Earnings Transcript for GKP.L - Q4 Fiscal Year 2016

Executives: Jon Ferrier - CEO Sami Zouari - CFO Stuart Catterall - COO

Analysts: Werner Riding - Peel Hunt Al Stanton - RBC Will Forbes - Edison Charlie Sharp - Canaccord Mark Wilson - Jefferies Thomas Martin - Numis

Jon Ferrier: Good morning, everyone, and thank you to the analysts who have dialed-in and to the others including many of our shareholders who're following this via the webcast. The analysts should have received the copy of the slides by email as I'm hoping you have those in front of view, and the slides that are also available on the investor relations section of the website. So, I'm assuming that you can all follow the story through those slides. So, with that little housekeeping out of the way, I'll say that I am jointed today as you've heard by Sami Zouari, our CFO who many of you know already, but I would like to make a particular welcome to Stuart Catterall, our recently appointed COO or Chief Operating Officer, who joined us one of these calls for the first time. I'm going to make a few opening remarks and then hand over to Stuart, who'll then be followed by Sami and then the three of us will be very happy to take your questions. So, before turning to the slides, I'd like to say that we are very upbeat about the Company about Gulf Keystone at the moment and I hope that you see through the course of these, the ground to this optimism. We fully recognized it has not been an easy time to shareholders, but we are of the firm believer that the Company has never been in a better position. And the short version of the story is a simple one strong operational performance, cash flow positive and we are ready to reinvest into Shaikan. Three points that I would like to you to keep in mind and with those I think we're enjoying an unrivaled position in Kurdistan that no one in better place than ours to capture this opportunity. So, I'll now draw your attention to the slides. There is a disclaimer on the Slide 2, which you can review later and then will start with Slide 4 called Gulf Keystone Today. We will begin with all these points in more detail throughout the course of this session, but these are in fact the solid foundations of the Company. In Shaikan, we have a robust and predictable asset with strong production levels at around 38,000 barrels a day today. We've had regular payments throughout 2016 and 2017, 16 months in fact of record payments, not something we as expected at the beginning of the last year and certainly the end of 2015. And as you will hear from Sami in a moment, our financial position has never been better, we have free cash flow positive and have a strong balance sheet. In Shaikan, we have organic opportunities to invest to 40,000 and then 55,000 barrels a day in the near-to mid-term, which importantly can be self-funded. And finally as you hear and you say every time I talk to you, now this is relevant if we can't do it safely and I'm happy to report that our operations remains safe and secure unless something we're all very proud of. If we go to next slide, Slide 5, 2016 results highlights. We are here today because of the annual results and we do feel indeed that these are a good set of results, and they capture the considerable progress that has been made over the reporting period and subsequently. The Company is underpinned by Shaikan and we're often teased by some of you on the call for describing Shaikan as our world-class field or world-class assets of every opportunity, but the simple fact is exactly that. We've reported record production just shy of 35,000 barrels a day to 2016, up 14% year-on-year and at the upper end of our guidance something we're very pleased about. We've produced 12.7 million barrels of oil last year with just over 35 million barrels right now. Our daily production as I said 34,794 at the upper end of guidance and that includes the deferrals that we suffered last year. Our production guidance for 2017 is between 32,000 to 38,000 barrels a day gross. And for the first quarter of this year, we averaged 36,293 and yesterday in fact we produced 38,700 barrels oil a day. And it was very pleasing as well that ERC Equipoise in April confirmed the remaining reserves for 2016 in line with the 2016 CPR, so stability there, predictability which is very important to us. And you'll hear some more from Sami on the financial, but I am pleased to report a very positive picture. One of the greatest shadows that has been falling over the Company is the certainty around payments. Last year, we have received a $114 million and our cash position is strong something we have not been able to say previously. Revenues were up 126% and we have reported $26 million in operating profits. So, that was the theme setter I wanted to give you and I'll now hand over to Stuart, who's going to take you through some of our operation aspects of Shaikan.

