Category: Taq Taq

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Genel Energy issues update on Trading and Ops

Genel Energy has issued the following trading and operations update ahead of the Company’s Annual General Meeting (‘AGM’), which is being held today:

Bill Higgs, Chief Executive of Genel, said:

“Our robust financial position continues to strengthen, supporting investment in our organic portfolio as well as our progressive dividend. Despite the result of Sarta-5, the well delivered useful data that we will incorporate together with the results of our next well, Sarta-6, into our forward plans for the field. As we look to add production and further bolster our progressive dividend and create value for stakeholders, we continue to review both organic and inorganic opportunities.”

FINANCIAL PERFORMANCE

  • $95 million cash proceeds received in Q1 2022 from the Kurdistan Regional Government
  • Free cash flow of $43 million in Q1 2022
    • Margin of $30/bbl in Q1 2022 (2021: $24/bbl), with Brent averaging $102/bbl (2021: $71/bbl)
    • Capital expenditure of $35 million in Q1 2022, of which $19 million was spent at Tawke, and $12 million at Sarta
    • Of the $35 million total invoiced for December 2021 oil sales, $17 million was received in Q1 2022, with $18 million of invoices being received after period end
  • Cash of $356 million at 31 March 2022 ($314 million at 31 December 2021)
  • Net cash of $86 million at 31 March 2022 ($44 million at 31 December 2021)

PRODUCTION

  • Net production of 30,520 bopd in Q1 2022, in line with guidance
  • Zero lost time injuries or Tier 1 losses of primary containment in Q1 2022
  • Tawke PSC (25% working interest)
    • Gross production of 106,470 bopd in Q1 2022, 26,620 net to Genel, of which Peshkabir contributed 64,500 bopd and Tawke 41,970 bopd
    • A high level of activity was maintained at Tawke in Q1 2022, with five wells spud across the Tawke and Peshkabir fields, with a fourth drilling rig set to be added
    • The Peshkabir-Tawke gas project has captured 12 billion cubic feet of otherwise flared gas, equivalent to 766,000 tonnes of CO2 equivalent, since start up in mid-2020 through the first quarter of 2022. Phase 2 is a $25 million expansion underway at the Tawke field to capture breakthrough gas, set to start in the fourth quarter of 2022. The operator, DNO, is also debottlenecking the Peshkabir gas plant originally designed for 50,000 bopd to handle larger volumes of associated gas from higher field production, which is now averaging 65,000 bopd
  • Sarta (30% working interest and operator)
    • Gross production of 5,590 bopd in Q1, 1,670 bopd net to Genel
    • Sarta-1D was brought onto production on 8 March from the Mus and Upper Adaiyah reservoirs, the same zone on production at Sarta-2. On well test at Sarta-1D the Lower Adaiyah produced at low oil rates with a high water cut while oil was discovered in the Butmah, achieving flow rates of over 1500 bopd, but again with a high water cut. Since coming onstream, production from the Mus and Upper Adaiyah reservoirs at Sarta-1D has been choked back in order to manage pressure decline between the two adjacent take points of Sarta-1D and Sarta-2, and water cut at Sarta-1D
    • Total field production has averaged c.6,150 bopd in May, as we continue to work through a programme to optimise production from the three producing wells
    • Sarta-5 testing completed on 9 May and the well is now suspended. As previously stated, the presence of oil associated with both the primary and secondary Jurassic reservoir intervals, 12 km southeast of the Sarta pilot EPF, will be subject to further investigation and integration into the joint venture’s understanding of the Sarta field and future planning
    • Test results from the Sarta-6 well, c.6 km to the west of the pilot EPF, are expected in Q3
  • Taq Taq PSC (44% working interest and joint operator)
    • Gross production of 5,070 bopd, 2,230 bopd net to Genel
    • As the margins at Taq Taq have increased, planning is underway for the resumption of drilling, with a well expected to spud around the end of 2022

PRE-PRODUCTION

  • Qara Dagh (40% working interest and operator)
    • The evaluation of the QD-2 well and its results is underway, with a decision on licence next steps to be taken later this year
  • Somaliland (51% working interest and operator)
    • Following the successful farm-out in December 2021, preparation is under way for the drilling of a well on the highly prospective SL10B13 block around the end of 2023
  • Morocco (75% working interest and operator)
    • Petroleum Agreement and Association Contract expected to be signed with ONHYM in Q2 2022, with a farm-out programme scheduled to begin later this year

