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26.03.2024 08:00:50 - Genel Energy PLC: Full-Year Results -6-
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)
Exploration expense (0.1) (1.0)
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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
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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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1 Net cash interest is bond interest payable less bank interest income (see note 5)
2023 financial priorities
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With the export pipeline suspended from March, 2023 did not generate the financial performance that we had planned for, but we have taken decisions that mean we have ended the year in a resilient position, with an outlook where we can see a clear route to delivery of material shareholder value. While the closure of the ITP accelerated and deepened some of our planned cost cutting, we were already well on the way to reshaping the business and ensuring that it has the financial strength to endure challenges and maintain our exposure to the significantly value accretive potential events that we hope to see materialise in 2024.
The table below summarises our progress against the 2023 financial priorities of the Company as set out in our 2022 results.
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2023 financial priorities Progress
-- On suspension of exports, completed work
efficiently, significantly cut capital and operating
expenditure, suspended the dividend programme
-- Maintain business resilience and balance sheet
strength -- Developed a new income stream through
domestic sales
-- Cash of USD363 million at end of 2023
-- Final dividend of 12¢ per share paid
-- On the Tawke licence, new wells were
-- Continued to actively screen and work up
opportunities to acquire new production assets, with
the ultimate aim of resuming dividend returns to
shareholders
-- Simplification of the business was
accelerated and deepened, with a two thirds
reduction to our total workforce
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Outlook and financial priorities for 2024
The key principles of our financial focus remain largely unchanged. We have a resilient business model that will continue to mitigate negative events and maximise potential upside, all with a firm focus on maximising cash generation. Ultimately, successful strategic delivery will lead to a resumption of shareholder returns, through delivering robust, resilient, diverse, and predictable cash flows.
Maintain business resilience and balance sheet strength
Running a resilient business with a strong balance sheet is a key component of our business model. It is particularly relevant at the current time, with the lack of access to export prices and volumes and the delayed receipt of amounts owed. While the ITP remains closed, we protect the balance sheet and resilience of the business by balancing the sources and uses of our cash flows. Actions taken to reduce costs and restructure the organisation in 2023 have prepared us well for this, with monthly organisation spend excluding the cash-generative Tawke PSC reduced to under USD3 million per month at the time of writing.
Local market sales since November 2023 have seen relatively consistent volumes, which has required constant attention from the operator. We believe the Tawke PSC is well positioned to continue to deliver stable and meaningful cash flows that will be sufficient to cover our costs, and as a consequence we expect to retain a net cash position of over USD100 million in 2024. Should the pipeline open, which we expect, then the subsequent establishment of regular payments would materially boost our cash generation, with the receipt of our outstanding receivable of USD107 million offering further significant upside.
Ensure capital availability for funding of key strategic objectives
Our capital allocation priorities remain maintenance of a strong balance sheet and funding of the Company's strategic objectives in order to generate long-term value for shareholders.
We are currently retaining a significant cash balance in excess of the cash required to fund the organic business in order to fund the acquisition of new assets, as we seek to diversify our income streams. This balance is partly funded by our bond debt of USD248 million, which matures in October 2025. We retain strict discipline as we seek new opportunities, with appropriate economic analysis and downside planning key considerations.
With a coupon that is low relative to prevailing market rates, the net cost of retaining this optionality is low.
Ensure appropriate capital allocation
In pursuit of our strategic objectives, robust assessment of the expected benefit to be obtained from invested capital underpins our processes to ensure appropriate allocation of capital, making sure that each dollar spent is done so in the knowledge that we are custodians of shareholder funds.
In 2023, as well as cutting our capital allocation appropriately in the face of the ongoing ITP closure, with Tawke drilling suspended, we ensured that any investment was necessary and effective towards improving the profitability of our business and achieving our objectives.
At the start of the year, we took the decision to exit the Qara Dagh licence, due to the extent of certainty that redrilling on the licence would have a positive outcome. For similar reasons, it was decided not to pursue other drilling opportunities at Sarta, and to reduce costs appropriately at Taq Taq. This focus has meant that our future activity at that licence is under review. Finally, we agreed with the government and our partner to extend the exploration period on the Toosan-1 well in Somaliland. There is the opportunity for significant value creation in Somaliland, where we remain excited about the potential of the subsurface.
In addition, we invested in the Miran and Bina Bawi arbitration process, where we are seeking to protect our contractual position under the PSCs which are governed by English law. We have invested over USD1.4 billion in the acquisition and attempted development of these assets, and we will continue to ensure that funds are available to pursue collection in the event of an Award in Genel's favour.
Finally, we reduced our debt by nominal USD26 million of our debt at a cost of below 95 cents in the dollar, which provided an attractive level of return without significantly impacting our capital availability for other strategic objectives.
Financial results for the year
Income statement
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Production of 12,410 bopd was significantly lower than last year (2022: 30,150 bopd) as a result of the suspension of exports through the ITP. This resulted in very limited production between April and July, with production from Tawke only restarting from July at lower levels, selling into the domestic market. This decrease in production, together with the significantly lower realised price per barrel for local sales, resulted in a reduction in revenue from USD402 million to USD85 million, with USD38 million generated from local sales in H2 2023 and the remainder of USD47 million generated from export sales between January and March inclusive.
Production costs of USD21 million decreased from the prior year (2022: USD34 million), with cost per barrel USD4.8/bbl in 2023 (2022: USD3.3/bbl), with the higher cost per barrel being the result of a combination of lower production and some fixed costs.
Other operating costs of USD4 million were related to Taq Taq which were incurred after production cease.
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Corporate cash costs were USD12 million (2022: USD14 million).
The decrease in revenue resulted in a similar decrease to EBITDAX, which was USD33 million (2022: USD349 million). EBITDAX is presented in order to illustrate the cash operating profitability of the Company and excludes the impact of costs attributable to exploration activity, which tend to be one-off in nature, and the non-cash costs relating to depreciation, amortisation, impairments and write-offs.