Stuart Catterall: Good morning, everybody. And I am looking at Slide 7 now which is the map of Shaikan. I think many of you will be familiar with this already, but just to remind you some of the key features of the field. This is a large field it's 30 kilometers from east to west. We have been on production since July 2013 to-date we've produced over 35 million barrels from the field. And in particular to note is the operating costs which have been coming down year-on-year since 2014, and last year, we produced at about $3.5 per barrel which is pretty good by global standards. No much more to say on that slide, but if you move to the next slide, Slide 8. This just gives you a cross section of the field. There is a few important points you will see on the left-hand side a summary of each of the three reservoirs, and that’s probably the first things that’s interesting about this in that the main reservoir we have been producing from is the Jurassic, which is the centre of the field. There is a lot of opportunity in the Cretaceous and Triassic, and a lot of those resources are held as contingent resources and you can see the numbers on the left hand side. Couple of points about the Jurassic, we've got a little graph of the site showing the size of the Burj Khalifa in relation to the size of the field, but there is a 1000 meters of relief or vertical relief on the field which is quite unusual. And that’s quite important not just from the oil in place, but from the way in which the field behaves. And the other thing I wanted to point out from this map was the geological feature in pink the Adaiyah formation which is actually a barrier to flow which is quite important because it prevents water coming up from underneath into the upper layers of the reservoir. So, few and important points about field that’s really just to get your eye in, but if you move to Slide 9, I'll just run through a few key points and some of which Jon has already mentioned, but the continuing study production 38,000 barrels a day has been a good news for us. We continue to produce dry oil. There has not been any breakthrough of aquifer water or gas production. We have got a very reliable plant and it's producing at over 98% availability and with no safety or loss-time incidents last year. And income tax 98% for an oil producing plant is a very high level of reliability. So, we are very pleased with that. And some of the other aspects of the field in terms of the reserves and the sub-surface which kind of points to some of the future and the opportunity for the field, and as stated before, it is a very large field, we've got 2P reserves of 615 million barrels as at the end of last year, and these were confirmed and verified by our reserves auditory ERCE, which we received just recently. They have looked that production through to the end of March this year and confirmed the reserves. As I mentioned before, there is a large volume of contingent resources which we hold in that category because we don’t yet have a firm plan for development of those, but it definitely gives us opportunity and upside in the field. We have done a lot of work over the last few years looking at the production history matching in terms of the oil produced and the reservoir pressures, and we are very pleased to say that the production history supports the geological model and the volumetric from the fields, so that gives us some confidence. And we think that the field is producing -- this is going to get a big technical, but it's performing a secondary gas cap and has a weak aquifer. But the importance of that is that a secondary gas cap allows for some pressure support in other words the pressure decline in the field tends to be attenuated with that kind of reservoir mechanism. So, it's quite good news for us. As I said this supports our geological model and the other final point is that and because of the size of the reserves, the current offtake rate is very low at 2% of our 2P reserves. Just turning to Slide 10, it talks about the future. This is probably a slide that you've seen before. We have an investment program that we want to put in place to help us maintain the 40,000 barrels a day, that’s largely focused on just the mitigating the effect of the natural reservoir pressure decline and installing artificial lift in the form of EPS and drilling a new well and some mine modification to the plant. We think we will spend between $58 million and $68 million on that program. They move program to expand in near term by further modifications to the plant. The possibility of production pipeline time and that’s an 18 months program that will be $25 million to $45 million investment. And then we have the step-up to the full-filed plateau at 110,000 barrels a day. And that’s all I wanted to say on the operations for the time being. I’ll hand over to Sami to go through the financials.

