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Genel Energy stays in the red after hefty impairment

Kurdistan-based oil and gas company ups dividend but issues with getting paid remain
March 15, 2022
  • Impairment of just over $400mn knocks company into loss
  • Sales hampered by slow payment by Kurdistan authority

Even with oil at record highs, completing transactions is key if that surge in price is to be reflected in the income statement. Genel Energy (GENL), the Kurdistan-based oil and gas producer, is still running into trouble getting payment for its goods.

Its 2021, sales were only just ahead of 2019, even with oil prices surging last year. As of last week, the Kurdistan Regional Government (KRG) owed Genel $111mn. However, it has been paid for November 2021 production. 

Additionally, a disagreement with the KRG has seen two development licences abandoned. This is what hurt the 2021 bottom line thanks to the related $403mn (£309mn) impairment. Genel cancelled the Bina Bawi and Miran production-sharing contracts (PSCs) following a KRG request in August. The company said it had “taken steps to bring a claim for substantial compensation from the KRG at a private London seated international arbitration”.

Shareholders will see some upside from the stronger oil prices, with the total dividend climbing a fifth to 18ȼ a share. 

Chief executive Bill Higgs said free cash flow could rise from $86mn in 2021 to $250mn this year, if not more. “At the prevailing oil price, and given that there seems no quick resolution to the appalling events unfolding, this figure is expected to increase significantly,” he said. 

Production is guided at the same level for this year as 2021 – around 31,000 barrels of oil per day (bopd) – while capital spending will be similar to last year’s $160mn. The company’s cash generation is impressive, but we remain bearish given its continued issues with the KRG. Sell. 

Last IC View: Sell, 187p, 18 Mar 2021

GENEL ENERGY (GENL)   
ORD PRICE:154pMARKET VALUE:£423mn
TOUCH:152-153p12-MONTH HIGH:192pLOW: 114p
DIVIDEND YIELD:9.0%PE RATIO:NA
NET ASSET VALUE:211¢*NET CASH:$36mn
Year to 31 DecTurnover ($mn)Pre-tax profit ($mn)Earnings per share (ȼ)Dividend per share (ȼ)
20172290.2797.1nil
2018355-0.28-102nil
201937710537.815.0
2020160-417-15215.0
2021335-308-11118.0
% change+109--+20
Ex-div:14 Apr   
Payment:18 May   
£1=$1.30 *Includes intangible assets of $187mn, or 68ȼ per share