Gulf Keystone Pet Ord New

Hello and thank you for joining the Off Keystone Petroleum's 2022 full year results. My name is John Harris and I'm the IMGKP's Chief Executive Officer. I'm joined today by Ian Weatherden, Chief Financial Officer, who will be taking you through our financial results. I'm also joined by John Hulme, Chief Operating Officer, Gabriel Papanola-Gree, Chief Commercial Officer, and Aaron Clarke, Head of Investor Relations and Corporate Communications. Over the next few slides, we will run through our operational and financial performance in 2022. and the outlook for 2023. Following that, we will open the line up for questions. Next slide, please. I'd like to remind you that the presentation slides are available on our website, and I will leave you to review the legal disclaimer in your own time. Next slide, please. GKP strategy. Before we talk about our results, I'd like to spend a few moments reminding you of our strategy. We have a clear strategy of balancing investment in profitable production growth with sustainable shareholder returns while maintaining a robust balance sheet and prudent liquidity levels. Looking at our track record, this has created significant value for GKP investors over the past few years. Between 2029 and 2022, we have grown production from the Shai Chem field by 34%, while returning $415 million in cash to shareholders via dividends and buybacks, almost all of our today's market capitalization. Against the backdrop of commodity price volatility, as well as the COVID-19 pandemic and challenges from operating in Kurdistan, we've also been able to maintain a strong balance sheet, ending each year with net cash. Looking ahead, we are focused on extending our track record of delivery. Slide four, please. 2022 operational and financial highlights. 2022 was a year of strong operational and financial performance as we continue to deliver against our strategy. As always, we have focused on safety as a priority, with no LTIs in the year and only one recordable incident. Higher oil prices and production, combined with capital discipline and cost control, enabled us to generate record profitability and cash flow. In terms of growth, 2022 saw a significant increase in operational activity in the field, as we commenced execution of the Jurassic Scope of the Shai Canfield Development Plan. In agreement with the Ministry of Natural Resources, while we advance towards approval of the full field development plan. The 2022 Confident Persons Report published today reconfirms the quality of the SCICAN field and the scale of the opportunity we have in front of us to create value for all our stakeholders. We are realizing the benefit of our 2022 investments with production exceeding 55,000 barrels of oil per day in the last few days, a very important milestone for the company. As we progress, we are reviewing our capital programme and adjusting investment based on the timeliness of payments from the Kurdistan Regional Government and the outlook for oil prices. While we continue to grow, we paid record dividends of $215 million. We are pleased to declare today a $25 million ordinary dividend for the year, increasing total dividends declared in 2023 to $50 million. At the same time, we are focused on maintaining a robust balance sheet which remains debt-free following the redemption of a 100 million bond in August last year. Turning now to our sustainability highlights, slide five. Proving the sustainability of operations is of utmost importance to our strategy, and we continue to make good progress in the year. We are pleased to announce that our annual report disclosures for 2022 will be fully consistent with the recommendations published by the TCFD Task Force on Climate-Related Financial Disclosures. This demonstrated how our focus on climate-related risks and opportunities is embedded in our strategy and our governance, including risk management. Our primary climate-related opportunity is the Gas Management Plan, which will enable us, subject to timely sanction and implementation, to eliminate almost all of our routine flaring and more than half of our scope one emissions intensity by 2025. We have also been exploring other decarbonization opportunities, which will enable us to reduce our emissions further. In particular, we have identified a project to eliminate methane venting from our production facility storage tanks, which we are targeting to complete in 2024. As we progress, we are seeing increases in emissions primarily due to higher production. Looking at our social performance, GKP continues to make a material contribution to Kurdistan and its people. We generated $515 million of revenue net for the KRG in 2022, a 53% increase versus the prior year. We continue to be a large employer of local people, with almost 350 Kurdistan nationals working for us at the end of the year, equivalent to 74% of our in-country workforce. We also spent $64 million with local suppliers, a 31% increase versus last year, and increased our investment in impactful local community projects by 30% to over $1 million gross. Finally, strong governance and business ethics continues to underpin how we do business. We were pleased in the year to have developed our code of business conduct and training program, which we rolled out to all our staff at the beginning of 2023. We have 100% compliance rate this year, with all staff completing the training and signing a compliance certificate. We look forward to providing you with further updates on our sustainability strategy and performance with the publication of our annual report. I will now provide more detail on our operational performance. Slide seven, ShaiCAM offers significant potential for growth and returns. The ShaiCAM field is a world-scale asset. and is the foundation for our strategy and value creation. Since first