Full Year Results

RNS Number : 6386B

Genel Energy PLC

06 March 2014

 



  6 March 2014

Genel Energy plc (GENL)

Preliminary audited results for the year ended 31 December 2013

Genel Energy plc, the London listed exploration and production company and largest independent oil producer in the Kurdistan Region of Iraq, announces its preliminary audited results for the year ended 31 December 2013.

Results summary

	2013	2012
Revenue ($million)	347.9	333.4
Profit before tax ($million)	186.5	75.9
Cash flow from operating activities ($million)	311.3	307.0
Free cash flow1 ($million)	(252.6)	73.5
Net cash ($million)	699.7	1,001.3
EPS (cents per share)	66.24	27.18
Production (kbopd, working interest)	44.0	44.5

¹ Free cash flow is cash flow from operating activities less capital expenditure

Highlights

§	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)

Exploration update

§	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

Outlook

§	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

Commenting today Tony Hayward, chief executive, said:

"2013 was a transformational year for Genel Energy, with delivery on our strategy providing a material change in our business. We had success with all three exploration wells in the KRI and this, combined with positive appraisal results, increased proven, probable and contingent resources by 20% to 1.5 bnboe. Operational momentum was matched by political developments. The completion of the KRI oil pipeline has helped to create the platform for a 50% increase in production in 2014, with greater access to international pricing, while the signature of a gas sales agreement between the KRG and Turkish government provides the route to market for our very large KRI gas resource.

In Africa we have begun a high-impact exploration programme targeting over 900 mmboe of prospective resource this year, with the first well underway in Morocco and a further three to follow in Malta and Morocco. Each well has the potential to make a material impact on our already significant reserve and resource base.

The Company remains very well-funded with $700m of cash on the balance sheet, giving us significant financial firepower to invest in new upstream opportunities as and when they emerge."

Enquiries:

Genel Energy Julian Metherell, Chief Financial Officer Phil Corbett, Head of Investor Relations Andrew Benbow, Head of Public Relations

[phone]

Vigo Communications Patrick d'Ancona

[phone]

A presentation for analysts will be held at 0930 today at Linklaters, 1 Silk St, London EC2Y 8HQ. A live webcast of this presentation will be available via Genel Energy's website at www.genelenergy.com.  

Chairman's statement

I am pleased to welcome you to Genel Energy's third preliminary statement, detailing what has been a landmark year in our goal of becoming a major independent E&P company. We have seen significant growth in the business in 2013, unlocking value in our assets and boosting our operating capabilities, while never losing our focus on maintaining the highest standards of corporate governance and operational excellence.

UNLOCKING VALUE

2013 was an important year for Genel Energy. Positive political momentum in the Kurdistan Region of Iraq has continued to build, and as we move into 2014 we do so with the prospect of sustainable pipeline exports to international markets bringing in predictable revenues at international prices. As an Anglo-Turkish company with the leading asset position in the KRI, we are well positioned to capitalise on the solidifying relationship between Turkey and the KRI, providing a more stable operating environment - as evidenced by the signing of long-term energy supply agreements between the two governments.

The landmark Turkey-KRG Energy Agreement confirms that natural resources from Kurdistan will help provide energy hungry Turkey with the significant resources required to meet its energy needs. Turkey will take an initial 4 bcma of gas from the KRI, rising to 10 bcma, and potentially 20 bcma by the middle of the next decade. Over time, our Miran and Bina Bawi assets are set to meet 20% of Turkey's gas requirements, in turn unlocking value for our shareholders.

As political developments in the KRI help to confirm the route to long-term monetisation of our KRI reserves, in parallel we are now looking to unlock value from our African assets. As I write, exploration is under way in Morocco, and the Noble Paul Romano rig is set to begin an exciting two year exploration campaign with a well offshore Malta. Each well of the campaign has the potential to create material shareholder value.

BUILDING A MAJOR EXPLORATION AND PRODUCTION COMPANY

The growth of our business reflects the KRI's rapid emergence as not just a major oil producing region, but also as a very significant gas province. The completion of the Miran transaction in January 2013 gave us operatorship of the field, an asset which, when taken together with Bina Bawi, provides us with a world-class gas resource. As we have done in the KRI oil sector, we have established the leading gas resource position and we are now well placed to be at the forefront of building this into a major business in its own right.

Outside the KRI, we continue to construct a portfolio of high-impact African assets, with four wells set to be drilled in 2014.

As the business continues to move forward, we are mindful of growing our capabilities in line with our expansion. We continue to attract the highest calibre of personnel, and I am confident that the people we have in place driving Genel Energy forward are ideally qualified and skilled to help grow us into a major E&P force.

GOVERNANCE AND RISK

A key part of our strategy is looking to make material discoveries in areas underexplored due to perceived political or technical risk. With this risk comes challenges, and our chosen areas of operation require a deep understanding of regional issues. We carefully monitor risk across all operations, working with regional authorities and local communities in order to maintain a strong reputation locally while giving the highest priority to the safety of our staff and contractors.

We have strong, independent audit and remuneration committees to ensure that we meet the highest standards of corporate governance.  

RESPONSIBLE OPERATIONS

The way we do business is just as important as the business we do, and we measure our success on more than just the growth in our operational and financial key performance indicators. The development of positive and enduring relationships with the people and communities in the areas in which we operate is of key importance to Genel Energy. Indeed, positive regional relationships are vital to our ongoing growth as a business. In September, we were proud to launch our first Community Engagement and Investment Report. This is something on which we will build in the future.

CAPITALISING ON OUR OPPORTUNITIES

Because of the strength of our balance sheet and the cash generated through our KRI operations, we are well positioned to capitalise on the potential of our current portfolio. We will continue to evolve our capital structure to reflect the future financial requirements of the business.

Our extensive exploration programme offers the potential for near-term value creation, with the stability of our core KRI operations providing a bedrock for this growth. These are exciting times for Genel Energy, and I look forward to updating you on your company's further progress.

A joint statement from the Chief Executive Officer and President

2013 has been another successful year for Genel Energy. We continued to deliver our strategy and again grew our revenues and resources. In addition, the enormous potential of our world-class oil and gas portfolio has been further clarified by positive political momentum in the Kurdistan Region of Iraq. Beyond the KRI, we also commenced our high-impact African exploration drilling campaign.

DELIVERING ON OUR STRATEGY

Our strategy is composed of four pillars:

-       Maintain the highest level of corporate governance

-       Continue to create value with the drill bit

-       Maximise the potential of our KRI business on a broadly cash flow neutral basis

-       Maximise shareholder returns by monetising at all points in the exploration, development and production cycle

In 2013, we continued to take significant strides towards our goal of building a major independent E&P company. Working interest production in the year averaged 44,000 bopd and for the first time we received payments directly for oil exports made by truck through Turkey. This was a landmark event for both the Kurdistan Region of Iraq and Genel Energy, illustrating the political advances made between the KRI and Turkey over the year.

In line with our strategy we continued to develop further our KRI assets on a cash flow neutral basis, enabling us to deploy the capital on our balance sheet to expand our high-impact exploration portfolio in the Middle East and Africa. The strength of our balance sheet continues to give us a strong competitive advantage, and we are leveraging that advantage to enable us to create substantial value for our shareholders over the short, medium and long-term.

