Genel Energy Regulatory News (GENL)

 5 March 2015

Genel Energy plc

Audited results for the year ended 31st December 2014

Genel Energy plc, the London listed exploration and production company and largest independent oil producer in the Kurdistan Region of Iraq, announces its audited results for the year ended 31st December 2014.

Results summary

1.  EBITDAX is profit before interest, tax, depreciation, amortisation and exploration expense

2. Free cash flow is cash flow from operating activities less capital expenditure

Highlights

· 2014 revenue of $520 million, an increase of 49% on 2013

· 2014 EBITDAX of $411 million, an increase of 49% on 2013

· 2014 production of 69,000 boepd, an increase of 58% year-on-year with significant further growth expected in 2015

· Iraq budget passed into law in February 2015, enabling financial implementation of interim oil deal between the Kurdistan Regional Government ("KRG") and Government of Iraq

· Cash balances at 31 December 2014 stood at c.$490 million, with Genel highly focused on balance sheet strength to enable future investment and growth in the KRI

Outlook

· To provide cash directly to contractors during the transition to regular payments for exports, the KRG has implemented a temporary domestic market sales channel under which contractors receive 50% of domestic sales proceeds:

- This has run successfully for Taq Taq through February 2015

- Taq Taq domestic price of $40-45/bbl equates to a Brent price of $50/bbl less transportation tariffs, reflecting strong demand for lighter barrels within the Kurdistan Region of Iraq ("KRI") domestic market

· Domestic market prices will be revised monthly in line with movements in international benchmarks

· Revenue and production guidance for 2015 maintained at 90-100,000 boepd and $350-400 million at a Brent price of $50/bbl

· On completion of gas deal, total working interest reserves and unrisked resources set to increase significantly

Tony Hayward, Chief Executive of Genel, said:

"2014 was a year of significant growth for Genel. Operational progress and the completion of the KRI-Turkey pipeline helped to drive production up 58%, which in turn led to an increase in both revenue and EBITDAX of almost 50%. Growth is set to continue in 2015, with production forecast to rise by a further 40%.

At a time of a depressed oil price we remain focused on the importance of a robust balance sheet. Genel's financial flexibility is a significant strength, and allows us to target spending on growth at our producing assets in the KRI, as we wait for the economic situation in Iraq to improve sufficiently to facilitate regular export payments.

In the first quarter of 2015 we have stepped up the domestic monetisation of our KRI production. Given that this production is amongst the lowest-cost in the world, and domestic realisations strong, this provides a significant interim source of revenue until predictable export payments are in place. We expect to receive regular payments for exports as we move through 2015."

Enquiries:

There will be a conference call for analysts and investors today at 0900 GMT, with an associated presentation available on the Company's website, www.genelenergy.com. The call will be recorded and made available on the website shortly after it finishes.

Disclaimer

This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil & gas exploration and production business. Whilst the Company believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. Accordingly no reliance may be placed on the figures contained in such forward looking statements.

 Chairman's statement

I am pleased to welcome you to Genel Energy's fourth preliminary statement, detailing what has been a significant year in the Kurdistan Region of Iraq and for Genel. We have continued to deliver material growth in the business, and have successfully positioned the Company to grow over the coming years - even in a lower oil price environment.

2014 was transformational for the KRI's oil and gas prospects. Three things fundamentally changed the operating environment. First, the region's independent oil export infrastructure was completed, and pipeline exports rose throughout the year, reaching over 400,000 bopd by the end of 2014. This is also set to increase significantly in 2015. Increased exports were matched by successful tanker liftings and sales, and the second half of 2014 saw KRI crude being sold by the KRG on the international market on a regular and predictable basis, generating international export prices.

The second change in 2014 was the emergence of ISIS, which dominated world headlines throughout the year and has reshaped the political landscape in Syria and Iraq. While the initial military advances of ISIS created market uncertainty, throughout the period the Kurdistan Regional Government has been able to protect its borders. We continued to operate at our producing assets throughout the summer, and our operations remained safe and secure. Of course, we did take additional steps to ensure that our workforce were safe, and I would like to express my sincere thanks for their perseverance and commitment.

The support that the KRG has received from the international community underpins confidence that security will not be an impediment to our ongoing operations.

The third change this year was the overall political situation in Iraq. With the Iraq-Turkey export pipeline in Iraq inoperable, the major Baghdad-controlled Kirkuk oil reserves were left stranded to the detriment of the Iraqi people. This, allied with the increasing production in the KRI, contributed to the re-engagement of the Federal Government of Iraq with the KRG. Dialogue was helped by the election of a more inclusive, pragmatic leadership in Baghdad, led by Prime Minister Haider al-Abadi, which is keen to work together with the KRG for the benefit of all Iraqis.

The interim oil export agreement, finalised in December, provides a pragmatic solution, ensuring that oil exports from the KRI are able to reach their full potential and boost Iraq as a whole, with the KRG receiving its full budget allocation. Further payments to contractors, including Genel, are expected to follow.

POWERING THE KURDISTAN REGION OF IRAQ 

With export infrastructure in place, in 2014 Genel has focused on its producing operations in the KRI. Production at Taq Taq and Tawke increased by over 50%, and the low-cost of this production is a clear advantage at a time when the oil price has fallen significantly. A similar rise in production is expected in 2015. This increase means that Genel is now one of the largest independent oil producers listed on the London Stock Exchange - a significant achievement for a business that only listed a little over three years ago.

