Saudi Arabia - joining the dots
A series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy
AIM - Assets In Market
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Iran negotiations - is the end nigh?
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Yemen: The Islamic Chessboard?
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Acquisition Criteria
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Valuation Series
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Thursday 25 May 2017
Kraken on track for first oil in June
Wednesday 24 May 2017
INEOS acquires DONG E&P portfolio
- USD150 million relating to the Frederica stabilisation plant; and
- USD100 million subject to the development of Rosebank
The deal includes a portfolio of long life assets with 100mboepd production and 570mmboe of commercial reserves and contingent resources. The portfolio's corner stone assets are Ormen Lange (Norwegian gas) and Laggan-Tormore (new gas field in West of Shetlands).
All 440 DONG personnel will transfer to INEOS on completion, which is expected towards the end of 2017. The deal with propel INEOS into the top 10 league of North Sea players and enable the company to significantly expand its trading and shipping activities.
Friday 12 May 2017
Private equity backed Neptune Energy acquires Engie E&P
On 11th May, Neptune Energy announced that it had agreed to acquire Engie's upstream portfolio, Engie E&P International ("EPI"). In 2011, Engie had sold 30% of EPI to China Investment Corporation ("CIC"), retaining a 70% interest in the business. As part of the transaction, Neptune Energy will pay USD3.9 billion for the 70% stake and also take over CIC's 30% stake, in return for CIC becoming a 49% shareholder in Neptune Energy. The Carlyle Group and CVC Capital Partners will together hold 51% in Neptune Energy.
The USD3.9 billion headline transaction value includes c.USD95 million of contingent payments linked to certain operational milestones. EPI will also retain the decommissioning liabilities associated with the portfolio (i.e. transferred to Neptune Energy), allowing Engie to deconsolidate c.USD1.2 billion of decommissioning liabilities from its balance sheet. The deal implies a transaction multiple of EV/2P of USD6.3/boe (based on transaction value of USD3.9 billion).
The EPI portfolio is focussed on North West Europe with additional operations in North Africa and South East Asia and includes a mix of exploration, development and production assets. However, Engie has agreed to retain the Algerian gas development as part of the deal. The portfolio will be gas weighted and is underpinned by a number of key long-term assets including Snøhvit and Njord in Norway, Cygnus in the UK, Römerberg in Germany and Jangkrik in Indonesia.
The acquisition will propel Neptune Energy into one of the largest international E&Ps with the deal expected to close at the beginning of 2018.
International E&P reserve rankings Source: Company disclosure, OGInsights |
International E&P 2016 production rankings Source: Company disclosure, OGInsights |
Wednesday 10 May 2017
Yakaar - major gas discovery offshore Senegal
This discovery marks the continuation of Kosmos’ success in the Mauritania/Senegal river basin (Tortue, Ahmeyin, Marsouin and Teranga). Yakaar and Teranga together hold 20tcf (Pmean gas resource) and creates the opportunity for a second LNG hub in Senegal (in addition to the planned Greater Tortue Area).
Source: Kosmos Energy May 2017 company presentation |
The drilling schedule over the next 12 months is now:
- Tortue-DST (imminent)
- Hippocampe-1 (Q3/4 2017)
- Lamantin-1 (Q4 2017)
- Requin Tigre-1 (Q4 2017/Q1 2018)
Thursday 4 May 2017
DNO: Branching out
Origo Portfolio Source: Company information, NPD |
Wednesday 3 May 2017
Major interest in Senegal
- Acquisition of the RPO block (Total 90%, Petrosen 10%) which lies in deepwater immediately adjacent to the SNE and FAN discoveries (Cairn 40%, Woodside 35%, FAR 15%, Petrosen 10%)
- Agreement to perform studies to assess the exploration potential of Senegal’s ultra-deep offshore and become operator of an exploration block.
This activity follows the recent transaction by BP into Kosmos’ exploration and appraisal acreage in Mauritania and Senegal, and CNOOC Nexen’s strategic partnership with FAR in Senegal and The Gambia. In the latter, the partnership covers an initial two year period, providing for co-operation and potential joint bidding on farm-ins, acquisitions and open acreage. FAR and CNOOC Nexen will also share technical expertise and relationships.
