WTI (Mar) $74.66 +4c, Brent (Mar) $78.50 +21c, Diff -$3.84 +17c
USNG (Feb) $4.03 +8c, UKNG (Feb) 121.88p -2.52p, TTF (Feb) €48.905 -€0.66

Oil price

Oil is down today as trump maintains that it is his best ally on the inflation front but it wont make for much drilling baby…The rig count showed down 4 overall but down 6 in oil…

Genel Energy

Genel has issued the following trading and operations update in advance of the Company’s full-year 2024 results, which are scheduled for release on 18 March 2025. The information contained herein has not been audited and may be subject to further review.

Paul Weir, Chief Executive of Genel, said:
“We start 2025 with a business that has all the building blocks necessary to grow and become more successful.  Genel has a strong balance sheet, our two producing fields within the Tawke PSC form a world class asset that delivers significant cash generation, even when only selling at heavily discounted domestic prices.  Genel has a compact, but highly skilled and motivated work force, dedicated to delivery performance, execution of a growth strategy and pursuit of value accretive acquisitions that will geographically diversify us into reliable and predictable jurisdictions.

We continue to work with peers and our host government to push for the conditions necessary to enable testing of any new mechanism for exports. We note the recent discussions of a revised budget law in Iraq that would provide the framework for a mechanism to fund the payment of IOCs by the KRG on resumption of exports.

Consistent strong delivery performance at Tawke saw us complete another year of robust production and deliver full year free cash flow of $19 million and an improvement in our net cash position to $131 million.

We are very clear on what needs to be done to deliver on our strategy, add new assets and build a business that delivers consistent value to its shareholders. The period of our work focused on consolidation and efficiency improvement in 2024 has laid the foundations for profitable future growth.”

Genel is in a remarkably strong position given that the pipeline is still shut and to produce 19,650 b/d for the year was very good, with DNO having done ‘a great job’ especially by bringing on the DUC’s during the year. Guidance for this year will be published when DNO have all the data to hand but for me this is a genuinely good achievement under the circumstances.

But a number of things have to be addressed, Taq Taq is being exited with details to come, minimal clearly as advertised, and following the arbitration loss the KRG costs are liable, the number claimed is some $36m which we are advised is ‘significantly higher’ than the Genel number.

With a strong balance sheet and cash of $131m Genel have been on the lookout for a meaningful acquisition for some time but I detect the pace is being stepped up, a ‘value accretive acquisition’ which will ‘geographically diversify into a reliable and predictable jurisdiction’. It won’t be in Kurdistan but likely in MENA and probably not far from Turkey. 

What Genel has done is more than impressive, with some guidance from DNO later in the quarter we should have an idea about revenues and should they manage to find another world class asset then the outlook is decidedly bright.

2024 FINANCIAL PERFORMANCE

• Working interest average production of 19,650 bopd for the year, increased from 12,410 bopd in 2023
• All production sold into the domestic market at average $35/bbl (2023: $35/bbl)
• Closing out and finalising terms of exit from Taq Taq at minimal cost.
• Free cash flow of $19 million, compared to free cash out flow of $71 million last year
• Balance sheet at 31 December 2024
  • Total debt has been reduced from $248 million at the start of the year to current $66 million
  • Cash of $195 million (2023: $363 million)
  • Net cash of $131 million, an increase from $120 million at the start of the year
• Receivables
  • $107 million (under KBT pricing and excluding interest) remains overdue from the Kurdistan Regional Government (‘KRG’), although this is reduced by amounts owed to the KRG, which are currently around $50 million
  • We continue to work towards a plan for payment or settlement of amounts owed, and appropriate adjustment for price and interest
• Arbitration
  • In December 2024 our subsidiary, Genel Energy Miran Bina Bawi Limited, lost the arbitration case brought against it by the KRG regarding the KRG’s right to terminate the Miran and Bina Bawi Production Sharing Contracts
  • Due to the extremely limited grounds of appeal against an LCIA Arbitration Award, no appeal has been made by Genel Energy Miran Bina Bawi Limited and the deadline for appeal has passed
  • The process under which the Tribunal determines the costs award to be made against Genel Energy Miran Bina Bawi Limited is now underway. The first stage of that process was  for the KRG to submit its claim for costs incurred to the Tribunal. The KRG is claiming circa $36 million for costs incurred to the end of November 2024. This is materially higher than all the costs incurred by Genel Energy Miran Bina Bawi Limited throughout all stages of the arbitration process which was commenced by the KRG in  2021
  • The next stage of the process gives Genel Energy Miran Bina Bawi Limited the opportunity to make submissions to the Tribunal to challenge robustly the quantum of the KRG’s cost claim, with a view to the final costs award being made for costs that are reasonably incurred, proportionate and also necessary

