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Genel Energy Increases Dividend

By John Lee.

Genel Energy has increased its interim dividend, announced in its unaudited results for the six months ended 30 June 2021:

Bill Higgs, Chief Executive of Genel, said:

“Genel continues to deliver on its strategy and demonstrate the merits of its business model. Capital investment made last year, despite the low oil price and over $150 million of deferred payments, has meant this period has benefitted from the addition of oil from Sarta and increased production from Peshkabir, with production having increased in line with guidance.

“This high-margin production will generate sufficient cash flow in 2021 to more than cover investment in growth and the increased dividend, and we are set to end the year in a net cash position.

“Our appraisal campaign at our exciting growth assets Sarta and Qara Dagh is now well underway, and we look forward to the results of three of these high-potential wells later this year. Given the cash generation of the business, our strong balance sheet, and the resilience of our business model, we are fulfilling our aim of paying a progressive dividend by increasing the interim payment.“

Results summary ($ million unless stated)

H1 2021 H1 2020 FY 2020
Average Brent oil price ($/bbl) 65 40 42
Production (bopd, working interest)  32,760 32,100  31,980
Revenue  151.5 88.4  159.7
EBITDAX1  123.1 65.1  114.6
  Depreciation and amortisation  (81.8) (82.6)  (153.7)
  Exploration expense – (1.3) (2.2)
  Impairment of oil and gas assets – (286.3) (286.3)
  Impairment of receivables – (34.9) (36.9)
Operating profit / (loss) 41.3 (340.0) (364.5)
Cash flow from operating activities 91.1 85.5 129.4
Capital expenditure 58.2 58.5 109.7
Free cash flow2 22.2 6.5 (4.4)
Cash 266.4 355.3 354.5
Total debt 280.0 300.0 280.0
Net (debt) / cash3 (2.2) 57.2 6.2
Basic EPS (¢ per share) 9.3 (128.9) (152.0)
Dividends declared for the period (¢ per share) 6 5 15
  1. EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation, exploration expense, impairment of property, plant and equipment, impairment of intangible assets and impairment of receivables
  2. Free cash flow is reconciled on page 10
  3. Reported cash less IFRS debt (page 11)

Highlights

  • Strong cash generation from low-cost oil production:
    • Net production averaged 32,760 bopd in H1 2021, slightly above the average in the prior year and in line with guidance (H1 2020: 32,100 bopd)
    • Low production cost of $3.7/bbl, oil price increase, and restart of the override helped deliver an overall margin from our production assets of $111 million
    • Free cash flow for the period was $22 million, despite the Kurdistan Regional Government (‘KRG’) changing its payment schedule from one to two months in arrears, moving c.$30 million that was due in H1 into July
    • $123 million of cash proceeds were received in H1 2021 (H1 2020: $110 million)
  • Investing in growth:
    • Our high-potential drilling campaign is well underway, with the QD-2 well at Qara Dagh having spud in April, and the Sarta-5 well in June
    • $58 million of capital expenditure in H1 2021, with activity accelerating in H2
  • Financial strength to underpin a material and progressive dividend:
    • Cash of $266 million, with net debt of $2.2 million
    • Due to the rise in the oil price boosting expected cash generation, and Management’s confidence in Genel’s future prospects, interim dividend increased to 6¢ per share (H1 2020: 5¢ per share)
  • A socially responsible contributor to the global energy mix:
    • Zero lost time injuries (‘LTI’) and zero tier one loss of primary containment (‘LOPC’) events at Genel and TTOPCO operations. Now no LTIs since 2015, with over 14 million work hours since the last incident, and no LOPCs since 2017
    • Second GRI compliant Sustainability Report issued today

Outlook

  • Production guidance for 2021 of slightly above the 2020 average of 31,980 bopd maintained
  • 2021 capital expenditure guidance maintained at $150 million to $200 million, with the expectation that expenditure will now be around the middle of this range, following delays in approvals from the KRG and ongoing challenges relating to COVID-19 causing some planned activity to move to Q1 2022
  • High-impact appraisal results to come in 2021:
    • Results from the QD-2 and Sarta-5 wells are expected around the end of Q3 2021
    • The Sarta-1D well is set to spud in coming days
    • Sarta-6 well is scheduled to get underway immediately following the completion of drilling at Sarta-5
  • Genel expects to generate free cash flow in 2021 and end the year in a net cash position, despite material investment in growth

More here.

(Source: Genel Energy)

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Genel Energy receives March Oil Payments from KRG

Genel Energy has announced that payments have been received from the Kurdistan Regional Government (‘KRG’) for its entitlement for oil sales during March 2021.

