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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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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DNO boosts Kurdistan Oil Output in Q3

DNO ASA, the Norwegian oil and gas operator, today reported boosting Kurdistan output to 113,700 barrels of oil per day (bopd) in the third quarter, reversing declines triggered by oil market convulsions in the wake of Covid-19.

Production from the DNO-operated Tawke and Peshkabir fields was up 12 percent from the prior quarter following a campaign of quick turnaround, low cost well interventions and the startup of the Kurdistan region of Iraq's first enhanced oil recovery project.

Both fields have outperformed expectations and DNO projects replacement of a significant share of its reserves produced this year in Kurdistan, even as the Company scaled back drilling of new wells to meet a one-third budget reduction in response to lower oil prices and a four-month payment hiatus in Kurdistan.

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 7 kilograms CO2 equivalent for each barrel of oil equivalent produced, while unlocking additional oil at Tawke. To date, two billion cubic feet of otherwise flared gas have been reinjected with positive reservoir response, adding up to 5,000 bopd.

"Starting in June, our Kurdistan teams took up the challenge of doing more with less,  launching creative solutions they called Operation Throttle-Up and Operation Afterburner, which delivered the stellar operational results we report today," said Bijan Mossavar-Rahmani, DNO's Executive Chairman. "Once again, at DNO the oil we produce is conventional; how we do it is not."

Across the portfolio, third quarter 2020 Company Working Interest (CWI) production increased nine percent from the second quarter to 97,900 barrels of oil equivalent per day (boepd), of which Kurdistan contributed 80,200 bopd and the North Sea 17,700 boepd.

DNO expects to exit the year with Kurdistan and North Sea production at third quarter levels.

Revenues more than doubled to USD 163 million in the third quarter on the back of improved oil prices and higher cargo liftings of previously produced oil in the North Sea. EBITDA climbed to USD 76 million in the third quarter up from USD 13 million in the previous quarter on higher revenues.

However, North Sea non-cash impairments of USD 202 million pre-tax (USD 118 million post-tax) related principally to the South East Tor and Iris/Hades assets led to an operating loss of USD 208 million.

In July 2020, the Company completed the drilling of Zartik-1, the third exploration well on the Baeshiqa license on a separate structure around 15 kilometers southeast of the Baeshiqa-2 discovery well. Testing of the Zartik-1 Upper Jurassic reservoirs continued through the third quarter. Evaluation of the results of the previously reported discoveries in the Baeshiqa-2 well is ongoing to determine commerciality.

Temporary Norwegian petroleum tax incentives are driving investment plans, with the Company maturing development options for the Brasse field (2021 PDO) and evaluating the Iris/Hades, Fogelberg and Trym South discoveries (2022 PDOs). Appraisal of the Bergknapp discovery (DNO 30 percent), among Norway's largest discoveries this year, is scheduled for 2021.

Two exploration wells are scheduled in the fourth quarter with Polmak already drilling in the Barents Sea (DNO 20 percent) and Røver Nord to spud shortly in the Northern North Sea (DNO 20 percent). These wells will be followed by an active exploration program in 2021 including wildcat wells at Gomez in the Southern North Sea (DNO 85 percent) and Edinburgh cross-border (UK-Norway) in the North Sea (DNO 45 percent).

Following the latest UK licensing round, DNO was awarded four licenses (two operated) all with previous discoveries.

(Source: DNO)

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Genel Energy Publishes Sustainability Report

Genel Energy has published its first comprehensive Sustainability Report, prepared in accordance with the Global Reporting Initiative ('GRI') Standards core option.

Bill Higgs, Chief Executive of Genel, said:

"Genel has had a longstanding commitment to positively impact the communities in which we operate. This has focused on three core areas - economic development, education, and health, and I am delighted to detail our activities in these areas in our first comprehensive Sustainability Report. Having a positive impact on the local community is just one part of our responsibility however, and we continue our journey to meet head on the challenges associated with the energy transition. Stepping up to these challenges is vital to our business, and this is reflected in ESG metrics being incorporated into our corporate key performance indicators and remuneration evaluations. The publication of today's Sustainability Report is a further indication of our commitment to this area.

