Genel Energy’s decision to suspend the dividend is sensible, says SP Angel, given the uncertainty surrounding the reopening of the pipeline between Iraq and Turkey.
The company received two payments totalling US$61 million from the Kurdistan Regional Government (KRG) in the first quarter of 2023 with $110 million now overdue, leading to a $70 million reduction in net cash to $158 million during the period.
Genel is in good financial shape even so and has acted sensibly to preserve cash resources by withdrawing the dividend, reducing operational overheads and curtailing the planned capex programme.
Management used the investor webcast to repeat that M&A will be a major focus for its capital allocation policy and investment proposition going forwards as it looks to acquire assets that will strengthen its medium-term cash flows and provide greater confidence in ongoing shareholder returns.
Nonetheless, in a busy market with buyers chasing similar asset package profiles (low-cost production assets in medium-risk countries with upside potential), we expect the M&A market to widen in 2023 to include higher-risk assets, said SP Angel.
These will include a greater element of exploration, appraisal and/or development, as E&Ps with cash accumulations face the use-it-or-lose-it predicament from investors driven by shareholder returns.
Shares dropped 3% to 100.2p.