Oil exports are crucial to the economy of the KRI, and we will continue to underpin the success of the KRG through helping facilitate the sale of gas by the KRG to Turkey. Under the KRG-Turkey Gas Sales Agreement, signed in November 2013, the KRG is set to provide energy-hungry Turkey with an initial 4 bcma of gas exports from 2018, rising to 10 bcma by 2020.

Agreement for the development of our Miran and Bina Bawi fields, reached with the KRG in November, will unlock a world-class gas resource and will assist the KRG to satisfy both domestic gas demand and its obligations to Turkey. This agreement was also a milestone for Genel, materially de-risking the value of our gas business, giving attractive project returns while significantly lowering our capital exposure.

ROBUST BALANCE SHEET

The Company has a clear strategy in place for an environment that has seen a significant fall in the oil price. Fiscal responsibility and a robust balance sheet are crucial in the oil and gas industry, and your Board will ensure that the business is managed prudently and will continue to monitor opportunities to preserve the competitive advantage of our financial strength and ensure ongoing growth.

After the period end we announced Julian Metherell's retirement from the Company, and the appointment of Ben Monaghan as Chief Financial Officer. Julian leaves Genel in a strong position to prosper, and on behalf of the Board I would like to thank him for all of his hard work. We look forward to working with Ben, who has precisely the attributes we were looking for as we continue building on our position as a leading exploration and production company.

GOVERNANCE AND RISK MANAGEMENT

The changing environment reinforces the need for strong independent governance and we will continue to monitor carefully risk across all operations. In this, we work closely with regional authorities and local communities to ensure the safety of our staff and contractors and equally to maintain a strong reputation for responsible operations.

Since Genel's inception, a key pillar of our strategy has been to observe the highest standards of corporate governance. In line with this, we continue to have strong, independent audit and remuneration committees.

OPERATING RESPONSIBLY

Your company has a history of partnership with the Kurdistan Regional Government stretching back over a decade, and we are proud of the important role that we have played in the development of the KRI and its oil industry. It has been distressing to see the humanitarian crisis in the region, as over one million people were displaced by the actions of ISIS and sought refuge in the KRI. With an indigenous population of only five million people, this influx is unprecedented.

The successful management of this influx is a testament to the leadership of KRG. We continue to help in any way that we can. Our core strength, producing hydrocarbons, is vital to the economic prosperity of the region, and we have further embedded ourselves into the communities in which we operate. These works, and our contribution to easing the humanitarian crisis, are detailed in this report.

GROWTH IN A LOW-PRICE WORLD

We move into 2015 with rising oil production in the KRI fuelling increased exports. Payments for these exports are set to continue.

Our production costs are amongst the lowest in the world, and a robust balance sheet, allied with the significant capital flexibility in our portfolio, leaves Genel well positioned to continue its growth even in a period of sustained low oil prices.

A joint statement from the chief executive officer and president

Momentum in the Kurdistan Region of Iraq oil industry provided the backdrop for a strong operational performance. 2014's two overriding geopolitical factors - the emergence of ISIS, and later in the year the fall in the oil price - did not distract us from our focus on core operations. This year we achieved a 58% growth in production, at the top end of our guidance range, resulting in a significant increase in revenue. This is a testament to the strength of the professional team we have in place and the quality of our KRI resources.

A YEAR OF DELIVERY IN THE KRI 

In 2014, a focus on operations boosted working interest production to an average of 69,000 boepd, with gross production from Taq Taq and Tawke averaging 194,000 bopd. In a year in which the Kurdistan Regional Government faced significant economic challenges this strong operational performance provided the oil that fed growing exports, which were sold with increasing regularity through the Turkish port of Ceyhan.

The opening of the KRI-Turkey oil export pipeline was a transformational moment. The ability to reach the export market, and in turn international pricing, provided a route to large-scale, cost effective monetisation of KRI oil. The first lifting of this oil took place in Ceyhan in May, increasing in regularity over the remainder of the year. Over 40 cargoes were lifted in 2014, establishing a track record of predictable sales.

In total, 40% of Genel's production was exported by the KRG through the KRI-Turkey pipeline system, with 9% exported via Turkey by truck and the remainder sold into the domestic market.

In 2014 focus in the KRI was on increasing production, and work will be undertaken in 2015 to further grow this significantly.

The successful installation and commissioning of well site temporary production facilities in December 2014 at Taq Taq helped set a new daily production record of 135,000 bopd and a new record for gross daily liftings of 147,000 bopd. Completion and commissioning of the second central processing facility is due by year-end 2015, and works to increase the processing capacity at the Tawke field are expected to complete in the early part of 2015.

This increasing production is not constrained by pipeline capacity issues. By the end of 2014 the Fishkhabour to Ceyhan 40" pipeline had capacity of 700,000 bopd. Total exports by the KRG grew to over 400,000 bopd by the end of the year.

DEVELOPING THE KRI OIL INDUSTRY

We are proud of the integral role that Genel has played in the growth of the KRI oil industry. For over a decade we have worked with the KRG to develop this industry, working hand-in-hand for the region's economic strength and stability. Our success is entwined with the strength of the KRI, and the KRG has repeatedly stated its clear intention to pay contractors their full PSC entitlements. The first payment for oil exports via the pipeline was received in December 2014.

We expect our KRI operations to be significantly cash generative in coming years, despite the significant drop in the oil price. Our barrels can be developed and produced at some of the lowest costs in the industry today due to their onshore location and prolific reservoirs. This contributes to a low breakeven oil price, and Genel is well positioned to continue to grow even in a period of sustained low oil prices.