In 2013, appraisal success at Bina Bawi and Tawke added material resources. In addition, we enjoyed 100% exploration success with three out of three wells drilled finding resources: a new oil and gas discovery was made on the Chia Surkh field and there were further discoveries at both Ber Bahr and Tawke Deep. In total, our activities with the drill bit added over 270 mmboe of contingent resources. Our continuing programme of exploration and development, boosted by the significant potential in our African assets, provides exciting opportunities in 2014.

MOMENTUM IN THE KRI AND THE BUSINESS

Positive political developments this year between the KRI and Turkey have laid a clearer route to market for our resources, with operational progress on the ground helping us to take advantage of this. The signing of an Energy Framework Agreement between Turkey and the Kurdistan Regional Government has further enhanced the relationship between the two governments and led to the commencement of exports of KRI crude oil by truck to Ceyhan, on the Mediterranean coast in Turkey. From there, the crude is sold by the KRG on the international market. This resulted in the receipt of our first direct payment for oil exports.

Trucked exports from Taq Taq to international markets via Turkey commenced in January 2013 and steadily increased, with exports on individual days towards the end of the year totalling some 70,000 bopd. This was a landmark event, confirming that oil companies operating in the Kurdistan Region, including Genel Energy, can export crude to world markets and receive regular payments for these barrels.

The mechanical completion of the KRI-Turkey pipeline provides the foundation for a further step change in Genel Energy's scale and financial strength, and will allow a significant increase in our international exports once commissioning is complete. By removing trucks it will lower transportation cost and improve operational efficiency, providing a boost to revenue and cash flow. Although the pipeline may not reach capacity until the second half of the year, production - which averaged 44,000 bopd in 2013 - is expected to average 60-70,000 boepd in 2014 due to additional production capacity coming onstream, with the infrastructure to utilise this increased capacity.

The strengthening relationship between the KRG and their counterparts in Ankara is rapidly clarifying the route to market for our world-class resources, with the pipeline its clearest physical manifestation. Two key agreements this year clearly illustrate the political progress made in 2013: the wide-ranging energy agreement signed between the KRG and Government of Turkey in November, and a Gas Sales Agreement governing the export of natural gas from the KRI to Turkey - of particular importance for Genel Energy due to the steps we have taken in building a very material world-class gas business. The GSA calls for an initial 4 bcma of gas exports from 2017, rising to 10 bcma by 2020 and potentially 20 bcma by the middle of the next decade. This is a very significant milestone in the commercialisation of our gas resources, giving us access to one of the world's largest and fastest growing gas markets and positioning Miran and Bina Bawi as anchor suppliers to Turkey as the country continues to grow its energy requirements.

BUILDING A MAJOR E&P COMPANY

Operational progress

Significant operational progress was made on the ground in our KRI acreage. Successful exploration and appraisal drilling at Bina Bawi, Chia Surkh and Ber Bahr added to our contingent resources. The first two horizontal wells on the Tawke field, Tawke-20 and Tawke-23, were brought onstream at rates of 25,000 bopd and 32,500 bopd, materially exceeding expectations.

Net working interest production for 2013 averaged 44,000 bopd, in line with 2012, with gross Taq Taq production in 2013 averaging 77,000 bopd. Over the course of the year, exports from Taq Taq averaged around 20,000 bopd, with the remainder routed to domestic deliveries (including the Bazian refinery).

Capacity upgrades are currently being progressed at both Taq Taq and Tawke. The construction of the second central processing facility at Taq Taq is underway and is planned for completion and commissioning in the fourth quarter of 2014. This will raise production capacity from 120,000 bopd to 200,000 bopd. At Tawke, planning is underway to double the current processing capacity of 100,000 bopd by the end of 2014.

In parallel with the development of our oil assets, we continued with the development of our major gas resources in the Miran and Bina Bawi fields. A Declaration of Commerciality for the Miran field, which we estimate contains around 8 tcf of gross recoverable contingent and unrisked prospective resources, was approved by the Ministry of Natural Resources of the KRG in September 2013. In February 2014 the KRG exercised their right to back into 25% of the Miran licence. Discussions with the KRG are now underway to finalise a Gas Sales Offtake Agreement for the Miran field. In parallel, we continued to screen a number of development concepts, incorporating both export and domestic supply options.

In the KRI, we believe that the domestic gas market represents a significant opportunity for Genel Energy: the combination of growing demand, low cost projects and short lead times has the potential to deliver attractive returns. In recognition of this opportunity, in September 2013 with our partners on the Dohuk licence, we signed a Gas Sales and Purchase Agreement with the KRG to supply gas from the Summail field to a local power station - the first contract of its kind in the KRI.

A high-impact drilling campaign in Africa

Having built a highly prospective portfolio of assets in Africa, we are excited that drilling has now begun. In line with our strategy, we have a material position in each asset in our portfolio, offering us - and our shareholders - a significant opportunity. In total, we expect five high-impact well results in 2014, targeting 1.2 bnboe gross.

The first well in the Africa exploration programme spudded in early January 2014 on the Juby Maritime licence offshore Morocco, and exploration drilling offshore Malta is anticipated to start around the end of the first quarter of 2014. The Maltese well, on the Hagar Qim prospect, will be the first to utilise the Noble Paul Romano deepwater semi-submersible rig, which we have secured for a two year period.

This portfolio contains tremendous potential that we will look to build upon as we continue to seek acquisitions that fit our strict criteria. Each transaction that we execute is the result of careful screening and a robust internal process. Guiding all our decisions is the fact that we will not contemplate any transaction that could negatively impact the overall quality of our world-class portfolio.

In addition to the exciting prospects in our African portfolio, there still remains significant potential in our Kurdistan exploration portfolio, particularly the Miran Deep and Chia Surkh prospects.

Growing professional capacity

As our operations expand and progress, we are concurrently growing the operational and technical capacity of our workforce by securing the highest quality personnel to drive our business forward. Importantly, we have been able to secure people with senior-level experience at major companies, with a number of new senior management hires made in 2013.

As our exploration campaign ramps up in Africa, we have also added to the capabilities of our technical team. We have created a bespoke drilling team, providing us with the means to deliver on the potential of this asset base. Our subsurface function now has considerable relevant experience of the geology and regions in which we operate, analysing and ascertaining the best locations for our drill sites, maximising the potential for successful discoveries and creating value for shareholders.

Operating sustainably

Supporting and sustaining the communities in which we operate is fundamental to Genel Energy's success and our commitment to being a sustainable business. Our operations in the KRI are supported by an extensive community investment programme which aims to improve the lives of the communities with whom we work, working in partnership to identify and meet community needs.

One of our great strengths is our decade-long legacy of positive engagement with local communities in the KRI: over this time we have carried out more than 100 community investment projects focused on health, education and cultural activities. As we expand our presence in Africa, we will be informed by this experience. Reflecting our efforts to date, we issued our first Community Engagement and Investment Report in 2013, providing an overview of our past activities and plans for the future. It is available to read at www.genelenergy.com. In 2015, we will expand this report and issue it concurrently with our Annual Report.

OUTLOOK

2013 was a transformational year for Genel Energy, with the progress we have made across all aspects of our portfolio placing us in a very strong position as we commence 2014. In the near-term, we will see further progress in the development of our KRI asset base, with increased oil production and export volumes and in the development of our world-class gas assets.

The commencement of drilling on our African exploration portfolio heralds the start of another exciting phase of activity, success at any of our scheduled exploration wells in 2014 has the prospect of making a positive material impact on our already significant reserve and resource base. Looking further ahead, the strength of our balance sheet ideally positions us to capitalise on any value-accretive opportunities that meet our strict criteria.

