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Annual report
and accounts
2023
Dohuk
Fishkharbour
Shaikan Field
Erbil
Iraq–Turkey
Pipeline
Kurdistan Export Pipeline
Kirkuk
Chemchemal
Suleimaniah
About us 2023 full-year highlights
2023 timeline
Gulf Keystone is the
operator of the Shaikan
Field, one of the largest
oil fields in the Kurdistan
Region of Iraq.
Our purpose
GKP is a responsible
energy company
developing natural
resources for the benefit
of all our stakeholders,
delivering social and
economic benefits by
working safely and
sustainably with integrity
and respect.
February:
Kurdistan and Shaikan Field
exports suspended for c.24
hours following earthquakes
in Turkey.
SH-17 brought online
under budget and ahead of
schedule.
March:
Payment of $25 million interim
dividend.
Iraq-Turkey Pipeline closure
and suspension ofShaikan
Field exports.
April:
Full shut-in of Shaikan Field
following production at
curtailed rates into storage.
GKP suspends all expansion
activity and targets cost
reductions to preserve
liquidity.
May:
Cancellation of final 2022
ordinary dividend of $25
million to preserve liquidity.
As the operating environment
and the Company’s liquidity
position improve, we will keep
under review our capability to
reinstate distributions.
June:
Drilling rig released
following completion and
hook-up of SH-18.
Appointment of Martin
Angle as Non-Executive
Chairman following
retirement of Jaap
Huijskes at 2023 AGM.
21,891 bopd
(2022: 44,202 bopd)
gross annual average
production
See Gross production
KPI on page 23
23,331 bopd
gross average sales
between the initiation of
local sales on 19 July and
31 December 2023
458 MMstb
(31 December 2022:
506 MMstb)
internal estimate of
gross 2P reserves as at
31December 2023
$50.1 million
(2022: $359 million)
Adjusted EBITDA
See Adjusted EBITDA
KPI on page 22
$11.5 million
(2022 profit after tax:
$266 million)
loss after tax
$81.7 million
(31 December 2022:
$119.5 million)
cash at 31 December 2023
See Net cash KPI
onpage 23
International border
Oil pipelines
Shaikan Licence
Block licences
Contents
July:
Commencement of Shaikan
crude oil sales to local market
following extensive buyer due
diligence.
Net capital expenditures,
operating costs and G&A
monthly run rate lowered
to less than $6 million for
H22023.
October:
Strong gross average sales
volumes of 37,173 bopd,
with sales and production
surpassing 40,000 bopd on
severaldays.
December:
Confirmed target to maintain
net capital expenditures,
operating costs and G&A
monthly run rate at or below
c.$6 million into2024.
Exited year with $82
million of cash and no debt,
demonstrating benefit
of expenditure discipline
and management of
accounts payable.
6
CEO review
Read more on
pages6 to 7
14
Our asset
Read more on
pages14 to 17
28
Sustainability
report
Read more on
pages28 to 45
Strategic report
Our investment case 2
Chairman’s statement 4
Chief Executive Ocer’s review 6
Operational review 8
Financial review 10
Our asset 14
Business model 18
Strategy and objectives 20
Key performance indicators 22
Stakeholder engagement 24
Sustainability report 28
Task Force on Climate-related
Financial Disclosures report 46
Management of principal risks
anduncertainties 57
Viability statement 72
Governance
Board of Directors 74
Corporate governance report 76
Nomination Committee report 87
Audit and Risk Committee report 89
Safety and Sustainability
Committeereport 94
Technical Committee report 96
Remuneration Committee report 97
Directors’ report 112
Directors’ responsibilities
statement 114
Financial statements
Independent auditor’s report 115
Non-IFRS measures 122
Consolidated income statement 124
Consolidated statement of
comprehensive income 124
Consolidated balance sheet 125
Consolidated statement
of changes in equity 126
Consolidated cash flow statement 127
Summary of material
accounting policies 128
Notes to the consolidated
financial statements 135
Report on Payments
to Governments 149
Glossary 150
Directors and advisers 151
Key shareholder engagements 152
Strategic report Governance Financials
1/Gulf Keystone Petroleum LimitedAnnual report and accounts 20231/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Our investment case
Large, long-life asset
• [•]
• [•]
• [•]
Leading low-cost producer
androbust financial position
• Low-cost operator, with top quartile operating and G&A
costs relative to peers in 2019-2022, underpinning cash flow
generation
(3)
• Consistent track record of maintaining a net cash balance
sheet, with cost reductions and current local sales enabling
us to cover our monthly expenditures and improve our
liquidity position as we push for the restart of exports
28 years
Estimated 2P gross reserves-to-production ratio
• Operator of the Shaikan Field, one of the largest fields in
Kurdistan
• Estimated gross 2P reserves of 458 MMstb at year
end2023
(1)
• Significant growth potential, with estimated 2P gross
reserves-to-production ratio of 28 years
(2)
$86 million
Cash balance as at 20 March 2024
(1) Internal estimate of gross 2P reserves as at 31 December 2023 (see “Operational review” section on pages 8 and 9 for more detail).
(2) Internally estimated gross 2P reserves of 458 MMstb as at 31 December 2023/2022 gross average production of 44,202 bopd, the last full year of export sales
prior to the suspension of exports in March 2023.
(3) Benchmarked against international and Kurdistan peer group for 2019-2022 period.
Resilient and cash flow generative in current local sales environment while attractive fundamentals underpin
upside potential with the restart of exports and normalisation of payments
2/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Track record of
production growth
• Growth in gross average production from 31,563 bopd
in 2018 to 49,165 bopd in the period from 1 January to
24 March2023 prior to the Iraq-Turkey Pipeline closure,
equating to an 11% compound annual growth rate (“CAGR”)
• Strategic focus on delivering profitable, cash generative
production, underpinned by capital discipline and flexibility
• Retaining operational capability to respond to local sales
demand and the restart of exports
Proven commitment to
shareholder returns
• Returned $440 million to shareholders between 2019 and Q1
2023 through dividends and buybacks
• We continue to believe the distribution of excess cash by
way of dividends or share buybacks is important to reward
shareholders. While the Company’s ordinary dividend policy
was suspended in May 2023 to preserve liquidity, we will
keep under review our capability to reinstate distributions as
the operating environment and Company’s liquidity position
improve
• Capital discipline, the continued recovery of previous costs
and a return to selling Shaikan Field crude at international
oil prices could enable significant free cash flow generation
following the restart of exports and normalisation of
payments
124 MMstb
Oil produced from the Shaikan Field since first
commercial production in 2013
(1)
$440 million
Dividends and buybacks between 2019 and Q1 2023
(1) As at 19 March 2024.
3/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Chairman’s statement
Martin Angle
Non-Executive Chairman
GKP has demonstrated
resilience and has a strong team
in place to navigate through the
current challenges.
I’m pleased to be writing to you for the first time as Non-Executive
Chairman of Gulf Keystone Petroleum following my appointment at
the Annual General Meeting in June 2023. It was a privilege to take on
the role after almost five years on GKP’s Board of Directors. I joined
the Company as Senior Independent Director in July 2018 before
also becoming Deputy Chairman from June 2019. During that time, I
was fortunate to work closely with Jaap Huijskes, who I succeeded as
Chairman. Jaap oversaw a period of significant value creation for our
shareholders and Kurdistan and provided strong leadership during
periods of significant volatility, in particular the COVID-19 pandemic.
My first few months as Chairman have been characterised by a
challenging operational and economic environment for the Company.
The closure of the Iraq-Turkey Pipeline (“ITP”) and suspension of
Kurdistan exports on 25 March 2023 compounded the impact
of increasing delays to payments from the Kurdistan Regional
Government (“KRG”), prompting the Company to take decisive action
to protect its balance sheet. In adapting to this new environment,
the management team have demonstrated considerable agility
and commitment in transitioning the Company away from Shaikan
crude being exported by pipeline, with continued execution of the
development programme, to establishing sales of crude to local buyers
with 24-hour truck loading operations, whilst maintaining a sustained
focus on liquidity preservation. This has enabled the Company to more
than cover its reduced monthly expenditures with local pre-paid sales
revenue.
I and the rest of GKP’s Board have spent significant time since the ITP
closure analysing the geopolitical environment and the pathway to a
potential exports restart solution. It is our continued belief that crude
exports from the Kurdistan Region are of vital economic importance
to both Kurdistan and Federal Iraq. While it remains uncertain when
exports will restart, progress has been made in negotiations between
the KRG and the Federal Government of Iraq towards a solution and
the Company has proactively made its voice heard along with other
companies operating in the region. The Company remains focused on
protecting shareholder interests by ensuring that current Production
Sharing Contract economics are preserved, clarity is provided around
the payment mechanism for future exports and a pathway to the
repayment of the Company’s outstanding receivables is defined.
The Company has a strong team in place to navigate through the
current challenges. Collectively they have many years of experience
working in Kurdistan and other emerging market environments.
They also have significant technical expertise in fractured carbonate
reservoirs. The Board has been pleased to see the reservoir
performing in line with expectations, enabling the ramp up of
production in recent weeks to respond to the current strong demand
in the local market. This has confirmed the Company’s decision to
maintain the operational flexibility required to increase local sales
quickly and retain the optionality to restart exports at full capacity when
required.
4/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
We were pleased to welcome Julien Balkany to the Board in July2023
as a non-independent Non-Executive Director representing
funds managed by Lansdowne Partners Austria GmbH, replacing
Garrett Soden. We are also looking forward to welcoming Gabriel
Papineau-Legris as he succeeds Ian Weatherdon as Chief Financial
Ocer following his retirement at the 2024 AGM in June. On behalf of
the Board, I would like to thank Ian for his substantial contribution over
the past fouryears.
We are currently looking to recruit two new Non-Executive Directors
to meet the UK Corporate Governance Code and UK Listing Rules
requirements in respect of independence, gender and ethnic diversity,
to broaden the operational and technical experience of the Board, and
to replace Kimberley Wood as current Senior Independent Director
following her previously announced intention to stand down from the
Board because of her time commitments to an executive role she
has recently taken on elsewhere. This recruitment process began in
early 2023 but was suspended, until late in the year, following the ITP
closure given the then prevailing, uncertain geopolitical and trading
background and the Company’s necessary focus on short-term
liquidity.
The Board continued to engage with the Company’s shareholders
in 2023 and welcomes ongoing interaction and feedback with all
investors. We would like to thank all of the Company’s shareholders for
their continued support. The Company has demonstrated resilience
and continues to take prudent actions to protect the balance sheet,
ensuring that it is well positioned to unlock the Shaikan Field’s
significant value when pipeline exports restart and the operating
environment improves.
Martin Angle
Non-Executive Chairman
20 March 2024
5/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
GKP’s operational and financial performance in 2023 was materially
impacted by the suspension of Kurdistan exports and delays to KRG
oil sales payments. Our actions to reduce capital expenditures and
costs and safely transition our operations to trucking and local sales
have enabled us to protect our business as we continue to engage with
government stakeholders for an exports restart solution.
The unexpected closure of the Iraq-Turkey Pipeline (“ITP”) on
25March2023 was the consequence of a long-running International
Chamber of Commerce arbitration case between Iraq and Turkey
being awarded in Iraq’s favour. With no route to market, we shut-in the
Shaikan Field on 13 April following curtailed production into storage
and moved swiftly to suspend the drilling and development project that
had driven gross production to highs of over 55,000 bopd on several
days in March. Following the payment of a $25 million interim dividend
prior to the ITP closure, we suspended the ordinary annual dividend.
By taking decisive action, we were able to reduce monthly capex and
costs to below $6 million in the second half of the year. Despite the
significant disruption to our organisation, we have maintained our focus
on safe operations, with 430 days without a Lost Time Incident to date.
In July 2023, we started sales of Shaikan Field crude via truck to the
local downstream market. While volumes have fluctuated and realised
prices have been at steep discounts to Brent, all crude has been paid
for in advance by buyers and demand has been sucient for us to
more than cover our monthly costs and significantly reduce accounts
payable balances. Gross average sales were 23,331 bopd in the
second half of 2023 from commencement on 19 July 2023. The local
market has been stronger in 2024, driven by increased demand for
certain refined products and the easing of seasonal logistic challenges.
Gross average sales in the year to 19 March 2024 have been c.33,300
bopd, with gross average sales in March to date of c.43,000 bopd.
Realised prices are currently c.$25/bbl, in line with local market pricing.
We continue to minimise our capital expenditures and costs, with our
aggregate monthly run rate expected to remain at or below c.$6 million
in 2024. We continue to focus on maximising local sales to cover our
costs and strengthen our balance sheet. While we continue to expect
variable local sales demand in 2024, we see strong near-term demand.
At current local sales levels we are cash generative, with our current
low gross production breakeven of c.22,200 bopd providing downside
protection.
While there remains no defined timeline, we are actively engaging with
government stakeholders to push for the restart of pipeline exports.
Kurdistan production, historically around 400,000 bopd, is integral
to funding the Iraqi Budget and represents a material source of global
oil supply. The re-establishment of a constructive environment for
international investors is also important to encourage foreign direct
investment for both Kurdistan and Iraq. Negotiations are ongoing
between the KRG and Federal Government of Iraq and the path
forward appears to be linked to amending the Iraqi Budget to integrate
a more accurate reflection of the production and transportation costs
associated with the Kurdistan industry. We believe progress has
been made but continue to seek clarity, along with other International
Oil Companies, on how the industry will be compensated for future
exports and when outstanding receivables will be repaid, of which
GKP is owed $151 million net. We continue to strongly emphasise
that the current economics in our Production Sharing Contract must
be preserved and have received contract sanctity assurances from
theKRG.
Chief Executive Ocer’s review
Jon Harris
Chief Executive Ocer
We are resilient and cash
flow generative in the
current environment with
an opportunity to unlock
significant upside ahead.
6/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
With the resumption of exports and normalisation of payments, we
would consider incremental field investment to realise Shaikan’s
potential. We also continue to believe the return of excess cash by way
of dividends or share buybacks is important to reward shareholders
and we will keep under review our capability to reinstate distributions as
the operating environment and Company’s liquidity position improves.
While we are resilient and cash generative at current local sales levels,
we see the potential for significant free cash flow generation once
an exports restart solution has been achieved, enabled by capital
discipline, the continued recovery of previous costs and a return to
selling Shaikan Field crude at international oil prices, which could more
than double current realised prices.
Given delays experienced in the development of the Shaikan Field,
current internal estimates show an 8% reduction in gross 2P reserves
at year end 2023 to 458 MMstb after adjusting for 2023 production,
as explained in the Operational review. Nonetheless, the Shaikan
Field remains a large, underdeveloped asset, with more than enough
barrels to underpin strong production growth in our licence period.
Our current reserves-to-production ratio of around 28 years, based
on estimated gross 2P reserves and our last year of full production in
2022, underlines this fact.
As ever, I want to thank the entire team at GKP for their unwavering
commitment who have adapted well to the many changes we have
experienced. I continue to believe the normalisation of our operating
environment and opportunity to create significant value for our
stakeholders is ahead of us.
I want to extend my thanks to Ian Weatherdon, GKP’s Chief Financial
Ocer, who will be retiring in the summer following the 2024 AGM.
Ian has been instrumental in guiding the Company through the
COVID-19 pandemic and the past year and has also overseen a
period of industry-leading returns, strong production growth and the
strengthening of our balance sheet through the retirement of our $100
million bond in 2022. As previously announced, he will be succeeded
by Gabriel Papineau-Legris, currently Chief Commercial Ocer, who
has been pivotal to GKP’s success over the past seven years.
Jon Harris
Chief Executive Ocer
20 March 2024
7/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
2023 was a year of significant operational transition for Gulf Keystone.
From progressing the Jurassic reservoir expansion project and moving
towards sanction of the Shaikan Field Development Plan, we were
forced to completely change the direction of the business following
the closure of the Iraq-Turkey Pipeline (“ITP”) in March 2023 and, after
over three months of shut-in, switch from pipeline exports to trucking
operations in the second half of the year.
Despite these changes, we maintained a rigorous focus on safety.
While we unfortunately experienced a Lost Time Incident (“LTI”) in
January 2023 during drilling operations, we have been operating
since then for 430 days without an LTI. Given the ever-changing
environment, the team has performed exceptionally, and with 24-hour
truck loading operations running at both production facilities in recent
weeks, often in dicult weather conditions, we remain focused on
extending this record.
2023 gross average production was 21,891 bopd, 50% lower
year-on-year (2022: 44,202 bopd), primarily reflecting the shut-in
of Shaikan Field production from 13 April to 19 July 2023 prior to
the commencement of local sales, which were at a lower level than
compared to when the Company was exporting.
Prior to the ITP closure gross production averaged 49,165 bopd,
including five days in excess of 55,000 bopd, as we progressed
the Jurassic expansion project, ramped up production from SH-16
and started up SH-17. Following the ITP closure on 25 March 2023,
production continued at curtailed rates into storage prior to a full
shut-in on 13 April 2023.
As it became apparent that pipeline exports were unlikely to resume
in the short term, we suspended all expansion activity. Following the
completion of SH-18, we released our drilling rig and suspended well
workover activity. We also halted all production facilities expansion
activity, including the installation of water handling, as well as the
preparation of future well pads and flowlines. Regrettably, we also
had to take action to reduce the size of the organisation. Our expat
workforce was reduced by over 60% and around half of our local
workforce were placed on reduced working hours prior to the start-up
of local sales.
On 19 July 2023, we commenced local sales from PF-1 and started
sales from PF-2 in August, with gross average sales from 19 July to
31December 2023 of 23,331 bopd. Volumes increased steadily from
July to October as we signed up new buyers following an extensive
due diligence process. Lower levels of demand and volumes followed
in November and December as other producers in the region ramped
up supply, local refineries became constrained and winter weather
impacted trucking logistics and dampened appetite for certain
refinedproducts.
Volumes have rebounded since the beginning of 2024, with gross
average sales in the year to 19 March 2024 of c.33,300 bopd and
gross average sales in March 2024 to date of c.43,000 bopd. Subject
to local sales demand and considering our limited capital programme,
we see the current gross production potential of the Shaikan Field as
between 43,000 and 45,000 bopd. As ever, we continue to manage
natural field declines, estimated at between 6-10% per annum, and the
productivity of wells to avoid traces of water. We see robust local sales
demand in the near term and are focused on maintaining our current
strongperformance.
Shaikan Field estimated reserves
A few days prior to the ITP closure in March 2023, the Company
published the 2022 Competent Person’s Report (“2022 CPR”),
an independent third-party evaluation of the Shaikan Field’s
reserves and resources prepared by ERC Equipoise (“ERCE”), as
at 31December2022. The CPR confirmed the Shaikan Field as a
large, long-life asset, with 817 MMstb of estimated gross reserves
andresources, including 506 MMstb of estimated gross 2P reserves.
We have seen no degradation to the reservoir from the extended
shut-in of production in 2023 and the Field is performing in line with
our expectations. However, we do not expect to consider a return to
development of the Shaikan Field until exports have restarted and we
have confidence in payments and the commercial environment.
Operational review
John Hulme
Chief Operating Ocer
2023 was a year of
significant operational
transition for GKP.
8/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
To assess the impact of the production shut-in and suspension of
expansion activity on gross 2P reserves, we have prepared internal
estimates that incorporate an estimated return to facilities expansion,
including water handling, in 2025 and development drilling in H1 2026.
This timeline is subject to an improvement in the operating environment
and restart of Kurdistan exports, which for modelling purposes we
assume occurs in Q4 2024, and incorporates several months of
preparatory and planning work in advance of development activities.
YE 22 gross
2P reserves
2023
production
Delayed
development
schedule
YE 23 gross
2P reserves
506
(8)
(40)
458
Shaikan estimated gross 2P reserves (MMstb)
(2023 internal estimate vs 2022 CPR)
Adjusting year-end 2022 gross 2P reserves of 506 MMstb for 2023
production of 8 MMstb, we estimate that the development delay
has reduced gross 2P reserves by 40 MMstb or 8% to 458 MMstb
at 31December 2023, as recoverable volumes are pushed beyond
the end of the licence period in 2043. Based on 2022 gross average
production of 44,202 bopd, the last full year of export sales prior to the
ITP closure, the revised estimate of gross 2P reserves-to-production
ratio is around 28 years, underpinning the case for further investment.
We expect to commission an updated Competent Person’s Report,
including a comprehensive independent assessment of 1P and 2P
reserves and 2C resources, at the appropriate time once the operating
environment has normalised.
Sustainability strategy
We remain committed to building a more sustainable business. Our
sustainability strategy is focused on reducing emissions and protecting
the local environment, maintaining high standards of safety, ensuring
a great place to work for our people, generating significant economic
value for Kurdistan and doing business the right way with outstanding
levels of governance and ethical behaviour.
In 2023, progress against our strategy, in particular our focus on
reducing emissions, was impacted by the suspension of exports and
reduction in investment and costs across the business. While our
scope 1 emissions in the year were 51% lower due to the decrease
in Shaikan Field production, the Gas Management Plan, which is an
important component of the Shaikan Field Development Plan, has
been delayed. We have also paused the assessment and development
of a number of other decarbonisation projects, including an initiative
to eliminate methane venting from our storage tanks. As a result, our
previous emissions reduction targets, including reducing our scope
1 emissions intensity by >50% by 2025 against a 2020 baseline, have
been suspended.
We remain committed to significantly reducing our emissions and
will review and reinstate our targets when we have more clarity on
the outlook. In the meantime, we are in the early stages of exploring
alternative options to the Gas Management Plan, with a focus on
optimising scope, implementation timing and cost. We are also
prioritising our list of additional decarbonisation opportunities so we
are ready to progress at the appropriate time.
Looking to the future, we remain committed to executing our
sustainability strategy and improving our performance. In the short
term, we are acting within the constraints of the current environment to
extend our excellent safety performance, assess more eective ways
to decarbonise our business, make GKP a better place to work for our
employees and contractors and direct as much support as possible
to local communities and people. With the restart of exports and the
re-establishment of a more constructive investment environment for
International Oil Companies, we will be able to return to investment,
reinvigorate our progress towards a more sustainable business and
unlock significant value for all stakeholders.
John Hulme
Chief Operating Ocer
20 March 2024
9/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
While GKP started the year with production and development momentum, the Company’s financial performance in 2023 was significantly
impacted by the suspension of Kurdistan crude exports on 25 March 2023 and continued delays to KRG payments. Toprotect our balance sheet,
we took decisive action to preserve liquidity by reducing net capital expenditures, operating costs and Other G&A expenses to a monthly run
rate of less than $6 million in the second half of the year. With the commencement of local sales in July, we have been able to more than cover our
monthly expenditures while significantly reducing outstanding accounts payable. Looking ahead, we remain focused on minimising costs while
maintaining operational capability to maximise local sales and fully capitalise on the restart of Kurdistan exports.
Key financial highlights
Six months
ended
30 June
2023
Six months
ended
31 December
2023
Year ended
31 December
2023
Year ended
31 December
2022
Gross average production
(1)
bopd 23,256 20,549 21,891 44,202
Dated Brent
(2)
$/bbl 81.2 85.3 82.6 101.4
Realised price $/bbl 51.3 30.0 40.9 74.1
Discount to Dated Brent $/bbl 29.9 55.3 41.7 27. 2
Revenue $m 79.6 44.0 123.5 460.1
Operating costs $m 18.9 17.2 36.1 41.9
Gross operating costs per barrel
(1)
$/bbl 5.6 5.7 5.6 3.2
Other general and administrative expenses $m 9.1 1.3 10.5 12.2
Share option expense $m 8.4 2.4 10.8 13.8
Adjusted EBITDA
(1)
$m 34.2 17.9 50.1 358.5
Profit/(loss) after tax $m (2.9) (8.6) (11.5) 266.1
Basic earnings/(loss) per share cents (1.3) (3.9) (5.3) 123.5
Revenue and arrears receipts
(1)(3)
$m 65.7 43.5 109.2 450.4
Net capital expenditure
(1)
$m 47.0 11.2 58.2 114.9
Free cash flow
(1)
$m (9.9) (3.2) (13.1) 266.5
Dividends $m 25 — 25 215
Cash and cash equivalents $m 84.9 81.7 81.7 119.5
(1) Gross average production, realised price, gross operating costs per barrel, Adjusted EBITDA, revenue and arrears receipts, net capital expenditure and free cash
flow are either non-financial or non-IFRS measures and, where necessary, are explained in the summary of non-IFRS measures.
(2) For the period six months ended 31 December 2023, a simple average Dated Brent price is provided as a comparator for realised price. Realised prices for
local sales are currently driven by supply and demand dynamics in the local market, with no direct link to Dated Brent. For prior periods, Dated Brent reflects the
weighted average price used for export sales.
(3) Arrears receipts relate to historic receivables settled in H1 2022; all receipts in 2023 were for current invoices.
Ian Weatherdon
Chief Financial Ocer
We remain focused on
minimising costs while
maintaining operational
capability to maximise local
sales and fully capitalise on the
restart of exports.
Financial review
10/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Adjusted EBITDA declined to $50.1 million (2022: $358.5 million),
driven by the impact on production from the suspension of exports and
lower realised prices from local sales in H22023.
Gross average production was 21,891 bopd, 50% lower year-on-year
(2022: 44,202 bopd) reflecting the shut-in of Shaikan Field production
from 13 April to 19 July prior to the commencement of local sales, which
were at lower levels than export sales.
Revenue decreased to $123.5 million (2022: $460.1 million), reflecting
no revenue in the second quarter and lower local sales volumes and
realised prices in the second half of the year. Production in the second
half of the year was sold to local buyers at an average realised price
of $30/bbl, well below historical discounts to Dated Brent. Realised
prices for local sales are currently driven by supply and demand
dynamics in the local market, with no direct link to Dated Brent.
The Company took decisive action to reduce expenses following the
suspension of Kurdistan crude exports.
Operating costs of $36.1 million were 14% lower year-on-year
(2022: $41.9 million), reflecting the shut-in of production for more
than three months and cost-saving initiatives. Theincrease in gross
operating costs per barrel to $5.6/bbl in the year (2022: $3.2/bbl)
reflected the halving of annual production. The Company expects unit
costs will decrease withincreased local sales or the resumption of
pipelineexports.
Despite non-recurring corporate costs of $2.1 million in the first half of
2023, Other G&A has decreased by $1.7 million in 2023 to $10.5 million
due principally to costs savings and the Remuneration Committee’s
decision at the end of the year to not pay a bonus to sta.
After the shut-in of the Iraq-Turkey Pipeline, GKP significantly
reduced contractual commitments related to expansion activities
and monetised certain drilling inventory with the suspension of the
continuous drilling programme. As a result, the Company incurred a
one-o expense of $9.6 million, included in cost of sales, related to
the cancellation and suspension of contracts and loss on sale and
write-down of inventory held for sale. $4.1 million of the expense was
non-cash.
Share option related expense in the year of $10.8 million primarily
reflected the vesting of the 2020 LTIP award, most of which was
non-cash. The 22% decrease versus the prior period (2022:
$13.8million) reflected the final vesting of the Value Creation Plan
(“VCP”) in 2022.
Profit/(loss) after tax
The Company generated a loss after tax of $11.5 million (2022: profit
after tax of $266.1 million), including an increase in the expected
credit loss provision of $21.4 million (2022: $2.0 million) on overdue
receivables from the KRG for the months of October 2022 to
March2023 totalling $151 million, net of capacity building payments,
onthe basis of the KBT pricing mechanism. The Company continues
toexpect to recover the full value of overdue receivables.
Adjusted EBITDA
11/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Financial review
continued
Cash flows
In 2023, GKP’s revenue receipts were $109.2 million (2022:
$450.4million). Prior to the suspension of exports, $65.7 million was
received from the KRG related to invoices for crude sold in August and
September 2022, received in January and March 2023 respectively.
InH2 2023, $43.5 million was generated from local sales, with advance
payments received for all crude.
Net capital expenditure in the year was $58.2 million (2022:
$114.9million), primarily reflecting works related to the suspended
Jurassic reservoir expansion project, including the completion of
SH-17 and SH-18, well workovers, well pad preparation, long lead items
and the expansion of production facilities. Net Capex decreased 76%
to $11.2 million in H2 2023 relative to H1 2023, reflecting the focus on
safety-critical works and recurring capex only.
The Company paid a $25 million interim dividend at the beginning of
March 2023. Following the suspension of exports, the Board cancelled
the proposed final 2022 ordinary annual dividend of $25 million to
preserve liquidity.
The reduction in net Capex, combined with reductions to operating
costs and Other G&A, enabled the Company to reduce monthly
expenditures to below $6 million in H2 2023. Cash generated by local
sales in the period more than covered expenditures while providing
flexibility to reduce accounts payable, comprised of trade payables and
accrued expenditures, to $26.0 million as at 31 December 2023
(30 June 2023: $48.1 million).
The free cash outflow in the year of $13.1 million (2022: free cash
flow of $266.5 million), combined with the payment of the interim
dividend of$25 million, resulted in a reduction of GKP’s cash
balance from $119.5million at 31 December 2022 to $81.7 million
at31December2023.
The Group performed a cash flow and liquidity analysis, including
the current uncertainty over the timing of the pipeline reopening and
settlement of outstanding amounts due from the KRG, and the fact that
the outlook for local sales volumes and pricing cannot be predicted,
based on which the Directors have a reasonable expectation that the
Group has adequate resources to continue to operate for 12 months.
Therefore, the going concern basis of accounting is used to prepare
the financial statements.
12/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Net entitlement
The Company shares Shaikan Field revenues with the KRG and
our partner MOL, based on the terms of the Shaikan Production
Sharing Contract. GKP’s net entitlement includes the recovery of our
investment in the Shaikan Field through cost oil and a share of the
profits through profit oil, less a capacity building payment owed to the
KRG. The Company’s net entitlement of gross Shaikan Field sales was
36% in 2023 and as at 31December 2023.
The unrecovered cost oil and R-factor are used to calculate monthly
cost oil and profit oil entitlements, respectively, owed to the Company
from crude oil sales. As at 31 December 2023, there was $224 million
of gross unrecovered cost oil, subject to potential cost audit by the
KRG. The R-factor, calculated as cumulative gross revenue receipts
of $2,219 million divided by cumulative gross costs of $1,878 million,
was1.18.
Outlook
To date in 2024, gross average sales volumes have averaged c.33,300
bopd at an average realised price of c.$25/bbl, enabling us to cover
our monthly capex and costs and pay all overdue invoices, resulting
in a roughly halving of accounts payable of $26 million that were
outstanding at year end.
Looking ahead to the remainder of 2024, the Company remains
focused on maximising local sales and minimising costs to further
improve our liquidity position.
We expect to maintain the aggregate net Capex, operating costs
and Other G&A monthly run rate at or below c.$6 million in 2024 and
continue to review further cost reduction opportunities. Estimated
2024 net Capex of c.$20 million comprises safety-critical upgrades
and production maintenance expenditures, while gross Opex per
barrel guidance remains suspended. Wecontinue to retain the
operational capability to maximise local sales and capitalise on a
resumption of exports.
We continue to believe the distribution of excess cash by way of
dividends or share buybacks is important to reward shareholders.
As the operating environment and the Company’s liquidity position
improve, we will keep under review our capability to reinstate
distributions.
Ian Weatherdon
Chief Financial Ocer
20 March 2024
13/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Our asset
The Shaikan Field is a long-life asset, with a proven track record of
low-cost production and significant growth potential.
Overview
The Shaikan Field is one of the largest oil fields in the Kurdistan
Region of Iraq by reserves and production, with an internally
estimated gross 2P reserves of 458 MMstb at year end 2023.
Shaikan accounted for around 12% of total crude production
from the region in Q1 2023 prior to the suspension of Kurdistan
exports on 25 March 2023. Located about 60 kilometres
north-west of Erbil, the largest city in Kurdistan, and at the
north-west end of the Zagros Fold-belt, the field spans an area of
approximately 280 square kilometres.
Gulf Keystone is operator of the Shaikan Field with an 80% working
interest. The remaining 20% is held by our partner MOL. The
Shaikan Field Production Sharing Contract (“PSC”) was awarded
in 2007 by the KRG, with oil discovered in 2009 by the SH-1 well
and first commercial production achieved in July2013. Since then,
over 124 MMstb of oil has been produced, as at 19 March 2024.
The Company has a track record of delivering profitable growth,
with gross average production increasing from 31,563 bopd in
2018 to 49,165 bopd in the period from 1Januaryand 24 March
2023 prior to the Iraq-Turkey Pipeline closure, equating to an 11%
compound annual growth rate (“CAGR”).
Shaikan Field production growth and as % of KRG production (‘000 bopd)
(1)
(1) Source: Company data and Deloitte reviews of Kurdistan Regional Government of Iraq’s oil production, export, consumption and revenue (KRG
production defined as “total exported and consumed”).
(2) Up to the Iraq-Turkey Pipeline shut-in on 25 March 2023.
2018 2019 2020 2021 2022 2023
(1 January to
24 March)
(2)
31.6
32.9
36.6
43.4
44.2
49.2
% of total KRG production
8% 7% 8% 10% 10% 12%
11% CAGR
14/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Reservoir geology
The Shaikan Field consists of three fractured carbonate
reservoirs, the Cretaceous, the Jurassic and the Triassic,
with the Cretaceous being the shallowest and the Triassic the
deepest. Crude oil in the Cretaceous and Jurassic reservoirs
is relatively heavy, with the Cretaceous bituminous oil between
12-15° API and the Jurassic heavy oil ranging from API of 15-17°.
The Triassic reservoir contains light oil with gas condensate of
between 38-43° API. Shaikan Field production to date has been
entirely from the Jurassic reservoir.
Shaikan Field estimated reserves
The Company estimates gross 2P reserves of 458 MMstb
at 31December 2023. Our internal estimates account
for the impact of the production shut-in and suspension
of expansion activity in 2023. While we have seen no
degradation to the reservoir, and the field is performing in line
with our expectations, our estimates incorporate a delay in
return to development drilling, pushing recoverable volumes
beyond the end of the licence period in 2043 and leading
to an 8% reduction in gross 2P reserves at year end 2023.
Seethe “Operational review” section for more detail.
Based on 2022 gross average production of 44,202 bopd,
the last full year of export sales prior to the ITP closure,
estimated gross 2P reserves-to-production ratio is around
28 years, underpinning the case for further investment.
We expect to commission an updated Competent
Person’s Report, including a comprehensive independent
assessment of 1P and 2P reserves and 2C resources,
at the appropriate time once the operating environment
hasnormalised.
Shaikan Field reservoir geology
Triassic
Isotherm
Garagu
Sarmord
Lower Jurassic
Matrix OWC
Triassic Reservoirs
Upper Jurassic
Depth (m)
-1,000
-500
0
-2,500
-2,000
-1,500
Baluti
Fracture OWC
Chia Gara
Barsarin
Water in fractures
Cretaceous
Jurassic
Triassic
Key
Oil
Gas
Anhydrite
Shale
Strategic report
15/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Our asset
continued
Shaikan Field map
Pipeline export map
Infrastructure
The Shaikan Field consists of 17 production wells connected to two
production facilities, PF-1 and PF-2. In Q1 2023, SH-17 was drilled
and completed, while SH-18, the last well to be drilled prior to the
suspension of Kurdistan exports, was made available for start-up
in Q2 2023. Total facilities processing capacity is currently around
60,000 bopd.
Route to market
Over the last few years, the KRG was responsible for marketing
and exporting production from the Shaikan Field, transporting
crude via pipeline to the Ceyhan oil terminal in Turkey to be sold
along with exports from the various other oil fields in Kurdistan. This
changed in 2023 following the closure of the Iraq-Turkey Pipeline
and suspension of Kurdistan exports on 25 March, the unexpected
consequence of a long-standing International Chamber of
Commerce arbitration between Iraq and Turkey being awarded
in Iraq’s favour. As a result of this development, it is expected the
Federal Government of Iraq (“FGI”) will control the marketing of
Kurdistan’s crude oil once pipeline exportsresume.
Since July 2023, the Company, along with other International Oil
Companies (“IOCs”) in the region, has been able sell its crude to
local buyers.
TURKEY
IRAN
SYRIA
IRAQ
MEDITERRANEAN
SEA
Key
Oil Pipelines
International Border
Shaikan Licence
Kurdistan
KRGIraqi Forces Demarcation
Key
Wells
Facilities
Flowlines
Oil pipelines
Road network
Block boundaries
16/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Sales to date have primarily been via truck, with trucking
operations last used in 2019, although we also transported
crude to a local refinery via pipeline for a short period in the
second half of 2023. Gross average sales from 19 July to
31December 2023 were 23,331 bopd while increasing local
demand in 2024 year to date has driven a rebound in sales
volumes, with gross average sales between 1January and
19March 2024 of c.33,300 bopd.
The local market, which is regulated by the KRG, consists of
a number of small refineries and topping plants in Kurdistan,
who process Shaikan crude into products, such as naphtha,
heavy fuel oil and bitumen. While sales are paid for in
advance, realised prices have been at steep discounts to
Brent, reflecting local supply and demand dynamics, with
current prices as at the date of this report of c.$25/bbl.
Asdescribed in the Financial review on pages 10 to 13, local
sales have enabled the Company to cover its monthly capital
expenditures and costs and use excess cash generation
to strengthen its balance sheet by significantly reducing its
accounts payablebalance.
Looking ahead, while the timing of a restart of pipeline
exports remains unclear, the Company continues to actively
engage with government stakeholders to push for a solution.
As part of these discussions, we continue to emphasise
the importance of payment surety for future oil exports,
the repayment of our outstanding receivables and the
preservation of current contract economics.
Field development and investment
Prior to the suspension of exports, the Company had
been progressing towards approval of the Shaikan Field
Development Plan (“FDP”), our vision to drive profitable
production growth, enhance the sustainability and longevity
of the Company’s capacity for shareholder distributions
and transform the emissions footprint of our operations.
Specifically, we were previously focused on increasing gross
production to 85,000-95,000 bopd through the expansion of
the Jurassic reservoir and test of the Triassic reservoir.
We were also progressing, subject to securing external
financing, sanction of a Gas Management Plan, focused on
eliminating almost all routine flaring and more than halving our
scope 1 carbon intensity.
With the agreement of the MNR ahead of FDP approval,
the Company had been progressing the expansion of the
Jurassic reservoir to drive near-term production and cash
flow growth, resulting in record production highs of above
55,000 bopd on several days in March 2023. Nonetheless,
we had been proceeding with caution in light of increasing
KRG payment delays, with our flexible capital programme
under review. Following the suspension of exports, the
Company moved quickly to suspend all expansion activity
to preserve liquidity, winding down our drilling programme,
well pad preparation and activity to expand our production
facilities, including the installation of water handling. As part
of this, progress towards sanction and implementation of the
FDP, including the Gas Management Plan, was paused.
Looking ahead, in the near term we remain focused on
maximising local sales, minimising our costs and improving
our liquidity position, with estimated 2024 net Capex of $20
million comprising safety-critical upgrades and production
maintenance expenditures. With the resumption of exports
and normalisation of KRG payments, we will consider
incremental field investment to realise Shaikan’s potential and
return to previous production levels.
Strategic report
17/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Business model
Our purpose: GKP is a responsible energy company developing natural
resources for the benefit of all our stakeholders, delivering social and economic
benefits by working safely and sustainably with integrity and respect.
Inputs Our core activities
Responsibility
Governance
Long life asset
Low cost
Expertise
Discipline
Committed to a rigorous focus on safety, minimising our environmental
impact and generating economic value forKurdistan.
Outstanding governance, ethical conduct and compliance are the
foundation of GKP’s business.
We are operator of one of the largest fields in Kurdistan with an
established production track record and significant growth potential.
We are a leading low-cost operator relative to Kurdistan and
international peers.
Our teams bring together years of experience operating in Kurdistan
and other emerging market environments as well as significant technical
expertise in understanding fractured carbonate reservoirs.
Our strategy is to balance profitable production growth with the return of
excess cash to shareholders while maintaining a robust balance sheet.
We remain focused on minimising costs and improving our liquidity
position while Kurdistan exports remain suspended.
Zero LTIs
for 430 days
(1)
458 MMstb
estimated gross 2P
reserves
(2)
28 years
estimated gross
2P reserves-to-
production ratio
(3)
86%
of GKP’s workforce
in Kurdistan are local
nationals
(4)
$86m
cash as at
20March2024 with
nooutstandingdebt
(1) As at 20 March 2024.
(2) Internal estimate of gross 2P reserves as at 31 December 2023 (see “Operational review” section on pages 8 and 9 for more detail).
(3) Internally estimated gross 2P reserves of 458 MMstb as at 31 December 2023 / 2022 gross average production of 44,202 bopd, the last full year of export sales
prior to the suspension of exports in March 2023.
(4) As at 31 December 2023.
Produce
Gulf Keystone has a proven track record of delivering production
growth from the Shaikan Field. Since first commercial production
in 2013, GKP has produced over 124 MMstb, with gross average
production growing from 31,563 bopd in 2018 to 49,165 bopd in the
period from 1 January and 24 March 2023 prior to the Iraq-Turkey
Pipeline closure, equating to an 11% compound annual growth
rate (“CAGR”). While pipeline exports remain suspended, we are
currently producing and selling to the local market. Gross average
sales in 2024 year to 19 March of c.33,300 bopd have enabled us to
continue to cover our monthly expenditures and further strengthen
our balance sheet.
Read more on pages 14 to 17.
Our strategic objectives
Safety and
sustainability
Value
creation
Capital
discipline
and cost
focus
Robust
financial
position
1. Safety 2. Social responsibility 3. Trust through open communication
Underpinned by our values and culture
18/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Investors
Kurdistan
Communities
Workforce
Host government and partner
Gulf Keystone has a track record of balancing investment in profitable
growth with sustainable shareholder returns, while maintaining a robust
balance sheet and prudent liquidity levels. In the period from 2019 to
Q1 2023, the Company distributed $440 million to shareholders in the
form of dividends and buybacks. We continue to believe the distribution
of excess cash by way of dividends or share buybacks is important to
reward shareholders. As the operating environment and Company’s
liquidity position improve, we will keep under review our capability to
reinstate distributions.
Kurdistan is part of Gulf Keystone’s DNA. Through our ongoing
operations and by creating local jobs, investing in the local supply chain
and supporting local communities, Gulf Keystone makes a significant
contribution to Kurdistan’s oil and gas industry, society and economy.
Since entry into the region in 2007, the Company and its partners have
invested around $2.9 billion gross in the exploration, development
and production of crude oil, $1.8 billion of which has been spent on the
Shaikan Field.
Gulf Keystone takes pride in its engagement with local communities and
through regular engagement and investment, has a strong relationship
with the areas local to Shaikan. The Company is a significant employer
in Kurdistan and has a high sta localisation ratio, with many employees
hired from neighbouring villages. It is committed to local workforce
development through jobs, training and career opportunities.
Gulf Keystone’s workforce is integral to the Company’s ability to deliver
its strategy. To support our sta, we foster a safe, diverse and inclusive
working environment that enables our people to thrive and develop.
The Company continues to work with its host government, the KRG,
and partner, MOL, to generate value from the Shaikan Field. In 2023,
$143.1 million net was generated for the government, primarily from
production entitlements, royalties and capacity building payments.
Revenues were significantly impacted by the closure of the Iraq-Turkey
Pipeline, partially oset by the commencement of sales to local buyers
in H2 2023. We believe there is enormous potential economic value to
be unlocked for both Kurdistan and Iraq through the restart of exports
and the re-establishment of a constructive investment environment for
International Oil Companies and investors.
Develop
The Shaikan Field is one of the largest oil fields in Kurdistan
by reserves and production, with significant growth potential.
Based on internally estimated gross 2P reserves at 2023 year
end and 2022 gross average production of 44,202 bopd,
our gross reserves-to-production ratio is around 28 years,
demonstrating the significant development potential. With the
restart of exports and normalisation of payments, we would
consider a return to disciplined, incremental investment to
drive profitable productiongrowth.
Read more on pages 14 to 17.
ESG focus
We are committed to building a more sustainable business
Sustainability report: pages 28 to 45
TCFD report: pages 46 to 56
Strong governance framework
Governance report: pages 76 to 86
4. Innovation and excellence 5. Integrity and respect 6. Teamwork
Outputs
19/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Strategy and objectives
Our strategy is to create value for all stakeholders by balancing investment in profitable production growth with sustainable
shareholder returns, while maintaining a robust balance sheet and prudent liquidity levels. Our focus on safety and
sustainability and strong corporate governance underpins our strategy.
As a result of the suspension of Kurdistan exports and delays to KRG payments, in 2023 the Company’s focus shifted
entirely to the tactical imperative of preserving liquidity and transitioning our operations to local sales. Looking ahead, we
remain focused on safety, strengthening our balance sheet by minimising costs and driving local sales, while pushing for the
resumption of exports and normalisation of payments.
Our strategic objectives are as follows:
Safety and sustainability Value creation
Strategic objective
The Group is committed to building a more sustainable business
with a focus on safety, our environmental impact, our people and
generating economic and social value for Kurdistan and our local
communities, underpinned by strong corporate governance
andcompliance.
2023 performance
• One Lost Time Incident (“LTI”) and two recordable incidents in 2023,
one of which related to the LTI in January 2023; since then, no further
LTIs have occurred for 430 days as at the date of this report, despite the
transition to trucking operations in the year
• While total scope 1 emissions were 51% lower due to the decrease
in Shaikan Field production, progress towards sanctioning the Gas
Management Plan and other decarbonisation opportunities was
suspended
• Local proportion of workforce remained high, accounting for 86% at
31December 2023
• 72% reduction in revenues generated for the KRG to $143.1 million relative
to 2022, driven by the reduction in production and realised local sales
prices in the year
• 100% workforce compliance with GKP’s Code of Business Conduct
certification process, which was rolled out at the beginning of 2023
• Significant due diligence executed on local buyers prior to the
commencement of local sales
2024 focus
• Continue to target zero harm to people across our operations by extending
our current record of zero LTI days and avoiding recordable incidents
• Deliver capital programme that is focused on safety-critical works and
maintenance
• Explore alternative options to the Gas Management Plan to optimise scope,
implementation timing and cost; review and prioritise list of additional
decarbonisation opportunities
• Deliver local community project budget and explore opportunities to
increase investment with strength of local sales or the restart of exports and
normalisation of payments
• Within constraints of the current environment, retain and develop
workforce capability needed to return to exports while embedding a culture
underpinned by our values
• Maintain robust governance and compliance and high standards of
ethicalconduct
Link to key performance measures
• Safety performance (TRIR)
Strategic objective
Balance investment in profitable production growth with
sustainable distributions to shareholders. While Kurdistan exports
remain suspended, we are focused on minimising costs and
improving our liquidity position.
2023 performance
• Increased gross average production to 49,165 bopd in the period
1January to 24 March 2023 prior to the closure of the Iraq-Turkey Pipeline;
following the shut-in of the Field, commenced local sales in July 2023, with
gross average sales of 23,331 between 19 July and 31 December 2023
• Prior to the suspension of dividends, paid a $25 million interim dividend
in March 2023, increasing cumulative distributions paid since 2019 to
$440million
2024 focus
• Continue to engage with key government stakeholders to secure a
solution for the restart of exports
• Maximise local sales to at least cover monthly costs while continuing to
improve our liquidity position
• Following the return to pipeline exports and regular payments, consider
return to disciplined and incremental investment in profitable production
growth
• As the operating environment and the Company’s liquidity position
improve, keep under review our capability to reinstate distributions
Link to key performance measures
• Gross production (bopd)
• Adjusted EBITDA ($m)
Successful delivery of our strategic objectives is underpinned by a robust and rigorous risk management process.
20/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Capital discipline and cost focus Robust financial position
Strategic objective
Prudent, disciplined and proactive management of capital
expenditures and underlying cost base.
2023 performance
• Transitioned rapidly from advancing development of the Jurassic
reservoir to suspending all expansion activity and reducing costs
• Aggregate net Capex, operating costs and Other G&A monthly run rate
reduced to below $6 million in H2 2023
• Net capital expenditure of $58.2 million, significantly reduced relative to
guidance at the beginning of the year of $160-$175 million
• Operating costs of $36.1 million, with the 14% reduction vs 2022 reflecting
the shut-in of production for more than three months and cost-saving
initiatives
• Despite non-recurring corporate costs of $2.1 million in the first half of
2023, Other G&A expenses reduced to $10.5 million, reflecting cost
savings and the Remuneration Committee’s decision at the end of the year
to not pay a bonus
2024 focus
• Maintain aggregate net Capex, operating costs and Other G&A monthly
run rate at or below c.$6 million
• Continue to focus on minimising costs while retaining operational
capability to respond to local sales demand and the restart of exports
Link to key performance measures
• Net capital expenditure ($m)
• Operating costs ($m)
• Other G&A expenses ($m)
Strategic objective
Maintain a robust balance sheet and prudent liquidity levels to
fund and execute strategy and to manage commodity cycle and
operating in Kurdistan.
2023 performance
• Adjusted EBITDA of $50.1 million, driven by the impact on production from
the suspension of exports and lower realised prices from local sales in
H22023
• By sharply reducing capex and costs, commencing local sales and
proactively managing accounts payable, limited decrease in free cash
outflow to $13.1 million
• Cash balance of $81.7 million at 31 December 2023 (31 March 2023:
$105.4 million)
2024 focus
• Continue to closely manage and improve, to the extent possible, our
liquidity position by maximising local sales and minimising expenditures
• Continue to engage with the KRG regarding repayment of overdue
receivables for the months of October 2022 to March 2023 totalling $151
million, net of capacity building payments, on the basis of the KBT pricing
mechanism
Link to key performance measures
• Adjusted EBITDA ($m)
• Net cash ($m)
21/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Key performance indicators
Gulf Keystone sets performance measures and assesses
progress against these targets on a regular basis.
Safety and sustainability Value creation Capital discipline and cost focus Robust financial position
Safety performance (TRIR)
(1)
2019 2020 2021 2022 2023
Why we measure this
• The Company is committed to safe and reliable
operations
• Safety performance and improvements in
safety management are measured using
several metrics, including TRIR
• We require employees and contractors to work
in a safe and responsible manner and provide
them with the training and equipment to do so
Performance
• TRIR increased in 2023 due to one Lost Time
Incident and two recordable incidents in the
year, one of which related to the LTI
• The Lost Time Incident and associated
recordable incident were the result of
an accident during drilling operations in
January2023; the second recordable incident
was a minor injury related to the closing of a car
bonnet in April 2023
• Since the Lost Time Incident, we have been
operating without a further incident for 430
days, as at 20 March 2024
Strategic priorities
Adjusted EBITDA ($m)
2019 2020 2021 2022 2023
Why we measure this
• Indicator of the Group’s cash generation to fund
expenditures and return capital to shareholders
Performance
• Decrease versus 2022 driven by the impact on
production from the suspension of exports and
lower local sales volumes and realised prices
in H2 2023
• Reduction partly oset by cost-saving initiatives
Net capital expenditure ($m)
2019 2020 2021
(3)
2022 2023
Why we measure this
• Net capital expenditure includes the
Company’s net expenditure on oil asset
investments
• Net capital expenditure is incurred with a
focus on capital discipline and flexibility to
drive profitable production growth and to meet
the requirements of the Shaikan Production
Sharing Contract
Performance
• Expenditure in the year primarily reflected
activity related to the suspended Jurassic
reservoir expansion project, including the
completion of SH-17 and SH-18, well workovers,
well pad preparation, long lead items and the
expansion of production facilities
• Net Capex decreased 76% to $11.2 million in H2
2023 relative to H1 2023 reflecting a focus on
safety-critical works and recurring capex only
2.61
0.71
1.37
0.45
1.09
123
57
223
359
50
90
52
46
115
58
Link to remuneration
(2)
Link to remuneration
Strategic priorities
Link to remuneration
(2)
(1) Total Recordable Incident Rate.
(2) See corporate KPIs table on page 105 of the Remuneration Committee report.
(3) 2021 restated after the definition of net capital expenditure was amended to no longer exclude the increase/decrease of drilling and other equipment.
