Genel Energy plc

Phil Corbett - Head, IR Tony Hayward - CEO Julian Metherell - CFO Mehmet Sepil - President

Dan Ekstein - UBS Tom Robinson - Deutsche Bank Rafal Gutaj - BofA Merrill Lynch Brendan Warn - BMO Capital Markets James Thompson - JPMorgan David Farrell - Macquarie Sanjeev Bahl - Numis Jamie Maddock - Morgan Stanley Alessandro Pozzi - GMP Thomas Adolff - Credit Suisse Dan Slater - Arden Partners Yuriy Kukhtanych - WOOD & Company Al Stanton - RBC James Hosie - Barclays

Good morning, everyone. I'm joined on the call this morning by our Chief Executive Tony Hayward; Chief Financial Officer Julian Metherell; Company President Mehmet Sepil; and President of our Kurdistan Region operations, Murat Ozgul.

Tony and Julian will take you through the presentation slides which, if you haven't received already, are available on our website genelenergy.com. We will then open up the call for Q&A.

On slide 2 of the presentation, I would just draw your attention to our usual disclaimer. And, with that, I will pass over to Tony.

Thank you very much, Phil. Good morning, everyone.

We're going to start with slide 3. Despite a challenging backdrop of instability in Northern Iraq and falling oil prices, we managed to deliver significant operation momentum in our business in 2014.

Average production of 69,000 barrels a day was at the upper end of our guidance range which was unchanged all year having been set in January. This was a 58% increase on 2013 and is a testament to the quality of our two main producing assets Taq Taq and Tawke.

2014 revenues came in at $520 million, a 49% increase year on year and, again, within the original 2014 guidance set in January of 2014. Underpinning these increases in production and revenue was the onset of Kurdistan Region exports through its new pipeline infrastructure.

First exports began in May and over 40 cargoes were lifted and sold in the year. Our other major achievement during the year was reaching agreement with the Kurdistan Regional Government regarding the commercial structure for the development of the world-scale Miran and Bina Bawi gas fields.

This and the agreement with OMV delivered a major de-risking of the substantial resource and value in these two assets. And last, but by no means least, we capitalized on favorable conditions in debt markets to issue a $500 million bond as an attractive coupon of 7.5%.

This strengthened an already robust balance sheet and left Genel well positioned at a time when [sharply lower] oil prices have raised concerns over the liquidity of a number of our peers. Moving on to slide 4, I'd like to give you an update of our view of recent macro events in Iraq.

Let me begin with the security situation. I would like to reiterate, as we have done for some time now, that our operations within the Kurdistan Region remain safe and secure.

The borders of the Kurdistan Region were never penetrated by ISIS and, with the scale of the support the Kurdistan Region is now receiving from the international community, we see no risk whatsoever of that occurring. In April 2014, federal elections paved the way for a much more inclusive and pragmatic government in Baghdad.

Once constituted in September, the new government immediately engaged with Kurdistan Region in effort to solve past differences on oil exports and revenue sharing. Key to these negotiations was recognition that the Kurdistan Region pipeline is the only viable export route for Northern Iraq oil production.

These efforts culminated in an agreement over oil exports and revenue sharing for 2015. That's a key development that's occurred since our Capital Markets Day back in November.

Under the December 2014 deal, 550,000 barrels a day of exports from Northern Iraq are to be marketed and sold by SOMO, the State Oil Marketing Organization, through the Kurdistan Regional Turkey pipeline to Ceyhan. Of the total, 300,000 barrels is to be supplied from federal government controlled fields and 250,000 barrels a day from Kurdistan Region controlled fields.

In addition, the Kurdistan Region has reserved the right to export any oil in excess of the 250,000 barrels a day SOMO allocation. We believe that the Kurdistan Region will have the potential to export some 150,000 barrels to 200,000 barrels a day during 2015, over and above the SOMO contribution.

Operational implementation of the deal began in early January and flows to Ceyhan rose to in excess of 450,000 barrels a day in the second half of January. Average monthly volumes since that point have continued to climb with the Kurdistan Region reiterating its commitment to deliver an annual average 250,000 barrels a day of exports during 2015 for marketing by SOMO.

Yesterday, total volumes down the line totaled some 520,000 barrels a day. The deal has now been enshrined in law with the passing of the 2015 Iraqi budget which promises the Kurdistan Region its budget allocation and annual funding for the Peshmerga.

Whilst Baghdad is clearly suffering financial difficulties, both sides have shown commitment to continued implementation of the deal and the Kurdistan Region, this week, received its first federal budget payment for 2015. This positive backdrop has been complemented by further strengthening of the relationship between the Kurdistan Regional Government and the Turkish Government.

It's worth noting that if the Kurdistan Region was measured as an independent country, it would rank as Turkey's third largest export market after Germany and the UK. The Turkish Government continues to deliver financial support to the Kurdistan Region and recently made a further $500 million loan to the Kurdistan Regional Government to pay government salaries ahead of budget payments reaching their promised level.

The map on slide 5 shows the pipeline capacity in the Kurdistan Region. A main trunk line from the Khurmala Dome to Fishkhabour currently has 375,000 barrels a day of sustainable capacity which will increase to 700,000 barrels a day over the next few months once the Zab river crossing is upgraded to a 36-inch pipeline.

In parallel, works are planned in the Kirkuk area to upgrade pipeline infrastructure to facilitate higher volumes from the Avana and Baba Dome and neighboring fields. At the border with Turkey, the Tawke field pipeline now has capacity in excess of 250,000 barrels a day after the recent completion of the new 24-inch pipeline.

