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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)

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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)

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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)

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Genel Energy “Robust Financial Position”

Genel Energy has issued the following trading and operations update ahead of the Company’s Annual General Meeting (‘AGM’), which is being held today.

The information contained herein has not been audited and may be subject to further review.

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

“Despite the impact of COVID-19 creating a challenging environment for our industry, Genel’s resilient business model and robust financial position, with over $100 million in net cash and an asset cashflow breakeven of $30/bbl, leaves us well placed to withstand the consequences of the pandemic as we continue to deliver our strategy.

“We have cut our cloth appropriately against this backdrop and halved our capital expenditure for 2020, protecting our balance sheet while still progressing Sarta, and positioning us to take advantage of growth opportunities as the landscape improves.“

FINANCIAL PERFORMANCE

  • $98 million of cash proceeds received in the first four months of 2020
  • Cash of $404 million at 30 April 2020 ($391 million at 31 December 2019)
  • Net cash of $106 million at 30 April 2020 ($93 million at 31 December 2019)
  • Capital expenditure of $45 million in the first four months of 2020, with point forward expenditure cut significantly due to the impact of COVID-19
  • Final dividend of 10¢ per share (2019: 10¢ per share), a distribution of c.$27.8 million, to be paid to shareholders on the register on 29 May 2020, pending approval at today’s AGM

OPERATING PERFORMANCE

  • Production in the first quarter of 2020 averaged 34,170 bopd, in line with January’s guidance, guidance that has been removed following the decision to reduce investment to a level appropriate for the external environment
  • As well as impacting the oil price and hence investment plans for 2020, COVID-19 has provided operational challenges in relation to the movement of people and equipment. This has been less of a challenge for producing fields than pre-production assets, and the reduced work plan put in place in Q2 is progressing in line with expectations
  • Production by asset was as follows:
(bopd) Gross production

Q1 2020

 Net production

Q1 2020
Tawke 61,490 15,370
Peshkabir 53,710 13,430
Taq Taq 12,200 5,370
Total 127,400 34,170

PRODUCTION ASSETS

  • Tawke PSC (25% working interest)
    • Production at the Tawke PSC averaged 115,200 bopd in the first quarter of 2020, with the Tawke field producing 61,490 bopd, and Peshkabir 53,710 bopd
    • Five development wells have been completed on the licence. Three drilling rigs were released as the 2020 activity plan was amended to reflect the external environment, while a workover rig continues to service production wells
    • A drilling rig has been stacked at each field and can be quickly mobilised when conditions warrant
  • Taq Taq PSC (44% working interest and joint operator)
    • Taq Taq gross field production averaged 12,200 bopd in the first quarter of 2020
    • The latest well on the northern flank of the field, TT-35, spud on 6 January, and completed in April. The well is currently adding c.600 bopd to production. This completed the planned drilling programme with the Sakson-605 rig, which has now been released
    • Activity at TaqTaq is focused onmaximisingcash generation. 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)
    • Civil construction work at the Sarta field is nearing completion, with the facility build ongoing
    • Due to delays in the movement of people and equipment caused by the impact of COVID-19, first oil is now expected in Q4 2020, rather than Q3
    • Phase 1A represents a low-cost pilot development of the Mus-Adaiyah reservoirs, designed to recover 2P gross reserves estimated by Genel at 34 MMbbls
  • Qara Dagh (40% working interest and operator)
    • The QD-2 well was on track to spud in Q2 2020 prior to COVID-19 impacting supply chains and the movement of people in to the KRI
    • Due to ongoing uncertainty caused by COVID-19, Genel notified the KRG of the occurrence of a force majeure event preventing the Company from being able to perform its contractual obligations as scheduled
    • Work continues to take place to ensure that Genel is in the best possible position to start to drill the QD-2 well once external conditions improve and the force majeure event ceases
  • Bina Bawi (100% working interest and operator)
    • Genel received documentation in mid-April from the KRG following the commercial understanding reached in September 2019
    • Negotiations regarding this documentation are ongoing, as Genel continues to seek a viable and balanced commercial way forward for the development of Bina Bawi’s gas and oil resources
  • Somaliland – SL10B13 block (100% working interest and operator)
    • A farm-out process relating to this highly prospective block began in Q4 2019, and a number of companies continue to assess the opportunity
  • Morocco – Sidi Moussa block (75% working interest and operator)
    • The farm-out campaign is set to begin in Q3 2020, aimed at bringing a partner onto the licence prior to considering further commitments

