Genel Loses Nearly 13% After H1 Earnings

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The share price of Genel Energy plc (LSE.GENL) dropped nearly 13% today after release of its first half year earnings report for the period ending 30 June 2015, despite increased revenue and EBITDAX over the same period in 2014.

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H1 revenue increased by 3.7% from $192.1 million in 2014 to $199.3 million for the current period. EBITDAX (EBITDA plus exploration expense) looked much better with a 14.5% increase from $138 million to $158.1 million year-on-year. In addition, on the positive side, production increased by 41% from 63,000 to 88,800 bopd.

The problematic figures for investors were pretax profit, earnings per share, and cash.

  • Pretax profit came in at $31.4 million, less than half of the $70.7 million generated during H1 2014.  PROBLEM: 2014 ended with a loss of $312.8 million. The trend established in the first half is heading in the wrong direction.
  • First half EPS, therefore, also declined from 25.23 cents to 11.40 cents. PROBELM: a decline of 54.8% during the first half, does not bode well when 2014 full-year EPS was (112.97).
  • Genel ended the half with $473.7 million in cash, compared to $973.9 million in 2014. PROBLEM: After finishing H1 2014 with $973.9 million, Genel ended 2014 with $489.1 million. The company has $15.4 million less cash than it did six months ago and $500.2 million less than it had at 30 June 2014.
  • The negative cash flow of $211.6 million exceeded H1 2014 by $16 million. Genel ended 2014 with a $560.9 million negative cash flow.

We all understand the pressures on the oil industry right now and especially the problems peculiar to the exploration and production companies operating in Kurdistan. Genel’s struggles, therefore, are, on some levels, similar to those of Gulf Keystone Petroleum (LSE:GKP).

Nonetheless, the earnings report is worrisome when it is said to include $50 million in payments received from domestic sales and a 70% reduction year-on-year in capital expenditures.

These numbers help to explain why investor enthusiasm remains low while CEO Murat Özgül points to a strong operating performance in the first half of 2015. His pronouncement is based on a 41% (working interest) production to 88,000 bopd, still progressing toward the same 100,000 bopd goal as GKP by the end of this year.

Just for grins and giggles, I spent some time comparing the stock charts of GENL and GKP. Disregarding the actual numbers, it is amazing how similar the patterns have been over the past five days, the past three months, YTD, and the past two years, which may be a strong indication of similar investor sentiment toward prospects of exploration and product in the Shaikan and Kurdistan in particular.

If the KRG keeps its commitment to begin and maintain payments beginning next month, it could be significant enough to relieve some of the anxieties of investors that we have witnessed thus far.

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