Overall, 2014 is set to be another very exciting year for Genel Energy. 

Operating review

PRODUCTION

Net working interest production in 2013 averaged 44,000 bopd, slightly below the lower end of the Company's guidance range of 45,000 - 55,000 bopd. This was primarily as a result of lower than anticipated production in the fourth quarter of 2013. Two factors caused this effect. Taq Taq operated at a reduced rate through much of November and December following a fire at the field's tanker loading station. Full operating capability was restored towards end of 2013. At Tawke, volumes in the fourth quarter of 2013 were reduced relative to the previous quarter due to pricing sensitivity in the domestic market.

During the year, production from Taq Taq and Tawke was sold into both domestic and export markets. In early 2013, we received permission from the Kurdistan Regional Government to export crude oil from the Taq Taq field to international markets through Turkey. Although initial volumes were modest, exports ramped up over the course of the year and averaged approximately 20,000 bopd during 2013. It is expected that truck exports will continue during the commissioning of the new KRI export pipeline.

Production guidance for 2014 is set at 60 - 70,000 boepd, translating into a revenue guidance range of between $500-600 million.  Production volumes are expected to grow significantly year on year as the new KRI export pipeline comes into operation.

RESERVES

At 31 December 2013, Genel Energy's proven and probable (2P) working interest reserves were 453 mmboe (2012: 445 mmboe), a 2% increase year on year. This results in a reserves replacement ratio of 147% in 2013. Production from Taq Taq and Tawke of 15 mmbbls net was more than offset by the booking of reserves (21 mmboe net) at the Summail field following project sanction and an intra-year reserve upgrade at Tawke (2 mmbbls net).

Following strong growth in 2012, we saw a further increase in our contingent resource base in 2013. The Bina Bawi field saw a 70% upgrade in mean contingent resources due to the significant success at the Bina Bawi-4 & 5 appraisal wells. We estimate the Chia Surkh discovery holds gross contingent resource of 250 mmboe ahead of further exploration and appraisal activity. Overall, contingent resources increase from 810 mmboe at year-end 2012 to 1,088 mmboe at year-end 2013, an increase of 34%.

	Proven and Probable (2P) reserves (mmboe)1	Contingent resources          (mmboe)2	2P reserves and contingent resources (mmboe)
Start of 2013	445	810	1,255
Production	(15)	-	(15)
Net additions and revisions	23	278	301
End of 2013	453	1,088	1,541

1.     Proven and probable 2P reserves at Taq Taq and Tawke are based on independent reserve reports. Proven and probable 2P reserves at Summail are based on operator estimates.

2.     Contingent resources are based on both Genel Energy's estimates and independent reserve reports

KRI OIL ASSETS

Taq Taq (44% working interest, joint operator)

The Taq Taq field produced an average of 77,000 bopd in 2013, compared to 75,500 bopd in 2012. Trucked exports to international markets via Turkey commenced in January 2013 and steadily increased over the year, and on certain days in the second half of 2014 reached approximately 70,000 bopd. Over the course of the year exports averaged 20,000 bopd. The remainder of production was sold into the local market. Domestic market demand for Taq Taq crude remains robust. However, sales were impacted in the fourth quarter of 2013 by a fire at the tanker loading station. As a consequence the facility operated at a reduced rate through much of November and December. Full operating capability was restored towards the end of the year.

Processing capacity currently stands at 120,000 bopd, with a total wellhead production capacity in excess of 150,000 bopd. Upgrades to expand the tanker loading station were recently completed, raising capacity from 120,000 bopd to 150,000 bopd. The 2014 activity plan envisages the drilling of four further production wells, including a highly deviated well and the first horizontal well in the field. Construction of the second central processing facility is progressing and is targeted for completion in the fourth quarter of 2014, at which point processing capacity will increase to 200,000 bopd.

The Taq Taq Deep well, targeting Jurassic and Triassic intervals beneath the main producing Cretaceous oil reservoirs in the field, is drilling ahead. The well reached a depth of 4,600 metres in early February and has encountered around 300 metres of gas and condensate shows in the Jurassic. Unfortunately, mechanical difficulties necessitated pulling back to 4,100 metres and side-tracking to drill onto the deeper Triassic targets. The well is currently at 4,500 metres, and the forward plan is to drill to a maximum target depth of 5,400 metres. A testing programme is planned after drilling operations finish.

KRI pipeline infrastructure

During 2013, the KRG completed the construction of its export pipeline infrastructure, giving it a route to export its oil production to world markets. The first section, a 20-inch diameter pipeline from the Taq Taq field to Khurmala, became operational in the first half of 2013. This section has initial capacity of 150,000 bopd, with the potential to increase to 200,000 bopd. The second section, from Khurmala to Dohuk, involved the conversion of a 36-inch pipeline which originally was intended to be a gas pipeline. The final section, from Dohuk to the KRI border with Turkey, was completed in the third quarter of 2013. This was tied into the existing 40-inch section of the Iraq-Turkey pipeline through a new metering station within KRI territory. Commissioning work has been progressing since the fourth quarter of 2013. This process has identified the need for an upgrade to pumping stations in KRI territory. These works are expected to be completed in time to allow for full commissioning of the pipeline infrastructure during the second half of 2014.

In January 2014, the KRG announced that initial quantities of crude oil from the Tawke field had flowed through the pipeline system and arrived into storage at the port of Ceyhan on Turkey's Mediterranean coast.

Tawke (25% working interest)

The Tawke field produced an average of 39,000 bopd in 2013, compared to 45,000 bopd in 2012. Production was reduced year on year as export markets remained closed and domestic market demand decreased due to pricing sensitivity.

During the year, the first two horizontal development wells were drilled on the field with outstanding results. In July, it was announced that the Tawke-20 well flowed at an average of 8,000 bopd from each of the ten fracture corridors intersected by the well. It was subsequently brought onstream at a record rate for the field of 25,000 bopd. The second horizontal well in the programme, Tawke-23, flowed at an average rate of 9,000 bopd from ten separate fracture corridors intersected by the well. It was subsequently brought onstream at 32,500 bopd, another record. Drilling operations on the third and fourth wells in the programme, Tawke-21 and Tawke-22, are progressing with results expected towards the end of the first quarter.

At end 2013, the Tawke field had wellhead production capacity of 155,000 bopd. Current processing capacity stands at 100,000 bopd, with this level being successfully tested over a 72-hour period in May 2013. Surface processing capacity is planned to increase to 200,000 bopd by year end 2014 through the utilisation of early production facilities. Success in the 2014 horizontal drilling programme could lead to further increases in processing capacity going forward. To facilitate the higher volumes, a new 24-inch pipeline is planned from the field to the Tawke partners' Fishkabur export facility. The Tawke partners also plan further drilling on the Peshkabir discovery during 2014, which will appraise the discovered resource and test upside potential.

In June 2013, it was announced that the Tawke-17 (Tawke Deep) well tested 1,500 bopd of 26-28 degree API crude from an Upper Jurassic reservoir underlying the main producing Cretaceous horizons in the field. Further data acquisition and analysis of the Tawke Jurassic discovery is planned in 2014 ahead of spudding the Tawke-29 Jurassic appraisal well in the third quarter.