Sami Zouari: Thank you, Stuart. Hello everyone. On the financials, let’s start with the highlights and this company is for the first time generating positive cash flow and posting a profit from operation since its enter in Kurdistan, so it's definitely a very important milestone for us. On the left-hand side, fiscal on is in relation to the liquidity situation of the Company which is doing strong. We have positive upward trends on the cash balance. It's going up by 113%, on the revenue plus 126%, on the payment for exports at 100%, and profits from operation $26 million against $82 million loss in 2015, lots of these positive trends are obviously explained by ongoing and rigor lap payments from the MNR. And to a lesser extent on the cash, this is also in relation to the restructuring which I’ll say a few words about later on. And on the left-hand side, the strong downward trends which are very important for us and we are quite very happy with those achievements is the trends on the OpEx whereby the OpEx per barrel on a gross basis have gone down from $5.3 per barrel to $3.5 per barrel. On the net operating expenses to Gulf Keystone, we have gone down by 27%, lots of efforts have been done on the G&A with minus 16% and on our estimated revenue arrears minus 43%. If we move to the next slide, obviously the restructuring is one of those highlights, I decided to put these after the figures because you all are quite familiar with the restructuring and all the details have been announced to the market repeatedly. But -- so, just a few words on that subject, the restructuring was confirmed in October 2016, leading to an adequate level of $100 million for this company also so we are announcing that we are going to be paying the coupon on the 18th of April. That was important to us of the more considering that this company has the option not to pay the coupon in cash, but to PIK it for those who are not familiar with the PIK, it means simply delaying that coupon payments which would move from 10% to 13% at maturity. But we feel strong enough today and with the positive outlook on the future, we feel safe and comfortable paying this coupon in cash. And good start in 2017 just a few words on 2017 to confirm continuity from 2016 to the first quarter 2017, strong production for Q1 about 36,000 barrels per day as already disclosed by Stuart and Jon, and current production around 38 barrels per day. We have received $45 million for the first -- during the first three months that is in gross, so first $36 million net to Gulf Keystone. With respect to our cash balance, we're standing at $113 million -- I am sorry that was the previous -- thank you -- the cash balance stands at $113 million as of yesterday leading to a net-cash position of $13 million. Now, if we move to the next slide, so strong revenues and cash receipts. We are posting $194 million of revenues and that is the jump of plus 126% against 2015. So, $122 million of revenues related to those [indiscernible] ongoing payments and there is $73 million that are related to the offsets that we took into our account and confirmed with all our auditors. On the -- a few words here, this is more for information for the analysts the estimated realized price is $24 per barrel. This story hasn’t changed here with respect to the all-in discount which stands $20 per barrel, and so it's basically the average Brent $44 per barrel in minus our all-in discount including requested discounts and the midstream cost. With respect to cash, so $114 million of net receipts I was talking before about the impact of the restructuring. You all know that there was a successful and oversubscribed open offer leading to $25 million in relation to financing activities, which leads to an additional $49 million increase in 2016. So, this slide to show you the progress of this company has made with respect to reducing its costs. And here I would like to emphasize that because you all know that 2017 will actually quite a challenging year for this company for the management because a big portion, a big amount of the energy and the efforts were obviously allocated to the restructuring, but we haven’t forgotten about the business. The business was conducted as usual but beyond that we have gone through extensive efforts to reduce our OpEx and our G&A. So, on this -- it's not about the trends. You can see that again the OpEx per barrels have gone down, the G&A as well. With respect to the OpEx, lots of efforts have been done on renegotiating some key contracts. On the G&A, it's all about rationalizing the organizational structure of this company. I am very -- I'd like to say also this is not the end of it. This is an ongoing work and we are still working with the E&Y for example on this re-organizational subject, but we are in a good shape. It’s also worth mentioning I was keen here to keep on showing the production trends. Yes, we are lowering the OpEx. It's one thing that we are lowering the OpEx against our production that keeps ongoing up from 2014 to '15 and '16. Here another few metrics for you. We are presenting the EBITDA for the first time. I thought it was actually a figure, a metric that was now becoming relevant. We are spending at $108 million I guess previous to 2016. It didn’t make very much stands for us to show this figure, but yet you can see the trend from 2014 to 2016 in terms of EBITDA what is important is also to assess the EBITDA in light also of our debt situation, as I said it before, we have no net debt but we are standing today with a net cash position of $13 million. On the capital expenditures obviously I mean this figure has going down from 2014 and to today. Last year, we have invested CapEx in relation mostly to flow lines and Shaikan 11. This year the CapEx were in relation to maintenance CapEx and yet we have managed to sustain our production and actually increase its as you know we are today, I mean yesterday, we are standing above 38,500 barrels per day. Don’t get me wrong, this is not listed and satisfying to us. The aim as Jon said it before was to reinitiate the next investment phase and we are very excited about it. The next slide is about the Shaikan arrears. On the arrears, we are in a good place. We have lowered that portion of arrears which is tied to the revenue arrears, so that is the figure that you can compare to our peers. It's that junk of fast unpaid production, we had gone from $44 million to $25 million and the way we have done that is that we have offset several items that payable to the MNR and other PSC cost. Here is important to emphasis as always that these figures are of balance sheets, Gulf Keystone has always opted for a prudent accounting approach. This is our position, and as long as it is subject to audit and further discussion with the MNR, we keep it off balance sheet, but that’s giving you a good idea of the trend. The second line is in relation to that portion of carry that we have done on behalf of the MNR and here again this figure is going down from $75 million to $71 million. So as for conclusion, what is our objective for 2017? It's definitely to keep on securing rigorous payments. What is most important is to execute the Second Shaikan PSC Amendment. In simpler word is to confirm the Bilateral Agreement that we have signed with the MNR. And on this, we are very keen to do so because this is what's going to trigger the next phase of investment. We are aiming to confirm this by midyear or around the midyear 2017. And on this, I would like to emphasis also, so as you all know we have been paid $15 million per month on accounts by the MNR in 2016. I am preventing a bit here some of your questions is, are those payments strung away for what we would have gotten under the PSC? The answer is, no, differences are not material at all. So, as of now, our position is that we have been kept hold throughout 2016. But again for sake of clarity, we need to confirm the MNR backing rights and that's going to be done hopefully by midyear. On the point number three, again the team here is very, very focused on cost optimization, keep on controlling our costs, hopefully reduced uncover and this is going to definitely make us more resilient in the future, notably, if the oil price goes down. Shaikan is ready to reinvest definitely. So, here I'm sorry -- I am only repeating what Jon have said, but this is a very important to emphasize that although 2016 was a very good year, '15 here is very keen to resume the next investment phase and then lock value on those to work programs that 40,000 and 55,000 barrels per day. Thank you very much.