While the tangible benefits of this relationship cannot currently be quantified, CNOOC Nexen will be a useful partner to have as SNE progresses towards FEED and may eventually acquire or help fund FAR post FID. CNOOC Nexen could also have an interest in FAR’s Gambian blocks that lie to the south of SNE.
CNOOC is an established player in Africa with development/production in Uganda and Nigeria and exploration interests in Equatorial Guinea, Gabon and the Republic of Congo.
Friday 28 April 2017
Saudi Arabia: Consolidating power and austerity tested
King Salman’s sons, Abdulaziz bin Salman and Khaled bin Salman, will become Minister of State for Energy and Saudi Ambassador to the US respectively.
- Prince Abdulaziz has held a variety of senior positions in the oil ministry through the years and was a proponent of abandoning the market share strategy
- Prince Khaled has served as an advisor to the Saudi embassy in Washington – his placement will be to help strengthen ties between the US and Saudi, consistent with the messages since the Trump and Deputy Crown Prince meeting in March 2017
Prince Abdulaziz and Prince Khaled are half-brothers; Prince Khaled is a younger brother to the Deputy Crown Prince, Mohammed bin Salman.
The other key decision this week was the reversal of civil service salary and benefits cuts. The austerity measures have caused discontent with the public, of which c.70% work for the civil service, leading to cries demanding the reversal of salary cuts, reinstatement of benefits, scrapping the planned IPO of Saudi Aramco and a change of the ruling system from an absolute to a constitutional monarchy – the latter being a key concern and threat to the Salmans’ power. The reversal of the cuts were well received and although undermines the economic outlook of Saudi Arabia, is clearly much more desirable than public revolt.
The temporary austerity measures reduced the spending deficit from USD97 billion in 2015 to USD79 billion in 2016. The target for 2017 was set at an ambitious USD53 billion, but this now looks unachievable with the announced reversals. The reversals place the Deputy Crown Prince in an awkward position within the family’s diverging aspirations for the Kingdom with the potential undermining of his Vision 2030 which aimed to scale back the public sector wage bill and civil service, with diversification of the economy. The durability and longevity of other Saudi measures and now being put to the test.
Tuesday 25 April 2017
More innovative investment from Schlumberger for Sound Energy
Sound and Schlumberger have agreed to extend their partnership under the existing Field Management Agreement. In an era where more innovative financing arrangements are being seen, Schlumberger will be granted 27.5% interest in the Meridja and Tendrara Relinquished Areas in exchange for providing services.
Schlumberger will carry out the upcoming geophysical programme which will include:
- 2,600km of new 2D seismic covering the Paleozoic across the Tendrara and Meridja areas; and
- 24,000km2 of gravity gradiometry
Wednesday 5 April 2017
Premier sells out of Pakistan
Premier has announced the disposal of its Pakistan business for USD65.6 million to Al-Haj General Trading Co. The sale process for these assets was initiated in 2015 after an unsolicited approach and culminates with today's announcement.The Pakistan assets comprise six non-operated producing gas fields which produced c.47mmcfpd and generated c.USD41 million in 2016.
Premier has been present in Pakistan since 1988 and in 1990, made the Qadirpur discovery. Since then, the company has acquired interests in five other fields, all located onshore. The fields are long-life assets with low operating costs. All production is sold to the government-owned gas utilities, SSGCL and SNGPL.
This disposal is in line with Premier's strategy to dispose of non-core assets to reduce net debt. The deal is expected to close at the end of the year and is pending government and regulatory approvals. The effective date of the transaction is 1st January 2017.
Friday 31 March 2017
FAR AMI with CNOOC in Senegal and The Gambia
On 31st March, FAR announced that it had entered into an Area of Mutual Interest Agreement with Chinese state giant CNOOC for the joint co-operation on the evaluation of and entry into new opportunities across Senegal and The Gambia.
This follows on FAR’s farm-in to 80% of Blocks A2 and A5 in Gambia from Erin Energy earlier this week.
The announcement on the arrangement with CNOOC follows:
“FAR has signed an Area of Mutual Interest (“AMI”) agreement with CNOOC UK Limited (“CNOOC UK”). The AMI covers selected licences offshore Senegal and The Gambia within the designated area.