Depreciation of USD40 million (2022: USD95 million) and Tawke intangibles amortisation of USD4 million (2022: USD39 million) decreased due to lower production and pipeline closure.
While Genel expects to recover its overdue receivables of USD107 million in full, given there is currently no repayment plan, a net expense of USD10 million has been recognised relating to the expected credit loss on overdue receivables. Further explanation is provided in note 1 to the financial statements.
Interest income of USD21 million (2022: USD7 million) has significantly increased as a result of the increase in interest rates, in turn reducing our net cost of debt. Bond interest expense of USD25 million (2022: USD26 million) was in line with the previous year. Other finance expense of USD5 million (2022: USD5 million) related to non-cash discount unwinding on provisions and bond which is partly offset by gain on buyback of bonds in the year.
In relation to taxation, under the terms of KRI production sharing contracts, corporate income tax due is paid on behalf of the Company by the KRG from the KRG's own share of revenues, resulting in no corporate income tax payment required or expected to be made by the Company. Tax presented in the income statement was related to taxation of the service companies (2023: USD0.2 million, 2022: USD0.2 million).
Following the termination of Sarta PSC in the year, income statement figures of Sarta PSC have been disclosed as discontinued operation. Further details are provided in note 7 to the financial statements.
Capital expenditure
Capital expenditure was reduced to USD68 million (2023: USD143 million), a reduction of around USD50 million reduced from our initial guidance. Spend on production assets was USD59 million, and pre-production assets USD9 million, with USD20 million spent in H2 as expenditure cuts were made following the ITP closure.
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Cash flow, cash, net cash and debt
Gross proceeds received totalled USD102 million (2022: USD473 million).
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Free cash flow is presented in order to illustrate the free cash generated for equity. Free cash outflow was USD71 million (2022: USD235 million inflow) with an overall decrease due to pipeline closure and delay in proceeds.
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The bonds maturing in 2025 have two financial covenant maintenance tests:
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Net assets
Net assets at 31 December 2023 were USD434 million (31 December 2022: USD528 million) and consist primarily of oil and gas assets of USD331 million (31 December 2022: USD327 million), net trade receivables of USD93 million (31 December 2022: USD117 million) and net cash of USD120 million (31 December 2022: USD228 million).
Liquidity / cash counterparty risk management
The Company monitors its cash position, cash forecasts and liquidity on a regular basis. The Company holds surplus cash in treasury bills, time deposits or liquidity funds with a number of major financial institutions. Suitability of banks is assessed using a combination of sovereign risk, credit default swap pricing and credit rating.
Going concern
The Directors have assessed that the Company's forecast liquidity provides adequate headroom over forecast expenditure for the 12 months following the signing of the annual report for the year ended 31 December 2023 and consequently that the Company is considered a going concern. Further explanation is provided in note 1 to the financial statements.
The Company is in a net cash position with no near-term maturity of liabilities.
Consolidated statement of comprehensive income
For the year ended 31 December 2023
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Restated
Revenue 2 84.8 401.9
Operating (loss) / profit is comprised of:
Attributable to:
Owners of the parent (61.3) (7.3)
(61.3) (7.3)
(Loss) / Earnings per ordinary share ¢ ¢
From continuing operations:
From continuing and discontinued operations:
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1Basic (LPS) / EPS excluding impairment is loss and total comprehensive expense adjusted for the add back of net impairment/write-off of oil and gas assets and net ECL/reversal of ECL of receivables divided by weighted average number of ordinary shares
Previous year's figures have been restated for discontinued operation disclosure in relation to Sarta PSC (see note 7).
Consolidated balance sheet
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At 31 December 2023
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Assets
Non-current assets
Current assets
Total assets 795.1 943.5
Liabilities
Non-current liabilities
Current liabilities
Total liabilities (361.2) (415.7)
Net assets 433.9 527.8
Owners of the parent
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Consolidated statement of changes in equity
For the year ended 31 December 2023
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Share capital Share premium Accumulated losses Total equity
USDm USDm USDm USDm
Note
At 1 January 2022 43.8 3,947.5 (3,410.2) 581.1
Loss and total comprehensive expense - - (7.3) (7.3)
Contributions by and distributions to owners
At 31 December 2022 and 1 January 2023 43.8 3,897.4 (3,413.4) 527.8
Loss and total comprehensive expense - - (61.3) (61.3)
Contributions by and distributions to owners
At 31 December 2023 43.8 3,863.9 (3,473.8) 433.9
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1 The Companies (Jersey) Law 1991 does not define the expression "dividend" but refers instead to "distributions". Distributions may be debited to any account or reserve of the Company (including share premium account)
Consolidated cash flow statement
For the year ended 31 December 2023
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Cash flows from operating activities
Loss for the year (61.3) (7.3)
Adjustments for:
Changes in working capital:
Cash flows from investing activities
Cash flows from financing activities
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Notes to the consolidated financial statements
1. Summary of material accounting policies 1. Basis of preparation
Genel Energy Plc - registration number: 107897 (the Company), is a public limited company incorporated and domiciled in Jersey with a listing on the London Stock Exchange. The address of its registered office is 26 New Street, St Helier, Jersey, JE2 3RA.
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and interpretations issued by the IFRS Interpretations Committee (together 'IFRS'); are prepared under the historical cost convention except as where stated; and comply with Company (Jersey) Law 1991. The significant accounting policies are set out below and have been applied consistently throughout the period.
The Company prepares its financial statements on a historical cost basis, unless accounting standards require an alternate measurement basis. Where there are assets and liabilities calculated on a different basis, this fact is disclosed either in the relevant accounting policy or in the notes to the financial statements.
Items included in the financial information of each of the Company's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in US dollars to the nearest million (USD million) rounded to one decimal place, except where otherwise indicated.
For explanation of the key judgements and estimates made by the Company in applying the Company's accounting policies, refer to significant accounting judgements and estimates on pages 17 to 19.
