Category: Genel Energy

By John Lee.

Genel Energy has issued the following trading and operations update in advance of the Company’s full-year 2020 results, which are scheduled for release on 18 March 2021. The information contained herein has not been audited and may be subject to further review.

Bill Higgs, Chief Executive of Genel, said:

“Executing our strategy in 2020 through delivering low-cost production, paying a material dividend, and retaining our financial strength in order to invest in growth has helped lay the foundations for year on year production increases in this year and the years ahead. Bringing Sarta to production in 2020 despite the challenges of COVID-19 now means that we are generating revenues from our fourth field as we rapidly move to further appraise its huge reserve potential.

“The successful early refinancing provides us with the liquidity and financial certainty to continue prudently investing in growth while retaining a robust balance sheet and delivering returns to shareholders. We expect to drill 12 wells across the portfolio this year. These wells have the potential to add incremental low-cost and cash generative production at the Tawke PSC, add and convert contingent resources to reserves and add production at Sarta, and open up a new field at Qara Dagh. With numerous catalysts in the year and a more promising external environment than 2020, Genel is looking confidently ahead to 2021.“

FINANCIAL PERFORMANCE

• $173 million of cash proceeds were received in 2020 (2019: $317 million)
• Capital expenditure of $109 million (2019: $161 million), with spending reduced appropriately to reflect the external environment, yet ensuring continuing growth
• Free cash outflow of $5 million in 2020, pre dividend payment (2019: $99 million free cash inflow), comparison impacted by:
  • Lower oil price ($42/bbl in 2020, compared to $64/bbl in 2019)
  • Non-payment of $121 million relating to oil sales from November 2019 to February 2020
  • Suspension of override payments with a cashflow impact totalling $38 million in 2020
• The low-production cost per barrel of $2.8/bbl in 2020 helped deliver asset level cash generation of $74 million in the year
• Dividends of $55 million paid in 2020, of which $14 million relates to the 2019 interim dividend paid in January 2020
• Cash of $354 million at 31 December 2020 ($377 million at 31 December 2019), net cash of $10 million
  • Following the call of the outstanding bond with a maturity date in December 2022, settled on 8 January 2021, Genel had cash of $273 million and debt of $267 million, a net cash position of $6 million
  • Genel currently retains $20 million of the 2025 bond, to reduce interest cost and increase future optionality

OPERATING PERFORMANCE

• Net production averaged 31,980 bopd in 2020, with net production in Q4 averaging 31,510 bopd (Q3 2020: 32,210 bopd)
• Production by field was as follows:

(bopd)	Gross production 2020	Net production 2020	Net production 2019
Tawke	57,570	14,390	17,190
Peshkabir	52,710	13,180	13,800
Taq Taq	9,670	4,250	5,260
Sarta	520	160	–
Total	120,470	31,980	36,250

PRODUCTION ASSETS

• Tawke PSC (25% working interest)
  • Gross production at the Tawke PSC averaged 110,280 bopd in 2020, of which Peshkabir contributed 52,710 bopd
  • Production in Q4 2020 averaged 110,170 bopd, of which Peshkabir contributed 56,320 bopd
  • There will be an active drilling campaign in 2021 on the Tawke licence, with up to eight new development wells set to be drilled and multiple workovers on existing producing wells to be undertaken in the drive to maintain production above 100,000 bopd
• Sarta (30% working interest)
  • First oil production from Sarta began in November 2020, and the Sarta-3 well has produced at an average of c.5,500 bopd so far in 2021
  • Due to ongoing COVID-19 protocols, production from Sarta-2 is now expected in February. A stable production level from both wells will be reached in Q1 2021
  • The 2021 appraisal drilling campaign is targeting a material portion of the 250 MMbbls of existing contingent resources, and prospective resources, in Jurassic formations
  • The campaign will begin at the start of Q2. Sarta-5 and Sarta-6 will be drilled back to back, with results from the first well expected in Q3, and operations on both wells complete in Q4 2021
  • Re-entry and deepening of the Sarta-1 (S-1D) well is expected around the middle of the year. Should S-1D be successful, a flowline will be constructed in order to enable the well to enter production around the end of 2021
• Taq Taq PSC (44% working interest and joint operator)
  • Gross production at Taq Taq averaged 9,670 bopd in 2020, following the suspension of drilling activity in H1 2020
  • Q4 production at the field averaged 7,610 bopd, with an exit rate of over 8,000 bopd following the early implementation of part of the 2021 well intervention programme, which increased production from the TT-20z and TT-34y wells
  • With activity at Taq Taq focused on optimising cash flow, no drilling is scheduled in 2021, with activity limited to workovers that will help manage field decline

