LONDON (Alliance News) - Genel Energy PLC Thursday said production will continue to increase next year and said it has reached a deal with the Kurdistan regional government in Iraq to develop the Miran and Bina Bawi gas fields, which are set to commence production in 2016.
During the third quarter to the end of September, the company's net working interest production increased by 36% to an average of 72,000 barrels of oil equivalent per day compared to a year earlier. During October, production levels from the Taq Taq project in Iraq reached 126,000 barrels of oil equivalent per day, further increasing to 136,000 barrels of oil equivalent per day in November.
For the first nine months of the year, net working interest production levels totalled an average of 66,000 barrels of oil equivalent per day, a 47% increase compared to the same period in 2013, Genel said in a statement.
Sales during the third quarter saw an average domestic price of USD66 per barrel from the Taq Taq project and USD55 per barrel from the Tawke project, also in Iraq. Of the total sales in the quarter, 44% was made to the domestic market with the remaining 56% being exported.
Its exports are mainly made from Ceyhan, a town of the Kurdistan regional government, where it is expecting a payment mechanism to be set up in the first quarter of 2015 to ensure more regular payments.
"Exports will continue to rise and the Kurdistan regional government's firm commitment to ensure contractors receive full entitlements will see a normalised payment process for this production early in 2015."
Genel said it has reached a deal with the Ministry of Natural Resources of the Kurdistan regional government to develop the Miran and Bina Bawi gas fields, both of which will be combined under one production sharing contract. Genel said it is expecting this to be finalised by the end of the year.
The company is expecting first gas from the field to be ready for export in the first half of 2018, but said the Kurdistan regional government has the option to request first gas for domestic supply during 2016, when first oil production is expected.
In addition, Genel has agreed key terms to acquire international oil and gas company OMV's 36% stake in the Bina Bawi gas field for a total consideration of USD150 million in cash, with an initial payment of USD20 million and the remaining balance to be paid in two tranches after production begins.
"These agreements represent a win-win in the commercialisation of Miran and Bina Bawi. It materially de-risks the value of Genel's gas business, gives attractive project returns while significantly lowering our capital exposure, and provides revenues from early oil production," said Chief Executive Tony Hayward.
Genel's production and revenue guidance for the full year remains unchanged at between 60,000 to 70,000 barrels of oil equivalent per day to generate revenue between USD500 and USD600 million based on an oil price of USD80 per barrel, it said in a statement.
Production in 2015 is set to increase as Genel has set a guidance for next year of between 90,000 and 100,000 barrels of oil equivalent per day, also set to generate revenue of between USD500 and USD600 million at the same oil price.
At the end of September, the company reported a cash balance of USD660 million with USD170 million in net cash.
Capital expenditure for the full year is expected to be around USD650 million, higher than the original target of between USD500 and USD600 million due to higher spending on the Sidi Moussa well offshore Morocco. Capital expenditure in 2015 is set to be much lower at around USD300 to USD350 million, said Genel in a statement.
Genel said it has plugged and abandoned the SM-1 well on the Sidi Moussa block after failing to produce oil at a sustainable rate, with further work needed on the well to evaluate it before further steps can be taken.
Genel's partners on the project are San Leon Energy PLC and Serica energy PLC. Genel holds a 60% stake and is the operator, whilst San Leon holds a 10% net working interest and Serica has a 5% interest. The Office National Des Hydrocarbures Mines owns the remaining interest.
Genel had said it had drilled the SM-1 well to a total depth of 2,825 metres and encountered oil in fractured and brecciated cavernous Upper Jurassic carbonates. In the course of well control operations 26 degree API oil was produced to surface, it said.
However, a subsequent testing programme over the same interval failed to produce oil at sustainable rates, potentially as a consequence of the reservoir damage suffered during drilling and well control operations, Genel said. Further evaluation of the well results and other subsurface information is required before any definitive conclusions can be drawn, it added.
San Leon and Serica both released separate statements concerning the well.
"Analysis of the oil recovered, and the suite of data from drilling, logging and testing, provides a good platform for evaluating the potential of the Sidi Moussa licence and its various prospects. This evaluation work will begin immediately," San Leon Chairman Oisin Fanning said.
San Leon shares were down 20.0% at 1.42 pence early Thursday, one of the worst-performing stocks on the AIM All-Share index, while Serica shares were down 10.7% to 9 pence. Genel shares were up 2.0% to 838.50 pence per share on Thursday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
Copyright 2014 Alliance News Limited. All Rights Reserved.
Genel Energy (GENL)
San Leon (SLE)
Serica Energy (SQZ)