from Genel Energy (isin : JE00B55Q3P39)
Genel Energy PLC: Half-Year Results
Genel Energy PLC (GENL) 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)
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 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.
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.
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