A TRANSFORMATIONAL GAS AGREEMENT

One of the most exciting developments was crystallising the potential of our KRI gas business through an agreement reached in November with the Ministry of Natural Resources of the KRG for the development of the Miran and Bina Bawi gas fields.

With 11 tcf of mean raw gas resources, these are world-class fields, and the agreement sets out a roadmap to develop them at low cost to provide domestic gas production to power continued industrial and economic growth in the KRI. It also assists the KRG in fulfilling the gas sales agreement signed between Turkey and the KRG in November 2013, which calls for 4 bcma of gas exports from 2018, rising to 10 bcma by 2020, and the potential for further increases in the next decade.

Gas supplied from our Miran and Bina Bawi fields will significantly reduce Turkey's gas import bill and help cement the already close ties between it and the KRI. With these fields, the KRI is poised to become a major producer, consumer and exporter of gas, which will create significant value for both the region and Genel.

The agreement provided a solution with clear benefits for both the KRG and Genel, and is in line with our key objectives:

• to maintain a meaningful exposure to the gas development while reducing our capital investment; and

• to generate attractive returns, including prior acquisition costs, for both fields and to unlock significant value for Genel.

Our negotiations with the KRG over the detailed PSC amendments regarding Miran and Bina Bawi have been going well in recent months. As a result, we expect the PSC amendments to be completed in the first half of 2015.

The new structure will deliver a material reduction in our capital exposure: for both fields we anticipate that combined gross contractor capex to first gas will be $1 billion, generate attractive returns, and create significant value for Genel.

A FOCUSED EXPLORATION STRATEGY

Over the last few years, we have enjoyed considerable exploration success in the KRI with discoveries at Chia Surkh, Bina Bawi, Ber Bahr, Peshkabir and Tawke Deep. Unfortunately, in common with many of our peers, we have not enjoyed the same success in our frontier exploration programme offshore Africa. A well was drilled offshore Malta, and two offshore Angola, without success.

In Morocco, the Juby Maritime well encountered a 110 metre gross oil column of heavy oil in the Upper Jurassic, and the SM-1 exploration well on our operated Sidi Moussa licence encountered oil in fractured and brecciated Upper Jurassic carbonates. We continue to evaluate the two wells and the implications for further activity in Morocco.

Following these drilling results, expenditure relating to exploration wells drilled in Angola, Malta and the Sidi Moussa and Juby Maritime licences in Morocco has been written off.

With a robust balance sheet being of key importance in a low oil price environment, we have reset our exploration strategy to reflect the current market conditions. We will now focus on less capital-intensive onshore exploration within our existing KRI and Africa portfolio.

In 2016, we are planning to drill appraisal wells on both Peshkabir and Chia Surkh in the KRI. These wells will help refine the volumes for both discoveries and their potential developments. In Africa, we will concentrate on our Horn of Africa operations. Notwithstanding security difficulties over the past year, we continue to see significant potential in our Somaliland acreage. In addition, the 2D seismic acquired on the Adigala block in Ethiopia in 2014 supports the presence of a working hydrocarbon system and large structures which could hold material potential.

We are hopeful that work can resume on our highly prospective Somaliland acreage, and we will progress our Ethiopian prospects towards drilling, although capital discipline in the face of lower oil prices and the timing of existing work programmes means drilling activity is unlikely before 2016. Adding resource through exploration remains a key objective for Genel and we will continue to add new opportunities where appropriate.

A ROBUST BALANCE SHEET

Our portfolio has the benefit of significant flexibility, allowing us to target capital expenditure in key areas, driving growth in our core KRI operations. Cash balances at the end of 2014 stood at c.$490 million. We remain focused on maintaining a robust balance sheet and, with cash generative production, even at a low oil price, Genel has a very resilient business underpinning our future growth.

We are advantaged by having no capital-intensive fixed long-term development projects in our portfolio. We will continue to focus spend in the Kurdistan Region, prioritising investment in our production assets which offer short paybacks and high returns on incremental expenditure.

Split broadly equally between the KRI and Africa, our capital expenditure in 2014 was c.$670 million. This will fall to $200-250 million in 2015, a reduction of 70%. Importantly, this is without impacting near-term production plans in the KRI. General and administrative cost reductions of 40% have been initiated to ensure staff levels are appropriate for our future level of planned activity.

A PARTNER FOR THE KRI

Supporting and sustaining the regions in which we operate is fundamental to Genel's success and our commitment to being a sustainable business. Having operated in the KRI since 2002, our operations have helped pave the way for the KRG to create an economically strong, potentially self-sufficient Kurdistan Region of Iraq. This starts with the significant contribution we have made to the development of an indigenous oil and gas industry and extends to the extensive community investment programmes we have undertaken, which are making a real difference at a local level.

The humanitarian crisis caused by the emergence of ISIS to the west of the KRI was a key focus of both the KRG and our community work in 2014, and we have been a leading supporter of the KRG's Kurdistan Oil and Gas Humanitarian Initiative. Working with the KRG and leading NGOs, Genel has contributed to the provision of emergency aid to tens of thousands of vulnerable people displaced by conflict. We will continue to work with the KRG in 2015, helping to ensure the wider benefit of our operations.

OUTLOOK

Today, oil sales from the Kurdistan Region of Iraq are regular and predictable, the relationship between Baghdad and Erbil is closer than it has been for many years, and payments for increasing oil exports are expected to continue throughout 2015. This, combined with low-cost onshore oil production, and the significant financial flexibility in the portfolio, leaves us well positioned to continue our growth even in a period of sustained low oil prices.

We are proud that we will continue to play a key role in the next phase of the development of the KRI oil and gas sector - to the benefit of the people of the region and to Genel.