The AMI provides FAR and CNOOC UK with agreed arrangements to partner in evaluating, bidding, negotiating and managing joint ventures on farm-in and open acreage opportunities for oil and gas licences. The AMI agreement period is for two years.
In combination, FAR and CNOOC UK bring together expertise of the Mauritania-Senegal-Guinea-Bissau (“MSGB”) offshore basin and the capabilities of an international deep water operator.
FAR and CNOOC UK are committed to building long term strategic relationships with the host Governments of Senegal and The Gambia and their people.
This agreement positions FAR to further expand its portfolio and establish itself as one of the major players in the rapidly emerging MSGB Basin – a basin that is increasingly attracting the attention of the world’s oil “majors”.
CNOOC UK Limited is a subsidiary of CNOOC Limited which (together with its subsidiaries) is the largest producer of offshore crude oil and natural gas in China and one of the largest independent oil and gas exploration and production companies in the world.”
Related Links
- FAR signs strategic AMI Agreement with CNOOC UK Limited
- FAR expands exploration portfolio in West African hot spot – Secures 80% stake in high potential offshore blocks in The Gambia
Monday 27 March 2017
Shell sells onshore Gabon to Carlyle
On 24th March, Shell announced the sale of its onshore Gabon assets to Assala Energy Holdings (a portfolio company backed by Carlyle Group).
Assala will pay USD587 million and assume debt of USD285 million, taking “enterprise value” to c.USD870 million. Shell will also receive up to a further USD150 million in contingent payments depending on oil prices and performance. This compares with a Wood Mackenzie NPV10 of c.USD600 million and implies that some value being placed on the gas resources.
The onshore portfolio comprises c.60mmbbl of oil (commercial) and c.160bcf of contingent gas. The gas is currently undeveloped due to a limited market, but could one day be used to supply local power generation. The portfolio produces c.35mbopd of and Shell Trading will retain lifting rights from the assets for the next five years.
The licences being acquired are a mix of PSCs and concessions with some of the concessions being converted into PSCs over the last 10-20 years when they came up for renewal. The licences are owned directly and indirectly through a JV with the Gabonese government (75% Shell, 25% State). The largest asset in the portfolio is Toucan which commenced production in 2003 – significant investment was made between 2012-2014 as part of an additional phase of development to extend the field life to c.2030.
The offshore licences (BC9 and BC10) are excluded from the same, where Shell made the large Leopard-1 discovery in 2014 which is estimated to contain close to 1tcf of recoverable gas.
Tuesday 7 March 2017
Bowleven Bomono farm-out
Monday 6 March 2017
Perenco acquires Gabonese assets from Total
On 27th February Total announced that it had agreed the sale of its Gabonese assets to Perenco for USD350 million. Perenco will acquire:
- Total Participations Petrolières Gabon ("TPPG") a wholly owned subsidiary of Total which has interests in 10 assets; and
- 5 assets from Total Gabon, the publicly listed entity in which Total owns 58.3% and the government of Gabon 41.7%
The package will comprise of 12 fields (some are owned by TPPG and Total Gabon) with 13mbopd production as well as the operated Rabi-Coucal-Cap pipeline. Perenco will acquire operatorship of all the assets apart from Rabi which is operated by Shell.
The assets are mature with the majority currently having an expected end of life between 2020 and 2030. However the deal fits with Perenco's successful strategy of creating value from mature assets. Perenco has a track record of exploiting mature assets around the world, including in Colombia, the UK, Congo and Cameroon. Perenco already has assets in Gabon and this acquisition provides an opportunity for operational and cost synergies and cements West Africa as a core region for the company.
Although the assets provide only oil production, there are significant contingent gas resources especially in Rabin with an estimated 250 bcf gas cap. Perenco is currently the sole gas producer in the country, supplying local power plants and the new gas provides significant back up volumes.
For Total, the divestment will contribute towards the 2014 mandated divestment target of USD10 billion to 2017, of which c.USD8 billion has been achieved to date. It should be noted that this does not represent a complete country exit for Total which still retains assets through Total Gabon, such as Grand Anguille and the deep water Diaba exploration block.
