Genel hopes to secure regular payments for oil exports

Genel Energy expressed optimism on Thursday that the resolution of a longstanding Iraqi government dispute could soon enable the Kurdistan oil explorer to secure regular payment for its crude exports.

A disagreement between the Kurdistan Regional Government and Iraq's federal administration over the distribution of oil revenues led to the freezing of payments by Baghdad to the KRG. This in turn resulted in the KRG not paying Genel and other oil producers in the region for much of their oil exports.

However, this week the KRG was paid $208m by the Iraqi government, following an agreement between Erbil and Baghdad aimed at resolving the dispute over oil revenues and other federal funds.

Genel ended last year with $233m owed to it by the KRG, but chief executive Tony Hayward said he hoped Erbil would soon start to make regular payments to the UK-listed company. Shares in Genel rose almost 8 per cent to 604p, although the stock is down 44 per cent over the past year.

Mr Hayward welcomed a new agreement with the KRG allowing for the sale of more of Genel's oil into the local market, rather than having to export the crude through Turkey. The diversion, under which Genel receives half of the domestic selling price, would provide "tens of millions of dollars" of cash flow to the company, he added.

Mr Hayward said the sorts of delays in payments for oil exports experienced by Genel were becoming more common in other countries grappling with the collapse in crude prices since last summer.

"Kurdistan aren't paying in time to their contractors and producers, but also down south [in Iraq] international oil companies aren't being paid either," he added. "This reflects the financial strain Iraq finds itself in - it's the same in Egypt, Angola and everywhere else."

Last month, Gulf Keystone Petroleum abandoned oil exports from Kurdistan because of delays in payments from the KRG. The KRG is short of funds partly because its troops have been battling insurgents - the Islamic State of Iraq and the Levant - who control much of the country's north.

Mr Hayward said Genel, which replaces chief financial officer Julian Metherell with Ben Monaghan in April, continues to see itself as a potential consolidator in the Kurdistan region.

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Genel maintained revenue guidance for this year of $350m to $400m, based on improved production rates of up to 100,000 barrels of oil per day, and a Brent crude selling price of $50 a barrel. Capital expenditure guidance for 2015 was put at $200m to $250m. Genel ended the year with $490m in cash.

Analysts at Deutsche Bank said the results "should reassure that Genel's balance sheet and ability to generate cash in the domestic market is capable of absorbing a period of uncertainty over export payments".

JPMorgan Cazenove analysts said Genel shares were depressed by a lack of regular payments from Erbil to oil producers in the region, but added the discount "could close quickly as payments are received".

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