PRE-PRODUCTION ASSETS

• Qara Dagh (40% working interest and operator)
  • Preparatory activities are ongoing for the QD-2 well, as Genel continues to target a spud date late in Q1 2021. The water well project successfully completed in December, providing us with water for the drilling operations
  • The well is expected to drill, complete, and test before the end of the year, with the field holding resources estimated by Genel at gross mean c.400 MMbbls
• Bina Bawi (100% working interest and operator)
  • Discussions with the KRG are ongoing at the highest levels relating to our proposals submitted in August and December 2020, which would enable the Company to progress the next stage of activity
  • Genel continues to maintain capex discipline, and will only commence investment upon certainty of alignment with the KRG and a clear path to monetisation
• African exploration assets
  • The uncertainty created by COVID-19  delayed the search for partners to fund and minimise Genel’s spend on our potentially high-impact exploration wells, but the farm-out process relating to the highly prospective SL10B13 block in Somaliland (100% working interest and operator) is progressing, with potential partners involved in assessing the opportunity
  • A farm-out campaign is also planned relating to the Lagzira block offshore Morocco (75% working interest and operator), with the aim of bringing a partner onto the licence prior to considering further commitments

ESG

• Zero lost time injuries (‘LTI’) and zero tier one loss of primary containment events in 2020 at Genel and TTOPCO operations
  • There has not been an LTI since 2015, with over 13 million work hours since the last incident
  • 400,000 hours of work completed at Sarta without an LTI
• Genel expects our 2020 carbon intensity to be c.15 kgCO2e/bbl for scope 1 and 2 emissions, significantly below the global oil and gas industry average of 20 kgCO2e/boe
  • The carbon intensity of our portfolio reduced to 7kg CO2e/bbl of scope 1 and 2 emissions in H2 2020 following the material reduction in flaring at the Tawke PSC through completion and commissioning of the enhanced oil recovery project
  • While portfolio emissions will increase in 2021 following early production at Sarta, Genel is committed to significantly reducing those emissions as production at the field matures
• Genel is analysing the most effective way to manage emissions, both annually across the portfolio and over the life of each asset, in order to deliver the Paris Agreement goals of limiting global warming to 1.5 degrees and leading to net zero by 2050

OUTLOOK AND GUIDANCE

• Production in 2021 is expected to be 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
  • Average margin per working interest barrel of over $10/bbl expected in 2021 at average Brent oil price $50/bbl
• Payments from the KRG continue to be made, with monthly payments received under the KRG’s updated payment schedule for the past nine months
  • Override payments to resume from the January 2021 invoice
  • The KRG has submitted a reconciliation model for repayment of the receivable relating to the $159 million in unpaid invoices, whereby for each cent above a monthly dated Brent average of $50/bbl, 0.5 cent per working interest barrel shall be paid towards monies owed. We continue to discuss this model with the KRG, and will update the market in due course
• Genel retains significant flexibility over its capital expenditure, and will ensure that expenditure is appropriate to the external environment. 2021 capital expenditure is expected to be $150 million to $200 million, with the current outlook supporting investment at the top end of this range
  • Production: c.$80 million expenditure forecast, with all spend recovered through cash receipts in the year
  • Growth: c.$100 million expenditure forecast, including wells and facilities costs, focused on material reserves additions and near-term production
• Operating costs expected to be c.$50 million (2020: $33 million), with the increase due to the addition of Sarta early production costs, equating to $4/bbl in 2021 ($3/bbl in 2020), retaining our advantageous low operating cost position
• G&A: expected to be c.$13 million (2020: $12 million)
• Genel expects to pay a material dividend, as we look to offer a compelling mix of growth and returns

(Source: Genel Energy)

The post Genel Energy expects Continued Growth first appeared on Iraq Business News.

