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Genel Energy Production Rises; Shares Up

Shares in Genel Energy closed up nearly 7 percent on Friday after the company reported increased production in its operations update for the third quarter and first nine months of 2019. The information contained herein has not been audited and may be subject to further review.

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

“We continue to deliver on our strategy. Robust production is generating material free cash flow, which we are recycling into low-risk and quick returning projects, with good progress made on delivering key milestones on schedule for both Sarta and Qara Dagh.

“Rapid payback from our low break-even assets gives us resilience and significant flexibility in regard tofuture capital allocation. The sustainability of our cash-generation provides opportunities to deliver material shareholder value through investing in growth and increasing returns to shareholders.“

FINANCIAL PERFORMANCE

  • $287 million of cash proceeds received as of 30 September 2019, of which $120 million was received in Q3
  • Free cash flow of $121 million in the first nine months of 2019,with capital expenditure of $110 million
  • Cash of $413 million at 30 September 2019 ($281 million at 30 September 2018)
  • Net cash of $115 million at 30 September 2019 (net debt of $16 million at 30 September 2018)

OPERATING PERFORMANCE

  • Net production averaged 36,530 bopd in the first nine months of 2019, an increase of 12% year-on-year, in line with guidance
  • Production in Q3 averaged34,720 bopd (33,700 bopd in Q3 2018)
  • 11 wells have been placed on production in 2019, with a further five wells expected to add to production in the remainder of the year
  • Production and sales by asset during Q3 2019 were as follows:

PRODUCTION ASSETS

  • Tawke PSC (Genel 25% working interest)
    • Tawke PSC production averaged 119,760 bopd in Q3 (113,100 bopd in Q3 2018), including a contribution of 51,940 bopd from the Peshkabir field
    • Production was impacted by a workover of the P-2 well and side-track of the P-3 well at the Peshkabir field, with the latter well expected to come onstream shortly
    • The Tawke-57A deep well to appraise the Jurassic was spud in August 2019 with testing to commence shortly. The Tawke-59 Cretaceous well spud in October 2019 and is expected to come on production later this month, with two Jeribe wells, Tawke-61 and Tawke-62 also set to be placed on production shortly
    • Four additional Jeribe wells are planned to spud by year-end
    • The operator expects to exit the year with Tawke licence production averaging 120,000 bopd and to maintain this rate into 2020
  • Taq Taq PSC (Genel 44% working interest and joint operator)
    • Taq Taq field production averaged 10,870 bopd in Q3 2019 (12,200 bopd in Q3 2018)
    • Following the successful completion of the TT-19 well, which is currently flowing at a rate of c.1,500 bopd, current production from the Taq Taq field is just under 11,000 bopd
    • The TT-34 well is currently drilling and is scheduled to complete later this month. The rig will then move to drill TT-35, which is set to spud in December and is targeting production from the northern flank of the field

PRE-PRODUCTION ASSETS

  • Sarta (Genel 30% working interest)
    • Civil construction work at the Sarta field completed on schedule in October 2019, and work on the construction of the 20,000 bopd central processing facility (‘CPF’) has now begun
    • Commissioning of the CPF and production are on track to begin in the middle of 2020
    • Phase 1A represents a low cost pilot development of the Mus-Adaiyah reservoirs, designed to recover 2P gross reserves of 34 MMbbls
    • Unrisked gross mid case resources relating to the Mus-Adaiyah reservoir only are estimated by Genel at c.150 MMbbls, with overall unrisked gross P50 resources currently estimated by the Company at c.500 MMbbls
  • Qara Dagh (Genel 40% working interest and operator)
    • Genel has signed a contract with Parker Drilling for the drilling of the QD-2 well, and civil construction works are underway in preparation for the upcoming drilling operations
    • 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 H1 2020
    • Unrisked gross mean resources at Qara Dagh are currently estimated by Genel at c.200 MMbbls
  • Bina Bawi (Genel 100% and operator)
    • Negotiations between Genel and the Kurdistan Regional Government continue to progress regarding commercial terms for the gas and oil development at Bina Bawi
    • In parallel with these negotiations, Genel is completing the necessary readiness work required to enable rapid progress towards gas and oil developments upon agreement of the commercial terms
    • Genel is confident of a positive outcome to these commercial discussions
  • Somaliland
    • Onshore Somaliland, Stellar Energy Advisors has been appointed to run the farm-out process relating to the SL10B13 block (Genel 75% working interest, operator)
    • Interpretation of the 2018 2D seismic data together with basin analysis has identified multiple stacked prospects, with each of them estimated to have resources of c.200 MMbbls
    • A further program of surface oil seep sampling and analysis reiterates the presence of a working petroleum system on the block
    • It is estimated that a well designed to test multiple stacked prospects could be drilled for c.$30 million gross
  • Morocco
    • On the Sidi Moussa block offshore Morocco (Genel 75% working interest, operator), processing of the multi-azimuth broadband 3D seismic survey acquired in 2018 over the prospective portions of the block is nearing completion
    • The farm-out campaign is on track to begin in Q1 2020, aimed at bringing a partner onto the licence prior to considering further commitments

