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 USD85 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 USD159 million of unpaid KRG debts in 2020, our free cash outflow in the year was only USD4 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.

Further diversifying production

The key project that formed the bulk of our investment in growth in 2020 was Sarta, and first oil was successfully delivered in November. This was an important strategic and operational milestone for Genel, not least given the challenges presented by COVID-19. This operational delivery, brought in on budget, was a tribute to the quality and professionalism of our workforce, and the close cooperation we enjoy with partners and contractors.

Production began with the Sarta-3 well, which has produced in line with expectations. Sarta-2 then entered production in Q1 this year, and the Sarta-1 well will hopefully add to production around the end of this year. Should we have appraisal success in 2021, then material further production can be added in 2022.

It is not just the geological potential of Sarta that excites us, but the low-cost of the field and impressive margins that promise material value creation. The unrecovered back costs support PSC economics that mean field production achieves a margin of c.USD21/bbl at a Brent oil price of USD60/bbl, which to put it into context is more than equal to that of Tawke with the override. This cash generation makes Sarta a perfect fit for our low-cost and high-margin portfolio, and a key growth and value driver for Genel, and hopefully the KRI oil industry as a whole going forward.

Strengthening the foundations

Given the lower oil price and overdue payments, the fact that we still ended 2020 in a net cash position - even after dividend distributions and making the investment to bring Sarta to production this year - was a testament to our resilience.

This resilience comes in part due to our focus on the minimisation of risk and the retention of a strong balance sheet, combining to provide us with the ability to invest in areas that have the potential to provide the highest returns to shareholders. Our production is robust, and assets generate cash flows even at a low oil price. Our financial strength was bolstered by our decision to refinance our bond early, which gives us the certainty about our near-term liquidity position to invest confidently in future growth.

Following the refinancing, we have liquidity of over USD270 million, no debt maturity until 2025, a flexible capital programme, and the financial foundations from which to grow. Investment programmes at the Tawke licence resumed as conditions improved through the second half of 2020, and the operator expects another year of production over 100,000 bopd. With the external environment looking far brighter, 2021 is now about delivering the growth that we spent 2020 gearing up for.

Delivering growth and returns

The key focus of our near-term growth investment remains Sarta and Qara Dagh.

At Sarta, our appraisal campaign is targeting a material reserves addition, with net 79 MMbbls currently designated as 2C resources. This is only scratching the surface of the field's potential. Appraisal activity is scheduled to begin early in the second quarter, with the drilling of the Sarta-5 well. This will immediately be followed by Sarta-6, with results from the first well expected in Q3, and both will be completed by end-Q4. We very much look forward to the results of these wells, which could provide a roadmap for significant and long-term growth.

The second area of focus of our growth investment is Qara Dagh where the QD-2 well is set to be spud around the end of Q1. This well will test the commerciality of a potentially very large resource, estimated by Genel at gross mean c.400 MMbbls. We are already the only multi licence oil producer in the KRI and the potential to add a fifth field is very exciting, especially one that could possibly be so material and with light oil.

As we invest in these growth projects and significantly increase our capital expenditure year-on-year, increased payments from the KRG will help us retain our strong financial position. From January 2021, invoices once again include our contractual override payments and a receivable recovery mechanism tabled in December 2020 and implemented by the KRG with respect to the January 2021 payment.

Payments in 2020 were impacted by external factors, of which the volatile oil price was then the final straw, that temporarily derailed the KRG's ability to make payments in the first two months of the year. Consistent payments from March onwards once again illustrated the KRG's willingness and ability to prioritise payments to IOCs, and the track record over the last six years gives us confidence that these will continue going forward.

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March 18, 2021 03:01 ET (07:01 GMT)