On the Turkish side, the final works to upgrade the 40-inch pipeline were finished in the fourth quarter of last year and this pipeline now has 700,000 barrels a day of available capacity. In addition, under the interim oil deal, the 46-inch section of the Iraq-Turkey pipeline is available for flows in excess of 700,000 barrels a day to Ceyhan.

In summary, production increases from Taq Taq and Tawke will not be constrained by pipeline capacity. Let me move on to our view of the evolution of exports from Northern Iraq as a whole, which is illustrated on slide 6.

At year-end 2014, combined volumes from the Kurdistan Region and Baghdad-controlled fields, reached 450,000 barrels a day as oil from Baghdad-controlled fields began to flow through the Kurdistan Region pipeline. We expect that this level will continue broadly unchanged to the end of the [first] quarter with progressively more of the oil being marketed by SOMO as the KRG satisfies the [forward] oil sales it committed to prior to the interim oil deal with Baghdad.

In this second quarter, we expect volumes to increase to around 700,000 barrels a day as the 36-inch line from Khurmala is completed, in turn, freeing up more oil from the Kirkuk fields for export. In summary, with pipeline upgrades either complete or in process, Northern Iraq export volumes should see a significant increase during 2015.

For fields under Kurdistan Regional Government control, we calculate the KRG contribution to Northern Iraq exports in 2015 could average in excess of 400,000 barrels a day. This implies an extra 150,000 barrels a day for export over and above the fulfillment of the 250,000-barrel-a-day SOMO allocation embedded in the interim oil deal.

Slide 7 demonstrates the growing importance of the Kurdistan Region's export pipeline. In 2014, 7% of Iraq's total exports went through Turkey to the Med.

The interim oil deal between the Kurdistan Regional Government and Baghdad and weather-related impacts in Southern Iraq exports has already increased the share of Northern exports to 16% in early 2015. Over the course of the year, Northern Iraq's contribution to total Iraq oil exports could exceed 20%.

With the Iraq section of the Iraq-Turkey pipeline system running through territory controlled by ISIS and so damaged by sabotage that it would take several years to remediate, the Kurdistan Regional Government's export pipeline running through the safe and secure Kurdistan territory has now become a vital piece of national infrastructure for the benefit of all Iraqis. Another conclusion from this analysis is that exports from Kurdistan Region controlled fields totaled around 10% of Iraqi exports in February.

Given the Kurdistan Regional Government's central budget allocation equates to only 11% or 12% once sovereign expenses are deducted, growing oil exports mean the Kurdistan Region is now on the verge of economic self-sufficiency. On the current trajectory, this status will be reached in the coming months.

While the Kurdistan Regional Government remains committed to the implementation of the interim oil deal, it has increasing leverage with the federal government. Let me now move on to operations.

Slide 8 provides an operational update on Taq Taq and Tawke. Both fields posted new annual average production records in 2014 as they produced at or near capacity for much of the second half as the export pipeline system came on-stream.

At year-end 2014 Taq Taq's surface capacity stood at 135,000 barrels a day after installation of temporary production facilities in the second half. Additional temporary facilities are currently being installed to bring surface capacity to 150,000 barrels a day in the near term.

The optimization of our Kurdistan Region CapEx program in the light of falling oil crises means that the completion date of CPF-2 has now been pushed back to the end of 2015. Well capacity at Taq Taq at the end of 2014 was in excess of 150,000 barrels a day from 18 wells.

In the coming months, we'll book up Taq Taq 23, a deviated well, and Taq Taq 24, a horizontal well. As incremental production and well capacity comes on-stream during 2015, we will test the capability of the reservoirs at Taq Taq to produce progressively higher rates.

At Tawke, the recent completion of the pipeline expansion project and ongoing works to surface production facilities should deliver 200,000 barrels a day of export capacity within the coming weeks. At the end of 2014, 28 production wells have been drilled, resulting in well head production capacity in excess of 150,000 barrels a day.

The Tawke-27 and Tawke-28 wells were brought on stream earlier this quarter and have been producing at a combined rate of 11,500 barrels a day. As with Taq Taq, we will test the capability of the Tawke reservoirs at progressively higher rates as new wells and capacity come on stream.

Moving to slide 9, this chart details the continued impressive performance from Taq Taq and Tawke as they ramp up to anchor higher oil exports from the Kurdistan Region. Net to Genel production growth from our oil assets was in excess of 50% in 2014 and the mid-point of the 2015 guidance range would represent a further 40% production growth this year.

Moving on to 10, this is an important slide that provides an overview of the Kurdistan Region domestic markets, which is set to generate meaningful revenue and cash flow until export payments normalize. During February, Taq Taq supplied 30,000 barrels a day into the domestic market with revenues received in advance.

This is under the new temporary domestic market sales channel in which Taq Taq and Tawke will each sell 30,000 barrels to 40,000 barrels a day into the local market, with contractors receiving 50% of the domestic sales proceeds. Sales will be made to local traders who provide an alternative and discretionary sales route above and beyond the firm demands in the region, which total some 120,000 barrels a day of crude to the main government refineries.

The initial price for Taq Taq domestic market deliveries was set at around $42 and $36 for Tawke. These prices were established when Brent was trading at around $50 in January.

In fact, give or take a couple of dollars, the initial Taq Taq domestic price achieves parity with the implied export netback when Brent is trading at $50 a barrel. This attractive pricing reflects the high demand for Taq Taq crude in the Kurdistan region given its quality and ease of refining.

Domestic prices will be reset monthly in line with changes in Brent. The next price revision is expected next week and should see an increase in domestic realization on the back of February's oil price rebound.