KRI GAS ASSETS

In November 2013, the Government of Turkey and the KRG signed a Gas Sales Agreement governing the export of natural gas from the KRI to Turkey. The GSA calls for an initial 4 bcma of gas exports from 2017, rising to 10 bcma by 2020 and the option of increasing to 20 bcma thereafter. Miran and Bina Bawi will be anchor suppliers under the GSA - a significant milestone in the commercialisation of the major gas resource in both fields.

Miran (75% working interest, operator)

Genel Energy has a 75% interest in the Miran discovery, which is one of the largest undeveloped gas discoveries in the KRI. The field has independently audited mean contingent resources of 3.5 tcf of gas and 95 mmbbls of oil and condensate. On 1 September 2013, the KRG approved the Declaration of Commerciality for the Miran field. On 23 February 2014, the KRG notified the Company of its intention to exercise its option to take a 25% interest in the Miran PSC, thereby reducing Genel Energy's interest from 100% to 75%.

Building on the success of the Turkey-KRG GSA, discussions with the KRG have commenced with the aim of finalising a Gas Sales Offtake Agreement for the Miran field in the second half of 2014. In parallel, we continue to screen a number of development concepts, incorporating both domestic and export supply options.  

The Miran West-5 (MW-5) appraisal well was spudded on 4 July 2013 but mechanical difficulties resulted in the well being suspended. A decision was made to swap rigs before recommencing drilling, and results from the MW-5 well are now expected in the third quarter of 2014, to be followed by an extended well test.

The primary gas bearing reservoir in the Miran discovery is the Jurassic. Technical work has established the potential for deeper gas bearing zones in the Triassic and Permian in a separate structure. These targets comprise the Miran Deep prospect which is expected to be drilled in 2015.

An Extended Well Test on the oil bearing lower Cretaceous reservoirs was commissioned in early 2013, with the Miran-1 well flowing at rates over 4,000 bopd. Given this encouragement, an Early Production Facility (EPF) was sanctioned and commissioned in August 2013, producing at 500-1,500 bopd. The EPF is to be suspended in the first quarter of 2014 in preparation for drilling the first horizontal development well into the Miran oil reservoir. Spud is expected around mid-year 2014, and the results of this well will be important in shaping future oil development on the licence.

Bina Bawi (44% working interest)

Genel Energy has a 44% non-operated stake in the Bina Bawi licence, which lies immediately northwest of the Taq Taq licence. A Declaration of Commerciality was submitted to the Ministry of Natural Resources of the KRG in March. An extended well test on the Bina Bawi-3 well commenced production in March 2013.

In 2013, two very successful appraisal wells were completed which led to a significant upgrade in contingent resources. The Bina Bawi-4 well reached a target depth of 4,700 metres, while Bina Bawi-5 reached target depth at 3,400 metres. An extensive testing programme on both wells was completed in the second quarter of 2013. Testing has confirmed a continuous, hydraulically connected gas column in excess of 1,100 metres in both wells. The top of the Triassic Kurra Chine formation is 400 metres down-dip from the crest of the Bina Bawi structure, as tested by the Bina Bawi-3 well. In total, this confirms a minimum gas column of at least 1,500 metres on the structure. There is the potential for up to an additional 500 metres of hydrocarbon column, below the basal test in Bina Bawi-4 down to the structural spill point.

The Drill Stem Tests (DST) were completed over the full extent of the drilled Triassic interval, including the Geli Khana and across the entire Kurra Chine section. Observed productivity has been high over perforated zones of 30 to 60 metres. Across the Kurra Chine, rates of around 20 million standard cubic feet per day (mmscfd) were recorded in the three separate zones with the highest achieved rates limited by tubing and surface test equipment. Cumulative production across the Kurra Chine sections was 60 mmscfd. In the Geli Khana, a non-acidised stabilised flow rate of 10 mmscfd was achieved. 

A Competent Person's Report commissioned from RPS Energy estimates gross mean contingent gas resource for Bina Bawi at 4.9 tcf, confirming the world-class scale of the field. Management believes that, when combined with Miran, Bina Bawi is well placed to anchor the 10 bcma of export volumes from the KRI to Turkey by 2020, as envisaged in the GSA signed between Turkey and the KRG in November 2013.

Dohuk (40% working interest)

Genel Energy has a 40% non-operated interest in the Dohuk licence. The Summail discovery, made in 2011, contains gas in Cretaceous aged reservoirs and heavy oil in Jurassic aged reservoirs. In September 2013, the Dohuk licence partners signed a Gas Sales and Purchase Agreement (GSPA) with the KRG to supply gas from the Summail field to a local power station.

The field development envisages the completion of the Summail-1 well as a producer as well as the drilling of up to three further production wells. A gas processing facility will also be installed at the field and a pipeline will be constructed to deliver gas to the nearby Dohuk power station. Initial deliveries will be 30 to 50 mmscfd, increasing towards 100 to 120 mmscfd as new wells are drilled and additional facilities are installed. First gas from the Summail-1 well is targeted for the first quarter of 2014.

At year-end 2013, Genel Energy booked its share of the 2P reserves associated with the Summail GSPA, which amounted to 21 mmboe.

KRI EXPLORATION AND APPRAISAL

Chia Surkh (60% working interest, operator)

Genel Energy has a 60% operated interest in the Chia Surkh licence, which is located in the southeast of the KRI. The Chia Surkh 10 exploration well was spudded in October 2012 and was announced as a significant discovery in April 2013. The well was drilled to a depth of 1,696 metres in the Oligo-Miocene section, and on test, flowed at up to 11,950 bopd of 41 degree API and 15 mmscfd of gas. A second DST was carried out in the Miocene, and flowed at sustained rates of 3,200 bopd of 38 degree API oil and 8.4 mmscfd of gas. CS 10 has been suspended as a future producer.

The Chia Surkh discovery was appraised by the CS-11 well, which was drilled 3km to the northwest of CS-10 and 85 metres down-dip on the structure. It penetrated a gross hydrocarbon column of 170 metres in Miocene and Oligocene aged reservoirs. The Miocene Jeribe formation previously tested in CS-10 flowed at a cumulative rate of 3,550 bpd of 50 degree API oil and 21 mmscfd of gas from two zones. Deeper Miocene and Oligocene formations not penetrated in the CS-10 well flowed at a combined rate of 3,660 bpd of light oil and 25 mmscfd of gas.

Based on current data and ahead of further exploration and appraisal activity, gross contingent resource on the Chia Surkh structure is estimated at 250 mmboe. The acquisition of 300km² of new 3D seismic over the Chia Surkh licence has recently been completed and is being processed. One appraisal well is planned on the greater Chia Surkh structure in 2014. Further E&A activity, including a potential exploration well on the Qalami structure, is planned for 2015.

Ber Bahr

During 2012, the Ber Bahr-1 well made an oil discovery in Jurassic aged reservoirs, although two drill stem tests over the interval failed to flow. The well was successfully side-tracked in the first half of 2013 and tested 2,100 bpd of 15 degree API oil from the Jurassic Sargelu formation. A 3D seismic survey is planned for completion by mid-year 2014. Ber Bahr-2, an appraisal well, is planned to spud in the fourth quarter of 2014.

AFRICA

Morocco

Genel Energy's acreage position offshore Morocco consists of three licences, Juby Maritime, Sidi Moussa and Mir Left, spanning some 16,500km². Exploration activity to date has focused on the potential for oil accumulations in Jurassic aged carbonates, although a deeper pre-salt play in the Triassic is also under evaluation. In total, around 1,940km² of 3D seismic has been acquired across the Morocco licence position ahead of the drilling campaign.

