Genel Energy plc issues the following trading and operations update in advance of the Company's full-year 2014 results, which are scheduled for release on 5 March 2015. The information contained herein has not been audited and may be subject to further review.
HIGHLIGHTS
* A combination of low development and operating costs and Production Sharing Contract structure creates a robust Kurdistan Region of Iraq ("KRI") oil business very resilient to sustained low oil prices
* 2014 production of 69,000 boepd, an increase of 58% year-on-year with significant further growth expected in 2015
* Capital expenditure guidance for 2015 lowered by 30% to $200-250 million, a reduction of 70% on 2014
* Revenue guidance for 2015 revised from $500-600 million at a Brent price of $80/bbl to $350-400 million at a Brent price of $50/bbl
* Cash balances at 31 December 2014 stood at c.$490 million, balance sheet strength underpins future growth in the KRI
* Agreement on crude oil exports through northern Iraq reached in December 2014 between the Kurdistan Regional Government ("KRG") and Federal Government of Iraq ("FGI"), operational implementation commenced in early January 2015
* First payment for oil exports via the pipeline received in December, further payments expected shortly
PRODUCTION
* Net working interest production for 2014 averaged 69,000 boepd, an increase of 58% on 2013 and at the top end of the 60-70,000 boepd guidance range
* Gross production from Taq Taq averaged 103,000 bopd in 2014, an increase of 34% on 2013. Following the successful installation and commissioning of well site temporary production facilities in December 2014, Taq Taq set a new daily production record of 135,000 bopd and a new record for gross daily liftings of 147,000 bopd
* Gross production from Tawke averaged 91,000 bopd in 2014, an increase of 131% on 2013
* In 2014, 36% of Genel's production was exported by the KRG through the KRI-Turkey pipeline system, with 12% exported by the KRG via Turkey by truck and the remainder sold into the domestic market
* The Company's 2015 production guidance is maintained at 90-100,000 boepd
REVENUE
* Revenue for 2014 is expected to be towards the lower end of the $500-600 million guidance range, in line with consensus
* In 2014, crude oil realisations averaged $73/bbl, an 11% increase on 2013
o Pipeline export realisations from Taq Taq and Tawke are estimated at $77/bbl
o Taq Taq domestic market sales (including Bazian refinery) realised $75/bbl, a 6% increase on 2013
o Tawke domestic market sales realised $56/bbl, a 7% decrease on 2013
* 2015 revenue guidance is revised from $500-600 million at a Brent price of $80/bbl to $350-400 million at a Brent price of $50/bbl
EXPLORATION WRITE-OFF
* Genel expects to record a non-cash exploration write-off of c.$480 million in its 2014 accounts in respect of drilling offshore Malta, Angola and Morocco during the year
CAPEX AND BALANCE SHEET
* Capital expenditure in 2014 is estimated at c.$670 million, split broadly equally between the KRI and Africa. This excludes the c.$75 million acquisition component of the Angola farm-in
* Cash balances at 31 December 2014 stood at c.$490 million, with net debt of c.$10 million
* At 31 December, the net trade receivable with the Kurdistan Regional Government stood at c.$230 million. The KRG continues to reiterate its commitment to the terms of the Production Sharing Contracts signed with contractors. Genel remains confident that payments in respect of contractual entitlements will continue through 2015
* In light of continued weakness in oil prices, capital expenditure guidance for 2015 is reduced from $300-350 million to $200-250 million, a year-on-year reduction of c.70%. Some 90% of the revised 2015 budget will be focused on work programmes to expand production at Taq Taq and Tawke, with the remainder on exploration and appraisal across the portfolio
* The onshore nature of Genel's KRI asset base affords significant capex flexibility, with the ability to increase or decrease activity and investment at short notice
* Headcount reductions and other efficiency measures are expected to reduce administrative expenses by 40% year on year in 2015
POLITICS AND KRG PIPELINE EXPORTS
* In December the Kurdistan Regional Government and the Federal Government of Iraq ("FGI") reached an agreement on crude oil exports through northern Iraq. The agreement sees 550,000 bopd of exports via the KRI-Turkey pipeline, of which 250,000 bopd comes from KRG controlled fields and 300,000 bopd from FGI controlled fields, which in aggregate will be marketed by SOMO (State Oil Marketing Organisation). In return, the KRG will receive its 17% allocation of the Iraqi budget and $1bn of funding for the Peshmerga in 2015. The KRG has reserved the right to export for its own account crude oil in excess of its 250,000 bopd contribution
* Operational implementation of the agreement occurred in early January 2015, with crude oil from FGI controlled fields exported through the KRI-Turkey pipeline. As a result, pipeline exports increased to over 450,000 bopd in early January with further growth expected in the near-term. Financial implementation of the agreement is expected after passing of the 2015 Iraqi budget
* As of early January, more than 40 cargoes of KRI export crude have been lifted from Ceyhan, establishing a five month track record of predictable sales
* Production from Taq Taq and Tawke is not constrained by pipeline capacity
KRI OPERATIONS
* Genel's operations in the KRI remain safe and secure
* At Taq Taq, plans to increase surface processing capacity to 150,000 bopd through mobilisation of a temporary production facility are on track for Q1 2015. Completion and commissioning of the second central processing facility is on track for Q3 2015. Works to increase the processing capacity at the Tawke field are on schedule to complete in Q1 2015
* Final PSC amendments for the new commercial structure governing the Miran and Bina Bawi fields are expected to be completed in Q1 2015. Progress is being made on the sale and purchase agreement for OMV's 36% operated stake in the Bina Bawi field, completion of which is subject to the finalisation of documentation
Tony Hayward, Chief Executive of Genel, said, "The oil export agreement between the Kurdistan Regional Government and Federal Government of Iraq is the culmination of significant political progress made throughout 2014. The agreement provides a pragmatic solution, ensuring oil exports from the KRI are able to reach their full potential for the benefit of the whole of Iraq, with the KRG receiving its full budget allocation. The export route through Ceyhan is now well established, tanker liftings are frequent, and sales are regular and predictable. Further payments to contractors in the KRI are expected to follow.
"Our robust balance sheet, coupled with rising onshore oil production amongst the lowest cost in the world, and the significant financial flexibility in the portfolio, leaves us well positioned to continue to grow even in a period of sustained low oil prices."
