# Strategic report

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/LSE_GKP.L_2020/LSE_GKP.L_2020.mmd` · pages 1-7_

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Strategic report

Our purpose IFC
2020 full-year highlights 1
At a glance 1
Chairman's statement 2
Investment case 3
Chief Executive Officer's review 4
Q&A with Jon Harris, Chief Executive Officer 6
Operational review 8
Financial review 11
Business model 14
Purpose, values and culture 16
Strategy and objectives 18
Key performance measures 20
Our asset 22
Payments and steady exports 23
Strategy for future growth 24
Reserves and resources 26
Stakeholder engagement 28
Sustainability report 32
Management of principal risks and uncertainties 51
Viability statement 61

READ MORE on pages 6 and 7

## Governance

Board of Directors 62
Corporate governance report 64
Nomination Committee report 76
Audit and Risk Committee report 79
Safety and Sustainability Committee report 82
Technical Committee report 84
Remuneration Committee report 85
Directors' report 100

## Financials

Directors' responsibilities statement 102
Independent auditor's report 103
Consolidated income statement 110
Consolidated statement of comprehensive income 110
Consolidated balance sheet 111
Consolidated statement of changes in equity 112
Consolidated cash flow statement 113
Summary of significant accounting policies 114
Notes to the consolidated financial statements 124

## Additional information

<table><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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## 2020 full-year highlights

![](images/2_0.jpg)

36,625 bopd
record annual average production

![](images/2_1.jpg)

Zero LTIs
robust safety performance as we managed
the impact of COVID-19

![](images/2_2.jpg)

$148 million
cash at year end

![](images/2_3.jpg)

$51 million
cash generated from operations

## At a glance

Safety first: over 450 LTI-free days and no recordable incidents in over a year

READ MORE
on pages 40 to 42

CPR confirmed 2P+2C reserves and resources of c.800 MMstb at 31 December 2020

READ MORE
on pages 26 and 27

GKP remains a low-cost operator; lowest recorded Opex/bbI of $2.6/bbI achieved in 2020

READ MORE
on pages 11 to 13

Strong balance sheet.
Announced return to annual
dividend of at least $25 million

READ MORE
on pages 11 to 13

Highest ever monthly average production average of 44,405 bopd in January 2021

READ MORE
on pages 8 to 10

Recommended 55,000 bopd expansion project with drilling expected to begin in Q3 2021

READ MORE
on pages 8 to 10

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# GKP successfully managed through unprecedented challenges and is well positioned to deliver the significant value of the Shaikan Field.

![](images/3_0.jpg)

Jaap Huijskes
Non-Executive Chairman

Gulf Keystone showed tremendous resilience and flexibility in its prudent and timely response to the global COVID-19 pandemic and oil price fluctuations in 2020, while meeting revised guidance and maintaining a strong financial position. The Company is pleased to have returned to a balance of investment in production growth and shareholder distributions through the resumption of its annual dividend policy of at least $25 million.

GKP has for a number of years prioritised the safety, environmental and social effects of its business and remains committed to environmental, social and governance ("ESG") principles. We look forward to continuing to develop the Shaikan Field for the benefit of all stakeholders, while striving to lower our emissions.

2020 began with the Company progressing its expansion of Shaikan to 55,000 barrels of oil per day ("bopd") and Brent crude oil prices close to \(70/bbl – the stage was set for another twelve months of successful, safe, production growth. However, as the global pandemic took hold towards the end of Q1 2020, the situation changed very quickly and dramatically and the welfare of our team and those we work with were our immediate priority. Pressure built further with increased OPEC production as the global economy faltered, resulting in Brent crude oil prices collapsing to as low as below \)10/bbl, its lowest price in over 20 years, and West Texas Intermediate crude oil briefly trading at negative prices.

Faced with these unprecedented challenges, the Company responded swiftly and decisively, protecting our people and those we work with, contributing to the welfare of the communities close to the Shaikan Field, and managing the cost base to ensure the financial health of the Company; all while maintaining safe and stable production operations. These were remarkable achievements and the team deserve recognition for their handling of the crisis and the nimble manner in which they were able to react. It is also worth noting that the rigorous testing procedures we put in place at the outset of the pandemic ensured that COVID-19 did not impact operations, enabling production to continue uninterrupted throughout this period.

