Genel Plummets After Cutting Reserves Estimates at Kurdish Field

  • Taq Taq 2P reserves estimates slashed by almost two-thirds
  • Output forecast scrapped as key wells go into decline

Genel Energy Plc sank to the lowest since the shares started trading after it reduced estimated reserves at its flagship oil field in Iraqi Kurdistan and scrapped an output forecast for the deposit.

The shares sank as much as 25 percent on Tuesday, the biggest intraday decline since June 24. They were down 21 percent at 58 pence as of 9:58 a.m. in London.

Gross proved plus probable, or 2P, reserves at the Taq Taq field are estimated at 59 million barrels, down from 172 million barrels at the end of 2015, Genel said in a statement, citing auditor McDaniel & Associates. The field is producing about 19,000 barrels of oil a day, compared with about 36,000 a day at the end of 2016 as key wells go into decline.

Genel downgraded its reserves estimate for Taq Taq by almost half in February last year and was forced to take a $1 billion charge. The company’s market capitalization has shrunk 95 percent from its peak in 2014 as the explorer contended with the slump in oil prices and irregular payments for crude from its host, the Kurdistan Regional Government in Iraq.

On Tuesday, Genel abandoned previous guidance for 2017 gross production at Taq Taq of 24,000 to 31,000 barrels a day, saying it will announce output on a monthly basis. The company expects to record an impairment of $181 million to Taq Taq’s carrying value in its 2016 accounts as a result of the downgrade.

The revised reserves estimate, while worse than expected, is less worrying than “the continued pace of decline in Taq Taq production,” Daniel Slater, research director at Arden Partners Plc, said in a note to investors. Genel’s management is in a “tough spot,” he said.

The announcement is “very negative on the reserves downgrade and the elimination of the full year 2017 production guidance,” Stephane Foucaud, an analyst at GMP FirstEnergy, said in a note. “This will inevitably raise concerns on the company’s capability to handle its debt.”

Net debt as of Dec. 31, 2016 stood at $240 million, the company said on January 24. Full-year results are due March 30.

Genel’s chairman and co-founder is former BP Plc chief executive officer Tony Hayward, who stepped down after the 2010 Gulf of Mexico oil spill.

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