In the three months since its creation, the Anglo-Turkish independent, Genel Energy plc, has moved with "remarkable speed to build the foundations of what I believe will become a major regional oil and gas company," its chief executive Tony Hayward said Thursday.
Previewing a presentation he will make to capital markets this afternoon, Hayward said revenues from existing oil output were now sufficient to fund Genel's ongoing business in the Iraq Region of Kurdistan, including a significant expansion of production and an aggressive exploration drive aimed at adding up to 700 million barrels to the company's resource base.
"From our domestic sales alone we expect our Kurdistan operations to generate revenues of between $250 million and $300 million in the course of this year, with potential upside from exports," he said.
"Even with the threefold increase in investment we plan for 2012 which will take our capital spend to between $200 million and $250 million, current sales revenues are quite sufficient to fund our ongoing programs, including exploration, appraisal and development. We therefore intend to manage the business on a cash-neutral basis and preserve our $1.9 billion cash reserves for other opportunities in the Middle East and Africa."
Hayward told analysts and fund managers that the company has made "rapid progress" since its formation in November from the merger of Vallares and Genel International. In its first 90 days it had:
Hayward said Genel Energy's position as the biggest producer and a major player in a province estimated by the US Geological Survey to contain 40 billion barrels of oil resource and 100 trillion cubic feet of gas made it "a very solid platform indeed from which to pursue profitable growth".
"At a time when the industry is finding it increasingly difficult to attract investment capital we think our strong cash position will bring us attractive acquisition options. Our plan is to make one or more acquisitions and to participate in appropriate new license rounds. Where acquisitions are concerned, we have three objectives:
"We want to diversify our geographic footprint within the Middle East and Africa regions, we aim to extend the life of our exploration portfolio, and we intend to acquire new technical expertise and capability."
Hayward said the company's technical teams had reviewed more than a dozen investment options in the eastern Mediterranean and in Africa over recent months. "This is not a process we intend to rush," he said. "Our over-riding determination is to secure value for our investors, so we will screen those opportunities with the utmost rigor, and if we fail to find the right opportunities over the next few years, we will return the cash to our shareholders."
On the issue of political stability in the area, Hayward told investors that in the 20 years since it was established the semi-autonomous Kurdistan Region of Iraq had seen extraordinary progress. "Successive governments have focused on creating a secure and stable environment, with considerable success. For instance, there has not been a single terrorist incident in the Kurdistan Region since 2006.
"The democratically-elected government has established the rule of law and embraced the private sector with a minimum of bureaucracy and red tape. The results have been impressive, with GDP per capita up from $800 in 2003 to $4,500 in 2010.
"Foreign investment has been actively encouraged, with Turkey as the main trade partner. Turkish investment into Iraq in 2010 was some $10 billion, with $8 billion going to the Kurdistan region. In short, Kurdistan today enjoys a vibrant, dynamic and rapidly growing economy and is becoming closely integrated with Turkey both commercially and culturally."
The oil industry was at the heart of this economic progress, Hayward said. "Since Genel Energy was awarded the first exploration acreage in 2002, some 40 licenses have been awarded, initially to smaller, privately financed firms and then to mid-cap international companies. More recently, the first of the super-majors has arrived in the form of Exxon - with rumors of more to follow.
"The industry has enjoyed significant success, with cumulative gross discoveries of more than five billion barrels, and production has grown from 2,000 barrels a day in 2006 to 250,000 barrels a day today."
Hayward concluded: "As the region's biggest existing oil producer with a world-class exploration portfolio and the cash flow to fund our rapidly growing existing operations, I believe Genel Energy is in an enviable position. As an Anglo-Turkish champion we are well placed to benefit from Turkey's growing influence in the region and further afield, and with $1.9 billion of free cash available to invest in profitable opportunities, we look forward to an exciting future."
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