Going concern
The Company regularly evaluates its financial position, cash flow forecasts and its compliance with financial covenants by considering multiple combinations of oil price, discount rates, production volumes, payments, capital and operational spend scenarios.
The Company has reported cash of USD363 million, with its debt of USD248 million maturing in the second half of 2025 and significant headroom on both the equity ratio and minimum liquidity financial covenants.
The Federal Iraq Supreme Court majority decision in February 2022 regarding the Kurdistan Oil and Gas Law (2007) and the subsequent actions taken by the Federal Minister of Oil in Baghdad Commercial Court did not have a significant impact on the Company's cash generation. However, since then, the International Chamber of Commerce in Paris ruling in favour of Iraq in the long running arbitration case against Türkiye concerning the Iraqi-Turkish pipeline agreement signed in 1973, resulted in exports through the pipeline being suspended from 25 March 2023.
The Company is currently selling in the domestic market at lower prices and lower volumes than are available from exports, with significantly reduced cash generation.
The Company forecasts that, even with continued suspension of exports, it will have a significant net cash balance for the foreseeable future.
As a result, the Directors have assessed that the Company's forecast liquidity provides adequate headroom over its forecast expenditure for the 12 months following the signing of the annual report for the period ended 31 December 2023 and consequently that the Company is considered a going concern.
Consolidation
The consolidated financial statements consolidate the Company and its subsidiaries. These accounting policies have been adopted by all companies.
Subsidiaries
Subsidiaries are all entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. Transactions, balances and unrealised gains on transactions between companies are eliminated.
Joint arrangements and associates
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Arrangements under which the Company has contractually agreed to share control with another party, or parties, are joint ventures where the parties have rights to the net assets of the arrangement, or joint operations where the parties have rights to the assets and obligations for the liabilities relating to the arrangement. Investments in entities over which the Company has the right to exercise significant influence but has neither control nor joint control are classified as associates and accounted for under the equity method.
The Company recognises its assets, liabilities, income and expenses relating to its interests in joint operations, including its share of assets and income held jointly and liabilities and expenses incurred jointly with other partners.
Farm-in/farm-out
Farm-in/farm-out transactions undertaken in the exploration phase of an oil and gas asset are accounted for on a no gain/no loss basis due to inherent uncertainties in the exploration phase and associated difficulties in determining fair values reliably prior to the determination of commercially recoverable proved reserves. The resulting exploration and evaluation asset is then assessed for impairment indicators under IFRS 6. Any cash payment or proceeds are presented as an increase or reduction to additions respectively. 2. Significant accounting judgements and estimates
The preparation of the financial statements in accordance with IFRS requires the Company to make judgements and estimates that affect the reported results, assets and liabilities. Where judgements and estimates are made, there is a risk that the actual outcome could differ from the judgement or estimate made.
Significant judgements
The following are the significant judgements that the directors have made in the process of applying the Group and Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Sarta PSC (note 10 and 7)
At 31 December 2022, the Company's assessment on the recoverable value of the Sarta PSC had resulted with an impairment expense of USD125.5 million following the disappointing results of the two appraisal wells and pilot production.
In 2023, the Company has informed the KRG of its intention to exit the Sarta licence and the remaining recoverable value of the Sarta PSC have been reduced to nil and a write-off expense of USD18.7 million has been booked. Following the termination of the PSC on 1 December 2023, decommissioning provisions have been derecognised.
Significant estimates
The following are the critical estimates that the directors have made in the process of applying the Group and Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Estimation of hydrocarbon reserves and resources and associated production profiles and costs
Estimates of hydrocarbon reserves and resources are inherently imprecise and are subject to future revision. The Company's estimation of the quantum of oil and gas reserves and resources and the timing of its production, cost and monetisation impact the Company's financial statements in a number of ways, including: testing recoverable values for impairment; the calculation of depreciation, amortisation and assessing the cost and likely timing of decommissioning activity and associated costs. This estimation also impacts the assessment of going concern and the viability statement.
Proved and probable reserves are estimates of the amount of hydrocarbons that can be economically extracted from the Company's assets. The Company estimates its reserves using standard recognised evaluation techniques which are based on Petroleum Resources Management System 2018. Assets assessed as having proven and probable reserves are generally classified as property, plant and equipment as development or producing assets and depreciated using the units of production methodology. The Company considers its best estimate for future production and quantity of oil within an asset based on a combination of internal and external evaluations and uses this as the basis of calculating depreciation and amortisation of oil and gas assets and testing for impairment under IAS 36.
Hydrocarbons that are not assessed as reserves are considered to be resources and the related assets are classified as exploration and evaluation assets. These assets are expenditures incurred before technical feasibility and commercial viability is demonstrable. Estimates of resources for undeveloped or partially developed fields are subject to greater uncertainty over their future life than estimates of reserves for fields that are substantially developed and being depleted and are likely to contain estimates and judgements with a wide range of possibilities. These assets are considered for impairment under IFRS 6.
Once a field commences production, the amount of proved reserves will be subject to future revision once additional information becomes available through, for example, the drilling of additional wells or the observation of long-term reservoir performance under producing conditions. As those fields are further developed, new information may lead to revisions.
Assessment of reserves and resources are determined using estimates of oil and gas in place, recovery factors and future commodity prices, the latter having an impact on the total amount of recoverable reserves.
Where the Company has updated its estimated reserves and resources any required disclosure of the impact on the financial statements is provided in the following sections. Estimation of oil and gas asset values (note 9 and 10)
Estimation of the asset value of oil and gas assets is calculated from a number of inputs that require varying degrees of estimation. Principally oil and gas assets are valued by estimating the future cash flows based on a combination of reserves and resources, costs of appraisal, development and production, production profile, climate-related risks, pipeline reopening and future sales price and discounting those cash flows at an appropriate discount rate.
Future costs of appraisal, development and production are estimated taking into account the level of development required to produce those reserves and are based on past costs, experience and data from similar assets in the region, future petroleum prices and the planned development of the asset. However, actual costs may be different from those estimated.
