PRESS RELEASE

from Genel Energy (isin : JE00B55Q3P39)

Genel Energy PLC: Half-Year Results

Genel Energy PLC (GENL)
Genel Energy PLC: Half-Year Results

02-Aug-2023 / 07:00 GMT/BST


2 August 2023

Genel Energy plc

Unaudited results for the period ended 30 June 2023

 

Genel Energy plc (‘Genel’ or ‘the Company’) announces its unaudited results for the six months ended 30 June 2023.

 

Paul Weir, Chief Executive of Genel, said:

“The closure of the Iraq-Türkiye pipeline on 25 March 2023 has resulted in minimal sales and no payments from the KRG since that date. This has materially impacted both our current and expected cash flows, with the current period seeing a free cash out flow.

 

Approval of the Iraqi budget in June put in place a framework for the restart of payments and exports, with production from Kurdistan incorporated in the budget, and this was an important step. Discussions are now ongoing between Iraq and Türkiye regarding the commercial and political arrangements that would enable the resumption of exports.

 

As we await a positive outcome to discussions between Iraq and Türkiye, we retain a material cash position, prioritised for investment in new assets, and remain clear and determined on our direction of travel. We have accelerated the ongoing reshaping of our portfolio, organisation, and plans, and we continue to diligently review assets and businesses that can support delivery of the business that we have framed over the past 12 months.

 

Given the $170 million impact so far that the lack of payments and revenue is expected to have on our liquidity at year-end, and with no clear line of sight on when either pipeline exports or payments will restart, we have taken the decision to suspend the dividend. We remain committed to building a business with predictable, repeatable, and diversified cash flows, which would ultimately support the re-establishment of a dividend programme.”

 

Results summary ($ million unless stated)

 

H1 2023

H1 2022

FY 2022

Average Brent oil price ($/bbl)

80

108

101

Production (bopd, working interest)

13,440

30,420

30,150

Revenue

51.3

245.6

 432.7

EBITDAX1

19.4

212.3

 361.6

  Depreciation and amortisation

(27.2)

(84.4)

(149.2)

  Net impairment/write-off of oil and gas assets

(17.7)

-

(201.3)

  Net (Impairment)/reversal of impairment of receivables

(9.9)

12.8

8.2

  Exploration expense

(0.3)

-

(1.0)

Operating (loss) / profit

(35.7)

140.7

18.3

Cash flow from operating activities

39.2

216.3

412.4

Capital expenditure

47.5

74.7

143.1

Free cash flow2

(35.1)

128.7

234.8

Cash

425.0

412.1

494.6

Total debt

273.0

280.0

274.0

Net cash / (debt)3

158.2

141.3

228.0

Basic (LPS) / EPS (¢ per share)

(14.6)

45.4

(2.6)

Dividends declared for the period (¢ per share)

-

6

18

 

  1. EBITDAX is operating (loss)/profit adjusted for the add back of depreciation and amortisation, impairment of property, plant and equipment, impairment of intangible assets and impairment/reversal of impairment of receivables
  2. Free cash flow is reconciled on page 7
  3. Reported cash less debt reported under IFRS (page 7)

 

Summary

  • The prolonged closure of the Iraq-Türkiye pipeline has materially impacted production, which averaged 13,440 bopd in H1 (H1 2022: 30,420)
  • Two payments totalling $61 million were received from the Kurdistan Regional Government (‘KRG’) in the period, with $110 million now overdue
  • Given the loss of cash flow in the period and the lack of visibility on both the timing of pipeline exports resuming and the re-establishment of a reliable record of payments, Genel has suspended its dividend programme
  • In addition, the Company will assess the timing of further investment in Somaliland following the completion of civil engineering work, based on the financial outlook at the time
  • Work on assessing the future plans for Sarta, with a goal of making operations profitable, has been made more challenging by the investment environment, and consequently Genel has informed the Ministry of Natural Resources of its intention to surrender the asset and terminate the Sarta PSC
  • Significant cash balance of $425 million at 30 June 2023 ($496 million at 31 March 2023) is prioritised for addition of new assets
  • Net cash of $158 million at 30 June 2023 ($229 million at 31 March 2023)
    • Total debt of $273 million at 30 June 2023 ($274 million at 31 March 2023)
  • A socially responsible contributor to the global energy mix:
    • Zero lost time injuries ('LTI') and zero tier one loss of primary containment events at Genel and TTOPCO operations
    • Three million work hours since the last LTI 

 

Outlook

  • As a consequence of the reduction in operational activity, Genel has right-sized the organisation and reduced spend compared to expectations at the start of 2023
    • Genel currently expects full year capital expenditure to be c.$70 million (original guidance $100-125 million), with two thirds of this already spent
  • Limited local sales are ongoing from the Tawke licence
  • Genel continues to actively review and work up opportunities to invest our cash to build a business that delivers resilient, reliable, and diversified cash flows that support a repeatable dividend programme in the long-term
  • 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 remains scheduled for February 2024

 

Enquiries:

 

Genel Energy

Andrew Benbow, Head of Communications

+44 20 7659 5100

 

 

Vigo Consulting

Patrick d’Ancona 

+44 20 7390 0230

 

Genel will host a live presentation on the Investor Meet Company platform on Wednesday 2 August at 1000 BST. 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. While 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. The information contained herein has not been audited and may be subject to further review.

 

CEO STATEMENT

The first half of the year has been dominated by the lengthy outage of the Iraq-Türkiye export pipeline, which has caused the suspension of both our production and payments from the Kurdistan Regional Government. Only two payments were received in the period before the pipeline was shut. This has exacerbated our receivable position and has led to a material decline in our expected cash flows. Previous expectations for our year-end 2023 cash position have been impacted by around $170 million so far ($110 million outstanding for oil produced that was expected to be received this year, and a loss of cash as a result of the lack of production for the months from April to July 2023).

