Genel Energy shares gain on 2020 Results

Genel Energy has announced its audited results for the year ended 31 December 2020. The shares closed the day up more than 2 percent.

Bill Higgs, Chief Executive of Genel, said:

"2020 was a uniquely challenging year for everyone. As for Genel, our continued progress and strong performance in 2020 has laid the foundation for a year of growth and operational catalysts in 2021. We continued investment in Sarta, which entered production in November, and the field is generating cash as we now move to rapidly appraise its exciting potential. Three appraisal wells will be drilled at the licence in 2021. The QD-2 well at Qara Dagh is also set to spud shortly, as we look to evaluate the potential to add a fifth producing field.

"As we make this investment in growth, the low-cost and high-margin nature of our growing oil production means that we expect to generate significant free cash flow at the prevailing oil price. In turn, this gives us the confidence in our material and sustainable dividend distribution, including a final dividend of 10 cents per share announced today, as we continue to offer investors a compelling mix of growth and returns."

Results summary ($ million unless stated)

2020 2019
Average Brent oil price ($/bbl) 42 64
Production (bopd, working interest)  31,980 36,250
Revenue  159.7 377.2
EBITDAX1  114.6 321.8
  Depreciation and amortisation  (153.7) (158.5)
  Exploration expense (2.2) (1.2)
  Impairment of oil and gas assets2 (286.3) (29.8)
  Impairment of receivables (36.9) -
Operating (loss) / profit (364.5) 132.3
Cash flow from operating activities 129.4 272.9
Capital expenditure 109.7 158.1
Free cash flow4 (4.4) 99.0
Dividends declared (¢ per share) 15 15
Cash 354.5 390.7
Cash after post-year end payments5 273.5 377.1
Total debt after settlement of called bonds5 280.0 300.0
Net cash6 6.2 92.8
Basic EPS (¢ per share) (152.0) 37.8
Underlying EPS (¢ per share)3 41.8 116.9

 

  1. EBITDAX is operating loss / (profit) adjusted for the add back of depreciation and amortisation ($153.7 million), exploration expense ($2.2 million), impairment of property, plant and equipment ($242.0 million), impairment of intangible assets ($44.3 million) and impairment of receivables ($36.9 million)
  2. Despite production in line with expectations, the low oil price in June 2020 resulted in an impairment of production assets at the half-year results, which under IFRS cannot be reversed despite the improved oil price outlook
  3. Underlying EPS is EBITDAX divided by weighted average number of ordinary shares
  4. Free cash flow is reconciled on page 13
  5. On 8 January 2021, shortly after the balance sheet date, the Company paid $81.0 million to settle $77.1 million of old bonds reducing its gross debt balance to $280.0 million, with $267.7 million reported under IFRS in the balance sheet (2019: Cash reported at 31 December 2019 less interim dividend paid ($13.6 million) on 8 January 2020)
  6. Reported cash less IFRS debt (page 13)

Highlights

  • Zero lost time injuries ('LTI') and zero tier one loss of primary containment events in 2020 at Genel and TTOPCO operations
    • No LTIs since 2015, with over 13 million work hours since the last incident as of end-2020
  • Net production averaged 31,980 bopd in 2020 (2019: 36,250 bopd), following the pause in the drilling programme at Tawke, appropriate to the external environment
    • First oil from Sarta achieved in November 2020, with asset now producing over 10,000 bopd
  • $173 million of cash proceeds were received in 2020 (2019: $317 million)
  • The low-production cost per barrel of $2.8/bbl in 2020 helped deliver cash generation of $85 million in the year from producing assets
    • Free cash outflow of $4 million following material capital expenditure on growth assets
  • Dividends of 15¢ per share announced in 2020 (2019: 15¢ per share)
  • Net cash of $6 million at 31 December 2021 following the call of the old 2022 bond, with cash of $274 million and reported IFRS debt of $268 million
  • Carbon intensity of 13 kgCO2e/bbl for scope 1 and 2 emissions in 2020, significantly below the global oil and gas industry average of 20 kgCO2e/boe