Strategic priorities key:
Strategic priorities
22/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Operating costs ($m)
Gross Opex per barrel ($/bbl)
2019 2020 2021 2022 2023
Why we measure this
• The Company monitors operating costs to
ensure they remain in line with the budget
• Costs are carefully controlled with a focus on
remaining a low-cost operator
Performance
• 14% decrease in operating costs versus 2022
reflected the shut-in of production for more
than three months and cost-saving initiatives
• The increase in gross operating costs per barrel
to $5.6/bbl in the year reflected the halving of
annual production
• The Company expects unit costs will decrease
as production levels increase
Other G&A expenses ($m)
Corporate Shaikan
2019 2020 2021 2022 2023
Why we measure this
• A key metric for the Company is to control G&A
expenses, including business, corporate and
support costs
• Performance is measured relative to budget
and the ability to identify and implement cost
reductions
Performance
• 2023 Other G&A expenses reduced to $10.5
million (2022: $12.2 million) principally due to
cost savings and no bonus payments to sta,
partially oset by non-recurring corporate
costs of $2.1 million in H1 2023
Gross production (bopd)
2019 2020 2021 2022 2023
Why we measure this
• Indicator of our revenue generation potential
• Measure of progress towards driving profitable
production growth
Performance
• 50% decrease relative to 2022 due to the
shut-in of Shaikan Field production from
13Aprilto 19 July prior to the commencement
of local sales, which were at lower levels than
export sales
• Gross average production from 1 January to
24March2023 was 49,165 bopd and 53,682
bopd in March 2023 to the same date, including
five days in excess of 55,000 bopd
• On 19 July 2023, local sales commenced
from PF-1 and from PF-2 in August, with
gross average sales from 19 July to
31December2023 of 23,331 bopd
37
27
34
42
36
7
7
7
7
32,883
36,625
43,440
44,202
21,891
Net cash ($m)
2019 2020 2021 2022 2023
Why we measure this
• Maintaining a robust balance sheet and prudent
liquidity management provides the flexibility
to fund our strategy of balancing investment
in profitable growth and shareholder returns,
while providing a cushion to manage through
declines in oil price and risks associated
with operating in Kurdistan. While Kurdistan
exports remain suspended, we are focused on
maximising local sales to cover our costs and
improve our liquidity position
Performance
• Decrease in 2023 driven by a free cash outflow
of $13.1 million and the payment of a $25 million
interim dividend in March 2023 prior to the
suspension of Kurdistan exports
• Decisive action to reduce capital expenditures
and costs combined with the ramp-up of local
sales from July 2023 enabled the Company to
cover its monthly costs in H2 2023 and reduce
its accounts payable balance
19
48
70
119
82
Strategic priorities
Link to remuneration
3.2
5.6
2.7
2.6
3.9
Strategic priorities
Link to remuneration
(1)
9
5
4
5
3
Strategic priorities
Link to remuneration
(1)
Strategic priorities
Link to remuneration
(1)
(1) See corporate KPIs table on page 105 of the Remuneration Committee report.
10
23/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Stakeholder engagement
Engagement with our stakeholders
iscritical to Gulf Keystone’s success.
Statement by the Directors in performance of their
statutory duties in accordance with section 172(1)
of theCompanies Act2006
The Board of Directors of Gulf Keystone Petroleum Limited
consider, both individually and together, that they have acted in a
way they consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its members as a whole
(having regard to its stakeholders and matters set out in s172 of the
Companies Act 2006 (“section172”)) in the decisions taken during
the year ended 31 December 2023.
In doing so, the Directors have taken account of the likely long-term
consequences of the key strategic decisions made in the year
(see summary below), the interests of Gulf Keystone’s employees,
the Company’s business relationships with its host government,
local sales market and suppliers and the impact of the Company’s
operations on its local communities and the environment.
The Directors have also acted with regard to the desirability of Gulf
Keystone maintaining a reputation for high standards of business
conduct and ethics, and the need to act fairly as between members
of the Company.
When formulating the Company’s strategy, the Directors consider
the longer-term and broader consequences and implications of
its business on key stakeholders and factors relating to climate
change. The need to be a responsible energy company is
embedded in Gulf Keystone’s corporate purpose and is the focus of
the Company’s sustainability strategy. Further detail is available in
the Company’s Sustainability report on pages 28 to 45 and TCFD
report on pages 46 to 56.
As part of GKP’s commitment to eective stakeholder engagement,
and in accordance with section 172, the Company sets out on pages
25 to 27 its key stakeholder groups and corresponding approach to
engagement with them. GKP’s stakeholder engagement strategies
are tailored for each of these key audiences to continue a mutually
beneficial dialogue with those who are invested in, or impacted by,
the Company’s operations.
Summary of 2023
key strategic decisions
The Board made a number of key strategic decisions in the year
related to the Company’s response to preserve liquidity and
transition to local sales and trucking operations following the
suspension of Kurdistan exports on 25 March 2023.
To preserve liquidity, the Company:
• suspended all expansion activity and wound down contracts,
including pausing progress towards the sanction and
implementation of the Shaikan Field Development Plan and
Gas Management Plan. Asa result, the Company’s scope 1
emissions intensity reduction target was suspended;
• significantly reduced the expatriate workforce and
placed local sta on reduced working hours prior to the
commencement of local sales;
• eliminated bonus payments for all sta and temporarily
deferred Director salaries and fees;
• significantly reduced its support for local communityprojects;
• proactively managed accounts payable by agreeing payment
plans with suppliers; and
• cancelled the 2022 final ordinary dividend.
To transition to local sales, the Company:
• reconfigured its operations for trucking;
• conducted extensive due diligence on local buyers; and
• agreed local sales contracts with the approval of the Ministry
of Natural Resources (“MNR”).
In addition to these decisions, GKP proactively engaged with
the MNR, KRG and other government stakeholders regarding
the restart of exports and repayment of outstanding oil sales
receivables.
In making these decisions, the Board considered their impact on
the Company’s stakeholders, asdetailed on pages 24 to 27.
24/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Investors
Local communities
Key engagement topics
• Geopolitical and economic environment
• Timeline for exports restart
• Local sales market
• Operational and financial performance
• Balance sheet and liquidity
• Capital allocation
• Financing strategy
• Risk management
• Shareholder distributions; and
• Sustainability strategy and addressing
climate-related risks and opportunities
How we engaged in 2023
• Active and ongoing investor relations
programme engaging with shareholders,
prospective equity investors and sell-side
analysts
• Clear and timely investor communications,
including the London Stock Exchange’s
Regulatory News Service
• Investor updates focused on the evolving
geopolitical and operational environment
following the suspension of Kurdistan exports
and the Company’s response to preserve
liquidity and commence local sales
• Virtual AGM held with open invitation to
all shareholders with the ability to submit
questions electronically
• Engagement with shareholders prior to AGM
to encourage voting turnout
• Consultation with major shareholders in
response to voting on certain resolutions at
the AGM
Why we engage
• Maintain flexibility to access equity and debt
funding
• Our investors have valid views on strategic,
financial and operational decision making
which we must take into account
Key engagement topics
• Health, safety and security
• Local employment
• Development of local sta and contractors
• Major incident prevention
• Local community projects
• Protection of the environment
How we engaged in 2023
• Active and ongoing engagement with local
communities
• Support and funding for local community
initiatives, albeit impacted by our focus on
liquidity preservation following the suspension
of Kurdistan exports
• Proactive sta localisation policy
• Proactive use of local suppliers and service
companies
Why we engage
• The support of local communities is essential
for the mutually beneficial development and
operation of the Shaikan Field
• GKP is an important employer in the local
communities
Key engagement topics
• Crude oil sales marketing, payments and
pricing
• Commercial arrangements
• Shaikan Field performance
• Shaikan Field Development Plan
• Health and safety
• Community investment strategy and plans
• Environmental matters
How we engaged in 2023
• Regular meetings and correspondence with
senior KRG and MNR ocials
• Engagement regarding pipeline exports and a
restart solution
• Engagement regarding participation in the
local sales market, including buyer selection
and related due diligence; contracting
and commercial terms, and approvals for
transporting crude via truck and internal
pipeline infrastructure
• Engagement regarding delays to payments
and overdue invoices
• Generated revenues from the Shaikan Field
for the government, comprising production
entitlements, royalties and capacity building
payments
Why we engage
• We work closely with our host government,
the KRG, to ensure alignment on: developing
and producing resources for the benefit of
all stakeholders; business and operational
strategy; commercial terms regarding the sale
of Shaikan crude oil; and our licence to operate
under the Shaikan PSC
• The KRG is responsible for managing
Kurdistan’s oil and gas industry, including
marketing and exporting all crude from the
Shaikan Field and regulating the market for
local sales, including the approval of buyers
and transportation of crude within Kurdistan
Host government
25/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Stakeholder engagement
continued
Key engagement topics
• Health, safety and security
• Gulf Keystone’s purpose, values and culture
• Gulf Keystone’s Code of Business Conduct
• Company strategy and operational progress
• Geopolitical, security and economic
environment, in particular the timeline for the
restart of exports, the local sales market and
decreased access to US dollars in country
resulting from Central Bank of Iraq initiatives
• Learning and development
• Diversity and inclusion
• Remuneration and benefits
• Sustainability and climate-related risks and
opportunities
How we engaged in 2023
• Following the suspension of Kurdistan
exports, the Company took decisive action
to preserve liquidity. This regrettably meant
having to reduce the size of the organisation
and cancellation of bonus payments. However,
this was countered through a step-up in
workforce engagement and payment of a small
recognition payment
• Regular health and safety briefings across the
Company
• Ongoing initiatives to support mental and
physical wellbeing
• Regular digital and in-person communication,
including town hall meetings
• Engagement regarding policies and
procedures, including Code of Business
Conduct training and compliance, security and
cybersecurity
• Engagement and initiatives to improve diversity
and inclusion
• Learning and development programmes
• Initiatives to deepen workforce understanding
of and involvement in sustainability strategy
and addressing climate-related risks and
opportunities
Why we engage
• The health and safety, understanding of the
business, key performance goals and their
role in the delivery, development, diversity and
retention of GKP’s workforce is essential to
the Company’s success and execution of its
strategy
Workforce
Joint venture partner
Key engagement topics
• Health, safety and security
• Local community engagement
• Long-term asset strategy
• Shaikan Field performance
• Shaikan Field development
• Work programme and budget
• Commercial arrangements
• Crude oil sales payments
• Sustainability strategy and addressing
climate-related risks and opportunities
How we engaged in 2023
• Regular multi-disciplinary meetings and
dialogue
• Local sales strategies and contract
negotiations
• Approval of work programmes and budgets
Why we engage
• Partner alignment is critical for the
development and operation of the
ShaikanField
26/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Key engagement topics
• Addressing climate-related risks and
opportunities, with the Company’s disclosure
fully compliant with all of the Task Force
on Climate-related Financial Disclosures
(“TCFD”) recommendations
• Gas Management Plan and other
decarbonisation projects underpinning GKP’s
ambition to transform its emissions footprint
• Protection of air quality to conform to Kurdish
standards
• Facility impact management, including
approval from the Ministry of Natural
Resources for environmental and social
impact assessments
How we engaged in 2023
• GKP’s disclosures for fiscal year 2023 are
fully compliant with all 11 recommendations of
the TCFD framework as well as the additional
disclosure recommendations specific to oil
and gas companies
• Continued to focus on minimising our impact
on the local environment, in particular by
monitoring air quality, managing water and
waste management and assessing and
managing the impact of our facilities
• While we remain committed to significantly
reducing our emissions, we were forced to
suspend our progress towards implementing
the Gas Management Plan and other
decarbonisation projects. In 2024, we are
focused on exploring alternative options to
the Gas Management Plan and prioritising
our list of additional decarbonisation
opportunities so we are ready to progress at
the appropriatetime
Why we engage
• In order to maintain our licence to operate,
we are focused on emissions reduction,
addressing climate-related risks and
opportunities, and minimising our impact
on the environment, while ensuring our
disclosures are fully compliant with the
TCFDrecommendations
• The Company’s impact on the environment
continues to be a key consideration
Environment
Suppliers and contractors
Key engagement topics
• Health, safety and security
• Fair and transparent contracting processes
• Long-term partnerships
• Collaborative approach
• Fair payment terms
• Local community involvement
• Consistency of application of business ethics
practices
• Development of a Human Rights and Modern
Slavery Policy as part of the Code of Business
Conduct
How we engaged in 2023
• Regular engagement on health, safety and
security to ensure compliance with GKP
policies and procedures
• Rigorous contracting processes strictly in
accordance with the MNR set tendering
processes for all suppliers, resulting in broad
participation
• Regular communication with all suppliers and
the MNR Tender Committee
• Unwound or suspended contracts
• Established accounts payable payment
plans in response to the suspension of
Kurdistan exports; accounts payable
have been significantly reduced since the
commencement of local sales in H2 2023
and since the beginning of 2024, all overdue
invoices have been paid
Why we engage
• The support and performance of suppliers and
contractors enables the Company to deliver
against its strategy
27/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
CEO’s introduction
At Gulf Keystone, we are committed to building a more sustainable
business. As a responsible energy company and an employer of
over 400 people in Kurdistan and the UK, we view sustainability as
critical to our licence to operate and ability to create value for all GKP
stakeholders. Our strategy, which is outlined in detail on page 29, is
focused on reducing our emissions and minimising our impact on the
local environment, maintaining high standards of safety, building a great
place to work for our people, generating significant economic value for
Kurdistan and doing business the right way with outstanding levels of
governance and ethical behaviour.
Since the publication of our inaugural sustainability report in 2019, we
have made good progress in developing our strategy and embedding
a focus on sustainability into the organisation. In that time, we have
developed and agreed the scope of a Gas Management Plan as we
aspire to significantly reduce the scope 1 emissions intensity of our
operations and published our first fully compliant TCFD report in 2022,
with our TCFD disclosures for 2023 remaining compliant. Wehave
maintained a rigorous focus on safety, with only three Lost Time
Incidents (“LTIs”) and no fatalities between 2019 and 2023, despite
over 8.8 million working hours and over 65 MMstb produced. We have
also generated over $1.3 billion for Kurdistan in oil revenues between
2019 and 2023 as well as realising a broader positive impact for the
regional economy through high levels of local employment, substantial
levels of purchasing and contracting with local suppliers and ongoing
support for the 25 local communities in proximity to our operations.
This builds on the much larger economic contribution to Kurdistan
since our entry into the region in 2007, during which time we have
participated in licences where around $2.9 billion has been invested in
the exploration, development and production of crude oil, supporting
the rapid development of the Kurdistan oil and gas industry.
We have historically been able to execute our sustainability strategy
against the backdrop of a changeable operating and economic
environment, which has always been a feature of this part of the world.
Unfortunately in 2023, the suspension of Kurdistan crude oil exports
and continued delays to KRG payments had a material impact on our
eorts. To protect the business and our balance sheet, we were forced
to significantly reduce capital expenditures and costs. These actions
impacted our sustainability strategy and performance in 2023.
While our scope 1 emissions in the year were 51% lower due to the
decrease in Shaikan Field production, our decision to suspend
investment activity until pipeline exports restart and clarity is
established on the payments and commercial environment means
the Gas Management Plan is now expected to be delayed. We have
also had to pause our eorts to assess and develop a number of other
decarbonisation projects, including an initiative to eliminate methane
venting from our storage tanks. We are using the time to explore
alternative options to the GMP to optimise scope, implementation
timing and cost as well as prioritise our list of other decarbonisation
projects. We plan to review progress towards these projects and the
reinstatement of related emissions reduction targets once there is
greater clarity on the investment environment.
From a safety perspective, while we had one LTI at the beginning of
2023 related to drilling, I am pleased that since then we have had no
further LTIs, taking LTI-free days to 430, as at the date of this report.
This performance underlines our ongoing rigorous focus on safety,
despite the significant operational transition experienced during 2023,
as we moved from executing a large-scale expansion programme
to the shut-in of production and the subsequent restart of trucking
operations.
Jon Harris
Chief Executive Ocer
Despite the recent challenging
operational environment and
our focus on preserving liquidity,
we remain committed to building
a more sustainable business.
Sustainability report
28/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Local sales have put the business on a firmer footing in the absence
of pipeline exports, with cash flow since commencement in July 2023
covering our monthly expenditures. Nevertheless, we regrettably had
to make significant changes to the organisation to reduce our cost base
to where it is today. These actions also impacted our employee training
programmes and our support for local communities in the year.
Throughout 2023, we maintained a strong focus on governance and
compliance. We spent a significant amount of time performing due
diligence on buyers to start local sales. The whole organisation remains
committed to the GKP Code of Conduct, with all sta signing their 2023
annual compliance certificate.
Looking to the future, we remain committed to executing our
sustainability strategy and improving our performance. In the short
term, we are acting within the constraints of the current environment to
extend our excellent safety performance, assess more eective ways
to decarbonise our business, make GKP a better place to work for our
employees and contractors and direct as much support as possible
to local communities and people. With the restart of exports and the
re-establishment of a more constructive investment environment for
International Oil Companies, we will be able to return to investment,
reinvigorate our progress towards a more sustainable business and
unlock significant economic value for all stakeholders.
Jon Harris
Chief Executive Ocer
20 March 2024
Our sustainability strategy:
Governance Social Environment
Strategic priorities
• Address climate-related risks and
opportunities
• Protect air quality and the local
environment
Material factors
• GHG and other emissions
• Air quality
• Facility impact management
• Water management and withdrawal
• Waste management
• Soil and land remediation
Key current targets
• Minimise our impact on the environment
SDG alignment
Strategic priorities
• Workforce health and safety
• Recruit, nurture, develop and retain
talent
• Enhance diversity and inclusion
• Support our local communities
• Generate economic value for Kurdistan
Material factors
• Health, safety and wellbeing
• Learning and development
• Diversity and inclusion
• Local employment
• Local supply chain purchasing and
contracting
• Community engagement and
investment
• Shaikan Field revenues generated for
theKRG
Key current targets
• Zero harm to sta, contractors and local
communities
SDG alignment
Strategic priorities
• Robust corporate governance and
compliance
• High standards of business ethics
Material factors
• Board oversight eectiveness
• Internal controls and policies eciency
and eectiveness
• Risk management
• Anti-bribery and corruption initiatives
• Code of Business Conduct compliance
Key current targets
• Eective governance and compliance
• Annual workforce compliance with
Code of Business Conduct
SDG alignment
29/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Material ESG factors
We have conducted a materiality assessment to identify the ESG
factors that are most relevant to Gulf Keystone and its stakeholders.
The process involved direct engagement with internal and external
stakeholders to identify the ESG factors they consider to be most
important, as well as a review of the sustainability landscape,
which included a review of relevant external standards (including
Sustainability Accounting Standards Board (“SASB”), Global
Reporting Initiative (“GRI”), United Nations Global Compact (“UNGC”),
United Nations Sustainable Development Goals (“SDGs”), etc),
a detailed peer benchmark and review of internal activities. The
outcomes of this process and the key material ESG factors identified
can be found in the materiality matrix on the right.
We review the material factors and their importance on an annual
basis and update the matrix if required. In the latest review conducted
in 2023, we increased the importance of biodiversity to the Company,
reflecting management consideration of emerging regulation on
biodiversity, in particular the Taskforce on Nature-related Financial
Disclosures recommendations. We also increased the importance of
occupational health to align with our ranking of process safety.
The material factors and metrics in our 2023 Sustainability report draw
on current standards and frameworks for sustainability information
disclosure, including the Task Force on Climate-related Financial
Disclosures (“TCFD”) recommendations, Streamlined Energy
and Carbon Reporting (“SECR”), SASB, International Petroleum
Industry Environmental Conservation Association (“IPIECA”) and
GHGProtocol.
Sustainability report
continued
Importance to GKP’s stakeholders
A
K
C
F
E
M
B
G
D
H
J
I
L
Environment
A. Climate change/
gasflaring
B. Environmental
management
C. Biodiversity
Social
D. Process safety
E. Occupational health
F. Employee training
anddevelopment
G. Diversity
H. Human rights
I. Community engagement
J. Community investment
K. Economic value
generated
Governance
L. Business ethics
and anti-corruption
M. Eective governance
Importance to GKP
Low
Medium
Medium High
Low High
30/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
SDG 11: Sustainable cities and communities
By targeting emissions reduction, protecting air quality
and managing our water and waste, we are focused
on minimising the impact of our activities on the
communitiesthat surround our operations.
SDG 13: Climate action
Our long-standing ambition to reduce the carbon
intensity of our operations is aligned with taking
climateaction for a sustainable future.
SDG 15: Life on land
Through our robust facilities impact management
programme, we ensure that any land we operate on
is carefully assessed via detailed environmental and
socialimpact assessments to protect and preserve
lifeon land.
Environment
Our focus
We recognise the need to develop and produce from the Shaikan
Field in a way that minimises our impact on the local environment and
addresses climate-related risks and opportunities. For GKP, this means
monitoring our emissions footprint and taking steps to reduce the
carbon intensity of our operational activities, maintaining compliance
with TCFD recommendations for our reporting, protecting air quality
around our operations and managing the impact of our facilities on the
local environment.
Key performance highlights
Material factor Indicator Unit 2021 2022
(1)
2023
(1)
GHG emissions
(3)
Total scope 1 emissions
ktCO
2
e 640 739 365
Scope 1 emissions – Flaring
ktCO
2
e 557 654 306
Scope 1 emissions – Venting
ktCO
2
e 20 21 10
Scope 1 – Fugitive
ktCO
2
e 5 5 4
Scope 1 – Combustion of petrol and diesel
ktCO
2
e 9 9 15
Scope 1 – Combustion of fuel gas
ktCO
2
e 49 50 31
Total CH
4
emissions
(2)
ktCO
2
e 51 57 28
Total scope 1 emissions intensity
kgCO
2
e per barrel 50.5 57. 2 57.1
Total scope 3 emissions
ktCO
2
e 6,505 6,654 3,297
Other emissions
(3)
Total SO
2
emissions
ktSO
2
82 87 41
Energy consumption
(4)
Total energy consumption
kWh 1,705,839 1,688,110 1,514,197
UK
kWh 38,752 50,366 50,052
Kurdistan Region of Iraq
kWh 1,667,088 1 ,637,74 4 1,464,145
Water management
(3)
Total water withdrawn
m
3
88,432 80,628 74,799
Waste management Recycled solid non-hazardous waste
% of total waste 86 92 95
Recycled solid hazardous waste
% of total waste 28 86 49
Recycled liquid non-hazardous waste
% of total waste 100 100 100
Recycled liquid hazardous waste
(5)
% of total waste 100 100 100
Target
Minimise our impact on the environment.
SDG alignment
References
(1) Scope 1 and 3 emissions for 2022 and 2023 have been independently verified by EcoAct, aligned with the ISO 14064-3:2019 standard with specification and
guidance for the verification and validation of greenhouse gas statements.
(2) Methane emissions also included in scope 1 – Flaring, Venting and Fugitive.
(3) All GHG emissions, other emissions, energy consumption and water management metrics based on GKP’s 80% working interest in the Shaikan Production
Sharing Contract.
(4) Calculated in line with Streamlined Energy and Carbon Reporting (“SECR”).
(5) 2023 liquid hazardous recycling rate subject to ongoing contractor audit.
31/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Monitoring our emissions performance
We closely monitor our emissions footprint and report scope 1
and scope 3 emissions on an annual basis using the equity share
approach. Scope 2 emissions are not relevant as emissions from the
Company’s power generators are reported as part of scope 1. Since
2022, our reporting has been independently verified by a third-party
organisation, EcoAct, according to the ISO 14064-3:2019 standard.
Scope 1 emissions
The Company’s scope 1 emissions are primarily related to the flaring
of associated gas that accompanies production. Shaikan Field
wells produce variable amounts of gas and, consequently, higher
production from wells with higher gas-oil ratios drives higher scope 1
emissions (and vice versa). Our long-standing ambition has been to
eliminate almost all routine flaring through the implementation of a Gas
Management Plan (see “decarbonisation opportunities”).
In 2023, scope 1 emissions of 365 ktCO
2
e were 51% lower relative to
the previous year (2022: 739 ktCO
2
e). The movement was primarily
driven by the 50% decrease in production related to the suspension
of Kurdistan exports. A very small proportion of the decrease was
related to the minor reduction in scope 1 intensity to 57.1 kgCO
2
e per
barrel (2022: 57.2 kgCO
2
e per barrel), reflecting the gas-oil ratio of the
producing well mix in the year.
Sustainability report
continued
Environmentcontinued
32/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Scope 3 emissions, categories 1-12
Cat Category Note 2021 (ktCO
2
e) 2022 (ktCO
2
e) 2023 (ktCO
2
e)
1 Purchased goods and services Relevant, reported 1 1 0
2 Capital goods Relevant, reported 4 30 24
3 Fuel and energy Relevant, reported 3 9 8
4 Upstream transportation and
distribution
Relevant, reported 0 2 1
5 Waste generated in operations Relevant, reported 0 1 0
6 Business travel Relevant, reported 3 3 2
7 Employee commuting Relevant, reported 0 0 0
8 Upstream leased assets Relevant, reported 0 1 1
9 Downstream transportation and
distribution
Relevant, reported 84 86 30
10 Processing of sold products Relevant, reported 738 751 372
11 Use of sold products Relevant, reported 5,516 5,613 2,780
12 End-of-life treatment of sold
products
Relevant, reported 155 158 78
Total scope 3 6,505 6,654 3,297
Decarbonisation opportunities
It remains our ambition to significantly reduce our scope 1 emissions
intensity to increase the sustainability of our operations, address
climate-related risks and opportunities and maintain our licence to
operate in Kurdistan. As part of the Shaikan Field Development Plan, we
had been intending to implement a Gas Management Plan to eliminate
almost all routine flaring. Subject to timely sanction and implementation
of the project, including securing external financing, we were targeting
to reduce our scope 1 emissions intensity by >50% by 2025, compared
to an original 2020 baseline of 38 kgCO
2
e. In addition, we had also
been exploring a number of other decarbonisation opportunities and
progressing as a priority a project to eliminate methane emissions from
our storage tanks in 2024.
Following the closure of the Iraq-Turkey Pipeline and suspension of
Kurdistan exports on 25 March 2023, the Company moved swiftly
to preserve liquidity, suspending all expansion activity, including
investment in decarbonisation opportunities. A return to investment
will require a resumption of exports and confidence in the commercial
and payments environment. As it is not clear at the current time
when this will be, the Company’s emissions reduction targets have
beensuspended.
We remain committed to significantly reducing our emissions and
will review and reinstate our targets when we have more clarity on
the outlook. In the meantime, we are in the early stages of exploring
alternative options to the Gas Management Plan, with a focus on
optimising scope, implementation timing and cost. We are also
prioritising our list of additional decarbonisation opportunities so we
are ready to progress at the appropriate time.
Further information regarding our focus on emissions reduction, the
Gas Management Plan and our other decarbonisation opportunities
can be found in the Strategy section of our TCFD report on pages
46 to 56.
Scope 3 emissions
We commenced reporting of scope 3 emissions for 2022 to ensure
full compliance with TCFD recommendations. Scope 3 emissions are
indirect emissions that occur in our value chain.
As an energy company, categories 10 and 11 are the most material for
us, as most oil and gas emissions are generated from the processing or
use of sold products.
Categories 13-15, related to downstream leased assets, franchises
and financial investments, are not relevant to the Company and
not reported. Total scope 3 emissions and categories 1-12 are
outlinedbelow.
2023 scope 3 emissions were 50% lower versus the prior year,
primarilydriven by lower production as per the similar decrease in
scope1 emissions.
33/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Sustainability report
continued
Protecting air quality
We maintain a robust air quality monitoring programme to protect our
local communities. We monitor air quality in a varietyof ways, including
stationary field monitoring, diusion tubes, handheld Photo-ionisation
Detectors (“PIDs”) and gas surveys. Air quality data is reported to
Kurdistan’s Ministry of Natural Resources on a monthly basis to ensure
ongoing compliance. In 2023, our annual average emissions of SO
2
,
NO
2
, O
3
and H
2
S measured by diusion tubes were within Kurdish
regulatory limits.
1. Stationary field monitoring
GKP operates four Scentinal SL-50 air quality monitoring stations
which measure a broad range of air quality parameters, including
H
2
S, SO
2
, CO, CO
2
, methane, VOC, NOx, PM2.5 and PM10
levels. Meteorological data, such as wind speed and direction,
isalsocaptured.
2. Diusion tubes
We deploy diusion tubes at PF-1, PF-2 and seven villages located
close to our production facilities. Tubes are deployed for around a
month at a time and measure SO
2
, NO
2
, O
3
, H
2
S and VOC, as well
as BTEX (Benzene, Toluene, Ethylbenzene and Xylene) at both
production facilities.
3. Handheld Photo-ionisation Detector (“PID”)
GKP uses handheld PIDs to monitor photo-ionisation which can detect
more than 400 gaseous pollutants in the air. This enables us to put in
place actions to identify, prioritise and target specific pollutants should
they occur.
4. Gas surveys
From time to time we conduct gas surveys of the Shaikan Field to
identify any natural gas seeps at surface level and provide insights
into the underlying geology. Past surveys have been conducted using
hydrogen sulphide (H
2
S), methane (CH
4
) and sulphur dioxide (SO
2
)
detectors deployed from a vehicle, together with sensors deployed
from a drone to cover inaccessible areas. More recently we have used
satellite monitoring, which also provides valuable data on biodiversity,
land use, hydrology and topography.
Minimising our impact on the local environment
Facility impact management
We undertake detailed facility impact management studies prior
to commencing any site work. Before facilities or access roads are
built, flowlines installed or wells drilled, GKP conducts a thorough
environmental and social impact assessment (“ESIA”) as part of our
project design phase.
In 2023 two ESIAs were conducted related to the Shaikan Field
Development Plan and the expansion of PF-1 and PF-2, with all work
completed prior to the suspension of Kurdistan exports in March 2023.
MNR certificates were received for both ESIAs.
Specific measures to minimise the impact of Gulf Keystone facilities on
the environment include:
1. eective site selection: including safe location of well pads,
clear access roads and flowlines as far as possible away from
environmentally sensitive targets, such as human habitations and
places of ecological and cultural significance. GKP maximises the
use of existing field infrastructure and conducts detailed studies for
site selection;
2. adequate waste management: with a strong focus on waste
reduction, reuse and recycling;
3. implementing civil engineering designs that prevent or minimise
any impacts on natural hydrology, drainage systems and erosion
patterns; maximising the use and reuse of local fill material from
the area of land disturbance; ensuring potentially hazardous
materials are contained on site (including drainage systems that
capture contaminated run-o from accidental spills and leaks) and
enhancing future site restoration plans;
4. ecient equipment specification, maintenance and operational
control: to prioritise equipment that is fuel ecient, well maintained,
and controlling operations to mitigate environmental impacts;
5. clear operational management control: to ensure the right
documentation is in place to deliver operational activity in line with a
given project’s environment, social and safety objectives; ensuring
the requirements of GKP’s health and safety and environmental
management systems are met; and ensuring the recommendations
of the development environmental management plan are adhered
to; and
Environmentcontinued
34/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
6. preparedness for unplanned events: to embed eective emergency
response and contingency plans, that are resourced and rehearsed
to mitigate any unforeseen events that could have a significant
environmental or social impact.
Soil remediation
We aim to avoid any instances of contaminated soil, surface water
and groundwater resulting from our operations, in particular drilling,
to prevent any risks to public health and safety or our impact on the
environment. As part of our standard procedure, all waste drilling
cuttings and fluids are managed in line with Kurdistan legislation and
international standards. We also ensure that any pits that are excavated
next to well pads to hold drilling fluid are remediated after any drilling
operations are completed.
Waste management
Gulf Keystone maintains high standards of waste management in the
Shaikan Field and our oces. We sort our waste into four categories:
• liquid hazardous waste: includes waste crude oil, contaminated
water and drilling fluids;
• liquid non-hazardous waste: includes uncontaminated water and
cooking oil;
• solid hazardous waste: includes drilling cuttings, metal containers,
chemicals and medical waste; and
• solid non-hazardous waste: includes food waste, packaging, glass
and metals.
All waste generated at GKP operational sites is transported to a
centralised Waste Management Area, where it is separated by our
in-house Waste Management Team. Waste that can be recycled or
reused is then transported to specialist recycling companies. All our
waste management suppliers are approved by the Ministry of Natural
Resources.
95% of our solid non-hazardous waste was recycled in 2023, a small
increase on 2022. The decrease in our solid hazardous waste recycling
rate from 85% to 49% primarily reflects the suspension of our drilling
programme following the closure of the Iraq-Turkey Pipeline, meaning
the majority of the drilling cuttings produced in 2023 were stored in well
pad pits. As in 2022, a large amount of the drilling cuttings recycled in
2023 were used to produce roadside concrete barriers.
We recycled 100% of our liquid non-hazardous waste in 2023. While
100% of our liquid hazardous waste was collected by a specialist
recycling contractor, the recycling rate is subject to an ongoing audit of
the company.
Water management
With our operations situated in a region that is prone to drought, having
a strong water and wastewater management process in place is a key
consideration – not only for our own business but for our land and local
communities.
The majority of our water use, measured as water withdrawn, is
associated with our drilling activities. The remainder is used for
operational requirements and as drinking water in our production
facilities. Water withdrawn of 74,799 m
3
in 2023 (2022: 80,628 m
3
)
primary reflected the drilling and completion of two wells, SH-17 and
SH-18, prior to the suspension of expansion activity, as well as water
used at our production facilities.
Wastewater management
Our sewage wastewater is continuously treated in sewage treatment
units, with samples taken from the inlet and outlet streams to ensure the
units are operating eciently and that the quality of the euent meets
WHO guidelines.
Any wastewater from drilling activities with oil traces is collected and
transported via vacuum trucks to an MNR-approved refinery that
specialises in recycling oil and lubricants of dierent grades from waste
containing oil and/or hydrocarbons.
35/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Sustainability report
continued
Key performance highlights
Material factor Indicator Unit 2021 2022 2023
Health, safety and wellbeing Total Recordable Incident Rate (“TRIR”) Incidents per million
man-hours
1.37 0.45 1.09
Lost Time Incident Rate (“LTIR”) Incidents per million
man-hours
0.68 0 0.54
Gender diversity Proportion of female sta in workforce
(asat31December)
% 9 14 16
Proportion of female sta in Kurdistan
(asat31December)
% 7 12 14
Proportion of female sta in UK
(asat31December)
% 30 38 37
Generating economic value
in Kurdistan
Proportion of local sta in workforce
(asat31December)
% 74 74 86
Local supplier purchasing and contracting
(80%WI)
(1)
$m 49 64 30
Proportion of total purchasing and contracting
with local suppliers
(1)
% 58 35 36
Payments to host government
(2)
(80% WI) $m 335.8 514.9 143.1
Local community projects Total value of contributions to local communities
(80% WI)
$ 640,000 833,500 7,500
References
(1) Purchasing and contracting data prior to 2023 reflects amounts contracted but not necessarily spent in the year with local suppliers, used as a proxy for actual
expenditure. 2023 purchasing and contracting figures reflect actual expenditures in the year. The Company plans to publish actual expenditures infuture years.
(2) See the Report on Payments to Governments for 2023 on page 149 for full disclosure.
Social
Our focus
Our contribution to Kurdistan’s social and economic development is
critical to our licence to operate and our long-term future success.
Throughout our corporate history, we have been committed to creating
significant local economic value by employing local people, supporting
local suppliers and generating revenues for our host government from
the Shaikan Field. We regularly engage with and invest in our local
communities, as we continue to strengthen the relationships we have
built over 16 years working in Kurdistan. We also continue to focus on
making GKP a great place to work, embedding a culture underpinned
by our corporate values.
Target
Zero harm to sta, contractors and local communities
SDG 4: Quality education
Projects focused on education and skills development
are a key strategic focus of our local community
engagement programme (see page 43).
SDG 5: Gender equality
We are focused on increasing the number of women who
work for GKP and empowering female leaders through
our Global Women’s Network (see page 40).
SDG 8: Decent work and economic growth
We have a track record of generating economic value for
Kurdistan, creating local jobs and developing our people,
supporting regional suppliers and generating revenues
for the region through production from the Shaikan Field
(see page 41).
SDG alignment
36/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
GKP Life Saving Rules
Health, safety and wellbeing
The health, safety and wellbeing of our workforce and local
communities is a priority. Safety is one of GKP’s six core values and
integrated across all organisational levels and operational activities.
We believe that no job is so urgent or important that it cannot be done
safely, which is why we are committed to zero harm across all our
business activities.
Health, safety, environment and quality governance
Health, safety, environment and quality (“HSEQ”) governance is a
core responsibility for our executive team. Led by our Chief Executive
Ocer (“CEO”), the Board oversees our HSEQ strategy and receives
regular updates on our performance via the Safety and Sustainability
Committee. The Executive Committee addresses health and safety
via ongoing operational meetings which include senior management
meetings.
Our Chief Operating Ocer (“COO”) holds weekly health, safety and
sustainability meetings with GKP’s Head of Safety and Sustainability
to ensure that our HSEQ Action Plan, HSEQ-related metrics and
daily actions are appropriately addressed. This includes upholding
the principles and expectations outlined in Gulf Keystone’s Health,
Safety, Security, Environment and Community Policy and our Code of
Business Conduct.
Our 2023 HSEQ Plan
Our annual HSEQ Plan outlines GKP’s roadmap for improving HSEQ
performance and measuring HSEQ metrics throughout the year.
The annual HSEQ Plan is put forward by our COO to the Executive
Committee at the start of the year for approval and is endorsed by the
Safety and Sustainability Committee before being rolled out.
In 2023, the HSEQ Plan included actions to embed further
improvements to the HSEQ Management System, to continue
to enhance process safety, provide ongoing training and embed
improvements to our air quality monitoring programme. We also
conducted an extensive project with our IT department to digitise
various HSEQ tools. This included the implementation of digitised
observation cards and a digital incident investigation and reporting
system. It also comprised the development of an HSEQ dashboard
on the Company intranet, a clinic management system and a Personal
Protective Equipment management system.
As at 31 December 2023, we achieved a 98.8% completion rate of the
Plan, including minor modifications made to the actions set out at the
beginning of the year as a result of the suspension of Kurdistan exports.
Life Saving Rules
Embedded into our approach to safety are Gulf Keystone’s Life
Saving Rules. These are based on the International Association of Oil
& Gas Producers’ Life Saving Rules and provide all our people and
contractors with practical life saving guidance required in the field. The
nine Core Rules and 11 Supplementary Rules are regularly discussed
and reinforced at safety briefings, highlighted in various places around
our facilities and are reviewed on an ongoing basis to ensure they
remain front-of-mind for all our sta.
Core Rules Supplementary
1 2 3 4
Personal Safety
10 11 12 13 14
5 6 7
Driving
Site Safety
15 16 17 18
8 9
Control of Work
19
20
37/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Sustainability report
continued
Health, safety and wellbeing continued
2023 health and safety performance
2023 was a year of significant operational change, in which the
Company transitioned from driving profitable production growth to
shutting in production and terminating all drilling and expansion activity
following the suspension of exports in March. Trucking operations
were started in July, which were last used in 2019.
Despite the pressure on GKP’s teams to quickly adapt to the new
environment, a rigorous focus on safety was maintained. Following the
disappointing Lost Time Incident in January 2023 related to drilling
operations, a year of zero LTIs was achieved on 14 January 2024 and
430 LTI-free days have been recorded as at 20 March 2024. Two
recordable incidents occurred in 2023, including the LTI in January and
a minor injury related to the closing of a car bonnet in April.
Emergency response planning
We have long-standing tiered emergency response plans in place on our sites, which are regularly tested through a combination of drills and
response exercises covering dierent operational and security-related scenarios. In 2023, several desktop sessions, refresher training and field
drills were conducted with the incident and emergency managementteams.
Socialcontinued
January
2023
February
2023
March
2023
April
2023
May
2023
June
2023
July
2023
August
2023
September
2023
October
2023
November
2023
December
2023
3.00
2.50
2.00
1.50
1.00
0.50
0.00
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
12 Month Rolling Lost Time Incident Rate (”LTIR”) Per 1 Mil Hours Worked
12 Month Rolling Total Recordable Incident Rate (”TRIR”) Per 1 Mil Hours Worked
Benchmark LTIR for Kurdistan, IOGP Stats 0.28
Benchmark TRIR for Kurdistan, IOGP Stats 1.67
12 Months Rolling Working Hours
1
2
3
4
2023 LTIR and TRIR versus working hours
1
January 2023: Recordable incident and LTI related to same accident.
2
April 2023: Second recordable incident.
3
June 2023: IOGP publishes new benchmark data.
4
 Decrease in 12-month rolling working hours reflects suspension of all expansion activity following the closure of the
Iraq-Turkey Pipeline.
38/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Our people
Our team of over 400 sta and contractors in Kurdistan and the UK
are the lifeblood of our organisation. To support them, we are focused
on fostering a safe, diverse and inclusive working environment that
enables our people to thrive and develop their careers. We are also
deeply committed to enhancing employment opportunities for local
people in Kurdistan and we place a strong emphasis on hiring directly
from our local communities in the Shaikan Field.
Our purpose and values
As a purpose-driven business, GKP exists to develop natural resources
for the benefit of all stakeholders by delivering social and economic
benefits by working safely and sustainably with integrity and respect.
Our culture is underpinned by six core values which provide the
building blocks for how we operate and get things done as a team.
It is by embodying these values that we can deliver our purpose and
meet our strategic objectives.
To ensure we live these values every day, we hold regular meetings,
briefing sessions, town hall sessions, as well as “coee chats” and
surveys, to give our people the opportunity to share their views, listen to
our progress and understand our shared direction.
39/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
GKP’s values
Safety comes first. No job is so urgent or important that it cannot be done safely.
Safety
Social
responsibility
Trust through open
communication
Integrity
and respect
Teamwork
Innovation and
excellence
We are committed to meeting high standards of corporate citizenship by protecting
the wellbeing of our employees, by safeguarding the environment and by creating a
long-standing, positive impact on the communities where we do business.
We understand the importance of listening and open communication with
employees, our business partners, stakeholders and shareholders – our success
depends on everyone. We encourage an environment of open and continuous
communication and build our relationships on trust.
Doing the right thing. We are always guided by the highest standards of ethical
conduct, integrity and fairness. Respect is: ensuring diversity and equal
opportunities in the business with our partners, stakeholders and contractors,
andseeking to conduct our business openly and to mutual benefit of all.
Positive and constructive collaboration and relationships between all employees is
vital to deliver outstanding performance in everything we do.
We are committed to a high-performance culture and to ensure sustained
long-term value for not only our external stakeholders but also our employees
through learning, mentoring and career development.
Sustainability report
continued
Our people continued
2023 in review and the year ahead
2023 was a challenging year for the Company and our workforce.
Following the suspension of Kurdistan exports in March 2023, the
Company moved quickly to preserve liquidity and reduce costs.
This regrettably meant having to reduce the size of the organisation.
Our expat workforce was reduced by over 60% and half of our
local workforce were placed on reduced working hours prior to the
commencement of local sales in July. All training and development
activities were paused and the performance bonus for the year was
eliminated for all sta.
Following the initiation of local sales in July 2023 and the restart of
labour-intensive trucking operations, we have been able to reinstate full
working hours for our local sta as we maintain operational capability
across both production facilities to increase sales and swiftly restart
exports. We were also pleased to pay our sta a small recognition
payment for the year to acknowledge their hard work during volatile
and stressful circumstances. Since the exports suspension, we have
been focused on providing regular internal communication to navigate
our people through the changes in the operating and economic
environment and collect feedback on what we could be doing better.
Looking to 2024, we are continuing to preserve liquidity and minimise
costs in the absence of pipeline exports and normalisation of KRG
payments. Nonetheless, we are doing what we can to retain and
develop the workforce capability we need to return to exports while
continuing to embed a culture underpinned by our values and a focus
on employee wellbeing, diversity and inclusion.
Diversity and inclusion
At Gulf Keystone, we seek to create a strong culture in which the
principles of diversity and inclusion are promoted across the business.
As detailed in our Diversity and Equal Opportunities Policy, we treat all
people fairly, equally and without prejudice irrespective of their gender,
sex, age, race, disability, sexual orientation or any other attributes.
We work hard to build an inclusive culture that creates a strong sense of
belonging and purpose. We believe our individual dierences and unique
cultural perspectives add value to our expertise and enable us to find
innovative solutions to solve challenges. As at 31December2023, our
workforce was comprised of 20 dierent nationalities.
We also recognise we operate in an industry with low rates of female
participation. As a result, we make a concerted eort to attract and
retain female talent, improve the balance of our workforce and to create
opportunities for the development and promotion of women into senior
leadership roles. GKP’s Global Women’s Network, established in 2022,
focuses on driving professional development and advocacy for women
across the organisation. In 2023, the proportion of women in our
workforce increased further to 16% (2022: 14%).
Learning and development
We are committed to attracting, retaining and developing talented
individuals. To achieve this, we provide training and development
programmes for all our employees to help build the skills we need for
today while also supporting them with their long-term career ambitions.
While all programmes were paused following the suspension of
exports in March 2023, we intend to reinstate them once the operating
environment improves.
Management Development Programme
Aimed at supporting senior leaders in the business to develop skills for
eective management.
Oil & Gas Mini MBA
Focused on providing sta early in the careers with a better
understanding of the international and local E&P industry, the basics of
petroleum geology and project lifecycles and the skills needed to make
critical decisions.
Coaching & Mentoring Programme
Workshop programme designed to equip managers and supervisors
with some of the basic skills, knowledge and confidence to coach and
mentor individual team members.
Situational Leadership Programme
Enabling GKP leaders to give their direct reports the right amount of
direction and support for each task they face at the exact time they
need it.
English and Kurdish language training
Focused on building further cohesion among our teams in the UK, Erbil
and the Shaikan Field.
Socialcontinued
40/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Cumulative gross investment in
Kurdistan oil licences since 2007 ($bn)
0.2
0.2
0.7
1.8
$2.9bn
Shaikan
Akri-Bijeel
(1)
Ber Bahr
(1)
Sheikh Adi
(1)
(2) Purchasing and contracting data prior to 2023 reflects amounts contracted but not necessarily spent in the year with local suppliers, used as a proxy for actual
expenditure. 2023 purchasing and contracting figures reflect actual expenditures in the year. The Company plans to publish actual expenditures in future years.
(1) Licences since relinquished.
2019 2020 2021 20232022
73%
58%
42%
65%
64%
27%
42%
58%
35%
36%
Local
International
2019 2020 2021 20232022
26%
16%
26% 26%
14%
74%
84%
74% 74%
86%
Local
UK/expat
Case study: GKP’s economic and social contribution
toKurdistan
Since our entry into Kurdistan in 2007, we have created significant
economic value for the region. To date, we have invested with our
partners around $2.9 billion gross in the exploration, development
and production of crude oil, $1.8 billion of which has been spent in the
Shaikan Field and $1.1 billion across three other licences which have
since been relinquished. GKP and other International Oil Companies
(“IOCs”) have funded all at-risk capital to develop the region’s industry,
which has been enabled by the mutually beneficial risk and reward
structure of the Production Sharing Contract.
Over the past five years, 40% on average of our purchasing and
contracting has been with local companies. We are also committed to
the employment of local people, who in recent years have consistently
accounted for between 74-86% of our total workforce.
Proportion of GKP purchasing and contracting
withlocal suppliers (2019-2023)
(2)
GKP workforce local sta
(2019-2023)
41/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Sustainability report
continued
Case study: GKP’s economic and social contribution
to Kurdistan continued
Our investment, as well as the size of the Shaikan Field and its track
record of profitable production growth, have made us a key participant
in the rapid development of the Kurdistan oil industry. The Shaikan
Field alone has generated over $1.3 billion of revenues for the Kurdistan
Regional Government in the last five years.
At the beginning of 2023, we had been progressing a large expansion
programme targeting profitable production growth from the Jurassic
reservoir. At the same time, we had been advancing towards key
project sanction milestones of the Shaikan Field Development Plan.
The full plan would have seen increased investment in the Shaikan
Field and wider economy. Unfortunately, all expansion activity was
suspended shortly after the closure of the Iraq-Turkey Pipeline on
25 March 2023 as we moved to reduce costs and preserve liquidity.
Combined with the loss of export revenues and the suspension of
investment plans by other International Oil Companies, the event has
had a large impact on both Kurdistan and Federal Iraq’s economies.
Looking ahead, there is significant potential economic value to be
unlocked for both Kurdistan and Iraq through the restart of exports
and the re-establishment of a constructive investment environment
for International Oil Companies and investors. Billions of dollars of
revenues would begin flowing again into the economy, while the
significant further investment needed to maintain and grow Kurdistan’s
oil production would benefit local suppliers and people. We continue to
work as a company and industry to push for a solution.
Socialcontinued
2019 2020 2021 20232022
222
121
336
515
144
$m
1,400
1,200
1,000
800
600
400
200
0
$1.34bn
(1) Based on “Payments to host government” data.
Cumulative Shaikan Field revenues for KRG
(2019-2023)
(1)
42/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Local community engagement
Our relationships with local communities are critical to our licence to operate. There are over 25 villages in the Shaikan area close to our
operations; by listening and responding to their needs and by supporting valuable community initiatives, we have been able to make a
lastingimpact.
Map: Shaikan Field villages
KILOMETRES
0 5
2.5
We work in close collaboration with our local communities to identify
programmes that promote economic growth, social development
and shared prosperity. Our community focus is split into three core
areas. Firstly, we support regional agriculture – the second largest
sector of Kurdistan’s economy after oil and gas. Secondly, we support
local education and enterprise projects. And thirdly, we support Good
Neighbour projects that provide vital community infrastructure, such as
power and water.
GKP’s support for local community projects in 2023 was significantly
impacted by the suspension of exports and our subsequent response
to preserve liquidity.
Despite the limited budget, we were able to make a dierence to the
lives of our communities in 2023. In addition, projects we have funded
in the past, such as an olive oil extraction plant and hydroponic fodder
facilities, continued to provide benefits. We are pleased in 2024 to be
planning a more meaningful contribution of $100,000, focused on
delivering some critical projects. A summary of our 2023 and 2024
contributions is provided below.
Hydroponic fodder facilities (Agriculture)
In 2023, we were pleased to support the opening of two additional
hydroponic fodder facilities in villages close to the Shaikan Field,
having been the first IOC in the region to open such a facility in 2022.
Hydroponic farming enables plants and crops to be grown without
soil, which is very valuable in an area that is often impacted by drought.
With a little water and power that is part generated by solar panels,
the facilities can produce up to one tonne of fodder per day, which is
enough to feed around 500 sheep, goats and other local livestock. In
2023, around 360 tonnes of fodder were produced for local farmers
from the three facilities.
Livestock support (Agriculture)
We also support local farmers with the tools and infrastructure they
need to take care of their livestock. A vital initiative has been the
provision of dip pools for sheep and goats, which enable farmers to
eliminate external parasites. Pools constructed previously in 2019
and 2020 helped prevent outbreaks of haemorrhagic fever in 2023. In
2024, we are planning to fund and build an additional pool.
Key
Villages
43/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Sustainability report
continued
Local community engagement continued
Olive oil extraction and trees (Agriculture)
We have previously provided local farmers with thousands of olive
trees to provide a productive method of sequestration for the area. As
well as providing year-round greenery, the olives can be converted into
olive oil via an extractor donated by GKP in 2021. In 2023, the extractor
processed over 115 tonnes of extra virgin olive oil from local trees,
supporting farmer livelihoods.
In 2024, we are planning to fund a new bottling machine for the
extractor to improve productivity, as well as a machine enabling the
creation of charcoal briquettes from the waste olive skins and pips. We
will also deliver over 4,000 additional high oil content olive trees.
Community infrastructure (Good Neighbour)
We have an extensive track record of supporting our local communities
to fund and develop vital infrastructure via our Good Neighbour
projects programme. Requests we receive from villages typically relate
to the provision of new water pipes, tanks, wells and filtration systems
as well as power lines and generators.
In 2023, with the restart of local sales via trucking, we provided speed
bumps, zebra crossings and trac signs to protect children travelling to
local schools in the Shaikan area.
