DJ Genel Energy PLC: Full-Year Results
Genel Energy PLC (GENL)
Genel Energy PLC: Full-Year Results
19-March-2020 / 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.
19 March 2020
Genel Energy plc
Audited results for the year ended 31 December 2019
Genel Energy plc ('Genel' or 'the Company') announces its audited results
for the year ended 31 December 2019.
Bill Higgs, Chief Executive of Genel, said:
"The industry is currently facing headwinds that challenge companies to
demonstrate their resilience and flexibility. Genel has a business model and
strategy designed to shelter us from such extreme circumstances, with
low-cost oil production, robust finances, and flexibility in our expenditure
allowing us to pay a material dividend while retaining sufficient liquidity
to capitalise on opportunities and take advantage of future upside. Our
strong balance sheet with limited capital commitments allows us to invest in
the most value accretive areas and pay this dividend at the prevailing oil
price, even in a scenario with a temporary delay in payments from the KRG.
We are a business that can generate excess cash at a sustained oil price of
$40/bbl.
Given the resilience of the business, our strong performance in 2019, and
our view of future prospects, we have retained our dividend of 10¢ per
share, deferring an increase until external conditions improve. This is a
yield of over 20% on our current share price, offering investors the
compelling combination of a significant yield from a sustainable dividend
and funded growth. Our portfolio positions us well for a future of fewer and
better natural resources projects. It is low-cost and low-carbon - the right
assets, in the right location, with the right footprint."
Results summary ($ million unless stated)
2019 2018
Production (bopd, working interest) 36,250 33,700
Revenue 377.2 355.1
EBITDAX1 321.8 304.1
Depreciation and amortisation (158.5) (136.2)
Exploration (expense) / credit (1.2) 1.5
Impairment of oil and gas assets (29.8) (424.0)
Operating profit / (loss) 132.3 (254.6)
Underlying profit2 134.9 138.9
Cash flow from operating activities 272.9 299.2
Capital expenditure 158.1 95.5
Free cash flow3 99.0 172.7
Dividends declared 40.8 -
Cash4 390.7 334.3
Cash after dividend5 377.1 334.3
Total debt 300.0 300.0
Net cash6 92.8 37.0
Dividend (declared and proposed) per share (¢ 15.0 -
per share)
Basic EPS (¢ per share) 37.8 (101.6)
Underlying EPS (¢ per share)2 49.0 49.8
1) EBITDAX is operating profit / (loss) adjusted for the add back of
depreciation and amortisation ($158.5 million), exploration expense ($1.2
million) and impairment of property, plant and equipment ($29.8 million).
2) Underlying profit is reconciled on page 13
3) Free cash flow is reconciled on page 14
4) Cash reported at 31 December 2019 excludes $3.0 million of restricted
cash
5) Cash reported at 31 December 2019 less interim dividend paid ($13.6
million) on 8 January 2020
6) Reported cash less IFRS debt
Highlights
· Ongoing strategic delivery from a strong financial platform, as highly
cash-generative oil production increased to 36,250 bopd, up 8%
year-on-year
· Free cash flow ('FCF') of $99 million in 2019, pre dividend payment
· This increases to $153 million (2018: $173 million), or $0.55 per
share, taking into account the receipt of $54 million in payments from
the Kurdistan Regional Government, due in 2019 and subsequently received
in January 2020
· Maiden dividend declared and $41 million distributed to shareholders
· Cash of $391 million at 31 December 2019 ($334 million at 31 December
2018)
· Net cash of $93 million at 31 December 2019 (net cash of $37 million at
31 December 2018)
· Production cost of $2.9/bbl in 2019
· Continued focus on safety: zero lost time incidents and zero losses of
primary containment in 2019
Outlook
· Genel is resilient to an oil price of $30/bbl, as low-cost production, a
flexible capital structure, and robust balance sheet allows the payment of
a material dividend, and the retention of a material net cash position at
year-end 2020
· Genel has significant capital allocation flexibility with limited
commitments, is committed to retaining a strong balance sheet, and will
ensure expenditure matches the external environment
· Capital expenditure can be reduced to as little as $60 million in
2020, with an expectation that it will be around $100 million at the
prevailing oil price, covering maintenance expenditure across our
producing licences and investment at Sarta
· Genel will sanction activity relating to the expenditure covered in
the original $160 million to $200 million guidance range, as and when
the external environment improves
· COVID-19 is impacting the ease of operating in the Kurdistan Region of
Iraq. Our producing operations are currently continuing with a reduced
staff, but further activity is under review
· Given the current market conditions, coupled with the delay in
payments from the KRG, drilling activity at the Tawke PSC has been
scaled back
· Due to the delayed expenditure, 2020 net production guidance of close
to Q4 2019 levels of 35,410 bopd is expected to be impacted, with the
reduced producing asset work programme increasing cash flow generation
in 2020 at the prevailing oil price, although a lower exit rate
production will impact 2021
· The Qara Dagh-2 well, which was set to spud in Q2 2020, is now likely
to be delayed
· Payments for production in October and November 2019, due in January and
February 2020, have not been received. The KRG continues to state the
