WTI (Mar) $60.63 -44c, Brent (Mar) $65.59 -29c, Diff -$4.96 +15c
USNG (Feb) $6.80 +$1.52, UKNG (Feb) 100.50p -10.5p, TTF (Feb) €40.255 -€1.49

Oil price

Oil is better today as US operations in the Gulf are stepped up, the USS Abraham Lincoln has arrived and it seems like the market thinks that something is imminent. Certainly the UAE does as its Foreign Office announces that it will not allow its territory to be used for military action against Iran, wanting a diplomatic solution. I think that particular ship has sailed…

Oil supply from Kazakhstan is still sub par, although the CPC is coming back the news from Tengiz appears to be that it will only supply half its capacity until February 7th. 

In the US the FOMC starts today but there is nothing in it for a rate cut, maybe not this year and with the dollar continuing to slide, oil appreciates. Winter Storm Fern has passed through but most US analysts say that 2m b/d from Texas is offline and natural gas is still perky albeit off the recent highs. Another storm is expected at the weekend so disruption is likely to remain. 

Genel Energy

Genel has issued the following trading and operations update in advance of the Company’s full-year 2025 results, which are scheduled for release on 18 March 2026. The information contained herein has not been audited and may be subject to further review.

Paul Weir, Chief Executive of Genel, said:
“We are well positioned to progress on our strategy and deliver significant value to our shareholders. Notably, we have a resilient core business, which covers its costs even when sales are restricted to discounted domestic market pricing at just over $30/bbl and a balance sheet that provides the funding required to deliver on our strategic objectives.

Geographical diversification of our cash generation remains the priority for the business. Our process remains active with live opportunities under review, and we continue to pursue and bid on these opportunities. We will retain our discipline and rigorous evaluation process to ensure every opportunity we choose to pursue is value accretive over the long term for our shareholders and meets our priority criteria.

There is significant, currently unvalued, potential in our portfolio. On the Tawke PSC, the new drilling campaign is underway targeting the maximisation of production from, and additions to, the existing material reserves base there. In terms of accessing export pricing, the first stage of the new Kurdistan export arrangement has been reported by all participants to be working. We congratulate those stakeholders involved in the significant effort and trust that has resulted in export arrangements reaching this promising stage. We see sustained and consistent execution as a key consideration as we keep export arrangements under review. On Block 54 in Oman, preliminary operational work has been completed safely, ahead of time and under budget. Work is ongoing to assess the accumulated data to inform the focus of our activity over the next two years, which will include drilling two wells. In Somaliland, we continue to work with stakeholders to progress to a position where we can drill the potentially transformational Toosan-1 well there.

Each of these strategic objectives has the potential to deliver significant value.  In combination they can transform the business, transform our cash generation capacity, and further energise the business and the value proposition for our shareholders.”

This is a very good update from Genel and it paves the way for substantial growth on pretty much any timescale. The key metrics are pointing in the right direction, solid production which will be increased by renewed drilling by DNO at Tawke following extensive technical work by the operator and which is incredibly cost efficient given the cost structure in Kurdistan. Indeed the company say that ‘the process for mobilisation of rigs for a sustained drilling programme is well underway’ which bodes well.

Indeed operational performance is exceptional as the ‘efficient and effective programme of workovers and well intervention continues to yield excellent results’ despite last year’s drone attacks and ex that production is up even without any new wells having been drilled. With average production last year of 70,090 b/d I expect a significant increase in production this year and the long term target of 100/- b/d is not too fanciful. 

There are a number of questions to address with regard to politics and of course the arrangements for crude sales following the pipeline reopening last year. With the new payment system appearing to work for those who have elected to be paid by the KRG, most likely 1-2 months in arrears. 

Other political factors include assessing the advantage of potentially higher oil realisations than the domestic $32 pb without adding to the receivables balance, which stands at $88m due from the KRG but that is offset by ‘about $40m of payables’. 

Genel continue to work towards a plan for payment or settlement of this amount owed and appropriate adjustment for price and interest. At the moment the risk between getting money immediately, offset by higher pipeline prices and of course, with DNO being the only ones in this particular camp leaves them with all options open to them. 

In Oman the operations have been delivered on time and ahead of budget, two wells are expected in the next two years and we are promised a more detailed update with the figures in March. The same goes for Somaliland which has ‘potentially significant value’ and they are working towards drilling of the ‘highly prospective Toosan-1 exploration well’.

As for M&A as we have seen from others in the industry, there simply isn’t much around and what is can be priced accordingly, companies are paying up for deals partly on higher than current rack rate oil price assumptions but Genel are adamant that their strict technical evaluations predictions have to be borne in mind. 