Socialcontinued
44/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Board and management oversight of GKP’s
sustainabilitystrategy
GKP’s Board meets regularly to consider and discuss the Company’s
strategy, policies, major capital expenditure and all aspects of the
Company’s activities and business operations. This includes active
involvement and ultimate accountability for matters relating to
safety, sustainability and climate change through oversight of GKP’s
sustainability strategy.
The Safety and Sustainability Committee has primary responsibility
for ensuring appropriate systems are in place to manage health, safety,
security and environmental risks, including climate-related risks and
opportunities, as well as implementing and monitoring appropriate
safety and sustainability-related governance processes across the
Company. This includes the development of relevant KPIs and making
recommendations of improvement where appropriate. The Safety and
Sustainability Committee meets four times per year and reports all
matters discussed into the Board.
All significant decisions aecting sustainability matters and
climate-related risks and opportunities are considered by the
Board upon the recommendations of the Safety and Sustainability
Committee.
Gulf Keystone’s Chief Operating Ocer (“COO”) is executive sponsor
for sustainability and climate-related risks and opportunities and
has an open and regular dialogue with the Safety and Sustainability
Committee. He is supported by the HSE and Sustainability team,
headed up by Gulf Keystone’s Head of HSE and Sustainability, who is
in turn supported by a dedicated Sustainability Manager. The COO,
Safety and Sustainability team and other members of the Executive
Committee and senior management team are part of the Sustainability
Panel, which has the mandate of facilitating the execution of GKP’s
sustainability strategy.
Further information on the Board’s role and responsibilities, aswell
as the oversight and management of climate-related risks and
opportunities in the organisation, can be found in the Corporate
governance report on pages 76 to 86 and in our TCFD report on pages
46 to 56.
Ethics and compliance
We are committed to operating as a responsible business that upholds
the highest standards of ethics and compliance wherever and however
we operate. Failure to do so could put our licence to operate at risk and
result in significant legal and financial losses.
Anti-bribery and corruption
We operate a zero-tolerance approach to bribery and corruption. It is
essential that the Company maintains transparent relationships free
from corruption with our host government, suppliers, contractors and
local communities. This protects our reputation and our licence to
operate, as well as the ability to access funding and operate eectively.
To monitor our activity, we operate an independent whistleblowing
service in the event any employee wishes to raise a concern, either
online or over the phone, anonymously and without fear of reprimand.
With the reintroduction of crude sales to local buyers in July 2023, in
addition to GKP’s existing controls, a detailed due diligence process
was implemented that must be completed prior to any crude sales with
a newbuyer.
Code of Business Conduct
To reinforce our commitment to ethics, GKP’s Code of Business
Conduct (“COBC”) contains an overview of our policies and
procedures relating to anti-bribery and corruption, conflicts of
interest, competition and anti-trust, data and information security,
diversity, harassment, human rights, modern slavery and HSEQ. All
GKP sta receive mandatory annual training on the COBC at the
beginning of each year, following which they are required to sign a
certificate, confirming their compliance for the past and coming year.
100% of GKP’s workforce completed the Code of Business Conduct
certification process in2023.
Governance
Our focus
Outstanding governance, ethical conduct and compliance
are the foundation of GKP’s business and underpin our
purpose as a responsible energy company. We have taken
significant steps to establish robust oversight and management
of our sustainability strategy and climate-related risks and
opportunities. We also continue to embed a focus on ethical
conduct and compliance at all levels of the organisation.
Targets
Eective governance and compliance
Annual workforce compliance with Code of Business Conduct
Key performance highlights
(All dates as at 31 December of each year)
Material factor Indicator Unit 2021 2022 2023
Board oversight Proportion of independent Directors on Board
(1)
% 57% 63% 57%
Proportion of independent Directors on Nomination Committee % 100% 100% 100%
Proportion of independent Directors on Audit and Risk Committee % 100% 100% 100%
Proportion of independent Directors on Remuneration Committee % 100% 100% 100%
Proportion of female Directors on Board % 14% 25% 29%
Director Board meeting attendance % 100% 100% 100%
(1) Includes independent Non-Executive Chairman.
SDG 8: Decent work and economic growth
We are passionate about generating economic value
for Kurdistan, creating local jobs, supporting regional
suppliers and generating revenues for the region through
production from the Shaikan Field (see page 41).
SDG alignment
45/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
GKP has taken significant steps in recent years to develop a
sustainability strategy, with a focus on minimising the Company’s
environmental footprint, while addressing climate-related risks
and opportunities. 2020 represented GKP’s first disclosure to
address the TCFD recommendations and since then the Company
has focused its eorts on enhancing its disclosures, with the
climate-related financial disclosures in the 2022 annual report fully
compliant with TCFD’s recommended disclosures.
Gulf Keystone’s climate-related financial disclosures made
in the 2023 annual report are fully compliant with all 11 of the
TCFD’s recommended disclosures described in “Implementing
the Recommendations of the Task Force on Climate-related
Financial Disclosures” published in October 2021, in line with
the Financial Conduct Authority’s LR9.8.6 requirement. The
Company’s disclosures are also compliant with the TCFD’s
additional recommendations for the oil and gas industry outlined
in the same publication mentioned above, including reporting
of scope 1 emissions by source, presented on page 31 of the
Sustainability report. Full compliance with TCFD demonstrates
GKP’s commitment to addressing climate-related risks and
opportunities, with the four pillars of TCFD embedded into our
business andstrategy.
We recognise the need to develop and produce from the Shaikan Field in
a way that minimises our impact on the local environment and addresses
climate-related risks and opportunities.
Task Force on Climate-related
Financial Disclosures (“TCFD”) report
TCFD Pillar 1 – Governance
GKP’s Board is responsible for the Company’s sustainability strategy
and governance, and its focus on addressing climate-related risks and
opportunities. The Board is supported, as appropriate, by its Board
Committees. The sustainability strategy is integral to GKP’s overall
strategy and ability to create long-term value for its shareholders and
other stakeholders.
Board members meet at least four times per year with members of
GKP’s Executive Committee and senior management to consider a
wide range of climate-related risks and opportunities and to facilitate
the sustainability strategy’s success.
The broader workforce and organisation are empowered to support
the sustainability strategy through regular communication and
GKP’s Sustainability Champions initiative, which brings together
representatives from each of the Company’s business departments
tosupport GKP’s sustainability strategy, including addressing
climate-related risks and opportunities. In 2024, the Sustainability
Academy was established to improve our workforce’s understanding
of sustainability issues through training and learning initiatives.
Board and Board Committees
Board of Directors
Technical
Committee
Audit and Risk
Committee
Safety and
Sustainability
Committee
Nomination
Committee
Remuneration
Committee
Management
Executive
Committee
Chief Operating Ocer
Sustainability strategy sponsor
Sustainability
Panel
Safety and
Sustainability team
Other relevant senior
management
Workforce
Sustainability Champions and Sustainability Academy Business departments
46/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
a) Describe the Board’s oversight of climate-related
risks andopportunities
The Board
The Board carries out robust assessments of GKP’s principal
and emerging risks, including those related to climate change, as
maintained in the Company’s Sustainability and Climate Risk Register.
The Company’s sustainability strategy, including climate-related risks
and opportunities, is the responsibility of the Board, with specific issues
and responsibilities related to the strategy delegated to the appropriate
Board Committees. The Board has significant oil and gas industry
experience and expertise and continues to develop its knowledge and
expertise on climate-related matters.
In 2023, the Board met ten times and discussed climate-related risks
and opportunities on five occasions. Meetings were attended by Board
Directors, as well as other members of the Executive Committee.
Throughout the year, the Board considered climate-related risks
and opportunities when reviewing GKP’s strategy, capital allocation,
budgeting and risk management. A particular theme of the Board’s
discussions was the impact of the suspension of exports on
climate-related issues. Specific topics were asfollows:
• impact of the suspension of exports on the sanction and
implementation of the Gas Management Plan and other
decarbonisation projects;
• early discussions regarding potential alternatives to the Gas
Management Plan to improve the scope and cost of the project;
• impact of the suspension of exports on the Company’s scope 1 and
3 emissions;
• review of the Company’s Sustainability and Climate Risk Register
atleast twice a year; and
• analysis of market trends related to climate change, including
upcoming changes to global climate-related regulation.
As part of the discussions, the Board reviewed reports from relevant
Board Committees on specific topics, in particular from the Safety and
Sustainability and Audit and Risk Committees.
Further detail on the role and responsibilities of the Board is available
inthe Corporate governance report on pages 77 to 86.
Safety and Sustainability Committee
The Safety and Sustainability Committee is responsible for ensuring
that appropriate systems and resources are in place to manage
the Company’s commitment to safety and sustainability, including
the management of climate-related risks and opportunities. The
Committee, supported by the Technical Committee, monitors and
oversees progress of climate-related goals and targets.
In 2023, the Safety and Sustainability Committee met four times and
discussed climate-related risks and opportunities at all four meetings.
The below topics were discussed:
• impact of the suspension of exports on the sanction and
implementation of the Gas Management Plan and other
decarbonisation projects;
• early discussions regarding potential alternatives to the Gas
Management Plan to improve the scope and cost of the project
• impact of the suspension of exports on the Company’s scope 1 and
3 emissions, including the transition from pipeline exports to local
sales and trucking operations;
• review of climate-related data reported by GKP and Kurdistan
peercompanies;
• the Company’s Sustainability and Climate Risk Register;
• analysis of market trends related to climate change, including
upcoming changes to global climate-related regulation; and
• oversight of GKP’s commitment to maintain full compliance with
TCFD recommendations.
Further detail on the role and responsibilities of the Safety and
Sustainability Committee is available in the Safety and Sustainability
Committee report on pages 94 and 95.
Audit and Risk Committee
The Audit and Risk Committee is responsible for overseeing GKP’s
financial reporting, internal risk management and control functions,
internal audit requirements and the appointment and oversight of
the Company’s internal (as appropriate) and external auditor. This
responsibility includes oversight of the identification and mitigation of
climate-related risks, including physical and transition risks defined
by TCFD, as maintained in the Company’s Sustainability and Climate
Risk Register. The Committee reviews key risks from the Company’s
risk registers, including the Company’s Sustainability and Climate Risk
Register, on an annual basis, following which a risk report is provided
to the Board. The Committee also ensures that there is appropriate
disclosure on climate-related risks and opportunities within the
Company’s financial reporting.
The Safety and Sustainability Committee is responsible for providing
regular verbal and written updates on climate-related matters to the
Audit and Risk Committee.
Further detail on the role and responsibilities of the Audit and Risk
Committee is available in the Audit and Risk Committee report on
pages 89 to 93.
Remuneration Committee
The Remuneration Committee determines GKP’s remuneration
policy for Executive Directors, Executive Committee members and
employees, which includes sustainability and climate-related metrics.
Further information on how the Board, upon the recommendation of
the Remuneration Committee, embeds climate-related metrics and
targets into its remuneration policy can be found on page 55 of the
TCFD report.
Further detail on the role and responsibilities of the Remuneration
Committee is available in the Remuneration Committee report on
pages 97 to 111.
47/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Task Force on Climate-related
Financial Disclosures (“TCFD”) report continued
a) Describe the Board’s oversight of climate-related
risks andopportunities continued
Nomination Committee
The Nomination Committee is responsible for the identification and
nomination of Directors for vacancies on the Board and other Board
Committees, as and when they arise.
The Board and Nomination Committee aim to ensure that for future
appointments to the Board, there is an appropriate balance of skills
and experience that continues to align with GKP’s overall business
objectives, which include a focus on addressing climate-related risks
and opportunities.
Further detail on the role and responsibilities of the Nomination
Committee is available in the Nomination Committee report on pages
87 to 88.
Technical Committee
The Technical Committee provides support and guidance for the
Shaikan Field operations and development planning and project
execution activities. Within this, it oversees GKP’s produced gas
management strategy and other carbon reduction opportunities.
Further detail on the role and responsibilities of the Technical
Committee is available in the Technical Committee report on page 96.
b) Describe management’s role in assessing and
managing climate-related risks and opportunities
Executive Committee and senior management
GKP’s Executive Committee, comprised of the CEO, CFO, Chief
Operating Ocer, Chief Commercial Ocer, Chief Legal Ocer and
Company Secretary and Chief HR Ocer, is responsible for managing
climate-related risks and opportunities on a day-to-day basis and
for executing GKP’ssustainability strategy. The CEO and CFO are
ExecutiveDirectors.
The Chief Operating Ocer (“COO”), John Hulme, is executive
sponsor for the sustainability strategy and climate-related risks and
opportunities. He reports directly to the Chief Executive Ocer and
is responsible for updating the Safety and Sustainability Committee
and the Board on the sustainability strategy and climate-related
risks and opportunities. The COO has weekly meetings with heads
of departments, including the Head of Safety and Sustainability, to
discuss climate-related issues and updates.
The Head of Safety and Sustainability shares updates and decisions
with the wider Safety and Sustainability team and reports regularly
to the Executive Committee and senior management team on
sustainability and climate-related issues.
The GKP Sustainability Panel
In 2022, the GKP Sustainability Panel was created, with the mandate
of facilitating the execution of GKP’s sustainability strategy, ensuring
that the Company has the necessary resources and systems in place
to oversee, manage and monitor sustainability issues, including
climate-related risks and opportunities, and uniting and coordinating
all Company managers and employees whose responsibilities include
sustainability and climate-related issues.
The Sustainability Panel meets on a quarterly basis. Meetings in 2023
reviewed, among other things, updates to the Company’s Sustainability
and Climate Risk Register, progress in developing and advancing the
Company’s Climate Change Opportunities Register and maintaining
full compliance with the TCFD recommendations. The panel also
discussed emerging climate change regulation including the first two
IFRS Sustainability Disclosure Standards, IFRS S1 and IFRS S2, the
UK’s Transition Plan Taskforce (“TPT”) Disclosure Framework and the
Taskforce on Nature-related Financial Disclosures (“TNFD”).
The permanent members of the Sustainability Panel include the
Executive Committee, the Safety and Sustainability team, the
Company’s Country Manager, the Head of Investor Relations and
Corporate Communications, the Group Financial Controller and
the Group Financial Planning & Analysis Manager. Other senior
management members and employees are invited to attend and
contribute, as appropriate.
TCFD Pillar 1 – Governance continued
48/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Climate-related transition risks
Type of risk Potential financial impacts Our strategic response
Transition
Market
Risk description
Decreased oil demand and oil prices
Time horizon
S M L
• Decreased revenue from lower crude sales
• Decreased profitability and cash
generation from lower realised prices
• Impairment and early retirement of
existingassets
• Maintain low production costs to
enableprofitable production at lower
realised prices
• Develop flexible capital programmes
that can be quickly adapted to changing
market conditions
• Maintain a robust balance sheet and
prudent liquidity levels
Transition
Market
Risk description
Unable to secure financing due to
increasinglender focus on emissions
andclimate change
Time horizon
S M L
• Inability to fund development projects and
other capital allocation priorities
• Proactively engage with existing and
potential shareholders and lenders
• Monitor the Nordic Bond market,
whereGKP has previously secured
debtfinancing
• Explore alternative sources of financing,
including those linked to addressing
climate change and emissions reduction
a) Describe the climate-related risks
and opportunities the organisation has
identifiedovertheshort, medium and long term
GKP assesses climate-related risks and opportunities for its business
and strategy across three distinct time periods: short term, medium
term and long term. These are based on the time periods in which
we would expect a potential financial impact on the Company to
materialise and are bounded by the duration of the Shaikan Field
licence, which is set to expire in 2043, assuming extensions permitted
under the Production SharingContract.
• Short term (2024 to 2026)
• Medium term (2027 to 2031)
• Long term (2032 to 2043)
Given that 100% of GKP’s revenues are generated from a single oil
asset, the Shaikan Field, in the Kurdistan Region of Iraq, all of GKP’s
climate-related risks and opportunities are deemed to be related to a
single sector and geography.
Climate-related risks
GKP’s Board and management team have identified a number of
transition and physical climate-related risks, which are maintained in
the Company’s Sustainability and Climate Risk Register and regularly
reviewed and updated by the management team and Board.
For each risk, the Company determines the relevant time horizon(s),
assesses the potential financial impact on the Company and describes
the Company’s strategic response and resilience. Risks are categorised
as either transition or physical: transition risks relate to policy and legal,
market conditions, reputation and technology; physical risks can be
event driven (acute) or longer-term shifts (chronic) in climate patterns.
Materiality of climate-related risks
To assess the potential financial impact and materiality of
climate-related risks, the Company uses a risk matrix to determine
expected probability and impact, considering the key financial
and non-financial metrics that could be aected. Further detail on
the Company’s identification, assessment and management of
climate-related risks is available on pages 54 and 55, Pillar 3 – Risk
Management.
As the operator of a single oil-producing asset, the most material risk
to the Company’s strategy and valuation is the oil price. Carbon prices,
which are not currently in place in Kurdistan, could also have a material
impact, if implemented. As a result, GKP believes that climate-related
risks connected to the transition to a lower carbon economy could
have a material financial impact on the Company. The qualitative
assessment of climate-related transition risks is summarised in the
table on pages 49 and 50 and the Company has carried out scenario
analysis on oil price and carbon price, described on page 52 to assess
the potential impact on its strategy and valuation.
Regarding physical risks of climate change, the Company has
identified potential chronic and acute risks, including extreme
changes in weather patterns, extreme weather events and rising
mean temperatures. However, these risks are not currently deemed
to be material to our strategy and valuation, given the design of GKP’s
facilities, operational processes and focus on asset integrity to mitigate
these risks. There has been no discernible financial impact from
climate-related physical risks in recent years.
The impact of climate-related risks on our supply chain is currently not
considered to be material.
TCFD Pillar 2 – Strategy
Key:
S = Short term,M = Medium term ,L = Long term
49/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Type of risk Potential financial impacts Our strategic response
Transition
Market
Risk description
Increased cost of raw materials, equipment
and technology
Time horizon
M L
• Increased operational expenditure due to
changing input costs (e.g. fuel costs)
• Increased capital expenditure due to
changing input costs (e.g. production
and drilling equipment, decarbonisation
technology)
• Decreased profitability and cash
generation
• Monitor raw material costs
• Actively engage with supply chain to
secure the best possible prices and
reduce price volatility through negotiation
of multi-year contracts
• Develop flexible capital programmes
that can be quickly adapted to changing
market conditions
• Maintain a robust balance sheet and
prudent liquidity levels
Transition
Policy and Legal
Risk description
Introduction of carbon pricing/taxation
Introduction of new regulations
Exposure to litigation
Time horizon
S M L
• Decreased revenue from lower crude sales
• Decreased profitability and cash
generation from lower realised prices
• Increased costs from complying with new
regulation and from litigation/fines
• Impairment and early retirement of
existingassets
• Implement decarbonisation projects,
principally the Gas Management Plan, to
reduce carbon emissions and potential
impact of carbon prices/taxes
• Maintain low production costs to
enableprofitable production at lower
realised prices
• Develop flexible capital programmes
that can be quickly adapted to changing
market conditions
• Maintain robust balance sheet and
prudent liquidity levels
• Monitor and comply with existing and
emerging regulation, where applicable
Transition
Technology
Risk description
Substitution of crude oil with lower emission
products and technologies
Time horizon
M L
• Decreased revenue and profitability
• Impairment and early retirement of
existingassets
• Increased expenditures
• Implement decarbonisation projects,
principally the Gas Management Plan,
toreduce carbon emissions
• Maintain low production costs to
enableprofitable production at lower
realised prices
• Develop flexible capital programmes
that can be quickly adapted to changing
market conditions
• Maintain a robust balance sheet and
prudent liquidity levels
Transition
Reputation
Risk description
Negative public perception of oil and
gasindustry
Time horizon
M L
• Reduced access to talent
• Increased hiring and employment costs
• Increased sta turnover rate
• Proactively communicate GKP’s
sustainability strategy and focus on
addressing climate risk to all stakeholders
• Implement initiatives to attract, retain and
develop talent
• Monitor relevant data regarding
employment trends in the UK
andKurdistan
Key:
S = Short term,M = Medium term ,L = Long term
TCFD Pillar 2 – Strategy continued
Task Force on Climate-related
Financial Disclosures (“TCFD”) report continued
a) Describe the climate-related risks and opportunities the organisation has identified over theshort,
mediumand long term continued
Climate-related transition risks continued
50/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Climate-related opportunities
GKP’s climate-related opportunities comprise decarbonisation
projects to reduce the Company’s scope 1 emissions. The Company’s
primary opportunity is the Gas Management Plan, as well as a number
of potential smaller projects.
The Company has identified several potential benefits from these
opportunities:
• By lowering emissions, the Gas Management Plan and other
decarbonisation projects would reduce the financial impact on the
Company from the potential introduction of carbon prices, thereby
increasing the Company’s resilience to transition-related risks, as
described in the scenario analysis in Pillar 2c on pages 52 and 53.
• While the Gas Management Plan and other decarbonisation
projects would likely not produce any revenue, their costs would be
recoverable through production under the terms of the ShaikanPSC.
• Lower carbon intensity production could improve the sustainability
credentials of the Company with its stakeholders, including
investors, lenders and employees, and could potentially increase
access to capital.
Following the closure of the Iraq-Turkey Pipeline and suspension of
Kurdistan crude exports on 25 March 2023, the Company moved to
preserve liquidity, suspending all expansion activity. This included
our progression towards the sanction and implementation of the Gas
Management Plan and the ongoing assessment and development
of other decarbonisation projects. While we remain committed to
pursuing climate-related opportunities and significantly reducing our
emissions, a return to investment will require a resumption of exports
and confidence in the commercial and payment environment.
The Gas Management Plan
GKP’s primary climate-related opportunity is the Gas Management
Plan (“GMP”), a component of the Shaikan Field Development Plan.
Based on the most recently submitted scope to the Ministry of
Natural Resources, the GMP will eliminate almost all routine flaring
at the Company’s production facilities by processing and reinjecting
associated gas. Some of the processed gas will also be used for
power generation at the production facilities, displacing the use of
diesel. Once online, the project is expected to transform GKP’s carbon
footprint, more than halving scope 1 emissions intensity versus the
original 2020 baseline of 38 kgCO
2
e per barrel.
As noted above, we have paused progression towards sanction
while the investment environment remains unclear. Nonetheless, we
are taking the opportunity to explore alternative options to the Gas
Management Plan, with a focus on changing the project radically, and
therefore the impact on implementation timing and cost.
Additional decarbonisation projects
GKP has developed a list of other potential decarbonisation projects,
with the objective of further reducing GKP’s scope 1 emissions during
the life of the Shaikan Field beyond the reduction targeted by the
GMP. Potential options include eliminating methane emissions from
the venting of our production facility storage tanks, improving heat
recovery in oil processing and replacing operational power demand
with cleaner fuel sources, such as gas or solar.
All work to progress these projects has been paused for the time
being to preserve liquidity. This includes the methane venting project
which we had previously prioritised to bring online in 2024. We
intend to resume this activity following the resumption of exports and
renewed confidence in the commercial and payments environment.
In the meantime, we are reviewing and prioritising the project list
so we are ready toproceed with the most eective initiatives at the
appropriatetime.
b) Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy and financial planning
As an energy company, we recognise the importance of incorporating
climate-related risks and opportunities into our strategy and
financial planning. This includes assessing the potential impact of
climate-related risks and opportunities on our production of crude oil
and broader operations, our use of global and regional supply chains
and our access to and allocation of capital. We do not currently invest
inresearch and development.
We incorporate climate-related risks and opportunities into our
strategy and financial planning by:
• Assessing in our Sustainability and Climate Risk Register the
potential operational and financial impact of climate-related
transition and physical risks on our business and identifying strategic
responses to mitigate their impact, as described in section 2a on
pages 49 to 51.
• Developing our Climate Change Opportunities Register to capitalise
on climate-related opportunities that could benefit the Company, as
described in section 2a on pages 49 to 51.
• Using scenario analysis to assess both the resilience of our strategy
and business to material climate-related risks and the mitigating
benefits of climate-related opportunities, primarily the Gas
Management Plan, as described in section 2c on pages 52 to 53.
51/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
c) Describe the resilience of the organisation’s
strategy, taking into consideration dierent
climate-related scenarios, including a 2°C
orlowerscenario
To assess the resilience of our strategy to a transition to a lower carbon
economy and the climate-related transition risks identified in section
2a on pages 49 to 51, GKP has updated a scenario analysis exploring
the impact on the Company’s internal base case net present value from
two scenarios published by the International Energy Agency (“IEA”)
in its 2023 World Energy Outlook, both associated with a rise in global
average temperatures of less than 2°C in 2100. The scenarios include:
1. Announced Pledges Scenario (“APS”); and
2. Net Zero Emissions by 2050 (“NZE”).
The IEA scenarios reflect dierent potential government, industry and
consumer responses to rising global demand for energy, resulting in
dierent trajectories for oil demand, oil prices and carbon prices, which,
as the operator of a single oil-producing asset, are key determinants for
the Company’s future cash generation and value. Both scenarios cover
the combined period identified by our short, medium and long-term
time horizons on page 49 (from 2024 to 2043, the end of the Shaikan
licence period).
We have applied the scenario assumptions in our valuation model to
test the resilience of our strategy, with the same assumptions also used
as the foundation for impairment testing, referenced on page 134.
The IEA scenarios have been chosen by the Company for their
independence, high degree of acceptance in the global oil and gas
industry among corporates and investors, annual updates to forecasts
and adjustment of carbon prices for emerging markets, such as Iraq.
The relevance of the IEA scenarios to the Company will continue to be
assessed for future updates of theanalysis.
Announced Pledges Scenario (“APS”)
The Announced Pledges Scenario assumes that governments will
meet, in full and on time, the climate-related commitments they have
made, including longer-term net zero emissions targets and pledges in
Nationally Determined Contributions (“NDCs”). This leads to a global
temperature rise of 1.7°C in2100.
Global oil demand in the scenario is assumed to decrease from around
97 mb/d in 2022 to approximately 93 mb/d in 2030, followed by a more
than 40% decline to around 55 mb/d in 2050, with passenger cars,
road freight and industry responsible for the largest reduction. Oil
prices (real 2022) are expected to remain reasonably strong at $74/bbl
in 2030, with declines to $60/bbl by 2050.
No carbon prices are assumed to be in place in the scenario until 2031,
in line with the IEA’s assumptions for emerging market and developing
economies without net zero emissions pledges (which currently
includes Iraq). From 2031, the scenario assumes carbon prices (real
2022) are implemented, increasing from $2 tCO
2
in 2031 to $26 tCO
2
by the end of the Shaikan licence period in 2043.
Net Zero Emissions by 2050 (“NZE”)
This scenario depicts a pathway for the global energy sector to reach
net zero energy-related CO
2
emissions by 2050 by deploying a
wide portfolio of clean energy technologies. According to the IEA, it
recognises that achieving net zero energy sector CO
2
emissions by
2050 depends on fair and eective global cooperation, with advanced
economies taking the lead and reaching net zero emissions earlier in
the NZE scenario than emerging market and developing economies.
This limits global warming to 1.5°C in 2050 and leads to a global
temperature fall to 1.4°C by 2100.
Global oil demand in the scenario is assumed to radically change,
dropping by 2.5% each year on average between 2022 and 2030
to around 78 mb/d, and by more than 5.5% each year from 2030 to
around 24 mb/d in 2050. The oil price (real 2022) is increasingly set by
the operating cost of the marginal project, falling to around $42/bbl real
in 2030 and to $25/bbl by 2050.
Carbon prices (real 2022) are assumed to be in place from 2025,
even in emerging market and developing economies without net zero
emissions pledges, with real prices rising from $4 tCO
2
in 2025 to $25
tCO
2
in 2030 and to $114 tCO
2
by the end of the Shaikan licence period
in 2043.
Modelling assumptions and key drivers of value
In both the Company’s base case and the IEA scenarios, present value
is driven by:
• oil price assumptions; for modelling purposes, all scenarios assume
the restart of exports in Q4 2024 and return to sales at the Brent
price adjusted for a quality and transportation discount;
• carbon price assumptions; the Company conservatively applies the
full carbon prices in the APS and NZE scenarios, even though 1) IEA
oil prices already incorporate carbon prices and 2) it is not clear what
average carbon intensity per barrel of production the IEA assumes
above which carbon prices would be applied;
• the production profile estimated from the Shaikan Field and the
timing of start-up of the Gas Management Plan, which reduces
emissions and lowers any exposure to carbon prices. Both are
driven by the timing of the Company’s future investment programme
and implementation of the Shaikan Field Development Plan; and
• the weighted average cost of capital used to discount future
cashflows.
TCFD Pillar 2 – Strategy continued
Task Force on Climate-related
Financial Disclosures (“TCFD”) report continued
52/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Due to the Company’s current focus on preserving liquidity following
the suspension of Kurdistan exports and ongoing uncertainty
regarding the future investment outlook, the Company’s base case and
both IEA scenarios incorporate an estimated return to development
drilling in H1 2026, with the Gas Management Plan only assumed to be
operational in 2028. These assumptions are for modelling purposes
and do not reflect any firm commitment by the Company.
In the APS scenario, net present value increases by 25% versus the
Company’s base case, primarily due to the more conservative oil price
deck used in our internal financial planning assumptions, oset by the
introduction of carbon pricing in the IEA scenario from 2031.
In the NZE scenario, net present value declines by 48% versus our
base case. This is primarily driven by the sharply lower oil price deck
versus our base case.
Value is also impacted by the introduction of carbon prices from 2025.
While the GMP acts as a material mitigant against carbon prices,
assumed start-up in 2028, as described in the modelling assumptions
section above, means full exposure from 2025-2027. The combination
of these factors, as well as the assumed delay to the development
drilling and impact on production, means that the NZE scenario would
lead to an impairment to the current carrying value of our assets.
However, if the Company’s assumed future average carbon intensity
per barrel of production is in fact at or below the undisclosed
IEA carbon intensity per barrel of production, there would be no
impairment.
If the oil and carbon price assumptions in the NZE scenario were to
materialise, we would take steps to review our strategy and adapt our
capital programme at the time. However, this currently seems unlikely
given the continued outlook for oil prices and demand and the current
levels of investment in clean energy. There has also been no indication
that any plans exist for the introduction of carbon prices in Kurdistan
or Federal Iraq in the near term. From a strategic perspective, until
Kurdistan exports resume and our confidence in the commercial and
payments environment is renewed, the Company will continue to
minimise capital expenditures and costs to preserve liquidity.
The short-term period as identified in our scenario analysis is captured
under the assessment period covered by the going concern and
viability statement. The base case oil price used in these assessments
up to the end of 2026 is lower than the NZE, the most conservative
climate-related scenario, and therefore we believe that any further
adverse oil price due to the impact of transition to a lower carbon
economy is not material on going concern and viability.
TCFD Pillar 3 – Risk Management
a) Describe the organisation’s processes for
identifying and assessing climate-related risks
Risk identification
GKP’s identification of climate-related risks combines a bottom-up
approach, carried out by GKP’s Safety and Sustainability team
in collaboration with the Company’s heads of departments, with
top-down oversight from GKP’s Executive Committee and Board,
whohold ultimate responsibility for risk management.
Risks are identified initially by the Safety and Sustainability team
with reference to existing and emerging regulatory requirements
and guidelines, including those provided by TCFD, the International
Energy Agency (“IEA”), the European Bank for Reconstruction
and Development (“EBRD”), International Sustainability Standards
Board (“ISSB”), International Petroleum Industry Environmental
ConservationAssociation (“IPIECA”) and the US Environmental
Protection Agency (“EPA”).
The risks are then discussed with relevant heads of department
to agree relevance to GKP. Once agreed, risks are added to the
Sustainability and Climate Risk Register, as described below, and
reviewed by the Executive Committee, before being submitted to
the Audit and Risk Committee and the Board. At the end of 2023,
theCompany had identified 12 climate-related risks. Material risks
areoutlined on pages 49 and 50 of Pillar 2 – Strategy.
Risk assessment
The Company maintains a separate Sustainability and Climate
Risk Register, acknowledging the increasing importance of climate
change to the Company’s stakeholders and the need to manage
climate-related risks in a more structured and comprehensive way.
Each risk contained in the Sustainability and Climate Risk Register is
assessed based on the Company’s risk matrix, which is used to assess
the materiality of the Company’s risks across all risk registers.
The relevance of climate-related risks is described in the Management
of principal risks and uncertainties section on page 57 of the
annualreport.
GKP’s risk matrix defines a rating, from “Lowest” to “Severe”, for
each risk according to probability of occurrence and severity of
impact. To define severity, the Company considers the impact of
the risk according to a number of dimensions and both financial
and non-financial metrics, such as safety, environmental damage,
annual production loss, financial loss, market impact, social impact
and reputation and regulatory action, among others. To determine
probability, the Company considers the frequency of past occurrences
and an assessment of future potential occurrences. The Company’s
Chief Financial Ocer leads a process whereby the heads of
department and senior managers complete an assessment of each
risk, which are then reviewed in detail by the Executive Committee.
In addition to determining severity and probability, the Sustainability
and Climate Risk Register categorises risks as either transition or
physical and identifies the most applicable time horizon, in accordance
with TCFD requirements. The register also determines appropriate
prevention and mitigation actions and assigns a risk owner to manage
the risk with oversight from the Company’s Executive Committee.
As described in Pillar 2 – Strategy, the Company believes that
climate-related risks connected to the transition to a lower carbon
economy could have a material financial impact on the Company.
Physical risks of climate change are not currently expected to be
material to our strategy and valuation.
53/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Board responsible for overall system of internal control and risk management
Board
Audit and Risk Committee reviews all risks, including material risks
Audit and Risk Committee
Risk registers reviewed by Executive Committee and risks assigned an executive owner
Executive Committee
Risks identified, ranked and managed by heads of department
Sustainability and Climate
Risk Register
Operational Risk
Register
Corporate Risk
Register
Finance Risk
Register
Information Technology
RiskRegister
Operational Technology
RiskRegister
Fraud Risk
Register
Project Risk
Register
Integration of climate-related risk management into overall risk framework
b) Describe the organisation’s processes for managing climate-related risks
The Company’s Executive Committee is responsible for the overall management of the Sustainability and Climate Risk Register. The Risk Register
is reviewed at least two times a year by the Audit and Risk Committee and the Board.
Each climate-related risk is allocated a risk owner and actions are identified to either prevent or mitigate the risk, as described in the climate-
related risk tables on pages 49 and 50.
c) Describe how processes for identifying, assessing and managing climate-related risks are integrated into
the organisation’s overall risk management
The approach implemented by GKP to identify, assess and manage climate-related risks is consistent with the Company’s overall risk
management framework and processes applied to other business risks:
• the Sustainability and Climate Risk Register is one of several detailed risk registers maintained by heads of department and other appropriate
senior managers, who identify, manage and rank risks. The process is supported by the Safety and Sustainability team and led by the CFO;
• the Executive Committee has oversight of all risk registers. All risks, including climate-related risks, are assigned an executive risk owner; and
• the Audit and Risk Committee reviews all risks that have been determined as material.
Further information on the Company’s management of principal and emerging risks can be found on pages 57 to 71.
Task Force on Climate-related
Financial Disclosures (“TCFD”) report continued
TCFD Pillar 3 – Risk Management continued
54/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
GKP recognises the importance of accurate and comprehensive
data to ensure the Company can make appropriate strategic and risk
management decisions. Our scope 1 and 3 emissions disclosures
for 2022 and 2023 are independently verified by a third-party
organisation, EcoAct, according to the ISO 14064-3:2019 standard.
The Group embeds metrics and targets related to climate change in its
Executive Director and employee remuneration.
2023 metrics and targets
In 2023, the bonus plan included a KPI of 20% related to safety and
sustainability, of which 8% was related to climate-related risks and
opportunities. The KPI included objectives related to a project focused
on eliminating methane venting from our oil storage tanks and the
approval of the FDP, including the Gas Management Plan.
The suspension of exports and subsequent actions by the Company to
preserve liquidity meant that all expansion activity, including progress
towards sanction of the Gas Management Plan and elimination of
methane venting, was suspended. As a result, the KPIs set at the
beginning of the year were dropped and no bonus was recommended
by the Remuneration Committee.
2024 metrics and targets
In 2024, the bonus plan includes a KPI of 20% related to safety and
sustainability, of which 8% is related to climate-related risks and
opportunities. Objectives include prioritising the list of additional
decarbonisation opportunities and investigating and progressing
alternatives to the Gas Management Plan, as described on page 51,
Pillar 2.
Long Term Incentive Plan (“LTIP”)
For the 2024 LTIP award, the Remuneration Committee considered
incorporating an ESG metric to make up no more than 20% of the total
award. However, the Committee determined that prior to the sanction
of the Gas Management Plan, and further progress on the Company’s
other decarbonisation opportunities, it was not possible at this stage to
set suciently robust targets. The Committee agreed to consider the
matter again for the 2025 LTIP award.
Further information is available in the Remuneration Committee report
on pages 97 to 111.
TCFD Pillar 4 – Metrics and Targets
a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with
its strategy and risk management process
GKP assesses climate-related risks and opportunities using a number of metrics. These metrics, which encompass GHG and other emissions
and quantification of financial impact, are summarised as follows.
Type Metric Unit Page
GHG emissions • Scope 1 GHG emissions, categorised by source
according to the TCFD recommendations for oil and
gas companies:
• flaring;
• venting;
• fugitive; and
• combustion of petrol, diesel and fuel gas.
• Methane emissions (also reported under scope 1
Flaring, Venting and Fugitive emissions);
• Scope 3 GHG emissions, categories 1-12.
ktCO
2
e Page 31 Sustainability report
Page 33 Sustainability report
• Scope 1 GHG emissions intensity kgCO
2
e/bbl Page 32 Sustainability report
Financial impact • Dated Brent price $/bbl Page 52 Pillar 2 – Strategy
• Carbon price $/tCO
2
Page 52 Pillar 2 – Strategy
• Change in net present value $m Page 53 Pillar 2 – Strategy
55/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
b) Disclose scope 1, scope 2 and, if appropriate,
scope 3 greenhouse gas (“GHG”) emissions, and the
relatedrisks
GKP discloses scope 1 and scope 3 emissions in its Sustainability
report on pages 31 and 33.
c) Describe the targets used by the organisation to
manage climate-related risks and opportunities and
performance against targets
It remains our ambition to significantly reduce our scope 1 emissions
intensity to increase the sustainability of our operations, address
climate-related risks and opportunities and maintain our licence to
operate in Kurdistan. As part of the Shaikan Field Development Plan, we
had been intending to implement a Gas Management Plan to eliminate
almost all routine flaring. Subject to timely sanction and implementation
of the project, including securing external financing, we were targeting
to reduce our scope 1 emissions intensity by >50% by 2025, compared
to an original 2020 baseline of 38 kgCO
2
e. In addition, we had also
been exploring a number of other decarbonisation opportunities and
progressing as a priority a project to eliminate methane emissions from
our storage tanks in 2024.
Following the closure of the Iraq-Turkey Pipeline and suspension of
Kurdistan exports on 25 March 2023, the Company moved swiftly
to preserve liquidity, suspending all expansion activity, including
investment in decarbonisation opportunities. A return to investment
will require a resumption of exports and confidence in the commercial
and payments environment. As it is not clear at the current time when
this will be, the Company’s emissions reduction targets have been
suspended.
We remain committed to significantly reducing our emissions and will
reinstate our targets when we have more clarity on the outlook. In the
meantime, we are in the early stages of exploring alternative options
to the Gas Management Plan, with a focus on optimising scope,
implementation timing and cost. We are also prioritising our list of
additional decarbonisation opportunities so we are ready to progress
the most eective initiatives at the appropriate time.
Task Force on Climate-related
Financial Disclosures (“TCFD”) report continued
TCFD Pillar 4 – Metrics and Targets continued
56/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
BOARD
Responsible for oversight of the overall system of
internal control and risk management
Audit and Risk
Committee
Responsible for monitoring the eectiveness of
the Company’s risk management framework and
internal controls
SENIOR
MANAGEMENT
Responsible for implementation and management
of internal control and risk management systems
Safety and
Sustainability Committee
Ensures appropriate systems are in place to
manage health and safety, security, environment,
climate and community risks
Technical
Committee
Ensures that appropriate processes are in place
to manage Shaikan operations, development
planning and project execution risks
Management of principal
risks and uncertainties
Risk assessment framework
The Board regularly considers the Group’s principal and emerging risks and reviews reports from the Audit and Risk, Safety and Sustainability and
Technical Committees.
The Group considers potential emerging risks and maintains risk registers that incorporate strategic, sustainability and climate, commercial,
financial, operations, projects, information technology and operational technology risks. The risk registers include clear definitions of the risk,
potential impact, mitigating controls the Group has in place to reduce the impact or probability of the risk to an acceptable level, and potential
further actions to further mitigate the impact or probability of the risk. Risks in the registers are included in the Company’s risk matrix, which is
used to assess the materiality of the Company’s risks across all risk registers based on estimated impact and probability. The Company invites
specialist advisers to complete independent assessments and, as appropriate, attend meetings with the Board and management to provide an
assessment of particular risks which may aect the Company, such as climate, geopolitical, security and cyber security risks, thus enabling the
Company to understand and plan for the mitigation of these risks.
The risk register is reviewed and challenged by senior management on a regular basis following consultation with owners of the risks and external
consultants, as appropriate.
The Audit and Risk Committee regularly reviews the status of the Group’s key risks and reviews the eectiveness of the internal control and risk
management systems to ensure risks are appropriately identified, monitored and reported to the Board and are aligned with the Group’s strategy.
The Safety and Sustainability Committee is primarily responsible for ensuring that appropriate systems are in place to manage health, safety,
security and environmental risks, including climate-related risks, that is one of our principal risks, as well as corporate socialresponsibility.
The Technical Committee regularly reviews the Group’s principal operational risks. It supports ongoing production operations and the Company’s
Shaikan development planning and project execution activities and ensures that appropriate processes are in place to manage project execution
risks.
The Board monitors the Company’s risk management and internal control systems by means of reports from the various committees and direct
consideration of risk within the Board meeting agenda.
57/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Management of principal
risks and uncertainties continued
Principal risks
The Board has carried out a robust assessment of the principal and emerging risks facing the Group, including those that would threaten
its business model, future performance, solvency or liquidity, recognising the Company remains dependent on its interest in a single asset,
the Shaikan Field, located in the Kurdistan Region of Iraq. The following table indicates the principal risks the Group faces after considering
mitigations. For each risk, the Group determines whether the level of risk, considering severity and probability, has changed in the year. The list
isnot exhaustive nor in priority order and may change.
Strategic continued
Key risk factor Potential impact Mitigation
Political, social and economic
instability
Risk owner:
CEO
Kurdistan and Iraq as a whole and the
neighbouring region have a history of
political, social and economic instability
which continues to represent a risk
to the Group, its operations and its
personnel.
Uncertainty may arise from changes in
the KRG leadership or changes in the
continued administration of the Shaikan
licence by the KRG.
Link to strategic priorities
Change in year
There has been a history of tension between
the political parties in the Kurdistan Region of
Iraq and with the Federal Government of Iraq
(“FGI”). The impact of the Federal Supreme
Court ruling in February 2022, the ITP
arbitration award and subsequent closure of
the pipeline in March 2023, and the increased
dependency of the Kurdistan Region of Iraq for
budget transfers from the FGI that have not yet
been clearly defined, have served to increase
tensions and geopolitical risk.
Any changes in the administration of the
Shaikan licence or changes in government
could generate uncertainty and may cause a
material adverse impact to the Group, including
changes in PSC terms.
Other consequences of political, social and
economic instability may include unrest or
armed conflict, limits on production (including
restrictions related to OPEC actions) or cost
recovery, import and export restrictions,
restrictions on pipeline exports, local sales
constraints, price controls, uncertainty over
payment mechanisms for export sales,
imposition of additional costs and taxes, tax
increases and other retroactive tax claims,
revocation of licence to operate, expropriation
of property, cancellation of contract rights and
an increase in regulatory burdens and fiscal
pressures on the KRG.
The Group engages in continuous dialogue with
advisers and the KRG.
The Group is a founding member of the
Association of the Petroleum Industry of
Kurdistan (“APIKUR”) that serves as a joint voice
to advocate for and represent the common
interests of its members.
The Group acts as a responsible operator and
adheres to the terms and requirements of the
PSC, and holds regular, minuted meetings with
the MNR.
Given the lack of exports and delay in KRG
payments, the Group has paused field
development, including the Gas Management
Plan, and finalisation of the FDP. The Group
maintains an active dialogue with the Ministry
of Natural Resources (“MNR”) and provides
updates on production, local sales and planned
work programmes and budgets.
The Board closely monitors future spending
plans, maintaining flexibility and phasing
expenditures to ensure that an adequate
cash balance and other potential sources of
liquidity are identified and maintained to enable
the Company to manage potential future
uncertainties.
Key
Strategic priorities Safety and
sustainability
Value
creation
Capital discipline
and cost focus
Robust financial
position
Change in year
Increased
level of risk
Similar level
of risk
Decreased
level of risk
New risk
58/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic continued
Key risk factor Potential impact Mitigation
Export route availability
Risk owner:
CCO
Risks associated with the availability and
accessibility of infrastructure allowing
the Group to sell oil to export markets,
and changes to export route forced on
the Group which aect profitability.
Link to strategic priorities
Change in year
In March 2023, the International Chamber of
Commerce in Paris awarded in Iraq’s favour
in the first of two long-running arbitration
cases dating back to 2014 that claimed Turkey
had violated the terms of a 1973 bilateral
agreement by allowing the KRG to export
crude oil through the pipeline without the FGI’s
consent. This arbitral award covered 2013 to
2017. The second arbitration, covering 2018
up to 2024 is still pending. The timing of the
second arbitration decision and any potential
award are unknown. On 25 March 2023, the
Kurdistan Pipeline Company notified the
Company that the ITP had been shut-in at
Turkey’s request. Despite ongoing political
negotiations, the pipeline remains closed at the
date of this report.
Loss of revenue or reduction in profitability.
The Group relies on the international pipeline
between Fishkhabour (in Kurdistan) and
Ceyhan (in Turkey) and the Kurdistan Export
Pipeline for delivery of crude oil to international
markets. Beyond the arbitration ruling and
regional politics, the pipeline may be subject to
interruption for a variety of reasons, including,
but not limited to, technical, maintenance,
repairs, damage (for example earthquake,
military operations or terrorism), theft,
smuggling or sanctions.
The Shaikan Lifting Agreement between
the Group and MNR that provided access
to the Kurdistan Export Pipeline expired on
31August 2022 and has not yet been extended
as negotiations are ongoing related to the
resumption of crude oil exports and payment
of exports, including outstanding arrears.
Based on our understanding, the agreement
between the Turkish Government and the
Federal Government of Iraq covering the
Turkish export pipeline, dating from 1973,
expires in July 2026, with a potential five-year
extension period depending upon the status
of renegotiation or formal termination. Any
potential negotiations around the extension or
renegotiation of the agreement are currently
unknown.
While the Company waits for the reopening of
the crude oil export pipeline and resumption of
KRG payments, it has re-started crude oil sales
to local buyers that truck the crude oil from the
Company’s facilities. The Group is aiming to
at least cover monthly expenditures; however,
the predictability of future local sales remains
uncertain.
The Company is targeting to enter into a
new Shaikan Lifting Agreement. The timing
to conclude such negotiations is currently
unknown.
59/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Management of principal
risks and uncertainties continued
Strategic continued
Key risk factor Potential impact Mitigation
Stakeholder misalignment
Risk owner:
CEO
The Group’s long-term strategy and
plans may not be fully aligned with all
stakeholder groups due to the diverse
nature of the stakeholders (including,
but not limited to, shareholders,
bondholders, the KRG, the MNR, the
FGI, joint venture partners and local
communities).
Link to strategic priorities
Change in year
Ineective or poorly executed strategy
may lead to loss of investor confidence and
reduction in the Company’s share price or
credit quality, which reduces the Group’s ability
to access finance and increases vulnerability
to a takeover.
Misalignment between the KRG, FGI and
IOCs may impact the Company’s ability to sell
crude oil locally and to the international market,
receive payments on a timely basis for oil sales
including recovery of outstanding arrears,
and develop and realise the full potential of the
Shaikan Field.
Misalignment with our joint venture partner,
the KRG or the MNR may result in delays or
modifications to the development project,
potentially impacting economic returns.
Delays in FDP approval may impact Shaikan
Management Committee timely approval of
budgets, increasing cost recovery risk.
The inability to finalise commercial
negotiations with the MNR confirming either
no changes are required to the existing PSC or
that the PSC will be amended could potentially
negatively impact profitability and stakeholder
value.
Amount of recoverable costs may be
challenged and reduced, adversely impacting
profit and cash generation from operating
activities.
Local community opposition may lead to
project delays, inability to gain land lease
extensions, significant security risk to our
employees and contractors or, in extreme
cases, loss of licence to operate.
The Group maintains regular dialogue with
the Group’s investor base and releases all
key developments to the market through the
London Stock Exchange’s Regulatory News
Service.
The Group, along with APIKUR as appropriate,
continues to engage with KRG ocials to
pursue a solution that provides PSC contract
clarity, facilitates the restart of pipeline exports
and normalises payments, including repayment
of arrears.
Once exports resume and oil sales payments
have normalised, the Group expects to review
and update the FDP, re-engage with the
MNR towards project sanction and complete
commercial negotiations to finalise lifting
agreement terms. Commercial negotiations
are expected to take into account revenue
and contractual arrangements. While the
overarching objective is to at least maintain the
value of the current contract, there is a risk that
may not be achievable.
Shaikan Management Committee meetings
including representatives of the MNR, MOL and
GKP are held periodically to discuss issues and
ensure alignment. Key decisions from meetings
are formally documented.
The Company strictly adheres to
MNR-approved tendering processes and
regularly updates the MNR on field operations
and development progress, mitigating the
potential impact of budget approval delays and
cost recovery challenges.
Strong community relations are vital to our
ability to achieve local support for new projects.
Gulf Keystone strives to be a good corporate
citizen and fosters its reputation through strong
and positive relationships with the governments
and communities where we do business.
The Group continues to collaborate with local
and government stakeholders and has a CSR
strategy to complement its existing community
welfare initiatives.
Key
Strategic priorities Safety and
sustainability
Value
creation
Capital discipline
and cost focus
Robust financial
position
Change in year
Increased
level of risk
Similar level
of risk
Decreased
level of risk
New risk
60/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic continued
Key risk factor Potential impact Mitigation
Disputes regarding title or
exploration and production rights
Risk owner:
CEO
The Iraqi government disputes the
validity of the PSCs granted by the KRG.
Link to strategic priorities
Change in year
If the validity of the PSCs was successfully
challenged, the Group could be required by
the KRG or FGI to either accept terms that are
materially less favourable than the current PSC
or relinquish the PSC.
In February 2022, a majority decision of the
Iraqi Supreme Court ruled that the Kurdistan
Region of Iraq Oil and Gas Law (“KROGL”)
was unconstitutional. The ruling also provides
that the Iraqi Ministry of Oil may pursue
annulment of Production Sharing Contracts
issued by the Kurdish Regional Government
(“KRG”). The KRG responded that “it will take
all constitutional, legal and judicial measures to
protect and preserve all contracts made in the
oil and gas sector”.
The Company learned from media reports that
in proceedings brought by the Iraqi Ministry of
Oil against various IOCs, on 23October2022,
the Baghdad Commercial Court issued
decisions to nullify the Production Sharing
Contracts in absentia against Gulf Keystone
and two other IOCs. Gulf Keystone did not
have legal representation in the Court as the
Group was not actually served with a notice of
the court case. Media has also reported similar
judgments issued against several other IOCs.
The KRG continues to arm that KROGL is
validly constituted and the PSCs issued are
valid and in full force and eect.
Further to the Federal Supreme Court
ruling and recent federal budget provisions,
the FGI has assumed control of marketing
Kurdistan’s crude oil pipeline exports as per
Article 12 of the Iraq Budget 2023. The FGI
has stated that existing Kurdistan PSCs may
be unconstitutional, thus potentially requiring
contractual amendments before crude oil
export payments are made to International Oil
Companies, although the KRG has robustly
defended its rights under the constitution and
KROGL. Through APIKUR, the Company
has stipulated its conditions to considering
a contract amendment, including a tripartite
agreement amongst the FGI, KRG and IOCs,
payment surety for past and future exports and
preservation of contractual protections and
commercial terms.