OUTLOOK AND 2019 GUIDANCE

  • Net production guidance in 2019 maintained at close to Q4 2018 levels of 36,900 bopd
  • 2019 capital expenditure guidance maintained towards the top end of the $150-170 million range
  • Interim dividend of 5¢ per share to be paid on 8 January 2020 to shareholders on the register as of 13 December 2019
    • Given the ongoing strength of cash generation and the positive outlook for the Company, Genel reaffirms its commitment to growing the dividend
  • The Company continues to actively pursue growth and is assessing opportunities to make value-accretive additions to the portfolio

(Source: Genel Energy)

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Genel Energy Production Rises; Shares Up

Shares in Genel Energy closed up nearly 7 percent on Friday after the company reported increased production in its operations update for the third quarter and first nine months of 2019. The information contained herein has not been audited and may be subject to further review.

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

“We continue to deliver on our strategy. Robust production is generating material free cash flow, which we are recycling into low-risk and quick returning projects, with good progress made on delivering key milestones on schedule for both Sarta and Qara Dagh.

“Rapid payback from our low break-even assets gives us resilience and significant flexibility in regard tofuture capital allocation. The sustainability of our cash-generation provides opportunities to deliver material shareholder value through investing in growth and increasing returns to shareholders.“

FINANCIAL PERFORMANCE

  • $287 million of cash proceeds received as of 30 September 2019, of which $120 million was received in Q3
  • Free cash flow of $121 million in the first nine months of 2019,with capital expenditure of $110 million
  • Cash of $413 million at 30 September 2019 ($281 million at 30 September 2018)
  • Net cash of $115 million at 30 September 2019 (net debt of $16 million at 30 September 2018)

OPERATING PERFORMANCE

  • Net production averaged 36,530 bopd in the first nine months of 2019, an increase of 12% year-on-year, in line with guidance
  • Production in Q3 averaged34,720 bopd (33,700 bopd in Q3 2018)
  • 11 wells have been placed on production in 2019, with a further five wells expected to add to production in the remainder of the year
  • Production and sales by asset during Q3 2019 were as follows:

PRODUCTION ASSETS

  • Tawke PSC (Genel 25% working interest)
    • Tawke PSC production averaged 119,760 bopd in Q3 (113,100 bopd in Q3 2018), including a contribution of 51,940 bopd from the Peshkabir field
    • Production was impacted by a workover of the P-2 well and side-track of the P-3 well at the Peshkabir field, with the latter well expected to come onstream shortly
    • The Tawke-57A deep well to appraise the Jurassic was spud in August 2019 with testing to commence shortly. The Tawke-59 Cretaceous well spud in October 2019 and is expected to come on production later this month, with two Jeribe wells, Tawke-61 and Tawke-62 also set to be placed on production shortly
    • Four additional Jeribe wells are planned to spud by year-end
    • The operator expects to exit the year with Tawke licence production averaging 120,000 bopd and to maintain this rate into 2020
  • Taq Taq PSC (Genel 44% working interest and joint operator)
    • Taq Taq field production averaged 10,870 bopd in Q3 2019 (12,200 bopd in Q3 2018)
    • Following the successful completion of the TT-19 well, which is currently flowing at a rate of c.1,500 bopd, current production from the Taq Taq field is just under 11,000 bopd
    • The TT-34 well is currently drilling and is scheduled to complete later this month. The rig will then move to drill TT-35, which is set to spud in December and is targeting production from the northern flank of the field

PRE-PRODUCTION ASSETS

  • Sarta (Genel 30% working interest)
    • Civil construction work at the Sarta field completed on schedule in October 2019, and work on the construction of the 20,000 bopd central processing facility (‘CPF’) has now begun
    • Commissioning of the CPF and production are on track to begin in the middle of 2020
    • Phase 1A represents a low cost pilot development of the Mus-Adaiyah reservoirs, designed to recover 2P gross reserves of 34 MMbbls
    • Unrisked gross mid case resources relating to the Mus-Adaiyah reservoir only are estimated by Genel at c.150 MMbbls, with overall unrisked gross P50 resources currently estimated by the Company at c.500 MMbbls
  • Qara Dagh (Genel 40% working interest and operator)
    • Genel has signed a contract with Parker Drilling for the drilling of the QD-2 well, and civil construction works are underway in preparation for the upcoming drilling operations
    • 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 H1 2020
    • Unrisked gross mean resources at Qara Dagh are currently estimated by Genel at c.200 MMbbls
  • Bina Bawi (Genel 100% and operator)
    • Negotiations between Genel and the Kurdistan Regional Government continue to progress regarding commercial terms for the gas and oil development at Bina Bawi
    • In parallel with these negotiations, Genel is completing the necessary readiness work required to enable rapid progress towards gas and oil developments upon agreement of the commercial terms
    • Genel is confident of a positive outcome to these commercial discussions
  • Somaliland
    • Onshore Somaliland, Stellar Energy Advisors has been appointed to run the farm-out process relating to the SL10B13 block (Genel 75% working interest, operator)
    • Interpretation of the 2018 2D seismic data together with basin analysis has identified multiple stacked prospects, with each of them estimated to have resources of c.200 MMbbls
    • A further program of surface oil seep sampling and analysis reiterates the presence of a working petroleum system on the block
    • It is estimated that a well designed to test multiple stacked prospects could be drilled for c.$30 million gross
  • Morocco
    • On the Sidi Moussa block offshore Morocco (Genel 75% working interest, operator), processing of the multi-azimuth broadband 3D seismic survey acquired in 2018 over the prospective portions of the block is nearing completion
    • The farm-out campaign is on track to begin in Q1 2020, aimed at bringing a partner onto the licence prior to considering further commitments

