Shares in Genel Energy (LSE:GENL) were trading flat at 266p today despite the firm revealing a two-thirds increase in production at its Peshkabir field in Kurdistan following a critical well-test programme.
As a result of the competition of a well testing program at Peshkabir-4, production at Peshkabir, located on Genel’s 25pc-owned Tawke production sharing contract, now sits at 25,000bopd. Peshkabir-4 has been placed on production at a 10,000bopd, and its oil will truck to Fishkhabur for export.
The Peshkabir field was brought into production last year following the drilling of two wells, which have produced at a constant combined rate of around 15,000bopd. The Tawke licence contains the Tawke and Peshkabir fields, which have averaged production of 106,000bopd year-to-date.
Genel said the next well in its 2018 drilling programme at Peshkabir – Peshkabir-5 – has been drilled seven kilometres west of Peshkabir-3 and has successfully proved the westward extension of the field. Four zones have been tested at the well so far and have flowed between 4,000bopd and 7,500bopd per zone. The well will be brought onstream in August once final testing is complete. Tawke’s operator DNO expects Peshkabir-5 to push production past its previously-announced summer 2018 Peshkabir production target of 30,000bopd.
Murat Özgül, chief executive of Genel, said: ‘Peshkabir continues to exceed our expectations. As the field is part of the Tawke PSC, these are high-value barrels to Genel that benefit from the Receivable Settlement Agreement and will further bolster our free cash flow generation, which is currently over $10 million a month.
‘With five of the six 2018 wells at Peshkabir yet to be completed, and wells set to be drilled on both the Tawke and Taq Taq fields in the second half of the year, we have significant opportunities ahead.’
Despite a lack of interest in the market today, Genel’s share price continues to sit far above the levels at which they entered the year. Investors are warming to the firm after a 90pc drop in its shares over the last four years thanks to weak oil prices and crippling geopolitical tensions in the Iraqi region of Kurdistan thanks to the ongoing threat of terrorism.
The business has benefitted as geopolitical tensions have cooled and the Kurdistan government has set about repaying debts and ensuring it regularly pays both firms for their oil. Crucially, the resumption of monthly government oil payments is generating vast amounts of cash flow for Genel, allowing it to cut its debt and increase its cash balance majorly. For example, in 2017, Genel made $140 million of free cash flow, up from $59.1m in 2016, allowing it to cut total debt from $674.6m to $300m. Meanwhile, its cash balance stood at a whopping $162m at the end of the year with regular payments continuing every month this year.
This strong cash balance is allowing Genel to increase its operational ambitions going forward as well. It plans to take tangible steps to further de-risk gas resources and unlock value from its Bina Bawi and Miran fields, including high-value oil resources. In its recent results, the company added that, based on a continuation of payments throughout 2018, it expects to generate material free cash flow over the year – could dividends be on the cards?
Author: Daniel Flynn
Disclosure: The author does not hold shares in the company mentioned in this piece.