Genel Energy PLC (LON:GENL) chief executive Bill Higgs told investors that its producing assets are profitable with oil prices of US$30 per barrel, and, along with its robust balance sheet, this supports a material dividend as well as investment in growth.
That said, a pair of statements on Wednesday detail impacts of the coronavirus and a downgrade of reserves, mainly associated with ‘end of life’ decline at the Tawke field.
A new assessment of reserves by consultant DeGolyer and MacNaughton states some 228mln barrels of gross proven reserves (1P), down from 348mln at the end of 2018 (with 13.3mln actually produced in year).
Proved and probable (2P) reserves decreased to 400mln barrels, from 502mln barrels, while proved, probable and possible (3P) reserves reduced to 641mln barrels from 697mln.
Net to Genel, the 1P figure amounted to 68.8mln barrels and 2P totalled 123.8mln.
READ: Genel Energy reveals Tawke production performance
“The reduction of reserves at Tawke largely relates to production towards the end of the life of the field, and consequently our mid-term production outlook is materially unchanged and there is no reserves impact on our business plan,” Higgs said.
“Our production funds an approved but flexible capital programme that, in the right market conditions, enables us to drill the wells necessary to evaluate the potential to convert the 2C oil resources in our portfolio, validated for the first time by ERCE, into reserves and production, boosting our cash generation potential."
In a separate statement, Genel relayed details from an investor update by Tawke operator DNO.
DNO revealed that amid market conditions - weaker oil prices and the operational restrictions caused by the coronavirus - there will be a scaling back of well drilling activity.
The operator said it has been impacted by restricted staff movement because of border closings, quarantines and other travel disruption.
Moreover, DNO said its ability to maintain spending at Tawke has also been “strained” by interruptions and delays to what are supposed to be monthly payments for exports – the last payment received was in January, which covered sales in September 2019.
DNO by the end of March will have cut back the number of Tawke’s active rigs to one, from four at the start of 2020, but, noted that it expects to ramp up operations quickly once the external environment improves.
So far in 2020, production from Tawke has averaged 116,000 barrels per day.
Genel noted that the anticipated reduction in capital spending at Tawke boosts it expectations for cash flow generation at prevailing oil prices albeit it will also result in a lower exit rate, which in turn impacts 2021.
Consequently, Genel said there will be an impact to its production for 2020.
Genel is tomorrow set to release its financial results for 2019.