Jon Ferrier: Thank you, Sami, and thank you Stuart. And just before we head into questions, I'll just close up this particular part of the presentation. As I said at the beginning, we have a very positive and very optimistic outlook for the business and as we head into the remainder of 2017 and beyond, our primary focus will remain as I keep saying to you, keeping people out of harm's way, we want safe and reliable operations. Thereafter, as Sami has just touched upon, I am looking forward to achieving commercial certainty with the Shaikan, and otherwise I think it's very important to stress that we are completely aligned with the KRG. Gulf Keystone projects are key part of the KRG's future revenues that with everyone's interest for us to succeed. And finally, we have a very compelling organic growth story and a clear line of site to 55,000 and indeed beyond. So with that, I'll hand back to the operator and will be happy to take your questions. Thank you.

Operator: [Operator Instructions] Our first question today comes from Werner Riding from Peel Hunt. Please go ahead. Your line is open.

Werner Riding: Sami, you might have just mentioned as I might have missed the detailed towards the end there, but from the March 2016 PSC Amendment, if other is confirmed by midyear. How much of the $58 million to $68 million CapEx require to maintain production falls into the 2017 budget? And I guess could you provide guide on your plans as things stand for CapEx rising more generally beyond that?

Jon Ferrier: Yes, I will let Stuart respond to you on this. But definitely showing our review, the execution of the PSC will trigger the next investment phase ASAP in terms of timing. And let Stuart respond to that.

Stuart Catterall: Yes, I think if here we look at the slide, we put down that it's a 9-to 12-month program and that doesn’t mean, and the capital is phased more or less evenly over that time period. So, a lot depends on when we kick it off. I think our current estimate is that we should re-through these negotiations in Q2, so we have to kick off the work by the end of Q2 this year.

Werner Riding: That means start of the investment phase in Q3?

Jon Ferrier: Straight way, yes.

Stuart Catterall: Yes, well, just to give you a bit a color on that. I mean we are looking -- obviously, we are trying to run things as we can in parallel in terms of planning and preparation for the work. So, there are some things we can do to be as ready as we can as soon as those commercial negations are complete. That is our objective.

Operator: Thank you. We now move on to our next questioner which is Al Stanton from RBC. Please go ahead.

Al Stanton: Jon, you have talked about a world-class field, but to that I am trying to dive Slide 8, makes it look like seven or eight fields. So I was wondering given all that has happened over the last few years. How relevant is this field development plan that you've submitted back in 2015? Because currently it looks like you are looking to develop a low cost but low price Triassic field whereas deeper down you probably have a pack-pack size light gas -- light oil field, which can be higher cost, but it would be higher revenue. And it would also probably give for KRG more what they want or need in that lighter oil. So, I wondering where actually there is the full-field development plan stand at the movement?

Jon Ferrier: I am going to let Stuart handle it because it is what he thinks focus on for the last 12 weeks or so.

Stuart Catterall: It was a good observation. I mean it is an area of opportunity for us and that’s what we've been spending some energy on over the last few months. I can't say very much because the study work isn’t complete, but what I can say is there is certainly some opportunity for optimization of that field development plan. And you are right to point out the Jurassic has some benefits in terms of the quality of its oil and also the volume of contingent resources that we haven't booked yet. And I think it's fair to say that the Jurassic still remains our focus that really is the bulk of the reserve, so that’s going to underpin whatever we do. But, yes, exactly how we do it and the phasing is something that we can spend some time on.