ESG

  • Zero lost time incidents and zero losses of primary containment in 2020 to date at Genel and TTOPCO operations
    • There has not been an LTI since 2015, with almost 12 million hours worked since the last incident
  • The Peshkabir-to-Tawke gas capture, transport and reinjection project to effectively end CO2 emissions at Peshkabir and boost oil recovery at Tawke is completed and undergoing commissioning
  • Multiple projects are ongoing to support local communities in the Kurdistan Region of Iraq, with activities in the Qara Dagh region continuing despite the force majeure event
  • Genel will issue a sustainability report in September 2020

OUTLOOK

  • Payments from the KRG are ongoing, with an updated payment mechanism put in place under which the KRG has committed to settling monthly sales invoices by the fifteenth day of the following month, as announced on 17 April 2020
    • $11.1 million received in April for oil sales during March 2020
  • 2020 capital expenditure reduced by c.50% from the top end of the original guidance range of $160-200 million and now expected to be just over $100 million, of which around half will be spent on the Tawke and Taq Taq PSCs, c.$30 million on Sarta, and c.$10 million on Qara Dagh
    • Point forward expenditure expected to be c.$60 million in 2020
  • Operating costs per barrel expected to be $3/bbl in 2020
  • Producing asset cashflow breakeven in 2020 at an oil price of less than $30/bbl, taking into account the 2020 capital expenditure programme and the updated payment mechanism
  • Opex: reduction of 10% compared to original guidance of c.$40 million
  • G&A: unchanged at c.$15 million (a reduction of c.20% from 2019)
  • Genel continues to analyse opportunities to repurchase bonds at a value-accretive price
  • The Company continues to actively pursue 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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Genel Energy Update on Oil Reserves

Genel Energy plc has updated its oil reserves and resources across its portfolio.

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

“Genel’s producing assets are profitable even at an oil price of $30/bbl and this, coupled with our robust balance sheet, supports investment in growth and the payment of a material dividend. The reduction of reserves at Tawke largely relates to production towards the end of the life of the field, and consequently our mid-term production outlook is materially unchanged and there is no reserves impact on our business plan.

“Our production funds an approved but flexible capital programme that, in the right market conditions, enables us to drill the wells necessary to evaluate the potential to convert the 2C oil resources in our portfolio, validated for the first time by ERCE, into reserves and production, boosting our cash generation potential.“

Net oil reserves (MMbbls) 1P 2P 3P
31 December 2018 99.3 154.9 219.3
Production (13.2) (13.2) (13.2)
Technical revisions (17.2) (17.8) (11.2)
31 December 2019 68.8 123.8 194.9

International petroleum consultants DeGolyer and MacNaughton assess that on a gross basis, at the Tawke licence in the Kurdistan Region of Iraq containing the Tawke and Peshkabir fields, year-end 2019 1P reserves stood at 228 MMbbls, compared to 348 MMbbls at year-end 2018, after adjusting for production of 45 MMbbls and a downward technical revision of 75 MMbbls. Tawke licence 2P reserves stood at 400 MMbbls (502 MMbbls in 2018) and 3P reserves at 641 MMbbls (697 MMbbls in 2018).

Broken down by field, Tawke field gross 1P reserves stood at 176 MMbbls (294 MMbbls in 2018), 2P reserves at 284 MMbbls (376 MMbbls in 2018) and 3P reserves at 421 MMbbls (477 MMbbls in 2018). Peshkabir field gross 1P reserves stood 51 MMbbls (54 MMbbls in 2018), 2P reserves at 116 MMbbls (126 MMbbls in 2018) and 3P reserves at 220 MMbbls (unchanged from 2018).

Genel continues to take a conservative view of the Enhanced Oil Recovery project at the Tawke PSC, and will look to book reserves in relation to the project, which has the potential to increase recovery over the life of field, once enhanced performance has been demonstrated at the field.DeGolyer and MacNaughton has included23MMbbls of 2P and 45 MMbbls of 3P gross reserves, working interest portions of which are not included in the table above.

