DJ Genel Energy PLC: Full-Year Results
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Genel Energy PLC (GENL)
Genel Energy PLC: Full-Year Results
20-March-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
20 March 2019
Genel Energy plc
Audited results for the year ended 31 December 2018
Genel Energy plc ('Genel' or 'the Company') announces its audited results
for the year ended 31 December 2018.
Murat Özgül, Chief Executive of Genel, said:
"Genel's strategy at the start of 2018 was clear - generate material free
cash flow from producing assets, build and invest in a rich funnel of
transformational development opportunities, and return capital to
shareholders at the appropriate time. We are delivering on this strategy.
2018 was another year of material free cash flow generation, we continued to
transform our balance sheet and the addition of assets with the potential of
Sarta and Qara Dagh led to a very successful delivery on the first two parts
of our strategy. We will continue to develop opportunities and invest in
growth. As we do so, a robust cash flow outlook and our confidence in
Genel's future prospects underpins our initiation of a material and
sustainable dividend policy."
Results summary ($ million unless stated)
2018 2017
Production (bopd, working interest) 33,700 35,200
Revenue 355.1 228.9
EBITDAX 1 304.1 475.5
Depreciation and amortisation (136.2) (117.4)
Exploration credit / (expense) 1.5 (1.9)
Impairment of property, plant and equipment - (58.2)
Impairment of intangible assets (424.0) -
Operating (loss) / profit (254.6) 298.0
Cash flow from operating activities 299.2 221.0
Capital expenditure 95.5 94.1
Free cash flow2 164.2 99.1
Cash3 334.3 162.0
Total debt 300.0 300.0
Net cash / (debt)4 37.0 (134.8)
Basic EPS (¢ per share) (101.6) 97.1
Underlying EPS (¢ per share)5 109.0 65.1
1) EBITDAX is operating profit / (loss) adjusted for the add back of
depreciation and amortisation ($136.2 million), exploration credit ($1.5
million) and impairment of intangible assets ($424.0 million)
2) Free cash flow is net cash generated from operating activities less
cash outflow due to purchase of intangible assets ($39.7 million),
purchase of property, plant and equipment ($65.3 million) and interest
paid ($30.0 million)
3) Cash reported at 31 December 2018 excludes $10.0 million of restricted
cash
4) Reported cash less ($334.3 million) less reported balance sheet debt
($297.3 million)
5) EBITDAX less net gain arising from the Receivable Settlement Agreement
('RSA') divided by the weighted average number of ordinary shares
Highlights
· $335 million of cash proceeds were received in 2018 (2017: $263 million)
· Strong cash flow generation, with free cash flow totalling $164 million
in 2018 (2017: $99 million), an increase of 66%
· Financial strength continues to increase, with unrestricted cash
balances at 28 February 2019 of $378 million, and net cash at $81 million
· Addition of Sarta and Qara Dagh to the portfolio in 2019 brings further
near-term production and material growth potential
· Increase in 1P and 2P reserves as of 31 December 2018 to 99 MMbbls (31
December 2017: 97 MMbbls) and 155 MMbbls (31 December 2017: 150 MMbbls)
respectively, including Sarta
· As disclosed in our trading statement, the carrying value of the Miran
licence has been under review. Due to the focus on the development of Bina
Bawi, while Genel continues to see significant opportunity in the licence,
this has resulted in an accounting impairment to the carrying value
Outlook
· Production guidance maintained - net production during 2019 is expected
to be close to Q4 2018 levels of 36,900 bopd, an increase of c.10%
year-on-year
· Capital expenditure guidance updated to include spend on Sarta and Qara
Dagh, with net capital expenditure now forecast to be $150-170 million
(from c.$115 million)
· Opex and G&A guidance unchanged at c.$30 million and c.$20 million
respectively
· Genel expects to generate material free cash flow of over $100 million
in 2019, inclusive of investment in Sarta and Qara Dagh
· Given the strong free cash flow forecast of the business, even after
investment in growth opportunities, Genel is initiating a material and
sustainable dividend policy
· The Company intends to pay a minimum dividend of $40 million per annum
starting in 2020, with the intention for this to grow
· The dividend will be split between an interim and final dividend, to
be paid one-third/two-thirds
· The Company is set to approach bondholders to request a temporary
waiver of the dividend restriction, which limits dividends to 50% of
annual net profit, in relation to accelerating the start of distribution
to 2019
· The Company continues to actively pursue growth and appraise
opportunities to make value-accretive additions to the portfolio
Enquiries:
Genel Energy +44 20 7659 5100
Andrew Benbow, Head of Communications
Vigo Communications +44 20 7390 0230
Patrick d'Ancona
There will be a presentation for analysts and investors today at 0900 GMT,
with an associated webcast available on the Company's website,
www.genelenergy.com [1].