Discount rate is assessed by the Company using various inputs from market data, external advisers and internal calculations. A post tax nominal discount rate of 14% (2022: 14%) derived from the Company's weighted average cost of capital (WACC) is used when assessing the impairment testing of the Company's oil assets at year-end. Risking factors are also used alongside the discount rate when the Company is assessing exploration and appraisal assets.
Estimation of future oil price and netback price
The estimation of future oil price has a significant impact throughout the financial statements, primarily in relation to the estimation of the recoverable value of property, plant and equipment and intangible assets. It is also relevant to the assessment of ECL, going concern and the viability statement.
The Company's estimate of average Brent oil price for future years is based on a range of publicly available market estimates and is summarised in the table below.
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===
The netback price is used to value the Company's revenue, trade receivables and its forecast cash flows used for impairment testing and viability. It is the aggregation of reference oil price average less transportation costs, handling costs and quality adjustments.
Effective from 1 September 2022, sales have been priced by the MNR under a new pricing formula based on the realised sales price for Kurdistan blend crude ('KBT') during the delivery month, rather than on dated Brent. The Company has not agreed on this new pricing formula and continued to invoice on Brent. The Company does not have direct visibility on the components of the netback price realised for its oil because sales are managed by the KRG, but the latest payments were based on the netback price provided by the KRG. Therefore, the export revenue from 1 September 2022 was recognised in accordance with IFRS15 using KBT pricing, resulting in the recognition of USD13 million less of revenue.
The export pipeline closure in March 2023 has resulted in volumes sold in the local market starting in June 2023 on a cash and carry basis at lower realised oil prices than previously achieved through export.
A sensitivity analysis of netback price on producing asset values has been provided in note 10.
The Company has also taken the change into account in its assessment of impairment reversal and considered it appropriate not to reverse any previous impairments.
Estimation of the recoverable value of deferred receivables and trade receivables (note 11)
As of 31 December 2023, the Company is owed six months of payments. Management has compared the carrying value of trade receivables with the present value of the estimated future cash flows based on the prevailing discount rate at the time sales made (14%) and a number of collection scenarios. The ECL is the weighted average of these scenarios and is recognised in the income statement. The weighting is applied based on expected repayment timing by considering the recovery of previous deferred receivables. The result of this assessment is an ECL provision of USD14.5 million. Each 1% increase in discount rate would increase the ECL by USD0.9 million. Sensitivity of the calculation to different scenarios has been provided in note 11.
Other estimates
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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) ===
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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DJ Genel Energy PLC: Full-Year Results -2-
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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DJ Genel Energy PLC: Full-Year Results -3-
With the export pipeline suspended from March, 2023 did not generate the financial performance that we had planned for, but we have taken decisions that mean we have ended the year in a resilient position, with an outlook where we can see a clear route to delivery of material shareholder value. While the closure of the ITP accelerated and deepened some of our planned cost cutting, we were already well on the way to reshaping the business and ensuring that it has the financial strength to endure challenges and maintain our exposure to the significantly value accretive potential events that we hope to see materialise in 2024.
The table below summarises our progress against the 2023 financial priorities of the Company as set out in our 2022 results.
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2023 financial priorities Progress
-- On suspension of exports, completed work
efficiently, significantly cut capital and operating
expenditure, suspended the dividend programme
-- Maintain business resilience and balance sheet
strength -- Developed a new income stream through
domestic sales
-- Cash of USD363 million at end of 2023
-- Final dividend of 12¢ per share paid
-- On the Tawke licence, new wells were
-- Put our significant cash balance to work, completed in the first half, and 2P reserves earning appropriate returns to deliver value to increased to offset production in the year shareholders primarily through our dividend programme and -- Bond debt reduced by USD26 million at an diversify our cash generation average price below 95 cents in the dollar
-- Continued to actively screen and work up
opportunities to acquire new production assets, with
the ultimate aim of resuming dividend returns to
shareholders
-- Deliver the 2023 work programme on time and on -- Work programme reduced due to external budget, and continue simplification of the business with a conditions focus on optimisation and cost control and investment in -- Remaining activities completed on time and business improvement below budget
-- Simplification of the business was
accelerated and deepened, with a two thirds
reduction to our total workforce
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Outlook and financial priorities for 2024
The key principles of our financial focus remain largely unchanged. We have a resilient business model that will continue to mitigate negative events and maximise potential upside, all with a firm focus on maximising cash generation. Ultimately, successful strategic delivery will lead to a resumption of shareholder returns, through delivering robust, resilient, diverse, and predictable cash flows.
Maintain business resilience and balance sheet strength
Running a resilient business with a strong balance sheet is a key component of our business model. It is particularly relevant at the current time, with the lack of access to export prices and volumes and the delayed receipt of amounts owed. While the ITP remains closed, we protect the balance sheet and resilience of the business by balancing the sources and uses of our cash flows. Actions taken to reduce costs and restructure the organisation in 2023 have prepared us well for this, with monthly organisation spend excluding the cash-generative Tawke PSC reduced to under USD3 million per month at the time of writing.
Local market sales since November 2023 have seen relatively consistent volumes, which has required constant attention from the operator. We believe the Tawke PSC is well positioned to continue to deliver stable and meaningful cash flows that will be sufficient to cover our costs, and as a consequence we expect to retain a net cash position of over USD100 million in 2024. Should the pipeline open, which we expect, then the subsequent establishment of regular payments would materially boost our cash generation, with the receipt of our outstanding receivable of USD107 million offering further significant upside.
Ensure capital availability for funding of key strategic objectives
Our capital allocation priorities remain maintenance of a strong balance sheet and funding of the Company's strategic objectives in order to generate long-term value for shareholders.
We are currently retaining a significant cash balance in excess of the cash required to fund the organic business in order to fund the acquisition of new assets, as we seek to diversify our income streams. This balance is partly funded by our bond debt of USD248 million, which matures in October 2025. We retain strict discipline as we seek new opportunities, with appropriate economic analysis and downside planning key considerations.