KURDISTAN: TAWKE PSC ACTIVITY AND PRODUCTION

• Q4 Gross production of 74,140 bopd (Q3 2024: 84,210 bopd) sold domestically at average $34/bbl (Q3 2024: $37/bbl), with average production for the year 78,615 bopd (H1 2024: 78,050 bopd)
• Working interest production of 18,540 bopd in Q4 2024 (21,050 bopd in Q3 2024)
• Three wells that were drilled in 2023 but not completed due to the closure of the Iraq-Türkiye Pipeline, were brought onstream midyear contributing 7,800 bopd to gross production, with further production added from well interventions work.
• Discussions with the Regulator around the work programme for 2025 are ongoing

AFRICA EXPLORATION

• On SL10B13 in Somaliland, we continue to work towards achieving conditions that support drilling of the highly prospective Toosan-1 exploration well
• On Lagzira in Morocco, we are running a farmout process seeking partners to test the newly high graded Banasa Prospect, which has been de-risked by 2024 seismic reprocessing

LEGACY KURDISTAN LICENCES

• Over the last two years we have taken steps to stop spend that does not represent good investment and we have begun the divestment or relinquishment of unprofitable assets
• We are pleased to confirm that we have agreed terms for divestment of the Taq Taq PSC, which will remove the risk of any residual decommissioning liabilities. This divestment is now subject to KRG approval

ESG

• Emissions reduction: in partnership with DNO, Genel continues to be part of the first Associated Gas Injection (AGI) project in the KRI.
• CDP Climate risk score of B for three consecutive years
• Genel’s Mobile Medical Clinic project in Somaliland, which provides vital medical care for some of the poorest people in Africa, launched phase two of the project in July, with a further 15,000 cases treated to take the total cases treated to more than 30,000

OUTLOOK

• With Tawke domestic sales demand in 2025 expected to continue at similar levels to 2024, the Company expects its cash generation to cover its organisational costs – we will provide an update on Tawke activity and investment plans at our full year results in March
• We continue to work towards a payment plan for recovery of overdue receivables
• The Company continues to progress towards building a business with a strong balance sheet that delivers resilient, reliable, repeatable and diversified cash flows that supports a dividend programme. The Company objectives for the year on the path to building that business include:
  • acquisition of new assets to add reserves and diversify our cash generation
  • restart of exports to access international pricing
  • recovery of net amounts owed by the KRG
  • further progress towards drilling Toosan-1
  • farm-out of Lagzira

Genel will host a live presentation on the Investor Meet Company platform on Tuesday 4  February at 1000 GMT. The presentation is open to all existing and potential shareholders. Questions can be submitted at any time before or during the live presentation. Investors can sign up to Investor Meet Company for free and add to meet Genel Energy PLC via: https://www.investormeetcompany.com/genel-energy-plc/register-investor

Diversified Energy Company-This is no Maverick…

Diversified has today announced that it has entered into a definitive agreement to acquire Maverick Natural Resources, a portfolio company of EIG for total consideration of approximately $1,275 million. The Acquisition combines two complementary asset packages, pairing high-quality Proved Developed Producing weighted production assets with the lowest corporate decline and capital intensity among peers. The acquisition of Maverick by Diversified adds immediate scale, increases liquids production, and creates a combined company with long-term free cash flow generation, superior unit cash margins, and a compelling sustainability profile.

The Acquisition further executes upon Diversified’s strategy for maintaining the optionality of multiple development opportunities through established joint venture partnerships across the combined portfolio of vast undeveloped acreage in multiple high-returning basins. A portion of the acquisition directly offsets Diversified’s core Western Anadarko position with active development in the Cherokee Play, and provides a new Permian asset base with multiple zones in the Northern Delaware Basin.

The combined company is expected to generate substantial free cash flow, delivering strong, consistent shareholder value creation through disciplined debt reduction, a sustainable fixed dividend, and strategic share repurchases. The combined company will have an enterprise value of approximately $3.8 billion and operate across five distinct operating regions, with a combined production base of approximately ~1,200 MMcfe/d (~200 Mboe/d).

OPERATING AND FINANCIAL METRICS

For the twelve-month period ended September 30, 2024 unless otherwise noted

Rusty Hutson, Jr., CEO of Diversified, commented:
“This acquisition expands our unique and highly focused energy production company with a complementary portfolio of attractive, high-quality assets. We have a proven track record of unlocking value from acquisitions while maintaining our commitment to sustainability leadership, and this acquisition provides us with great assets and employees that complement this strategy. The acquired producing assets have demonstrated leading well performance and are a natural fit with our operating advantage and existing acreage. Notably, the combined footprint in Oklahoma and the Western Anadarko Basin creates one of the largest in terms of production and acreage, which includes the emerging Cherokee formation.