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. Whilst 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.
CHAIRMAN'S STATEMENT
I am pleased to welcome you to Genel Energy's eighth annual results
statement. Political stability in the Kurdistan Region of Iraq and a
recovery in the oil price provided a positive backdrop for our operations in
2018. With a firm focus on our renewed strategy, Genel delivered across all
key areas of its business, with the economic tailwinds helping to deliver
material free cash flow and to create significant shareholder value. Highly
cash generative and growing production, supplemented by recent additions to
the portfolio, and our financial strength, position us well to continue this
performance in coming years.
Delivering on our strategy
Our strategic bedrock remains our highly cash-generative producing assets.
The success of Peshkabir, where production grew almost five-fold over the
year to over 50,000 bopd, ahead of schedule and under budget, provided rapid
growth on the Tawke PSC. The increase at Peshkabir was supported by the
redeployment of Taq Taq's early processing facility, and field management
work at the Taq Taq field itself helped to stabilise production and provide
a base from which we expect to now add growth in 2019. The combination of
the two led to Genel slightly outperforming on production guidance for the
year.
Maximising the value of these assets, and generating material free cash
flow, was our core priority and positions us to now focus on progressing the
material opportunities in our portfolio. As we demonstrated our capability
to grow and expand operations, we moved firmly into a net cash position, and
our free cash flow will continue to more than fund our investment programme
for the foreseeable future. Our financial strength will increase further
even as we ramp up our disciplined expenditure, allowing us to initiate a
material and sustainable dividend policy. Our compelling mix of operational
expertise and balance sheet strength has helped us to join up with major
partners as we look to provide a long-term increase in shareholder value.
Growth on all key metrics
As we progress through 2019 we continue to grow on all key metrics. Our cash
position is rising on a monthly basis, our production is forecast to
increase 10% year-on-year, and the addition of Sarta and growth at Peshkabir
has delivered an increase in our 2P reserves.
Last year we stated that Genel aimed to add assets that build on the
strengths of the current portfolio, prioritising areas of low to moderate
political risk while retaining a focus on cash generation. Given the
successful elections and ongoing improvement in the economic situation, we
now see the KRI as such an area, as reflected in the reduction of our
internal discount rate and reinforced by well over three years of
consecutive payments for oil exports.
We were delighted with the addition of stakes in Sarta and Qara Dagh to the
Genel portfolio, which are a key step as we continue to develop
opportunities to expand our portfolio of high-value assets. Being chosen as
a partner by Chevron was a strong endorsement of Genel's technical and
commercial strengths, and the projects are an ideal fit for our strategy.
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DJ Genel Energy PLC: Full-Year Results -2-
Qara Dagh has a proven hydrocarbon system and significant resource potential
estimated by Genel at c.200 MMbbls, while Sarta offers near-term production.
With unrisked gross P50 resources estimated at c.500 MMbbls Sarta has the
potential to scale up and be a low-cost, long-life, cash-generative asset.