Friday 3 March 2017
Sterling sells out to Oranje-Nassau Energie
Following Sterling’s recapitalization in May 2016, the board of continued to review and pursue various M&A opportunities to rebuild the business. Sterling considered a number of opportunities and alternatives, including mergers with a variety of potential counterparties. Ultimately, this process culminated with the board of Sterling recommending the sale of SRUK Holdings to Oranje-Nassau. Once the transaction is approved by shareholders, Sterling will no longer have
any business operations and it currently intends to undertake a voluntary winding-up, with the distribution of all net proceeds of the transaction to shareholders. The shares of Sterling are expected to cease trading and be delisted from the TSX-V following the final distribution.
Thursday 2 March 2017
More success at Jacana
GeoPark today announced the successful drilling and testing of the Jacana-11 appraisal well on block LLA-34. The well, located 2.5km southwest of Jacana-6 and extends the Tigana/Jacana oilfield to the south-west edge of the block. The well reached TD of 11,618ft and did not encounter the oil-water contact.
Jacana-11 tested at c.2,100b/d (18.7 API, <1% water cut) with an ESP from the Guadalupe formation, and the well is already in production.
The Jacana Sur-2 well is the next well scheduled to be drilled and is targeting a further extension of the field in the northwest direction.
Wednesday 1 March 2017
BP continues foray into clean energy and US gas supply
Press release:
CHICAGO, Ill. and NEWPORT BEACH, Calif. – BP p.l.c. (NYSE: BP) and Clean Energy Fuels Corp. (Nasdaq: CLNE) today announced that BP will acquire the upstream portion of Clean Energy’s renewable natural gas business and sign a long-term supply contract with Clean Energy to support the firm’s continuing downstream renewable natural gas business. The deal enables both companies to accelerate the growth in renewable natural gas supply and meet the growing demand of the natural gas vehicle fuel market.
Renewable natural gas fuel, or biomethane, is produced entirely from organic waste. As a fuel for natural gas vehicle fleets, including heavy-duty trucks, it is estimated to result in 70 percent lower greenhouse gas emissions than from equivalent gasoline or diesel fueled vehicles.
Under terms of the agreement, BP will pay $155 million for Clean Energy’s existing biomethane production facilities, its share of two new facilities and its existing third party supply contracts for renewable natural gas. Closing the transaction is subject to regulatory approval. Clean Energy will continue to have access to a secure and expanding supply to sell to the growing customer base of its Redeem™-branded renewable natural gas fuel through a long-term supply contract with BP.
“Demand for renewable natural gas is growing quickly and BP is pleased to expand our supply capability in this area,” said Alan Haywood, chief executive officer of BP’s supply and trading business. “BP is committed to supporting developments towards a lower carbon future and, working with Clean Energy, we believe we will be well-positioned to participate in the growth of this lower carbon fuel in the U.S.”
Clean Energy, in turn, will be able to expand its Redeem customer base at its North American network of natural gas fueling stations, allowing customers to take advantage of the ease and affordability of switching to a fuel that is both renewable and can significantly reduce greenhouse gas emissions compared with diesel.
“We started our Redeem fueling business from scratch less than four years ago and have grown it into a significant enterprise,” said Andrew Littlefair, Clean Energy’s president and chief executive officer. “This transaction will help to take it to the next level. BP’s investment in and focus on renewable natural gas supply will ensure that Clean Energy can meet the growing demand of our customers for low carbon, renewable fuel.”
Clean Energy will buy renewable natural gas fuel from BP and collect royalties on gas purchased from BP and sold as Redeem at it stations. This royalty payment is in addition to any payment under BP’s contractual obligation.
Tuesday 28 February 2017
Africa Oil - slowly progressing
The release included few updates – G&A was down c.50% year-on-year as a result of lower equity-based payments and the impact of the weak Canadian dollar on head office salaries, and the company reported a small USD6.5 million write off on its Ethiopian assets.
Attention remains focused on the Lokichar Basin development - preparations for FEED are underway, the pipeline Joint Development Agreement is currently in the final stages of negotiation. Separately the conclusion of the Maersk carry, an additional USD75 million of development carry may become available to Africa Oil upon confirmation of existing resources.
During Q4 2016, the company elected to relinquish its 15% working interest in the South Omo Block in Ethiopia, resulting in the USD6.5 million impairment charge mentioned above. Africa Oil’s joint venture partners in the Rift Basin Area of Ethiopia and Block 9 in Kenya have provided notification of their intent to withdraw from the joint venture; the company’s working interest in the blocks will therefore increase to 100%. These licences are due to expire in February and June 2017, respectively.
