DJ Genel Energy PLC: Full-Year Results

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Genel Energy PLC (GENL)
Genel Energy PLC: Full-Year Results
26-March-2024 / 07:00 GMT/BST
26 March 2024
Genel Energy plc
Audited results for the year ended 31 December 2023

Genel Energy plc ('Genel' or 'the Company') announces its audited results for the year ended 31 December 2023.

Paul Weir, Chief Executive of Genel, said:
"We have continued the journey that we commenced in 2022 to, firstly, refocus the business on areas where it can be
profitable and deliver shareholder value and, secondly, optimise the organisation to create a reshaped and resilient
business with the potential for transformational value accretion through several catalysts.

We are a leaner, simplified company that retains clear objectives - generating resilient and sustainable cash flows,
diversifying our income through the addition of new assets, and maintaining a strong balance sheet.

We have reduced our workforce and cut costs significantly, exited the Sarta and Qara Dagh licences, worked with our
operating partner to develop a new income stream from local sales, and spent considerable time defending our
contractual rights under the Bina Bawi and Miran PSCs, where we invested over USD1.4 billion before their termination in
December 2021.

These actions mean that we are now well positioned in 2024, with a reshaped and resilient business and a strong balance
sheet. In the absence of value accretive M&A, we expect to maintain net cash of more than USD100 million even if the
suspension of exports continues to the end of the year.

Genel has established a sound platform from which to spring forward. The re-opening of the pipeline has the potential
to more than double cash generation. We expect to recover the USD107 million of overdue receivables, and we have the
capacity and intent to acquire new assets. On the Miran and Bina Bawi oil and gas assets arbitration, having now
completed the evidential hearing, our views on the merits of our case are unchanged since the arbitration was launched
in December 2021."

Results summary (USD million unless stated)

2023    2022 
Average Brent oil price (USD/bbl)                                       82      101 
Production (bopd, working interest)                                    12,410  30,150 
Revenue                                                                84.8    401.9 
EBITDAX1                                                               32.8    349.1 
Depreciation and amortisation                                        (44.0)  (134.3) 

Exploration expense (0.1) (1.0)

Net write-off / impairment of oil and gas assets                    1.2     (75.8) 
Net (expected credit loss ('ECL')) / reversal of ECL of receivables (9.1)   8.6 
Operating (loss) / profit                                             (19.2)  146.6 
Cash flow from operating activities                                   55.1    412.4 
Capital expenditure                                                   68.0    143.1 
Free cash flow2                                                       (71.0)  234.8 
Cash                                                                  363.4   494.6 
Total debt                                                            248.0   274.0 
Net cash3                                                             119.7   228.0 
Dividends declared during financial year (¢ per share)                12      18 1. EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation, netwrite-off/impairment of oil and gas assets and net ECL/reversal of ECL receivables 2. Free cash flow is reconciled on page 11 3. Reported cash less IFRS debt (page 11) 

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Highlights

-- The Iraq-Türkiye pipeline ('ITP') has been suspended since March 2023, with talks ongoing but no cleartiming on when exports will restart

-- Reshaped business resilient and well positioned to maximise upside? Local sales consistent since end of January, with the Tawke PSC currently generating sufficientfunding to cover organisational spend ? Increase to Tawke PSC 2P reserves replacing production in 2023 and retaining 2P reserves of 79 MMbblsnet to Genel at the licence ? Organisational spend outside the cash generative Tawke PSC reduced by 40% to around USD3 million permonth ? Reduced workforce by 70% and cut costs significantly across all areas of the business ? Sarta and Qara Dagh exited, resulting in a write off relating to Sarta of USD19 million ? Somaliland licence extended until 2026

-- Strong balance sheet provides opportunity to acquire and develop new assets? Net cash of USD120 million at 31 December 2023 (USD228 million at 31 December 2022) ? Total debt of USD248 million reduced by USD26 million through repurchase of bonds at below 95 cents (USD274million at 31 December 2022) ? Genel expects to maintain net cash well above USD100 million throughout 2024

-- Ongoing focus on being a socially responsible contributor to the global energy mix? Zero lost time incidents in 2023, with over four million hours now worked since the last incident ? Carbon intensity of 14 kgCO2e/bbl for Scope 1 and 2 emissions in 2023 (2022: 17.6 kgCO2e/bbl), belowthe global oil and gas industry average of 19 kgCO2e/boe ? Genel continues to invest in the host communities in which we operate, aiming to invest in thoseareas in which we can make a material difference to society

-- The London-seated international arbitration two-week hearing which included Genel's claim for substantialcompensation from the Kurdistan Regional Government ('KRG') following the termination of the Miran and Bina BawiPSCs finished as scheduled. Parties will make written closing submissions in April, subsequent to which writtenreply submissions will be made in May. The timing of the result is uncertain, but continues to be expected by theend of 2024

Potential catalysts for significant shareholder value creation in 2024

-- Reopening of the ITP has the potential to materially increase cash generation

-- USD107 million overdue from the KRG for oil sales from October 2022 to March 2023 inclusive

-- The Company continues to seek to acquire new assets to increase and diversify our income streams

Enquiries:

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Genel Energy
+44 20 7659 5100
Andrew Benbow, Head of Communications

Vigo Consulting
+44 20 7390 0230
Patrick d'Ancona
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Genel will host a live presentation on the Investor Meet Company platform on Tuesday 26 March at 1000 GMT. The presentation is open to all existing and potential shareholders. Questions can be submitted at any time during the live presentation. Investors can sign up to Investor Meet Company for free and add to meet Genel Energy PLC via:

https://www.investormeetcompany.com/genel-energy-plc/register-investor.