It is now more than a year since COVID-19 took hold and it is clear that the steps taken in the early part of 2020 were the right ones. The decisions that the Board took, including the postponement of our production growth plans, and measures to protect the Company's liquidity, were not easy but necessary. Ultimately, the Board's actions enabled the Company to emerge from the crisis in a robust financial position and ready to return to our plans to deliver significant value from Shaikan.
Throughout the year, the field has continued to perform, and we are pleased to have announced record production figures in January 2021. With today's improved operating environment, underpinned by higher oil prices, and our robust balance sheet (which is supported by the ongoing repayment of outstanding invoices), the Company was pleased to announce it is resuming the 55,000 bopd project and is targeting to restart drilling activities in Q3 this year.

Over 2019 and Q1 2020, the Company returned approximately $100 million to shareholders through dividends and share buyback programmes. We are now pleased to be announcing a return to our target of paying a proposed dividend of at least $25 million per year. A dividend of $25 million will be put to shareholders for approval at the Annual General Meeting ("AGM") on 18 June 2021 and will be paid to shareholders on 2 July 2021 based on a record date of 25 June 2021. The Board continues to balance the needs of the business and maintaining an appropriate balance sheet, with our ability to reward shareholders. With continuing strong oil prices, there may be opportunities to consider further distributions to shareholders this year.

During 2020, we welcomed Garrett Soden back to the Board of GKP as a non-independent Non-Executive Director representing funds managed by Lansdowne Partners Austria GmbH. In January 2021, we bid farewell to Jón Ferrier who retired as CEO. Jón transformed the Company in his five years as CEO and we thank him for his immense contribution over his tenure. The Board is pleased to welcome Jón Harris as our new CEO. In his short time with the Company, Jón has made a positive impact and we look forward to the business continuing to flourish under his leadership.

On behalf of the Board, I would like to express my thanks to the team at GKP who have shown great resilience. In addition, thank you to all of our shareholders for their ongoing support. We have a great opportunity to create value for all our stakeholders, and to make a positive contribution within Kurdistan.

## Jaap Huijskes

Non-Executive Chairman

30 March 2021

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## Investment case

## Five reasons to invest in
Gulf Keystone Petroleum

![](images/4_0.jpg)

ESG focused

READ MORE
on pages 32 to 50

![](images/4_1.jpg)

Robust
financial
position

READ MORE
on pages 11 to 13

Committed to safe and sustainable operations, and to making a positive social contribution in Kurdistan, whilst minimising environmental impacts.

Shaikan is highly cash generative, which combined with prudent financial policies, tight cost controls and an effective hedging policy, ensures the Company maintains a robust balance sheet (cash position of $161 million as at 30 March 2021).

![](images/4_2.jpg)

Delivering
value to
shareholders

READ MORE
on pages 14 and 15

![](images/4_3.jpg)

Strong
governance
and
organisation

READ MORE
on pages 62 to 101

Balancing material long-term profitable production growth with attractive returns to shareholders, underpinned by a track record of delivering on operational and financial targets.

Resumed expansion project with target to grow production towards 55,000 bopd in Q1 2022. Vision to grow production to 110,000 bopd.

With a talented local and expatriate workforce, a highly experienced management team, and overseen by a strong and diverse Board, GKP has the team and structure in place to deliver on its ambitious growth objectives.

![](images/4_4.jpg)

READ MORE
on pages 22 to 27

## Long life asset

With over 85 million barrels produced to date, the Company has a deep knowledge of the reservoir, materially de-risking production operations. With gross 2P reserves + 2C contingent resources of 798 MMstb, Shaikan is set to continue to produce for decades into the future, making a positive contribution to the region whilst helping Kurdistan meet its energy transition goals. 1P reserves to current production (January 2021) have a ratio of over 15 years, while 2P reserves to current production is over 30 years.

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# Chief Executive Officer's review

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# We are focused on delivering a balance of investment in production growth and shareholder distributions.

Jon Harris
Chief Executive Officer

I am very pleased to address all our stakeholders having recently joined Gulf Keystone as CEO in January 2021.

GKP successfully managed the extreme impact of the global COVID-19 pandemic on our staff, contractors and production operations. We quickly implemented a disciplined approach to quarantine and testing, ensuring flexibility and support to staff working remotely and put in place medical and health measures to safeguard that our people were protected.

Safety is our fundamental way of being, as well as representing good business. Our great safety performance is a testament to the culture of health, safety, security and environment ("HSSE") running through the Company. We have now had over 450 lost time incident ("LTI") free days and not a single recordable case in over a year. We remain resolutely committed to maintaining this strong safety performance.