commercial production in 2013, we have produced over 117 million barrels of oil. While this is remarkable, the 2022 Competent Persons Report published today, an external independent audit of our reserves and resources, show there is significant growth potential to exploit. The CPR has confirmed 817 million barrels of gross 2P reserves and 2C resources As you can see from the chart on the right, 2p reserves have increased 7% to 506 million barrels after adjusting for production of 33 million barrels. This results in 100% reserves replacement versus the 2020 CPR, driven by increasing the Jurassic Reservoir plateau from 75,000 to 85,000 barrels of oil per day. Based on last year's production of 44,200 barrels of oil per day, there is significant running room to further develop the field and grow production, while with a 2P reserves to production ratio of around 31 years. Slide eight, please. Increased activity in 2022 laid foundations for future growth. 22 was a significant operational activity, was a year of significant operational activity in the Shai-Kan field. Working hours increased by over 50% to $2.2 million, while we more than doubled net capital expenditure to $115 million. The increase in activity was the result of starting the execution of the Jurassic Scope of the FTP, as we laid the foundations for a material increase in future production growth. We drilled and brought online the first two wells in the FTP sequence, Shycan 15 and Shycan 16, and spudded the third, Shycan 17. We also prepared well pads and flow lines to enable a continuous drilling program and completed early engineering, procurement and construction works for the production facilities expansion. Finally, we continued our well work over program to optimize production. Next slide, please. 2022 production is in line with our guidance. Gross average production was 44,202 barrels of oil production in 2022. 2% higher than 2021. Incremental production from new wells was mostly offset by our continued management of well production rates ahead of water handling. Production was also impacted in the fourth quarter by the temporary shut-in of a well due to an isolated electrical submersible pump failure. Despite this small increase, our 2022 investments and progress on executing the Jurassic scope have started to bear significant fruit so far in 2023. We have seen strong production from Shai Can 16, which has been ramping up this quarter. We drilled, completed, and brought on stream Shai Can 17 in February. Under budget and ahead of schedule, thanks for the performance improvements we are seeing in our continuous drilling program. Year to date, production has averaged around 48,900 barrels of oil per day, and with a big step up in production in March to date of around 53,500 barrels of oil per day. In the last few days, we have reached record highs with production exceeding 55,000 barrels a world per day, an important milestone for this company. As we look ahead to the rest of the year, we remain focused on delivering our production guidance of between 46,000 to 52,000 barrels a world per day. We continue to manage world production rates ahead of water handling installation. We're also continuing to see estimated national decline rates across the field of between 6% to 10% per annum, and are optimizing production from a single well near the gas cap due to high gas production. Slide 10, 2023 work program. Looking ahead to the rest of the year, we're currently reviewing our capital program and net capital expenditure guidance due to KRG payment delays, which Ian will talk about shortly. Our current net capex guidance of $160 to $175 million includes 30 to 35 million for the completion of the Shaikan 17, the drilling and completion of Shaikan 18, which we expect to start up in Q2 of this year. 40 to 45 million dollars for the investment in well pad preparation and long lead items for continuous drilling, and 85 to 90 million dollars for the advancement of the production facility expansion, with water handling installation and the capacity increased to 85,000 barrels of water per day, expected to be completed in the second half of 2024. With clarity around KRG payments, we will consider continued drilling following SCICAN 18. However, with continued payment delays, we will review potential reductions to our capital program. Slide 11, transitioning to increased investment in profitable growth. Our intention is to transition to increased investment in profitable production growth to exploit the significant potential of the SCICAN field, enhance the longevity and sustainability of our distributions capacity, and generate economic value for Kurdistan. This of course is predicated by better clarity on KRG payments and continued robust oil prices. Ultimately, we plan to do this by executing the full field development plan. The field FTP has three components. Increasing Jurassic production up to 85,000 barrels of oil per day by expanding our production facilities and drilling new wells. Testing the Triassic reservoir and producing up to 10,000 barrels of oil per day, bringing total production up to 95,000 barrels of oil But A, implementing a gas management plan to eliminate almost all of our routine flaring, a requirement of the PSC, and more than half our scope 1 emissions intensity. While the timing of the FDP approval remains uncertain, we are making good progress towards key sanction milestones, such as finalising the technical scope of the FDP last year and continuing to advance the gas management plan tendering process while considering financing options. In the interim, we are executing the drastic scope of the FTP with a flexible capital program. We remain focused on capital discipline, predicating all investments on the timely KRG payments and robust oil prices. With that, I will now hand over to Ian for the financial review.