OUTLOOK AND 2019 GUIDANCE

  • Net production guidance in 2019 maintained at close to Q4 2018 levels of 36,900 bopd
  • 2019 capital expenditure guidance maintained towards the top end of the $150-170 million range
  • Interim dividend of 5¢ per share to be paid on 8 January 2020 to shareholders on the register as of 13 December 2019
    • Given the ongoing strength of cash generation and the positive outlook for the Company, Genel reaffirms its commitment to growing the dividend
  • The Company continues to actively pursue growth and is assessing opportunities to make value-accretive additions to the portfolio

(Source: Genel Energy)

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Genel Pauses Bina Bawi Plans; Numis Upgrades

By John Lee.

Genel Energy has announced that it “will only proceed with significant investment in Bina Bawi once an agreement is reached on a commercial framework that provides a clear route to monetisation.”

In a statement, the company said:

“As previously announced, the deadline to meet the conditions precedent relating to the Bina Bawi gas lifting agreement (‘GLA’) was extended until 30 April 2019, as discussions with the Kurdistan Regional Government (‘KRG’) on the commercial framework relating to the development of the licence continued.

“Having reached agreement that the existing GLA does not reflect the commercial realities of the proposed development, Genel and the KRG (‘the Parties’) have jointly agreed to let the GLA lapse on 30 April 2019 and focus on negotiating updated commercial terms based on a staged and integrated oil and gas development. The Parties are progressing the negotiation of a project scope based on a phased approach and ramp up of the gas development, with an initial phase of c.250 MMscfd raw gas capacity, and an accelerated development of the oil scope, where the KRG and Genel will jointly fund the first phase gas development utilising the revenue from Bina Bawi oil.

“The Parties have agreed to focus on finalising the commercial arrangement for this solution as soon as practical. The current production sharing contract (‘PSC’) provides a further 12 month period from 30 April 2019 within which to agree a new GLA. Should no agreement be reached in twelve months, the KRG has a right to terminate the PSC.

“In line with our capital allocation strategy, the Company will only proceed with significant investment in Bina Bawi once an agreement is reached on a commercial framework that provides a clear route to monetisation.

“The deadline for the Miran conditions precedent will be reached on 31 May 2019 and the Company similarly expects that the Miran GLA will lapse.“

Meanwhile, analysts at Numis Securities have reportedly upgraded the shares to a “buy” rating.

(Sources: Genel Energy, thisismoney.co.uk)

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Genel Energy Shares dip following Results

By John Lee.

Shares in Genel Energy were trading down four percent on Wednesday morning after the company announced its audited results for the year ended 31 December 2018, in which it wrote down its Miran asset by $424 million.

Despite this, Genel says it can now initiate “a material and sustainable dividend policy“, with payments starting in 2020.

The company’s shares are up 17 percent since the start of the year.

Murat Özgül, Chief Executive of Genel, said:

“Genel’s strategy at the start of 2018 was clear – generate material free cash flow from producing assets, build and invest in a rich funnel of transformational development opportunities, and return capital to shareholders at the appropriate time. We are delivering on this strategy.

“2018 was another year of material free cash flow generation, we continued to transform our balance sheet and the addition of assets with the potential of Sarta and Qara Dagh led to a very successful delivery on the first two parts of our strategy. We will continue to develop opportunities and invest ingrowth. As we do so, a robust cash flow outlook and our confidence in Genel’s future prospects underpins our initiation of a material and sustainable dividend policy.“

Results summary ($ million unless stated)

