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Genel Energy Plc (GENL)

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Thursday 28 February, 2013

Genel Energy Plc

Full Year Results

RNS Number : 8464Y
Genel Energy PLC
28 February 2013
 



 28 February 2013

 

Genel Energy plc (GENL)

Preliminary audited results for the year ended 31 December 2012

 

Genel Energy plc, the London listed exploration and production company and largest independent oil producer in the Kurdistan Region of Iraq, announces its preliminary audited results for the year ended 31 December 2012.

 

Results1 summary


2012

 2011




Revenue ($million)2

333.4

24.0

Profit / (loss) before tax ($million)2

75.9

(57.7)

Cash flow from operating activities ($million)2

307.0

(23.4)

Free cash flow ($million)2,3

73.5

(40.2)

Net cash ($million)

1,001.3

1,912.9

EPS (cents per share)2

27.18

(72.34)

Production (kbopd, working interest)4

44.5

42.0

 

1 Results are from continuing operations and are audited
2 The Company was incorporated on 1 April 2011 and acquired its first trading business, Genel Energy International Limited (“GEIL”), on 21 November 2011. The comparative period 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
3 Free cash flow is cash flow from operating activities less capital expenditure
4 Production for the comparative period is proforma. It reflects the full year average including production of GEIL prior to the company becoming part of the Group
 

 

 

Highlights

 

·      Consolidated our position as the leading independent oil and gas producer in the increasingly attractive Kurdistan Region 

·      Current production capacity of circa 80,000 bopd (net), with 2012 average net working interest production of 44,500 bopd in line with guidance

·      Significant resource additions acquired in the Kurdistan Region: 44% interest in Bina Bawi and additional interests in Miran (75%) and Chia Surkh (40%), adding over 750 mmboe of net contingent and unrisked prospective resources  

·      High impact African exploration portfolio established with material positions acquired in Somaliland, Morocco, Malta and Côte d'Ivoire, targeting net unrisked prospective resources of over 3.3 billion boe 

·      Substantial growth in resource base: Proven and probable reserves (2P) increased to 445 mmboe (2011: 412 mmboe), total working interest reserves and unrisked resources increased to 5.4 billion boe (2011: 1.6 billion boe)   

·      Free cash flow positive for the year, with capital expenditure on exploration, appraisal and development in the Kurdistan Region of Iraq funded entirely from strong operating cash flow of over $300 million

  

Outlook

 

·      Continuing progress on the new export pipeline infrastructure in the Kurdistan Region (construction of first phase operational in first quarter 2013) 

·      Average net working interest production for 2013 expected to be in the range of 45,000 - 55,000 bopd, generating revenues of $300-400 million dependent on the level of any export sales

 

·      Appraisal and development programmes at Taq Taq and Tawke on track for 140,000 bopd (net) production capacity in 2014 

·      Kurdistan exploration programme comprises 4 high impact wells targeting over 750 mmboe gross unrisked resources in 2013: Tawke Deep and Chia Surkh 10 currently drilling, Taq Taq Deep to be spudded in Q1 and Chia Surkh 11 in Q2 

·      Appraisal programmes underway on both Miran and Bina Bawi, targeting Final Investment Decision on phased development of both fields by the end of 2013  

·      Work programmes underway across African portfolio to develop prospect inventory; advanced negotiations to secure a rig for the drilling programme on going with first well targeted in Morocco in the fourth quarter of 2013

 

·      Strong balance sheet with significant cash resources of circa $1 billion available for future business development

 

 

Commenting today Tony Hayward, chief executive, said:

 

"Genel made significant progress in 2012, delivering substantial production capacity growth at our flagship Taq Taq and Tawke fields as well as consolidating our leading position in the increasingly attractive Kurdistan region through material additions of world-class resource. We believe that we are strategically well placed to benefit from Turkey's growing influence in the region and further afield. We are also pleased to have built a high impact African exploration portfolio to diversify the business and add over 3.3 billion barrels of prospective net resource to our asset base. 2013 promises to be another exciting year for Genel with four high impact exploration wells and a major appraisal and development programme in Kurdistan, as well as the initiation of a major exploration programme in Africa. We are well on the way to building a material exploration and production company."

 

 

Enquiries:

 

Genel Energy                                                                                +44 20 7659 5100

 

Julian Metherell, Chief Financial Officer                                      

Natalie Fortescue, Investor Relations

 

M: Communications                                                                   +44 20 7920 2330

Patrick d'Ancona                                     

Andrew Benbow

 

A presentation will be held at 2.00pm today at the Saddlers' Hall, 40 Gutter Lane, London EC2V 6BR. A live webcast of this presentation will be available via Genel Energy's website at www.genelenergy.com.

 

  

Chairman's Statement

I am pleased to present Genel Energy's second set of year end results as a publicly listed company. Over the past twelve months, we have made considerable progress in delivering our strategic objectives and as a result, we are well positioned for an exciting future as a major independent E&P company.

Building Genel Energy

In 2012, we built on our competitive advantage in the Kurdistan Region of Iraq ("KRI"), consolidating our position as the leading E&P company in what is one of the most exciting new frontiers in oil and gas. The importance of the KRI as a major hydrocarbon province has been underlined by the recent entry of some of the world's largest oil and gas companies.  Over the year, we enhanced our position in the KRI through careful acquisitions and expansion, particularly in natural gas, where we are putting in place the operational infrastructure to connect our world class resources to the large and rapidly growing Turkish energy market.

We have also begun to implement our strategy to build an extensive African exploration portfolio. Our entry into Morocco, Somaliland, Côte d'Ivoire and Malta provides us with an exciting set of opportunities in Africa.

The Board has reviewed these opportunities carefully, mindful of our obligation to protect and enhance shareholder value and with full regard to the risks and opportunities involved.

Importantly, in parallel with Genel Energy's reserves and resources growth we have also grown our professional team in both oil and gas operations and in our corporate group. It is particularly rewarding to see the calibre of people Genel Energy has been able to attract. This adds significant capability to our business and provides us with the professional skills and management experience to execute our projects and operations efficiently and to the best industry standards. Ultimately, it is our people who will secure and realise the value in our material assets.

Governance and Risk Management

In April 2012, Chakib Sbiti joined the Genel Energy Board, taking the total number of Directors to twelve, of which seven are deemed Independent. Chakib previously held the positions of President Asia and Middle East and Executive Vice President of Oilfield Services for Schlumberger, more recently acting as adviser to Schlumberger's Chairman and CEO. He brings to the Board extensive experience of oilfield operations and of the regions where we operate.

We have in place strong, independent Audit and Remuneration Committees comprised of only Independent Non-Executive Directors, to ensure that we meet the standards we have set for ourselves. These form an integral part of our overarching strategy of strict adherence to the provisions of the UK Corporate Governance Code and compliance with all aspects of corporate best practice.

Our exploration and production interests come with significant challenges. Our chosen areas of operations need careful monitoring and a deep understanding of regional issues.

Assessing the risks across the business is one of the Board's core oversight responsibilities, so we recently established a Political Risk Committee, with Mark Parris acting as Chairman. This Committee is focused on ensuring that the Board is well served with knowledge of the geopolitical trends and issues that directly or indirectly impact Genel Energy's current and future activities.  The Governance section of our Annual Report will provide further information on its purpose and objectives.

Regional Relationships

Maintaining good relationships with the governments where we operate is key to our long-term success, and we pay particular attention to this aspect of our business.  

We are working closely with both the Kurdistan Regional Government and the Turkish Government on the long-term supply of gas from the Kurdistan Region of Iraq into the Turkish gas market, a very significant project requiring substantial infrastructure development.

