Annual Report 2015
A resilient business
Genel Energy is one of the largest
oil producers listed on the London
Stock Exchange, and the largest
holder of reserves and resources
in the Kurdistan Region of Iraq.
Through the Miran and Bina
Bawi gas fields, Genel is set to
be a major provider of gas to
Turkey under the KRI-Turkey
Gas Sales Agreement.
Discover more about
Genel Energy on our website
www.genelenergy.com
In this report
Strategic report
02 The Genel story
04 Market overview
06 Group at a glance
08 Key performance indicators
10 Chairman’s statement
12 Chief Executive Officer’s statement
16 Operating review – overview
18 Operating review – oil
20 Operating review – gas
22 Operating review – exploration
24 Financial review
26 Corporate responsibility
32 Risk management
34 Principal risks and uncertainties
Directors’ report and governance
40 Chairman’s overview
42 Board of directors
45 Management team
46 Corporate governance
56 Directors’ remuneration report
70 Other statutory and
regulatory information
75 Statement of directors’ responsibilities
Financial statements
76 Independent auditors’ report
82 Financial statements and notes
103 Glossary
IBC Shareholder information
Key figures
Revenue
($ million)
344
600
4.2
6
520
348
344
500
400
300
200
100
5
4
3
2
1
5.9
4.8
4.2
Reserves and resources
(net bnboe)
Production
(bopd, working interest)
85,000
100
85,000
69,000
80
60
40
20
0
44,000
2013
2014
2015
2013
2014
2015
2013
2014
2015
c.$148 million
cash proceeds
received for
KRI oil exports
and domestic
sales
< $2/bbl
production costs
at our producing
oil assets
c.22%
increase in oil
production
year-on-year
01
STRATEGIC REPORTDIRECTORS’ REPORT AND GOVERNANCEFINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com THE GENEL STORY
A clear and
focused strategy
Our strategy for developing a major oil and gas business
1: Maintain the highest level
of corporate governance
The strength of our management team, and an experienced
Board, provides the expertise to grow the business and the
governance necessary to maintain the integrity of the Company
and effectively manage risk.
3: Create value with the drill bit
We are committed to realising the value in our portfolio through
a focused drilling programme to explore, appraise and develop
our assets, with the flexibility in our portfolio allowing us to
manage expenditure appropriately.
2: Maximise the value of our
KRI oil assets and commercialise
our KRI gas business
Our oil production in the KRI is managed to ensure long-term
value creation, with production maximised over the life of the
field and investment made at a level appropriate to the external
environment. During 2015 production averaged 84,900 bopd,
a rise of 22%. Our world-class Miran and Bina Bawi fields
contain an estimated 11 tcf of mean raw gas resources, and
steps have been taken to move them towards development.
4: Pursue selective, accretive M&A
opportunities
Leverage the skills and knowledge of the management team to
identify upstream assets with a view to adding reserves and/or
resources which complement the existing KRI position.
5: Return excess cash to shareholders
We will continue to evaluate and evolve our capital structure to
reflect the needs of the business, with a view to returning capital
to investors when appropriate.
Our business model underpins our strategy
Monetise at all points of the exploration,
development and production cycle
Oil production in the KRI provides ongoing cash generation.
We will aim to bring in partners to our KRI gas business with a
view to crystallising value, reduce future funding requirements
and delivering an appropriate balance of risk and reward.
Leverage our unique regional relationships
Genel’s long-term presence in the Kurdistan Region of Iraq has
allowed us to build lasting and beneficial relationships with the
KRG and the local business community. These, allied with our
Turkish heritage, play a vital role in creating value for
shareholders.
Retain a strong balance sheet
The Company aims to retain a strong balance sheet and
flexibility in our capital structure in order to pursue its
strategic objectives and underpin future growth.
Responsible operations
The way in which we conduct ourselves with our host
communities and governments, and our record on health,
safety and the environment, is the bedrock for all of our
operations, and is crucial to our success as a business.
02
Genel Energy plc Annual Report 2015genelenergy.com Our investment case
differentiates Genel
01
Low-cost asset base
Our oil reserves are being produced at some of the lowest costs
in the industry and are cash flow breakeven at a Brent oil price of
less than $20/bbl. The KRI gas development will also benefit from
an industry leading cost structure. Our gas resources have been
independently certified and are already committed by the KRI for
export to Turkey, which will both diversify and lower the cost of
energy imports.
Read more:
Group at a glance p.06 & Operating review p.16
02
Exposure to the Kurdistan
Region of Iraq growth story
As the economic situation in the region improves – driven by
an improving oil price, increased oil exports, or KRG cost-cutting
measures – regular export payments will facilitate the
commercialisation of our gas assets. The clarity over the payment
schedule for our oil exports allows us to explore and appraise, at
low cost, a number of other exciting opportunities in our portfolio.
Read more:
Market overview p.04
03
Significant future cash
generation
Our KRI gas business has the potential to generate a material and
stable free cash flow stream once onstream. These cash flows,
combined with those from the oil assets, will be redeployed to create
value for shareholders in other upstream assets, or returned to
shareholders if such opportunities don’t meet internal criteria.
Read more:
Operating review p.16 & Financial review p. 24
Genel Energy plc Annual Report 2015
genelenergy.com
03
STRATEGIC REPORT MARKET OVERVIEW
About the Kurdistan
Region of Iraq
Robust long-term
market fundamentals
Despite the significant challenges faced by
the Kurdistan Regional Government, action
is being taken to ensure a prosperous future.
