Gulf Keystone to Review Reserves After Downgrade of Block 126a in Algeria

Gulf Keystone previously reported that it is reviewing the possibility of bringing in potential partners into certain of the Company's Algerian licenses. Ahead of, and in conjunction with this, the Board recently commissioned an internal review of its entire potential reserve and resource base, covering the newly acquired Blocks 129, 108, 128, 317b, 322b, 347b, 348, 349b together with its original holding in Block 126a.

As an integral part of that review, a detailed evaluation of the production sharing contracts for each license has been carried out together with a calculation of the likely net reserves allocation to Gulf Keystone that would result from those contracts. It should be noted that the net allocation can vary annually when factors such as capital investment, production levels and product prices are considered. Accordingly, the contract terms that determine entitlement are different for each block.

In the case of Block 126a, an evaluation of the cost recovery provisions contained in the production sharing contract for Block 126a indicates that the percentage of net reserves that would be attributable to Gulf Keystone, from any commercial development within Block 126a, would, the Company believes, be materially lower than was indicated in the last independent review of the Company's reserves contained in the Competent Persons Report of September 2004 set out in the company's AIM admission document.

In view of the internal reserves review that the Company is presently completing, the significant drilling and work-over activity that the Company has carried out since the last independent resource review in 2004 and the very substantial expansion of the Company's portfolio of oil and gas assets that has taken place since that time, the Company is now commissioning a full, updated and independent review of the Company's resource potential. This is expected to be completed and available within 8-10 weeks.