The Future

We have achieved much in our first full year as a publicly listed company. Over the next year and beyond we will be working hard to establish the necessary facilities and infrastructure to bring to market more of the world class resources we now have in our portfolio, and we will continue drilling our extensive exploration portfolio. Genel Energy's Board will ensure that all of these activities take place within a company whose culture sets high standards - in both its operations and Corporate Governance.

 

A joint statement from the Chief Executive Officer and President

 

Genel Energy has had a busy and productive 2012, making strong progress in our first full year as a public company. We are now an established, mainstream independent E&P company, a significant achievement for a business that listed as an acquisition company less than eighteen months ago.

Last year we outlined the four pillars of our strategy:

·      Maintain the highest levels of corporate governance;

·      Continue to fund the development and exploration of our assets in the Kurdistan Region of Iraq 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 KRI, acquisitions in the Middle East and Africa, and participation in future licensing rounds.

We have executed our strategy successfully this year and, as a result, we are now an established oil and gas business, with an enviable set of exploration and production assets.

In the years ahead we will continue to build and grow our business, guided by three overarching principles of operation:

·      As we expand our business footprint, all our operations will be run to the highest standards of safety, reliability and environmental management;

·      We will continue to build our organisational capability by recruiting and retaining the best available personnel in the industry; and

·      We will continue to focus on performance and delivering on our strategy.

Risks and Rewards

The global search for significant energy resources takes oil companies to challenging geographies and political environments. Managing the risks inherent in these locations is key, and can be done through the appropriate choice of technology, business model and method of operation.

Last year, we stated that in the Kurdistan Region of Iraq, our fundamental means of managing the risks of operating in this politically fluid environment and the risk of non-payment for exported oil was to run our operations on a cash-flow neutral basis. We have done this in 2012, and will continue to do so over the short to medium term, with our development and exploration activities in the KRI sustained by cash flows generated in the region.

Momentum on the ground and in the region

While we have met the criteria we set for ourselves for operating in the Kurdistan Region of Iraq, importantly, the validity of our initial strategic decision to enter the region has also been borne out by the momentum surrounding both its oil and gas industry and the broader geo-political trends.

On the ground, there is steadily rising production capacity - from 150,000 bopd in 2011 to an estimate of more than 400,000 bopd by the end of 2013. In addition, substantial infrastructure has been completed with more planned, including a 1 million bopd oil pipeline to Fishkabur on the Turkish border. In parallel, significant numbers of supermajor and major independent oil companies entered the region over the past 12 months - including Exxon, Chevron and Total. With this level of interest building, further corporate activity is likely.

At a broader level, and importantly for Genel Energy with our strong Turkish identity, the relationship between the KRI and Turkey continues to deepen, with many billions of dollars invested by Turkish businesses into the KRI over the last two years alone. These commercial relationships are now being further reinforced with political linkages, culminating in the announcement of a regional energy and security cooperation arrangement between Turkey and the KRI in 2012.

The relationship between the Kurdistan Regional Government ("KRG") and the Federal Government of Iraq ("FGI") remains challenging. There have been some signs of progress in the latter half of the year, with an agreement reached on the 13 September, in which the FGI agreed to the payment of $850 million for outstanding payments due to contractors for historic oil exported from the KRI, and the KRG agreed to continue exports from the Kurdistan Region of Iraq. The KRG received an initial payment of $530 million on 8 October 2012; however, a second payment, expected to be around $300 million, has not yet been received. In response to the failure of the FGI to make the second payment or to include an appropriate level of payments for exports from the KRI in the 2013 central Iraq budget, in December the KRG halted exports from the KRI using FGI controlled infrastructure. Since the year end, the KRI has commenced exports of small volumes of crude oil to Turkey by truck.

Although the relationship between the KRG and the FGI is beyond our control, our continued management of our business in the Kurdistan Region of Iraq on a cash-flow neutral basis reduces our risk profile in accordance with our stated strategy.

Strong Progress in 2012

Operational progress and reserves growth

We made material operational progress on the ground in the Kurdistan Region of Iraq, with the drilling of six appraisal wells, two exploration wells and the continuing development of our major oil fields at Taq Taq and Tawke.

Our successful 2012 appraisal programme led to gross 2P reserves at Tawke being upgraded in May to 734 mmbbls, 184 mmbbls net to Genel. Combined with Taq Taq, these two "world class" fields contribute net 2P reserves of 445 mmboe to Genel Energy. We expect our strong reserves growth to continue with the execution of our planned appraisal and development programme in 2013 and beyond.

At Taq Taq, we are on track to reach 200,000 bopd gross production capacity in 2014. The first phase of the KRG's new oil pipeline infrastructure linking the Taq Taq field directly to Iraq's Kirkuk-Ceyhan export pipeline and the Erbil refinery, is expected to be operational in the first quarter of 2013. Phase II, linking oilfields in the KRI directly to Fishkabur on the Turkish border, is expected to be complete by early 2014.  This will add significant additional export capacity from Taq Taq and our other fields, including the adjacent Bina Bawi field. In addition, at Tawke our plan to increase gross production capacity to 200,000 bopd by the end of 2014 is also on track.

Acquisition of world class assets

By increasing our holdings in both Miran and Bina Bawi on attractive terms, Genel Energy acquired material interests in two further world class assets in the Kurdistan Region of Iraq. This doubled our presence, with Genel Energy now having material positions in four world class fields, while also adding almost 750 million boe of net contingent resources.

The Miran and Bina Bawi acquisitions provide Genel Energy with the opportunity to develop a second wave of projects in the KRI, similar in scale and quality to our existing world class production assets, providing further opportunities to increase shareholder value.

Genel Energy's 100 per cent holding of the commercial oil and gas discovery at Miran (with a 25 per cent back in right available to the KRG) gives us control of a field with current contingent and risked prospective resources of 3.8 trillion cubic feet of gas and some 128 million barrels of liquids. We are committed to moving the project forward in 2013 and are focused on three things: early oil development, gas field development and full appraisal of the resource potential of the block.

Turkey is a natural destination for Miran's gas resources, one of the world's leading importers of natural gas. Gas from the Kurdistan Region of Iraq provides the Turkish Government with an opportunity to meet an ever-increasing supply gap. KRI gas would assist Turkey in achieving its stated goal of diversifying sources of supply, as the majority of its gas requirements are currently imported by pipeline from Russia, Iran and Azerbaijan, supplemented by contracted spot LNG supplies. In conjunction with the KRG and the Turkish Government, we are continuing negotiations with customers for long-term Miran gas sale agreements, and plans are being developed to build on existing capacity to install gas export infrastructure from the KRI into the existing Turkish gas transmission system.

At Bina Bawi, where Genel Energy holds a 44 per cent interest, significant hydrocarbons have been confirmed in two of the three exploration wells. Two appraisal wells are currently being drilled and an extended well test is expected to begin in the first half of 2013. A full field development plan is to be submitted in the latter half of 2013.

Assembling a high impact African portfolio

In line with our strategy, this year also saw Genel Energy begin to assemble a high impact African exploration portfolio, with material positions in Morocco, Malta, Somaliland and Côte d'Ivoire, covering multiple petroleum systems with estimated exposure to net unrisked prospective resources of over 3.3 billion boe. These positions rebalance our overall portfolio towards exploration as a counter weight to our large appraisal and development projects in the Kurdistan Region of Iraq, while also providing geopolitical diversity. These acquisitions were made after careful screening, filtered through a process where we considered over 100 opportunities in the past year.

Building professional capacity

We have continued to build both our management team and our operational and technical capacity in tandem with our expanded geographic and resources footprint. In 2012, we added over 30 technical staff, drawn from some of the world's largest and most successful energy companies. By putting in place a high calibre group of operational and technical professionals and a strong corporate team we have the means to deliver the potential of our resource base.

