Genel Energy: Tawke delivering "Significant Cash Generation"

Genel Energy has announced its audited results for the year ended 31 December 2024.

Paul Weir, Chief Executive of Genel, said:

"In 2024, we demonstrated further progress on our journey of building towards delivering resilient, diversified cash flows. Our shift from cash outflow in 2023 to cash generation in 2024 has been important, and in 2025 we expect the cash generated by the Tawke PSC to continue to cover our costs. We are delighted to have established a footprint in the Sultanate of Oman, through our award of an interest in Block 54. This is the first step on our roadmap to diversification.

"For 2025, we remain focussed on three principal objectives: maintenance of a strong balance sheet; resilient cash generation from the core business; and the addition of new assets.

"For new assets, we will seek both to increase that footprint in Oman, and also acquire assets in other preferred jurisdictions that we have identified as attractive to Genel, with a focus on adding production assets that increase the cash generation and resilience of the business, and provide potential for further growth.

"In the Kurdistan Region of Iraq ('KRI') we continue to work with our peers and the Regulator towards the restart of exports on the right terms to ensure our contracts are honoured and we are paid what we are due."

Results summary ($ million unless stated)

1. EBITDAX is operating loss adjusted for the add back of depreciation and amortisation, exploration expense, net write-off/impairment of oil and gas assets and net ECL/reversal of ECL receivables
2. Free cash flow is reconciled on page 8
3. Reported cash less IFRS debt is reconciled on page 8

Highlights

• Working interest average production increased by 58% to 19,650 bopd (2023: 12,410 bopd)
• All production sold into the domestic market at average $35/bbl consistent with prior year (2023: $47/bbl, which included export sales prices in Q1)
• Free cash flow of $20 million, compared to free cash outflow of $71 million last year
  • Tawke free cash flow generation from domestic sales was over $70 million (2023: $28 million), benefiting from some offsetting and also positive working capital movements of around $30 million
  • Organisation cost reductions were offset by non-repeating costs on arbitration, closing out unprofitable licences at Taq Taq and Sarta, and finalising exit from Qara Dagh
• Closing net cash of $131 million, an increase from $120 million at the start of the year
  • Cash of $196 million (2023: $363 million), with bond debt reduced from $248 million at the start of the year to $66 million at year-end from buybacks and partial exercise of call option
  • $107 million (under KBT pricing and excluding interest) remains overdue from the Kurdistan Regional Government ('KRG') to the Genel subsidiary Genel Energy International Limited ('GEIL') for sales made in previous years. The Company owes the KRG around $50 million. We continue to work towards a plan for payment or settlement of amounts owed, and appropriate adjustment for price and interest
  • We were disappointed that in December 2024 the subsidiary, Genel Energy Miran Bina Bawi Limited ('GEMBBL'), lost the arbitration case brought against it by the KRG regarding the Miran and Bina Bawi gas assets. As previously announced, the KRG is seeking a costs award of over $36 million against GEMBBL
• Last week, the Company announced its award of an interest in Block 54 in the Sultanate of Oman. This new country entry is an important first step towards strategic diversification of our business
• Average portfolio carbon intensity again expected to be under 14 kgCO2e/bbl, remaining below the current target for industry average
• Climate rating: maintained a CDP Climate score of B for a third consecutive year

OUTLOOK

• With domestic sales demand at similar levels to last year and year to date this year, the Company expects cash generation from the Tawke PSC to cover its organisational costs
• The Company continues to progress towards building a business with a strong balance sheet that delivers resilient, reliable, repeatable and diversified cash flows that supports a dividend programme. The Company objectives for the year on the path to building that business include:
  • acquisition of new assets in Oman and other targeted jurisdiction to add reserves and diversify our cash generation
  • restart of exports to access international pricing
  • recovery of net amounts owed by the KRG
  • further progress towards drilling Toosan-1
• The Company has engaged Pareto Securities AS as Manager and Bookrunner to arrange fixed income investor meetings. Subject to market conditions and acceptable terms, a new senior unsecured bond issue with a tenor of five years may follow

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CEO STATEMENT

We start 2025 leaner and more efficient, and with all the building blocks necessary to establish a bigger and more successful business. Genel has a strong balance sheet and our producing fields within the Tawke PSC form a world-class asset that delivers significant cash generation even when selling at heavily discounted domestic prices because of the suspension of exports. This is a situation that we continue to work on closely with our peers and host government to resolve. Genel has a compact but highly skilled and motivated workforce, dedicated to executing our growth strategy and pursuing value accretive acquisitions that will diversify our geographical footprint within reliable and predictable jurisdictions.

In 2024, we continued with the cost reduction exercise and business efficiency improvements that began in 2022. That process extended to continuing the divestment process for non-profitable assets. Taq Taq awaits only government approval before divestment is complete, and relinquishment of our other non-producing legacy assets in the Kurdistan Region of Iraq ('KRI') will also be completed soon.

Having delivered these improvements and trimmed our debt levels to improve the capital efficiency of the business, it's time to move on to the next phase.

We are very clear on what needs to be done to deliver the appropriate Company growth and deliver the shareholder returns that are necessary for an emerging market exploration and production business. The period of consolidation and efficiency improvement in 2024 must now give way to profitable growth.

Genel is delighted to have taken the first step in its growth journey by signing an EPSA in the Sultanate of Oman with OQ Exploration & Production SAOG ('OQEP') as Operator, which will see us participate in the appraisal and development of Block 54. This will see Genel spend modestly over the next three years. The potential on the block is significant and while the eventual returns are not certain at this stage, we believe this move will lead to further exciting opportunities in the region. Oman is a jurisdiction that Genel has long considered as a very attractive place to do business and where we have been made very welcome by both our new partner and the regulator.