Operating review

PRODUCTION

Net working interest production in 2014 averaged 69,000 boepd, at the top end of the Company's guidance range, which remain unchanged all year. This represented growth of 58% on 2013. The main driver of higher production was the onset of KRI exports via the new export pipeline through Turkey. This allowed both Taq Taq and Tawke to deliver high levels of capacity utilisation during the second half of 2014. In addition, Taq Taq production capacity increased in H2 2014 through the installation of temporary well-site production facilities.

During the year, the Company's net production from Taq Taq and Tawke totalled 68,000 bopd, which was sold into both export and domestic markets. Export volumes increased through the year as pipeline capacity increased. During the fourth quarter of 2014, around two thirds of Genel's net working interest production was exported via pipeline. Over the course of 2014, there was a broadly equal split between domestic and export sales.

The Dohuk gas field on the Summail licence commenced production in May 2014 and contributed 1,300 boepd to 2014 net production. This was below expectations due to earlier than anticipated declines in reservoir pressure and water production in the first two production wells. In light of this initial performance, no further investment is planned at Summail and the field is expected to deliver minimal levels of production going forward.

Production guidance for 2015 is reiterated at 90-100,000 boepd, representing further significant growth as a result of a full year of pipeline availability and further surface capacity increases at Taq Taq and Tawke. This translates into revenue guidance of $350-400 million at a Brent price of $50/bbl.

RESERVES AND RESOURCES

At 31st December 2014, Genel Energy's proven and probable (2P) working interest reserves were 429 mmboe (2013: 453 mmboe), a 5% decrease year-on-year. The booking of Miran oil reserves only partially offset production from Taq Taq, Tawke and Summail and the removal of Summail 2P reserves following field underperformance. As a result, the reserves replacement ratio in 2014 was 8% (2013: 147%).

Contingent resources declined by 5% to 1,033 mmboe (2013: 1,088 mmboe) on a downward revision to Miran oil resources and subsequent transfer into 2P reserves. The contingent resources associated with the Dohuk licence (12 mmboe) have also been removed.

1. Proven and probable 2P reserves at Taq Taq and Tawke are based on independent reserve reports

2. Contingent resources are based on both Genel Energy's estimates and independent reserve reports

Year-end 2014 reserves and contingent resources do not include the potential impact of the arrangements with the KRG and OMV in respect of the Miran and Bina Bawi gas fields. Pro-forma for successful execution of these arrangements, year-end 2014 2P reserves would have been 437 mmboe, incorporating a further 25% share of the Miran oil reserves. Pro-forma, year-end 2014 contingent resources would have significantly increased after factoring in the conversion of sales gas to raw gas and an increase in working interest at both assets.

KRI OIL ASSETS

KRI pipeline infrastructure

During 2014, the KRG commenced oil exports through the new KRI-Turkey export pipeline. The pipeline consists of a number of sections. The first, from the Taq Taq field to the Khurmala Dome, has capacity of 150,000 bopd, with the potential to increase to 200,000 bopd. The second section, from Khurmala to the KRI border, currently has capacity of 375,000 bopd, which will shortly increase to 700,000 bopd once a section of the pipeline crossing the Zab river is upgraded. At the border, both the KRI pipeline and the dedicated export pipelines from the Tawke field, which have capacity in excess of 250,000 bopd, are tied into the into the 40-inch section of the Iraq-Turkey pipeline. The 40-inch section currently has 700,000 bopd of capacity. Pipelines on both the KRI and Turkey sides of the border have sufficient capacity to facilitate all current or future oil exports from Genel's fields.

Initial volumes were exported through the pipeline system in March 2014, and by May, sufficient volumes had accumulated in storage at the Mediterranean port of Ceyhan to commence oil sales to international buyers. First sales commenced in May 2014 and by the end of 2014, over 40 cargoes of KRI crude had been sold, representing a strong track record of unimpeded exports.

Taq Taq (44% working interest, joint operator)

The Taq Taq field produced a gross average of 103,000 bopd in 2014, compared to 77,000 bopd in 2013. Pipeline exports to international markets via Turkey commenced in May 2014 and steadily increased over the year. Exports (via pipeline and truck) and domestic sales were split broadly equally over the year. Deliveries to the Bazian refinery averaged 32,000 bopd, or c.30% of total production, during 2014.

After the installation of temporary well-site production facilities during the year, end2014 surface processing capacity stood at 135,000 bopd, a c.10% increase on end-2013. The installation of a temporary production facility will further increase processing capacity to 150,000 bopd in Q1 2015. The completion and commissioning of the second permanent central processing facility, which has planned capacity of 90,000 bopd, is expected by year-end 2015.

At end2014, Taq Taq wellhead production capacity was in excess of 150,000 bopd. The TT-23 deviated well and TT-24 horizontal well have been drilled and will be tested over coming months.

Tawke (25% working interest)

The Tawke field produced an average of 91,000 bopd in 2014, compared to 39,000 bopd in 2013. Production more than doubled year-on-year given the onset of export availability through the KRI-Turkey pipeline. Production was broadly equally split between the domestic and export markets during 2014.

The Tawke surface processing facilities are currently capable of producing up to 125,000 bopd. This capacity is scheduled to increase to 200,000 bopd in the early part of 2015 through the utilisation of early production facilities. To facilitate the higher volumes, a new 24-inch pipeline has been constructed from the field to the Tawke partners' Fishkhabour export facility. This increases export capacity to in excess of 250,000 bopd and delivers transportation system redundancy.

