Malcy's take on KRG antics/ GENL13 May 2021 16:40
Genel Energy
Genel has, in line with other operators, received a letter from the Kurdistan Regional Government proposing an amendment to the repayment schedule for monies owed. Under the communicated revised payment terms, for each cent above a monthly dated Brent average of $50/bbl, 0.2 cents per paying interest barrel produced will be received towards monies owed (previously 0.5 cents per paying interest barrel). The revised payment terms are stated by the KRG to be a result of the Dated Brent price having consistently stayed well above $50/bbl, and the ongoing challenges presented by the COVID-19 pandemic in Iraq.
The KRG has stated that the amended payment schedule will be applied to the March 2021 invoices onwards, and that payment terms will be 60 days after the submission of invoices. The KRG has also stated that, should markets see substantial volatility, it will re-evaluate this payment model, override payments, whereby Genel receives 4.5% of monthly Tawke gross field revenues, will continue.
Whilst this is disappointing for Genel and all the Kurdistan players it should be taken in context and is not actually a loss of any income merely a short term deferral. This is because the KRG are, like many other countries under pressure from the Covid virus and a modest tinkering with the pay-out formula will help Governmental cash flow in times of austerity.
Indeed the companies operating in-country are financially robust and whilst it is never a valid reason to change policy on the hoof, it was probably not envisaged to see nearly $70 oil when the plan was put in place, a price that has in some places quadrupled company pay-outs.
For Genel it should not have any material effects, they have a very busy few months ahead including a potentially bullish drilling programme, the production profile looks good and finances are strong, investors should bear in mind when worrying about today’s share price fall that the shares are ex dividend some 10 cents. I remain confident that Genel remains in a very strong position, indeed the fact that this move has been made as oil approaches $70 should and could be read as a positive.
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