Half Yearly Report

RNS Number : 2475V

Genel Energy PLC

06 August 2015

 

  6 August 2015

Genel Energy plc

Unaudited results for the period ended 30 June 2015

Genel Energy plc ("Genel" or "the Company"), the London listed exploration and production company and largest independent oil producer in the Kurdistan Region of Iraq ("KRI"), announces its unaudited half year results for the 6 months to 30 June 2015.

Results summary

	H1 2015	H1 2014	FY 2014
Revenue ($million)	199.3	192.1	519.7
EBITDAX1 ($million)	158.1	138.0	410.6
Profit / (loss) before tax ($million)	31.4	70.7	(312.8)
Cash flow from operating activities ($million)	0.0	115.0	134.8
Free cash flow2 ($million)	(211.6)	(195.7)	(560.9)
Cash ($million)	473.7	973.9	489.1
EPS (cents per share)	11.40	25.23	(112.97)
Production (boepd, working interest)	88,800	63,000	69,400

1.    EBITDAX is profit before interest, tax, depreciation, amortisation and exploration expense

2.   Free cash flow is cash flow from operating activities less capital expenditure and interest

Highlights

·     Our operations in the Kurdistan Region of Iraq remain safe and secure

·     Strong operational momentum in the KRI resulted in net working interest production for H1 2015 averaging 88,800 bopd, an increase of 41% on H1 2014

·     H1 2015 revenue of $199 million, an increase of 4% on H1 2014

·     c.$50 million of cash proceeds received from domestic KRI sales

·     Capital expenditure in H1 2015 reduced by 70% year-on-year

·     De-risking of the Miran and Bina Bawi development continues, with signed term sheets in place with the Kurdistan Regional Government ("KRG")

·     Cash balances at 30 June 2015 stood at $474 million, resulting in net debt of $216 million

Outlook

·     On 3 August 2015, the KRG issued a statement committing to pay contractors for oil exports on a sustainable basis from September 2015

·     The Company's 2015 guidance is reiterated:

-       Production: 90-100,000 bopd

-       Revenue: $350-400 million on a Brent oil price of $50/bbl

-       Capital expenditure: $150-200 million  

 

Murat Özgül, Chief Executive of Genel, said:

"Genel's operating performance in the first half of 2015 was strong, with net working interest production up 41% to 88,800 bopd. In recent days the KRG has made a public commitment to pay international oil companies on a sustainable basis from September 2015. These regular and predictable payments will allow Genel to fully capitalise on our strategic opportunities.

We remain committed to the Kurdistan Region of Iraq and will continue to invest in our existing oil fields while moving our major gas fields forward to development, creating significant value for both Genel and the KRG."

Enquiries:

Genel Energy Ben Monaghan, Chief Financial Officer Phil Corbett, Head of Investor Relations Andrew Benbow, Head of Public Relations

[phone]

Vigo Communications Patrick d'Ancona

[phone]

There will be a presentation for analysts and investors today at 1030 BST, with an associated webcast available on the Company's website, www.genelenergy.com.

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.

 

Operating review

PRODUCTION

Net working interest production in H1 2015 averaged 88,800 bopd, an increase of 41% on H1 2014. The year-on-year increase was driven by the completion of surface processing capacity upgrades at Taq Taq and Tawke, in turn allowing for higher production from both fields. The increase in production was weighted towards the second quarter, with net working interest production averaging 95,600 bopd over May and June. Production guidance for 2015 is unchanged at 90-100,000 bopd.

KRI OIL ASSETS

Taq Taq (44% working interest, joint operator)

The Taq Taq field produced an average of 128,000 bopd in H1 2015, a 39% increase compared to the 92,000 bopd produced in H1 2014. Following the installation of a temporary production facility in Q1 2015, the field delivered a record daily production rate of c.145,000 bopd in early April. 63% of production in the first half was supplied to the KRG for export via the KRI-Turkey pipeline. A further 24% was supplied to the Bazian refinery, with the remainder sold into the domestic KRI market.

Progress continues to be made on the construction of the second central processing facility, which has planned capacity of 90,000 bopd. At the end of June 2015, total overall progress towards completion stood at 88%. Mechanical completion is targeted for Q4 2015 with commissioning and start-up expected around the end of 2015.

Tawke (25% working interest)

The Tawke field produced an average of 129,000 bopd in H1 2015, a 54% increase on the 84,000 bopd in H1 2014. Wellhead, processing and pipeline capacity was successfully doubled to 200,000 bopd during H1 2015, which allowed production volumes to ramp up, and the field delivered a record daily production rate of c.180,000 bopd in late May. 81% of production in the period was supplied to the KRG for export via the KRI-Turkey pipeline. A further 16% was sold into the domestic KRI market with the remainder processed at the Tawke refinery.

Further development activity on Genel's producing KRI assets will depend on the evolution of payment for exports from both fields.

KRI GAS ASSETS

Miran (75% working interest, operator) and Bina Bawi (44% working interest)

During the first half of 2015, the Company continued to negotiate with the KRG on the commercial framework for the development of the Miran and Bina Bawi fields. Through the revised structure, as outlined below, there is now complete alignment along the value chain from the KRI-Turkey Gas Sales Agreement through the midstream to the upstream, which helps the KRG manage its obligations and de-risks the wider project.