Back in the KRI, together with our operating partner DNO, we have helped establish a reliable and consistent domestic sales market, which generates very important cash for producers there, albeit at a heavily discounted price. Tawke production currently realises only around $35/bbl, which is well below relevant reference benchmark oil prices. With our peers in the KRI, we continue to work with our host Government and Federal Iraqi authorities to negotiate an arrangement that allows the resumption of international oil sales at international oil prices and that provides appropriate returns for those producing the oil. This has proved to be a sporadic process, but most recent indicators suggest a solution should soon be found; a solution that could double Genel revenue immediately upon implementation.

We have worked hard with DNO to ensure spend and delivery performance are optimised. The world-class field operating cost of only $4/bbl and consistent production delivery throughout 2024 are testament to the successful delivery performance of this asset.

We have put behind us the disappointment of the outcome of the arbitration on the KRG's termination of the legacy Miran and Bina Bawi licences, where the London Court of International Arbitration ruled in favour of the KRG.

We have a clear direction of travel and specific targets that we are pursuing to re-energise the business.

Outlook

The Company is focussed on delivering on three principal objectives:

Strong balance sheet

• We will retain an appropriate balance that provides protection against outlook downside scenarios and maintain debt at a level that is appropriate for the cash generation of the business

Resilient cash generation

• Realising the full potential of our existing portfolio which includes delivering performance from the Tawke licence, an asset with a long and profitable life ahead of it, and where many opportunities for further investment exist, if conditions permit.
• Continuing to work with our peers, the Kurdistan Regional Government ('KRG') and the Federal Government of Iraq ('FGI') to support the resumption of international oil sales from the KRI

Investment in new cash flows

• Acquiring the right new assets to re-energise our portfolio and deliver diversified, increased, and more resilient cash generation that will enable us to re-establish a regular long-term dividend for our shareholders
• We are also focused on establishing the right conditions to support drilling the Toosan-1 exploration well in Somaliland

OPERATING REVIEW

Reserves and resources development

Genel's proven plus probable (2P) net working interest reserves totalled 82 MMbbls (31 December 2023: 89 MMbbls) at the end of 2024.

* Subject to final confirmation of Tawke PSC Reserves and Resources by the Operator

Production

Working interest average production of 19,650 bopd for the year, increased from 12,410 bopd in 2023.

All Genel production in 2024 came from the Tawke PSC and was sold into the domestic market at average $35/bbl (2023: $47/bbl).

PRODUCING ASSETS

Tawke PSC (25% working interest)

Gross production from the Tawke licence averaged 78,615 bopd in 2024 (2023: 46,280 bopd), a significant improvement that demonstrates the success in establishing consistent domestic market demand and the success of the asset to meet that demand. In 2024, the Tawke PSC generated over $70 million net cash flow for Genel, benefitting both from strong domestic sales, positive working capital movements and offsetting.

Despite drilling no new wells this year, gross production from the Tawke PSC has been maintained at consistent levels. This has been achieved by careful and diligent subsurface and operations management. Three wells that were drilled last year, but not completed due to the closure of the pipeline, were brought onstream mid-year to meet demand from domestic traders. Production performance was further supported by an active well intervention programme.

In partnership with DNO, Genel continues to be part of the first Associated Gas Injection (AGI) project in the Kurdistan Region of Iraq ('KRI'). Since its inception the project has saved approximately 2.3 million tonnes of CO2e from entering the atmosphere, with Tawke PSC carbon emissions below the industry average.

Taq Taq (44% working interest, joint operator)

We divested our 44% working interest in the Taq Taq production sharing contract to our joint venture partner. We have previously reported that Taq Taq had been on care and maintenance since May 2023 because the asset does not generate sufficient revenue at domestic sales prices to cover its operating costs. Furthermore, accessing the 10.3mmbbls of remaining net 2P reserves would require risking of further capital to drill new wells with uncertain outcomes - investment that ranks low on the Company's capital allocation priorities. The terms of the exit leave the Company with minimal residual financial obligations and potential liability exposures. The transaction is subject to Kurdistan Regional Government approval.

PRE-PRODUCTION ASSETS

Somaliland - SL10B13 (51% working interest, Operator)

We continued to work with stakeholders towards the complete framework required to support drilling the Toosan-1 exploration well. This included optimisation of the well plan to reduce cost and maximise efficiency of the well delivery process and consideration of the appropriate equity level at which to be undertaking this activity. In the meantime, our in-country team continued to work closely with our local communities. Genel's Mobile Medical Clinic project in Somaliland, which provided vital medical care for some of the poorest people in Africa, launched phase two of the project in July, with a further 17,000 cases treated to take the total cases treated to more than 35,000.

Somaliland - Odewayne (50% working interest, Operator)

We continued to work with our partners to characterise the prospectivity of the block, with subsurface studies ongoing. We also continued to invest in the local communities, and in February 2024 delivered educational supplies to 1,000 primary and secondary school students across the block.

Morocco (Lagzira block - 75% working interest, Operator)

On the Lagzira block (75% working interest and operator), we are continuing the farmout process, seeking partners to test the Banasa Prospect, high graded, having been de-risked by 2024 seismic reprocessing.

FINANCIAL REVIEW

2024 financial priorities

The table below summarises our progress against the 2024 financial priorities of the Company as set out in our 2023 results.

Outlook and financial priorities for 2025

The key principles of our financial focus remain largely unchanged.  We have a resilient business model that is designed to mitigate the impact of uncontrollable adverse events and maximise exposure to the upside. Ultimately, we seek to build a business that generates resilient, diverse and predictable cash flows that support resumption of distributions to shareholders.

Full report here.

(Source: Genel Energy)