Operating sustainability

We continue to work extremely hard to ensure that our presence makes a meaningful and positive contribution to the areas in which we operate and is sustainable over the long term, core to which is our commitment to operate safely and reliably. There have been no fatalities and few Lost Time Injuries ("LTIs") in 2012 and we are committed to this remaining the case in 2013 and beyond.

Our operations in the KRI are significant and accordingly, our presence should make a correspondingly significant and positive contribution to its people, both those in the immediate geographic area of our operations and the broader society. We do this through a range of programmes including health, education and employment opportunities for those in the immediate geographic area of our fields and operations, as well as more broadly in the KRI, including through activities such as labour exchanges and educational support, building the Kurdistan Region of Iraq's own capability. The Corporate Responsibility section of our Annual Report will provide more detail on our approach and activities around this core aspect of our business.

 

Outlook

The steps we took in 2012, both in consolidating our position as the leading - and most experienced -  E&P company in the Kurdistan Region of Iraq and in securing an exciting portfolio of additional exploration assets in Africa, provide a clear shape for our Company over the medium term.

Our strong production profile and our extensive exploration programme places us at the forefront of independent E&P companies, with the capacity and the capital base to fulfil our ambitions. We will complete four further high impact exploration wells in 2013 - Tawke Deep, Chia Surkh 10, Taq Taq Deep and Chia Surkh 11. 

In Africa, work programmes are underway across our blocks, and we are in advanced negotiations to secure a rig for a 10 well off shore drilling programme. The programme is expected to commence in the last quarter of 2013 in Morocco.

Building on our strong progress

Genel Energy has made strong progress in 2012.  We have established ourselves as one of the leading independent E&P companies and can point to a significant number of major achievements over the year:

·      Genel Energy is the leading oil and gas producer in the Kurdistan Region of Iraq, with four material oil and gas fields which have significant upside;

·      We have established a high impact African exploration portfolio, with material positions in three underexplored hydrocarbon basins;

·      A high quality team of experienced oil and gas professionals is in place to execute our projects; and

·      Genel Energy remains in a powerful financial position with circa $1 billion in cash available for further business development.

By successfully executing our strategy, we increased our total working interest reserves and unrisked resources by nearly 250 per cent, from 1.6 billion to 5.4 billion boe. This exceptional growth equates to more than tripling our unrisked prospective resources to 3.9 billion barrels, increasing our proven and probable reserves by 8 per cent to 445 mmboe and adding nearly 650 mmboe to our contingent resources, which now stand at 810 mmboe. All this was achieved in a little over twelve months. Our achievements in 2012 clearly demonstrate that we can compete with the world's largest energy companies in the Kurdistan Region of Iraq and secure world class proven resources that will create further value for our shareholders.

Our vision for Genel Energy's future is equally exciting, based on a combination of a significantly growing resource base and the ability to bring these resources out of the ground and to market. We have in place a strong programme enabling production to rise towards 500,000 bopd by the end of the decade, representing an average annual growth rate of 25 per cent.

 

With the resources we have acquired and that we continue to grow, the team we have established and the programmes we have in place, we are confident that we can offer our shareholders and stakeholders the prospect of exciting and rewarding times ahead, as we continue our journey to being a major E&P company operating to world class standards in world class provinces.

 

Operating review

Production and Reserves

Genel Energy's average net working interest production for the full year 2012 was in line with guidance at 44,500 bopd (2011: 42,000 bopd). During the course of the year production from Genel Energy's two producing assets, Taq Taq and Tawke, has been sold into both domestic and export markets and generated cash flows that more than covered the capital and operating expenditure of our KRI business.

 

In the first half of the year, production was sold mainly into the domestic market. Export sales from the Kurdistan Region of Iraq resumed in the first week of August. However, in response to the uncertainty regarding the receipt of a second payment for past exports owed from the Federal Government of Iraq, the KRG halted exports from the KRI in December and Genel Energy switched sales of production back into the domestic market realising prices at Taq Taq through December above $70/bbl.  

 

On 7 January 2013, Genel Energy received permission from the Kurdistan Regional Government to export crude oil from Taq Taq into Turkey by truck. This authority is consistent with the Iraqi Constitution of 2006, the Kurdistan Oil and Gas Law of 2007 and the PSC governing operations at Taq Taq.  In 2013, it is likely that the availability of full export markets to the Company will once again be constrained. As a result, average daily production is expected to be in the range of 45,000 - 55,000 bopd, generating sales revenue of $300 - $400 million principally from domestic sales.

 

At 31 December 2012, Genel Energy's proven and probable (2P) reserves, on a working interest basis, were 445 mmboe (2011: 412 mmboe) which is an 8 per cent increase on the previous year. Genel Energy achieved a year-on-year reserves replacement ratio of 356 per cent in 2012.


Proven and probable (2P) reserves

(mmboe)

2C contingent resources

(mmboe)

2P reserves and 2C contingent resources

(mmboe)

Start of 2012

412

175

587

Production

(16)

-

(16)

Net additions and revisions

57

635

692

Adjustments

(8)

-

(8)

End of 2012

445

810

1,255

 

1. Proven and probable 2P reserves are based on independent reserve reports for both the Taq Taq and Tawke fields

2. Contingent resources are based on both Genel Energy's estimates and independent reserve reports

 

During the year, gross 2P reserves at Tawke were upgraded further to 734 mmbbls, 184 mmbbls net to Genel Energy. Set against this was production from Taq Taq and Tawke of 16 mmboe net to Genel Energy.

 

The Group's contingent resources increased significantly in 2012, principally as a result of the acquisitions of a 44 per cent interest in Bina Bawi and an additional 56 per cent interest in Miran (post KRG back-in), which added almost 600 mmboe of net contingent resources to the Company.

Taq Taq

 

Gross production from the Taq Taq field has averaged 75,500 bopd in 2012, compared to 66,000 bopd in 2011. McDaniel's estimated gross 2P reserves are 647 mmbbls, 285 mmbbls net to Genel Energy.

 

During the year the Company has continued to progress the appraisal and development programme. Gross production capacity is currently 120,000 bopd and remains on track to deliver production capacity of 200,000 bopd in 2014.

 

As part of the on-going development, facility and infrastructure upgrades on Taq Taq have been progressed during 2012. These included the EPC contract for the second phase of construction of the central processing facility which was awarded to Ventech USA. It is planned to be operational in the first quarter of 2014, adding an additional 90,000 bopd processing capacity. In addition, the expansion of the truck loading facility will be complete in the third quarter of 2013, taking truck loading capacity from 120,000 bopd to 150,000 bopd.

 

Field development drilling has continued in the year, with three wells completed in 2012 bringing the total number of producing wells to 12 at the year end. Taq Taq 17 initially flowed at 26,000 bopd and is now a producing well flowing at 10,000 bopd. Taq Taq 19 completed, appraising a previously unpenetrated area of the field further north. It flowed at 15,000 bopd from the Upper Cretaceous Shiranish formation. Taq Taq 18 reached target depth in January 2013 and preparation for testing is underway. The Company intends to drill an additional three development wells during 2013 including a highly deviated well to test the Shiranish reservoir.

 

Taq Taq production was sold into both the domestic and export markets during the year, a situation that is likely to continue during 2013. Sales into the domestic market remain strong with recent prices achieved of $70 - $80 per barrel.

Pipeline update

In response to continued industry exploration success, the KRG announced its pipeline infrastructure plans for the Kurdistan Region during 2012.  In order to facilitate the export of its crude oil, it intends to construct a new 1 million bopd capacity pipeline to the Turkish border. 