In addition, Taq Taq will continue to supply the Bazian refinery with a gross 32,000 barrels a day. These deliveries are priced at the weighted average of pipeline export prices and domestic prices.

In summary, domestic market deliveries from Taq Taq and Tawke provide reliable near-term cash flow at attractive prices and are built into our revenue guidance which remains unchanged. These cash flows will form a bridge to sustainable and predictable export payments.

Let me turn now to our gas business on slide 11 and discuss the significant progress we made during 2014 in the commercialization of Miran and Bina Bawi. In November of last year we announced that we'd reached an agreement with the Kurdistan Regional Government on the commercial structure for the development of the fields.

In addition, we reached agreement with OMV for the purchase of its 36% stake in Bina Bawi. On completion, we'll be the sole contractor.

Genel's responsibilities will be the upstream developments of Miran and Bina Bawi. These are truly world-class fields with over 11 trillion cubic feet of independently audited gross mid-case gas resources.

In addition, we estimate combined gross condensate more resources at both fields of between 15 million and 140 million barrels. And negotiations with the Kurdistan Regional Government over the [indiscernible] PSC amendments have been going well and we expect to complete that process in the first half of 2015.

We're progressing the acquisition of the OMB Bina Bawi stake in parallel. We're also working with the Kurdistan Regional Government to prepare for the tender and financing of the gas processing plants.

Overall, with an anticipated 30-month to 36-month build time for the plant, completion of the PSC amendment agreement in the first half of this year will allow for gas exports to Turkey to commence in the first half of 2018. On slide 12 we've outlined the characteristics of the Turkish and Kurdistan Regional gas demand, which creates the supportive backdrop for the development of Miran and Bina Bawi.

The Turkish gas market has experienced significant growth over the past decade with a compound annual growth rate of 8% between 2003 and 2013. Whilst this growth rate will moderate, going forward, demand is still expected to outstrip supply towards the end of the decade.

This was the primary catalyst for the Turkish government to sign the gas export agreement with the Kurdistan Regional Government in 2013. The 10 bcma of gas imports of Kurdistan by 2020 will go some way to plugging the forecast shortfall in supply.

In addition, Kurdistan Regional -- Region gas will also diversify Turkey's existing supply, which is heavily concentrated on pipeline imports from Russia, Azerbaijan and Iran. Furthermore, in $100 oil environment, Turkey's weighted average import price for these three suppliers was $12 per million Btu.

Turkey will import Kurdistan Regional gas at much -- a much lower price, a function of the low cost of developing Miran and Bina Bawi and their proximity to the Turkish border. We estimate the [life of] field development cost of the upstream and mid-stream at less than $1 per million Btu.

This is a testament to the onshore location and economies of scale that can be derived from large fields. The Kurdistan Region domestic market represents an alternative route for our gas and one that is likely to be utilized given the Kurdistan Regional Government's option to elect domestic supply from both Miran and Bina Bawi.

We are indifferent to where the gas from our fields go for export or domestic, given that we will receive a flat fee for all raw gas supply into the processing plant. Gasification of the Kurdistan Region will deliver significant savings for the government.

Around 25% or $2.5 billion of the annual expenditure by the Kurdistan Regional Government goes to buy diesel to generate electricity. We believe this cost can be reduced by some 80% by using domestic gas to generate an equivalent level of power.

This provides a powerful incentive for the Kurdistan Regional Government to drive forward the development of the Region's gas resources. The key concept to grasp is the scale of the cash generated from the gas project.

This will enable Genel and the Kurdistan Region to finance their working interest. For Genel, cumulative free cash flow post first gas is estimated at $6 billion to $8 billion based on a Brent oil price of $60 to $80 a barrel and 10 bcma of gas processing capacity.

At the $6.5 per million Btu export price conceived when the Turkey KRG gas sales agreement was originally signed, the KRG would generate $2.5 billion per annum over the 25-year life of the gas sales agreement. Even at current prices, the gas sales would generate close to $1.5 billion per annum of revenue for the KRG.

Overall, we see the gas project as technically robust and financeable, even in the current oil price environment. Slide 13 updates our end 2014 reserves and resource position.

Our 2P reserves decreased by 5% to 429 million barrels as the booking of Miran oil reserves was more than offset by a production in the year and the removal of the Dohuk 2P reserves following the field's under-performance. We expect that the upward trend in our reserves and resources will be restored in the near term as we complete the gas deals reached last November.

The hopper on the slide demonstrates the pro forma impact following completion. The main impact will be seen in contingent resources which are set to nearly double.

Let me now touch briefly on our exploration plans which are outlined on slide 14. In 2014, we drilled six wells in total, five offshore Africa and one in the Kurdistan Region.

Disappointingly, none of these delivered a commercial success, an outcome experienced by many of our peers in their own drilling campaigns. As a result and in light of lower oil prices, we will be more focused and disciplined in our activity in spending as we go forward.

Within the Kurdistan Region, further exploration and appraisal drilling will be governed by any recovery in oil prices and the evolution of export payments. Opportunities such as Peshkabir, Chia Surkh and Ber Bahr appraisal wells could add significant resources and value.

There's a potential to accelerate some of this activity in 2015 with clarity on the [indiscernible] cash flows but, for now, we see them as 2016 wells. In Africa, we've relinquished our Area 4 interest offshore Malta after concluding our analysis of the Hagar Qim well results.

We are also in the process of exiting our Angola interest. Offshore Morocco we will use 2015 to evaluate results of the Juby Maritime and Sidi Moussa wells before making a decision on any further activity.

In East Africa, our near-term focus is on the Adigala block onshore Ethopia. We'll spend 2015 maturing prospects in the Jurassic [Rift play], ahead of a possible well in 2016.

