# Dear Shareholder

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/LSE_GKP.L_2022/LSE_GKP.L_2022.mmd` · pages 104-110_

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Dear Shareholder,

On behalf of the Remuneration Committee, I am pleased to present the Directors' remuneration report for the year ended 31 December 2022. The Remuneration Committee and I were delighted to receive support in excess of 99% for the Directors' Remuneration Policy and the Annual Report on Remuneration at the AGM in June 2022. During 2022 we were primarily focused on implementing the new policy.

The work of the Remuneration Committee in 2022 was conducted against a backdrop of continued strong recovery from the impact of the COVID-19 pandemic and an upturn in oil prices, whilst ensuring we supported our employees most impacted by cost of living pressures. The Remuneration Committee set robust and challenging targets for the annual bonus scheme and ensured the right policies and practices were in place to attract, retain and motivate all employees.

## Performance and implementation of the Remuneration Policy in 2022

## Annual bonus

Based on the Remuneration Committee's assessment of GKP and individual performance in 2022, the bonus awarded to the CEO was 74.9% of maximum (93.6% of base salary) and the CFO was awarded 72.4% of maximum (72.4% of base salary). 30% of the annual bonus is to be deferred in shares for three years after award date. These payments reflect the attainment of personal objectives combined with Company performance as measured by the corporate KPIs. Further details can be found on page 115 of the Directors' remuneration report.

## Long-term incentives

The final assessment and vesting of Gulf Keystone's 2020 LTIP award will take place in late April 2023. All employees participate in the plan. The award is currently expected to vest at 88.2% of maximum, which, assuming a share value of £2.0689, is estimated to deliver a value of £2,144,891 for the CFO, including dividend equivalents worth £804,557 which will be awarded in shares. The actual vesting amount will be disclosed via an RNS announcement and in the 2023 annual report. As the CEO joined GKP in 2021, he is not entitled to any awards from the 2020 LTIP.

The Committee is conscious that this is a significant sum and has carefully considered whether making adjustments would be appropriate and believes this is not warranted for the following reasons:

- the 2020 LTIP is an all-employee plan, and any adjustment would unfairly impact the wider workforce while adjusting only for certain employees would be inconsistent and unfair;

- GKP's market value is influenced by commodity prices. Prevailing commodity prices at the point LTIPs are granted therefore impact the number of shares awarded. This volatility means there will be years where a higher number of shares are awarded due to lower oil prices but other years when the number of shares will be lower due to elevated oil prices. This variability is inherent in the business model and will sometimes benefit and sometimes penalise participants; and

• Company performance has been strong since the award of the 2020 LTIP including significant share price growth, sector-leading dividends in 2022 and strong relative TSR performance (currently tracking to 67th percentile of peer group and well above index performance).

However, following a shareholder consultation or should there be any material change in performance and/or expected outcomes between now and the final vesting, the Committee may decide the exercise of discretion is necessary.
The exercise of reasonable discretion has been a feature of GKP's approach in recent years where the formulaic outcome does not align with the overall shareholder experience and this remains unchanged – for example, zero bonuses were awarded to Executive Directors for 2020 despite the achievement of important operational and financial targets and strong individual contributions.

The CEO and CFO received conditional awards of 339,768 and 210,811 options respectively over shares (equivalent to 200% and 150% of salary) on 1 April 2022. The awards are subject to both absolute and relative total shareholder return ("TSR") targets being met, each measure having a 50% weighting. Again, the Remuneration Committee will have the discretion to review vesting outcomes to ensure a fair reflection of performance.

The former CEO and former CFO participated in the VCP, for which they received an award in December 2016. In May 2022, they received final awards of 1,884,798 and 1,623,828 options respectively. The incumbent CEO and CFO are not entitled to participate in the VCP, which has now been terminated.

## Instances of the exercise of discretion by the Remuneration Committee

No discretion was exercised by the Remuneration Committee outside the normal Remuneration Policy guidelines.

Remuneration across the workforce
GKP fosters an inclusive culture across the whole workforce which is reflected in our Remuneration Policy. Base salaries for all employees are benchmarked on a regular basis and targeted at median. The annual bonus plan is open to all employees, the outcome of which is linked to both corporate and individual targets. The corporate targets are the same for all who participate. In addition, all permanent employees working for the Company at the time of grant received an award in 2022 under the 2014 LTIP which aligns their interests with the long-term success of GKP and to the structure of rewards available to Executive Directors.

The Committee and Board are given regular briefings on the pay, incentive and benefit arrangements for the wider workforce. The Board also regularly engages with employees through briefing sessions and town hall meetings, gaining valuable feedback directly from employees, as well as receiving updates from the Chief HR Officer who attends all Committee meetings by invitation.

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# Remuneration Committee report continued

## Summary of remuneration for Executive Directors in 2023

In light of the current business context and following a detailed remuneration benchmarking review, the Remuneration Committee decided to award the CEO and the CFO increases in salary of 6.8% and 6% respectively, effective January 2023. The salary review budget for all other employees, including senior managers, was 7% and a consistent process for determining increases applies across the workforce. No increases were made to their annual bonus and LTIP entitlements.

Both the CEO and CFO will be eligible for a 2023 bonus. The Committee will review the Company's achievements, KPIs and performance targets and publish these in the 2023 Directors' remuneration report. The 2023 bonus measures incorporate targets on safety and sustainability (including environment and emissions-related targets); value creation (covering shareholder value, project delivery and production targets); financial and operational achievements; and people, culture and values initiatives. Further information is set out on page 118 of the Directors' remuneration report.

The CEO and CFO are entitled to participate in the LTIP where performance-based shares are granted up to a maximum of 200% and 150% of salary, respectively, in line with policy. The 2023 LTIP award will have performance conditions based on absolute and relative TSR. The Committee is considering incorporating an ESG metric in 2024 that will make up no more than 20% of the total award. Further information is set out on page 118 of the Directors' remuneration report.

## Fees for the Chair and Non-Executive Directors in 2023

After a thorough review of Chair and Non-Executive Director fees, the Chair and Non-Executive Director fees have been increased from £160,000 to £175,000 and £60,000 to £64,000 respectively from January 2023. These fees are still below their pre-2021 levels.

## Basis of preparation of the report

As GKP is not incorporated in the UK, it is not subject to UK company law or the UK Corporate Governance Code. However, the Company's Byelaws require it to comply with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the "2013 Regulations"). The Directors' remuneration report has been prepared in accordance with such 2013 Regulations as amended.

As a responsible corporate citizen, GKP is committed to following best practice, maintaining high corporate governance standards and the principles enshrined in the UK Corporate Governance Code (the "Code") which are taken into account to the extent they are considered appropriate for the Company. As GKP only has 28 employees in the UK, not all elements of the Code or certain 2018 changes to the 2013 Regulations, including the CEO pay ratio, are relevant or applicable. As noted above, the Committee has regard to wider workforce reward but considers that a ratio calculation would not be meaningful with such a small UK workforce.

## 2023 AGM

At the 2023 AGM, our Directors' remuneration report (pages 105 to 110) will be the subject of an advisory vote, in accordance with the 2013 Regulations.

The Committee believes the remuneration outcomes for 2022 reflect an appropriate outcome taking into account the global context and the shareholder experience during this period. We hope and trust that shareholders will recognise this as a continuation of our strategy for reward which fairly reflects the performance of the Company. Finally, on behalf of the Remuneration Committee, I would like to thank all shareholders for their continued support and hope that you will vote in favour of the resolution contained within the report at the AGM on 16 June 2023.

Yours sincerely,

## Kimberley Wood

Chair of the Remuneration Committee
22 March 2023