from Genel Energy (isin : JE00B55Q3P39)
Genel Energy PLC: Half-Year Results
Genel Energy PLC (GENL) 6 August 2024 Genel Energy plc - Unaudited results for the period ended 30 June 2024
Paul Weir, Chief Executive of Genel, said: “We have continued to progress our priority workstreams, each of which can be transformational for the business, whilst maintaining our balance sheet strength by strict discipline on spend and capital allocation.
Cash generative production continues from our flagship Tawke licence, where domestic sales demand has shown resilient consistency in the past 6 months and some recent price improvement. We have efficiently closed down our unprofitable operated licences in the Kurdistan Region of Iraq (‘KRI’) and minimised our in-country footprint, while keeping people safe and continuing to act as a trusted partner to all our stakeholders. Significant cost reductions have been made across all aspects of the business wherever appropriate, and our organisational spend in the second half of the year will reduce further. The business has the potential to deliver significant shareholder value, well above the current market value of the business. The Tawke PSC is a world class asset with a long life ahead of it, and when exports restart can deliver over $100 million of entitlement free cash flow per annum to Genel, more than double the current level.
In association with our industry peers and other stakeholders, we continue to lobby regional and federal governments to break the current political impasse so that international exports of Kurdistan oil can resume in a manner that properly rewards IOCs that have chosen to invest in Kurdistan. While progress is sporadic, recent participation by stakeholders in tripartite talks demonstrate that negotiations continue and support the view that a negotiated solution can be found.
We continue to prioritise the acquisition of new assets to materially diversify our cash generation and reinvigorate our organic portfolio. Adding new assets to achieve geographical diversification is a strategic objective, but we will only buy an asset on terms that are clearly beneficial for our shareholders.
Regarding the London-seated Miran and Bina Bawi oil and gas assets arbitration, the written and evidentiary stages have now concluded. The timing of the award is not certain, but is expected before the end of 2024. Our view on the merits of our case remains unchanged since the arbitration process was initiated by the KRG in 2021.”
Results summary ($ million unless stated)
Summary
Outlook
Enquiries:
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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 Despite a strong operational performance in the period, with production performance consistent, realised price per barrel improving a little and activity milestones and cost reduction targets reached ahead of time, the business continues to feel the effects of the prolonged suspension of exports and the lack of access to international oil prices.
We continue to sell domestically at a price heavily discounted to the fundamental value of our product meaning our cash generation and organic delivery of shareholder value is materially impaired, with the Tawke PSC currently generating less than half of the entitlement free cash flow that current production levels would produce at export prices. Against that backdrop, the Company has limited appetite to risk capital in order to increase the volumes of oil sold at below market value, and consequently no new wells have been drilled in the period.
Despite this lack of investment, the Tawke PSC has again demonstrated that it is a world class asset with many years to run, consistently averaging around 80,000 bopd gross production in the period with a globally competitive operating cost of c.$2/bbl.
Against this combination of low realised price per barrel in the domestic market and the continued uncertainty on timing of export restart, we have continued to optimise spend across the business. As activity has ended or reduced, we have scaled back the organisation, absorbing work elsewhere or realising efficiency benefits from system and process improvements, while maintaining the capability necessary to support achievement our business objectives.
Regarding the resumption of exports, we saw signs of progress in January with reports of positive conversations taking place between the KRG and the Federal Government of Iraq (‘FGI’), but this then fell away. Around the end of May, we again saw signs of some new impetus to meet and find the terms that would support restart. More recently still there have been important meetings between regional and federal government leaders and we remain hopeful of an acceptable negotiated solution.
We remain of the view therefore that the export pipeline will reopen and we again note past communications to IOCs by both the Federal Government of Iraq and the Prime Minister of the Kurdistan Region of Iraq that the prevailing commercial terms will be respected and that all amounts owed will be paid.
We have a clear business model and plan, a strong balance sheet and a high quality and lean team working on the delivery of that plan.
