# Strategic report

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/LSE_GKP.L_2022/LSE_GKP.L_2022.mmd` · pages 2-8_

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Strategic report
Our investment case 2
Chairman's statement 4
Chief Executive Officer's review 6
Operational review 8
Financial review 12
Our asset 16
Business model 22
Strategy and objectives 24
Key performance indicators 26
Stakeholder engagement 28
Sustainability report 32
TCFD report 52
Management of principal risks and uncertainties 66
Viability statement 76
Governance
Board of Directors 78
Corporate governance report 80
Nomination Committee report 90
Audit and Risk Committee report 94
Safety and Sustainability Committee report 98
Technical Committee report 100
Remuneration Committee report 102
Directors' report 119
Directors' responsibilities statement 121

Financial statements
Independent auditor's report 122
Consolidated income statement 131
Consolidated statement of comprehensive income 131
Consolidated balance sheet 132
Consolidated statement of changes in equity 133
Consolidated cash flow statement 134
Summary of significant accounting policies 135
Notes to the consolidated financial statements 144
Non-IFRS measures 159
Report on Payments to Governments 161
Glossary 162
Directors and advisers 163
Key shareholder engagements 164

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CEO review

READ MORE
on pages 16 to 21

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Our asset

READ MORE
on pages 32 to 51

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Sustainability report

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## Our investment case

## Long life asset with proven production track record

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• Operator of the Shaikan Field, one of the largest oil fields in Kurdistan;

• >117 million stock tank barrels ("MMstb") produced to date \( ^{(1)} \) ;

• 2022 Competent Person's Report ("CPR") confirmed 2P reserves and 2C resources of 817 MMstb \( ^{(2)} \) , 52 MMstb higher than previous 2020 CPR after adjusting for production; and

• Significant growth potential, with 2P reserves-to-production ratio of 31 years \( ^{(3)} \) .

## >117 MMstb

oil produced from the Shaikan Field since first commercial production in 2013

## 31 years

2P gross reserves-to-production ratio

Shaikan gross 2P reserves reconciliation (2022 CPR vs 2020 CPR)

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## Robust financial position

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• Low-cost operator, with top quartile operating and G&A costs \( ^{(4)} \)  underpinning cash flow generation;

• Capital discipline and flexibility, with profitable investment in Shaikan Field predicated on timeliness of oil sales payments and continued robust oil prices; and

• Debt-free balance sheet.

## $3.2/bbl

gross Opex in 2022

## $119 million

cash balance as at 22 March 2023

Net cash balance (2019-2023) \( ^{(5)} \) 

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(1) As at 21 March 2023.

(2) ERCE Competent Person's Report as at 31 December 2022.

(3) Gross 2P reserves of 506 MMstb as at 31 December 2022 / 2022 gross average production of 44,202 bopd.

(4) Benchmarked against international and Kurdistan peer group for 2019-2021 period.

(5) As at 31 December of each year, unless otherwise stated.

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## Balancing investment in profitable growth with sustainable shareholder returns

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• Delivered 34% production growth from 2019 to 2022, while distributing $415 million to shareholders;

• Targeting 2023 double-digit annual production growth at mid-point of 46,000-52,000 bopd gross guidance;

• Declared ordinary and interim dividend in 2023 year to date, totalling $50 million and representing a 11% dividend yield \( ^{(6)} \) ; and

• Subject to timely KRG payments and oil prices, targeting step up in production levels through execution of the Jurassic scope of the FDP while continuing to advance towards key FDP sanction milestones.

## $50 million

2023 dividends declared

## 11%

2023 gross average production growth targeted at mid-point of 46,000-52,000 bopd guidance

Shareholder distributions (2019-2022)

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## Safety and sustainability
underpin our business

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• Focused on enhancing the safety and sustainability of our business;

• Priorities for our sustainability strategy include workforce health and safety, addressing climate-related risks and opportunities, minimising environmental impact, enhancing diversity and inclusion, generating local economic value, and strong governance and compliance;

• The Gas Management Plan will enable us to eliminate almost all routine flaring and significantly reduce our carbon intensity per barrel by 2025, subject to timely sanction and implementation; and

• Disclosures fully consistent with TCFD \( ^{(8)} \)  recommendations for fiscal year 2022.