Despite the pandemic, GKP exceeded revised production guidance for 2020, achieving record annual average production of 36,625 bopd, and another important milestone was also achieved in March 2021 when cumulative production passed 85 million stock tank barrels ("MMstb"). The Company was also quick to protect its financial position, reducing Capex by 50% and general and administrative ("G&A") and Opex by over 20% compared to 2019; when put in the context that these decisions were made late in the first quarter, the reductions represent a significant year-on-year decrease. The Company ended the year with a strong balance sheet and at 30 March 2021 has cash of $161 million.

In March 2020, when the Company suspended its investment plans due to the pandemic, we were on track to achieve the 55,000 bopd target in Q3 2020. Despite the challenges of operating with COVID-19, the Company channeled its efforts into identifying and delivering a number of near-term, low-cost projects, which successfully increased gross production by 9,000 bopd, for an aggregate gross cost of less than $3 million, resulting in some of the highest production rates the field has seen to date.
Throughout the year, Gulf Keystone continued to manage its business prudently and responsibly. In 2020, the support we were able to provide local communities was more important than ever. Amongst a wide array of community initiatives in direct support of the effects of COVID-19, the Company donated personal protective equipment, test kits and sterilisation equipment to hospitals within the concession, as well as providing firefighting gear and flood relief packages.

Maintaining and building on our ethos is essential, enhancing our corporate social responsibility, and the ESG strategy is also a key priority in 2021. Since joining GKP, I have been pleased to see an organisation that takes its responsibilities to both people and the environment seriously. I have been leading a working group to review, and where necessary strengthen, our approach to ESG. The Company is committed to best practice and this is evident in our high levels of disclosure in this year's Sustainability report. Not only is this ensuring that we have implemented the correct approach to ESG, it is the right thing to do, and reflective of our corporate values, given the welcome focus on ESG by a wide range of stakeholders.

We have had a strong start to 2021. In January, the Company achieved record average monthly production of over 44,400 bopd, highlighting how Shaitan continues to perform strongly and reliably. This solid operational performance is against an improving backdrop with the oil price having shown signs of a material, sustained recovery, increasing the cash we are generating. We are pleased to report that in today's higher oil price environment, with dated Brent above \(50/bbl, the Kurdistan Regional Government ("KRG") has honoured its pledge to start to repay the amount outstanding for the invoices of November 2019 to February 2020. We are grateful that these are now being addressed as it contributes to the Company's ability to deliver its ambitious plans for 2021 and beyond.

The recently updated Competent Person's Report ("CPR") reaffirmed the quality of the Shaikan Field with gross 2P+2C reserves and resources of c.800 MMstb, in line with the previous CPR from 2016 after adjusting for production over the period. The CPR endorsed our internal view of the asset and clearly underlines the extent of the field's full potential.

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![](images/6_0.jpg)

Macro conditions are improving, Shaikan continues to perform well and the Company is in a strong financial position. The decision was made to resume the 55,000 bopd expansion project, which we now expect to complete in Q1 2022. We are committed to realising the value of Shaikan for the people of Kurdistan and our investors, and look forward to keeping the market appraised of our progress towards 55,000 bopd, and then beyond.

In 2021, we are targeting to invest \(55-65 million net and gross annual average production of 40,000-44,000 bopd, while maintaining our competitive cost position with gross Opex of \)2.5-$2.9/bbl.

We are pleased to have returned to a balance of growth-focused field development investments and shareholder distributions with the reinstatement of at least a $25 million annual dividend. A dividend of $25 million will be presented at the AGM on 18 June 2021 for shareholder approval. The production growth story combined with the return of surplus cash to shareholders are the foundations of Gulf Keystone's highly attractive investment case.

On a personal note, having been CEO since the start of the year, my firm impression is of a very professional and collaborative team, with considerable drive and passion for everything they do. I am extremely pleased to be part of this team and in a company with such a positive ethos. Many sacrifices have been made because of COVID-19, especially impacting rotation work patterns. Many people have spent a considerable amount of time away from their families over recent months. I extend a sincere thank you to the team for their dedication, commitment and personal sacrifices in the interests of the Company. In addition, I would like to thank all of our stakeholders for their continued support.

Jon Harris
Chief Executive Officer
30 March 2021

Building on our strong ESG foundation

Recommended the 55,000 bopd expansion project

Resumption of at least a $25 million annual dividend