importance of ongoing payments to oil companies, and we expect the
government to deliver on this promise
· Operating cash costs per barrel expected to be $3/bbl, amongst the
lowest in the industry, fitting into a world of fewer and better natural
resources projects
· Genel is yet to receive draft legal documents reflecting the commercial
understanding reached on Bina Bawi in September 2019, despite promises
from the KRG
· Emissions at Tawke and Taq Taq will reduce to 7kg CO2/bbl following
completion of the enhanced oil recovery project at Tawke PSC in H1 2020
· Given the resilience of the business and our strong performance in 2019,
the Board is accordingly recommending a final dividend of 10¢ per share
(2019: 10¢ per share), a distribution of c.$27.8 million, with a view to
increasing the 2020 interim distribution should market conditions improve
· Genel will seek to take advantage of opportunities to repurchase bonds
at a value-accretive price
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 1000 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 ninth annual report, and my
first as Chairman.
The recent oil price fall, and the as yet unquantifiable impact of the
COVID-19 virus, provide significant headwinds, but I am confident that we
have the right mix of low-cost assets, flexible expenditure, and financial
strength to help us navigate challenges and thrive as the environment
improves.
Viewed externally, it was clear to me that Genel has a strong portfolio with
an attractive mix of assets at complementary stages of their life cycle.
High-margin producing fields provide the capital to rapidly develop assets
with material potential, which in turn will generate more cash to be quickly
recycled into the next phase of growth. It is a rare opportunity to join a
company with such a balanced and advantageous portfolio that is able to
generate cashflow that creates its own suite of opportunities. It is a
testament to my predecessor, Stephen Whyte, that the business is in such
good shape, and I would like to thank him on behalf of the Company for his
hard work in helping transform Genel's prospects.
Having now had the chance to get to know the people at Genel, I have been
impressed by the first-class management team, and I have no doubt about the
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DJ Genel Energy PLC: Full-Year Results -2-
ambition and the growth potential of the business. The quality of assets and people provide a compelling mix, we are a full cycle oil and gas company with expertise across the value chain above and beyond what you would typically see at a similar sized business, and I look forward to working with management as the Board seeks to oversee a period of significant growth, and the creation of material value for shareholders. Clear strategy Our focus is firmly on ensuring our ongoing resilience, enhancing cash flows, and creating optionality. Growing high-margin production, investing in growth, and returning cash to shareholders through a material and progressive dividend is a simple and appealing strategy, with the goal of creating long-term shareholder value. Genel delivered on this strategy in 2019, with almost $100 million of free cash flow generated, even while boosting investment in new growth assets. The Company paid its first dividend in the year, and we hope to grow the total distribution in 2020. We continue to focus on delivery, and Sarta is set to enter production in the coming months, further diversifying our producing asset base. Investment in growth assets is set to continue. Qara Dagh offers exciting potential, and we look forward to drilling the QD-2 well as soon as the situation with COVID-19 improves. With success and a positive operating environment, our organic portfolio has the potential to double our oil production in the coming years, and we also continue to seek cash-generative growth through acquisitions. Given the potential in our existing portfolio though, we are not compelled to make acquisitions, and will only do so should we find an opportunity that fulfils our strict criteria. Overseeing growth Genel has a strong and experienced Board, with a deep understanding of the oil and gas business, and a highly detailed working knowledge of the Kurdistan Region of Iraq and surrounding areas that allows us the best possible opportunity to understand and mitigate risk. As you would expect, managing risk is a key focus for the Board. The first priority is of course the safety of our employees and contractors, and we will continue to support management as we strive to continue our excellent performance in this area. As well as safety, employee wellbeing is also important, as a content workforce is a motivated one. The recent introduction of the Genel values emphasises the importance we place not just on the work that we do, but on the way that we do it. A key issue that natural resources companies must address relates to our role in a world facing the threat posed by a changing climate. Reducing emissions across the industry through the reduction of flaring and increased efficiency is a must, while still providing the power to fuel rising living standards. Genel has an important role to play in the forthcoming energy transition and as well as being the right thing to do, positioning Genel appropriately will boost our attractiveness to potential employees and shareholders, and is something that the Board will increasingly focus on going