Genel Energy has issued the following Interim Management Statement for the period from 1 January 2014 to today (Tuesday 2nd April). The statement was issued ahead of the company’ss Annual General Meeting.
PRODUCTION AND REVENUE
2014 production and revenue guidance unchanged at 60,000-70,000 boepd and revenue of $500-600 million
Net working interest production for the first quarter averaged 50,000 bopd, an increase of 35% on Q1 2013
Taq Taq and Tawke averaged 81,000 bopd and 57,000 bopd respectively
Domestic sales realisations were $69/bbl for Taq Taq and $58/bbl for Tawke
Production and revenues expected to increase over the course of 2014 as the Kurdistan Region of Iraq (“KRI”) oil pipeline system comes into operation
The KRI pipeline commissioning process is substantially complete after compression was installed at the Khurmala Dome. Works to replace a short section of the 40 inch Iraq-Turkey pipeline in Turkey and install extra compression at Fishkabur are expected to be completed in H2 2014.
DEVELOPMENT AND APPRAISAL
At the Taq Taq field, the construction of the second central processing facility is progressing and is on track for completion around year end. The drilling of the first deviated and horizontal wells on the field will follow completion of the Taq Taq Deep exploration well.
During the quarter, two additional horizontal development wells were completed at the Tawke field and brought onstream at a combined rate of 37,000 bopd. The operator, DNO International, has outlined plans to increase field processing capacity from 100,000 bopd to 200,000 bopd by the end of 2014 through the installation of early production facilities.
First gas production from the Summail field development is expected shortly.
Further to the recent press release from Black Diamond, the Kurdistan Regional Government has issued a statement refuting the company’s claims to have a deal to refine crude oil from Genel Energy‘s Taq Taq oil field.
Genel Energy has also denied any knowledge of, or dealings with, Black Diamond and Rezhwan.
The full text of the KRG statement is carried below:
The KRG Ministry of Natural Resources (MNR) categorically rejects as false claims by the Black Diamond Company that it has signed a deal to purchase crude oil from the Taq Taq oil field to supply a “new” refinery operated by a private Kurdish group, Rezhwan Company.
Neither Black Diamond Co., which has offices in the Philippines, nor its local joint-venture partner Rezhwan Co. are officially registered with the MNR, which has no knowledge of either company.
Genel Energy PLC, the operator of the Taq Taq field, has informed MNR that it too has no knowledge of, or dealings with, Black Diamond and Rezhwan.
Furthermore, no such “new” refinery has been licensed by MNR and it will not be allowed to operate.
MNR affirms that Black Diamond has no basis on which to make spurious and misleading public claims of crude oil purchases in the Kurdistan Region.
The Ministry will take all necessary steps to prevent the supply of crude oil to either Black Diamond or Rezhwan.
Genel Energy has announced its preliminary audited results for the year ended 31 December 2013:
KRI export pipeline infrastructure complete and in the commissioning phase. Volumes of KRI oil in storage at Ceyhan continue to grow
Turkey-KRG Gas Sales Agreement a significant milestone in the commercialisation of Miran and Bina Bawi gas fields
100% success rate on KRI exploration – Chia Surkh, Ber Bahr and Tawke Deep discoveries
Successful appraisal drilling at Bina Bawi increased mean contingent resources by 70%
Proven and probable reserves (2P) increased to 453 mmboe (2012: 445 mmboe), representing a reserve replacement ratio of 147%
Total working interest reserves and unrisked resources increased to 5.9 bnboe (2012: 5.4 bnboe)
JM-1 well on the Cap Juby prospect offshore Morocco confirms the presence of oil in the Upper Jurassic, as originally tested by the 1968 MO-2 well, some 2km from the JM-1 location. The well continues to drill ahead to the primary Middle Jurassic target
Taq Taq Deep well drilled to 4,600 metres, with around 300 metres of gas and condensate shows recorded in the Jurassic
2014 production guidance maintained: average net working interest production expected to be 60-70,000 boepd, significant growth of 50% at the midpoint of the range
Upgrades at both Taq Taq and Tawke on track to deliver processing capacity of 200,000 bopd by the end of 2014
Fully funded drilling campaign ongoing, with five high-impact wells in 2014 targeting 1.2 bnboe gross unrisked prospective resource
Significant value creation opportunity through domestic sales, early domestic gas monetisation with first production at Dohuk in late Q1 2014
Gas Sales Offtake Agreements with KRG for Miran and Bina Bawi expected to be signed in the second half of 2014
Genel Energy has issued a Trading and Operations Update in advance of the Company’s 2013 full year results, which are scheduled for release on 6 March 2014. (The information contained herein has not been audited and is subject to further review).