Wellhead production capacity at end-2014 was in excess of 150,000 bopd. The Tawke-27 and 28 wells have been brought on-stream recently producing at a combined rate of 11,500 bopd. The Tawke-30 well has reached final depth and is being completed for production.

KRI GAS ASSETS 

In 2014, Genel materially de-risked the Miran and Bina Bawi fields through a new commercial structure with the KRG and reached key terms to buy OMV's interest in the Bina Bawi field. This unlocks significant value for Genel and the KRG, and will enable the development of the Miran and Bina Bawi gas resource to satisfy both KRI domestic gas demand and exports to Turkey.

In November 2014, we announced that agreement had been reached with the Ministry of Natural Resources ("MNR") of the KRG for the development of the Miran and Bina Bawi gas fields.

In addition, we announced that key terms had been agreed with OMV to acquire its 36% operated stake in the Bina Bawi gas field. The total consideration will be $150 million in cash. An initial payment of $20 million will be paid on completion of the deal, with the remaining $130 million paid in two instalments after first gas. This is subject to finalisation of documentation and OMV's corporate approvals.

The agreement reached with the MNR for the development of Miran and Bina Bawi states that:

· The Miran and Bina Bawi field developments are to be combined. This is expected to be approved by end H1 2015. Following approval, Genel will become the sole contractor

· The responsibilities of Genel will be drilling of the gas wells, reservoir management, installation of flowlines and first stage condensate separation at Miran and Bina Bawi. The Company will also be responsible for the development of the oil resources at Miran and Bina Bawi

· The KRG will assume responsibility for the gas treatment facilities and gas offtake arrangements from the fields

· The tender process for the gas treatment plant will commence in 2015 and first gas production for export will commence in 2018. The KRG also has an option to request gas for domestic consumption commencing in 2016

· For 10 bcma of gas processing capacity, gross contractor life of field upstream capital investment is estimated at $3-3.5 billion, which represents a unit development cost of less than $0.3/mcf. Unit opex is estimated at less than $0.2/mcf

The benefits to the KRG from these arrangements are as follows:

· Commercialisation of a major onshore, low-cost, gas resource which will generate significant revenue and value for the people of the KRI

· The option for early gas production into the domestic market, which stands to be an important contributor to industrial and economic growth

· The ability to assist the KRG in fulfilling its export commitments to Turkey under the Gas Sales Agreement signed in November 2013

The benefits to Genel are as follows:

· The new structure will deliver attractive life of field returns and unlock significant value in Genel's gas business

· The arrangement covering Miran and Bina Bawi simplifies the structure of the gas business

· Acquiring OMV's Bina Bawi interest will consolidate the ownership structure across both fields, streamline project management and provide flexibility in meeting development goals

· Gross contractor upstream capital investment to first gas is reduced to c.$1 billion for the combined Miran and Bina Bawi developments

· Drilling activity and investment phased from 2016 onwards

Miran (75% working interest, operator)

The Miran field is a simple, large structure well defined on 3D seismic. The gas resources in the field are situated in Jurassic aged Butmah and Adaiyah reservoirs, which have delivered 20-25 mmscfd on test. Raw gas volumes in the Jurassic have been independently estimated at 2-7 tcf. In addition, we estimate up to 50 mmbbls of condensate from first stage separation.

The shallower Cretaceous Shiranish oil bearing reservoir is estimated to contain up to 60 mmbbls of 15 degree API oil, which has already been produced through an early production facility and which we plan to bring on-stream ahead of the gas resources in the field.

Reprocessing of 3D seismic over the field suggests upside to existing oil, gas and condensate resource estimates.

In light of the prevailing oil price environment, the Miran West-5 well was suspended at year-end 2014. The well was made safe above the main Miran reservoir horizons.

Bina Bawi (44% working interest)

The Bina Bawi field is a very large, simple, anticlinal structure which has five well penetrations and is fully appraised. Gas and condensate resources are reservoired in the Triassic Kurra Chine and Geli Khana reservoirs, with a small oil accumulation in the shallower Jurassic. Raw gas resources in the Triassic have been independently estimated at 4-12 tcf. In addition, we estimate up to 21 mmbbls of condensate.

There is significant upside potential to existing estimates of raw gas volumes as a definitive gas water contact has yet to be established by any of the wells drilled.

Dohuk (40% working interest)

The Summail gas field on the Dohuk licence commenced production into the Dohuk power plant during May 2014. However, during the second half of 2014, production from the field declined sharply due to decreasing reservoir pressure and water production in the first two wells. The field continues to produce, albeit at rates significantly below those envisaged in the original field development plan. As a result, minimal levels of production are expected going forward, leading to Summail 2P reserves being de-booked and the carrying value of the asset being impaired in the 2014 accounts.

EXPLORATION AND APPRAISAL

2014 EXPLORATION REVIEW

KRI

Drilling operations on the Taq Taq Deep exploration well (Genel 44% working interest and joint operator) were completed in March 2014 after encountering oil and gas shows in Jurassic and Triassic reservoirs. A testing programme was carried out over three separate zones, which flowed minor non-commercial rates of oil and gas due to the tight nature of the reservoirs.

Morocco

In March 2014, the JM-1 exploration well on the Juby Maritime licence (Genel 37.5% working interest) was plugged and abandoned without testing after reaching a total depth of 3,711 metres. The well confirmed the presence of heavy oil over a gross interval of 110 metres as originally tested in the 1968 MO-2 well, some two kilometres from the JM-1 well. Work continues to evaluate the potential for moveable hydrocarbons in the Upper Jurassic Cap Juby discovery.