forward. Sustainability As someone who has spent several decades working in the energy industry, it is obvious to me that we are in a period of significant and necessary change, and Genel can and should be at the forefront of that process. When I joined the oil and gas business forty years ago it was an exciting world technically, commercially, and politically. The industry has always been a leader of technological innovation, and the energy that it provides through the production of oil and gas remains vital in order to reduce energy poverty and drive global development - not least by increasing the living standards of people in the developing world. Given the forward-thinking nature of people in the business, and its history of rapid evolution and innovation with the highest regard to HSE standards, the industry is well placed to evolve and support the delivery of the world's power needs during the energy transition. Sustainability is certainly at the forefront of the minds of the management of Genel, and ESG metrics are now incorporated into the remuneration evaluations of senior management for 2020. We recognise our need to provide the world with high-margin, low-carbon barrels that fit into a world of fewer and more efficient natural resources projects, as we continue to build on our aim of creating shareholder value over the long-term as a socially responsible contributor to the global energy mix. CEO STATEMENT Delivering on our strategy Genel remains focused on delivery, in the firm belief that ongoing delivery of our strategy will see the Company grow and prosper, and in turn provide a compelling offering to investors that will deliver significant shareholder value. External factors are currently providing a very challenging backdrop, but we have a strategy fit for this environment, as we have long been focused on reducing costs, retaining a strong balance sheet, and maximising our flexibility to use this balance sheet in whichever ways can create most shareholder value. In 2019 we delivered on our promises. Production of 36,250 bopd represents a year-on-year increase of 8%, and once again was in line with our guidance. This production, coupled with our focus on cost and cash generation, delivered just under $100 million of free cash flow, even after a notable increase in investment that sets us up to deliver further growth going forward. The level of our cash generation also allowed us to initiate a material and sustainable dividend, a dividend that our resilience allows us to maintain at the same level at the prevailing oil price. Given the external conditions, we have deferred an increase in the dividend until our interim distribution, pending an improvement in the external environment. As well as this organic success, in Sarta and Qara Dagh we added high-quality assets with near-term cash flow. We are already the only multi-licence producer in the Kurdistan Region of Iraq, and production at Sarta will further diversify our producing base when it comes onstream this summer. Sarta has the potential to be one of the biggest fields in the KRI and is at exactly the stage in the asset life cycle that complements our existing portfolio. We now have a portfolio with mature and low-cost production, a field set to start producing that benefits from a large pool of past costs, and appraisal of another high-impact opportunity at Qara Dagh. Progress on Bina Bawi has been frustrating, as despite positive progress in discussions leading to an understanding on commercial terms being reached last year, we have not yet received drafts of the legal agreements that will allow us to progress the development of this asset. Genel has geared up for the increased activity ahead, adding strength in depth to our team in 2019. This has boosted internal capabilities in order to have the workforce in place to continue to deliver operational excellence, and this readiness to work to the very highest international standards positions us well to grow as the only multi-licence producing operator in the KRI. A business fit for a low oil price environment Genel's portfolio is advantageously positioned in a low oil price environment. Our cost of producing a barrel of oil in 2020 is expected to be around $3, which is amongst the lowest in the world. We have a net cash position of almost $100 million and flexibility on capital expenditure, allowing us to spend appropriately to the external environment and balance the maximisation of our cash flows with investment in growth. Of course, this investment in the KRI can only continue with confidence in regular payments, which the KRG understands. Should payments continue, despite the low oil price, given our cost base and financial firepower, there are opportunities out there that Genel is well positioned to capitalise on. As Genel grows, we will not lose sight of our focus on acting in the right way as a responsible natural resources company that is committed to ensuring that our actions have a wider benefit. We recently formalised the Genel values, and it is my firm belief that acting according to our values will create a virtuous circle, seeing us deliver our strategy and in turn value for our stakeholders. A business fit for the future An approach combining thorough risk assessment and management, best in class operational execution and a hard-wired awareness of our ESG responsibilities, is of paramount importance at a time when the world is facing unprecedented challenges in balancing the provision of