2018 2017
Production (bopd, working interest) 33,700 35,200
Revenue 355.1 228.9
EBITDAX1 304.1 475.5
  Depreciation and amortisation (136.2) (117.4)
  Exploration credit / (expense) 1.5 (1.9)
  Impairment of property, plant and equipment – (58.2)
  Impairment of intangible assets (424.0) –
Operating (loss) / profit (254.6) 298.0
Cash flow from operating activities 299.2 221.0
Capital expenditure 95.5 94.1
Free cash flow2 164.2 99.1
Cash3 334.3 162.0
Total debt 300.0 300.0
Net cash / (debt)4 37.0 (134.8)
Basic EPS (¢ per share) (101.6) 97.1
Underlying EPS (¢ per share)5 109.0 65.1
  1. EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation ($136.2 million), exploration credit ($1.5 million) and impairment of intangible assets ($424.0 million)
  2. Free cash flow is net cash generated from operating activities less cash outflow due to purchase of intangible assets ($39.7 million), purchase of property, plant and equipment ($65.3 million) and interest paid ($30.0 million)
  3. Cash reported at 31 December 2018 excludes $10.0 million of restricted cash
  4. Reported cash less ($334.3 million) less reported balance sheet debt ($297.3 million)
  5. EBITDAX less net gain arising from the Receivable Settlement Agreement (‘RSA’) divided by the weighted average number of ordinary shares

Highlights

  • $335 million of cash proceeds were received in 2018 (2017: $263 million)
  • Strong cash flow generation, with free cash flow totalling $164 million in 2018 (2017: $99 million), an increase of 66%
  • Financial strength continues to increase,with unrestricted cash balances at 28 February 2019 of $378 million, andnet cash at $81 million
  • Addition of Sarta and Qara Dagh to the portfolio in 2019 brings further near-term production and material growth potential
  • Increase in 1P and 2P reserves as of 31 December 2018 to 99 MMbbls (31 December 2017: 97 MMbbls) and 155 MMbbls (31 December 2017: 150 MMbbls) respectively, including Sarta
  • As disclosed in our trading statement, the carrying value of the Miran licence has been under review. Due to the focus on the development of Bina Bawi, while Genel continues to see significant opportunity in the licence, this has resulted in an accounting impairment to the carrying value

Outlook

  • Production guidance maintained – net production during 2019 is expected to be close to Q4 2018 levels of 36,900 bopd, an increase of c.10% year-on-year
  • Capital expenditure guidance updated to include spend on Sarta and Qara Dagh, with net capital expenditure now forecast to be $150-170 million (from c.$115 million)
  • Opex and G&A guidance unchanged at c.$30 million and c.$20 million respectively
  • Genel expects to generate material free cash flow of over $100 million in 2019, inclusive of investment in Sarta and Qara Dagh
  • Given the strong free cash flow forecast of the business, even after investment in growth opportunities, Genel is initiating a material and sustainable dividend policy
    • The Company intends to pay a minimum dividend of $40 million per annum starting in 2020, with the intention for this to grow
    • The dividend will be split between an interim and final dividend, to be paid one-third/two-thirds
    • The Company is set to approach bondholders to request a temporary waiver of the dividend restriction, which limits dividends to 50% of annual net profit, in relation to accelerating the start of distribution to 2019
  • The Company continues to actively pursue growth and appraise opportunities to make value-accretive additions to the portfolio

More details – 40 pages of them! – here.

(Sources: Genel Energy, Yahoo!)

Posted on

Genel Energy Returns to Profit

Genel Energy has announced a return to profit.

In its audited results for the year ended 31 December 2017, Murat Özgül (pictured), Chief Executive of Genel, said:

“Another year of consistent payments by the KRG and a disciplined capital allocation strategy helped to generate material free cash flow in 2017. This was enhanced in the latter part of the year by the Receivable Settlement Agreement, from which Genel expects to generate sustainable and significant free cash flow going forward.

“The strong financial performance of 2017, and the promise of more to come, facilitated the successful refinancing in December, which solidified a significant improvement in the balance sheet and provides a strong platform for growth.

“We will continue with our strategy of maximising free cash flow as we focus investment on our producing assets, specifically on the Tawke PSC, where the performance of Peshkabir remains highly encouraging. Prudent expenditure will also be made on the other assets within our portfolio that provide material value creation opportunities.

“We will continue to construct the building blocks for value creation from Bina Bawi and Miran, while cost-effectively progressing our exploration assets in Africa.”

Results summary ($ million unless stated)

2017

2016

Production (bopd, working interest)

35,200

53,300

Revenue

228.9

190.7

EBITDAX1

475.5

130.7

  Depreciation and amortisation

(117.4)

(128.9)

  Exploration expense

(1.9)

(815.1)

  Impairment of property, plant and equipment

(58.2)

(218.3)

  Impairment of receivables

–

(191.3)

Operating profit / (loss)

298.0

(1,222.9)

Cash flow from operating activities

221.0

131.0

Capital expenditure

94.1

61.2

Free cash flow before interest2

141.8

59.1

Cash3

162.0

407.0

Total debt

300.0

674.6

Net debt4

134.8

241.2

Basic EPS (¢ per share)

97.1

(448.6)