In addition to the potential validity of the PSC,
the rulings may impact the KRG’s ability to
export crude oil or negotiate KBT selling
prices, the Company’s ability to contract
service contractors that also do business in
Federal Iraq and other parties.
This is an industry-wide risk faced by all
International Oil Companies operating in the
Kurdistan Region of Iraq.
The Group, along with APIKUR as appropriate,
continues to engage with KRG and FGI ocials
to pursue a solution that provides PSC contract
clarity, facilitates the restart of pipeline exports
and normalises payments, including repayment
of arrears.
The Group also continues to consult with
external legal counsel and other advisers on the
matter.
61/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Management of principal
risks and uncertainties continued
Strategic continued
Key risk factor Potential impact Mitigation
Business conduct and
anti-corruption
Risk owner:
Anti-Bribery Ocer
Due to the nature of the industry sector
and the region in which the Group
operates, it is exposed to the risk that
the Group, or parties acting on its
behalf, breach relevant laws, including
anti-bribery and corruption laws.
The reintroduction of local crude
oil sales has increased exposure to
counterparty risks associated with
potential crude oil buyers.
Link to strategic priorities
Change in year
Violation of anti-bribery, sanctions or
corruption regulations by the Group, or
those acting on its behalf, may result in a
criminal case against Gulf Keystone and/or
its employees which may lead to reputational
damage, monetary losses, fines, imprisonment
of sta and revocation of licence to operate.
The Chief Legal Ocer and Company
Secretary is the Anti-Bribery Ocer for the
Group and reports directly to the Audit and Risk
Committee and Board.
The Group has a Code of Business Conduct
and various policies, including anti-bribery
and corruption, whistleblowing and prevention
of tax evasion, and has implemented training
programmes to ensure understanding and
promote ethical behaviours and compliance.
All employees, agents and other associated
persons are made fully aware of the Group’s
policies and procedures regarding ethical
behaviour, business conduct and transparency.
All Directors, sta and contractors are required
to certify compliance with policies on an annual
basis.
The Group has robust controls around
contracting, payment approvals and the
non-facilitation of tax evasion.
With the reintroduction of crude sales to local
buyers, in addition to the Group’s existing
controls, a detailed due diligence process
was implemented that must be completed
prior to any crude oil sales with a new buyer.
A comprehensive report is prepared on each
potential buyer using diligence from a number
of sources, both local and international.
Anadverse report will lead to a new buyer
beingdeclined.
Risk of economic sanctions
impacting the Group
Risk owner:
Chief Legal Ocer and Company
Secretary
The imposition of foreign economic
sanctions impacts the ability of the
Group to operate, or to produce,
transport or market crude oil.
Link to strategic priorities
Robust financial position
Change in year
In the event foreign economic sanctions (be
it country, sectoral or specific) are made on
Russian, Iranian or other owned companies,
this could have an impact on GKP’s ability to
operate, or to produce, transport or market
crude oil.
Specifically, GKP may not be able to trade with
local buyers of crude in the event they have
any association with sanctioned entities or
countries.
The Group continues to monitor the current
economic sanctions imposed on a country,
sectoral and specific basis and takes
professional advice relating to this. The Group
monitors the potential sanctions-related risks
aecting all suppliers and stakeholders.
The Group implemented robust procedures
to manage potential exposure to sanctions
resulting from selling crude oil to certain local
companies. All potential crude oil buyers must
satisfy the requirements of a detailed due
diligence process. Also, all crude sales are
conducted pursuant to contracts that include
appropriate representations and protections.
Key
Strategic priorities Safety and
sustainability
Value
creation
Capital discipline
and cost focus
Robust financial
position
Change in year
Increased
level of risk
Similar level
of risk
Decreased
level of risk
New risk
62/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic continued
Key risk factor Potential impact Mitigation
Climate change
Risk owner:
CEO
Climate change is a material global
issue and Group risk. Climate-related
transition risks may have a significant
eect on the long-term viability of the
Group.
Link to strategic priorities
Change in year
The transition to a low carbon economy
may lead to a decline in oil demand
resulting in lower oil prices, lower revenue,
decreased profitability, increased capital and
operational costs including costs relating to
decarbonisation projects, impairment and
early retirement of existing assets, flaring
emissions or carbon taxes, reduced access
to or increased cost of funding and insurance,
disruptions to the supply chain, interruptions to
production, increasing challenges and cost to
attract and retain talent, increased exposure to
litigation and climate activism, and increased
compliance and monitoring costs related to
new regulatory frameworks.
The Group may also be impacted by physical
risks due to climate change, including
increasing frequency and magnitude of
extreme weather events impacting operations,
production eciency losses, disruptions to
the supply chain and weakened international
cooperation.
Additionally, conflicting stakeholder
expectations and/or a lower oil price may lead
to an inability of the Group to develop the asset.
The ability to achieve the Group’s ambition of
reducing emissions intensity and eliminating
almost all routine flaring is dependent on
sanction of the FDP and implementation of
the Gas Management Plan with our partner
MOL and the MNR. To preserve liquidity, the
Group has suspended capital investment
on the FDP and Gas Management Plan until
crude oil exports resume and KRG payments
normalise, including arrears. However, the
Group continues to explore alternative options
to the Gas Management Plan to optimise
scope, implementation timing and cost as well
as prioritise our list of other decarbonisation
projects.
The Company has formulated its sustainability
strategy and an ESG implementation roadmap
with key actions to mitigate climate change risk
has been approved by the Board.
The Group’s bonus plan includes KPIs related to
climate-related risks and opportunities and full
compliance with the TCFD’s recommendations
and other relevant regulations and standards.
A specific Sustainability and Climate Risk
Register closely tracks and reviews existing and
evolving risks along with identified mitigation
actions.
The Group continuously monitors air quality
and its management of waste, water and
wastewater, soil remediation and the impact
of its facilities as part of its commitment to
minimise impact on the environment and local
communities.
Maintain low production costs and monitor raw
material costs to enable profitable production
at lower realised prices and a robust balance
sheet and prudent liquidity levels to fund
required technology and decarbonisation
projects. Actively engage with supply chain to
secure required technology at the best possible
price. Develop flexible capital programmes that
can be quickly adapted to changing market
conditions.
Monitor relevant data regarding employment
trends in the UK and Kurdistan. Implement
initiatives to attract, retain and develop talent.
Monitor weather and regularly review and
update health and safety procedures and
working patterns to adapt to changes in
weather patterns. Maintain and practise crisis
management and business continuity protocols
to protect workforce and assets from extreme
weather events.
63/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Management of principal
risks and uncertainties continued
Strategic continued
Key risk factor Potential impact Mitigation
Organisation and talent
Risk owner:
CHRO
The Group may fail to retain, attract and
develop talent, impacting its capability
and capacity to safely execute the
strategy and business plans.
Link to strategic priorities
Change in year
Current geopolitical challenges and the
inherent uncertainty associated with operating
in Kurdistan may make it dicult to retain,
develop and attract talent.
The transition to a future less reliant on fossil
fuels may impact the Group’s ability to attract
talent, especially younger talent, to manage the
impact of an ageing workforce.
The COVID-19 pandemic has changed
expectations of the workforce, particularly
remote working opportunities.
Annual targets are established to embed a
culture that supports engagement, wellbeing,
diversity, inclusion and ethical business
conduct.
Annual performance management process
with clear links to corporate and individual goals
encourages and rewards high performance.
A clearly defined succession planning process
has been established for key positions to
proactively manage career progression,
localisation of expatriate positions and
development needs. Training programmes are
implemented to meet identified development
needs.
The Group oers and maintains a competitive
compensation and benefits plan, including
hybrid working options, that are designed to
attract and retain talent, while motivating short,
medium and long-term high performance.
Industry benchmarking exercises are
completed periodically to ensure the plans
remain competitive.
While circumstances did not permit paying
bonuses for the year ended 31 December2023,
recognition payments were made to all
employees (excluding Executive Directors)
to recognise their hard work and dedication
in dicult circumstances. The recognition
payments were, in aggregate, significantly less
than the annual bonus.
Considering the current challenging
circumstances, retention arrangements have
been implemented to stabilise management.
Regular sta communications in the form of
town halls, including sta surveys with action
plans to facilitate interactions, understanding
and engagement.
Sta wellbeing initiatives implemented based
on employee feedback and survey results.
Code of Business Conduct and annual training,
clearly outlining how we conduct business,
safeguard our assets and work together to
create a positive work environment.
Key
Strategic priorities Safety and
sustainability
Value
creation
Capital discipline
and cost focus
Robust financial
position
Change in year
Increased
level of risk
Similar level
of risk
Decreased
level of risk
New risk
64/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic continued
Key risk factor Potential impact Mitigation
Cybersecurity
Risk owner:
CFO
The Group is reliant on information
technology systems, software and
cloud computing, exposing it to the
potential impacts of malicious cyber
attacks.
Link to strategic priorities
Change in year
A cyber security breach could disrupt our
operational and development activities,
expose the Company to ransomware
demands, put employees at risk, or result in the
disclosure of confidential information, which
could adversely aect the share price, damage
our reputation and create significant financial
and legal exposure for the Group.
As a result of rising tensions in the Middle East
there could be an increase in the frequency
and severity of cyber attacks.
The Group has implemented a Cybersecurity
Strategy Group which oversees the strategy
and roadmap to continuously identify and
remediate system vulnerabilities.
The Group has developed focused information
and operational technology cyber risk registers
to facilitate identification, management and
mitigation of potential risks.
The Group has contracted a recognised
Managed Security Services Provider that
employs several tools to manage cyber security
risks on an ongoing basis, including third-party
monitoring, vulnerabilities management, red
team tests, dark web monitoring, endpoints and
perimeter security and ongoing cyber security
awareness training.
The Group continues to invest in sta and
software to monitor, maintain and regularly
upgrade its systems, processes and network.
The Group is enrolled on the Early Warning
Service carried out by the UK National Cyber
Security Centre.
65/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Management of principal
risks and uncertainties continued
Operational
Key risk factor Potential impact Mitigation
Health, safety and environment
(“HSE”) risks
Risk owner:
COO
The Group, its sta and contractors and
local communities may be exposed to
specific risks in relation to HSE matters.
Identified risk areas include, but are not
limited to, H
2
S leaks at the production
facilities, loss of containment, road
trac accidents and other accidents at
production facilities and well sites.
Link to strategic priorities
Change in year
Consequences may include accidents
resulting in loss of life or injury, significant
pollution of the local environment, destruction
of facilities, disruption to business activities,
risk of litigation and reputational damage with
an associated financial loss.
The Board has established a Safety and
Sustainability Committee to ensure that the
Company has a robust HSSE strategy with
clear lines of accountability and commitment
throughout the organisation.
The Company has established a
sustainabilitystrategy and is implementing
theBoard-approved ESG roadmap. In addition,
theCompany has developed specific risk
registers and action plans to proactively
identifyand manage risks.
The Group has comprehensive HSE and
operations management procedures, including
emergency and incident response plans. The
Company establishes an annual HSE Plan to
continuously improve its HSE performance
(see “Key performance indicators” section on
pages 22 and 23). In 2023, continued safety
improvements were made to the Company’s
production facilities.
All sta undergo training as part of the Code
of Business Conduct compliance. In addition,
“safety moments” are held at every town hall
and senior management meetings.
Following the transition from pipeline to trucking
operations in 2023, additional safety measures
were put in place, including training and
managing increased trac around the Group’s
facilities and local communities.
Key
Strategic priorities Safety and
sustainability
Value
creation
Capital discipline
and cost focus
Robust financial
position
Change in year
Increased
level of risk
Similar level
of risk
Decreased
level of risk
New risk
66/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Operational continued
Key risk factor Potential impact Mitigation
Gas flaring
Risk owner:
COO
GKP currently relies on flaring as a
disposal method for the gas produced
as a by-product of its oil production,
which creates an environmental impact.
There is a risk that the Group does not
achieve its target of reducing scope 1
CO
2
e emissions per barrel by more than
50%, which has been deferred due to
the shut-in of the ITP and KRG payment
delays.
Link to strategic priorities
Change in year
The KRG may enforce a ban on gas flaring
and/or introduce a financial penalty or other
sanctions for gas flaring, resulting in reduction
or cessation of production or a less favourable
Shaikan asset valuation.
The Group maintains active dialogue with the
MNR to ensure that it complies with the existing
emissions regulations.
Harmful gas emissions are closely monitored
by the HSE department, with any variances
outside normal levels investigated and reported
to executive management and the MNR. In
2023, our annual average emissions of SO
2
,
NO
2
, O
3
and H
2
S measured by diusion tubes
were within Kurdish regulatory limits.
The ability to achieve a reduction of routine
flaring is dependent on the resumption of crude
exports and normalisation of KRG payments,
and then the approval of the FDP, finalisation of
tendering of the Gas Management Plan with our
partner MOL and the MNR and its subsequent
implementation, and financing.
The Group is exploring alternative options to
the Gas Management Plan to optimise scope,
implementation timing and cost.
Security
Risk owner:
COO
The Group is exposed to security risks
by virtue of the location of its operations.
These include the threat of terrorist
attack, military action and local protests
and unrest at Gulf Keystone sites.
Link to strategic priorities
Change in year
Political unrest, armed conflict in Iraq and in the
Middle East, or other security issues may lead
to loss of life or injury to personnel, personnel
evacuations, disruption to operations, costs
to repair facilities, increased costs of doing
business due to increased security and
reduced sta retention, reputational damage
with the associated financial loss and loss of
investor confidence.
There can be no assurance that the Group will
be able to obtain or maintain eective security
over any of the Group’s assets or personnel.
The Board has established a Safety and
Sustainability Committee to ensure that the
Company has a robust HSSE strategy with
clear lines of accountability and commitment
throughout the organisation.
In addition to ongoing internal security
monitoring, the Company periodically
completes external security reviews and
implements improvements.
The wells and facilities are protected by external
security consultants and local government
forces who work closely with the Group’s
internal security team.
The Company retains external security advisers
who prepare detailed risk assessments,
security procedures and contingency plans
which can be activated when threats arise.
Local communities are an essential source
of intelligence about the nature, severity and
likelihood of any threat. The Group ensures
it maintains good relations with the local
population and considers the impact of all
decisions on them.
67/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Management of principal
risks and uncertainties continued
Operational continued
Key risk factor Potential impact Mitigation
Reserves
Risk owner:
COO
Recoverable reserves decrease below
existing stated levels, aecting the
revenue and economic viability of the
field.
Potential changes to the PSC may
impact the Group’s ability to report
reserves and resources in line with
existing reserves reports.
Link to strategic priorities
Change in year
The last independent third-party evaluation
of the Company’s reserves was completed
as at 31 December 2022 by ERCE. Due
to the suspension of expansion activity
and lack of clarity around when the export
pipeline will reopen and KRG payments will
normalise, uncertainty exists as to when
development activity will recommence, which
will be required to fully realise GKP’s reserves
base. As a result, while the Company has
prepared an internal estimate of 2P reserves
at 31December 2023, it is dicult to estimate
current reserves and resources.
Due to natural uncertainty in the volumes of
hydrocarbons in place and the proportion of
those hydrocarbons that might be recoverable,
the actual reserves may be lower than our most
likely forecast.
Any PSC amendment may impact the Group’s
ability to book reserves and resources.
The Company bases its reserve estimates on
the existing PSC and its development plans.
There are currently no plans to change the
PSC (negotiations may be required as per risk
“Disputes regarding title or exploration and
production rights” above). The development
plans use an assumption regarding the restart
of exports and arrears to recommence
development activity and finalise the FDP.
These will be optimised when the actual dates
and payments are known.
The Group bases its forecasts and investment
planning on a range of possible outcomes that
include a low-side case.
Seismic, fracture and structural models
continue to be updated as wells are drilled in
order to better understand the subsurface and
optimise future well locations.
Key
Strategic priorities Safety and
sustainability
Value
creation
Capital discipline
and cost focus
Robust financial
position
Change in year
Increased
level of risk
Similar level
of risk
Decreased
level of risk
New risk
68/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Operational continued
Key risk factor Potential impact Mitigation
Field delivery risk
Risk owner:
COO
While expenditures have been
minimised to preserve liquidity, with the
resumption of crude oil exports and
normalisation of KRG payments, the
Company plans to consider increasing
investment to realise the potential of
the Shaikan Field. Once reinvestment
restarts, there is a risk the Company
does not achieve its updated investment
case and economic and production
returns do not match expectations.
The delay to implementing some of
the development plans (such as water
handling) may increase the risk of not
being able to deliver production targets
due to the need to shut-in/choke back
wells to deal with any produced water.
The major identified risks are the
following:
• loss of a well due to water or gas
breakthrough, pressure decline or
mechanical failure;
• damage to wells during drilling and
loss of drill fluids;
• well locations are sub-optimal; and
• cost overruns.
Link to strategic priorities
Change in year
Failure to control development and production
risks may manifest as project delays, cost
overruns, high production costs, early field
decommissioning and, ultimately, lower than
expected reserves.
Water breakthrough in advance of the
installation of appropriate water-handling
facilities may result in damage to the
production facilities, and reduced well
production and temporary well shut-ins
resulting in failure to meet production targets.
Gas breakthrough in volumes exceeding the
limit of the gas processing capacity could
result in reduced oil production and shutting-in
the well with gas breakthrough.
Drilling operations issues might result in cost
overruns and project delays, and possibly even
the termination of drilling operations.
Technical and financial approvals are required
for all material projects and for all dedicated
project teams.
All projects are closely monitored to ensure the
project delivers against plan, which enables
actions to be taken to maintain progress, and
minimise budget overruns.
All wells are monitored to ensure early detection
of, and reaction to, any abnormalities. Zones
within wells which are producing water may
be isolated while other zones in the well are
brought on production. Wells are regularly
tested to look for any changes in gas/oil ratio
and to provide an early warning of any gas
breakthrough.
Reservoir modelling, including data
acquired from well production and pressure
measurements and the results from new wells,
is carried out to improve our understanding and
forecasting of this event. Our current analysis
does not show inclement water breakthrough in
advance of the scheduled installation of water
handling and desalting facilities.
Design of future development wells takes
account of modelling to optimally locate the
producing interval at a depth to minimise the risk
of early gas and water breakthrough.
69/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Management of principal
risks and uncertainties continued
Financial continued
Key risk factor Potential impact Mitigation
Liquidity and funding capability
Risk owner:
CFO
The Group has insucient working
capital to meet short-term operational
requirements or has insucient funding
in place to eventually pursue the full
Shaikan development programme. The
risk to short-term liquidity has been
exacerbated by the ITP shut-in and
delayed KRG payments.
The Group’s business in Kurdistan is
substantially conducted in United States
dollars. Recent initiatives by the Central
Bank of Iraq (“CBI”) have resulted in
decreased access to United States
dollars in Iraq and a gap between the
ocial and unocial foreign exchange
rates. Further restrictions may impact
the Group’s access to United States
dollars and increase the cost of foreign
exchange conversions.
Link to strategic priorities
Change in year
Lack of liquidity may result in the Group not
being able to function as a going concern
and being unable to meet its operational and
contractual commitments.
Lack of funding may result in the Group’s
inability to fully achieve its strategy, failure to
reach the stated field plateau, failure to service
its debt, as appropriate, and inability to deliver a
return to investors.
Lack of capital discipline and operational cost
focus may result in significant unplanned cash
outflows and inadequate liquidity.
Uncertainty remains around future CBI
regulations and initiatives that may impact
the local supply of United States dollars and
ultimately the Group. If oil sales receipts are
denominated in Iraqi dinars, it is currently
uncertain how such amounts will be converted
to United States dollars. Also, to the extent the
Group is required to purchase Iraqi dinars to
make local payments in Iraqi dinars, it could
experience an increase in the United States
dollar equivalent cost of local payments.
The Group targets to maintain a minimum level
of cash to manage potential downside risks.
The Company is currently debt free.
The Company prepares detailed short-term
and medium-term liquidity forecasts to clearly
understand and proactively manage cash flows
and commitments.
The Board and management ensure that
the planning process is robust. The Group’s
business plan is regularly reviewed and
revisited by the Board to ensure that it reflects
any changes to internal or external factors.
Business planning and corporate performance
management processes are used to control
spend. These processes involve the review of
multiple scenarios to assess a possible range of
outcomes.
The Group is closely monitoring the potential
impact of CBI initiatives that may impact the
local supply of United States dollars and
consulting with advisers.
The Group invests capital in phases and has a
flexible capital programme, enabling it to quickly
adjust levels of spending to adapt to changes in
market circumstances and timeliness of KRG
payments.
The Group intends to further consider and
review potential financing options to execute
the GMP, once a decision has been taken to
restart capital investment in the field.
Key
Strategic priorities Safety and
sustainability
Value
creation
Capital discipline
and cost focus
Robust financial
position
Change in year
Increased
level of risk
Similar level
of risk
Decreased
level of risk
New risk
70/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financial continued
Key risk factor Potential impact Mitigation
Oil revenue payment mechanism
Risk owner:
CFO
There is uncertainty relating to the
revenue payment mechanism for oil in
Kurdistan.
There can be no assurance that PSC
operators will be paid on a timely basis
or will receive their full contractual
entitlement.
Link to strategic priorities
Change in year
The shut-in of the ITP and lack of revenue
payments from the KRG has adversely
impacted the Group’s ability to develop and
invest in the asset. Such impact has been
partially mitigated by the restart of local
crude oil sales. To the extent the Company
experiences decreased local sales, its ability
to operate eciently and to make necessary
working capital payments may be adversely
impacted. Irregular receipts of revenue
payments may damage investor confidence
in the Group and the region and make any
fundraising dicult.
Changes in the terms of the Shaikan Lifting
Agreement may have an unfavourable eect
on revenue.
The Group, along with APIKUR as appropriate,
continue to engage with KRG and FGI ocials
to pursue a solution that provides commercial
and PSC contractual clarity, facilitates the
restart of pipeline exports and normalises
payments, including repayment of arrears.
Local buyers are required to pay for crude
oil in advance, thus eliminating counterparty
creditrisk.
The Company continues to reiterate to the KRG
its expectation that all overdue payments for
October 2022 to March 2023 crude oil sales
are paid in full. As at 20 March 2024 the value of
overdue invoices was $151.7 million net to GKP
on the basis of the KBT pricing mechanism.
Leading up to the resumption of pipeline
exports, the Company is expecting to negotiate
with the MNR a Shaikan Lifting Agreement.
The timing to conclude such negotiations is
currently unknown.
Commodity prices
Risk owner:
CFO
A material decline in oil prices may
adversely aect the Group’s cash flows,
asset valuations, production operations
or result in delays to the Shaikan
development.
Low oil prices may adversely impact
the KRG’s ability to meet its payment
obligations towards the region’s
producers.
Link to strategic priorities
Change in year
With the shut-in of the ITP pipeline, the
Company has been selling crude oil locally
at significantly reduced prices relative to the
international market.
The Group’s revenues, profitability and future
rate of growth will depend substantially on
prevailing oil prices, which can be volatile and
subject to fluctuation.
A sustained low oil price environment could
have an adverse eect on the Group’s liquidity
and ability to develop the asset. In addition,
it may lead to a reduction in the Group’s
commercial reserves and an impairment of its
asset.
The Group’s cash forecast and commitments
are constantly monitored and it maintains
surplus cash and a flexible expenditure
programme to manage uncertainty.
In establishing the annual work programme
and budget, the Group considers a range of
forward oil curves and sales volumes to assess
the potential impact on cash flows and liquidity.
Commodity prices are monitored on an ongoing
basis.
The Group monitors and, where possible,
reduces costs while maintaining safe
operations.
As appropriate, the Board considers hedging,
taking into account macro-economic and
corporate considerations.
71/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Viability statement
In accordance with the UK Corporate Governance Code, the Directors
have carefully assessed the Group’s viability and prospects over
a longer period than the 12 months required by the going concern
provision. The Board assesses the business over a number of time
horizons for dierent reasons, including the following:
a) annual Corporate Budget (i.e. 2024);
b) medium-term Corporate Budget; and
c) life-of-field plan used to produce an internal view of the value of the
Company.
The Board concluded that a three-year period most appropriately
reflects the underlying prospects and viability of the Group for the
following reasons:
a) the Group expects a return to development during this timeframe
following the assumed restart of Kurdistan exports; and
b) should the risks and uncertainties identified by the Group on pages
57 to 71 have an impact on the Group, it is reasonable to believe that
many will occur within this period.
Notwithstanding, the Group will continue to monitor the business over
all time horizons noted above.
The Directors’ viability assessment has been made with reference to
the Group’s strategy and business model, as detailed on pages 18 to 21,
and to the risks, uncertainties and available mitigating action plans, as
detailed on pages 57 to 71.
The Group conducted an annual planning process which consisted
of the review of the Group’s strategy and performance, preparation
of a work plan and budget and review of risks, uncertainties and
opportunities over the three-year assessment period.
The Directors reviewed the Group’s cash flow projections which were
prepared using the following base assumptions:
• restart of Kurdistan exports Q4 2024;
• local oil sales Q1-Q3 2024;
• local oil sales average price of $25/bbl;
• export sales average Brent prices (nominal) of $83/bbl in 2024,
$80/bbl in 2025, $77/bbl in 2026 and $77/bbl in 2027;
• discount to Brent on export sales of up to $27/bbl;
• Jurassic development investment commences in 2025;
• Gas Management Plan investment commences in 2026;
• latest cost assumptions for the Jurassic development and Gas
Management Plan;
• production profiles in line with internal estimates;
• regular revenue receipts;
• while the Group continues to believe that the full amount of KRG
invoices outstanding for the period October 2022 – March 2023 will
be recovered, the cash flow projections exclude recoveries;
• as explained in note 14 of the financial statements, although the
Group has recognised current liabilities of around $75 million
payable to the KRG, it does not expect these will be cash settled;
• Gas Management Plan internally funded; and
• no financial impact resulting from climate change risks.
The assessment demonstrated that the Group is in a reasonable
financial position, with an adequate cash balance and ability to meet
liabilities as they fall due.
72/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Further, the Directors have considered the financial and operational impact of severe but plausible scenarios that could threaten GKP’s viability.
This was done through modelling the individual and combined eects of various risks and uncertainties in order to establish the Group’s ability
to meet its working capital requirements. Additionally, the Directors considered possible mitigating actions. The modelled stress scenarios and
potential mitigating actions considered are as follows:
Stress test scenarios Downside assumptions Mitigating actions
Reference to principal risks and
uncertainties
(1)
• Low oil price environment
• Oil revenue payment
interruptions
• Delays to the development
programme
• Decreasing reservoir
productivity
• Inability to access export
pipeline
• Extended period of local sales
• Brent price reduction to $55/
bbl flat real
• Revenue receipts
interruptions
• Reduced production
• Cost increases
• Deferrals and reductions in
capital expenditure
• Further optimisation of the
development programme
• Further rationalisation of the
operational cost base
• Continued local oil sales
• Debt finance GMP
• Political, social and economic
instability
• Disputes regarding title or
exploration and production
rights
• Export route availability
• Risk of economic sanctions
impacting Group
• Oil revenue payment
mechanism
• Stakeholder misalignment
• Climate change
• Commodity prices
• Field delivery risk
• Reserves
• Liquidity and funding
capability
(1) Principal risks which were not specifically modelled were either considered not likely to have an impact within the viability period or their financial eect was
covered within the overall downside economic risks implicit within the stress testing.
The Company previously reported that the Iraqi Federal Supreme Court (“FSC”) in February 2022 had ruled that the Kurdistan Oil and Gas Law
(“KROGL”) was unconstitutional and that the Iraqi Ministry of Oil had then commenced proceedings in the Baghdad Commercial Court against
International Oil Companies (“IOCs”), including Gulf Keystone, operating in the Kurdistan Region of Iraq seeking to nullify the Production Sharing
Contracts (“PSCs”) issued under the KROGL. The Company understands that the Baghdad Commercial Court has issued adverse judgments
against many of the IOCs, including Gulf Keystone, in absentia. However, these judgments were never formally served. The KRG continues to
arm that KROGL is validly constituted and the PSCs issued are valid and in full force and eect. While the ruling has to date not impacted our
business, it is not possible to determine quantitatively potential future implications.
The Iraq Turkey Pipeline (“ITP”) was shut down on 25 March 2023 following the International Chamber of Commerce in Paris arbitration ruling in
favour of Iraq over Turkey. The Group continues to believe this shut-in is temporary but despite ongoing discussions on its reopening, it remains
closed with no timeline on the resumption of exports through the pipeline. Currently, after completing an extensive due diligence review, the Group
is selling to local buyers at discounted prices and such buyers are required to pay for all purchases in advance. Future local sales volumes remain
unpredictable.
The Group notes that Iraqi budget discussions are ongoing and concern remains that the monthly proposed budget transfers from Iraq to
Kurdistan may not be sucient to cover monthly PSC contractual entitlements and repayment of outstanding arrears of $151 million related to the
period October 2022 to March 2023.
Based upon the Directors’ robust assessment of the principal risks facing the Group, the stress test scenarios and possible mitigating actions, as
described above, the Directors have a reasonable expectation that the Group will be able to continue to operate and meet its liabilities as they fall
due over the three-year viability assessment period.
In the event the stress test scenario assumptions are more severe than the Directors reasonably considered as severe but plausible, including
potential adverse implications of the Iraqi Federal Supreme Court ruling, the cessation of both local and exports sales, budget transfers from Iraq
to Kurdistan that are less than PSC contractual entitlements and the impact of potential Turkish Government and Federal Government of Iraq
renegotiations of the Turkish export pipeline agreement that we understand expires in July 2026 if either party provides a termination notice one
year prior to the expiry date (otherwise it is automatically extended for five years), significant changes to the Group’s operational and development
plans, including a further curtailment of activities and reductions in sta, amongst other things, may be required and there could be an impact on
the Group’s viability.
73/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Strategic report
Board of Directors
74/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Martin Angle
Non-Executive Chairman
Appointed: July 2018
Skills and experience: Martin Angle
was appointed as Chairman in June2023
having been Senior Independent
Non-Executive Director since joining
theBoard in July 2018.
Martin has had a distinguished executive
career holding senior positions in
investment banking, industry and private
equity. He has served as a Non-Executive
Director on a number of boards both
in the UK and overseas, including
Pennon Group, where he chaired the
Remuneration Committee, Savills plc
(Senior Independent Director), National
Exhibition Group (Chairman) and Dubai
InternationalCapital.
Martin is currently Deputy Chairman and
Senior Independent Director of Spire
Healthcare plc, a Non-Executive Director
of Ocean Biomedical Inc. (USA) and is a
Hon. Professor in the College of Social
Sciences and International Studies,
University of Exeter. He is a Chartered
Accountant and holds a BSc (Hons) in
Physics from the University of Warwick.
Jon Harris
Chief Executive Ocer
Appointed: January 2021
Skills and experience: Jon Harris joined
Gulf Keystone in January 2021 as Chief
Executive Ocer.
Jon has over 30 years’ experience in the
oil and gas industry and joined GKP from
SASOL Limited, an integrated energy
and chemicals company based in South
Africa, where he was Executive Vice
President,Upstream.
Prior to this, he spent 25 years with BG
Group in various international roles,
including Executive Vice President
Technical and General Manager
Production Operations, as well as senior
management assignments in the United
States, Trinidad and Tobago andEgypt.
Jon received a Masters of Engineering
from the University of Leeds, UK. He is a
Non-Executive Director of PetroTal Corp.
Ian Weatherdon
Chief Financial Ocer
Appointed: January 2020
Skills and experience: Ian Weatherdon
joined Gulf Keystone in January 2020 as
Chief FinancialOcer.
Ian has over 30 years’ experience in the
international oil and gas industry. Prior
to joining GKP, he was CFO of Sino Gas
& Energy Holdings, an energy company
focused on developing natural gas assets
in China. Previously, he held various
executive roles at Talisman Energy Inc.,
the Canadian exploration and production
company, which was acquired by Repsol,
including: Vice President of Finance &
Planning for the Asia-Pacific region, CFO
of Equión Energía Limited, a Colombian
joint venture between Talisman and
Ecopetrol SA, and Vice President of
Investor Relations.
Ian has a Bachelor of Commerce from the
University of Calgary and is a Canadian
Chartered Accountant.
Kimberley Wood
Non-Executive Director
and Senior Independent Director
Appointed: October 2018
Skills and experience: Kimberley
Wood was appointed as an independent
Non-Executive Director of Gulf Keystone
in October 2018 and Senior Independent
Director and Deputy Chair in June2023.
Kimberley is a legal professional with over
20 years’ experience and a specialist in the
energy sector. She was Head of Oil and
Gas for Europe and Middle East at Norton
Rose Fulbright LLP and remains a Senior
Consultant for the firm.
She is currently General Counsel of
StoreggaLimited.
Kimberley is also an independent
Non-Executive Director of Energean plc
and Africa Oil Corp.
75/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
David Thomas
Non-Executive Director
Appointed: October 2016
Skills and experience: David Thomas
was appointed as an independent
Non-Executive Director of Gulf Keystone
in October2016.
David is an experienced oil and gas
professional with 40 years in the industry.
He started his career as a Petroleum
Engineer working for Conoco in the North
Sea and Dubai. Subsequently, he joined
Lasmo where he became Group GM
Operations and, following the company’s
acquisition, held three international
regional Vice President roles with Eni.
David’s subsequent Board directorships
have included positions as President and
COO of Centurion Energy and CEO of
Melrose Resources. In 2015 he briefly
served on a caretaker Board at Afren and
is currently the CEO of Cheiron in Egypt.
David has a BSc in Mining Engineering
from Nottingham University and an
MSc in Petroleum Engineering from
ImperialCollege.
Wanda Mwaura
Non-Executive Director
Appointed: July 2022
Skills and experience: Wanda Mwaura
was appointed as an independent
Non-Executive Director of Gulf Keystone
in July2022.
Wanda has over 25 years’ experience
in the financial services sector with
extensive experience in both executive
and non-executive roles, including audit
committee membership. She is a qualified
accountant and was previously a partner
in Ernst & Young (Bermuda) and the
Chief Accounting Ocer at PartnerRe.
Wanda is now a Non-Executive Director
of International General Insurance
Holdings Limited and a number of private
companies, including Clarien Bank
Limited, as well as Executive Director for
the Bermuda Public Accountability Board.
Wanda has a Bachelor of Commerce
degree from Dalhousie University, Nova
Scotia and is a member of the Chartered
Professional Accountants of Bermuda,
where sheresides.
Julien Balkany
Non-Executive Director
Appointed: July 2023
Skills and experience: Julien Balkany
was appointed as a non-independent
Non-Executive Director representing funds
managed by Lansdowne Partners Austria
GmbH in July2023.
Julien has extensive experience as
an investor and board member in
the international oil and gas industry.
He is currently Managing Partner of
Nanes-Balkany Partners, a group of
investment funds that focuses on the oil
and gas industry, which he co-founded in
2007. Since 2014, he has been Chairman of
the Norwegian oil and gas exploration and
production company Panoro Energy ASA.
He has also been a Non-Executive Director
of several other private and publicly listed
oil and gas companies including Norwegian
Energy Company (Noreco), Gasfrac
Energy Services, Toreador Resources, and
AmromcoEnergy.
Julien began his career as an oil and gas
investment banker and studied at the
Institute of Political Studies (Strasbourg)
and at UC Berkeley.
Dear Shareholder,
Strong governance is a central tenet of the way we do our business.
It is essential that the Company has the appropriate culture, systems,
policies, integrity and ethics in place to enable it to deliver sustainable
success for our stakeholders. In addition to having a comprehensive
governance and policy framework in place, the highest priority is
given to fostering a culture of safety, governance, sustainability,
environmental, social and ethical considerations, underpinned
by the Company’s core purpose and values which are regularly
communicated to all sta. The Company voluntarily complies with the
UK Corporate Governance Code.
In promoting the long-term sustainable success of the Company, the
Board encourages a transparent and open culture to ensure eective
contributions from all Directors, management and the wider workforce.
Communication is key to this and we continue to maintain and enhance
this aspect of our culture as we interact with our sta and other
stakeholders. “Town hall” meetings are held, and an open forum for
questions and discussion is encouraged.
In 2023 and also in early 2024, the Board completed an externally
facilitated evaluation of its performance and governance. This
evaluation concluded that the Board as a whole considered the overall
governance and associated processes of the Company to be strong,
with only a small number of enhancements proposed to improve the
overall eectiveness. Each matter raised was addressed and then
brought back to the Board. These are more fully described in the report
of the Nomination Committee.
The Company maintains an absolute zero-tolerance approach to
bribery and corruption and reinforces this through specific training of
all sta and contractors. Strong ethics are an integral part of the way
we do business. All employees must abide by the Code of Business
Conduct which incorporates a wide range of policies and standards in
respect of governance, ethics, workplace behaviours and integrity. All
sta and contractors also have to undertake compulsory training in this
and certify that they have, and will, comply.
Martin Angle
Non-Executive Chairman
20 March 2024
Corporate governance report
Martin Angle
Non-Executive Chairman
We remain committed to the
highest standards of corporate
governance, ethics and integrity
and believe this is a core value to
enable GKP to deliver sustainable
success for our stakeholders.
76/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Introduction
It is the duty of the Board of Directors that it must act in a manner,
in good faith, which will be most likely to promote the success of
the Company for the benefit of its members as a whole and taking
account of the likely consequences of any decision in the long term.
The maintenance of high standards of governance is integral to this,
and the Board sets the tone for the highest ethical compliance. The
Board aims to create a culture which demands the same commitment
and performance from all employees and contractors in all business
activities. The governance processes applied across the Group are set
out below and in the individual Committee reports.
The Board accepts responsibility for oversight of management
who prepares the annual report and accounts and considers the
annual report and accounts, taken as a whole, to be fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company’s performance, business model
and strategy.
Board leadership and purpose
The Board is accountable to shareholders and other stakeholders for
the creation of a sustainable, long-term business. The Board oversees
a robust governance framework with clear procedures, lines of
responsibility and delegated authorities to ensure that the Company’s
strategy and values are implemented, and key risks identified,
assessed and managed eectively. The Board also engages with the
Company’s stakeholders on an ongoing basis to ensure their long-term
interests are understood and preserved. This includes investors,
the host government and local communities, sta and contractors,
business partners and suppliers. It is recognised that the nature of the
Company’s business requires specific expertise at Board level and this
is regularly reviewed to ensure it is appropriate.
Key oversight responsibilities of the Board include:
• health and safety;
• ethical compliance, including whistleblowing;
• environmental and social governance;
• strategy development and objectives;
• operational and technical review;
• financial performance, structure and capital management;
• corporate planning and KPIs;
• stakeholder and workforce engagement;
• shareholder value;
• legal compliance and strategy;
• people, culture and values;
• risk management;
• Board development and eectiveness; and
• governance and regulatory compliance.
When considering these responsibilities, the Chairman encourages
an open, respectful and collaborative working environment where all
Directors voice their opinions and contribute to constructive debate.
Division of responsibilities
The Board is led by the Chairman, who promotes a culture of openness
and debate and is responsible for the leadership of the Board and
its overall eectiveness. The Chairman also facilitates constructive
Board relations and the eective contribution of all Non-Executive
and Executive Directors, and ensures that Directors receive accurate,
timely and clear information. The Chairman is supported on the Board
by three independent Non-Executive Directors, one of whom is the
Senior Independent Director, a further Non-Executive Director who
is a non-independent shareholder representative, and the CEO and
CFO. The CEO is responsible for operational management, and the
development and implementation of strategy in conjunction with the
senior leadership team. The Chief Legal Ocer attends Board and
Committee meetings as Secretary to ensure corporate governance
and regulatory compliance.
The Company has a formal register of “Matters Reserved for the
Board” which is reviewed and approved on a regular basis, and
there is a clear separation of responsibilities between the Board
and management. Some matters may be delegated to the Board
Committees: the Safety and Sustainability Committee; the Technical
Committee; the Audit and Risk Committee; the Remuneration
Committee; and the Nomination Committee. Each Board Committee
has terms of reference in place which are reviewed and approved on a
regular basis.
The Board is satisfied that the Committees and the individual Directors
have sucient time and resources to carry out their duties eectively
and anticipate that will continue to be the case during 2024. The
Company maintains an ongoing review of the external commitments
of its Directors. During the year, the Senior Independent Director,
Kimberley Wood, accepted a full-time executive role with another
company. In light of this, it was agreed that Ms Wood would resign as
a Director of GKP upon a suitable replacement being recruited. This
recruitment process is ongoing.
The Executive Committee comprises the CEO, CFO, Chief Operations
Ocer, Chief Commercial Ocer, Chief Legal Ocer and Chief
HR Ocer. They meet on a regular basis, at least weekly, to discuss
significant management matters. The senior leadership team,
comprising functional heads of departments and the Executive
Committee, also meets on a regular basis to discuss management
matters.
77/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Corporate governance report
continued
Composition, succession and evaluation
The Nomination Committee is primarily responsible for reviewing the
composition and balance of the Board, and for recommending any
new appointments to the Board and Committees. Appointments and
succession planning are based on merit and in accordance with the
Company’s Diversity Policy.
During the year the following changes to the Board were made:
• Mr Jaap Huijskes retired as Chairman in June 2023. He was
replaced by the existing Senior Independent Director, Martin Angle.
At this point, existing Non-Executive Director, Kimberley Wood,
wasappointed Senior Independent Director.
• Mr Garrett Soden resigned as a non-independent Non-Executive
Director in June 2023. He was replaced by Julien Balkany in
July2023.
The Company currently has the following Board appointment
processes in place:
• Kimberley Wood will resign from the Board upon a suitable
replacement being recruited.
• A process is ongoing to recruit an ethnically and gender diverse
candidate with operational and technical experience.
• Ian Weatherdon, CFO, will retire at the AGM in June 2024. He will be
replaced by Gabriel Papineau-Legris, Chief Commercial Ocer.
All Directors are subject to annual re-election by shareholders in
accordance with the Company’s Bye-Laws and the Code.
A formal, externally facilitated Board and Committee evaluation takes
place at least every three years, the last one being in early 2024, and
further details of which are set out on page 88.
Audit, risk and internal control
The Audit and Risk Committee is primarily responsible for ensuring that
the financial performance of the Company is measured and reported,
in conjunction with the Company’s auditors. This Committee will also
review and report on the risk identification, mitigation and management,
identifying specific “deep dives” on particular risks, as appropriate.
It is recognised that risk management is of crucial importance to a
company of the profile of Gulf Keystone. The risk process is therefore
placed as an integral part of the Company’s strategy formulation and
execution.
The Board acknowledges that it must have in place a sound system of
internal control to safeguard the assets and value of the business and
to ensure reliability of financial information. In this respect, a regular
review is undertaken by the Audit and Risk Committee to consider the
adequacy of and whether enhancements to current internal control
systems are necessary.
Remuneration
The Remuneration Committee is primarily responsible for devising
and monitoring the Company’s remuneration policies to ensure that
they are consistent with corporate governance guidelines and the
Company’s objectives, and it is assisted by external remuneration
consultants, Mercer. A detailed report of all remuneration matters
is contained in the Directors’ remuneration report. The Company’s
Remuneration Policy was formally approved by shareholders at the
Annual General Meeting in 2023.
Adherence with the UK Corporate Governance Code
Although the Company is not subject to the UK Corporate Governance
Code 2018 (“the Code”) on account of its standard listing on the
London Stock Exchange, the Company has voluntarily agreed to
adhere to the Code so far as practicable. We firmly believe that this
voluntary adherence establishes a solid basis from which to conduct
Board and managerial decision-making acting in the best interests of
the Company and its stakeholders. A copy of the Code is available on
the website of the Financial Reporting Council (“FRC”) on
www.frc.org.uk.
As at the date of this report, the Board considers that the Company has
applied all of the principles and complied with all of the provisions of the
Code, except for the following matters, using the provision references
set out in the July 2018 version of the Code:
78/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Provision 5 – There is no formal workforce engagement scheme in
place. The Company’s existing remuneration arrangements have been
reviewed by the Board in conjunction with its external remuneration
advisers, Mercer. It was concluded that GKP had a very transparent
culture with regular sta engagement initiatives and an open reporting
line which encouraged sta participation. Such initiatives include
regular “town hall” meetings, o-site strategy sessions by department,
grade and location, and regular internal communications including
through the Company’s intranet. Taking these existing arrangements,
and the size and nature of the business, into account, it was considered
that it was an unnecessary step to formalise this into a formal workforce
engagement scheme. The Board will keep these arrangements
under review, taking into account GKP’s size and legal and regulatory
requirements in its locations. With respect to the remuneration
of the wider workforce, this is benchmarked and reported to the
Remuneration Committee, although the determination of workforce
remuneration is a matter for management. The Remuneration
Committee, which has responsibility for the remuneration of the
Executive Committee, will take into account the remuneration of the
wider workforce to ensure alignment with the Executive Committee.
The information contained in this report, and elsewhere in this annual
report and accounts, describes the manner in which Gulf Keystone has
applied the principles of governance set out in the Code and complied
with individual Code provisions.
The Board
The composition of the Board is a key constituent of the Company’s
corporate governance. As an international energy company,
Gulf Keystone’s business carries a diverse range of risks and it is
important that these are covered by the skills and knowledge of
the Board. For each Board appointment a number of factors will be
considered, including skills, experience, diversity and ability. Thisis
replicated in senior management positions and in the Company’s
successionplanning.
As at the date of this report, the Directors of the Company are:
Name Role Date of appointment Date of last re-election
Jon Harris CEO 18 January 2021 16 June 2023
Ian Weatherdon CFO 13 January 2020 16 June 2023
David Thomas Non-Executive Director 13 October 2016 16 June 2023
Martin Angle Non-Executive Chairman 16 July 2018 16 June 2023
Kimberley Wood Senior Independent Director 1 October 2018 16 June 2023
Julien Balkany Non-Executive Director 3 July 2023 —
Wanda Mwaura Non-Executive Director 1 July 2022 16 June 2023
79/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Board tenure Board experience
Under two years Over two years Over three years Oil and gas Engineering Technical/commercial
Finance Capital markets Legal
2
5
2
7
1
5
52
3
Corporate governance report
continued
Board composition, independence and diversity
As at the date of this report, the Board is comprised of two Executive
Directors and five Non-Executive Directors (including the Chairman).
In accordance with Code Provision 9, the Chairman was independent
on appointment. The Company regards the other Non-Executive
Directors as independent according to Code Provision 10, except for
Julien Balkany who is representing funds managed by Lansdowne
Partners Austria GmbH.
In 2023, a new Listing Rule was introduced by the Financial Conduct
Authority which states:
a. at least 40% of the Board must comprise of women;
b. at least one of the senior Board positions (Chair, CEO, Senior
Independent Director or CFO) must be held by a woman; and
c. at least one member of the Board must be from a minority
ethnic background (which is defined by reference to categories
recommended by the Oce for National Statistics (“ONS”))
excluding those listed, by the ONS, as coming from a White ethnic
background.
As a standard listed company, the new rule applies to GKP.
GKP does not currently comply with matters a. and c. above. However,
it should be noted that:
1. The Company was running a comprehensive Board recruitment
programme with a view to complying in early 2023. However, with
the sudden closing of the ITP on 25 March 2023 and suspension of
all Shaikan Field sales, as well as continued delays to KRG payment
of previous oil sales, recruitment at all levels was immediately put
on hold to preserve cash. As part of this, an extensive redundancy
programme was implemented. In addition, in June 2023, the
Company’s independent non-executive Chairman, Jaap Huijskes,
retired as planned.
2. Since the second half of 2023, local sales have been implemented.
This has helped to stabilise the Company’s liquidity, although
revenue is still considerably lower than it was prior to the ITP closure.
In late 2023, the Company reinstigated its Board recruitment
process and is currently in the advanced stages of selecting at least
one additional independent Non-Executive Director with operational
and technical skills. It is also expected that such candidate(s) will be
ethnically and gender diverse.
3. Furthermore, Kimberley Wood has indicated her intention to resign
from the Board following her decision to take an executive role
with another company. A separate Board recruitment process is
underway to replace Ms Wood. Ms Wood is an energy lawyer who
is Senior Independent Director and Chair of the Remuneration
Committee, as well as a member of the Audit and Risk and Safety and
Sustainability Committees. It is anticipated that the new candidate
will replace Ms Wood in some or all of these positions.
Following conclusion of these processes, it is anticipated that GKP
will fulfil the UK Corporate Governance Code and UK Listing Rules
requirements in respect of Board independence and Board diversity
(ethnic and gender). However, as at the date of this report, GKP is
non-compliant.
The independence of each of the other Non-Executive Directors is
considered upon appointment, at each Board evaluation and at any
other time a Director’s circumstances change in a way that warrants
reconsideration, and by their ongoing actions.
The Board considers whether the Non-Executive Director is
independent of management and any business or other relationship
that could materially interfere with the exercise of objective and
independent judgement by the Director or the Director’s ability to act
in the best interests of all stakeholders. In particular, the Board has
considered any positions which the Non-Executive Director holds,
or held, in companies with which Gulf Keystone has commercial
relationships. None of the Non-Executive Directors participate in share
compensation schemes, including the Company Share Options Plan
and executive bonus schemes.
The Company’s Executive and Non-Executive Directors are recruited
from a variety of backgrounds and bring dierent experience and
perspectives, ensuring that the Company’s Directors have capacity
and capability to meet the needs of the business.
The Company places high importance on having diverse Board
composition to enable robust consideration and challenge of the
strategies proposed by the Executive Directors. The balance of skill
diversity of the Board is specifically considered at the annual Board
evaluation and by the Nomination Committee.
The experience provided by the Board covers, amongst other things,
financial/capital markets, legal, commercial, technical (including
petroleum engineering, geology, operations and HSE) and project
management. The Company actively considers Board composition on
a regular basis to ensure the Board has the necessary balance of skills,
experience, knowledge, independence and diversity to discharge
itsduties.
Board appointments are undertaken through a formal, rigorous and
transparent procedure run by external search consultants.
Julien Balkany was appointed to the Board as a non-independent
Non-Executive Director on 3 July 2023, representing Lansdowne
Partners Austria GmbH. No external search process was undertaken
due to the nature of the appointment.
The Company has in place a Diversity Policy which applies across the
Company, including at Board level, and seeks to ensure that there is
no discrimination within the Company on the basis of gender, sexual
orientation, ethnicity, age, disability or other minority. It is recognised
that diversity is a key element for the Board, and that diversity extends
to a number of dierent facets.
The operation of this policy is monitored on a continual basis and a
report is prepared for each scheduled Board meeting which sets
out the breakdown of sta according to various diversity metrics.
This includes the gender balance of those considered to be senior
management. The implementation of the Diversity Policy has resulted
in enhanced awareness throughout the organisation of the benefits
of a diverse workforce. The Diversity Policy will be strictly adhered to
in the recruitment process for any Board position. The current gender
balance of the Board is five males and two females. Further information
on diversity at Board and executive management level can be found on
page 81.
80/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Board and executive diversity data
The Company is reporting its Board and executive management diversity data as at 31 December 2023 in accordance with the new UK Listing
Rules disclosure requirements and the Company’s progress in meeting the new UK Listing Rules Board diversity targets. This should be read in
conjunction with the explanations detailed earlier in this report with respect to current Board recruitment processes and ongoing changes in the
Board composition.
As at 31 December 2023, the Board comprised 29% women. One of the four senior positions on the Board, being the Senior Independent Director,
is held by a woman, and there were no Directors from an ethnic minority background. The Board is committed to meet the UK Listing Rules targets
and will continue to keep its progress under review.
