Final Results

RNS Number : 6495Z

Genel Energy PLC

20 March 2012

Genel Energy plc (GENL)

Maiden preliminary unaudited results for the period ended 31 December 2011

Genel Energy plc, the London listed E&P company and largest independent oil producer in the Kurdistan Region of Iraq, announces its first set of year end results since its incorporation on 1 April 2011.

Results summary

For the period 1 April 2011 to 31 December 2011

	2011 $ million

Revenue	24.0
Loss before tax	(57.7)
Cash flow from operating activities	(23.4)
Free cash flow¹	(40.2)
Net cash at 31 December 2011	1,912.9
EPS (cents per share)	(72.34)

The company was incorporated on 1 April 2011 and acquired its first trading business on 21 November 2011. The reported results and financial statements therefore reflect the trading of GEIL from 21 November 2011 but include corporate and other costs as incurred from 1 April 2011.

¹Cash flow from operating activities less capital expenditure

Highlights

· Successfully raised $2.1 billion through an IPO in June

· Established a top-class, highly experienced Board and management team

· Merged with Genel Energy International, gaining a world class portfolio of assets and readmitted to the London Stock Exchange in November 2011

· Net average production increased by 147% from 17,000 bopd in 2010 to 42,000 bopd in 2011

· Net 2P reserve base increased by 60% from 257mm bbls to 412mm bbls

· Total working interest reserves and un-risked resources of 1.6bn boe, an increase of 45%

· Signed agreements to increase operating interest in the Chia Surkh field from 20% to 80%

· Strong balance sheet with net cash at 31 December 2011 of $1.9 billion

Outlook

· Commenced Kurdistan's most significant exploration drilling programme to date, 7 high impact wells targeting over 700 mmboe of un-risked resource potential

· Plans for the construction of the KICE pipeline are progressing

· Targeting net production of 55,000 - 60,000 bopd in 2012

· Development plans in place to increase production facilities on Tawke to 100,000 bopd in 2012 and studies underway to support production of 150,000-200,000 bopd by 2014

· Plans underway to increase Taq Taq production to 200,000 bopd by 2014

· Revenue from sales expected to generate $250-300 million in 2012

Commenting today Tony Hayward, chief executive, said:

"The merger of Vallares and Genel Energy International in November 2011 was the first step in establishing a major E&P company in the Middle East and Africa region. We are the largest independent oil producer in the Kurdistan Region of Iraq with world class assets and an exciting high impact exploration portfolio. We believe we have established a solid platform from which to pursue our growth ambitions and as an Anglo-Turkish champion we are well placed to benefit from Turkey's growing influence in the region and further afield. With $1.9 billion of cash available to invest in new opportunities, we look forward to an exciting future."

Basis of Preparation

Genel Energy plc was incorporated on 1 April 2011 and the acquisition of Genel Energy International Limited (GEIL) completed on 21 November 2011. The reported results and financial statements therefore reflect the trading of GEIL from 21 November 2011 but include corporate and other costs from 1 April 2011. References to 2011 operating performance of Genel Energy in the business commentaries that follow refer to the underlying performance of GEIL for the full 12 months of 2011 and not the period since acquisition (unless otherwise stated).

Forward looking statements

This announcement contains statements that are, or may be, forward-looking regarding the group's financial position and results, business strategy, plans and objectives. Such statements involve risk and uncertainty because they relate to future events and circumstances and there are accordingly a number of factors which might cause actual results and performance to differ materially from those expressed or implied by such statements. Forward-looking statements speak only as of the date they are made and no representation or warranty, whether expressed or implied, is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Other than in accordance with the Company's legal or regulatory obligations (including under the Listing Rules and the Disclosure and Transparency Rules), the Company does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Information contained in this announcement relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance. Nothing in this announcement should be construed as a profit forecast.

Enquiries:

Genel Energy +44 20 7659 5100

Julian Metherell, Chief Financial Officer

Natalie Fortescue, Investor Relations

RLM Finsbury +44 20 7251 3801

Ed Simpkins

Jenny Davey

Chairman's statement

I am very pleased to welcome you to Genel Energy plc and the announcement of our first set of results. We are a new, vibrant and growing company and we believe we have created a unique value proposition in the space between the oil supermajors and the small, independent E&P companies.

I have worked for over 40 years in the oil and gas business, and this Company's prospects truly excite me. I believe that we have in place the foundations of a company that can offer our shareholders an opportunity where the rewards could be significant. Our competitive advantages include a highly prospective set of world class assets and a team capable of maximising their inherent value. We have deep links with both Turkey and the Kurdistan Region, and a robust balance sheet available for strategic opportunities and asset consolidation. We will be aiming to create value with the drill bit, building on an existing estimated total net reserves and un-risked resource base of 1.6 billion barrels of oil equivalent.

I realise that working in the Kurdistan Region, where our current resources are, will bring challenges. These challenges, however, created the environment that enabled Genel Energy to secure its excellent resource portfolio, which in more mature environments would not be available to an independent E&P company. The Board and our management team will work hard to manage these aspects of our business while retaining the entrepreneurial culture that has brought us to this exciting point.

From the beginning, we determined that the journey we are on to secure value for our shareholders must be one that is guided in accordance with the highest standards of UK-listed companies. My role, as well as that of my fellow Directors, is to ensure that, while executing our strategy, we manage our business to these high standards of corporate governance and with a thorough understanding and management of the risks in our chosen areas of operation.

In assembling the Board, I believe that we have brought together a group of individuals of outstanding quality. It includes people with considerable experience in oil and gas and corporate life, both globally and in the City of London. In addition, we have individuals who have a proven track record of engagement with key stakeholders in Turkey and Kurdistan. This is important as our Turkish roots and regional relationships form an important part of our competitive advantage.

The Board is acutely aware of the trust that our shareholders have placed in us. We have at our disposal cash of $1.9 billion, and are in a position to execute significant acquisitions. If we do not see good opportunities to make suitable acquisitions, we will return capital to shareholders in the most appropriate and value accretive way.

I intend that we will comply fully with the provisions of the UK Corporate Governance Code. The Board has established several Committees: Audit, Nominations, Remuneration, and Health, Safety, Security and Environment. Importantly, all Committees are comprised only of Independent Non-Executive Directors. I am committed to protecting the interests of all shareholders through compliance with all aspects of corporate best practice. More details of our approach will be outlined in the Corporate Governance section of the 2011 annual report which will be distributed to shareholders in April 2012. My fellow directors and I are also firmly of the belief that we must conduct our business in a way that allows us to work together with our key stakeholders, especially the local communities in which we work.

We are fortunate to have a very strong executive team and, in Tony Hayward, we have a leader of exceptional experience in the resources sector. His team have considerable experience in the Kurdistan Region and are intent on extracting the maximum value from our assets. Importantly, in Mehmet Sepil, we have a President who is highly-respected in both Turkey and the Kurdistan Region, with a track record of forming strong, valuable networks across their Governments and institutions.

In addition to our presence in Turkey and in the Kurdistan Region of Iraq, we have now established a strong corporate team in London.

Genel Energy's value will be secured and enhanced by the appropriate management of risks combined with the success of our drill bit. All new opportunities, as well as our ongoing activities to further develop our assets in the Kurdistan Region, will be assessed against these criteria.

I am confident that, with a sustained and rigorous focus on our strategy, combined with the robust corporate governance structure we have in place, our journey to build a major E&P company in the Middle East and Africa will be an exciting one for our employees, shareholders and the communities in which we work.

A joint statement from the Chief Executive Officer and President

Welcome to Genel Energy plc, an Anglo-Turkish company positioned to become an emerging force in exploration and production. Genel Energy brings together an unrivalled depth of knowledge and experience in the Kurdistan Region of Iraq and a world-class set of assets, natural resources skills and relationships. The strength of our Board, executive team, employees and capital base will allow us to maximise the opportunities this presents for our shareholders.

Genel Energy is the largest independent UK listed E&P company by proved and probable (2P) reserves, with an estimated total working interest reserves and un-risked resource base of some 1.6 billion barrels of oil equivalent (bboe), including 2P reserves of 412 million barrels of oil (mmbbls).

A decade in the region

We have deep roots in Kurdistan. Our Turkish management made Genel Energy the first company to execute a Production Sharing Contract (PSC) with the Interim Joint Regional Administration of Northern Iraq in 2002 when we acquired our interest in the Taq Taq field, and we have been working in Kurdistan ever since.

