Gulf Keystone Petroleum - November 2016 - OTC Markets
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Gulf Keystone Petroleum November 2016
2 Disclaimer These Presentation Materials are for information purposes only and must not be used or relied upon for the purpose of making any investment decision or engaging in any investment activity. Whilst the information contained herein has been prepared in good faith, neither Gulf Keystone Petroleum Limited (the “Company”), its subsidiaries (together, the “Group”) nor any of the Group’s directors, officers, employees, agents or advisers makes any representation or warranty in respect of the fairness, accuracy or completeness of the information or opinions contained in this presentation and no responsibility or liability will be accepted in connection with the same. The information contained herein is provided as at the date of this presentation and is subject to updating, completion, revision, verification and further amendment without notice. These Presentation Materials contain forward-looking statements in relation to the Group. By its very nature, such forward-looking information requires the Company to make assumptions that may not materialise or that may not be accurate. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the control of the Company that could cause the actual performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Nothing in this presentation should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance.
1. Introduction to Gulf Keystone Petroleum
4
Key investment highlights
1
Gulf Keystone Petroleum (“GKP”) is a leading independent E&P in the Kurdistan Region of Iraq and the
operator of the large Shaikan oil field – with 622 MMbbl 2P reserves and 239 MMbbl 2C resources (gross)
Well understood
asset with visible Stable and predictable field performance with current production capacity of 40k bopd of low cost, heavy
production growth oil, all of which is exported to Ceyhan
Option to increase to 55k bopd in the near-term and up to 110k bopd under the full FDP
2
The board of directors has been significantly upgraded since early 2015, including the appointment of a
new Chairman, CEO and CFO
New and enhanced
management team The recent additions to the board of directors and to senior management have enhanced technical,
commercial and financial capabilities
3
Regular payments to operators by the MNR since September 2015
Improving visibility
GKP has received cumulative gross payments of US$127.5m in 2016
on payment
Sustained regular revenue receipts will continue to drive GKP’s investment decisions
4
GKP completed a landmark financial restructuring on 13th October 2016, providing a strong balance sheet
Restructured
balance sheet to to relaunch the company and pursue development of the Shaikan field
support growth
Net cash position: US$100m of debt (down from c.US$601m) with US$109m(1) of cash
(1) As at 26 October 2016
5
Key milestones since January 2015
Governance & Management
January 2015 August 2015 July 2016
Sami Zouari, CFO joins Nadhim Zahawi, Chief Strategy Keith Lough appointed as
Officer joins Chairman
2015 2016 Today
October 2016
June 2015 December 2015 David H Thomas and
Jón Ferrier, CEO joins Keith Lough, NED joins Garrett Soden, NEDs join
Operations & Finance
March 2015 June 2015 October 2015 February 2016 July 2016 August 2016
Successful equity Access to the export Updated CPR KRG commits to pay IOCs 25 million barrels Successful US$25m
raise of US$40.7m pipeline established published: 114% in line with their monthly produced from Open Offer
increase in Shaikan 2P contractual entitlement Shaikan
2015 2016 Today
September 2015 August 2016
March 2015: Commencement of the July 2016 Updated CPR October 2016
Completion of stable monthly payment Restructuring published: 2P Restructuring
Shaikan-11 well cycle by the KRG launched stable completed
6
Board of directors
A strengthened board of directors and management with extensive skill sets and expertise (technical, commercial and
financial) to drive Gulf Keystone through its next phase of growth, under proper corporate governance