Outlook

  • Production guidance for 2021 maintained as slightly above the 2020 average of 31,980 bopd, with the potential for a higher exit rate and further growth in 2022 depending on success of the Sarta appraisal programme
    • Margin of $15 per working interest barrel expected in 2021 at average Brent oil price $60/bbl, with receivable recovery payments increasing that to $20/bbl
  • 2021 capital expenditure guidance maintained at $150 million to $200 million, with the current macro environment and outlook supporting investment at the top end of this range
    • c.$100 million expenditure is forecast to be spent on growth assets, with three appraisal wells at Sarta targeting a material 2C resource and the QD-2 well, set to spud shortly, aiming to open up a new producing field
  • Operating costs still expected to be c.$50 million (2020: $33 million), equating to c.$4/bbl in 2021 ($2.8/bbl in 2020), retaining our advantageous low operating cost position, with the increase from 2020 due to the addition of Sarta early production costs
  • Given the increase in Brent oil price and confidence in ongoing payments from the Kurdistan Regional Government ('KRG'), including override and receivable recovery payments, Genel expects to generate cash in 2021 post-dividend payments
    • Receivable recovery payments expected to generate c.$50 million in 2021 at an oil price of $60/bbl
    • A $5/bbl change in Brent impacts cash generation by c.$35 million in 2021
  • Due to Genel's robust financial position and confidence in the Company's future prospects, the Board is accordingly recommending a final dividend of 10¢ per share (2020: 10¢ per share), a distribution of $27.9 million

More here.

(Source: Genel Energy)

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Genel Energy Non-Exec to Step Down

Genel Energy has  announces that after over nine years on the Board, George Rose (pictured), Independent Non-Executive Director, will not be standing for re-election at the forthcoming Annual General Meeting.

The Board will continue to keep its size and composition under review, including the balance between independent and non-independent directors in light of the recommendations under the UK Corporate Governance Code, to ensure the Board as a whole contains a broad range of skills, experience and backgrounds.

David McManus, Chairman of Genel, said:

"I would like to record the Board's thanks to George for his very significant contribution to Genel over his long tenure as a director, and in his roles on its committees. His guidance and his support have been invaluable. We wish him the best in his future endeavours."

(Source: Genel Energy)

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Sarta-2 Well enters Production

By John Lee.

Genel Energy has announced that the Sarta-2 well has entered production at the Sarta field (Genel 30% working interest), with gross field production now in excess of 10,000 bopd.

Genel expects this figure to increase from the existing two producing wells, as optimisation of facilities configuration continues post production start-up.

The company added that the high-impact 2021 appraisal drilling campaign is on track to begin at the start of Q2, with the Sarta-5 and Sarta-6 wells set to be drilled back to back.

(Source: Genel Energy)

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Genel Energy Updates on Oil Reserves

Genel Energy has issued an update on oil reserves and resources across its portfolio.

Bill Higgs (pictured), Chief Executive of Genel, said:

"The quality of our reserves is the foundation of our resilient business model, providing us with low-cost production that can generate cash for many years to come.

"Drilling at Sarta this year has the potential to add to our reserves, with Qara Dagh adding the possibility of opening up another field in the Kurdistan Region of Iraq, as we look to further build our cash generative portfolio for the benefit of all stakeholders."

Net oil reserves (MMbbls) 1P 2P 3P
31 December 2019 68.8 123.8 194.9
Production (11.7) (11.7) (11.7)
Technical revisions 12.2 5.0 (6.0)
31 December 2020 69.4 117.2 177.2

International petroleum consultants DeGolyer and MacNaughton assess that, at the Tawke field on the Tawke licence (Genel 25% working interest), gross year-end 2020 1P reserves stood at 173 MMbbls, compared to 176 MMbbls at year-end 2019, after adjusting for production of 21 MMbbls and an upward technical revision of 18 MMbbls. Tawke field 2P reserves stood at 245 MMbbls (261 MMbbls at end-2019) and 3P reserves at 359 MMbbls (376 MMbbls at end-2019).

The Enhanced Oil Recovery project at the Tawke field has started to deliver a positive impact on production. Pending further work on the project, the 23 MMbbls of 2P and 45 MMbbls of 3P gross reserves that DeGolyer and MacNaughton previously included in their figures continues to be maintained by Genel in 2C and 3C resources.

At Peshkabir, also on the Tawke licence (Genel 25% working interest), year-end 2020 gross 1P reserves were assessed at 61 MMbbls (51 MMbbls at end-2019), 2P reserves at 116 MMbbls (125 MMbbls at end-2019) and 3P reserves at 201 MMbbls (220 MMbbls at end-2019). The upward revision of 1P and 2P reserves by 29 MMbbls more than offsets production of 19 MMbbls, and is the result of continued outstanding field performance in 2020.