Diversified shareholders will share in the significant upside potential of the combined company, with its cash flow projected to provide durable and consistent returns and enabling significant debt reduction, further enhancing our long-term value creation proposition. We view commodity, geography, asset, and business segment diversification as strategic advantages that drive more resilient and consistent free cash flow and long-term value creation for our combined company.

Diversified anticipates benefiting from the additional capital investment optionality for organic cash flow generation from joint venture partnerships that continue to optimize our combined high-quality asset base.  We plan to leverage Maverick’s experienced technical asset development team to unlock undeveloped acreage potential through an even larger combined footprint, and I am confident that Diversified’s management team will bring its expertise in efficiently integrating acquisitions to further expand our Smarter Asset Management practices.

We have created a strong platform of people and financial resources to build and operate an organization that continues to be the Right Company at the Right Time to responsibly produce American energy, deliver reliable free cash flow, and drive shareholder value.”

Rick Gideon, CEO of Maverick Natural Resources:
“Today marks an important milestone for all of us at Maverick Natural Resources. We have great respect for the innovative approach and stewardship demonstrated by the team at Diversified and are pleased to enter into this partnership. Maverick has built a strong foundation of execution and efficiency across our portfolio, and we look forward to combining our complementary portfolio of assets with Diversified. I would also like to express my gratitude to the team at Maverick for their hard work and dedication in supporting our strategic efforts and contributing to this achievement.”

Jeannie Powers, Managing Director and Head of Domestic Traditional Energy, EIG:
“We are extremely pleased to have entered into this acquisition and look forward to contributing as a core shareholder. We aim to work closely with the Diversified management team and Board to support the Company’s focus on delivering long-term value.  Diversified is uniquely positioned in the upstream space with a differentiated business model and a history of operational excellence. The combination of Maverick’s assets with Diversified’s existing footprint represents a strategic opportunity that we believe can support value creation for all stakeholders.” 

This is one mighty impressive deal and if one can say such a thing about DEC then it is another game-changer, it has scale and powers the company into nearby assets in Oklahoma as well as a much vaunted presence now in the Permian Basin. 

Scale because it is buying c.58/- boe/d which is liquids-rich and fits well with the DEC portfolio and most importantly it is hugely accretive as it unlocks massive value with a multiple of 3.3x EBITDA at $1,275m compared to DEC’s ratio of 4.5x which makes it cheap in my book. 

And theres more, with a JV partnership with a private company in Oklahoma there is a big chance of development or as the management say ‘undeveloped optionality’ of around $400m and will in my view add highly profitable barrels through drilling the prospects. But they could do what has been done before and sell down part of the deal.

As always there will be G&A cost benefits and with that scale are in a strong position to do a great deal with it. The debt market has already put together some $900m for a new RBL over both the existing ones and come out of the process with lower gearing. Finally DEC know all the participants well, they have dealt with Maverick before (it had been on the market for bigger bucks before) and EIG who apparently are DEC holders will now have 20%.

Diversified has done it again, a cracking cheap, accretive deal with immediate benefits as well as getting a taste of the Permian to boot. The proud assertion that they have peer leading shareholder returns, a buy back option and are presenting all over the investment world what is a great story indeed. 

The shares have really started to justify my long term faith and are outperforming with few signs of the much maligned short traders, the Bucket List will still be a perfect home for the company and I have a TP of 2,500p but think that may need to be raised when this marvellous deal is completed. 

COMPELLING STRATEGIC AND FINANCIAL RATIONALE

•    Value Maximizing Combination: The Acquisition is expected to be accretive to key metrics including cash flow, leverage, and valuation multiples. The assets are being acquired at approximately 3.3 times LTM Adj. EBITDA(g). The combined company had approximately $1.8 billion in combined revenue(g), and approximately $345 million in combined free cash flow(g). The acquisition provides meaningful free cash flow accretion, with combined adjusted per unit EBITDA margins in excess of 2.00 per Mcfe(g).

•   Strong Financial Position, Liquidity and Capital Markets Access: Leverage accretive acquisition that integrates additional investment-grade ABS notes, allowing for a natural deleveraging process.  Additional size and scale enhances the Company’s trading liquidity and access to capital markets, bolstering its ability to efficiently finance its business and pursue bolt-on accretive acquisitions.