Kurdistan Region of Iraq (“KRI”) independent pipeline infrastructure complete, exports expected to commence in the near future
The KRI independent export pipeline infrastructure is mechanically complete.
Commissioning of the system is ongoing and is expected to continue through the first quarter of 2014.
The first KRI pipeline oil has arrived at Ceyhan in Turkey. The Kurdistan Regional Government (“KRG”) has announced that first KRI export sales via the pipeline are expected to commence in the near future, and ramp up over the remainder of the year.
Inter-governmental Gas Sales Agreement signed
In November 2013, the Government of Turkey and the KRG signed a Gas Sales Agreement (“GSA”) governing the export of natural gas from the KRI to Turkey.
The GSA calls for an initial 4bcma of gas exports from 2017, rising to 10bcma by 2020 and the option of increasing to 20bcma thereafter.
Genel anticipates that the Miran and Bina Bawi fields will deliver the gas supply to underpin the GSA, and as such it represents a significant milestone in the commercialisation of this major gas resource.
Tony Hayward (pictured), Chief Executive of Genel, said:
“2013 was a transformational year for Genel. The energy agreement between the KRG and Turkey and the completion of the KRI independent pipeline infrastructure has paved the way for steadily rising oil export volumes from Taq Taq and Tawke over the course of 2014.
“In addition the Gas Sales Agreement has created the opportunity to develop our substantial gas resources at Miran and Bina Bawi for the Turkish market.
“Drilling is also now underway on our high impact African assets, with four wells set to be drilled this year, each offering the potential for material finds. Overall, 2014 is shaping up to be another very exciting year for Genel.“
Credit Suisse has upgraded Genel Energy as a result of what it described as “irreversible progress” towards achieving large scale oil exports via Turkey.
Believing that the Iraqi Kurdistan oil play is now lower risk, analyst Thomas Adolff says that progress has been very impressive since 2011 and “we treat recent events – the signing of the energy agreement with Turkey last week – as irreversible progress … We believe Genel could be the bright-spot again in the UK E&P space in 2014.”
Credit Suisse lifted its price target on Genel from £12.96 to £14.30 per share; as of Friday morning the shares are trading at £10.53.
Adolff goes on to explain:
“Having finalised the energy agreements, the next step is to meet with the Government of Iraq (GOI) to reach a revenue-sharing agreement.
“Exports, however, can flow before and contractors amongst others will have the first call on revenue (i.e., under this format, they should get paid as exports begin).
“The KRG, meanwhile, agreed not to draw on its share of revenue from these exports after contractor entitlements, tariffs and payments to the UN Compensation fund widely reported to be held in an escrow account in Turkey, under the control of the KRG, until it reaches an agreement with the GOI.
“As revenue is accumulated, there will be an incentive to reach an agreement.”
Genel Energy and DNO International have signed a Gas Sales and Purchase Agreement with the Kurdistan Regional Government to supply gas from the Summail field in the Dohuk licence in the Kurdistan Region of Iraq.
The gas will partially displace diesel currently used to generate electricity in a 500 MW power plant in the city of Dohuk (pictured), located 40 kilometres from the field.
Initial deliveries will be around 100 million cubic feet per day sold on a take-or-pay basis for the duration of the Production Sharing Contract or until deliveries reach one trillion cubic feet. The price of gas will range between $3 and $4 per thousand cubic feet over the life of the contract.
The Prime Minister of the Kurdistan Regional Government, Nechirvan Barzani, and the Minister of Natural Resources, Dr. Ashti Hawrami, were present at the signing ceremony held in Erbil today and are signatories to the contract.
The next step in the fast-track development of the field is re-entry and completion of the Summail-1 discovery well and the installation of a 24 inch pipeline to transport gas to what is slated to become the regional gas gathering and distribution network. First gas from Summail-1 is planned in January 2014. The second well, Summail-2, will spud in the fourth quarter and the Summail-3 well is scheduled for 2014.