Keith Lough Jón Ferrier Sami Zouari Philip Dimmock David Thomas Garrett Soden
Non-Executive Chairman Chief Executive Officer Chief Financial Officer Non-Executive Director Non-Executive Director Non-Executive Director
Joined in December 2015 Joined in June 2015 Joined in January 2015 Joined in September 2013 Joined in October 2016 Joined in October 2016
Experience: Experience : Experience : Experience : Experience : Experience :
• Non-Executive Director at • Senior Vice President • Regional Head of • Consultant and Chief • Served on caretaker • Senior Executive and
Rockhopper Exploration, Business Development, Corporate & Investment Operating Officer at Board at Afren Board member at Lundin
Cairn Energy, Papua Strategy & Commercial at Banking for North Africa, Equator Exploration • COO Petroceltic Group
Mining Maersk Oil in Iraq and Oman at BNP • Various roles at BP International • Non-Executive Director at
• CFO at PetroKazakhstan Copenhagen Paribas • Chairman and Vice • CEO at Melrose Etrion Corporation and
• CEO, Hutton Energy • Delivery of the US$1 Bn • Head of MENA within the President of the Resources Panoro Energy
• Founded Composite Ebla Gas project in Syria Energy & Commodity International Division at • President and COO at • Chairman and CEO of
Energy • Previously served at division of BNP Paribas in Ranger Oil Centurion Energy RusForest
• CFO British Energy ConocoPhillips, Paladin Paris • Executive Officer at UK • Regional Vice President • CFO at Etrion and
• Senior financial and Resources and Petro- • Commercial Manager at Offshore Operators at ENI PetroFalcon
operational roles including Canada/Suncor Total EP Libya Association • Group General Manager • Equity research at
Managing Director at • MSc at Imperial College • Economist for the Middle • Non-Executive Director at Operations at LASMO Lehman Brothers
LASMO East Division at Total EP Nautical Petroleum • Petroleum Engineer at • M&A at Salomon Brothers
• Master’s at Harvard and Conoco UK • Senior Policy Advisor to
BA at Columbia University U.S. Secretary of Energy
Represents Executive Directors
7 Senior management team John Umur Nadhim Gabriel Marie Nadzeya Anastasia Stafford Eminkahyagil Zahawi Papineau-Legris Ross Kernoha Vvedenskaya Vice President Country Manager Chief Strategy Officer Commercial Director Legal Director & Financial Controller Head of Investor Operations Kurdistan Company Secretary Relations Joined in 2009 Joined in March 2012 Joined in August 2015 Joined in Sept 2016 Joined in Sept 2015 Joined in January 2012 Joined in January 2011 Experience: Experience: Experience: Experience: Experience: Experience: Experience: • ECL, Schlumberger, • Vice President, MB • Conservative • 10 years of • Legal Director, • First joined GKP as a • 15 years in oil & gas PGS Petroleum Services Member of experience in Corporate Services, Financial Accountant • A variety Corporate • Manager of a six field • Expro Group - Parliament upstream oil & gas Scottish Power before being Affairs roles with ENI, integrated project Malaysia, South East • Co-Founder and • Private equity at Lime • Senior Management appointed as Shell, and development, Asia and General CEO, YouGov, Rock Partners roles at Maven Financial Controller PetroKazakhstan in experience of Manager in Angola • European Marketing • Investment banking Capital Partners, • Qualified Chartered Kazakhstan, the fractured reservoir • Reservoir Director, Smith & at Perella Weinberg Ogier Fiduciary Accountant Netherlands, Italy, development in the engineering positions Brooks and Merrill Lynch Services (Guernsey) • Energy and Resource France and the UK Zagros trend, PGS with Shell • A number of Advisory • Company Secretary, Audit Practice, • Risk Board advisor to roles in the O&G Scottish Widows Deloitte UK PGS sector Group • Integrated field management and reserves certification and reporting experience
8
Gulf Keystone today
Shaikan production facility (PF-1)
Capital structure overview
US$m(1)
Share price – 22-Nov-16 (p) 1.22p
Number of shares (million) 22,943.0