In November, the SM-1 well on the Sidi Moussa permit (Genel 60% working interest and operator) was plugged and abandoned after being drilled to a total depth of 2,825 metres. The well 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. A subsequent testing programme over the same interval failed to produce oil at sustainable rates. Further evaluation of the well results and other sub-surface information is required before any definitive conclusions can be drawn.

Malta

In July, the Hagar Qim-1 well on the Area 4 licence (Genel 75% working interest and operator) offshore Malta was drilled to the Eocene target and plugged and abandoned with no indication of hydrocarbons. Genel has subsequently relinquished its interest in the Area 4 licence.

Angola

In April 2014, the Company announced that, together with White Rose Energy Ventures, it had acquired 15% working interests in the Blocks 38 and 39 offshore Angola. The 15% working interest in Block 38 was acquired from China Sonangol for an upfront payment of $59 million ($30 million net to Genel). The 15% working interest in Block 39 was acquired from the operator Statoil for a consideration comprising a pro rata share of past costs and a partial carry of Statoil's share of the first exploration well, for a total consideration value of $222 million ($111 million net to Genel).

In September, the Dilolo-1 well on Block 39 was plugged and abandoned after failing to encounter hydrocarbons. In November, the Jacaré -1 exploration well on Block 38 was plugged and abandoned. These two wells concluded Genel's committed Angola drilling programme.

FUTURE EXPLORATION ACTIVITY

KRI

On the Chia Surkh licence (Genel 60% working interest and operator) recently acquired 3D suggests that the main closure in the field sits adjacent to and beneath the Oligo-Miocene reservoirs tested in the successful 2013 drilling campaign. The provisional location of the ChiaSurkh-12 well has been chosen to test the possibility of several stacked reservoir zones in the Tertiary and Cretaceous. This well is due to spud in 2016.

At Ber Bahr (Genel 40% working interest and operator), a 160km2 3D seismic survey was completed in September 2014. The initial interpretation of this data confirms a potentially large accumulation in Jurassic aged reservoirs. An appraisal well, Ber Bahr-2, is planned in 2016 to delineate the reservoir and define the oil water contact of the existing discovery.

The Jurassic aged Peshkabir discovery is located on the Tawke licence. Recently acquired 3D seismic has confirmed that the original Peshkabir-1 well was drilled at structural closure. The Peshkabir-2 well has been located to appraise the Jurassic discovery up-dip from the original well location as well as test additional prospectivity in the Cretaceous. This well is planned for 2016.

Africa

Outside the KRI, the Company's near-term focus is on high-grading its exploration acreage in East Africa.

Onshore Ethiopia, the 2D seismic acquired during 2014 on the Adigala block (Genel 40% working interest) continues to de-risk the prospectivity of the licence, with field work proving the presence of a working petroleum system. This 2D data also supports the presence of large structures in the Jurassic which could hold material potential. A well is planned in 2016.

Onshore Somaliland, the Company continues to support the government's efforts to establish an Oilfield Protection Unit, which will provide an appropriate level of security in order to conduct future seismic and drilling operations. Seismic acquisition on the Odewayne licence (Genel 50% working interest and operator) and SL-10B/13 licence (Genel 75% working interest and operator) is currently scheduled for early 2016.

Offshore Côte d'Ivoire, a number of prospects have been identified on the CI-508 licence (Genel 24% working interest). The Company is considering its options with regard to future activity.

Finance director's review

Results summary

1. EBITDAX is profit before interest, tax, depreciation, amortisation and exploration expense

2. Free cash flow is cash flow from operating activities less capital expenditure

Results for the period 

For the year ended 31st December 2104, the Group reported revenue of $519.7 million (2013: $347.9 million), a loss before tax of $312.8 million (2013: $186.5 million profit) and a loss per share of 112.97 cents (2013: 66.24 cents earnings). Free cash flow for the period was an outflow of $560.9 million (2013: outflow of $252.6 million).

Revenue

Revenue, which is on an accruals basis, of $519.7 million (2013: $347.9 million) and EBITDAX of $410.6 million (2013: $274.8 million) increased from the comparable period as a result of pipeline export availability. Pipeline exports brought about higher production volumes and improved crude oil price realisations, which averaged $73/bbl (2013: $66/bbl).

Operating costs

Cost of sales of $203.1 million (2013: $140.7 million) includes depreciation charges of $141.0 million (2013: $94.4 million) and production costs of $62.1 million (2013: $46.3 million). Depreciation increased broadly in line with production levels whilst production costs were impacted favourably by lower transport costs, consumables and workover costs.

Exploration costs of $476.8 million (2013: credit of $3.1 million) represent the write-off of expenditure relating to exploration wells drilled in Angola, Malta and the Sidi Moussa and Juby Maritime fields in Morocco. In addition, the Company wrote off the entire value of the Dohuk gas asset ($80.9 million).

Other operating costs amounted to $47.0 million (2013: $26.8 million) for the period and included $9.0 million (2013: $6.2 million) of costs relating to acquisitions and pre-licence activity. The remaining $38.0 million (2013: $20.6 million) represented general and administration costs with 2013 benefitting from a one-off credit of $6 million.

Finance expense

Finance expense of $24.7 million (2013: $3.0 million income) represents primarily interest and issue costs on the $500 million bond issued in late May 2014.

Taxation

All corporation tax due has been paid on behalf of the Group by the KRG from the KRG's own share of revenues and there is no tax payment required or expected to be made by the Group other than some small amounts incurred and paid in respect of the Group's service companies in Turkey and the UK.