Al Stanton: What are the key issues? I mean, if you go deeper I assume it's more expensive, but equally if you develop the heavier oil you, have this issue with transportation infrastructure. So, which one of those is winning out to the moment?

Stuart Catterall: The issue with the Triassic is a couple of things perhaps our understanding of the reservoir is not as good as the Jurassic. We've got four years of production with the Jurassic which helps enormously to understand the reservoir. So, there is a lot more uncertainty there and it’s a more complicated fluid. The cost of the wells are more expensive as you go to deeper and because it has much more gas associated with it, we've got to consider how best to recover the oil whether there is a gas reinjection exactly when you do that. So, there is quite a lot of moving parts to how best to develop the Triassic.

Sami Zouari: Hi, this is Sami. I heard you mentioning transportation. On the transportation, there wouldn’t be any issues with respect to the Jurassic versus the Triassic. I mean both we require at some point in time through the export pipe and as you know I mean up to recently, we have been exporting the Shaikan heavy crudes via the pipe. So, there isn’t any technical here and obstacles in respect to gravity.

Al Stanton: Yes, there would be half of that Kurdistan production and it would be really heavy relative to target?

Sami Zouari: No, why do you say of half of the Kurdistan production. Kurdistan is aiming to export 1 million barrels per day. These days they're standing between 550 and 600. So, we are presenting still a small portion of the domestic production.

Operator: Thank you. We now come to a question from Will Forbes from Edison. Please go ahead.

Will Forbes: I have two questions. One is given the compression that we have seen from Taq Taq. Wondering, what kind of comfort due to assisted you will entirely comfortable with the outlook for the reservoir in the Taq Taq production which is good [indiscernible] and that maybe the same for Gulf Keystone? The second is on the revenue arrears on MNR backing like the cost. In terms of the amount that you've recovered over this last 12 months starts about 23 million, and if we assume that that’s going to go on that rate that had roughly four years to take away all of the existing back cost and arrears. Is that a fair assumption to make? Or do you expect of the PSC to be renegotiated to those MNR backing costs which reserved quite [Indiscernible]?

Jon Ferrier: So on the…

Stuart Catterall: [Indiscernible]

Jon Ferrier: Yes, I am sorry Stuart. So, on the arrears there are two components, right. So, I think it's important to we are referring to the revenue arrears, moving from 44 to 25, that movement takes into accounts for the most parts PSC cost, production dollars. It's in approach that was discussed and confirmed under the Bilateral Agreement with the MNR. On the -- what differentiates us from the other companies indeed that portion of $71 million and that in relation to Gulf Keystone carrying the MNR. On this, yes, I mean we are hoping to deal with this amount as the execution of the PSC. But once again, I am being prudent here, these amounts has to be -- have to be confirmed with the MNR, there are subject to audit and reconciliation but as of now this is the Company's position.

Will Forbes: Stuart, do you think this is really Taq Taq issue?

Stuart Catterall: Yes, it's complicated subject. I am trying and keeping it as simple as possible. I mean Taq Taq has made two reserves with options from what we understand. Last year was fairly significant and that we understand was mainly associated with the volume of oil that was held in the fractures, as you know these are fractured carbonate reservoirs. The second reduction which is just taken place recently and it appears to have been due to some oil that’s been bypassed in the reservoir. So, if I take those two major issues and try to make some comments regarding Shaikan, and the first is that we have always been fairly cautious on estimating the volume of oil held within the fractures. And as a comparison and our oil in place in the fractures is only 22% of the overall volume whereas I think with Taq Taq before they made the write-down last year, they held 60% of their oil in fractures. So they were always very much more sensitive to these kind of changes than we are. Secondly just in relation to the offtake rate that we are producing the field that I mentioned before that we are only producing at 2% of our 2P reserves per annum, which is when you compare fields in the world over that's very low offtake rate and I think these are relatively cautious way of producing the field. And again by comparison at peak rate if you compare there the offtake rate to the reserves of the field that than ours to make in Taq Taq, that field was producing at about 18% or 19% of the annual reserves per year on plateau, so there is some significant differences. And it's difficult for us to talk knowledgeably about Taq Taq because we don’t have and also lot of information, but a few things that I can tell you about Shaikan. I mentioned to you before about the on Slide 8, the Adaiyah formation which is an hydride which is a barrier to flow. And since most of our production comes from the upper Jurassic which is the zones above the Adaiyah, we are to a large extent protected against water coming up from underneath, and the water has to make its way from the edge of the field. Why is that important? Well, it's important because the factures in the field are vertical and so, it's not harder to imagine the scenario where these vertical fractures connect directly from the water to the well. So, we've got several things in our favor, there is that issue but then at least the actual vertical releasing the field which is 1,000 meters from the top of the field to the water, which just means that the gravity is helping us as well to keep the water. I think the very final point, we do have a reasonable amount of production history now and that production history we've used to help match the static model and it is painting a picture for us, which confirms our static model and confirms the balance of the oil held in the fractures and in the metrics.

