# Strategic report

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/LSE_GKP.L_2019/LSE_GKP.L_2019.mmd` · pages 3-9_

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Strategic report

An overview of key actions and events in 2019 and early 2020, together with our priorities as we focus on the Company's future.

## Governance

This section provides information on how the Company is governed, including activities of the Board of Directors.

## Financial statements

This section includes our financial statements, notes and auditor's report for the Group.

<table><tr><td>Our culture and purpose</td><td>IFC</td></tr><tr><td>At a glance</td><td>02</td></tr><tr><td>Investment case</td><td>04</td></tr><tr><td>Chairman&#x27;s statement</td><td>06</td></tr><tr><td>Chief Executive Officer&#x27;s review</td><td>08</td></tr><tr><td>Operational review</td><td>10</td></tr><tr><td>Financial review</td><td>13</td></tr><tr><td>Q&amp;A with Ian Weatherdon, Chief Financial Officer</td><td>16</td></tr><tr><td>Business model</td><td>18</td></tr><tr><td>Strategy and objectives</td><td>20</td></tr><tr><td>Capital management</td><td>22</td></tr><tr><td>Strategy for future growth</td><td>23</td></tr><tr><td>Production growth</td><td>24</td></tr><tr><td>Reserves and resources</td><td>26</td></tr><tr><td>Payments and steady exports</td><td>28</td></tr><tr><td>Key performance measures</td><td>30</td></tr><tr><td>Stakeholder engagement</td><td>32</td></tr><tr><td>Sustainability report</td><td>34</td></tr><tr><td>Management of principal risks and uncertainties</td><td>48</td></tr></table>

<table><tr><td>Board of Directors</td><td>58</td></tr><tr><td>Senior management</td><td>60</td></tr><tr><td>Corporate governance report</td><td>62</td></tr><tr><td>Nomination Committee report</td><td>71</td></tr><tr><td>Audit and Risk Committee report</td><td>74</td></tr><tr><td>HSSE and CSR Committee report</td><td>78</td></tr><tr><td>Technical Committee report</td><td>80</td></tr><tr><td>Remuneration Committee report</td><td>82</td></tr><tr><td>Directors&#x27; report</td><td>101</td></tr></table>

<table><tr><td>Directors&#x27; responsibilities statement</td><td>103</td></tr><tr><td>Independent auditor&#x27;s report</td><td>104</td></tr><tr><td>Consolidated income statement</td><td>112</td></tr><tr><td>Consolidated statement of comprehensive income</td><td>112</td></tr><tr><td>Consolidated balance sheet</td><td>113</td></tr><tr><td>Consolidated statement of changes in equity</td><td>114</td></tr><tr><td>Consolidated cash flow statement</td><td>115</td></tr><tr><td>Summary of significant accounting policies</td><td>116</td></tr><tr><td>Notes to the consolidated financial statements</td><td>125</td></tr></table>

<table><tr><td colspan="2">Additional information</td></tr><tr><td>Glossary</td><td>142</td></tr><tr><td>Directors and advisers</td><td>144</td></tr><tr><td>Key shareholder engagements</td><td>IBC</td></tr></table>

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At a glance

# Gulf Keystone is the operator of the
Shaikan Field, one of the largest developments
in the Kurdistan Region of Iraq.

![](images/4_0.jpg)

![](images/4_1.jpg)

![](images/4_2.jpg)

Located c.60km north-west of Erbil in the north-west Zagros fold-belt

![](images/4_3.jpg)

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## 2019 – a step change in activity at Shaikan.

Returned $79 million to shareholders through dividends and share buybacks.

SH-12, the first well in the drilling campaign, came onstream in November.

The PF-1 export pipeline came online in December, marking the end of export by trucking.
Strong balance sheet with $191 million at year end.

Workovers were completed on SH-1 and SH-3, resulting in material production uplift.

In February, the Crude Oil Sales Agreement with the KRG was renewed for a further 24 months.
Built organisational capability to deliver long-term growth.

The SH-9 well, originally designed to test the reservoir crest, was spud in October and completed as an oil producer.

![](images/5_0.jpg)

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## Investment case

## ESG focused

Committed to safe
and sustainable
production
for the benefit of
all stakeholders.

READ MORE on pages 34 to 47

![](images/6_0.jpg)

Long-term
upside

The Shaikan Field has a substantial resource base with significant long-term development potential.

READ MORE on pages 24 to 27

![](images/6_1.jpg)

![](images/6_2.jpg)

Delivering
value to
shareholders

READ MORE on page 22

Generating value through low-cost production, alongside material production growth and capital returns to shareholders, as appropriate.