Following the development of the Summail field, the focus will shift to the appraisal of the oil potential of the Dohuk license.
DNO International announced today that it has commenced extensive testing of the Tawke-23 exploration well in the Kurdistan region of Iraq.
The well is the second horizontal well drilled by the Company in the Tawke field and has encountered continuous oil shows within a 930 metre horizontal section in the main Cretaceous reservoir. The test program, expected to last up to three weeks, will focus on ten fracture zones with production potential.
The Company’s first horizontal well in the field, Tawke-20, tested 8,000 barrels per day from each of ten producing intervals in the Cretaceous reservoir and is currently on stream at an average rate of 25,000 barrels per day.
Also currently drilling in Kurdistan are two other Tawke horizontal development wells, Tawke-21 and Tawke-22, and the highly deviated Benenan-4 well in the Erbil license designed to appraise the additional reserves encountered in the Benenan field by the Benenan-3 well earlier this year. Benenan-3 has been completed and temporary production facilities installed, pending government approval to commence sales.
The Bastora-2 well in the Erbil license has been completed and temporary production facilities are undergoing installation. The Bastora field development plan was previously approved and the Ministry of Natural Resources now has authorized sales from the field with first deliveries anticipated in October.
Based on current trends, DNO International expects third quarter production from its fields in Kurdistan, Oman and Yemen will reach record gross levels of around 85,000 barrels of oil equivalent per day (boepd), corresponding to an estimated Company Working Interest (CWI) production of 50,000 boepd. Gross production for full year 2012 was 67,238 boepd, corresponding to 38,354 boepd on a CWI basis.
Genel Energy has announced that a Declaration of Commerciality (“DoC”) for the Miran field has been approved by the Ministry of Natural Resources of the Kurdistan Regional Government (“KRG”). Genel currently holds a 100% working interest and is operator of the Miran licence. The KRG has the right to back in for a 25% working interest following DoC.
The Miran field was discovered in 2009 and an assessment by RPS Energy has assigned gross mean contingent resources of 3.5Tcf of gas/95mmbbls of oil and condensate to the Miran West structure. Further upside remains in the Miran East and Miran Deep prospects, with an exploration well planned on the latter in 2014. In total, Genel estimates that the Miran block contains c.8Tcf of gross recoverable contingent and unrisked prospective resources.
Following Declaration of Commerciality, the Development Period will commence on 5 September 2013, after which the Contractor will receive its share of revenues according to the PSC. An Early Production Facility for Miran oil was commissioned in August 2013 with the first well brought on-stream at c.2,000bopd. Work continues with the KRG to establish a Gas Commercialisation Plan, while Genel continues to expect the signing of a final Gas Export Agreement to Turkey by end-2013.
Commenting today, Charles Proctor (pictured), Head of Business Development for Genel, said:
“The Miran Declaration of Commerciality represents an important milestone in the development of this major resource. We now look forward to continuing our work with the KRG to implement the Gas Commercialisation Plan and progress Miran towards project sanction.
“Our KRI gas business has the potential to supply a significant portion of Turkish demand growth, as well as having a transformational impact on Genel as our material resource base transitions closer to reserves.“
Shares in Kurdistan-focused Genel Energy finished Wednesday up over 2 percent, as CEO Tony Hayward said there is “a lot to look forward to” in terms of oil and natural gas production from the Kurdish region of Iraq.
The shares are trading at levels not seen since early 2011.
The text of the half-yearly report follows:
Net working interest production averaged 41,500 bopd (+7% from 1H 2012), generating revenue of $161 million (+31% from 1H 2012)
Material resource additions at Tawke and Bina Bawi confirmed by important appraisal success
Significant progress made in commercialising Miran and Bina Bawi oil and gas assets
Major exploration success in the KRI: a material new oil discovery at Chia Surkh of c.250-500mmbbls with commercial discoveries at Tawke Deep and Ber Bahr
Exploration and appraisal success added c.500 mmboe (50%+ increase) to contingent resources
Work programmes progressed across the African exploration portfolio: high impact offshore drilling programme to commence in 4Q 2013
Clear evidence of positive political momentum and independent KRI export infrastructure nearing completion
Strong first half results and financial position with $867 million of net cash at the end of the period