At Taq Taq (44% working interest, joint operator), 1P gross reserves stood at 18 MMbbls at year-end 2020 (20 MMbbls at end-2019), following a minor technical upward revision of 1 MMbbls and production of 4 MMbbls. Gross 2P reserves stood at 33 MMbbls (44 MMbbls at end-2019), with a downward revision of 8 MMbbls following a reduction to the number of wells planned for the future, and their associated expected productivity. McDaniel & Associates carried out the independent assessment of the Taq Taq licence.

Genel's gross 2P reserve estimate relating to Phase 1A of the Sarta development remains unchanged at year-end 2020, standing at 34 MMbbls.

CONVERTING RESOURCES TO RESERVES

Net oil resources (MMbbls) 1C 2C 3C
31 December 2019 66.5 152.0 345.8
Technical revisions (8.6) (8.6) (8.0)
31 December 2020 57.9 143.4 337.8

There has been no change to the ERCE view on Sarta (30% working interest), with an estimated mid-case total recoverable oil resource of 593 MMbbls, of which 258 MMbbls are classified as 2C resource. Production performance in 2021, and the results of the upcoming three well campaign in 2021, will inform the quantity of conversion of these resources into reserves.

At Qara Dagh (40% working interest, operator) the QD-2 well will test the crestal portion of the prospect, which has a mean prospective resource estimated by Genel at c.400 MMbbls. Genel continues to estimate that the downdip segment tested by the QD-1 well defines a 2C resource of 47 MMbbls.

(Source: Genel Energy)

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Genel Energy expects Continued Growth

By John Lee.

Genel Energy has issued the following trading and operations update in advance of the Company's full-year 2020 results, which are scheduled for release on 18 March 2021. The information contained herein has not been audited and may be subject to further review.

Bill Higgs, Chief Executive of Genel, said:

"Executing our strategy in 2020 through delivering low-cost production, paying a material dividend, and retaining our financial strength in order to invest in growth has helped lay the foundations for year on year production increases in this year and the years ahead. Bringing Sarta to production in 2020 despite the challenges of COVID-19 now means that we are generating revenues from our fourth field as we rapidly move to further appraise its huge reserve potential.

"The successful early refinancing provides us with the liquidity and financial certainty to continue prudently investing in growth while retaining a robust balance sheet and delivering returns to shareholders. We expect to drill 12 wells across the portfolio this year. These wells have the potential to add incremental low-cost and cash generative production at the Tawke PSC, add and convert contingent resources to reserves and add production at Sarta, and open up a new field at Qara Dagh. With numerous catalysts in the year and a more promising external environment than 2020, Genel is looking confidently ahead to 2021."

FINANCIAL PERFORMANCE

  • $173 million of cash proceeds were received in 2020 (2019: $317 million)
  • Capital expenditure of $109 million (2019: $161 million), with spending reduced appropriately to reflect the external environment, yet ensuring continuing growth
  • Free cash outflow of $5 million in 2020, pre dividend payment (2019: $99 million free cash inflow), comparison impacted by:
    • Lower oil price ($42/bbl in 2020, compared to $64/bbl in 2019)
    • Non-payment of $121 million relating to oil sales from November 2019 to February 2020
    • Suspension of override payments with a cashflow impact totalling $38 million in 2020
  • The low-production cost per barrel of $2.8/bbl in 2020 helped deliver asset level cash generation of $74 million in the year
  • Dividends of $55 million paid in 2020, of which $14 million relates to the 2019 interim dividend paid in January 2020
  • Cash of $354 million at 31 December 2020 ($377 million at 31 December 2019), net cash of $10 million
    • Following the call of the outstanding bond with a maturity date in December 2022, settled on 8 January 2021, Genel had cash of $273 million and debt of $267 million, a net cash position of $6 million
    • Genel currently retains $20 million of the 2025 bond, to reduce interest cost and increase future optionality

OPERATING PERFORMANCE

  • Net production averaged 31,980 bopd in 2020, with net production in Q4 averaging 31,510 bopd (Q3 2020: 32,210 bopd)
  • Production by field was as follows:
(bopd) Gross production

2020

Net production

2020

Net production

2019

Tawke 57,570 14,390 17,190
Peshkabir 52,710 13,180 13,800
Taq Taq 9,670 4,250 5,260
Sarta 520 160 -
Total 120,470 31,980 36,250