With a population of 5.2 million, the
Kurdistan Region of Iraq comprises the
governorates of Erbil, Suleimaniah, and
Dohuk. It covers 40,000 km2, bordering
Turkey to the north and Iran to the east.
Due to events in the region, the semi-
autonomous KRI has increasingly found
itself the focus of the attention of the
international community.
The fight against ISIS
The Kurdistan Regional Government has
been a crucial partner in the global fight
against ISIS. The KRI is on the front line
of the fight, with the Peshmerga proving
themselves as the most effective force,
best able to repel ISIS, on the ground.
During and after the initial ISIS offensive
in 2014, the KRG successfully defended
the integrity of its borders, and the
Region has remained safe and secure.
Since the initial ISIS offensive, when the
KRG prevented Kirkuk from falling into ISIS
hands, the Peshmerga has retained control
of 27,000 km2 from ISIS. Crucially, this
included the November 2015 liberation of
Sinjar, which split the ISIS controlled area in
half, cutting supply lines and weakening its
grip on Mosul and other territories in Iraq.
Challenging economic situation
The necessary fight against ISIS has been
expensive, placing a major burden on the
KRI’s economy, which is currently in crisis.
As well as funding the Peshmerga, the
KRI hosts over 1.8 million refugees and
internally displaced persons (‘IDPs’),
which has boosted the total population by
30%. These displaced peoples have been
sheltered by the KRG, whose efforts
alongside NGOs have helped to prevent a
full-scale humanitarian catastrophe. The
financial strain of this support, compounded
with the fall in the oil price and the failure
of Baghdad to make budgetary payments,
has left the KRG struggling to pay its salary
obligations and recompense oil companies
for their production.
Oil export growth
In order to compensate the Kurdistan
Region of Iraq for the significant revenue
shortfalls due to budgetary non-compliance
by the Iraqi federal government, in June
2015 the KRG resumed its policy of direct
oil sales via the Turkish port of Ceyhan.
With oil exports absolutely vital to economic
self-sufficiency, the export of crude oil rose
throughout the year as upgrades to the
pipeline network increased export capacity.
Exports also included the flow of oil from
the Kirkuk field, with the KRG continuing its
cooperation with the North Oil Company to
maximise flows.
The success of the KRI is intrinsically linked
with the success of the oil industry, and the
KRG has repeatedly affirmed its awareness
that in order for IOCs to maintain and grow
oil production, payments for oil exports
need to be forthcoming.
Despite the severe economic difficulties,
the KRG made payments for the last four
04
months of 2015, and has now formalised
a payment procedure that will see
companies paid monthly based on
contractual entitlements, with a further
payment towards the recovery of
outstanding receivables.
Regional relationships
While the tentative agreement, made at the
end of 2014, with the Federal Government
of Iraq (‘FGI’) broke down, the relationship
between Baghdad and Erbil remains civil.
Both the KRG and FGI have stated their
willingness to discuss issues and find a
cooperative solution to any differences.
The KRG’s relationship with Turkey remains
strong. An inconclusive general election
result in June 2015 was followed by the
Justice and Development Party (AKP)
returning to single-party government in
November. Throughout the period the
mutually beneficial relationship enjoyed
by Erbil and Ankara remained strong.
Turkey remains comfortably the KRI’s largest
trading partner, exporting billions of dollars
worth of goods and services. This economic
relationship will be solidified once the KRI
fulfils its obligations under the Turkey-KRI
Gas Sales Agreement, which will see an initial
10 bcma delivered to Turkey in 2019/20.
Turkey remains one of the world’s fastest
growing, major gas markets, and this
provision of gas, which will be supplied by
Genel’s Miran and Bina Bawi assets, will be
transformational for the economy of the
Kurdistan Region of Iraq. The import of KRI
gas, which is far more strategic than KRI oil,
is set to significantly reduce Turkey’s gas
import costs.
While tensions between Turkey and the PKK
flared up in the middle of 2015, unrest did
not spread into the Kurdistan Region,
indeed KRG-Turkey energy cooperation
strengthened. Sabotage of the KRI-Ceyhan
pipeline by PKK affiliates was strongly
condemned by the KRG, and such incidents
became rarer, making a minimal impact
on oil exports at the end of the year.
Genel Energy plc Annual Report 2015genelenergy.com Well over a decade of
operating in the Kurdistan
Region of Iraq has allowed
us to build meaningful and
beneficial relationships,
and we are proud that our
partnership with the KRG
has made a valuable
contribution to the
development of the region.
“We have been a partner of the KRG for many
years, and we recognise the efforts that have
been made to meet its commitments in difficult
circumstances.”
Murat Özgül
Chief Executive Officer
Political developments in the KRI
Relations between the parties that make up
the KRG have come under increasing strain
over the presidency of Massoud Barzani,
whose mandate expired on 20 August 2015
but remains in office. The two main parties,
the KDP and PUK, continue to work
together to help overcome the difficulties
facing the KRI, and President Barzani has
affirmed that he will meet all political
parties in the Kurdistan Region to reach
a consensus on outstanding issues.
Catalysts for growth
The key issue facing the Kurdistan Region
of Iraq remains the state of the economy.
There are three ways in which the situation
can be mitigated. While the first one, the oil
price, cannot be affected by the KRG, the
government is focusing on the two things
that it can control – the volume of oil
exports and reducing government costs
and energy subsidies.