With a coupon that is low relative to prevailing market rates, the net cost of retaining this optionality is low.
Ensure appropriate capital allocation
In pursuit of our strategic objectives, robust assessment of the expected benefit to be obtained from invested capital underpins our processes to ensure appropriate allocation of capital, making sure that each dollar spent is done so in the knowledge that we are custodians of shareholder funds.
In 2023, as well as cutting our capital allocation appropriately in the face of the ongoing ITP closure, with Tawke drilling suspended, we ensured that any investment was necessary and effective towards improving the profitability of our business and achieving our objectives.
At the start of the year, we took the decision to exit the Qara Dagh licence, due to the extent of certainty that redrilling on the licence would have a positive outcome. For similar reasons, it was decided not to pursue other drilling opportunities at Sarta, and to reduce costs appropriately at Taq Taq. This focus has meant that our future activity at that licence is under review. Finally, we agreed with the government and our partner to extend the exploration period on the Toosan-1 well in Somaliland. There is the opportunity for significant value creation in Somaliland, where we remain excited about the potential of the subsurface.
In addition, we invested in the Miran and Bina Bawi arbitration process, where we are seeking to protect our contractual position under the PSCs which are governed by English law. We have invested over USD1.4 billion in the acquisition and attempted development of these assets, and we will continue to ensure that funds are available to pursue collection in the event of an Award in Genel's favour.
Finally, we reduced our debt by nominal USD26 million of our debt at a cost of below 95 cents in the dollar, which provided an attractive level of return without significantly impacting our capital availability for other strategic objectives.
Financial results for the year
Income statement
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(all figures USD million) FY 2023 FY 2022 Brent average oil price USD82/bbl USD101/bbl Production (bopd, working interest) 12,410 30,150 Profit oil 25.4 143.4 Cost oil 58.6 116.1 Override royalty 0.8 142.4 Revenue 84.8 401.9 Production costs (21.3) (34.3) Other operating costs (3.6) - G&A (excl. depreciation and amortisation) (27.1) (18.5) EBITDAX 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 (ECL) / reversal of ECL of receivables (9.1) 8.6 Net finance expense (9.1) (24.5) Income tax expense (0.2) (0.2) Loss from discontinued operations (32.8) (129.2) Loss (61.3) (7.3)
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Production of 12,410 bopd was significantly lower than last year (2022: 30,150 bopd) as a result of the suspension of exports through the ITP. This resulted in very limited production between April and July, with production from Tawke only restarting from July at lower levels, selling into the domestic market. This decrease in production, together with the significantly lower realised price per barrel for local sales, resulted in a reduction in revenue from USD402 million to USD85 million, with USD38 million generated from local sales in H2 2023 and the remainder of USD47 million generated from export sales between January and March inclusive.
Production costs of USD21 million decreased from the prior year (2022: USD34 million), with cost per barrel USD4.8/bbl in 2023 (2022: USD3.3/bbl), with the higher cost per barrel being the result of a combination of lower production and some fixed costs.
Other operating costs of USD4 million were related to Taq Taq which were incurred after production cease.
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DJ Genel Energy PLC: Full-Year Results -4-
Corporate cash costs were USD12 million (2022: USD14 million).
The decrease in revenue resulted in a similar decrease to EBITDAX, which was USD33 million (2022: USD349 million). EBITDAX is presented in order to illustrate the cash operating profitability of the Company and excludes the impact of costs attributable to exploration activity, which tend to be one-off in nature, and the non-cash costs relating to depreciation, amortisation, impairments and write-offs.
Depreciation of USD40 million (2022: USD95 million) and Tawke intangibles amortisation of USD4 million (2022: USD39 million) decreased due to lower production and pipeline closure.
While Genel expects to recover its overdue receivables of USD107 million in full, given there is currently no repayment plan, a net expense of USD10 million has been recognised relating to the expected credit loss on overdue receivables. Further explanation is provided in note 1 to the financial statements.
Interest income of USD21 million (2022: USD7 million) has significantly increased as a result of the increase in interest rates, in turn reducing our net cost of debt. Bond interest expense of USD25 million (2022: USD26 million) was in line with the previous year. Other finance expense of USD5 million (2022: USD5 million) related to non-cash discount unwinding on provisions and bond which is partly offset by gain on buyback of bonds in the year.
In relation to taxation, under the terms of KRI production sharing contracts, corporate income tax due is paid on behalf of the Company by the KRG from the KRG's own share of revenues, resulting in no corporate income tax payment required or expected to be made by the Company. Tax presented in the income statement was related to taxation of the service companies (2023: USD0.2 million, 2022: USD0.2 million).
Following the termination of Sarta PSC in the year, income statement figures of Sarta PSC have been disclosed as discontinued operation. Further details are provided in note 7 to the financial statements.
Capital expenditure
Capital expenditure was reduced to USD68 million (2023: USD143 million), a reduction of around USD50 million reduced from our initial guidance. Spend on production assets was USD59 million, and pre-production assets USD9 million, with USD20 million spent in H2 as expenditure cuts were made following the ITP closure.
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(all figures USD million) FY 2023 FY 2022 Cost recovered production capex 55.1 85.9 Non cost recovered production capex 3.8 47.5 Other exploration and appraisal capex 9.1 9.7 Capital expenditure 68.0 143.1
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Cash flow, cash, net cash and debt
Gross proceeds received totalled USD102 million (2022: USD473 million).
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(all figures USD million) FY 2023 FY 2022 Brent average oil price USD82/bbl USD101/bbl EBITDAX 32.8 349.1 Working capital 22.3 63.3 Operating cash flow 55.1 412.4 Producing asset cost recovered capex (66.6) (77.8) Development capex (22.2) (50.4) Exploration and appraisal capex (9.7) (20.0) Interest and other (27.6) (29.4) Free cash flow (71.0) 234.8
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Free cash flow is presented in order to illustrate the free cash generated for equity. Free cash outflow was USD71 million (2022: USD235 million inflow) with an overall decrease due to pipeline closure and delay in proceeds.