And onshore Somaliland the focus will be on delivering a solution which will allow 2D seismic to be acquired in a safe and secure manner. In addition to this, we continue to look for organic growth opportunities in our core areas.

Let me now hand over to Julian to take you through the financials.

Thank you, Tony, and good morning, everybody. Slide 15 summarizes the 2014 financial performance.

Revenues of $520 million were in line with guidance and a 49% increase on the previous year. This was a function of higher production volumes and realizations during the year.

Our 2015 revenue guidance expressed on an accruals basis and a $50 a barrel Brent price remains $350 million to $400 million. EBITDAX, or earnings before interest, tax, depreciation and non-cash exploration write-offs and impairments, also rose 50%, year on year.

A loss for the year of $314 million was driven by non-cash write-offs in respect of unsuccessful exploration costs in 2014 and also the non-cash impairment of Dohuk following the under-performance of the Summail field. In 2014, CapEx totaled $677 million and was split equally between KRI investment and the Africa exploration program.

Our 2015 guidance of $200 million to $250 million represents a 70% reduction, year on year. At year-end 2014 we had around $490 million in cash representing a small net debt position.

This places us in a strong position both on an absolute basis and relative to peers. It leaves us well positioned to weather any near-term [indiscernible] uncertainty in the KRI with regards to payment as a platform from which to execute our growth ambitions.

Slide 16 provides further detail on our 2014 income statement. Despite the significant fall in benchmark oil prices towards the end of 2014, our overall price realization increased 11%.

This was a result of higher realizations for pipeline exports compared to prices for local and truck sales in 2013. In addition, prices for Bazian refinery deliveries from Taq Taq are a weighted average of export prices and local sales and therefore also benefited from the commencement of pipeline exports.

Unit production costs decreased from $2.90 a barrel in 2013 to $2.40 a barrel in 2014. This was primarily a function of lower transportation costs from Taq Taq as piped exports replaced trucked exports.

In addition, 2014 saw a reduction in work over costs and well maintenance at Taq Taq. In 2015, we are guiding towards a further reduction in unit production costs of $1.25 to $1.75 a barrel, reflecting a full year of pipeline of exports.

Unit depreciation should stay broadly unchanged at $5.50 to $6 a barrel. Other operating costs, which include G&A, totaled $47 million in 2014.

Lower oil prices and significantly lower exploration activity in 2015 has resulted in a material headcount reduction. Combined with other efficiency measures we have implemented, this is expected to deliver a 40% reduction in other operating costs during 2015.

The significant increase in revenue drove a comparable uplift in EBITDAX to a new record of $411 million. As we discussed in January's trading statement, we elected to write off $477 million of unsuccessful exploration costs relating to last year's offshore African exploration program.

In addition, we have written off the carrying value associated with the Dohuk license and the KRI given the under-performance of the Summail field. We do not expect either meaningful production or cash flow from this aspect, going forward.

Concluding the income statement was $25 million of interest payments associated with the bond issued in May 2014. Slide 17 illustrates our usual cash flow waterfall chart.

In 2014, cash flow before working capital totaled $415 million, an increase of 58% on 2013. This was offset by a working capital bill of $280 million.

$230 million of this figure related to the net KRG receivable for production where payment has yet to be received. Another $45 million related to amounts owed by partners.

The working capital bill reduced cash generation from operating activities to $135 million. CapEx was $677 million as previously discussed.

M&A cost was $77 million, the bulk of which related to the acquisition component of the Angola deal. There was a $500 million inflow from the bond issuance.

A further $90 million was spent on financing costs, the share buyback and buying shares to provide cover for our employee share plans. This left cash at year end 2014 at $489 million.

Adding back in the KRG receivable would give pro-forma liquidity of over $700 million. Slide 18 demonstrates our CapEx plans for this year.

The majority of our activity in 2015 will be focused on our producing assets within the KRI. At Taq Taq the main items will be completion of CPF 2 and the Taq Taq-23 and 24 wells.

At Tawke, the main expenditure will be on the upgrades of field capacity and the export pipeline. In addition, there will be CapEx associated with Tawke-27 and 30 wells.

Our exploration expenditure will amount to a couple of tens of millions of dollars. Finally, I will move to the capital structure.

Our existing debt is a $500 million 2019 maturity senior unsecured bond issued in May 2014 at a coupon of 7.5%. Significant headroom exists on the covenants of this bond and we believe that the balance sheet could support further debt capacity even at current oil prices.

We remain in regular discussion with the KRG over the management of the receivable, although with the central budget allegation for a bad debt yet to normalize, it may be the case that the receivable increases further before we start to see a meaningful reduction. I would, however, reiterate that a receivable of three to four months of revenue would be quite normal for an export-orientated business.

On CapEx, we have consistently implemented a strategy to make the balance sheet as robust as possible. Reducing CapEx by 70% year on year is further evidence of that.

However, we do have the ability to increase activity in 2015 if further clarity emerges on near-term cash flows. I'll now hand back to Tony.

Thanks, Julian. Slide 20 illustrates our progress in 2014.

A year not without its challenges. In particular, the ISIS insurgency and the material fall in the oil price had a negative impact on Iraq's finances.

In turn, this has created a challenging environment for real time payments in the Kurdistan region. We recognize and understand the market's concern on this matter.

And it is important not to forget the significant progress made during the year. Federal elections in Baghdad delivered a government much more inclined to work with the Kurdistan Regional Government than against them.

This atmosphere of collaboration remains in force and is the best chance for stability in the near term. Which both sides recognize.