In January 2014, the partners on the Juby Maritime licence spudded the JM-1 well, which is targeting the Cap Juby prospect. The well is currently at 3,100 metres, with 600 metres left to drill to the prognosed Middle Jurassic primary target. In the Upper Jurassic, the well has confirmed the presence of oil as originally tested in the 1968 MO-2 well, some 2km from the JM-1 well location.

Exploration wells are planned on both the Sidi Moussa and Mir Left licences during 2014 using the Noble Paul Romano semi-submersible rig. On the Sidi Moussa licence, the most likely target is the Nour prospect. On Mir Left, prospect maturation is currently ongoing.

Malta

Genel Energy has a 75% operated stake in the Area 4 licence where we and our partner are initially targeting the potential extension of the proven Tertiary play offshore Tunisia into Maltese waters. We plan to commence drilling a well on the Hagar Qim prospect around the end of the first quarter of 2014. A deeper Cretaceous play is also thought to exist, which could be the northern extension of the prolific Sirte basin onshore Libya. Further analysis of reprocessed seismic is planned for 2014 to assess the prospectivity in sub-Tertiary intervals. 

Somaliland

The position onshore Somaliland comprises material stakes in two licences, Odewayne and SL-10B/SL-13. Together, they span some 40,000km², an area as large as the whole Kurdistan Region of Iraq. Work during the year focused on preparation for a 2D seismic survey which was scheduled to commence in the third quarter. However, operations were suspended in September due to a deteriorating security environment. Discussions continue with the Somaliland Government in order to facilitate a resumption of activity.

Ethiopia

In August 2013 we announced the acquisition of a 40% working interest in the Adigala permit onshore Ethiopia. Government approval was received in February 2014 and completion of the transaction is anticipated in March 2014. The block covers an area of some 20,400km² and previous work has provided evidence that all the elements of a working petroleum system exist. A 2D seismic survey is planned to commence in the second quarter of 2014 in order to refine a number of existing leads into drill ready prospects.   

Côte d'Ivoire

Further seismic interpretation, geological and geophysical studies are planned during 2014 on the CI-508 licence. We expect a prospect to be matured during 2014, with a well to be drilled by mid-2015.

Finance director's review

Results summary

	2013	2012
Revenue ($million)	347.9	333.4
Operating profit ($million)	183.5	60.3
Profit before tax ($million)	186.5	75.9
EPS (cents)	66.24	27.18
Cash flow from operating activities ($million)	311.3	307.0
Capex ($million)	563.9	233.5
Free cash flow1 ($million)	(252.6)	73.5
Net cash ($million)	699.7	1,001.3
Net assets ($million)	4,104.2	3,920.1

¹ Free cash flow is cash flow from operating activities less capital expenditure

Results for the period

In 2013, the Group reported revenue of $347.9 million (2012: $333.4 million), an operating profit of $183.5 million (2012: $60.3 million) and earnings per share of 66.24 cents (2012: 27.18 cents). Free cash flow for the period was an outflow of $252.6 million compared to an inflow of $73.5 million in 2012.

Revenue

Revenue of $347.9 million (2012: $333.4 million) is comprised primarily of petroleum sales in the Kurdistan Region of Iraq with full entitlement received for sales made to domestic customers and to the KRG.

Operating costs

Cost of sales of $140.7 million (2012: $208.4 million) includes depreciation charges of $94.4 million (2012: $168.4 million) and production costs of $46.3 million (2012: $40.0 million). The basis of the depreciation charge was changed during the year in order to depreciate the cost of assets based on physical production volumes rather than derive depreciation from revenue. Had the basis remained the same as prior years, the charge for the first half would have been $137.3 million higher at $231.7 million (see note 2 and 20 in the notes to the condensed consolidated financial statements for further details).

An exploration credit of $3.1 million for the year (2012: expense of $29.7 million) represents the reversal of a $22.2 million provision for impairment made in 2012 following encouraging results for the sidetrack work on the Ber Bahr licence, offset by $19.1 million of exploration costs following the suspension of activities in Somaliland.

Other operating costs amounted to $26.8 million (2012: $35.0 million) for the period and included $6.2 million (2012: $13.3 million) of costs relating to acquisitions and pre-licence activity, with the remaining $20.6 million (2012: $21.7 million) classified as general administration costs.

Finance income

Finance income of $3.0 million (2012: $15.6 million) represents principally interest income received on cash and loan balances.

Taxation

All corporation tax due has been paid on behalf of the Group by the KRG from the KRG's own share of revenues and there is no tax payment required or expected to be made by the Group other than some small amounts paid in respect of the Group's service companies in Turkey and the UK.

Dividend

In line with the Group strategy to deploy cash to acquire and develop high-quality assets, no dividend (2012: nil) will be paid for the year ended 31 December 2013.

Capital expenditure

Capital expenditure in the year amounted to $563.9 million (2012: $233.5 million). Exploration spend in KRI amounted to $348.4 million (2012: $143.1 million) with a further $128.1 million (2012: $73.7 million) incurred on the development of existing producing assets in KRI. Capital expenditure in Africa amounted to $82.1 million (2012: $12.0 million).

Cash flow

Net cash flow from operations amounted to $311.3 million (2012: $307.0 million), which together with capex spend of $563.9 million (2012: $233.5 million) resulted in a free cash outflow of $252.6 million (2012: $73.5 million inflow). Acquisition spend was $43.0 million (2012: $984.0 million) and the purchase of shares for employee share plans amounted to $6.0 million (2012: $1.2 million) leaving a net cash outflow of $301.6 million (2012: $911.6 million). The net cash balance at the end of the year was $699.7 million (2012: $1,001.3 million).

Net cash

At 31 December 2013, the Group had a cash balance of $699.7 million (2012: $1,001.3 million).

Acquisitions

The Group spent a total of $43.0 million on acquisitions in the year, $30.0 million of which represented the previously announced payment to the KRG in respect of the Miran transaction, which completed on 23 January 2013. In February the Company acquired a 75% stake in a block offshore Malta through the acquisition of 75% of the share capital of Phoenicia Energy Company Limited for $11.7 million. In March the Group acquired a 60% working interest in the Sidi Moussa licence in Morocco for $1.3 million.

Net assets

Net assets at 31 December 2013 amounted to $4,104.2 million (2012: $3,920.1 million) and consist primarily of oil and gas assets of $1,998.4 million (2012: $1,928.7 million), exploration and evaluation assets of $1,630.9 million (2012: $1,171.2 million) and cash of $699.7 million (2012: $1,001.3 million)

Liquidity / counterparty risk management

The Group monitors its cash position, cash forecasts and liquidity on a regular basis. The Group takes a conservative approach to cash management, with surplus cash held in government gilts or treasury bills or on time deposits with a number of major financial institutions.   Suitability of banks is assessed using a combination of sovereign risk, credit default swap pricing and credit rating.  

Going Concern

The directors have assessed that the cash balance held provides the Group with adequate headroom over forecast operational and potential acquisition expenditure for the 12 months following the signing of the Annual Report for the period ended 31 December 2013 for the Group to be considered a going concern.

Accounting policies

UK listed companies are required to comply with the European regulation to report consolidated statements that conform to International Financial Reporting Standards (IFRS) as adopted by the European Union. Principal accounting policies adopted by the Group and applicable for the period ended 31 December 2013 can be found in the 2012 Annual Report. No new accounting policies were implemented in the current year

Disclaimer

This announcement 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.

