DJ Genel Energy PLC: Half-Year Results
Genel Energy PLC (GENL)
Genel Energy PLC: Half-Year Results
06-Aug-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.
6 August 2019
Genel Energy plc
Unaudited results for the period ended 30 June 2019
Genel Energy plc ('Genel' or 'the Company') announces its unaudited results
for the six months ended 30 June 2019.
Bill Higgs, Chief Executive of Genel, said:
"These results demonstrate the continued success of our strategy - highly
cash generative production underpins capital investment in growth
opportunities that deliver rapid returns and enables a compelling cash
return to shareholders through our dividend.
Our production grew 17% in H1 2019, and pro forma free cash flow rose to $76
million. This cash generation, and our strong balance sheet, allows us to
both increase investment in growing the business as well as returning cash
to shareholders via dividends. Accordingly, we have today announced an
interim dividend of $14 million.
Disciplined capital allocation remains at the core of our business. The
speed with which our investments pay back means that cash is quickly
recycled to create most value for shareholders. The cash that our production
generates funds work now underway at Sarta and Qara Dagh, with plenty left
over to both pay a dividend and seek new opportunities, as we progress
Genel's growth strategy."
Results summary ($ million unless stated)
H1 H1 FY
2019 2018 2018
Production (bopd, working interest) 37,400 32,100 33,700
Revenue 194.3 161.1 355.1
EBITDAX 1 167.3 137.4 304.1
Depreciation and amortisation (74.8) (63.6) (136.2)
Exploration (expense) / credit (0.6) (0.5) 1.5
Impairment of intangible assets - - (424.0)
Operating profit / (loss) 91.9 73.3 (254.6)
Cash flow from operating activities 142.3 125.1 299.2
Capital expenditure 72.2 34.1 95.5
Free cash flow2 56.7 70.1 164.2
Pro forma free cash flow2 75.6 70.1 164.2
Dividend payments 27.4 - -
Cash3 353.3 233.2 334.3
Total debt 300.0 300.0 300.0
Net cash (debt)4 55.8 (63.8) 37.0
Basic EPS (¢ per share) 27.2 21.3 (101.6)
Underlying EPS (¢ per share)1 59.9 49.2 109.0
1) EBITDAX is operating profit / (loss) adjusted for the add back of
depreciation and amortisation ($74.8 million) and exploration expense
($0.6 million). Underlying EPS is EBITDAX divided by the weighted average
number of ordinary shares
2) Free cash flow is set out on page 7 and does not include $18.9 million,
invoiced for Tawke production and due in June 2019 and received late on 9
July 2019, with the delay due to a change in the Operator's banking
arrangements. Pro forma free cash flow of $75.6 million includes this
payment.
3) Cash reported at 30 June 2019 excludes $10 million of restricted cash
and the $18.9 million noted above
4) Reported IFRS debt less cash
Highlights
· Working interest production averaged 37,400 bopd in H1 2019 (H1 2018:
32,100 bopd), an increase of 17% compared to H1 2018
· 8 wells completed in H1 2019, resulting in year-on-year production
increases at both the Tawke and Taq Taq PSCs
· Free cash generation of $57 million in H1 2019 (H1 2018: $70 million),
which increases to $76 million when including the post period receipt of
$19 million, with annual free cash flow yield of c.20% of current market
capitalisation
· Net cash of $56 million at 30 June 2019 (net debt of $64 million at 30
June 2018)
· Following the receipt of all payments relating to April 2019, Genel
had $390 million of cash as of 5 August 2019, a net cash position of $92
million
· Addition of Sarta and Qara Dagh to the portfolio in January 2019
provides near-term production and material future growth potential
· Maiden dividend distribution of 10¢ per share paid on 24 June 2019
· Interim dividend of 5¢ per share confirmed
· Genel retains an open mandate for a share buy-back programme of up to
$10 million, and will continue to review purchasing opportunities
Outlook
· Net production guidance in 2019 maintained at close to Q4 2018 levels of
36,900 bopd, an increase of c.10% year-on-year
· Drilling programme ongoing, with over 10 wells set to be completed by
early 2020
· Active discussions with the Kurdistan Regional Government ('KRG')
regarding Bina Bawi are ongoing, focused on agreeing the detailed
commercial terms for the integrated Phase 1 oil and gas development and
approval of the associated field development plans
· Work continuing at Sarta to prepare for production by the middle of 2020
· QD-2 well location agreed at Qara Dagh, well pad civil engineering work
set to begin
· Farm-out process relating to Somaliland acreage to begin in late Q3 2019
· Genel expects to generate material free cash flow in H2 2019, even while
investment in growth increases
· 2019 capital expenditure is expected to be towards the top end of the
$150-170 million guidance range
· Searches for a new Chairman and Chief Operating Officer are progressing
· The Company continues to actively pursue growth and is assessing
opportunities to make value-accretive additions to the portfolio
For further information, please contact:
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 0930 BST,
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. The information contained
herein has not been audited and may be subject to further review.
