Genel Energy PLC: Full-Year Results

22 March 2023

Genel Energy plc

Audited results for the year ended 31 December 2022

Genel Energy plc (‘Genel’ or ‘the Company’) announces its audited results for the year ended 31 December 2022.

Paul Weir, Chief Executive of Genel, said:

“Our production business generated record cash flow in 2022, building our significant financial resources and resulting in a net cash balance at the end of the year of over $200 million. The Company now has an exceptional opportunity to deploy its financial resources carefully to add new assets and grow and diversify our production business in order to improve the resilience and extend the line of sight on the funding of our established dividend programme. 

Our capital allocation decisions for 2023 and beyond will be centred around that material, sustainable and progressive dividend programme, while protecting and maintaining the strength of our balance sheet. Our core business remains robust, funding our dividend from free cash flow in the mid-term and there is significant potential still remaining in the portfolio. We have an extremely busy 18 months ahead that carries much potential, and we have a highly capable team in place that is fully focused on delivering on that potential.”

Results summary ($ million unless stated)

1. EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation, impairment/write-off of oil and gas assets and net reversal of impairment of receivables
2. Free cash flow is reconciled on page 10
3. Reported cash less IFRS debt (page 10)
4. EPS excluding impairment is loss and total comprehensive expense adjusted for the add back of net impairment/write-off of oil and gas assets and net reversal of impairment of receivables divided by weighted average number of ordinary shares

Highlights

• Zero lost time incidents in 2022, with over three million hours now worked since the last incident
• Another year of active drilling on the Tawke PSC and consistent reservoir performance resulted in average daily working interest production of 30,150 bopd (2021: 31,710 bopd)

• Record free cash flow in 2022
  • High oil price and recovery of receivables helped drive free cash flow of $235 million (2021: $86 million)  
  • Investment in production and appraisal at Sarta resulted in capital expenditure of $143 million (2021: $164 million)

• Disappointing results at Sarta resulted in a reduction in reserves and an impairment of $126 million, with expiry of the Qara Dagh licence resulting in a write off of $78 million
• Strong balance sheet provides opportunity to acquire and develop new assets
  • Significantly increased financial resources of $495 million ($314 million at 31 December 2021)
  • Net cash under IFRS of $228 million at 31 December 2022 ($44 million at 31 December 2021)
  • Total debt of $274 million at 31 December 2022 ($280 million at 31 December 2021)
• Committed material, sustainable, and progressive dividend programme well established
  • Dividends paid in 2022 increased by 13% to 18¢ per share (2021: 16¢ per share) a total distribution of $50 million
• Carbon intensity of 17.6 kgCO2e/bbl for Scope 1 and 2 emissions in 2022 (2021: 16 kgCO2e/bbl), below the global oil and gas industry average of 19 kgCO2e/boe

Outlook

• Committed dividend funded by free cash flow for medium-term
  • The Board is recommending a final dividend of 12¢ per share (2022: 12¢ per share), a distribution of $33.5 million
• Established dividend programme frames business and capital allocation decisions:
  • Production guidance unchanged at 27-29,000 bopd
  • 2023 capital expenditure expected to be between $100 million and $125 million 
  • Progress towards drilling a well in Somaliland
  • Genel continues to actively screen and work up opportunities to invest our cash to extend the line of sight on resilient cash flows that support our dividend programme into the long-term
• Genel continues to invest in the host communities in which we operate, aiming to invest in those areas in which we can make a material difference to society
• The London-seated international arbitration regarding Genel’s claim for substantial compensation from the KRG following the termination of the Miran and Bina Bawi PSCs is progressing. The trial is scheduled for February 2024

Enquiries:

Genel will host a live presentation on the Investor Meet Company platform on Wednesday 22 March at 1000 GMT. The presentation is open to all existing and potential shareholders. Questions can be submitted at any time during the live presentation. Investors can sign up to Investor Meet Company for free and add to meet Genel Energy PLC via: https://www.investormeetcompany.com/genel-energy-plc/register-investor. 

This announcement includes inside information.

Disclaimer

This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil & gas exploration and production business. Whilst the Company believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Company’s control or within the Company’s control where, for example, the Company decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward looking statements.

CEO STATEMENT

In the past six months we have simplified and refined our strategic priorities and put the funding of our established dividend programme at the heart of our business model. This is the lens through which we assess capital allocation decisions.

Building and managing a portfolio to support the dividend over the long-term is our clear focus. That work requires both judicious management of our existing opportunities already within the business, together with the objective of adding new assets that expand and diversify our asset base and, importantly, improve both the cash generation of the business and the resulting investor returns.

