WHAT IS HAPPENING WITH BINA BAWI – WHY THE ONGOING DELAY?
“Discussions are ongoing. It is a complex deal of material importance to both Genel and the Kurdistan Regional Government. The discussions are focused on the fiscal terms for the oil development and how it will relate to the funding of gas, the interface between upstream and midstream and how risk is shared and transferred between the parties. This is not a simple discussion. As you can see from the recent trading update though, we are confident enough of a positive resolution to be doing readiness work regarding the oil development.”
WHAT ARE YOUR EXPECTATIONS FOR A SOMALILAND FARM-IN AND WHAT IS THE SIGNIFICANCE OF THE RECENT ACQUISITION?
“Somaliland is highly prospective and underexplored. As we stated, interpretation of the 2018 2D seismic data together with basin analysis has identified multiple stacked prospects, with each of them estimated to have resources of c.200 MMbbls. It has the potential to be a low-cost high-value component of our long-term growth story. We are keen to drill in Somaliland, but we are also keen to share the cost in order ensure that the risk/reward balance is appropriate for our shareholders.
East Africa Resource Group were the original owners of 100% of the block. We like the prospects of the block and wanted to fully control the farm-out process without the involvement of an additional party.”
WHAT IS YOUR CURRENT COST OF PRODUCTION PER BARREL?
“Our cost of production is just over $2.5/bbl.”
WHAT DOES THE COMPANY PLAN TO DO TO PROVIDE STABILITY AND STRENGTH TO THE SHARE PRICE?
“We plan to keep on delivering on our strategy. Genel is focused on delivery – drilling wells, generating cash, adding new opportunities and progressing existing ones, and paying a material and progressive dividend. We also continue to appraise opportunities to make value accretive additions to the portfolio, although given the current strength of the existing portfolio and the opportunities available in it we will continue to be highly selective.
WHAT, IN YOUR OPINION, IS PREVENTING THE MARKET FROM SEEING GENEL’S TRUE VALUE?
“As a company we are focused on building a stronger business with material growth potential, providing a clear and compelling investment case that offers the opportunity for a significant increase in shareholder value. This year alone we have added in two assets with a mixture of near-term production and long-term growth potential, we are participating in 20 wells (the most of anyone in the KRI), production is expected to rise 10% year-on-year, and we have also initiated and paid material and sustainable dividend. While doing this, we will add a very substantial amount of free cash flow. We feel that this provides investors with a compelling mix of growth and returns.
The sell-side analyst community recognises this, and the average price target from our eleven analyst followers is over £3. Analyst core NAV figures for Genel’s producing assets alone total c.£2.40, considerably higher than the current share price, with the (currently heavily risked) upside from Sarta, Qara Dagh, Bina Bawi, Miran, and exploration assets still to come.”
CAN YOU PLEASE PROVIDE SOME SENSITIVITIES OF YOUR FREE CASH FLOW AT DIFFERENT LEVELS OF OIL PRICE?
“To start with, due to our low-cost production it is worth noting that we breakeven at a Brent oil price of $17/bbl. In 2019, for every increase in the Brent oil price of $10/bbl, we would expect to add c.$3 million in free cash flow on a monthly basis.”
IS GENEL LOOKING TO DIVERSIFY AWAY FROM THE KURDISTAN REGION OF IRAQ?
“Our M&A strategy as stated at the beginning of 2018 prioritises areas with low to moderate political risk. Given the improved political environment in the Kurdistan Region of Iraq we now view the KRI as one such region. As seen by the acquisition of stakes in Sarta and Qara Dagh, we are committed to the region and believe that it can drive value for investors. That said, we continue to explore a wide range of opportunities, and it is fair to say that had Sarta been situated outside the KRI, then we would still have been very keen to acquire the stake.”
IS THERE ANY POSSIBILITY OF ACQUIRING SOME NEAR-TERM PRODUCTION UTILISING SOME OF THE CASH AVAILABLE?
“We continue to look at a wide range of opportunities, focused on assets that offer near-term value for shareholders. If the opportunity to acquire production came along at the right price, then it is something that we would look to take advantage of. That said, we are not after production for the sake of adding production, but we look to boost profit and cash flow.”
IS THERE ANY KIND OF EARLY INDICATION OR GUIDANCE ON WHAT CAN BE EXPECTED IN TERMS OF BOPD AND THE GROWTH POTENTIAL OVER THE YEARS FOR SARTA?
“The 20,000 bopd central processing facility should be sufficient to handle production from phase 1A. If this is successful, and two of the wells forming phase 1A have already flowed 7,500 bopd on test, we will then look to progress through the multiple phase project. The asset has very significant potential. There are hydrocarbons throughout the structure, from the Tertiary down to the Triassic, which are the typical Kurdistan Region of Iraq reservoirs.””
This page 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.