Gender representation:
Board and executive management as at 31 December 2023
Number
of Board
members
Percentage of
the Board
Number
of senior
positions
(CEO, CFO,
Chairman and
SID)
Number in
executive
management
Percentage
of executive
management
Men 5 71 3 5 83
Women 2 29 1 1 17
Other categories/not specified/prefer not to say — — — — —
Ethnic background:
Board and executive management as at 31 December 2023
Number
of Board
members
Percentage of
the Board
Number
of senior
positions
(CEO, CFO,
Chairman and
SID)
Number in
executive
management
Percentage
of executive
management
White British or other White (including minority-white groups) 7 100 4 6 100
Mixed/Multiple ethnic groups/Asian/Asian British/Black
African/Caribbean/Black British/Other ethnic group, including
Arab/Not specified/prefer not to say — — — — —
Executive management for these purposes is the Executive Committee (the most senior executive body below the Board) and the Company
Secretary, excluding administrative and support sta, as defined by the UK Listing Rules.
Gender and ethnicity data relating to the Board and senior management team was collected by the Company’s Human Resources department.
Board induction
New Directors receive a full and appropriate induction on joining the
Board. This includes meetings with functional heads of department,
other Board members and the Company’s principal advisers as
appropriate. A comprehensive induction pack is also prepared
which includes historical Board and Committee papers and minutes,
Company compliance policies (for example the Anti-Bribery Policy),
organisational structure charts, relevant legal, insurance and
regulatory information.
The Company will also provide training on a periodic basis to the
Directors on relevant matters. All Directors undergo Code of Business
Conduct training on the same cycle as sta, with the latest such cycle
having been completed in March 2024.
The role of the Board
The Board leads the Company in the delivery of its strategic goals,
generating long-term sustainable success whilst putting in place
and respecting the necessary controls within which the Company
must operate to ensure appropriate assessment and management
of risk and respect for the environment. The Board establishes the
Company’s purpose, values and strategy, and ensures that these are
aligned with its culture. This is brought into the Company’s training
on the Code of Business Conduct to ensure they are appropriately
embedded within the organisation.
The Board has a formal schedule of matters specifically reserved
to it for decision-making on certain aspects of the business which is
approved on an annual basis. They cover the key strategic, financial
and operational issues facing the Group and include:
• the Group’s strategic aims and objectives;
• annual operating and capital expenditure budgets;
• changes to the Group’s capital, management or control structures;
• dividend policy and dividend recommendation;
• half-yearly reports, final results, annual report and accounts;
• the overall system of internal control and risk management;
• major capital projects, corporate actions and investment;
• acquisitions and disposals; and
• changes to the structure, size and composition of the Board.
A Delegation of Authority is reviewed by the Board on a regular basis
to ensure there are appropriate controls in place for management
decisions. In addition, terms of reference are set and approved for each
of the Board sub-committees; these are available on the Company’s
website. The Board and its Committees have access to the advice
and services of the Chief Legal Ocer and Company Secretary and,
if necessary, the Board and its individual Directors have the ability to
seek external expert advice at the expense of the Company.
Board and Committee meetings are attended by members of the
senior management team upon invitation. At each Board meeting any
attendees are required to declare any conflicts of interest they may
have, including in relation to significant shareholdings. The Board
will ensure that the influence of third parties will not compromise or
override independent judgement.
81/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Corporate governance report
continued
Division of responsibilities between Non-Executive
Chairman and Chief Executive Ocer
The Company maintains a clear division of responsibilities between the
independent Non-Executive Chairman and the Chief Executive Ocer.
The Non-Executive Chairman is responsible for leading the Board in an
ethical manner and for guiding the Directors in the development of the
Company’s strategy. The Non-Executive Chairman chairs the Board
meetings and oversees implementation of the Board’s decisions.
On occasions, the Non-Executive Chairman will meet with key
shareholders and stakeholders to articulate the Company’s strategy
and seek their feedback.
In running the Board, the Non-Executive Chairman is responsible
for creating an environment that facilitates robust and constructive
challenge whilst promoting a culture of openness and debate. In
creating this environment, the Non-Executive Chairman encourages
open communications and aims to ensure that the Non-Executive
Directors’ challenges and suggestions are considered dispassionately
and on their merits. The Non-Executive Chairman is responsible for
setting the Board’s agenda and ensuring that adequate time is available
for discussion of all agenda items including strategic issues.
The Chief Executive Ocer is responsible for the overall management
of the business, delivering successful achievement of the Company’s
KPIs and providing leadership to the management team and sta whilst
communicating and fostering the underlying culture and principles of
the Company to all sta and stakeholders.
The role of the Senior Independent Director (“SID”)
Kimberley Wood was appointed as SID on 16 June 2023. The SID is
responsible for assisting the Non-Executive Chairman with eective
communications with shareholders and is available to shareholders
should there be any concern which could not be resolved through
the normal channels of the Non-Executive Chairman, Executive
Directors or the Investor Relations team. The SID is available to meet
shareholders if they have specific concerns. The SID also ensures that
there is a clear division of responsibility between the Non-Executive
Chairman and Chief Executive Ocer and, as necessary, acts as a
conduit between the Board’s Non-Executive Directors, its Chairman
and the Executive Directors. Kimberley Wood also acts as Deputy
Non-Executive Chairman of the Board. The Board is satisfied that the
SID demonstrates complete independence in the role.
As detailed above, a recruitment process is ongoing to replace Ms
Wood following her decision to take an executive role with another
company. This will include the appointment of a new SID.
Board meetings and attendance
Board meetings are held on a regular basis and no decision of
any consequence is made other than by the Directors. A total of
ten scheduled Board meetings were held during the year ended
31December 2023. In addition to those scheduled meetings, the Board
held a further eight informal update meetings. These meetings were
attended by all Directors and, if appropriate, senior management, with
discussions being minuted. No formal decisions were made at these
informal meetings.
The Directors’ attendance record at the scheduled Board meetings
and Board Committee meetings for the year ended 31 December 2023
is shown in the table below. For Board and Board Committee meetings,
attendance is expressed as the number of meetings that each Director
attended followed by the number of meetings held for the period she/
he was a Director during the year. The number of meetings attended
by each Director is shown out of the total number she/he was eligible
toattend.
Name
Full Board
meetings
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
Safety and
Sustainability
Committee
Technical
Committee
Jaap Huijskes
(1)
5/5 3/3 1/2 2/2
Martin Angle 10/10 3/3 6/6 5/5
Garrett Soden
(1)
5/5
David Thomas
(4)
10/10 0/0 6/6 1/1 4/4 3/3
Kimberley Wood 10/10 6/6 6/6 5/5 4/4
Jon Harris 10/10 3/4 3/3
Ian Weatherdon 10/10
Wanda Mwaura 10/10 6/6
Julien Balkany
(2)
4/4
John Hulme
(3)
4/4 3/3
Gabriel Papineau-Legris
(3)
3/3
(1) Retired on 16 June 2023.
(2) Appointed to the Board on 3 July 2023.
(3) John Hulme and Gabriel Papineau-Legris are members of the Executive Committee but not the Board. The Board considers they oer valuable expertise to the
Committees they are members of.
(4) Appointed to the Audit and Risk Committee on 14 March 2024.
In advance of the Board meeting, meetings of the Audit and Risk, Nomination and Remuneration Committees may be held as appropriate.
Meetings of the Technical Committee and Safety and Sustainability Committee will generally be held in advance of the Board meeting. The
formal agenda for the Board meeting will be determined by the Non-Executive Chairman following consultation with the Chief Executive Ocer
and the Chief Legal Ocer.
82/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
The Board Committees
The Company has five Board Committees: the Audit and Risk
Committee, the Remuneration Committee, the Nomination Committee,
the Safety and Sustainability Committee and the Technical Committee.
Each Board Committee has specific written terms of reference issued
by the Board and adopted by the relevant Committee, updated on a
regular basis and published in the corporate governance section of the
Company’s website www.gulfkeystone.com.
All Committee Chairs report orally on the proceedings of their
Committees at the meetings of the Board. Where appropriate, the
Committee Chairs also make recommendations to the Board in
accordance with their relevant terms of reference. In addition, the
minutes and papers of the Committee meetings are distributed to all
Board members in advance of Committee meetings.
To ensure Directors are kept up to date on developing issues and to
support the overall eectiveness of the Board and its Committees,
the Non-Executive Chairman and Committee Chairs communicate
regularly with the Chief Executive Ocer and other executive
management.
Alasdair Robinson, the Company’s Chief Legal Ocer, acts as
Company Secretary to each Committee.
The key governance mandates of the Board’s five main Committees are
shown on the following pages.
Audit and Risk Committee
As at 31 December 2023, the Audit and Risk Committee comprised
two Non-Executive Directors, both of whom are considered to
be independent. The members were: Wanda Mwaura (Chair) and
Kimberley Wood. David Thomas was appointed to the Committee on
14March 2024.
The Committee members have been selected to provide the wide
range of financial and commercial expertise necessary to fulfil the
Committee’s duties. The Board considers that the Committee has
experience to be recent and relevant for the purposes of the Code and
the members of the Committee as a whole have competence relevant
to the sector in which the Company operates; in particular, Wanda
Mwaura is a qualified accountant. ThisCommittee meets at least
three times per year. During the year ended 31December 2023, the
Committee met six times.
The terms of reference of the Audit and Risk Committee are
documented and agreed by the Board and are available in the
corporate governance section of Gulf Keystone’s corporate website:
www.gulfkeystone.com. The terms of reference are reviewed
regularly and were last updated in December 2023.
The Audit and Risk Committee report is set out on pages 89 to 93.
Nomination Committee
As at 31 December 2023, the Nomination Committee comprised three
Non-Executive Directors, who are considered to be independent,
including the Non-Executive Chairman of the Board. The members
were: Martin Angle (Chair), Kimberley Wood and David Thomas.
The Nomination Committee met on five occasions during the year on
a formal basis. The terms of reference of the Nomination Committee
are documented and agreed by the Board and are available in the
corporate governance section of Gulf Keystone’s corporate website:
www.gulfkeystone.com. The terms of reference are reviewed
regularly and were last updated in March 2023.
The Nomination Committee report is set out on pages 87 and 88.
Remuneration Committee
As at 31 December 2023, the Remuneration Committee comprised
three Non-Executive Directors: Kimberley Wood (Chair), David
Thomas and Martin Angle.
This Committee, which meets at least twice per year, is responsible for
making recommendations to the Board concerning the compensation
of the Executive Directors and the Non-Executive Chairman, as well as
the level and structure of remuneration for senior management.
The Committee is also responsible for the determination of the Group’s
Remuneration Policy. The Remuneration Committee met on six
occasions during the year.
The terms of reference for the Remuneration Committee are available
in the corporate governance section of Gulf Keystone’s corporate
website: www.gulfkeystone.com. The terms of reference are
reviewed regularly and were last updated in March 2023.
The Remuneration Committee report is set out on pages 97 to 111.
83/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Current Board Committees
Wanda Mwaura (Chair)
Kimberley Wood
David Thomas
Audit and Risk
David Thomas (Chair)
Kimberley Wood
Jon Harris
John Hulme
Safety and Sustainability
Kimberley Wood (Chair)
David Thomas
Martin Angle
Remuneration
David Thomas (Chair)
Jon Harris
Gabriel Papineau-Legris
John Hulme
Technical
Martin Angle (Chair)
Kimberley Wood
David Thomas
Nomination
Corporate governance report
continued
The Board Committees continued
Safety and Sustainability Committee
As at 31 December 2023, the Safety and Sustainability Committee
comprised two Non-Executive Directors, one Executive Director and
the Chief Operating Ocer, being David Thomas (Chair), Kimberley
Wood, Jon Harris (CEO) and John Hulme (COO).
The Committee was formed in June 2020 in succession to the HSE
and CSR Committee. It aims to meet four times a year and met four
times during 2023. The primary function of the Committee is to
oversee the development of the Group’s policies and guidelines for
the management of ESG, including evaluating HSE and social risks,
evaluate the eectiveness of these policies and their ability to ensure
compliance with applicable legal and regulatory requirements,
overseeing the quality and integrity of reporting to external
stakeholders concerning safety and sustainability, and reviewing
the results of any independent audits of the Group’s performance in
regard to safety and sustainability making recommendations, where
appropriate, to the Board concerning the same. The Committee also
reviews ESG and safety performance and examines specific safety
issues as requested by the Board and will also review all governance
matters which are relevant to the work of the Committee. The
Committee provides visible leadership on HSE matters through site
visits to the production facilities and drilling sites as well as aiming to
hold a Committee meeting once a year in Erbil at the field facilities.
The terms of reference of the Safety and Sustainability Committee
are documented and agreed by the Board and are available in the
corporate governance section of Gulf Keystone’s corporate website:
www. gulfkeystone.com. The terms of reference are reviewed
regularly and were last updated in September 2023.
The Safety and Sustainability Committee report is set out on
pages 94 and 95.
Technical Committee
As at 31 December 2023, the Technical Committee comprised David
Thomas (Chair), Jon Harris (CEO), John Hulme (COO) and Gabriel
Papineau-Legris (CCO).
The Committee’s main remit is to support the Company’s Shaikan
development planning and project execution activities. The Committee
also has the following specific objectives:
• provide assurance that development plans are in line with the
Company’s strategy and have been optimised;
• review and recommend to the Board approval of Shaikan Field
reserves and resources estimates and revisions;
• ensure that the Company has the appropriate resources and project
management systems in place to successfully execute development
projects on time and within budget;
• provide the Board with assurance that the key project execution
risks have been identified and that the required risk management
processes and mitigation measures are in place;
• provide oversight, where appropriate, for any material contract
tendering exercises; and
• review and recommend for executive approval any information
relating to the Shaikan FDP and reserves and resources estimates
for public release.
The Committee met three times in 2023. The terms of reference of the
Technical Committee are documented and agreed by the Board and
are available in the corporate governance section of Gulf Keystone’s
corporate website: www.gulfkeystone.com. The terms of reference
are reviewed regularly and were last updated in March 2021.
The Technical Committee report is set out on page 96.
Information and support
The Company is committed to supplying the Board and its Committees
with full and timely information, including detailed financial, operational
and corporate information, to enable Directors and Committee
members to discharge their responsibilities. The Committees are
provided with sucient resources to undertake their duties. All
Directors have access to the advice of senior management and,
where appropriate, the services of other employees and the Company
Secretary and Chief Legal Ocer for all governance and regulatory
matters. Independent professional advice is also available to Directors
in appropriate circumstances, at the Company’s expense. Board
members also keep up to date with developments in relevant law,
regulation and best practice to maintain their skills and knowledge.
Relevant analysis and reports are prepared by management prior to
all Board and Committee meetings, allowing the Board to eectively
address all of the items on the relevant meeting’s agenda. Documents
and reports are provided to the Board in a timely manner allowing for
sucient time to review the information prior to the meeting and raise
questions where necessary. Management discusses the detail and
format of Board reports on an ongoing basis to ensure the Board is
appropriately informed of all relevant information.
Business ethics
The Company adopts a zero-tolerance approach to bribery and
corruption and has adopted a number of measures and procedures
to ensure ongoing compliance with relevant anti-bribery laws. An
Anti-Bribery Policy is in place which is regularly reviewed and updated
by the Board. This policy also includes provisions on conflicts of
interest and the Criminal Finances Act. Training is undertaken on a
regular basis through the annual Code of Business Conduct training
programme. A number of procedures underlie the Code, including the
maintenance of registers covering, for example, gifts and hospitality.
The latest compliance training cycle was completed in March 2024.
An external whistleblowing service, Navex Global, is maintained in
order to provide a mechanism whereby sta and contractors may make
anonymous reports, if necessary, which is designed to encourage sta
to “speak up”. In the event any reports are received through this service,
the matter is brought to the attention of the Board and a full review is
undertaken on the allegations. The Board will then determine whether
there is a need for a further independent investigation of such matters
and for follow-up action.
Workforce engagement and Company culture
The Company has noted the provisions contained in the Code with
respect to workforce engagement. In the context of the size of the
Company, the Board does not intend to appoint either a Director from
the workforce or a designated Non-Executive Director to ensure
engagement with the workforce. However, the Company does run a
system of regular “town hall” events across its oces and production
facilities which enable an open forum for discussion with its workforce.
The workforce receive updates on recent developments relating to the
Company and have the opportunity to ask questions of management
through interactive sessions and meetings. This matter is reviewed on
a regular basis by management and, where appropriate, its advisers.
The current conclusion is that the Company is not of a suciently
complex nature to warrant the need for additional levels of workforce
engagement processes and the Board will keep this assessment under
review.
84/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
The Company has embedded six fundamental principles in the
organisation which cover its purpose, values and culture. These are:
Safety
• Safety comes first. No job is so urgent or important that it cannot be
done safely.
Social responsibility
• Gulf Keystone’s relationship with, and contribution to, society has
been critical to the development of the Company as it stands today
and is fundamental for its future success. We are committed to
meeting high standards of corporate citizenship by protecting the
wellbeing of our employees, by safeguarding the environment and by
creating a long-standing, positive impact on the communities where
we do business.
Trust through open communication
• We understand the importance of listening and open communication
with employees, our business partners, stakeholders and
shareholders; our success depends on everyone. We encourage an
environment of open and continuous communication and build our
relationships on trust.
Teamwork
• Positive and constructive collaboration and relationships between all
employees is vital to deliver outstanding performance in everything
we do.
Innovation and excellence
• We are committed to a high-performance culture and to ensure
sustained long-term value for not only our external stakeholders
but also our employees through learning, mentoring and career
development.
Integrity and respect
• Doing the right thing. We are always guided by the highest standards
of ethical conduct, integrity and fairness. Respect is: ensuring
diversity and equal opportunities in the business; with our partners,
stakeholders and contractors seeking to conduct our business
openly for the mutual benefit of all.
The principles are referred to on an ongoing basis through internal
communications and meetings, and are displayed prominently
throughout all Company oces, and even on Company mouse mats
and screensavers. In addition, the principles are incorporated into
the annual training which sta and contractors take on the Code of
Business Conduct. All sta and contractors are required to adhere to
the principles.
Risk management and internal control
The Board acknowledges its responsibility for establishing and
monitoring the Group’s systems of risk management and internal
control. While the systems of internal control cannot provide absolute
assurance against material misstatement or loss, the Group’s systems
are designed to provide the Directors with a high level of assurance that
material emerging and principal risks are identified on a timely basis and
dealt with appropriately. The Board annually reviews the eectiveness
of the systems of risk management and internal control and considers
the significant business risks and the control environment. This
is carried out by management and reported to the Audit and Risk
Committee which assesses and tests the conclusions, including the
need for an internal audit function. The Audit and Risk Committee will
then report on the matter to the Board. Having conducted its review in
2023, the Board is satisfied that eective controls are in place and that
risks have been identified and mitigated as appropriate.
The Group is subject to a variety of risks, which derive from the nature
of the oil and gas exploration, development and production business
and relate to the countries in which it conducts its activities. The key
procedures that have been established and which are designed to
provide eective control are as follows:
• regular meetings between executive management and the Board to
discuss all issues aecting the Group;
• detailed analysis of risk reviews undertaken at Audit and Risk
Committee meetings (strategic, financial, ESG, IT and cyber, fraud
risks) and Technical Committee meetings (operational and project
risks);
• a clearly defined framework for investment appraisal with Board
approval required as appropriate;
• regular analysis and reporting on the Company’s risk register; and
• reviews of the Company’s risk management systems, controls and
culture by external advisers.
The Board also believes that the ability to work in partnership with the
host government is a critical ingredient in managing risk successfully.
The Directors have derived assurance over the control environment
from the following internal and external controls during 2023:
• implementation of policies and procedures for key business
activities;
• an appropriate organisational structure;
• specific delegations of authority for all financial and other
transactions;
• segregation of duties where appropriate and cost eective;
• management and financial reporting, including KPIs;
• reports from the Group Audit and Risk, Safety and Sustainability, and
Technical Committees; and
• reports from the Group’s external auditor on matters identified
during their audit.
The above procedures and controls have been in place in respect of the
Group for the 2023 accounting period and up to the date of approval of
the annual report and accounts. There were no significant weaknesses
or material failings in the risk management and internal control system
identified in any of the above reviews and reports. Further details on the
Company’s emerging and principal risks and procedures in place and
how these are managed and mitigated are contained on pages 57 to 71.
Relations with investors and stakeholders
Regular communications with the Company’s institutional and retail
equity investors, as well as bondholders, are given high priority by the
Board. The Non-Executive Chairman, Senior Independent Director,
Chief Executive Ocer, Chief Financial Ocer and the Head of
Investor Relations and Corporate Communications are the Company’s
principal spokespersons, engaging with investors, analysts, the press
and other interested parties. Communication is undertaken through
site visits, shareholder presentations, attendance and presentations
at industry conferences, one-on-one meetings, conference calls and
other written and oral mediums. Throughout 2023, the Group held a
number of investor presentations which are available to view on the
Group’s website.
The Company is committed to maintaining this constructive dialogue
with all its investors and will continue to provide regular updates on its
operations and corporate developments.
85/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Corporate governance report
continued
Relations with investors and stakeholders continued
The Company has an established practice of issuing regulatory
announcements on the Group’s operations and/or any new
price-sensitive information. The Group’s website,
www.gulfkeystone.com, which is regularly updated, contains a wide
range of information on the Group, including a dedicated investor
section where investors can find the Company’s share price, financial
information, regulatory announcements, investor presentations and
corporate webcasts with the Group’s management.
A list of the Company’s significant shareholders as at the date of this
report can be found in the Directors’ report and on the Group’s website,
at www.gulfkeystone.com.
The Company also seeks to engage with its wider stakeholders on
a regular basis. This includes, for example, the Ministry of Natural
Resources in Kurdistan, the Company’s joint venture partner, MOL
Group, residents local to the Company’s operations, suppliers,
contractors and employees.
Additional information
The Company has provided the additional information required
by the UK Financial Conduct Authority’s Disclosure Guidance
and Transparency Rules of the Listing Rules (and specifically the
requirements of DTR 7.2.6 in respect of directors’ interests in shares;
appointment and replacement of directors; powers of the directors;
restrictions on voting rights; and rights regarding control of the
Company) in the Directors’ report.
Annual General Meeting
At the Company’s Annual General Meeting (“AGM”) held on
16June2023, all resolutions were successfully passed. However,
resolutions 7 and 8, being the re-election of the Company’s Chief
Financial Ocer, and the approval of the Directors’ remuneration
report, failed to attain the support of 80% of the shareholders who
voted. Substantially all the votes against resolutions 7 and 8 were
from two shareholders in each case. In accordance with Provision 4
of the 2018 UK Corporate Governance Code, the Board consulted
with the shareholders and, as part of this exercise, also consulted with
the Company’s other major shareholders. There was no change to
the feedback received following the 2022 AGM. The Company also
received feedback from other major shareholders, all of which were
supportive of resolutions 7 and 8. The Board has carefully considered
all feedback and has addressed issues, to the extent possible or
necessary. The Company reported on this matter through posting
an explanation on its website on 13December 2023 in accordance
with the Code. As previously stated, the Chief Financial Ocer will be
retiring with eect from the end of the Company’s AGM in 2024. Aside
from those retiring, the Board is recommending the reappointment of
all other Directors.
The 2024 AGM will be held on 21 June 2024. The Notice of AGM
accompanies this annual report and accounts and sets out the
business to be considered at the meeting. The Board uses the AGM
to communicate with private and institutional investors and welcomes
their participation. The 2024 AGM will be hosted in Dublin, Ireland
and shareholders are able to attend by video conference. Both the
annual report and accounts and Notice of AGM are available on the
Company’s website.
Martin Angle
Non-Executive Chairman
20 March 2024
86/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Matters discussed
January 2023
• Board composition
• Board evaluation
March 2023
• Board evaluation
• Non-Executive Director recruitment
• Terms of reference
June 2023
• Board composition
• Non-Executive Director recruitment (Julien Balkany)
• Committee membership
October 2023
• Board composition
December 2023
• Board and Executive Committee composition and succession
• Board evaluation
• Code of Business Conduct
Role
In accordance with its terms of reference, the Nomination Committee
(the “Committee”) is a committee of the Board of Directors of the
Company which is primarily responsible for:
• reviewing the structure, size and composition of the Board and
recommending changes;
• considering and recommending succession planning strategy
for Executive and Non-Executive Directors and key senior
management positions;
• identifying and nominating for the approval of the Board candidates
to fill Board vacancies or new positions as and when they arise;
• reviewing the Company’s policy on diversity and inclusion and the
progress made in achieving the policy’s objectives; and
• the Committee will lead an annual evaluation of the performance
of the Board, its Committees, the Chairman and the individual
Directors. The Committee will consider an externally facilitated
approach to this at least every three years.
Martin Angle
Non-Executive Chairman
Nomination Committee report
2023 membership and meeting attendance
Member since
Nomination
Committee
Jaap Huijskes
(1)
6 Dec 2017 3/3
Martin Angle
(2)
16 Jul 2018 5/5
Kimberley Wood 3 Oct 2019 5/5
David Thomas
(3)
5 Oct 2023 1/1
(1) Jaap Huijskes retired as Chair and a member of the Committee following
the AGM on 16 June 2023.
(2) Martin Angle was appointed as Chair of the Committee on 16 June 2023.
(3) David Thomas was appointed to the Committee on 5 October 2023.
Composition
The Nomination Committee currently comprises three independent
Non-Executive Directors: Martin Angle (Chair), David Thomas and
Kimberley Wood. Jaap Huijskes retired as Chair and a member of the
Committee following the AGM on 16 June 2023. Martin Angle was
appointed as Chair of the Committee on that date. David Thomas was
appointed to the Committee on 5 October 2023.
The meetings may be attended by Alasdair Robinson (Chief Legal
Ocer and Secretary to the Committee), Clare Kinahan (Chief HR
Ocer), other Non-Executive and Executive Directors, and external
advisers as appropriate.
Review of the Committee’s activities
The Nomination Committee meets at least twice per year. During
2023, the Committee met formally on five occasions. In addition, a
number of informal meetings took place to discuss matters relevant
to the Committee, and on some occasions, matters of a Nomination
Committee nature may be discussed in full Board meetings.
Some of the key matters considered by the Committee during the
year ended 31 December 2023 were: considering the balance and
composition of the Board and Committees; the recruitment of further
independent Non-Executive Directors; succession planning for the
Board and Executive Committee; Board Committee composition; and
Board evaluation.
On 3 July 2023, Julien Balkany was appointed as a non-independent
Non-Executive Director to the Board. Julien is a shareholder
representative of Lansdowne Partners Austria and replaced Garrett
Soden on the Board as its representative. Due to the nature of this
appointment, there was no external search process undertaken.
Further information on Julien Balkany is detailed in the section on the
Board of Directors on page 75.
Diversity
The Committee recognises the benefits of diversity across all areas
of the Group and believes that a diverse Board is a positive factor
in business success, brings a broader, more rounded perspective
to decision-making, and makes the Board more eective. When
recruiting, the Board endeavours to consider a wide and diverse talent
pool whilst also taking into account the optimum make-up of the Board,
including the benefits of dierences in skills, industry experience,
business model experience, gender, race, disability, age, nationality,
background and other attributes that individuals may bring.
87/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Nomination Committee report
continued
Diversity continued
In 2018, Gulf Keystone implemented a formal Diversity Policy
throughout the organisation. The policy states that:
“The Company does not discriminate against workers or consultants
on the basis of their gender, sexual orientation, marital or civil partner
status, gender reassignment, race, colour, nationality, ethnic or national
origin, religion or belief, disability or age. The Company will also seek
to accommodate the religious observations and beliefs of all workers
and consultants. The principle of non-discrimination and equality of
opportunity applies equally to the treatment of former workers, visitors,
clients, customers and suppliers by members of the Company’s
current workforce.”
The Diversity Policy applies across all facets of the business, including
administrative, management and supervisory functions, including at
Board level. Diversity statistics are provided in each scheduled Board
meeting showing the breakdown of senior management (and their
direct reports) and sta by a number of metrics. These are reviewed in
detail by the Board and the Committee.
In the event the statistics demonstrate a trend or weighting which is not
in accordance with the Diversity Policy, this will be investigated and,
if necessary, rectified. In the event an individual has concerns about
matters of a diversity nature, the Company has in place a confidential
third-party-managed whistleblowing service, which is described in
more detail on page 84.
For the purposes of the UK Corporate Governance Code, the gender
balance of senior management (being the Executive Committee and
including the Company Secretary) and their direct reports is described
on page 81.
Succession
During 2023, the Committee has continued to review succession
planning and the active engagement and development of the
Company’s sta. This included the consideration and development
of succession planning for the Executive Directors and the Executive
Committee, which takes into account the Diversity Policy and the need
to foster a diverse pool of candidates. The Company has a structured
training programme for executives which is included as part of their
annual performance review.
In January 2023, the Committee and the Board considered the
appointment of a Company Chairman to succeed Jaap Huijskes
following his retirement at the 2023 AGM. Following discussion,
and taking into account the best interests of the Company and its
stakeholders as a whole, it was agreed that Martin Angle would step up
from Senior Independent Director and Deputy Chairman to become
Chairman following the conclusion of the AGM. Kimberley Wood
would be appointed Senior Independent Director and Deputy Chair at
thistime.
It was recognised that both Mr Angle and Ms Wood have extensive
knowledge of the Company, having been Directors since 2018, were
well respected, and their appointments would ensure a smooth
transition to a new Chair and Senior Independent Director. As a matter
of process, the discussion was held primarily at Board level and Mr
Huijskes, Mr Angle and Ms Wood were recused from these discussions
as appropriate and did not participate in the decision-making process.
Process used for Board appointments
The Committee adopts a formal, rigorous and transparent procedure
for the appointment of new Directors to the Board (aside from if
the appointment involves a shareholder representative Director as
described above).
In appointing Non-Executive Directors, the Board’s practice is to use
external recruitment consultants appointed following a formal pitch
process. A detailed job profile and engagement scope will be agreed
with the selected recruitment consultant following a review of the
balance and composition of the Board. New Directors are subject to a
formal induction process covering all facets of the business including
asset review, technical, operations, finance, legal, ESG and HR.
Board evaluation
The Company aims to undertake an externally facilitated Board
evaluation process every three years. In early 2023, the Company
undertook an externally facilitated evaluation with Evalu8 Limited
(“Evalu8”). Evalu8 has no other connection with the Company or
any individual Director and was selected following a review by the
Committee of a number of potential suppliers taking into account the
level of interaction by the external consultant, cost, and the experience
of the Committee of such evaluations. The evaluation, which is
questionnaire based rather than interview based, covered the following
topics and covered the Board and all Board Committees, with all
Board members participating through questionnaires and subsequent
analysis and discussion of the results:
• composition, succession and evaluation;
• Board/Committee strategy and Company purpose;
• leadership;
• meetings, contributions and relationship with the Board;
• eectiveness;
• accountability;
• remuneration; and
• relations with shareholders.
The results of the review were considered by both the Committee and
the Board. The review concluded that the Board as a whole considered
the overall governance and associated processes of the Company
were strong with only a small number of enhancements being
proposed to improve overall eectiveness. These included:
• the need to enhance diversity in the composition of the Board and
Committees;
• shareholder communications and relationships;
• remuneration process and assessment; and
• new UK governance requirements.
The Board is aware of the UK Corporate Governance Code and UK
Listing Rules requirements with respect to the independence and the
gender and ethnic diversity of the Board, as described on page 80 of
the Corporate governance report.
There are no arrangements or understandings between any Director or
executive ocer and any other person pursuant to which any Director
or executive ocer was selected to serve, aside from the appointment
of Julien Balkany as a shareholder representative of Lansdowne
Partners Austria. There are no family relationships between the
Directors.
Martin Angle
Chair of the Nomination Committee
20 March 2024
88/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Audit and Risk Committee report
Matters discussed
March 2023 (first meeting)
• External audit and year-end financial results
• Risk review and disclosures including climate change and cyber
security
• Controls review
• Auditor audit and non-audit fees
• Private session with the auditor
March 2023 (second meeting)
• 2022 annual report and financial statements
• Management representation letter
June 2023
• Auditor transition
• Auditor audit and non-audit fees
• Potential half-year financial reporting considerations
August 2023 (first meeting)
• 2023 half-year results
• Report from the external auditor on outcome of interim review
including key judgements
• Cyber security review
• Cash management
August 2023 (second meeting)
• 2023 half-year results
• Management representation letter
December 2023
• BDO audit planning report
• Potential year-end financial reporting considerations
• Insurance update
• Risk review
• Cost recovery review
• Cyber review
• Auditor audit and non-audit fees
• Cash management
• Terms of reference
2023 membership and meeting attendance
Member since
Audit and Risk
Committee
Martin Angle
(1)
16 Jul 2018 3/3
Kimberley Wood 12 Oct 2018 6/6
Wanda Mwaura
(2)
1 Jul 2022 6/6
(1) Martin Angle stepped down from the Committee on 16 June 2023 upon
his appointment as Chairman of the Company.
(2) Appointed Chair of the Committee on 16 June 2023.
On 14 March 2024, David Thomas was appointed to the Committee.
Wanda Mwaura
Chair of the Audit and Risk Committee
Role
The Audit and Risk Committee is the committee of the Board of
Directors that is primarily responsible for overseeing the financial
reporting, internal risk management and control functions, the external
and internal audit requirements, and for making recommendations
to the Board in relation to the appointment of the Group’s internal
(ifapplicable) and external auditor.
In accordance with its terms of reference, the Committee, which
reports its findings to the Board, is authorised to:
• monitor the integrity of the Group’s financial statements and
announcements, and significant financial accounting estimates and
judgements;
• review the eectiveness of the Group’s risk management framework
and internal controls and risk management systems;
• consider and make recommendations with respect to the Group’s
risk appetite, and review, on behalf of the Board, the Group’s risk
profile;
• monitor and review the need for and, if appropriate, the eectiveness
of, the Group’s internal audit function;
• oversee the Company’s corporate and operations technology
functions, including cyber security controls and processes;
• advise the Board on the appointment of the external auditor and on
the remuneration for both audit and non-audit work;
• discuss the nature and scope of the audit with the external auditor,
and review the audit findings ahead of reporting to the Board; and
• assess the performance, independence and objectivity of the
external auditor and any supply of non-audit services.
Composition
As at 31 December 2023 and the date of this report, the Committee
comprised two Non-Executive Directors, both of whom are considered
to be independent. The members of the Committee are Wanda
Mwaura (Committee Chair) and Kimberley Wood. Following the 2023
AGM, Martin Angle was appointed as Chairman of the Company. He
therefore stepped down from the Committee in accordance with
Provision 24 of the UK Corporate Governance Code, with Ms Mwaura
taking over as Committee Chair. David Thomas was appointed to the
Committee on 14 March 2024.
The meetings are also typically attended by other Non-Executive
Directors, Jon Harris (CEO), Ian Weatherdon (CFO), Michael
Cameron (Group Financial Controller), Alasdair Robinson (Chief
Legal Ocer and Company Secretary), BDO LLP (external auditor)
and, as appropriate, representatives from finance management and
representatives from operations.
89/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Audit and Risk Committee report
continued
Review of the Committee’s activities
Six Audit and Risk Committee meetings were held in the financial
year. Meetings are held at key times during the Group’s reporting and
auditcalendar.
Matters discussed
During the year, the main focus of the Audit and Risk Committee has
been to support and oversee the Group’s ongoing monitoring, review
and evaluation of its risk management systems and internal controls,
ensure the robustness and integrity of the Group’s financial reporting
and assess the eectiveness of the external audit process.
The Committee has devoted significant time to reviewing those
areas that are integral to the Group’s core management and financial
processes, as well as engaging regularly with management and the
external auditor.
The Committee worked closely with the management team to ensure
these recommendations were implemented in an ecient and timely
manner. The Committee has been proactive in requesting information
in order to fulfil its role. During the course of the year, the Committee
has received sucient information on a timely basis to enable it to
discharge its duties eectively.
Significant issues considered by the Audit and Risk
Committee in 2023
During 2023, BDO LLP was appointed by the Company as external
auditor. BDO replaced Deloitte, which was nearing its maximum term,
following a tender process.
The Committee assesses whether suitable accounting policies have
been adopted and whether management have made appropriate
estimates and judgements. The Committee reviews reports prepared
by management that provide details on the main financial reporting
judgements and estimates. The Committee also reviews reports by
the external auditor on the full-year and half-year results of the Group
that highlight any issues identified by the auditor and provide further
insights into the judgements and estimates used by management.
2023 was a challenging year for the Company from a financial
perspective due to the closing of the ITP and consequent cessation
of oil exports and KRG payments. However, local sales resulted in
revenue and cash flow to enable the Company to continue as a going
concern. The Company constantly reviewed its liquidity and ensured
that all appropriate scenarios and accounting policies were reviewed
on an ongoing basis.
90/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
The significant issues considered in the year are detailed below:
Significant issue How the issue was addressed by the Committee
Revenue recognition: In order to recognise revenue, management
must be able to measure reliably the economic benefit to be received
and the costs associated with the sale and it must be probable that
the Group will receive the economicbenefits.
In 2023, the Group has continued to recognise revenue in line with
IFRS 15 Revenue from Contracts with Customers. For the period
from 1 January 2023 to 25 March 2023, the Company sold its
entitlement share of production to the KRG through the ITP. Since
1September 2022, there has been no lifting agreement in place with
the KRG and it has been necessary to assess whether this impacts
revenue recognition. The key judgement for revenue recognition is
considering whether the accounting policy remains appropriate and
whether under this policy it is reasonable to recognise the invoices for
the months where no lifting agreement is in place and remain unpaid.
On 19 July 2023, the Company commenced sales to local buyers with
delivery taking place when crude oil was loaded into trucks. Volumes
were sold at negotiated contract prices in line with the local market,
with advance payments received in accordance with Production
Sharing Contract entitlements.
The Committee considered whether recognition of revenue in
relation to oil sales was appropriate. The Committee discussed the
key judgements with management and reviewed the information
provided. The Committee also had discussions with the external
auditor in respect of the Group’s accounting policy.
The Committee considered, for the period of pipeline export sales
from 1 January to 25 March 2023, the accounting treatment of
the MNR’s proposed pricing mechanism for Shaikan oil sales that
changed the reference price from Dated Brent to the Kurdistan Blend
(“KBT”) eective 1 September 2022. Consistent with the accounting
treatment adopted for the year ended 31 December 2022, the
Committee agreed that the Group should continue to recognise
revenue in accordance with the terms set out in the MNR’s proposed
pricing mechanism (see Summary of material accounting policies,
Sales revenue).
For the period from 19 July 2023, the Committee reviewed and
agreed that revenue should be recognised in accordance with the
contractual terms for sales to local buyers. Any advance payments for
which crude oil had not been delivered to the buyer at the reporting
date should be recognised as deferred revenue.
Impairment and carrying value of oil and gas assets:
An assessment of any impairment and carrying value of the
Group’s assets is required under International Financial Reporting
Standards (IAS 36 Impairment of Assets). This assessment involves
management making a number of judgements and assumptions
including identifying indicators of impairment and estimating
future oil prices, production profiles, the timing of revenue receipts,
development timing, costs, cost recovery, potential climate change
transition risks impacts, inflation and discount rates.
The Committee considered reports from management and reviewed
the impairment indicator assessment. The Committee agreed that
the shut-in of the ITP in March 2023 was an indicator of potential
impairment and that a full evaluation should be completed. The
Committee was satisfied that the base case was reasonable, which
was derived from the 31 December 2023 Brent oil price forward
curve and market participants’ consensus, an assumed development
plan and timing of revenue receipts subject to the timing of pipeline
reopening and an increase in the discount rate from 15% to 16%. The
Committee also reviewed a range of scenarios and the expected
cash flow approach applied to potential delays in reopening the
ITP. The Committee agreed with management’s conclusion that
no impairment write-down was required and reviewed associated
financial statement disclosures.
The Committee also reviewed climate change scenarios. The
International Energy Agency’s (“IEA”) most recently Announced
Pledges Scenario (“APS”) and Net Zero Emissions (“NZE”) climate
scenario oil prices and carbon taxes were used to evaluate the
potential impact of the principal climate change transition risks.
The Committee agreed with management’s conclusion that under
the APS and NZE scenarios there was no impairment. However,
itwas acknowledged that while the sensitivity to conservatively
include IEA carbon pricing on all production resulted in no impairment
under the APS scenario, under the NZE scenario, there could be
a potential impairment if the Group’s carbon intensity per barrel of
production was greater than that assumed by the IEA, which they
have notdisclosed.
91/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Significant issue How the issue was addressed by the Committee
Going concern and viability statement: The appropriateness
of preparing the Group financial statements for the year on a
going concern basis and the preparation of the long-term viability
statement.
The Committee considered reports and analysis prepared by
management, taking into account the external auditor’s review of
these papers and their observations. The analysis involved stress
testing the assumptions and in particular reviewing the potential
impact arising from the uncertainty over the timing of the pipeline
reopening and settlement of outstanding amounts due from the
KRG, and the fact that the outlook for local sales volumes and
pricing is considered dicult to predict. The Committee reviewed
the mitigating actions available and concluded that management’s
recommendation to prepare the financial statements on a going
concern basis was appropriate.
Given the ongoing uncertainty around pipeline reopening along with
the timing of KRG payments and volatility of local sales volumes, the
Committee considered whether a material uncertainty existed at the
date of signing that could cast doubt on the ability of the Company to
continue as a going concern. The Committee concluded no material
uncertainty exists having taken due consideration of cash balances,
projected cash inflows and outflows and mitigating actions available
to reduce the cost base in the event of reduced local sales volumes or
delays to KRG payments after reopening of the pipeline.
The Committee reviewed the assessment of the principal risks facing
the Group, the stress test scenarios and possible mitigating actions
over the three-year viability statement period. Based on this review,
the Committee approved the disclosure included under the long-term
viability statement.
Valuation of KRG receivable (expected credit loss):
An assessment was undertaken to assess the valuation of the
receivable balance due from the KRG at year end taking into account
both relevant macro-economic factors and requirements under
accounting standards.
Under International Financial Reporting Standards, the Company
is required to assess the likelihood of default by a counterparty.
Toassess the reasonableness of the expected credit loss provision,
the Committee reviewed management’s methodology and key
variables, including when the pipeline is anticipated to reopen and
the estimated duration for the KRG to repay the balance outstanding.
Based on this review, the Committee agreed that the expected credit
loss provisions had been appropriately calculated.
The Committee also reviewed management’s disclosure that the
outstanding balance is expected to be fully recovered and agreed
there is a reasonable basis for such disclosure.
Audit and Risk Committee report
continued
Significant issues considered by the Audit and Risk Committee in 2023 continued
92/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Internal audit
The Audit and Risk Committee has oversight responsibilities for the
internal audit function. During the year, the Committee considered the
appropriateness of the appointment of an internal auditor; however,
this process was put on hold following the closing of the ITP and
consequent primary focus on liquidity management and costs.
The Committee undertakes detailed analysis of higher-risk internal
procedures and controls on a periodic basis, recent examples being
cyber security, payments, inventory and supply chain management. In
addition, specialist advisers are engaged, where necessary, to review
key controls in high-risk areas to ensure that internal assurance is
achieved. The lack of an internal audit function has not had any impact
on the work of the external auditor.
External auditor
The Audit and Risk Committee is responsible for reviewing the
eectiveness of the external audit process taking into consideration
relevant professional and regulatory requirements and the Group’s
policy on external audit, including ensuring that the auditor remains
objective and independent. To fulfil its responsibility regarding
independence, the Committee considered:
• the external auditor’s plan for the current year, noting the role of the
audit partner who signs the audit report and who, in accordance with
professional rules, has not held oce for more than five years, and
any changes in the key audit sta;
• the overall extent of non-audit services provided by the external
auditor, in addition to its case-by-case approval of the provision of
non-audit services by the external auditor;
• the external auditor’s written confirmation of independence to the
Audit and Risk Committee; and
• the past service of the external auditor, albeit it was only appointed
in 2023.
Audit transition
In light of applicable law and regulation, the Group’s external audit was
tendered in 2022, resulting in a decision to appoint BDO LLP as the
Group’s auditor from 2023. BDO shadowed Deloitte through the audit
for the financial year ended 31 December 2022 before formally taking
over in 2023.
Eectiveness of external auditor
To assess the eectiveness of the external audit process, the auditor
is asked on an annual basis to describe the steps that they have taken
to ensure objectivity and independence, including where the auditor
provides non-audit services. Gulf Keystone monitors the auditor’s
performance, behaviour and eectiveness during the exercise of
their duties, which informs the Committee’s decision to recommend
reappointment on an annual basis. The external auditor’s fulfilment
of the agreed audit plan and any variations from the plan and the
robustness and perceptiveness of the auditor in its assessment
of the key accounting and audit judgements are also considered
when making a judgement on auditor eectiveness. The Committee
monitored the eciency of the audit process and the performance of
the auditor and was satisfied that the audit process was eective.
Non-audit services
As a safeguard to help to avoid the objectivity and independence of
the external auditor becoming compromised, the Committee has
a formal policy governing the supply of non-audit services by the
external auditor. The policy is consistent with the regulations set out in
the Financial Reporting Council’s Revised Audit & Assurance Ethical
Standard 2019. The Group engages external advisers to provide
non-audit services based on cost and the skills and experience
required for the work. The Group may engage the external auditor to
provide a limited range of non-audit services where this is the most
eective and ecient way of procuring such services, provided that
theGroup is satisfied that the auditor’s objectivity and independence
will not be compromised as a result.
In 2023, BDO LLP provided non-audit services to the Group related
to the interim review of half-year results and other assurance services
related to the Company’s joint operating agreement with its partner,
MOL. BDO were appointed to provide non-audit services due to the
synergies of performing the engagement alongside the services
already performed as the Group’s statutory auditor.
A breakdown of the fees paid to the external auditor in respect of audit
and non-audit work is included in note 4 to the consolidated financial
statements. The ratio of non-audit fees to audit fees was 21%.
The Committee considered the potential threats that engagement
of BDO LLP to perform non-audit services may pose to auditor
independence. BDO LLP ensured that necessary safeguards were
put in place to reduce the independence threats to an acceptable level.
The Committee was satisfied that, given the nature of the work and
the safeguards in place, the provision of non-audit services did not
undermine auditor objectivity and independence.
Committee evaluation
In 2023, an externally facilitated review of the Audit and Risk
Committee’s performance and eectiveness was completed which did
not raise any substantive issues concerning the performance of the
Committee. This was conducted alongside a full Board and Committee
evaluation.
Wanda Mwaura
Chair of the Audit and Risk Committee
20 March 2024
93/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Safety and Sustainability Committee report
Committee activities during 2023
The Committee seeks to meet formally four times a year. During 2023
it met on four occasions (in March, June, September and November).
The Committee has a number of standing agenda items which are
considered at each meeting and will supplement these with specific
agenda items as necessary. In 2023, the topics considered included:
• HSE performance and statistics, including a detailed review of any
incidents which have occurred and lessons learned;
• ESG strategy plan formulation and implementation, including
production of the Group’s Sustainability report;
• progress for the year against the Health, Safety and Environmental
(“HSE”) improvement plan;
• security review and risk assessment;
• the formulation, approval and delivery of the Group’s annual CSR
plan and initiatives, including review of key initiatives;
• the Group’s strategy on climate change and the reduction of GHG
emissions, including the formulation of specific targets relating
thereto;
• compliance with TCFD requirements;
• review of the Group’s GHG emissions data to improve the accuracy
and scope of reporting;
• governance review;
• analysis of market and industry trends related to climate change; and
• HSE operational planning for key field activities (for example, well
operations).
Role
The role of the Safety and Sustainability Committee is to monitor the
development and implementation of the Group’s health and safety,
environmental, social responsibility and ESG governance policies and
to ensure that appropriate management systems and processes are in
place to minimise any HSE risks associated with the Group’s activities,
including the impact of the Group’s operations on GHG emissions and
on local communities.
2023 membership and meeting attendance
Member since
Safety and
Sustainability
Committee
David Thomas 8 Dec 2016 4/4
Jaap Huijskes
(1)
6 Dec 2017 1/2
Kimberley Wood 11 Oct 2018 4/4
Jon Harris 26 Jan 2021 3/4
John Hulme
(2)
23 Jun 2022 4/4
(1) Resigned on 16 June 2023.
(2) John Hulme, COO, is a member of the Executive Committee but not a
Board member.
David Thomas
Chair of the Safety and Sustainability Committee
The Committee’s activities form an integral part of the Group’s HSE
governance process, which includes the following key elements: Board
and management site visits, external and internal audits, third-party
inspections, Permit to Work audits, regulatory inspections, safety
walkabouts and ensuring visible safety leadership.
The Group has robust governance processes in place to ensure that
the appropriate framework exists to ensure that all matters of an ESG
nature are appropriately considered and actioned, and these are
reviewed at eachmeeting.
The Safety and Sustainability Committee has written terms of
reference which were last updated in September 2023. A copy of
the terms of reference is available on the Company’s website. In
accordance with its terms of reference, the Committee is authorised to:
• oversee the development of policies and guidelines for the
management of all risks relating to safety, sustainability and ESG,
incorporating health, safety, security and environmental and social
risks within the Group’s operations;
• oversee the quality of safety and ESG (incorporating health, safety,
security, environment and corporate social responsibility) policies,
processes, governance, management and the methods to create
appropriate behaviours and decisions, including relevant key
performance indicators;
• review health and safety performance to assess the eectiveness
of health and safety programmes and to make recommendations for
improvement, where appropriate;
• review, and if appropriate approve, specific corporate social
responsibility projects within the agreed budgeted level approved by
the Board;
• evaluate the eectiveness of the Group’s policies and systems for
identifying and managing health, safety, security, environmental and
social risks within the Group’s operations;
• assess the policies and systems within the Group for ensuring
compliance with applicable legal and regulatory requirements;
• assess the performance of the Group with regard to the impact
of health, safety, security, environmental and social decisions
and impact of actions upon employees, communities and other
stakeholders. It shall also assess the impact of such decisions and
actions on the reputation of the Group and make recommendations
to the Board on areas for improvement;
• working in conjunction with the Technical Committee, the Board of
Directors, and management as appropriate, specifically consider
the level of greenhouse gas emissions (“GHG”) generated by
the Company, and review challenging and achievable targets to
reducethese;
94/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
• on behalf of the Board, receive reports from management concerning
all fatalities and serious accidents within the Group and actions taken
by management as a result of such fatalities or seriousaccidents;
• evaluate and oversee, on behalf of the Board, the quality and
integrity of any reporting to external stakeholders concerning safety,
sustainability and ESG issues;
• review the results of any independent audits of the Group’s
performance in regard to safety, sustainability or ESG matters,
review any strategies and action plans developed by management
in response to issues raised and, where appropriate, make
recommendations to the Board concerning the same; and
• consider the position of the Group with respect to internationalbest
practice for safety, sustainability and ESG and emerginglegal
requirements including relevant corporate governancedevelopments.
Composition
As at 31 December 2023, the Safety and Sustainability Committee
comprised two of the independent Non-Executive Directors, David
Thomas (Chair) and Kimberley Wood, the CEO, Jon Harris, and the COO,
John Hulme. Jaap Huijskes stepped down from the Committee upon his
retirement as independent non-executive Chairman of the Company on
16 June 2023. The Company’s Head of HSE and Sustainability, Patrick
Bersebach, the CSR Manager, Sirwan Dara, and the Security Manager,
Serdar Abdullah, also attend meetings, along with other management
and sta members as required. Alasdair Robinson acts as Secretary to
the Committee, and also reports on governance at each meeting.
Governance
The Company endeavours to ensure that no harm comes to people
as a result of its operations and that any eect on the environment is
minimised. It also looks to have a beneficial long-term impact on the
communities located in the vicinity of the Shaikan Field. The Group aims
to ensure that all employees and contractors understand that working
safely is the absolute priority and that they are responsible for their own
safety and the safety of those around them.
The importance of these areas to the Group is demonstrated by the
priority given to them at all levels in the organisation, from the daily
toolbox talks in the Shaikan Field through to the regular weekly senior
management meetings, and Safety and Sustainability Committee and
Board meetings. At Board meetings, a formal report is provided on these
matters to the Directors by the COO and the Safety and Sustainability
Committee Chair.
Sustainability
Recognising the importance of sustainability to both society and
business organisations, the Company has included a detailed
Sustainability report in the annual report and accounts; please refer to
pages 28 to 45.
