Annual Financial Report 2011
20 April 2012
Genel Energy Plc (the "Company")
Annual Financial Report for the year ended 31 December 2011
The Company announces that it has today posted its annual report and financial statements to shareholders together with the notice of the 2012 Annual General Meeting ("AGM") and forms of proxy. The Company will hold its AGM on 22 May 2012.
In accordance with Listing Rule 9.6.1, copies of the Company's Annual Report and Accounts for the year ended 31 December 2011 (the "Annual Report and Accounts") incorporating the Notice of AGM and proxy forms have also been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.
The Annual Report and Accounts for and Notice of AGM are now available on the Company's website at http://www.genelenergy.com.
Compliance with Disclosure and Transparency Rule 6.3.5 ("DTR 6.3.5") - Extracts from the Annual Report and Accounts
The information contained in appendices A to C to this announcement, which is extracted from the Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on how to make public Annual Financial Reports. It should be read in conjunction with the Company's announcement of maiden preliminary unaudited results for the period ended 31 December 2011 (the "Preliminary Announcement"), published by the Company on 20 March 2012 (available under RNS number 6495Z at www.hemscott.com/nsm.do). Together these constitute the materials required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report and Accounts. All page numbers and cross-references in the extracted information below refer to page numbers in the Annual Report and Accounts and all defined terms below have the meanings ascribed to them in the Annual Report and Accounts.
The information contained in this announcement and in the Preliminary Announcement does not constitute the Company's statutory accounts, but is derived from those statutory accounts. The statutory accounts for the year ended 31 December 2011 have been approved by the board and will be delivered to the Registrar of Companies following the Company's AGM. The auditors have reported on those statutory accounts and their report was unqualified, with nothing to report under the Companies (Jersey) Law 1991.
For further information please contact:
Enquiries:
Genel Energy
+44 20 7659 5100
Julian Metherell, Chief Financial Officer
Natalie Fortescue, Investor Relations
Appendix A - Statement of Directors' Responsibilities pursuant to Disclosure and Transparency Rule 4
The following statements are extracted from page 83 of the Annual Report and Accounts and are repeated here for the purposes of compliance with DTR 6.3.5. These statements relate solely to the Annual Report and Accounts and are not connected to the extracted information set out in this announcement or the Preliminary Announcement.
Directors' responsibility statement
We confirm that to the best of our knowledge:
· the Financial Statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
· the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Appendix B - Related Party Transactions
The following description of related party transactions is extracted from pages 79 and 110 of the Annual Report and Accounts. As set out above, the description is repeated here for the purposes of compliance with DTR 6.3.5.
Other than in respect of arrangements relating to the employment of Directors and the relationship with the Advisor, details of which are provided in the Directors' Remuneration
Report, or as set out in Note 25 to the financial statements on page 110 of the Annual Report, there is no material indebtedness owed to or by the Company to any employee or any other person considered to be a related party. There were no other related party transactions to which the Company was a party during the period.
The compensation of key management personnel in 2011 including the directors of the company is as follows: Key management emoluments including social security costs $1.4m and Share-related awards $3.1m.
The Directors have identified the shareholders, key management personnel and the Board members, together with the families and companies controlled by or affiliated with each of them; and associates, investments and joint ventures as related parties of the Group under IAS24.
During the period, the Group entered into an agreement with Vallares Advisers LP Limited (the "Adviser") to provide advice on the implementation of the Group strategy and the management of its daily operations and business. The Group outsourced to the Adviser, a related entity, all of its operating functions, including identifying and assessing acquisition opportunities, designing the strategy to acquire the target, due diligence, and providing personnel and support staff to carry out those roles. During the period, the Group paid to the Adviser a total of $19.8 million including a termination payment in accordance with the advisory agreements. Termination of the Adviser arrangement took effect following completion of the Acquisition.
