Genel Energy (LSE:GENL) — Trading and operations update

0:01 Good morning, and welcome to the GENEL ENERGY PLC Trading and Operations Update. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate to do so. Before we begin, I would like to submit the following poll, and I would now

0:31 like to hand you over to CFO, Luke Clements. Good morning to you, sir. Good morning. Thank you. My name is Luke Clements. I'm the CFO of GENEL ENERGY, and this is a short presentation covering our normal quarterly trading update. The first slide provides an overview of where we are today. As you will be aware from previous updates, the Iraq Turkey pipeline has been shut since March, and we have not exported oil since then. We remain firmly of the view that exports will resume and will be paid all that we are owed for past and future sales. We note the very recent public and statement of positive sentiments from major political stakeholders that support that view, and the recent statement suggests a general alignment on the need for urgent resumption of pipeline exports and an increase in pace towards that objective. I'll provide a little more detail on this later in the presentation.

1:19 Against that backdrop of no exports and no export payments, we've been working hard to keep moving forward and optimize and simplify all areas of our business. On the Tawke PSC, the operator has achieved significant spend reductions and successfully increased local sales volumes. In combination, this has resulted in the Tawke PLC being cash generative in q three with an expectation that this cash generation should improve with higher local sales expected in q four. Away from production, we've continued to use our cash carefully with principal activity activity being an efficient handover of starter to the KRG, Somaliland civils, and continued spend on the Moran and Binnabawi oil and gas arbitration. We've reduced our debt by 26,000,000 since the start of the year, and it's now just under 250,000,000.

2:05 We've maintained a strong balance sheet position with net cash of 132,000,000 at the end of the quarter and cash of $3.09 1,000,000. This means that our position is resilient, we can be opportunistic, and we have sufficient capital available to materially add new assets to our portfolio, which remains a key objective for this business. Next slide, please. I'll now talk briefly on the export pipeline. There was there was pretty limited news flow over the summer during which it was reported that Turkey was carrying out repairs on the pipeline following the earthquake. From about mid September onwards, we've seen increasing volume and frequency of positive news flow, which appears to represent a change from some of the statements that have been made before the summer. I'll just run through a few of those in chronological order so you so you get a feel for the progression.

2:54 In early October, the Turkish energy minister reported that the repair work on the pipeline was complete, and it would be ready to operate within the week to supply half a million barrels. Towards the end of October, Iraqi prime minister, Sudani, indicated that they were seeking agreement to resume oil production within a month. Last week, there was a meeting between APAKU, the trade association of a collection of Kurdistan IOCs, of which we are a founder member, and the Ministry of Oil and SOMO to discuss the restart of exports, with reporting positively that it was agreed that the basis for future exports must be acceptable to all parties. And now very recently, the Iraqi oil minister has said this week that he expects to reach an agreement with the Kurdistan regional government and foreign oil companies to resume oil production from the Kurdish region's oil fields within three days.

3:45 Although there is no clarity on timing yet, the seniority of the politicians making these positive comments and the composition and frequency of delegations suggest a positive direction of travel and some real determination to restart exports. We are encouraged by these recent developments and hope that the positive words and meetings regarding restart of exports represent real urgent determination to reopen the export route to international prices. Next slide, please. Away from exports, we've been working hard to optimize spend and deliver the cost reductions that we committed to at the half year. We were on track for those reductions, including reducing the organization by over 55%. We are also on track for start or exit, where we formally exit the license at the end of this month and expect to complete some limited remediation work by early twenty twenty four.

4:36 On Somaliland, we've had a good six months. This is frontier exploration, and we will step through this with care and attention. We are pleased to report that we're on track to deliver our civils work on time and within the budget around at the end of the year. Meanwhile, we continuously assess our next steps towards delivering the exciting two San Juan well prospect in this underexplored basin. And finally, we continue to spend money and work towards the Moran and Binabari oil and gas arbitration, which is currently scheduled for a two week hearing in February. As you can see from the chart, once we are through these non repeating items, including the paydown of payables accrued from last year, the monthly net spend of the business that we have seen since half year will significantly decrease. Next slide, please, Andrew. We have cash of $3.09 1,000,000 and debt of $2.06 4,000,000 at the end of the quarter.