This sets out the Company’s culture as it relates to sustainability issues,
the management processes which it has in place, and focuses on a
number of the environmental and social initiatives which have been
launched and implemented over the past few years. In addition, the
report includes key environmental and safety performance statistics.
The Company previously engaged Deloitte to act as the Company’s ESG
advisers. Working with Deloitte, the Company developed a detailed ESG
strategy roadmap which will be implemented as the Company strives
to meet its emission reduction targets. In 2023 the Company was fully
compliant with its TCFD reporting requirements.
Health and safety
During 2023, the Committee monitored and supported the Company’s
2023 HSE Action Plan implementation and was pleased to see an overall
achievement of 98.8% of plan objectives during the year. The Committee
was encouraged by the level of incident or potential incident reporting
which occurred during the year and the open reporting culture which has
continued to be developed in the organisation. Unfortunately, there was
one Lost Time Incident in early 2023; a full review was undertaken and
lessons learned embedded in the Company’s culture and processes.
The Company also held emergency response simulation exercises
during the year.
Security
For most of 2023, the security environment in Kurdistan remained
stable,enabling Shaikan Field operations and sta travel and work
patterns to continue unchanged. Following the escalation of the
Israel-Hamas conflict in October, the security situation in Kurdistan
worsened because of increased militia activity targeting Coalition
forces within Kurdistan and Iraq and Iranian drone and missile
activity in and around Erbil. In response we removed all non-essential
expatriate personnel from Erbil and enabled flexible working from home
arrangements for local employees. Shaikan Field operations continued
unaected, supported by standard security precautions. In early 2024,
normal working practices resumed following an improvement in the
security environment.
The Board and the Committee keep the security environment under
constant review through specialist advice and local security experts.
The Company has response plans in place which can be activated
immediately if required.
Environment
During 2023, the Company took a proactive role in the implementation
of a number of specific initiatives to minimise the environmental impact
of the Company’s operations. These are described more fully in the
Sustainability report on pages 28 to 45. Following the closure of the Iraq
Turkey Pipeline (“ITP”) in March 2023, the Company had to suspend its
proposed Gas Management Plan (“GMP”) project, which was one of the
Company’s most significant initiatives to reduce emissions and eliminate
almost all routine flaring. Consequently, the Company’s target to more
than halve its scope 1 emissions intensity by 2025 was suspended. The
Company remains committed to significantly reducing its emissions and
plans to reinstate its targets once there is more clarity on the investment
outlook. See page 33 of the Sustainability report for further detail.
Corporate social responsibility
Since the formal CSR programme was initiated in 2017, the Company
has continued to progress several social initiatives for the local
communities surrounding the Shaikan Field, with a specific focus on
sustainability. These are also more fully described in the Sustainability
report. Regretfully, the Company had to suspend a number of initiatives
following the closing of the ITP and the consequent focus on liquidity
management. The Company is planning a more meaningful contribution
of $100,000 in 2024, focused on delivering a number of critical projects.
David Thomas
Chair of the Safety and Sustainability Committee
20 March 2024
95/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Technical Committee report
Generally, the Committee plans to meet three to four times per annum,
but adjusts the meeting timings to coincide with key decision points
within the project development schedule or the release of significant
new technical or reserves-related information.
The Committee is supported in its activities by key members of the
London-based technical, commercial and finance teams and by the
Erbil-based projects and operations teams. Members of these teams
are regularly invited to participate in Committee meetings to provide
input in relation to the Committee’s deliberations.
Role
The Technical Committee was established in late 2016 to provide
support and guidance for the Shaikan Field development planning and
project execution activities and has the following specific objectives to:
• review the Company’s production performance, and production
guidance, including recommending the proposed production
guidance to the Board;
• provide assurance that development plans are in line with the
Company’s strategy and have been optimised in the context of the
current and forecast funding position;
• review subsurface analysis, well management plans, and drilling
strategy;
• review and approve the Shaikan Field reserves and resources
estimates and revisions;
• ensure that the Company has the appropriate resources and
project management systems in place to successfully execute the
development projects on time and within budget;
• provide the Board with assurance that the key operational and
project execution risks have been identified and that the required risk
management processes and mitigation measures are in place;
• provide a detailed review of the Company’s Field Development Plan
(“FDP”) and process;
2023 membership and meeting attendance
Member since
Technical
Committee
David Thomas 8 Dec 2016 3/3
Jaap Huijskes
(1)
6 Dec 2017 2/2
Jon Harris 26 Jan 2021 3/3
Gabriel Papineau-Legris
(2)
8 Dec 2016 3/3
John Hulme
(2)
23 Jun 2022 3/3
(1) Resigned on 16 June 2023.
(2) Gabriel Papineau-Legris (CCO) and John Hulme (COO) are both
members of the Executive Committee but are not Board members.
David Thomas
Chair of the Technical Committee
• provide a detailed review of the Company’s Gas Management Plan
(“GMP”) and strategy; and
• review and recommend for Board approval any information relating
to the Shaikan FDP and reserves and resources estimates for public
release.
Committee activities during 2023
The Committee met three times in 2023. In addition to standing agenda
items, the following key matters were discussed:
• production planning and forecasting (including 2023 production
guidance);
• 2023 Competent Person’s Report;
• 2023 and 2024 work programme and budget;
• produced gas management strategy, including the GMP and
alternative strategies;
• production enhancement and well management initiatives (including
ESP installation programmes);
• field shut-down, local sales, and eects on production and well
management;
• drilling strategy and progress;
• operational risk reviews;
• well workover options; and
• Shaikan subsurface re-mapping and re-modelling project.
The Company estimates gross 2P reserves of 458 MMstb at
31December 2023. The Company’s internal estimates account for
the impact of the production shut-in and suspension of expansion
activity in 2023 following the closure of the Iraq-Turkey Pipeline on
25March2023. Further detail on the Company’s estimated reserves
isavailable on page 8 of the Operational review.
David Thomas
Chair of the Technical Committee
20 March 2024
96/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Kimberley Wood
Chair of the Remuneration Committee
Remuneration Committee report
Matters discussed by the Remuneration Committee
in 2023
The Committee held six Committee meetings in 2023 and also met on
an informal basis to discuss the following remuneration matters:
• reviewed and agreed 2022 bonus performance outcomes for
executives and senior management and resulting bonus pay-outs;
• reviewed and approved 2020 LTIP pay-out, including treatment of
dividends;
• reviewed metrics for the 2023 LTIP;
• conducted further review of the comparator peer group;
• reviewed and approved salary/fee deferment and subsequent
reinstatement of Board remuneration;
• approved bonus KPIs for 2023;
• approved 2023 LTIP awards to all eligible participants and
associated performance targets;
• reviewed and approved the Directors’ remuneration report;
• reviewed and agreed that there would be no 2024 salary increases
or 2023 annual bonuses for the wider workforce, other than a small
recognition payment in light of the dicult year the Company has
experienced; and
• approved the terms of reference of the Remuneration Committee.
Part one: Annual Statement from the
Chair of the Committee
Dear Shareholder,
On behalf of the Remuneration Committee, I am pleased to present the
Directors’ remuneration report for the year ended 31 December 2023.
The work of the Remuneration Committee in 2023 was conducted
against a backdrop of challenging circumstances with the suspension
of Kurdistan crude exports following the closure of the Iraq-Turkey
Pipeline in March and continued delays to KRG payments. As a result,
the Board’s focus shifted rapidly from driving profitable production
growth to preserving liquidity, suspending all expansion activity and
aggressively reducing expenditures across the business.
2023 membership and meeting attendance
Member since
Remuneration
Committee
Kimberley Wood (Chair) 12 Oct 2018 6/6
Martin Angle 16 Jul 2018 6/6
David Thomas 8 Dec 2016 6/6
The Board agreed to defer 20% of salaries and fees for its members
from 1 July 2023 in order to help manage the Company’s liquidity
position. In December, the Board resolved that the deferred salaries
and fees should be paid since the Company was able to meet its
ongoing costs and its liquidity position had improved.
Performance and implementation of the
Remuneration Policy in 2023
The Committee acknowledges that the Directors’ remuneration report
received less than 80% of votes in favour at the AGM in June2023.
The vast majority of the votes against were from two investors. The
Company engaged with these investors to seek to understand their
reasons for the negative votes and reported on this shareholder
consultation in December 2023. The Board continually strives to
ensure its remuneration policies support the Company’s strategy and
are in line with market practices and remains committed to soliciting
input from shareholders.
Annual bonus
At the start of 2023 the Remuneration Committee set robust and
challenging targets for the annual bonus scheme and ensured the right
policies and practices were in place to attract, retain and motivate all
employees. However, based on the exceptional events that followed
the suspension of crude exports in March 2023 that continued beyond
the end of 2023, most of the targets set by the Committee were no
longer relevant. Given the context, the Committee considered it
inappropriate for any annual bonus payments to be paid for 2023.
Long-term incentives
The final assessment and vesting of Gulf Keystone’s 2021 LTIP award
will take place in April 2024. All employees participate in the plan. The
award is not currently expected to vest based on the latest assessment.
The actual vesting amount will be disclosed via an RNS announcement
and in the 2024 annual report.
The CEO and CFO received conditional awards of 515,351 and 317,303
options respectively over shares (equivalent to 200% and 150% of
salary) on 28 March 2023. The awards are subject to both absolute
and relative total shareholder return (“TSR”) targets being met,
each measure having a 50% weighting. As usual, the Remuneration
Committee will have the discretion to review vesting outcomes to
ensure a fair reflection of performance.
Instances of the exercise of discretion by the Remuneration
Committee
No discretion was exercised by the Remuneration Committee outside
the normal Remuneration Policy guidelines.
Remuneration across the workforce
GKP fosters an inclusive culture across the whole workforce which is
reflected in our Remuneration Policy. Base salaries for all employees
are benchmarked on a regular basis and targeted at median.
Theannual bonus plan is open to all employees, the outcome of which
is linked to both corporate and individual targets.
97/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Performance and implementation of the
Remuneration Policy in 2023 continued
Remuneration across the workforce continued
The corporate targets are the same for all who participate. In addition,
all permanent employees working for the Company at the time of grant
received an award in 2023 under the 2014 LTIP plan which aligns their
interests with the long-term success of GKP and to the structure of
rewards available to Executive Directors.
The Committee and Board are given regular briefings on the pay,
incentive and benefit arrangements for the wider workforce as well as
receiving updates from the Chief HR Ocer who attends all Committee
meetings by invitation.
Summary of remuneration for Executive Directors in 2024
In light of the current business context there are no planned increases
in salary for the CEO and CFO in 2024 or for the rest of the workforce.
No increases were made to the CEO and CFO’s annual bonus and LTIP
entitlements.
Both the CEO and CFO will be eligible for a 2024 bonus, subject to
Company and individual performance metrics. The Committee will
review the Company’s achievements, KPIs and performance targets
and publish these in the 2024 Directors’ remuneration report. The
2024 bonus measures incorporate targets on safety, security and
sustainability (including environment and emissions-related targets);
value creation (oil sales optimisation, arrears recovery and strategy);
financial and people, culture and values initiatives. Further information
is set out on page 111 of the Directors’ remuneration report.
The CEO and CFO are entitled to participate in the LTIP where
performance-based shares are granted up to a maximum of 200% and
150% of salary, respectively, in line with policy. The 2024 LTIP award
will have performance conditions based on absolute and relative TSR.
The Committee is considering incorporating an ESG metric for 2025
and will consult with shareholders over the course of the year. The LTIP
scheme rules will also be updated and renewed at the 2024 AGM, after
reaching its ten-year limit.
Board changes in 2024
On 5 February 2024 we announced the retirement of our CFO, Ian
Weatherdon, who will not be standing for re-election at the 2024
AGM. Since joining the Company, Ian has played a key role in building
high-performing teams whilst overseeing industry-leading returns to
shareholders during a period of strong production growth and elevated
oil prices and maintaining a strong balance sheet which has underpinned
the Company’s resilience since the pipeline closure. Full details of his
remuneration arrangements following loss of oce (in line with the
Remuneration Policy) will be disclosed in the 2024 annualreport.
Gabriel Papineau-Legris, GKP’s Chief Commercial Ocer, will be
appointed CFO and Executive Director after the AGM. He will be
eligible for a salary of £350,000 and a pension contribution of 10%
of salary, which is aligned to GKP’s UK workforce. He will be eligible
for a 2024 bonus and a grant under the 2024 LTIP in line with the
Remuneration Policy. Gabriel’s base salary represents a reduction
against the outgoing CFO but remains in line with market competitive
rates. Further details of the new CFO’s package can be found on
page111 of the Directors’ remuneration report.
Recognition and retention payments
To recognise the hard work and dedication of all employees (excluding
Executive Directors) during these unprecedented times, the
Committee has approved recognition payments. Additionally, given the
current challenging circumstances of the Company, the Committee
approved retention arrangements for a number of employees to
stabilise management which the Board considered to be in the best
interests of the Company. The Committee is therefore proposing to
pay a one-o payment to our CEO on the same basis as other retention
arrangements. The award will be limited to 100% of salary, is payable
in January 2025 and will be subject to malus and clawback provisions
and other conditions. This proposed amendment to the Remuneration
Policy will be subject to shareholder approval at the 2024 AGM.
Basis of preparation of the report
As GKP is not incorporated in the UK, it is not subject to UK company
law or the UK Corporate Governance Code. However, the Company’s
Byelaws require it to comply with the Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013 (the “2013 Regulations”). The Directors’
remuneration report has been prepared in accordance with such 2013
Regulations as amended.
As a responsible corporate citizen, GKP is committed to following
best practice, maintaining high corporate governance standards and
the principles enshrined in the UK Corporate Governance Code (the
“Code”) which are taken into account to the extent they are considered
appropriate for the Company. As GKP only has 23 employees in the
UK, not all elements of the Code or certain 2018 changes to the 2013
Regulations, including the CEO pay ratio, are relevant or applicable. As
noted above, the Committee has regard to wider workforce reward but
considers that a ratio calculation would not be meaningful with such a
small UK workforce.
2024 AGM
At the 2024 AGM, our Directors’ remuneration report (pages 97 to
111) will be the subject of an advisory vote and shareholders will be
asked to vote on an amendment to the Remuneration Policy to allow
for the one-o retention payment of our CEO, in accordance with the
2013 Regulations. There will also be a vote to approve new Rules for
the LTIP since the previous Rules are due to expire. The Rules have
been updated to reflect developments in best practice – a summary
is included in the Notice of AGM and the Rules themselves will be
available for inspection on the Company’s website once the Notice
of AGM is issued. We believe the new Rules to be in line with current
industry standards.
The Committee believes the remuneration outcomes for 2023 reflect
an appropriate outcome taking into account the global context, the
dicult trading and operational conditions and shareholder experience
during this period. We hope and trust that shareholders will recognise
this as a continuation of our strategy for reward and also recognise the
eorts we have taken to retain key sta during this period. On behalf
of the Remuneration Committee, I would like to thank all shareholders
for their continued support and hope that you will vote in favour of the
resolution contained within the report at the AGM on 21 June 2024.
Finally, this will be my last remuneration report as Chair of the
Remuneration Committee. As announced on 5 February 2024, I will be
resigning from the Board at the 2024 AGM, having taken an executive
role elsewhere. The Nomination Committee is currently recruiting for
my replacement.
Yours sincerely,
Kimberley Wood
Chair of the Remuneration Committee
20 March 2024
Remuneration Committee report
continued
98/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Part two: Directors’ Remuneration
Policy
Introduction
Part two provides an overview of the Directors’ Remuneration Policy. It
describes the elements of remuneration and summarises the approach
the Remuneration Committee will adopt in certain circumstances, such
as the exercise of discretion, the recruitment of new Directors and
the making of any payments for loss of oce. The current Policy was
approved by shareholders at the 2022 AGM.
Purpose and role of the Remuneration Committee
The Remuneration Committee determines and agrees with the Board
the overall Remuneration Policy for the Executive Directors and
Executive Committee members. Within the terms of the agreed policy,
key responsibilities of the Committee include:
• determining and agreeing with the Board the framework and broad
policy for the remuneration of the Company’s Executive Directors
and setting remuneration for the Non-Executive Chairman of the
Board, the Executive Directors and the Executive Committee (being
those individuals considered to be Persons Discharging Managerial
Responsibilities (“PDMR”);
• when setting the Remuneration Policy, reviewing and having
regard to remuneration and related policies across the Group and
the wider workforce, aligning incentives and rewards with culture
and the overall strategy of the Company. When conducting its last
major review of the Remuneration Policy, the Committee took into
account simplicity, clarity, risk management, predictability and
proportionality, as well as alignment to culture, as part of the process;
• reviewing the design of all share incentive plans for approval by the
Board and shareholders. For any such plans, determining each
year whether awards will be made, and if so, the overall amount of
such awards, the individual awards to the Executive Directors and
members of the Executive Committee and the performance targets
to be used;
• agreeing pension arrangements, service agreements and
termination payments for Executive Directors and members of the
Executive Committee and ensuring that any termination payments
are fair to the individual and the Company; and
• overseeing any major changes in employee benefits structures
throughout the Company and/or the Group and giving advice on any
such changes.
The Remuneration Committee also reviews and approves overall
remuneration levels for employees below the level of the Executive
Committee but does not set individual remuneration levels for such
individuals. This oversight role allows the Committee to consider
pay policies and employment conditions throughout the Company
when designing packages for the Executive Directors and other key
employees, and the alignment of incentives and rewards with culture.
The Committee considers the general level of increases applied to
basic pay across the Company when reviewing Executive Directors’
base salaries.
The Remuneration Committee operates within written terms of
reference agreed by the Board. These are reviewed periodically to
ensure that the Committee remains up to date with best practices
appropriate to GKP, its strategy and the business and regulatory
environment in which it operates. Terms of reference are in place and
reviewed annually, the latest version being in March 2024. They are
available on the Company’swebsite.
To recognise the hard work and dedication of all employees (excluding
Executive Directors) during these unprecedented times, the
Committee has approved recognition payments. Additionally, given the
current challenging circumstances of the Company, the Committee
approved retention arrangements for a number of employees to
stabilise management which the Board considered to be in the best
interests of the Company. The Committee is therefore proposing to
amend the Directors’ Remuneration Policy to allow a one-o payment
to our CEO on the same basis as other retention arrangements. The
award will be limited to 100% of salary, is payable in January 2025 and
will be subject to malus and clawback provisions.
This is the only proposed amendment to the Remuneration Policy,
which is otherwise unchanged.
The amendment of the Remuneration Policy to be approved by
shareholders at the 2024 AGM is set out below:
Remuneration element Structure and opportunity
What has changed
since last Policy
Retention payment One-o award made in cash. CEO is eligible for an award payable in January 2025
only of up to 100% of salary. Award is subject to malus and clawback provisions.
Introduced for
2024 only
99/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Remuneration Committee report
continued
Remuneration Policy table
The Company’s Directors’ Remuneration Policy is described in the following table.
Remuneration
element
Link to
strategy Operation Opportunity
Remuneration
Committee discretion
Base salary Essential to
attract and
retain key
executives.
Reviewed annually basedon:
• role, experience and
individual performance;
• pay awards elsewhere in
the Group;
• external market; and
• general economic
environment.
Policy is to benchmark to the
relevant market median.
Normally, salary increases
for Executive Directors will
be in line with the average
employee increase.
The Committee retains
discretion to:
• select the appropriate market
comparator group; and
• increase salaries above the
general employee average;
in general, this would be to
reflect significant additional
responsibilities.
Benefits Helps attract
and retain key
executives.
Directors may be entitled
to a car allowance, private
medical insurance, death in
service benefit and income
protection in line with the wider
workforce.
Benefit levels reflect those
typically available to senior
managers within GKP.
If a Director is recruited
from or required to move
overseas, the Committee may
provide additional benefits
tailored to the circumstances
(e.g.relocation expenses).
If additional benefits are
introduced for the wider
workforce, the Committee
reserves the right to extend
these to Executive Directors on
equivalent terms.
Pension Helps
executives
provide for
retirement and
aids retention.
Up to 10% of salary; may be
provided as a cash allowance.
Pension allowances are
not included in base salary
for annual bonus or other
executive rewards.
10% of base salary for
Executive Directors, aligned
to rates applicable to the UK
workforce.
The Committee may agree with
an Executive Director that the
cash allowance will be paid into
a pension arrangement at no
additionalcost.
Annual bonus Rewards
achievement
of annual key
performance
indicators.
Targets and weightings are
set annually; performance is
measured over a single year.
Bonus awards are determined
after the year end based on
achievement of targets.
Clawback provisions apply.
Maximum bonus
opportunity is 125% of
annual salary for the
CEO and 100% for other
Executive Directors.
The Committee may, in
exceptional circumstances,
change performance
measures and targets and their
respective weightings part way
through a performance year,
if there is a significant event
which causes the Committee to
believe the original measures,
weightings and targets are no
longer appropriate.
Discretion may also be
exercised if the Committee
believes the bonus outcome
is not a fair and accurate
reflection of business
performance.
Safety is of central importance
to the business and the
Committee may reduce bonus
awards if there is a serious
safety event.
100/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Remuneration
element
Link to
strategy Operation Opportunity
Remuneration
Committee discretion
LTIP Incentivises
executives
to deliver key
financial targets
over the longer
term, with
particular focus
on shareholder
return.
Helps retain key
executives.
Awards are usually granted
annually to participants, but
grants may be made at other
times, such as on recruitment
or promotion of an executive.
Awards are in the form
of nil-cost share options,
nominal-cost share options or
conditional shares. In special
circumstances they may be
cash-settled.
Awards normally vest after
three years to the extent that
performance targets can
be based on a combination
of share price, financial,
operational and strategic
metrics as determined by the
Committee. At least 60% of
the award will be based on
absolute and/or relative TSR.
A payment equal to the value
of dividends which would
have accrued on vested
awards may be made following
the release of awards to
participants, either in the form
of cash or as additional shares.
It is the Company’s practice to
make awards under an LTIP to
all employees of the Company
as appropriate in a range of
values based on seniority.
Specific malus and
clawbackprovisions apply
(see page102).
For LTIPs granted from 2023,
once vested, the shares
received (net of tax) must be
held for at least a two-year
period before they can be sold
(subject to the shareholding
requirements).
When eligible, the maximum
value of the shares subject
to award to the CEO is 200%
of annual salary and for the
CFO it is 150% of salary.
At threshold performance
up to 30% of the award
vests. The threshold amount
has been reduced to 25% for
LTIPs granted from2023.
The Committee may, in
exceptional circumstances,
change the performance
measures and targets and their
respective weightings part way
through a performance period,
if there is a significant event
which causes the Committee to
believe the original measures,
weightings and targets are no
longer appropriate. The new
measures and targets will be no
more or less dicult than those
they replace.
Discretion may also
be exercised if the
Committee believes the
LTIP outcome is not a fair
and accurate reflection of
businessperformance.
Safety is of central importance
to the business and the
Committee may reduce or
eliminate LTIP awards if there is
a serious safetyevent.
The Committee also has
discretion in determining when
awards are granted, the form
of the award and those eligible
within the constraints of the
LTIPrules.
Shareholding
requirements
Aligns the
interests of
executives and
shareholders.
Formal requirements apply
to Executive Directors.
Participation in long-term
incentives may be scaled back
or withheld if the requirements
are not met or maintained.
At least 200% of salary
holding required for all
Executive Directors.
Post-exit: Executive
Directors are required to
retain the lower of actual
shares held and shares
equal to 200% of salary
for two years post-exit in
respect of shares which vest
related to grants of LTIPs
from 2023.
The Committee has discretion
to change the shareholding
requirements – in particular
where compassionate
circumstances apply.
101/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Remuneration Committee report
continued
Malus and clawback
These provisions allow the Committee in certain circumstances (such
as gross misconduct, a material misstatement of the Group financial
statements or decisions taken outside of the Group’s risk appetite) the
discretion to:
• reduce bonus pay-outs;
• cancel entitlement of bonus;
• prevent or reduce vesting of the LTIP; and/or
• allow the Company to claim back up to 100% of an award which has
vested/been paid.
Remuneration scenarios for Executive Directors
based on policy
The charts below provide an illustration of the potential future
reward opportunities for the CEO and CFO, and the potential split
between the dierent elements of remuneration under four dierent
performance scenarios: “Minimum”, “On-target”, “Maximum” and
“Maximum (including 50% share price appreciation on long-term
incentiveawards)”.
Potential reward opportunities are based on GKP’s Remuneration
Policy, applied to the 2023 base salaries and pension opportunities.
The annual bonus and LTIP are based on the maximum opportunities
as set out under the Remuneration Policy. Please note the LTIP awards
granted in a year do not normally vest until the third anniversary of
the date of grant and the projected values in the second and third
scenarios are based on the face value at award rather than vesting
(i.e.the scenarios exclude the impact of any share price movement
over theperiod).
The exception to this is the final scenario which, in line with the
requirements of the Companies (Miscellaneous Reporting)
Regulations 2018, illustrates the maximum outcome assuming 50%
share price appreciation for the purpose of LTIP value.
The “Minimum” scenario reflects base salary, retention payment,
pension and benefits (i.e. fixed remuneration) which are the only
elements of the executives’ remuneration packages not linked
toperformance.
The “On-target” scenario reflects fixed remuneration as above, plus
annual bonus pay-out of 60% of maximum (75% of salary for the CEO
and 60% of salary for the CFO) and LTIP at 50% of maximum award
(100% and 75% of salary for the CEO and CFO respectively).
The “Maximum” scenario is shown on two bases: excluding and
including the impact of share price appreciation on the value of LTIP
outcomes. In both cases, the scenario includes fixed remuneration and
full pay-out of all incentives, with the final scenario also including the
impact of a 50% increase in GKP’s share price on the value of the LTIP.
Minimum
On-target
Maximum
Maximum +50%
share price growth
3,5003,0002,5002,000
£’000
1,5001,000500
CEO
Fixed Bonus LTIP
CFO
Fixed Bonus LTIP
£1,043
£1,866
£2,571
£3,041
0
Minimum
On-target
Maximum
Maximum +50%
share price growth
2,000
£’000
1,5001,000500
£464
£985
£1,429
£1,718
0
100%
100%
56%
47%
19%
24%
25%
29%
41%
32%
23%
27%
41%
37%
34%
27%
19%
22%
51%
47%
102/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Executive Directors’ recruitment policy
Remuneration packages for future Executive Directors will be aligned
to the Policy described, including a maximum annual bonus opportunity
of 125% of salary for the CEO and 100% of salary for any other
Executive Director and an annual LTIP grant of up to 200% of salary
for the CEO and 150% of salary for the CFO or any other Executive
Director. Relocation packages are assessed on their individual merits.
It is not the Company’s policy ordinarily to buy out executives from
pre-existing incentive arrangements, but the Committee will consider
compensating a new Executive Director for the loss of incentives
awarded by a previous employer, if it believes such compensation is
warranted taking into account the terms of the award forfeited. We
seek to avoid paying more than necessary to secure a candidate and
will have regard to current Remuneration Policy, shareholder guidance
and market practice when formulating remuneration for a new
ExecutiveDirector.
Where an existing employee is promoted to the Board, the Policy
described above will apply from the date of promotion, and there will
be no retrospective application. Existing remuneration, including
incentives, will continue, even if inconsistent with the above Policy, until
such time as they expire or vest. Pension contributions from the date of
promotion will be aligned with that of the wider workforce.
Terms of the Executive Directors’ service contracts
Executive Directors are engaged on rolling service contracts, which
provide for 12 months’ written notice of termination from the CEO and
six months’ notice from other Executive Directors, with the same notice
periods required from the Company.
In exceptional circumstances, the Committee may agree to a longer
notice period initially, reducing to 12 or six months, as appropriate, after
one year.
Non-Executive Directors’ letters of appointment
Non-Executive Directors are engaged by letters of appointment
terminable on one month’s written notice from either the individual or
the Company.
The Non-Executive Chairman and Non-Executive Directors receive an
annual fee paid in monthly instalments. The fee for the Non-Executive
Chairman is set by the Remuneration Committee and the fees for
the Non-Executive Directors are approved by the Board, on the
recommendation of the Non-Executive Chairman and Executive
Directors.
Fees are set at a level required to attract and retain individuals with
the necessary experience to advise and assist with establishing
the Company’s strategy and monitoring its progress towards the
successful implementation of that strategy. Fees are reviewed regularly
to ensure they keep pace with market practice and the demands of
therole.
Reasonable expenses incurred by the Non-Executive Chairman
and the Non-Executive Directors in the performance of their duties
(including travel and accommodation benefits) may be reimbursed or
paid for directly by the Company, as appropriate.
Each Non-Executive Director receives a basic fee. Additional fees are
paid to the Non-Executive Chairman of the Board and the Chairs of the
Board Committees. In the event that the Board requires the formation
of an additional Board Committee, fees for the Chair (and, where
relevant, membership) of such Committee will be determined by the
Board at the time. Non-Executive Directors do not participate in any of
the Company’s benefits or incentive plans.
Inspection of documents and re-election of Directors
Directors’ service contracts and appointment letters will be available
for inspection prior to and during the 2024 AGM.
All Directors are required to stand for re-election annually in
accordance with the Company’s Byelaws.
103/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Remuneration Committee report
continued
Termination payment policy
Any compensation payment made to an Executive Director for termination of employment will be determined with reference to the terms of the
individual’s service agreement and the rules of any incentive plan in which the individual is a participant. Those rules will dierentiate between
“good” and “bad” leavers. The Company’s default policy is summarised in the table below, with Committee discretion to determine an alternative
treatment as necessary:
Service contracts do not contain liquidated damages clauses. There is no provision in an Executive Director’s service agreement providing for
compensation for loss of oce or employment that occurs because of a change of control. However, on a change in control the following will
normally happen:
• the cash element of any bonus will be paid, at the discretion of the Remuneration Committee, on the date of the change of control. The amount
paid will be pro-rata and based on performance to date. The deferred element of the bonus will become exercisable on a change of control and
will vest; and
• the vesting of LTIP awards will be accelerated: the number of shares that vest will be determined by the Remuneration Committee taking
account of the Company’s performance since the grant date and the proportion of the normal vesting period which has elapsed.
The Remuneration Committee reserves the right to make additional payments, where such payments are made in good faith in discharge of an
existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in
connection with the termination of an Executive Director’s oce or employment.
When deciding on the amount of any payment for loss of oce, the Remuneration Committee will seek to minimise the cost to the Company to the
extent permitted by the circumstances of the particular case.
Remuneration element Policy summary
Salary and benefits A payment equivalent to monthly salary as if the executive had continued to be employed
throughout the contractual notice period. A lump sum may be paid in lieu of notice. Benefits will
cease on termination of employment.
The Committee will determine such mitigation as it considers fair and reasonable in the individual
circumstances.
Annual bonus The Committee may make such payment as it deems appropriate taking into account the period up
to the date on which employment ceases and the level of performance achieved up to that date.
If the individual is deemed to be a “bad” leaver (for example, if dismissed owing to misconduct), no
bonus is payable for the year in which their employment terminates.
2014 LTIP For “good” leavers whose employment ceases owing to ill-health, the award shall vest in full on the
normal vesting date.
For “good” leavers who leave owing to death, the award shall vest in full immediately.
Awards granted to a “bad” leaver lapse on cessation of employment.
External appointments
The Executive Directors may accept external appointments with the prior approval of the Board provided that such appointments do not prejudice
the individual’s ability to fulfil their duties to the Company and the Group, as a whole. Whether any related fees are retained by the individual or
remitted to the Company is considered on a case-by-case basis.
Considerations of shareholder views
When determining remuneration, the Remuneration Committee takes into account the guidelines of representative investor bodies, proxy
advisers and shareholder views. The Committee is always open to feedback from shareholders on remuneration policy and arrangements and
updates major shareholders on any changes.
104/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Part three: Annual Report on Remuneration
Introduction
This part of the report is subject to an advisory vote at the AGM on 21 June 2024. GKP’s auditor has reported on those sections (highlighted below)
which the Regulations require to be audited.
Remuneration Committee membership during 2023
The terms of reference of the Remuneration Committee, reviewed annually, are available on the Company’s website. As of 31 December 2023, the
Remuneration Committee comprised three independent Non-Executive Directors, all of whom had served on the Committee for the full financial
year. Martin Angle, the Chair of the Board, was considered independent when appointed.
• Kimberley Wood (Chair);
• Martin Angle; and
• David Thomas.
The members had no personal financial interest in the decisions made by the Remuneration Committee. There were no conflicts of interest arising
from cross-directorships and no involvement in the Company’s day-to-day operations.
The Chair of the Committee may ask non-Committee members to attend meetings, including other Board members and members of the senior
management team, including the Chief Human Resources Ocer. The Chief Legal Ocer acts as Secretary to the Committee. No individuals are
involved in decisions relating to their own remuneration. Details of the Committee’s principal activities during the year ended 31 December 2023
and attendance of Committee members is included on page 97.
Advisers
The Remuneration Committee is informed of key developments and best practice in the field of remuneration and obtains advice from
independent external consultants, when required, on individual remuneration packages and executive remuneration practices in general. After a
competitive tender process, Mercer Limited (“Mercer”) was appointed as remuneration consultant from January 2020 onwards.
Services provided to the Remuneration Committee by Mercer during 2023 included the provision of advice on the Company’s equity plans and
executive remuneration levels; corporate governance support and best practice advice to the Remuneration Committee on the drafting of the
Directors’ remuneration report; and other ad-hoc projects. Fees paid to Mercer for services provided to the Committee during the financial year
were £82,350. Mercer has no connections with the Company other than an agreement for the provision of market data for the wider workforce
and no personal relationships with individual Directors.
Mercer is a signatory to the Remuneration Consultants’ Code of Conduct (www.remunerationconsultantsgroup.com) which requires its
advice be objective and impartial.
Alignment of the Remuneration Policy to purpose and strategy
Our purpose
GKP is a responsible energy company developing natural resources for the benefit of all our stakeholders, delivering social and economic
benefits by working safely and sustainably with integrity and respect.
• Safety performance
• Loss of containment
• Emissions reduction
• Security and cybersecurity
• HSE Plan
• ESG roadmap
• People, culture, values
Read more on page 20
Safety and sustainability
Value creation
Capital discipline, cost focus and
robust financial position
• Optimisation of oil sales
payments and arrears
recovery
• Strategy
• Shareholder distribution
Read more on page 20
• Liquidity management
• Cash balance
• Operating eciency
• Budget discipline
Read more on page 21
Strategic priorities for 2024: Relevant incentive metrics:
105/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Statement of shareholder voting
The following table shows the results of votes on the 2022 Directors’ remuneration report at the 2023 AGM held on 16 June 2023.
Votes for Votes against
Total votes cast
(excluding withheld) Votes withheld
Directors’ remuneration
report for year to 31 December 2022
64,058,721
(59.66%)
43,311,067
(40.34%) 107,369,788 24,398
2022 Remuneration Policy
110,834,274
(99.11%)
993,689
(0.89%) 111,829,963 107,978
Single total figure of remuneration table for the year (audited)
2023
Salary/fees
£’000
Pension
£’000
Benefits
£’000
Annual
bonus
£’000
Other
£’000
LTIP
(1)
£’000
Total
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
Executive Directors
Jon Harris 470 47 56 — — — 573 573 —
Ian Weatherdon 386 39 40 — — — 465 465 —
Non-Executive Directors
Martin Angle 136 — — — — — 136 136 —
Jaap Huijskes
(3)
81 — — — — — 81 81 —
Garrett Soden
(3)
30 — — — — — 30 30 —
David Thomas 84 — — — — — 84 84 —
Kimberley Wood 80 — — — — — 80 80 —
Wanda Mwaura
(2)
83 — — — — — 83 83 —
Julien Balkany
(3)
32 — — — — — 32 32 —
Total 1,382 86 95 — — — 1,563 1,563 —
(1) LTIP is based on an estimate of the 2021 LTIP which is not currently expected to vest. Final vesting will be disclosed in the relevant RNS and updated in the 2024
annual report.
(2) Wanda Mwaura’s fee is denominated in USD.
(3) Prorated to date of resignation/joining.
2022
Salary/fees
£’000
Pension
£’000
Benefits
£’000
Annual
bonus
£’000
Other
£’000
LTIP
(1)
£’000
Total
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
Executive Directors
Jon Harris 440 44 34 412 — — 930 518 412
Ian Weatherdon 364 36 39 263 — 1,684 2,386 439 1,947
Non-Executive Directors
Martin Angle 84 — — — — — 84 84 —
Jaap Huijskes 160 — — — — — 160 160 —
Garrett Soden 60 — — — — — 60 60 —
David Thomas 80 — — — — — 80 80 —
Kimberley Wood 70 — — — — — 70 70 —
Wanda Mwaura
(2)
39 — — — — — 39 39 —
Total 1,297 80 73 675 — 1,684 3,809 1,450 2,359
(1) LTIP is based on a share price of £1.358 on 28 April 2023 and includes dividends of £804,557.
(2) Wanda Mwaura joined the Board on 1 July 2022 and her fee is denominated in USD.
Remuneration Committee report
continued
106/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Historical CEO pay
(1)
2017
£’000
2018
£’000
2019
£’000
2020
£’000
2021
£’000
2022
£’000
2023
£’000
Single figure remuneration 768 973 824 552 857 930 573
Bonus percentage of maximum payable 50% 76% 50% 0% 81% 75% 0%
Vested LTIP awards as percentage of maximum 0% 0% 0% 0% 0% 0% 0%
(1) Historical CEO pay has been assessed from 1 January 2017 following the completion of a balance sheet restructuring in 2016.
Percentage change in Director remuneration
The following table shows the percentage change in the remuneration of the Directors between the years ended 31 December 2020 and
31December 2023 and the average percentage change for the remuneration in the Group as a whole excluding the CEO.
2020 2021 2022 2023
Salary
/fees Benefits
Annual
bonus
Salary
/fees Benefits
Annual
bonus
Salary
/fees Benefits
Annual
bonus
Salary
/fees Benefits
Annual
bonus
Executive Directors
Jon Harris
(1)
N/A N/A N/A N/A N/A N/A 0% 67% 5% 7% 38% (100%)
Ian Weatherdon
(2)
N/A N/A N/A 0% 60% N/A 0% 37% (11%) 6% 2% (100%)
Non-Executive Directors
Martin Angle
0% 0% N/A (11%) 0% N/A (6%) 0% N/A 5% 0% N/A
Jaap Huijskes
(3)
0% 0% N/A (11%) 0% N/A 0% 0% N/A 0% 0% N/A
Garrett Soden
(4)
(14%) 0% N/A (14%) 0% N/A 0% 0% N/A 0% 0% N/A
David Thomas
0% 0% N/A (11%) 0% N/A 0% 0% N/A 5% 0% N/A
Kimberley Wood
0% 0% N/A (13%) 0% N/A 0% 0% N/A 6% 0% N/A
Wanda Mwaura
(5)
N/A N/A N/A N/A N/A N/A 0% 0% N/A 0% 0% N/A
Julien Balkany
(6)
N/A N/A N/A N/A N/A N/A 0% 0% N/A 0% 0% N/A
Group percentage
change
(7)
6% 0% (23%) 7% 57% 97% 9% 5% 22% 5% 0% (15%)
(1) Jon Harris joined the Company in January 2021.
(2) Ian Weatherdon did not receive a bonus for 2020.
(3) Jaap Huijskes resigned from the Board eective 16 June 2023.
(4) Garrett Soden resigned from the Board eective 16 June 2023.
(5) Wanda Mwaura joined the Board eective 1 July 2022.
(6) Julien Balkany joined the Board eective 3 July 2023.
(7) The Group has been applied as the benchmark above given this is a more meaningful comparison than the Company.
107/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Remuneration Committee report
continued
TSR performance
The following charts compare the change in value of a £100 investment in the Company and in both the FTSE 250 Index and the FTSE Oil & Gas
Producers Index. The TSR performance has been assessed from 1 January 2017 due to a major repricing which would distort the graph below
occurring in 2016 following the completion of a balance sheet restructuring:
Total shareholder return (“TSR”) from 1 January 2017 to 31 December 2023
Relative importance of spend on pay
2023
$’000
2022
$’000
Percentage
change
Total employee pay
(1)
50,699 54,062 (6%)
Profit after tax (11,500) 266,094 (104%)
Gross operating costs
(2)
45,103 52,344 (14%)
Shareholder distributions
(3)
24,813 214,789 (88%)
(1) Sta costs are shown gross before amounts recharged to operations.
(2) Gross operating costs are deemed to be a fair measure of the Company’s operational expenditure and are also reported as part of the non-IFRS measure of gross
operating costs per barrel in the Company’s financial statements.
(3) Shareholder distributions comprise payment of dividends
Implementation of the Directors’ Remuneration Policy in 2023
Executive Directors’ base salary provision
Eective January 2023, the CEO received an increase in salary for 2023 of 6.8% to £470,000. The CFO received an increase in salary for 2023 of
6% to £385,840. The salary review budget for all other employees, including senior managers, was 7% of payroll for 2023.
Annual bonus plan (audited)
At the start of 2023 the Remuneration Committee set robust and challenging targets for the annual bonus scheme and ensured the right policies
and practices were in place to attract, retain and motivate all employees. However, based on the exceptional events that followed the suspension
of crude exports in March 2023 that continued beyond the end of 2023, most of the targets set by the Committee were no longer relevant. Given
the context, the Committee considered it inappropriate for any annual bonus payments to be paid for 2023.
108/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
2021 LTIP vesting (audited)
The 2021 awards under the 2014 LTIP are due to vest on 31 March 2024; performance has been estimated up to 29 February 2024 for the
three-year performance. The 2021 award is based on relative TSR (50%) and absolute TSR (50%). A summary of the estimated performance
outcome is detailed below:
Performance measure Weighting
Threshold
performance
(30% vesting)
Maximum
performance
(100% vesting)
Performance
outcome
Vesting
outcome
Absolute TSR 50% 8% p.a.
compound
12% p.a. compound -1.3% p.a. Nil
Relative TSR 50% Median vs.
peer group
Upper quartile vs.
peer group
Below median
upper quartile
Nil
No. of shares
granted in 2021
Estimated
vesting
%
Estimated
number
of shares
vesting
Estimated
value of shares
vesting
£
Estimated
value of
dividends
£
Estimated
total award
value
£
Estimated
value attributable
to share price
growth
£
Jon Harris 470,325 0% Nil Nil Nil Nil n/a
Ian Weatherdon 305,711 0% Nil Nil Nil Nil n/a
Vesting has been estimated at 0% based on performance up to 29 February 2024. Performance is assessed using one-month average returns up
to the start and end of the performance period.
Based on the assumptions above, the 2021 award is not expected to vest. The actual level of vesting and any gains from increases in the share
price will be disclosed in next year’s Directors’ remuneration report.
2020 LTIP vesting (audited)
The 2020 awards under the 2014 LTIP vested on 28 April 2023. A summary of the final performance outcome is detailed below. (The 2022 annual
report and accounts included an estimate of vesting and value.)
Performance measure Weighting
Threshold
performance
(30% vesting)
Maximum
performance
(100% vesting)
Performance
outcome
Vesting
outcome
Absolute TSR 50% 8% p.a. compound 12% p.a. compound 56.3% p.a. 100%
Relative TSR 50% Median vs.
peer group
Upper quartile vs.
peer group
Between median
and upper quartile
76.5%
The overall vesting of the 2020 award was 88.2% which was in line with the estimate disclosed previously. Ian Weatherdon received 647,567
shares and a proportional amount in shares for the dividends due. The value on the vesting date was lower than the estimate disclosed in the 2022
annual report and accounts which was based on the three-month average share price to 17 February 2023.
No. of shares
granted in 2020
Vesting
%
Number of
shares
vesting
Value of shares
vesting at 135.8p
per share
£
Value of dividends
at 124.243p
per share
£
Total award
value
£
Value attributable
to share price
growth
£
Ian Weatherdon 733,871 88.24% 647,567 879,396 804,557 1,683,953 397,606
Pension provision for Executive Directors (audited)
In lieu of a pension provision, both the CEO and CFO received a taxable cash allowance equivalent to 10% of base salary, which is in line with the
workforce.
Benefits (audited)
Benefits received by the CEO and CFO included car allowance, private medical insurance, death in service and income protection insurance
totalling £55,445 and £39,943 respectively.
109/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Remuneration Committee report
continued
LTIP awards granted in 2023 (audited)
The CEO and CFO received awards of 515,351 and 317,303 shares respectively, equivalent to 200% and 150% of salary each, on 1 April 2023. The
awards are subject to both absolute and relative total shareholder return (“TSR”) targets being met over a period of three years, each measure
having a 50% weighting.
The relative TSR peer group for the 2023 LTIP is:
Africa Oil DNO International Petroleum ShaMaran Petroleum
Apache Corporation Energean Oil & Gas Kosmos Energy TAQ A
Capricorn Energy EnQuest Pharos Energy Vaalco
Canadian Natural Resources Genel Energy SDX Energy Tullow O il
DANA Gas Harbour Energy
Other payments to past Directors and for loss of oce (audited)
No payments were made to past Directors or for loss of oce.
Statement of Directors’ shareholdings and share interests (audited)
Executive Directors are required to build and maintain a shareholding in the Company of at least 200% of salary within five years of appointment.
The net value of vested but unexercised share awards are included for this purpose and individuals have five years in which to acquire the
required levels. Participation in long-term incentive schemes may be scaled back or withheld if the requirements are not met or maintained.
TheRemuneration Policy set out on pages 99 to 104 includes post-exit guidelines.
Directors’ shareholdings and share interests as at 31 December 2023 were as follows:
Shareholding
requirement as a
% of salary
Beneficially
owned shares
Vested but
unexercised
scheme
interests
Unvested
scheme
interests subject
to performance
conditions
(2)
Unvested
scheme
interests not
subject to
performance
conditions
Total
conditional and
unconditional
interest in
shares
Executive Directors
Jon Harris 200% 30,000 — 1,325,444 128,699 1,484,143
Ian Weatherdon 200% 679,047 — 833,825 87, 327 1,600,199
Non-Executive Directors
David Thomas — — — — — —
Jaap Huijskes — — — — — —
Martin Angle — — — — — —
Kimberley Wood — — — — — —
Garrett Soden
(3)
— 70,000 — — — 70,000
Wanda Mwaura — — — — — —
Julien Balkany — — — — — —
Total — 779,047 — 2,159,269 216,026
(1)
3,154,342
(1) Shares equivalent to 30% of the 2021 and 2022 bonus.
(2) Includes shares issued under the 2020, 2021 and 2022 LTIP awards.
(3) Shareholding at time of resignation on 16 June 2023.
Implementation of the Directors’ Remuneration Policy in 2024
Base salaries and benefits
In light of the current business context, the Remuneration Committee decided not to award the CEO and the CFO increases in salary. This was the
case for all other employees.
The new CFO will be appointed on a salary of £350,000 p.a. in June 2024 and will receive other benefits in line with the Remuneration Policy.
110/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Annual bonus
Payments under the executive annual bonus scheme will be determined based on performance against a range of KPIs.
Historically, the same Company KPIs have been used for both the executive and employee bonus plans for which all Company employees are
eligible. For 2024, we will again run the plans consistently and operate on the principle that Executive Directors will be treated no more favourably
than other employees.
The scorecard that will be used is as follows. Targets are commercially sensitive and will be disclosed in the 2024 annual report and accounts.
Category
KPI
Weighting
Safety and sustainability HSE improvement, safety performance measures (TRIFR), loss of containment,
ESG roadmap implementation, emissions reduction, security and cybersecurity
20%
Value creation Optimisation of oil sales, payments and arrears recovery
Strategy
35%
Financial Budget discipline
Cash balance
Liquidity management
30%
People, culture, values Build workforce capability
Embed a culture that supports engagement, wellbeing, diversity,
inclusion and ethical business conduct
15%
LTIP
Jon Harris will be eligible to receive an LTIP grant of up to 200% of base salary and the incoming CFO will be eligible to receive an LTIP grant of up
to 150% of base salary, which are expected to be granted after the 2024 AGM and the approval of the new LTIP scheme rules. Ian Weatherdon will
not be eligible for an LTIP grant in 2024 following his announced retirement. The following three-year TSR performance conditions are expected
to be attached to the vesting of the award.
Performance measure Weighting
Threshold performance
(25% vesting)
Maximum performance
(100% vesting)
Absolute TSR 50% 8% p.a. compound 12% p.a. compound
Relative TSR 50% Median vs. peer group Upper quartile vs. peer group
Linear interpolation will be used for performance between threshold and maximum. There will be no payment for the relevant tranche where
performance is below threshold.
Relative TSR will be compared to that achieved over the same period against listed companies selected by the Remuneration Committee on the
basis of their relevance and comparability. The peer group will be confirmed in the Notice of AGM and in next year’s Directors’ remuneration report.
Any awards under the LTIP made after the 2024 AGM will be based on the Remuneration Policy set out on pages 99 and 104.
The Remuneration Committee has the discretion to review vesting outcomes to ensure a fair reflection of performance. In making this assessment,
the Committee will consider, amongst other factors, the underlying performance of the Company over the period including operational milestones,
production levels, safety, individual performance and the broader experience of stakeholders over the period. In 2023, the Remuneration
Committee approved a minor administrative change to the LTIP rules with respect to aligning the rules with the Market Abuse Regulation,
specifically regarding the definition of a “Proscribed Period”.
As noted above, to recognise the hard work and dedication of all employees (excluding Executive Directors) during these unprecedented times,
the Committee has approved recognition payments. Additionally, given the current challenging circumstances of the Company, the Committee
approved retention arrangements for a number of employees to stabilise management which the Board considered to be in the best interests
of the Company. The Committee is therefore proposing to pay a one-o payment to the Company’s CEO on the same basis as other retention
arrangements. The award will be limited to 100% of salary, is payable in January 2025 and will be subject to malus and clawback provisions and
other conditions. The proposal will be subject to a shareholder vote at the 2024 AGM.
Further details will be provided in next year’s Directors’ remuneration report.
Non-Executive Directors
No changes in fees are proposed for the Chair and Non-Executive Director fees in 2024.
This Directors’ remuneration report was approved by the Board on 20 March 2024 and signed on its behalf by:
Kimberley Wood
Chair of the Remuneration Committee
20 March 2024
111/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
Directors’ report
The Directors are pleased to present their report on the aairs of the
Company, together with the consolidated financial statements of the
Company and auditor’s report, for the year ended 31 December 2023.
A review of the business is set out in the preceding sections of this
annual report and accounts, including the Chairman’s statement, Chief
Executive Ocer’s review, Financial review and Operational review,
which are incorporated into this report by reference. TheCorporate
governance report also forms part of thisreport.
Results and dividends
The Company’s financial results for the year ended 31 December 2023
are set out in the consolidated financial statements.
The Company made a loss after taxation for the year of $11.5 million
(2022: $266.1 million profit). During 2023, an interim dividend of
$25million was paid; however, the annual dividend payment was
suspended following the sudden closure of the ITP in March 2023. We
continue to believe the distribution of excess cash by way of dividends
or share buybacks is important to reward shareholders. As the
operating environment and Company’s liquidity position improve, the
Board will review distributions and reinstating a dividend policy.
Capital structure
Full details of the authorised and issued share capital, together with
movements in the Company’s issued share capital during the year,
are shown in note 19 to the consolidated financial statements. The
business is financed by means of internally generated cash flow and, as
appropriate, debt and external sharecapital.
Share rights and restrictions
There are no specific restrictions on the size of a holding or on the
transfer of common shares, both of which are governed by the general
provisions of the Company’s Byelaws and prevailing legislation. The
Directors are not aware of any agreements between holders of the
Company’s common shares that may result in restrictions on the
transfer of securities or on voting rights. No person has any special
rights of control over the Company’s share capital and all issued
common shares are fully paid.
Details of the employee share schemes are set out in note 23 to the
consolidated financial statements and details of the Directors’ awards
are included in the Remuneration Committee report.
Voting rights and Byelaw amendments
The Company’s Byelaws may only be revoked or amended by the
shareholders of the Company by a resolution passed by a majority of
not less than three-quarters of such shareholders as vote in person or,
where proxies are allowed, by proxy at a generalmeeting.