Over the last decade, Genel Energy has been a core contributor to the development of the Kurdistan energy industry, which did not exist prior to our involvement. Our management team has a deep understanding of the Kurdistan Region and unrivalled regional relationships as well as extensive oil and gas experience and industry knowledge

We have contributed to the region through a number of initiatives including medical and educational programmes and support and we are committed to building on our history of operating responsibly in Kurdistan.

Building an operating base in Ankara, Turkey over the last decade, Genel Energy has evolved to become an ambassador for Turkish business. We have directly contributed to the economic development and wellbeing of the Kurdistan Region, to the mutual benefit of Turkey, Kurdistan and our Company. We are also the first Turkish business to list on the main market of the London Stock Exchange, a proud moment for all involved.

The creation of Genel Energy plc

Vallares PLC was listed on the London Stock Exchange in June 2011 with the purpose of acquiring an emerging market E&P company with a portfolio of producing, development and exploration assets that required both capital and capability to take the business to the next stage. The Initial Public Offering raised over $2.0 billion (£1.3billion). Vallares and Genel Energy International came together in November 2011 to form Genel Energy plc.

Since completing the merger, we have achieved a number of key operational milestones:

· Assembled an asset portfolio of world-class fields and prospects, comprising an estimated resource base of some 1.6 billion barrels of oil equivalent;

· Established a top-class, highly-experienced independent board, heading a small international management team based in London. This complements an operatingheadquarters inAnkara with 70 technical, specialist and administration staff and some 400 employees (including TTOPCO) on the ground in Kurdistan;

· Recorded a significant reserve upgrade of 78% to 509 mmbbls gross in the proven and probable reserves of our Tawke field and an associated commitment to increase production capacity to 100,000 bopd in 2012;

· Plan to increase production from the Taq Taq field to 200,000 barrels a day by 2014, enabled by the planned construction of the new Kurdistan Iraq Crude Export (KICE) pipeline from the field to the main Kirkuk-Ceyhan export line;

· Sought to further consolidate our position in the Kurdistan Region by announcing in January, 2012 our intention to increase our interest in the Chia Surkh exploration licence from 20% to 80% and become the licence operator (subject to approval by the Kurdish Regional Government which remains pending);

· Committed to a major exploration programme of seven high-impact wells during 2012 and early 2013, the largest and most comprehensive programme in the Kurdistan Region; and

· Began the process to seek a premium listing on the main market in London and are engaged in a constructive dialogue with the UK Listing Authority. Our objective remains to achieve a premium listing in 2012.

Our strategy

We have a clear strategy that we are focused on delivering in order to achieve long-term value for our shareholders:

· Maintain the highest level of corporate governance;

· Continue to fund the existing Kurdistan Region development and exploration from operating cash flows;

· Create value with the drill bit; and

· Build a major regional E&P company over the next 3 to 5 years through development of our assets in the Kurdistan Region, acquisition in the Middle East and Africa, and participation in future licencing rounds

Realising the potential from our existing producing assets

We have interests in the two largest producing fields in Kurdistan, Taq Taq (Genel 44%) and Tawke (Genel 25%), with access to local and international markets. In these fields, the combined gross proven, probable and possible (3P) reserves are 1.9bn boe (677 mmbbls net to Genel Energy). Over the last few years there has been strong reserve growth in both fields as they underwent simultaneous appraisal and development. The 2012 appraisal drilling programme has the potential to further grow reserves at both fields as we target areas where we have few or no well penetrations.

Production on Taq Taq commenced in 2008 and has grown to an average daily production of over 66,000 bopd gross in 2011. Over the next 24 months, we intend to continue the appraisal and development programme at Taq Taq in order to increase production to some 200,000 bopd by 2014. This growth is subject to the development of supporting infrastructure and the construction of the Kurdistan Iraq Crude Export (KICE) pipeline. Until this pipeline is complete, production from Taq Taq is limited by trucking capacity to 90,000 - 100,000 bopd, which is less than the current production capacity of 120,000 bopd.

The KICE pipeline is proposed to run from the field to the main Kirkuk-Ceyhan export line. It is proposed to be 255 kilometres long with a diameter of 24-inches and a design export capacity of over 400,000 bopd. When completed, it will allow us to increase Taq Taq production to circa 200,000 bopd and to cut transport costs from circa $3 to $1 per barrel. We are in advanced discussions with the KRG in relation to the specific details of the project (including timing, financing and cost recovery) and expect to conclude these discussions shortly. Following completion of these discussions and the execution of the definitive agreements, we currently expect construction to start in the second quarter of 2012, with completion targeted for the end of 2013.

At Tawke, average daily production exceeded 59,000 bopd gross in December 2011. We expect to increase production capacity from 75,000 to 100,000 bopd this year and have studies underway to support production volumes of 150,000 to 200,000 bopd by 2014.

Genel Energy's revenue from its production in the Kurdistan Region is earned from a mixture of domestic and export sales. There is a deep and proven domestic market for oil within the Kurdistan Region, with purchasers collecting directly from the field by truck. There is also an established export route via the main Iraq oil export pipeline to the Ceyhan port terminal in Turkey, although exports are currently limited by continuing issues surrounding export payments.

Since resuming local sales in the third quarter of 2011, circa 50% of gross Taq Taq production has been sold locally to both government refineries and to private companies, at an average price of approximately $60 bbl. At Tawke, local sales were ramped up in October 2011 and since the fourth quarter of 2011 circa 50% of gross Tawke production has been sold locally at around $50 to $56 per barrel. Operating cash flows generated from our current sales are sufficient for Genel Energy to fund our existing Kurdistan development and exploration programme.

Developing Genel Energy's low-risk, high impact exploration portfolio

Our existing Kurdistan exploration portfolio across our six PSC licences offers a good distribution of risk by running through diverse geographies with different hydrocarbon systems, from Peshkabir in the north to Chia Surkh in the south. During 2012 and early 2013, we plan to carry out the largest and most widespread exploration programme being conducted by any one company in the Kurdistan Region.

We plan to drill seven high impact exploration wells, targeting some 700 mmboe of un-risked mean resources, net to Genel Energy, in a hydrocarbon province where the exploration success rate is historically 70%.

Three of the seven exploration wells have already spudded. Ber Bahr 1, in the Ber Bahr licence area, is targeting un-risked resources estimated at circa 500 mmboe, with results expected at the end of the second quarter. The Peshkabir 1 well is targeting approximately 300 mmboe of un-risked resources in a large anticline adjacent to the Tawke field. Moveable oil has already been detected and the well is expected to complete in the third quarter of 2012. Miran East-1 is targeting the eastern structure of the Miran field which is contiguous with the hydrocarbon bearing Miran West structure. Results are expected in the second half of 2012.

Outlook and opportunities

To maximise the value of our business, Genel Energy will focus on the following priorities:

· Increasing our production and reserves in our existing Kurdistan business through the appraisal and development of our existing producing fields and through exploration as we embark on the most active exploration programme in the Kurdistan Region.

· Continuing to build our capability in Ankara, Turkey to maximise the returns of our current assets and to have a strong team capable of executing new opportunities.

· Aiming to run our existing Kurdistan operations on a cash-flow neutral basis, preserving our substantial balance sheet for new value-adding acquisitions and licence opportunities.

· Continuing to seek licence and acquisition opportunities that fit with our strategy to create a regional champion and international Anglo-Turkish E&P company.

· Conducting our business, from our strategy right down to the day to day running of the business, according to the highest levels of corporate governance.

With the combination of our asset portfolio, long-standing relationships and our financial strength, we are in a strong position to further develop our existing assets in the Kurdistan Region, acquire additional opportunities in the Middle East and Africa region and to participate in future licensing rounds. As the region develops politically, we are one of the best-placed resource companies to benefit from any de-risking of the geopolitical landscape and a consequent realisation of sustained oil export prices.

Turkey is a growing influence in the region both politically and economically. Turkey and the Kurdistan Region are developing close economic ties. In 2011, of the approximate $8 billion invested in Iraq, $6 billion of this was invested in the Kurdistan Region. The Kurdistan Region of Iraq has the potential to play a significant role in expanding Turkey's energy supply base, the majority of which is currently sourced from Iran and Russia. It is in the interests of Turkey, the Kurdistan Region and Iraq to develop the oil and gas supply route into Turkey. This evolving geopolitical situation will benefit Genel Energy, as Turkey's leading independent energy company.