1.     EBITDAX is earnings before interest, tax, depreciation, amortisation, exploration expense and impairment which is operating profit / (loss) adjusted for the add back of depreciation and amortisation ($117.4 million), exploration expense ($1.9 million) and impairment of property, plant and equipment ($58.2 million)

2.     Free cash flow before interest is net cash generated from operating activities less cash outflow due to purchase of intangible assets and purchase of property, plant and equipment (oil and gas assets only)

3.     Cash reported at 31 December 2017 excludes $18.5 million of restricted cash

4.     Reported debt less cash

Highlights

  • $263 million of cash proceeds received in 2017 (2016: $207 million), with strong free cash flow generation of $142 million (2016: $59 million)
  • Year-end net debt of $135 million, a 44% reduction year-on-year (2016: $241 million)
  • Year-end gross debt of $300 million, a 56% reduction year-on-year (2016: $675 million), with debt extended until 2022 and interest cost reduced by 40%
  • Receivable Settlement Agreement resulted in cash benefit of $26 million in Q4 2017
  • Focused capital allocation – 66% of capital expenditure was spent on cash-generative producing assets, and has been cost recovered
  • Drilling success at Peshkabir, with gross production rising to c.15,000 bopd at year-end
  • Taq Taq field production stabilised in H2 2017, with Q4 average of 14,035 bopd in line with Q3 average of 14,080 bopd
  • In January 2018 Bina Bawi and Miran CPRs confirmed c.45% uplift to gross 2C raw gas resources to 14.8 Tcf

Outlook

  • Combined net production from the Tawke and Taq Taq PSCs during 2018 is expected to be close to Q4 2017 levels of 32,800 bopd, unchanged from previous guidance
  • Genel expects to continue the generation of material free cash flow in 2018
  • Tangible steps to be taken to further de-risk gas resources and unlock value from Bina Bawi and Miran, including the high-value oil resources
  • Capital allocation discipline to continue, with ongoing prioritisation of spend on cash-generative producing assets. Capital expenditure guidance unchanged at c.$95-140 million net to Genel
  • Opex and G&A cash cost guidance unchanged at c.$30 million and c.$15 million respectively

More here.

(Source: Genel Energy)

Posted on

Genel Updates on Oil Reserves

By John Lee.

Genel Energy has announced the completion of competent person’s reports (‘CPRs’) relating to the oil reserves and resources at Taq Taq, Bina Bawi, and Miran.

McDaniel and Associates have updated the CPR relating to the Taq Taq field (Genel 44% working interest, joint operator).

RPS Energy Consultants Ltd. (‘RPS’), as part of its work on the updated CPRs for the Bina Bawi and Miran West fields (Genel 100% and operator), has finalised its evaluation of the oil resources at both fields.

Murat Özgül (pictured), Chief Executive of Genel, said:

“The 40% replacement of 1P reserves at Taq Taq follows the success of well TT-29w, and reflects the stability in cash-generative production that we have seen from the field in the second half of 2017. The significant increase in high-value Bina Bawi 2C oil resources offers a tangible opportunity for near-term value creation.”

Taq Taq oil reserves

Taq Taq gross 2P reserves as of 31 December 2017 are estimated by McDaniel at 54.7 MMbbls, compared to 59.1 MMbbls as of 28 February 2017, with the difference being production in the intervening period, partly offset by a small upward technical revision.

The CPR results in a 12% reserves replacement for 2P and 40% reserves replacement at the higher confidence 1P level as a result of stabilising production and the integration of well TT-29w. A reconciliation from the reserves reported in the CPR released in February 2017 to the updated estimates in the CPR published today, is shown in the following table:

Gross oil reserves (MMbbls – McDaniel)

1P

2P

3P

28 February 2017

25.8

59.1

95.0

Production

(5.0)

(5.0)

(5.0)

Technical revisions

2.0

0.6

0.1

31 December 2017

22.8

54.7

90.1

Bina Bawi and Miran oil resources

Bina Bawi gross 2C light (c.45◦ API) oil resources as of 31 December 2017 are estimated by RPS at 37.1 MMbbls, compared to 13 MMbbls as of July 2013. The increase reflects higher recovery factors than initially estimated due to integrating learnings from analogue carbonate fields of similar oil quality. As the high-quality Bina Bawi oil is in close proximity to export infrastructure, the field represents a potentially attractive near-term development candidate for the Company.

Miran West gross 2C heavy (c.15◦ API) oil resources as of 31 December 2017 are estimated by RPS at 23.7 MMbbls, compared to 52 MMbbls as of April 2013. Volumes have reduced as RPS has adjusted its view on the oil water contact uncertainty range and also adjusted its view on reservoir properties, including data from MW-5 drilled in July 2013.

Because of field experience at Taq Taq, Genel management has taken the view that it is unlikely that any matrix will contribute to primary depletion at Miran and, as such, has taken a more conservative view and will only record 18.5 MMbbls of viable 2C contingent resources at the field.