ESG

  • Genel’s 2021 Sustainability Report has been issued today, detailing our environmental performance and the positive impact that we strive to have on the communities in which we operate. 2021 highlights include:
    • 11 social investment and community projects funded and delivered in 2021
    • Zero waste to landfill from operations at Sarta, with 92% recycled
    • Renewable energy feasibility study progressing at Sarta
  • Genel is marking twenty years of operating in the KRI with its Genel20 programme, increasing the scope of our social activities, including a new education initiative set to be launched next week at an event in Dohuk

2022 OUTLOOK AND GUIDANCE

  • Guidance reiterated, with production for 2022 at around the same level as the 2021 average
  • The Board is recommending the approval of a final dividend of 12¢ per share (2021: 10¢ per share) at today’s AGM, a distribution of $33.5 million, as we continue to fulfil our aim of paying a progressive dividend

(Source: Genel Energy)

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Genel Energy outlines Payments to Govts for 2021

By John Lee.

Genel Energy has just published details of its payments to governments for the year 2021:

Introduction and basis for preparation

This report sets out details of the payments made to governments by Genel Energy plc and its subsidiary undertakings (‘Genel’) for the year ended 31 December 2021 as required under the Disclosure and Transparency Rules of the UK Financial Conduct Authority (the ‘DTRs’) and in accordance with our interpretation of the Industry Guidance issued for the UK’s Report on Payments to Governments Regulations 2014, as amended in December 2015 (‘the Regulations’). The DTRs require companies in the UK and operating in the extractives sector to publically disclose payments made to governments in the countries where they undertake exploration, prospection, development and extraction of oil and natural gas deposits or other materials.

Governments

All of the payments made in relation to licences in the Kurdistan Region of Iraq (‘KRI’) have been made to the Ministry of Natural Resources of the Kurdistan Regional Government (‘KRG’).

Production entitlements

Production entitlements are the host government’s share of production during the reporting period from projects operated by Genel. Production entitlements from projects that are not operated by Genel are not covered by this report. The figures reported have been produced on an entitlement basis rather than on a liftings basis. Production entitlements are paid in-kind and the monetary value disclosed is derived from management’s calculation of revenue from the field.

Royalties

Royalties represent royalties paid in-kind to governments during the year for the extraction of oil. The terms of the Royalties are described within our Production Sharing Contracts and can vary from project to project. Royalties have been calculated on the same barrels of oil equivalent basis as production entitlements.

Materiality threshold

Total payments below £86,000 made to a government are excluded from this report as permitted under the Regulations.

Payments to governments – 2021

Country/Licence KRI Total (1) Taq Taq (2)
Production entitlement (bbls) 1,234,564.87 1,234,564.87
Royalties in kind (bbls) 216,930.95 216,930.95
Total (bbls) 1,451,495.82 1,451,495.82
Value of production entitlements ($ million) 78.52 78.52
Value of royalties ($ million) 13.74 13.74
Capacity building payments ($ million) (3) 1.25 1.25
Total ($ million) 93.51 93.51
  1. Under the lifting arrangements implemented by the KRG, the KRG takes title to crude at the wellhead and then transports it to Ceyhan in Turkey by pipeline. The crude is then sold by the KRG into the international market. All proceeds of sale are received by or on behalf of the KRG, out of which the KRG then makes payment for cost and profit oil in accordance with the PSC to Genel, in exchange for the crude delivered to the KRG. Under these arrangements, payments are in fact made by or on behalf of the KRG to Genel, rather than by Genel to the KRG. For the purposes of the reporting requirements under the Regulations however, we are required to characterise the value of the KRG’s entitlement under the PSC (for which they receive payment directly from the market) as a payment made to the KRG. Therefore, estimated value in $millions is not paid to the KRG, and is calculated to meeting the reporting requirements under the regulations
  2. The amount reported for Taq Taq, is the gross payment made to the KRI by the operating company (TTOPCO), Genel’s share of these payments is equal to 55% (with the exception of capacity building payments)
  3. Capacity building payments reported are payments made by Genel directly to the KRI in cash as required by the PSC.