We look forward to full financial implementation of the 2015 budget and we remain confident that further payments for exports will materialize as we progress through 2015. The final commissioning of the Kurdistan Regional Government's [indiscernible] infrastructure was a seminal event for the future of the Kurdistan region and contractors operating in the upstream.

Opacity on the main section of the pipeline should rise to 700,000 barrels a day within the coming months. Combined with further infrastructure upgrades in the Kirkuk area, volumes should continue on an upward trajectory over the course of the year.

Enabling the Kurdistan Regional Government to deliver both its obligations under the interim oil deal but also make meaningful quantities of oil to market independently. This will create a diversified revenue stream.

We're also encouraged that the Kurdistan Regional Government has delivered a local sales channel and see this as a short-term bridge to payments for export production in a timely fashion. On the back of all of this, our oil assets are set for another year of significant production growth.

In our gas business, we'll be looking to continue our momentum as we finalize the commercial structure for Miran and Bina Bawi. The strong rationale for the Kurdistan regional gas into Turkey underpins the economics of these projects.

The low development cost creates a significant amount of revenue for all parties to finance the upstream and midstream. In exploration, we will be focused and disciplined.

In a capital-intensive industry such as ours, companies are only as strong as their balance sheet. Since inception, Genel has been differentiated by its financial strength.

And it's a key objective to keep it that way. And on that note, I'd like to thank Julian for all his efforts over the past four years.

It's been a great pleasure working together and I wish him very well in his future endeavors. I began the presentation this morning outlining the delivery against the goals we set ourselves during 2014.

Slide 21 sets out similar expectations in 2015. We expect to deliver another year of significant production growth and are confident in our revenue projection for the year.

The Kurdistan region export pipeline has already been established as a vital piece of national infrastructure and its importance will grow over the course of 2015. In turn, that should deliver further export payments to international oil companies operating in the Kurdistan region.

We've set ourselves the target of converting our arrangements with the Kurdistan Regional Government and the OMV into a final commercial structure for Miran and Bina Bawi. And maintaining a robust balance sheet is a key objective as we navigate the challenges of a lower ore price environment.

Before we open up for Q&A, let me finish off by reiterating the Genel investment case as I see it. Put simply, I believe that we offer a compelling combination of near-term production growth from top-tier world-scale oil assets.

Taq Taq and Tawke have an enviable cost structure and breakeven significantly below current oil prices. Our medium-term growth is underpinned by some 2 billion barrels of gas resources which one on stream are set to deliver billions of dollars of free cash flow to Genel.

Shareholder returns remain a priority for excess cash. We will maintain a strong balance sheet to provide the platform to deliver this strategy.

At the current share price, I believe that this represents a compelling opportunity for all stakeholders. With that, ladies and gentlemen, thank you very much for listening and I will hand back to the operator for the Q&A.

Thank you. Morning everyone.

The receivable form the KRG stood at $230 million at the end of 2014. It's a pretty big number on the context of your market cap, 10% give or take.

A lot has happened since then. I wonder if you would tell us where that receivable stands at the moment?

I think it's important for investors; they can take a risked view on recoverability of that. And my second question, you've reiterated a couple of times in the presentation that your balance sheet can support further debt capacity.

Are you signaling here an intention to pursue acquisitions? And if so, could you tell us what kind of hurdle rate and oil price you would be assessing deals at?

Thank you.

Okay, thanks very much, Dan. Let me ask Julian to answer your question on the receivable.

Two points, Dan, on the receivable. Yes, we are confident that we are going to recover it.

Secondly, we're not going to give a monthly update on the receivable. So we've given the receivable as of yearend.

We are being paid, as you can see, from surveyors' announcements. And we will update you at the interim stage as to where that stands.

Thanks, Julian. I think on the question of acquisitions, Dan, we clearly are looking at what opportunities may avail themselves in this environment.

I don't think the M&A market has really got to a point where buyers and sellers' expectations are matched at the moment, so we'll continue to look. But it's clearly something that you would be expecting us to do in this sort of environment.

And that's something we will do. In terms of a hurdle rate, I'm not going to disclose the hurdle rate but I think it's fair to say that anything that we do would be seen as materially accretive to existing Genel shareholders.

Yes, morning all. It's just one question, please, on the local sales.

I wonder if you could talk a little bit more about the domestic market's ability to really act as a counterbalance to the export market. If, for instance, you were to take the volume of crude that you may have earmarked for local traders over the course of this year and you put that together with the new sales terms, could you generate enough cash from local sales to cover your CapEx over the course of this year at, say, $50?

Thanks.

So let me just talk a little bit about the local sales process, Tom, then get back to your question. The first thing is that the scale of it is not immaterial.

Potentially up to 120,000, 130,000 barrels a day. And we've explained the pricing mechanism which, as we see, is attractive relative to exports in a low-price world.

Certainly that's been the case so far, particularly for Taq Taq. There is clearly, as I think Julian said in his comments, the potential to generate several tens of millions of dollars of revenue per month in that market, from a combination of Taq Taq and Tawke.

And if you stack that up against what we've guided to in terms of capital then it's pretty clear you can make the two things match. But it's not rocket science.

So I think the simple answer to your question is, yes, in the round.

Good morning. So yes, actually just following up on that, on domestic sales.

Is there much scope or potential to divert oil away from the export pipeline into the domestic market, given that the payments there are more regular? Or would that not be possible given the limited nature of the market?

And going hand in hand with KRG's -- with the KRG's export growth ambitions for this year. And then secondly, can you just discuss the financing options that the KRG has at its disposal in order to bankroll the midstream Miran, Bina Bawi gas development?

And are there any milestones that the market should look for comfort that the KRG's financial position will not delay progress with above surface field development? Thank you.