I’m sure that the company will find the right deal, it may mean expanding the radar screen away from MENA which it currently targets but that is no great problem, its financial strength means it has the scope to do the right deal but not necessarily the next deal. 

With regard to the balance sheet it is incredibly strong, net cash of $134m, gross of $224m is powerful indeed, now free cash flow positive and with receivables under control, no comment on the dividend right now, expect more thoughts on that with the finals in March. CEO Paul Weir says that the balance sheet is very strong and able to ‘deliver on strategic objectives’. 

With the export arrangements constantly ‘under review’ and a highly cost effective drilling programme from DNO likely to deliver increased production with great field economics the outlook is very good indeed.

Genel is in a very strong position right now, the core business is ‘resilient’ and covers its costs at $30 which makes it a very operationally profitable model capable of delivering significant growth, both on increased production via drilling at Tawke and on an overall discount to asset value. 

Genel has come out of the pipeline situation very well, it has optionality going forward and is clearly very cheap indeed, the CEO rightly says that the company can deliver ‘significant value’ to shareholders with an undervalued portfolio of assets and a hugely robust balance sheet. 

I have no doubt that the company will stay in the upcoming Bucket List, the shares are way undervalued and I have no compunction in increasing my Target Price to 100p, itself not a demanding number given all the positives in the outlook on any timescale.

KURDISTAN: TAWKE PSC (25% working interest)

• Exceptional performance from the Operator has resulted in Q4 average production being close to the levels delivered in the first half of the year

• The efficient and effective programme of workovers and well intervention continues to yield excellent results. Average production for months not impacted by the drone attack was higher than last year despite no new wells being drilled. Actual average production for the full year was 70,090 bopd compared to 78,615 bopd last year
• The process for mobilisation of rigs for a sustained drilling programme is well underway, with that programme targeting additions to both production and reserves
• Our Genel20 scholarship programme continues to provide funding and support to talented, yet financially disadvantaged high school graduates from the Kurdistan Region of Iraq. Since its launch, the programme has been implemented in line with our long-term sustainability commitment, focusing on lasting educational and social impact

OMAN: BLOCK 54 (40% working interest)

• Our preliminary activity, re-entry and workover of the legacy Batha West-1 (BW-1) discovery well was completed ahead of time and under budget
• The BW-1 well operation was a low-cost preliminary activity to commence our work on the block representing the first of a number of steps towards understanding the full potential of the license
• Work is now ongoing on analysing data collected and assessing its implications for the location of further activity on the block, which includes the acquisition of 3D seismic data and drilling two exploration wells over the next 2 years. In line with our guidance, we will update on these plans in March

SOMALILAND: SL10B13 (51% working interest)

• We continue to work towards drilling of the highly prospective Toosan-1 exploration well
• Genel continues to work closely with local communities and beneficiaries, with its social investments including a broad range of initiatives in the space of mother/child health, education and the environment

FINANCIAL PERFORMANCE

• Working interest average production of 17,520 bopd was lower than last year (2024: 19,650 bopd), with exit rate production back to around 20,000 bopd. All production was sold into the domestic market at average $32/bbl (2024: $35/bbl)
• Core business netback of $11 million (2024: $5 million)
• Free cash flow of $4 million (2024: $20 million)
• Balance sheet at 31 December 2025
  • Cash of $224 million (2024: $196 million)
  • Total debt of $92 million (2024: $66 million)
  • Net cash of $134 million (2024: $131 million)
• Receivables
  • $88 million (under KBT pricing and excluding interest) remains overdue from the Kurdistan Regional Government (‘KRG’), although this is offset by about $40 million of payables
  • We continue to work towards a plan for payment or settlement of amounts owed, and appropriate adjustment for price and interest
• Genel Energy Miran Bina Bawi Limited appeal against the arbitration costs award of $27 million will be heard in Q2 2026

ESG

• Climate disclosure: maintained a CDP Climate rating of B for a fourth consecutive year

OUTLOOK

• With Tawke domestic market sales expected to be consistent and production expected to benefit from new drilling in FY2026, we expect core business free cash flow generation to more than cover its costs, which includes net interest payable
• In addition to the core business, the Company expects to invest up to $20 million on its pre-production assets:
  • On Block 54 in Oman, in line with the 3-year work plan that we announced at the time of entering the licence
  • SL10B13 in Somaliland, as we seek progress towards drilling the Toosan-1 prospect towards the end of 2027
• 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 of Tawke oil to access international pricing
  • recovery of net amounts owed by the KRG
  • determination and execution of activity on Block 54
  • further progress towards drilling Toosan-1

Genel will host a live presentation on the Investor Meet Company platform on Wednesday 28 January 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

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