We are reviewing a range of exciting opportunities that fit within our strategy to expand our position beyond the Kurdistan Region in Middle East and into Africa. We are planning to make one or more acquisitions and to participate in new licencing rounds in the region. In pursuing acquisitions we have four key objectives:

· Diversify our geographical foot print within the Middle East and Africa;

· Extend the life of our exploration portfolio;

· Acquire assets that do not dilute the world class quality or financial returns of our existing portfolio; and

· Acquire new expertise and operating capabilities.

Our strong cash resources of $1.9 billion provides a material competitive advantage in contrast to most other independent E&P companies, many of which struggle to fully develop their resources portfolio due to capital constraints. This is likely to provide a range of value-accretive opportunities for Genel Energy.

We look forward to our shareholders and stakeholders joining us on our exciting journey.

Operating review

Production

In 2011, Genel Energy made good progress in the growth of both reserves and production on our two producing fields, Taq Taq and Tawke. Over the last few years both fields have undergone simultaneous appraisal and development programmes and today their combined gross proven, probable and possible reserves stand at some 1.9bn boe. In 2011, Genel Energy's working interest production across both fields increased by 147% to 42,000 bopd. Both fields have finding and development costs of $2-$3/bbl and operating costs of around $1/bbl.

Taq Taq (44% working interest; Operator)

At Taq Taq, gross 2P reserves have increased over the last 18 months from 483mmbbls to 647mmbbls (285mmbls net to Genel) and gross average daily production from the field has doubled from 33,000 bopd in 2010 to 66,000 bopd in 2011. At the end of 2011, we had 10 producing wells and processing capacity of some 120,000 bopd. In December 2011, we reached production of some 84,000 bopd, the highest level of production to date.

Taq Taq's production output is limited by trucking capacity. Currently, all oil is trucked from the site and we have a trucking operation involving more than 400 trucks a day. This limits production from the field to between 90,000 and 100,000 bopd.

Over the next 24 months we will continue the appraisal and development program of the field with the objective of lifting production to some 200,000 bopd by 2014. The well capacity for this level of production is in hand and wwe are undertaking the second phase of construction of the central processing facility. This is planned to be operational in the second half of 2013, adding an additional 90,000 bopd processing capacity for a total processing capacity of over 200,000 bopd by early 2014.

To enhance our production capacity and provide a more efficient route to market, we and our operating partner Sinopec plan to construct a new 24-inch diameter, 255km Kurdistan Iraq Crude Export ("KICE") pipeline with over 400,000 bopd capacity, from the Taq Taq field to tie in to the Kirkuk-Ceyhan Pipeline near Fish Khabur.

The KICE Front End Engineering & Design study, completed in July 2011, estimated the cost of construction to be approximately $400 million. Genel Energy and Sinopec are in advanced discussions with the Kurdistan Regional Government over the construction of the pipeline and the nature of financing and cost recovery. We anticipate that an engineering procurement and construction contract will be awarded in the second quarter of 2012. Construction will commence shortly after the conclusion of the negotiations with the Kurdish Regional Government and execution of the definitive agreements. On this basis, we currently expect construction will commence in the second quarter of 2012. The current intention is for ownership of the pipeline to transfer to the Kurdish Regional Government once all costs have been recovered.

We are targeting production of between 120,000 and 150,000 bopd from circa 20 wells by the end of 2013 and we intend to ramp-up production progressively, with a target of c90,000 bopd on average for 2012. To reach our target production, we intend to drill five development wells in 2012 and a further three by the fourth quarter 2013. To support production, we are completing permanent facilities onsite and a power plant to utilise our onsite produced gas.

As well as our planned increase to production, we will continue our programme of appraisal at Taq Taq. The field is covered by good quality 3D seismic data but there are areas to the North West and south east where we have few or no well penetrations, providing the potential for further upside to the estimates of oil in place. The current oil in place estimated by McDaniel & Associates is 1.7 billion bbls.

Our well results and flow rates have given us continued confidence in the high quality of the reservoir. The recovery factor today is estimated at between 35% and 40% but this is expected to rise over the next few years, as additional reservoir performance data is gathered.

Tawke (25% working interest)

In January 2012, Tawke's gross 2P reserves were upgraded from 286 mmbbls to 509 mmbbls (127 mmbls net to Genel Energy). This was an increase of 78% and brought the reserves in line with the operator's (DNO International) estimate for the field. Gross average daily production from the field grew from 12,000 bopd in 2010 to 52,000 bopd during 2011 and by the end of 2011, Tawke reached 60,000 bopd. At the end of 2011 we had 13 producing wells and production capacity of 75,000 bopd.

In 2012, Genel Energy and DNO International are undertaking projects to upgrade the processing facilities and the pipeline capacity to expand production capacity from 75,000 bopd to 100,000 bopd. Our intention is to drill 3 development wells in 2012 to take gross production to approximately 100,000 bopd by the end of the year, with a target of 60,000 to 70,000 bopd on average for 2012.

Studies are underway to put in place plans to achieve 2014 target production of 150,000-200,000 bopd with further upgrades to our central processing facility.

As with Taq Taq, the Tawke field has been appraised as it has been developed and there are areas of the field where well penetrations remain limited. In the case of Tawke, the entire northern flank of the field is un-appraised with the potential for gross incremental reserves of around 150mmbbls. The Tawke 16 well that spudded in December 2011, will be a key well in defining this potential upside.

Exploration and appraisal

Over the next 18 months, Genel Energy and its partners are working to execute a significant, high-impact exploration and appraisal programme to ensure a fast-track assessment and exploitation of our portfolio.

Genel Energy's exploration programme has the prospect of adding significant resources over the short to medium term. Our current drilling plans include seven high impact exploration wells to be completed through the remainder of 2012 and the early part of 2013. This is by far the largest and most widespread exploration programme being conducted by anyone in the Kurdistan Region. In total, the programme will target net un-risked resources of more than 700mmboe in a hydrocarbon province where exploration success has historically been greater than 70%.

Appraisal

The Miran discovery in which Genel has a 25% working interest is estimated by the operator (Heritage Oil) to contain more than 4tcf of gas and 175mmboe of contingent and risked prospective resource in the Cretaceous and Jurassic reservoirs. The Miran West-3 appraisal well which spudded in August 2011 was designed to appraise the Miran West structure. The primary objective of the well remains to test the productivity of the Jurassic. Testing to date has confirmed that the Upper Cretaceous is oil bearing and the Lower Cretaceous is gas bearing. Further drilling will appraise the Jurassic reservoir intervals as planned and this, together with the recently completed 3D seismic survey, will provide a better estimate of the potential recoverable gas reserves and assist in development planning. The Miran East-1 exploration well, which is being drilled on a separate structure to the existing discovery, spudded in March 2012. It is likely that we will see a phased development of Miran with early gas into the domestic Kurdistan Region market followed in the future by exports to Turkey.

The Dohuk well completed at the end of 2011 and made a modest discovery. The well encountered a 200m gas column in the Cretaceous that flowed at rates of 11mmscfd from a restricted zone. A heavy oil column was also encountered in the Jurassic that flowed at non stable rates up to 450bopd. The plan is to complete a 3D seismic survey in 2012, conduct subsurface studies and look at options for an early gas development into the domestic market. There are two plants currently burning fuel oil in the local area that could potentially use Dohuk gas.

Exploration

The Ber Bahr -1 well spudded in October 2011 and is testing a large surface anticline and major reservoir targets in the Jurassic and Triassic. Pre drill un-risked resources were estimated at 500mmboe and the well is expected to complete around the end of the second quarter of 2012. In the event of success we would conduct a 3D seismic program and drill the first appraisal well to the northwest of BerBahr-1.

The Peshkabir-1 well spudded in December 2011 and is testing a large anticline directly along strike from the Tawke field. Major reservoir targets are the Cretaceous, Jurassic and Triassic. Pre drill un-risked resources are estimated at 300mmboe. An open hole drill stem test has demonstrated the presence of moveable oil in the Upper Cretaceous and the well is now being deepened. We expect to complete the well in the third quarter of 2012.

The Tawke Deep well which we expect to spud in the fourth quarter of 2012, will test the Jurassic and Triassic reservoirs that have yet to be penetrated in the Tawke structure. Gross pre drill un-risked resource is estimated at 200mmboe.