"We are aware that we have a long way to go in a rapidly changing landscape. Nevertheless, we have the talent, skill sets, and commitment at the highest levels of the Company to meet the challenges ahead. In my view, Genel has the right low-cost and low-carbon assets, in the right locations, and with the right footprint, to thrive in a future of fewer and better natural resources projects."

"The Sustainability Report is a complement to our Annual Report, and will be issued annually, publicly detailing our ESG activities as we strive to be a socially responsible contributor to the global energy mix.

"Genel has a low-cost and low-carbon asset portfolio, with the recent commissioning of the enhanced oil recovery project at the Tawke PSC having materially reduced flaring, reducing the carbon intensity of our portfolio to 7kg CO2e/bbl of scope 1 and 2 emissions.

"It has been a long-stated aim of Genel to have a positive impact both by contributing to economic development and directly supporting local communities through improved infrastructure and the provision of opportunities for improved health, development and employment.

"Since 2006, Genel has invested almost $60 million in social projects. 245 social investment and community projects have been funded and successfully delivered, and each year up to 550 local community patients receive free treatment from the TTOPCO medical team. Supporting the development of the local economy is also crucial, and Genel has spent over $36 million on contracts with local companies. Currently, almost 250 local people are 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.

"As well as looking to have a wider societal benefit, our commitment to having a beneficial impact begins with operational excellence and the taking care of our workforce. For the last four years, Genel has achieved zero lost time injuries with more than 12 million working hours since the last incident. This has been achieved through the promotion of a strong HSE culture and extensive workforce training and engagement at all levels.

"Our focus on sustainability has not been lessened by the ongoing COVID-19 pandemic, and the Report illustrates the key values that drive our decision making and support the delivery of our strategic goals."

Click here to download the full report.

(Source: Genel Energy)

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DNO Starts Gas Capture in Kurdistan

DNO ASA, the Norwegian oil and gas operator, today announced that the USD 110 million Peshkabir Gas Capture and Injection Project in its Tawke license in the Kurdistan region of Iraq is onstream and has reached the one billion cubic feet of gas injection milestone.

The project is expected to reduce annual emissions from the Company's operated production by over 300,000 tonnes of CO2 equivalent, offsetting the emissions from some 150,000 automobiles.

Engineering and construction were launched in mid-2018 and commissioning completed in mid-2020 in what is the first gas capture and storage project in Kurdistan. Some 20 million cubic feet a day of previously flared gas at the Peshkabir field is gathered, treated and transported 80 kilometers by pipeline to the Tawke field where it is injected for storage and reservoir pressure recharging.

Effective June 2020, the project halves the average carbon intensity of the Company's operated production from 14 kilograms CO2 equivalent for each barrel of oil equivalent produced (kg CO2e/boe) to an average of 7 kg CO2e/boe. This compares to the target set by a group of 12 of the world's largest oil companies comprising the Oil and Gas Climate Initiative (OGCI) to reduce the average carbon intensity of their aggregated upstream oil and gas operations to between 20-21 kg CO2e/boe by 2025 from a collective baseline of 23 kg CO2e/boe in 2017.

"Gas injection and the associated carbon capture and storage is proven, practical and potentially profitable," said Bijan Mossavar-Rahmani, DNO's Executive Chairman. "Our project was completed on schedule and on budget notwithstanding the challenges of working in what is still a frontier oil and gas operating environment and the obstacles posed in the late stages by the Covid-19 pandemic," he added.

Gas flaring at the Peshkabir field has been reduced by over 75 percent, with work underway to reduce it further. Any Peshkabir field injected gas produced at the Tawke field will be recovered and recycled into the latter or used as fuel to displace diesel.

Reservoir models suggest gas injection will increase gross Tawke field recoverable volume by 15 to 80 million barrels of oil, of which 23 million barrels are included in the gross proven and probable (2P) Tawke field reserves in the DNO 2019 Annual Statement of Reserves and Resources.