We have a dedicated and experienced team in place analysing opportunities that will take the business in the right direction by adding near-term income, diversifying our portfolio to deliver reliable and repeatable cash flows. We remain disciplined and careful – although diversification is a priority, it is not a necessity for this Company to deliver material shareholder value. We will not transact a deal that is not good for shareholders.
On the London-seated arbitration regarding the Miran and Bina Bawi oil and gas asset, the written and evidentiary stage of the London-seated arbitration following the termination of the Miran and Bina Bawi PSCs has now concluded. The evidential hearing was held in February and the exchange of closing submissions in May and reply report submissions in June. We now await an award on liability and quantum, whose timing is uncertain but continues to be expected before the end of 2024. Our view of the merits of the case remains unchanged from when the dispute commenced under the PSCs in Q4 2021.
OPERATING REVIEW
KURDISTAN With the ongoing suspension of the export pipeline meaning that the only market available is domestic sales, which are at heavily discounted prices, the Company has worked with its partners to minimise both operational spend and risking of capital, with no new wells drilled so far this year.
Gross production for the first half of 2024 was 78,050 bopd, well below what we would expect to produce if exports were available, but significantly higher than the first half last year, which produced minimal volumes after the pipeline was shut at the end of March.
*Having served notice of surrender of the Company’s interest in the Sarta PSC, that surrender took effect on 30 November 2023.
Tawke PSC (Tawke and Peshkabir fields) The Tawke PSC has delivered a significant increase in production compared to the first half of last year, which suffered from there being no production between the export pipeline being suspended on 27 March 2023 and the end of the period. Despite drilling no new wells this year, gross production from the Tawke PSC has been maintained at consistent levels, opening the year at 87,870 bopd, closing the half year at 81,800 bopd and averaging 78,050 bopd. This has been achieved by careful and diligent subsurface and operations management, with June also benefitting from wells that were drilled during the period of shutdown in the second quarter of last year being put on production.
Sales price has averaged $34/bbl over the course of the period compared to average Brent of $84/bbl, improving slightly in recent months to around $37/bbl.
The Company has generated revenue of $38 million from Tawke entitlement in the period.
The asset has delivered the robust production throughout the period and is expected to continue to do so. We will work with the operator to evaluate appropriate and capital efficient investment in order to ensure the production levels meet our needs.
The Operator continues to work diligently and expertly, continuously evolving the long-term field development plan for the two fields on the Tawke PSC. Upon reopening of the export pipeline, which reflects our contractual right to access international prices, reinstatement of an active drilling programme could see Tawke PSC production generating over $100 million of free cash flow annually for the Company.
Taq Taq Taq Taq has been on care and maintenance since May last year, because the revenue it would generate at the established domestic sales prices would not adequately cover the operating costs. We have continued to drive cost reductions with the appointment of a new general manager, our monthly spend is now down to below $500,000.
Somaliland -SL10B13 As we continue to work towards the complete framework required to support drilling the Toosan-1 exploration well, we were pleased to have agreed an extension of the licence until the middle of 2026.
We continue to work on optimisation of the well plan to reduce cost and maximise efficiency of the well delivery process. In the meantime, our in-country team continues to work closely with our local communities, a highlight of which has been the provision of mobile medical services to over 800 patients a week during H1 2024. Given the success of the project a 2nd phase, through to the end of the year, has been initiated.
Somaliland - Odewayne We continue to work with our partners to characterise the prospectivity of the block, with subsurface studies ongoing. We are also continuing to invest in the communities, and in February 2024 delivered educational supplies to 1,000 primary and secondary school children across the block.
Morocco The farm-out campaign on the Lagzira block (75% working interest and operator) is ongoing. We continue to progress the block Minimum Work Program, focussed on seismic reprocessing and subsurface studies to further define the prospectivity and potential of the block.
FINANCIAL RESULTS The ongoing closure of the Iraq-Türkiye pipeline resulted in no export sales being made in the period, with all production sold domestically in Kurdistan.
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