DJ Genel Energy PLC: Half-Year Results
Genel Energy PLC (GENL)
Genel Energy PLC: Half-Year Results
06-Aug-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.
6 August 2020
Genel Energy plc
Unaudited results for the period ended 30 June 2020
Genel Energy plc ('Genel' or 'the Company') announces its unaudited results
for the six months ended 30 June 2020.
Bill Higgs, Chief Executive of Genel, said:
"Genel's robust business model, which is designed to provide resilience in a
challenging environment, has demonstrated its value as the Company
negotiates the headwinds facing the sector in 2020. Our low-cost production
and the capital flexibility within our development programme have enabled us
to preserve the strength of our balance sheet even while investing in
growth. Given the lower oil price and overdue payments, the fact that we
still expect to end 2020 in a net cash position - even after dividend
distributions and making the investment to bring Sarta to production this
year - is a testament to our resilience, and we have today confirmed an
interim dividend of 5¢ per share."
Results summary ($ million unless stated)
H1 2020 H1 2019 FY 2019
Production (bopd, working interest) 32,100 37,400 36,250
Revenue 88.4 194.3 377.2
EBITDAX1 65.1 167.3 321.8
Depreciation and amortisation (82.6) (74.8) (158.5)
Exploration expense (1.3) (0.6) (1.2)
Impairment of oil and gas assets (286.3) - (29.8)
Impairment of trade receivables (34.9) - -
Operating (loss) / profit (340.0) 91.9 132.3
Underlying (loss) / profit2 (32.2) 76.6 134.9
Cash flow from operating activities 85.5 142.3 272.9
Capital expenditure 58.5 72.2 158.1
Free cash flow3 6.5 56.7 99.0
Dividends paid 41.3 27.4 27.4
Cash4 355.3 353.3 390.7
Total debt 300.0 300.0 300.0
Net cash5 57.2 55.8 92.8
Basic EPS (¢ per share) (128.9) 27.2 37.8
Underlying EPS (¢ per share)2 (11.7) 27.4 49.0
Average Brent oil price ($/bbl) 40 65 64
1) EBITDAX is operating (loss) /profit adjusted for the add back of
depreciation and amortisation ($82.6 million), exploration expense ($1.3
million), impairment of property, plant and equipment ($242.0 million),
impairment of intangible assets ($44.3 million) and impairment of trade
receivables ($34.9 million).
2) Underlying EPS is underlying profit (page 9) divided by weighted
average number of shares
3) Free cash flow is reconciled on page 10
4) Cash reported at 30 June 2020 excludes $3.1 million of restricted cash,
and takes into account the dividend paid in June
5) Reported cash less IFRS debt (page 10)
Highlights
· Cash of $355 million at 30 June 2020 ($353 million at 30 June 2019)
· Net cash of $57 million at 30 June 2020 (net cash of $56 million at 30
June 2019)
· $110 million received from the Kurdistan Regional Government ('KRG')
in H1 2020
· Updated payment mechanism introduced in April, under which the KRG
committed to settling monthly sales invoices by the middle of the
following month
· $121 million remains outstanding in relation to oil sales from
November 2019 to February 2020 - discussions continue with the KRG over
settlement arrangements
· Despite the monies outstanding, the fall in oil price and non-payment of
the override, $6.5 million of free cash flow was generated in H1 2020 due
to Genel's low-costs and resilient business model allowing flexible
expenditure
· Production cost of $2.9/bbl in H1 2020
· Capital expenditure of $58.5 million in H1 as spending cut due to the
external environment
· G&A costs of $6.6 million, a reduction of c.30% year-on-year, as
activity is rephased
· Production of 32,100 bopd in H1 2020, due in part to the impact of
COVID-19, coupled with payment uncertainty, resulting in reduced drilling
activity at the Tawke PSC
· Production averaged 33,000 bopd in July 2020, following fast tracking
of activity at the Tawke PSC against an improved backdrop
· Continued focus on safety: zero lost time incidents and zero losses of
primary containment in the period
· Impairments of $286 million largely due to reduction in Brent oil price
forecast
· Interim dividend of 5¢ per share confirmed (2019: 5¢ per share)
Outlook
· Genel's low-cost production, flexible capital investment programme, and
robust balance sheet makes it resilient to lower oil prices, and the
Company expects to retain a net cash position at the end of 2020 at the
prevailing oil price, while still investing in key growth assets
· Capex of c.$45 million expected in H2, with c.50% to be spent on moving
Sarta to production in Q4, where work has continued despite the challenges
resulting from COVID-19
· Genel continues discussions with the KRG regarding the recovery of the
$121 million receivable
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 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
No natural resources company has been immune from the impacts of COVID-19
and the resulting collapse in demand and fall in the oil price. In the face
of this material change in circumstances, we focused on controlling what is
within our power to control in the near-term, while continuing to build the
business fit for a future of fewer and better natural resources projects in
the long-term. In this regard our business model positions us well both now,
as we have a strong balance sheet and limited fixed capital expenditure, and
for the future.