At Taq Taq, there is a minor technical downward revision of 2.1 MMbbls of gross 2P reserves associated with the unsuccessful TT-33 well, and these now total 44 MMbbls, with gross 1P reserves increasing by 3.3 MMbbls to 20.1 MMbbls, illustrating the continued strong underlying performance of the asset. McDaniel & Associates carried out the independent assessment of the Taq Taq licence.

Genel’s gross 2P reserves estimate relating to Phase 1A of the Sarta development remains 34.3 MMbbls.

CONVERTING RESOURCES TO RESERVES

Net oil resources (MMbbls) 1C 2C 3C
31 December 2018 36.8 73.7 121.3
Technical revisions 29.7 78.3 224.5
31 December 2019 66.5 152 345.8

Following completion of the acquisition in 2019, Genel estimated gross resources at Sarta to be c.500 MMbbls. This potential has now been validated through an external audit conducted by ERCE, who has estimated a mid-case total recoverable oil resource of 593 MMbbls, of which 264 MMbbls is classified as 2C resource. Production performance in 2020, and the results of the upcoming three well campaign in 2021, will set out a roadmap for the conversion of these resources into reserves.

The Bina Bawi oil development has been certified by ERCE as 17.1 MMbbls of 2C resources, 13.6 MMbbls of which are expected to be converted into 2P reserves should a commercial agreement be reached and FID be taken on the first phase of the oil project.

At Qara Dagh the QD-2 well will test the crestal portion of the prospect which, based on a rigorous re-mapping exercise, has a mean prospective resource estimated by Genel at c.400 MMbbls. Genel estimates that the downdip segment tested by the QD-1 well defines a 2C resource of 47 MMbbls.

(Source: Genel)

Posted on

DNO reports Record Revenues and Production

DNO ASA, the Norwegian oil and gas operator, today reported interim 2019 revenues of USD 971 million, the highest in the Company’s 48-year history, on the back of acquisitions and a record drilling campaign driving a 28 percent year-on-year increase in Company Working Interest (CWI) production to 104,800 barrels of oil equivalent per day (boepd). Net profit last year stood at USD 74 million.

The Company exited 2019 with a cash balance of USD 486 million and USD 145 million in marketable securities.  The cash balance excludes two delayed export payments totaling USD 107 million net to DNO received from the Kurdistan Regional Government in 2020.

In January 2020, DNO completed a buyback program of up to 10 percent of own shares, having acquired 108,381,415 shares at a weighted average price of NOK 10.61 per share (for a total cost of USD 129 million). The Board of Directors has called for an Extraordinary General Meeting later this month to seek shareholder approval to cancel the treasury shares.

The Board of Directors also plans to approve distribution of the next semi-annual dividend of NOK 0.20 per share in March 2020, following which DNO will have returned USD 200 million to shareholders since August 2018.

Last year, the Company delivered its largest ever annual drilling program with 36 wells drilled or spudded across its portfolio, of which 24 were development/infill and 12 exploration/appraisal wells. Planned operational spend (capital and exploration expenditures plus lifting costs) will remain high in 2020 at USD 650 million.

In Kurdistan, gross production from the two fields in the DNO-operated Tawke license climbed to 124,000 barrels of oil per day (bopd) in 2019 (87,400 bopd CWI), up from 113,100 bopd in 2018 (79,700 bopd CWI). Average production of 122,800 bopd in the fourth quarter of 2019 was up 3,000 bopd from the previous quarter. In November 2019, the Company reported a discovery in its operated Baeshiqa license, with the well now undergoing a workover prior to resumption of acid stimulation and testing of remaining reservoirs to assess commerciality.

Through acquisition of Faroe Petroleum plc, the Company added North Sea production of 17,400 boepd in 2019. Average production of 19,000 boepd in the fourth quarter of 2019 was up 4,100 boepd from the previous quarter. The Company was awarded 10 licenses in Norway’s Awards in Predefined Areas (APA) 2019 licensing round adding to the 87 licenses already held in Norway and 15 across the United Kingdom, the Netherlands and Ireland. Of these licenses, 28 are on production (13 fields) and the balance in various stages of evaluation, exploration and development.