energy where it is needed with a changing climate. As we transition to a future of fewer and more efficient natural resources projects there will be winners and losers in the energy sector. This provides an exciting opportunity to position Genel as a winner in meeting the challenges that mankind faces in relation to energy. Natural resources companies that have a role to play during the energy transition, those that will be seen as the winners, are the ones that can provide low-cost, low-carbon energy, in the right locations - jurisdictions where the economic development of their resources provides a clear and compelling benefit to the communities in which the resources are found and produced. Some regions also need the economic boost from power generation in order to fund basic development, and need the power itself to keep the lights on in hospitals and schools. People need energy, and we are proud to provide it in a socially responsible way. The onshore nature of our operations helps reduce our carbon footprint,
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something that we are focused on at each field we participate in. Following
the completion of the enhanced oil recovery project at the Tawke licence in
the first half of this year, for which currently flared gas at Peshkabir
will instead be reinjected to increase long-term recovery rates at Tawke,
CO2 equivalent emissions from our producing assets will fall to c.7
kilograms per barrel. While this figure will increase as Sarta enters
production, plans are already in place to mitigate and eventually eliminate
the routine flaring that will initially occur at this field as production
expands in the coming years.
We are also proud of the significant social impact that our operations have
had and continue to have in the KRI and the prosperity that has been created
through direct employment and the building of a wide-reaching supply chain.
Extensive social projects throughout the years, from the building of
infrastructure, libraries, and schools, to ongoing community work, including
the successful engagement of our local communities in our recycling
programme, has also had a direct impact and will be continued going forward.
Material organic growth potential
Genel has a low-cost and highly cash-generative oil business, with the
potential for material organic growth. The engine room of our cash
generation in 2020 remains our oil production, which generates asset level
free cash flow even at an oil price of $30/bbl. The bulk of our investment
this year is expected to again be on our producing assets, as the speed of
returns is compelling, and allows us to rapidly recycle capital into our
growth opportunities.
Sarta is the first cab off the rank in terms of new cash-generative
production, and the addition of production from the field is expected in the
summer of 2020. Our near-term focus is on delivering this production, but it
is hard not to get excited by the opportunity of converting over 250 MMbbls
of the gross 2C resources into reserves as we progress work on the field and
meet the contingent milestones. Given the production potential of the field,
our oil business has the possibility of doubling production in coming years.
Prior to the impact of COVID-19 being felt in the KRI, the drilling of the
Qara Dagh-2 well was on track to begin in Q2, and was set to appraise the
licence c.10 km north of the QD-1 well. This well, drilled by a previous
operator, flowed light oil despite being drilled in a sub-optimal way, and
without the benefit of the sub-surface work that has subsequently been done
by Chevron and ourselves. We look forward to drilling this well as soon as
practicable, as a positive well result that demonstrates commercial flow
rates would provide another growth vehicle for Genel, with production that
could be expedited, and once again funded from operational cash flow should
the oil price improve.
Such is the cash flow that our oil business is set to generate in the
long-term, providing payments are regular and the oil price improves, should
a commercial agreement on Bina Bawi be reached we would be able to fund the
upstream development in full and work on developing the gas project while
still retaining surplus cash to grow our dividend. Genel has sought to
progress to such an agreement in good faith and as quickly as possible.
Genel continues to wait to receive the promised draft legal agreements
reflecting the commercial understanding reached last year, which appear to
be delayed due to ongoing transition in the Ministry of Natural Resources
('MNR').
Outlook and catalysts
Our focus in 2020 is again on delivery, and providing catalysts for the
creation of shareholder value. We will continue to mitigate the headwinds
that we are facing, investing flexibly in the business in line with the
external environment, bringing Sarta to production on time, and hopefully
having the opportunity to spud Qara Dagh-2.
Given the breadth of opportunities available within the organic portfolio we
do not need to add assets through acquisition, but we would like to if the
right opportunities of sufficient standard arise - and this oil price may
offer opportunities for a company in our robust financial position. Genel is
aiming to add assets that boost our cash generation and opportunity set,
bringing in further catalysts for the creation of shareholder value as we
look to build a bigger and better company, fit for the future and a
compelling investment proposition.