Should appraisal work prove successful, field production should materially
increase just as payments from the Receivable Settlement Agreement tail
away, ensuring significant free cash flow generation for years to come.
Generating cash, creating opportunity
The generation of free cash flow is a key focus for Genel, and a core tenet
of our strategy for value creation. It is our aim to generate cash while
delivering transformational growth. In 2018 we generated $164 million in
free cash flow at the same time as increasing Peshkabir production and
progressing the development of our asset portfolio. 2019 will see this
strategy ramp up. We will be involved in the drilling of around 20 wells in
the Kurdistan Region of Iraq, progressing plans for Sarta and Qara Dagh,
finalising the commercial discussion relating to Bina Bawi, and still expect
to generate free cash flow of well over $100 million.
We are a Company that is focused on providing material growth and are
investing accordingly. Ingrained capital discipline and a focus on cash flow
generation provides us with increased confidence over our long-term cash
flows, reaffirming our commitment to share success directly with our
shareholders and leading us to initiate a material and sustainable dividend.
As we look to provide investors with a compelling proposition combining both
growth and a material annual return, we are set to approach bondholders to
request a waiver of the dividend restriction so we might facilitate the
acceleration of a first dividend distribution into 2019.
Long-term value creation
Genel has a balanced portfolio combining near-term cash generation and
potentially transformational growth opportunities. We do not see the
additions of the stakes in Sarta and Qara Dagh as being the end of our
ambitions by any means, and we continue to selectively seek further
additions to the portfolio that match our strategic focus.
2018 was a hugely successful year that also sets up the Company for material
growth in years to come. I would like to take this opportunity to thank our
supportive shareholders, whose patience is now being rewarded, and reaffirm
our commitment to becoming a world-class independent E&P creator of
shareholder value.
CEO STATEMENT
2018 was another successful year for Genel. Our continued focus on our key
objectives helped us to deliver our strategic goals, growing reserves,
production, and cash while adding material growth opportunities.
While looking to grow the business, we never forget that our first priority
is the safety and security of our workforce and the communities in which we
operate. We are pleased to report another year of operations without a lost
time incident and there has now been no such incident at Genel or TTOPCO
operations since 2015, over eight million working hours. In 2018 we also met
our objective of zero losses of primary containment. Genel takes great pride
in our operations, and we work hard to continuously improve our systems and
make sure that all possible precautions are in place. This focus, and the
quality of our workforce, is a factor that is attractive to potential
partners, and therefore important to our overall strategic goals.
Material cash generation
Our primary strategic goal in 2018 was the maximisation of free cash flow
from our producing operations. This was our key capital allocation priority,
and the majority of our $95 million of capital expenditure was invested in
the Tawke and Taq Taq PSCs. As previously stated, we look to invest our
capital in those areas that promise to deliver the most value to
shareholders. In 2018 the priority was therefore Peshkabir, where
exceptional well performance delivers returns of over $8 for every $1
invested, with cost recovery on the initial investment less than a month
after production begins. Few assets anywhere offer such a rapid return.
The investment in the well programme boosted Peshkabir production from
12,000 bopd at the start of 2018 to 55,000 bopd by the year-end. Due to the
high investment returns at Peshkabir, drilling on the Tawke field was
limited in the year, and the field therefore naturally declined. As
Peshkabir moves from appraisal to development, the focus of drilling in 2019
will move back to Tawke. Up to 14 wells are set to be drilled on the main
Tawke field, with the operator expecting production to stabilise at c.75,000
bopd as a result.
Drilling activity at Taq Taq was also limited in 2018. Work in H1 2018
focused on workovers and well management, and so the performance of the
field ahead of the resumption of drilling was very encouraging, with minimal
production declines. We are now two wells into a five well drilling
programme, focused on the flanks of the field. Production from the last two
wells, TT-29w and TT-32, has been robust - and illustrates that there are
still wells to be drilled at Taq Taq that are attractive economically. The
positive performance has significantly increased well profitability, making
wells at Taq Taq again an attractive capital allocation option.