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(all figures USD million) FY 2023 FY 2022 Free cash flow (71.0) 234.8 Dividend paid (33.5) (47.9) Purchase of shares (1.8) - Bond repayment (24.9) (6.0) Net change in cash (131.2) 180.9 Opening cash 494.6 313.7 Closing cash 363.4 494.6 Debt reported under IFRS (243.7) (266.6) Net cash 119.7 228.0
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The bonds maturing in 2025 have two financial covenant maintenance tests:
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Financial covenant Test YE 2023 Equity ratio (Total equity/Total assets) > 40% 55% Minimum liquidity > USD30m USD363m
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Net assets
Net assets at 31 December 2023 were USD434 million (31 December 2022: USD528 million) and consist primarily of oil and gas assets of USD331 million (31 December 2022: USD327 million), net trade receivables of USD93 million (31 December 2022: USD117 million) and net cash of USD120 million (31 December 2022: USD228 million).
Liquidity / cash counterparty risk management
The Company monitors its cash position, cash forecasts and liquidity on a regular basis. The Company holds surplus cash in treasury bills, time deposits or liquidity funds with a number of major financial institutions. Suitability of banks is assessed using a combination of sovereign risk, credit default swap pricing and credit rating.
Going concern
The Directors have assessed that the Company's forecast liquidity provides adequate headroom over forecast expenditure for the 12 months following the signing of the annual report for the year ended 31 December 2023 and consequently that the Company is considered a going concern. Further explanation is provided in note 1 to the financial statements.
The Company is in a net cash position with no near-term maturity of liabilities.
Consolidated statement of comprehensive income
For the year ended 31 December 2023
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Restated
2023 2022 Note USDm USDm
Revenue 2 84.8 401.9
Production costs 3 (21.3) (34.3) Depreciation and amortisation of oil assets 3 (43.9) (134.2) Gross profit 19.6 233.4
Exploration expense 3 (0.1) (1.0)
Other operating costs 3 (3.6) -
Net write-off of intangible assets 3 1.2 (75.8)
Net (expected credit loss ('ECL')) / reversal of ECL of receivables 3 (9.1) 8.6
General and administrative costs 3 (27.2) (18.6)
Operating (loss) / profit (19.2) 146.6 Operating (loss) / profit is comprised of:
EBITDAX 32.8 349.1 Depreciation and amortisation 3 (44.0) (134.3) Exploration expense 3 (0.1) (1.0) Net write-off of intangible assets 3 1.2 (75.8) Net (ECL) / reversal of ECL of receivables 3 (9.1) 8.6
Finance income 5 20.6 6.7 Bond interest expense 5 (24.8) (25.9) Net other finance expense 5 (4.9) (5.3) (Loss) / profit before income tax (28.3) 122.1 Income tax expense 6 (0.2) (0.2) (Loss) / profit and total comprehensive (expense) / income from continuing operations (28.5) 121.9
Loss from discontinued operations 7 (32.8) (129.2) Loss and total comprehensive expense (61.3) (7.3)
Attributable to:
Owners of the parent (61.3) (7.3)
(61.3) (7.3)
(Loss) / Earnings per ordinary share ¢ ¢
From continuing operations:
Basic 8 (10.2) 43.7 Diluted 8 (10.2) 43.7
From continuing and discontinued operations:
Basic 8 (22.0) (2.6) Diluted 8 (22.0) (2.6) Basic (LPS) / EPS excluding impairments1 8 (11.9) 66.7
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1Basic (LPS) / EPS excluding impairment is loss and total comprehensive expense adjusted for the add back of net impairment/write-off of oil and gas assets and net ECL/reversal of ECL of receivables divided by weighted average number of ordinary shares
Previous year's figures have been restated for discontinued operation disclosure in relation to Sarta PSC (see note 7).
Consolidated balance sheet
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DJ Genel Energy PLC: Full-Year Results -5-
At 31 December 2023
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2023 2022 Note USDm USDm
Assets
Non-current assets
Intangible assets 9 84.7 79.1 Property, plant and equipment 10,20 246.5 248.1 Trade and other receivables 11 66.5 - 397.7 327.2
Current assets
Trade and other receivables 11 34.0 121.7 Cash and cash equivalents 12 363.4 494.6 397.4 616.3
Total assets 795.1 943.5
Liabilities
Non-current liabilities
Trade and other payables 13,20 (0.5) (1.2) Deferred income 14 (8.2) (6.5) Provisions 15 (45.2) (52.2) Interest bearing loans 16 (243.7) (266.6) (297.6) (326.5)
Current liabilities
Trade and other payables 13,20 (57.6) (82.4) Deferred income 14 (6.0) (6.8) (63.6) (89.2)
Total liabilities (361.2) (415.7)
Net assets 433.9 527.8
Owners of the parent
Share capital 18 43.8 43.8 Share premium 3,863.9 3,897.4 Accumulated losses (3,473.8) (3,413.4) Total equity 433.9 527.8
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Consolidated statement of changes in equity
For the year ended 31 December 2023
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Share capital Share premium Accumulated losses Total equity
USDm USDm USDm USDm
Note
At 1 January 2022 43.8 3,947.5 (3,410.2) 581.1
Loss and total comprehensive expense - - (7.3) (7.3)
Contributions by and distributions to owners
Share-based payments 21 - - 4.1 4.1 Dividends provided for or paid1 19 - (50.1) - (50.1)
At 31 December 2022 and 1 January 2023 43.8 3,897.4 (3,413.4) 527.8
Loss and total comprehensive expense - - (61.3) (61.3)
Contributions by and distributions to owners
Share-based payments 21 - - 2.7 2.7 Purchase of own shares for employee share plan - - (1.8) (1.8) Dividends provided for or paid1 19 - (33.5) - (33.5)
At 31 December 2023 43.8 3,863.9 (3,473.8) 433.9
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1 The Companies (Jersey) Law 1991 does not define the expression "dividend" but refers instead to "distributions". Distributions may be debited to any account or reserve of the Company (including share premium account)
Consolidated cash flow statement
For the year ended 31 December 2023
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Note 2023 2022 USDm USDm
Cash flows from operating activities
Loss for the year (61.3) (7.3)
Adjustments for:
Net finance expense 5,7 9.4 25.4 Taxation 6 0.2 0.2 Depreciation and amortisation 3,7 46.7 152.0 Exploration expense 3 0.1 1.0 Net impairments, write-offs 3,7 28.1 193.1 Other non-cash items (royalty income and share-based payment cost) 0.8 (7.4)
Changes in working capital:
Decrease in trade and other receivables 14.4 47.2 (Decrease) / Increase in trade and other payables (3.7) 1.7 Cash generated from operations 34.7 405.9 Interest received 5 20.6 6.7 Taxation paid (0.2) (0.2) Net cash generated from operating activities 55.1 412.4
Cash flows from investing activities
Payments of intangible assets (9.7) (20.0) Payments of property, plant and equipment (88.8) (128.2) Net cash used in investing activities (98.5) (148.2)
Cash flows from financing activities
Dividends paid to company's shareholders 19 (33.5) (47.9) Purchase of own shares (1.8) - Bond repayment 16 (24.9) (6.0) Lease payments (2.8) (3.8) Interest paid (24.8) (25.6) Net cash used in financing activities (87.8) (83.3)
Net (decrease) / increase in cash and cash equivalents (131.2) 180.9 Cash and cash equivalents at 1 January 12 494.6 313.7 Cash and cash equivalents at 31 December 12 363.4 494.6
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Notes to the consolidated financial statements
1. Summary of material accounting policies 1. Basis of preparation
Genel Energy Plc - registration number: 107897 (the Company), is a public limited company incorporated and domiciled in Jersey with a listing on the London Stock Exchange. The address of its registered office is 26 New Street, St Helier, Jersey, JE2 3RA.
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and interpretations issued by the IFRS Interpretations Committee (together 'IFRS'); are prepared under the historical cost convention except as where stated; and comply with Company (Jersey) Law 1991. The significant accounting policies are set out below and have been applied consistently throughout the period.
The Company prepares its financial statements on a historical cost basis, unless accounting standards require an alternate measurement basis. Where there are assets and liabilities calculated on a different basis, this fact is disclosed either in the relevant accounting policy or in the notes to the financial statements.
Items included in the financial information of each of the Company's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in US dollars to the nearest million (USD million) rounded to one decimal place, except where otherwise indicated.
For explanation of the key judgements and estimates made by the Company in applying the Company's accounting policies, refer to significant accounting judgements and estimates on pages 17 to 19.
Going concern
The Company regularly evaluates its financial position, cash flow forecasts and its compliance with financial covenants by considering multiple combinations of oil price, discount rates, production volumes, payments, capital and operational spend scenarios.
The Company has reported cash of USD363 million, with its debt of USD248 million maturing in the second half of 2025 and significant headroom on both the equity ratio and minimum liquidity financial covenants.
The Federal Iraq Supreme Court majority decision in February 2022 regarding the Kurdistan Oil and Gas Law (2007) and the subsequent actions taken by the Federal Minister of Oil in Baghdad Commercial Court did not have a significant impact on the Company's cash generation. However, since then, the International Chamber of Commerce in Paris ruling in favour of Iraq in the long running arbitration case against Türkiye concerning the Iraqi-Turkish pipeline agreement signed in 1973, resulted in exports through the pipeline being suspended from 25 March 2023.
The Company is currently selling in the domestic market at lower prices and lower volumes than are available from exports, with significantly reduced cash generation.
The Company forecasts that, even with continued suspension of exports, it will have a significant net cash balance for the foreseeable future.
As a result, the Directors have assessed that the Company's forecast liquidity provides adequate headroom over its forecast expenditure for the 12 months following the signing of the annual report for the period ended 31 December 2023 and consequently that the Company is considered a going concern.
Consolidation
The consolidated financial statements consolidate the Company and its subsidiaries. These accounting policies have been adopted by all companies.
Subsidiaries
Subsidiaries are all entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. Transactions, balances and unrealised gains on transactions between companies are eliminated.
Joint arrangements and associates
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Arrangements under which the Company has contractually agreed to share control with another party, or parties, are joint ventures where the parties have rights to the net assets of the arrangement, or joint operations where the parties have rights to the assets and obligations for the liabilities relating to the arrangement. Investments in entities over which the Company has the right to exercise significant influence but has neither control nor joint control are classified as associates and accounted for under the equity method.
The Company recognises its assets, liabilities, income and expenses relating to its interests in joint operations, including its share of assets and income held jointly and liabilities and expenses incurred jointly with other partners.
Farm-in/farm-out
Farm-in/farm-out transactions undertaken in the exploration phase of an oil and gas asset are accounted for on a no gain/no loss basis due to inherent uncertainties in the exploration phase and associated difficulties in determining fair values reliably prior to the determination of commercially recoverable proved reserves. The resulting exploration and evaluation asset is then assessed for impairment indicators under IFRS 6. Any cash payment or proceeds are presented as an increase or reduction to additions respectively. 2. Significant accounting judgements and estimates
The preparation of the financial statements in accordance with IFRS requires the Company to make judgements and estimates that affect the reported results, assets and liabilities. Where judgements and estimates are made, there is a risk that the actual outcome could differ from the judgement or estimate made.
Significant judgements
The following are the significant judgements that the directors have made in the process of applying the Group and Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Sarta PSC (note 10 and 7)
At 31 December 2022, the Company's assessment on the recoverable value of the Sarta PSC had resulted with an impairment expense of USD125.5 million following the disappointing results of the two appraisal wells and pilot production.