## >50%

reduction in scope 1 emissions per barrel by 2025 \( ^{(9)} \) 

## "A"

MSCI ESG Research rating \( ^{(10)} \) 

MSCI ESG rating history (2019-2022)

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(6) Based on GKP's closing share price on 22 March 2023.

(7) Includes declaration of the final 2022 ordinary annual dividend of $25 million.

(8) Task Force on Climate-related Financial Disclosures.

(9) Against an original baseline scope 1 emissions intensity of 38 kgCO \( _{2} \) e/bbl in 2020.

(10) MSCI ESG Research as at 25 October 2022. MSCI ESG Research aims to measure a company's resilience to long-term, financially relevant ESG risks. Companies are rated on a AAA-CCC scale relative to the standards and performance of their industry peers. "A" is at the upper end of the "average" rankings of BB, BBB and A.

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# Chairman's statement

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Gulf Keystone benefitted from strong oil prices in 2022, with Dated Brent averaging \(101/bbl in the year, up \)30/bbl from 2021. However, volatility was high, with peaks of around \(130/bbl in the first half of the year declining in the second half to around \)80/bbl in December, as concerns around energy security and supply deficits, driven primarily by the tragic conflict in Ukraine and recovery in global economic demand, transitioned to market fears of inflationary pressures, fiscal tightening and recession.

From an operational perspective, working patterns in the Shaikan Field and our offices returned to normal following the disruption caused by the COVID-19 pandemic. Safety was a major focus for the team as activity ramped up, and the Board and I are pleased with the Company's performance in 2022. The Company is continuing to manage tightness in regional and global supply chains, with ongoing pressure on equipment lead times and cost pressures.
"

GKP's disciplined
investment has enabled
the recent increase in
production to over
55,000 bopd.

Jaap Huijskes
Non-Executive Chairman

Looking at the geopolitical environment, while security in Kurdistan was relatively stable in the year, the Iraqi Federal Supreme Court ruling in February 2022 led to heightened tensions in the long-standing dispute between Federal Iraq and the KRG regarding oil and gas assets in Kurdistan. The situation has improved since the formation of a new Federal Iraqi government in October 2022, with an active dialogue taking place between both sides. Nonetheless, it remains difficult to predict outcomes and the Board continues to monitor the situation closely. We also continue to closely monitor and engage with the KRG regarding the delays to recent oil sales payments and the negotiation of a new lifting agreement. While historically payments have been made, the recent delays have been disappointing. We are experienced operating in Kurdistan and look to maintain a prudent level of liquidity and flexible capital programme to manage through periods of uncertainty.

GKP 2022 total shareholder return vs peers and Brent Crude

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Against this backdrop, GKP delivered strong operational and financial results in 2022 and continued execution of its strategy of balancing investment in growth with sustainable shareholder returns, while maintaining a robust balance sheet and prudent liquidity levels.

From an operational perspective, the Company achieved its 2022 production guidance and completed a significant work programme, paving the way for expected future increases in production. The Company also advanced towards approval of the Shaikan Field Development Plan ("FDP"). From a financial perspective, strong oil prices and continued cost control and capital discipline supported significant cash flow generation, enabling the Company to fund its investment programme, pay record dividends to shareholders of $215 million and strengthen its balance sheet through the early redemption of the outstanding $100 million bond. The Company delivered top quartile total shareholder returns of 57% in the year, assuming dividends reinvested.

The Company has seen a material increase in production in 2023, with production recently exceeding 55,000 bopd. The achievement of this important milestone has been supported by the Company's 2022 investments and decision to proceed with the execution of the FDP's Jurassic scope.

Looking ahead to 2023, the Company is currently reviewing its forward capital programme in light of continued delays to KRG payments. Subject to timely payments and oil prices, the Company will continue to transition to increased investment in profitable production growth while advancing towards key project sanction milestones of the full FDP, which the Board expects to maximise long-term value for shareholders and Kurdistan. The Board and I are pleased the 2022 Competent Person's Report reaffirms the significant growth potential of the Shaikan Field, with 817 MMstb 2P reserves and 2C resources, 100% reserves replacement since the 2020 CPR and a 2P reserves-to-production ratio of 31 years.