This focus on capital allocation, and the positive drilling results, helped
boost our free cash flow to $164 million. We expect to continue generating
material free cash flow in 2019 - $44 million was generated in the first two
months of the year - even after investing in the tremendous profitable
growth opportunities within our portfolio.
Adding growth opportunities
The addition of stakes in Sarta and Qara Dagh was a huge positive for Genel.
The two fields provide precisely what we are looking for as we take steps to
build a portfolio of high-value assets - low-cost, low-risk entry into
opportunities that promise near-term production, with material growth
potential and significant longer term upside.
Sarta will be brought on to production in 2020, and it has the potential for
production to ramp up to transformational levels. In the success case, Sarta
perfectly fits into Genel's production profile, with the potential to add
company-changing cash flows after the override payments under the receivable
settlement agreement end in H2 2022.
Being chosen as a partner by Chevron is a real boost for Genel, and the
combination of the two companies brings together Genel's experience in the
KRI and low-cost operating capability on the ground with Chevron's oil major
capabilities.
We look forward to getting started both at Sarta and Qara Dagh, with the
latter most likely being the premier remaining appraisal opportunity in the
KRI. There is a proven hydrocarbon system on the block, with a previous well
drilled off structure flowing light oil. The chance to therefore drill a
more optimally located well is enormously exciting.
Bina Bawi is the third asset in our portfolio that has transformational
growth potential. With light oil able to be produced within six months of
the agreement of commercial terms with the government it is a significant
opportunity, although progress on reaching such an agreement with the
Kurdistan Regional Government ('KRG') has been challenging. A field
development plan ('FDP') for Bina Bawi relating to both oil and gas was
submitted in H2 2018 detailing the early production of light oil and taking
a phased development approach towards the gas, which would reduce initial
capital expenditure and achieve the earliest date for first gas.
Talks have recently focused on how best to develop the oil and progress the
gas project. The deadline to meet the conditions precedent related to the
Bina Bawi gas lifting agreement has been extended until 30 April 2019, after
which there is a further 12 months to renegotiate the gas lifting agreement.
Constructive talks are continuing, and can do so after April, and any
significant further investment in the Bina Bawi licence will be subject to
an appropriate commercial solution agreed with the KRG.
A field development plan was also submitted for Miran. As noted in our
trading and operations update in January, with the focus on Bina Bawi, we
have reviewed of the value of the Miran PSC carried in the Company accounts.
The decision has been made to write down the Miran asset by $424 million,
pending any movement on field development discussions. We continue to
believe that the licence holds significant potential, and development can
follow a similar plan to Bina Bawi, but pending clarity on a development
timeline, this is a prudent action based on accounting principles.
Returning capital to shareholders
Genel has a balanced portfolio, with material production and cash generation
and transformational growth opportunities in the pipeline. These
opportunities are more than funded out of our current cash flow, and our
outlook illustrates that our cash position will continue to grow over the
long-term while still allowing for ongoing portfolio investment and more. As
such, now is the right time for us to initiate a material and sustainable
dividend policy.
Outlook
In 2019 we expect production to grow, material cash generation, and the
progression of the opportunities in our portfolio.
Our strategic ambitions remain clear - we will focus on generating cash,
investing in opportunities, and returning capital to shareholders. Our
ability to do the latter is the next step in delivering on our strategy. We
remain committed to materially growing the company, and will actively
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appraise opportunities to make disciplined additions to the portfolio that
will further bolster our cash generation story.
OPERATING REVIEW
Reserves and resources development
Genel's proven (1P) and proven plus probable (2P) net working interest
reserves totalled 99 MMbbls and 155 MMbbls respectively, a reserve
replacement ratio of 117% and 141%.
This increase follows successful drilling at Peshkabir helping bolster
reserves replacement on the Tawke PSC, stability at Taq Taq, and the
addition of reserves at Sarta post-period end.