Genel is well set to navigate a low oil price environment, and ready to
thrive as this environment improves. We are a low-cost business with the
right assets, in the right area, with the right footprint to be a natural
winner as headwinds recede, positioned to benefit all stakeholders, and our
shareholders specifically.
OPERATING REVIEW
Reserves and resources development
Genel's proven (1P) and proven plus probable (2P) net working interest
reserves totalled 69 MMbbls (31 December 2018: 99 MMbbls) and 124 MMbbls (31
December 2018: 155 MMbbls) respectively at the end of 2019.
The majority of this decline related to the Tawke field. The decline in
reserves does not impact short-term production expectations, with the
majority of the decline being later field life barrels.
Net contingent resources (2C) have more than doubled to 152 MMbbls,
following an external audit conducted by ERCE that estimated a mid-case
total recoverable oil resource at Sarta of 593 MMbbls, of which 264 MMbbls
is classified as 2C resource.
Remaining reserves Resources (MMboe)
(MMbbls)
Contingent Prospective
1P 2P 1C 2C Best
Gross Net Gross Net Gross Net Gross Net Gross Net
31 December 379 99 574 155 1,274 1,23 2,826 2,761 4,267 2,73
2018 0 1
Production (50) (13) (50) (13) - - - - - -
Acquisitions - - - - - - - - - 250
Extensions - - - - - - - - - -
and
discoveries
New - - - - - - - - - -
developments
Revision of (71) (17) (70) (18) 19 (58) (234) (447) 105 555
previous
estimates
31 December 258 69 455 124 1,294 1,17 2,592 2,313 4,372 3,53
2019 3 6
Production
Working interest production in 2019 was 36,250 bopd (2018: 33,690 bopd), in
line with guidance and an increase of 8% on the prior year. This increase
was driven by the performance of Peshkabir, where gross production doubled
to 55,190 bopd. In total, 19 new wells added to production in 2019, with
drilling split across the Tawke, Peshkabir and Taq Taq fields.
These new wells have continued to diversify our producing well stock, and
our production now comes from over 80 wells at three fields. The portfolio
will be yet more diverse and reliable for production and cash flow with the
addition of production at Sarta later this year. While average production in
2020 to date is 34,400 bopd, in line with guidance, the delayed expenditure
at Tawke means that 2020 net production guidance of close to Q4 2019 levels
of 35,410 bopd is expected to be impacted. The reduced producing asset work
programme, which could potentially save up to $50 million, will result in
increasing cash flow generation in 2020 at the prevailing oil price,
although lower exit rate production will impact 2021.
PRODUCING ASSETS
Tawke PSC (25% working interest)
Gross production on the Tawke PSC, operated by DNO, averaged 123,940 bopd,
of which Peshkabir contributed 55,190 bopd.
Peshkabir's impressive performance was driven by the successful addition of
production from all four wells completed in 2019. Ten wells are currently
producing at the Peshkabir field. At the Tawke field, the existing well
stock at the Tawke field produced in line with expectations. Further
development drilling activity helped to offset natural field decline in the
field, and 12 wells came onto production in 2019.
The Peshkabir-12 exploration well has been drilled and testing is ongoing,
and a further four firm, and two contingent, producing wells had been
scheduled for 2020. 13 firm and two contingent producers were planned to be
drilled at the Tawke field in 2020, 10 in the Cretaceous and others in the
Jeribe, as the Operator aimed to minimise decline rates. Given the fact that
staff movements and rotations have been impacted by border closings,
quarantines and other coronavirus travel restrictions, and the current delay
in payments from the KRG, this investment has been scaled back. Of the four
rigs at the Tawke site, one rig is set to be released following the
completion of T-69, while two other rigs are set to complete the current
wells at Peshkabir and Tawke and then remain on site, allowing for a prompt
resumption of activity once the external environment allows. One rig will
continue activity at Tawke, focused on workovers and well interventions.
Given the performance of the underlying well stock in 2019, this deferred
investment is expected to be cash flow positive in 2020, although the
increased decline will impact 2021.
The operator expects the Peshkabir-to-Tawke gas gathering and reinjection
project, designed to eliminate flaring at Peshkabir as much as practicable
while increasing oil recovery rates at Tawke, to be completed in April 2020.
Taq Taq (44% working interest, joint operator)
Production at Taq Taq was robust in the first half of 2019, averaging 13,150
bopd, as drilling on the flanks continued to be successful. The TT-32
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