Great. Thanks, John, and good morning, everyone. Just turning to slide 13, financial performance highlights. We delivered strong financial results in 2022, building on momentum from the prior year. Adjusted EBITDA and profit after tax were up more than 60% due to an increase in dated Brent oil prices from $71 per barrel to $101 per barrel, increased production, and continued cost control. This enabled us to more than double capital investment in the SHICAN field and pay record dividends in line with our strategy to balance growth with shareholder returns. Next slide, please. Adjusted EBITDA of $359 million underpins strong cash flow generation, and we invested $115 million as we started to execute the Jurassic Scope of the FDP. Free cash flow during the year was $266 million, more than double, $122 million in 2021. This enabled us to pay record dividends of $215 million and strengthen our balance sheet by repaying our $100 million Nordic bond about a year before its maturity, leaving us debt-free. Next slide, please. As operational activity continues to increase, we remain focused on strict cost control. Gross OPEX per barrel increased in 2022 to $3.20 in line with guidance. The slight increase in OPEX per barrel was primarily related to increased staff costs reflecting higher activity levels and incremental maintenance activity. 2023 OPEX guidance is 3 to 340 per barrel in line with 2022. Total other G&A was down slightly from 2021. Next slide, please. We received net $450 million from the KRG in 2022, including payments for both crude oil sales and full settlement of historical arrears. So far this year, we have paid net $66 million. We have been paid net $66 million for the August and September 22 invoices. Towards the end of last year, we started to see an increase in the time it takes for the KRG to pay monthly oil sales invoices. The most recent September production month invoice was received more than three months late. October to December invoices amounted to net $76 million, are currently overdue, and we continue to engage with the KRG to reestablish a more timely payment routine. As John noted, timely payments are important for us to continue development of the SHICAN field. We have a flexible capital program that enables us to increase or decrease spending depending on KRG payment, timing, and oil prices. Also, as we recently announced with the September payment, we are engaging with the Ministry of Natural Resources regarding their proposal to change the oil sales reference price from date of Brent to Kurdistan blend to more closely align with the amount the KRG has advised us that they receive for selling our crude. While we have not agreed this change, applying the new mechanism to our September to December invoices results in an average monthly decrease in realized prices of around $12 per barrel compared to the prior pricing mechanism. Given oil price volatility, it is difficult to predict how pricing will evolve going forward. Last month, as shown in the blue bar on the bottom right of the table, the incremental discount decreased to $6 a barrel in February 2023. It is also worth noting that the discount was as low as $4 per barrel in 2022. Next slide, please. We have a disciplined financial framework which underpins our track record of balancing growth, shareholder returns, and maintaining a robust balance sheet. In 2022, we paid a sector-leading dividend yield of just over 40%, and as you can see from the chart, Over the past five years, we have delivered top quartile total shareholder returns. Given returns on incremental capital investment are attractive as payback accelerates with cost recovery, we are transitioning to increase investment. Unrecovered costs declined from gross $437 million at the end of 2021 to gross $213 million at the end of 2022. This amount would have trended towards gross $150 million if the KRG were paying us on a timely basis. By increasing profitable production, we expect to enhance the sustainability and longevity of shareholder distributions. We are pleased today to be announcing the declaration of a final 2022 ordinary annual dividend of $25 million in line with our dividend policy. This increases total dividends declared this year to $50 million, pointing to a competitive yield of around 11%. We remain committed to distributing excess cash to shareholders by way of dividends and share buybacks, and will continue to review distribution decisions based upon our financial framework. This includes regular assessment of expected future oil prices, timeliness of KRG payments, and our capital program, cash flow generation, and liquidity. As we approach FTP approval, we intend to review our financial framework and dividend policy. Next slide, please. Maintaining a robust balance sheet is a strategic priority to Gulf Keystone. It provides us with resilience through the commodity cycle and enables us to manage potential downside risk including those associated with operating in Kurdistan. With strong free cash flow generation in 2022, we repaid our $100 million bond, leaving us debt-free with significant financial capacity. As we progress towards FTP approval, we will continue to review our capital structure and financing requirements. With that, I'd now like to hand it back to John.

Thanks, Ian. Slide 20, our outlook. We're really excited about the remainder of the year and remain focused on delivering against our clear strategy. Building on progress last year, we continue to execute the Jurassic scope of the field development plan as we progress towards full approval of the field development plan. We are already seeing the benefits of our investments with production rates in excess of 55,000 barrels of oil per day in the last few days. We plan to start up ShaiCAN 18 in Q2 as we remain focused on delivering 2023 production guidance of between 46,000 and 52,000 barrels of oil per day. We are currently targeting net capex for the year of $160 to $175 million and gross opex of between $3 to $3.40 per barrel. We're currently reviewing our capital program as we seek further clarity from the KRG on payment timing and our 2023 net capex guidance is therefore subject to change. As ever, we remain focused on balancing investment in growth with shareholder distributions. Following $50 million of dividends declared to date, the board will continue to review opportunities to return excess cash to shareholders in line with the discipline's financial framework. At the same time, we will continue to maintain a robust balance sheet and prudent liquidity levels to manage uncertainties. We continue to engage with the KRG and the Ministry of Natural Resources regarding payments. Following recent political news that the Iraqi cabinet and the KRG have agreed a budget and a method to allocate the Kurdistan share of the budget, taking into account Kurdistan's oil revenues. We are optimistic that approval by Iraqi's parliament and implementation will swiftly follow. It has also been reported that any action following the FSC ruling has been suspended while negotiations continue. Our operations remain unaffected by the FSC ruling. With that, I will now hand you back to the operator for questions. Thank you.