Jon Ferrier: I hope that explains that to you Will. I even guess we have anticipated the question like that from somebody.

Will Forbes: And I have a follow-up GK, if I can. If you got the 20% of the overall fracture or the overall volumes in the fractures, I don’t see the fracture cost proceeds have been at least much is higher than in the metric. Is that therefore for more downside for you in the 80% give or take? Is it the metric of which you were not quite sure how much even at the level of from [Indiscernible] the oil was coming from the metric as the fractures therefore produces is that tissue more downside field? And then as just kind of the secondary follow-up in terms of getting the CapEx approved and the CapEx prime approved this year. How much of an obstacle is modeled in the negotiations around do you think that there is a chance so that could be specified?

Jon Ferrier: I'll take the model points and then just get back on the fractures. So, model wasn't an obstacle at all, we are strategically 100% aligned for each other. The relationship is very good. Obviously, there are partners and anything we do requires partner approval and that's why we take care to mention that's in our various announcements, but no problem. Stuart?

Stuart Catterall: Yes, I think if we look at the fracture volumes. What we've done with the production history is to produce a material balance model of the field, and it gives us a range of fracture porosity. And the good news is the information from that range is very similar to our geological model and it gives us 0.4% as fracture porosity in the mid case. So, it's supported not least from the data from the wells, but also now from the production history data. I think when you look at Taq Taq, the way that they were estimating their fracture porosity came from a different source, they were looking at seismic data to help them estimating fracture porosity. And they had some very much higher estimates of fracture porosity than they were holding. So, I think there is some major differences in the approach and I think that the production history is supporting what we have estimated. So, we are relatively confident in the numbers and not only that ERC have verified those numbers for us, so they are off the same opinion.

Operator: Thank you. We will move on to our next question from Charlie Sharp from Canaccord. Please go ahead.

Charlie Sharp: Good morning gentlemen and holding a long from -- just holding a long from very last question a little bit. And on Page 7, you've got a map of Shaikan field which I think shows there is a various wells. Can you just let us know or remind me at least how many of those are on production? And in general, what is the range of production from each of those wells? Is it a narrow range or do you have a wide distribution of performance from those wells? In terms of the commercial also very quickly, you talked about I think the phrase calculated is commercial certainty and in terms of the going for the next phase in terms of CapEx investment, you are waiting for that commercial certainty to be delivered. I think on that, are there particular elements that we can look forward in terms of new slow oil, will that commercial certainty just effectively be delivered to the market as of [Dundee]? Or are there some certain things that we can look forward to in terms of new slow over the next few months? And then finally on the commercial side, I think you talked in the outlook section about crude marketing arrangements so being part of that commercial certainty and effect. How do you see that the evolving overtime because of course it's trucking at the moment? How long do you see that continuing? And is there any potential for market your own crude entry cost?

Stuart Catterall: Charlie, I'll just start with the field then I'll hand over to Sami or Jon for the commercial questions. The any well that’s not producing on the map that you see Shaikan 6 over in the east and that was a well that was drilled during the appraisal of the filed deliberately to try and find the water contact, which it did. But obviously it's not much help for us at the moment in producing. All the rest wells are on stream with rates varying from about 1,500 barrels a day up to 4,500 barrels a day. You may have noticed in our announcements recently that we've bought Shaikan 8 back on stream and that’s been a very pleasant piece of good news that the well is producing current at about 1,800 barrels a day. But the thing that was pleasing was it is not producing with any drilling fluid. So, I think you may or may not remember that it was shut in last year in around May because we were producing back some of the drilling fluids lost into the formation, notably from drilling Shaikan 7, and our facilities were able to handle it. So, we had to do some medial work on the facilities and then we have some standby equipment online before we could bring that back on. But it was a very good piece of use that has come with dry oil production. And hopefully that covers the points on the field perhaps I’ll pass over for the commercials points.