Upstream

Genel has executed detailed term sheets with the KRG, setting out the proposed amendments to the upstream PSCs and the terms under which raw gas will be sold and purchased from the Miran and Bina Bawi fields. This materially developed and replaced the original agreement between Genel and the KRG, while preserving Genel's upstream economics.

The main elements of the revised term sheets are as follows, with further detail included in the appendix to this operating review.

·     Genel will be sole contractor in both Miran and Bina Bawi with a 100% interest in both fields

·     The responsibilities of Genel will be drilling of the gas wells, installation of flowlines and first stage condensate separation at Miran and Bina Bawi. The Company will also be responsible for development of the oil resources at Miran and Bina Bawi

·     Genel's entitlement share of the raw gas, first stage condensate and oil production from Miran and Bina Bawi will be dictated by the terms of an amended upstream PSC

Progress is being made on converting the PSC amendments and gas supply term sheets into fully termed documents. These are expected to be signed in H2 2015.

Gross life of field capex for the upstream gas development is estimated at $2.9 billion, with $1 billion of this expected to be incurred before the onset of gas and first stage condensate production. Gross life of field capex for the development of the oil resources at Miran and Bina Bawi is estimated at $400 million, with $60 million of this expected to be incurred before first oil. This represents a combined oil and gas unit life of field development cost of less than $2 per barrel of oil equivalent ("boe"). Upstream opex remains estimated at less than $1/boe.

Midstream

For the midstream gas processing plant, a company ("MidstreamCo") will be contracted by the KRG on a build, own, operate and transfer basis for the treatment facilities. Genel is working with the KRG on the midstream development, currently leading the engineering, procurement and construction ("EPC") tender process and efforts to secure an equity consortium and debt financing. Genel has recently mandated a financial advisor to assist with midstream debt financing.

For the midstream, capex for two separate facilities, totalling 14 billion cubic metres per annum ("bcma") of raw gas (10 bcma sales gas) processing capacity at Miran and Bina Bawi, is now estimated at c.$2.5 billion gross.

The Company has recently engaged with potential EPC contractors to assess their capability and suitability for the midstream EPC contract. A competitive tender for the midstream EPC contract is expected to commence in H2 2015, with an award expected in H1 2016. Midstream debt and equity financing is expected to be secured during H2 2016, with a final investment decision ("FID") to be taken shortly thereafter. First gas is expected 30 to 36 months after FID.

Development of the Miran and Bina Bawi oil resources is scheduled to commence in H2 2016, although sanctioning of this development activity is subject to normalisation of payments for oil exports from Taq Taq and Tawke, amongst other considerations.

EXPLORATION AND APPRAISAL

Our exploration strategy reflects current market conditions and the importance of retaining a robust balance sheet, and going forward will be focused on less capital-intensive exploration within our KRI and Africa portfolio.

In 2016, we are planning to drill appraisal wells on the Peshkabir (Genel 25%), Ber Bahr (Genel 40%, operator) and Chia Surkh (Genel 60%, operator) discoveries in the KRI. These wells will help refine resource estimates for these fields and potential development concepts. Actual levels of activity will be subject to receipt of payments for exports from current oil production.

Offshore Morocco, after completion of the analysis of the 2014 JM-1 well results, Genel is in the process of withdrawing from its 37.5% interest in the Juby Maritime licence. Genel will continue working with the Moroccan government to find the optimal way forward with respect to the Company's two remaining licence interests, Sidi Moussa (Genel 60%, operator) and Mir Left (Genel 75%, operator), in light of 2014 well results, notably the SM-1 well, where oil was recovered to surface during drilling operations.

We continue to see significant potential in our onshore Somaliland acreage, and are working to progress the acquisition of seismic data on our highly prospective licences. Genel continues to support the government's efforts to provide an appropriate level of security in order to conduct future operations. Seismic acquisition on the Odewayne (Genel 50%, operator) and SL-10B/13 (Genel 75%, operator) licences is currently scheduled for 2016.

On the Adigala licence onshore Ethiopia (Genel 44%), the Company has received government approval for an 18-month extension to the current exploration period, which now expires January 2017. The forward work programme entails further processing and interpretation of new 2D seismic before a drill or drop decision in January 2016.

On the CI-508 licence (Genel 24%) offshore Côte d'Ivoire, Genel is actively pursuing a farm-out ahead of a commitment well which is currently scheduled to spud towards end 2015.

KRI SECURITY

While ISIS remains a destabilising influence, controlling a large swathe of territory across west and north-west Iraq, enhanced security measures implemented by the KRG help ensure that Genel's operations in the Kurdistan Region of Iraq remain safe and secure. Since the precautionary withdrawal of non-essential personnel from non-producing assets in the region in August 2014, and the subsequent return to normal staffing levels in September 2014, the Company has experienced no disruption to its business activities. Normal operations are in effect.

The KRG, through its Peshmerga forces and Oil Protection Force, provides effective security oversight over key upstream infrastructure, including major oil fields and pipelines. To date, upstream infrastructure in the KRI has suffered no incidents related to the ISIS presence in northern Iraq.

Given the recent heightening of geo-political risk on the borders of the KRI, the company is closely monitoring security developments and will adjust its security measures should the conditions so require.