Condensed consolidated statement of comprehensive income

For the period ended 31 December

	Notes	2013	2012
		$m	$m
Revenue	1	347.9	333.4
Cost of sales	2	(140.7)	(208.4)
Gross profit		207.2	125.0
Exploration credit / (expense)	3	3.1	(29.7)
Other operating costs	4	(26.8)	(35.0)
Operating profit		183.5	60.3
Finance income	5	3.0	15.6
Profit before income tax		186.5	75.9
Income tax expense	6	(0.9)	-
Profit for the period		185.6	75.9
Other comprehensive items		-	-
Total comprehensive income for the period		185.6	75.9
Attributable to:
Equity holders of the Company		185.6	75.9
		185.6	75.9
Earnings per ordinary share attributable to the ordinary equity holders of the Company
Basic earnings per share - cents per share	7	66.24	27.18
Diluted earnings  per share - cents per share	7	65.70	27.14

Condensed consolidated balance sheet

At 31 December

	Notes	2013	2012
		$m	$m
Assets
Non-current assets
Intangible assets	8	1,633.9	1,172.7
Property, plant and equipment	9	2,003.2	1,932.8
		3,637.1	3,105.5
Current assets
Inventories	10	-	0.1
Trade and other receivables	11	15.8	49.1
Cash and cash equivalents	12	699.7	1,001.3
		715.5	1,050.5
Total Assets		4,352.6	4,156.0
Liabilities
Non-current liabilities
Trade and other payables	13	(5.0)	(5.0)
Deferred income	14	(53.5)	(61.6)
Provisions	15	(16.9)	(13.2)
		(75.4)	(79.8)
Current liabilities
Trade and other payables	13	(164.3)	(149.0)
Deferred income	14	(8.7)	(7.1)
		(173.0)	(156.1)
Total liabilities		(248.4)	(235.9)
Net assets		4,104.2	3,920.1
Owners of the parent
Share capital	16	43.8	43.8
Share premium account		4,074.2	4,074.2
Retained earnings		(21.6)	(205.7)
Total shareholders' equity		4,096.4	3,912.3
Non-controlling interest		7.8	7.8
Total equity		4,104.2	3,920.1

Condensed consolidated statement of changes in equity

For the period ended 31 December

	Share capital	Share premium	Retained earnings	Total attributable to equity holders	Non-controlling interest	Total equity
	$m	$m	$m	$m	$m	$m
At 1 January  2013	43.8	4,074.2	(205.7)	3,912.3	7.8	3,920.1
Comprehensive income for the period	-	-	185.6	185.6	-	185.6
Transactions with shareholders:
Share-based payment transactions	-	-	4.5	4.5	-	4.5
Purchase of own shares for ESOP1	-	-	(6.0)	(6.0)	-	(6.0)
At 31 December 2013	43.8	4,074.2	(21.6)	4,096.4	7.8	4,104.2
At 1 January  2012	40.9	3,824.2	(54.6)	3,810.5	31.3	3,841.8
Comprehensive income for the period	-	-	75.9	75.9	-	75.9
Transactions with shareholders:
Issue of Founder Shares	2.9	250.0	(229.4)	23.5	(23.5)	-
Share-based payment transactions	-	-	3.6	3.6	-	3.6
Purchase of own shares for ESOP1	-	-	(1.2)	(1.2)	-	(1.2)
At 31 December 2012	43.8	4,074.2	(205.7)	3,912.3	7.8	3,920.1

1.   Purchase of shares in the open market to satisfy the Company's commitments under various employee share plans.

Condensed consolidated cash flow statement

For the period ended 31 December

	Notes	2013	2012
		$m	$m
Cash flows from operating activities
Cash generated from operations	17	305.4	293.9
Interest received		6.6	13.1
Taxation paid		(0.7)	-
Net cash from operating activities		311.3	307.0
Cash flows from investing activities
Purchase of property, plant and equipment		(130.8)	(76.6)
Purchase of intangible assets		(433.1)	(156.9)
Acquisition of subsidiary net of cash	18	(43.0)	(984.0)
Net cash from investing activities		(606.9)	(1,217.5)
Cash flows from financing activities
Net proceeds from the issue of share capital		-	0.1
Purchase of ESOP shares		(6.0)	(1.2)
Net cash from financing activities		(6.0)	(1.1)
Net decrease in cash and cash equivalents		(301.6)	(911.6)
Cash and cash equivalents at the 1 January		1,001.3	1,912.9
Cash and cash equivalents at 31 December	12	699.7	1,001.3

 

 

Notes to the condensed financial statements

 

1. Segmental information

The Group has two reportable business segments, which are its oil and gas exploration and production business in the KRI and its oil and gas exploration business in Africa. Capital expenditure decisions for the Kurdistan segment are considered in the context of the cash flows expected from the production and sale of crude oil. Capital expenditure for the Africa segment is considered in the context of the available cash of the Group.

 
Finance income is not considered part of a business segment and forms part of the reconciliation to the reported numbers.

For the period ended 31 December 2013

	Kurdistan	Africa	Other	Total Reported
	$m	$m	$m	$m
Revenue	347.9	-	-	347.9
Cost of sales	(140.7)	-	-	(140.7)
Gross profit	207.2	-	-	207.2
Exploration credit / (expense)	22.2	(19.1)	-	3.1
Other operating costs	0.2	-	(27.0)	(26.8)
Operating profit	229.6	(19.1)	(27.0)	183.5
Finance income				3.0
Profit before tax				186.5
Capital expenditure	476.5	82.1	5.3	563.9
Total assets	3,586.6	149.4	616.6	4,352.6
Total liabilities	(209.2)	(27.5)	(11.7)	(248.4)

Other represents non segmental items related to head office activities. Other assets are predominantly cash balances.

For the period ended 31 December 2012

	Kurdistan	Africa	Other	Total Reported
	$m	$m	$m	$m
Revenue	333.4	-	-	333.4
Cost of sales	(208.4)	-	-	(208.4)
Gross profit	125.0	-	-	125.0
Exploration expense	(29.7)	-	-	(29.7)
Other operating costs	(1.6)	-	(33.4)	(35.0)
Operating profit	93.7	-	(33.4)	60.3
Finance income				15.6
Profit before tax				75.9
Capital expenditure	216.8	12.0	4.7	233.5
Total assets	3,292.0	53.1	810.9	4,156.0
Total liabilities	(217.1)	(11.0)	(7.8)	(235.9)

Other represents non segmental items related to head office activities. Other assets are predominantly cash balances.

2. Cost of sales

	2013	2012
	$m	$m
Depreciation and amortisation of oil and gas assets	94.4	168.4
Production costs	46.3	40.0
	140.7	208.4

The basis of the depreciation charge for oil and gas assets was changed in 2013. The Group continues to use the unit of production method but now uses the Group's share of actual production as the basis of depreciation rather than an estimate of the Group's share of production from revenue entitlement.  Had the basis remained the same as used in prior years, the depreciation charge for the period would have been $137.3 million higher at $231.7 million.

3. Exploration expense

	2013	2012
	$m	$m
Provision for impairment of Ber Bahr licence	(22.2)	22.2
Exploration costs	19.1	7.5
	(3.1)	29.7

A provision for impairment made in 2012 in respect of the Ber Bahr licence was reversed in 2013 following encouraging results for sidetrack work.