(Source: Genel Energy)

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Genel Energy Updates its Oil Reserves

By John Lee.

Genel Energy plc has updated its oil reserves across its portfolio.

Net oil Reserves (MMbbls) 1P 2P 3P
31 December 2020 69.4 117.2 177.2
Production (11.6) (11.6) (11.6)
Technical revisions 4.8 (1.4) (28.9)
31 December 2021 62.6 104.2 136.6

International petroleum consultants DeGolyer and MacNaughton, working on behalf of the operator DNO, assess that Tawke licence (Genel 25% working interest) gross year-end 2021 2P reserves stood at 357 MMbbls, compared to 394 MMbbls at year-end 2020, after adjusting for production of 40 MMbbls and an upward technical revision of 3 MMbbls.

Pending further analysis of the performance of the Enhanced Oil Recovery project, Genel continues to hold 23 MMbbls of those 2P gross reserves in 2C resources.

At Taq Taq (44% working interest, joint operator), 2P gross reserves stood at 26 MMbbls at year-end 2021 (33 MMbbls at end-2020), following a downward technical revision of 5 MMbbls and production of 2 MMbbls. McDaniel & Associates carried out the independent assessment of the Taq Taq licence.

At Sarta (30% working interest, operator) Genel’s gross 2P reserve estimate relating to Phase 1A of the Sarta development remains unchanged, less production, at year-end 2021 at 32 MMbbls (34 MMbbls at the end of 2020), following production of 2 MMbbls.

Flow testing of Sarta-1D is currently ongoing, and the appraisal results of Sarta-5 and Sarta-6 will be incorporated into our assessment of the reserves of Sarta at the appropriate time.

(Source: Genel Energy)

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Genel Energy Rise on Trading Update

Shares in Genel Energy rose by nearly 5 percent on Tuesday morning after the company issued the following trading and operations update in advance of the Company’s full-year 2021 results, which are scheduled for release on 15 March 2022. The information contained herein has not been audited and may be subject to further review.

Bill Higgs, Chief Executive of Genel, said:

“In 2021 we generated significant free cash flow of $86 million, and in 2022 we are set to build on this as the strength of the oil price and our positive outlook means that free cash flow is expected to more than double. Our focus in 2022 is on growing the business and supporting our progressive dividend long-term.

“We aim to increase cash flow through the progression of our asset development plans and the addition of income streams. Our priority is the derisking and commercialisation of Sarta, while the successful farm-out on our Somaliland licence opens the way to drill an exploration well on this exciting opportunity.“

2022 OUTLOOK AND GUIDANCE

  • Production in 2022 is expected to be around the same level as 2021
  • Genel expects to generate free cash flow of up to $200 million in 2022, pre dividend payments, at a Brent oil price of $75/bbl
    • An increase or decrease in Brent of $10/bbl impacts annual cash by $50 million
    • Under the terms of the Receivable Settlement Agreement signed in August 2017, the last override payment will be made relating to Tawke PSC production in July 2022. Given payments are received three months in arrears from the Kurdistan Regional Government (‘KRG’), 10 override payments are expected in 2022
    • 2022 capital expenditure is expected to be between $140 million and $180 million, with key asset spending including:
      • c.$75 million expenditure forecast at the Tawke PSC, an increase of c.$25 million compared to 2021 as drilling increases at the Tawke field
      • c.$45-80 million expenditure forecast at Sarta, with higher spend the result of appraisal success
      • c.$10-20 million expenditure forecast at Taq Taq
      • Work is underway on planning a well in Somaliland, with expenditure in 2022 expected to be under $5 million
    • Operating costs expected to be c.$50 million (2021: $44 million), equating to under $5/bbl, retaining our advantageous low operating cost position
  • Following the termination of the Bina Bawi and Miran PSCs by Genel on 10 December 2021, Genel will be claiming substantial compensation from the KRG. Genel’s claims will be brought in a private London seated international arbitration
  • Genel remains committed to paying a material and progressive dividend, as we look to offer a compelling mix of value-accretive growth and shareholder returns
  • Genel continues to invest in the host communities in which we operate. 2022 represents twenty years of operations in the Kurdistan Region of Iraq, which we will commemorate through the Genel20 programme, launching significant new social activities throughout the year, aligned with UN Sustainable Development Goals

