A Landmark Year, Sustainable Delivery
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ANNUAL REPORT 2017 A landmark year, GENEL ENERGY ANNUAL REPORT 2017 sustainable delivery OUR PURPOSE Who we are Our strategic Genel Energy is the largest holder ambition of reserves and resources in the To become a world-class independent E&P creator Kurdistan Region of Iraq, where of shareholder value. we have been operating for over a decade. Material free cash flow generation from our oil assets provides the ability to execute our strategy for growth. ESSENTIAL READING CEO statement Key Performance Indicators Our sustainable approach READ MORE P6 READ MORE P12 READ MORE P18 CONTENTS Strategic report Governance Financial statements 1 Business highlights 32 Chairman’s statement 72 Independent Auditors’ Report 2 Chairman’s statement on corporate governance 78 Financial statements and notes 4 Genel at a glance 34 Board of Directors 6 Chief Executive Officer’s statement 36 Executive Committee Other information 10 Our business model and strategy 37 Corporate governance 103 Report on payments to governments 12 Key performance indicators 42 Audit Committee 104 Glossary of technical terms 14 Operating review 44 Nomination Committee IBC Shareholder information 18 Our sustainable approach 46 HSSE Committee 22 Financial review 48 Reserves Committee 26 Risk management 49 Directors’ remuneration report 28 Principal risk and uncertainties 68 Other statutory and regulatory information 31 Viability statement 71 Statement of Directors’ responsibilities GENEL ENERGY 1 STRATEGIC REPORT HIGHLIGHTS STRATEGIC REPORT Business highlights GOVERNANCE FINANCIAL STATEMENTS CASH PROCEEDS 2P RESERVES NET DEBT ($ MILLION) (NET MMbbls) ($ MILLION) $ OTHER INFORMATION 148 2015 239 2015 242 2015 207 2016 161 2016 241 2016 263 2017 150 2017 135 2017 HIGHLIGHTS OUTLOOK ——$263—million—of—cash—proceeds—received— ——Drilling—success—at—Peshkabir,—with—gross— ——Combined—net—production—from—the—Tawke— in—2017—(2016:—$207—million),—with—strong— production—rising—to—c.15,000—bopd—at—year-end and—Taq—Taq—PSCs—during—2018—is—expected— free—cash—flow—generation—of—$142—million— to—be—close—to—Q4—2017—levels—of—32,800— ——Taq—Taq—field—production—stabilised—in—H2— (2016:—$59—million) bopd,—unchanged—from—previous—guidance 2017,—with—Q4—average—of—14,035—bopd—in—line— ——Year-end—net—debt—of—$135—million,—a—44%— with—Q3—average—of—14,080—bopd ——Genel—expects—to—continue—the—generation— reduction—year-on-year—(2016:—$241—million) of—material—free—cash—flow—in—2018— ——In—January—2018—Bina—Bawi—and—Miran—CPRs— ——Year-end—gross—debt—of—$300—million,—a—56%— confirmed—c.45%—uplift—to—gross—2C—raw— ——Tangible—steps—to—be—taken—to—further—de-risk— reduction—year-on-year—(2016:—$675—million),— gas—resources—to—14.8—Tcf gas—resources—and—unlock—value—from—Bina— with—debt—extended—until—2022—and—interest— Bawi—and—Miran,—including—the—high-value— READ MORE P22 cost—reduced—by—40%— oil—resources— ——Receivable—Settlement—Agreement—resulted— ——Capital—allocation—discipline—to—continue,— in—cash—benefit—of—$26—million—in—Q4—2017 with—ongoing—prioritisation—of—spend—on— cash-generative—producing—assets.—Capital— ——Focused—capital—allocation—–—66%—of— expenditure—guidance—unchanged—at— capital—expenditure—was—spent—on—cash- c.$95–140—million—net—to—Genel generative—producing—assets,—and—has— been—cost—recovered— ——Opex—and—G&A—cash—cost—guidance—unchanged— at—c.$30—million—and—c.$15—million—respectively READ MORE P7 ANNUALREPORT2017 2 STRATEGIC REPORT CHAIRMAN’S STATEMENT Clear strategy, I am pleased to welcome you to Genel’s seventh material upside annual results statement, and my first as Chairman. Stephen Whyte Chairman GENEL ENERGY 3 Looking at Genel from an external Focus on cost and capability perspective it was clear that the Company Genel will continue to ensure that its cost operated in a challenging environment, but base reflects the external economic situation. STRATEGIC REPORT it had demonstrated resilience while retaining Total general and administrative cash costs real growth potential. In 2017 Genel delivered were more than halved from 2014 to 2016, on that potential. and the Company continues to ensure the most appropriate structure and cost base I am now more confident than ever that, from which to grow and deliver maximum while challenges remain, there is material value to stakeholders. In 2017 reductions upside in the Genel portfolio and significant were made to remuneration at all levels, opportunities ahead. As we enter 2018, and executive remuneration brought into I believe that we have both the right strategy line with comparable listed E&P companies. to take advantage of these and the right We have a robust financial GOVERNANCE management team to deliver on that strategy. Side by side with this focus on cost, is a position, a clear strategy, focus on operational