The Peshkabir-to-Tawke gas gathering and reinjection project designed to increase oil recovery rates at Tawke while eliminating flaring at Peshkabir will be completed in spring 2020. Once completed, CO2 emissions from DNO’s operated Kurdistan fields are expected to drop to around 7 kilograms per barrel, compared to an industry average of about 9 kilograms per barrel in Norway and about 18 kilograms per barrel globally.

(Source: DNO)

Posted on

“Successful Year” for Genel Energy

By John Lee.

Shares in Genel Energy closed Thursday up more than 4 percent after the company issued the following trading and operations update in advance of the Company’s full-year 2019 results, which are scheduled for release on 17 March 2020. The information contained herein has not been audited and may be subject to further review.

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

“2019 was a successful year for Genel, and we continue to deliver on our promises. We increased our highly cash-generative production in line with guidance, paid a material dividend, grew our operating capabilities, and added new assets to the portfolio that will bear fruit in 2020.

“Our ongoing cash generation, with confidence of regular payments and in the security of the Kurdistan Region of Iraq, means that it is business as usual and our investment plans are moving forward at pace. This increasing investment in our growth assets is more than covered by expected free cash flow, and will see production diversify and increase as Sarta comes onstream in the summer, with enough remaining to underpin an increase in our already significant dividend.“

FINANCIAL PERFORMANCE

  • $317 million of cash proceeds were received in 2019 (2018: $335 million)
  • Capital expenditure of $161 million (2018: $95 million), in line with initial guidance, as spending increased on growth assets
  • Free cash flow (‘FCF’) of $99 million in 2019, pre dividend payment
    • Cash proceeds and FCF were impacted by the non-receipt of $54 million in payments from the Kurdistan Regional Government (‘KRG’) relating to export sales in August and September 2019, due in November and December
    • Pro-forma FCF in 2019 was $153 million (2018: $164 million), or $0.55 per share
  • $26 million of outstanding payments from the KRG, constituting the full amount in respect to export sales in August 2019, has subsequently been received in 2020
  • Dividends of $42 million declared in 2019
    • Maiden dividend of $27 million (10¢ per share) paid in June 2019
    • A further $15 million distributed (5¢ per share) in January 2020
  • Cash of $387 million at 31 December 2019 ($334 million at 31 December 2018)
  • Net cash of $90 million at 31 December 2019 (net cash of $37 million at 30 December 2018)

OPERATING PERFORMANCE

  • 2019 net production averaged 36,250 bopd (2018: 33,690 bopd), in line with guidance and an increase of 8% on the prior year
  • Q4 averaged 35,410 bopd, an increase from 34,720 bopd in Q3
  • 19 new wells were brought onto production in 2019 across all assets
  • Production by asset was as follows:
(bopd) Gross production

2019

 Net production

2019

 Net production

2018
Tawke PSC 123,940 30,990 28,260
Taq Taq 11,960 5,260 5,430
Total 135,900 36,250 33,690

PRODUCTION ASSETS

  • Tawke PSC (25% working interest)
    • Tawke PSC gross production averaged 123,940 bopd, of which Peshkabir contributed 55,190 bopd
    • Production in Q4 2019 averaged 122,800 bopd, of which Peshkabir contributed 58,910 bopd
    • There will be an active drilling campaign in 2020 on the Tawke field, aiming to minimise decline rates
    • At Peshkabir, the P-12 well is currently appraising the eastern flank of the field, and is set to complete shortly
  • Taq Taq PSC (44% working interest and joint operator)
    • Taq Taq gross field production averaged 11,960 bopd in 2019
    • Production in Q4 2019 averaged 10,703 bopd
    • Following the successful drilling of the TT-34 well, which has now entered production at over 2,000 bopd with 20/64″ choke, production at Taq Taq has averaged c.12,800 bopd in the year to date
    • The latest well on the northern flank of the field, TT-35, spud on 6 January. This completes the drilling programme with the Sakson-605 rig
    • Further activity at Taq Taq is focused on maximising cash generation, with the optimised cost structure and 2020 work programme, which could see up to six wells drilled, under review