4. Other operating costs

	2013	2012
	$m	$m
Activity:
Acquisition activity and pre licence exploration costs	6.2	13.3
General and other costs	20.6	21.7
	26.8	35.0
Nature:
Employee emoluments	66.1	35.3
Directors' fees	6.5	6.4
Share-based payment charge	4.5	3.6
Audit fees	0.4	0.4
Operating lease rentals	5.8	4.7
Depreciation and amortisation of other assets	3.1	1.1
Recharges and amounts capitalised to exploration and oil & gas assets	(68.5)	(28.9)
Other expenses	8.9	12.4
	26.8	35.0

5. Finance income 

	2013	2012
	$m	$m
Interest received on bank deposits	3.5	7.8
Interest on other loans	-	8.5
Interest unwind on provisions	(0.5)	(0.7)
	3.0	15.6

 

6. Taxation

A taxation charge of $0.9 million (2012: nil) was made in the Turkish and UK services companies.  All other corporation tax due has been paid on behalf of the Group by the government from the government's share of revenues and there is no tax payment required or expected to be made by the Group.

 

7. Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the period.

	2013	2012
Profit  for the period attributable to equity holders of the Company - $ million	185.6	75.9
Weighted average number of ordinary shares - number	280,248,198	279,117,179
Basic earnings per share - cents per share	66.24	27.18

Diluted

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to include all potential dilutive ordinary shares. The Group has four types of potential dilutive ordinary shares:

-  Shares granted to directors and employees under the performance share plan, to the extent that performance conditions have been met at the period end;

-  Share options granted to employees under the share option plan, where the exercise price is less than the average market price of the Company's ordinary shares during the period

-  Shares issued to employees under the restricted share plan

-  Shares and securities issued to the founders of the Company, to the extent that performance conditions have been met at the period end.

	2013	2012
Profit for the period attributable to equity holders of the Company - $ million	185.6	75.9
Weighted average number of ordinary shares - number	280,248,198	279,117,179
Adjustment for performance shares, restricted shares, share options and founder shares and securities  - number	2,328,856	447,253
Weighted average number of ordinary shares for diluted earnings per share - number	282,577,054	279,564,432
Diluted earnings per share - cents per share	65.70	27.14

 

8. Intangible assets

	Exploration and evaluation assets	Miran Acquisition	Other assets	Total
	$m	$m	$m	$m
Cost
At 1 January 2013	720.8	472.6	1.9	1,195.3
Acquisitions	43.0	-	-	43.0
Transfer	472.6	(472.6)	-	-
Transfer to property, plant and equipment (note 9)	(36.0)			(36.0)
Additions	430.5	-	2.6	433.1
Balance at 31 December 2013	1,630.9	-	4.5	1,635.4
Depreciation and impairment
At 1 January 2013	22.2	-	0.4	22.6
Depreciation charge for the period	-	-	1.1	1.1
Provision for write-off of exploration costs (see note 3)	(22.2)	-	-	(22.2)
At 31 December 2013	-	-	1.5	1.5
Net book value
At 1 January 2013	698.6	472.6	1.5	1,172.7
At 31 December 2013	1,630.9	-	3.0	1.633.9
Cost
At 1 January 2012	227.6	-	0.1	227.7
Acquisitions	532.1	463.0	-	995.1
Additions	145.5	9.6	1.8	156.9
Transfer to property, plant and equipment (see note 9)	(176.9)	-	-	(176.9)
Write-off of exploration costs (see note 3)	(7.5)	-	-	(7.5)
Balance at 31 December 2012	720.8	472.6	1.9	1,195.3
Depreciation and impairment
At 1 January 2012	-	-	-	-
Depreciation charge for the period	-	-	0.4	0.4
Provision for write-off of exploration costs (see note 3)	22.2	-	-	22.2
At 31 December 2012	22.2	-	0.4	22.6
Net book value
At 1 January 2012	227.6	-	0.1	227.7
At 31 December 2012	698.6	472.6	1.5	1,172.7

Exploration and evaluation assets are comprised of the Group's PSC interests in exploration assets in the Kurdistan Region of Iraq and Africa. Exploration and evaluation assets are not amortised but are assessed for impairment indicators under IFRS 6.

During the period, the Dohuk field was established as commercially viable and $36.0 million of exploration costs were transferred to property, plant and equipment. 

The net book value of $3.0 million (2012: $1.5 million) of other assets is principally software.

9. Property, plant and equipment

	Oil and gas assets	Other assets	Total
	$m	$m	$m
Cost
At 1 January 2013	2,115.4	5.1	2,120.5
Additions	128.1	2.7	130.8
Transfer from intangible assets (see note 8)	36.0	-	36.0
At 31 December 2013	2,279.5	7.8	2,287.3
Depreciation and impairment
At 1 January 2013	186.7	1.0	187.7
Depreciation charge for the period	94.4	2.0	96.4
At 31 December 2013	281.1	3.0	284.1
Net book value
At 1 January 2013	1,928.7	4.1	1,932.8
At 31 December 2013	1,998.4	4.8	2,003.2
Cost
At 1 January 2012	1,859.3	7.7	1,867.0
Additions	73.7	2.9	76.6
Transfer from intangible assets (see note 8)	176.9	-	176.9
Reclassified	5.5	(5.5)	-
At 31 December 2012	2,115.4	5.1	2,120.5
Depreciation and impairment
At 1 January 2012	18.3	0.3	18.6
Depreciation charge for the period	168.4	0.7	169.1
At 31 December 2012	186.7	1.0	187.7
Net book value
At 1 January 2012	1,841.0	7.4	1,848.4
At 31 December 2012	1,928.7	4.1	1,932.8

Oil and gas assets comprise principally the Group's share of interests in the Taq Taq and Tawke producing fields in the Kurdistan Region of Iraq.  Other assets include leasehold improvements, office furniture and motor vehicles.

During the period, the Dohuk field was established as commercially viable and $36.0 million of exploration costs were transferred from exploration assets. 

10. Inventories

	2013	2012
	$m	$m
Crude oil inventory	-	0.1
	-	0.1

11. Trade and other receivables

	2013	2012
	$m	$m
Trade receivables	0.4	28.2
Other receivables	4.0	4.7
Prepayments	11.4	16.2
	15.8	49.1

 

 

12. Cash and cash equivalents

	2013	2012
	$m	$m
Cash and cash equivalents	699.7	1,001.3
	699.7	1,001.3

The above amounts are primarily held in government gilts or treasury bills or on time deposits with a number of major financial institutions.

13. Trade and other payables

	2013	2012
	$m	$m
Trade payables	45.0	61.3
Deferred consideration	5.0	5.0
Other payables	17.3	1.0
Taxation	0.2	-
Accruals	101.8	86.7
	169.3	154.0
Non-current	5.0	5.0
Current	164.3	149.0
	169.3	154.0

 

14. Deferred income

	2013	2012
	$m	$m
Non-current	53.5	61.6
Current	8.7	7.1
	62.2	68.7

Deferred income is royalty income received in advance from the Group's partner for the Taq Taq PSC. The deferred income is recognised in the statement of comprehensive income in a manner consistent with how the royalty income becomes due. Once the deferred income has been fully recognised, the joint operating partner will recommence cash payment for the royalty as it becomes due.