The first phase is nearing completion. The construction of a 20" pipeline from the Taq Taq oilfield to Khurmala is expected to be operational in the first quarter of 2013, giving Taq Taq access to the Erbil refinery and the existing Kirkuk to Ceyhan export infrastructure. The pipeline has an initial capacity of 150,000 bopd and has the potential to be increased to some 200,000 bopd with the addition of pumps. The second phase, a 1 million bopd capacity pipeline from Khurmala to the Fishkabur pump station on the border with Turkey, is expected to begin operating in 2014. 

Tawke                                         

Gross production from the Tawke field has averaged 45,000 bopd in 2012 compared to 52,000 bopd in 2011, when the export markets were available for a longer period. 

Gross 2P reserves at Tawke were upgraded further during the year to 734 mmbbls, 184 mmbbls net to Genel Energy. At the end of 2011, the Company upgraded gross 2P reserves by 78 per cent to 509 mmbbls following a new reserves audit carried out by DeGolyer & McNaughton. A further upgrade of 44 per cent to 734 mmbbls was announced by the operator of the field, DNO International ("DNO"), and verified by DeGolyer & MacNaughton in May 2012, following the successful completion and testing of the Tawke 16 appraisal well which was drilled at a location in the north of the field. The well is connected to the existing pipeline and processing facilities and is now producing. 

Genel Energy and DNO have continued to progress the development and appraisal programme at Tawke. Gross production capacity has been increased to 100,000 bopd with the completion of facility upgrades and development drilling in 2012. DNO and Genel Energy have committed to increase production capacity to 200,000 bopd by the end of 2014.

At the start of the year, Tawke had thirteen producing wells and production capacity of 75,000 bopd. During 2012, four development wells in addition to the Tawke 16 appraisal well have been drilled.  Tawke 14, which was subsequently side-tracked (Tawke 14A),Tawke 15, and Tawke 18 were completed in the Cretaceous reservoir and put on production.  Tawke 19, the last Tawke development well under the 100,000 bopd production enhancement programme, was completed at the end of the year and has been put on test production. A further producing well, Tawke 20, spudded in December 2012. Tawke 20 is designed as the first horizontal producer at the Tawke field and is the first well of a six development well drilling programme for 2013.

Tawke production is likely to continue to be sold into both the domestic and export markets during 2013.

Development and Appraisal

 

Miran

 

Genel Energy completed its acquisition of an additional 75 per cent interest in the Miran block and now owns 100 per cent and is operator of the block. The KRG continues to hold a right to back in for up to 25 per cent following the declaration of a commercial discovery, at which point the Company will hold a 75 per cent working interest.

The appraisal programme for the Miran West oil and gas discovery continued throughout 2012. The Miran West 3 well tested the main Jurassic reservoir and resulted in a constrained flow of up to 22 MMscf/d of wet gas and a yield of 20 bbl/MMscf of 55 degree API condensate.  The Miran West 4 deviated appraisal well was drilled to a target depth of 1,905 metres and tested 1,350 bopd of 16-18 degree API oil in the Upper Cretaceous oil reservoir similar to Miran West 1 and Miran West 3. 

An Extended Well Test on the oil bearing lower Cretaceous reservoirs commenced in January 2013 and is currently producing between 2,000 and 3,000 bopd. Subject to continued satisfactory performance of the test, we plan to move to a phased early production scheme later in 2013, with production ramping up to circa 30,000 bopd over the next two years.

In addition, during 2013 the Company plans to drill additional appraisal wells and to undertake an extended well test on the gas reservoirs.

It is intended to undertake a phased approach to the Miran field development. Multiple elements of the full field development project are progressing in parallel with the ongoing appraisal programme, including FEED which we expect to complete in the second quarter of 2013, and active discussions to establish long-term gas sales agreements with Turkish entities.

Bina Bawi

 

The Company completed its acquisition of a 44 per cent stake in the Bina Bawi exploration licence through two transactions in 2012. The Bina Bawi licence lies adjacent to the Taq Taq field and two of the three wells drilled on the block to date have encountered significant hydrocarbons.

The Bina Bawi field appraisal continued during 2012. Bina Bawi 3 which was completed by the operator OMV in the first half of 2012, encountered a gross hydrocarbon column of more than 600 metres in the Jurassic zone and two Jurassic reservoir intervals tested separately, achieved an aggregate flow rate of more than 4,000 barrels a day of light, 44 to 47-degree API oil and 10-15MMscf/d of gas.

Further appraisal of the Bina Bawi field is on-going. Bina Bawi 4 in the north of the field, which spudded in June 2012 and Bina Bawi 5, which spudded in October 2012, are drilling on schedule.  Results are expected in the first half of 2013. An extended well test from the Bina Bawi 3 well is expected to come onstream in the first half of 2013. Declaration of Commerciality is planned for Q1 of 2013, with the Field Development plan expected to be submitted in the second half of 2013.

Dohuk

The Summail-1 well, completed at the end of 2011, discovered gas in the Cretaceous Shiranish, Mushorah and Qamchuga formations and heavy oil in the Jurassic Sargelu, Chia Gara and Adaiyah formations. A 3D seismic survey has been completed and results are being evaluated by Genel Energy and the operator DNO.  The Declaration of Commerciality and Appraisal Report has been submitted to the KRG. Options to develop the field for local gas fired power stations are being evaluated.

 

Exploration

Kurdistan

 

Genel Energy's current exploration programme in the Kurdistan Region of Iraq comprises four high impact wells which will complete in 2013, targeting over 750 mmboe of gross unrisked resource potential. Tawke Deep and Chia Surkh 10 are currently drilling with results expected early in the second quarter. Taq Taq Deep will spud in the first quarter of 2013 and Chia Surkh 11 in the second quarter.

Tawke Deep

The Tawke Deep well (Tawke 17) spudded in late August with a target depth of approximately 4,500 metres. It is designed to test the deeper prospective resource potential of the Jurassic and Triassic reservoirs that have yet to be penetrated in the Tawke licence. Gross predrill unrisked resource is estimated at circa 200 mmboe. Results are expected in the second quarter of 2013.

Chia Surkh

Genel Energy completed the acquisition of an additional 40 per cent of the Chia Surkh exploration block in May. As a result, the Company owns 60 per cent of the block and has assumed operatorship. The first exploration well on the Chia Surkh licence (Chia Surkh 10) spudded on 7 October 2012. The well will be drilled to a target depth of 2,500 metres and is designed to test the Lower Miocene to Palaeocene section. A well drilled in the early 1950s on the same structure tested 41 API oil at rates of circa 4,500 bopd. A conservative estimate of the whole block pre-drill gross un-risked resource is circa 300 mmboe. The results of the first well are expected in the second quarter of 2013, in addition, a second well (Chia Surkh 11) is planned to spud in the second quarter of 2013.

Taq Taq Deep                            

The Taq Taq Deep well (Taq Taq 22) is expected to spud in the first quarter of 2013 and will test the Jurassic and Triassic reservoirs in the Taq Taq structure with a target depth of circa 5,400 metres.  A well drilled in the mid-1970s on Taq Taq tested gas from the Jurassic/Triassic interval. The pre-drill gross un-risked resource estimate is circa 250 mmboe.

Miran

 

The Miran 4 exploration well (previously Miran East 1) was drilled on the eastern limb of the existing discovery.  The well is targeting exploration potential within the Cretaceous, Jurassic and Triassic reservoir intervals which are known to be hydrocarbon bearing in the western limb of the structure.  The well reached target depth in November and is currently being tested.