DNO's greenhouse gas emissions increased following commencement of production from the Peshkabir field in 2017 as the oil contains a relatively high associated gas content. Flaring from the Peshkabir field was the largest single contributor to DNO's total 2019 greenhouse gas emissions of 639,200 tonnes of CO2e.

Mr. Mossavar-Rahmani announced the launch of a new initiative to more actively measure, monitor and mitigate methane leakages at DNO's operated sites, noting that while CO2 emissions from oil and gas operations receive the greatest attention, methane emissions are a significant but underreported source of greenhouse gas with an impact 25 times greater than CO2 on a 100-year horizon.

DNO operates the Tawke license containing the Tawke and Peshkabir fields with a 75 percent interest; partner Genel Energy plc holds the remaining 25 percent.

The Company will publish its Corporate Social Responsibility Report, which covers greenhouse gas emissions developments and strategies, next week.

(Source: DNO)

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Genel Energy Shares Fall on Asset Impairment

By John Lee.

Shares in Genel Energy were trading down 4.5 percent on Thursday morning after the company announced its unaudited results for the six months ended 30 June 2020.

Bill Higgs, Chief Executive of Genel, said:

"Genel's robust business model, which is designed to provide resilience in a challenging environment, has demonstrated its value as the Company negotiates the headwinds facing the sector in 2020. Our low-cost production and the capital flexibility within our development programme have enabled us to preserve the strength of our balance sheet even while investing in growth.

"Given the lower oil price and overdue payments, the fact that we still expect to end 2020 in a net cash position - even after dividend distributions and making the investment to bring Sarta to production this year - is a testament to our resilience, and we have today confirmed an interim dividend of 5¢ per share."

Results summary ($ million unless stated)

H1 2020 H1 2019 FY 2019
Production (bopd, working interest) 32,100 37,400 36,250
Revenue 88.4 194.3 377.2
EBITDAX1 65.1 167.3 321.8
  Depreciation and amortisation (82.6) (74.8) (158.5)
  Exploration expense (1.3) (0.6) (1.2)
  Impairment of oil and gas assets (286.3) - (29.8)
  Impairment of trade receivables (34.9) - -
Operating (loss) / profit (340.0) 91.9 132.3
Underlying (loss) / profit2 (32.2) 76.6 134.9
Cash flow from operating activities 85.5 142.3 272.9
Capital expenditure 58.5 72.2 158.1
Free cash flow3 6.5 56.7 99.0
Dividends paid 41.3 27.4 27.4
Cash4 355.3 353.3 390.7
Total debt 300.0 300.0 300.0
Net cash5 57.2 55.8 92.8
Basic EPS (¢ per share) (128.9) 27.2 37.8
Underlying EPS (¢ per share)2 (11.7) 27.4 49.0
Average Brent oil price ($/bbl) 40 65 64
  1. EBITDAX is operating (loss) /profit adjusted for the add back of depreciation and amortisation ($82.6 million), exploration expense ($1.3 million), impairment of property, plant and equipment ($242.0 million), impairment of intangible assets ($44.3 million) and impairment of trade receivables ($34.9 million).
  2. Underlying EPS is underlying profit (page 9) divided by weighted average number of shares
  3. Free cash flow is reconciled on page 10
  4. Cash reported at 30 June 2020 excludes $3.1 million of restricted cash, and takes into account the dividend paid in June
  5. Reported cash less IFRS debt (page 10)

