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Genel Energy has significant exploration and production potential, says broker

VSA Capital has initiated coverage of Genel Energy with a ‘buy’ recommendation and £12 a share price target, based on the firm's producing and near-term development assets, and including exploration and gas projects adds another 917 pence to that already-bullish number.

VSA Capital has initiated coverage of the Anglo-Turkish oil explorer and producer Genel Energy (LON:GENL) with a ‘buy’ recommendation and £12 a share price target, based on the firm's producing and near-term development assets.

Analyst Dougie Youngson reckons Genel’s exploration assets, along with its gas projects, have the potential to add a further 917 pence to that already-bullish number.

Currently, the stock is changing hands for 817.5 pence, up 6 pence, and valuing the group at £2.3bn, while the consensus price target is around the £11 mark.

VSA looked at potential share price catalysts, including the impact of Genel being able within the next year to export its hydrocarbons from its Kurdistan projects into neighbouring and energy-hungry Turkey. This, it concluded, will “significantly increase revenue and cash flow”.

Offshore Morocco, a magnet for some of the world’s biggest explorers, is shaping up to dominate the headlines next year, the City broker added.

Exploration news flow from its Taq Taq and Twake fields in Kurdistan will also provide major catalysts, added VSA in a note to clients.

Results from the Miran Deep drilling, meanwhile, have the potential to unlock a further four trillion cubic feet of natural gas, which should also give the stock a bump.

Separately, VSA revealed that Genel has begun discussions for a premium listing on the main board of the London Stock Exchange. “The company would enter the FTSE-250, and become eligible for an index weighting, meaning that All-Share index funds would be forced to buy the stock,” said Youngson.

“Should it subsequently enter the FTSE-100, then international institutions would also have to buy.

“Inevitably, the share price and liquidity would increase as a result of this process. This is likely to be a longer-term liquidity event.”

Genel, headed by former BP boss Tony Hayward, is the result of the 2011 merger of Genel Energy International and Vallares.

Its unrisked prospective resource base currently stands at 3.9bn barrels of oil equivalent, and 2P (proven and probable) reserves are 445mln barrels.

Its two producing oil fields are Taq Taq and Tawke in Kurdistan and output from the two is expected to hit 140,000 barrels by next year.

The completion of an export pipe network taking oil from within Kurdistan is key to this plan.

As well as Kurdistan and Morocco, the group also has a highly prospective base of assets off the coast of Malta, the Ivory Coast and Somaliland.

Ian Lyall
Ian Lyall
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