Genel Energy : Full-Year Results 2020

18 March 2021

Genel Energy plc

Audited results for the year ended 31 December 2020

Genel Energy plc ('Genel' or 'the Company') announces its audited results for the year ended 31

December 2020.

Bill Higgs, Chief Executive of Genel, said: "2020 was a uniquely challenging year for everyone. As for Genel, our continued progress and strong performance in 2020 has laid the foundation for a year of growth and operational catalysts in 2021. We continued investment in Sarta, which entered production in November, and the field is generating cash as we now move to rapidly appraise its exciting potential. Three appraisal wells will be drilled at the licence in 2021. The QD-2 well at Qara Dagh is also set to spud shortly, as we look to evaluate the potential to add a fifth producing field.

As we make this investment in growth, the low-cost and high-margin nature of our growing oil production means that we expect to generate significant free cash flow at the prevailing oil price. In turn, this gives us the confidence in our material and sustainable dividend distribution, including a final dividend of 10 cents per share announced today, as we continue to offer investors a compelling mix of growth and returns."

Results summary ($ million unless stated)

2020 2019

Average Brent oil price ($/bbl)	42	64
Production (bopd, working interest)	31,980	36,250
Revenue	159.7	377.2
EBITDAX1	114.6	321.8
Depreciation and amortisation	(153.7)	(158.5)
Exploration expense	(2.2)	(1.2)
Impairment of oil and gas assets2	(286.3)	(29.8)
Impairment of receivables	(36.9)	-
Operating (loss) / profit	(364.5)	132.3
Cash flow from operating activities	129.4	272.9
Capital expenditure	109.7	158.1
Free cash flow4	(4.4)	99.0
Dividends declared (¢ per share)	15	15
Cash	354.5	390.7
Cash after post-year end payments5	273.5	377.1
Total debt after settlement of called bonds5	280.0	300.0
Net cash6	6.2	92.8
Basic EPS (¢ per share)	(152.0)	37.8
Underlying EPS (¢ per share)3	41.8	116.9

• 1. EBITDAX is operating loss / (profit) adjusted for the add back of depreciation and amortisation ($153.7 million), exploration expense ($2.2 million), impairment of property, plant and equipment ($242.0 million), impairment of intangible assets ($44.3 million) and impairment of receivables ($36.9 million)

• 2. Despite production in line with expectations, the low oil price in June 2020 resulted in an impairment of production assets at the half-year results, which under IFRS cannot be reversed despite the improved oil price outlook

• 3. Underlying EPS is EBITDAX divided by weighted average number of ordinary shares

• 4. Free cash flow is reconciled on page 13

• 5. On 8 January 2021, shortly after the balance sheet date, the Company paid $81.0 million to settle $77.1 million of old bonds reducing its gross debt balance to $280.0 million, with $267.7 million reported under IFRS in the balance sheet (2019: Cash reported at 31 December 2019 less interim dividend paid ($13.6 million) on 8 January 2020)

• 6. Reported cash less IFRS debt (page 13)

Highlights

• • Zero lost time injuries ('LTI') and zero tier one loss of primary containment events in 2020 at Genel and TTOPCO operations

  • o No LTIs since 2015, with over 13 million work hours since the last incident as of end-2020

• • Net production averaged 31,980 bopd in 2020 (2019: 36,250 bopd), following the pause in the drilling programme at Tawke, appropriate to the external environment

  • o First oil from Sarta achieved in November 2020, with asset now producing over 10,000 bopd

• • $173 million of cash proceeds were received in 2020 (2019: $317 million)

• • The low-production cost per barrel of $2.8/bbl in 2020 helped deliver cash generation of $85 million in the year from producing assets

  • o Free cash outflow of $4 million following material capital expenditure on growth assets

• • Dividends of 15¢ per share announced in 2020 (2019: 15¢ per share)

• • Net cash of $6 million at 31 December 2021 following the call of the old 2022 bond, with cash of $274 million and reported IFRS debt of $268 million

• • Carbon intensity of 13 kgCO2e/bbl for scope 1 and 2 emissions in 2020, significantly below the global oil and gas industry average of 20 kgCO2e/boe

Outlook

• • Production guidance for 2021 maintained as slightly above the 2020 average of 31,980 bopd, with the potential for a higher exit rate and further growth in 2022 depending on success of the Sarta appraisal programme

  • o Margin of $15 per working interest barrel expected in 2021 at average Brent oil price $60/bbl, with receivable recovery payments increasing that to $20/bbl

• • 2021 capital expenditure guidance maintained at $150 million to $200 million, with the current macro environment and outlook supporting investment at the top end of this range

  • o c.$100 million expenditure is forecast to be spent on growth assets, with three appraisal wells at Sarta targeting a material 2C resource and the QD-2 well, set to spud shortly, aiming to open up a new producing field

• • Operating costs still expected to be c.$50 million (2020: $33 million), equating to c.$4/bbl in 2021 ($2.8/bbl in 2020), retaining our advantageous low operating cost position, with the increase from 2020 due to the addition of Sarta early production costs

• • Given the increase in Brent oil price and confidence in ongoing payments from the Kurdistan Regional Government ('KRG'), including override and receivable recovery payments, Genel expects to generate cash in 2021 post-dividend payments

  • o Receivable recovery payments expected to generate c.$50 million in 2021 at an oil price of $60/bbl

  • o A $5/bbl change in Brent impacts cash generation by c.$35 million in 2021

• • Due to Genel's robust financial position and confidence in the Company's future prospects, the Board is accordingly recommending a final dividend of 10¢ per share (2020: 10¢ per share), a distribution of $27.9 million

Enquiries:

Genel Energy

[phone]

Andrew Benbow, Head of Communications

Vigo Communications

[phone]

Patrick d'Ancona

There will be a presentation for analysts and investors today at 0900 GMT, with an associated webcast available on the Company's website,www.genelenergy.com.