We have a business model designed for tough times, and we moved quickly to
rebase our spending appropriately for the external environment, reducing our
full-year capital expenditure forecast by c.$75 million to just over $100
million, and continuing to focus on managing costs elsewhere in the
business.
Given the external environment, we continued to allocate capital to those
areas that can provide the greatest returns and deliver shareholder value.
Due to the oil price and lack of certainty over the deferred receivable and
override payments, investing at Taq Taq is not currently a priority, and
work at Tawke has the ability to rapidly scale up as the external
environment improves. Despite the reduction in investment, production from
Tawke has been in line with internal expectations, and the significant
increase in production in July is an encouraging illustration of what can be
achieved once investment resumes.
The key focus of capital allocation in 2020 has been Sarta, where work is
continuing along a critical path to production in Q4. Genel is already the
only multi-licence producer in the KRI, and further diversifying production
by bringing Sarta into production with its tremendous growth potential is a
milestone that we are all looking forward to reaching.
It is a testament to our balance sheet and careful financial management
that, even with $121 million outstanding from the KRG for production in
November 2019 to February 2020 and override payments unpaid, we are able to
continue allocating capital to direct returns to shareholders, and our
interim dividend of 5¢ per share has been retained.
While the mechanism through which the receivable from the KRG will be
recovered has yet to be finalised, we are confident that a solution that
works for both parties will be found, as has been done in the past, and our
discussions with the KRG continue.
ESG
As the external environment has deteriorated due to COVID-19, it has not
lessened our focus on ESG. The safety of our workforce and contractors
remains a key priority, and we are pleased to continue our record of not
having a lost-time injury since 2015. We are also working hard on improving
our ESG activities, and better communicating the things that we already do
well.
We recognise that we have a long way to go, but are proud of our track
record in the KRI, where we have aimed to have a positive impact ever since
our operations started almost 15 years ago. In this time, we have funded and
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successfully delivered 245 social investment and community projects,
spending almost $60 million.
In the first half of the year we have become a member of both Transparency
International UK and TRACE, and become a signatory of the United Nations
Global Compact, supporting our aim of being a socially responsible
contributor to the global energy mix. Our sustainability report, due in
September, will provide further detail and enhanced disclosure on all ESG
aspects.
OPERATING REVIEW
The impact of COVID-19 led to a significant reduction in activity in 2020.
By this point of the year, we were expecting to have continued an active
drilling programme at Tawke and Peshkabir, to be drilling at Qara Dagh, and
for Sarta to be advancing towards production. The fall in the oil price and
the delay in receipt of payments from the KRG, resulted in an appropriate
reduction in expenditure at the Tawke PSC, while the direct impact of
COVID-19 on supply chains and the movement of people into the KRI forced us
to notify the KRG of the occurrence of a force majeure event preventing the
Company from being able to perform its contractual obligations as scheduled
at Qara Dagh.
Work has continued at Sarta, our key capital allocation priority in 2020,
and despite the challenges faced initial production is still expected later
this year.
Production
In line with internal expectations given the updated work plan.
(bopd) Gross Net Gross Net
production production production production
H1 2020 H1 2020 H1 2019 H1 2019
Tawke 59,790 14,950 71,700 17,920
Peshkabir 48,790 12,200 54,950 13,740
Taq Taq 11,260 4,950 13,150 5,780
Total 119,840 32,100 139,800 37,440
PRODUCING ASSETS
Tawke PSC (25% working interest)
Gross production from the Tawke licence averaged 108,580 bopd during the
first half of 2020, and 102,000 bopd during the second quarter of the year,
as the operator halted development activity to preserve cash at a time of
historically low and uncertain oil prices.
In June 2020, following the stabilisation of oil prices and export payments,
activity was fast tracked at the Tawke licence and production quickly
increased by 15,000 bopd month-on-month to raise average July 2020
production to 115,000 bopd.
The Peshkabir-to-Tawke gas reinjection project (the first enhanced oil
recovery project in the KRI) was commissioned in June, and aims to unlock
additional oil reserves at Tawke while significantly reducing gas flaring
and CO2 emissions at Peshkabir.
Taq Taq (44% working interest, joint operator)
Production at Taq Taq averaged 11,260 bopd in H1, in line with expectations
given the activity plan. As has been the case for some time, activity at Taq
Taq is focused on maximising cash generation and, given the oil price, the
TT-35 well, which completed in April, was the only well in the 2020 drilling
programme. This well initially added c.600 bopd to production, but is no
longer producing, following a mechanical issue.
Activity at the field will remain appropriate for the external environment
and aligned with our capital allocation priorities, and it is not expected
that there will be any further drilling activity in 2020.