Following the completion of the additional interest in the Miran Block, new evaluation of the broader resource potential of the block has identified additional exploration opportunities in the deeper horizons with significant resource upside potential.  Further work to evaluate these opportunities and to define an appropriate exploration programme will continue during 2013.

Ber Bahr 1

 

The Ber Bahr 1 well, in the Ber Bahr licence area, encountered a 300 metre oil column in the Jurassic with matrix porosity of 17 per cent. Two drill stem tests over the interval failed to flow, and yielded inconclusive results, with evidence of perforations plugged with heavy oil. It is intended to side-track the original well in the second quarter of 2013 in order the re-test the 300 metre oil zone.

Peshkabir 1

 

The Peshkabir 1 well completed during 2012. A detailed evaluation of the results of the well is on- going, including the acquisition of approximately 200 square kilometres of 3D seismic which is anticipated to be complete in the first quarter of 2013. The Peshkabir 1 well has been temporarily suspended for re-entry in the future. The operator DNO submitted a discovery notice to the KRG in respect of Peshkabir pursuant to the terms of the production sharing contract covering the Tawke licence.

Africa

 

During 2012, Genel Energy has built a portfolio of high impact exploration assets in Africa, in line with our stated strategy. These assets are designed to extend the life of the Company's exploration portfolio so as to balance the Kurdistan appraisal and development programme with opportunities to add significant value with the drill bit. In addition to providing some geographical diversification, the African exploration portfolio has added over 3.3 billion boe of net unrisked prospective resources to the Company's resources. These interests were acquired through a combination of small scale corporate acquisitions, farm-ins and licence activity.

The African portfolio currently consists of two blocks in Somaliland, three blocks in Morocco, four blocks in Malta, and one block in Côte d'Ivoire. The Company is targeting multiple petroleum systems where we believe that there are opportunities to make material new discoveries: the rift basins of central and east Africa, an analogue to the Libyan Sirte basin south of Malta, and the Jurassic carbonate plus Cretaceous submarine fan plays of northwest Africa.  Each of these areas also has potential for further deepening of the Company's resource position.

Work programmes are underway across the African blocks:

Morocco

Genel Energy has built an exploration portfolio in Morocco of circa 16,500km2 in three offshore licences Juby Maritime, Sidi Moussa and Mir Left. 

On Juby Maritime, the operator Cairn Energy PLC has completed the acquisition of 680km2 of 3D seismic targeting exploration prospects close to the existing discoveries of light and heavy oil in the Jurassic carbonate reservoirs. Preparations are underway to target drilling the first well on the Cap Juby discovery in the fourth quarter 2013.

The seismic vessel used at Juby Maritime has now moved to Mir Left and will acquire 1,200km2 of 3D seismic in Q1 2013. On Sidi Moussa, the reprocessing of existing 3D seismic is ongoing.

Côte D'Ivoire

The acquisition of 1060km2 of 3D seismic has been completed over the entire area of Block 508. Processing of the data is ongoing with the intention of drilling an exploration well in 2014.

Malta

The prospects in Area 4 have been delineated on 3D seismic and drilling of the first well (Hagar Qim) will target a tertiary reef prospect. Drilling is scheduled for the end of 2013.

Somaliland

In Somaliland, Genel Energy has built a frontier exploration portfolio circa 40,300 km2, an area as large as the whole of the Kurdistan Region of Iraq. Gravity and aeromag is being acquired over all the licences and the programme is almost 50 per cent complete. The seismic contract for 4,000 km line of 2D seismic has been awarded and the programme is anticipated to start in the second quarter.

African drilling programme

The Company is preparing for a minimum two year drilling campaign commencing late 2013 and is in advanced negotiations to secure a rig for a 10 well off shore drilling programme. This programme is designed to deliver a high impact drilling campaign in Morocco, Malta and Côte d'Ivoire, starting in the last quarter of 2013.  In addition, preparations are underway for putting in place a four well drilling programme for onshore Somaliland, commencing mid-2014.

Overall it is intended to deliver an exploration drilling campaign of 5-6 high impact wells per annum, targeting over 3.3 billion boe of net unrisked prospective resources. The capital programme for this is $400 million over three years, with a minimum work commitment of $200-250 million.

 

Finance Director's review

 

 

Results1 summary


2012




Revenue2 ($m)

333.4

24.0

Operating profit / (loss)2 ($m)

60.3

(62.5)

Profit / (loss) before tax2 ($m)

75.9

(57.7)

EPS (cents)2

27.18

(72.34)

Cash flow from operating activities2 ($m)

307.0

(23.4)

Capex2 ($m)

(233.5)

(16.8)

Free cash flow2,3 ($m)

73.5

(40.2)

Net cash ($m)

1,001.3

1,912.9

Net assets ($m)

3,920.1

3,841.8

 

1 Results are from continuing operations and are audited

2 The Company was incorporated on 1 April 2011 and acquired its first trading business, Genel Energy International Limited ("GEIL"), on 21 November 2011.  The comparative period 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

3 Free cash flow is cash flow from operating activities less capital expenditure

 

Overview

 

Our financial strategy is to run our operations in the Kurdistan Region of Iraq on a cash neutral basis and deploy our cash resources to fund the acquisition and development of high quality oil and gas assets. In 2012 we have successfully executed this strategy, with our Kurdistan operations achieving better than cash flow neutral and circa $1 billion deployed to extend our presence in the Kurdistan Region of Iraq and acquire material exploration assets in Africa.

Results for the period

 

This year reflects the first full year of trading for the Group which was incorporated on 1 April 2011 and acquired its first trading business on 21 November 2011. The Group is pleased to report revenue of $333.4 million, an operating profit of $60.3 million and basic earnings per share of 27.18 cents.

Revenue

          

Revenue of $333.4 million (2011: $24.0 million) is comprised of $233.7 million (2011: $24.0 million) for petroleum sales to domestic customers in the Kurdistan Region of Iraq, with $99.7 million received in respect of money owed to the Company for past shipments of exported oil. Export revenue of $99.7 million represents the receipt of $131.8 million in late December 2012, offset by a $32.1 million capacity building payment that we expect to pay in the first quarter of 2013. The Company continues to recognise export revenue on a cash received basis and consequently no revenue has been accrued in relation to the export sales that have been made in this financial year.

Operating costs

 

Cost of sales of $208.4 million (2011: $21.4 million) includes depletion and depreciation charges of $168.4 million (2011: $18.3 million) and production costs of $40.0 million (2011: $3.1 million). Cost of sales includes costs for all export and domestic sales volumes shipped.

Exploration expense represents a $7.5 million charge for the write-off of the carrying value of the KC-1 commitment well at Kewa Chirmila and a $22.2 million provision taken against the cumulative exploration cost under the Ber Bahr licence.

Other operating costs amounted to $35.0 million (2011: $65.1 million) for the period and included $13.3 million of costs relating to both our acquisition activity and building a new business, with the remaining $21.7 million classified as general administration costs. 2011 costs included $59.3 million for various advisers' services associated with the acquisition of Genel Energy International and $5.8 million of administration costs.

Finance income

 

Finance income of $15.6 million (2011: $4.8 million) represents interest income received and receivable on cash balances, together with amounts received and receivable on an interim funding arrangement with Heritage Oil plc relating to the acquisition of a 49 per cent interest in the Miran licence.   

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. 

Dividend

 

In line with the Group strategy to deploy cash to acquire and develop high quality assets, no dividend (2011: nil) will be paid for the year ended 31 December 2012.

Capital expenditure

 

Capital expenditure in the year amounted to $233.5 million (2011: $16.8 million). Exploration spend in KRI amounted to $143.1 million (2011: $10.7 million) with a further $73.8 million (2011: $4.2 million) incurred on the development of existing producing assets in KRI. Capital expenditure on our recently acquired licences in Morocco, Somaliland and Côte d'lvoire was $12.0 million (2011: nil).