The Taq Taq Deep well which we expect to spud in the fourth quarter of 2012 will test the Jurassic and Triassic reservoirs in the Taq Taq structure. A well drilled in the mid-1970s on Taq Taq tested gas from the Jurassic/Triassic interval. Gross pre drill un-risked resource estimate is 250mmboe.

The Kirwa Chirmila well is expected to spud in the third quarter of 2012 and will test a shallow Tertiary Pilaspi Formation prospect immediately to the south west of Taq Taq. It will complete our work program obligations on the Taq Taq and Kirwa Chermila licence.

At Chia Surkh, we are in the process of increasing our interest to 80% and assuming the operatorship. Completion of the transaction is conditional on the receipt of various consents, approvals and assurances, including the approval of the Kurdistan Regional Government Oil and Gas Council. The application before the Kurdistan Regional Government Oil and Gas Council remains pending and all parties continue to work with the Government to secure final approval for the transaction. We will commence a 2D seismic survey in the second quarter with the first well planned to spud in the third quarter of 2012. The principal reservoirs are in the Tertiary section. The structure was originally drilled before the 1950's and tested oil at rates up to 4000bopd. Gross pre drill un-risked resource estimate is 300mmboe.

Our estimated resource base is now 1.6 billion boe. Proven and probable reserves in our two producing fields are 412mmbbls with further possible reserves of 266mmbbls, a contingent resource base of 175mmboe and an unrisked prospect inventory of 729 mmboe.

Finance Director's review

Results summary

2011

$ million

Revenue

24.0

Operating loss

(62.5)

Loss before tax

(57.7)

Earnings per share (cents)

(72.34)

Cash flow from operating activities

(23.4)

Capex

(16.8)

Free cash flow¹

(40.2)

Net cash

1,912.9

Net assets

3,841.8

¹Cash flow from operating activities less capital expenditure

The Company was incorporated on 1 April 2011 and acquired its first trading business on 21 November 2011. The reported results and financial statements therefore reflect the trading of GEIL from 21 November 2011 but include corporate and other costs from 1 April 2011. As a result, the group recorded a loss for the period ending 31 December 2011, primarily as a result of costs associated with the acquisition of Genel Energy International Limited ("GEIL") together with costs associated with listing the Company on the London Stock exchange.

Fundraising

Following the incorporation of the Company on 1 April 2011, £1.3 billion ($2.0 billion) of cash (net of IPO costs) was raised through IPO on 22 June 2011 for the purposes of acquiring or establishing a major company, business or asset that has significant operations in the oil and gas sector. This was planned to be achieved through the acquisition of interests in, or merger with, one or more complementary companies, businesses or assets.

Financial Strategy

Our financial strategy is to run the existing operations in the Kurdistan Region on a cash neutral basis and deploy the cash resources of the Group to acquire and develop high quality oil and gas assets as and when attractively priced opportunities arise.

Acquisitions

On 21 November 2011, the Group completed the acquisition of GEIL, a Turkish oil and gas exploration and production business with PSCs in Kurdistan. Total consideration paid was $1,866.6 million which was satisfied through the issue of 130,632,522 ordinary shares and suspended voting ordinary shares in Genel Energy plc at a share price of 912 pence per share (the market value of shares on 21 November 2011). The company also settled GEIL's outstanding debt.

On completion of the acquisition, the functional currency of the company and group was changed from sterling to US dollars.

Revenue

Revenues of $24.0 million represent amounts received and receivable from shipments of oil to domestic customers since the acquisition of GEIL on 21 November 2011. No payments were received from the KRG in the period for shipments of export oil and therefore, in line with the group's accounting policy, no export revenues have been recognised in the period.

Operating Loss

Cost of sales of $21.4 million includes depletion and depreciation charges of $18.3 million and production costs of $3.1 million, both of which include costs for both export and domestic sales volumes shipped. The depreciation charge includes the cost of amortising the values attributable to 2P reserves following the application of acquisition accounting.

Administration expenses were $65.1 million for the period and included $53.3 million for various advisors' services associated with the acquisition of Genel Energy International, $3.0 million of IPO transaction cost and share based payment charges of $3.1 million.

Finance income

Finance income of $4.8 million represents interest income received on cash balances.

Taxation

All corporation tax due has been paid on behalf of the Company by the KRG from the KRG's own share of revenues and there is no tax payment required or expected to be made by the Company. The tax paid by the KRG in accordance with the terms of the PSCs would usually be presented as a gross up of revenue and a corresponding taxation expense in the income statement and no cash out flow for the Company. In the Company's results for the period ended 31 December 2011, no presentation of taxation expense with an equivalent gross up for revenue has been accounted for in the period because it has not been possible to measure reliably the amount of taxation paid on behalf of the Company because of uncertainties over how the amount of taxation should be calculated. This is an accounting presentational issue and there is no taxation to be paid.

Because of the uncertainty in calculating a tax charge and in assessing how certain capital assets should be treated under the tax laws of the Kurdistan Region, it has not been possible to assess whether or how much deferred tax liability should be recognised in relation to the business combination that took place in the year and consequently no deferred tax liability has been recognised. As the tax regime evolves there are a number of possible outcomes, one of which is that at a later date it becomes necessary to recognise a deferred tax liability in relation to the assets acquired through the business combination. The recognition of a deferred tax liability is an accounting entry that would have no impact on cash or cash flows.

Dividend

In line with the Group strategy to deploy cash to acquire and develop high quality assets, no dividend will be paid for the period ended 31 December 2011.

Capital expenditure

Capex in the period amounted to $16.8 million, including $4.2 million in respect of oil and gas assets and $10.7 million for exploration and evaluation.

Cash flow

Total cash flow for the period to 31 December 2011 was $1,912.9 million, consisting of net cash outflow from operations of $23.4 million, $16.8 million out flow for capex, $2,032.9 million in flow from the issue of shares on IPO and $79.8 million (including net debt acquired) out flow in respect of the acquisition of GEIL.

Net cash

At 31 December 2011 the Group had a cash balance of $1,912.9 million. This cash is held primarily for the purpose of acquiring further high quality, attractively priced assets. It is planned that, going forward, the existing business in the Kurdistan Region will be run on a largely cash flow neutral basis.

Net assets

Net assets at 31 December 2011 amounted to $3,841.8 million and consist primarily of oil and gas assets of $1,841.0 million, exploration and evaluation assets of $227.7 million, and cash of $1,912.9 million.

Liquidity / counterparty risk management

The Group monitors its cash position, cash forecasts and liquidity on a regular basis. Cash is held in government gilts or treasury bills or on term deposits with a number of banks with appropriate credentials. Banking credentials are assessed using a combination of sovereign risk, credit default swap pricing and credit rating.

Going Concern

The Directors have assessed that the cash balance held provides the Group with adequate headroom over forecast operational and potential acquisition expenditure for the 12 months following the signing of the Annual Report for the period ended 31 December 2011 for the Group to be considered a going concern.

Functional and presentation currency

The Directors have assessed the functional and presentation currency of the companies of the Group to be US dollars on the basis that the main operations of the group generate US dollar cash flows and as such future dividend flow and funds available for reinvestment will be determined us dollar denominated. In addition future acquisitions will be in the oil and gas sector and the value of these and future cash flows are highly likely to be US dollar driven.

Accounting policies

UK listed companies are required to comply with the European regulation to report consolidated statements that confirm to International Financial Reporting Standards ("IFRSs") as adopted by the European Union. Principal accounting policies adopted by the group and applicable for the period ended 31 December 2011 are shown on page 18 to 26.

Statement of Director's Responsibilities

The Directors confirm that the 2011 Annual Report and Accounts, which will be issued in April 2012, complies with the Disclosures and Transparency Rules of the United Kingdom's Financial Services Authority in respect of the requirement to produce an annual report .

The Directors confirm that to the best of their knowledge and belief:

· the financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union, give a true and fair view the assets, liabilities, financial position and profit of the Group; and

· the business review includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principle risks and uncertainties they face.

A list of current directors is maintained on the Genel Energy plc website: www.genelenergy.com

By order of the Board

Tony Hayward

Chief Executive

20 March 2012

Consolidated statement of comprehensive income

For period ended 31 December

	Notes	2011
		$m

Revenue	2	24.0
Cost of sales	3	(21.4)

Gross profit		2.6

Administration expenses	4	(65.1)

Operating loss		(62.5)

Finance income		4.8

Loss before income tax		(57.7)

Income tax expense		-

Loss for the period		(57.7)

Total comprehensive loss for the period		(57.7)

Attributable to:
Equity holders of the company		(57.7)
		(57.7)

Earnings per ordinary share attributable to the ordinary equity holders of the company
Basic earnings per share - cents per share	5	(72.34)
Diluted earnings per share - cents per share	5	(72.34)

All amounts shown relate to continuing operations.

