Genel Energy PLC: Trading and operations update

DJ Genel Energy PLC: Trading and operations update

Genel Energy PLC (GENL) 
Genel Energy PLC: Trading and operations update 
 
03-Nov-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. 
 
3 November 2020 
 
           Genel Energy plc 
 
           Trading and operations update 
 
Genel Energy plc ('Genel' or 'the Company') issues the following trading and 
  operations update in respect of the third quarter and first nine months of 
                      2020. 
 
                      Bill Higgs, Chief Executive of Genel, said: 
 
       "Genel continues to demonstrate its resilience and ability to be move 
   quickly to navigate changing external conditions. Production has remained 
   robust, increasing quarter on quarter, and first oil at Sarta is also now 
 imminent. Once production from these initial wells has stabilised we expect 
it to increase our production by over 10%, with potentially far more to come 
   as we appraise what could be the largest field in the Kurdistan Region of 
                      Iraq. 
 
  Following the successful completion of our recent refinancing, we have the 
   liquidity to fund the rapid development of Sarta in the case of appraisal 
         success in 2021. Genel's financial strength and disciplined capital 
        allocation means it is well placed to pursue opportunities for value 
                      accretive growth and provide returns to shareholders." 
 
                      FINANCIAL PERFORMANCE 
 
  · $142 million of cash proceeds received in the first nine months of 2020 
 
  · Free cash flow outflow of $5 million in the first nine months of 2020, 
  after $30 million of capital expenditure progressing pre-production 
  assets, and total capital expenditure of $76 million 
 
    · $145 million outstanding from the Kurdistan Regional Government 
    ('KRG'), of which $121 million owed for production from November 2019 to 
    February 2020, and $24 million in suspended override payments 
 
  · Cash of $341 million at 30 September 2020 ($355 million at 30 June 2020) 
 
  · Net cash of $42 million at 30 September 2020 ($57 million at 30 June 
  2020) 
 
    · Cash figures are stated prior to the successful completion of 
    refinancing in October 2020 
 
  · Interim dividend of 5¢ per share (2019: 5¢ per share), a distribution of 
  c.$13.6 million, to be paid to shareholders on the register on 13 November 
  2020 
 
                      REFINANCING AND FINANCIAL STRATEGY 
 
  · In September 2020, Genel successfully completed the issuance of a new 
  $300 million senior unsecured bond with maturity in October 2025. The new 
  bond has a fixed coupon of 9.25% per annum, compared to 10% for the 2022 
  bonds 
 
    · At the same time, Genel purchased $223 million of its 2022 bonds at 
    107 to par. The total cost incurred with the redemption of these bonds 
    was $16 million 
 
    · Following the successful refinancing, the Company therefore has $77 
    million of 2022 bonds and $300 million of 2025 bonds in issue 
 
  · Genel remains committed to retaining a robust balance sheet, and the 
  successful completion of the bond issuance has allowed Genel to 
  significantly extend its liquidity runway and provides the foundation for 
  a capital investment programme that is flexible and adaptable to the 
  external environment 
 
  · The right level of debt and the resulting liquidity remains under review 
  in the context of planned investment activity, external market conditions 
  and the recovery of KRG receivables, the Company retaining the option of 
  holding an optimised combination of the old and/or new bonds, depending on 
  availability and pricing 
 
                      OPERATING PERFORMANCE 
 
  · Net production averaged 32,140 bopd in the first nine months of 2020, 
  with net production in Q3 averaging 32,210 bopd (Q2 2020: 30,040 bopd) 
 
  · Production by field was as follows: 
 
 (bopd)   Gross production Net production 
 
              Q3 2020         Q3 2020 
    Tawke      56,880          14,220 
Peshkabir      56,860          14,210 
  Taq Taq      8,580           3,780 
    Total     122,320          32,210 
 
                      PRODUCTION ASSETS 
 
· Tawke PSC (25% working interest) 
 
· Production at the Tawke PSC increased to 113,700 bopd in the third 
quarter, up 12% from the prior quarter following a campaign of quick 
turnaround, low-cost well interventions and the start-up of the 
Kurdistan Region of Iraq's first enhanced oil recovery project 
 
· The Peshkabir-to-Tawke gas capture and reinjection project, in 
operation since mid-year, is continuing to cut gas flaring and 
greenhouse emissions by half at Peshkabir to 7kg CO2e/bbl, while 
unlocking additional oil at Tawke. By the end of October 2020, two 
billion cubic feet of gas that otherwise would have been flared had been 
injected into Tawke, already delivering a positive production response 
at the field, and at the same time reducing field water production 
 