The upgrading of the KRG’s export
infrastructure, which is ongoing, has allowed
oil exports to hit record levels, and the KRG
has committed to cutting its costs. Prime
Minister Nechirvan Barzani has stated that
steps to be taken include overhauling the
taxation system, reducing allowances of
higher ranking staff, implementing other
financial reforms, reforming the electricity
sector and reducing energy subsidies.
NORTHERN IRAQ OIL EXPORT EVOLUTION
KRI pipeline exports - the key economic driver
for the KRI
700,000
600,000
500,000
400,000
d
p
o
b
300,000
200,000
100,000
0
l
b
b
/
$
100
90
80
70
60
50
40
30
20
10
0
Jan-15
Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
KRG exports (bopd)
KRG deliveries to SOMO (bopd)
Brent oil price ($/bbl)
Source: KRG Ministry of Natural Resources figures
TURKISH SUPPLY AND DEMAND FORECAST
2005-2014 gas demand growth CAGR = 6.8%
bcma
90
80
70
60
50
40
30
20
10
0
2006
2008 2010
2012
2014
2016
2018 2020 2022 2024 2026 2028 2030
KRG Gas
Nigeria
Algeria
Azerbaijan-II
Azerbaijan-I
Iran
Russia
Others
CAGR 1%
CAGR 3.5%
Source: Turkish Energy Markets Regulatory Authority, BOTAS, Company estimates
CAGR 2%
Denotes assumed extension of contract after expiry
05
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com
GROUP AT A GLANCE
Our
portfolio
Genel has an asset portfolio with
the potential to deliver significant
returns in a low oil price environment.
Assets include low-cost oil production,
a world-class gas development, and
high-impact, cost-effective, exploration.
Oil production
Gas assets
Exploration and appraisal
assets
KRI export pipeline
06
Genel Energy plc Annual Report 2015genelenergy.com “The low-cost of our production helps make
Genel a very resilient business, with our
producing oil assets benefiting from production
costs forecast at less than $2/bbl in 2016.”
Murat Özgül
Chief Executive Officer
Oil
Taq Taq
- 44% working interest (joint
operator through TTOPCO)
- Gross 2P reserves
172 mmbbls, 76 mmbbls
net to Genel Energy
- Gross 3P reserves
416 mmbbls, 183 mmbbls
net to Genel Energy
Tawke
- 25% working interest
(DNO International, operator)
- Reserves subject to
completion of operator
review in March 2016
Gas
Miran
- 75% working
interest (operator)
- Gross 2P reserves
30 mmbbls
- Mean contingent
resources of
4.3 tcf raw gas,
62 mmbbls oil
and condensates
Bina Bawi
- 80% working
interest (operator)
- Mean contingent
resources of
7.1 tcf raw gas,
17 mmbbls oil
Dohuk
- 40% working
interest (DNO
International,
operator)
- Licence under
relinquishment
Read more p.18
Read more p.20
Exploration
KRI
Peshkabir
- 25% working
interest
- Part of Tawke PSC
- Drilling planned to
appraise discovered
resource and test
upside potential
OTHER ASSETS
Morocco
- Sidi Moussa: 60%
working interest
- Juby Maritime
(37.5% working
interest) and Mir
Left (75% working
interest) licenses
being relinquished
Read more p.22
Ber Bahr
- 40% working
Chia Surkh
- 40% working
interest (operator)
interest
- Licence under
relinquishment
Côte d’Ivoire
- Block C1-508: 24%
working interest
- Gross acreage
1,060 km2
- Licence under
relinquishment
- Gross contingent
resources of
250 mmboe
ahead of further
exploration and
appraisal activity
Somaliland
- SL-10B & SL-13: 75%
working interest
- Odewayne: 50%
- Gross acreage
40,300 km2
Ethiopia
- Adigala Block: 40%
working interest
- Licence under
relinquishment
Morocco
Côte d’Ivoire
KRI
Somaliland
07
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com
KEY PERFORMANCE INDICATORS
The largest holder of reserves
and resources in the Kurdistan
Region of Iraq
NET 2P RESERVES
NET UNRISKED RESERVES
AND RESOURCES
NET PRODUCTION
264
(net mmbbls)
445
453
429
412
264
500
400
300
200
100
0
4.2
(bnboe)
6
5
4
3
2
1
0
1.6
5.9
5.4
4.8
4.2
85,000
(bopd)
90
80
70
60
50
40
30
20
85
69
45
44
42
11
12
13
14
15
11
12
13
14
15
11
12
13
14
15
Definition
2P reserves are proved plus
probable reserves.
Performance
A review of the Taq Taq field reserves,
following production declines seen
during 2015, resulted in a revision
of gross 2P reserves at the field to
172 mmbbls, 76 mmbbls net to Genel.
A significant part of this reduction
was due to a revised assumption
on the fracture porosity within the
Shiranish, the shallowest interval of
the three Cretaceous producing units.
Production at Taq Taq and Tawke
of 42 mmbbls and 49 mmbbls
respectively also contributed
to the fall in 2P reserves.
Definition
Net reserves and resources include
reserves, and contingent and
prospective resources.
Performance
The acquisition of OMV’s stake in Bina
Bawi increased Genel’s working interest
in the licence, in turn increasing the
contingent resources net to Genel by
300 mmboe. An increase in prospective
resources of the same magnitude at the
Sidi Moussa licence, offshore Morocco,
was the result of integrated post-well
analysis and the identification of
alternative play concepts.
Limited remaining prospectivity
in other Moroccan assets and a
disappointing drilling result offshore
Côte d’Ivoire resulted in the decision
to relinquish these licences. As part
of Genel’s portfolio management, the
Ber Bahr and Dohuk licences were also
exited in the Kurdistan Region of Iraq,
as was the Adigala Block, Ethiopia.