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.

CEO STATEMENT

It is difficult to look at 2023 without it being dominated by the closure of the Iraq-Türkiye pipeline. The suspension of our route to export resulted in a material reduction in production and cash flow. In a year in which we were buffeted by factors beyond our control, it was a reminder of the inherent resilience of our business model, a resilience that means we retain a strong position from which we view the future with confidence.

Going in to 2023, one of our key aims was to continue the simplification of the business, focusing on optimisation and cost control and investment in business improvement. With the ITP suspended, we accelerated this journey, significantly changing the size and shape of the organisation, materially reducing our cost base. We are now in a position where our income from strong local sales in January and February 2024 has covered our outflows, we have over USD100 million in net cash, and significant opportunities lie ahead.

A reshaped business

The closure of the pipeline prompted us to move quickly to reduce our capital expenditure, with USD50 million cut from our original budget. We have more than halved our workforce, and we have shed non-profitable assets. We allowed the Qara Dagh licence to lapse, and Sarta has been terminated. We are a significantly leaner vehicle than we were even six months ago, having efficiently closed out our activity at Sarta and having minimised our footprint and cost base in Kurdistan. And we are getting leaner still, encouraging a constant state of awareness in the business about how we can drive further cost efficiencies.

As we have cut costs we have ensured that we have kept the right personnel to grow the business in the better times that certainly lie ahead. It is important that a reshaped business does not mean a business that lacks skills, and we must ensure that we have the correct balance between being right sized in the current environment and having the right people to drive Genel forward and take advantage of upcoming opportunities.

All of the changes that we have made to the business have been done with our shareholders in mind, protecting shareholder funds and ensuring that we remain resilient with a robust balance sheet, with a business that is set up to maximise shareholder value going forward.

Robustly positioned

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Our focus on resilience is bolstered by income from the Tawke licence, which remains the engine room of the business. Working with the operator, DNO, a great job has been done to build a new income stream from local sales, while cutting operational costs by 65%. Production ramped up through the second half of the year, and local sales have been material and robust so far this year.

Going forward we expect cash generation from these local sales to match our total business expenditure, should income remain at levels seen in Q1 2024. Should the ITP reopen, our cash generation has the potential to more than double overnight. Along with our industry peers, we continue to work hard to facilitate the resumption of exports with appropriate commercial terms. Positive comments are regularly being made by politicians from both the Federal Government of Iraq and the KRG, although these are not being supported by movement on key issues so far. The timing of export resumption is therefore not something that we can suggest with any certainty.

Opportunities ahead

The reopening of the export route, with a stable and predictable payment environment, is one of the numerous catalysts that we can see ahead in 2024. We are reviewing all options relating to the USD107 million that is still owed for past exports, the repayment of which would help to further strengthen our balance sheet and boost cash generation.

As we work to unlock the significant value from Kurdistan, we continue our search to add new income streams elsewhere. Our criteria for new assets have not changed - we are focused on cash generation, seeking a value accretive deal in a stable jurisdiction. We remain laser focused and disciplined as we seek the right deal for our shareholders, and are comfortable looking beyond the MENA region to get a deal that ticks all of our boxes. As we reshaped our business in 2023, we have continued our search for the right opportunity to integrate within Genel. There remain opportunities out there that fit our criteria, and we are confident that we will find the correct deal.

Miran and Bina Bawi arbitration progressing

The Company has committed significant senior management time to the arbitration relating to the Miran and Bina Bawi PSCs. As a reminder, our position is that the KRG's termination of the Bina Bawi and Miran licences in December 2021 was repudiatory and caused us significant losses. By way of reference, we have spent over USD1.4 billion acquiring and attempting development of these assets, both as operator and non-operator up to the termination of both PSCs in December 2021.

The two-week hearing (including factual and expert evidence) was held in London as scheduled and ended on 1 March 2024. The timing of the result is uncertain, but is expected by the end of 2024 following the Parties making closing written submissions in April 2024 and reply written submissions in May 2024. Our views on the merits of the case are unchanged since the dispute process under the PSCs was commenced in Q3 2021.

Outlook

Genel retains a robust cash position, a resilient business model, and a focus on taking advantage of the material catalysts ahead.

OPERATING REVIEW

Reserves and resources development

Genel's proven plus probable (2P) net working interest reserves totalled 89 MMbbls (31 December 2022: 92 MMbbls) at the end of 2023. A positive 4 MMbbls revision of 2P reserves at the Tawke PSC offset the removal of 2.7 MMbbls of 2P reserves from the terminated Sarta PSC, with 4.5 MMbbls of production in 2023.