In 2023, the Company has informed the KRG of its intention to exit the Sarta licence and the remaining recoverable value of the Sarta PSC have been reduced to nil and a write-off expense of USD18.7 million has been booked. Following the termination of the PSC on 1 December 2023, decommissioning provisions have been derecognised.
Significant estimates
The following are the critical estimates that the directors have made in the process of applying the Group and Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Estimation of hydrocarbon reserves and resources and associated production profiles and costs
Estimates of hydrocarbon reserves and resources are inherently imprecise and are subject to future revision. The Company's estimation of the quantum of oil and gas reserves and resources and the timing of its production, cost and monetisation impact the Company's financial statements in a number of ways, including: testing recoverable values for impairment; the calculation of depreciation, amortisation and assessing the cost and likely timing of decommissioning activity and associated costs. This estimation also impacts the assessment of going concern and the viability statement.
Proved and probable reserves are estimates of the amount of hydrocarbons that can be economically extracted from the Company's assets. The Company estimates its reserves using standard recognised evaluation techniques which are based on Petroleum Resources Management System 2018. Assets assessed as having proven and probable reserves are generally classified as property, plant and equipment as development or producing assets and depreciated using the units of production methodology. The Company considers its best estimate for future production and quantity of oil within an asset based on a combination of internal and external evaluations and uses this as the basis of calculating depreciation and amortisation of oil and gas assets and testing for impairment under IAS 36.
Hydrocarbons that are not assessed as reserves are considered to be resources and the related assets are classified as exploration and evaluation assets. These assets are expenditures incurred before technical feasibility and commercial viability is demonstrable. Estimates of resources for undeveloped or partially developed fields are subject to greater uncertainty over their future life than estimates of reserves for fields that are substantially developed and being depleted and are likely to contain estimates and judgements with a wide range of possibilities. These assets are considered for impairment under IFRS 6.
Once a field commences production, the amount of proved reserves will be subject to future revision once additional information becomes available through, for example, the drilling of additional wells or the observation of long-term reservoir performance under producing conditions. As those fields are further developed, new information may lead to revisions.
Assessment of reserves and resources are determined using estimates of oil and gas in place, recovery factors and future commodity prices, the latter having an impact on the total amount of recoverable reserves.
Where the Company has updated its estimated reserves and resources any required disclosure of the impact on the financial statements is provided in the following sections. Estimation of oil and gas asset values (note 9 and 10)
Estimation of the asset value of oil and gas assets is calculated from a number of inputs that require varying degrees of estimation. Principally oil and gas assets are valued by estimating the future cash flows based on a combination of reserves and resources, costs of appraisal, development and production, production profile, climate-related risks, pipeline reopening and future sales price and discounting those cash flows at an appropriate discount rate.
Future costs of appraisal, development and production are estimated taking into account the level of development required to produce those reserves and are based on past costs, experience and data from similar assets in the region, future petroleum prices and the planned development of the asset. However, actual costs may be different from those estimated.
Discount rate is assessed by the Company using various inputs from market data, external advisers and internal calculations. A post tax nominal discount rate of 14% (2022: 14%) derived from the Company's weighted average cost of capital (WACC) is used when assessing the impairment testing of the Company's oil assets at year-end. Risking factors are also used alongside the discount rate when the Company is assessing exploration and appraisal assets.
Estimation of future oil price and netback price
The estimation of future oil price has a significant impact throughout the financial statements, primarily in relation to the estimation of the recoverable value of property, plant and equipment and intangible assets. It is also relevant to the assessment of ECL, going concern and the viability statement.
The Company's estimate of average Brent oil price for future years is based on a range of publicly available market estimates and is summarised in the table below.
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USD/bbl 2023 2024 2025 2026 2027 2028 Actual / Estimate 82 80 76 74 71 70 HY2023 estimate 82 78 74 70 70 70 Prior year estimate 82 78 74 70 70 70
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The netback price is used to value the Company's revenue, trade receivables and its forecast cash flows used for impairment testing and viability. It is the aggregation of reference oil price average less transportation costs, handling costs and quality adjustments.
Effective from 1 September 2022, sales have been priced by the MNR under a new pricing formula based on the realised sales price for Kurdistan blend crude ('KBT') during the delivery month, rather than on dated Brent. The Company has not agreed on this new pricing formula and continued to invoice on Brent. The Company does not have direct visibility on the components of the netback price realised for its oil because sales are managed by the KRG, but the latest payments were based on the netback price provided by the KRG. Therefore, the export revenue from 1 September 2022 was recognised in accordance with IFRS15 using KBT pricing, resulting in the recognition of USD13 million less of revenue.
The export pipeline closure in March 2023 has resulted in volumes sold in the local market starting in June 2023 on a cash and carry basis at lower realised oil prices than previously achieved through export.
A sensitivity analysis of netback price on producing asset values has been provided in note 10.
The Company has also taken the change into account in its assessment of impairment reversal and considered it appropriate not to reverse any previous impairments.
Estimation of the recoverable value of deferred receivables and trade receivables (note 11)
As of 31 December 2023, the Company is owed six months of payments. Management has compared the carrying value of trade receivables with the present value of the estimated future cash flows based on the prevailing discount rate at the time sales made (14%) and a number of collection scenarios. The ECL is the weighted average of these scenarios and is recognised in the income statement. The weighting is applied based on expected repayment timing by considering the recovery of previous deferred receivables. The result of this assessment is an ECL provision of USD14.5 million. Each 1% increase in discount rate would increase the ECL by USD0.9 million. Sensitivity of the calculation to different scenarios has been provided in note 11.
Other estimates
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| Name | WKN | Börse | Kurs | Datum/Zeit | Diff. | Diff. % | Geld | Brief | Erster | Schluss | |
|---|---|---|---|---|---|---|---|---|---|---|---|
 |
GENEL ENERGY LS -,10 | A1JBXU | Frankfurt | 1,044 | 06.06.24 08:15:27 | +0,020 | +1,95% | 1,060 | 1,122 | 1,044 | 1,024 |