Kosmos exploration - 2017 rising stars
With a strong balance sheet, cash flow generation in Ghana and exploration/development carry provided by BP through the recent Mauritania and Senegal deal, Kosmos is well positioned to
focus on its 2017+ exploration drilling plans, which will "test some of the largest prospects identified by the industry".
Despite its current gassy position in West Africa, management emphasises its confidence in finding higher value liquids: "Updated hydrocarbon charge model explains results to date and predicts phase - we believe there is a strong chance of finding oil or liquid-rich gas on the outboard basin floor fan fairways".
The high-graded 2017 prospect portfolio comprises:
Yakaar Prospect (Senegal): 15tcfe + 0.75-1.5bnbbl (gross unrisked) prospect located down-dip of the Teranga-1 gas discovery – combination structural-stratigraphic trap, well-defined on 3D with AVO support
Requin Prospect (Mauritania): 5–10tcfe + 0.25-1.1bnbbl (gross unrisked) prospect located outboard of the Tortue gas discovery – combination structural-stratigraphic trap, defined on 2D, 3D seismic currently being processed
Lamantin Prospect (Mauritania): 2-3bnboe (gross unrisked) prospect located in the north of the region – combination structural-stratigraphic trap with flat spot, defined on 2D, 3D interpretation currently in progress.
Requin Tigre Prospect (Senegal): 60tcfe + 3-6bnbbl (gross unrisked) resource potential located outboard of the Tortue gas discovery – combination structural-stratigraphic trap, defined on 3D seismic with AVO support and flat spot, awaiting final volumes to complete prospect evaluation and confirm well location
In terms of upcoming funding, the insurance payments should continue to cover the ongoing costs associated with the Jubilee repair. Continued TEN development drilling in 2018+ should help boost production and cash flow from Ghana. In addition the Atwood Achiever drilling contract expires in November this year and partner BP is set to provide in excess of USD900 million of cash and carry.
Friday 3 February 2017
Premier refinancing terms agreed
On 3rd February, Premier Oil announced that it had agreed with key members of the “Private Lending” group on the refinancing terms. The terms include:
- Retaining the existing USD3.9 billion facilities with maturity extended to May 2021
- Covenants relaxed to 7.5x in 2017, 5x by end 2018 and returning to 3x by 2019
- Covenant net debt (including Letter-of-Credit) to be less than USD2.95 billion by end 2018
This terms will now be circulated to credit committees for approval, including RCF, term loan, Schuldschein and private placement noteholders), with lock-up agreements expected by the end of the month. The amended terms will also be presented to the public bondholders, with negotiations with convertible bondholders also close to a conclusion.
As a way to reduce increased interest payments under the new terms, Premier Oil will issue equity warrants for up to 90 million new shares (15% of issued shares) at 42.75p/share. This could be worth around USD50 million, although there is an option for lenders to take up synthetic warrants as a deferred fee of comparable value, reducing warrants issued.
Tuesday 31 January 2017
Equalising the buyer and seller: Shell and Chrysaor's oil price contingent payment structure
Nevertheless, buyer-seller price expectation gaps still remain and a way to bridge this gap is the use of oil price contingent payments in a transaction. The last time this mechanism was seen in a major market deal was Seplat’s acquisition of Chevron’s assets in Nigeria in 2015. Today, this novel structure was seen again in Chrysaor’s acquisition of Shell’s North Sea portfolio, with an additional twist.
In the Chrysaor acquisition, the terms were as follows - Chrysaor would make payments to Shell of up to USD600 million split over the 2018-2021 period:
- First payment to be made if Brent rises above USD60/bbl in 2018 and 2019
- Second payment to be made if brent rises above USD70/bbl in 2020 and 2021
- Full payout of the USD600 million is made if Brent reaches USD95/bbl anytime in the 2018-2021 period
However, Chrysaor also managed to secure downside protection on its acquisition should oil prices fall. The transaction allows for Shell to make a payment to Chrysaor of up to USD25 million a year (totaling USD100 million) between 2018-21 should Brent fall in the range of USD47.5–52.5/bbl. Full payout of the USD25 million is made in each year if Brent falls below USD47.5/bbl.