Genel Energy has issued the following trading and operations update in respect of the third quarter and first nine months of 2020.

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

“Genel continues to demonstrate its resilience and ability to be move quickly to navigate changing external conditions. Production has remained robust, increasing quarter on quarter, and first oil at Sarta is also now imminent. Once production from these initial wells has stabilised we expect it to increase our production by over 10%, with potentially far more to come as we appraise what could be the largest field in the Kurdistan Region of Iraq.

“Following the successful completion of our recent refinancing, we have the liquidity to fund the rapid development of Sarta in the case of appraisal success in 2021. Genel’s financial strength and disciplined capital allocation means it is well placed to pursue opportunities for value accretive growth and provide returns to shareholders.“

FINANCIAL PERFORMANCE

• $142 million of cash proceeds received in the first nine months of 2020
• Free cash flow outflow of $5 million in the first nine months of 2020, after $30 million of capital expenditure progressing pre-production assets, and total capital expenditure of $76 million
  • $145 million outstanding from the Kurdistan Regional Government (‘KRG’), of which $121 million owed for production from November 2019 to February 2020, and $24 million in suspended override payments
• Cash of $341 million at 30 September 2020 ($355 million at 30 June 2020)
• Net cash of $42 million at 30 September 2020 ($57 million at 30 June 2020)
  • Cash figures are stated prior to the successful completion of refinancing in October 2020
• Interim dividend of 5¢ per share (2019: 5¢ per share), a distribution of c.$13.6 million, to be paid to shareholders on the register on 13 November 2020

REFINANCING AND FINANCIAL STRATEGY

• In September 2020, Genel successfully completed the issuance of a new $300 million senior unsecured bond with maturity in October 2025. The new bond has a fixed coupon of 9.25% per annum, compared to 10% for the 2022 bonds
  • At the same time, Genel purchased $223 million of its 2022 bonds at 107 to par. The total cost incurred with the redemption of these bonds was $16 million
  • Following the successful refinancing, the Company therefore has $77 million of 2022 bonds and $300 million of 2025 bonds in issue
• Genel remains committed to retaining a robust balance sheet, and the successful completion of the bond issuance has allowed Genel to significantly extend its liquidity runway and provides the foundation for a capital investment programme that is flexible and adaptable to the external environment
• The right level of debt and the resulting liquidity remains under review in the context of planned investment activity, external market conditions and the recovery of KRG receivables, the Company retaining the option of holding an optimised combination of the old and/or new bonds, depending on availability and pricing

OPERATING PERFORMANCE

• Net production averaged 32,140 bopd in the first nine months of 2020, with net production in Q3 averaging 32,210 bopd (Q2 2020: 30,040 bopd)
• Production by field was as follows:

(bopd)	Gross production Q3 2020	Net production Q3 2020
Tawke	56,880	14,220
Peshkabir	56,860	14,210
Taq Taq	8,580	3,780
Total	122,320	32,210

PRODUCTION ASSETS

• Tawke PSC (25% working interest)
  • Production at the Tawke PSC increased to 113,700 bopd in the third quarter, up 12% from the prior quarter following a campaign of quick turnaround, low-cost well interventions and the start-up of the Kurdistan Region of Iraq’s first enhanced oil recovery project
  • The Peshkabir-to-Tawke gas capture and reinjection project, in operation since mid-year, is continuing to cut gas flaring and greenhouse emissions by half at Peshkabir to 7kg CO2e/bbl, while unlocking additional oil at Tawke. By the end of October 2020, two billion cubic feet of gas that otherwise would have been flared had been injected into Tawke, already delivering a positive production response at the field, and at the same time reducing field water production
• Taq Taq PSC (44% working interest and joint operator)
  • Taq Taq gross field production averaged 8,580 bopd in Q3, following the suspension of drilling activity in H1 2020
  • As previously stated, activity at Taq Taq is focused on optimising cash flow. Appropriate for the external environment, it is not expected that there will be any further drilling activity in 2020