 

APPENDIX - KRI GAS AGREEMENTS

Upstream

Genel will be sole contractor in both Miran and Bina Bawi with a 100% interest in both fields:

·      Genel is in the final stages of negotiating a sale and purchase agreement with OMV over the acquisition of a 36% participating interest in the Bina Bawi field

·      The 20% KRG interest in Bina Bawi will also be transferred to Genel

·      The KRG's current 25% participating interest in the Miran field will be assigned to Genel

PSC terms

	Oil and first stage condensate	Raw gas
Royalty	5%	0%
Capacity building payment	0%	0%
Cost recovery ceiling	80%	100%
R-factor	Cumulative Revenues / Cumulative Costs (semi-annual basis)
Profit sharing	·      R ≤ 1: 80% ·      1< R ≤ 2: 80% - (80% - 25%) * (R - 1) / (2 - 1) ·      R > 2: 25%	·      R ≤ 1: 100% ·      1< R ≤ 2: 100% - (100% - 50%) * (R - 1) / (2 - 1) ·      R > 2: 50%

The main terms agreed with the KRG for the sale of raw gas from Miran and Bina Bawi are as follows:

·     Genel is committed to deliver gas at contracted quantities for a period of 12 years. This will consist of a two year build-up period at volumes of 600-1,200 million standard cubic feet per day ("mmscfd") and 10-year plateau at 1,200 mmscfd (the Annual Contract Quantity, or ACQ)

·     After the 10 year plateau period, Genel will supply gas volumes equal to or less than the previous year until the end of the development period, which it may nominate itself

·     The KRG is committed to buying Genel's gas via a take-or-pay arrangement where it is obliged to buy a minimum annual quantity (80% of the ACQ)

·     Genel will receive a fee of $1.20 per thousand cubic feet ("mcf") for the raw gas delivered into the gas treatment facilities. The raw gas fee includes a provision for inflation adjustment

Midstream gas processing

MidstreamCo will receive a tolling fee from the KRG on a toll-or-pay basis for the gas processed through the facilities.

There is no commitment to build the midstream facilities until an equity consortium and debt financing is secured. It is Genel's current intention to retain a 10% equity interest in MidstreamCo.

For all payments to contractors involved in both the upstream and midstream elements of the gas development, the KRG is to provide a guarantee backed by the KRG-Turkey Gas Sales Agreement and/or sales of KRG crude oil exports.

 

Financial review

Results summary

	H1 2015	H1 2014	FY 2014
Revenue ($million)	199.3	192.1	519.7
EBITDAX1	158.1	138.0	410.6
Profit / loss before tax ($million)	31.4	70.7	(312.8)
EPS (cents)	11.40	25.23	(112.97)
Cash flow from operating activities ($million)	0.0	115.0	134.8
Capex ($million)	93.3	310.7	676.9
Free cash flow2 ($million)	(211.6)	(195.7)	(560.9)
Cash ($million)	473.7	973.9	489.1
Net assets ($million)	3,767.1	4,161.6	3,733.5

1.   EBITDAX is profit before interest, tax, depreciation, amortisation and exploration expense

2.     Free cash flow is cash flow from operating activities less capital expenditure and interest

Results for the period 

For the six months ended 30 June 2015, the Company reported revenue of $199.3 million (2014: $192.1 million), EBITDAX of $158.1 million (2014: $138.0 million), profit before tax of $31.4 million (2014: $70.7 million) and earnings per share of 11.40 cents (2014: 25.23 cents). Free cash flow for the period was an outflow of $211.6 million (2014: outflow of $195.7 million).

Revenue

Revenue of $199.3 million (2014: $192.1 million) is an increase of 4% on the comparative period, which is a result of increased volumes arising from increased production capacity and the availability of pipeline exports, offset by a significant decrease in Brent oil price. In the comparative period, exports were recognised on a cash basis, which resulted in circa $40m of revenue not being recognised.

Operating costs

Cost of sales of $114.0 million (2014: $97.6 million) includes depreciation charges of $90.4 million (2014: $63.1 million) and production costs of $23.6 million (2014: $34.5 million). Depreciation increased broadly in line with production levels whilst production costs decreased as a result of transportation and handling costs, principally as a result of there being no trucked exports in the period.

Other operating costs of $17.6 million (2014: $19.6 million), most of which were general and administration costs.

Finance costs

Finance costs of $24.2 million (2014: $5.3 million) have increased a result of accrued interest on the senior unsecured bond and a reduction in interest income.

Taxation

All corporation tax due has been paid on behalf of the Company 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 Company. 

Dividend

No interim dividend will be paid (2014: nil) or is expected to be paid in the near future.  

Capital expenditure

Capital expenditure was $93.3 million (2014: $310.7 million) with nearly all of this incurred on development of the Taq Taq and Tawke licences in Kurdistan.

Cash flow

The cash operating costs of the business have been offset by domestic proceeds of circa $50 million resulting in an operating cash flow for the period of $nil (2014: $115.0 million), the reduction from last year being a result of delayed payment for sales. Free cash flow for the period included circa $100 million in relation to payment of prior year accruals resulting in a free cash outflow of $211.6 million (2014: $195.7 million).

Net cash from financing activities was $177.4 million, comprised of $196.2 million net proceeds from the issue of a new $230 million bond, offset by coupon interest of $18.8 million on the existing $500 million bond. The two bonds have since been merged so there now exists one $730 million bond with maturity May 2019.

