# to the members of Gulf Keystone Petroleum Limited

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/LSE_GKP.L_2017/LSE_GKP.L_2017.mmd` · pages 70-76_

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to the members of Gulf Keystone Petroleum Limited

## Our application of materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

<table><tr><td>Group materiality</td><td>\(9.1 million (2016: \)9.1 million).</td></tr><tr><td>Basis for determining materiality</td><td>2% (2016: 2%) of net assets.</td></tr><tr><td>Rationale for the benchmark applied</td><td>We considered net assets to be an appropriate metric to use in our materiality assessment as the value of the Group is derived from the Shaikan field. This is consistent with the prior year.</td></tr></table>

We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of \(455,000 (2016: \)455,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

## An overview of the scope of our audit

Our audit was scoped by obtaining an understanding of the Group and its environment, including group-wide controls, and assessing the risks of material misstatement. Our audit planning identified the Group's business to be a single component, and therefore all of the operations of the Group were subject to a full scope audit by the UK audit team.

Our audit work was performed primarily at the Group's head office in London. Specified audit procedures in respect of the Group's property, plant and equipment and inventory balances were performed by a Deloitte member firm based in Kurdistan under the direction of the UK audit team.

## 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 we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. 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.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that:

- fair, balanced and understandable – the statement given by the Directors that they consider the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

• Audit Committee reporting – the section describing the work of the Audit and Risk Committee does not appropriately address matters communicated by us to the Audit and Risk Committee.

We have nothing to report in respect of these matters.

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## 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 and the parent company'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 the parent company 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.

A further description of our responsibilities for the audit of the financial statements is located 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 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 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 Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

## Christopher Thomas ACA (Senior Statutory Auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

10 April 2018

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## CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2017

<table><tr><td></td><td>Notes</td><td>2017 \(&#x27;000</td><td>2016 \)&#x27;000</td></tr><tr><td>Continuing operations</td><td></td><td></td><td></td></tr><tr><td>Revenue</td><td>2</td><td>172,372</td><td>194,409</td></tr><tr><td>Cost of sales</td><td>3</td><td>(126,996)</td><td>(142,827)</td></tr><tr><td>Gross profit</td><td></td><td>45,376</td><td>51,582</td></tr><tr><td>General and administrative expenses</td><td></td><td>(21,304)</td><td>(25,536)</td></tr><tr><td>Profit from operations before exceptional items</td><td>4</td><td>24,072</td><td>26,046</td></tr><tr><td>Interest revenue</td><td>2</td><td>702</td><td>100</td></tr><tr><td>Finance costs</td><td>7</td><td>(11,023)</td><td>(60,182)</td></tr><tr><td>Impairment expense</td><td>10</td><td>—</td><td>(215,658)</td></tr><tr><td>Gain on debt extinguishment</td><td>16</td><td>—</td><td>222,455</td></tr><tr><td>Other gains</td><td>6</td><td>314</td><td>9,931</td></tr><tr><td>Profit/(loss) before tax</td><td></td><td>14,065</td><td>(17,308)</td></tr><tr><td>Tax credit/(charge)</td><td>8</td><td>61</td><td>(127)</td></tr><tr><td>Profit/(loss) after tax for the year</td><td></td><td>14,126</td><td>(17,435)</td></tr><tr><td>Profit/(loss) per share (cents)</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>9</td><td>6.16</td><td>(30.82)</td></tr><tr><td>Diluted</td><td>9</td><td>6.12</td><td>(30.82)</td></tr></table>

## CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2017

<table><tr><td></td><td>2017 \(&#x27;000</td><td>2016 \)&#x27;000</td></tr><tr><td>Profit/(loss) for the year</td><td>14,126</td><td>(17,435)</td></tr><tr><td>Items that may subsequently be reclassified to profit or loss:</td><td></td><td></td></tr><tr><td>Exchange differences on translation of foreign operations</td><td>1,281</td><td>(2,901)</td></tr><tr><td>Total comprehensive profit/(loss) for the year</td><td>15,407</td><td>(20,336)</td></tr></table>

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## CONSOLIDATED BALANCE SHEET

As at 31 December 2017

<table><tr><td></td><td>Notes</td><td>2017 \(&#x27;000</td><td>2016 \)&#x27;000</td></tr><tr><td>Non-current assets</td><td></td><td></td><td></td></tr><tr><td>Intangible assets</td><td>10</td><td>63</td><td>99</td></tr><tr><td>Property, plant and equipment</td><td>11</td><td>417,473</td><td>489,379</td></tr><tr><td>Deferred tax asset</td><td>18</td><td>403</td><td>310</td></tr><tr><td></td><td></td><td>417,939</td><td>489,788</td></tr><tr><td>Current assets</td><td></td><td></td><td></td></tr><tr><td>Inventories</td><td>13</td><td>17,190</td><td>15,971</td></tr><tr><td>Trade and other receivables</td><td>14</td><td>61,710</td><td>41,565</td></tr><tr><td>Cash and cash equivalents</td><td></td><td>160,456</td><td>92,870</td></tr><tr><td></td><td></td><td>239,356</td><td>150,406</td></tr><tr><td>Total assets</td><td></td><td>657,295</td><td>640,194</td></tr><tr><td>Current liabilities</td><td></td><td></td><td></td></tr><tr><td>Trade and other payables</td><td>15</td><td>(57,038)</td><td>(56,284)</td></tr><tr><td>Provisions</td><td>17</td><td>(7,197)</td><td>(7,461)</td></tr><tr><td></td><td></td><td>(64,235)</td><td>(63,745)</td></tr><tr><td>Non-current liabilities</td><td></td><td></td><td></td></tr><tr><td>Other borrowings</td><td>16</td><td>(97,067)</td><td>(98,886)</td></tr><tr><td>Provisions</td><td>17</td><td>(24,107)</td><td>(23,794)</td></tr><tr><td></td><td></td><td>(121,174)</td><td>(122,680)</td></tr><tr><td>Total liabilities</td><td></td><td>(185,409)</td><td>(186,425)</td></tr><tr><td>Net assets</td><td></td><td>471,886</td><td>453,769</td></tr><tr><td>Equity</td><td></td><td></td><td></td></tr><tr><td>Share capital</td><td>19</td><td>229,430</td><td>229,430</td></tr><tr><td>Share premium account</td><td>19</td><td>920,728</td><td>920,728</td></tr><tr><td>Exchange translation reserve</td><td></td><td>(3,018)</td><td>(4,299)</td></tr><tr><td>Accumulated losses</td><td></td><td>(675,254)</td><td>(692,090)</td></tr><tr><td>Total equity</td><td></td><td>471,886</td><td>453,769</td></tr></table>

The financial statements were approved by the Board of Directors and authorised for issue on 10 April 2018