15. Provisions

	2013	2012
	$m	$m
Balance at 1 January	13.2	9.4
Interest unwind	0.5	0.7
Additions	3.2	3.1
Balance at 31 December	16.9	13.2
Non-current	16.9	13.2
Current	-	-
Balance at 31 December	16.9	13.2

Non-current provisions cover expected decommissioning and abandonment costs resulting from the net ownership interests in petroleum and natural gas assets, including well sites and gathering systems. The decommissioning and abandonment provision is based on management's best estimate of the expenditure required to settle the present obligation at the end of the period.

The cash flows relating to the decommissioning and abandonment provisions are expected to occur between 2031 and 2039. The provision is the discounted present value of the cost, using existing technology at current prices.

16. Share capital

	Suspended Voting  Ordinary shares	Voting Ordinary shares	Total  Ordinary Shares
At 1 January 2013	66,511,519	213,736,679	280,248,198
Sale of 1,500,000 ordinary shares by an affiliated shareholder to a third party on 15 May 2013	(2,142,858)	2,142,858	-
Sale of 1,300,000 ordinary shares by an affiliated shareholder to a third party on 21 May 2013	(1,857,142)	1,857,142	-
Sale of 5,425,001 ordinary shares by affiliated shareholders to third parties on 5 July 2013	(7,750,002)	7,750,002	-
Sale of 3,076,251 and 1,430,000 ordinary shares by affiliated shareholders to third parties on 26 September 2013 and 18 October 2013 respectively	(6,437,501)	6,437,501	-
Sale of 810,000 ordinary shares by an affiliated shareholder to a third party on 22 November 2013	(1,157,143)	1,157,143	-
On issue at 31 December 2013  - fully paid	47,166,873	233,081,325	280,248,198
At 1 January 2012	74,647,156	186,617,888	261,265,044
Issue of 18,713,154 voting ordinary shares to founders on exercise of option on 20 January 2012	(8,019,923)	26,733,077	18,713,154
Issue of 90,000 voting ordinary shares to directors under share matching award scheme on 2 April 2012	(38,572)	128,572	90,000
Issue of 180,000 voting ordinary shares to directors under share matching award scheme on 22 June 2012	(77,142)	257,142	180,000
On issue at 31 December 2012  - fully paid	66,511,519	213,736,679	280,248,198

On the sale of voting ordinary shares from an affiliated shareholder to a third party, the affiliated shareholders have a right of conversion of suspended voting ordinary shares to voting ordinary shares in order to maintain their voting ordinary share percentage at just below 30% of the Company.  Details of those sales and resulting conversions are set out below.

On 15 May 2013, 1,500,000 suspended voting ordinary shares were transferred from an affiliated shareholder to a third party, converted to voting ordinary shares and on the same day converted a further 642,858 suspended voting ordinary shares to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 21 May 2013, 1,300,000 suspended  voting ordinary shares were transferred from an affiliated shareholder to a third party, converted to voting ordinary shares and on the same day converted a further 557,142 suspended voting ordinary shares to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 5 July 2013, 5,425,001 suspended voting ordinary shares were transferred from affiliated shareholders to third parties, converted to voting ordinary shares and on the same day converted a further 2,325,001 suspended voting ordinary shares to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 26 September 2013 and 18 October 2013 3,076,251 and 1,430,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 31 October 2013 a further 6,437,501 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 22 November 2013, 810,000 suspended voting ordinary shares were transferred from an affiliated shareholder to third parties, converted to voting ordinary shares and on the same day converted a further 347,143 suspended voting ordinary shares to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares

On 20 January 2012, the Company issued 18,713,154 voting ordinary shares when the founders of the Company exercised their right to exchange their founder shares for voting ordinary shares in the Company. At the same time, the Company converted 8,019,923 suspended voting ordinary shares to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares. The transaction resulted in the removal of the non-controlling interest associated with the founder shares and the difference in value has been taken direct to reserves.

On 2 April 2012, the Company issued 90,000 voting ordinary shares to non-executive directors under the share matching award scheme and a further 180,000 on 22 June 2012. On the same dates, the Company converted 38,572 and 77,142 suspended voting ordinary shares to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

There have been no changes to the authorised share capital since it was determined to be 10,000,000,000 ordinary shares of £0.10 per share.

17. Cash generated from operating activities

	2013	2012
	$m	$m
Profit for the period	185.6	75.9
Adjustments for :
Finance income	(3.0)	(15.6)
Taxation	0.9	-
Depreciation and amortisation	97.5	169.5
Write-off of exploration costs	-	7.5
Provision for write-off of exploration costs	(22.2)	22.2
Share based payments	4.5	3.6
Changes in working capital:
Trade and other receivables	33.5	(31.7)
Trade and other payables and provisions	8.6	62.5
Cash generated from operating activities	305.4	293.9

18. Acquisitions

On 28 February 2013, the Group completed the acquisition of a 75% stake in a block offshore Malta through the acquisition of 75% of the share capital of Phoenicia Energy Company Limited for $11.7 million. On 28 March 2013, the Group acquired a 60% working interest in the Sidi Moussa licence in Morocco for $1.3 million. The Group completed the acquisition of an additional interest in the Miran PSC on 23 January 2013 resulting in further acquisition related costs of $30.0 million. The completion of the acquisition brought the Group's interest in the Miran PSC to, initially, 100%, reducing to 75% when the KRG exercises its back in right under the PSC to take a 25% interest. Because the exercise of the back in right was virtually certain, the acquisition has been recorded to reflect an increase in interest to 75%.

	Phoenicia	Sidi Moussa	Miran	Total
	$m	$m	$m	$m
Exploration assets	11.7	1.3	30.0	43.0
Cash flow	11.7	1.3	30.0	43.0

19. Commitments  

As announced on 1 May 2013, the Group signed a drilling rig contract with Noble Corporation (Noble) for its African offshore drilling programme. The rig will be used to deliver a high impact drilling campaign over an 18 month period committing the Group to circa $250 million, after taking into account our partners' share of costs.

Under the terms of its PSCs and JOAs, the Group has certain commitments that are defined by activity rather than spend. The Group's capital programme for the next few years is explained in the 2013 Annual Report to be distributed to shareholders in March 2014 and is in excess of the activity required by its PSCs and JOAs.

20. Statutory accounts

The financial information for the year ended 31 December 2013 contained in this preliminary announcement has been audited and was approved by the board on 5 March  2014

The financial information in this statement does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2012. The financial information for 2013 and 2012 is derived from the statutory accounts for 2012, which have been delivered to the Registrar of Companies, and 2013, which will be delivered to the Registrar of Companies and issued to shareholders in March 2014. The auditors have reported on the 2013 and 2012 accounts; their report was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

The statutory accounts for 2013 are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The accounting policies (that comply with IFRS) used by Genel Energy plc (the Group) are consistent with those set out in the 2012 Annual Report. The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those applied to the consolidated financial statements for the period ended 31 December 2012, except for a change made to the basis used to calculate depreciation of the Company's oil and gas assets. The Group continues to use the unit of production method but now uses the Group's share of actual production as the basis for depreciation rather than deriving an estimate of the Group's share of production from revenue entitlement. The impact of the change is shown in note 2.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

21. Annual report

Copies of the 2013 Annual Report will be despatched to shareholders in March 2014 and will also be available from the Company's registered office at 12 Castle Street, St Helier, Jersey JE2 3RT and at the Company's website, www.genelenergy.com.

22. Financial calendar

The annual general meeting will be held at The Sofitel, St James, 6 Waterloo Place, London, SW1Y 4AN on 22 April 2014 at 11 am.

 

END

 

 

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