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Genel stands strong despite mixed oil update; could positive investor sentiment be sticking? GENL

Kurdistan-focused Genel Energy (LSE:GENL) was up today despite the release of a mixed oil reserves and resources update. This could be another sign that investors are warming to the firm after a 90pc drop in its shares over the last four years.

In its update, Genel said 1P reserves at its Taq Taq oil field had dropped to 22.8MMbbls down from 25.8MMbbls in February 2017, according to a report updated by McDaniel & Associates. Meanwhile, 2P reserves dropped to 54.7MMbbls from 59.1 and 3P reserves dropped to 90.1MMbbls from 95MMbbls. At its Miran West oil resource, gross 2C contingent resources oil dropped to 23.7MMbbls as of 31 December 2017 from 52MMbbls in 2013, according to a report by RPS Energy Consultants.

The only improvement was seen at Genel’s Bina Bawi oil resource, which it called an ‘attractive near-term development candidate’ after gross 2C contingent resources oil jumped from 12.9MMbbls to 37.1MMbbls at the end of December.

Genel has previously seen investors dump its shares following downgrades of reserves at Taq Taq, so today’s market response could well be seen as positive.

For example, last March, the company’s share price fell 14pc from 73p to 62p after it released a brutal update at Taq Taq, just months after a major downward revision of reserves for the site. The company had previously been forced to take a $1bn write down after concluding that Taq Taq, where it owns a 44pc stake, contained a much lower amount of oil than it previously thought.

In contrast, the company’s shares remained strong this morning’s session in spite of the mixed bag of results, which comes just weeks after the firm said it expects to see a 7pc drop in year-on-year production in 2018 to about 32,760boepd.

Indeed, at the time of writing, the business had risen 0.4pc, or 0.4p, to 112.6p, and is now considerably high than it was in mid-December, when it bottomed at around 90p, as the graph above shows.

That the firm is not being trashed at the release of every update suggests investors believe the company is moving forward and becoming a play on what is going to happen to both oil prices and the turbulent area of Kurdistan.

Positive Kurdish outlook

Iraq and Kurdistan have seen renewed interest from the oil majors this year.

Last month, oil giant BP marked its return to the oilfields of northern Iraq with a deal to help the country more than double its crude flows. January also saw Chevron signal its intention to restart drilling in Iraq and Russia’s Rosneft begin work in Kurdistan.

This could offer an opportunity for Genel, which was abandoned by its founders – which include former BP chief Tony Hayward – last summer in a boardroom exodus, after years of the company being battered.

Genel has been hit by disrupted payments from Kurdistan’s government as a result of Iraq and Syria fighting the Islamic State as well as the global crash in oil prices several years ago.

Aside from the fact that these government payments resumed in 2017, this change in heart towards Genel could be linked to its increasing focus on Miran and Bina Bawi, where it is looking for a partner.

Last month, the business said a survey had found the field contain 40pc more gas than previously expected, leading to an 8pc jump in its share price.

Analysts at RBC Capital certainly believe Genel has an opportunity to flourish, claiming in a note last month that the renewed interest across Iraq and optimism at Miran and Bina Bawi could relaunch the firm’s business. However, it added that a series of technical, political, and commercial hurdles remain for the firm, which had an £11 a share price back in 2014.

 

Author

Daniel Flynn

Disclosure

The author does not hold shares in the company mentioned in this piece.

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