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Remaining reserves (MMbbls) Resources (MMboe)
Contingent Prospective

1P             2P           1C        2C         Best 
Gross    Net   Gross   Net  Gross Net Gross Net  Gross Net 
31 December 2022               267      69    349     92   37    11  129   36   4,722 3,006 
Production                     (18)     (5)   (18)    (4)  -     -   -     -    -     - 
Acquisitions and disposals     -        -     (9)     (3)  (28)  (8) (85)  (25) (142) (43) 
Extensions and discoveries     -        -     -       -    -     -   -     -    -     - 
New developments               -        -     -       -    -     -   -     -    -     - 
Revision of previous estimates (4)      (1)   16      4    4     1   (5)   (1)  -     - 
31 December 2023               245      63    338     89   13    3   39    10   4,580 2,964 

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Production

Net production in 2023 averaged 12,410 bopd, significantly down on the prior year (2022: 30,150 bopd) due to the suspension of the ITP. This caused there to be minimal sales in the second quarter of the year, before the local sales market was established in Q3 and production was then ramped up in Q4. Production was dominated by the Tawke PSC, which produced 11,570 bopd.

All Genel production in H2 2023 came from the Tawke PSC. Gross production from the Tawke licence increased to 65,780 bopd in Q4 2023, up from 25,980 bopd in Q3, with the field partners selling their entitlement share into the local market.

PRODUCING ASSETS

Tawke PSC (25% working interest)

Gross production from the Tawke licence averaged 46,280 bopd in 2023, impacted by the closure of the ITP. Following the start of local sales in H2, production increased to 65,780 bopd in Q4 2023.

At the end of 2023, gross production from the Tawke licence was averaging 80,000 bopd, with entitlement barrels sold at prices in the low-to-mid USD30s per barrel. The operator, DNO, expects gross production at the licence to continue to average 80,000 bopd. That figure could change depending on the outcome of ongoing discussions related to recovery of arrears for past deliveries to the KRG and payment terms and conditions for any future oil exports, which in turn will drive investments in wells.

With operational spend having been reduced by 65%, the Tawke PSC is currently generating over USD3 million a month in net cash flow for Genel from strong local sales, which if retained at current levels is able to cover total organisational spend away from the licence.

Taq Taq (44% working interest, joint operator)

Prior to the closure of the ITP, field partners were planning a resumption of drilling at Taq Taq. In line with Genel's focus on reducing costs, and lack of clarity regarding the resumption of exports and payments, this plan was dropped. Costs were reduced to below USD1 million per month at the start of 2024, and further cuts are expected to reduce this to around half a million dollars per month. Given the lack of meaningful cash flows expected to come from Taq Taq going forward, its place in the Genel portfolio is under review.

Sarta (30% working interest, operator)

Genel's focus at the start of 2023 was on making ongoing production from Sarta profitable, and capital investment was contingent on both licence profitability and the extent to which there could be confidence that such investment would add cash generative production. Given the investment required, and the lack of certainty over a resumption of payments, Genel and its joint venture partner, Chevron, informed the Ministry of Natural Resources of its intention to surrender the asset and thereby terminate the Sarta PSC on 1 December 2023.

Remediation work was completed in Q1 2024, at a net cost of USD1 million, and there will be no further material expenditure at Sarta going forward.

PRE-PRODUCTION ASSETS

Somaliland

Work continued in 2023 on readiness towards the potential drilling of a well at the Toosan-1 well site on the SL10B13 block (51% working interest and operator). The Environmental, Social and Health Impact Assessment was finished, and required civil work at the well site at this stage of the project is now complete.

Genel continues to believe that there is a tremendous opportunity in Somaliland, and is assessing the timing of further investment. There is no significant expenditure expected in 2024, and a licence extension has been granted which allows for drilling to be undertaken in due course.

Morocco (Lagzira block - 75% working interest and operator)

The farm-out programme on the Lagzira block is ongoing.

FINANCIAL REVIEW

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(all figures USD million)                                   FY 2023 FY 2022 
Brent average oil price                                   USD82/bbl USD101/bbl 
Revenue                                                   84.8    401.9 
Production costs                                          (21.3)  (34.3) 
Cost recovered production asset capex                     (55.2)  (85.9) 
Production business net income after cost recovered capex 8.3     281.7 
Other operating costs                                     (3.6)   - 
G&A (excl. non-cash)                                      (25.5)  (17.7) 
Net cash interest1                                        (4.2)   (19.2) 
Working capital                                           4.7     47.2 
Free cash flow before investment in growth                (20.3)  292.0 
Non cost recovered capex                                  (12.8)  (57.2) 
Net (expense) / income from discontinued operations       (11.6)  12.5 
Working capital and other                                 (26.3)  (12.5) 
Free cash flow                                            (71.0)  234.8 
Dividend paid                                             (33.5)  (47.9) 
Purchases of own shares                                   (1.8)   - 
Purchases of own bonds                                    (24.9)  (6.0) 
Net change in cash                                        (131.2) 180.9 
Cash                                                      363.4   494.6 

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1 Net cash interest is bond interest payable less bank interest income (see note 5)

2023 financial priorities

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