Consolidated balance sheet

At 31 December

	Notes	2011
		$m
Assets
Non-current assets
Intangible assets	6	227.7
Property, plant and equipment	7	1,848.4

		2,076.1
Current assets
Inventories	8	0.1
Trade and other receivables	9	14.1
Cash and cash equivalents	10	1,912.9
		1,927.1
Total Assets		4,003.2

Liabilities
Non-current liabilities
Deferred income	12	(68.8)
Provisions	13	(9.4)
		(78.2)
Current liabilities
Trade and other payables	11	(77.8)
Deferred income	12	(5.4)
		(83.2)
Total liabilities		(161.4)


Net assets		3,841.8

Equity attributable to equity holders of the parent
Share capital	14	40.9
Share premium account		3,824.2
Retained earnings		(54.6)
Total shareholders' equity		3,810.5

Non-controlling interest		31.3

Total equity		3,841.8

Consolidated Statement of Changes in Equity

For the period ended 31 December

		Share capital	Share premium	Retained earnings	Total attributable to equity holders	Non-controll ing interest	Total equity
		2011	2011	2011	2011	2011	2011
	Notes	$m	$m	$m	$m	$m	$m

Balance at 1 April 2011		-	-	-	-	-	-

Comprehensive income for the period		-	-	(57.7)	(57.7)	-	(57.7)
Transactions with shareholders:
Shares issued on Initial public offer		20.5	2,022.7	-	2,043.2	-	2,043.2
Shares issued on acquisition¹		20.4	1,843.1	-	1,863.5	-	1,863.5
Costs associated with admission to the London Stock exchange²		-	(41.6)	-	(41.6)	-	(41.6)
Issue of founder shares		-	-	-	-	23.5	23.5
Issue of founder securities		-	-	-	-	7.8	7.8
Share based payment transactions		-	-	3.1	3.1	-	3.1

Balance at 31 December 2011		40.9	3,824.2	(54.6)	3,810.5	31.3	3,841.8

¹Shares issued on the acquisition of Genel Energy International

²Legal, banking, accounting costs associated with the initial share issue.

Consolidated cash flow statement

For period ended 31 December


	Notes	2011
		$m
Cash flows from operating activities
Cash generated from operations	15	(27.9)
Interest received		4.5

Net cash from operating activities		(23.4)

Cash flows from investing activities
Purchase of property, plant and equipment		(6.1)
Purchase of intangible assets		(10.7)
Acquisition of subsidiary net of cash acquired		75.9

Net cash from investing activities		59.1

Cash flows from financing activities
Net proceeds from the issue of share capital		2,032.9
Repayment of acquired subsidiary loans	16	(155.7)

Net cash from financing activities		1,877.2

Net increase in cash and cash equivalents		1,912.9
Cash and cash equivalents at incorporation		-

Cash and cash equivalents at 31 December	10	1,912.9

The company's acquisition of GEIL was completed by the issue of new ordinary shares valued at $1,863.5 million (130,632,522 shares at 912 pence per share) of Genel Energy plc (see note 16)

1 Summary of significant accounting policies

Basis of preparation

Genel Energy plc ("the Company"), formerly called "Vallares PLC", was incorporated on 1 April 2011 under the Companies (Jersey) Law as a Special Purpose Acquisition Company. These financial statements cover the period from the date of incorporation to 31 December 2011 and therefore there are no comparatives.

On 17 June 2011, the Company listed through Initial Public Offering on the main market of the London Stock Exchange, raising net $2.0 billion. The stated purpose of the Company was to make acquisitions in the resources sector and to enhance shareholder value through the application of the Company management's extensive experience in that sector.

On 21 November 2011 the Company completed the acquisition of Genel Energy International Limited Group ("GEIL" refer to note 23) and the Company was renamed Genel Energy plc.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The significant accounting policies are set out below and have been consistently applied throughout the period.

The consolidated financial statements consolidate the Company and its subsidiaries (together referred to as the "Group") and proportionately consolidate the Group's interest in jointly controlled entities. The parent company financial statements have not been presented as there is no requirement to do so under Jersey Companies Law.

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency").

Following Genel Energy Plc becoming the parent company of Genel Energy International Limited ("GEIL") on 21 November 2011, the Directors assessed the functional currency of the Company to be US dollars. This reflects the fact that the majority of the Genel Energy's business is influenced by pricing in international commodity markets, with a dollar economic environment. The previous functional currency of the Company was Sterling. In accordance with IAS 21, the change in functional currency has been accounted for prospectively from the date of change. On the date of the change of functional currency all assets, liabilities, issued capital and other components of equity and income statement items were translated into dollars at the exchange rate on that date. The Company also changed its presentation currency to US dollars.

The consolidated financial statements are presented in to the nearest million dollars ($m) rounded to one decimal place, except where otherwise indicated.

For explanation of the key judgements and estimates made by management in applying the Group's accounting policies, refer to significant accounting estimates and judgement on pages 25 to 26.

Going concern

The Directors have, at the time of approving the consolidated financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, the Group continues to adopt the going concern basis of accounting in preparing the consolidated interim financial statements.

Consolidation

Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is expensed directly to the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.

Jointly-controlled entities

Jointly-controlled entities are those entities where the sharing of control is established by contractual agreement and decisions about the relevant activities require the unanimous consent of the parties sharing control. The Group reports its interests in jointly-controlled entities using the proportionate consolidation method of accounting. The Group's proportionate share of the assets, liabilities, income and expenses of jointly-controlled entities are included within the equivalent items in the consolidated financial information on a line-by-line basis.

Jointly-controlled operations

Jointly-controlled operations are joint arrangements whereby the parties that have joint control of the arrangement have rights to the gross assets and liabilities of the arrangement and where no separate legal entity exists for the purpose jointly controlled operation. Control is established through contractual agreement and decisions about the relevant activities require the unanimous consent of the parties sharing control. The Group reports its interests in jointly controlled operations by recognising its share in assets, liabilities, income and expenses of the jointly controlled operation on a line-by-line basis. The Group's proportionate share of the assets, liabilities, income and expenses of jointly controlled operations are included within the equivalent items in the consolidated financial information on a line-by-line basis.

The majority of the Group's exploration, development and production activities are conducted jointly with others under Production Sharing Contracts (PSCs) which are contractual arrangements that establish shared control.

Non-controlling interest

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination (see below) and the non-controlling share of changes in equity since the date of the combination. Losses applicable to the non-controlling interest in excess of the non-controlling interest's share in the subsidiary's equity are allocated against the interests of the Group except to the extent that the non-controlling interest has a binding obligation and is able to make an additional investment to cover the losses.

Segmental reporting

IFRS 8 requires the group to disclose information about its operating segments and the geographic areas in which it operates. It requires identification of business segments on the basis of internal reports that are regularly reviewed by the entity's chief operation decision maker in order to allocate resources to the segment and assess its performance. The Group has one reportable business segment which is its oil and gas exploration and production business in Kurdistan.

Foreign currency

Foreign currency transactions are translated into the functional currency of the relevant entity using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.

Foreign exchange gains and losses are presented in the income statement within finance income or finance costs.

Financial assets

Classification

The Company assesses the classification of its financial assets on initial recognition as either: at fair value through profit and loss; loans and receivables; or available for sale.

Recognition and measurement

Regular purchases and sales of financial assets are recognised at fair value on the trade-date - the date on which the Group commits to purchase or sell the asset. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Trade and other receivables

Trade receivables are amounts due from customers for crude oil sales, sales of gas or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Trade and other payables

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and includes the Group's share of cash held in joint operating ventures.

Interest-bearing borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are presented as long or short term based on the maturity of the respective borrowings in accordance with the loan or other agreement. Borrowings with maturities of less than twelve months are classified as short term. Amounts are classified as long term where maturity is greater than twelve months. Where no objective evidence of maturity exists, related amounts are classified as short term.

Intangible assets

Exploration assets

Exploration assets are explained under 'Oil and gas assets' in property, plant and equipment below.