Definition
Our oil production in the KRI is
managed to ensure long-term value
creation, with production maximised
over the life of the field. It is measured
in barrels of oil produced per day.
Performance
Oil production at both Taq Taq and
Tawke benefited from an improvement
in production facilities and, with the
pipeline infrastructure fully functional
for the whole year, outflow was
not constrained.
08
Genel Energy plc Annual Report 2015genelenergy.com CAPITAL EXPENDITURE
LOST TIME INCIDENTS
157
($ million)
700
600
500
400
300
200
100
0
86
11
0.6
Hours lost due to injury
per million work hours
670
564
229
157
2.0
1.5
1.0
0.5
0
1.6
1.5
1.0
1.0
0.6
12
13
14
15
11
12
13
14
15
SPILLS – LOSS OF
PRIMARY CONTAINMENT
1
Incidents where there has been
a loss of primary containment
7
6
5
4
3
2
1
0
4
11
7
6
1
12
13
14
1
15
Definition
Genel aims to derisk and increase the
value of assets by capital development
and exploration.
Performance
Capital expenditure outlay is
diligently managed to ensure the
continued strength of our balance
sheet, and the flexibility in our
portfolio allows expenditure to be
focused, targeted and appropriate
to the external environment.
In light of the ongoing weakness
in the oil price and the delay in the
receipt of export payments, the
capital expenditure programme
for 2015 was materially reduced,
with the year-on-year fall also
exacerbated by a significant
reduction in expenditure on
African exploration assets.
Definition
The safety of our workforce remains
of paramount importance. Genel
is committed to running safe and
reliable operations across our portfolio,
aiming at zero fatalities and no lost
time incidents (‘LTIs’). Lost time
incident frequency measures the
number of lost time incidents per
million work hours.
Performance
The reduction in incidents, from an
already low base - and another year
of zero fatalities - reflects continuing
progress achieved in our safety culture
and performance. The figure includes
both Genel Energy, relating to which
there were zero incidents, and TTOPCO
figures. Note that the previous year’s
figure has been rebased to include
LTIs at TTOPCO.
Definition
Loss of primary containment records
any unplanned or uncontrolled release
of material from a piece of equipment
(such as a pipe, vessel or tank) used for
containment of potentially harmful or
hazardous substances and products.
Performance
Asset integrity is a key priority for the
company and we plan and execute the
operations of our business and our
engagement of subcontractors so as
to minimise risk and mitigate potential
impact, aiming for zero incidents.
In 2015 there was a single incident at
Chia Surkh, relating to an unplanned
gas release. The incident did not lead
to any harm for either employees or
the environment. As always, a full
investigation of the incident was
undertaken and lessons learned.
09
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com CHAIRMAN’S STATEMENT
Resetting the business
in challenging times
Low-cost production, flexibility in the portfolio,
and the financial strength to pursue our strategy.
Tony Hayward
Chairman
10
I am pleased to welcome you to Genel
Energy’s fifth annual report. 2015 was
a challenging year across the oil sector
as a whole. The sustained low oil price
has placed a significant strain on both
the industry and the economy of the
Kurdistan Region of Iraq.
As the external environment has
deteriorated, we have been proactive
in ensuring that your Company remains
robust. Our production costs are amongst
the lowest globally, and our asset base
allows us to flex our capital expenditure
programme to align with our cashflow
and to preserve a robust balance sheet.
Despite the reserve reassessment and write
down at Taq Taq, which is very disappointing,
our asset base remains strong, with many
years of production ahead of us.
Despite the difficulties of the external
environment, 2015 saw record production for
Genel, up 22%. Payments for pipeline exports
in the second half of the year, followed by a
payment mechanism being confirmed in 2016,
both demonstrated the firm commitment of
the Kurdistan Regional Government to fully
compensate IOCs for all production, both in
the past and going forward.
The Kurdistan Region of Iraq oil industry
The Kurdistan Region of Iraq remains safe
and secure, and our operations have been
unaffected by the ongoing presence of ISIS
in Iraq and Syria. The ISIS offensives against
the KRI in 2014 were successfully repelled,
and the terrorist group was very much on
the defensive throughout 2015. Significant
ground was retaken by the Peshmerga, with
the support of its allies, and ISIS has seen
its supply lines cut and increasing pressure
placed on those areas west of the KRI which
remain under its control.
Genel Energy plc Annual Report 2015genelenergy.com While we continue to monitor the situation,
we do not expect ISIS to have any
operational impact on the KRI oil industry
going forward. The main impact ISIS has
is on the economy of the region, with the
funding of the Peshmerga and provision
of support for refugees and internally
displaced peoples (‘IDPs’) causing a
strain on the KRG’s financial position.
2015 began with the implementation of
an agreement between Baghdad and Erbil
promising an end to uncertainty about the
KRG’s economic situation, with promises
of the transfer of a full monthly budget
allocation to Erbil, and SOMO control of all
sales of crude from Ceyhan. Unfortunately,
while exports from KRI fields ramped up,
the budget transfers stalled, forcing the
KRG to resume independent export sales.
The KRG has since successfully increased
exports to record levels, hitting over
650,000 bopd and reaching a ready market
of international purchasers. Unfortunately, the
shortfall of revenue received in the first half
of the year delayed payments to oil companies,
a situation compounded by the low oil price
and the necessity of funding the Peshmerga.