In the period, there was an overall net decrease in cash of $15.4 million (2014: net increase of $274.2 million).

Cash and net debt

Cash at period end was $473.7 million (2014: $489.1 million) resulting in net debt of $216.1 million (2014: $2.3 million).

Net receivable

At 30 June 2015, the net KRG receivable for unpaid production stood at $378.4 million (2014: $231.5 million).

Net assets

Net assets at 30 June 2015 were $3,767.1 million (2014: $3,733.5 million).

Going concern

The Directors have assessed that the cash balance held provides the Group with adequate headroom over forecast operational expenditure for at least 12 months following the signing of the half year financial statements for the period ended 30 June 2015 for the Group to be considered a going concern.

Principal risks and uncertainties

The Group is exposed to a variety of risks and uncertainties, principal amongst them being commercial risks, political risks, HSSE risks and legal and regulatory risks.

The half year financial report does not include details of the principal risks and uncertainties required in the annual financial statements; the half year financial report should be read in conjunction with the Group's annual financial statements for the period ended 31 December 2014. A detailed explanation of the principal risks and uncertainties can be found on pages 42 to 44 of the annual report for the period ended 31 December 2014.

Responsibility statement of the directors

The directors confirm that these condensed half year consolidated financial statements have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union and that the half year management report includes a fair view of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·      an indication of important events that have occurred during the six months ended 30 June 2015 and their impact on the condensed half year consolidated financial statements, and a description of the principal risks and uncertainties for the remaining period of the financial year; and
 

·      material related-party transactions in the six months ended 30 June 2015 and any material changes in the related-party transactions described in the last annual report.

The directors of Genel Energy plc are listed in the Genel Energy annual report for 31 December 2014. A list of the current directors is maintained on the Genel Energy plc website: www.genelenergy.com

By order of the board

Murat Özgül

CEO

5 August 2015

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

	Notes	6 months to 30 Jun 2015	6 months to 30 June 2014	Year to 31 Dec  2014
		$m	$m	$m
Revenue	1	199.3	192.1	519.7
Cost of sales	2	(114.0)	(97.6)	(203.1)
Gross profit		85.3	94.5	316.6
Exploration (expense) / credit	3	(12.1)	1.1	(476.8)
Asset write-off	4	-	-	(80.9)
Other operating costs	5	(17.6)	(19.6)	(47.0)
Operating profit / (loss)		55.6	76.0	(288.1)
EBITDAX		158.1	138.0	410.6
Depreciation of oil and gas assets	4	(90.4)	(63.1)	(141.0)
Exploration (expense) /  credit	5	(12.1)	1.1	(476.8)
Asset write-off	6	-	-	(80.9)
Finance costs	6         8	(24.2)	(5.3)	(24.7)
Profit / (loss) before income tax		31.4	70.7	(312.8)
Income tax expense	7	-	-	(1.5)
Profit / (loss) for the period		31.4	70.7	(314.3)
Other comprehensive items		-	-	-
Total comprehensive income/ (loss) for the period		31.4	70.7	(314.3)
Attributable to:
Equity holders of the Company		31.4	70.7	(314.3)
		31.4	70.7	(314.3)
Earnings per ordinary share attributable to the ordinary equity holders of the Company
Basic earnings per share - cents per share	8	11.40	25.23	(112.97)
Diluted earnings  per share - cents per share	8	11.34	25.00	(112.97)

 

Condensed consolidated balance sheet

	Notes	30 June 2015	30 June 2014	31 Dec 2014
		$m	$m	$m
Assets
Non-current assets
Intangible assets	11	1,698.9	1,805.1	1,679.3
Property, plant and equipment	12	1,996.9	2,082.1	2,015.2
		3,695.8	3,887.2	3,694.5
Current assets
Trade and other receivables	13	444.1	44.8	303.7
Cash and cash equivalents	14	473.7	973.9	489.1
		917.8	1,018.7	792.8
Total Assets		4,613.6	4,905.9	4,487.3
Liabilities
Non-current liabilities
Trade and other payables	15	(5.0)	(5.0)	(5.0)
Deferred income	16	(44.4)	(48.6)	(47.8)
Provisions	17	(19.8)	(18.4)	(19.4)
Bank and other long-term borrowings	18	(689.8)	(490.8)	(491.4)
		(759.0)	(562.8)	(563.6)
Current liabilities
Trade and other payables	15	(80.9)	(170.9)	(184.0)
Deferred income	16	(6.6)	(10.6)	(6.2)
		(87.5)	(181.5)	(190.2)
Total liabilities		(846.5)	(744.3)	(753.8)
Net assets		3,767.1	4,161.6	3,733.5
Owners of the parent
Share capital	19	43.8	43.8	43.8
Share premium account		4,074.2	4,074.2	4,074.2
Retained earnings		(358.7)	35.8	(392.3)
Total shareholders' equity		3,759.3	4,153.8	3,725.7
Non-controlling interest		7.8	7.8	7.8
Total equity		3,767.1	4,161.6	3,733.5