Other intangible assets

Other intangible assets (predominately software) that are acquired by the Group are stated at cost less accumulated amortisation and less accumulated impairment losses.

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use, unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date.

Property, plant and equipment

Property plant and equipment comprises the Group's tangible oil and gas assets together with leasehold improvements, motor vehicles and other assets and are carried at cost, less any accumulated depreciation and accumulated impairment losses. Cost includes purchase price and construction costs together with borrowing costs where applicable for qualifying assets. Depreciation of these assets commences when the assets are available for their intended use.

Oil and gas assets

Costs incurred prior to obtaining legal rights to explore are expensed immediately to the income statement.

Exploration, appraisal and development expenditure is accounted for under the 'successful efforts' method. Under the successful efforts method only costs that relate directly to the discovery and development of specific oil and gas reserves are capitalised. Exploration and evaluation costs are capitalised within intangible assets.

All lease and licence acquisition costs, geological and geophysical costs and other direct costs of exploration, evaluation and development are capitalised as intangible assets or property plant and equipment according to their nature. Intangible assets comprise costs relating to the exploration and evaluation of properties which the directors consider to be unevaluated until reserves are appraised as commercially viable, at which time, following an impairment review, they are transferred to property plant and equipment and reclassified as development assets. Where properties are appraised to have no commercial value, the associated costs are expensed as an impairment loss in the period in which the determination is made.

Development expenditure on producing assets is accounted for in accordance with IAS 16, 'Property, plant and equipment'.

Assets are depreciated once they are available for use and are depleted on a field by field basis using the unit of production method. The depreciation is calculated according to the Company's share of production compared to its entitlement to commercial proved and probable reserves under the terms of the relevant PSC. The calculation of the 'unit of production' depreciation takes account of estimated future development costs and is based on current period-end unescalated price levels. Changes in reserve quantities and estimates of future development expenditure are reflected prospectively. The contractors' entitlement to annual production is determined based on the provisions of the PSCs and is subject to periodic review by the KRG.

In order to determine the depletion, depreciation and amortisation charge for the period, the Group estimates its net share of production based on interpretation of the PSC terms. The interpretation of the PSC terms is subjective and management's interpretation may differ from that ultimately determined by the KRG. Production volumes used in calculating the depletion, depreciation and amortisation charge therefore represents management's best estimate at the date of the financial statements and may be subject to change on audit by the KRG or its nominated auditor.

Changes in depletion, depreciation and amortisation related to the determination of actual production entitlement by the KRG therefore represent changes in estimates and are accounted for on a prospective basis.

Farm-in/farm-out

Farm-out transactions relate to the relinquishment of an interest in oil and gas assets in return for services rendered by a third party or where a third party agrees to pay a portion of the Group's share of the development costs ("cost-carry"). Farm-in transactions relate to the acquisition by the group of an interest in oil and gas assets in return for services rendered or cost-carry provided by the group.

Farm-in/farm out transactions undertaken in the development or production phase of an oil and gas asset are accounted for as an acquisition or disposal of oil and gas assets. The consideration given is measured as the fair value of the services rendered or cost-carry provided and any gain or loss arising on the farm-in/farm-out is recognised in the statement of comprehensive income. A profit is recognised for any consideration received in the form of cash to the extent that the cash receipt exceeds the carrying value of the associated asset.

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 at inception 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.

Exploration and evaluation assets are recognised in respect of cost-carries where the Company is entitled to recover the carried costs for its own account through the PSC reimbursement mechanism. The recognition of income arising from the recognition of exploration and evaluation assets in this way is deferred until the asset reaches the production phase.

Where cost-carries are related to the forgiveness of other obligations, such as a royalty granted by the third party as part of the farm-in arrangement, the associated income is recognised in a manner consistent with the related obligation.

Other assets

Depreciation is charged so as to write off the cost, less estimated residual value, over the estimated useful lives of the assets using the straight-line method:

Motor vehicles	5 years
Computer equipment	3 years
Other equipment	3-5 years

The estimated useful lives of property plant and equipment and their residual values are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement for the relevant period.

Subsequent costs

The cost of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The net book value of the replaced part is expensed. The costs of the day-to-day servicing and maintenance of property, plant and equipment are recognised in profit or loss as incurred.

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

Inventories

Crude oil inventory is measured at the lower of cost and net realisable value.

Crude oil underlifts and overlifts arise on differences in quantities between the group's entitlement to production and the actual production either sold or held as inventory by the group. Underlifts are recognised where actual production either sold or held as inventory is lower than the company's entitlement. Overlift is recognised where the company has sold or held inventory greater than its entitlement at a period end.

Underlifts and overlifts relative to actual entitlement to crude oil production in a period are measured at market value and recorded as a receivable and payable, respectively. The movement within an accounting period is adjusted in the income statement, such that the profit is recognised on a contractual entitlement basis.

Impairment

Property, plant and equipment

The carrying amounts of the Group's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Key assumptions used in the discounted cash flows used to assess the fair value of property, plant and equipment are oil price, reserves and resources, operating expenditure, government deductions from revenue.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash generating unit").

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimate of future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

All impairment losses are recognised as an expense in the income statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised.

Employee benefits

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share-based payments

The Group operates a number of equity-settled, share-based compensation plans. The economic cost of awarding shares and share options to employees is recognised as an expense in the income statement equivalent to the fair value of the benefit awarded. The fair value is determined by reference to option pricing models, principally Monte Carlo and adjusted Black-Scholes models. The charge is recognised in the income statement over the vesting period of the award. At each balance sheet date, the Group revises its estimate of the number of options that are expected to become exercisable. Any revision to the original estimates is reflected in the income statement with a corresponding adjustment to equity immediately to the extent it relates to past service and the remainder over the rest of the vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the managements' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Decommissioning

Provision is made for the cost of decommissioning assets at the time when the obligation to decommission arises. Such provision represents the estimated discounted liability for costs which are expected to be incurred in removing production facilities and site restoration at the end of the producing life of each field. A corresponding item of property plant and equipment is also created at an amount equal to the provision. This is subsequently depreciated as part of the capital costs of the production facilities. Any change in the present value of the estimated expenditure attributable to changes in the estimates of the cash flow or the current estimate of the discount rate used are reflected as an adjustment to the provision and the property plant and equipment. The unwinding of the discount is recognised as interest payable in the income statement.

Balance sheet classification

Current assets and short-term liabilities include items due less than a year from the balance sheet date, and items related to the operating cycle, if longer. The current portion of long-term debt is included under current liabilities. Investments in shares held for trading are classified as current assets, while strategic investments are classified as non-current assets. Other assets are classified as non-current assets.

Revenue

Sales of crude oil are recognised when the significant risks and rewards of ownership have passed to the buyer and the associated revenue can be reliably measured. Revenue from other services is recognised when the service has been performed. Revenue is measured at the fair value of the consideration received excluding discounts, rebates, value added tax ("VAT") and other sales tax or duty. Where income tax arising from the Group's activities under production sharing contracts is settled by a third party at no cost and on behalf of the Group and where the Group would otherwise be liable for such income tax, the associated sales are shown gross including the notional tax and a corresponding income tax charge is presented in the income statement.

Export sales - Kurdistan

The risks and rewards of ownership are deemed to have passed on delivery however, because the payment mechanism for crude export sales is developing, the Group does not consider that export revenue can be reliably measured at the time of delivery and, consequently, recognises revenue at the point of cash receipt.

Local sales - Kurdistan

The risks and rewards of ownership are deemed to have passed on delivery of crude oil to the customer at the point of loading and revenue is recognised accordingly to the extent that the receipt of cash is assessed as sufficiently probable and the amount of revenue can be reliably measured.

Royalty revenue related to export and other sales is recognised on receipt of cash.

Finance income and finance costs

Finance income comprises interest income on funds invested and foreign currency gains. Interest income is recognised as it accrues, using the effective interest method.

Finance expense comprises interest expense on borrowings, and foreign currency losses. Borrowing costs directly attributable to the acquisition of a qualifying asset as part of the cost of that asset are capitalized over the respective assets.

Borrowing costs, including the accretion of any discount on initial recognition of borrowings, incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.

Share capital

Ordinary shares are classified as equity.