Against this backdrop, the receipt of four
payments for pipeline exports pertaining
to the last four months of 2015 was very
encouraging. These initial payments, totalling
c.$100 million, helped stabilise our receivable
and maintain our robust balance sheet. We
recognise the efforts that the KRG is making
to meet its commitments to IOCs in a very
difficult environment. The crystallisation of
the payment mechanism in February 2016
was a very positive move, and has provided
clarity over the quantum and certainty
over the timing of future payments.
As these payments are forthcoming,
our investment in the region will continue,
with the aim of maximising the value of
our oil fields and facilitating the investment
required to drive the development of the
gas business, a business that will help
further transform the economy of the KRI.
Management changes
At a difficult time for the industry, it is
vital that a company has a Board with the
experience and expertise to help navigate
through choppy waters and to monitor
carefully the risk across our operations.
2015 saw the retirement of people who
were integral in the establishment of
Genel Energy as a respected London-listed
company. Rodney Chase, my predecessor
as Chairman, and Julian Metherell, former
CFO, both made invaluable contributions
and left Genel with a strong reputation, and
the financial strength to prosper. Mark Parris
and Murat Yazici also stepped down in 2015,
and we wish both well.
In order to retain the knowledge of Genel
Energy assets, the political and oil industry
environment, and an in depth understanding
of operating in the KRI, the Board decided
that I would replace Rodney as Chairman,
with Murat Özgül, previously President,
Turkey and KRI, becoming Chief Executive.
Murat has overseen the development of our
Kurdistan business to make Genel Energy
into one of the largest independent oil
producers on the London Stock Exchange,
and there is nobody better qualified to
progress the development of our world-class
KRI gas fields.
Finally, the year also saw the retirement of
our President, Mehmet Sepil. The Kurdistan
Region of Iraq’s oil industry would not be
where it is today without the foresight and
efforts of people like Mehmet.
Mehmet left a legacy of a company with
unsurpassed relationships in the region,
world-class assets, significant production
and transformational growth opportunities.
With Murat, and Julian’s successor Ben
Monaghan, we have the right management
team, with the relevant and complementary
skills, to drive the company forward and
take advantage of these opportunities.
Responsible operations
Supporting and sustaining the communities
in which we operate is fundamental to Genel
Energy’s success and our commitment to
being a sustainable business. We take pride
in the close relationship that we have with
the KRG, with whom we have worked closely
for almost 15 years.
With 1.8 million refugees boosting the
population of the KRI by over 30%, the KRG,
working with NGOs, has done an excellent
job to avoid a catastrophic humanitarian
incident. We have been glad to provide
support to the KRG, while not ignoring the
needs of communities we work in to ensure
lasting benefit from our operations.
Well positioned in a low-price environment
To ensure the ongoing strength of the
business even in a period of prolonged low
oil prices, our focus will remain on retaining
a strong balance sheet and robust cash
position. The flexibility of our investment
programme means that we have a fleet-
footed business that can take advantage
of an improving external environment.
With the unique potential offered by the
gas business, and low-cost oil production
that promises to be cash generative even
in very low oil price scenarios, we continue
to look to the future with confidence.
“ Our production costs
are amongst the
lowest globally, and
our asset base allows
us to flex our capital
expenditure
programme to align
with our cashflow
and to preserve a
robust balance sheet.”
Read more about
our operations
p.16
Read more about
corporate governance
p.44
11
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com CHIEF EXECUTIVE OFFICER’S STATEMENT
Low-cost production,
appropriate expenditure,
and focused exploration
Genel is well positioned in the Kurdistan Region of Iraq,
with a flexibility that provides resilience and the ability
to capitalise on both existing and future opportunities.
In this environment three things position
Genel well for the future – oil production that
is amongst the lowest cost globally, a robust
balance sheet, and a tight control on costs.
Despite the disappointing revision of our
reserves at Taq Taq, Taq Taq and Tawke
remain low-cost oil fields by any global
benchmark. With 264 million barrels of
net 2P reserves across our KRI portfolio,
Genel has a robust oil business well
positioned in the current oil price
environment, and set to be significantly
cash generative going forward.
Having been with Genel since 2008, and
seen the Company grow significantly in
that time, it is my pleasure to now detail the
Company’s performance for 2015 as Chief
Executive Officer. Unfortunately, I do not
write at a buoyant time for the oil industry.
The decline in the oil price placed a
significant strain on the entire oil industry
in 2015, and the price weakness has
continued into 2016. For the Kurdistan
Regional Government, despite tremendous
success in boosting oil exports, the low oil
price and cessation of budget transfers
from Baghdad, coupled with the necessity
of funding the Peshmerga and averting a
humanitarian crisis through managing the
influx of refugees into the KRI, has created
serious financial challenges.
Murat Özgül
Chief Executive Officer
12
Genel Energy plc Annual Report 2015genelenergy.com “ The new payment
schedule provides
clarity over future
revenues that was
previously lacking,
allowing us to
tailor our field
development plans
and progress them
with confidence.”
payments for exports since September 2015.
We have been a partner of the KRG for many
years, and we recognise the efforts that have
been made to meet its commitments in
difficult circumstances.
Regular and predictable payments
This commitment to remunerating IOCs
was confirmed on 1 February 2016, when
the Ministry of Natural Resources issued
a statement announcing that monthly
payments will be based on the contractual
entitlements under the production sharing
contract governing each license. The
statement also illustrated the mechanism
through which IOC receivables will be
paid off, as each month a percentage
of the monthly netback field revenue
(starting at 5%) will be used to reduce
the outstanding amount. As the oil price
rises, this percentage will increase.
