29 September 2005. The financial statements are unaudited
but have been reviewed by Baker Tilly and their report is set out below.
2. Principal Accounting Policies of the Group
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRS's in issue that either are
endorsed by the EU and effective (or available for early adoption) at 30 June
2005 or are expected to be endorsed and effective (or available for early
adoption) at 31 December 2005, the Group's first annual reporting under IFRS.
Based on these adopted and unadopted IFRS, the directors have made assumptions
about the accounting policies expected to be applied, which are as set out
below, when the first annual IFRS financial statements are prepared for the year
ending 31 December 2005.
The adopted IFRS that will be effective (or available for early adoption) in the
annual financial statements for the year ending 31 December 2005 are still
subject to change and to additional interpretations and therefore cannot be
determined with certainty. Accordingly, the accounting policies for the annual
period will be determined finally only when the annual financial statements are
prepared for the year ending 31 December 2005.
BASIS OF PREPARATION
From January 1 2005, the Group has adopted International Financial Reporting
Standards ("IFRS") and the IFIRC interpretations in the preparation of its
consolidated financial statements. The financial statements have been prepared
under the historical cost basis. Information on the impact on accounting
policies and financial results resulting from the conversion from UK Generally
Accepted Accounting Practice ("UK GAAP") to IFRS is provided later in this
report.
The comparative figures for the financial year ended 31 December 2004 are based
on the audited financial statements for that year, adjusted for the effects of
IFRS. Those accounts, which were prepared under UK GAAP, have been reported on
by the Company's auditors. The report of the auditors was unqualified.
The financial information is presented in US dollars being the functional
currency of the Group because it is the currency of the primary economic
environment in which the Group operates. Operations denominated in other
currencies are included in this financial information in accordance with the
policies set out below.
BASIS OF CONSOLIDATION
The consolidated financial information incorporates the financial information of
the Company and the entities controlled by the Company (its subsidiaries).
Control is achieved where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits from its
activities, and generally assumes a shareholding of more than one half of the
voting rights. Subsidiaries are fully consolidated from the date at which
control is transferred to the Group and are de-consolidated from the date on
which control ceases. The Group uses the purchase method of accounting to
account for the acquisition of subsidiaries.
FOREIGN CURRENCIES
Assets and liabilities in foreign currencies are translated into US dollars at
the rates of exchange ruling at the balance sheet date. Transactions in foreign
currencies are translated into US dollars at the rate of exchange ruling at the
date of the transaction. Exchange differences arising are taken to the
consolidated income statement for the period.
The assets and liabilities of foreign operations are translated to US dollars at
foreign exchange rates at the balance sheet date. The revenues and expenses of
foreign operations are translated to US dollars at rates approximating the
foreign exchange rates ruling at the date of the transactions. Foreign exchange
differences arise on retranslation and are recognised directly in the
translation reserve.
SHARE BASED PAYMENTS
The Group has applied the requirements of IFRS 2 to share option schemes
allowing certain employees within the Group to acquire shares of the company.
For all grants of share options, the fair value as at the date of grant is
calculated using an appropriate option pricing model and the corresponding
expense is recognised over the expected life of the option.
Intangible and Tangible NON-CURRENT ASSETS - Oil and Gas Interests
It should be noted that guidance on certain aspects of full cost accounting has
not yet been provided by the IASB or IFRIC and the timing and outcome of such
guidance is uncertain. Consequently, the Group has continued to apply UK GAAP
full cost accounting policies that were in effect immediately prior to the
Group's transition to IFRS, subject to changes in accounting policy specifically
required under IFRS 6. Accordingly, amendments may be required to the
accounting policies set out in future periods.
Under full cost accounting all costs relating to the exploration for and
development of oil and gas interests, whether productive or not, are accumulated
and capitalised as non-current assets. These costs, which are initially
classified as intangible non-current assets, are only carried forward to the
extent that they are expected to be recouped through the successful development
of an area or where activities in an area have not yet reached a stage which
permits reasonable assessment of the existence of economically recoverable
reserves.
Costs dealt with in this way include seismic data, licence acquisition costs,
technical work, exploration and appraisal drilling, general technical support
and a proportion of directly attributable administrative and overhead costs.
Costs are transferred to depreciable pools within tangible non-current assets in
each regional cost pool upon declaration of commerciality or upon cessation of
exploration on each license and amortised over the life of the area according to
the rate of depletion of the economically recoverable costs. Any proceeds
arising from the sale or farm-out of assets are deducted from the relevant cost
pool.
Depreciation and depletion of costs in depreciable pools is provided under the
unit of production method which uses the estimated commercial reserves in the
cost pool and the sum of the total costs in the pool and any further anticipated
costs to develop such reserves.
At the end of each year, an assessment is made as to whether the economic value
of interests is in excess of costs capitalised as intangible assets. Any
impairment is transferred to depreciable regional cost pools within tangible
non-current assets and depreciated. Where a project is terminated, which is
ascertained on a country basis, the related exploration costs are written off
immediately.
PROPERTY, PLANT AND EQUIPMENT OTHER THAN OIL AND GAS ASSETS
Other property, plant and equipment is stated at historical cost.
