Genel Energy : Half-Year Results 2022

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2 August 2022

Genel Energy plc

Unaudited results for the period ended 30 June 2022

Genel Energy plc ('Genel' or 'the Company') announces its unaudited results for the six months ended 30 June 2022.

Paul Weir, Interim Chief Executive of Genel, said:

"Our cash generation in the first half of the year has been exceptionally strong - driven by our low- cost, high-margin oil production and disciplined capital allocation. We remain focused on the delivery of our long-established strategy of putting capital to work to grow our production and cash generation, while retaining our resilience and paying a material and progressive dividend.

We generated $129 million in free cash flow and are well on track to generate over a quarter of a billion dollars of free cash flow for the full year. This continues to build our balance sheet strength and optionality, providing us with the funds to add the right assets at the right price. Our cash flow this year benefits from the recovery of receivables and our override payments, and we are focused on replacing these by building a portfolio that supports the resilience, sustainability, and progression of our material dividend."

Results summary ($ million unless stated)
	H1 2022	H1 2021	FY 2021
Average Brent oil price ($/bbl)	108	65	71
Production (bopd, working interest)	30,420	32,760	31,710
Revenue	245.6	151.5	334.9
EBITDAX1	212.3	123.1	275.1
Depreciation and amortisation	(84.4)	(81.8)	(172.8)
Impairment of oil and gas assets	-	-	(403.2)
Reversal of impairment of receivables	12.8	-	24.1
Operating profit / (loss)	140.7	41.3	(276.8)
Cash flow from operating activities	216.3	91.1	228.1
Capital expenditure	74.7	58.2	163.7
Free cash flow2	128.7	22.2	85.9
Cash	412.1	266.4	313.7
Total debt	280.0	280.0	280.0
Net cash / (debt)3	141.3	(2.2)	43.9
Basic EPS (¢ per share)	45.4	9.3	(111.4)
Dividends declared for the period (¢ per share)	6	6	18

1. EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation, impairment of property, plant and equipment, impairment of intangible assets and reversal of impairment of receivables
2. Free cash flow is reconciled on page 8
3. Reported cash less IFRS debt (page 8)

Summary

• Material cash generation from low-cost and high-margin oil production:

1. Net production averaged 30,420 bopd in H1 2022 (H1 2021: 32,760 bopd)

1. Low production cost of $4.4/bbl and strength of oil price delivered a margin per barrel of

$32/bbl (H1 2021: $20/bbl)

• 1. Free cash flow of $129 million (H1 2021: $22 million)
• Financial strength provides options for capital allocation:
• 1. $75 million of capital expenditure in H1 2022, of which $41 million was spent at Taq Taq and Tawke, and $27 million on Sarta appraisal

1. Genel took on operatorship at Sarta on 1 January 2022, with Sarta-5 and Sarta-1D subsequently being completed

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1. Cash of $412 million (31 December 2021: $314 million)

• 1. Net cash of $141 million (31 December 2021: net cash of $44 million)
• A socially responsible contributor to the global energy mix:
• 1. Zero lost time injuries ('LTI') and zero tier one loss of primary containment events at Genel and TTOPCO operations
  2. • Two million work hours since the last LTI, as we seek to repeat the performance of six years without an LTI up to September 2021

1. As we mark 20 years of operations in the Kurdistan Region of Iraq ('KRI'), the Genel20 Scholars initiative has launched, with Genel funding the opportunity for 20 economically disadvantaged students to have a life-enhancing education at the American University of Kurdistan

Outlook

• Production guidance for 2022 maintained as around the same level as 2021, currently tracking between 30-31,000 bopd for the full-year
• 2022 capital expenditure guidance of between $140 million and $180 million tightened to $150 million to $170 million
• Genel expects free cash flow of over $250 million in 2022, pre dividend payments
• Appraisal at Sarta is ongoing, with results of the Sarta-6 well expected around the end of the year
• The Company continues to actively pursue new business opportunities, focused on production and cash generation
• The London seated international arbitration regarding Genel's claim for substantial compensation from the KRG following Genel's termination of the Miran and Bina Bawi PSCs is ongoing
• Interim dividend retained at 6¢ per share:

1. Ex-dividenddate: 15 September 2022 o Record date: 16 September 2022
   o Payment date: 14 October 2022

Enquiries:
Genel Energy	[phone]
Andrew Benbow, Head of Communications
Vigo Consulting	[phone]
Patrick d'Ancona

There will be a presentation for analysts and investors today at 0900 BST, 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. The information contained herein has not been audited and may be subject to further review.