The new payment schedule provides clarity
over future revenues that was previously
lacking, allowing us to tailor our field
development plans and progress them
with confidence.
The payment mechanism removes the
uncertainty of 2015, when the KRG’s
ability to make sustained and predictable
payments was hampered by the external
environment. This uncertainty resulted
in the prudent decision to reduce
investment in our producing fields,
suspending sub-surface investment.
We retain a significant level of flexibility
over the investment that can be made at
our producing fields, with the potential to
insert electric submersible pumps in existing
wells, sidetrack existing wells, and drill new
horizontal wells. The extent of this activity
will reflect the quantum of export payments,
which are now largely tied to the oil price, as
well as the technical results of the ongoing
work programme. Our 2016 capital
expenditure guidance of $80-120 million
illustrates this flexibility, and we will aim
to progress our oil development in a way
that is broadly cash flow neutral to Genel
in the near-term.
Production is expected to be 60,000-
70,000 bopd in 2016. The Taq Taq and
Tawke entitlement achieves breakeven at
a Brent oil price around $20 a barrel, and
promises to be significantly cash generative
as the external environment improves.
Retaining our financial strength
Our strategy remains clear and focused,
as we look to maximise the potential of our
KRI oil assets and commercialise our KRI
gas business, while seeking growth through
the drill bit and the selective pursuit of
value accretive M&A opportunities. This
strategy is underpinned by our business
model – central to which is the retention
of a strong balance sheet.
In a challenging external environment it is
never more important to retain financial
strength, and ensuring that costs were
kept to a minimum was a key focus of
management in 2015. This focus saw a
number of efficiency measures and cost
reduction programmes implemented across
the business, resulting in production costs
and general and administrative costs falling
by around 40% compared to 2014. Even
without receiving full payment for our
oil exports, cash receipts of $148 million
local and export sales more than covered
production costs, general and administrative
costs, and bond interest during the year.
With the receipt of export payments in the
fourth quarter of the year stabilising our
receivable with the KRG and bolstering our
cash position, we finished 2015 with cash
balances of $455 million. 2016 cash spend
at the Company level is forecast to average
c.$20 million per month, showing our
ability to withstand even a worst case oil
price scenario.
Capital expenditure for 2015 totalled
$157 million, a reduction of over $500
million on 2014, as we focused on
development programmes at Taq Taq
and Tawke.
Low-cost oil production
The development programmes helped drive
production at Taq Taq and Tawke to record
levels, with production up 22% year-on-year
to 84,900 bopd. The low-cost nature of this
production helps make Genel Energy a very
resilient business, with our producing oil
assets in the Kurdistan Region of Iraq
benefiting from production costs forecast
at less than $2/bbl in 2016.
While some of the lowest costs in the industry
provide Genel with a solid foundation, in order
to continue investing in the fields it is still vital
that payments are received for oil produced.
In August 2015, the Kurdistan Regional
Government made a public statement that
reiterated their commitment to make certain
that oil companies are recompensed for their
production. Despite the financial crisis facing
the region, this commitment was matched by
action, and we have received monthly
13
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com CHIEF EXECUTIVE’S STATEMENT
continued
Taq Taq reserves revision
Given the significant ramp-up in production
at the Taq Taq field in recent years and
subsequent decline during 2015, Genel took
the decision to review its reservoir model
and its future investment profile for Taq Taq.
To support this analysis, we commissioned
an updated Taq Taq competent persons
report (‘CPR’) from McDaniel & Associates.
This internal review and the CPR are now
largely complete. The result is that the initial
proven and probable reserves in place at the
field have been revised from the estimated
683 mmbbls (as of June 2011) to an estimated
356 mmbbls (as of 31 December 2015).
With Taq Taq having produced a total of
184 mmbbls up to the end of 2015, the
remaining gross recoverable 2P reserves
as of 31 December 2015 are therefore
172 mmbbls.
The vast majority of the original Taq Taq
oil in place was reservoired within fractures
in Cretaceous carbonate formations. The
Cretaceous has three principal producing
units – the Qamchuga, Kometan and
Shiranish – with the Shiranish being the
shallowest interval. Genel’s internal Taq Taq
review and the CPR process have focused
on the fracture porosity within the Shiranish
reservoir. Both processes have utilised
recently acquired data to establish that
the fracture porosity within the Shiranish
is lower than estimated in the original
McDaniel CPR from 30 June 2011.
The revision in reserves is of course
disappointing, but Taq Taq still has
significant low-cost production to
come. The field has been crucial in the
development of the Kurdistan Region
of Iraq oil industry, and will continue
to make an important contribution
in the future.
Commercialising the gas business
As well as our oil production, the
development of our Kurdistan Region of
Iraq gas business also benefits from low
costs. The onshore location and scale of
the development means that it delivers an
industry leading cost structure - with an
estimated upstream capital and operating
expenditure of less than $3/boe.
In September 2015, Genel completed the
acquisition of OMV’s 36% operated stake
in the Bina Bawi field, consolidating the
ownership structure across both Miran
and Bina Bawi, streamlining project
management and providing flexibility
in meeting development goals.
The development of the fields is a unique
opportunity, and promises to deliver
significant value for shareholders. The fields
are 300 km from Turkey, one of the world’s
fastest growing major gas markets with
expected demand growth of 3% per year
until 2020 at least. Turkish gas demand
makes the KRI’s gas reserves of far greater
strategic importance than oil, and they
provide Turkey with the opportunity of
materially reducing their gas import costs.
