UK-listed Genel Energy slashed in late March its estimated reserves at former flagship asset – the Taq Taq field in central Iraqi Kurdistan – for a second consecutive year, leaving the remaining resources at barely a third of their stated level 12 months ago.
Taq Taq’s rapid decline resulted in an impairment charge of US$779 million and a 45% slump in total revenue to US$190.7 million. This led to an operating loss of US$1.2 billion – despite capital expenditure being slashed by almost two-thirds to US$61.2 million and a 40% leap in payments by the KRG to US$207 million after a full year of monthly remuneration.
Released on March 28, the updated Competent Person’s Report by Calgary-based McDaniel & Associates cut estimated proven and probable (2P) reserves at Taq Taq – a 950-square km field operated by Genel since 2002 – at the end of 2016 to 59.1 million barrels from 172.8 million barrels at the end of 2015. The latter figure was itself a dramatic downward revision, revealed in February 2016, from the former estimate of 653 million barrels, which had been unchanged since 2011.
As was the case last year, the reduction was chiefly the result of “technical revisions” rather than production. Genel blamed the latest downgrade on an increasing water cut in the core Shirinash reservoir – reducing output from existing wells and obliging a reassessment of “gross rock volume above the oil-water contact and fracture porosity”.
Production slumped by 48% to 40,000 bpd in 2016, and the slide has continued – with output averaging a mere 28,000 bpd in the year to date. Full-year output guidance of 24,000-31,000 bpd was thus abandoned in favour of month-by-month reporting, while an updated field development plan under preparation would reflect a strategy to “maximise recovery…while controlling costs, with an overall aim of generating positive cash flow”, according to the annual report published on March 30.
One well being drilled in the field’s north flank offered a glimmer of hope.
Genel’s oil sector hopes now rest on its minority stake in the Tawke field – which has leapfrogged Taq Taq to become the territory’s largest – while the company’s main focus this year is on accelerating the slow-moving but potentially game-changing development of two major gas fields in the autonomous area.
The prospects on both fronts were deemed reassuringly positive, buoyed by the main bright spot in last year’s financials of fuller and faster payment of dues by the Kurdistan Regional Government (KRG).
Erbil’s renewed commitment to paying its foreign producers bore fruit in the more positive reports regarding the 504 million barrel Tawke field, in which Genel owns a 25% stake alongside Norwegian operator DNO. A resumption of investment reversed natural declines and led to a new discovery at the Peshkabir structure in January – with production in 2017 expected to be in line with the roughly 110,000 bpd year-to-date average and now envisaged delivering the bulk of Genel’s revenues for the year.
However, the firm’s main focus – and the emphasis in statements accompanying the annual report – will be on accelerating development of the estimated 11 tcf (311.52 bcm) of reserves contained in the Miran and Bina Bawi gas fields, of which Genel is the 100% operator.
Acknowledging that progress thus far had been slower than predicted – as a result of local and regional economic, political and security challenges, exacerbated by the anticipated development project being tied to an intergovernmental export agreement with Turkey – Genel claimed that long-awaited finalisation of the amended production-sharing contracts (PSCs) and gas lifting agreements in February would catalyse pre-development activity in preparation for a final investment decision (FID).
The US’ Baker Hughes has completed the gas development plan, the firm revealed, while compatriot Fluor has concluded pre-front-end engineering and design (FEED) studies for the midstream processing facilities, identifying several possible sites. Work will now proceed to a full FEED study and environmental impact assessment (EIA), while the protracted negotiations with potential strategic partners are expected to conclude by year-end.
Nonetheless, the delays and other factors have forced a write-down of the gas assets from US$1.4 billion to US$867 million.
“We move into 2017 with clear priorities: maximising the value of our oil assets, accelerating the recovery of the receivable [from the KRG] and building on the increased momentum in the development of our gas assets,” CEO Murat Ozgul said.
The year will also be one of corporate flux – with chairman and co-founder Tony Hayward due to step down in June and CFO Ben Monaghan reportedly planning to leave before the end of the year.