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Abu Dhabi, UAEFriday 21 September 2018

Genel upbeat on KRG energy payments despite conflict

Chief financial officer confident of continued reimbursement

A drilling rig in the Miran block in Iraqi Kurdistan co-owned by Genel Energy and Heritage Oil. Genel may start drilling in Somaliland next year, it said. Sebastian Meye/Corbis
A drilling rig in the Miran block in Iraqi Kurdistan co-owned by Genel Energy and Heritage Oil. Genel may start drilling in Somaliland next year, it said. Sebastian Meye/Corbis

Genel Energy said it was confident the semi-autonomous Kurdistan Regional Government (KRG) in Iraq will continue meeting oil export payments despite tensions with the central government following the region's independence referendum last month.

London-listed Genel, one of a handful of foreign oil producers in Iraqi Kurdistan, has seen its share price drop nearly a quarter since the September 25 vote for Kurdish independence from Iraq, which the central government and western powers have opposed.

Iraqi forces have since taken control of some of Kurdistan's biggest oilfields and operations were interrupted for the first time on Wednesday when oil exports through the Kirkuk-Ceyhan pipeline to Turkey more than halved.

However, Genel said on Thursday its own operations were continuing as normal and that it had not increased security at its sites.

"Our operations continue as usual, staff rotations continue, spare parts are coming in when needed. It's very much business as usual," said Esa Ikaheimonen, Genel's newly appointed chief financial officer.

Genel says it is is the largest holder of reserves and resources in the Kurdistan Region of Iraq, where it has been operating for over a decade, and one of the largest independent oil producers on the London Stock Exchange.

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Mr Ikaheimonen declined to comment on the status of the Kirkuk-Ceyhan pipeline.

He said he was confident the KRG would continue meeting payments for oil exports. The payments are Genel's main source of revenue for oil it produces at the Taq Taq and Tawke oilfields.

In August, Genel and fellow oil producer DNO from Norway struck deals with the KRG to clear outstanding debt and restructure oil export payments.

The companies have since received the first payments under the new structure.

"They've [been making payments] flawlessly for two years now and in addition to that they've also been extremely cooperative in finding solutions for the settling of problems," Mr Ikaheimonen said.

"That gives us quite a lot of confidence that the desire is there and the commitment is there."

A slight rise in oil prices, the KRG payments and ongoing revenue from production helped Genel to increase cashflow in the third quarter with unrestricted cash balances at US$268 million at the end of September, up from $246m three months earlier, the company said in a trading update published on Thursday.

This also enabled it to reduce net debt by 13 per cent over the quarter to $138m.

Average output stood at 33,810 barrels per day (bpd) in the quarter, compared with an average of 37,100 bpd in the first half of the year.

Shares in Genel were up 2 per cent at 07.58 GMT.

"Macro events are likely to remain the major driver of the stock in the near-term," said analysts at Numis.

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