During the period, the Group issued Founder Shares and Founder Securities to incentivise the Founders to achieve the Company's objectives. The Founder Shares reward such members for their initial capital commitment to the Company and for completing the Acquisition, through exchange of the Founder Shares for Ordinary Shares on favourable terms following the Acquisition. The Founder Securities encourage the Vallares Team to grow the Company following the Acquisition and to maximise value for holders of Ordinary Shares by entitling the Vallares Team to a share of the upside in the Company's value once the Performance Condition is satisfied.
Following the Acquisition, the Company repaid loans owed by GEIL to Focus Investments ($110.9m) and GEAS ($5.6m).
Appendix C - Principal Risks and Uncertainties
The following description of principal risks and uncertainties is extracted from pages 42 and 43 of the Annual Report and Accounts. As set out above, the description is repeated here for the purposes of compliance with DTR 6.3.5.
The Board, its Committees and the senior management team are actively engaged in monitoring and limiting, where possible, the risks to which the Group is exposed. The Audit Committee makes recommendations to the Board on the Group's risk management arrangements.
Set out below are what we believe at this time to be the principal risks and uncertainties that could affect the Group. In respect of each of these risks, we have identified their relevance to the strategy of the Group and their potential impact. The realisation of any of the risks set out below could have adverse implications for our business, including the Group's financial condition, reputation, results of operations and trading price, as well as the liquidity of our securities. Accordingly, we encourage you to read them in full.
In summary, the risks fall into four broad categories:
1. Commercial risks in relation to the business environment in which the Group operates;
2. Political risks in relation to the political, social and economic stability of the Kurdistan Region and Iraq;
3. Legal and regulatory risks in relation to the frameworks governing the Group's operations; and
4. Health, security, safety and environment risks which may prevent the Group from maintaining positive relationships with its stakeholders (including the local communities in which it operates).
It should be noted, for completeness, that there may be additional risks unknown to the Group and other risks, currently believed to be immaterial, which could turn out to be material. In addition, it should be noted that not all of the risks and uncertainties set out below are within our control.
1. Commercial risks
The Group's estimates of its Contingent Resources and Prospective Resources can change with time, and there can be no guarantee that the Group will be able to develop these resources commercially.
The Group operates in a competitive industry and its ability to generate returns depends on its ability to exploit, develop and commercialise present assets, as well as to select and acquire suitable assets for exploitation, development and commercialisation in the future.
The Group's inability to develop its Contingent and Prospective Resources may have a material and adverse effect on its business, financial conditions, results of operations and prospects.
The Group relies on its ability to complete major projects on time and within budget.
The Group is reliant on its completion of major projects to maintain its projected growth levels. In particular, there is a need to ensure projects (including the delivery by contractors and suppliers) are managed on time and within budget, using efficient technologies to achieve the required specifications.
If projects are not executed on time and to budget, the planned growth and profitability of the Group will not be achieved.
The Group continues to monitor the progress of all major projects as appropriate. Review outcomes and key concerns are reported to the executive team, and appropriate actions are agreed.
Third-party contractor performance is continually monitored, however, if a third party fails to meet the Groups performance requirements, there can be no guarantee that the Group will be able to replace such third party without further disruption to the project.
The Group cannot guarantee how long it will take to identify and acquire further appropriate acquisition targets.
The Group raised money through IPO in June 2011 for the purpose of acquiring or establishing a major company, business or asset that has significant operations in the resources sector. In continuation of this purpose, the Group is seeking further high quality assets to add to its portfolio at the right price.
The Group continues to hold a significant cash balance, but a failure to identify further businesses or assets on which to spend these resources could have an impact on the valuation of the Group and returns made to its shareholders.
If appropriate targets for substantial investment are not available within a reasonable timeframe then the potential for creation of shareholder value through inorganic or, through subsequent development of acquired assets, organic growth of reserves and resources, production, revenue and cash generation will be reduced.
2. Political risks
The Iraq Oil Ministry has historically disputed the validity of PSCs entered into by the KRG.