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CEO STATEMENT

The first half of 2022 has generated exceptionally strong free cash flow. Our production remains robust, driven by the ongoing performance of Tawke, and the oil price has underpinned a leap in free cash flow to $129 million in the period. This further strengthens our balance sheet and provides us with an opportunity to invest in building out our portfolio and fulfil our goal of being a world-class creator of shareholder value.

A clear direction

Our strategy is well-established - generate cash, invest in growing production and cash generation, and pay a material and progressive dividend. The first half of the year delivers on the first rung of this strategy, with cash generation that equates to around a quarter of our current market capitalisation.

Management is focused on investing capital in order to increase long term resilient cash generation and support our progressive dividend long after the end of override and receivable recovery payments this year. We know exactly what we want to achieve and what we need to do to get there.

Seeking to add new income streams

Our first priority for investment remains our production portfolio. Tawke drilling continues apace, and we look forward to drilling a well at Taq Taq in the second half of the year. We have evolved into a fully-fledged operator through taking on the operatorship of Sarta, and while the asset has not yet lived up to production expectations, its production generated operational free cash flow in the first half of 2022, which contributes towards funding our ongoing appraisal work. We continue to work on improving production and we will learn more through our ongoing appraisal campaign from the results of Sarta-6.

Looking further ahead, we are excited by the opportunity that Somaliland presents. It is a geography that ticks all of the right boxes for new drilling. It is highly prospective, with geology analogous to prolific Yemen basins. It is onshore drilling with a clear route to market via the port of Berbera, and importantly there is the opportunity to make a huge difference to the lives of people in the local community. This is what we mean when we talk about having a portfolio that fits into a future of fewer and better natural resources projects, and we look forward to drilling a well around the end of 2023.

While Sarta retains upside potential, should Somaliland exploration be successful it will be some time before we see a positive impact on our cash flow, and hence our focus is firmly on putting our capital to work through the addition of new income streams. We continue to run the rule over opportunities, with strict criteria focused on near-term cash generation and the ability to support and grow our material dividend.

Making a positive impact

As we look forward to the impact we could have in Somaliland, we are celebrating 20 years of operations in the KRI. We are proud of the difference we have made in that time. Revenue generated from Taq Taq and Tawke for the KRG totals more than $21 billion, and Genel operations have formed new supply chains and supported tens of thousands of jobs. We have also had an impactful social investment programme, with over 250 projects having been completed.

As we mark the 20 year milestone, we are increasing the scope of our social ambitions. We were pleased to announce the launch of the Genel20 Scholars programme, which is set to provide the opportunity for disadvantaged students to have a life-enhancing education. Genel is funding scholarship opportunities for 20 high school graduates to pursue bachelor studies at the American University of Kurdistan. We look forward to updating you on other Genel20 initiatives as the year progresses.

We also aim to minimise our environmental impact and keep emissions as low as possible. The Peshkabir-Tawke gas project continues to capture otherwise flared gas, and phase 2 of this is set to start in Q4. Work is also ongoing at Sarta, and we are pleased to have completed the solar panel and

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battery storage unit at the Sarta-1D wellsite, powering production equipment and reducing the use of diesel generators, therefore lowering our emissions.

Outlook and dividend

We expect production to continue at around the same level as the first half of the year for the remainder of 2022. This production will continue to be materially cash generative, delivering over $250 million of free cash flow, boosted again by the receipt of override and receivable recovery payments.

Our focus is on continuing our material cash generation once these payments cease, and this is a key priority for our capital allocation going forward. Also a priority is paying our well-established material and sustainable dividend, and our interim dividend has been maintained at 6¢ per share. It is our clear strategic goal to utilise our balance sheet to add long-term cash generation that would support the progression of this dividend.

OPERATING REVIEW

Production

	Gross	Net	Gross	Net
(bopd)	production	production	production	production
	H1 2022	H1 2022	H1 2021	H1 2021
Tawke	106,700	26,680	111,140	27,780
Taq Taq	4,850	2,130	6,490	2,860
Sarta	5,380	1,610	7,080	2,120
Total	116,930	30,420	124,710	32,760

Production of 30,420 bopd is a decrease of 7% on the prior year period, a result of ongoing declines at our mature producing fields and pilot production at Sarta falling due to interference between wells having a negative impact.

