The fundamentals of Genel Energy’s business are sound and the strategic focus is clear despite recent changes at board and management level, shareholders will be told at today’s annual general meeting.
Chairman Tony Hayward will say: “Genel has a clear strategic focus – maximizing the generation of free cash flow from our oil assets, accelerating the recovery of the receivable for unpaid oil sales, and crystallizing value from the KRI gas business.
“The Tawke field continues to perform in line with expectations, and drilling success at Peshkabir is expected to add to production from the end of 2017.
“While production at Taq Taq has continued to fall in 2017 the rate of decline has recently slowed, although it remains too early to extrapolate long-term conclusions from this trend. “In the year to 31 May 2017 net production to Genel has averaged 37,700 bopd.
“On a gross basis, Tawke has averaged 110,000 bopd, and Taq Taq 23,300 bopd in the period. Production from Tawke in May 2017 averaged 108,000 bopd, and for Taq Taq 17,000 bopd.
“Additional investment at Taq Taq will be targeted and appropriate in order to generate free cash flow.
“At Tawke, as previously announced, the receipt of regular payments for oil exports has led to an expansion of the 2017 work programme to include eight new production wells, of which six are Cretaceous and two shallow Jeribe wells.
“We have now received oil export payments for 18 consecutive months since September 2015. These payments resulted in Genel generating free cash flow in 2016.
“Payments have continued into 2017, and in the year to date the Kurdistan Regional Government has made gross payments of $316 million relating to oil sales and receivable recovery from Tawke and Taq Taq, of which $122 million is net to Genel.
“The economic situation in the Kurdistan Region of Iraq continues to improve.
“Stable exports are generating significant revenue, and the success of government cost-cutting programmes has moved the KRG towards fiscal breakeven.
“We expect to continue receiving payments for exports throughout the year, and are working with the KRG to accelerate the recovery of the receivable for past oil sales.
“Ongoing clarity overpayments, amongst other factors, gave us the confidence to repurchase $252.8 million nominal of our bonds in April 2017. The bonds were repurchased at a 14% discount to par.
“The Company is in the process of canceling all Bonds repurchased, including the $55.4 million repurchased in 2016. Following the buyback, externally held debt now stands at $421.8 million. This has reduced interest outflow from c.$55 million per annum to c.$32 million per annum.
“Unrestricted cash balances at 31 May 2017 are estimated at $232 million, with IFRS net debt at $171 million.
“There are just under two years until our bonds mature in May 2019 and the payment evolution, coupled with progress on the accelerated recovery of the KRG receivable and progress on the gas business, will influence our approach to refinancing.
“Moving on to the gas business, 2017 is a very important year. While there is still much work to do on monetizing the gas assets, there is renewed momentum behind the project.
“The signing of definitive agreements in February 2017 was a significant step forward that has allowed us to focus on negotiations with potential partners.
“These are ongoing, and we look forward to updating you in due course.
“Onshore Somaliland, the acquisition of 2D seismic data commenced in March 2017. The data is being acquired as part of a Somaliland government-owned speculative 2D seismic acquisition project, with the company purchasing the associated data from the government. To date, over 500 km has been acquired.
“There have recently been a number of changes at Board and management level, and board composition is under review.
“However, the fundamentals of the business are sound, our strategic focus is clear, and there are significant opportunities for value creation in the portfolio.”
At 8:10am: [LON:GENL] Genel Energy PLC share price was -3.37p at 83.88p.