Turkey currently consumes approximately
50 bcma of gas, of which more than half
is provided by Russia. With the KRG set
to provide 20 bcma, this gas will help to
diversify, and indeed form the baseload
of Turkish supply, at a cheaper price than
all current imports.
The project is underpinned by the KRI-
Turkey Gas Sales Agreement, and the
development is now progressing on the
ground in Turkey, with BOTAS having begun
its tendering process for the construction
of the Turkish stretch of the pipeline.
It is a world-class development with
a committed government buyer for
the gas in place. As such, the progress
towards converting the PSC amendments
and gas supply term sheets into fully
termed documents has been slower than
we anticipated, as the KRG has been
focused on oil exports and the difficult
economic situation.
At Miran and Bina Bawi, 2016 activity
will focus on delivering the upstream
gas development plan and geological/
geophysical studies, and work will also
commence on the front end engineering
design and financing plans for the
midstream gas processing. Capital
expenditure for the gas project during
2016 is estimated at c.$25 million.
Portfolio management
Our portfolio benefits from not having
expensive commitments, and our focus
on costs meant that a restructuring of the
asset portfolio had been undertaken even
prior to the rebasing of expectations of
future cash-generation from Taq Taq.
As part of our ongoing portfolio
management and rigorous control on costs
and capital efficiency we are concentrating
time and investment on our producing and
development assets, and have reshaped
our exploration portfolio into a focused
and low-expenditure, high-impact potential
asset base.
“ Despite the recent
reserve revision
at Taq Taq, the
Company is well
positioned in the
Kurdistan Region
of Iraq, with a
flexibility that
provides resilliece
to the ongoing
downturn and the
ability to capitalise
on both existing
and future
opportunities.”
14
Genel Energy plc Annual Report 2015genelenergy.com “ Despite the market
challenges, Genel
Energy remains
a resilient business,
with opportunities
in the portfolio
promising
significant future
cash generation.”
The quantum of cash receipts will define
activity levels, and the KRG has provided
clarity over the regularity of future
payments, which are set to continue even
in this challenging environment. Should the
oil price recover, as we expect it will, the
level of payments will rise along with our
entitlement, accelerating the recovery of
our receivable. The new payment agreement
will also allow us to progress our field
development plans and maximise the
value of our producing assets.
We continue to selectively pursue
accretive M&A opportunities, although
any transaction that we execute will be
the result of careful screening and a robust
internal process. We will only proceed
with those that meet our strict criteria
– complementing the existing KRI position
without being detrimental to our balance
sheet strength.
Despite the many market challenges,
Genel Energy remains a resilient business,
with opportunities in the portfolio promising
significant future cash generation.
As part of this process, the Ber Bahr and
Dohuk licence interests in the KRI are in
the process of relinquishment, as is the
interest in the Adigala block in Ethiopia.
Limited remaining prospectivity in the
Cap Juby and Mir Left Moroccan assets,
and a disappointing drilling result offshore
Côte d’Ivoire, also resulted in the decision
to exit these licences.
At Chia Surkh (Genel 40% working interest),
the CS-12 appraisal well is scheduled to be
drilled in H1 2016. The drilling will help refine
the contingent resource estimate for the
Chia Surkh licence. Genel will be carried by
its partner for the costs of the CS-12 well.
Genel is therefore looking to the future with
a portfolio that offers low-cost production,
a transformational gas business, and highly
prospective exploration acreage – with
targeted and flexible spending allowing us
to focus on those areas in which shareholder
returns can be maximised.
Outlook
Genel will continue to focus on costs,
running operations in the KRI on a broadly
cash neutral basis. Despite the recent
reserve revision at Taq Taq, the Company
is well positioned in the Kurdistan Region
of Iraq, with a flexibility that provides
resilience to the ongoing downturn and
the ability to capitalise on both existing
and future opportunities.
15
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com OPERATING REVIEW
Unlocking the
potential of
the Kurdistan
Region of Iraq
Below: Workers at the Taq Taq field,
Kurdistan Region of Iraq
Key oil highlights
• 2015 production averaged
84,900 bopd, 22% growth on 2014
• Producing oil assets in the Kurdistan
Region of Iraq benefit from low
production costs, which are forecast
at less than $2/bbl in 2016
• Production guidance for 2016 is set
at 60-70,000 bopd
22%
production growth on 2014
Key gas highlights
• Detailed term sheets for the upstream
and midstream elements of the gas
project were signed in early H2 2015
• Purchase of OMV’s operated stake
in Bina Bawi complete
• Midstream pre-FEED and technical
consultancy study tender initiated
11tcf
of raw gas resources
16
Genel Energy plc Annual Report 2015
genelenergy.com
Start of 2015
Production
Net additions/revisions
End of 2015
Proven plus Probable
(2P) reserves
(mmboe)1,2
Contingent
resources
(mmboe)3
2P reserves and
contingent resources
(mmboe)
429
(31)
(134)
264
1,031
–
221
1,252
1,460
(31)
87
1,516
1.
2.
3.
Proven plus probable 2P reserves at Taq Taq are based on the McDaniel technical reserves assessment dated 27 February 2016
Tawke 2P reserves are based on the operator’s reported figures at 31.12.2014 less 2015 production. The operator of the Tawke field, DNO ASA,
is currently performing its annual review of the Tawke field reserves with the results expected to be announced in March 2016
Contingent resources are based on both Genel Energy’s estimates and independent reserve reports
The main reason for the downgrade to the
Taq Taq EUR was a revised assumption of
the fracture porosity within the Shiranish
formation, which is one of the three
Cretaceous aged producing intervals which
comprise the majority of the EUR in the Taq
Taq field. This change significantly impacted
the oil in place estimate for the Shiranish
reservoir, in turn reducing recoverable
reserves. In addition, McDaniel also reduced
the expected contribution from the matrix
porosity in the Cretaceous Shiranish,
Kometan, and Qamchuqa reservoirs.