Highlights

  • Cash of $355 million at 30 June 2020 ($353 million at 30 June 2019)
  • Net cash of $57 million at 30 June 2020 (net cash of $56 million at 30 June 2019)
    • $110 million received from the Kurdistan Regional Government ('KRG') in H1 2020
    • Updated payment mechanism introduced in April, under which the KRG committed to settling monthly sales invoices by the middle of the following month
    • $121 million remains outstanding in relation to oil sales from November 2019 to February 2020 - discussions continue with the KRG over settlement arrangements
  • Despite the monies outstanding, the fall in oil price and non-payment of the override, $6.5 million of free cash flow was generated in H1 2020 due to Genel's low-costs and resilient business model allowing flexible expenditure
    • Production cost of $2.9/bbl in H1 2020
    • Capital expenditure of $58.5 million in H1 as spending cut due to the external environment
    • G&A costs of $6.6 million, a reduction of c.30% year-on-year, as activity is rephased
  • Production of 32,100 bopd in H1 2020, due in part to the impact of COVID-19, coupled with payment uncertainty, resulting in reduced drilling activity at the Tawke PSC
    • Production averaged 33,000 bopd in July 2020, following fast tracking of activity at the Tawke PSC against an improved backdrop
  • Continued focus on safety: zero lost time incidents and zero losses of primary containment in the period
  • Impairments of $286 million largely due to reduction in Brent oil price forecast
  • Interim dividend of 5¢ per share confirmed (2019: 5¢ per share)

Outlook

  • Genel's low-cost production, flexible capital investment programme, and robust balance sheet makes it resilient to lower oil prices, and the Company expects to retain a net cash position at the end of 2020 at the prevailing oil price, while still investing in key growth assets
  • Capex of c.$45 million expected in H2, with c.50% to be spent on moving Sarta to production in Q4, where work has continued despite the challenges resulting from COVID-19
  • Genel continues discussions with the KRG regarding the recovery of the $121 million receivable

(Source: Genel Energy)

DNO “Steps Up Activity”

DNO ASA, the Norwegian oil and gas operator, today reported stepped up investments across its portfolio on the back of higher production and significantly improved liquidity outlook as the Company recovers from the oil market turmoil that upended the second quarter of 2020.

Operated production in July at the Company's flagship Tawke license in the Kurdistan region of Iraq is up 15,000 barrels of oil per day (bopd) month-on-month to 115,000 bopd following a well intervention campaign fast tracked in June with the stabilization of oil prices and improved export payment terms.

In the North Sea segment, DNO projects receipt of USD 215 million in tax refunds in the second half of the year, including USD 70 million from the recently announced temporary changes to petroleum taxation in Norway.

"The worst of the coronavirus pandemic hit to our business is behind us and DNO is back identifying and capturing opportunities," said Bijan Mossavar-Rahmani, DNO's Executive Chairman. "Still, we are prepared to act quickly, as we did in March, if a strong second wave comes," he added.

Second quarter Company Working Interest (CWI) production stood at 89,700 barrels of oil equivalent per day (boepd) of which Kurdistan contributed 71,900 bopd and the North Sea 17,800 boepd.

Gross operated Tawke license production averaged 102,000 bopd, including 58,100 bopd from the Tawke field and 43,900 bopd from the Peshkabir field, together down 11 percent from the first quarter as development activity dropped off to preserve cash at a time of historically low and uncertain oil prices.

Second quarter revenues slid to USD 72 million and operating losses climbed to USD 81 million, both driven by weak commodity prices across the portfolio and lower cargo liftings of produced oil in the North Sea.

At the Baeshiqa license in Kurdistan, DNO continued drilling the third exploration well on a second structure (Zartik) some 15 kilometers southeast of the Baeshiqa-2 discovery well. The rig has been released and testing will commence in August in Lower Jurassic and Upper Triassic zones intersected by the well and expected to last three months. Evaluation of the Baeshiqa-2 results is ongoing to determine commerciality.

During the first half of 2020 DNO received a total of USD 224 million in payments from the Kurdistan Regional Government. In addition, the Company received a USD 23 million June entitlement payment after the end of the reporting period. Discussions are ongoing to reach an agreement on acceptable terms and timing of payment of arrears totaling USD 240 million due to DNO for the November 2019-February 2020 entitlements and November 2019-June 2020 override payments.

Notwithstanding the interruption of these payments and DNO's repayment of the remaining USD 138.5 million of the DNO01 bond at maturity on 18 June 2020, the Company exited the first half of 2020 with a strong cash balance of USD 427 million. Net debt at the end of the second quarter stood at USD 537 million, down from USD 559 million at the end of the first quarter.