Condensed consolidated statement of changes in equity

	Share capital	Share premium	Retained earnings	Total attributable to equity holders	Non-controlling interest	Total equity
	$m	$m	$m	$m	$m	$m
1 January  2014	43.8	4,074.2	(21.6)	4,096.4	7.8	4,104.2
Comprehensive income for the period	-	-	70.7	70.7	-	70.7
Transactions with shareholders:
Share-based payment transactions	-	-	3.4	3.4	-	3.4
Purchase of own shares for  ESOP1	-	-	(16.7)	(16.7)	-	(16.7)
Purchase of own shares2	-	-	-	-	-	-
30 June 2014	43.8	4,074.2	35.8	4,153.8	7.8	4,161.6
1 January  2014	43.8	4,074.2	(21.6)	4,096.4	7.8	4,104.2
Comprehensive loss for the period	-	-	(314.3)	(314.3)	-	(314.3)
Transactions with shareholders:
Share-based payment transactions	-	-	6.8	6.8	-	6.8
Purchase of own shares for ESOP1	-	-	(39.2)	(39.2)	-	(39.2)
Purchase of own shares2	-	-	(24.0)	(24.0)	-	(24.0)
31 December 2014 and 1 January 2015	43.8	4,074.2	(392.3)	3,725.7	7.8	3,733.5
Comprehensive income for the period	-	-	31.4	31.4	-	31.4
Transactions with shareholders:
Share-based payment transactions	-	-	2.2	2.2	-	2.2
At 30 June 2015	43.8	4,074.2	(358.7)	3,759.3	7.8	3,767.1

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

2.   Purchase of own shares in the open market and held as treasury shares

Condensed consolidated cash flow statement

	Notes	30 June 2015	30 June 2014	31 Dec 2014
		$m	$m	$m
Cash flows from operating activities
Cash generated from operations	20	(0.5)	115.0	135.3
Interest received		1.0	0.2	1.0
Taxation paid		(0.5)	(0.2)	(1.5)
Net cash from operating activities		0.0	115.0	134.8
Cash flows from investing activities
Purchase of intangible assets	11	(114.7)	(208.7)	(482.1)
Purchase of property, plant and equipment	12	(78.1)	(102.0)	(194.8)
Acquisition of intangibles	21	-	(4.0)	(76.8)
Net cash from investing activities		(192.8)	(314.7)	(753.7)
Cash flows from financing activities
Purchase of own shares for ESOP		-	(16.7)	(39.2)
Purchase of own shares		-	-	(24.0)
Net proceeds from issue of bond		196.2	490.6	490.3
Interest paid		(18.8)	-	(18.8)
Net cash from financing activities		177.4	473.9	408.3
Net decrease in cash and cash equivalents		(15.4)	274.2	(210.6)
Cash and cash equivalents at the 1 January		489.1	699.7	699.7
Cash and cash equivalents at period end	14	473.7	973.9	489.1

 

Notes to the condensed consolidated financial statements

1. Basis of preparation

The Company is a public limited company incorporated and domiciled in Jersey with a listing on the London Stock Exchange.

The address of its registered office is 12 Castle Street, St Helier, Jersey, JE2 3RT.

The half year condensed consolidated financial statements for the six months ended 30 June 2015 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union and were approved for issue on 5^th  August 2015. They do not comprise statutory accounts within the meaning of Article 105 of the Companies (Jersey) Law 1991.

The half year condensed consolidated financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with IFRS as adopted by the European Union. The annual financial statements for the period ended 31 December 2014 were approved by the board of directors on 4 March 2015. The report of the auditors was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under the Companies (Jersey) Law 1991.

Having reassessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information. Thus, the Group continues to adopt the going concern basis of accounting in preparing the half year condensed consolidated financial statements.

The interim financial information for the six months to 30 June 2015 and six months to 30 June 2014 is unaudited. The financial information for the year to 31 December 2014 has been extracted from the audited accounts.

2. Accounting policies

The accounting policies adopted in preparation of the condensed half year consolidated financial statements are consistent with those used in preparation of the annual financial statements for the year ended 31 December 2014.

The preparation of the half year condensed consolidated financial information for the half-year ended 30 June 2015 requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and disclosure of contingent liabilities at the date of the statement. If in the future such estimates and assumptions, which are based on management's best judgement at the date of the statement, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which the circumstances change.

In preparing these condensed half year consolidated financial statements, the areas where there is significant judgement 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 2014 with one addition. As a result of the increase in pipeline exports this year, the estimated realised price per barrel for export sales has become an area of significant judgement. Management has estimated the realised price per barrel by discounting Brent for certain factors, such as quality, selling discount, transportation costs and, marketing costs. However actual realised prices may be different and consequently result in lower or higher reported revenue and trade receivables balance.

Significant seasonal or cyclical variations in the Group's total revenues are not experienced during the financial year.

There are no new standards and amendments to standards as adopted by the European Union at 30 June 2015 which are mandatory for the first time for the financial year beginning 1 January 2015 and which have a significant impact on the Group. A number of new standards, amendments to standards and interpretations will be effective for annual periods beginning after 1 July 2015. None of these standards have been early adopted. The new standards are not expected to have a significant effect on the consolidated financial statements of the Group.

Financial risk factors

The Group's activities expose it to a variety of financial risks: credit risk, currency risk, interest risk and liquidity risk. The condensed half year consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2014. There have been no significant changes in any risk management policies since year end.