Gross 2C Contingent Resources oil (MMbbls – RPS)

2013

31 December 2017

Bina Bawi

12.9

37.1

Miran West

52.0

23.7

Appendix

Summary of Contingent Resources – Development unclarified (Gross 100% working interest basis) attributable to the Bina Bawi and Miran West fields as of 31 December 2017.

Gross (100% WI) Contingent Resources

Gross (100% WI) Contingent Resources

Bina Bawi

Oil (MMbbls – RPS)

Miran West

Oil (MMbbls – RPS)

1C

15.2

1C

6.1

2C

37.1

2C

23.7

3C

78.4

3C

67.6

(Source: Genel Energy)

Posted on

Genel Energy Updates on Operations in Kurdistan

Genel Energy has issued a trading and operations update in advance of the Company’s full-year 2017 results, which are scheduled for release on 22 March 2018. The information contained herein has not been audited and may be subject to further review.

Murat Özgül, Chief Executive of Genel, said:

“A strong final quarter of 2017 completed a very positive year for Genel. During the quarter, the successful Peshkabir-3 well result tripled production at the field to c.15,000 bopd, a figure that is expected to grow in 2018, while at Taq Taq the TT-29w well was brought on production.

“Payments for oil sales were received from the Kurdistan Regional Government (‘KRG’) in every month of 2017, totalling over $260 million net to Genel and leading to $140 million of free cash flow in the year. The 2017 payments were bolstered by the receipt of override payments in the fourth quarter under the Receivable Settlement Agreement (‘RSA’), and payments have continued in early 2018.

“The recently announced CPRs reaffirmed the potential of the Bina Bawi and Miran fields, with combined 1C gross raw gas resource estimates higher than the gas volumes agreed under the Gas Lifting Agreements. The upstream field development plans are expected to complete shortly, and will help define the roadmap to unlocking the value in these major resources.

“The successful debt refinancing in late 2017, and the expectation of ongoing material free cash flow, provides us with a solid platform and financial flexibility to execute our growth plans during 2018 and beyond.“

2017 OPERATING PERFORMANCE AND 2018 ACTIVITY OUTLOOK

  • 2017 net production averaged 35,200 bopd, with Q4 averaging 32,760 bopd. Production and sales by asset during 2017 was as follows:

(bopd)

Export via pipeline

Refinery sales

Total      sales

Total production

Genel net production

Taq Taq

11,700

6,350

18,050

18,050

7,940

Tawke PSC

108,250

10

108,260

109,050

27,260

Total

119,950

6,360

126,310

127,100

35,200

Note: Difference between production and sales relates to inventory movements

  • Tawke PSC (Genel 25% working interest)
    • Tawke PSC production averaged 109,050 bopd in 2017, with aggregate production from the Peshkabir-2 and Peshkabir-3 wells contributing 3,590 bopd to this figure. Combined production from the two fields currently averages c.110,000 barrels of oil per day
    • Preparations are underway to drill the Peshkabir-4 well. Additional drilling activity is planned on both the Tawke and Peshkabir fields during 2018, with overall activity levels dependent on production performance, drilling results, field studies, and ongoing payments from the KRG
  • Taq Taq PSC (Genel 44% working interest and joint operator)
    • Taq Taq field production averaged 18,050 bopd in 2017
    • Production in Q4 2017 averaged 14,035 bopd (Q3 2017 14,080 bopd). Ahead of the completion of a number of wells in Q4 2017, the overall rate of production decline slowed during the year due to the implementation of a proactive well intervention and production optimisation programme
    • In 2018 to date, production from Taq Taq has averaged 14,540 bopd, with the TT-29w, TT-30, and TT-31 wells contributing to the stabilisation in production from the beginning of Q4
    • As previously announced in late 2017, the TT-29w well was brought onto production after encountering a deeper free water level and more extensive oil bearing cretaceous reservoirs on the northern flank of the field than previously forecast. The results of the well will be analysed ahead of finalising the 2018 drilling programme, with field activity likely to be weighted towards the second half of the year. The ongoing Taq Taq well intervention programme, focused on the provision of artificial lift and water shut off in existing wells, will continue throughout 2018
    • Going forward, the Company will revert to reporting Taq Taq field production on a quarterly basis, as part of its corporate level disclosures
  • Bina Bawi and Miran (Genel 100% and operator)
    • As announced on 23 January 2018, Genel has agreed a 12 month extension to the conditions precedent schedule contained within the Gas Lifting Agreements for the Bina Bawi and Miran PSCs
    • CPRs for the Bina Bawi and Miran West gas fields concluded a c.40% increase in the combined 2C gas resources compared to the pro-forma end-2016 2C resource
    • The field development plans, being carried out by Baker Hughes, are on schedule to be completed shortly, and will help define the roadmap to unlocking the value of the assets
    • Genel will continue its systematic efforts to maximise the value of Bina Bawi and Miran, which includes optimising the cost and schedule of the proposed upstream developments
      • § In 2018 Genel expects to undertake an extended well test of Bina Bawi-4, which will provide valuable data on well deliverability and gas composition
    • The Company will continue to build momentum behind the development of Bina Bawi and Miran, and will continue engagement with potential farm-in partners for upstream participation at an optimal time to secure maximum value for Genel shareholders
  • African exploration update
    • Onshore Somaliland, the acquisition of 2D seismic data on the SL-10B/13 (Genel 75%, operator) and Odewayne (Genel 50%, operator) blocks has now completed – the first time that seismic has been obtained in this highly prospective area for over 25 years. The project acquired c.3,150 km in total, including infill 2D seismic acquisition of targeted high-graded areas. Processing of the data has commenced, and will facilitate seismic interpretation and the associated development of a prospect inventory, in turn guiding the optimal strategy to maximise future value
    • As announced in November 2017, Genel’s prior commitment to drill one well on the Sidi Moussa licence, offshore Morocco (Genel 60% working interest), has been replaced by an obligation to carry out a 3D seismic campaign across the Sidi Moussa acreage, significantly reducing anticipated expenditure. Planning is ongoing, with seismic acquisition set to begin in 2018, which is expected to materially de-risk the prospectivity of the Sidi Moussa licence