PRE-PRODUCTION ASSETS

  • Sarta (30% working interest)
    • Civil construction work at the Sarta field is continuing on schedule, with flowlines laid and buried and foundations in place for oil storage tanks, andGenel expects production to start in the summerof 2020
    • Phase 1A represents a low-cost pilot development of the Mus-Adaiyah reservoirs, designed to recover 2P gross reserves estimated by Genel at 34 MMbbls
    • Unrisked gross mid case resources relating to the Mus-Adaiyah reservoir are estimated by Genel at c.150 MMbbls, with overall unrisked gross P50 resources currently estimated by the Company at c.500 MMbbl
  • Qara Dagh (40% working interest and operator)
    • Civil construction works are progressing in preparation for the upcoming drilling operations, and the well pad and camp are on schedule for completion by the end of January
    • Environmental permits were granted in December 2019
    • The well will test the structural crest 10 km to the north-west of the QD-1 well, which tested sweet, light oil from Cretaceous carbonates
    • The QD-2 well is on track to spud in Q2 2020
    • Unrisked gross mean resources at Qara Dagh are currently estimated by Genel at c.200 MMbbls
  • Bina Bawi (100% working interest and operator)
    • Negotiations between Genel and the Kurdistan Regional Government (‘KRG’) regarding commercial terms for the gas and oil development at Bina Bawi made significant progress in the third quarter of 2019, resulting in an understanding on commercial terms for a staged and integrated oil and gas development being reached
    • Genel is now waiting to receive draft legal agreements reflecting this understanding
    • Genel is continuing the necessary readiness work required to enable rapid progress towards gas and oil developments upon receipt of signed documents
  • Somaliland – SL10B13 block (100% working interest and operator)
    • A farm-out process relating to this highly prospective block began in Q4 2019, with Stellar Energy Advisors appointed to run the process. A number of companies are now assessing the opportunity
    • Genel plans to conclude the farm-out process in H1 2020, aiming to minimise the cost to the Company of a well that could be spud in 2021
  • Morocco – Sidi Moussa block (75% working interest and operator)
    • The farm-out campaign is set to begin in Q2 2020, aimed at bringing a partner onto the licence prior to considering further commitments

ESG

  • Safety remains a priority for the Company, and our focus on this has led to zero lost time incidents (‘LTI’) and zero losses of primary containment in 2019 at Genel operations
    • There has not been an LTI since 2015, with over 11 million hours worked since the last incident
  • The operator of the Tawke PSC expects routine flaring to be eliminated on the licence in March 2020, with gas from the Peshkabir field set to be reinjected into the Tawke field in order to improve long-term reserves recovery
  • The search for a permanent Chairman is well progressed

OUTLOOK AND 2020 GUIDANCE

  • Net production in 2020 is expected to be close to Q4 2019 levels of 35,410 bopd, with an exit rate c.10% higher than this due to the expected addition of production from Sarta
    • Genel expects to drill over 20 producing wells in 2020
  • 2020 capital expenditure is expected to be $160-200 million, of which $120-150 million will be cost recoverable spend on assets on production in 2020. Other spend includes:
    • c.$35-40 million on the Qara Dagh 2 well
    • Under $10 million maintenance expenditure at Bina Bawi and Miran. Capital expenditure expectations for Bina Bawi in 2020 will be updated once legal agreements with the KRG have been signed
    • Under $2 million on African exploration assets
  • Operating costs per barrel expected to be $3/bbl, amongst the lowest in the industry
  • Opex: c.$40 million
  • G&A: c.$15 million
  • The Company expects full recovery of outstanding payments in Q1, and for regular payments to resume, as they had since September 2015
  • The Company continues to actively pursue growth and is analysing numerous opportunities to make value-accretive additions to the portfolio, but will only proceed with opportunities that fit our strict strategic criteria
  • Genel expects to generate c.$100 million in free cash flow, pre-dividend payments, in 2020
    • Given the ongoing strength of cash generation, confidence in the regularity of payments from the KRG, and the positive outlook for the Company, Genel reaffirms its commitment to growing the dividend

(Source: Genel Energy)