 

This lack of cash receipts has led to the suspension of the dividend. The Company is committed to building a business with predictable, repeatable, and diversified cash flows that would support the re-establishment of a dividend programme.

 

We continue to see positive news flow about a potential restart and it is reported that there has been inter-government dialogue, but there remains no clear visibility on exactly when exports will resume.

 

We remain of the belief that the shut-down will not continue in the long-term, and the Prime Minister of the Kurdistan Region of Iraq (‘KRI’) has committed to International Oil Companies operating in Kurdistan that the terms under PSCs will not be reviewed, and that all amounts owed will be paid.

 

The Federal Government of Iraq budget has been approved, which puts in place a framework that should enable exports to restart quickly once agreement has been reached between Türkiye and Iraq. The budget states that Kurdistan production will be sold by the Iraqi State Oil Marketing Organisation (‘SOMO‘) and, in return, the KRG will receive budget payments from the Federal Government of Iraq. While agreements are in place on paper, we await to see how they are practically implemented on the ground.

 

Given the ongoing uncertainty, we have made decisions to minimise our spend, while accelerating our cost-reduction and efficiency drive that was already underway.

 

Further investment in Sarta, already challenging from a technical and economic point of view, is now not feasible, and we have informed the Ministry of Natural Resources of our intention to surrender the licence and terminate the PSC. This is a disappointing outcome for an asset of which the field partners had great expectations. The team did a great job in bringing it to production quickly and professionally, but the geology was not what had been expected, and the licence has been impaired accordingly.

 

While we are confident that exports to Ceyhan will resume in the future, we are focused on preserving maximum liquidity available to invest in new production assets in order to diversify and increase the resilience of our cash flows. This is of even greater importance following the decision to exit Sarta.

 

We have a clear business model and plan and a remaining liquidity balance that supports cash generative diversification of the business. We have a dedicated team in place analysing opportunities that will take the business in the right direction by adding near-term income, diversifying our portfolio and delivering reliable and repeatable cash flows.

 

 

OPERATING REVIEW

Production

Production in the first half of 2023 was negatively impacted by the closure of the Iraq-Türkiye pipeline. Production continued until storage capacity at fields was reached. For Tawke this was at the end of March, Sarta 3 April, and Taq Taq 22 May.

 

Upon reopening of the export pipeline, Genel fields have the potential to rapidly resume production. Sarta will remain shut-in as Genel relinquishes the asset.

 

(bopd)

Gross production

Q2 2023

Net production

Q2 2023

Gross production

H1 2023

Net production

H1 2023

Tawke

0

0

46,970

11,740

Taq Taq

1,884

829

2,760

1,220

Sarta

48

14

1,605

480

Total

1,932

843

51,335

13,440

 

PRODUCING ASSETS

Tawke PSC (25% working interest)

Gross production from the Tawke licence averaged 93,880 bopd during the first quarter of 2023, with the Peshkabir field contributing 49,480 bopd (59,360 bopd in Q4 2022) and the Tawke field 44,400 bopd (47,140 bopd in Q4 2022) during this period.

 

Production in Q1 2023 was in line with expectations, and down from the previous quarter due to planned well workovers initiated in February. There was no production in Q2 due to the export pipeline being closed.

 

Given the uncertain timing of export resumption and, importantly, of payments by the KRG for previous oil sales, the operator DNO (in full alignment with Genel) scaled back spend, including drilling. While five wells were completed and another three wells spudded in Q1 2023, no new wells have been spudded since and the number of active rigs at the Tawke licence will drop from four at the start of 2023 to none in the second half of the year.

 

Limited local sales began in June, selling stored oil to the local market.

 

Sarta (30% working interest)

Genel had previously stated that the Company’s focus was on making ongoing production from Sarta profitable. Given the investment required to achieve this, and the current uncertainty over a resumption of payments, Genel has informed the Ministry of Natural Resources of its intention to surrender the asset and thereby terminate the Sarta PSC.

 

Taq Taq (44% working interest, joint operator)

Prior to the closure of the Iraq-Türkiye pipeline, production from Taq Taq was in line with expectations, having averaged 3,610 bopd in Q1. In line with Genel’s focus on reducing costs, and lack of clarity regarding the resumption of payments, the planned drilling of a well at Taq Taq in 2023 has now been dropped.

 

PRE-PRODUCTION ASSETS

Somaliland

The Environmental, Social and Health Impact Assessment is now complete, and civil work continues for the drilling of the Toosan-1 well on the highly prospective SL10B13 block (51% working interest and operator).

 

Once civil works are complete, in line with Genel’s focus on reducing costs, the Company will assess timing of further investment based on the financial outlook at the time.

 

Morocco

The farm-out programme on the Lagzira block (75% working interest and operator) is ongoing.

 

 

FINANCIAL REVIEW

The ongoing closure of the Iraq-Türkiye pipeline resulted in no sales for the period of pipe shutdown from the end of March to the end of the period.

 

(all figures $ million)

H1 2023

H1 2022

FY 2022

Brent average oil price

$80/bbl

$108/bbl

$101/bbl

Revenue

51.3

245.6

432.7

Production costs

(21.7)

(24.1)

(51.1)

Cost recovered production asset capex

(39.7)

(41.3)

(85.9)

Production business net (expense) / income after cost recovered capex

(10.1)

180.2

295.7

G&A (excl. non-cash)

(9.3)

(8.6)

(19.2)

Net cash interest1

(2.2)

(12.5)

(19.2)

Working capital

42.7

(38.2)

(9.7)

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