Gulf Keystone reports tough first half amid Kurdistan export ban

Kurdistan oil operator Gulf Keystone reported significant downturns across key financial indicators in its first half on Thursday.

The London-listed firm said the poor performance was mainly attributed to the suspension of exports and delayed payments from the Kurdistan Regional Government (KRG).

It recorded an 84% drop in adjusted EBITDA to $34.2m, due to export suspensions and lower realised prices for crude oil in the first quarter.

Similarly, Gulf Keystone reported a loss after tax of $2.9m, swinging from a profit of $162.8m in the first half of 2022.

The reported loss included an impairment charge of $13.9m related to expected credit losses from overdue receivables from the KRG.

Revenue took a considerable hit, falling 70% to $79.6m, on the back of a 48% reduction in gross production to 23,256 barrels of oil per day, and a 39% decline in weighted average realised prices to $51.30 per barrel.

Free cash outflow for the period amounted to $9.9m, contrasting with free cash flow of $177.3m in the first six months of 2022.

In light of the challenges it was facing, Gulf Keystone said it had implemented aggressive cost-cutting measures to preserve liquidity, including a 67% quarter-on-quarter decrease in net capital expenditure to $11.7m in the second quarter.

The company also deferred non-essential maintenance activities and halted all expansion work.

Despite those cutbacks, operating costs remained static at $18.9m, showing no change year-over-year.

In March, the company paid an interim dividend of $25m - significantly lower than the $190m disbursed during the same period in 2022.

Additionally, a proposed final 2022 ordinary annual dividend of $25m was cancelled.

However, the company retained a cash balance of $82.1m as of 30 August, with no debt reported.

Looking ahead, the company said that although it had taken steps to mitigate its financial challenges, it remained vulnerable to continued payment delays from the KRG and the volatile geopolitical landscape in the region.

“GKP's operational and financial performance in the first six months of 2023 was materially impacted by the suspension of Kurdistan crude exports following the closure of the Iraq-Turkey Pipeline in March and continued delays to KRG payments,” said chief executive officer Jon Harris.

“As a result, we shifted rapidly from a focus on driving profitable production growth to preserving liquidity, suspending all expansion activity and aggressively reducing expenditures across the business.

“In July, we commenced local sales and partially restarted production.”

Harris said that since then, the firm had increased gross average sales to around 23,100 barrels per day towards the end of August.

“At current realised prices of around $30 per barrel, we are able to cover our current estimated second-half monthly net capex, operating costs and other general and administrative run rate of about $6m, while increasing our flexibility to manage accounts payable.

“We continue to actively pursue further increases in local sales and cost reductions and retain the flexibility to reduce operational activity and costs if sustainable local sales do not materialise to an acceptable level.”

While no official timeline had been announced, Jon Harris said the company still believed that the suspension of exports would be temporary, and that the KRG would resume oil sales payments in due course.

“In the interim, we remain focused on protecting the interests of GKP's stakeholders by preserving liquidity and engaging as a company and industry with the KRG and other key parties.”

At 1011 BST, shares in Gulf Keystone Petroleum were down 5.77% at 97.25p.

Reporting by Josh White for Sharecast.com.