2021 FINANCIAL PERFORMANCE

  • $281 million of cash proceeds were received from the KRG in 2021 (2020: $173 million)
  • Capital expenditure of $165 million (2020: $109 million), with c.$45 million spent at the Tawke PSC and c.$110 million at Sarta and Qara Dagh
  • Free cash flow of $86 million in 2021, pre dividend payments (2020: $5 million free cash outflow), comparison impacted by:
    • Higher oil price of $71/bbl in 2021, compared to $42/bbl in 2020
    • 10 entitlement payments received in 2021, compared to 12 in 2020, following industry-wide reversion to payments three months in arrears by the KRG
    • Receivable recovery payments of $35 million received in 2021, with the resumption of Tawke override payments contributing a further $72 million ($23 million in override payments received in 2020)
  • Dividends paid in 2021 of 16¢ per share (2020: 15¢ per share), a total distribution of c.$45 million
  • Cash of $314 million at 31 December 2021, net cash of $44 million ($10 million at 31 December 2020)

2021 OPERATING PERFORMANCE

  • Genel strives for safe operations with zero lost time injuries (‘LTI’) and zero tier one loss of primary containment events at Genel and TTOPCO operations. One LTI was reported in 2021 at Sarta-5 drilling operations and all corrective actions have been implemented
    • 1.2 million work hours subsequently completed across our operations without an LTI
  • Net production averaged 31,710 bopd in 2021, with net production in Q4 averaging 30,843 bopd
    • Production cost of c.$4/bbl, with margin per barrel of $24/bbl
  • Production by field was as follows:
(bopd) Gross production

2021

 Net production

2021

 Net production

2020
Tawke 108,710 27,180 27,570
Taq Taq 5,940 2,610 4,250
Sarta 6,400 1,920 160
Total 121,060 31,710 31,980
  • Genel expects our confirmed 2021 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
    • Expected carbon intensity in 2021 has increased from 13kg CO2e/bbl in 2020 due to full year production at Sarta where associated gas is currently being flared. The gas management project to cease routine flaring is underway

PRODUCTION ASSETS

  • Tawke PSC (25% working interest)
    • Gross production at the Tawke PSC averaged 108,710 bopd in 2021 (110,280 bopd in 2020)
    • Drilling activity is set to ramp up in 2022
  • Sarta (30% working interest and operator)
    • The results of early production from the Sarta pilot continue to help shape the view of full field development
    • Gross production averaged 6,400 bopd in 2021, with just over 2.5 million barrels having been produced from start up in late November 2020 to year end 2021
    • Drilling and completion operations at Sarta-1D concluded in November 2021, the Viking I-21 Rig was subsequently mobilised to Sarta-4 to workover the legacy exploration well for use as a produced water disposal well
    • Rigless well testing at Sarta-1D is now underway, with results expected early this quarter. This will allow for the performance of the thicker and more volumetrically significant Adaiyah reservoir to be fully evaluated. Oil produced from Sarta-1D will be delivered to the early production facility via a short c.2 km flowline that was installed in Q4 2021 removing any lag time between well testing results and monetisation of the resource
    • The Sarta-5 and Sarta-6 step out wells are designed to appraise the field away from the pilot production facility and will be key in resolving the current uncertainty over the size and shape of the Sarta field
    • Drilling and completion operations concluded at Sarta-5 at the end of 2021, and the Parker 265 Rig is currently mobilising to the Sarta 6 location with spud expected in the coming weeks
    • Rigless well-testing operations will be conducted at Sarta-5 in Q1 2022
    • As of 1 January 2022, Genel became PSC operator of Sarta in line with the agreement with Chevron
    • Genel has embarked on a renewable energy appraisal programme at Sarta, with the initial phase of this study assessing wind, solar and hydro options to power the early production facility. The study began in Q3 2021 and will be completed in 2022, as Genel aims to reduce GHG emissions from our facilities
  • Taq Taq PSC (44% working interest and joint operator)
    • Gross production at Taq Taq averaged 5,940 bopd in 2021, following the ongoing suspension of drilling activity
    • Activity at Taq Taq continues to be focused on optimising cash flow, and drilling may resume in H2 2022