As the Company progresses, the Board will manage the balance between investment in growth, shareholder returns and balance sheet strength according to a disciplined financial framework.

The Board is committed to paying an ordinary dividend of at least $25 million per annum and distributing excess cash to shareholders by way of dividends and/or share buybacks. In determining the level of distributions, the Board regularly reviews the Company's expected liquidity, cash flow generation and investment needs. We are pleased to have declared total dividends in 2023 to date of $50 million, including the declaration of a $25 million 2022 ordinary annual dividend for shareholder approval at the Company's AGM on 16 June 2023.

Sustainability continues to be a strategic priority for GKP and the Board has direct oversight and responsibility for the Company's strategy. The strategy has a number of objectives, of which addressing climate-related risks and opportunities is key. For fiscal year 2022, the Company's disclosures are fully consistent with all of the Task Force on Climate-related Financial Disclosures ("TCFD") recommendations, reflecting how a focus on climate-related risks and opportunities is embedded into the Company's strategy and governance, including risk management. The Company also continued to make significant progress in the year in supporting the development of its workforce, increasing gender diversity, generating material economic and social value for Kurdistan and the Company's local communities, as well as continuing to maintain strong corporate governance, ethical business conduct and compliance.
The Board continued to engage with the Company's shareholders in 2022 and welcomes ongoing interaction and feedback with all investors. We encourage GKP shareholders to participate in our Annual General Meetings, which are accessible virtually to all investors. While we saw voting turnout improve at the 2022 AGM, it remained low relative to prior years and we continue to look at ways to improve shareholder participation and voting at future general meetings.

We were delighted in July 2022 to welcome Wanda Mwaura to the Board as a new Non-Executive Director and member of the Audit and Risk Committee. Wanda brings over 25 years of expertise and experience in accounting, external and internal audit, consulting, regulatory and corporate governance to GKP. She is highly respected and complements the Board with her extensive skill set.

GKP's 2022 Full Year Results and Annual Report will be my last as Non-Executive Chairman, as I prepare to hand over the role following the 2023 AGM. It has been a distinct privilege to serve as Chairman of GKP and I am proud of the significant achievements and progress the Company has made during my tenure to create value for its shareholders, Kurdistan and broader stakeholder base.

Since my appointment in 2018, GKP has increased gross average production from an average of 31,563 bopd in 2018 to over 55,000 bopd recently. In the same period, GKP has distributed $440 million in dividends and share buybacks to shareholders, generated more than $1.8 billion in gross revenues for the KRG from the Shaikan Field and maintained a strong balance sheet throughout, against a backdrop of commodity price volatility and the COVID-19 pandemic. This performance has been underpinned by a rigorous focus on safety and sustainability and strong leadership from the Board, with regular Director visits to the Company's operations in Kurdistan.

I am delighted to be succeeded by Martin Angle, my esteemed fellow Director and current Deputy Chairman and Senior Independent Director ("SID"), and that Martin's Deputy Chair and SID roles will be taken on by Kimberley Wood, currently independent Non-Executive Director. I have worked with both Martin and Kimberley since 2018 and they have both made an enormous contribution to the Company and to the Board. Their experience and expertise will be invaluable to GKP's future success.

On behalf of the Board, I would like to thank GKP's leadership team and all of the Company's employees for their continued commitment to safety, delivery of the Company's strategy and relentless focus on creating value for GKP's shareholders and stakeholder base. We are excited about the future and the year of significant activity ahead.

## Jaap Huijskes

Non-Executive Chairman

22 March 2023

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# Chief Executive Officer's review

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## "

As we increase investment in profitable growth, we remain focused on delivering our strategy.

Jon Harris
Chief Executive Officer

In 2022, we delivered strong operational and financial performance as we continued to execute our clear strategy of balancing investment in profitable growth with shareholder returns while maintaining a robust balance sheet.