Last month, DNO commissioned the Peshkabir-to-Tawke gas reinjection project, the first enhanced oil recovery project in Kurdistan, to unlock additional oil volumes at Tawke while significantly reducing gas flaring and CO2 discharges at Peshkabir.

Prompted by the tax changes in Norway, the Company is working with partners to accelerate infill drilling at the Ula, Tambar and Brage producing fields, revisit development options for the Brasse field and actively evaluate the Iris/Hades, Fogelberg and Trym South discoveries.

DNO will remain an active explorer in the North Sea, targeting 4-6 wildcat wells a year.

(Source: DNO)

DNO Guides 2020 Production and Spend

By John Lee.

DNO ASA, the Norwegian oil and gas operator, today provided production and spend guidance for the balance of the year ahead of its Annual General Meeting on Wednesday.

The Company reported that it has implemented the target 35 percent reductions across all spend categories to shrink its 2020 budget by USD 350 million to USD 640 million in response to turbulence and uncertainty in global oil and financial markets triggered by the coronavirus pandemic.

While strengthening its balance sheet, cutbacks in spend will throttle back 2020 Company Working Interest (CWI) production to a projected 88,000 barrels of oil equivalent per day (boepd), of which the Kurdistan region of Iraq will contribute 71,000 barrels of oil per day (bopd) and the North Sea 17,000 boepd. DNO's CWI production averaged 104,800 boepd last year.

In Kurdistan, DNO has reduced the number of rigs deployed in drilling, testing and workovers from five in 2019 and early 2020 to two; these two rigs are believed to be the only ones currently active in Kurdistan, down from an overall count approaching 20 last summer.

Of the two active rigs, one is drilling the Zartik-1 exploration well on the DNO-operated Baeshiqa license and the other is a Tawke license workover rig that will shortly be moved for scheduled maintenance. However, two third-party rigs have been warm stacked at the Tawke and Peshkabir fields and can quickly be mobilized if oil prices climb and export payments are regularized.

"Our cost cutbacks have been thoughtful and deliberate as we moved at warp speed to preserve cash and our balance sheet," said Bijan Mossavar-Rahmani, DNO's Executive Chairman. "The resulting reductions in oil production especially in Kurdistan are reversible with a restart of drilling," he added. "We have not lost reserves but simply parked a portion until the market recovers. And it will."

Gross production at the DNO-operated Tawke license in the Kurdistan region of Iraq containing the Tawke and Peshkabir fields, absent drilling of new infill wells to arrest natural field decline, is expected to average 100,000 bopd in 2020. This reflects a drop from 115,210 bopd in Q1 2020 to 100,000 bopd in Q2 2020 and 90,000 bopd over the balance of the year. The Tawke license exit rate at yearend 2020 is projected at 85,000 bopd absent new wells. Production continues to be split 55-45 between the Tawke and Peshkabir fields.

On a CWI basis, DNO's production in Kurdistan in the second half of the year is projected to average 65,000 bopd (81,220 bopd in Q1 2020 and an estimated 70,000 bopd in Q2 2020). CWI in North Sea operations will contribute another 17,000 boepd in the second half of 2020 (18,640 boepd in Q1 2020 and an estimated 17,000 boepd in Q2 2020).

Budget cuts and the newly announced Norwegian production caps are not expected to make a material change to DNO's 2020 North Sea projections; the majority of the Company's fields subject to the restrictions are not fully utilizing their previous higher production permits.

DNO ASA 2020 Projected Spend
Q1 2020 Q2 2020 Q3+Q4 2020 2020 2019
Actual Projected Projected Projected Actual
USD million USD million USD million USD million USD million
Exploration expenditures 34 36 65 135 187
Capital expenditures 78 37 40 155 339
Operating expenditures 59 49 92 200 237
Abandonment expenditures 17 7 7 31 23
Operational spend 187 129 204 520 786
Other 40 34 46 120 203
TOTAL 227 163 250 640 989

Note: Figures above are pre-tax (i.e., before exploration tax refund in Norway). The category
"Other" includes general and administrative expenditures (G&A), net interest payments and

(Source: DNO)