Taxation

Under the terms of the PSCs, under which oil sales are made, any tax due is paid directly from the Government's take of revenues. This would usually be accounted for as a gross up of revenue and a corresponding taxation expense in the income statement. No gross up of revenue and presentation of taxation expense has been accounted for in the period because, as a consequence of the uncertainty over the payment mechanism for oil sales in Kurdistan, it has not been possible to measure reliably the amount of taxation that has been paid on behalf of the Company by the KRG. The Company believes that all taxation due has been paid on its behalf by the KRG and no tax payment is expected to be required.

Related parties

Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the party in making financial or operational decisions. Parties are also related if they are subject to common control.

Transactions between related parties are transfers of resources, services or obligations, regardless of whether a price is charged and are disclosed separately within the notes to the consolidated financial information.

Accounting estimates and judgements

Certain critical accounting judgements in applying the Group's accounting policies are described below.

Estimation of oil and gas reserves

Oil and gas reserves are key elements in the Group's investment decision-making process. They are also an important element in determining depletion, depreciation and amortisation, the timing of decommissioning activity and in testing for impairment of tangible and intangible oil and gas assets. Changes in oil and gas reserves, particularly proved and probable reserves (2P), will have a corresponding effect on the depletion, depreciation and amortisation charge in the statement of comprehensive income and on the discounted value of any decommissioning provision. Changes in oil and gas reserve estimates will affect the assessed valuation of capitalised oil and gas assets, which may result in impairment.

Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, that is, prices and costs as of the date and estimate is made.

Probable reserves are those additional reserves which analysis of geosciences and engineering data indicate are less likely to be recovered than proved reserves, but more certain to be recovered that possible reserves. Estimates of oil and gas reserves are inherently imprecise, require the application of judgement and are subject to future revision. Accordingly, financial and accounting measures (such as depreciation and amortisation charges and provision for decommissioning) that are based on proved and probable reserves are also subject to change.

Proved reserves are estimated by reference to available reservoir and well information. All proved reserves estimates are subject to revision, either upward or downward, based on new information such as from development drilling and production activities, or from changes in economic factors, including product prices, contract terms or development plans. In general, changes in the technical maturity of hydrocarbon reserves resulting from new information becoming available from development and production activities have tended to be the most significant cause of annual revisions.

In general, estimates of reserves 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. As a field goes into 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.

Changes to the Group's estimates of proved and probable reserves also affect the amount of depreciation and amortisation recorded in the Group's consolidated financial statements for property, plant and equipment related to oil and gas production activities. A reduction in proved and probable reserves will increase depreciation and amortisation charges (assuming constant production) and reduce income.

Future development costs used in depletion of oil and gas properties

Certain classes of property, plant and equipment related to oil and gas exploration and production activities are depreciated using a unit-of-production method over (2P) reserves. Since 2P reserves assume future development cost to access undeveloped proved and probable reserves, the future development costs are included with the net book value of oil and gas property, plant and equipment used in calculating the unit of production depreciation rate on a field-by-field basis.

The Group's estimation of future development costs is based on comparable data of similar companies in the region, future prices for metals and Group's plans to increase the efficiency of the drilling process. However, actual drilling costs may be different from those estimated by the Group due to changes in market conditions, business and operating environment. Changes in estimates of reserve quantities and/or estimates of future development expenditure are reflected prospectively in the depreciation, depletion and amortisation calculation.

Revenue recognition

The payment mechanism for export sales is developing and, in practice, does not follow the contractual provisions of the PSCs. The Iraqi Government is responsible for the marketing of all export oil from Iraq and determines the basis on which associated revenues will be allocated to the KRG for distribution to contractors. As such, there is uncertainty related to both the amount of export revenue and the timing of receipt of that revenue. In addition, the tax provisions of the PSCs are subject to interpretation and the associated tax filing mechanism is not established, giving rise to further uncertainty.

As such, export sales are only recognised in the statement of comprehensive income on the receipt of proceeds and no gross up is made in respect of the revenue and taxes related to the Kurdistan PSCs.

See note 2 to the financial statements - Segmental reporting.

Decommissioning costs

Provision for decommissioning represents the present value of decommissioning costs relating to the Kurdistan oil and gas interests, which are expected to be incurred at the end of field life, currently estimated to be in the period 2031 - 2034. These provisions have been created based on the Group's internal estimates. Assumptions, based on the current economic environment, have been made which Management believe are a reasonable basis upon which to estimate the future liability. Those estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required, which will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain.

Business combinations

The recognition of business combinations requires the excess of the purchase price of acquisitions over the net book value of assets acquired to be allocated to the assets and liabilities of the acquired entity. The Group makes judgements and estimates in relation to the fair value allocation of the purchase price.

The fair value exercise is performed at the date of acquisition. As a result of the nature of fair value assessments in the oil and gas industry, the purchase price allocation exercise and acquisition-date fair value determinations require subjective judgements based on a wide range of complex variables at a point in time. Management uses all available information to make the fair value determinations.

In determining fair value for the acquisition, the Directors have utilised valuation methodologies including discounted cash flow analysis. The assumptions made in performing these valuations include assumptions as to discount rates, foreign exchange rates, commodity prices, the timing of development, capital costs, and future operating costs. Any significant change in key assumptions may cause the acquisition accounting to be revised.

New standards

A number of new standards, amendments to standards and interpretations will be effective for annual periods beginning after 1 January 2012. None of these standards have been early adopted. The new standards are not expected to have a significant effect on the consolidated financial statements of the Group.

2. Segmental information

The Group has one reportable business segment which is its oil and gas exploration and production business in Kurdistan. Capital expenditure decisions for the segment are considered in the context of the cash flows expected to be made from the production and sale of crude oil. Activities such as administration and finance income are not considered part of the business segment and form part of the reconciliation to the reported numbers.

	Kurdistan	Other	Total Reported
	2011	2011	2011
	$m	$m	$m

Revenue	24.0	-	24.0
Cost of sales	(21.4)	-	(21.4)
Gross profit	2.6	-	2.6

Administration expenses	-	(65.1)	(65.1)
Operating profit	2.6	(65.1)	(62.5)

Finance income	-	4.8	4.8

Profit before tax	2.6	(60.3)	(57.7)


Capital expenditure	14.9	1.9	16.8

Total assets	2,154.3	1,848.9	4,003.2

Total liabilities	(127.2)	(34.2)	(161.4)


			2011
			$m

Revenue from export sales			-
Revenue from domestic sales			24.0

			24.0

Export sales of crude oil are made through the national Iraqi marketing company, SOMO, an entity owned and controlled by the Iraqi Government of Iraq. SOMO is responsible for the marketing and sales of all export crude volumes in Iraq. SOMO remits funds to the KRG on a periodic basis for payment to contractors. Payments received from the KRG for export sales are recognised on a cash receipts basis (see significant accounting estimates and judgements).

3. Cost of Sales

Cost of sales is comprised of the following:		2011
		$m

Depletion and amortisation of oil and gas assets (note 7)		18.3
Production costs		3.1

Total cost of sales		21.4

4. Administration expense

Administration is comprised the following:		2011
		$m

Staff costs		0.4
Directors fees		1.0
Share based payment charge		3.1
Audit fees		0.2
Operating lease rentals		0.2
IPO costs		3.0
Advisors fees relating to IPO and acquisition		53.3
Depreciation of other assets		0.3
All other costs		3.6

		65.1

5. Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of shares in issue during the period.

	2011

Loss for the period attributable to equity holders of the company - $ million	(57.7)

Weighted average number of ordinary shares - number	79,830,987

Basic earnings per share - cents per share	(72.34)

Diluted

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to include all potential dilutive ordinary shares. The group has four types of potential dilutive ordinary shares:

- shares issued to directors under the share matching award

- share options granted to employees under the groups Share Option Plan, where the exercise price is less than the average market price of the company's ordinary shares during the period

- deferred shares issued to employees under the groups Restricted Share Plan

- Shares and securities issued to the founders of the company

	2011

Loss for the period attributable to equity holders of the company - $ million	(57.7)

Weighted average number of ordinary shares - number	79,830,987
Adjustment for share awards, deferred share, share options and founder shares and securities¹ - number	-
Weighted average number of ordinary shares for diluted earnings per share - number	79,830,987

Diluted earnings per share - cents per share	(72.34)

¹ potential issue of shares under restricted share plan, share option plan, share matching award and founder shares and securities are not dilutive in 2011 as the group reported a loss

6. Intangible assets

	Exploration and evaluation assets	Other assets	Total
	$m	$m	$m
Cost
Balance at 1 April 2011	-	-	-
Acquisitions through business combinations (see note 16)	216.9	-	216.9
Additions	10.7	0.1	10.8

Balance at 31 December 2011	227.6	0.1	227.7

Net book value
At 1 April 2011	-	-	-
At 31 December 2011	227.6	0.1	227.7

Exploration and evaluation assets are comprised of the Group's PSC interests in exploration assets in Kurdistan. Exploration and Evaluation assets are not amortised as they are not available for use but are assessed for impairment indicators under IFRS6. Any impairment loss is recognised within exploration expenses in the income statement. Once assets have been appraised as commercially viable they are transferred into property, plant and equipment as oil and gas assets.