We commenced the execution of the Phase 1 Shaikan Field Development Plan ("FDP") Jurassic scope with the agreement of the MNR, comprising additional wells (with SH-15 and SH-16 completed in 2022 and SH-17 and SH-18 completed or currently underway in 2023) and early works related to the expansion of our production facilities. We also delivered another year of record production and made good progress towards key FDP sanction milestones.

We generated record Adjusted EBITDA in 2022, driven by higher production, strong oil prices and a continued focus on cost management and efficiency, resulting in a more than doubling of free cash flow to $266 million. Strong cash flow generation enabled us to fund our capital programme and pay sector-leading dividends to our shareholders of $215 million, bringing total shareholder distributions to $415 million since 2019, while at the same time strengthening our balance sheet through the redemption of our $100 million bond. We are now debt free.

Our performance, as always, was underpinned by a rigorous focus on safety, with zero Lost Time Incidents ("LTIs") in the year and only one recordable incident.
Gross average production in 2022 was 44,202 bopd, within our annual guidance range. Despite the small increase versus 2021, our 2022 work programme has laid the foundations for a material increase in future production. Our drilling performance is improving and we are delivering wells on or below budget. The latest well, SH-18, is progressing well and we expect start up in Q2 2023, in line with our previous guidance. Continuous drilling has been facilitated by our investment in well pad preparation, flowlines and long lead items. In addition, completion of early work for the production facility expansion in 2022 has positioned us to increase total field processing capacity to 85,000 bopd and install water handling capacity in H2 2024.

As we enter 2023, it is clear that our investments in 2022 and decision to progress the Jurassic scope of the FDP are beginning to pay off. Gross average production in 2023 year to date has been c.48,900 bopd, while gross average production in March to date has been c.53,500 bopd, including the achievement of a new production record of over 55,000 bopd in the last few days, an important milestone for the Company.

We continue to see significant growth potential from the Shaikan Field, with the 2022 Competent Person's Report ("CPR") confirming gross 2P reserves and 2C resources of 817 MMstb, 52 MMstb higher than the previous CPR from 2020 after adjusting for production. The 2022 CPR shows 100% reserves replacement, driven by a higher plateau rate of 85,000 bopd from the Jurassic reservoir and accelerating post licence production.

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In addition, we see an excellent opportunity to create value for our shareholders. Returns on capital from incremental investment in the Shaikan Field are attractive, as the payback of investment under the Shaikan Production Sharing Contract accelerates as we recover our historic costs. By increasing profitable production, we also expect to enhance the sustainability and longevity of the Company's capacity for shareholder distributions.

Looking ahead, our intention is to continue our transition towards increased investment in profitable production growth, expanding the Jurassic reservoir while advancing towards key project sanction milestones of the FDP. However, given continued delays to KRG payments, we are currently reviewing our forward capital programme and 2023 net capital expenditure guidance of \(160-\)175 million. With further clarity around KRG payments, we would consider continued drilling following SH-18. However, we will also review potential reductions to our capital programme should payment delays continue.

As we increase investment in profitable production growth through a flexible capital programme, we remain focused on delivering against our strategy of balancing growth with sustainable shareholder returns, while maintaining a robust balance sheet and prudent liquidity levels. We are pleased to declare a final 2022 ordinary annual dividend of \(25 million subject to shareholder approval at the AGM on 16 June 2023, increasing total dividends declared in 2023 to \)50 million and equating to an 11% yield for 2023, based on the closing share price on 22 March 2023. The Board remains committed to distributing excess cash to shareholders by way of dividends and/or share buybacks and will continue to review distribution decisions based on a disciplined financial framework.
We have an exciting year ahead of us at Gulf Keystone and a number of opportunities to create significant value for our shareholders and broader stakeholder base. I want to provide my heartfelt thanks to GKP's teams in Kurdistan and the UK, whose continued hard work and innovation are enabling the Company to deliver against its strategy. I would also like to thank Jaap Huijskes, who will be stepping down following the 2023 AGM, for all his help and stewardship in my first two years as CEO. I wish him well for the future.

## Jon Harris

Chief Executive Officer

22 March 2023