3. 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.

6 months ended 30 June 2015

	Kurdistan	Africa	Other	Total Reported
	$m	$m	$m	$m
Revenue	199.3	-	-	199.3
Cost of sales	(114.0)	-	-	(114.0)
Gross profit	85.3	-	-	85.3
Exploration expense	(0.9)	(11.2)	-	(12.1)
Other operating costs	(0.4)	-	(17.2)	(17.6)
Operating profit / (loss)	84.0	(11.2)	(17.2)	55.6
Finance expense				(24.2)
Profit before tax				31.4
Capital expenditure	91.8	1.5	-	93.3
Total assets	4,063.2	113.9	436.5	4,613.6
Total liabilities	(135.6)	(8.3)	(702.6)	(846.5)

Other represents non-segmental items related to head office activities. Total assets and liabilities in the other segment are predominantly cash and debt balances.

6 months ended 30 June 2014

	Kurdistan	Africa	Other	Total Reported
	$m	$m	$m	$m
Revenue	192.1	-	-	192.1
Cost of sales	(97.6)	-	-	(97.6)
Gross profit	94.5	-	-	94.5
Exploration expense	-	1.1	-	1.1
Asset write-off	-	-	-	-
Other operating costs	0.3	-	(19.9)	(19.6)
Operating profit / (loss)	94.8	1.1	(19.9)	76.0
Finance expense				(5.3)
Profit before tax				70.7
Capital expenditure	180.7	128.3	1.7	310.7
Total assets	3,722.7	283.1	900.1	4,905.9
Total liabilities	(185.7)	(56.5)	(502.1)	(744.3)

Other represents non-segmental items related to head office activities. Total assets and liabilities in the other segment are predominantly cash and debt balances.

3. Segmental information (continued)

Year to 31 December 2014

	Kurdistan	Africa	Other	Total Reported
	$m	$m	$m	$m
Revenue	519.7	-	-	519.7
Cost of sales	(203.1)	-	-	(203.1)
Gross profit	316.6	-	-	316.6
Exploration expense / (credit)	-	(476.8)	-	(476.8)
Asset write-off	(80.9)	-	-	(80.9)
Other operating costs	(1.9)	-	(45.1)	(47.0)
Operating profit / (loss)	233.8	(476.8)	(45.1)	(288.1)
Finance expense				(24.7)
Profit before tax				(312.8)
Capital expenditure	331.2	343.0	2.7	676.9
Total assets	3,946.1	115.1	426.1	4,487.3
Total liabilities	(168.1)	(78.8)	(506.9)	(753.8)

Other represents non-segmental items related to head office activities. Total assets and liabilities in the other segment are predominantly cash and debt balances.

4. Cost of sales

	6 months to 30 June 2015	6 months to 30 June 2014	Year to 31 December 2014
	$m	$m	$m
Depreciation and amortisation of oil and gas assets	90.4	63.1	141.0
Production costs	23.6	34.5	62.1
	114.0	97.6	203.1

5. Exploration expense / credit

	6 months to 30 June 2015	6 months to 30 June 2014	Year to 31 December 2014
	$m	$m	$m
Exploration impairment (see note 11)	-	-	471.1
Exploration costs / (credit)	12.1	(1.1)	5.7
	12.1	(1.1)	476.8

The exploration impairment in 2014 represents exploration expenditure in respect of Angola, Malta and Morocco (Sidi Moussa and Juby Maritime fields) previously capitalised and now expensed.

6. Asset write-off

The asset write-off in the year ended 31 December 2014 of $80.9 million reflects the impairment of Dohuk where tests showed the recoverability of the assets to be highly unlikely (see note 12).

7. Other operating costs

	6 months to 30 June 2015	6 months to 30 June 2014	Year to 31 December 2014
	$m	$m	$m
Acquisition activity and pre-licence exploration costs	0.5	4.2	9.0
General and other costs	17.1	15.4	38.0
	17.6	19.6	47.0

8. Finance costs 

	6 months to 30 June 2015	6 months to 30 June 2014	Year to 31 December 2014
	$m	$m	$m
Interest income	1.0	0.2	0.6
Bond interest	(24.7)	(5.1)	(24.5)
Provision discount unwind	(0.5)	(0.4)	(0.8)
	(24.2)	(5.3)	(24.7)

 

9. Taxation

A taxation charge of $nil (H1 2014: nil, FY 2014: $1.5 million) was made in the Turkish and UK services companies.  All other corporation tax due has been paid on behalf of the Group by the Iraqi government from the government's share of revenues and there is no tax payment required or expected to be made by the Group.

10. 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.

	6 months to 30 June 2015	6 months to 30 June 2014	Year to 31 December 2014
Profit  for the period attributable to equity holders of the Company - $ million	31.4	70.7	(314.3)
Weighted average number of ordinary shares - number 1	275,518,867	280,248,198	278,177,070
Basic earnings per share - cents per share	11.40	25.23	(112.97)

1.   Excluding the purchase of own shares now held as treasury shares

10. Earnings per share (continued)

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.