We've said this morning that Taq Taq and Tawke at 30,000 to 40,000 barrels a day in the domestic market. We've said that the domestic market is -- outside of the refineries is a 120,000, 130,000 barrel a day market.

So you can see the scale of the market and you can see the share that our two producing assets are getting. Clearly, as we go through the year, the KRG are looking about -- at how do they balance all of the competing demands for their crews.

So I think it links back into the previous question, Tom -- of Tom's, which basically says that we can balance the business at this scale into the domestic market whilst at the same time fulfilling our obligations to the KRG with respect to exports. I think in terms of gas, Rafal, we expect this to be a Turkish solution with significant involvement of Turkish utility players and contractors on the equity side of the financing structure and Turkish state banks on the debt side of the financing structure.

It's a Turkish solution for a Turkish gas market. And you've seen the scale of the support that the KRG continues to get financially from Turkey.

When this emerges, that's what you should expect the solution to look like.

Would it be fair --?

That's what's going to happen.

Would it be fair to say that the KRG is currently in discussions with those entities in Turkey to finance the above-surface development?

Yes, it is.

Yes, thanks gentlemen and thanks for the opportunity to ask questions. I guess I'll stick with my questions just relating to the upside and the gas project.

Can you just talk through [Tollgate] and any key milestones we should be looking for that are internal to yourself in terms of commitment to funding towards gas, the gas project? And just your appetite still to what equity you want to head into any sort of development.

And just could you also touch on would any of the funding be at a project finance level, call it, to any separate further bond issuance, please?

Well I think you need to separate what we're required to finance as the upstream contractors from the midstream. And the first thing to remind everyone is that the upstream capital to first gas is somewhat less than $1 billion.

Over -- assuming we start in the second half of this year, that's over a three-year period. But that is not an enormous obligation for Genel in terms of its cash flows and balance sheet.

So we're perfectly capable of proceeding as we are. The focus that we have had is on supporting the regional government in terms of establishing the financing structure for the midstream.

In terms of things you should look for, the first one is the finalization of the PSC, which as I said we expect to have done before the middle of the year. And the second one would be an invitation to tender for the gas sales plant.

Which we would expect would happen in the second half of this year, issued by the Kurdistan Regional Government. And that clearly sets the project moving.

Okay, and your appetites still remain at 100% going forward?

Certainly for the time being that's how we see it, yes. We believe that we can manage the financing of it pretty comfortably given the nature of the capital commitment.

It is simply -- simply, it's drilling some wells and a few flow lines down to a gas processing facility. With the opportunity to phase and take advantage in the first year of actually the wells that are already complete.

So there's plenty of scope to manage our capital exposure given the way we have restructured the contract.

Okay, thanks Tony.

If we end up in a conversation with someone who would like to partner with us and we think it's a good deal for the shareholders then it's something we'd look at.

Good morning, thanks -- good morning, Tony. Just a quick question from me.

Obviously we'd know about the 550,000 budget agreement between the KRG and Iraq but you've described today that from Q2 there will be a bit of a surplus from that which would be KRG-managed revenues. Could you give us maybe some color as to how much of that revenue stream you think might flow to the contractors and, indeed, when that might start coming back to you, your share of that?

Well I think I'd look at it slightly differently, James. The more revenue that's generated in this system, the greater amount of revenue there is to be distributed to all of the people who need to be paid.

And trying to link it -- our payment explicitly to a tranche or another is -- I think's not the right way to think about this problem. The right way to think about this problem is, working together, how do we maximize the revenues coming out of all production in northern Iraq.

That gives everyone the chance to be paid on time and in full. And clearly as we go through the year, in a flat price world, we're going to see significantly increasing revenues on the back of volume.

And if the forward curve plays out, we'll see some more price uplift as well.

Okay.

So [the world]'s going to get a lot easier as we go through the year because there's more volume and there's more revenues because -- I'm not predicting the oil price but if you just believed in the forward curve and we're making sales against it, you get more revenues in a month's time than you would today.

Yes, very clear. Just one other question.

In terms of the additional pipeline infrastructure that's being built around the Kirkuk and Kirkuk satellites, how much additional production will that be able to add to the Fishkabur -- Khurmala to Fishkabur pipeline. Will that -- that won't impinge at all on the ability of Taq Taq to ramp up to full rates at the end of the year?

No, it won't. No, I think it's pretty clear where the priorities of the KRG are in that regards.

So Taq Taq and Tawke are going to get a priority of access. We'll see where -- we'll see how that keeps developing but the other thing I think -- we don't -- I don't think there's a bottleneck.

We don't think there'll be any impacts on Taq Taq and Tawke, in fact we're very confident about that. But what -- I think the other thing to bear in mind, the KRG has demonstrated tremendous flexibility and capacity to continue to expand its infrastructure in very short order.

Very short order. None of us sitting here a year ago imagined that you'd have 700,000 barrels a day going from Khurmala to Fishkabur and then tied into Turkey.

So I think it's all good. I'm definitely in a world of bigger and better, the more there is, the better it is, the more likely all of us will be paid.

So the more oil we see coming, the better it is.

Thanks for the opportunity to ask a question. It's very quick.

It's just on the Tawke reserve figure that you give of 169 million barrels. Is that Genel's estimate for year end 2014 or does that go back and utilize DNO's annual statement of reserves number which was given out in April 2014?

It's the DNO number. We've only ever used DNO numbers on Tawke.

We continue to follow the operator.

Okay, and --

Their number of last year, updated for production through the year. That's what it is.

Okay. How should we think about the horizontal wells they've been producing now in Tawke for the last year or so on the potential for possible reserves upgrades?