This announcement includes inside information.

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 ninth annual results statement. 2020 was a difficult year for everybody, with COVID-19 impacting the global business environment in a way that was unexpected and unforeseeable. The challenges that it presented were unique, but the low-oil price environment that it created was a powerful reminder of the need to have a business model that is both robust and adaptable to rapidly changing external conditions.

Genel has worked to put in place a business model that is appropriate for fluctuating market conditions, allowing the Company to continue strategic delivery when times are tough and lay the foundations to thrive in better times ahead. 2020 was a strong indicator that our strategy is the right one as we not merely survived but had the financial strength to invest in our key growth projects, and maintain our material dividend, delivering on our promises to investors with a reliability for which we are striving to be well known.

Focusing on key areas

As the impact of COVID-19 became clear and the oil price collapsed in the first quarter of the year, the flexibility and elasticity of our business model was demonstrated. Swift decisions were made to focus on key areas and fit our investment programme to the external environment. We reshaped our capital expenditure programme to live within our means, removing c.$80 million from our original guidance, while still investing in growth and maintaining the dividend.

The low oil price helped to reinforce our capital investment priorities, which as you would expect support our strategic priorities. Investment at Tawke was delayed appropriately by the operator DNO, with whom we are closely aligned, and the decision was made to continue investing in the delivery of first oil at Sarta. This was achieved in November, only 21 months after completing the acquisition of the stake in the field. This rapid delivery, despite the challenges of COVID-19, was an exceptional achievement and a testimony to our workforce and field partners.

Already the only multi-licence oil producer in the Kurdistan Region of Iraq ('KRI'), the addition of Sarta provides us with a material growth opportunity going forward, as we work with Chevron to develop what could potentially be the largest field in the KRI.

Our final capital allocation priority is the dividend, and we are proud of our ability to retain this at such a significant level despite the external upheaval, a testament to the resilience of our strategy and business model.

A strategy resilient by design

Our strategy remains very simple. We aim to increase our low-cost production, invest in growth, and retain surplus cash to pay a material and sustainable dividend.

Central to this strategy is prudent financial planning, as your Board and management team look to minimise risk and create sustainable shareholder value. The successful bond refinancing in September allowed us to extend the tenor of our debt while reducing the interest cost. Genel remains committed to retaining a robust balance sheet and strong liquidity, providing the foundation for our flexible capital investment programme.

It is this financial strength and focus on the balance sheet, together with a positive business outlook, that underpins our confidence in the sustainability of our dividend, which we are once again pleased to maintain in 2021.

With the worst of the pandemic hopefully now behind us and a recovery in the oil price further boosting our finances as we enter a year of exciting investment in the portfolio, Genel is confident that we can continue delivering on our strategy and create material value for our stakeholders.

The ramp up of work at Sarta promises to increase our low-cost production in 2021, with the possibility for much more to come in 2022 and the years ahead. Work at Qara Dagh also offers the potential to unlock value from a fifth field in the KRI, and we will of course remain prudent in our expenditure as we aim to provide a compelling mix of growth and returns.

A socially responsible contributor

Last year I discussed the period of significant and necessary change into which the energy industry is entering. Despite the pressures and challenges of 2020, we retained our focus on ensuring that Genel is at the forefront of this process.

As we grow, we continue to focus on our social and environmental responsibilities as we look to live up to our mantra of having the right assets, in the right location, with the right emissions, in the hands of the right people. The frequency and intensity of Board discussions on ESG signify how seriously we take the issue, and we firmly believe that responsible producers have a key part to play in the energy transition and delivering the goals of the Paris Agreement.

We will be measured against the promises that we make, and we issued our first GRI compliant Sustainability Report in 2020 setting out where we are on our sustainability journey. The report illustrates our commitment to support the communities in which we operate and solidify our place in the energy transition, minimising emissions as we look to play our part through delivering some of the fewer and better natural resources projects that the world needs as it moves towards clean energy.

Given our low-cost and low-carbon barrels, and the positive social impact our operations have on the Kurdistan Region of Iraq, it is our belief that Genel has the right portfolio to continue powering the energy transition and deliver value to our shareholders as a socially responsible contributor to the global energy mix.

CEO STATEMENT

It would be an understatement to say that 2020 was not the year that anyone expected. In spite of the challenges that resulted, we continued to do what we say and delivered on our strategy.

Executing our strategy

Our first strategic priority remains the maximisation of the value of our low-cost production. Despite the reduction of investment at Tawke, production at the licence remained over 100,000 bopd again in 2020, and this continues to form the bedrock of our production, which averaged just under 32,000 bopd in the year. We see this as being a platform for Genel going forward, as we expect year-on-year production growth in both 2021 and 2022.

This robust and predictable production, and the low production cost, meant that we continued to generate material cash at an asset level. Taken in isolation, our producing assets generated $85 million of cash, even allowing for the low oil price, delayed KRG payments and suspended override proceeds. Despite the suspension of the override payments, and $159 million of unpaid KRG debts in 2020, our free cash outflow in the year was only $4 million. Given the fact that we also continued to invest in the priority growth projects that provide us with exciting value creation potential, this is a creditable performance powered by a cost base that is amongst the lowest in the sector.