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Gulf Keystone (AIM: GKP) is an independent oil and gas exploration company operating in the Republic of Algeria.

Summary

• The board of directors of Gulf Keystone, RAK Petroleum and RAK Bermuda, a wholly owned subsidiary of RAK Petroleum, announce the terms of a recommended acquisition of Gulf Keystone by RAK Petroleum to be effected by way of an amalgamation of Gulf Keystone with RAK Bermuda.
• Under the terms of the proposed Amalgamation Gulf Keystone Shareholders will receive:

• At the Amalgamation Consideration of 74 pence per Gulf Keystone Share, the value of the issued and to be issued Gulf Keystone Shares (including Gulf Keystone shares that may be issued under the Gulf Keystone Executive Bonus Scheme) to be cancelled pursuant to the Amalgamation, together with the Cash Cancellation Consideration for other Gulf Keystone Options, is approximately £208 million.

Background to the Amalgamation

• Notwithstanding the success of Gulf Keystone in building its portfolio of assets within Algeria, the Directors believe that for a company of Gulf Keystone’s size and resources, the generation of future cash flow and the realisation of the full potential of the Company’s portfolio in a timely and predictable manner will continue to be challenging given the operational environment in which it is working.
• The Amalgamation Consideration represents a premium of approximately:
  • 17.5 per cent. to the average Closing Price of approximately 63.0 pence per Gulf Keystone Share for the one month period ended on 5 February 2007, being the last dealing day prior to the date of Gulf Keystone’s announcement that it was in discussions which may or may not lead to an offer being made for the whole of the issued and to be issued share capital of the Company;
  • 20.9 per cent. to the average Closing Price of approximately 61.2 pence per Gulf Keystone Share for the three month period ended on 5 February 2007; and
  • 19.4 per cent. to the Placing Price of 62 pence per Gulf Keystone Share on 17 August 2006.

Overview of RAK Petroleum

• RAK Petroleum is an unlisted public company incorporated in the Ras Al Khaimah Free Zone, and was established in late 2005 funded by an initial capital of approximately AED 3 billion raised by private placement.  RAK Petroleum has a further unissued authorised capital allocation of AED 2 billion to be utilised in future fundraisings.  The vast majority of RAK Petroleum’s issued share capital is held in the United Arab Emirates and Saudi Arabia.
• RAK Petroleum was founded with the objective of initiating, participating, investing and developing energy related projects, assets, ventures and businesses in the highly prospective Gulf Cooperation Council markets and beyond. RAK Petroleum is strategically focused on developing into an international, integrated oil and gas company.

The Amalgamation

• The Amalgamation is subject to a number of conditions, including the approval by a simple majority of votes cast by Gulf Keystone Shareholders voting in person or by proxy at a general meeting and Algerian regulatory approvals.
• The effect of the Amalgamation will be that, conditional upon satisfaction or waiver of the Conditions, Gulf Keystone and RAK Bermuda will amalgamate and on the Effective Date the Gulf Keystone Shares will be cancelled in exchange for the payment of the Amalgamation Consideration to Gulf Keystone Shareholders.
• Full details of the Amalgamation and the conditions precedent to completion of the Amalgamation are set out in Appendix I and Appendix II to this Announcement.

Irrevocable undertakings

• RAK Petroleum and RAK Bermuda have received irrevocable undertakings to vote in favour of the Amalgamation Resolution from the Directors, Gulf Keystone Petroleum Co. LLC, GIBCA, Ali Al-Qabandi, and Ibrahim Al-Khaldi in respect of 90,973,366 Gulf Keystone Shares (representing approximately 33 per cent. of the Gulf Keystone issued share capital). All of the irrevocable undertakings will cease to be binding if a person other than RAK Petroleum, or a subsidiary or parent of RAK Petroleum, formally announces via a Regulatory Information Service a Competing Proposal or the Company has served confirmation in writing to RAK Petroleum of a Superior Proposal to acquire all of the Gulf Keystone Shares, other than any Gulf Keystone Shares already owned by the person making such offer, provided that the value of the consideration under such transaction represents, in the reasonable opinion of the Independent Directors, an improvement of five per cent. or greater to the value of the Amalgamation Consideration and, within seven days of such announcement, RAK Petroleum does not formally announce a revised offer to acquire all of the Gulf Keystone Shares which is, in the reasonable opinion of the Independent Directors, on no less favourable terms.