PRE-PRODUCTION ASSETS
Sarta (30% working interest)
Despite the significant operational challenges caused by COVID-19, including
the closure of borders impacting supply chains and the movement of people
into the KRI, work has continued at Sarta, and first oil remains on target
for Q4 this year. Civil construction work at the field is materially
complete, with remaining work now focussing on the completion and
commissioning of the 20,000 bopd capacity early-production facility.
Production will begin following the recompletion of the Sarta-2 well,
re-entry of the Sarta-3 well, and commissioning of the facility through
which oil will be produced and processed ahead of tanker loading and
transport to the export pipeline at Khurmala.
With first oil now in sight, plans are well underway for the next stage of
the phase 1A pilot development, an appraisal programme which aims to fully
utilise the facility capacity and convert more of the 253 MMbbls of gross
resources assigned by ERCE to the Mus-Adaiyah-Butmah reservoirs into
reserves. A three well campaign is scheduled for 2021, with environmental
baselining underway ahead of construction of the well pads, in line with the
previously announced schedule. The first of these wells, S-6, is expected to
spud in Q1 and will be followed immediately by the S-1D well. While
focussing on the primary Mus-Adaiyah-Butmah reservoirs these wells are also
set to target additional reservoir intervals, a cost-efficient way to
maximise the gathering of information which will help inform the Company's
view of the wider potential of Sarta.
In order to minimise the time between appraisal success and monetisation the
field partners are investigating a range of options for oil production from
these 2021 wells.
Qara Dagh (40% working interest, operator)
Due to ongoing uncertainty caused by COVID-19, Genel notified the KRG of the
occurrence of a force majeure event preventing the Company from being able
to perform its contractual obligations as scheduled. Work continues to take
place to ensure that Genel is in the best possible position to start to
drill the QD-2 well once external conditions improve and the force majeure
event ceases. This has included the securing of an amendment to the rig
contract with Parker, in expectation of the future lifting of the force
majeure event, while from a community engagement perspective emergency food
aid has been provided to vulnerable groups within the Qara Dagh community,
and the construction of firebreaks in nearby agricultural land have been
funded.
Bina Bawi and Miran (100% working interest, operator)
As previously stated, Genel received documentation from the KRG in
mid-April, and then further documents were received in June. This
documentation did not adequately reflect the commercial concepts and risk
sharing that were expected for the development of Bina Bawi's gas and oil
resources.
Discussions are now taking place with the KRG at the highest level as Genel
seeks to progress the development of Bina Bawi.
African exploration
A farm-out process relating to the highly prospective SL10B13 block (100%
working interest and operator) in Somaliland began in Q4 2019 and while
conditions for farm-out have been challenging in the first half of 2020, a
number of companies continue to engage with the Company with respect to the
opportunity.
Regarding Morocco, and the Lagzira block (75% working interest and
operator), despite the logistical challenges posed by COVID-19 having caused
some delay to the completion of the 3D seismic processing project being
carried out by Western Geco, Genel continues to work towards a future
farm-out campaign aimed at bringing a partner onto the licence prior to
considering further commitments.
FINANCIAL REVIEW
Overview
The impact of COVID-19 has been significant. The resulting drop in oil
demand exacerbated the fall in oil price this year, which deteriorated from
around $60/bbl at the start of 2020 to a low of under $20/bbl in April.
Although the oil price has since improved, there remains significant
uncertainty as to how COVID-19 and its aftermath will impact economies, oil
demand and therefore oil price over the near and mid-term. This has caused
significant economic pressure on the KRG's finances, pressure that has
manifested itself in two ways: firstly, the deferral of payments owed by the
KRG for sales made in the four months from November 2019 to February 2020
inclusive, amounting to $121 million; secondly, the non-payment of the Tawke
override royalty from 1 March 2020.
It is clear that macro-economic uncertainty will extend into 2021 and likely
beyond, creating a challenging backdrop against which to progress our
business and seek to deliver on our commitment to run a business that is
resilient to downside scenarios, is cash generative, and delivers growth
when other oil and gas companies cannot.
All of the above means that the Company's business model, developed over the
past few years to be profitable at low prices and resilient at very low
prices, has been tested on its ability to:
· Progress value creative growth projects in a challenging environment;
· Demonstrate material flexibility in capital allocation, supporting the
generation of free cash flow even at low oil prices;
· Pay a dividend.
Our assessment is that our business model has stood up well to the
challenge. Much of the hard work done in previous years has positioned us
well: costs have had previous scrutiny so required optimisation rather than
a radical overhaul; and asset development plans had been set up within a
high capital flexibility model that mitigates financial risk, optimises cash
generation and expedites capital return and payback, so we were able to
adapt plans to the external environment.
The table below summarises our financial performance in the first half of
2020 (all figures $ million unless stated):
H1 2020 H1 2019 FY 2019
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