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Q&A

Q&A with Jón Ferrier and Sami Zouari - 6 April 2017

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How has the Shaikan Field been performing?

JF: Underpinning the Gulf Keystone story is a phenomenal asset which has continued to perform in a strong and predictable way. Our average gross production for 2016 was at the upper end of guidance and performance through Q1 2017 has also been pleasing at c.38,000 bopd. ERC Equipoise were able to recently verify our 2P reserves of 615 MMstb, and that all of the data that has been gathered from production supports the interpretations made in the 2016 CPR. We were very pleased to appoint Stuart Catterall as COO, ensuring we not only have a performing field, but also the team and leadership to develop it.

When will you invest further in Shaikan so that the production rises you have set out can be achieved?

JF: As we have announced, we are currently progressing the constructive discussions with the MNR regarding commercial and contractual conditions. Further details are in the Financial review, but in essence, these discussions revolve around MNR participation in the licence. We expect these discussions to conclude around mid-year 2017, after which we look forward to making further investments to achieve full nameplate capacity of 40,000 bopd. Work continues to optimise the full FDP, but 55,000 bopd remains the near‑term target.

 

 

How much will it cost to increase production levels at Shaikan?

SZ: The Company is funded for the estimated capex of $58 million to $68 million for the 40,000 bopd stabilisation case and a further $25 million to $45 million for the increase to 55,000 bopd (including a 25% contingency) and work continues on the optimisation of these programmes. We are also currently working on optimising our FDP, which could potentially see the associated costs for the next phase of Shaikan’s development come down.

What were the other options open to the Board at the time of the Restructuring?

JF: We considered a number of options, including bringing in a strategic partner or even a sale of the Company, but a lack of global merger and acquisition activity, as well as the overall market uncertainty meant that the route we took was the best option. Whilst fully recognising the impact any such restructuring has on shareholders, we managed to align all of the varying interests. The alternative was insolvency and we are pleased to have reset the Gulf Keystone story.

What do you envisage the future marketing strategy will be for Shaikan crude?

JF: As we announced, at the end of February 2017, the MNR began exporting all Shaikan crude production via trucks to Turkey, an arrangement that still stands,
meaning that no Shaikan crude is currently being injected into the Kirkuk-Ceyhan export pipeline at Fishkhabour. However, we expect this to be a temporary arrangement and the long-term future of Shaikan production will be based on pipeline export. While this temporary route is in place, the MNR has confirmed that the economic benefit to the Group will be the same as that of the previous framework and that we will continue to receive a fixed payment of $15 million gross per month for sales of our crude, while they also intend to take full responsibility for any additional transportation costs. The economic neutrality of this arrangement is of course welcome, however, making progress on the planning of longer-term pipeline export arrangements, the main benefit of which would be reduced costs and HSSE exposure, is a priority for 2017.

How strong is GKP’s financial position now?

SZ: We are in the strongest financial position that we have been in for several years. Following the Restructuring and after a prolonged period of regular payments, as well as having significantly cut our cost base, we are cash flow positive for the first time, and poised to re-invest in Shaikan in 2017. Our cash balance at 5 April 2017 was $112.7 million, against $100 million of debt. We received cash receipts from the
MNR of $114 million net to GKP during 2016, and we are funded for the estimated capital expenditure of $58 million to $68 million for the 40,000 bopd stabilisation case and a further $25 million to $45 million for the increase to 55,000 bopd (including a 25% contingency), while work continues on optimisation of these programmes.

Are you still looking for a merger or an acquisition of the Company?

JF: After the Restructuring the Company has a strong balance sheet and is focused on operational delivery on a standalone basis. We do not need a deal today, but clearly, we will pursue all opportunities to create shareholder value.

What is the security situation on the ground?

JF: As you would expect, we watch the security situation closely and take all the necessary precautions whilst working closely with our hosts, the KRG. I am pleased to say that we have not had any interruptions to operations to the security situation.

 

Are you confident about future payments from the MNR?

JF: Yes we are fully confident in future payments from the MNR. We are very encouraged that the MNR are continuing regular payments of $15 million gross per month, and have now received 16 consecutive payments from the MNR. Despite the financial pressures the region faces, our interests are aligned in the future success of Shaikan. It is also worth saying that we are the only operator solely focused on the Kurdistan Region of Iraq.

Will the production decline in 2016?

JF: I would like to thank all of our shareholders for their support. It has not been an easy year but we are in a strong position with a field that continues to perform predictably, a revitalised team and a healthy balance sheet. We are looking forward to investing in Shaikan and to continue creating value from this exceptional asset.

SZ: From a finance perspective I would simply reiterate that we now have a strong balance sheet, are cash flow positive and are ready to invest.