capability. There has The macroeconomic climate altered again in been significant change at both Board and and the correct team 2017. On the positive side, the increase in the management levels over the last twelve to implement it. oil price helped to boost cash flows from our months or so, and we have a high-quality producing assets, and also provided a more team working well together. As we go solid basis for the economy of the Kurdistan forward, the Board will work to ensure FINANCIAL STATEMENTS Region of Iraq (‘KRI’). The unfortunate events continuity at management level and provide in the KRI in the last quarter of the year and leadership on management succession. the subsequent material reduction in KRG exports caused by these events significantly In 2017 we welcomed Tim Bushell and Martin disrupted the status quo. However, despite the Gudgeon to the Board, adding relevant skills decrease in oil exports, the KRG continued to and experience. Both have made a significant demonstrate its ability and willingness to make contribution to the healthy dynamics and payments, and Genel has received payments strong processes confirmed by an external for sales on a monthly basis since September board evaluation review carried out at the 2015. This has enabled investment by the end of 2017. Company to continue. Despite changes to personnel, one thing OTHER INFORMATION Financial strength that has not changed has been the Company- underpinning opportunity wide focus on health, safety, and responsible Genel is currently on a sound financial operations. Genel takes pride in its operations footing, and continues to generate significant and strives for positive community impact, free cash flow, something boosted by and it was pleasing to see a repeat of 2016’s the signing of the Receivable Settlement performance in achieving no lost-time Agreement (‘RSA’) in August 2017. The incidents, while reducing incidents of primary successful refinancing in December then containment loss to a single minor event. provided a bedrock from which we can move I would like to thank all employees across forward with a proactive growth strategy. our operations for their ongoing vigilance and hard work. There are exciting opportunities available for cash-generative, proactive companies, Focus in 2018 and the Board and management carried out We have a robust balance sheet, a clear a comprehensive review of Genel strategy in strategy, and the correct team to implement order to define a clear and focused roadmap it. Going through 2018 we look forward to to creating significant shareholder value. The clearly setting out the growth potential that refreshed strategy focuses on the creation this provides, and as such plan for active of shareholder value, providing growth capital market engagement. opportunities while retaining a firm focus on prudent financial planning. We appreciate the patience and confidence that our shareholders have shown in Genel Our strategy builds on our core strengths – over the last few turbulent years, and hope a robust and cash-generative asset portfolio, that the successes seen in the second half technical and commercial expertise, and our of 2017, and our strong financial position, ability to leverage regional relationships and provide renewed confidence that we manage risk in complex areas. These were can deliver on our plans to add material key drivers behind our excellent performance shareholder value in the years to come. in 2017. We have significant organic development options within Genel’s KRI portfolio, the financial ability to add assets to the portfolio, and management with the skills and experience to maximise the value of these opportunities. ANNUALREPORT2017 4 STRATEGIC REPORT WHERE WE OPERATE Genel at a glance NET 2P RESERVES BY LICENCE 2017 GROSS PRODUCTION (MMbbls) (bopd) Tawke – 107 Tawke – 105,460 Taq Taq – 24 Taq Tag – 18,050 Peshkabir – 19 Peshkabir – 3,590 NET UNRISKED RESERVES CAPEX/OPEX FY2017 AND RESOURCES ($ million) (MMboe) Tawke/Taq Taq cost recovered spend – 90 Tawke and Taq Taq – 227 KRI – 18 Bina Bawi and Miran – 2,911 Africa – 14 Africa – 2,374 NET PAYMENTS RECEIVED FROM THE KRG ($ MILLION) 263 2016: 207 30 25 14.0 6.6 6.4 6.0 13.1 13.2 20 12.0 10.9 11.6 11.9 11.1 14.0 15 12.1 10.9 9.1 14.9 10 11.6 11.0 9.1 9.6 8.4 5 7.4 6.7 5.7 5.6 5.2 4.7 0 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Taq Taq Tawke Override GENEL ENERGY 5 YEMEN STRATEGIC REPORT GULF OF ADEN DJIBOUTI MOROCCO PUNTLAND SOMALILAND Block SL-10B/13 Sidi Moussa GOVERNANCE ALGERIA ETHIOPIA Odewayne FINANCIAL STATEMENTS OTHER INFORMATION PESH KABI R TURKEY TA WK E SYRIA IRAN BINA BAWI TA Q TA Q MIRAN IRAQ KRI EXPORT PIPELINE Oil and Exploration Oil production gas assets and appraisal assets ANNUALREPORT2017 6 STRATEGIC REPORT CHIEF EXECUTIVE OFFICER’S STATEMENT A landmark year 2017 was a successful year for Genel Energy.