Remaining reserves Resources (MMboe)
(MMboe)
Contingent Prospective
1P 2P 1C 2C Best
Gross Net Gross Net Gross Net Gross Net Gross Net
31 December 371 97 559 150 1,306 1,2 3,022 2,81 3,682 2,549
2017 39 3
Production (46) (12) (46) (12) - - - - - -
Extensions - - - - - - - - - -
and
discoveries
New - - - - - - - - - -
development
s
Revision of 44 11 27 7 (32) (9) (197) (52) (15) (7)
previous
estimates
31 December 369 96 540 145 1,274 1,2 2,826 2,76 4,267 2,731
2018 30 1
Post-period 10 3 34 10 - - - - 600 189
acquisition
Updated 379 99 574 155 1,274 1,2 2,826 2,76 3,667 2,542
reserves 30 1
and
resources
Production
Production in 2018 was 33,700 bopd, with the success at Peshkabir and
stability at Taq Taq helping to offset the natural field declines at Tawke.
Drilling in 2018 was concentrated on the successful appraisal campaign at
Peshkabir, with only limited activity at the Tawke field and Taq Taq. 2019
will see more development work at Peshkabir, while 10 wells are set to be
drilled at Tawke and four at Taq Taq. Through stabilising production at
Tawke, Genel expects production in 2019 to be roughly in line with that of
Q4 2018, 36,900 bopd, an increase of approximately 10% year-on-year.
Work over the last two years has significantly diversified our producing
well stock. At the start of 2017 production came from 46 wells at two
fields. The number of producing wells had increased by 50% by January 2019,
and our production now comes from 69 wells at three fields, making the
portfolio more diverse and reliable for production and cash flow.
Average production in 2019 to date is 37,200 bopd, in line with guidance.
KRI assets
Tawke PSC (25% working interest)
Production on the Tawke PSC, operated by DNO, averaged 113,020 bopd in 2018,
with production from Peshkabir contributing 27,660 bopd to this figure. With
drilling activity on the Tawke PSC concentrating on Peshkabir, production at
the Tawke field declined to 75,000 bopd by the end of 2018. Work in 2019
will be focused on stabilising production, and 10 wells have been included
in Genel's firm activity plan for the year, with the operator planning to
drill up to 14.
Activity in H1 2018 included ongoing workovers of existing wells, and
limited drilling resumed in H2. One deep Cretaceous well and two shallow
Jeribe wells were brought onstream, and these zones will continue to be
targeted for production in 2019.
Peshkabir
Ongoing drilling success at Peshkabir resulted in production increasing from
12,000 bopd in January to over 55,000 bopd at the end of 2018, ahead of
schedule and under budget. Wells were drilled across the structure, and each
successfully added to production.
Ahead of the commissioning of a 50,000 bopd central processing facility
('CPF') each well produced via test spreads, a cost-effective way of
maximising cash generation while appraising the field. This is a model that
we will look to replicate at Sarta and Qara Dagh.
In 2018 the focus at the field was on drilling and appraising, and six wells
were drilled in the year. Another two are scheduled in our firm budget for
2019, when field development work will come to the fore. As well as the
ongoing commissioning of a 50,000 bopd CPF, a 60,000 bopd capacity pipeline
is under construction and work will begin later in the year on building the
gas gathering and processing facilities to enable reinjection of the
associated gas produced at the field into the Tawke field, both reducing
flaring and increasing recoverability at the latter. The gas gathering and
injection system is forecast to be operational in early 2020.
The first well in the 2019 programme, Peshkabir-9, has now been completed as
a producing well. The well was drilled on the eastern flank of the
structure, two kilometres from the Peshkabir-3 well, and therefore confirms
production across the entirety of the Peshkabir structure. Production at
Peshkabir is currently c.55,000 bopd.