	6 months to 30 June 2015	6 months to 30 June 2014	Year to 31 December 2014
Profit for the period attributable to equity holders of the Company - $ million	31.4	70.7	(314.3)
Weighted average number of ordinary shares - number1	275,518,867	280,248,198	278,177,070
Adjustment for performance shares, restricted shares, share options and founder shares and securities  - number2	1,465,964	2,614,036	-
Weighted average number of ordinary shares for diluted earnings per share - number	276,984,831	282,862,234	278,177,070
Diluted earnings per share - cents per share	11.34	25.00	(112.97)

1.   Excluding the purchase of own shares now held as treasury shares

2.   As the Group reported a loss for the year to 31 December  2014, there were no dilutive adjustments made

11. Intangible assets

	Exploration and evaluation assets	Other assets	Total
	$m	$m	$m
Cost
At 1 January 2015	1,676.6	5.8	1,682.4
Additions	20.2	-	20.2
Balance at 30 June 2015	1,696.8	5.8	1,702.6
At 1 January 2014	1,630.9	4.5	1,635.4
Acquisitions	4.0	-	4.0
Transfer to property, plant and equipment (note 12)	(40.8)	-	(40.8)
Additions	207.9	0.8	208.7
Balance at 30 June 2014	1,802.0	5.3	1,807.3
At 1 January 2014	1,630.9	4.5	1,635.4
Acquisitions	76.8	-	76.8
Transfer to property, plant and equipment (note 12)	(40.8)	-	(40.8)
Impairment	(471.1)	-	(471.1)
Additions	480.8	1.3	482.1
Balance at 31 December 2014	1,676.6	5.8	1,682.4
Depreciation and impairment
At 1 January 2015	-	3.1	3.1
Depreciation charge for the period	-	0.6	0.6
At 30 June 2015	-	3.7	3.7
At 1 January 2014	-	1.5	1.5
Depreciation charge for the period	-	0.7	0.7
At 30 June 2014	-	2.2	2.2
At 1 January 2014	-	1.5	1.5
Depreciation charge for the period	-	1.6	1.6
At 31 December 2014	-	3.1	3.1
Net book value
At 30 June 2015	1,696.8	2.1	1,698.9
At 30 June 2014	1,802.0	3.1	1,805.1
At 31 December 2014	1,676.6	2.7	1,679.3

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.

The exploration impairment in 2014 was in respect of Angola, Malta and Morocco (Sidi Moussa and Juby Maritime fields), now expensed to the income statement.

The net book value of $2.1million (H1 2014: $3.1 million, FY 2014: $2.7 million) of other assets is principally software.

12. Property, plant and equipment

	Oil and gas assets	Other assets	Total
	$m	$m	$m
Cost
At 1 January 2015	2,432.8	9.2	2,442.0
Additions	73.1	-	73.1
At 30 June 2015	2,505.9	9.2	2,515.1
At 1 January 2014	2,279.5	7.8	2,287.3
Additions	101.1	0.9	102.0
Transfer from intangible assets (see note 11)	40.8	-	40.8
At 30 June 2014	2,421.4	8.7	2,430.1
At 1 January 2014	2,279.5	7.8	2,287.3
Additions	193.4	1.4	194.8
Impairment	(80.9)	-	(80.9)
Transfer from intangible assets (see note 11)	40.8	-	40.8
At 31 December 2014	2,432.8	9.2	2,442.0
Depreciation and impairment
At 1 January 2015	422.1	4.7	426.8
Depreciation charge for the period	90.4	1.0	91.4
At 30 June 2015	512.5	5.7	518.2
At 1 January 2014	281.1	3.0	284.1
Depreciation charge for the period	63.1	0.8	63.9
At 30 June 2014	344.2	3.8	348.0
At 1 January 2014	281.1	3.0	284.1
Depreciation charge for the period	141.0	1.7	142.7
At 31 December 2014	422.1	4.7	426.8
Net book value
At 30 June 2015	1,993.4	3.5	1,996.9
At 30 June 2014	2,077.2	4.9	2,082.1
At 31 December 2014	2,010.7	4.5	2,015.2

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.

The impairment in 2014 relates to the Dohuk asset which was fully written off to the income statement.

13. Trade and other receivables

	At 30 June 2015	At 30 June 2014	At 31 December 2014
	$m	$m	$m
Trade receivables	379.7	10.9	232.9
Other receivables	49.6	22.8	49.4
Prepayments	14.8	11.1	21.4
	444.1	44.8	303.7

 

The fair values of financial assets are similar to  their carrying value.

14. Cash and cash equivalents

	At 30 June 2015	At 30 June 2014	At 31 December 2014
	$m	$m	$m
Cash and cash equivalents	473.7	973.9	489.1
	473.7	973.9	489.1

The above amounts are primarily held in United States treasury bills or on time deposits with a number of major financial institutions. Cash includes the Group's share of cash held in its joint operations and $30.5m (H1 2014: $190.0 million, FY 2014 $166.1 million) of cash collateral for outstanding letters of credit and performance guarantees.

15. Trade and other payables

	At 30 June 2015	At 30 June 2014	At 31 December 2014
	$m	$m	$m
Trade payables	19.2	41.3	69.0
Other payables	7.9	31.2	21.5
Accruals	58.8	103.4	98.5
	85.9	175.9	189.0
Non-current	5.0	5.0	5.0
Current	80.9	170.9	184.0
	85.9	175.9	189.0

The fair values of financial liabilities approximate their carrying value.