PRE-PRODUCTION ASSETS

  • Qara Dagh (40% working interest and operator)
    • As announced on 4 January, drilling operations on the QD-2 well have been suspended and the well temporarily abandoned
    • The evaluation by licence partners Genel and Chevron of the QD-2 well and its results is now underway, and this will inform next steps on the licence
  • Somaliland (51% working interest and operator)
    • Following the signing of a farm-out agreement with OPIC Somaliland Corporation relating to the SL10B13 block, field partners are now working together to plan exploration drilling, with an aim of drilling a well in 2023
  • Morocco (75% working interest and operator)
    • A farm-out campaign continues to be 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

(Source: Genel Energy)

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Genel Energy Increases Dividend

By John Lee.

Genel Energy has increased its interim dividend, announced in its unaudited results for the six months ended 30 June 2021:

Bill Higgs, Chief Executive of Genel, said:

“Genel continues to deliver on its strategy and demonstrate the merits of its business model. Capital investment made last year, despite the low oil price and over $150 million of deferred payments, has meant this period has benefitted from the addition of oil from Sarta and increased production from Peshkabir, with production having increased in line with guidance.

“This high-margin production will generate sufficient cash flow in 2021 to more than cover investment in growth and the increased dividend, and we are set to end the year in a net cash position.

“Our appraisal campaign at our exciting growth assets Sarta and Qara Dagh is now well underway, and we look forward to the results of three of these high-potential wells later this year. Given the cash generation of the business, our strong balance sheet, and the resilience of our business model, we are fulfilling our aim of paying a progressive dividend by increasing the interim payment.“

Results summary ($ million unless stated)

H1 2021 H1 2020 FY 2020
Average Brent oil price ($/bbl) 65 40 42
Production (bopd, working interest)  32,760 32,100  31,980
Revenue  151.5 88.4  159.7
EBITDAX1  123.1 65.1  114.6
  Depreciation and amortisation  (81.8) (82.6)  (153.7)
  Exploration expense – (1.3) (2.2)
  Impairment of oil and gas assets – (286.3) (286.3)
  Impairment of receivables – (34.9) (36.9)
Operating profit / (loss) 41.3 (340.0) (364.5)
Cash flow from operating activities 91.1 85.5 129.4
Capital expenditure 58.2 58.5 109.7
Free cash flow2 22.2 6.5 (4.4)
Cash 266.4 355.3 354.5
Total debt 280.0 300.0 280.0
Net (debt) / cash3 (2.2) 57.2 6.2
Basic EPS (¢ per share) 9.3 (128.9) (152.0)
Dividends declared for the period (¢ per share) 6 5 15
  1. EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation, exploration expense, impairment of property, plant and equipment, impairment of intangible assets and impairment of receivables
  2. Free cash flow is reconciled on page 10
  3. Reported cash less IFRS debt (page 11)

Highlights

  • Strong cash generation from low-cost oil production:
    • Net production averaged 32,760 bopd in H1 2021, slightly above the average in the prior year and in line with guidance (H1 2020: 32,100 bopd)
    • Low production cost of $3.7/bbl, oil price increase, and restart of the override helped deliver an overall margin from our production assets of $111 million
    • Free cash flow for the period was $22 million, despite the Kurdistan Regional Government (‘KRG’) changing its payment schedule from one to two months in arrears, moving c.$30 million that was due in H1 into July
    • $123 million of cash proceeds were received in H1 2021 (H1 2020: $110 million)
  • Investing in growth:
    • Our high-potential drilling campaign is well underway, with the QD-2 well at Qara Dagh having spud in April, and the Sarta-5 well in June
    • $58 million of capital expenditure in H1 2021, with activity accelerating in H2
  • Financial strength to underpin a material and progressive dividend:
    • Cash of $266 million, with net debt of $2.2 million
    • Due to the rise in the oil price boosting expected cash generation, and Management’s confidence in Genel’s future prospects, interim dividend increased to 6¢ per share (H1 2020: 5¢ per share)
  • A socially responsible contributor to the global energy mix:
    • Zero lost time injuries (‘LTI’) and zero tier one loss of primary containment (‘LOPC’) events at Genel and TTOPCO operations. Now no LTIs since 2015, with over 14 million work hours since the last incident, and no LOPCs since 2017
    • Second GRI compliant Sustainability Report issued today

