Genel Energy saw its profit slump 35% in the first half despite higher revenue as it revealed that proceeds from the sale of first independent crude exports by Iraqi Kurdistan – dubbed illegal by Baghdad – had landed in a Turkish bank account.
The London-listed company reported a net profit of $70.7 million, down from $109.1 million in the same period of last year, as higher costs eroded a 20% year-on-year rise in revenue to $192.1 million driven by a 50% hike in working interest production to 63,000 barrels of oil equivalent per day.
It stated the bulk of the revenue increase came from sales of crude to the local Kurdistan market from its operated Taq Taq field in the semi-autonomous region of northern Iraq, although the figure excluded an owed $40 million gain from export sales that have not yet been recognised in its accounts.
Kurdistan has been exporting crude along a new independent pipeline to the Turkish port of Ceyhan from both the Taq Taq and DNO-operated Tawke fields, with Genel a partner in the latter, and several crude cargoes have been lifted by tanker from the port since the first shipment in May.
The move has triggered a backlash from Iraq’s federal government, which claims such independent exports by the region are illegal and has threatened legal action against international buyers of the crude.
So far, the identity of clients who have bought the shipments has remained a mystery but Genel confirmed in its results statement that “proceeds from the first sale [have been] received in a Turkish bank account controlled by the Kurdistan Regional Government (KRG)”.
Chief executive Tony Hayward said “operational momentum in Kurdistan is increasing, with the opening of the Kurdistan-Turkey pipeline resulting in a significant rise in our production”.
The company stated that Taq Taq’s average crude output increased 18% in the first half to 92,000 barrels per day while Tawke’s production rose threefold to 84,000 bpd to meet higher domestic demand and to supply the pipeline.
Despite the revenue rise, Genel was hit by higher sales expenses of $97.6 million, versus $61.8 million a year earlier, including $63.1 million in depreciation charges and production costs of $34.5 million.
Hayward stated the company’s Kurdistan operations had so far been unaffected by the current turmoil in Iraq, where the Islamic State militant group has seized several towns as well as oil installations in the north of the country, but added “we continue to monitor the situation closely”.
The Anglo-Turkish company is maintaining its production guidance for this year of between 60,000 and 70,000 boepd.
Genel is now focusing on future gas exports to Turkey, which signed a gas sales agreement with the KRG last year that calls for an initial 4 billion cubic metres per annum of exports from 2017, rising to 20 Bcm per annum in 2020.
The company is now working to finalise a gas sales offtake agreement with the regional government for its Miran and Bina Bawi discoveries, which together hold gross mean contingent resources of 8.4 trillion cubic feet.
“Good progress has been made in recent months and the company remains confident that these negotiations will be concluded by year-end,” it stated, adding that development concepts are also being screened.
Elsewhere, Genel has exploration drilling work ongoing at the Nour-1 well off Morocco, where a further probe in the Mir Left licence is planned next year, and at Dilolo-1 off Angola.