The Group has title to assets in the Kurdistan Region pursuant to six PSCs entered into with the KRG.
If the validity of the PSCs is successfully challenged, the Group could be required by the KRG to accept contractor entitlements that are materially less favourable than the current PSCs.
Based on legal advice obtained by the Company, the Directors believe that the Company has good title to its oil and gas assets.
The Group's activities are dependent on the availability of infrastructure and services, including pipelines, utilities and third-party services in the Kurdistan Region.
Currently, all of the Group's oil production from the Taq Taq field is transported to the Kirkuk-Ceyhan Pipeline by trucks, which is potentially less safe, secure and environmentally sound than transport by pipeline.
Construction of a pipeline connecting the Taq Taq field to the Kirkuk-Ceyhan Pipeline has not commenced. It is not yet known whether, or on what terms, the Group could obtain access to any other connecting pipeline.
The maximum capacity that can be transported by truck is 120,000 bopd. If production at the Taq Taq field exceeds 120,000 bopd, the Group may not be able to maximise the potential benefits of this increase without the new pipeline.
The Group continues to monitor the availability of transport options, to enhance the effectiveness of its operations. The Group is in advanced discussions with the KRG regarding the KICE pipeline, (including timing, financing and cost recovery) and expects to conclude these discussions shortly. Following completion of these discussions and execution of the definitive agreements, it expects its construction to begin later in 2012.
If a major accident causes environmental damage, or the KRG revokes or amends licences, the Group may be restricted from transporting oil by truck to the Kirkuk-Ceyhan Pipeline. The Group has put in place health, safety and other procedures, to minimise the impact of unexpected disruptions to the supply of essential services.
Disruptions in the supply of essential utility services, such as water and electricity, could halt or delay the Group's production.
Unexpected disruptions to the supply of essential utility services may cause loss of life, damage to the Group's equipment and delay to the recommencement of operations.
Oil field operators in the Kurdistan Region are not currently receiving their full entitlement to the proceeds of export sales under the PSCs granted by the KRG because the Iraqi Government is withholding some of these entitlements.
TTOPCO (the operator of Taq Taq) and DNO International (the operator at Tawke) are among the affected operators. The Group's strategy to increase progressively the share that exports sales make up of its revenue mix will depend on there being greater clarity and
consistency to export payments.
Export payments to operators may be delayed or discontinued, resulting in delays to the Group's development plans over the longer term (subject to prevailing market conditions) or leaving the Group unable to fund its capital expenditure commitments to its existing assets on a cash flow neutral basis.
The Group continues to have a regular dialogue with the KRG and the Iraqi Government as part of its engagement with stakeholders. Genel Energy's sales into the local market in the Kurdistan Region have provided a consistent and reliable revenue stream that will allow the Group to operate and develop its existing assets on a cash flow neutral basis.
The Kurdistan Region and Iraq have a publicised history of political and social instability, which has culminated in security problems that may affect the Group, its operations and personnel.
There continue to be regular clashes between the Turkish military and the PKK in Southern Turkey. The Iraqi government and the KRG have condemned the recent activities of the PKK, but have also expressed concerns in the past about Turkish cross-border military incursions into Northern Iraq.
Should diplomatic relations between Iraq or the KRG and Turkey deteriorate, the public perception of the Group in Iraq and the Kurdistan Region may be affected.
The Group assesses political, social, legal and economic risks as part of its evaluation of potential projects. It actively monitors developments in Iraq and the Kurdistan Region. The Group continues to have a regular dialogue with its key stakeholders in the region, such as the KRG, the Iraqi Government, the Turkish government and other regional public bodies, to discuss developments that are relevant to its operations.
The Group has taken measures to protect its employees, equipment and other assets from various security risks. Steps include the provision of security personnel and surveillance equipment, and the imposition of security checks and procedures at the sites that it operates. However, there can be no guarantee that such measures will prove effective against all safety risks.
Failure to manage relationships with local communities, government and non-government organisations could adversely affect the Group.