Outlook

  • Production guidance for 2021 of slightly above the 2020 average of 31,980 bopd maintained
  • 2021 capital expenditure guidance maintained at $150 million to $200 million, with the expectation that expenditure will now be around the middle of this range, following delays in approvals from the KRG and ongoing challenges relating to COVID-19 causing some planned activity to move to Q1 2022
  • High-impact appraisal results to come in 2021:
    • Results from the QD-2 and Sarta-5 wells are expected around the end of Q3 2021
    • The Sarta-1D well is set to spud in coming days
    • Sarta-6 well is scheduled to get underway immediately following the completion of drilling at Sarta-5
  • Genel expects to generate free cash flow in 2021 and end the year in a net cash position, despite material investment in growth

More here.

(Source: Genel Energy)

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Genel Energy receives March Oil Payments from KRG

Genel Energy has announced that payments have been received from the Kurdistan Regional Government (‘KRG’) for its entitlement for oil sales during March 2021.

Those payments are made up as follows:

(all figures $ million) Payment
Tawke 14.3
Taq Taq 2.1
Sarta 3.4
Total 19.8

As announced on 13 May, Genel and other KRI operators received a letter from the KRG proposing an amendment to the recovery mechanism and payment schedule for monies owed for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

The entitlement payments for oil sales were, in line with other operators, received ahead of the proposed amended schedule.

The Company has not yet received payments for March’s invoices under the recovery mechanism, regarding which it is engaging with the KRG on their proposed amendments, nor the Tawke override.

Assuming the proposed revision to the terms of recovery stands, the recovery payment will be $3.1 million. The override payment will be $8.2 million. Given the proposed new schedule, Genel expects to receive both payments shortly.

(Source: Genel Energy)

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Genel Energy Updates on Oil Reserves

Genel Energy has issued an update on oil reserves and resources across its portfolio.

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

“The quality of our reserves is the foundation of our resilient business model, providing us with low-cost production that can generate cash for many years to come.

“Drilling at Sarta this year has the potential to add to our reserves, with Qara Dagh adding the possibility of opening up another field in the Kurdistan Region of Iraq, as we look to further build our cash generative portfolio for the benefit of all stakeholders.“

Net oil reserves (MMbbls) 1P 2P 3P
31 December 2019 68.8 123.8 194.9
Production (11.7) (11.7) (11.7)
Technical revisions 12.2 5.0 (6.0)
31 December 2020 69.4 117.2 177.2

International petroleum consultants DeGolyer and MacNaughton assess that, at the Tawke field on the Tawke licence (Genel 25% working interest), gross year-end 2020 1P reserves stood at 173 MMbbls, compared to 176 MMbbls at year-end 2019, after adjusting for production of 21 MMbbls and an upward technical revision of 18 MMbbls. Tawke field 2P reserves stood at 245 MMbbls (261 MMbbls at end-2019) and 3P reserves at 359 MMbbls (376 MMbbls at end-2019).

The Enhanced Oil Recovery project at the Tawke field has started to deliver a positive impact on production. Pending further work on the project, the 23 MMbbls of 2P and 45 MMbbls of 3P gross reserves that DeGolyer and MacNaughton previously included in their figures continues to be maintained by Genel in 2C and 3C resources.

At Peshkabir, also on the Tawke licence (Genel 25% working interest), year-end 2020 gross 1P reserves were assessed at 61 MMbbls (51 MMbbls at end-2019), 2P reserves at 116 MMbbls (125 MMbbls at end-2019) and 3P reserves at 201 MMbbls (220 MMbbls at end-2019). The upward revision of 1P and 2P reserves by 29 MMbbls more than offsets production of 19 MMbbls, and is the result of continued outstanding field performance in 2020.