![](images/6_3.jpg)

Near-term
production
uplift

Low operational risk to achieve the target of 55,000 bopd at Shaikan, once macro-economic conditions improve.

READ MORE on pages 24 and 25

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## Robust
balance sheet

READ MORE on pages 13 to 15

Strong cash position of $164 million, as at 22 April 2020, with a strong focus on preserving liquidity.

![](images/7_0.jpg)

Organisation
built to deliver

Strong Board and senior management leading a talented workforce.

READ MORE on pages 58 to 61

![](images/7_1.jpg)

![](images/7_2.jpg)

Execution
track record

READ MORE on pages 10 to 15

Achieved 2019 production, capital expenditure, Opex and G&A guidance.

![](images/7_3.jpg)

Kurdistan
Region of Iraq
remains stable

A safe and secure
operating
environment.

READ MORE on pages 78 and 79

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## Chairman's statement

The Company maintained a sharp focus on operational delivery to achieve production guidance and made good progress on development activities at Shaikan.
During 2019, the Company increased investment in Shaikan to grow production and delivered material returns to shareholders. The Company maintained a sharp focus on operational delivery to achieve production guidance and made good progress on development activities to increase production at Shaikan to 55,000 bopd. Over the last twelve months, the Company returned c.$100 million to shareholders through the combination of dividends and value-accretive share buyback programmes, whilst maintaining a strong balance sheet throughout.

The Kurdistan Region of Iraq remained a safe and secure environment for us throughout 2019. The Company has closely monitored the Coronavirus ("COVID-19") situation, taken appropriate actions and the priority remains the welfare of staff, contractors and local communities, and safe operations.

While Brent crude averaged approximately \(64 per barrel over the course of 2019, slightly down from 2018's average oil price of \)71 per barrel, recent events have pushed current crude oil prices down to below \(20 per barrel. The impact of COVID-19 on oil demand and surplus global oil supply are expected to place continued pressure on oil prices for several more months.

With the extraordinary impact of the recent global outbreak of COVID-19, delay in payments from the Kurdistan Regional Government ("KRG") and the economic backdrop, the Company suspended guidance and stopped expansion activities, which were otherwise on track to achieve 55,000 bopd in Q3 2020.

Gulf Keystone is in a strong financial position and has flexibility to manage through what is expected to be an extended period of uncertainty, with a large cash position, low-cost production and limited capital expenditure commitments. The Company continues to respond to the evolving macro environment and has implemented a number of cost-saving initiatives; Capex forecast for 2020 is down significantly from 2019 and we are targeting Opex and G&A savings of 20% to further bolster liquidity.

Jaap Huijskes
Non-Executive Chairman

![](images/8_0.jpg)

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# We are well placed to successfully manage through these turbulent times.

![](images/9_0.jpg)

The Board recognises the importance of distributions to shareholders and intends to consider the appropriateness and timing of the ordinary dividend and any share buyback once macro-economic conditions improve, outstanding payments from the KRG are resolved and there is a clearer operational outlook.

With the oil and gas sector in Kurdistan being the single largest contributor to the region's economy and future growth, the Company is closely aligned with our host's strategic focus on the continuing safe and sustainable operations and development of the sector. We share a common purpose with the Ministry of Natural Resources ("MNR") to develop the Shaikan Field over time. The eventual improvement of the investment environment and resolution of outstanding payments from the KRG will provide the foundation for the resumption of investment in Shaikan.

Gulf Keystone is committed to high standards across all aspects of environment, social and governance ("ESG"). These are issues that have never been more important to get right, not only for the respect of our planet and those who we work with and around, but also because of the need for companies to remain relevant to investors, who are increasingly conscious of ESG-related matters. We have identified four key priorities for our sustainability initiatives, those being: reducing emissions; the safety and development of our people; the safety and development of the local communities; and the quality of the local environment. Our Sustainability report, which is included later in this report, sets out the framework and culture in place to address these areas, including some case studies of what we have accomplished and what we intend to achieve.

The year saw changes to the Board. In June 2019, we announced that our Chief Financial Officer ("CFO"), Sami Zouari would be leaving the Company and, in September, Garrett Soden stepped down from the Board as a Non-Executive Director. I would like to reiterate my thanks to both Sami and Garrett for their significant contributions to the Company. We were very pleased to welcome Ian Weatherdon as CFO in January 2020, who brings a wealth of sector finance experience to the Board and senior management team.

On behalf of the Board, it leaves me to thank all our stakeholders for their continued support. While there are many challenges ahead of us, with a strong balance sheet, we are well placed to successfully manage through these turbulent times and deliver the significant underlying value of the Shaikan asset for the benefit of all stakeholders. Finally, I wish you and your families good health.

## Jaap Huijskes

Non-Executive Chairman

22 April 2020