16. Deferred income

	At 30 June 2015	At 30 June 2014	At 31 December 2014
	$m	$m	$m
Non-current	44.4	48.6	47.8
Current	6.6	10.6	6.2
	51.0	59.2	54.0

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.

17. Provisions

	At 30 June 2015	At 30 June 2014	At 31 December 2014
	$m	$m	$m
Opening  balance	19.4	16.9	16.9
Interest unwind	0.4	0.4	0.8
Additions	-	1.1	1.7
Closing balance	19.8	18.4	19.4
Non-current	19.8	18.4	19.4
Current	-	-	-
Closing balance	19.8	18.4	19.4

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.

18. Bank and other long-term borrowings

	At 30 June 2015	At 30 June 2014	At 31 December 2014
	$m	$m	$m
$730 million 7.5% coupon bond due May 2019	689.8	490.8	491.4
	689.8	490.8	491.4

On 10 April 2015, the Company issued a new $230m bond with a maturity of May 2019 and a coupon rate of 7.5% payable twice annually. The new bond was then merged with the existing $500m 7.5% bond with the same maturity date, resulting in a merged $730m 7.5% coupon bond with a maturity date of May 2019.

The $730 million bond is unsecured and is shown net after issue discount and unamortised issue costs. The fair value of the bond at 30 June 2015 was $665 million.

19. Share capital

	Suspended Voting  Ordinary shares	Voting1 Ordinary shares	Total  Ordinary Shares
At 1 January 2015	33,538,301	246,709,897	280,248,198
Sale of 2,000,000 and 1,400,000 ordinary shares by affiliated shareholders to third parties on 10 December 2014 and 16 December 2014 respectively.	(3,916,616)	3,916,616	-
At 30 June 20151	29,621,685	250,626,513	280,248,198
At 1 January 2014	47,166,873	233,081,325	280,248,198
Sale of 3,250,000 ordinary shares by affiliated shareholders to third parties on 27 January 2014 and 21 February 2014	(4,642,857)	4,642,857	-
Sale of 2,170,000 ordinary shares by affiliated shareholders to third parties on 10 March 2014	(3,100,000)	3,100,000	-
At 30 June 2014	39,424,016	240,824,182	280,248,198
At 1 January 2014	47,166,873	233,081,325	280,248,198
Sale of 3,250,000 ordinary shares by affiliated shareholders to third parties on 27 January 2014 and 21 February 2014	(4,642,857)	4,642,857	-
Sale of 2,170,000 ordinary shares by affiliated shareholders to third parties on 10 March 2014	(3,100,000)	3,100,000	-
Sale of 1,120,000 and 3,000,000 ordinary shares by affiliated shareholders to third parties on 2 July 2014 and 7 July 2014 respectively	(5,885,715)	5,885,715	-
At 31 December 2014  - fully paid	33,538,301	246,709,897	280,248,198

1.   Voting ordinary shares includes 1,865,720 (2014: 2,006,362) treasury shares

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 10 December 2014 2,000,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 16 December 2014 a further 1,400,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 13 February 2015 3,916,616 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 27 January 2014, 2,250,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 21 February 2014 a further 1,000,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 7 March 2014 4,642,857 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 10 March 2014, 2,170,000 voting ordinary shares were transferred from affiliated shareholders to third parties and on the 11 March 2014 3,100,000 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 2 July 2014, 1,120,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 7 July 2014 a further 3,000,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 24 July 2014, 5,885,715 suspended voting ordinary shares were converted 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.

20. Cash generated from operating activities

	6 months to 30 June 2015	6 months to 30 June 2014	Year to 31 December 2014
	$m	$m	$m
Profit / (Loss) for the period	31.4	70.7	(314.3)
Adjustments for :
Finance expense / (income)	24.2	5.3	24.7
Taxation	-	-	1.5
Depreciation and amortisation	91.9	64.7	144.3
Write-off of exploration costs	-	-	471.1
Asset write-off	-	-	80.9
Share based payments	2.2	3.4	6.8
Changes in working capital:
Trade and other receivables	(149.1)	(29.0)	(287.8)
Trade and other payables and provisions	(1.1)	(0.1)	8.1
Cash generated from operating activities	(0.5)	115.0	135.3

21. Commitments  

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 2014 annual report and is in excess of the activity required by its PSCs and JOAs.

Independent review report to Genel Energy plc

Our conclusion

We have reviewed the condensed consolidated interim financial statements, defined below, in the half year financial report for the six months ended 30 June 2015. Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The condensed consolidated interim financial statements, which are prepared by Genel Energy plc, comprise:

·      the condensed consolidated balance sheet as at 30 June 2015;

·      the condensed consolidated statement of comprehensive income for the period then ended;

·      the condensed consolidated cash flow statement for the period then ended;

·      the condensed consolidated statement of changes in equity for the period then ended; and

·      the explanatory notes to the condensed consolidated interim financial statements.

As disclosed in note 1, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed consolidated interim financial statements included in the half year financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed consolidated financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

Responsibilities for the condensed consolidated interim financial statements and the review

Our responsibilities and those of the directors

The half year financial report including the condensed consolidated interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the half year financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

1 Embankment Place

London

WC2N 6RH

6 August 2015

Notes:

(a)   The maintenance and integrity of the Genel Energy plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b)   Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

END

 

 

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