· Taq Taq PSC (44% working interest and joint operator) 
 
· Taq Taq gross field production averaged 8,580 bopd in Q3, following 
the suspension of drilling activity in H1 2020 
 
· As previously stated, activity at Taq Taq is focused on optimising 
cash flow. Appropriate for the external environment, it is not expected 
that there will be any further drilling activity in 2020 
 
                      PRE-PRODUCTION ASSETS 
 
· Sarta (30% working interest) 
 
· Despite the challenges of COVID-19, first oil is on track for Q4 2020 
 
· Production will initially be from the Sarta-2 and Sarta-3 wells, and 
the workover of the former is now underway. It is expected that a stable 
production level will be reached in Q1 2021 
 
· Preparations for the 2021 appraisal drilling campaign, which is 
targeting a material portion of the 250 MMbbls of contingent resources 
in the Jurassic, are ongoing 
 
· This appraisal campaign will begin with the Sarta-6 well in H1 2021, 
followed by the Sarta-5 well and Sarta-1D re-entry. Well pad and road 
access civil works are well underway at both the Sarta-6 and Sarta-5 
locations, and minor remedial civil works are also about to commence at 
the existing Sarta-1D site. It is expected that all three appraisal 
wells will complete in 2021, at a cost of c.$40 million net to Genel in 
2021 
 
· Qara Dagh (40% working interest and operator) 
 
· While challenges caused by COVID-19 remain, the increased certainty in 
the operating environment, and Genel's ability to operate under the 
expected level of restrictions, has allowed the lifting of force majeure 
at Qara Dagh 
 
· This has allowed Genel to proceed with approvals for activities 
necessary in order to reach a spud date for the QD-2 well in Q1 2021 
 
· The QD-2 well is expected to cost c.$30 million in 2021 
 
· Bina Bawi (100% working interest and operator) 
 
· Genel continues to seek a response from the KRG to our proposal 
submitted in August 2020, which would enable the Company to progress the 
next stage of activity at Bina Bawi 
 
· Our proposal highlights the need to engage regional gas buyers on 
volume and price discovery and to improve project definition by 
undertaking the detailed front-end engineering of both the upstream and 
midstream processing facilities 
 
· Until a satisfactory response is received, Genel will maintain capex 
discipline, and will only commence investment upon certainty of 
alignment with the KRG and a clear path to monetisation 
 
· African exploration assets 
 
· The uncertainty created by COVID-19, and current macroeconomic 
conditions, has negatively impacted the search for partners to fund and 
minimise Genel's spend on our potentially high-impact exploration wells 
 
· A farm-out process relating to the highly prospective SL10B13 block in 
Somaliland (100% working interest and operator) is however continuing, 
with companies still assessing the opportunity 
 
· A farm-out campaign is being planned relating to the Lagzira block 
offshore Morocco (75% working interest and operator), with the aim of 
bringing a partner onto the licence prior to considering further 
commitments 
 
                      ESG 
 
· Zero lost time injuries ('LTI') and zero tier one losses of primary 
containment in 2020 to date at Genel and TTOPCO operations 
 
· There has not been an LTI since 2015, with almost 13 million work 
hours since the last incident 
 
· Carbon intensity of our portfolio now reduced to 7kg CO2e/bbl of scope 1 
and 2 emissions following material reduction in flaring at the Tawke PSC 
through completion and commissioning of the enhanced oil recovery project 
 
· Multiple projects are ongoing to support local communities in the 
Kurdistan Region of Iraq, and the pipeline project to transport clean 
water to over 220 families across five villages neighbouring Taq Taq is 
now complete 
 
· Sustainability report in accordance with Global Reporting Initiative 
standards was issued in September 2020, giving a comprehensive overview of 
our ESG activities and positions, noting the impact we have had on the 
Kurdistan Region of Iraq ('KRI'): 
 
· Since starting work in the KRI Genel has invested c.$60 million in 
social projects, and $36 million spent on contracts with local companies 
 
· 245 social investment and community projects funded and successfully 
delivered 
 
· Up to 550 local community patients receive free treatment from the 
TTOPCO medical team per year 
 
· 250 local people employed at TTOPCO, and 23 local community-centred 
companies are providing services to Genel's operations across the KRI, 
with our operations indirectly supporting a further 350 local people 
through such contracts 
 
                      OUTLOOK 
 

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