Taq Taq (44% working interest, joint operator)
Taq Taq performed well in 2018, with production stabilising in the second
half of the year through successful field management operations and
workovers. Drilling on the field has restarted in earnest, with successful
progress being made on our five well programme targeting the flanks of the
field. Two wells in the programme have now been completed.
The TT-32 well on the northern flank followed the success of TT-29w, and it
is currently contributing c.3,000 bopd to overall field production. The rig
has now moved to drill the TT-20 well, with a further three wells scheduled
to be drilled at Taq Taq in 2019. We will continue with the current well
programme, with the aim of adding to overall field production.
Sarta (30% working interest)
Having completed the transaction in February, the field partners are now
progressing with the development of the asset, which will be done in phases.
Phase 1A begins with the recompletion of the Sarta-2 well and the placing of
the Sarta-3 well on production, both of which flowed c.7,500 bopd on test,
and the construction of a central processing facility with a 20,000 bopd
capacity. The processing facility will be installed on a lease operate
maintain basis.
First oil is expected in the middle of 2020, with a total cost to Genel of
$60 million to the end of 2020. Initial production will be trucked.
Following the completion of the initial wells in 2020, it is expected that
the rig will move to drill back to back development wells as we rapidly
appraise the field. Further production capacity will then be added as
required as the field is developed and production ramps up, with test
spreads being used in a similar way as they were in the development of
Peshkabir.
The use of an appraise while producing strategy akin to Peshkabir will allow
for the optimal evaluation of the gross resources with further production
capacity being added as the field is appraised.
Qara Dagh (40% working interest, operator)
Genel acquired 40% equity in the Qara Dagh appraisal licence and became the
operator through a carry arrangement, covering activity for the QD-2 well.
This well is estimated to cost c.$40 million and is set to be drilled in H1
2020.
Qara Dagh offers an exciting appraisal opportunity. The QD-1 well, completed
in 2011, tested light oil in two zones from the Shiranish formation. This is
despite it being drilled on a location based on an incorrect structural
model, which has since been re-evaluated through the subsequent reprocessing
of 2D seismic, further 2D seismic acquisition, and the integration of
learnings from the QD-1 well.
The QD-2 well is designed to test a more crestal position on the structure
with a high angle well to maximise contact with reservoir fractures. Work is
underway on assessing the optimal location for the well.
Bina Bawi and Miran (100% working interest, operator)
Bina Bawi and Miran are assets that have the potential to generate
significant shareholder value, and efforts in 2018 continued to explore a
commercial solution to allow the unlocking of the material resources.
Work is focused on Bina Bawi, where the potential for the development of
light oil provides the opportunity for near-term revenues that in turn can
be used to expedite the development of the 8.2 Tcf of gas resources. The
field is also preferentially situated, being only 30 km from Taq Taq's
central processing facility and export route.
The FDP for oil at Bina Bawi detailed the production of 15 MMbbls of light
oil during the first phase, with first oil production being possible around
six months following final investment decision, which is predicated on
approval by the KRG.
The FDP for gas at Bina Bawi detailed a gas project with an initial raw gas
capacity of 250-300 MMscfd, adopting a modular development strategy that
would utilise incremental increases as facilities are replicated. This
reduces the capital expenditure requirement to first gas while retaining
material future upside. Operational progress at Bina Bawi is dependent on an
agreement on commercial terms, and Genel will step up efforts to bring in a
partner once the project is more clearly defined. Any progress at Miran
would be subsequent to Bina Bawi.
Exploration and appraisal
Africa
Onshore Somaliland, seismic processing completed on the SL-10-B/13 block
(Genel 75% working interest, operator) in Q4 2018, and analysis and
interpretation is underway. Initial indications confirm the Company view
that the block has hydrocarbon potential. Genel continues to develop a
prospect inventory and assess next steps ahead of a farm-out process and
potentially spudding a well with a partner in 2020. On the Odewayne block
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