Well I think we have said for some time that we weren't convinced that horizontal wells would see significant increases in reserves. It's too early to say, frankly.

We haven't taken enough out of the horizontal wells to know. But our view was that it was something that you -- two or three years down the track you'd have a better view on.

So I don't -- it's far too early to say, is what I would assert. I believe that's the view of the operator as well.

But you should, of course, ask them. But our view is too early and our expectation is not to see a big reserve uplift at Tawke any time soon.

Thanks for taking my question. I have two questions.

First was on bond covenants. Can you just remind us on the current bond covenant whether the details of the prospectus allow for accounting on accrual basis rather than on a cash basis and whether that could potentially change?

And secondly on Tawke, you've got production capacity rising to 200,000 barrels a day. I'm just wondering whether the addition of Tawke-30 would get you there in terms of well capacity?

Thanks.

Let me ask Julian to deal with the bond.

The two key covenants are cash headroom of $75 million, net debt to EBITDA of three times. And as is standard, I think across all bond documentation, it is accounting, revenue and EBITDA.

So that clearly allows for accrued revenue.

Thanks.

Thank you. I think on Tawke, as we alluded to in the presentation, now -- well, we will shortly have the facility capacity in place.

And it's now a case of continuing to test the reservoir's ability to deliver. And that is not a question of reserves and resources, but it is a question of what's the optimum way to develop the fields to ensure that we get uniform sweep of the oil column, uniform displacement of the oil column by the water and a uniform encroachment of the oil water interface into the reservoir.

But that is the most important thing to now manage to ensure that we maximize the ultimate recovery. And in doing that, we need to be cautious not to pull any individual well too hard, which will result in water coning, early water breakthrough and leave barrels behind.

So we are now into -- having got the well capacity and the facility capacity in place, we're into week to week, month to month, year to year detailed reservoir management to establish what is the optimum [uptake] rate for the field. And that's going to be an ongoing process over the course of this year and beyond.

Hi, good morning. I guess the backdrop has perhaps slightly changed in that there's now an export pipeline and you've had independent of the federal government crude sales.

But as I recall there was a similar agreement in the past shortly after an election whereby the proceeds from the budget were handed over and production recommenced and then it stalled and revenues never really got handed over and likewise with regards to budget payments. I'm just wondering, how this situation markedly changed?

And what is it that's different now that we have the confidence that we're not going to return to a similar situation?

I think the simple answer to that question is, everything is different, Jamie. I don't know where you've been for the last three years but quite a lot's changed on the ground since that period.

Most importantly of course, all of this oil is going down pipeline controlled absolutely and completely by the Kurdistan Regional Government. So if we get to a place where -- the balance of power's just shifted dramatically.

So I think you can't compare 2009 when Kurdistan was sending oil down an infrastructure controlled by Iraq to 2015 when Iraq is sending oil down infrastructure controlled by Kurdistan. It seems to be that's quite a fundamental difference.

With materially more Kurdistan production, equity production.

Yes, thank you for taking my question. On the -- last week we had the first payment from Baghdad to [indiscernible] for $200 million.

I think that's very positive news. But still short of the $1 billion that Baghdad is supposed to pay.

Just wondering what is the difference there and if it's just net of production levels or if there is anything else that is preventing the full payment? Thank you.

The real issue, as is true with every other [indiscernible] oil producing country is not only is Kurdistan in a -- under financial pressure, Baghdad and Iraq itself is of course under financial pressure. So we shouldn't expect everything to normalize very quickly.

But as you acknowledge, it's a good first step and I think with growing production, growing revenues, we'll see more payments an on more regular basis of a larger amount. But it is a reflection of the financial challenges that Iraq itself is under.

Okay, so basically we should expect that to slowly increase over the next few months but probably not reach the $1 billion that was agreed in December?

Well I think the problem is that the oil price is not at the $1 billion level that was -- the budget was set at.

Okay. And the oil price in the budget was around [$70], is that fair?

Yes, well I think you have to have $70 on the screen for [Brent] to be at the level that the Iraqi budget was set at, given the differential between Iraq crude and Brent.

Hi guys. Just two questions please.

You said the key is 20% of exports coming from the KRI for the agreement, but I guess in light of the budgetary challenges Iraq is facing, I just wondered whether there's been any agreement on the past export dues and whether I should be thinking about the incremental volumes that the KRG is able to export? And you talked about 150kbd and 200kbd to be fully KRG revenue rather than revenue that's been split between the KRG and Baghdad?

And perhaps, I wondered, as part of the agreement, whether actually funds have been transferred to the Peshmerga? And the final question is, since you are being paid, whether there's any update on the premium listing?

Thank you.

Yes, on the Peshmerga, the billion dollars was paid. I think in terms of the incremental barrels, they will be for the KRG account.

They've made that very clear. I think on the premium listing, Thomas, I think we need to be realistic in that we are being paid but it's not predictable and it's -- there's no track record yet.

So if we go through the year and we get, as we expect, predictable payments increasing through the year then I think we can certainly reopen the conversation with the listing authority in the second half of the year.

Hi chaps, thanks for taking my question. It was just coming back to the potential for production on Taq Taq and Tawke.

Obviously they're going to be getting up to 200,000 barrels a day of capacity. And I know you're going to be testing the fields, but is -- can you give any sort of timelines around when we might have some sort of clarity as to what sort of levels it's -- either of them are going to be getting to?

I think there's -- through the second half of the year and into the first half of next year, we'll be getting much greater clarity as to what the reservoir potential is, Dan. But we need to be sensible about this.