PRODUCTION ASSETS

  • Tawke PSC (25% working interest)
    • Gross production at the Tawke PSC averaged 110,280 bopd in 2020, of which Peshkabir contributed 52,710 bopd
    • Production in Q4 2020 averaged 110,170 bopd, of which Peshkabir contributed 56,320 bopd
    • There will be an active drilling campaign in 2021 on the Tawke licence, with up to eight new development wells set to be drilled and multiple workovers on existing producing wells to be undertaken in the drive to maintain production above 100,000 bopd
  • Sarta (30% working interest)
    • First oil production from Sarta began in November 2020, and the Sarta-3 well has produced at an average of c.5,500 bopd so far in 2021
    • Due to ongoing COVID-19 protocols, production from Sarta-2 is now expected in February. A stable production level from both wells will be reached in Q1 2021
    • The 2021 appraisal drilling campaign is targeting a material portion of the 250 MMbbls of existing contingent resources, and prospective resources, in Jurassic formations
    • The campaign will begin at the start of Q2. Sarta-5 and Sarta-6 will be drilled back to back, with results from the first well expected in Q3, and operations on both wells complete in Q4 2021
    • Re-entry and deepening of the Sarta-1 (S-1D) well is expected around the middle of the year. Should S-1D be successful, a flowline will be constructed in order to enable the well to enter production around the end of 2021
  • Taq Taq PSC (44% working interest and joint operator)
    • Gross production at Taq Taq averaged 9,670 bopd in 2020, following the suspension of drilling activity in H1 2020
    • Q4 production at the field averaged 7,610 bopd, with an exit rate of over 8,000 bopd following the early implementation of part of the 2021 well intervention programme, which increased production from the TT-20z and TT-34y wells
    • With activity at Taq Taq focused on optimising cash flow, no drilling is scheduled in 2021, with activity limited to workovers that will help manage field decline

PRE-PRODUCTION ASSETS

  • Qara Dagh (40% working interest and operator)
    • Preparatory activities are ongoing for the QD-2 well, as Genel continues to target a spud date late in Q1 2021. The water well project successfully completed in December, providing us with water for the drilling operations
    • The well is expected to drill, complete, and test before the end of the year, with the field holding resources estimated by Genel at gross mean c.400 MMbbls
  • Bina Bawi (100% working interest and operator)
    • Discussions with the KRG are ongoing at the highest levels relating to our proposals submitted in August and December 2020, which would enable the Company to progress the next stage of activity
    • Genel continues to maintain capex discipline, and will only commence investment upon certainty of alignment with the KRG and a clear path to monetisation
  • African exploration assets
    • The uncertainty created by COVID-19  delayed the search for partners to fund and minimise Genel's spend on our potentially high-impact exploration wells, but the farm-out process relating to the highly prospective SL10B13 block in Somaliland (100% working interest and operator) is progressing, with potential partners involved in assessing the opportunity
    • A farm-out campaign is also planned relating to the Lagzira block offshore Morocco (75% working interest and operator), with the aim of bringing a partner onto the licence prior to considering further commitments

ESG

  • Zero lost time injuries ('LTI') and zero tier one loss of primary containment events in 2020 at Genel and TTOPCO operations
    • There has not been an LTI since 2015, with over 13 million work hours since the last incident
    • 400,000 hours of work completed at Sarta without an LTI
  • Genel expects our 2020 carbon intensity to be c.15 kgCO2e/bbl for scope 1 and 2 emissions, significantly below the global oil and gas industry average of 20 kgCO2e/boe
    • The carbon intensity of our portfolio reduced to 7kg CO2e/bbl of scope 1 and 2 emissions in H2 2020 following the material reduction in flaring at the Tawke PSC through completion and commissioning of the enhanced oil recovery project
    • While portfolio emissions will increase in 2021 following early production at Sarta, Genel is committed to significantly reducing those emissions as production at the field matures
  • Genel is analysing the most effective way to manage emissions, both annually across the portfolio and over the life of each asset, in order to deliver the Paris Agreement goals of limiting global warming to 1.5 degrees and leading to net zero by 2050