Jon Ferrier: In terms of the news flow Charlie, as you'd expect the commercial stuff is not something we can say too much about, but as Sami said it relates to the Bilateral agreement last year, and I am hoping that we will get this also to that by the middle of the year. So I think what you will see is news flow is also coming to the market with use of the development plan.

Sami Zouari: Hi, Charlie, this is Sami. Just in additional few words. Yes, certainty is not part of the picture and I would say certainty is not part of any PSC story. But what we are aiming for is satisfactory conditions, allowing us to invest and one of those is definitely executing the PSC, so we can be face in line with contractual terms. We need that this is something that is required as a public company and also for the benefit of our shareholders. That is number one. And then you mentioned marketing rights. Of course, I mean we would like to have that by the way it is already in the PSC and the PSC says that company is are still run over their marketing but you know the situation and all producers have expected the fact that the MNR is selling the oil on our behalf. So I would say on the marketing side the things is it's an absolute condition beyond there is no, is it a definite plus? The answer is yes, and I think that Gulf Keystone along with our peers going to would be extremely happy with that.

Operator: Thank you. Mark Wilson from Jefferies has our next question. Please go ahead.

Mark Wilson: I just apologize, if this has already been asked. But you mentioned earlier how you received 45 million in gross payments, I think by payments which is 36 net of 80%. If the 58 commercial agreement comes through, is it a difference in those net payments in your payables at the moment?

Sami Zouari: No, there shouldn’t be. As of now we have applied the 80%, 20% between Gulf Keystone and more and whenever the new PSC under the Bilateral Agreement is executed, we will address going forward.

Mark Wilson: Does that mean you have to going forward would there be no arrears payments?

Sami Zouari: Well, on this one what we are looking, aiming for is that there would an arrear payments following of the execution of the PSC and that arrear payments would be in relation to the back cost, right. And we respect to the revenue arrears than what we need to enforce to be in line with our peers meaning that will have the 5% additional payments on the gross entitlement contributing to the reduction of the arrears.

Mark Wilson: Sure. Okay, but the 80% networking interest you will retain that you don’t think if there is any kind of settlement to be done in fact we can receive the 80% and now we are going to 58?

Sami Zouari: I mean those would be adjusted for the Bilateral Agreement. But again, yes, uncertainly -- but again, we asked -- there is only so much we continue on this and there is ongoing discussion with the MNR, but hopefully we will get there and hopefully it is what has been discussed by the Company meaning the Bilateral Agreement.

Mark Wilson: Okay, all right. Thank you. And I know it's in the results that you mentioned anything about the DNO proposal in the past years. Is there anything you can say about that even if it's over now?

Jon Ferrier: It's over now 12 years and I am looking forward to run this company as a standalone business with and get to spending money on our very interesting projects as soon as possible. The independent future of this company is what's on our radar now. If you would have asked that question 18-months ago, we have a very different answer but just to reassure you, we know what are duties are and to the shareholders and if anything comes along this sensible, we would of course refer to the Board and shareholders that we don’t need a deal where we have our independent future now.

Operator: Thank you. I see no further questions -- probably, there just would be coming one more question from Thomas Martin from Numis. Please go ahead.

Thomas Martin: I wonder could you just give me an indication of what the portion of your reserves in the Jurassic lie in the [Indiscernible] of the Adaiyah?

Jon Ferrier: It is a good question. I don't have the CPR report to hand and I am embarrassed to say that I don’t have the number clearly in my mind, so I can't really tell you that. I mean we can certainly get it. It's in the CPR report and so I can -- we can try and if you could access to that news on the website. I can't give you a figure and I'm sorry.

Operator: Thank you. That concludes today's question-and-answer session. I would now like to turn the call back over to you Mr. Ferrier for any additional or closing remarks.

Jon Ferrier: Well, thank you very much everyone for your time and attention this morning, and I hope you've appreciated the presentation and that the Company now is in a very different position. Thank you too to the others listening on the call via the webcast and those of our shareholders who remain loyal to us. It's really appreciated. Now, nothing else for me to say other than and again, thank you for your time and we look forward to bringing more good news this year.