Based on current plans, capital expenditure for 2013 is forecast to be circa $400-$500 million. In line with our strategy, Genel Energy will continue to fund development and exploration expenditure in the KRI with cash from current operations. Capital expenditure in 2013 for the African portfolio is expected to be in the region of circa $150 million, which will be funded from the Group's existing cash resources. 

Cash flow

 

Net cash flow from operations amounted to $307.0 million (2011: $23.4 million outflow) which more than covered our capex spend of $233.5 million (2011: $16.8 million) resulting in a free cash flow of $73.5 million (2011: $40.2 million outflow). Acquisition spend was $984.0 million (2011: $79.8 million) leaving a net cash outflow of $911.6 million (2011: $1,912.9 million inflow). The net cash balance at the end of the year was $1,001.3 million (2011: $1,912.9 million).

Net cash

 

At 31 December 2012, the Group had a cash balance of $1,001.3 million (2011: $1,912.9 million).

Acquisitions

 

The Company spent a total of $986.1 million on acquisitions in the year, with $950.4 million paid to acquire further assets in KRI.  In May, we increased our interest in the Chia Surkh block from 20 per cent to 60 per cent for a total consideration of $68.0 million. In August, a total of $419.4 million was spent on acquiring a 44 per cent stake in the Bina Bawi block. The Company increased its interest in the Miran licence from 25 per cent to 100 per cent (before KRG 25 per cent back-in right) for a total of $463.0 million. This acquisition was completed in two stages, with an initial 26 per cent interest acquired for $156.6 million and the remaining 49 per cent interest acquired in exchange for repayment of a loan of $294.0 million, together with interim funding of $12.4 million.

We have established material positions in Morocco, Côte d'lvoire, Somaliland and Malta for a total consideration of $40.7 million, including $5.0 million consideration deferred to future periods.

Net assets

 

Net assets at 31 December 2012 amounted to $3,920.1 million (2011: $3,841.8 million) and consist primarily of oil and gas assets of $1,932.8 million (2011: $1,848.4 million), exploration and evaluation assets of $1,172.7 million (2011: $227.7 million), and cash of $1,001.3 million (2011: $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 time deposits with a number of major financial institutions.   Suitability of banks is assessed using a combination of sovereign risk, credit default swap pricing and credit rating.

Going Concern

 

The Directors have assessed that the 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 2012 for the Group to be considered a going concern.

Accounting policies

 

UK listed companies are required to comply with the European regulation to report consolidated statements that conform to International Financial Reporting Standards ("IFRS") as adopted by the European Union. Principal accounting policies adopted by the Group and applicable for the period ended 31 December 2012 can be found in the 2011 Annual Report. No new accounting policies were implemented in the current year.    

 

 

Disclaimer

 

This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil & gas exploration and production business. Whilst the Company believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. Accordingly no reliance may be placed on the figures contained in such forward looking statements.

 

Condensed consolidated statement of comprehensive income

For the period ended 31 December

 


Notes

2012

2011



$m

$m





Revenue

1

333.4

24.0





Cost of sales

2

(208.4)

(21.4)





Gross profit


125.0

2.6





Exploration expense

3

(29.7)

-

Other operating costs

4

(35.0)

(65.1)





Operating profit / (loss)


60.3

(62.5)





Finance income

5

15.6

4.8





Profit / (loss) before income tax


75.9

(57.7)





Income tax expense

6

-

-





Profit / (loss) for the period


75.9

(57.7)





Other comprehensive items



-





Total comprehensive income / (loss) for the period


75.9

(57.7)





Attributable to:




Equity holders of the Company


75.9

(57.7)



75.9

           (57.7)





Earnings / (loss) per ordinary share attributable to the ordinary equity holders of the Company




Basic earnings / (loss) per share - cents per share

7

27.18

(72.34)

Diluted earnings / (loss) per share - cents per share

7

27.12

(72.34)









Results are from continuing operations.



 

Condensed consolidated balance sheet

 

At 31 December

 


Notes

2012

2011



$m

$m

Assets




Non-current assets




Intangible assets

8

1,172.7

227.7

Property, plant and equipment

9

1,932.8

1,848.4







3,105.5

2,076.1

Current assets




Inventories

10

0.1

0.1

Trade and other receivables

11

49.1

14.1

Cash and cash equivalents

12

1,001.3

1,912.9



1,050.5

1,927.1





Total Assets


4,156.0

4,003.2





Liabilities




Non-current liabilities




Trade and other payables

13

(5.0)

-

Deferred income

14

(61.6)

(68.8)

Provisions

15

(13.2)

(9.4)



(79.8)

(78.2)

Current liabilities




Trade and other payables

13

(149.0)

(77.8)

Deferred income

14

(7.1)

(5.4)



(156.1)

(83.2)





Total liabilities


(235.9)

(161.4)









Net assets


3,920.1

3,841.8





Equity attributable to equity holders of the parent




Share capital

16

43.8

40.9

Share premium account


4,074.2

3,824.2

Retained earnings


(205.7)

(54.6)

Total shareholders' equity


3,912.3

3,810.5





Non-controlling interest


7.8

31.3





Total equity


3,920.1

3,841.8





 

 



 

Condensed consolidated statement of changes in equity

 

For the period ended 31 December

 


Share

capital

Share

premium

Retained

earnings

Total attributable to equity holders

Non-controlling interest

Total

equity


$m

$m

$m

$m

$m

$m















At 1 January  2012

40.9

3,824.2

(54.6)

3,810.5

31.3

3,841.8








Comprehensive income for the period

 

-

 

-

 

75.9

 

75.9

 

-

 

75.9

Transactions with shareholders:







Issue of Founder Shares (note 16)

2.9

250.0

(229.4)

23.5

(23.5)

-

Share-based payment transactions

-

-

3.6

3.6

-

3.6

Purchase of own shares for ESOP1

-

-

(1.2)

(1.2)

-

(1.2)








At 31 December 2012

43.8

4,074.2

(205.7)

3,912.3

7.8

3,920.1








1 During the year the Company purchased shares in the market to be used to satisfy the Company's commitments under various Employee Share Plans

 

                                             







At 1 April 2011

-

-

-

-

-

-








Comprehensive loss for the period

-

-

(57.7)

(57.7)

-

(57.7)

Transactions with shareholders:







  Shares issued on Initial Public Offering

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








At 31 December 2011

40.9

3,824.2

(54.6)

3,810.5

31.3

3,841.8








 

1 Shares issued on the acquisition of Genel Energy International Limited

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

  

 

Condensed consolidated cash flow statement

 

For the period ended 31 December

 


Notes

2012

2011



$m

$m

Cash flows from operating activities




Cash generated from operations

17

293.9

(27.9)

Interest received


13.1

4.5





Net cash from operating activities


307.0

(23.4)





Cash flows from investing activities




Purchase of property, plant and equipment


(76.6)

(6.1)

Purchase of intangible assets


(156.9)

(10.7)

Acquisition of businesses and licences 

18

(984.0)

75.9





Net cash from investing activities


(1,217.5)

59.1





Cash flows from financing activities




Net proceeds from the issue of share capital


0.1

2,032.9

Purchase of ESOP shares


(1.2)

-

Repayment of acquired subsidiary loans


-

(155.7)





Net cash from financing activities


(1.1)

1,877.2





Net increase in cash and cash equivalents


(911.6)

1,912.9

Cash and cash equivalents at the beginning of the period


1,912.9

-





Cash and cash equivalents at period end

12

1,001.3

1,912.9

 

The company's acquisition of GEIL on 21 November 2011 was funded by means of an issue of new Ordinary Shares valued at $1,863.5 million (130,632,522 shares at 912 pence per share) of Genel Energy plc.