OUTLOOK AND GUIDANCE

  • Production in 2021 is expected to be slightly above the 2020 average of 31,980 bopd, with the potential for a higher exit rate and further growth in 2022 depending on success of the Sarta appraisal programme
    • Average margin per working interest barrel of over $10/bbl expected in 2021 at average Brent oil price $50/bbl
  • Payments from the KRG continue to be made, with monthly payments received under the KRG's updated payment schedule for the past nine months
    • Override payments to resume from the January 2021 invoice
    • The KRG has submitted a reconciliation model for repayment of the receivable relating to the $159 million in unpaid invoices, whereby for each cent above a monthly dated Brent average of $50/bbl, 0.5 cent per working interest barrel shall be paid towards monies owed. We continue to discuss this model with the KRG, and will update the market in due course
  • Genel retains significant flexibility over its capital expenditure, and will ensure that expenditure is appropriate to the external environment. 2021 capital expenditure is expected to be $150 million to $200 million, with the current outlook supporting investment at the top end of this range
    • Production: c.$80 million expenditure forecast, with all spend recovered through cash receipts in the year
    • Growth: c.$100 million expenditure forecast, including wells and facilities costs, focused on material reserves additions and near-term production
  • Operating costs expected to be c.$50 million (2020: $33 million), with the increase due to the addition of Sarta early production costs, equating to $4/bbl in 2021 ($3/bbl in 2020), retaining our advantageous low operating cost position
  • G&A: expected to be c.$13 million (2020: $12 million)
  • Genel expects to pay a material dividend, as we look to offer a compelling mix of growth and returns

(Source: Genel Energy)

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Genel Energy issues Update on Tawke

Genel Energy notes that DNO ASA, as operator of the Tawke PSC (Genel 25% working interest), has issued an update on licence activity.

Gross operated production from the Tawke licence averaged 110,300 bopd in 2020, about evenly split between the Tawke and Peshkabir fields, the sixth consecutive year in which gross Tawke licence production has averaged over 100,000 bopd.

With higher oil prices and more visibility on Kurdistan export payments, up to eight new development wells will be drilled at the Tawke licence and multiple workovers on existing producing wells will be undertaken in the drive to maintain production above 100,000 bopd.

Between the middle of 2020 and the end of the year, a total of 2.4 bcf of Peshkabir field gas, which otherwise would have been flared, was piped and reinjected into the Tawke field for pressure maintenance, leading to an estimated 200,000 barrels of incremental oil recovery and 400,000 barrels of reduced field water production. Another 0.3 bcf of gas were reinjected into the Peshkabir field itself.

(Source: Genel Energy)

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KRG to Resume Override Payments to Genel

By John Lee.

Genel Energy has received notice from the Kurdistan Regional Government ('KRG') that override payments, whereby Genel receives 4.5% of monthly Tawke gross field revenues, will resume with the January 2021 invoice, to be paid in February 2021. Assuming the prevailing oil price, this translates into over $5 million of additional cash proceeds on a monthly basis.

This is consistent with the communication received from the KRG as announced on 17 April, which stated that the override payments would be suspended for at least nine months, and also that in a scenario where the oil price recovers to c.$50/bbl, a review of the situation would take place immediately in respect of the outstanding receivable.

In line with this communication, the KRG has now also submitted a reconciliation model for repayment of the receivable relating to amounts owed for invoices for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020. We will work through this submission and update the market when appropriate, as further discussions with the KRG take place.

(Source: Genel Energy)

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Liftings underway at Sarta

By John Lee.

Genel Energy has announced that, following first oil production last week, first liftings have taken place from the Sarta field (Genel 30% working interest).

According to a statement from the company, the Sarta-3 well is producing at an initial rate of over 5,000 bopd, with an API gravity of c.27 degrees, in line with expectations at this stage.

Tanker loadings are now underway, with oil being transported to Khurmala for offloading into the export pipeline.

(Source: Genel Energy)

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Genel announces First Oil at Sarta

Genel Energy has announced first oil production from the Sarta field (Genel 30% working interest), less than 21 months after the acquisition of the stake was completed.

Production has begun at Sarta with first oil flowing from the Sarta-3 well into the Early Production Facility.

The Sarta-2 workover operation is on track to be completed in December and the well onstream from January. As previously stated, it is expected that a stable production level will be reached in Q1 2021.

Preparations for the 2021 appraisal drilling campaign, which is targeting a material portion of the 250 MMbbls of contingent resources in the Jurassic, are ongoing.

Bill Higgs, Chief Executive of Genel, said:

"First oil at Sarta is an important strategic and operational milestone for Genel, not least given the challenges presented by COVID-19 in 2020. In that context, progressing Sarta to first oil has been a tremendous achievement and a testament to the alignment and co-operation of the field partners and contractors.

