18th Mar 2016 11:16
LONDON (Alliance News) - Genel Energy PLC on Friday launched a bond buy-back programme and said proved reserves at the Tawke oil field in Iraq have increased, alleviating concerns that the field would follow in the footsteps of the Taq Taq field, which saw reserves plummet last month.
Genel shares were trading up 11% to 88.10 pence per share on Friday morning.
The oil production firm said it has launched a tender offer to buy back senior unsecured callable bonds issued by its Genel Finance PLC unit. The offer is being done for cash management purposes and Genel said it intends to acquire a minimum of USD50.0 million of the USD730.0 million of bonds in issue.
DNB Markets and Pareto Securities will manage the buy-back offer.
Genel also said DNO ASA, the operator of the Tawke field, has published estimated reserves for the site. Genel holds a 25% interest in the field.
At the end of December, proved reserves at the field have been estimated at 387.0 million barrels of oil, up 21% on the 319.9 million at the end of 2014, driven by better confidence at DNO on primary recovery rates at the field.
Genel said gross proved plus probable reserves have been estimated at 543.0 million barrels, down from 680.3 million at the end of 2014. This reflects production over the year, technical revisions and re-categorisation of some reserves.
The upgraded gross proved plus probable estimate compares to Genel's previously reported figure of 631.0 million barrels, which it disclosed in its annual results when it revealed it made a USD1.16 billion pretax loss in 2015 as revenue dropped to USD343.9 million from USD519.7 million in 2014.
Shareholders will be relieved reserves at the Tawke field have increased following concerns about the robustness of the field after Genel said the reserves at its other Iraq oilfield, Taq Taq, had experienced a dramatic decline last month.
The downgrade to the reserves at Taq Taq meant the estimated amount of oil left to be recovered from the field had fallen by more than 65% to 172.0 million barrels from 499.0 million barrels. At that time, analysts at Barclays highlighted the investor concerns about a similar downgrade happening at Tawke, and the wavering confidence that Genel could deliver its production guidance for 2016.
Barclays said the reserve report for Tawke would be a "key catalyst" for Genel earlier this month, but said a "steady reserve estimate for Tawke is unlikely to remove all doubts," flagging the need for Genel to deliver some form of consistent production to improve investor confidence following the numerous adjustments to guidance last year.
That downgrade at Taq Taq last month forced Genel to book a USD1.00 billion impairment in its 2015 results, a big contributor, alongside the fall in oil prices, to the company's huge loss in the year.
Production in 2015 still reached record levels for Genel, but was also at the lower end of its guidance because btooth the Taq Taq and Tawke fields began show declining production rates in the second half of the year, prompting Genel to revise its reserve estimates.
Gross average production from the Tawke field stood at 135,000 barrels of oil per day in 2015, compared to only 91,000 barrels a day in 2014. In the first half of the year, Genel doubled its wellhead, processing and pipeline capacity at the field, allowing production to ramp up to a peak of 180,000 barrels a day in May.
However, like Taq Taq, production declined in the second half of the year and ended 2015 at a production rate of 124,000 barrels a day, representing a 31% fall from that peak rate.
Tawke seems to have defied expectations in relation to reserves, however, as other companies operating in the area have recently booked material downward revisions to reserves at the Shaikan, Barda Rash and Akri-Bijeel oilfields, all of which lie in the Kurdistan region of Iraq.
Overall net production in 2016 is expected to fall to a region of 60,000 to 70,000 barrels per day, which is only expected to generate revenue of around USD160.0 million to USD220.0 million based on an oil price of USD35 2 a barrel - with Brent trading at USD4per barrel on Friday morning.
However, investors will still be wary on whether Genel will be able to deliver that guidance due to the downgrade at Taq Taq and because Genel's original guidance for 2016 was 80,000 barrels a day.
Genel said revenue in 2016 would rise to USD200.0 million to USD275.0 million if the oil price averaged USD45 per barrel.
By Joshua Warner; [email protected]; @JoshAlliance and Sam Unsted; [email protected]; @SamUAtAlliance
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