5:26 That debt is now reduced to 248,000,000 following the repurchase of bar... Further bonds in October. Overall, we've reduced debt by 26,000,000 since the start of the year at a price that represents a meaningful discount to par. With that new level of bond debt, our net our net annualized bond interest is now under 10,000,000 per annum, being a 9.25% coupon less around 5% we earn on our cash. This significant net cash position provides us with significant resilience and opportunity where we continue to work to add assets to our portfolio. So on to our last slide, which provides an overview of our near term focus. We will continue to be cost effective with our spend while delivering the reductions in business simplification that we committed to.

6:11 We will continue to work towards maximizing revenue from sales and working towards export restart and recovery of receivables. We will use our cash to take the business forward with an undiminished determination to add new assets to diversify our income, increase cash generation, and optimize our capital structure. And finally, we continue to progress meticulously towards arbitration in February. And now I'll hand over to Andrew for q and a. Thank you very much, Luke. I hope you can hear me okay. The first question, as you can imagine, we've had many questions along this theme. I think they can all be summarized as politicians are being reported as saying that the pipeline will reopen this week. Is this accurate? So I so I touched on this in the presentation. The...

6:56 You know, it's it's clear to me that the positive news flow in the last month or so is is quite different to what it was like before. I think the KRG reported to be meeting with with the federal government this week, and those meetings are ongoing. So very positive news flow. And as I said in the presentation, the seniority of the politicians making those positive comments is encouraging. As it stands, we do not have clarity on when the pipe will open. We do not have a clear instruction on when the pipe will open, but we are certainly encouraged by that news flow, and we hope it turns into something concrete in terms of a date for restarting production.

7:39 Thank you very much. There's other questions about our local sales, and what is your current revenue from local sales? And is it sufficient to cover your costs? So I mentioned in the presentation that the the Tauke PSC is cash generative. That's good. D and O have done a great job getting the volumes of local sales up. The the challenge with local sales is the refining capacity. So you can... Although the buyers have committed to buy volumes, they also need to refine that oil, and there's limited capacity on refining. So at times, there are delays in getting the getting the domestic sales

8:15 going. I think, you know, if you assume for us on the PLC, the worst we do is cover our costs on a month. And on a good month, you might you might double that, so you might get 10,000,000 of revenue for 5,000,000 of costs on a good day. But it depends a bit on that refinery capacity availability, which is why we're not really forecasting domestic sales at the moment. The next question also relates to the Turkey license. It's quite a long question with possibly a relatively short answer. Can you please give an indication if GENEL was able to reclaim outstanding debt in October similar to DNO, who have stated publicly that they got $8,000,000 back of their outstanding amounts due to higher production levels? On a seventy five-twenty five split, it would suggest that GENEL should have been able to recover close to 3,000,000 of the 110,000,000 that's outstanding.

9:00 Is that correct? Yes. DNL is the operator, and they're managing those those cash flows. So that's that's about right.

9:07 There's a couple of other questions that we've had regarding African operations. Can you give a brief progress report on the Lagxera farm out, please?

9:18 It's ongoing. It's ongoing. We've had some quite interesting interest, if I can if I can say that. There are people doing doing work on the on the technical. We feel that a lot of people are looking down the way at what ENI's cinnamon well result does. I think if that if that well is good, that's good for us. If that well is not good, it's certainly not the end of the story as there's multiple plays, that we might be able to access here. So it's it's moving along. We're we're we're keen to find a way to access this opportunity and and and and drill a well. Let's see if the ENERY result in in... Improves interest, or let's see if the people who are already looking at it decide to to take it forward.

10:09 Another question on sales going forward. And is there a possibility to proceed with the hybrid sales structure of exporting and local sales?

10:20 We've done it before. We've done it before. I don't think anything's off the table at this stage when we're trying to manage cash flows and maximize price quite possibly. It it depends on how this plays out. I think, you know, you have to be pragmatic and open minded as we try and step through a pretty tough period since March, and we try to maximize our cash generation and also long term value delivery. So so let's see, but I... It's certainly not a no.

10:48 Another question relates to... As the as the question comes about cash burn, saying it looks like cash burn is 35,000,000 per quarter. I think what I can take from the influence of that question is that something that can be expected going forward? Yeah. No. No is the answer.

