# DIRECTORS' REPORT

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/LSE_GKP.L_2018/LSE_GKP.L_2018.mmd` · pages 80-86_

---

DIRECTORS' REPORT

The Directors are pleased to present their report on the affairs of the Group, together with the consolidated financial statements of the Company and auditor's report, for the year ended 31 December 2018. A review of the business is set out in the preceding sections of this annual report, including the Chairman's Statement, Executive Review and Operational Review, which are incorporated into this report by reference. The Corporate Governance Report also forms part of this report.

## Results and dividends

The Group's financial results for the year ended 31 December 2018 are set out in the consolidated financial statements. The Group made a net profit after taxation for the year of \(79.9 million (2017: profit of \)14.1 million) and the Directors recommend an ongoing ordinary dividend on the ordinary shares of \(25 million in 2019 and, given its current financial strength, the Board is also proposing to complement this ordinary dividend in 2019 by a \)25 million supplemental dividend to shareholders on the ordinary shares (2017: \(nil). The total dividend of \)50 million for 2019 will be subject to approval at the next AGM in June 2019.

Gulf Keystone uses a number of financial and non-financial KPIs against which it monitors its performance. Detailed KPI targets and benchmarks for each year are set by the Board and are regularly reviewed during the Board meetings for progress against actual results. Where necessary, the targets are adjusted to accommodate changes in the operating environment. Gulf Keystone's KPIs are discussed in the Directors' Remuneration Report on pages 75 to 77.

## Capital structure

Full details of the authorised and issued share capital, together with movements in the Company's issued share capital during the year, are shown in note 19 to the consolidated financial statements. The business is financed by means of debt (see note 16 to the consolidated financial statements) and external share capital.

## Share rights and restrictions

There are no specific restrictions on the size of a holding nor on the transfer of common shares, both of which are governed by the general provisions of the Company's Byelaws and prevailing legislation. The Directors are not aware of any agreements between holders of the Company's common shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company's share capital and all issued common shares are fully paid.

Details of the employee share schemes are set out in note 22 to the consolidated financial statements and details of the Directors' awards are included in the Remuneration Committee Report.

## Voting rights and Byelaw amendments

The Company's Byelaws may only be revoked or amended by the shareholders of the Company by a resolution passed by a majority of not less than three-quarters of such shareholders as vote in person or, where proxies are allowed, by proxy at a general meeting. Resolutions put to the vote of any general meeting are decided on a show of hands unless a poll is demanded in accordance with the Company's Byelaws. The Company's Byelaws are available on the Company's website at www.gulfkeystone.com.

## Directors

With regard to the appointment and replacement of Directors, the Company is governed by its Byelaws, the Companies Act (Bermuda) and related legislation. In accordance with the Byelaws, all of the Directors are required to stand for re-election by the shareholders each year at the Annual General Meeting.

## Directors' indemnities

The Company has made qualifying third-party indemnity provisions for the benefit of its Directors during the year and these remain in force at the date of this report.

## Directors' interests in shares

None of the Directors who held office at 31 December 2018 had any interest in the common shares of the Company. \( ^{(1)} \) 

At the date of this report, the Employee Benefit Trust ("EBT") held 0.01 million common shares of the Company. A further 0.1 million common shares are held by the Exit Event Trustee in relation to the Exit Event Award (see note 22 to the consolidated financial statements).

Directors' interests in share options of the Company and the Company's bonus scheme grants, including family interests, as at 31 December 2018 are disclosed in the Remuneration Committee Report.

<--- Page Split --->

## Significant shareholdings

As at 15 March 2019, being the date of the most recent analysis of the Company's share register, the Company discloses the following significant shareholdings:

<table><tr><td>Shareholder</td><td>Number of common shares</td><td>Percentage of issued share capital</td></tr><tr><td>Lansdowne Partners</td><td>29,280,881</td><td>12.76</td></tr><tr><td>Sothic Capital Management</td><td>28,344,486</td><td>12.35</td></tr><tr><td>Hof Hoorneman</td><td>15,972,000</td><td>6.96</td></tr><tr><td>The Capital Group Companies, Inc</td><td>14,790,086</td><td>6.45</td></tr><tr><td>BlackRock Inc</td><td>10,799,729</td><td>4.71</td></tr><tr><td>UBS Group AG</td><td>10,686,081</td><td>4.66</td></tr><tr><td>JPMorgan Chase &amp; Co</td><td>10,087,853</td><td>4.40</td></tr><tr><td>BrightSphere Investment Group</td><td>8,026,892</td><td>3.50</td></tr><tr><td>Caius Capital</td><td>7,165,375</td><td>3.12</td></tr></table>

## Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement, the Executive Review and the Operational Review. The financial position of the Group at the year end and its cash flows and liquidity position are included in the Executive Review.

The Group continues to closely monitor and manage its liquidity risk. Cash forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in commodity prices, different production rates from the Shaikan block, costs contingencies, disruptions to revenue receipts, etc. The Group's forecasts, taking into account the risks applicable to the Group, show that the Group will be able to have sufficient financial headroom for the twelve months from the date of approval of the 2018 annual report and accounts.
Based on the analysis performed, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

## Significant agreements – change of control

There are a number of agreements that take effect, alter or terminate upon a change of control of the Group, including the Shaikan PSC and employee share plans. The Directors are not aware of any agreements between the Group and its Directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid.

## Auditor

Each of the persons who is a Director at the date of approval of this annual report confirms that:

• so far as the Director is aware, there is no relevant audit information of which the Group's auditor is unaware; and
• the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Group's auditor is aware of that information.

On behalf of the Board

## Jón Ferrier

Chief Executive Officer

27 March 2019

<--- Page Split --->

## DIRECTORS' RESPONSIBILITIES STATEMENT

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and Article 4 of the International Accounting Standard ("IAS") Regulation. Under IAS 1 the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

• make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

## Responsibility statement

We confirm that to the best of our knowledge:

- the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

- the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 27 March 2019 and is signed on its behalf by:

Jón Ferrier

Chief Executive Officer

Sami Zouari

27 March 2019

Chief Financial Officer

27 March 2019