Any review of Genel Energy's (GENL) progress must be set against the parlous security situation in Iraq. For now, Genel's operations remain unimpaired, but the threat posed by the ISIS insurgency will continue to weigh on the share price.
The caliphate aside, Genel is now expanding production on the back of pipeline access to the Turkish Mediterranean port of Ceyhan. Genel's first-half production was up by around 50 per cent to 63,000 barrels of oil equivalent per day (boepd). Cash profits, excluding exploration expenses, were up 6 per cent to $138m (£81.7m), but bear in mind that the first cargo was only lifted from Ceyhan in May. Genel's chief executive Tony Hayward told shareholders to "expect our production to increase further in the second half of the year as sales become regular and payments predictable".
Despite this apparent bullishness, the market will still be disappointed by a 36 per cent drop in operating cash flows. The key problem is that Genel is still owed around $40m in export sales that have been completed but not yet received. The shortfall is linked to a long running dispute between the Kurdistan Regional Government (KRG) and Iraqi officials over who legitimately controls exploration and export licensing.
Two-thirds of first half sales were generated through the domestic market, with the remainder through higher margin trucked and pipeline exports. We can expect the proportion of exports to rise over time, particularly as Genel expects to sign a sales agreement for gas it retrieves from its large Miran and Bina Bawi fields by the end of the year. Genel has approximately 8.4 trillion cubic feet of gas resources in the two fields, which it hopes will form part of the KRG's agreement to supply gas to Turkey from 2017. Elsewhere, there are some near-term price catalysts provided by exploration work at two wells: Dilolo (Angola, pre-salt) and Nour (Sidi Moussa, Morocco), with results on both expected within three to five months.
JPMorgan Cazenove expects 2014 EPS of $1.01, rising to $1.47 next year.
GENEL ENERGY (GENL) | ||||
---|---|---|---|---|
ORD PRICE: | 955p | MARKET VALUE: | £2.7bn | |
TOUCH: | 954-956p | 12-MONTH HIGH: | 1,144p | LOW: 910p |
DIVIDEND YIELD: | nil | PE RATIO: | 31 | |
NET ASSET VALUE: | 1,684¢* | NET CASH: | $483m |
Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
---|---|---|---|---|
2013 | 161 | 109 | 38.9 | nil |
2014 | 192 | 71 | 25.2 | nil |
% change | +20 | -35 | -35 | - |
Ex-div:- Payment:- £1 = $1.69 * Includes intangible assets of $1.8bn, or 732¢ a share |