``
Market capitalisation $349.9
Total debt(2) (post restructuring) 100.0
Cash(3) (108.9)
Enterprise value $341.0
Analysts’ asset value(4) – median 896.1
Reserves & resources summary Priorities
MMbbl EV/bbl Safe production and development; pre-development nature of the
asset is a differentiator
1P 138 $2.5
2P 360 $0.9 Focus on delivering on growth potential of Shaikan beyond
current 40k bopd production capacity
2P + 2C 499 $0.7
Generate cash and fund near-term growth to 55k bopd production
Production summary capacity
kbopd
Focus; no plans to acquire new acreage or enter new countries,
2016 H1 33.0 no exploration commitments
2016 guidance 31.0 – 35.0 Corporate governance and transparency
Source: Thomson Reuters; Bloomberg; company reports; ERC Equipoise CPR (Aug-16)
(1) Based on GBPUSD rate of 1.25
(2) Flexibility of pay interest in kind until October 2018
(3) Cash position (as at 26 October 2016)
(4) Median NPV based on research reports from Cantor-Fitzgerald (28-Oct-16), Canaccord (26-Oct-16), Mirabaud (5-Aug-16) and Pareto (1-Aug-16)
2. Overview of Kurdistan
10
Kurdistan overview
Kurdistan is the only semi-autonomous, Turkey
constitutionally recognised, political region in Iraq
Kurdistan’s oil industry is at a relatively early Iran
stage of development – the first exploration
Production Sharing Contracts (“PSC”) were Syria
awarded in 2004
USGS reports significant hydrocarbon potential
with estimated undiscovered hydrocarbons of c.40
billion barrels of oil and 60 Tcf of gas
Oil exports account for almost all of Kurdistan’s
budget revenues
Iraq
Encouraging progress on reforms progressively
ease budget pressure
KRG’s Ministry of Natural Resources (“MNR”)
remains supportive to the private oil & gas
industry to grow oil and gas production
GKP has a strong professional relationship with Saudi Arabia
the MNR
License Shaikan
Source: US Geological Survey11
Sustainable Kurdish crude exports & steady history of
payments
Regular payments to operators by the MNR since September 2015
Following the March 2016 Bilateral Agreement, the MNR has continuously paid flat US$15m per month. Subject to
implementation of second PSC amendment, regular invoicing as per PSC terms to resume
GKP has received cumulative gross payments of US$127.5m in 2016
GKP gross export payments received (US$m)
15.0 15.0 15.0 15.0 15.0 7.5 15.0 15.0 15.0 15.0 15.0 15.0
700 80
Export pipeline
disruption in
600 70
Turkey
MNR export volumes (kbopd)
17 Feb. to
10 Mar. 2016 60
500
50
Brent (US$/bbl)
400
40
300
30
200
20
100 10
- --
MNR export volumes (kbopd) Brent ($/bbl)
Source: Company information, Thomson Reuters, KRG monthly report3. Shaikan overview
13
Shaikan field overview
Located c.60km north of Erbil, the Shaikan field is one of the largest fields in Kurdistan – by reserves and production
Discovered in 2009, commercial production commenced in July 2013 and over 30 MMbbl have been produced to date
Steady production rate of 38k-40k bopd – although some factors outside GKP’s control (such as export pipeline restrictions, truck
drivers strikes) may impact monthly average figures
Near-term target to increase current production capacity of 40k bopd to 55k bopd, which can be financed with operating cash flow and
existing cash balance
Low production costs by global standards – with scope to reduce as the field is further developed
Field structure Gross production costs
2014A $7/bbl
2015A $5/bbl
1H 2016 $4/bbl14
A differentiated sub-surface story
The field contains heavy oil in fractured Jurassic carbonates (c.1,000m column) and lighter oil in fractured Triassic carbonates below
Dynamic data acquired so far suggest that aquifer influx is limited, compared to other fields in Kurdistan. The recovery from the field is
expected to be primarily dominated by processes associated with pressure depletion, supported by a gas cap expansion
The reservoir performance is stable, with pressure decline in line with expectations
Substantial reserves and resources base – 622 MMbbl 2P reserves (gross) and 239 MMbbl 2C resources (gross)
Illustrative cross section through Shaikan