11:04 Yeah. Cash cash burning, the name implies you're burning cash, not doing very much. I think it's fair to say we've we've we've been doing things. If you look at the chart that I put up earlier, you can see that if you take out the nonrepeating items like bond buybacks, Sarta exit,

11:25 Somaliland civils, and you look at the core kind of forward business, which is kind of your production spend on Tauke and your g and a, you're gonna get pretty close to breakeven on domestic sales once you're through those. So I... You know, we... Again, we haven't guided on, you know, if you wanna call it cash burn or monthly net cash outflow because it's very much a moving feast, and it... And and I think domestic sales will improve as well. So I'm I'm... $35,000,000 is not reflective of a

11:57 quarterly net cash outflow on the go forward of this business. Thank you, Luke. A question now as you expect to... On m and a and have any potential acquisitions reached the final stages?

12:10 Yeah. Can't can't can't comment on that. I won't won't comment on that going forward. I can say we are continuing to see a healthy number of opportunities, continues to be a challenge to find consensus between buyer and vendor on price. Now as an example, an asset that we looked at about a year ago and took took quite a long way through. We revisited again this year, and price appears to have gone up in the vendor expectation. But we're seeing opportunities. We're we're continuing to work them. What we're not gonna do is, rush into doing a deal that is not a good deal. So we'll we'll maintain our discipline. We'll continue to be meticulous in how we assess the opportunities, and if for the right deal, we will lean into it and be aggressive where we can be. But we're not gonna we're not gonna do a deal for the sake of doing a deal.

13:11 Thank you, Luke. And we're we're we're jumping back now to Africa, specifically the Horn Of Africa. Any updates on the Somaliland operation and what progress has there been on that front? Yeah. I think as I said in my presentation, the the civils work is is going well. It's on it's on time. It's on budget. I think we've had a good good few months on Somaliland. It's frontier exploration. You know, I'd probably say it's a very good few months bearing that in mind, and we'll continue to step through it very carefully and continue to assess how we take it forward. But it's it's been a good few months, and the work is on is on track.

13:50 Thank you very much, Luke. We're entering, I think, into the final questions now. One of them is what is the current culture of engagement with MNR? I think it's worth widening that question to what's the general culture of engagement at the moment between all parties?

14:03 In fact, I'll probably end up answering my own question here because I think one of the things that we've seen in in recent weeks is actually the engagement between all parties is very good. You've seen a top level delegation going from a bill to back... From Baghdad to a bill rather. They're there at the moment. Those conversations seem to be progressing very well as we've seen from the reports. This also follows the meeting that was held with Apica last week, that I think was also held with a very positive tone. So I think at the moment, the culture of engagement between all parties actually is very strong, which is one of the things that gives us enormous encouragement.

14:35 Final question, I think, now, Luke, has been asked a couple of times is how long would it take for GENEL to return output to pre shutdown levels when the pipeline reopens?

14:46 I'm told it's relatively quick, and we've we've... Know, obviously, we're really focusing on the PLC, which is DNL operated. It's it's weeks rather than months is my understanding. It will be very nice to be trying to ramp that production up to to maximum levels and to get to a position where we can invest again in that asset and and and drill wells. So if we can get

15:12 the pipeline reopened and we can get consistency of repeatable, predictable payments, that will provide the right frame for us to maximize the production from that from that license. Thank you very much, Luke. And with that, I think that that answers the vast majority, if not all. I'm afraid there there was maybe a couple of questions that we've missed, but I hope that answers all the key questions that people have. As a reminder, if you feel that your question hasn't been answered, please do email me or call me. I can guarantee you that we respond to every email that we get, and we take as seriously whether they come from the smallest or largest shareholder. So with that said, I'll just pass over to Luke to say some final words, and we look forward to catching up with you at our next update, if not before. Thanks, Andrew. So I'll just reiterate what I said, really. The the looks good. There looks like determination to restart exports and with senior time and energy going towards that. So we're we're encouraged.

16:09 We'll... We'll... We we we we are we are keen to do our part to restart exports,

16:14 and we very hope the next time we speak to you, we'll be able to report on that. Thank you for your time. Perfect. Perfect, Luke. Andrew, thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of GENEL ENERGY PLC, we'd like to thank you for attending today's presentation, and good morning to you all.