PRODUCING ASSETS

Tawke PSC (25% working interest)

Gross production of 106,700 bopd, with a high-level of activity maintained throughout H1 2022.

Sarta (30% working interest)

Gross production of 5,380 bopd in H1 2022, 1,610 bopd net to Genel.

In the first half of 2022 we have sought to optimise production from existing Mus-Adaiyah take points at Sarta-1D, 2 and 3, diversify our source of production to add incremental barrels through two ongoing pilot production tests of the Najmah and Butmah reservoirs, while lifting the constraint of produced water storage through the successful, low-cost conversion of the legacy Sarta-4 site into a water disposal well.

As we explore avenues to optimise production, overall field production reduced to an average of c.4,000 bopd in June as Mus-Adaiyah production at Sarta-2 was temporarily suspended while we successfully gained access to and restimulated the Najmah reservoir. The Najmah is producing in line with initial expectations having recovered 70,000 incremental barrels of 15.5 API oil to date. At Sarta- 1D a pilot production test of the Butmah (a new resource discovered by the Sarta-1D well) has been ongoing since early July. In line with the test results the interval has produced a mix of oil and water with 50,000 incremental barrels of 29 API oil recovered to date.

Plans are being crystalised to continue the Najmah production test through a recompletion at Sarta-3, planned for Q4 2022, allowing for higher volume Mus-Adaiyah production to resume from Sarta-2. To optimise Mus-Adaiyah production from Sarta-2 we are procuring Electrical Submersible Pumps that

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when fitted will add incremental barrels and maximise production under the steadily increasing water cut and declining pressures observed in that reservoir.

Alongside optimising pilot production, appraisal has been a key focus for this year. While the results of well testing at Sarta 5 disappointed, as a consequence of the poor reservoir quality intersected at this location, the multiple oil shows in combination with the oil recovered to surface from the Najmah demonstrate that there may be more to play for in this south-eastern portion of the licence and appropriate next steps in its appraisal are under consideration.

At Sarta-6, the second potentially high-impact appraisal well, the well has reached target depth, logging has been undertaken and the well is being completed. Testing is now set to begin in November, following a change to a more cost-efficient rigless testing model. Plans have been progressed to quickly capitalise on any success at Sarta-6 through immediately adding it to production. Should the well disappoint, focus will revert to maximising the value of the cash generative high-margin production in and around the existing production hub.

As we develop the field we will continue to focus on emissions. The installation of a solar panel and battery storage unit at the Sarta-1D wellsite completed in July. This development is intended to power production equipment at the site, which will reduce the use of diesel generators and therefore lower emissions.

Taq Taq (44% working interest, joint operator)

Taq Taq continues to perform at the top end of expectations ahead of a resumption of drilling. As the margins at Taq Taq have increased a well is expected to spud around the end of 2022.

PRE-PRODUCTION ASSETS

Somaliland

Following the successful farm-out in December 2021, preparation is under way for the drilling of a well on the highly prospective SL10B13 block. The prospect to be drilled has been identified, agreed with our partner, and an optimal well location selected in order to best target the stacked Mesozoic reservoir objectives with individual prospective resource estimates ranging from 100 to 200 MMbbls.

Qara Dagh (40% working interest, operator)

The evaluation of the QD-2 well and its results is underway, with a decision on licence next steps to be taken later this year.

Morocco

A Petroleum Agreement is set to be signed with ONHYM for the Lagzira license, following which a farm-out campaign is scheduled to commence later this year.

FINANCIAL REVIEW

Overview of financial performance

The ongoing strength of the oil price has led to a material year on year increase in our net income after cost recovered capital expenditure, despite a small decrease in production.

Our material cash generation once again more than funds our capital allocation priorities, with capital expenditure in the first half of 2022 focused firmly on the ongoing appraisal of Sarta, and the payment of our material and progressive final dividend, which was paid in June and represented an increase by of 20% on the year before.

Overall we generated $129 million in free cash flow in the first half of the year, resulting in cash of $412 million, and a net cash position of $141 million.