Genel Energy PLC (LSE:GENL, OTC:GEGYY) has bumped up its dividend by 20% and said it plans to invest in maximising its existing assets as it expects a material increase in free cash flow this year.
“Our strategy and business model remain focused on cash generation,” said chief executive Bill Higgs in a statement alongside the company’s results for 2021.
“Prior to the invasion of Ukraine and the associated increase in the oil price, we were well positioned for our free cash flow to materially increase from $86 million in 2021 to around a quarter of a billion dollars this year. At the prevailing oil price, and given that there seems no quick resolution to the appalling events unfolding, this figure is expected to increase significantly.”
From an existing position of financial strength, Higgs said the forecast extent of Genel’s cash generation this year “provides the potential to deliver significant growth and further returns to shareholders”.
“Our priority is investment in production to maximise the value of our existing assets, and continuing to develop Sarta.”
The board has recommended a final dividend of 12 US cents per share compared to 10 cents last year, which would bring ordinary dividends declared for 2021 to 18 cents per share, up from 15 cents for 2020.
The increase in the final dividend reflects the strong outlook and ongoing cash generation, Higgs said, and should the current oil price strength persist, Genel will consider “incremental returns of cash to shareholders in addition to our commitment to a material and progressive dividend”.
For the past year, the company reported underlying earnings (EBITDAX) of US$275.1mln, up 140% on the previous year as revenue grew 110% to US$334.9mln.
After production was roughly flat at an average of 31,710 barrels of oil per day (bopd), the guidance for 2022 is for it to be maintained at around the same level, with production having started at the Sarta-1D well on 8 March, at an initial rate of 2,500 bopd.
The expected free cash flow of over US$250mln in 2022 is based on a Brent oil price of US$90 per barrel, with an increase or decrease in Brent of $10 per barrel impacting annual cash flow by roughly US$50mln.
Cash flow in 2022 will benefit from 10 override payments from the Tawke licence, with the last one set to be paid relating to July 2022 production.
Capital expenditure guidance has been maintained as between US$140mln and US$180mln.
With 2022 marking 20 years since Genel signed its first production sharing contracts in the Kurdistan Region of Iraq, the company said it will be marking the year by increasing the scope of its social investments under the Genel20 banner, in line with UN Sustainable Development Goals.