The net book value of $0.1 million of other assets is principally comprised of software development costs.

7. Property, plant and equipment

	Oil and gas assets	Other assets	Total
	$m	£m	$m
Cost
Balance at 1 April 2011	-	-	-
Acquisitions through business combinations (see note 16)	1,855.1	5.5	1,860.6
Additions	4.2	2.2	6.4

Balance at 31 December 2011	1,859.3	7.7	1,867.0

Depreciation and impairment
Balance at 1 April 2011	-	-	-
Depreciation charge for the period	18.3	0.3	18.6

Balance at 31 December 2011	18.3	0.3	18.6

Net book value
At 1 April 2011	-	-	-
At 31 December 2011	1,841.0	7.4	1,848.4

Oil and gas assets comprise principally the group's share of interests in the Taq Taq and Tawke producing fields in the Kurdistan Region. Other assets include lease hold improvements, motor vehicles and a drilling rig.

8. Inventories

			2011
			$m

Crude oil inventory			0.1

Total inventory			0.1

9. Trade and other receivables

			2011
			$m

Trade receivables			11.6
Other receivables			0.6
Prepayments			1.9

			14.1

10. Cash and cash equivalents

			2011
			$m

Cash and cash equivalents			1,912.9

			1,912.9

11. Trade and other payables

			2011
			$m

Trade payables			12.8
Other payables			2.5
Accruals			62.5

			77.8

12. Deferred income

			2011
			$m

Non-current			68.8
Current			5.4

			74.2

Deferred income is the prepayment of royalty income received from the company's joint operating partner for the Taq Taq PSC.

The deferred income is recognised in the statement of comprehensive income in a manner consistent with how the royalty income becomes due. Once the deferred income has been fully recognised, the joint operating partner will recommence cash payment for the royalty income as it becomes due.

13. Provisions

			2011
			$m

Balance at 1 April 2011			-
Acquisition			9.3
Additional provision			0.1

Balance at 31 December 2011			9.4

Non-current			9.4
Current			-
			9.4

Non-current provisions cover expected decommissioning and abandonment costs resulting from the net ownership interests in petroleum and natural gas assets including well sites and gathering systems. The cash flows relating to the decommissioning and abandonment provisions are expected to occur between 2031 and 2039. The provision is the discounted present value of the cost, using existing technology at current prices of decommissioning of blocks in Iraq. The discount factor used in the calculation is 4%.

The current provision relates to production bonuses due under PSC's.

14. Share capital

	Suspended Voting Ordinary shares	Ordinary shares	Total Ordinary Shares
	2011	2011	2011

Issue of shares on incorporation of parent	-	2	2
Initial public offer	-	133,090,000	133,090,000
Shares cancelled	-	(2,457,480)	(2,457,480)
Issue of shares on acquisition of Genel Energy International Limited	74,647,156	55,985,366	130,632,522

On issue at 31 December 2011- fully paid	74,647,156	186,617,888	261,265,044

On 1 April 2011, two ordinary shares of £0.10 each were subscribed for at par value. On 28 June 2011, a written resolution of the sole member of the Company authorised the issue of 133,090,000 ordinary £0.10 shares at a price of £10 per share. On 28 June 2011, pursuant to the terms of a Repurchase Option, the Company repurchased 2,457,480 ordinary shares of £0.10 each in the Company at a price of £10 per ordinary share.

Following the repurchase and the related cancellation of the ordinary shares, the Company's issued ordinary share capital consists of 130,632,522 ordinary shares. There are no shares held in treasury, therefore the total number of shares with voting rights in the Company is 130,632,522 ordinary shares of £0.10. Each share holds one voting right.

On 21 November the company issued 130,632,522 shares in consideration for the acquisition of Genel Energy International Limited.

There have been no changes to the authorised share capital since it was determined to be 10,000,000,000 ordinary shares of £0.10 per share.

15. Cash generated from operating activities

				2011
				$m

Loss for the period				(57.7)
Adjustments for :
Finance income				(4.8)
Depletion and amortisation				18.6
Share based payments				3.1
Changes in working capital:
Trade and other receivables				(12.1)
Trade and other payables and provisions				25.0

Cash generated from operating activities				(27.9)

16. Business combinations

On 21 November 2011, the Group acquired 100% of the issued share capital of Genel Energy International Limited ("GEIL"). The consideration for the acquisition was new ordinary shares of the Company. The total amount of shares issued was 50% (pre-dilution from the founder shares and founder securities) of the enlarged share capital of the Company. To the extent that the number of shares issued equalled or exceeded 30% of the enlarged issued share capital of the Company, the excess was issued in the form of suspended-voting ordinary shares.

Genel Energy plc has been identified as the accounting acquirer (since the majority of the voting rights In the combined entity reside with the pre-transaction shareholders on the company) and has accounted for the transaction using acquisition accounting. Under acquisition accounting the assets acquired and liabilities assumed as a result of the acquisition of GEIL have been consolidated into the financial statements of Genel Energy plc at their fair value at the acquisition date. The results of the operations of GEIL have been included from the date of acquisition.

In the period 21 November to 31 December 2011, the new subsidiaries contributed $24.0 million to revenue and $2.6 million to the consolidated net profit for the year. If the acquisition had occurred on 1 April 2011, Group revenue would have been $119.8 million and net profit would have been $30.6 million. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 April 2011.

The acquisition had the following effect on the Group's assets and liabilities.

			Fair value recognised on acquisition
			$m
Acquiree's net assets at the acquisition date:
Property, plant and equipment			1,860.6
Intangible assets			216.9
Inventories			0.1
Trade and other receivables			1.9
Cash			79.0
Trade and other payables			(136.2)
Loans			(155.7)

Net identifiable assets and liabilities			1,866.6

Consideration paid			1,866.6

The fair value consideration was primarily satisfied through the issue of 130,632,522 ordinary shares and suspended voting ordinary shares in Genel Energy plc at a share price of 912 pence per share, being the market value of shares on 21 November 2011.

The above values are provisional and will be finalised in the financial statements for the year ending 31 December 2012. There was no goodwill arising on the transaction. Because of the uncertainty in calculating a tax charge and in assessing how certain capital assets should be treated under the tax laws of the Kurdistan Region, it has not been possible to assess whether or how much deferred tax liability should be recognised in relation to the business combination that took place in the year and consequently no deferred tax liability has been recognised.

18. Subsequent events

On the 10 January 2012, the group announced a significant upgrade in the Tawke field's gross proven and probable reserves (2P) to an estimated 509 mmbbls of oil, an increase of 78% on the 2P reserves of 286 mmbbls previously reported by Genel in its prospectus dated 18 November 2011. Gross proven, probable and possible reserves (3P) are now estimated at 876 mmbbls of oil, an increase of 68 % on the previously reported figure. Genel has a 25% cent stake in the Tawke field.

On the 16 January 2012, the group announced that it was paying a total of $94 million for a 60% interest in the Chia Surkh exploration block increasing its share to 80%. The Kurdish Regional Government retains its existing 20 % interest. The transaction is conditional on the receipt of various consents, approvals and assurances, including from the Kurdistan Regional Government. On 1^st March, 2012 the group announced that the application before the Kurdistan Regional Government Oil and Gas Council remains pending and all parties continue to work with the Government to secure final approval for the transactions.

On 20 January 2012, the group announced that the Founders of the company had served notice that they are exercising their rights to exchange all of their B Shares in in the Company's subsidiary, Vallares Holding Company Limited ("Founder Shares") for Ordinary Shares in Genel Energy plc. As a result the Company issued 18,713,154 ordinary shares equivalent to a combined total of 6.67% of the fully diluted ordinary share capital of the Company (assuming vesting and issue of shares under all outstanding options) to the Founders.

This information is provided by RNS

The company news service from the London Stock Exchange

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