It would be very easy to pull both reservoirs very hard and that would not be a good thing to do given the nature of the reservoirs. Fractured carbonate reservoirs, it's very easy to get water coning.

And once you get that, you start leaving lots of oil behind.

Yes, no, okay, perfect, thank you.

We haven't had any water production in Taq Taq to date and we want to keep it that way.

Good morning, gentlemen. Thank you very much for the presentation.

I have a question regarding the current financial standing of the KRG. My understanding is that KRG monthly budgetary expenses are totaling at around $700 million to $1 billion and at the same time cash injections, which we saw recently from Turkey, or a recent payment from the federal government, seem to come significantly short of KRG needs.

And this is not even to mention that the KRG has not been paid its entitlement budgetary allocations form Baghdad for almost a year now. Therefore, could you please provide some insight on current financing sources of Kurdistan Regional Government and what the current commitments the KRG has to its lenders?

That would be my first question. And the second question, and which is probably more importantly for the operators, is how these commitments and future loan repayments which KRG has to make may impact the prospects for establishing the sustainable exports payment mechanism in the near future?

Thank you very much.

I'm going to ask Mehmet Sepil to comment on that. Obviously he's a man who's in both sides of that every day.

To answer your question, I think I am in -- the plan of KRG once this capacity increase in the pipeline will come to 700,000 and over, they have to hand 550,000 to Baghdad and they believe they will come to that level within a month. So 550,000, of course depending on the oil price of the day, might generate enough revenues to cover its salaries and plus even [they need] some external money to buy diesel for their power plants.

So their calculation basically is based on the fact that they will have remaining 150,000 capacity [over that] to pay the debts to contractors and other debts you are talking about. And it's also another known fact that they are getting help from Turkish Government.

Also at the same time, KRG is trying to create resources like now we know that they are talking to several different companies or to generate a few billion dollars too -- for the pipeline operations. So there are resources over there they could utilize.

But the good thing is anything over 550,000, they could -- could be used to pay back the loans.

I think the only other thing I would say is that the Turkish loans which makes up a reasonable proportion of the loan book, are very soft in terms of their obligations to pay and the time over which they would be repaid.

Yes, there is no timeline at this point for [Turkish Government]. So the Government realizes these guys are [tight] so they didn't [come with] any time at this point.

And what is the current balance of the Turkish loans that KRG has?

That Turkey already gave -- official gave $500 million and now they discussed another $1 billion. I know this information was in the press already.

And the first batch of this [$500 million] should be there for maybe -- I don't know whether it's gone to their account but it will be in their account within a matter of hours, days or it's in their account. The second $500 million as read from the statements looks like it's going to be within a month or so.

Okay, and how -- yes, thank you very much. And how -- until recently, how the KRG was financing its budgetary spending?

Because I understand that their monthly expenditure is around $1 billion. So $500 million loan from Turkey seems very low.

I think the monthly expenditure base load is more like $600 million, frankly. And that was largely financed by forward oil sales in the second half of the year.

And you also have to remember, although it's not a big chunk, they still have some income from the [custom], for example, Turkish custom is a good income. So they also have other small revenues that we calculate as being over $150 million or $200 million also in KRG.

So they are also selling products from development refineries, that's another revenue. Remember, they have two refineries over there and they are getting the crude [free] from [indiscernible].

So they have other revenues too. But of course they are tight right now.

And they're still -- the budget is tight. So their expectation is to come to 550,000, as I said.

Once they come to 550,000, it looks like that won't be [in this agreement] [indiscernible] but that's what both parties are saying. And that will be enough to cover their living.

So the rest could be used for the other money they borrowed.

Okay, thank you very much Yuriy. Let's see if anyone else has questions.

Yes, good morning folks. I'll be very quick.

The graphs on page 9 are very useful, so thank you for that. and can I just clarify that the projections for 2015 is that in terms of Taq Taq, we should be putting 30,000 to 40,000 barrels into the local market and then [32,000] into [Basi] and the rest is exported?

And if that is the right methodology, if you're looking at Tawke, you have 30,000 to 40,000 barrels a day in for local sales and the rest, which could be something from 120,000 to 170,000 is exported. So what flexibility do the participants have to choose whether that 120,000 to 170,000 gets exported or sold into the local market?

In terms of -- obviously the obligations of the KRG to export but also what about eating other people's lunches? Are -- is the KRG defensive of increasing production from other fields as well, to give them a leg up?

I think we've given you all the guidance you need, Al. Your math on Taq Taq were accurate.

So I'm glad you found the charts helpful. Very good.

And in terms of Taq Taq and Tawke, 30,000 to 40,000 into the domestic market is a good basis to think about 2015.

Fine.

Okay.

Morning guys. Just a quick question from me, hopefully.

Just on the KRG receivables for exports and just bearing in mind its size relative to your cash balance and market cap, is there a level that receivable could reach which would force you to think the volumes you're willing to export?

No. I don't think [multiple speakers].

We just don't think it's going to -- because given the way we've structured the different routes to revenues, we're very confident that we're going to manage it at a sensible level, let me call it that.

Okay, thanks. I believe that's it.

So thank you very much, ladies and gentlemen, for joining us this morning. And let me just say a bit thank you again to Julian.

He's been a great partner over the last four years since we created Genel in its current form. I'll miss him greatly.

But of course, I have sitting on the other side of me this morning -- he hasn't said anything but he is here as part of his handover process -- Ben Monaghan who we're very excited Ben is joining us and look forward to him taking up the reins where Julian leaves them off at the beginning of May. And we -- when we next talk to you in a formal sense, it'll be Ben and myself doing the talking and Julian will be off on his farm doing whatever he'll be doing.

Ladies and gentlemen, thank you very much.