"Already the only multi-licence producer in the Kurdistan Region of Iraq, the addition of Sarta further diversifies our production and cash flows. We look forward to the results of our well programme in 2021, which is designed to further appraise the potential of the field. This will enable us to work with Chevron to optimise the value of the asset in the years ahead."

(Source: Genel Energy)

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Genel Energy issues Trading and Ops Update

Genel Energy has issued the following trading and operations update in respect of the third quarter and first nine months of 2020.

Bill Higgs (pictured), Chief Executive of Genel, said:

"Genel continues to demonstrate its resilience and ability to be move quickly to navigate changing external conditions. Production has remained robust, increasing quarter on quarter, and first oil at Sarta is also now imminent. Once production from these initial wells has stabilised we expect it to increase our production by over 10%, with potentially far more to come as we appraise what could be the largest field in the Kurdistan Region of Iraq.

"Following the successful completion of our recent refinancing, we have the liquidity to fund the rapid development of Sarta in the case of appraisal success in 2021. Genel's financial strength and disciplined capital allocation means it is well placed to pursue opportunities for value accretive growth and provide returns to shareholders."

FINANCIAL PERFORMANCE

  • $142 million of cash proceeds received in the first nine months of 2020
  • Free cash flow outflow of $5 million in the first nine months of 2020, after $30 million of capital expenditure progressing pre-production assets, and total capital expenditure of $76 million
    • $145 million outstanding from the Kurdistan Regional Government ('KRG'), of which $121 million owed for production from November 2019 to February 2020, and $24 million in suspended override payments
  • Cash of $341 million at 30 September 2020 ($355 million at 30 June 2020)
  • Net cash of $42 million at 30 September 2020 ($57 million at 30 June 2020)
    • Cash figures are stated prior to the successful completion of refinancing in October 2020
  • Interim dividend of 5¢ per share (2019: 5¢ per share), a distribution of c.$13.6 million, to be paid to shareholders on the register on 13 November 2020

REFINANCING AND FINANCIAL STRATEGY

  • In September 2020, Genel successfully completed the issuance of a new $300 million senior unsecured bond with maturity in October 2025. The new bond has a fixed coupon of 9.25% per annum, compared to 10% for the 2022 bonds
    • At the same time, Genel purchased $223 million of its 2022 bonds at 107 to par. The total cost incurred with the redemption of these bonds was $16 million
    • Following the successful refinancing, the Company therefore has $77 million of 2022 bonds and $300 million of 2025 bonds in issue
  • Genel remains committed to retaining a robust balance sheet, and the successful completion of the bond issuance has allowed Genel to significantly extend its liquidity runway and provides the foundation for a capital investment programme that is flexible and adaptable to the external environment
  • The right level of debt and the resulting liquidity remains under review in the context of planned investment activity, external market conditions and the recovery of KRG receivables, the Company retaining the option of holding an optimised combination of the old and/or new bonds, depending on availability and pricing

OPERATING PERFORMANCE

  • Net production averaged 32,140 bopd in the first nine months of 2020, with net production in Q3 averaging 32,210 bopd (Q2 2020: 30,040 bopd)
  • Production by field was as follows:
(bopd) Gross production

Q3 2020

Net production

Q3 2020

Tawke 56,880 14,220
Peshkabir 56,860 14,210
Taq Taq 8,580 3,780
Total 122,320 32,210

PRODUCTION ASSETS

  • Tawke PSC (25% working interest)
    • Production at the Tawke PSC increased to 113,700 bopd in the third quarter, up 12% from the prior quarter following a campaign of quick turnaround, low-cost well interventions and the start-up of the Kurdistan Region of Iraq's first enhanced oil recovery project
    • The Peshkabir-to-Tawke gas capture and reinjection project, in operation since mid-year, is continuing to cut gas flaring and greenhouse emissions by half at Peshkabir to 7kg CO2e/bbl, while unlocking additional oil at Tawke. By the end of October 2020, two billion cubic feet of gas that otherwise would have been flared had been injected into Tawke, already delivering a positive production response at the field, and at the same time reducing field water production
  • Taq Taq PSC (44% working interest and joint operator)
    • Taq Taq gross field production averaged 8,580 bopd in Q3, following the suspension of drilling activity in H1 2020
    • As previously stated, activity at Taq Taq is focused on optimising cash flow. Appropriate for the external environment, it is not expected that there will be any further drilling activity in 2020