Resolutions put to the vote of any general meeting are decided on
a show of hands unless a poll is demanded in accordance with the
Company’s Byelaws.
The Company’s Byelaws are available on the Company’s website at
www.gulfkeystone.com.
Directors
With regard to the appointment and replacement of Directors, the
Company is governed by its Byelaws, the Companies Act (Bermuda)
and related legislation. All of the Directors are required to stand for
re-election by the shareholders each year at the AGM.
Directors’ indemnities
The Company has made qualifying third-party indemnity provisions for
the benefit of its Directors during the year and these remain in force at
the date of this report.
Directors’ interests in shares
As at 31 December 2023, the following Directors who held oce had
interest in the common shares of the Company
(1)
:
• Jon Harris (Chief Executive Ocer) –30,000 common shares; and
• Ian Weatherdon (Chief Financial Ocer) –679,047 common shares.
At the date of this report, the Employee Benefit Trust (“EBT”) held 0.2
million (2022:0.4 million) common shares of the Company.
(1) Includes common shares held directly, by family members and through
the Gulf Keystone EBT which are held subject to the discretion of the EBT
Trustee.
Significant shareholdings
As at 29 February 2024, being the date of the most recent analysis of the Company’s share register, the Company discloses the following
significant shareholdings:
Shareholder Number of common shares
Percentage of issued
shared capital
Lansdowne Partners Austria GmbH
32,549,217 14.6
Stichting Value Partners Family Oce 24,747,713 11.1
Interactive Investor 15,397,278 6.9
Hargreaves Lansdown Stockbrokers Ltd. 15,079,968 6.8
Ophorst Van Marwijk Kooy Vermogensbeheer N.V. 11,599,662 5.2
Mr Gertjan Koomen 10,068,552 4.5
Halifax Stockbrokers 7,758 , 4 97 3.5
Dimensional Fund Advisors LP 7,554 ,601 3.4
Barclays Stockbrokers 6,578,868 3.0
Acadian Asset Management LLC
5,635,195 2.5
112/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
The Company’s share register analysis was provided by Investor
Insight, based on information available at the time of publication.
Political donations
No political donations were made and no political expenditure was
incurred during theyear.
Employee and stakeholder engagement
Details of the Company’s engagement with employees and external
stakeholders are described in the Sustainability report on pages
28to 45 and in our Stakeholder engagement report and Section 172
statement on page 24.
Going concern
The Group’s business activities, together with the factors likely to
aect its future development, performance and position, are set out
in the Chairman’s statement, the Chief Executive Ocer’s review,
the Operational review and the Management of principal risks and
uncertainties. The financial position of the Group at the year end and its
cash flows and liquidity position are included in the Financial review.
As at 20 March 2024 the Group had $86 million of cash and no debt.
The Group continues to closely monitor and manage its liquidity. Cash
forecasts are regularly produced and sensitivities are run for dierent
scenarios including, but not limited, to changes in sales volumes,
commodity price fluctuations, timing of export pipeline restart, delays
to revenue receipts and cost optimisations. The Group remains
focused on taking appropriate actions to preserve its liquidity position.
As a result of closure of the ITP, the Group significantly reduced
expenditures to preserve liquidity. In the current year, further
consideration has been given to the impact on the Group’s working
capital position due to a potential decline in local sales, and potential
delays in KRG revenue receipts once the ITP has been reopened:
• local sales: The Group commenced local sales on 19 July 2023 with
payments from buyers required in advance following extensive due
diligence. In 2023 the Group received $43.5 million related to local
sales. Local sales volumes have fluctuated and remain dicult to
predict; and
• export sales: While political negotiations and commercial
negotiations are ongoing between the Government of Iraq and the
KRG, the timing of reopening the ITP and payment mechanism
remain uncertain.
The Directors believe an agreement will ultimately be reached to
reopen the ITP, and we reasonably expect that overdue balances will
be paid and receipts from the KRG will return to a more regular basis.
However, a reduction in local sales or reopening of the pipeline with a
deferral of revenue receipts could result in liquidity pressures within the
12-month going concern period.
The Directors have considered sensitivities, including local sales
volumes and potential delays in KRG revenue receipts once the ITP
reopens, to assess the impact on the Group’s liquidity position and
believe sucient mitigating actions are available to withstand such
impacts within the 12-month going concern period. Specifically, the
Directors considered stress tests that included no further local sales or
KRG revenue receipts and confirmed that cost reduction opportunities
exist to ensure that the Group can continue to discharge its liabilities for
a period of at least 12 months.
As explained in note 14, although the Group has recognised current
liabilities of around $75 million payable to the KRG, it does not expect
these will be cash settled.
Overall, the Group’s forecasts, taking into account the applicable
risks, stress test scenarios and potential mitigating actions, show that
it has sucient financial resources for the 12 months from the date of
approval of the 2023 annual report and accounts.
Based on the analysis performed, the Directors have a reasonable
expectation that the Group has adequate resources to continue to
operate for the foreseeable future. Thus the going concern basis
of accounting is used to prepare the annual consolidated financial
statements.
Significant agreements – change of control
There are a number of agreements that take eect, alter or terminate
upon a change of control of the Group, including the Shaikan PSC and
employee share plans. The Directors are not aware of any agreements
between the Group and its Directors or employees that provide for
compensation for loss of oce or employment that occurs because of
a takeover bid.
Auditor
Each of the persons who is a Director at the date of approval of this
annual report and accounts confirms that:
• so far as the Director is aware, there is no relevant audit information
of which the Group’s auditor is unaware; and
• the Director has taken all the steps that he/she ought to have taken
as a Director in order to make himself/herself aware of any relevant
audit information and to establish that the Group’s auditor is aware
of that information.
In line with best practice, the Company conducted a competitive tender
process to appoint a new auditor as Deloitte LLP, the Company’s
previous auditor, was approaching the 20-year maximum term.
The Company appointed BDO LLP as auditor for the financial year
commencing 1 January 2023.
On behalf of the Board
Jon Harris
Chief Executive Ocer
20 March 2024
113/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Governance
The Directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law the Directors are required to prepare
the Group financial statements in accordance with UK-adopted
International Accounting Standards (“IAS”). Under company law the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of aairs of the
Group and of the profit or loss for the Group for that period. Under IAS
1 the Directors must not approve the accounts unless they are satisfied
that they give a true and fair view of the state of aairs of the Company
and of the profit or loss of the Company for that period. In preparing
these financial statements, International Accounting Standard 1
requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific
requirements in IFRSs are insucient to enable users to understand
the impact of particular transactions, other events and conditions on
the entity’s financial position and financial performance; and
• make an assessment of the Company’s ability to continue as a going
concern.
The Directors are responsible for keeping adequate accounting
records that are sucient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that the
financial statements comply with the Bermuda Companies Act 1981.
They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may dier from legislation in
other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with United
Kingdom adopted International Financial Reporting Standards, give
a true and fairview of the assets, liabilities, financial position and
profit or loss of the Company and the undertakings included in the
consolidation taken asa whole;
• the Strategic report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face; and
• the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary forshareholders to assess the Company’s position and
performance, business model and strategy.
This responsibility statement was approved by the Board of Directors
on 20 March 2024 and is signed on its behalf by:
Jon Harris
Chief Executive Ocer
20 March 2024
Ian Weatherdon
Chief Financial Ocer
20 March 2024
Directors’ responsibilities statement
114/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Independent auditor’s report
to the members of Gulf Keystone Petroleum Limited
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the
Group’s aairs as at 31 December 2023 and of the Group’s loss for
the year then ended;
• the Group financial statements have been properly prepared in
accordance with UK adopted international accounting standards;
and
• the financial statements have been prepared in accordance with the
requirements of the Bermuda Companies Act 1981.
We have audited the financial statements of Gulf Keystone Petroleum
Limited (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for
the year ended 31 December 2023 which comprise the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and notes
to the financial statements, including material accounting policy
information. The financial reporting framework that has been applied
in their preparation is applicable law and UK adopted international
accounting standards.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities
for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sucient and
appropriate to provide a basis for our opinion. Our audit opinion is
consistent with the additional report to the Audit & Risk committee.
Independence
We remain independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. The non-audit services
prohibited by that standard were not provided to the Group.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation
of the Directors’ assessment of the Group’s ability to continue to adopt
the going concern basis of accounting has been included in the key
audit matters section below.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s ability to
continue as a going concern for a period of at least twelve months from
when the financial statements are authorised for issue.
In relation to Group’s voluntary reporting on how it has applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the financial
statements about whether the Directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections of this
report.
Overview
Coverage 100% of Group profit before tax
100% of Group revenue
100% of Group total assets
Key audit
matters
Carrying value of oil and gas assets
Recoverability of receivables & expected
credit loss
Going concern
2023
Materiality Group financial statements as a whole
$6.9m based on 1% of Total assets
115/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Independent auditor’s report continued
to the members of Gulf Keystone Petroleum Limited
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including the Group’s system of internal
control, and assessing the risks of material misstatement in the financial
statements. We also addressed the risk of management override of
internal controls, including assessing whether there was evidence
of bias by the Directors that may have represented a risk of material
misstatement.
We determined that there were three significant components
comprising the Parent Company, Gulf Keystone Petroleum
International Limited and Gulf Keystone Petroleum (UK) Limited.
Thesecomponents together with its Group consolidation were
subjectto a full scope audit.
All of the audit work was conducted by the group audit team.
Climate change
Our work on the assessment of potential impacts on climate-related
risks on the Group’s operations and financial statements included:
• Enquiries and challenge of management and Audit & Risk committee
to understand the actions they have taken to identify climate-related
risks and their potential impacts on the financial statements and
adequately disclose climate-related risks within the annual report;
• Our own qualitative risk assessment taking into consideration the
sector in which the Group operates and how climate change aects
this particular sector; and
• Review of the minutes of Board and Audit & Risk Committee
meetings and other papers related to climate change and performed
a risk assessment as to how the impact of the Group’s commitment
as set out in Group’s TCFD disclosures within the Strategic Report
may aect the financial statements and our audit.
We challenged the extent to which climate-related considerations,
including the expected cash flows from the initiatives and
commitmentshave been reflected, where appropriate, in
management’s going concern assessment and viability assessment
and in management’s judgements and estimates in relation to
carryingvalue of oil and gas assets.
We also assessed the consistency of management’s disclosures
included as ‘Other Information’ on pages 46 to 56 with the financial
statements and with our knowledge obtained from the audit.
Based on our risk assessment procedures, we considered
the Carrying value of oil and gas assets Key Audit Matter to be
materiallyimpacted by climate-related risks and related commitments.
The explanation of and our audit response to this climate-related risk
isincluded in the related key audit matter below.
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified,
including those which had the greatest eect on: the overall audit
strategy, the allocation of resources in the audit, and directing the
eorts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion
on these matters.
116/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Key audit matter
How the scope of our audit addressed
the key audit matter
Carrying value of
oil and gas assets
(refer to material
accounting policy
information and note 10)
The Directors are required to perform an
assessment of oil and gas assets (being the
Shaikan Field in Kurdistan) for indicators of
impairment at each reporting date. If an indicator
of impairment is identified the Directors are
required to assess the recoverable amount of the
oil and gas assets.
The Directors concluded that the shutdown of
the Iraq-Turkey pipeline (“ITP”) in March2023,
following the ITP Arbitration ruling, was a
potential impairment indicator and therefore
prepared a full impairment assessment, including
a valuation model which is based on the best
estimates of future cash flows. The Directors also
analysed various scenarios and ran sensitivities
versus their base case assumptions. The
Directors’ impairment assessment indicated
that the carrying value of the oil and gas assets
recognised in the financial statements as
at 31December 2023 was appropriate and
therefore no impairment charge was recorded.
The calculation of the recoverable amount
requires judgement in estimating future oil
prices, the discount rate to apply, production
profiles based on the latest reserves estimates
and the best estimate of future expenditure to
beincurred.
The impact of climate change on the Shaikan
asset was also considered, including the potential
impact on future oil prices (including possible
changes in demand), carbon taxes, and access
to funding, which each have a potential impact on
Directors’ future investment decisions.
Given the significance of the assets in the
context of the Group’s consolidated statement of
financial position and the significant judgement
and estimation involved in the calculating the
recoverable amounts, we considered the
carrying value of oil and gas assets, including the
related disclosures, to be a key audit matter.
Our audit work included the following procedures:
• Obtaining the Directors’ valuation model, assessing key assumptions and
challenging the appropriateness of estimates with reference to empirical data
and external evidence where available with specific emphasis on the following
assumptions: resources and reserves, timeframe for the pipeline reopening,
timing of settlement of receivables, oil prices, local and export sales volumes,
production levels, and operating and development costs assumed;
• Evaluating Directors’ assumption about pipeline reopening date and ability to
operate the Shaikan field for the remainder of its licence including assessing
the likelihood of an enforcement of the Iraqi Supreme Court ruling through
inquiries of the Group’s internal legal counsel which will impact the underlying
forecast;
• Benchmarking oil price assumptions applied in the model against historic
figures achieved for local sales and independently sourced broker consensus
pricing ranges for export sales;
• Comparing forecasted production and expenditure levels per the valuation
model with actual historical production and the estimates set out in the latest
draft of the Field Development Plan (“FDP”);
• Comparing the 2P reserves included in the models to Reserve Statements
prepared by the Group’s external reserve engineers (ERCE) and assessing
their independence, objectivity and competence. We had meetings with the
external reserve engineers as part of this process to understand the scope and
significant judgments and estimates applied.
• Checking the consistency of the reserves and resources in the models
with the Directors’ bridging analysis to the latest ERCE report completed at
31December 2022;
• Involving our internal valuations experts to assess the appropriateness of the
discount rates applied and to determine an independent range for the discount
rates, assessing whether the independent range is reflective of the current
risks associated with the Oil and gas assets, and comparing that to the rate
applied by Directors for the purpose of the impairment assessment;
• Assessing the sensitivity analysis performed on the key assumptions in the
valuation model to assess the impact of downside changes in assumptions on
the carrying value of the assets;
• Assessing the mechanical accuracy of the valuation model by involving our
internal modelling experts to check the integrity of the model and arithmetic
accuracy.
• Assessing the potential impact of climate change including the impact on
headroom of a reduced oil price, the potential impact of the introduction of a
carbon tax in Kurdistan;
• Obtaining Director’s latest risk registers, including their climate risk register, to
inform our independent risk assessment around impairment;
• Comparing the timing and expenditure levels for the gas management plan
(“GMP”) included the valuation model and compared the latest draft of the FDP;
• Engaging our internal technical specialists to aid the audit team’s challenge
of the appropriateness and completeness of Director’s climate-related
assumptions and associated disclosures; and
• Assessing the disclosures in relation to the carrying value of oil and gas assets
in the financial statements including key assumptions and sensitivity of the
carrying value to reasonable changes in such assumptions to check they were
in accordance with the requirements of the relevant accounting standard.
Key observations:
Based on the procedures performed we did not identify any issues relating to
the Directors’ impairment assessment including the assumptions applied, the
conclusion that no impairment of the Shaikan asset is required and the related
disclosures made.
117/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Independent auditor’s report continued
to the members of Gulf Keystone Petroleum Limited
Key audit matter
How the scope of our audit addressed the
key audit matter
Recoverability
of receivables &
expected credit
loss
(refer to material
accounting policy
information and note 13)
As at 31 December 2023, the Group has overdue
receivables of $171m (31 December 2022: $161m)
due from the KRG.
There has been a delay in settlement of
outstanding receivables with the KRG. At the year
end, no amounts had been received in respect of
October 2022 to March 2023 oil deliveries.
Due to the uncertainty in respect of the
pipeline reopening the significant judgement
and estimation involved in the assessment
of recoverability of receivables, the valuation
of the expected credit loss (“ECL”) and the
appropriateness of the assumptions used notably
the timing of payments, probability of default and
loss given default, we consider this to be a key
audit matter including the related disclosures .
We have performed the following procedures:
• Evaluating Directors’ assessment of recoverability of receivables and
considering the assessment against publicly available information;
• Challenging Directors’ assessment of recoverability through inquiry and
discussion;
• Assessing the accounting treatment had been applied in line with the
requirements of IFRS 9;
• Evaluating Directors’ ECL assessment and challenging the assumptions
used in the calculation, such as possible scenarios and their probabilities of
occurrence and timing of repayment receipts;
• Involving our internal valuations experts to help us to assess the
appropriateness of methodology and economic parameters applied such
as probability of default rate and loss given default through benchmarking
of the assumptions employed against market based rates of defaults, and
recalculating the provision;
• Considering if the scenarios applied by Directors including the expected
pipeline reopening date are reasonable, appropriate, and consistent with
assessments performed elsewhere (Going Concern and Impairment); and
• Assessing the adequacy and the appropriateness of the receivables
disclosures in the financial statements.
Key observations:
Based on our analysis, we have not identified any issues relating to the
appropriateness of the ECL model applied and relevant disclosures.
Key audit matter
How the scope of our audit addressed the
key audit matter
Going concern
(refer to material
accounting policy
information)
The shutdown of the Iraq Turkey Pipeline in
March2023 has significantly impacted the
business as all of the export sales have been
stopped since the shutdown and no payments
have been received from the Ministry of
Natural Resources (“MNR”) in relation to their
outstanding debt.
As at the date of this report the pipeline remains
shut. Local sales have commenced in July 2023
allowing the Group to raise some cash to cover
costs. A number of cash saving measures have
been introduced by the Group, for example
release of contractors and management of
payables, allowing the Group to stretch their
cashposition.
The Directors therefore have made a number of
judgements and estimates around the Group’s
cash flows and liquidity position for at least 12
months from the date of approval of the financial
statements running sensitivities for dierent
scenarios: changes in sales volumes, commodity
price fluctuations, timing of export pipeline
restart, delays to revenue receipts and cost
optimisations. Because of the significance of this
matter we considered it to be a key audit matter.
We have performed the following procedures:
• Obtaining Directors’ base case cash flow forecasts, challenging and assessing
the underlying assumptions (including the pipeline reopening, timing for
payment of cash receipts, oil prices, local and export sales volumes, production
levels, operating and development costs) which have been approved by
the Board focussing on the appropriateness of estimates with reference to
empirical data and external evidence, where possible;
• Checking for consistency against the cash flows forecasts included within the
impairment model;
• Considering the implications of any events described in going concern
assumptions on liquidity headroom and assessing the sensitivities and reverse
stress testing analysis run by the Directors;
• Testing the integrity of the forecast models and assessed consistency of the
formulae used in the model;
• Evaluating the Directors’ plans for potential mitigating actions in relation to the
going concern assessment including deferring planned capital expenditures,
reducing operating and general and administrative expenses, and managing
supplier payment timing, including whether such plans are feasible in the
circumstances; and
• Assessing the adequacy and the appropriateness of the going concern
disclosures in the financial statements.
Key observations:
See the Conclusions relating to going concern section above
An overview of the scope of our audit continued
Key audit matters continued
118/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the eect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are
taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence,
when evaluating their eect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
Group financial statements
Materiality 2023 $6.9m
Basis for determining materiality 1% of total assets
Rationale for the benchmark applied We consider an asset based measure to be the most appropriate due to profitability being
unstable as oil sales were suspended for a period of time during the year and therefore the
continued value of the Group’s assets versus the performance in the year is considered to be of
key importance to a user of the financial statements.
Performance materiality 4.5
Basis for determining performance
materiality
65% of materiality
Rationale for the percentage applied for
performance materiality
In setting performance materiality we considered the nature of activities, the expected total value
of known and likely misstatements and the fact that it is first year audit for us.
Component materiality
For the purposes of our Group audit opinion, we set materiality for each significant component of the Group based on a percentage of
between7%and 74% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component.
Component materiality ranged from $473,000 to $5,114,000. In the audit of each component, we further applied performance materiality levels of
75% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit & Risk Committee that we would report to them all individual audit dierences in excess of $138,600. We also agreed
toreport dierences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report other than
the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves.
If,based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report
thatfact.
We have nothing to report in this regard.
119/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Independent auditor’s report continued
to the members of Gulf Keystone Petroleum Limited
Corporate governance statement
As the Group has voluntarily adopted the UK Corporate Governance Code 2018 we are required to review the Directors’ statement in relation to
going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group’s compliance with the provisions
of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our knowledge obtained during the audit.
Going concern and longer-term viability • The Directors’ statement with regards to the appropriateness of adopting the going concern
basis of accounting and any material uncertainties identified set out on
pages 128 and 129; and
• The Directors’ explanation as to their assessment of the Group’s prospects, the period this
assessment covers and why the period is appropriate set out on
pages 72 and 73.
Other Code provisions • Directors’ statement on fair, balanced and understandable set out on page 114;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal
risks set out on page 57;
• The section of the annual report that describes the review of eectiveness of risk management
and internal control systems set out on page 57; and
• The section describing the work of the Audit & Risk Committee set out on
pages 89 to 93.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate
theGroup or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below:
Non-compliance with laws and regulations
Based on:
• Our understanding of the Group and the industry in which it operates;
• Discussion with management, members of the Board, Audit & Risk Committee and in-house legal counsel;
• Obtaining and understanding of the Group’s policies and procedures regarding compliance with laws and regulations; and
• Our understanding of the legal and regulatory frameworks that are applicable to the Group.
We considered the significant laws and regulations to be the applicable accounting framework (UK adopted international accounting standards),
Bermuda Companies Act 1981, the UK Listing Rules.
The Group is also subject to laws and regulations where the consequence of non-compliance could have a material eect on the amount or
disclosures in the financial statements, for example through the imposition of fines or litigations. We identified such laws and regulations to be
thehealth and safety legislation, licensing and environmental regulations in both Kurdistan and Iraq.
120/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Our procedures in respect of the above included:
• Review of minutes of meeting of those charged with governance for any instances of non-compliance with laws and regulations;
• Review of correspondence with regulatory for any instances of non-compliance with laws and regulations;
• Review of financial statement disclosures and agreeing to supporting documentation;
• Involvement of tax specialists in the audit;
• Review of legal expenditure accounts to understand the nature of expenditure incurred;
• Reviewing the licences to assess the extent to which the Group was in compliance with the conditions of the licence and considering Directors’
assessment of the impact of instances of non-compliance where applicable; and
• Consideration of the potential implications of the Iraqi Supreme Court ruling and the Iraq Turkey Pipeline Arbitration ruling.
Fraud
We assessed the susceptibility of the financial statements to material misstatement, including fraud. Our risk assessment procedures included:
• Enquiry with management, members of the Board, Audit & Risk Committee and those responsible for whistleblowing regarding any known or
suspected instances of fraud;
• Obtaining an understanding of the Group’s policies and procedures relating to:
• Detecting and responding to the risks of fraud; and
• Internal controls established to mitigate risks related to fraud.
• Review of minutes of meeting of those charged with governance for any known or suspected instances of fraud;
• Discussion amongst the engagement team as to how and where fraud might occur in the financial statements;
• Involvement of forensic specialists in the audit to assess the fraud risks and design of relevant audit procedures;
• Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to
fraud; and
• Considering remuneration incentive schemes and performance targets and the related financial statement areas impacted by these.
Based on our risk assessment, we considered the areas most susceptible to fraud to be management override of controls and revenue
recognition.
Our procedures in respect of the above included:
• Performing an assessment of the Group’s IT and the wider control environment and as part of this work we obtained an understanding of the
design and implementation of IT access controls;
• Testing a sample of journal entries throughout the year, which met a defined risk criteria, by agreeing to supporting documentation;
• Assessing significant estimates made by management for bias (refer to key audit matters above); and
• Testing all revenue transactions to supporting documentation, including recalculation of revenue monthly entitlement for the oil sales in line with
the Shaikan PSC and the draft lifting agreement. We obtained all local sales agreements and the draft lifting agreement and vouched all cash
receipts. We evaluated key terms and assessed the appropriateness of revenue recognition policies against the relevant accounting standards.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members who were all deemed
to have appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed
and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the
less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981.
Ouraudit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in
anauditor’s 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Matt Crane (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
20 March 2024
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
121/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
The Group uses certain measures to assess the financial performance of its business. Some of these measures are termed “non-IFRS measures”
because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated
and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS. These
non-IFRS measures include financial measures such as operating costs and non-financial measures such as gross average production.
The Group uses such measures to measure and monitor operating performance and liquidity, and as a basis for strategic planning and forecasting.
The Directors believe that these and similar measures are used widely by certain investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The non-IFRS measures may not be comparable to other similarly titled measures used by other companies and have limitations as analytical
tools and should not be considered in isolation or as a substitute for analysis of the Group’s operating results as reported under IFRS. An
explanation of the relevance of each of the non-IFRS measures and a description of how they are calculated is set out below. Additionally, a
reconciliation of the non-IFRS measures to the most directly comparable measures calculated and presented in accordance with IFRS and a
discussion of their limitations is set out below, where applicable. The Group does not regard these non-IFRS measures as a substitute for, or
superior to, the equivalent measures calculated and presented in accordance with IFRS or those calculated using financial measures that are
calculated in accordance with IFRS.
Gross operating costs per barrel
Gross operating costs are divided by gross production to arrive at operating costs per barrel.
2023 2022
Gross production (MMbbls) 8.0 16.1
Gross operating costs ($ million)
(1)
45.1 52.3
Gross operating costs per barrel ($ per bbl) 5.6 3.2
(1) Gross operating costs equate to operating costs (see note 3 to the consolidated financial statements) adjusted for the Group’s 80% working interest in the
Shaikan Field.
Adjusted EBITDA
Adjusted EBITDA is a useful indicator of the Group’s profitability, which excludes the impact of costs attributable to tax (expense)/credit, finance
costs, finance revenue, depreciation, amortisation and impairment of receivables.
2023
$ million
2022
$ million
(Loss)/profit after tax (11.5) 266.1
Finance costs 1.8 9.7
Finance revenue (3.8) (0.6)
Tax (charge)/credit 0.1 (0.3)
Depreciation of oil and gas assets 39.5 80.2
Depreciation of other PPE assets and amortisation of intangibles 2.6 1.4
Impairment of receivables 21.4 2.0
Adjusted EBITDA 50.1 358.5
Non-IFRS measures
122/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Net cash
Net cash is a useful indicator of the Group’s financial flexibility because it indicates the level of cash and cash equivalents less cash borrowings
within the Group’s business. Net cash is defined as cash less borrowings.
2023
$ million
2022
$ million
Cash 81.7 119.5
Borrowings — —
Net cash 81.7 119.5
The Company was debt free at 31 December 2023 and 31 December 2022.
Net capital expenditure
Net capital expenditure is the value of the Group’s additions to oil and gas assets excluding the change in value of the decommissioning asset or
any asset impairment.
2023
$ million
2022
$ million
Net capital expenditure (note 10 to the consolidated financial statements) 58.2 114.9
Free cash flow
Free cash flow represents the Group’s cash flows, before any dividends, share buybacks and notes redemption, including related fees.
2023
$ million
2022
$ million
Net cash generated from operating activities 51.3 374 .3
Net cash used in investing activities (63.9) (107.4)
Payment of leases (0.5) (0.4)
Free cash flow (13.1) 266.5
123/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Notes
20232022
$’000$’000
Revenue
2
12 3 ,514
4 6 0 ,1 1 3
Cost of sales
3
(93 , 95 3)
(1 5 8 , 6 51)
Increase of expected credit loss provision on trade receivables
13
(2 1 ,3 78)
(1 , 9 60)
Gross profit
8 ,1 8 3
29 9, 502
Other general and administrative expenses
4
(10,466)
(12 , 2 02)
Share option related expenses
5
(10,76 0)
(13 ,7 56)
(Loss)/profit from operations
(1 3 ,0 4 3)
273 ,5 44
Finance income
7
3,803
648
Finance costs
7
(1,765)
(9,6 5 5)
Foreign exchange (loss)/gain
(3 84)
1 ,232
(Loss)/profit before tax
(11 , 3 8 9)
26 5, 769
Tax (charge)/credit
8
(111)
325
(Loss)/profit after tax for the year
(11 , 5 0 0)
266 ,094
(Loss)/profit per share (cents)
Basic
9
(5 . 2 8)
123 .52
Diluted
9
(5 . 2 8)
11 8 .62
20232022
$’000$’000
(Loss)/profit after tax for the year
(11 , 5 0 0)
266 ,094
Items that may be reclassified to the income statement in subsequent periods:
Exchange gain/(loss) on translation of foreign operations
952
(1 , 9 5 0)
Total comprehensive (loss)/income for the year
(1 0, 5 4 8)
2 6 4 ,1 4 4
Consolidated statement of comprehensive income
For the year ended 31 December 2023
Consolidated income statement
For the year ended 31 December 2023
124/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Notes
31 December31 December
2023 2022
$’000$’000
Non-current assets
Trade receivables
13
140 , 218
—
Intangible assets
2 ,81 3
4 , 3 07
Property, plant and equipment
10
445,842
436,4 43
Deferred tax asset
17
1,545
1, 576
590,4 18
4 42,3 26
Current assets
Inventories
12
9,901
6 ,372
Trade and other receivables
13
1 5 ,11 8
176 , 20 3
Cash
81 ,709
119 ,4 56
10 6,72 8
302,031
Total assets
6 9 7, 1 4 6
74 4 , 3 5 7
Current liabilities
Trade and other payables
14
(109,394)
(12 8,561)
Deferred income
14
(5 ,1 6 4)
—
(11 4 , 55 8)
(128,5 61)
Non-current liabilities
Trade and other payables
14
(3 9)
(3 25)
Provisions
16
(3 5, 3 12)
(42 , 5 4 6)
(35,35 1)
(42, 87 1)
Total liabilities
(14 9 ,9 0 9)
(1 71 , 4 3 2)
Net assets
5 4 7, 2 3 7
572,925
Equity
Share capital
19
222 ,443
2 1 6 , 247
Share premium
19
50 3, 312
528 ,12 5
Exchange translation reserve
(3 ,766)
(4 ,7 1 8)
Accumulated losses
(174,752)
(166 ,729)
Total equity
5 47, 237
572,925
The financial statements were approved by the Board of Directors and authorised for issue on 20 March 2024 and signed on its behalf by:
Jon Harris Ian Weatherdon
Chief Executive Ocer e Officer Chief Financial Ocerinancial Officer
Consolidated balance sheet
As at 31 December 2023
125/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Attributable to equity holders of the Company
Exchange
Share SharetranslationAccumulated
capital premiumreserve losses Total equity
Notes $’000$’000$’000$’000$’000
Balance at 1 January 2022
213 ,731
74 2 , 9 1 4
(2 ,768)
(4 3 2 ,17 3)
52 1,70 4
Profit after tax for the year
—
—
—
266,094
266,094
Exchange dierence on translation of foreign operations
—
—
(1 , 9 50)
—
(1, 9 5 0)
Total comprehensive income for the year
—
—
(1 , 95 0)
266,094
26 4 ,1 4 4
Dividends paid
24
—
(214 ,789)
—
—
(2 14,78 9)
Employee share schemes
23
—
—
—
1,866
1, 866
Share issues
19
2 , 51 6
—
—
(2 , 51 6)
—
Balance at 31 December 2022
21 6 , 2 47
5 2 8 ,1 2 5
(4 , 7 1 8)
(16 6 ,7 2 9)
572 , 925
Loss after tax for the year
—
—
—
(11 , 5 0 0)
(1 1 , 50 0)
Exchange dierence on translation of foreign operations
—
—
952
—
952
Total comprehensive loss for the year
—
—
952
(11 , 5 0 0)
(1 0 , 54 8)
Dividends paid
24
—
(24 , 81 3)
—
(24 , 81 3)
Employee share schemes
23
—
—
—
9,67 3
9 ,673
Share issues
19
6 ,19 6
—
—
(6 ,1 9 6)
—
Balance at 31 December 2023
222,443
503 ,312
(3,76 6)
(174,752)
5 4 7, 2 3 7
Consolidated statement of changes in equity
For the year ended 31 December 2023
126/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Notes
20232022
$’000$’000
Operating activities
Cash generated from operations
20
47, 5 2 0
3 83,8 46
Interest received
7
3,803
648
Interest paid
15
—
(1 0,1 9 4)
Net cash generated from operating activities
51 ,3 23
374,300
Investing activities
Purchase of intangible assets
—
(2 , 0 74)
Purchase of property, plant and equipment
20
(6 5, 3 86)
(1 0 5 , 2 91)
Sale of drilling stock
1,449
—
Net cash used in investing activities
(63 , 93 7)
(1 0 7, 3 6 5)
Financing activities
Payment of dividends
24
(2 4, 81 3)
(214 ,789)
Payment of leases
21
(50 3)
(4 5 8)
Notes redemption
15
—
(100, 000)
Notes repayment fee
15
—
(2,000)
Net cash used in financing activities
(25 , 316)
(3 1 7, 2 4 7)
Net decrease in cash
(37, 93 0)
(50,312)
Cash at beginning of year
119 ,4 56
169,866
Eect of foreign exchange rate changes
183
(98)
Cash at end of the year being bank balances and cash on hand
81 ,70 9
11 9, 45 6
Consolidated cash flow statement
For the year ended 31 December 2023
127/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
General information
Gulf Keystone Petroleum Limited (the “Company”) is domiciled and incorporated in Bermuda (registered address: Cedar House, 3rd Floor,
41Ceda41 Cedar Avenue, Hamilton, HM12, Bermuda); together with its subsidiaries it forms the “Group”. On 25 March 2014, the Company’s common
shares were admitted, with a standard listing, to the O, to the Official List of the United Kingdom Listing Authority (“UKLA”) and to trading on the London
Stock Exchange’s Main Market for listed securities. Previously, the Company was quoted on Alternative Investment Market, a market operated
by the London Stock Exchange. The Company serves as the holding company for the Group, which is engaged in oil and gas exploration,
development and production, operating in the Kurdistan Region of Iraq.
Amendments to International Financial Reporting Standards (“IFRS”) that are mandatorily eectiffective
forthecfor the current year
In the current year, the Group has applied a number of amendments to IFRS issued by the International Accounting Standards Board (“IASB”) that
are mandatorily eeily effective for an accounting period that begins on or after 1 January 2023.
The following new accounting standards, amendments to existing standards and interpretations are eective ore effective on 1 January 2023: IFRS 17
Insurance Contracts, Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2), Definition of Accounting Estimates
(Amendments to IAS 8), Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12), Initial Application
of IFRS 17 and IFRS 9 — Comparative Information (Amendment to IFRS 17). These standards do not and are not expected to have a material impact
on the Company’s results or financials statement disclosures in the current or future reporting periods.
New and revised IFRSs issued but not yet eed but not yet effective
At the date of approval of these financial statements, the Group has not applied the following new and revised IFRSs that have been issued but are
not yet et effective by United Kingdom adopted International Accounting Standards:
IFRS S1
General Requirements for Disclosure of Sustainability-related Financial Information
IFRS S2
Climate-related Disclosures
Amendments to IAS 1
Classification of Liabilities as Current or Non-current; Classification of Liabilities as Current or Non-
current – Deferral of Eective Date; Nl of Effective Date; Non-current Liabilities
with Covenants
Amendments to IFRS 16
Lease Liability in a Sale and Leaseback
Amendments to IAS 7 and IFRS 7
Qualitative and quantitative information about supplier finance arrangements
Amendments to IAS 21
Lack of Exchangeability: when a currency is exchangeable and how to determine the exchange rate
when it is not
Amendments to the SASB standards
Amendments to the SASB standards to enhance their international applicability without
substantially altering industries, topics or metrics
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in
future periods.
Statement of compliance
The financial statements have been prepared in accordance with United Kingdom adopted International Accounting Standards.
Basis of accounting
The financial statements have been prepared using the going concern basis of accounting and under the historical cost basis except for the
valuation of hydrocarbon inventory which has been measured at net realisable value and the valuation of certain financial instruments which have
been measured at fair value. Equity-settled share-based payments are recognised at fair value at the date of grant and are not subsequently
revalued. The principal accounting policies adopted are set out below.
Going concern
The Group’s business activities, together with the factors likely to aetors likely to affect its future development, performance and position, are set out in the
Chairman’s statement, the Chief Executive Ocere Officer’s review, the Operational review and the Management of principal risks and uncertainties.
ThefiThe financial position of the Group at the year end and its cash flows and liquidity position are included in the Financial review.
As at 20 March 2024 the Group had $86 million of cash and no debt. The Group continues to closely monitor and manage its liquidity. Cash
forecasts are regularly produced and sensitivities are run for dierent scfferent scenarios including, but not limited, to changes in sales volumes, commodity
price fluctuations, timing of export pipeline restart, delays to revenue receipts and cost optimisations. The Group remains focused on taking
appropriate actions to preserve its liquidity position.
Summary of material accounting policies
128/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
As a result of closure of the ITP, the Group significantly reduced
expenditures to preserve liquidity. In the current year, further
consideration has been given to the impact on the Group’s working
capital position due to a potential decline in local sales, and potential
delays in KRG revenue receipts once the ITP has been reopened:
• Local sales: The Group commenced local sales on 19 July 2023 with
payments from buyers required in advance following extensive due
diligence. In 2023 the Group received $43.5 million related to local
sales. Local sales volumes have fluctuated and remain dicufficult to
predict; and
• Export sales: While political negotiations and commercial
negotiations are ongoing between the Government of Iraq and the
KRG, the timing of reopening the ITP and payment mechanism
remain uncertain.
The Directors believe an agreement will ultimately be reached to
reopen the ITP, and we reasonably expect that overdue balances will
be paid and receipts from the KRG will return to a more regular basis.
However, a reduction in local sales or reopening of the pipeline with a
deferral of revenue receipts could result in liquidity pressures within the
12-month going concern period.
The Directors have considered sensitivities, including local sales
volumes and potential delays in KRG revenue receipts once the ITP
reopens, to assess the impact on the Group’s liquidity position and
believe suciente sufficient mitigating actions are available to withstand such
impacts within the 12-month going concern period. Specifically, the
Directors considered stress tests that included no further local sales or
KRG revenue receipts and confirmed that cost reduction opportunities
exist to ensure that the Group can continue to discharge its liabilities for
a period of at least 12-months.
As explained in Note 14, although the Group has recognised current
liabilities of around $75 million payable to the KRG, it does not expect
these will be cash settled.
Overall, the Group’s forecasts, taking into account the applicable
risks, stress test scenarios and potential mitigating actions, show that
it has sucient financial r sufficient financial resources for the 12 months from the date of
approval of the 2023 annual report and accounts.
Based on the analysis performed, the Directors have a reasonable
expectation that the Group has adequate resources to continue to
operate for the foreseeable future. Thus the going concern basis
of accounting is used to prepare the annual consolidated financial
statements.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and enterprises controlled by the
Company (its subsidiaries) made up to 31 December each year. 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.
Joint arrangements
The Group is engaged in oil and gas exploration, development and
production through unincorporated joint arrangements; these are
classified as joint operations in accordance with IFRS 11. The Group
accounts for its share of the results and net assets of these joint
operations. Where the Group acts as Operator of the joint operation,
the gross liabilities and receivables (including amounts due to or from
non-operating partners) of the joint operation are included in the
Group’s balance sheet.
Sales revenue
The recognition of revenue is considered to be a key accounting
judgement.
Revenue is earned based on the entitlement mechanism under the
terms of the Shaikan Production Sharing Contract (“PSC”). Entitlement
has two components: cost oil, which is the mechanism by which
the Company recovers its costs incurred, and profit oil, which is the
mechanism through which profits are shared between the Company,
its partner and the Kurdistan Regional Government (“KRG”). The
Company is liable for capacity building payments calculated as a
proportion of profit oil entitlement. Entitlement from cost oil and profit
oil are reported as revenue, and capacity building payments are
included in cost of sales.
Prior to the shut-in of the Iraq-Turkey Pipeline (“ITP”) on
25M25 March20arch 2023, all oil was sold by the Shaikan Contractor (the
Company and Kalegran BV, a subsidiary of MOL Hungarian Oil & Gas
Plc, (“MOL”)) to the KRG, who in turn resold the oil. The selling price
was determined in accordance with the principles of the crude oil lifting
agreement. On 19 July 2023, the Shaikan Contractor commenced
sales to the local market by restarting trucking operations. The selling
price is determined in accordance with crude sales agreements with
local customers.
Under IFRS 15: Revenue from contracts with customers, GKP
considers that control of crude oil is transferred from the Shaikan
Contractor to the KRG or local buyer at the delivery point as defined
in the lifting agreement or crude sales agreement; at this point the
Shaikan Contractor is due economic benefits which can be reliably
measured and are probable to be received.
For sales up to the shut-in of the ITP on 25 March 2023, the delivery
point was the export pipeline and the consideration was variable and is
dependent upon the monthly average oil market price with deductions
for quality and transportation fees, with other fees and royalties due as
determined by commercial agreements; revenue was reported net of
these deductions. For sales to the local market from 19 July 2023, the
delivery point is the point at which crude oil is loaded into the buyers’
nominated trucks. The consideration is determined by reference
to the crude sales agreement, with other fees and royalties due as
determined by commercial agreements; revenue is reported net of
these deductions.
129/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Summary of material accounting policies continued
Sales revenue continued
Eective SEffective September 1, 2022, the KRG proposed a new pricing
mechanism for crude oil export sales, which continued in the year
until 25 March 2023 when the ITP was shut-in. Under the new pricing
mechanism, the realised export sales price for a month was based on
the average market price realised by the KRG for the Kurdistan blend
(KBT) sold at Ceyhan, Turkey, as advised by the KRG. The change in the
benchmark market price from dated Brent to KBT has not been agreed
and no lifting agreement has been in place since 1 September20er 2022.
Nonetheless, the Shaikan Contractor continued production and the
KRG accepted delivery of oil at the delivery points. GKP considers that
the control of crude oil was transferred at the delivery points despite
no commercial agreement being in place and as such has recognised
revenue, for the period until 25 March 2023, based on the proposed
new pricing terms. A summary of the currently estimated financial
impact of the proposed change in pricing mechanism is detailed in note
2 to the consolidated financial statements.
Income tax arising from the Company’s activities under its PSC is
settled by the KRG on behalf of the Company. Since the Company is
not able to measure the amount of income tax that has been paid on
its behalf the notional income tax amounts have not been included in
revenue or in the tax charge.
Finance revenue
Finance income is recognised on an accruals basis, by reference to
the principal outstanding and at the eectid at the effective rate of interest applicable,
which is the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that asset’s net
carrying amount on initial recognition.
Intangible assets
Intangible assets include computer software and are measured at cost
and amortised over their expected useful economic lives of three years.
Property, plant and equipment (“PPE”)
Oil and gas assets
Development and production assets
Development and production assets are accumulated on a
field-by-field basis and represent the costs of acquisition and
developing the commercial reserves discovered and bringing them into
production, together with the exploration and evaluation expenditure
incurred in finding commercial reserves, directly attributable
overheads and costs for future restoration and decommissioning.
These costs are capitalised as part of PPE and depreciated based on
the Group’s depreciation of oil and gas assets policy.
The net book values of producing assets are depreciated generally on
a field-by-field basis using the unit of production (“UOP”) basis which
uses the ratio of oil and gas production in the period to the remaining
commercial reserves plus the production in the period. Costs used in
the calculation comprise the net book value of the field and estimated
future development expenditures required to produce those reserves.
Commercial reserves are proven and probable (“2P”) reserves which
are estimated using standard recognised evaluation techniques. The
reserves estimate used in the depreciation, depletion and amortisation
(“DD&A”) calculation in 2023 was based on the December 2022
Competent Person’s Report (“CPR”) reserves report completed by
ERC Equipoise as at 31 December 2022.
Other property, plant and equipment
Other property, plant and equipment are principally equipment used
in the field which are separately identifiable to development and
production assets, and typically have a shorter useful economic
life. Assets are carried at cost, less any accumulated depreciation
and accumulated impairment losses. Costs include purchase price,
construction and installation costs.
These assets are expensed on a straight-line basis over their estimated
useful lives of three-years from the date they are put in use.
Fixtures and equipment
Fixtures and equipment assets are stated at cost less accumulated
depreciation and any accumulated impairment losses. These assets
are expensed on a straight-line basis over their estimated useful lives of
five-years from the date they are available for use.
Impairment of PPE and intangible non-current assets
At each balance sheet date, the Group reviews the carrying amounts
of its tangible and intangible assets to determine whether there is any
indication that those assets have suereave suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset, or group of
assets, is estimated in order to determine the extent of the impairment
loss (if any).
For assets which do not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell
(“FVLCTS”) and value in use. In assessing FVLCTS and value in use, the
estimated future cash flows are discounted to their present value using
a post-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
Any impairment identified is immediately recognised as an expense.
Conversely, any reversal of an impairment is immediately recognised
as income.
Borrowing costs
Borrowing costs directly relating to the acquisition or construction of
qualifying assets, which are assets that necessarily take a substantial
period of time to get ready for their intended use or sale, are capitalised
and added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the income statement in the
period in which they are incurred.
130/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Taxation
Tax expense or credit represents the sum of tax currently payable or
recoverable and deferred tax .
Tax currently payable or recoverable is based on taxable profit or
loss for the year. Current tax assets and liabilities are measured at
the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or
substantively enacted by the balance sheet date.
As described in the revenue accounting policy section above, it is not
possible to calculate the amount of notional tax in relation to any tax
liabilities settled on behalf of the Group by the KRG.
Deferred tax is the tax expected to be payable or recoverable on
diedifferences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the
computation of taxable profit and is accounted for using the balance
sheet liability method. Deferred tax liabilities are generally recognised
for all taxable temporary diey differences and deferred tax assets are
recognised to the extent that it is probable that future taxable profits
will be available against which deductible temporary diey differences can be
utilised. Such assets and liabilities are not recognised if the temporary
dierdifference arises from the initial recognition of goodwill or from the
initial recognition of other assets and liabilities in a transaction that
aects naffects neither the taxable profit nor the accounting profit and does not
give rise to equal taxable and deductible temporary dierenifferences.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sucifficient future taxable profits will be available to allow all
or part assets to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in
the period when the liability is settled or the asset is realised based on
tax laws and rates that have been enacted or substantively enacted
by the balance sheet date. Deferred tax is charged or credited in the
income statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also recognised in
equity.
Foreign currencies
The individual financial statements of each company are presented in
the currency of the primary economic environment in which it operates
(its functional currency). For the purpose of the consolidated financial
statements, the results and the financial position of the Group are
expressed in US dollars, which is the presentation currency for the
consolidated financial statements.
In preparing the financial statements of the individual companies,
transactions in currencies other than the entity’s functional currency
are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at
the rates prevailing on the balance sheet date. Non-monetary assets
and liabilities carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the
fair value was determined. Gains and losses arising on retranslation are
included in the income statement for the year.
On consolidation, the assets and liabilities of the Group’s foreign
operations which use functional currencies other than US dollars
are translated at exchange rates prevailing on the balance sheet
date. Income and expense items are translated at the average
exchange rates for the period. Exchange dihe period. Exchange differences arising, if any,
are recognised in other comprehensive income and accumulated in
equity in the Group’s translation reserve. On the disposal of a foreign
operation, such translation dianslation differences are reclassified to profit or loss.
Inventories
Inventories, except for hydrocarbon inventories, are stated at the
lower of cost and net realisable value. Cost comprises direct materials
and, where applicable, direct labour costs and those overheads that
have been incurred in bringing the inventories to their present location
and condition. Cost is calculated using the weighted average cost
method. Hydrocarbon inventories are recorded at net realisable value
with changes in the value of hydrocarbon inventories being adjusted
through cost of sales.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s
balance sheet when the Group has become a party to the contractual
provisions of the instrument.
Trade receivables
Trade receivables are measured at amortised cost using the eective e effective
interest method less any impairment.
Cash
Cash comprises cash on hand and demand deposits that are not
subject to a risk of changes in value other than foreign exchange gain
or loss.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
(“ECL”) on trade receivables and contract assets, as well as on financial
guarantee contracts. The amount of expected credit losses is updated
at each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument.
The Group recognises lifetime expected credit losses for trade
receivables, contract assets and lease receivables. The expected
credit losses on these financial assets are estimated based on
observed market data and convention, existing market conditions and
forward-looking estimates at the end of each reporting period.
For all other financial instruments, the Group recognises lifetime ECL
when there has been a significant increase in credit risk since initial
recognition. However, if the credit risk on the financial instrument
has not increased significantly since initial recognition, the Group
measures the loss allowance for that financial instrument at an amount
equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result
from all possible default events over the expected life of a financial
instrument. In contrast, 12-month ECL represents the portion of
lifetime ECL that is expected to result from default events on a financial
instrument that are possible within 12 months after the reporting date.
131/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Summary of material accounting policies continued
Foreign instruments continued
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to
the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs, which are charged to
share premium.
Borrowings
Interest-bearing loans and overdrafts are recorded at the fair value
of proceeds received, net of transaction costs. Finance charges,
including premiums payable on settlement or redemption, are
accounted for on an accrual basis and are added to the carrying
amount of the instrument to the extent that they are not settled in the
year in which they arise. The liability is carried at amortised cost using
the eethe effective interest rate method until maturity.
Trade payables
Trade payables are stated at amortised cost.
Provisions
Provisions are recognised when the Group has a present obligation
as a result of a past event which it is probable will result in an outflow of
economic benefits that can be reliably estimated.
Decommissioning provision
Provision for decommissioning is recognised in full when there is
an obligation to restore the site to its original condition. The amount
recognised is the present value of the estimated future expenditure for
restoring the sites of drilled wells and related facilities to their original
status. A corresponding amount equivalent to the provision is also
recognised as part of the cost of the related oil and gas asset. The
amount recognised is reassessed each year in accordance with local
conditions and requirements. Any change in the present value of the
estimated expenditure is dealt with prospectively. The unwinding of the
discount is included as a finance cost.
Share-based payments
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
instruments at the grant date. Details regarding the determination of the
fair value of equity-settled share-based transactions are set out in note
24. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of equity instruments
that will eventually vest. At each balance sheet date, the Group revises
its estimate of the number of equity instruments expected to vest as a
result of the eect of nlt of the effect of non-market based vesting conditions. The impact
of the revision of the original estimates, if any, is recognised in profit or
loss such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity reserve.
For cash-settled share-based payments, a liability is recognised for
the goods or services acquired, measured initially at the fair value of
the liability. At each balance sheet date until the liability is settled, and
at the date of settlement, the fair value of the liability is re-measured,
with any changes in fair value recognised in profit or loss for the period.
Details regarding the determination of the fair value of cash-settled
share-based transactions are set out in note 24.
Leases
The Group assesses whether a contract contains a lease at inception
of the contract. The Group recognises a right-of-use asset and
corresponding lease liability in the consolidated balance sheet for all
lease arrangements longer than twelve months, where it is the lessee
and has control of the asset. For all other leases, the Group recognises
the lease payments as an operating expense on a straight-line basis
over the term of the lease.
The lease liability is initially measured at the present value of the future
lease payments from the commencement date of the lease. The lease
payments are discounted using the interest rate implicit in the lease
or, if, if not readily determinable, the company specific incremental
borrowing rate.
The lease liability is subsequently measured by increasing the carrying
amount to reflect interest on the lease liability (using the eectie effective
interest method) and by reducing the carrying amount to reflect the
lease payments made. The lease liability is recognised in creditors as
current or non-current liabilities depending on underlying lease terms.
The right-of-use assets are initially recognised on the balance sheet
at cost, which comprises the amount of the initial measurement of the
corresponding lease liability, adjusted for any lease payments made at
or prior to the commencement date of the lease and any lease incentive
received.
For short-term leases (periods less than 12 months) and leases of
low value, the Group has opted to recognise lease expense on a
straight-line basis.
Critical accounting judgements and key sources of
estimation uncertainty
In the application of the accounting policies described above, the
Group is required to make judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may dier from thffer from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision aects on affects only that period or
in the period of revision and future periods if the revision aeon affects both
current and future periods.
132/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Critical judgements in applying the Group’s
accounting policies
The following are the critical judgements, apart from those involving
estimations (which are presented separately below), that the Directors
have made in the process of applying the Group’s accounting policies
and that have the most significant eect ont effect on the amounts recognised in
financial statements.
PSC entitlement: Revenue and capacity building payments
The recognition of revenue, particularly the recognition of revenue
from pipeline exports, is considered to be a key accounting judgement.