Dividend 

No dividend (2013: nil) will be paid for the year ended 31st December 2014.

Capital expenditure

Capital expenditure in the year amounted to $676.9 million (2013: $563.6 million). Exploration spend in KRI amounted to $137.8 million (2013: $348.4 million) with a further $193.4 million (2013: $128.1 million) incurred on the development of existing producing assets in KRI. Capital expenditure in Africa amounted to $343.0 million (2013: $82.1 million).

Cash flow

Net cash flow from operations was $195.3 million below last year at $116.0 million (2013: $311.3 million) primarily due to an increase in net amounts due from the KRG. This together with capex spend of $676.9 million (2013: $563.9 million) resulted in a free cash outflow of $560.9 million (2013: $252.6 million). Acquisition spend was $76.8 million (2013: $43.0 million) and the purchase of own shares and shares for employee share plans amounted to $63.2 million (2013: $6.0 million). Financing raised from the issue of bonds raised a net $490.3 million, leaving a net cash outflow of $210.6 million (2013: $301.6 million).

Cash

At 31st December 2014, the Group had a gross cash balance of $489.1 million (2013: $699.7million). After the deduction of borrowings, net debt was $2.3 million (2013: net cash $699.7 million).

Acquisitions

The group spent a total of $76.8 million (2013: $43.0 million) on acquisitions in the year. On 6th March 2014, the Group acquired a 40% interest in the Adigala block in Ethiopia for $4.0 million. On 3rd April 2014, the Group acquired a 7.5% interest in Blocks 38 and 39 offshore Angola for $72.8 million

Net assets

Net assets at 31st December 2014 amounted to $3,733.5 million (2013: $4,104.2 million) and consist primarily of oil and gas assets of $2,010.7 million (2013: $1,998.4 million), exploration and evaluation assets of $1,676.6 million (2013: $1,630.9 million) and net debt of $2.3 million (2013: $699.7 million net cash).

Liquidity / counterparty risk management

The Group monitors its cash position, cash forecasts and liquidity on a regular basis. The Group takes a conservative approach to cash management, with surplus cash held in government gilts or treasury bills or on time deposits with a number of major financial institutions. Suitability of banks is assessed using a combination of sovereign risk, credit default swap pricing and credit rating.

Going concern

The directors have assessed that the cash balance held provides the Group with adequate headroom over forecast operational and potential acquisition expenditure for the 12 months following the signing of the annual report for the period ended 31st December 2014 for the Group to be considered a going concern.

Accounting policies

UK listed companies are required to comply with the European regulation to report consolidated statements that conform to International Financial Reporting Standards (IFRS) as adopted by the European Union. Principal accounting policies adopted by the Group and applicable for the period ended 31st December 2014 can be found in the 2013 annual report The following standards have been adopted by the group for the first time for the financial year beginning on or after 1st January 2014 and do not have a material impact on the group: IFRS 10, 'Consolidated financial statements', IFRS 11, 'Joint arrangements' and IFRS 12, 'Disclosures of interests in other entities'

Condensed consolidated statement of comprehensive income

For the period ended 31st December

Condensed consolidated balance sheet

At 31st December

Condensed consolidated statement of changes in equity

For the period ended 31st December

1. Purchase of shares in the open market to satisfy the Company's commitments under various employee share plans.

2. Purchase of own shares in the open market and held as treasury shares

Condensed consolidated cash flow statement

For the period ended 31st December

Notes to the condensed financial statements

1. Segmental information

The Group has two reportable business segments, which are its oil and gas exploration and production business in the KRI and its oil and gas exploration business in Africa. Capital expenditure decisions for the Kurdistan segment are considered in the context of the cash flows expected from the production and sale of crude oil. Capital expenditure for the Africa segment is considered in the context of the available cash of the Group.

 Finance income is not considered part of a business segment and forms part of the reconciliation to the reported numbers.

For the period ended 31st December 2014

Other represents non-segmental items related to head office activities. Total assets and liabilities in the other segment are predominantly cash and debt balances.

For the period ended 31st December 2013

Other represents non-segmental items related to head office activities. Total assets and liabilities in the other segment are predominantly cash and debt balances.

2. Cost of sales

3. Exploration expense / credit

The exploration write-off represents exploration expenditure in respect of Angola, Malta and Morocco (Sidi Moussa and Juby Maritime fields) previously capitalised and now expensed.

4. Asset write-off

The asset write-off of $80.9 million (2013: nil) reflects the impairment of Dohuk where recent tests have shown the recoverability of the assets to be highly unlikely (see note 10).

5. Other operating costs

6. Finance expense / income

7. Taxation

A taxation charge of $1.5 million (2013: $0.9 million) was made in the Turkish and UK services companies. All other corporation tax due has been paid on behalf of the Group by the government from the government's share of revenues and there is no tax payment required or expected to be made by the Group.

8. Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the period.

1. Excluding the purchase of own shares now held as treasury shares

Diluted

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to include all potential dilutive ordinary shares. The Group has four types of potential dilutive ordinary shares:

- Shares granted to directors and employees under the performance share plan, to the extent that performance conditions have been met at the period end;

- Share options granted to employees under the share option plan, where the exercise price is less than the average market price of the Company's ordinary shares during the period

- Shares issued to employees under the restricted share plan

- Shares and securities issued to the founders of the Company, to the extent that performance conditions have been met at the period end.

1. Excluding the purchase of own shares now held as treasury shares

2. As the Group reported a loss in 2014, there are no dilutive adjustments to be made

9. Intangible assets

The exploration write-off represents exploration expenditure in respect of Angola, Malta and Morocco (Sidi Moussa and Juby Maritime fields), now expensed to the income statement.