PRE-PRODUCTION ASSETS

• Sarta (30% working interest)
  • Despite the challenges of COVID-19, first oil is on track for Q4 2020
  • Production will initially be from the Sarta-2 and Sarta-3 wells, and the workover of the former is now underway. It is expected that a stable production level will be reached in Q1 2021
  • Preparations for the 2021 appraisal drilling campaign, which is targeting a material portion of the 250 MMbbls of contingent resources in the Jurassic, are ongoing
  • This appraisal campaign will begin with the Sarta-6 well in H1 2021, followed by the Sarta-5 well and Sarta-1D re-entry. Well pad and road access civil works are well underway at both the Sarta-6 and Sarta-5 locations, and minor remedial civil works are also about to commence at the existing Sarta-1D site. It is expected that all three appraisal wells will complete in 2021, at a cost of c.$40 million net to Genel in 2021
• Qara Dagh (40% working interest and operator)
  • While challenges caused by COVID-19 remain, the increased certainty in the operating environment, and Genel’s ability to operate under the expected level of restrictions, has allowed the lifting of force majeure at Qara Dagh
  • This has allowed Genel to proceed with approvals for activities necessary in order to reach a spud date for the QD-2 well in Q1 2021
  • The QD-2 well is expected to cost c.$30 million in 2021
• Bina Bawi (100% working interest and operator)
  • Genel continues to seek a response from the KRG to our proposal submitted in August 2020, which would enable the Company to progress the next stage of activity at Bina Bawi
  • Our proposal highlights the need to engage regional gas buyers on volume and price discovery and to improve project definition by undertaking the detailed front-end engineering of both the upstream and midstream processing facilities
  • Until a satisfactory response is received, Genel will maintain capex discipline, and will only commence investment upon certainty of alignment with the KRG and a clear path to monetisation
• African exploration assets
  • The uncertainty created by COVID-19, and current macroeconomic conditions, has negatively impacted the search for partners to fund and minimise Genel’s spend on our potentially high-impact exploration wells
  • A farm-out process relating to the highly prospective SL10B13 block in Somaliland (100% working interest and operator) is however continuing, with companies still assessing the opportunity
  • A farm-out campaign is being planned relating to the Lagzira block offshore Morocco (75% working interest and operator), with the aim of bringing a partner onto the licence prior to considering further commitments

ESG

• Zero lost time injuries (‘LTI’) and zero tier one losses of primary containment in 2020 to date at Genel and TTOPCO operations
  • There has not been an LTI since 2015, with almost 13 million work hours since the last incident
• Carbon intensity of our portfolio now reduced to 7kg CO2e/bbl of scope 1 and 2 emissions following material reduction in flaring at the Tawke PSC through completion and commissioning of the enhanced oil recovery project
• Multiple projects are ongoing to support local communities in the Kurdistan Region of Iraq, and the pipeline project to transport clean water to over 220 families across five villages neighbouring Taq Taq is now complete
• Sustainability report in accordance with Global Reporting Initiative standards was issued in September 2020, giving a comprehensive overview of our ESG activities and positions, noting the impact we have had on the Kurdistan Region of Iraq (‘KRI’):
  • Since starting work in the KRI Genel has invested c.$60 million in social projects, and $36 million spent on contracts with local companies
  • 245 social investment and community projects funded and successfully delivered
  • Up to 550 local community patients receive free treatment from the TTOPCO medical team per year
  • 250 local people employed at TTOPCO, and 23 local community-centred companies are providing services to Genel’s operations across the KRI, with our operations indirectly supporting a further 350 local people through such contracts

OUTLOOK

• Payments from the KRG continue to be made, with monthly payments having been received under the KRG’s updated payment schedule for the past seven months
  • Dialogue with the KRG is ongoing regarding a number of topics, including the timing and process of payment of the outstanding c.$150 million receivable
• 2020 capital expenditure expected to be just over $100 million, in line with guidance
  • Expenditure in Q4 2020 expected to be c.$30 million
• Operating costs per barrel expected to be $3/bbl in 2020
• Opex: expected to be c.$35 million, further reduced from the original guidance of c.$40 million
• G&A: now expected to be c.20% less than previous guidance of $15 million
• The Company continues to actively pursue additional growth and is analysing opportunities to make value-accretive additions to the portfolio that are consistent with Genel’s strategy

(Source: Genel Energy)

The post Genel Energy issues Trading and Ops Update first appeared on Iraq Business News.