CEO STATEMENT
Genel aims to be a world-class creator of shareholder value by growing
high-margin production through rapid development and an efficient use of
capital, recycling cash flows into an expanding asset portfolio with the
potential to deliver significant growth, while generating sufficient cash
throughout the investment cycle to fund a material and progressive dividend.
GENERATING CASH WHILE INVESTING IN GROWTH
The oil we produce is good quality, low-cost, and highly cash generative,
with a development model focused on optimising cost and minimising
development risk. This makes our business highly cash generative. Setting us
apart from the majority of our peers both within the region and outside, we
have been able to materially increase production without significant cash
out - in fact our asset portfolio generates material free cash flow even
while increasing production.
This is best illustrated by the Tawke PSC, where production at Peshkabir has
increased from 12,000 bopd at the end of 2017 to over 55,000 bopd. While
doing so Peshkabir continues to generate material free cash flow, adding $32
million in the first half of 2019. Overall, capital expenditure in the first
half of $72 million has nearly doubled from last year, but still free cash
flow increased year-on-year.
Our low-cost production also makes us resilient to oil price fluctuations,
and we generate cash at a low oil price. As an illustration, even if the
Brent oil price averaged $36/bbl in 2019 we would still generate sufficient
cash to pay our dividend of $40 million from free cash flow.
The level and speed of our cash generation allows us the optionality to
recycle capital into those areas that promise to create the maximum
shareholder value. The priority remains investing in our current producing
assets to underpin this cash generation, and subsequently spending is now
set to ramp up at Sarta and Qara Dagh.
Commercial discussions continue on Bina Bawi, and we are increasingly
confident of making sufficient progress to enable work on the ground to
begin next year, with the potential for Bina Bawi oil to also add to our
production in 2020. And we will continue to generate free cash flow even
after making these investments in growth.
A MATERIAL AND PROGRESSIVE DIVIDEND
With our strong cash generation, even while investing in growth and adding
assets to the portfolio, paying a dividend was the ultimate intended outcome
of our strategy. With our portfolio having the potential to double
production in coming years, and an M&A strategy focused on boosting
near-term cash generation, we see the baseline annual distribution of $40
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million as having the potential to grow on an annual basis.
FOCUS ON ESG
ESG continues to be a key focus of Genel, and we are committed to acting as
a socially responsible contributor to the global energy mix. On the
environmental side, we aim to minimise GHG emissions per barrel across the
portfolio. Working with DNO at Peshkabir, the reinjection of gas into the
Tawke field will eliminate routine flaring while having the added bonus of a
positive return on investment - another financial benefit that sets us apart
from some of our peers.
As work progresses on Sarta, we will keep emissions to a minimum ahead of
initiating a flares out programme in due course, and further our social
investment work. Previously this work has centred on the area surrounding
Taq Taq through work focusing on the environment, health, education, and
economic empowerment, and initiatives are set to get under way around Sarta
and Qara Dagh. Genel will continue to strive to ensure that the local
community benefits from the work we do in their community.
OPERATING REVIEW
PRODUCING ASSETS
Working interest production in H1 2019 averaged 37,400 bopd, a rise of 17%
year-on-year.
(by PSC Export via Refinery Total Total Genel net
in bopd) pipeline sales sales productio productio
n1 n
Tawke 127,070 - 127,070 126,650 31,660
(inc.
Peshkabir
)
Taq Taq 13,135 - 13,135 13,150 5,785
Total 140,205 - 140,205 139,800 37,445
1 Difference between production and sales relates to inventory movements
All sales during the period were invoiced at the wellhead export netback
price.
Tawke PSC (25% working interest)
Production from the Tawke PSC averaged 126,650 bopd, an increase of 20%
year-on-year and 12% on the FY 2018 figure. This performance was the result
of the success of Peshkabir, where production averaged 54,950 bopd.
Production from the Tawke PSC continues to be highly cash-generative,
contributing $87 million in free cash flow at an asset level.
The underlying well stock at the Tawke field has produced in line with
expectations. Drilling is required to offset natural field decline, and
three wells came onto production in the period. T-52 came on stream in
mid-February, and T-54 in April, and the two wells have averaged c.3,500
bopd in combined additional production. The T-55 well began adding to
production in June and will be followed by a further four confirmed
cretaceous producers, while the T-57 well will test the Jurassic potential
at Tawke. The field partners will also drill a programme of shallower Jeribe
wells.
Peshkabir continues to perform well, with success at both the P-9 and P-10
wells helping increase production. Surface facility work has also been
completed, and production from the P-2 and P-3 wells is now flowing through
the 50,000 bopd central processing facility. Trucking activity is set to be
eliminated following the commissioning of the 60,000 bopd pipeline to
Fishkabour, helping to reduce costs from an already low base.
The P-11 well is nearing completion, and three more wells are scheduled to
spud in 2019. Work on the enhanced oil recovery project wherein gas is piped
from Peshkabir to be injected into the Tawke reservoir, both eliminating
flaring and increasing recovery rates, is now underway and is expected to be
commissioned in H1 2020.