Exploration and evaluation assets are comprised of the Group's PSC interests in exploration assets in the Kurdistan Region of Iraq and Africa. Exploration and evaluation assets are not amortised but are assessed for impairment indicators under IFRS 6.

The net book value of $2.7 million (2013: $3.0 million) of other assets is principally software.

10. Property, plant and equipment

Oil and gas assets comprise principally the Group's share of interests in the Taq Taq and Tawke producing fields in the Kurdistan Region of Iraq. Other assets include leasehold improvements, office furniture and motor vehicles.

The write-off relates to the Dohuk asset which has been fully written off to the income statement.

11. Trade and other receivables

The fair values of financial assets approximate their carrying value.

12. Cash and cash equivalents

The above amounts are primarily held in government gilts or treasury bills or on time deposits with a number of major financial institutions. Cash includes the Group's share of cash held in its joint operations and $166.1 million (2013: $nil) of cash collateral on letters of credit and performance guarantees, which can be reconverted at relatively low cost.

13. Trade and other payables

The fair values of financial liabilities approximate their carrying value.

14. Deferred income

Deferred income is royalty income received in advance from the Group's partner for the Taq Taq PSC. The deferred income is recognised in the statement of comprehensive income in a manner consistent with how the royalty income becomes due. Once the deferred income has been fully recognised, the joint operating partner will recommence cash payment for the royalty as it becomes due.

15. Provisions

Non-current provisions cover expected decommissioning and abandonment costs resulting from the net ownership interests in petroleum and natural gas assets, including well sites and gathering systems. The decommissioning and abandonment provision is based on management's best estimate of the expenditure required to settle the present obligation at the end of the period.

The cash flows relating to the decommissioning and abandonment provisions are expected to occur between 2031 and 2039. The provision is the discounted present value of the cost, using existing technology at current prices.

16. Bank and other long-term borrowings

The $500 million bond is unsecured with a coupon rate of 7.5% payable on a biannual basis and is shown net after unamortised issue costs. The fair value of the bond at 31st December 2014 was $452.1 million.

17. Share capital

1. Voting ordinary shares includes 2,006,362 (2013: nil) treasury shares

On the sale of voting ordinary shares from an affiliated shareholder to a third party, the affiliated shareholders have a right of conversion of suspended voting ordinary shares to voting ordinary shares in order to maintain their voting ordinary share percentage at just below 30% of the Company. Details of those sales and resulting conversions are set out below.

On 27th January 2014, 2,250,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 21st February 2014 a further 1,000,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 7th March 2014 4,642,857 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 10th March 2014, 2,170,000 voting ordinary shares were transferred from affiliated shareholders to third parties and on the 11st March 2014 3,100,000 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 2nd July 2014, 1,120,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 7th July 2014 a further 3,000,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 24th July 2014, 5,885,715 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 15th May 2013, 1,500,000 suspended voting ordinary shares were transferred from an affiliated shareholder to a third party and converted to voting ordinary shares. On the same day a further 642,858 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 21st May 2013, 1,300,000 suspended voting ordinary shares were transferred from an affiliated shareholder to a third party and converted to voting ordinary shares. On the same day a further 557,142 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 5th July 2013, 5,425,001 suspended voting ordinary shares were transferred from affiliated shareholders to third parties and converted to voting ordinary shares. On the same day a further 2,325,001 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 26th September 2013 and 18th October 2013 3,076,251 and 1,430,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 31st October 2013 6,437,501 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.

On 22nd November 2013, 810,000 suspended voting ordinary shares were transferred from an affiliated shareholder to third parties and converted to voting ordinary shares. On the same day a further 347,143 suspended voting ordinary shares were converted to ordinary shares in accordance with the terms of the suspended voting ordinary shares

There have been no changes to the authorised share capital since it was determined to be 10,000,000,000 ordinary shares of £0.10 per share.

18. Cash generated from operating activities

19. Acquisitions

On 6th March 2014, the Group acquired a 40% interest in the Adigala block in Ethiopia for $4.0 million. On 3rd April 2014, the Group acquired a 7.5% interest in Blocks 38 and 39 offshore Angola for $72.8 million.

20. Commitments

Under the terms of its PSCs and JOAs, the Group has certain commitments that are defined by activity rather than spend. The Group's capital programme for the next few years is explained in the 2014 annual report to be distributed to shareholders in March 2015 and is in excess of the activity required by its PSCs and JOAs.

21. Statutory accounts

The financial information for the year ended 31st December 2014 contained in this preliminary announcement has been audited and was approved by the board on 5th March 2015.

The financial information in this statement does not constitute the Company's statutory accounts for the years ended 31st December 2014 or 2013. The financial information for 2014 and 2013 is derived from the statutory accounts for 2013, which have been delivered to the Registrar of Companies, and 2014, which will be delivered to the Registrar of Companies and issued to shareholders in March 2015. The auditors have reported on the 2014 and 2013 accounts; their report was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

The statutory accounts for 2014 are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The accounting policies (that comply with IFRS) used by Genel Energy plc (the Group) are consistent with those set out in the 2013 annual report with the exception of IFRS 10, IFRS 11 and IFRS 12 which were implemented during the year. The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those applied to the consolidated financial statements for the period ended 31st December 2013.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

22. Annual report

Copies of the 2014 annual report will be despatched to shareholders in March 2015 and will also be available from the Company's registered office at 12 Castle Street, St Helier, Jersey JE2 3RT and at the Company's website, www.genelenergy.com.