Those payments are made up as follows:

(all figures $ million) Payment
Tawke 14.3
Taq Taq 2.1
Sarta 3.4
Total 19.8

As announced on 13 May, Genel and other KRI operators received a letter from the KRG proposing an amendment to the recovery mechanism and payment schedule for monies owed for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

The entitlement payments for oil sales were, in line with other operators, received ahead of the proposed amended schedule.

The Company has not yet received payments for March’s invoices under the recovery mechanism, regarding which it is engaging with the KRG on their proposed amendments, nor the Tawke override.

Assuming the proposed revision to the terms of recovery stands, the recovery payment will be $3.1 million. The override payment will be $8.2 million. Given the proposed new schedule, Genel expects to receive both payments shortly.

(Source: Genel Energy)

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KRG amends Oil Payment Terms; Share Prices Fall

By John Lee.

Shares in oil companies operating in Iraqi Kurdistan have been hit by a change in payment terms imposed by the Kurdistan Regional Government (KRG).

Genel Energy, Gulf Keystone Petroleum (GKP) and DNO this morning reported to the markets that they have received letters from the KRG proposing an amendment to payment terms due to the ongoing challenges in Iraq with the COVID-19 pandemic, starting with the March 2021 production invoice.

They said that since the dated Brent price has remained consistently well above $50 per barrel, the monthly repayment of outstanding arrears will now be calculated as 20 percent (compared to 50 percent previously) of the difference between the average monthly dated Brent price and $50 per barrel.

The KRG added that payment terms will be 60 days after the submission of invoices, and that the KRG will re-evaluate this payment model should markets see substantial volatility.

The oil companies have not agreed to these terms, and are seeking discussions with the KRG.

Shares in Genel Energy were down more than 12 percent before recovering slightly, while Gulf Keystone Petroleum (GKP) fell more than 6 percent before recovering slightly. The Oslo Stock Exchange, on which DNO is traded, is closed for the Ascension Day holiday.

(Sources: GKP, Genel Energy, DNO)

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Genel Confirms Increased year-on-year Production

Genel Energy has issued the following statement relating to the Company’s Annual General Meeting (‘AGM’), which is being held today:

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

“The addition of production at Sarta and the robust performance of Tawke year-to-date has increased year-on-year production in line with guidance. With a strong balance sheet, our high-potential appraisal drilling campaign is now underway following the spud of the QD-2 well at Qara Dagh. With the increase in oil price and beginning of catch up payments from the KRG, despite our investment in growth and payment of a material dividend, we expect to end 2021 with a material cash position.”

“As detailed in our full-year results, 2020 illustrated the resilience of our business, and laid the foundations for a year of growth in 2021, with material drilling catalysts.

“Despite the ongoing challenges of COVID-19 in the operating environment in 2021, we continue to carry out our work programmes across all producing and appraisal assets as we aim to deliver on the significant near and long-term potential in the portfolio.

“Continuing robust production at the Tawke PSC, coupled with the addition of production from our fourth producing field at Sarta, means that working interest production averaged 33,100 bopd in the first four months of 2021, an increase of 4% compared to the 2020 average, in line with guidance.

“DNO ASA, as operator of the Tawke PSC (Genel 25% working interest), today issued an update on licence activity, where spend early in the year on drilling of new wells and workovers of existing ones helped sustain gross operated production at 112,000 bopd in the first quarter, up from 110,000 bopd in the previous quarter. The Peshkabir field contributed 61,400 bopd, and Tawke 50,600 bopd.

“12 wells are forecast on the licence in 2021, of which nine are at Tawke and three at Peshkabir. DNO has increased gross operated Tawke licence full-year 2021 production guidance to 110,000 bopd.

“Genel’s high-potential drilling campaign has now begun, with the QD-2 well having spud on 19 April 2021. This well is set to appraise the crest of a 50 km long structure at Qara Dagh, around 10 km from the location of the QD-1 well, which flowed light oil in 2011, despite being drilled down dip and in a sub-optimal manner in an era predating Genel and Chevron’s much evolved understanding of the subsurface situation and required drilling strategy. Results from the QD-2 well are anticipated in late Q3 2021. As we step up our work at the field, we are further ramping up our social investment programme, working with local companies to deliver projects that respond to the requirements of local communities.

“Sarta is producing at a mechanically constrained gross rate of c.8,500 bopd, pending ongoing surface facilities de-bottlenecking. These actions are expected to result in production once again reaching c.10,000 bopd in the near future.