Recommendation of the Independent Directors

• Hoare Govett and Tristone Capital have acted as financial advisers to the Company in connection with the Amalgamation and Tristone Capital has provided the Independent Directors with an independent opinion in relation to the fairness of the value, from a financial point of view, of the Amalgamation Consideration to be received by the Gulf Keystone Shareholders (other than those Gulf Keystone Shareholders holding Excluded Shares).  In providing their independent advice, Hoare Govett and Tristone Capital have taken into account the commercial assessments of the Independent Directors. Based upon such advice and consideration, the Independent Directors have unanimously resolved to recommend that the Amalgamation Agreement be approved by the Gulf Keystone Shareholders and that the Amalgamation Consideration be confirmed as representing fair value for the Gulf Keystone Shares.

Todd Kozel, Chief Executive of Gulf Keystone Petroleum Limited said:

"The Gulf Keystone Board is pleased to support this transaction as we believe it delivers fair value to our shareholders for the portfolio of assets that the Company has built up over the last six years and that RAK Petroleum PCL offers enhanced opportunities for our employees and benefits to Algeria given RAK Petroleum PCL’s ability to more rapidly develop the country’s strategic resources."

Mr Abdul-Aziz Al Ghurair, Chairman of RAK Petroleum said:

"We are delighted to have reached agreement on the acquisition of Gulf Keystone.  When combined with our recently announced acquisition of the majority of Indago Petroleum’s assets, we believe this creates a strong platform for future growth within the strategic focus areas of RAK Petroleum."

This summary should be read in conjunction with the full text of the announcement. The Amalgamation will be subject to the terms and conditions set out in Appendix I to this Announcement. Appendix III contains the definitions of certain terms used in this Announcement.

The Circular including a letter from the Chairman of Gulf Keystone and a notice convening a Special General Meeting of the Company to approve the terms of the Amalgamation Agreement will be posted to Gulf Keystone Shareholders today.

Enquiries:

This Announcement does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy any security, nor is it a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in this Announcement in any jurisdiction in contravention of applicable law.

Goldman Sachs International, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for RAK Petroleum PCL and RAK Petroleum (Bermuda) Limited and for no-one else in connection with the transaction and will not be responsible to anyone other than RAK Petroleum PCL and RAK Petroleum (Bermuda) Limited for providing the protections afforded to clients of Goldman Sachs International or any advice in relation to the transaction nor any other matter referred to in this Announcement.

Hoare Govett Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Gulf Keystone Petroleum Limited and for no-one else in connection with the transaction and will not be responsible to anyone other than Gulf Keystone Petroleum Limited for providing the protections afforded to clients of Hoare Govett Limited or any advice in relation to the transaction nor any other matter referred to in this Announcement.

Tristone Capital Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Gulf Keystone Petroleum Limited and for no-one else in connection with the transaction and will not be responsible to anyone other than Gulf Keystone Petroleum Limited for providing the protections afforded to clients of Tristone Capital Limited or any advice in relation to the transaction nor any other matter referred to in this Announcement.

This Announcement has been prepared for the purposes of complying with English and Bermuda law and information disclosed in them may not be the same as that which would have been prepared in accordance with the laws of jurisdictions outside England or Bermuda.

The distribution of this Announcement in jurisdictions other than the United Kingdom and Bermuda may be restricted by law and therefore persons into whose possession this Announcement comes should inform themselves about and observe such restrictions. Any failure to comply with these restrictions may constitute a violation of securities laws of any such jurisdictions.

The Amalgamation is subject to Bermuda law and is not subject to the rules of the City Code on Takeovers and Mergers and this Announcement has not been prepared for the purpose of complying with the City Code on Takeovers and Mergers.

In this announcement, unless otherwise stated, US dollar and AED amounts have been converted into Sterling using the closing mid-point spot exchange rates set out in the Financial Times on 12 April 2007, being the latest practicable date prior to the publication of this announcement, as follows: US$1.9789 : £1.00 and AED 7.2661 : £1.00.

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