•    Multi-Basin Exposure and Scale: Combination enhances position in core geographies across Appalachia, the Western Anadarko, Permian, Barnett, and Ark-La-Tex regions, with commodity product diversification, including beneficial exposure to oil markets, to create a more resilient market cycle risk profile and more durable revenue. This multi-basin scale also provides capital investment optionality for organic growth by acquisition or growth by high returns joint venture partnership development projects. 

•    Unique Operational Approach: Company focused on responsible operations and stewardship of existing energy infrastructure assets, including well optimization and managing the assets by leveraging technology, vertical integration, and scale to the ultimate end of life. By leveraging the complementary operations focus, utilizing technology, aligning resources, and sharing expertise, Diversified is poised to optimize performance, extract substantial value, and drive growth.

•    Commitment to Stewardship and Environmental Performance: Combined company focus on achieving tangible targets, and dedicated actions to driving sustainability, transparency, and environmental progress through asset improvement and optimization practices, data-driven innovation of ongoing measurement, monitoring, and mitigation of emissions.

•  Proven Process to Capture Synergies: Diversified’s established integration playbook and corporate infrastructure are anticipated to unlock significant and sustainable value with fast, effective and efficient integration. Familiarity with the asset base and the combined density provides considerable expense savings and a meaningful earnings contribution.

TRANSACTION DETAILS

The gross Acquisition value of $1,275 million (inclusive of debt assumption) represents an approximate 3.3 times LTM EBITDA(g) multiple. Consideration is expected to be satisfied through the assumption of approximately $700 million of Maverick debt outstanding associated with its RBL, an ABS amortizing note and other outstanding credit, the  issuance of approximately 21.2 million new U.S. dollar-denominated Diversified Ordinary Shares to the unitholders of Maverick valued at approximately $345 million at signing, and approximately $207 million in cash, with the mix of Ordinary Shares and cash subject to adjustment based on the outstanding amount of Maverick’s RBL at Completion.

The combined company will have an enterprise value of approximately $3.8 billion as of signing. Upon completion, EIG will own approximately 20% of the outstanding Ordinary Shares, inclusive of the Ordinary Shares currently owned from previous transactions. The Ordinary Shares will be subject to a customary lock-up agreement.

The Company has received commitments for  $900 million on a new upsized $1.5 billion, four-year credit facility which incorporates both the existing Diversified RBL and the new RBL assets from Maverick as collateral.  The amended and restated credit facility provides necessary liquidity for the cash consideration of the acquisition and to refinance Maverick’s RBL. Additionally, the Company intends to undertake potential refinancings related to other credit products outside of the Company’s credit facility.

The Acquisition is subject to a $50 million break fee payable by Diversified Gas & Oil Corporation in certain circumstances.

LEADERSHIP AND GOVERNANCE

The Company will continue to be led by its proven management team that reflects the strengths and capabilities of the organization. Upon closing, Mr. Hutson will continue to serve as Chief Executive Officer and as a member of the Board. Diversified’s current Chair of the Board, David Johnson, will continue to serve as the Chair of the Company’s Board.

Upon completion of the Acquisition, the Company’s Board will consist of eight directors, six of whom are members of the current Diversified Board, including Mr. Hutson, and two of whom will be designated by EIG.

Due to other commitments, Sylvia Kerrigan has resigned from the Company’s Board of Directors effective as of January 24, 2025. Ms. Kerrigan, who has been a member of the Board since 2021, is leaving the Board in good standing and on amicable terms.  Upon her departure from the Board, it is expected that the current Board and Remuneration committee member David Turner has been appointed chair of the Remuneration Committee and join the Nomination and Governance Committee effective January 25, 2025. Additionally, Sandy Stash will be appointed lead independent director effective January 25, 2025.

David Johnson, Non-Executive Chairman of the Board, commented: 
“On behalf of our Board and Diversified’s management team, we thank Sylvia for her service to the Company. We have valued and appreciated her insight and industry expertise. We wish her well in her future endeavors.”

BOARD STATEMENT

The Board unanimously considers the Acquisition to be in the best interests of the shareholders of the Company as a whole. The Board believes the Acquisition would provide Diversified with significantly increased scale, long-term free cash generation, superior unit cash margins, low decline production base, a compelling environmental profile, and a robust regional consolidation opportunity.

TIMING AND APPROVALS

The Acquisition, which is expected to close during the first half of 2025, has been unanimously approved by the Board.

Completion is subject to customary closing conditions, including, among others, regulatory clearance and approval by Diversified shareholders for the issue and allotment of the Ordinary Shares pursuant to the Agreement.

Original article   l   KeyFacts Energy Industry Directory: Malcy's Blog