We have a very strong balance sheet with $495 million of cash, net cash of $228 million, at the end of 2022 and no debt maturity until 2025. We have achieved this position through a combination of factors. Disciplined capital allocation combined with excellent Tawke production results, recovery of old debts and, of course, the high oil price in 2022 have all resulted in exceptional cash generation for Genel, despite only receiving 10 payments from the Kurdistan Regional Government.

We had hoped that the Sarta development would have been a major contributor to our cash generation, but appraisal well results in 2022 were disappointing. Further investment will only take place now if we can be confident of positive returns and profitability, consistent with our focus on cost control and carefully considered expenditure.

A clear focus

The business is now determined to add new revenue streams that build a stronger business and replace the cash generation in 2022 that came from historic debts owed by the KRG.

We have an established dividend programme that, following approval of the proposed final dividend for 2022, will have returned over $200 million to shareholders since 2019. Delivering on this dividend programme while increasing the value of the business is our primary objective to deliver long-term shareholder returns, and the business is progressing with a real clarity of purpose.

A strong balance sheet, including liquidity of almost half a billion dollars, provides us with a tremendous opportunity. We are determined to use it in order to add shareholder value through strong operational delivery and properly considered investment.

We also continue to work diligently towards arbitration regarding our claim for substantial compensation from the KRG following the termination of the Miran and Bina Bawi PSCs, with the trial scheduled for February 2024.

Adding to our production business

Growing our portfolio through the addition of the right assets is key. We have a highly competent and dedicated team in place assessing a great many opportunities in a disciplined and systematic manner. We only progress opportunities that deliver the right outcomes when subjected to multiple scenario analysis, that ultimately provide support for our dividend programme and at the same time maintain business resilience and balance sheet strength. Genel’s significant cash position does not distract us from our focus on cost discipline and risk mitigation.  

Genel has a robust production business and a free cash flow projection that covers dividend payments in the medium-term. Doing deals takes time and doing the right deal takes even longer, but we are confident in our ability to take advantage of the opportunities that are out there to deliver for our shareholders.

Organic reserves replacement opportunities

As we continue to enhance the business, we are also progressing exciting opportunities within our existing portfolio. The Somaliland opportunity is frontier exploration, with all of the challenges that entails, but rare in terms of scale and potential. In a success case, there is a clear route to market through existing port facilities and this opens up the tantalising prospect of creating shareholder value in a region where our activities can also have a hugely positive impact on the surrounding society.

We are attempting to replicate the Somaliland farm-out success in Morocco, seeking a partner to drill a well in the Lagzira block, with high-graded material prospects. Both of these exploration opportunities support our aim of adding low-cost and large-scale assets to our portfolio to provide resilient, diversified, and value accretive cash generation that funds our dividend programme and offer catalysts to deliver shareholder value.

Making a positive difference

As all of these opportunities unfold, Genel sees the need to have a positive impact in the areas where it is present as being an essential part of business success. In 2022 we marked 20 years of operations in KRI by launching a number of social initiatives, the centre of which was our Genel20 Scholars programme.

This was an appropriate way to mark our 20 years of operations in KRI, a period which has seen an entire industry develop, thousands of jobs created, and more than $20 billion generated for the KRG. Our social activities in Somaliland will now begin to ramp up as our operational activities increase there and, as an Anglo-Turkish company, we are of course providing support following the horrendous impact of the recent earthquakes.

Our work on emissions continues and we are very pleased that our emissions intensity remains below the industry average at 17.6kg CO2/bbl. We have been very proud to work with our partner DNO on Kurdistan’s first gas reinjection project, which has captured 1.2 million tonnes of CO2e since its inception in 2020. Not only has this facility greatly reduced flaring at Tawke, but it has also led to a marked improvement in field performance. On a smaller scale, our pilot solar powered well site at the Sarta-1 well pad has saved almost nine tonnes of CO2 emissions there and established a new standard design for Genel well pads.  As we seek to diversify our business, we will retain our clear commitment to being a socially responsible contributor to the global energy mix.

Outlook

The production base that the Tawke licence provides is set to deliver free cash flow that supports the progression of business catalysts and payment of our material dividend. We have a firm commitment to invest our cash to add shareholder value, and both the means and determination to do it. Our team is dedicated to delivering strong future cash flow and shareholder returns. 

OPERATING REVIEW

Reserves and resources development

Genel's proven (1P) and proven plus probable (2P) net working interest reserves totalled 69 MMbbls (31 December 2021: 63 MMbbls) and 92 MMbbls (31 December 2021: 104 MMbbls) respectively at the end of 2022.

Ongoing positive performance at the Tawke PSC has boosted the 1P number, and helped to offset the reduction in 2P reserves at Sarta.