At Taq Taq (44% working interest, joint operator), 1P gross reserves stood at 18 MMbbls at year-end 2020 (20 MMbbls at end-2019), following a minor technical upward revision of 1 MMbbls and production of 4 MMbbls. Gross 2P reserves stood at 33 MMbbls (44 MMbbls at end-2019), with a downward revision of 8 MMbbls following a reduction to the number of wells planned for the future, and their associated expected productivity. McDaniel & Associates carried out the independent assessment of the Taq Taq licence.

Genel’s gross 2P reserve estimate relating to Phase 1A of the Sarta development remains unchanged at year-end 2020, standing at 34 MMbbls.

CONVERTING RESOURCES TO RESERVES

Net oil resources (MMbbls) 1C 2C 3C
31 December 2019 66.5 152.0 345.8
Technical revisions (8.6) (8.6) (8.0)
31 December 2020 57.9 143.4 337.8

There has been no change to the ERCE view on Sarta (30% working interest), with an estimated mid-case total recoverable oil resource of 593 MMbbls, of which 258 MMbbls are classified as 2C resource. Production performance in 2021, and the results of the upcoming three well campaign in 2021, will inform the quantity of conversion of these resources into reserves.

At Qara Dagh (40% working interest, operator) the QD-2 well will test the crestal portion of the prospect, which has a mean prospective resource estimated by Genel at c.400 MMbbls. Genel continues to estimate that the downdip segment tested by the QD-1 well defines a 2C resource of 47 MMbbls.

(Source: Genel Energy)

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Genel Energy expects Continued Growth

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)

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Genel Energy issues Trading and Ops Update

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)

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Genel Energy Publishes Sustainability Report

Genel Energy has published its first comprehensive Sustainability Report, prepared in accordance with the Global Reporting Initiative (‘GRI’) Standards core option.

Bill Higgs, Chief Executive of Genel, said:

“Genel has had a longstanding commitment to positively impact the communities in which we operate. This has focused on three core areas – economic development, education, and health, and I am delighted to detail our activities in these areas in our first comprehensive Sustainability Report. Having a positive impact on the local community is just one part of our responsibility however, and we continue our journey to meet head on the challenges associated with the energy transition. Stepping up to these challenges is vital to our business, and this is reflected in ESG metrics being incorporated into our corporate key performance indicators and remuneration evaluations. The publication of today’s Sustainability Report is a further indication of our commitment to this area.

“We are aware that we have a long way to go in a rapidly changing landscape. Nevertheless, we have the talent, skill sets, and commitment at the highest levels of the Company to meet the challenges ahead. In my view, Genel has the right low-cost and low-carbon assets, in the right locations, and with the right footprint, to thrive in a future of fewer and better natural resources projects.”

“The Sustainability Report is a complement to our Annual Report, and will be issued annually, publicly detailing our ESG activities as we strive to be a socially responsible contributor to the global energy mix.

“Genel has a low-cost and low-carbon asset portfolio, with the recent commissioning of the enhanced oil recovery project at the Tawke PSC having materially reduced flaring, reducing the carbon intensity of our portfolio to 7kg CO2e/bbl of scope 1 and 2 emissions.

“It has been a long-stated aim of Genel to have a positive impact both by contributing to economic development and directly supporting local communities through improved infrastructure and the provision of opportunities for improved health, development and employment.

“Since 2006, Genel has invested almost $60 million in social projects. 245 social investment and community projects have been funded and successfully delivered, and each year up to 550 local community patients receive free treatment from the TTOPCO medical team. Supporting the development of the local economy is also crucial, and Genel has spent over $36 million on contracts with local companies. Currently, almost 250 local people are 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.

“As well as looking to have a wider societal benefit, our commitment to having a beneficial impact begins with operational excellence and the taking care of our workforce. For the last four years, Genel has achieved zero lost time injuries with more than 12 million working hours since the last incident. This has been achieved through the promotion of a strong HSE culture and extensive workforce training and engagement at all levels.

“Our focus on sustainability has not been lessened by the ongoing COVID-19 pandemic, and the Report illustrates the key values that drive our decision making and support the delivery of our strategic goals.“

Click here to download the full report.

(Source: Genel Energy)

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