Depreciation is provided on all other property, plant and equipment at rates
calculated to write each asset down to its estimated residual value evenly over
its expected useful life as follows:-
Furniture and equipment - 20% straight line
INTANGIBLE ASSETS OTHER THAN OIL AND GAS ASSETS
Intangible assets, other than oil and gas assets, have finite useful lives and
are measured at cost and amortised over their expected useful economic lives as
follows:-
Computer software - 33% straight line
LEASES
Rental payable under operating leases is charged to the income statement on a
straight line basis over the lease term.
INVENTORY
Stock relates to materials acquired for the use in exploration activities.
These are valued at the lower of cost and net realisable value.
TAXATION
Bermuda and Algeria currently impose no taxes on corporate income or capital
gains.
FINANCIAL INSTRUMENTS
The company's financial instruments comprise cash together with various items
such as other debtors and trade creditors etc, that arise directly from its
operations, are not interest bearing and are stated at their nominal value. The
main purpose of these financial instruments is to provide working capital.
3. Taxation
Under current laws in Bermuda and Algeria, the Group is not required to pay
taxes on either income or capital gains.
4. Loss per share
Loss per share have been calculated in accordance with IAS 33 Earnings per
share, by dividing the loss attributable to shareholders by the weighted average
number of shares in issue during the financial period. The calculation of basic
and diluted loss per share is based on the following losses and number of
shares:
6 months to 6 months to 12 months to 31
30 June 2005 30 June 2004 December 2004
Loss for the financial period ($'000) 2,910 2,246 3,741
Weighted average number of shares 253,388,732 90,000,000 138,101,277
Basic and diluted loss per share (cents) 1.15 2.50 2.71
5. Explanation of transition to IFRS
As required by IFRS 1, the impact of the transition from UK GAAP to IFRS is
explained below.
The accounting policies set out above have been applied consistently to all
periods presented in this interim financial information and in preparing an
opening IFRS balance sheet at 1 January 2004 for the purposes of the transition
to IFRS.
IAS 1 - Presentation of Financial Statements. The form and presentation of the
UK GAAP financial statements has been changed to be in compliance with IAS 1.
IFRS 2 - Share Based Payments. Under IFRS 2, share awards will be measured at
fair value at grant date and recognised as an expense to the income statement
over the expected term. The fair value of the incentives granted is measured
using a stochastic model. The impact of this standard on the financial
statements of the Group is a $108,000 charge to the year ended 31 December 2004
income statement and an equivalent increase in shareholder's funds. There is no
impact to the period ended 30 June 2004.
IAS 7 - Cash Flow Statements. The IFRS Cash Flow Statement, prepared under IAS
7, presents cash flows in three categories; cash flows from operating
activities, cash flows from investing activities and cash flows from financing
activities. Other than the reclassification of cash flow into the new
disclosure categories, there are no significant differences between the Group's
Cash Flow Statement under UK GAAP and IFRS. Consequently, no cash flow
reconciliations are provided. Purchases of tangible fixed assets under UK GAAP
have been reclassified to purchases of intangible assets and purchases of
property, plant and equipment under IFRS.
Details of the adjustments to the Group's financial performance is set out in
the following table:
Reconciliation of Loss for the year ended 31 December 2004
Loss for the Period: 30 June 2004 31 December 2004
Note $'000 $'000
Loss for the period as Reported (2,246) (3,633)
under UK GAAP
Share based payments 5 IFRS 2 - (108)
Total Loss Reported under IFRS (2,246) (3,741)
There is no change to the total equity other than the transfer between profit
and loss account and other reserve as a result of the above charge.
6. Further information
Copies of the Interim Statement have been sent to shareholders. Further copies
are available c/o Gulf Keystone Petroleum (UK) Limited, 16 Berkeley Street,
London 1WJ 8DZ. In addition, an electronic version of the Interim Statement can
be viewed on the Group's website: www.gulfkeystone.com.
Independent Review Report to Gulf Keystone Petroleum Limited
Introduction
We have been engaged by the Company to review the financial information set out
on pages 4 to 11 and we have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the AIM Rules.
Our review has been undertaken so that we might state to the Company those
matters we are required to state to it in this report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the AIM
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those that will be adopted in the
Group's annual financial statements.
As disclosed in note 2 to the financial information, the next annual financial
statements of the group will be prepared in accordance with IFRSs adopted for
use in the European Union. The accounting policies that have been adopted in
preparing the financial information are consistent with those that the directors
currently intend to use in the next annual financial statements. There is,
however, a possibility that the directors may determine that some changes to
these policies are necessary when preparing the full annual financial statements
for the first time in accordance with those IFRSs adopted for use by the
European Union. This is because, as disclosed in note 2, the directors have
anticipated that certain standards, which have yet to be formally adopted for
use in the EU, will be so adopted in time to be applicable to the next annual
financial statements.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review is substantially less in scope than an
audit performed in accordance with Auditing Standards and therefore provides a
lower level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
Baker Tilly
Chartered Accountants
2 Bloomsbury Street, London WC1B 3ST
29 September 2005
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