Cretaceous
Heavy oil15
Clear path to growth
Disciplined focus on Shaikan:
1) Maintain production level in line with current production capacity
2) Grow to 55k bopd followed by full field development plan
3) Diversification into other licenses or jurisdictions is not an area of focus
Shaikan production
capacity (bopd)
110k
55k
40k
Today Near-term Long-term
Up to 4 ESPs on existing wells
Additional train at production Full development of Jurassic
plans summary
1 new Jurassic well + ESP facility
Investment
First development of Cretaceous and
Maintenance and further Trunk line tie-in (optional) Triassic reservoirs
debottlenecking
Incremental capex: c.US$17-30m(1) Central processing facility, gas re-
Estimated capex: c.US$59-68m(1) (gross; funded from forecast cash injection, field infrastructure, pipeline,
(gross; funded from forecast cash flow) ~40 wells
flow)
Investment plans subject to MOL and MNR approval
(1) Includes 30% contingency16
Access to market
Turkey
Tawke
Iran
Taq Taq
Syria
Iraq
In September 2015 GKP, at the request of the MNR, commenced trucking Shaikan crude oil a distance of 120 km to
Fyshkhabour on the Turkish border for injection into the export pipeline to Ceyhan in Turkey
The MNR currently control all marketing and crude exports from Kurdistan – c.600k bopd exported to Ceyhan with no
immediate constraints for additional crude oil volumes
Shaikan crude oil is sold as part of the internationally traded Kirkuk blend17
Reserves and resources
Two CPR from ERCE released in less than a year confirmed reserves and GKP’s understanding of the reservoir
GKP reserves & resources evolution (MMbbl) E&P peers – 2P reserves (MMboe)
Total: 163 348 360 407 130 139 570 478 499 Gulf Keystone’s reserves and resources have
been audited by ERCE
600
ERCE has conducted audits for a wide range
of companies, including:
500
139
130
400
407 392
360
300
MMbbl
182 222 182 222
242 238
200 407
55 55
100
166 166
138 130 139 138
108 108
--
2014 2015 2016 2014 2015 2016 2014 2015 2016
2P 2C 2P + 2C
Proved reserves Probable reserves Resources
Source: 2015 Annual Statement of Reserves for DNO; ERC Equipoise Aug-2016 CPR for GKP; Jun-2016 Investor Presentation for Genel; Aug-2016 Investor Presentation for Oryx18
Robust economics in a low oil price environment
Despite the heavy nature of the Shaikan crude, the field remains highly competitive and ranks in the top quartile of projects
across the globe
$140
$120
$100
Breakeven oil price (US$/bbl)
$80
$60
$40
$20
$0
Shaikan
Source: Goldman Sachs Research, June 20164. Financial review
20
Healthy balance sheet & supportive shareholder base
Capital structure evolution through transaction (US$ million)
Restructuring completed on 13th October 2016
US$601m of debt reduced to US$100m Pre-restructuring Post-restructuring
Flexibility of pay interest in kind until October 2018
Total Debt US$ 601m(1) US$ 100m
US$25m raised through Open Offer, underwritten by
Capital Group
Shareholders supportive of transaction
(1)
335
Convertible US$ 501 million
Bonds deleveraging
Shareholders (disclosed since completion of restructuring) achieved
Shareholder # shares %
(1)
266
1 Sothic Capital 3,215,949,413 14.0% Guaranteed 100
Notes
Reinstated Notes
2 Taconic Capital Advisors 3,163,493,886 13.8%
(80)(2) (109)
(3)
Cash
3 Lansdowne Partners 2,413,830,353 10.5% Cash
4 Capital Group 1,959,503,854 8.5% Current Post transaction
5 Cowell & Lee 1,324,372,907 5.8% Equity ownership – Post-restructuring
6 GLG 1,317,312,496 5.7% Guaranteed Noteholders 65.5%
Convertible Bondholders 20.0%
Top 6 disclosed holdings 13,394,462,909 58.4%
Existing shareholders pre restructuring 4.5%
Total 22,942,956,605 100.0% Existing shareholders subscribing to Open Offer 10.0%
Total 100.0%
Source: TR-1 releases
(1) Guaranteed Notes and Convertible Bonds claims include unpaid April coupons
(2) Cash position (as at 29 September 2016)
(3) Cash position (as at 26 October 2016)21
Historical revenue & cash flow
Steadily increasing revenue driven by growing production (up 28% in 1H 2016 y-o-y)
