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Deutsche Bank cautions over Genel Energy Kurdistan risks

Published: 21:53 13 Nov 2017 AEDT

oil and gas operations
“Things had been going so well"

Deutsche Bank has repeated a 'hold' recommendation for Genel Energy PLC (LON:GENL) and cautioned over the uncertainties ‘above ground’ for Kurdistan oil producers, nonetheless, changes to the bank's model see a slight increase in the target price, to 160p from 154p.

Analyst David Mirzai said he is cautious over Genel because his forecasts are based on sustained export and royalty payments, while acknowledging that Kurdistan continues to be a high risk geography.

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He added that recent events in Northern Iraq has cast doubt over the ability of the Kurdistan Regional Government to continue regular payments.

“Things had been going so well: monthly remittances were regular, the new settlements agreement accelerated recovery of the outstanding receivables and tie-in of the Peshkabir discovery could boost volumes in 2018,” Mirzai said in a note.

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“Then the miscalculation of the referendum (they are not alone), whereby the Iraqi authorities swept north to seize Kirkuk and shut-in several of its fields.  Export volumes are now half of the prior 600kb/d, with threats from both Baghdad and Turkey of sales revenues being transferred to the central government.

“Without access to these revenues, or some form of budgetary transfer, the KRG is unable to meet its monthly administrative running costs, including a c.$100m payment to its contractors.”

Mirzai added: “Investments in Taq Taq and Tawke are dependent on continued payments from the KRG, thereby placing considerable risk not only on FCF generation, but also on future growth opportunities.”