FINANCIAL PERFORMANCE

  • $263 million of cash proceeds were received in 2017 ($207 million in 2016), of which $72 million was received in Q4
  • Following the signing of the Receivable Settlement Agreement, effective 1 August 2017:
    • $19 million in override payments for the Tawke field were received in Q4
    • An additional $7 million of cash flow was generated from the elimination of the capacity building payment on Genel’s profit oil from the Tawke PSC
  • $19 million in payments for oil sales during October 2017 received post-period in January 2018
  • Free cash flow (pre interest payments) totalled $140 million in 2017 
  • In December 2017, the Company successfully completed the refinancing of its existing bonds, reducing the outstanding bond debt from $421.8 million to $300 million by way of an early redemption of a notional amount of $121.8 million. The new 5 year bond has a coupon of 10% per annum
  • Following the successful refinancing, unrestricted cash balances at 31 December 2017 stood at $162 million ($268 million at 30 September 2017). IFRS net debt at 31 December 2017 stood at $135 million ($138 million at 30 September 2017)
  • Capital expenditure for 2017 totalled $95 million (in line with guidance), with the majority of spend on the Taq Taq and Tawke PSCs ($64 million)

2018 GUIDANCE

  • Combined net production from the Tawke and Taq Taq PSCs during 2018 is expected to be close to Q4 2017 levels (as disclosed above)
  • Capital expenditure net to Genel is forecast to be c.$95-140 million, spanning a range of firm and contingent spend, with activity levels dependent on ongoing drilling results and progress on Miran and Bina Bawi. It is expected that capex  will be funded entirely from operational cash flow, and includes:
    • Tawke and Taq Taq net to Genel of $60-85 million
    • Miran and Bina Bawi capex of $25-40 million
    • African exploration cost of $10-15 million
  • Opex: c.$30 million
  • G&A: c.$15 million cash cost
  • Based on a continuation of payments throughout 2018, Genel expects to generate material free cash flow in 2018

(Source: Genel Energy)

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Genel Energy gets more time for Gas Project

Genel Energy has announce that it has agreed with the Kurdistan Regional Government (KRG) a 12 month extension to the schedule for satisfying the conditions precedent (‘CPs’) contained within the Gas Lifting Agreements (‘GLA’s) for the Bina Bawi and Miran fields signed in February 2017.

The revised date by which the CPs are to be satisfied or waived is 9 February 2019.

The CPs contained within the February 2017 GLAs included, inter alia, the execution of final agreements on the midstream gas processing facilities and pipeline transportation, and the completion of updated competent person’s reports (‘CPRs’) for Bina Bawi and Miran.

The CPRs relating to the contingent gas resources at the Bina Bawi and Miran West fields have recently been completed, details of which were announced on 19 January 2018.

(Source: Genel Energy)

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Bina Bawi and Miran West gas resource update

Genel Energy has announced that RPS Energy Consultants, as part of its work on the updated competent person’s reports (‘CPRs’) for the Bina Bawi and Miran West fields (Genel 100% and operator), has finalised its evaluation of the contingent gas resources at both assets:

  • The RPS evaluation confirms a significant upgrade to the combined 2C gross (100% working interest (‘WI’)) raw gas resource estimate for the Bina Bawi and Miran West fields:
    • The RPS assessment of the combined gross 2C raw gas resource for both fields now stands at 14,792 Bscf, a figure which excludes associated condensate volumes attributable to the upstream partners
    • The RPS assessment of the combined gross 2C condensate volumes potentially recovered from raw gas production at both fields totals 137 MMstb
    • As at end-2016 Genel’s reported 2C resources included net raw gas resources from Miran and Bina Bawi totalling 1,421 MMboe1, which related to Genel’s respective 80% and 75% interests in the Bina Bawi and Miran PSCs at that time
    • In February 2017 the Company increased its interest in both PSCs to 100%, resulting in a combined pro-forma end-2016 Genel 2C resource of 1,815 MMboe (10,530 Bscf2)
    • The 2018 RPS estimates of combined 2C resources from both fields have increased c.40% compared to the pro-forma end-2016 2C resource
  • The revised Bina Bawi 1C gross raw gas resource estimate is more than 50% higher than the gas volume agreed to for the field under the Gas Lifting Agreement (‘GLA’). The revised Miran West 1C gross raw gas resource estimate is in line with the volume agreed to for the field in the GLA

A comparison of the revised 2C gross contingent resource numbers for both fields and the Company’s end-2016 number, which was based on the 2013 RPS reports plus the addition of the Company’s assessment of non-hydrocarbon gases, is summarised in the following table. Further detail is provided in an appendix to this announcement.

Gross (100% WI) 2C Contingent Resources Raw gas (Bscf)

Previous

Revised

change

Bina Bawi

6,472

8,230

27%

Miran West

3,688

6,562

78%

RPS’s updated analysis of the raw gas resources on both fields has benefitted from updated reservoir simulation modelling combined with analogue analysis jointly created and developed by the Company and Baker Hughes since the original reports were produced. As a consequence, the recovery factors for the gas reservoirs in both fields have, in most resource categories, been increased to reflect a better understanding of potential reservoir performance. Further appraisal activity, which is currently under consideration, could help refine reservoir performance and these recovery factor estimates.

Volumes agreed under the GLAs total 2,800 Bscf from Bina Bawi, and 2,000 Bscf from Miran West over a 12 year period, consisting of a two year build-up period and 10 year plateau period. The revised 2C and 3C raw gas resources for both fields significantly exceed these volumes. Following the completion of the upstream field development plans (‘FDPs’), sufficient progress on the midstream facilities and sales gas export route, and subsequent final investment decision, the Company expects that a percentage of the contingent raw gas resources will be converted to reserves, dependent on the volumes set to be produced under the FDPs.

 

The upstream FDPs for the gas and oil fields in the Bina Bawi and Miran PSCs, which are being carried out by Baker Hughes, are expected to be completed shortly.

RPS is continuing its evaluation of the oil bearing reservoirs at both fields, the results of which will be announced once finalised.

Appendix

Summary of Contingent Resources – Development unclarified (Gross 100% working interest basis) attributable to the Bina Bawi and Miran West fields as of 31 December 2017

Gross (100% WI) Contingent Resources

Gross (100% WI) Contingent Resources

BINA BAWI

Raw gas (Bscf)

Condensate (MMstb)

MIRAN WEST

Raw gas (Bscf)

Condensate (MMstb)

1C

4,651

34

1C

1,967

18

2C

8,230

62

2C

6,562

75

3C

13,036

99

3C

18,429

233

1 Genel figure based on the 2013 RPS reports plus the addition of the Company’s assessment of non-hydrocarbon gases

2 Based on a conversion factor of 5.8 MMscf/bbl

(Source: Genel Energy)

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Rosneft in the Kurdish Region: Moscow’s Balancing Act

By Ahmed Tabaqchali. Originally published by Iraq in Context; re-published by Iraq Business News with permission. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Between February 2017 and mid-October, Rosneft signed a number of deals with the Kurdish Regional Government (KRG) that established for it, and by extension for Russia, a major position as both an investor and stakeholder in the Kurdish Region of Iraq (KRI)’s hydrocarbon resources and infrastructure.

The move was interpreted, especially by the KRG, as implicit support for the KRG in its bid for independence, especially in light of the latest deal signed following the reassertion of Iraq’s federal control over Kirkuk and other disputed territories. While there is an element of truth to this thinking, the deals are part of a wider geopolitical positioning for Russia as a major gas supplier to Europe and as an emerging power in the Middle East.

The deals provide Rosneft, and by extension Russia, effective control of the KRG’s Oil & Gas infrastructure, and a controlling stake in the region’s finances in more ways than one.

Within the oil space it has established this in three ways. The first was by providing USD 1.5bn in financing via forward oil sales payable over 3-5 years. This would be payable in kind from the KRG’s exports, until recently at about 550,000-600,000 barrels per day (bbl/d). However, the loss of the Kirkuk fields takes away about 430,000 bbl/d of production or eventually about half of the KRG’s exports.

This leaves the KRG with a tiny revenue stream after payments to International Oil Companies (IOC)’s, from which to make payments on forward oil sales of up USD 3.5 bn including Rosneft’s USD 1.5bn. A complicating factor is the repayment of other KRG debt, estimated at over USD 21bn by end of 2017, which will have to be factored into debt payment sustainability.