“Mobilisation of two drilling rigs at the licence is now underway, ahead of the spudding of the Sarta-5 and Sarta-1D wells next month. The Sarta-5 well is set to test multiple reservoir intervals up-dip of the Sarta-2 and Sarta-3 producing wells, and results are expected around the end of Q3. A second rig will drill the Sarta-1D well, a sidetrack well from the Sarta-1 well pad, with results expected at a similar time to Sarta-5. Following the construction of a flow line to the early production facility, production is expected from this well around the end of 2021. With the Sarta-6 well set to be drilled immediately after Sarta-5, analysis of pilot production data and the results of the appraisal well programme will provide an enhanced understanding of the greater resource potential of Sarta and inform the optimal development plan to exploit it.

“The continued oil price strength has helped to further increase the value of our high-margin production. Our cash position at the end of April was $266 million, a net debt position of $3 million, with $36 million owed by the KRG for production in March 2021. Given our expectation that payments will remain timely, we forecast ending 2021 with a material net cash position.

“This financial strength supports the paying of a material dividend, as we continue to offer investors a compelling mix of growth and returns. Pending approval of our final dividend of 10¢ per share at today’s AGM, the ex-dividend date is 13 May, with payment on 14 June 2021.”

(Source: Genel Energy)

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DNO Returns to Profitability, Ups Tawke Production Guidance

DNO ASA, the Norwegian oil and gas operator, today reported operating profit of USD 66 million in the first quarter of 2021, following four quarters of losses triggered by market perturbations from the global Covid pandemic. The turnaround was driven by solid production, cost optimization, higher oil prices and regularization of payments from Kurdistan.

The Company stepped up spend early in the year with drilling of new wells and workovers of existing ones in its flagship Tawke license to sustain gross operated production from the Tawke and Peshkabir fields at 112,000 barrels of oil per day (bopd) in the first quarter, up from 110,000 bopd in the previous quarter. Net production attributable to the Company’s interest across the portfolio, including from DNO’s North Sea oil and gas assets, stood just shy of 100,000 barrels of oil equivalent per day (boepd).

In another positive development during the quarter, Kurdistan initiated principal payments towards Tawke license 2019 and 2020 withheld entitlement and override amounts, reducing the outstanding balance due DNO from USD 259 million to USD 239 million. If oil prices and license production remain around current levels through 2021, some two-thirds of the remaining arrears will be recovered by the end of the year.

“DNO, like our peers, is positioned for strong cash flow in 2021 with the firming up of oil demand and prices,” said DNO’s Executive Chairman Bijan Mossavar-Rahmani. “Barring another pandemic derailing of global economic activity, we will repair our balance sheet, regroup in person and then fly like a bat out of hell in pursuit of opportunity,” he added.

DNO exited the first quarter with a cash balance of USD 477 million and as a first step towards shoring up its balance sheet, the Company yesterday announced it would retire USD 100 million in bond debt on 1 June 2021 by exercising a call option on the USD 400 million DNO02 bond.

The Company has budgeted full year operational spend of USD 700 million, including 12 Tawke license wells of which nine in Tawke and three in Peshkabir. Gross operated Tawke license full-year 2021 production guidance has accordingly been increased to 110,000 bopd. DNO operates and has a 75 percent stake in the Tawke license, with partner Genel Energy plc holding the balance.

DNO will participate in an active drilling program in the North Sea with five exploration and eight development wells during the balance of 2021.

(Source: DNO)

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Genel Energy Directors Step Down

Genel Energy has announced that Martin Gudgeon and Esa Ikaheimonen have each tendered their resignation as Director of the Company with effect from the close of the Annual General Meeting later today, and accordingly the resolutions relating to their re-appointment have been withdrawn.

Esa Ikaheimonen remains in his role as Chief Financial Officer.

Martin Gudgeon was Chairman of the Remuneration Committee and a member of the Audit Committee.

Board Committee memberships are under review and updates will be made when appropriate.

David McManus, Chairman of Genel, said:

“Martin brought a wealth of experience of the financial markets to the Board of Genel, and has been an important part of our Board discussions. I thank Martin for his valuable contribution to the Company. I also take this opportunity to thank Esa for his valued and continuing contribution to Genel. As Chief Financial Officer, Esa remains integral to the further strengthening of Genel’s already strong financial position, with robust finances supporting a material dividend and re-investment in significant growth opportunities.“

(Source: Genel Energy)

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Genel Energy shares gain on 2020 Results

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

Bill Higgs, Chief Executive of Genel, said:

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

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

Results summary ($ million unless stated)

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

 

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

Highlights

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

Outlook

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

More here.

(Source: Genel Energy)

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Genel Energy Non-Exec to Step Down

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

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

David McManus, Chairman of Genel, said:

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

(Source: Genel Energy)

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Sarta-2 Well enters Production

By John Lee.

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

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

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

(Source: Genel Energy)

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Genel Energy Updates on Oil Reserves

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

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

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

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

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

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

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

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

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

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

CONVERTING RESOURCES TO RESERVES

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

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

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

(Source: Genel Energy)

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