Taq Taq (44% working interest, joint operator)
Drilling on the flanks at Taq Taq continued to bear fruit in H1, and helped
production at the field average 13,150 bopd in H1 2019, an increase of 3%
year-on-year and 6% on the FY 2018 figure. The TT-32 well completed in
January on the northern flank of the field with an initial flow rate of
c.3,000 bopd. This was followed by the TT-20z well, on the western flank,
which entered production at a rate of 2,000 bopd. Both wells have recently
seen a decline in production and are now in line with Genel's expectations,
having been choked back to control water production.
The TT-33 well, on the southern flank, has tested water from three zones,
and has not flowed oil at any significant rate, demonstrating that the free
water level on the southern flank is higher than to the north. Going
forward, the field partners will continue to target the flanks of the field,
with a focus on horizontal wells to delay water production and maximise
recovery. Wells continue to provide a positive return on investment, and Taq
Taq generated $8.4 million of free cash flow in H1 2019. Two horizontal
wells are scheduled to be drilled on the northern flank of the field in the
second half of the year, and the TT-19x well is currently underway. Drilling
in the second half of the year aims to deliver year-on-year production
growth.
PRE-PRODUCTION ASSETS
Sarta (30% working interest)
To date, four exploration wells at Sarta have discovered hydrocarbons at
multiple intervals, from the Tertiary down to the Triassic. This contributes
to the Company's unrisked P50 gross resource estimate of c.500 MMbbls. Phase
1A represents a low-cost development of the Jurasssic Mus-Adaiyah
reservoirs. This phase is designed to recover 2P gross reserves of 34 MMbbls
through two existing wells (Sarta-2 and Sarta-3) both of which flowed at
c.7,500 bopd on test, and one additional development well to be drilled in
2021. Insights from production behaviour during this first phase, combined
with an appraisal and development well campaign planned for 2021, will
provide the technical foundation for prudent expansion investment decisions
aimed at maturing Sarta into a low cost, long-life, cash generative asset.
Construction work for the Phase 1A development is already underway. Civil
engineering work commenced in May ahead of mobilising the facility and
flowline contractors to the field. Production remains on track to begin in
the middle of 2020.
Qara Dagh (40% working interest, operator)
The Qara Dagh prospect was first tested by the vertical exploration well
QD-1 in 2011. The reservoir was encountered much deeper than prognosed and
operational issues meant the well was significantly overbalance when
drilling the reservoir, in so doing damaging the reservoirs ability to flow
hydrocarbons. Despite these setbacks QD-1 still tested a light oil from
Cretaceous fractured carbonates.
Re-evaluation of the structural model post QD-1, based on new 2D seismic
combined with fieldwork, indicates that the well was drilled on the
south-eastern flank of the prospect. The location for the second exploration
well, QD-2, has been chosen to test the structural crest c.10 km to the NW
of where QD-1 flowed oil to surface. QD-2 will be drilled with a deviated
trajectory through the same reservoir tested by QD-1 in order to maximise
fracture intersection. Managed pressure drilling is being considered to
minimise reservoir damage. Genel has undertaken a baseline Environmental,
Social and Health Impact Assessment study and will commence construction
work on the well pad and associated camp shortly. The QD-2 well is on track
to spud in H1 2020.
Bina Bawi and Miran (100% working interest, operator)
Negotiations between Genel and the KRG are ongoing regarding commercial
terms for a staged and integrated oil and gas development.
In line with Genel's strategy, the development of Bina Bawi (and in the
future, Miran) is set to be done in phases. Through disciplined allocation
of capital, Genel is focused on aligning stakeholders and setting the
framework for an attractive and investable project.
Genel and the KRG are now aligned on a phase one upstream project scope
delivering a reduced c.250 MMscfd raw gas. The KRG and Genel will jointly
fund the midstream gas development required to process the raw gas, partly
making use of revenues from the accelerated development of Bina Bawi oil.
Discussions are ongoing, with regular meetings taking place between the KRG
and Genel. Genel has recently made a formal proposal consistent with
previously negotiated terms, balancing initial returns from the development
of oil with the medium-term requirement for funding the midstream
development.
Genel is seeking approval for this proposal and the Bina Bawi field
development plan in order to commence with the oil development and
commission a FEED study for the award of an Engineering, Procurement,
Construction, Installation & Commissioning ('EPCIC') contract relating to
the midstream development. The latter would take around 12 months, and be
funded via the Bina Bawi oil development.
African exploration
Onshore Somaliland, interpretation of the 2018 2D seismic data together with
continued basin analysis has led to the maturation of a prospects and leads
inventory for the SL10B13 block (Genel 75% working interest and operator)
which confirms the longstanding view that the block has significant
hydrocarbon potential. A number of potentially high impact exploration
targets have been identified within play types directly analogous to the
prolific Yemeni rift basins.
Once these prospects and leads have been quantified in terms of volumetric
potential and associated geological risk the Company will initiate a
farm-out campaign, commencing late Q3 2019. This remains consistent with the
Company's capital allocation approach, as long-term reserves replacement
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