By RAKTEEM KATAKEY on 2/29/2016
LONDON (Bloomberg) -- Genel Energy Plc, a UK oil producer operating in Iraq’s Kurdish region, fell by a record in London trading after cutting the reserves estimate for its largest field by almost half.Genel dropped as much as 25% on Monday, the biggest decline since the stock started to trade in June 2011, and was down 23% at 95.75 pence as of 9 a.m. local time.
The company reduced its estimate for gross recoverable proven and probable, or 2P, reserves at the Taq Taq deposit to 356 MMbbl from 683 MMbbl as of mid-2011 and will take a $1 billion charge, it said in a statement. Genel owns a 44% stake in the field.
The writedown adds to pressure on the oil producer to increase exploration and boost resources at a time when crude prices are slumping and export payments from the Kurdish Regional Government have been delayed. While Genel maintained 2016 output guidance, it said it sees total volumes from Taq Taq shrinking as low as 50,000 bopd in 2018 from about 80,000 bopd this year.
“Today’s announcement is worse than we had expected,” Daniel Slater, a London-based research director at Arden Partners Plc, wrote in a note to clients. He had estimated a reduction of as much as 20%. “While this should not affect production in 2016, it will cause it to decline after that, affecting the cash-flow generation potential of the company.”
Declining Wells
Some wells at Taq Taq started going into decline in the second half of last year, prompting Genel to review the reservoir and its reserves, CFO Ben Monaghan said in a phone interview. Since 2011, the field has produced 184 MMbbl, leaving about 172 MMbbl in the reservoir as of the end of last year, according to the statement.
“We’re clearly disappointed by the magnitude of the revision today in our reserves,” Monaghan said.
Genel said in January that oil output would drop as delayed export payments had deterred investments. Oil producers in Iraq’s semi-autonomous Kurdish region have been caught for years in a spat over revenue-sharing between the local authorities and the federal government. Until last September, regular payments eluded the companies as low oil prices and the cost of fighting Islamic State militants put pressure on government resources.
The company said in January that production would fall to 60,000–70,000 bopd this year from an average of 84,900 bopd in 2015. Genel has a stake in Kurdistan’s Tawke field as well as Taq Taq.
Taq Taq is located 60 km (37 miles) northeast of Kirkuk oil field, according to Genel’s website. Addax Petroleum International Ltd., a wholly owned unit of China Petroleum & Chemical Corp., holds 36% of the field and the KRG has the remaining 20%.
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