 

Notes to the condensed financial statements

 

1. Segmental information

 

The Group has two reportable business segments, which are its oil and gas exploration and production business in the KRI and its oil and gas exploration business in Africa. Capital expenditure decisions for the Kurdistan segment are considered in the context of the cash flows expected from the production and sale of crude oil. Capital expenditure for the Africa segment is considered in the context of the available cash of the Group.

 
Finance income is not considered part of a business segment and forms part of the reconciliation to the reported numbers.

 

For the period ended 31 December 2012

 


 

Kurdistan

 

Africa

 

Other

Total Reported


$m

$m

$m

$m






Revenue

333.4

-

-

333.4

Cost of sales

(208.4)

-

-

(208.4)

Gross profit

125.0

-

-

125.0






Exploration expense

(29.7)

-

-

(29.7)

Other operating costs

(1.6)

-

(33.4)

(35.0)

Operating profit

93.7

-

(33.4)

60.3






Finance income




15.6






Profit before tax




75.9











Capital expenditure

216.9

12.0

4.6

233.5

Total assets

3,292.0

53.1

810.9

4,156.0

Total liabilities

(217.1)

(11.0)

(7.8)

(235.9)











 

For the period ended 31 December 2011


 

Kurdistan

 

Africa

 

Other

Total Reported


$m

$m

$m

$m






Revenue

24.0

-

-

24.0

Cost of sales

(21.4)

-

-

(21.4)

Gross profit

2.6

-

-

2.6






Other operating costs

-

-

(65.1)

(65.1)

Operating profit

2.6

-

(65.1)

(62.5)






Finance income




4.8






Profit before tax




(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)






 


 

2. Cost of sales


2012

2011


$m

$m




Depreciation, depletion and amortisation of oil and gas assets

168.4

18.3

Production costs

40.0

3.1





208.4

21.4

 

 

3. Exploration expense

 

Exploration expense represents a $7.5 million charge for the write-off of the carrying value of the Kewa Chirmila commitment well and a $22.2 million provision taken against the cumulative exploration cost under the Ber Bahr licence. At Ber Bahr, sidetrack work is currently being performed with full test results expected in the second quarter of 2013.

 

 

4. Other operating costs


2012

2011


$m

$m




Listing costs, M & A activity and start-up costs

13.3

59.3

General and other costs

21.7

5.8





35.0

65.1

 

Included in above are:



Directors' fees

6.4

1.0

Share-based payment charge

3.6

3.1

Audit fees

0.4

0.3

Operating lease rentals

4.7

0.2

IPO costs

-

3.0

Depreciation and amortisation of other assets

1.1

0.3

 

 

5. Finance income 


2012

2011


$m

$m




Interest received on bank deposits

7.8

4.8

Interest on other loans

8.5

-

Interest unwind on provisions

(0.7)

-





15.6

4.8

 

 

6. 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 with no cash out flow. In the Company's results for the periods ended 31 December 2012 and 31 December 2011, no presentation of taxation expense with an equivalent gross up for revenue has been accounted for 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. For the same reason, it has not been possible to assess whether it is necessary to gross up the acquired assets for deferred tax.


 

 

7. 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.


2012

2011




Profit / (loss) for the period attributable to equity holders of the company - $ million      

 

75.9

 

(57.7)




Weighted average number of Ordinary Shares - number

279,117,179

79,830,987




Basic earnings per share - cents per share

27.18

(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 granted to Directors and employees under the Performance Share Plan, to the extent that performance conditions have been met at the period end;

Share options granted to employees under the Share Option Plan, where the exercise price is less than the average market price of the Company's Ordinary Shares during the period

Shares issued to employees under the Restricted Share Plan

Shares and securities issued to the Founders of the Company, to the extent that performance conditions have been met at the period end.

 

 


2012

2011




Profit / (loss) for the period attributable to equity holders of the company - $ million    

 

75.9

 

(57.7)




Weighted average number of Ordinary Shares - number

279,117,179

79,830,987

Adjustment for performance shares, restricted shares, share options and founder shares and securities1 - number

 

610,253

 

-

Weighted average number of Ordinary Shares for diluted earnings per share - number

 

279,727,432

 

79,830,987




Diluted earnings per share - cents per share

27.12

(72.34)

 

1 potential issue of shares under restricted share plan, share option plan and Founder Shares and Securities are not dilutive in 2011 as the Group reported a loss

 

 

 

8. Intangible assets


Exploration and evaluation assets

 

 

Miran

Acquisition

Other

assets

Total


$m

$m

$m

$m

Cost





At 1 January 2012

227.6

-

0.1

227.7

Acquisitions

532.1

463.0

-

995.1

Additions

145.5

9.6

1.8

156.9

Transfer to property, plant and equipment (see note 9)

(176.9)

-

-

(176.9)

Write-off of exploration costs (see note 3)

(7.5)

-

-

(7.5)






Balance at 31 December 2012

720.8

472.6

1.9

1,195.3











Depreciation and impairment





At 1 January 2012

-

-

-

-

Depreciation charge for the period

-

-

0.4

0.4

Provision for write-off of exploration costs (see note 3)

22.2

-

-

22.2






At 31 December 2012

22.2

-

0.4

22.6






Net book value





At 1 January 2012

227.6

-

0.1

227.7

At 31 December 2012

698.6

472.6

1.5

1,172.7






Cost





At 1 April 2011

-

-

-

-

Acquisitions

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 Company's PSC interests in exploration assets in the Kurdistan Region of Iraq and Africa. Exploration and evaluation assets are not amortised but are assessed for impairment indicators under IFRS 6.

 

As a result of drilling and appraisal work performed in the year, further confidence was obtained on previously unproven reserves. As a result, $176.9 million of assets classified as exploration assets under intangible assets have been transferred to property, plant and equipment as development assets.

 

In the year, the Group acquired an additional 75% interest in the Miran PSC. This is explained further in note 18. This has not been presented as an exploration and evaluation asset at the balance sheet date because, although all parties had approved the transfer and the sale and purchase agreement had been signed, the deed of assignment was not formally signed by the KRG until January 2013.

 

The net book value of $1.5 million (2011: $0.1 million) of other assets is principally comprised of capitalised software.

 


 

9. Property, plant and equipment


Oil and gas assets

 

Other

assets

 

Total


$m

$m

$m

Cost




At 1 January 2012

1,859.3

7.7

1,867.0

Additions

73.7

2.9

76.6

Transfer from intangible assets (see note 8)

176.9

-

176.9

Reclassified

5.5

(5.5)

-





At 31 December 2012

2,115.4

5.1

2,120.5





Depreciation and impairment




At 1 January 2012

18.3

0.3

18.6

Depreciation charge for the period

168.4

0.7

169.1





At 31 December 2012

186.7

1.0

187.7





Net book value








At 1 January 2012

1,841.0

7.4

1,848.4

At 31 December 2012

1,928.7

4.1

1,932.8









Cost




At 1 April 2011

-

-

-

Acquisitions

1,855.1

5.5

1,860.6

Additions

4.2

2.2

6.4





At 31 December 2011

1,859.3

7.7

1,867.0





Depreciation and impairment




At 1 April 2011

-

-

-

Depreciation charge for the period

18.3

0.3

18.6





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 of Iraq.  Other assets include leasehold improvements, office furniture and motor vehicles.  