PRE-PRODUCTION ASSETS

  • Sarta (30% working interest)
    • Despite the challenges of COVID-19, first oil is on track for Q4 2020
    • Production will initially be from the Sarta-2 and Sarta-3 wells, and the workover of the former is now underway. It is expected that a stable production level will be reached in Q1 2021
    • Preparations for the 2021 appraisal drilling campaign, which is targeting a material portion of the 250 MMbbls of contingent resources in the Jurassic, are ongoing
    • This appraisal campaign will begin with the Sarta-6 well in H1 2021, followed by the Sarta-5 well and Sarta-1D re-entry. Well pad and road access civil works are well underway at both the Sarta-6 and Sarta-5 locations, and minor remedial civil works are also about to commence at the existing Sarta-1D site. It is expected that all three appraisal wells will complete in 2021, at a cost of c.$40 million net to Genel in 2021
  • Qara Dagh (40% working interest and operator)
    • While challenges caused by COVID-19 remain, the increased certainty in the operating environment, and Genel's ability to operate under the expected level of restrictions, has allowed the lifting of force majeure at Qara Dagh
    • This has allowed Genel to proceed with approvals for activities necessary in order to reach a spud date for the QD-2 well in Q1 2021
    • The QD-2 well is expected to cost c.$30 million in 2021
  • Bina Bawi (100% working interest and operator)
    • Genel continues to seek a response from the KRG to our proposal submitted in August 2020, which would enable the Company to progress the next stage of activity at Bina Bawi
    • Our proposal highlights the need to engage regional gas buyers on volume and price discovery and to improve project definition by undertaking the detailed front-end engineering of both the upstream and midstream processing facilities
    • Until a satisfactory response is received, Genel will maintain capex discipline, and will only commence investment upon certainty of alignment with the KRG and a clear path to monetisation
  • African exploration assets
    • The uncertainty created by COVID-19, and current macroeconomic conditions, has negatively impacted the search for partners to fund and minimise Genel's spend on our potentially high-impact exploration wells
    • A farm-out process relating to the highly prospective SL10B13 block in Somaliland (100% working interest and operator) is however continuing, with companies still assessing the opportunity
    • A farm-out campaign is being planned relating to the Lagzira block offshore Morocco (75% working interest and operator), with the aim of bringing a partner onto the licence prior to considering further commitments

ESG

  • Zero lost time injuries ('LTI') and zero tier one losses of primary containment in 2020 to date at Genel and TTOPCO operations
    • There has not been an LTI since 2015, with almost 13 million work hours since the last incident
  • Carbon intensity of our portfolio now reduced to 7kg CO2e/bbl of scope 1 and 2 emissions following material reduction in flaring at the Tawke PSC through completion and commissioning of the enhanced oil recovery project
  • Multiple projects are ongoing to support local communities in the Kurdistan Region of Iraq, and the pipeline project to transport clean water to over 220 families across five villages neighbouring Taq Taq is now complete
  • Sustainability report in accordance with Global Reporting Initiative standards was issued in September 2020, giving a comprehensive overview of our ESG activities and positions, noting the impact we have had on the Kurdistan Region of Iraq ('KRI'):
    • Since starting work in the KRI Genel has invested c.$60 million in social projects, and $36 million spent on contracts with local companies
    • 245 social investment and community projects funded and successfully delivered
    • Up to 550 local community patients receive free treatment from the TTOPCO medical team per year
    • 250 local people employed at TTOPCO, and 23 local community-centred companies are providing services to Genel's operations across the KRI, with our operations indirectly supporting a further 350 local people through such contracts

OUTLOOK

  • Payments from the KRG continue to be made, with monthly payments having been received under the KRG's updated payment schedule for the past seven months
    • Dialogue with the KRG is ongoing regarding a number of topics, including the timing and process of payment of the outstanding c.$150 million receivable
  • 2020 capital expenditure expected to be just over $100 million, in line with guidance
    • Expenditure in Q4 2020 expected to be c.$30 million
  • Operating costs per barrel expected to be $3/bbl in 2020
  • Opex: expected to be c.$35 million, further reduced from the original guidance of c.$40 million
  • G&A: now expected to be c.20% less than previous guidance of $15 million
  • The Company continues to actively pursue additional growth and is analysing opportunities to make value-accretive additions to the portfolio that are consistent with Genel's strategy

(Source: Genel Energy)

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