The above structure strikes a balance in providing Shell protection from selling the assets too cheaply in a rising oil price environment and Chrysaor overpaying should oil prices fall. Given the structure of the mechanism, it is clear that the contingent consideration is based on near term rather than long term oil price performance with the size of the payments reflecting the impact on near term production cash flows depending on the direction of the oil price. The long stop date of 2021 is relatively long for an M&A transaction, but suitable for a transaction of this nature where oil prices behavior is exhibited over a longer period of time. While longer periods in which contingent payments are active are normally more beneficial to the seller, the mirroring contingent payment from Shell to Chrysaor in this instance puts both the buyer and seller on equal footing.
Chrysaor future: Acquisition of Shell North Sea portfolio
- USD1.5 billion bank debt
- USD1 billion investment from Harbour Energy
- USD0.5 billion from existing company and shareholder funds and a financing package provided by Shell
Thursday 26 January 2017
What E&Ps do best: EnQuest acquires North Sea assets from BP for USD85 million
EnQuest has agreed to acquire a package of assets from BP, which includes a 25% operated interest in the Magnus field and various infrastructure interests, adding 15.9mmboe of 2P reserves and 4.2mboepd or production. EnQuest will consolidate its infrastructure interests by acquiring 3% in the Sullom Voe Terminal (currently hold 3%), 9% of the Northern Leg Gas Pipeline (currently hold 5.9%) and 3.8% of the Ninian Pipeline System (currently hold 2.7%).
The transaction makes use of an innovative financing structure in which EnQuest will not have to front any cash for the acquisition. The USD85 million consideration will be funded by deferred consideration payable from the production cash flow of the assets acquired. BP will retain the decommissioning liability in respect of the existing wells and infrastructure on the assets acquired – in exchange, EnQuest will pay 7.5% of BP’s decommissioning cost on the working interest on a post-tax basis.
As part of the deal, EnQuest also has the option to receive USD50 million from BP for undertaking the management of the decommissioning on the Thistle and Deveron fields. EnQuest currently owns 99% of these fields, with BP owning the remaining 1%. BP (and ConocoPhillips) currently retain the decommissioning liability on these fields due to a series of historical transactions, but EnQuest has the opportunity to benefit if it can manage the decommissioning more efficiently and effectively.
EnQuest has the opportunity to upsize in the assets with an option to acquire the remaining 75% of Magnus (from BP) and BP's interest in the associated infrastructure for USD300 million (subject to working capital and other adjsutments). The option is exercisable between 1 July 2018 and 15 January 2019, with EnQuest’s upfront payment limited to USD100 million and the remainder funded by a vendor loan from BP.
This transaction is aligned with EnQuest's reputation for creating value from late life assets with remaining resource potential. Magnus forms part of EnQuest’s hub around the Sullom Voe Terminal and EnQuest has the ability to maximise the potential of the field given its experience in the area and without the overheads of a majors. The relatively late life and small size of Magnus in BP’s global portfolio would have meant it received less attention and ability to obtain capital for investment would have been constrained. EnQuest has already identified synergies on Magnus with its existing assets and opportunities to operate the asset more efficiently.
Magnus overview Source: EnQuest acquisition presentation |
Magnus operational bench-marking Source: EnQuest acquisition presentation |
Tuesday 24 January 2017
Taq Taq Tumble
On 24th January, Genel provided updated guidance of 24-31mbopd production average for the field in 2017, down from 60.2mbopd in 2016. The declining production from the field has already been well publicised, however the scale of the fall was unexpected.
A new field development plan and reserves estimates are being currently being prepared and expected to be published within the coming months. Capital investment to stem the decline is expected, however given the low level of the FY2017 production guidance, this spend could be some way off.
On a more positive note, production from the DNO-operated Tawke field is budgeted to increase to 115mbopd from 107mbopd (2016).
On the Miran and Bina Bawi gas fields, Genel continues to seek a partner to help develop the resources, but management expect to recognise an impairment charge on this asset in the 2016 year end results.
Despite the issues facing Genel, the company still holds a large resource and remains one of the largest Kurdistan focussed E&Ps. The gas resource provides significant upside with ample demand once local geopolitics allows for its development.