The Group began commercial production from the Shaikan Field in
July 2013 and historically made sales to both the domestic and export
markets. The Group considers that revenue can be reliably measured
as it passes the delivery point into the export pipeline or truck, as
appropriate. The critical accounting judgement applied in preparing the
2023 financial statements is that it is appropriate to recognise export
revenue for deliveries from 1 January to 25 March 2023 based on the
proposed new pricing mechanism, notwithstanding that there is no
signed lifting agreement for that period and the pricing mechanism has
not yet been agreed. Further details of this judgement are provided in
the sales revenue accounting policy above. In making this judgement,
consideration was given to the fact that the Group received payment
for September 2022 deliveries at an amount that was consistent with
the proposed new pricing terms; no further receipts for the period of
pipeline exports from 1 October 2022 to 25 March 2023 have been
received.
A summary of the currently estimated financial impact of the proposed
change in pricing mechanism is detailed in Note 2.
Any future agreements between the Company and the KRG might
change the amounts of revenue recognised.
During past PSC negotiations with the Ministry of Natural Resources
(“MNR”), it was tentatively agreed that the Shaikan Contractor would
provide the KRG a 20% carried working interest in the PSC. This would
result in a reduction of GKP’s working interest from 80% to 61.5%. To
compensate for such decrease, capacity building payments expense
would be reduced to 20% of profit petroleum. While the PSC has not
been formally amended, it was agreed that GKP would invoice the KRG
for oil sales based on the proposed revised terms from October 2017.
The financial statements reflect the proposed revised working interest
of 61.5%. Relative to the PSC terms, the proposed revised invoicing
terms result in a decrease in both revenue and cost of sales and on a
net basis are slightly positive for the Company.
As part of earlier PSC negotiations, on 16 March 2016, GKP signed
a bilateral agreement with the MNR (the “Bilateral Agreement”). The
Bilateral Agreement included a reduction in the Group’s capacity
building payment from 40% to 30% of profit petroleum. Subsequent
to signing the Bilateral Agreement, further negotiations resulted in the
capacity building payment rate being reduced from 30% to 20%, which
has formed the basis for all oil sales invoices to date as noted above.
Since PSC negotiations have not been finalised, GKP has included a
non-cash payable for the dier the difference between the capacity building
rate of 20% and 30%, which is recognised in cost of sales and other
payables.
The Company expects to confirm with the MNR whether to proceed
with a formal amendment to the PSC to reflect current invoice terms.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period that may have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year, are
discussed below.
Expected credit loss (“ECL”)
The recoverability of receivables is a key accounting judgement. The
dierdifference between the nominal value of receivables and the expected
value of receivables after allowing for counterparty default risk gives
the ECL. In making this judgement, management has estimated the
timing of the receipt of receivables which will be dependent upon
uncertain future events, in particular the expected timing of the
re-opening of the ITP. Management have considered scenarios for
recovering receivables and assigned probabilities to these scenarios.
A weighted average has been applied to receipt profiles, upon which
a counterparty default allowance has been applied to derive the
ECL. This ECL is oset ags offset against current and non-current receivable
amounts as appropriate within the balance sheet with the change in
the receivable balance during the period recognised in the income
statement.
Decommissioning provision
Decommissioning provisions are estimated based upon the obligations
and costs to be incurred in accordance with the PSC at the end of field
life in 2043. There is uncertainty in the decommissioning estimate due
to factors including potential changes to the cost of activities, potential
emergence of new techniques or changes to best practice. The
Company commissioned ERC Equipoise to perform an assessment
of the Company’s estimate of the current value of such obligations and
costs at 31 December 2023 (2022: internal estimate). Management
have increased these costs by estimated compound interest rates,
to future value in 2043, and reduced to present value by an estimated
discount rate (note 16), there is also uncertainty regarding the inflation
and discount rates used.
Carrying value of producing assets
In line with the Group’s accounting policy on impairment, management
performs an impairment review of the Group’s oil and gas assets at
least annually with reference to indicators as set out in IAS 36. The
Group assesses its group of assets, called a cash-generating unit
(“CGU”), for impairment, if events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Where
indicators are present, management calculates the recoverable
amount using key estimates such as future oil prices, PSC commercial
terms, cost recovery, estimated production volumes, the timing
of revenue receipts and field development activities, the cost of
development and production, potential climate change transition risk
impacts, pre-tax discount rate that incorporate risks specific to the
asset and inflation. The key assumptions are subject to change based
on geopolitical factors, market trends and economic conditions. Where
the CGU’s recoverable amount is lower than the carrying amount, the
CGU is considered impaired and is written down to its recoverable
amount.
133/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Key sources of estimation uncertainty continued
Carrying value of producing assets continued
The Group’s sole CGU at 31 December 2023 was the Shaikan Field with a carrying value, being Oil and Gas assets less capitalised
decommissioning provision, of $408.0 million (2022: $391.0 million). The Group performed an impairment trigger assessment and concluded
that the shutdown of the Iraq Turkey Pipeline (“ITP”) in March 2023 following the ITP Arbitration ruling was a potential indicator of impairment.
Accordingly, an impairment evaluation was completed, and it was concluded that no impairment write-down was required.
In accordance with accounting standards, the impairment assessment was prepared based on available information combined with management
estimates as at 31 December 2023. This includes a number of key assumptions, some of which have a high degree of uncertainty. The key areas of
estimation in assessing the potential impairment indicators are as follows:
• While the date of the re-opening of the ITP remains uncertain, the impairment calculation base case assumes that local sales contracts, whilst
short-term in nature, will continue until the ITP reopens and exports resume in October 2024. Given the reopening date remains uncertain, we
have applied sensitivities of up to a further two-year delay in the re-opening of the ITP and no impairment was identified except under the Net
Zero Emissions climate scenario as described below;
• The Group’s netback oil price was based on the forward curve and market participants’ consensus, including banks, analysts and independent
reserves evaluators, as at 31 December 2023 for the period 2024 to 2029 with inflation of 2.25% per annum thereafter, less transportation costs
and quality adjustments. Prices at 31 December 2022 were based on the dated brent forward curve as at December 2022 for the period 2023
to 2028 with inflation of 2% per annum thereafter, less transportation and quality adjustments. The stress case reflects a 10% reduction in base
case oil prices;
Scenario ($/bbl – nominal)
2023
2024
2025
2026
2027
2028
2029
31 December 2023 –
n/a
83.0
80.0
77.0
7 7.0
77.0
80.0
base case
31 December 2023 –
n/a
74 .7
72.0
69.3
69.3
69.3
72.0
stress case
31 December 2022 –
83.4
78.2
74 . 5
71.7
69.6
68.1
69.5
base case
31 December 2022 –
75.1
70.4
67.1
64.5
62.6
61.3
62.5
stress case
• Cost assumptions used in the assessment were based on an updated Jurassic development plan commencing in 2025 and the estimated cost
of a Gas Management Plan with investment commencing in 2026. Further development remains contingent upon the reopening of the ITP
and normalisation of KRG payments. Cost assumptions incorporated management’s experience and expectations, including the nature and
location of the operations and the associated risks. The impact of near-term inflationary pressures were also considered and no impairment
was identified;
• The Group continues to develop its assessment of the potential impacts of climate change and the associated risks of the transition to a
low-carbon future. Our ambition to reduce scope one per barrel CO
2
emissions by at least 50% versus the original 2020 baseline of 38 kgCO
2
e
per barrel is dependent on the timing of sanction and implementation of the Gas Management Plan. The International Energy Agency’s (“IEA”)
most recent Announced Pledges Scenario (“APS”) and Net Zero Emissions (“NZE”) climate scenario oil prices and carbon taxes were used
to evaluate the potential impact of the principal climate change transition risks. The APS scenario assumes that governments will meet, in full
and on time, all of the climate-related commitments that they have announced, including longer term net zero emissions targets and pledges
in Nationally Determined Contributions (“NDCs”) to reduce national emissions and adapt to the impacts of climate change leading to a global
temperature rise of 1.7°C in 2100. NZE is the normative scenario pathway to the stabilisation of global average temperatures at 1.5°C above
pre-industrial levels. Under the APS and NZE scenarios there was no impairment. However, while the IEA oil price assumptions incorporate
carbon prices, it has not disclosed the assumed average carbon intensity per barrel of production. Therefore, the Group has performed a
sensitivity to conservatively include IEA carbon pricing on all production which results in no impairment under the APS scenario. Under the NZE
scenario, there was a potential impairment; however, if the Group’s assumed future average carbon intensity per barrel of production is in fact at
or below the undisclosed IEA carbon intensity per barrel of production, there would have been no impairment;
• Discount rates that are adjusted to reflect risks specific to the Shaikan Field and the Kurdistan Region of Iraq. The post-tax nominal discount
rate was estimated to be 16% (2022: 15%). The impact of an increase in discount rate to 20% was considered as a sensitivity to reflect potential
increased geopolitical risks and no impairment was identified;
• Commercial reserves and production profiles used are based on internal estimates; and
• Timing of revenue receipts.
Summary of material accounting policies continued
134/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
1. Geographical information
The Chief Operating Decision Maker, as per the definition in IFRS 8, is considered to be the Board of Directors. The Group operates in a single
segment, that of oil and gas exploration, development and production, in a single geographical location, the Kurdistan Region of Iraq (“KRI”); 100%
(2022: 99%) of the group’s non-current assets, excluding deferred tax assets and other financial assets, are located in the KRI. The financial
information of the single segment is materially the same as set out in the condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow
statement and the related notes.
2. Revenue
2023 2022
$’000 $’000
Oil sales via export pipeline
78,955
460,113
Local oil sales
44,559
—
123,514
460,113
The Group’s accounting policy for revenue recognition is set out in the ‘Summary of significant accounting policies’, with revenue recognised upon
crude oil passing the delivery points, either being entry into pipeline or delivered into trucks.
Oil sales via export pipeline (until 25 March 2023)
The International Court of Arbitration in Paris ruled on the long running ITP arbitration case in Iraq’s favour, which led to the shut-in of the ITP on
25Mar25 March 2023. Negotiations are ongoing to reopen the pipeline.
Since 1 September 2022, there has been no lifting agreement in place between the Shaikan Contractor and the KRG. The KRG proposed a new
pricing mechanism based upon the average monthly Kurdistan blend (“KBT”) sales price realised by the KRG at Ceyhan; formerly the pricing
mechanism was based upon Dated Brent. The Company has not accepted the proposed contract modification and continued, until suspension of
the export pipeline, to invoice the KRG for oil sales based on the pre-1 September 2022 pricing formula. Considering the uncertainty with respect
to the variable consideration within the pricing mechanism, the Company has concluded that it is an appropriate judgement to recognise revenue
based on the proposed contract modification for the period to the pipeline shutdown on 25 March 2023.
Export sales covering the period from 1 January to 25 March 2023 were based upon the monthly Kurdistan blend (“KBT”) price. The realised price
in this period was $51.3/bbl (2022: full year $84.3/bbl).
The revenue impact of using the proposed KBT pricing mechanism instead of Dated Brent for the year is estimated to be a reduction of
$12.0mi.0 million (2022: $23.4 million). Taking into account the associated reduction in capacity building payments results in a total reduction of profit
after tax for the year of $11.4 million (2022: $21.7 million). Any dierencfference between the proposed and final pricing mechanism will be reflected in
future periods.
Local oil sales (from 19 July 2023)
In July 2023, GKP began selling oil to local buyers at negotiated prices. The realised price achieved in 2023 was $30/bbl (2022: not applicable).
Local buyers pay GKP in advance of receipt of oil; such amounts are recognised as deferred income (see note 14).
Information about major customers
In 2023, 68% (2022: 100%) of oil sales were made to the KRG. Additionally, 31% of revenue (2022: 0%) was attributable to three local customers
comprising 10%, 10% and 11% of revenue individually.
Notes to the consolidated financial statements
135/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Notes to the consolidated financial statements
continued
3. Cost of sales
2023 2022
$’000 $’000
Operating costs
36,082
41,835
Capacity building payments
8,872
34,927
Change in oil inventory value
(75)
555
Depreciation of oil and gas assets and operational assets
39,470
80,225
Contract termination costs
5,525
—
Provision against inventory held for sale
2,627
—
Loss on disposal of drilling stock
1,452
—
Impairment of surplus drilling stock
—
1,109
93,953
158,651
Capacity building payments have been recorded in line with the proposed pricing mechanism (see note 2); any di; any difference between the proposed
and final pricing mechanism will be reflected in future periods.
Further details on the depreciation of oil and gas assets and operational assets, as well as the recognition of capacity building payments, are set
out in the Summary of significant accounting policies section.
For purposes of calculating the DD&A per barrel of production in 2023, a Competent Person’s Report from ERC Equipoise Limited with 2P
reserves estimates at 31 December 2022 was used in conjunction with the Group’s economic forecasts to determine entitlement production,
commercial reserves and capital costs for Shaikan.
Following ITP shut-in, GKP reacted quickly to preserve liquidity and significantly reduce expenditures. This led to the termination of certain
contracts, drilling stock sales less than carrying value and a provision for inventory items held for sale.
4. Other general and administrative expenses
2023 2022
$’000 $’000
Depreciation and amortisation
2,652
1,563
Auditor’s remuneration (see below)
635
703
Other general and administrative costs
7,179
9,936
10,466
12,202
Of the $10.5 million (2022: $12.2 million) of general and administrative expenses, $3.4 million (2022: $5.2 million) were incurred in relation to the
Shaikan Field.
2023 2022
$’000 $’000
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
474
430
Fees payable to the Company’s auditor for other services to the Group
– audit of the Company’s subsidiaries pursuant to legislation
26
26
Total audit fees
500
456
Advisory services
—
112
Other assurance services (including a half year review)
135
135
Total fees
635
703
136/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
5. Share option related expense
2023 2022
$’000 $’000
Share-based payment expense
9,673
3,266
Payments related to share options exercised
797
8,690
Share-based payment related provision for taxes
290
1,800
10,760
13,756
The 2022 payments related to share options exercised includes the final year of the legacy Value Creation Plan (“VCP”) share options awarded to
former Directors. There will be no further awards under the plan.
6. Sta co6. Staff costs
The average number of employees and contractors (including Executive Directors) employed by the Group was 471 (2022: 460); the number
of full-time equivalents of these workers was 303 (2022: 317), reflecting the increase in sta in 2n staff in 2022 to progress expansion activities and the
decrease in sta afe in staff after the ITP was shut-in on 25 March 2023.
Average number of Average number of full-time Number of employees Number of full-time equivalents
employees equivalents in December in December
2023
2022
2023
2022
2023
2022
2023
2022
Kurdistan
438
421
272
280
379
472
247
312
United Kingdom
33
39
31
37
27
40
26
38
Total
471
460
303
317
406
512
273
350
Sta cStaff costs as follows are shown net of amounts recharged to joint operations:
2023 2022
$’000 $’000
Wages and salaries
37,645
46,879
Social security costs
1,826
2,503
Pension costs
468
420
Share-based payment (see note 23)
10,760
4,260
50,699
54,062
Sta cStaff costs include costs relating to contractors who are long-term workers in key positions and are included in PPE additions, cost of sales and
other general and administrative expenditure depending on the nature of such costs. Sta cotaff costs are shown net of amounts recharged to joint
operations.
7. Finance costs and finance income
2023 2022
$’000 $’000
Notes interest expense (see note 15)
—
(5,833)
Unwinding of finance and arrangement fees (see note 15)
—
(879)
Notes repayment fee (see note 15)
—
(2,000)
Finance lease interest
(66)
(77)
Unwinding of discount on provisions (see note 16)
(1,699)
(866)
Total finance costs
(1,765)
(9,655)
Finance income
3,803
648
Net finance income/(costs)
2,038
(9,007)
Since redemption of $100m notes on 2 August 2022, the Group has remained debt free (see note 15).
137/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Notes to the consolidated financial statements
continued
8. Income tax
2023 2022
$’000 $’000
Current year credit
—
216
Prior year adjustment
195
—
Deferred UK corporation tax (charge)/credit (see note 17)
(306)
109
Tax (charge)/credit attributable to the Company and its subsidiaries
(111)
325
The Group is not required to pay taxes in Bermuda on either income or capital gains. The Group has received an undertaking from the Minister of
Finance in Bermuda exempting it from any such taxes at least until the year 2035.
In the KRI, the Group is subject to corporate income tax on its income from petroleum operations under the Kurdistan PSC. Under the Shaikan
PSC, any corporate income tax arising from petroleum operations will be paid from the KRG’s share of petroleum profits. Due to the uncertainty
over the payment mechanism for oil sales in Kurdistan, it has not been possible to measure reliably the taxation due that has been paid on behalf
of the Group by the KRG and therefore the notional tax amounts have not been included in revenue or in the tax charge. This is an accounting
presentational issue and there is no taxation to be paid.
The annual UK corporation tax rate for the year ended 31 December 2023 was 19% on profits up to £50k tapered to 25% on profits above £250k
(2022: flat rate of 19.0%).
Deferred tax is provided for due to the temporary diereifferences, which give rise to such a balance in jurisdictions subject to income tax. All deferred
tax arises in the UK.
9. Earnings per share
The calculation of the basic and diluted loss per share is based on the following data:
2023
2022
(Loss)/profit after tax for basic and diluted per share calculations ($’000)
(11,500)
266,094
Number of shares (‘000s):
Basic weighted average number of ordinary shares
217,992
215,420
Basic EPS (cents)
(5.28)
123.52
The Group followed the steps specified by IAS 33 in determining whether potential common shares are dilutive or anti-dilutive.
Reconciliation of dilutive shares:
2023
2022
Number of shares (‘000s)
Basic weighted average number of ordinary shares outstanding
217,992
215,420
EEffect of potential dilutive share options
—
8,909
Diluted number of ordinary shares outstanding
217,992
224,329
Diluted EPS (cents)
(5.28)
118.62
(1)
(1) At the reporting date, the Company had 8,224k antidilutive (2022: 8,909k dilutive) ordinary shares relating to outstanding share options. EPS is calculated on the
assumption of conversion of all potentially dilutive ordinary shares however, during a period where a company makes a loss, anti-dilutive shares are not included in
the loss per share calculation as they would reduce the reported loss per share.
The weighted average number of ordinary shares in issue excludes shares held by Employee Benefit Trustee (“EBT”).
138/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
10. Property, plant and equipment
Oil and gas Fixtures and Right of use
assets equipment assets Total
$’000 $’000 $’000 $’000
Year ended 31 December 2022
Opening net book value
402,094
1,033
1,078
404,205
Additions
114,909
1,595
—
116,504
Impairment of surplus drilling stocks
(1,109)
—
—
(1,109)
Revision to decommissioning asset
(2,161)
—
—
(2,161)
Depreciation charge
(80,177)
(359)
(347)
(80,883)
Foreign currency translation dier differences
—
(12)
(101)
(113)
Closing net book value
433,556
2,257
630
436,443
At 31 December 2022
Cost
943,563
8,946
2,145
954,654
Accumulated depreciation
(510,007)
(6,689)
(1,515)
(518,211)
Net book value
433,556
2,257
630
436,443
Year ended 31 December 2023
Opening net book value
433,556
2,257
630
436,443
Additions
58,240
453
86
58,779
Disposals’ cost
—
—
(70)
(70)
Revision to decommissioning asset
(8,933)
—
—
(8,933)
Depreciation charge
(39,470)
(649)
(356)
(40,475)
Disposals’ depreciation
—
—
66
66
Foreign currency translation dier differences
—
5
27
32
Closing net book value
443,393
2,066
383
445,842
At 31 December 2023
Cost
992,870
9,404
2,188
1,004,462
Accumulated depreciation
(549,477)
(7,33
8)
(1,805)
(558,620)
Net book value
443,393
2,066
383
445,842
The net book value of oil and gas assets at 31 December 2023 is comprised of property, plant and equipment relating to the Shaikan block with a
carrying value of $443.4 million (2022: $433.6 million).
The additions to the Shaikan asset amounting to $58.2 million during the year include the costs of completing SH-17 and the drilling and
completion of SH-18, well workovers, well pad preparation, long lead items and expansion of production facilities.
The decrease in the decommissioning asset represents the change in accounting estimates as detailed in note 16 partially osey offset by additional
decommissioning liabilities arising from capital projects completed during the year.
The DD&A charge of $39.5 million (2022: $80.2 million) on oil and gas assets has been included within cost of sales (note 3). The depreciation
charge of $0.6 million (2022: $0.4 million) on fixtures and equipment and $0.4 million (2022: $0.3 million) on right of use assets has been included
in general and administrative expenses (note 4).
Right of use assets at 31 December 2023 of $0.4 million (2022: $0.6 million) consisted principally of buildings.
For details of the key assumptions and judgements underlying the impairment assessment, refer to the “Critical accounting estimates and
judgements” section of the Summary of significant accounting policies.
139/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Notes to the consolidated financial statements
continued
11. Group companies
Details of the Company’s subsidiaries and joint operations at 31 December 2023 is as follows:
Place of Proportion of
Name of subsidiary incorporation
ownership interest
Principal activity
Gulf Keystone Petroleum (UK) Limited United
100%
Management, support,
6th Floor, New Fetter Place Kingdom geological, geophysical
8-10 New Fetter Lane and engineering services
London EC4A 1AZ
Gulf Keystone Petroleum International Limited
Bermuda
100%
Exploration, evaluation,
Cedar House, 3rd Floor development and
41 Cedar Avenue production activities
Hamilton HM12 in Kurdistan
Bermuda Proportion of
Name of joint operation
Location
ownership interest
Principal activity
Shaikan
Kurdistan
80%
Production and
development activities
12. Inventories
2023 2022
$’000 $’000
Warehouse stocks and materials
6,900
6,074
Crude oil
374
298
Inventory held for sale
2,627
—
9,901
6,372
13. Trade and other receivables
Non-current receivables
2023 2022
$’000 $’000
Trade receivables – non-current
140,218
—
Non-current trade receivables relates to overdue amounts due from the KRG, after deducting the expected credit loss, that are expected to be
received more than 12 months from the reporting date (see below).
Current receivables
2023 2022
$’000 $’000
Trade receivables
6,350
158,032
Underlift
3,806
—
Other receivables
3,080
16,828
Prepayments and accrued income
1,882
1,343
Total current receivables
15,118
176,203
Total receivables
155,336
176,203
Underlift is the volumes owed to the Company by the KRG who lifted volumes in excess of their contractual entitlement in accordance with the
PSC. The underlift is valued at the year-end sales price. The underlift was temporary and the Group lifted the volumes in 2024.
140/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Reconciliation of Trade Receivables
2023 2022
$’000 $’000
Gross carrying amount
171,026
161,112
Less: Impairment allowance
(24,458)
(3,080)
Carrying value at 31 December
146,568
158,032
Gross trade receivables of $171.0 million (2022: $161.1 million) are comprised of invoiced amounts due, based upon KBT pricing, from the KRG for
crude oil sales totalling $158.8 million (2022: $148.9 million) related to October 2022 – March 2023 and a share of Shaikan amounts due from the
KRG that the Group purchased from MOL amounting to $12.2 million (2022: $12.2 million). Trade receivables net of capacity building payments
payable of $7.7 million (2022: $7.1 million) are $151.1 million (2022: $141.8 million).
While the Group expects to recover the full value of the outstanding invoices and purchased revenue arrears, an ECL of $24.5 million (2022: $3.1
million) was provided against the trade receivables balance in accordance with IFRS 9. During the year, a $21.4 million charge was recognised due
to the increase in the ECL provision (2022: $2.0 million).
As detailed in the Summary of significant accounting policies and Note 2, the outstanding sales invoices from October 2022 – March 2023
receivable have been recognised based on a proposed pricing mechanism, which GKP has not accepted.
ECL sensitivities
Considering the receipt profile scenarios, the only variable expected to materially change profit before tax is the timing of receipt. If the pipeline
reopening is delayed beyond October 2024 resulting in the receipt of past-due trade receivables being delayed by a further 12 months, then
the ECL would increase by $10.7 million. Conversely, if the repayment profile was brought forward by 6 months then the ECL would decrease
by $6.2 million.
The Group’s profit before tax was not materially sensitive to a movement of ±10% in the default spread or recovery rate.
Other receivables
Other receivables includes an amount relating to advances to suppliers of $0.4 million (FY 2022: $11.5 million). $0.4 million (FY 2022: $10.6 million
of the $11.5 million) relates to advances for capital expenditure and is included within investing activities in the consolidated cash flow statement.
Also included within Other receivables is an amount of $0.4 million (2022: $0.4 million) being the deposits for leased assets which are receivable
after more than one year. There are no receivables from related parties as at 31 December 2023 (2022: nil). No impairments of other receivables
have been recognised during the year (2022: nil).
14. Current liabilities
Trade and other payables
2023 2022
$’000 $’000
Trade payables
11,953
3,499
Accrued expenditures
14,009
40,642
Amounts due to KRG not expected to be cash settled
74,703
70,740
Capacity building payment due to KRG on trade receivables
7,687
7,131
Other payables
683
6,164
Lease obligations
359
385
Total trade and other payables
109,394
128,561
Trade payables and accrued expenditures principally comprise amounts outstanding for trade purchases and ongoing costs and the Directors
consider that carrying amounts approximate fair value.
Amounts due to KRG not expected to be cash settled of $74.7 million (2022: $70.7 million) include:
• $37.7 million (2022: $36.5 million) expected to be oset agffset against oil sales to the KRG up to 2018, that have not been recognised in the financial
statements as management consider that the criteria for revenue recognition have not been satisfied.
• $37.0 million (2022: $34.2 million) related to an accrual for the dieree difference between the capacity building rate of 20%, as per the invoicing basis
in eein effect since October 2017, and 30% as per the 2016 Bilateral Agreement. The working interest under the 2016 bilateral agreement is 80%
whereas the invoicing basis is 61.5%. If the commercial position were to revert to the full terms of the executed amended PSC and the 2016
Bilateral Agreement, the Company would not expect to cash settle this balance as a more than ore than offsetting increase in GKP’s net entitlement is
expected to result in revenue being due to GKP (see critical accounting judgements), the value of which is expected to exceed the accrued
$37.0 million.
141/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Notes to the consolidated financial statements
continued
14. Current liabilities continued
Deferred income
At 31 December 2023, deferred income of $5.2 million (2022: $nil) relates to cash advances paid by local oil buyers in advance of lifting oil
(See note 2).
Non-current liabilities
2023 2022
$’000 $’000
Non-current lease liability (see note 21)
39
325
15. Long term borrowings
2023 2022
$’000 $’000
Liability component at 1 January
—
103,482
Interest expense, including unwinding of finance & arrangement fees
—
8,712
Interest paid during the year
—
(10,194)
Principal repaid in year
—
(100,000)
Settlement of notes early repayment fee
—
(2,000)
Liability component at 31 December
—
—
On 2 August 2022 the Group redeemed the $100m bond and paid a 2% early repayment fee.
16. Provisions
Decommissioning provision
2023 2022
$’000 $’000
At 1 January
42,546
43,841
New provisions and changes in estimates
(8,933)
(2,161)
Unwinding of discount
1,699
866
At 31 December
35,312
42,546
The $8.9 million decrease in new provisions and changes in estimates (2022: $2.2 million) comprises an increase relating to new drilling and
facilities work of $4.2 million (2022: $7.6 million), oset by a reduon), offset by a reduction of $13.1 million (2022: $9.8 million) due to changes in inflation and discount
rates. The provision for decommissioning is based on the net present value of the Group’s estimated share of expenditure, inflated in line with the
table below and discounted at 4.6% (2022: 3.8%), which may be incurred for the removal and decommissioning of the wells and facilities currently
in place and restoration of the sites to their original state. Most expenditures are expected to take place towards the end of the PSC term in 2043.
Annual Inflation Assumption (%) 2023
2022
2023
n/a
5.00%
2024
2.25%
3.00%
2025
2.25%
2.75%
2026 – 2043
2.25%
2.75%
142/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
17. Deferred tax asset
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting periods. The deferred tax assets arise in the United Kingdom.
Accelerated tax Share-based Tax losses
depreciation payments carried forward Total
$’000 $’000 $’000 $’000
At 1 January 2022
(495)
1,049
831
1,385
(Charge)/credit to income statement
(139)
241
223
325
Exchange diExchange differences
62
(109)
(87)
(134)
At 31 December 2022
(572)
1,181
967
1,576
Credit/(charge) to income statement
882
(741)
(447)
(306)
Exchange diExchange differences
(17)
42
250
275
At 31 December 2023
293
482
770
1,545
18. Financial instruments
2023 2022
$’000 $’000
Financial assets
Cash
81,709
119,456
Receivables
152,709
162,990
234,418
282,446
Financial liabilities
Trade and other payables
109,433
128,886
109,433
128,886
All financial liabilities, except for non-current lease liabilities (see note 14), are due to be settled within one year and are classified as current
liabilities. All financial liabilities are recognised at amortised cost.
Fair values of financial assets and liabilities
With the exception of the receivables from the KRG which the Group expects to recover in full (see note 13), the Group considers the carrying value
of all its financial assets and liabilities to be materially the same as their fair value.
The financial assets balance includes a $24.5 million provision against trade receivables (2022: $3.1 million) (see note 13). All financial assets,
except derivatives designated as a hedge, are measured at amortised cost which is materially the same as fair value.
Capital Risk Management
The Group manages its capital to ensure that the entities within the Group will be able to continue as going concerns while maximising the return
to shareholders through the optimisation of the debt and equity structure. The capital structure of the Group consists of cash, cash equivalents,
notes (in prior year) and equity attributable to equity holders of the parent. Equity comprises issued capital, reserves and accumulated losses as
disclosed in note 20 and the Consolidated statement of changes in equity.
Capital Structure
The Company’s Board of Directors reviews the capital structure on a regular basis and will make adjustments in light of changes in economic
conditions. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital.
Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis
on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in
the Summary of significant accounting policies.
Financial Risk Management Objectives
The Group’s management monitors and manages the financial risks relating to the operations of the Group. These financial risks include market
risk (including commodity price, currency and fair value interest rate risk), credit risk, liquidity risk and cash flow interest rate risk.
As at year end, the Group did not hold any derivative assets to hedge against commodity price declines or any other financial risks. The Group
does not use derivative financial instruments for speculative purposes.
The risks are closely reviewed by the Group’s management under the oversight of the Board on a regular basis and, where appropriate, steps are
taken to ensure these risks are minimised.
143/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Notes to the consolidated financial statements
continued
18. Financial instruments continued
Market risk
The Group’s activities expose it primarily to the financial risks of changes in oil prices, foreign currency exchange rates and changes in interest
rates in relation to the Group’s cash balances.
There have been no changes to the Group’s exposure to other market risks. The risks are monitored by the Group’s management under the
oversight of the Board on a regular basis.
The Group conducts and manages its business predominantly in US dollars, the operating currency of the industry in which it operates. The
Group also purchases the operating currencies of the countries in which it operates routinely on the spot market. Cash balances are held in other
currencies to meet immediate operating and administrative expenses or to comply with local currency regulations.
At 31 December 2023, a 10% weakening or strengthening of the US dollar against the other currencies in which the Group’s monetary assets and
monetary liabilities are denominated would not have a material eial effect on the Group’s net assets or profit.
Interest rate risk management
The Group’s policy on interest rate management is agreed at the Board level and is reviewed on an ongoing basis. The current policy is to
maintain a certain amount of funds in the form of cash for short-term liabilities and have the rest on short-term deposits to maximise returns and
accessibility.
Based on the exposure to interest rates for cash at the balance sheet date, a 0.5% increase or decrease in interest rates would not have a material
impact on the Group’s profit.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. As at 31 December 2023,
the maximum exposure to credit risk from a trade receivable outstanding from one customer is $171.0 million (2022: $161.1 million). Although the
Group is confident in the recovery of the trade receivables balance, a provision of $24.5 million (2022: $3.1 million) was recognised against the
trade receivables balance.
The credit risk on liquid funds is limited because the counterparties for a significant portion of the cash at the balance sheet date are banks with
investment grade credit ratings assigned by international credit-rating agencies.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Group’s management under the oversight of the Board of Directors. It is the
Group’s policy to finance its business by means of internally generated funds, external share capital and debt. The Group seeks to raise further
funding as and when required.
19. Share capital
2023 2022
$’000 $’000
Authorised
Common shares of $1 each
292,105
231,605
Non-voting shares of $0.01 each
—
500
Preferred shares of $1,000 each
—
20,000
Series A Preferred shares of $1,000 each
—
40,000
292,105
292,105
Common shares
No. of Share Share Total
shares capital premium amount
‘000 $’000 $’000 $’000
Balance 1 January 2022
213,731
213,731
742,914
956,645
Dividends paid
—
—
(214,789)
(214,789)
Shares issued
2,516
2,516
—
2,516
Balance 31 December 2022
216,247
216,247
528,125
744,372
Dividends paid
—
—
(24,813)
(24,813)
Shares issued
6,196
6,196
—
6,196
Balance 31 December 2023
222,443
222,443
503,312
725,755
144/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
At 31 December 2023, a total of 0.2 million common shares at $1 each were held by the EBT (2022: 0.4 million at $1 each). These common shares
were included within reserves.
Rights attached to share capital
The holders of the common shares have the following rights (subject to the other provisions of the Byelaws):
(i) entitled to one vote per common share;
(ii) entitled to receive notice of, and attend and vote at, general meetings of the Company;
(iii) entitled to dividends or other distributions; and
(iv) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for a reorganisation or otherwise or upon a
distribution of capital, entitled to receive the amount of capital paid up on their common shares and to participate further in the surplus assets
of the Company only after payment of the Series A Liquidation Value (as defined in the Byelaws) on the Series A Preferred Shares.
20. Cash flow reconciliation
Notes
2023 2022
$’000 $’000
Cash flows from operating activities
(Loss)/profit from operations
(13,043)
273,544
Adjustments for:
Depreciation, depletion and amortisation of property, plant and equipment
(including the right of use assets)
40,409
80,883
Amortisation of intangible assets
1,648
859
Increase of provision for impairment of trade receivables
13
21,378
1,960
Share-based payment expense
23
9,673
1,866
Provision against inventory held for sale
3
2,627
—
Impairment of PPE items
3
—
1,109
Operating cash flows before movements in working capital
62,692
360,221
Increase in inventories
(7,605)
(354)
Decrease/(Increase) in trade and other receivables
(10,741)
11,640
Increase in trade and other payables
3,107
12,339
Income taxes received
67
—
Cash generated from operations
47,520
383,846
Reconciliation of property, plant and equipment additions to cash flows from purchase of property, plant and equipment:
2023 2022
$’000 $’000
Associated cash flows
Additions to property, plant and equipment
58,652
116,617
Movement in working capital
6,764
(11,214)
Non-cash movements
Foreign exchange dichange differences
(30)
(112)
Purchase of property, plant and equipment
65,386
105,291
145/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
Notes to the consolidated financial statements
continued
21. Lease Liabilities
During 2023, the total cash outflows relating to leased assets was $0.5 million (2022: $0.5 million); this amount is the total of capital repayments,
interest charges and foreign exchange impact.
2023 2022
$’000 $’000
Current liabilities (note 14)
359
385
Non-current liabilities (note 14)
39
325
398
710
Lease liability maturity analysis
Year 1
359
385
Year 2
19
325
Year 3
20
—
Amounts payable under leases
Within one year
377
436
In the second to fifth year inclusive
42
339
419
775
Less future interest charges
(21)
(65)
Net present value of lease obligations
398
710
22. Commitments
Exploration and development commitments
Additions to property, plant and equipment are generally funded with the cash flow generated from the Shaikan Field. As at 31 December 2023,
gross capital commitments in relation to the Shaikan Field were estimated to be $2.2 million (2022: $41.9 million).
23. Share-based payments
2023 2022
$’000 $’000
Total share options charge
9,673
3,266
The share options charge of $9.6 million is comprised of $9.1 million (2022: $3.1 million) related to the LTIP plan and $0.6 million (2022: nil) related
to the deferred bonus plan.
See note 5 for other share option related expenses charged to the consolidated income statement.
Long Term Incentive Plan
The Gulf Keystone Petroleum 2014 Long Term Incentive Plan (“LTIP”) is designed to reward members of sta thrs of staff through the grant of share options
at a zero-exercise price, that vest three-years after grant, subject to the fulfilment of specified performance conditions. These performance
conditions are 50% Total Shareholder Return (“TSR”) over the vesting period and 50% of the Group’s TSR relative to a bespoke group of
comparators over the vesting period.
2023 2022
Number of Number of
share options share options
‘000 ’000
Outstanding at 1 January
8,785
8,275
Granted during the year
6,295
2,278
Exercised during the year
(6,383)
(586)
Forfeited during the year
(693)
(1,182)
Outstanding at 31 December
8,004
8,785
Exercisable at 31 December
—
—
The weighted average share price at the date of exercise for share options exercised during the year was £1.17 (2022: £2.44).
146/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
The inputs into the calculation of fair values of the share options granted during the year are as follows:
2023
2022
Weighted average share price
£1.07
£1.67
Weighted average exercise price
Nil
Nil
Expected volatility
52.5%
57.7%
Expected life
3 years
3 years
Risk-free rate
3.3%
1.4%
Expected dividend yield (on the basis dividends equivalents received)
Nil
Nil
The options outstanding at 31 December 2023 had a weighted average remaining contractual life of two years (2022: two years).
The aggregate of the estimated fair value of options granted in 2023 is $4.6 million (2022: $5.0 million).
Deferred Bonus Plan
At the Company’s AGM in June 2019, shareholders approved the Deferred Bonus Plan. This provides for 30% of the annual bonus attributable
to Executive Directors to be paid in the form of nil cost options that can be exercised any time after the three-year vesting period. There are no
performance conditions other than the Executive Director must continue to be employed for this period (subject to certain limited exceptions).
2023 2022
Number of Number of
share options share options
‘000 ’000
Outstanding at 1 January
218
113
Exercised during the year
(180)
—
Granted during the year
178
105
Outstanding at 31 December
216
218
Exercisable at 31 December
—
—
The weighted average share price at the date of exercise for share options exercised during the year was £1.37 (2022: not applicable).
During the year 177,832 options (2022: 104,968) were granted to employees under the Deferred Bonus Plan.
The options outstanding at 31 December 2023 had a weighted average remaining contractual life of two years.
Value Creation Plan (“VCP”)
The VCP was approved by shareholders in December 2016. In 2022, certain nil cost share option awards vested in accordance with the VCP rules,
with the Company achieving a TSR of at least 8% compound annual growth. There will be no further awards under the plan.
2023 2022
Number of Number of
share options share options
‘000 ’000
Outstanding at 1 January
—
3,508
Exercised during the year
—
(3,508)
Outstanding at 31 December
—
—
Exercisable at 31 December
—
—
24. Dividends
During 2023, a total of $25 million dividends (11. 56 1 US cents per Common Share) were declared and paid to shareholders. In 2022, a total
of $215million215 million dividends were declared and paid to shareholders including an ordinary dividend of $25 million (11.561 US cents per Common
Share), a special dividend of $50 million (23.12 US cents per Common Share) and interim dividends totalling $140 million (6 5 . 27 US cents per
CommonShan Share).
To date in 2024, no dividends have been declared or paid.
147/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
25. Related party transactions
The Company has a related party relationship with its subsidiaries and in the ordinary course of business, enters into various sales, purchase
and service transactions with joint operations in which the Company has a material interest. These transactions are under terms that are no less
favourable to the Group than those arranged with third parties.
Remuneration of Directors and Ocers and Officers
The remuneration of the Directors and Ond Officers who are considered to be key management personnel is set out below in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures. The Directors and Od Officers who served during the year ended 31 December 2023 were
as follows:
• J Huijskes – Non-Executive Chairman (resigned June 2023)
• M Angle – prior Deputy Chairman who became Non-Executive Chairman June 2023
• K Wood – Non-Executive Director became Deputy Chair June 2023
• D Thomas – Non-Executive Director
• W Mwaura – Non-Executive Director
• J Balkany – Non-Executive Director (appointed July 2023)
• G Soden – Non-Executive Director (resigned June 2023)
• J Harris – Chief Executive Ocfficer and Director
• I Weatherdon – Chief Financial Ocer and Dir Financial Officer and Director
• G Papineau-Legris – Chief Commercial Ocer Commercial Officer
• C Kinahan – Chief Human Resources Ocfficer
• A Robinson – Chief Legal Ocer af Legal Officer and Company Secretary
• J Hulme – Chief Operating Og Officer
The values below are calculated in accordance with IAS 19 and IFRS 2.
2023 2022
$’000 $’000
Short-term employee benefits
3,463
4,725
Share-based payment – options
4,065
1,499
7,528
6,224
Further information about the remuneration of individual Directors is provided in the Directors’ Emoluments section of the Remuneration
Committee report.
26. Contingent Liabilities
The Group has a contingent liability of $27.3 million (2022: $27.3 million) in relation to the proceeds from the sale of test production in the period
prior to the approval of the original Shaikan Field Development Plan (“FDP”) in June 2013. The Shaikan PSC does not appear to address expressly
any party’s rights to this pre-FDP petroleum. The sales were made based on sales contracts with domestic otc offtakers which were approved by
the KRG. The Group believes that the receipts from these sales of pre-FDP petroleum are for the account of the Contractor, rather than the KRG
and accordingly recorded them as test revenue in prior years. However, the KRG has requested a repayment of these amounts and the Group is
involved in negotiations to resolve this matter. The Group has received external legal advice and continues to maintain that pre-FDP petroleum
receipts are for the account of the Contractor. This contingent liability forms part of the Shaikan PSC amendment negotiations and it is likely that it
will be settled as part of those negotiations.
Notes to the consolidated financial statements
continued
148/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Introduction
This report sets out details of the payments made to governments by Gulf Keystone Petroleum Ltd and its subsidiary undertakings (“Gulf
Keystone”) for the year ended 31 December 2023 as required under Disclosure and Transparency Rule 4.3A issued by the UK’s Financial
Conduct Authority (“DTR 4.3A”) and in accordance with The Reports on Payments to Governments Regulations 2014 (as amended in 2015)
(“the UK Regulations”) and our interpretation of the Industry Guidance on the UK Regulations issued by the International Association of Oil &
Gas Producers. DTR 4.3A requires companies listed on a stock exchange in the UK and operating in the extractive industry to publicly disclose
payments to governments in the countries where they undertake exploration, prospection, discovery, development and extraction of minerals,
oil,natural gas deposits or other materials.
Basis for preparation
Total payments below £86,000 made to a
government are excluded from this report, as
permitted under the UK Regulations.
All of the payments made in relation to
the Shaikan Production Sharing Contract
(“Shaikan PSC”) in the Kurdistan Region of
Iraq have been made to the Ministry of Natural
Resources (“MNR”) of the Kurdistan Regional
Government (“KRG”).
Production entitlements
Production entitlements are the host
government’s share of production during
the reporting period from the Shaikan Field
operated by Gulf Keystone. The figures
reported have been produced on an
entitlement basis, rather than on a liftings
basis. Production entitlements are paid in-kind
and the monetary value disclosed is derived
from management’s estimates based on the
monthly oil sales invoices.
Royalties
Royalties represent royalties paid in-kind
to governments during the year for the
extraction of oil. The terms of the royalties are
described within the Shaikan PSC. Royalties
have been calculated on the same basis as
production entitlements.
Licence fees and capacity
building payments
These include licence fees, rental fees, entry
fees, capacity building payments, security
fees and other considerations for licences or
concessions.
Summary of payments
2023
Production entitlements in-kind
(1)
(mboe
(2)
) 2,658
Production entitlements in-kind
(1)
($’000) 109,345
Royalties in-kind
(1)
(mboe
(2)
) 637
Royalties in-kind
(1, 2)
($’000) 26,221
Licence fees and capacity building payments in-kind
(3)
($’000) 7,522
Total (mboe
(2)
) 3,295
Total ($’000) 143,087
(1) Crude oil produced by Gulf Keystone into the Iraq Turkey Pipeline (“ITP”) was sold by the KRG up until the suspension of pipeline exports on 25 March 2023.
During this period all proceeds of sale were received by or on behalf of the KRG, out of which the KRG subsequently made payment for cost oil and profit oil to Gulf
Keystone in accordance with the Shaikan Production Sharing Contract (“PSC”), in exchange for the crude oil delivered to the KRG. Under these arrangements,
payments were made by or on behalf of the KRG to Gulf Keystone, rather than by Gulf Keystone to the KRG. For the purposes of the reporting requirements under
the UK Regulations, Gulf Keystone is required to characterise the value of the KRG’s production entitlements under the PSC (for which the KRG receives payment
directly from the market) as a payment to the KRG. From 19 July 2023, crude oil produced by Gulf Keystone was sold to local buyers. The KRG received its share of
profit oil in accordance with the PSC and sold the volumes directly to local buyers with the estimated value of such sales being included as a payment to the KRG.
(2) Thousand barrels of oil.
(3) For crude oil sales into the ITP from 1 January 2023 to 25 March 2023, capacity building payments were deducted from the monthly crude oil sales invoice amount
payable to Gulf Keystone and no direct payment was made to the KRG. For local sales from 19 July 2023 to 31 December 2023, the KRG received capacity
building volumes in kind, which they then sold to local buyers. The value of licence, rental and security fees has been accrued and is not expected to be paid, but
rather oset against historic revenue due from the KRG, which have not yet been recognised in the financial statements.
Report on Payments to Governments
for 2023
149/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
1P proved reserves
2C best estimate of contingent resources
2P proved plus probable reserves
AGM Annual General Meeting
bbl barrel
bopd barrels of oil per day
CAGR Compound Annual Growth Rate
Capex capital expenditure
CGU cash-generating unit
COVID-19 Coronavirus
CPR Competent Person’s Report
CSR corporate social responsibility
DD&A depreciation, depletion and amortisation
E&P exploration and production
EBITDA earnings before interest, tax, depreciation and
amortisation
EBT employee benefit trust
ECL expected credit losses
ERCE ERC Equipoise Ltd
ERP Enterprise Resource Planning
ESG environmental, social and governance
ESIA environmental and social impact assessment
ESP electric submersible pump
FDP Field Development Plan
FGI Federal Government of Iraq
FVTPL fair value through profit and loss
G&A general and administrative
GHG greenhouse gas
GKP Gulf Keystone Petroleum Limited
GKPI Gulf Keystone Petroleum International Limited
GMP Gas Management Plan
GRI Global Reporting Initiative
HSE health, safety and environment
IA Investment Association
IAS International Accounting Standards
IFRS International Financial Reporting Standards
IOC International Oil Companies
IOGP International Association of Oil & Gas Producers
IPIECA International Petroleum Industry Environmental
Conservation Association
ISAs (UK) International Standards on Auditing (UK)
KPI key performance indicator
KRG Kurdistan Regional Government
LTI Lost Time Incident
LTIP Long-Term Incentive Plan
LTIR Lost Time Incident Rate
MMbbls million barrels
MMstb million stock tank barrels
MNR Ministry of Natural Resources of the Kurdistan
Regional Government
MOL Kalegran B.V. (a subsidiary of MOL Hungarian Oil
& Gas plc)
OBM oil-based mud
OPEC Organization of the Petroleum Exporting
Countries
Opex operating costs
PDMR Persons Discharging Managerial Responsibilities
PF-1 Shaikan Production Facility 1
PF-2 Shaikan Production Facility 2
PID photo-ionisation detector
PPE property, plant and equipment
PSC Production Sharing Contract
SASB Sustainability Accounting Standards Board
SDGs The UN’s Sustainable Development Goals
SECR Streamlined Energy and Carbon Reporting
SH Shaikan
Shaikan PSC PSC for the Shaikan block between the
KRG, GulfKeystone Petroleum International
Limited, Texas Keystone, Inc and MOL
signed on 6November 2007 as amended
bysubsequentagreement
SID Senior Independent Director
SRP Sta Retention Plan
TCFD Task Force on Climate-related Financial
Disclosures
TRIR Total Recordable Incident Rate
TSR total shareholder return
UKLA United Kingdom Listing Authority
VCP Value Creation Plan
WEF Water Environment Federation
WHO World Health Organization
WI working interest
$ US dollars
Glossary
150/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Registered oce
Gulf Keystone Petroleum Limited
c/o Coson Corporate Services Limited
Cedar House
3rd Floor
41 Cedar Avenue
Hamilton HM12
Bermuda
Directors
Martin Angle
Non-Executive Chairman
Jon Harris
Chief Executive Ocer
Ian Weatherdon
Chief Financial Ocer
Kimberley Wood
Deputy Chairman and
SeniorIndependentDirector
David Thomas
Non-Executive Director
Wanda Mwaura
Non-Executive Director
Julien Balkany
Non-Executive Director
Bermudan Company Secretary
Coson Corporate Services Limited
Cedar House
3rd Floor
41 Cedar Avenue
Hamilton HM12
Bermuda
Bermudan legal adviser
Carey Olson
Carey Olsen Bermuda Limited
Rosebank Centre
5th Floor
11 Bermudiana Road
Pembroke HM08
Bermuda
Legal advisers – corporate
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2EG
United Kingdom
Legal advisers – dispute
resolution
Three Crowns LLP
New Fetter Place
8-10 New Fetter Lane
London EC4A 1AZ
United Kingdom
Auditor
BDO LLP
7th Floor, North
55 Baker Street
London W1U 7EU
United Kingdom
Registrars
Computershare Investor Services
(Jersey) Limited
13 Castle Street
St Helier
Jersey JE1 1ES
Channel Islands
Joint corporate brokers
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
United Kingdom
Peel Hunt LLP
100 Liverpool Street
London EC2M 2AT
United Kingdom
Banks
Barclays Bank PLC
Level 27
1 Churchill Place
London E14 5HP
United Kingdom
CitiBank, N.A.
London Branch
Citigroup Centre
25 Canada Square
Canary Wharf
London E14 5LB
United Kingdom
The Royal Bank of Scotland Group plc
43 Curzon Street
London W1J 7UF
United Kingdom
Cihan Bank for Islamic Investment
andFinance
100 Meter Road
PO Box 0116-17
Erbil
Kurdistan Region of Iraq
Byblos Bank S.A.L – Iraq
60 Meter Street
PO Box 34-0383
Erbil
Kurdistan Region of Iraq
Byblos Bank S.A.L – UK
Berkeley Square House
Suite 5, Berkeley Square
London W1J 6BS
United Kingdom
Financial adviser
Evercore
15 Stanhope Gate
London
W1K 1LN
Media relations
FTI Consulting
200 Aldersgate
London
EC1A 4HD
Directors and advisers
151/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
Financials
25 January 2024
Pareto Securities’ 19th Annual E&P Independents Conference, London
28 February 2024
SpareBank 1 Markets 2024 Energy Conference, Oslo
21 March 2024
2023 full-year results announcement
21 June 2024
AGM, via webcast
29 August 2024
2024 half-year results announcement
Key shareholder engagements
152/Gulf Keystone Petroleum LimitedAnnual report and accounts 2023
This report is printed on paper certified in accordance with the FSC®
(Forest Stewardship Council®) and is recyclable and acid-free.
Pureprint Ltd is FSC certified and ISO 14001 certified showing that
it is committed to all round excellence and improving environmental
performance is an important part of this strategy.
Pureprint Ltd aims to reduce at source the eect its operations have
on the environment and is committed to continual improvement,
prevention of pollution and compliance with any legislation
or industry standards.
Pureprint Ltd is a Carbon / Neutral® Printing Company.
Designed and produced by
www.lyonsbennett.com
Bermuda
Gulf Keystone Petroleum Limited
c/o Coson Corporate Services
Limited
Cedar House
3rd Floor
41 Cedar Avenue
Hamilton HM12
Bermuda
Kurdistan Region of Iraq
Gulf Keystone Petroleum
International Limited
3rd Floor
UB Centre
Bakhtyari
Erbil
United Kingdom
Gulf Keystone Petroleum (UK)
Limited
6th Floor
New Fetter Place
8-10 New Fetter Lane
London EC4A 1AZ
Further details regarding
shareholder information can
befound on our website.
www.gulfkeystone.com
Gulf Keystone Petroleum LimitedAnnual report and accounts 2023