Excluding any financing activities, GKP has generated net positive cash flow in 1H 2016 for the first time
Current cash balance of US$108.9m(1)
Net revenue (US$m) Net Increase / (Decrease) in Cash (US$m)
300
200
$51m
100
--
$56m
$51m
(100)
$30m
$19m $20m
(200)
1H 2014 2H 2014 1H 2015 2H 2015 1H 2016 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016
Investing activities Financing activities
Revenue - cash receipt assured Revenue - arrears recognised Operating activities Net increase / (decrease) in cash
(1) As at 26 October 201622
Shaikan arrears
Net position to GKP as at:
30 June 2016 31 December 2015 Comments
(US$m)
$10m gross ($8m net) production bonus
$28m(1)(2) $44m(3)
Net revenue arrears offset included as payables to the MNR
MNR Government Participation Option Receipt of $22m top-ups offset by
$61m $75m
(back costs)(4) additional costs during the period
Note: All values are subject to audit and reconciliation
(1) Pre-2013 sales of US$27.3m remain as contingent liability subject to final agreement with the MNR
(2) Net of payables outstanding to the MNR and excluding June 2016 and May 2016 revenue receivable
(3) Calculated as Gross Arrears of US$93m minus Payables to the MNR of US$49m as per 2015 year-end investor presentation
(4) Subject to the execution of the Second Shaikan Amendment implementing the terms of the Bilateral MNR Agreement5. Conclusion
24
Summary and outlook
1 Safety, reliable operations, no surprises
2 Grow Shaikan production; 40–55–110k bopd, risk managed,
linked to payments
3 Work with MOL and MNR to implement second PSC amendmentAppendices
26
Reserves and economics summary
Gulf Keystone Asset Overview (58% WI)(1)
Gross Field Oil Reserves (MMbbl) GKP WI Reserves/Resources (MMbbl)
Field Formation
1P 2P 3P 1P 2P 3P
Shaikan Cretaceous 1 3 4 1 2 2
Shaikan Jurassic 219 575 883 127 333 512
Shaikan Triassic 18 44 63 10 25 37
Shaikan Total 238 622 951 138 360 551
CPR Economics Summary
NPV net to GKP at 1 July 2016 (USD) at various discount rates
Reserves category Economic Limit (year)
0% 5% 10% 15% 20%
1P 2029 812 501 306 180 99
2P 2043 3,067 1,759 1,089 708 477
3P 2043 4,615 2,374 1,364 849 559
Brent crude price assumptions 2016 2017 2018 2019 2020 2021 2022 2023+
Nominal (US$/bbl) 46 54 63 69 74 78 79 +2.0% p.a.
Refers to Base Case
(1) 58% WI subject to the ratification of the agreement with MNR dated 16 March 2016
Source: ERC Equipoise – CPR August 201627
Shaikan production sharing contract summary
GROSS REVENUE
100%
ROYALTY
10%
NET REVENUE
90%
COST RECOVERY PROFIT OIL
40% 60%
(1)
Unused CR = Profit Oil CONTRACTOR KRG (1) Split based on R-Factor (Cum. Rev/Cum. Costs)
30%-15% 70%-85% based on linear scale 12
Corporate Tax Paid by Government
CONTRACTOR
INCOME
Divided by Working Interest (WI) %
(1) KRG entitled to a capacity building payment representing 40% of GKPI / TKI profit oil
(to be reduced to 30% subject to the finalisation of the Second Shaikan PSC Amendment pursuant to the 16 March 2016 Bilateral Agreement between GKP and the MNR)28
Bilateral agreement with MNR – 16 March 2016
Subject to the finalisation and execution of the Second Shaikan Amendment, GKP and the MNR agreed to the following:
Change GKP’s capacity building charge from 40% to 30%
Recognise the MNR’s Shaikan Government Participation Option of up to 20% as a paying party
Implement the provisions of the First Amendment to Shaikan PSC dated 1 August 2010
− The 15% TPI interest to be split between the Government and Contractor with the Government’s 7.5% interest being fully carried
5% Texas Keystone (“TKI”) interest to be formally assigned to GKP
Previous Proforma(1) As Per Bilateral Agreement
Diluted working Capacity building Undiluted working Diluted working Capacity building
Cost exposure
interest charge interest interest charge
GKP 54.4% (40%) 80.0% GKP 58.0% (30.0%) 64.0%
MOL 13.6% 20.0% MOL 14.5% 16.0%
MNR 20.0% MNR 27.5% 20.0%
TPI 12.0%
Total 100% 100% Total 100% 100%
(1) Subject to the finalisation of the Second Shaikan PSC AmendmentThank you More resources are available at: www.gulfkeystone.com
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