 

 

10. Inventories


2012

2011


$m

$m




Crude oil inventory

0.1

0.1





0.1

0.1

 

 

11. Trade and other receivables


2012

2011


$m

$m




Trade receivables

28.2

11.6

Other receivables

4.7

0.6

Prepayments

16.2

1.9





49.1

14.1

 


 

12. Cash and cash equivalents


2012

2011


$m

$m




Cash and cash equivalents

1,001.3

1,912.9





1,001.3

1,912.9

 

Cash includes the Company's share of cash held in its joint operations.

 

 

13. Trade and other payables


2012

2011


$m

$m




Trade payables

61.3

12.8

Deferred consideration

5.0

-

Other payables

1.0

2.5

Accruals

86.7

62.5





154.0

77.8




Non-current

5.0

-

Current

149.0

77.8


154.0

77.8

 

 

14. Deferred income


2012

2011


$m

$m




Non-current

61.6

68.8

Current

7.1

5.4





68.7

74.2

 

Deferred income is royalty income received in advance from the Group's  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 as it becomes due.

 

15. Provisions


2012

2011


$m

$m




Balance at 1 January / 1 April 2011

9.4

-

Acquisitions

-

9.3

Interest unwind

0.7

-

Additions

3.1

0.1




Balance at 31 December

13.2

9.4




Non-current

13.2

9.4

Current

-

-




Balance at 31 December

13.2

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 fair value of a liability for a decommissioning and abandonment provisions is recognised in the period in which it is incurred.

 

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 4.0%.

 


 

16. Share capital


Suspended Voting  Ordinary shares

Voting

Ordinary shares

 

Total

 Ordinary Shares









At 1 January 2012

74,647,156

186,617,888

261,265,044

Issue of 18,713,154 voting Ordinary Shares to Founders on exercise of option on 20 January 2012

 

(8,019,923)

 

26,733,077

 

18,713,154

Issue of 90,000 voting Ordinary Shares to Directors under Share Matching Award scheme on 2 April 2012

 

(38,572)

 

128,572

 

90,000

Issue of 180,000 voting Ordinary shares to Directors under Share Matching Award scheme on 22 June 2012

 

(77,142)

 

257,142

 

180,000





On issue at 31 December 2012  - fully paid

66,511,519

213,736,679

280,248,198









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 20 January 2012, the Company issued 18,713,154 shares when the Founders of the Company exercised their right to exchange their Founder Shares for Ordinary Shares in the Company. At the same time, the Company converted 8,018,923 Suspended Voting Ordinary Shares to Voting Ordinary Shares in accordance with the terms of the Suspended Voting Ordinary Shares. The transaction resulted in the removal of the non-controlling interest associated with the Founder Shares and the difference in value has been taken direct to reserves.

 

On 2 April 2012, the Company issued 90,000 shares to Non-Executive Directors under the Share Matching Award scheme and a further 180,000 on 22 June 2012. On the same dates, the Company converted 38,572 and 77,142 Suspended Voting Ordinary Shares to Voting Ordinary Shares in accordance with the terms of the Suspended Voting Ordinary Shares.

 

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.

 

  

 

17. Cash generated from operating activities


2012

2011


$m

$m




Profit / (loss) for the period

75.9

(57.7)

Adjustments for :



Finance income

(15.6)

(4.8)

Depletion and amortisation

169.5

18.6

Write-off of exploration costs

7.5

-

Provision for write-off of exploration costs

22.2

-

Share based payments

3.6

3.1

Changes in working capital:



Trade and other receivables

(31.7)

(12.1)

Trade and other payables and provisions

62.5

25.0




Cash generated from operating activities

293.9

(27.9)

 

18. Acquisitions

 

On 1 May 2012, the Group increased its interest in the Chia Surkh block in the Kurdistan Region of Iraq from 20% to 60% for a total consideration of $68.0 million.

 

On 14 May 2012, the Group entered Africa through the acquisition of Barrus Petroleum Limited, an exploration company with assets in Morocco and Côte d'lvoire for a total consideration of $27.7 million. In the second half of the year, activities in Africa were enhanced through the acquisition of a further 5 licences in Somaliland, Morocco and Côte d'lvoire for a total consideration of $13.0 million, $5.0 million of which was deferred to future periods and contingent on future exploration activity.

 

On 3 August 2012, the Group acquired a 23% stake in the Bina Bawi block in the Kurdistan Region of Iraq through the acquisition of all the share capital of A&T Petroleum Company Ltd for $174.5 million and a further 21% of the block from Hawler Energy Ltd on 20 August 2012 for a total consideration of $244.9 million, bringing the Group's interest in Bina Bawi to 44%.

 

The Group acquired an additional 26% interest in the Miran PSC from Heritage Plc ("Heritage") for $156.6 million, thereby increasing its interest to 51%. At the same time, the Group loaned $294.0 million to Heritage. The terms of the loan were such that on the satisfaction of certain conditions, Heritage was able to exchange repayment of the loan for its remaining 49% interest in the Miran PSC. This loan, together with further interim funding of $12.4 million, was subsequently converted into an intangible asset. There was no material change in the value of the convertible element of the loan in the period.

 

 


Chia Surkh

African

Licences

Bina

Bawi

 

Miran

 

Other

 

Total


$m

$m

$m

$m

$m

$m








Exploration assets

68.0

38.5

419.4

463.0

6.2

995.1

Trade and other debtors

-

0.1

-

-

-

0.1

Trade and other payables

-

-


-

(6.2)

(6.2)

Cash acquired

-

2.1

-

-

-

2.1








Total consideration

68.0

40.7

419.4

463.0

-

991.1

Less:







Deferred to future periods

-

5.0

-

-

-

5.0

Cash acquired

-

2.1

-

-

-

2.1








Cash flow

68.0

33.6

419.4

463.0

-

984.0

 

  

19. Subsequent events

The KRG formally approved the transfer of 75% of the Miran PSC from Heritage to the Group on 22 January 2013 (see note 18).

20. Statutory accounts

The financial information for the year ended 31 December 2012 contained in this preliminary announcement has been audited and was approved by the Board on 27 February 2013.

 

The financial information in this statement does not constitute the company's statutory accounts for the years ended 31 December 2012 or 2011. The financial information for 2012 and 2011 is derived from the statutory accounts for 2011, which have been delivered to the registrar of companies, and 2012, which will be delivered to the registrar of companies and issued to shareholders in March 2013. The auditors have reported on the 2012 and 2011 accounts; their report was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

 

The statutory accounts for 2012 are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the European Union. The accounting policies (that comply with IFRS) used by Genel Energy plc ("the group") are consistent with those set out in the 2011 Annual Report.

 

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

 

21. Directors' interests

 

1,737,052 voting ordinary shares in Genel Energy plc in which Tony Hayward holds an indirect interest, have been transferred from Vallares Capital LP (through which Mr Hayward held his interest) to nominee accounts held in his name.  There has been no change in the number of Genel Energy plc shares in which Mr Hayward is interested as a result of this transfer.

 

1,737,052 voting ordinary shares in Genel Energy plc in which Julian Metherell holds an indirect interest, have been transferred from Vallares Capital LP (through which Mr Metherell held his interest) to nominee accounts held in his name.  There has been no change in the number of Genel Energy plc shares in which Mr Metherell is interested as a result of this transfer.

 

 

22. Annual Report

 

Copies of the 2012 Annual Report will be despatched to shareholders in March 2013 and will also be available from the company's registered office at 12 Castle Street, St Helier, Jersey JE2 3RT and at the company's website, www.genelenergy.com.

 

 

23. Financial calendar

 

The Annual General Meeting will be held at Sofitel St James, 6 Waterloo Place, London SW1Y 4AN on 22nd April 2013 at 11 am.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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