As a consequence of public concerns about the perceived ill effects of economic globalisation, business generally, and large multinational corporations in particular, face increasing public scrutiny of their activities. The Group's operations may be located in or near communities that may regard its operations as detrimental to their environmental, economic or social circumstances.
Negative community reaction could have a negative impact on the Group's ability to operate efficiently or the ability to finance, or even the viability of an operation. Such reactions could also lead to disputes with national or local governments or with local communities and give rise to disruption to projects or operations, or material reputational damage, which could in turn affect the Group's revenues, results of operations and cash flows.
The Company has published a Code of Conduct and has adopted an Anti-Bribery Policy under which it partners with and invests in communities (local, regional and global) to achieve mutual long-term benefits. The Company contributes to socio-economic development, through taxes, royalties and other lawful local payments and donations, and is an active participant in the ongoing global debate on environmental and social stewardship. The Code of Conduct and further details of the Group Community policy are available to view at www.genelenergy.com. The Anti-Bribery Policy is described on pages 53 and 54 of this Annual Report.
3. Legal and regulatory risks
There remains an ongoing dispute between the KRG and the Iraq Central Government in relation to both export payments and the awarding of new PSCs. New laws may be enacted in the future, governing the regulation of Iraqi oil and gas resources.
The dispute between the KRG and Iraqi Central Government may require new laws and regulations to be introduced to resolve the situation.
The enactment of any new law may alter the regulation of oil and gas resources in Iraq and the Kurdistan Region, reduce the value of the Group's existing PSCs and increase the regulatory requirements on the Group.
Additionally, depending on the content of any future enacted law, the Group's existing PSCs with the KRG may be subject to review or revision of terms. Increased legislative requirements could mean that the Group incurs additional expenditure obligations and have a material and adverse effect on the Group's business, financial conditions, results of operations and prospects.
The Group may be unable to obtain or renew required drilling rights, concessions, licences, permits and other authorisations (together, "Licences") or such Licences may be suspended, terminated or revoked prior to their expiration.
The Group conducts its exploration, development and production operations pursuant to drilling rights under a wide variety of Licences.
There can be no assurance that the KRG will not significantly alter the conditions of, or that any third party will not challenge, the Licences held by the Group.
If the Group fails to fulfil the specific terms of any of its Licences, or if it operates its business in a manner that violates applicable law, government regulators may impose fines.
Any delay in obtaining or renewing the Licences of the Group, or any suspension, unfavourable alteration challenge thereto, may result in a delay in investment or development of oil and gas resources and may have a material adverse effect on the Group's results of operations, cash flows and financial condition.
The Group continues to maintain a regular dialogue with its key stakeholders in the region, such as the KRG, the Iraqi Government, the Turkish government and other regional public bodies, and expects to obtain and maintain all approvals necessary to operate its business.
4. HSSE risks
The Group's operations are subject to general and specific regulations and restrictions governing workplace health and safety requirements, environmental requirements, social impacts, and other laws and regulations.
The Group's primary operational safety risks are those inherent in the oil and gas industry, including the release of hydrogen sulphide gas during flaring at the Taq Taq field, fires, blowouts, explosions, equipment or system failures and transportation accidents, which may result in death, injury of staff or local residents.
Certain of the Group's operations may also create environmental risks in the form of spills, and the release of gas or soil contamination from site operations, recycling and waste disposal.
A health, safety, security or environmental incident could lead to the Group having to make material changes to its facilities or processes and pay compensation to any injured parties. There can be no assurance that the Group will not incur substantial financial obligations, which may lead to an adverse effect on the Group's business, financial condition and prospects.
The Group has implemented health, safety and environmental policies and complies with international environmental guidelines for crude oil exploration and production, for example those issued by the World Health Organisation. The Group monitors compliance with its health, safety and environment policies regularly through a reporting system, inspections, third-party audits and management site inspections as overseen by the Group HSSE Committee.
This information is provided by RNS
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