Genel Energy Sees $1B in Impairments, Suffers $1.1B Loss

Genel Energy posted impairment costs of $1.03 billion in relation to the Taq Taq PSC in 2015, following revised assumptions on recoverable reserves at the field in the Kurdistan Region of Iraq.

Last month, Genel revealed that it would review its Taq Taq reservoir model following production declines during 2015. The results of this internal review found that proven and probable (2P) reserves from the field dropped to 356 million barrels of oil, from an initial estimate of 683 million barrels. As of December 31, 2015, the Taq Taq field had produced 184 million barrels gross. As a result, the remaining gross recoverable 2P reserves estimate as of December 31, 2015 is 172 million barrels of oil.

Genel stated February 29 that gross Taq Taq production will average around 80,000 barrels of oil per day in 2016, 65-75,000 bopd in 2017 and 50-70,000 bopd in 2018. In its latest financial statement, the company said that its production guidance for 2016, which encompasses both firm and contingent activity at the Taq Taq and Tawke fields, is 60-70,000 bopd. In 2015, Genel produced 84,900 bopd, which marked an increase of 22 percent compared to 2014.

The energy firm’s capital expenditure was $157 million in 2015, which was a reduction of 77 percent year on year. Genel’s capital expenditure guidance for the Kurdistan Region of Iraq in 2016 remains unchanged at $80-120 million. In 2015 the company posted revenues of $343 million and a loss, before tax, of $1.16 billion.

Commenting on the firm’s 2015 results, Genel Chief Executive Murat Özgül said in a company statement:

“We recognise and share the disappointment of the recent Taq Taq reserves update. Both Taq Taq and Tawke remain low-cost oil fields by any global benchmark. The fields are set to be significantly cash generative going forward, with a discretionary investment program aiming to maximise the value of the remaining reserves. Our 264 million barrels of net 2P reserves comprise a robust oil business well positioned in the current oil price environment.

“The instigation of the new payment mechanism by the KRG Ministry of Natural Resources in February 2016 provided clarity over the timing and quantum of our monthly receipts for export payments, recognising our receivable and putting in place the process through which it will be recovered.

We are now starting to make real progress in the development planning for our KRI gas business. It remains a unique opportunity underpinned by a government signed gas sales agreement.”

In the past, Genel, and other international oil companies operating in Kurdistan, have been subjected to a lack of payment over exported oil by the Kurdistan Regional Government. At the end of last year, this lack of payment was said to have resulted in dramatic combined CAPEX cut associated with the region among companies including Genel, DNO and Gulf Keystone.

In August 2015, the KRG’s Ministry of Natural Resources announced that the KRG would pay producing international oil companies a portion of the revenue from its direct crude oil sales, on a monthly basis, from September 2015 onwards. The government has so far kept this promise, paying Genel $148 in KRI cash proceeds during last year.


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