Tawke gross remaining recoverable 2P
reserves at 31 December 2015 are estimated
at 631 mmbbls. This figure is based on
Tawke gross remaining recoverable 2P
reserves at 31 December 2014 of 680
mmbbls (as published by Tawke operator
DNO ASA) less 2015 gross production
of 49 mmbbls. DNO ASA is currently
performing its annual review of the
Tawke field reserves with the results
expected to be announced
in March 2016.
Contingent resources increased by 21% to
1,252 mmboe (2014: 1,031 mmboe), mainly
as result of the acquisition of a further 36%
operated interest in the Bina Bawi field. This
was only partially offset by minor revisions
to the contingent resources associated
with the reduction of Genel’s interest in the
Chia Surkh licence and the removal of the
contingent resource associated with the
Ber Bahr licence, which is in the process
of relinquishment.
Production
Net working interest production in 2015
averaged 84,900 bopd, versus the 85-
90,000 bopd guidance range. Production
guidance for 2015 was originally set at
90-100,000 bopd, although this was revised
lower in October 2015 on the back of Taq Taq
and Tawke production declines, which were
partly due to a suspension of drilling and
completion activity during the year.
Notwithstanding these declines, 2015
production represented growth of 22% on
2014. This increase reflected a full year of
oil exports by the KRG via the export pipeline
through Turkey. In turn, this allowed both Taq
Taq and Tawke to operate at or near surface
processing capacity for most of the year.
During 2015 production from Taq Taq and
Tawke was either exported by the KRG or
sold into domestic markets. The majority
(75%) of production was exported in 2015,
reflecting the KRG’s strategy of maximising
revenues from the region’s oil output. Sales
to traders in the domestic market totalled
12% of total volumes sold, with the balance
of production supplied to the Bazian refinery
and Tawke topping plant.
Excluding volumes supplied from Taq Taq to
the Bazian refinery, the Company expects
that the primary sales route for production
from Taq Taq and Tawke will continue to be
exports by the KRG via Ceyhan in Turkey.
However, if pipeline exports are interrupted,
production from both fields can be sold into
the KRI domestic market at short notice,
for which payments have historically been
received in advance and directly.
Sub-surface investment at both fields was
significantly reduced during 2015, reflecting
the uncertainty over the timing of export
payments. Payments recommenced in
September 2015, and development activity
resumed at the Taq Taq field in Q1 2016.
Actual production levels during 2016
will be subject to the level and phasing
of investment during the year, which in
turn will be influenced by the timing and
quantum of payments for oil exported
from Taq Taq and Tawke.
Company production guidance for
2016, which encompasses both firm
and contingent activity at both fields, is
60-70,000 bopd. Based on this production
guidance and planned activity programmes,
2016 accrued revenue is estimated at
$200-275 million on a Brent price of
$45/bbl. At $35/bbl Brent, 2016 accrued
revenue is estimated at $160-220 million.
Reserves and resources
At 31 December 2015, Genel Energy’s proven
plus probable (2P) working interest reserves
were 264 mmbbls (2014: 429 mmbbls),
a 39% decrease year-on-year.
The principal factor in the downward
revision to the Company’s 2P reserves was
a significant downgrade at the Taq Taq field.
Given the significant ramp-up in production
at Taq Taq in recent years and subsequent
declines seen during H2 2015, the Company
announced in January 2016 a review of its
reservoir model and future investment plans
for the field. A Competent Person’s Report
by McDaniel & Associates (‘McDaniel’)
was also commissioned as a third party
validation of the internal work.
In its technical reserves assessment dated
27 February 2016, McDaniel calculated
initial gross recoverable 2P reserves
(referred to in the industry as Estimated
Ultimate Recovery, or EUR) of 356 mmbbls
at 31 December 2015. This compares to
the original McDaniel assessment (as of
30 June 2011) of 683 mmbbls. Deducting
gross production from the Taq Taq field
at 31 December 2015 of 184 mmbbls
results in gross remaining recoverable
2P reserves for the field at 31 December
2015 of 172 mmbbls. This figure compares
to the 541 mmbbls remaining recoverable
2P reserves at 31 December 2014.
17
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com OPERATING REVIEW - KRI OIL ASSETS
Low-cost oil
production
Genel’s producing oil assets deliver a cash breakeven
(defined as PSC entitlement revenues equal to capital
expenditure and cash operating expenditure) at a
Brent oil price of c.$20/bbl in 2016.
Taq Taq sales route 2015
2015 oil production (bopd)
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
25.23
22.0
11.40
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15
Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
Taq Taq
Tawke
63% – Export via pipeline
10% – Domestic sales
27% – Refinery sales
Tawke sales route 2015
85% – Export via pipeline
12% – Domestic sales
3% – Refinery sales
Right: Central processing facility, Taq Taq
18
Genel Energy plc Annual Report 2015genelenergy.com
Taq Taq (44% working interest,
joint operator)
The Taq Taq field has been producing
since 2006 and as a result of a multi-year
investment programme in both production
wells and surface facilities delivered
compound annual growth of 29% between
2010 and 2015. As of 31 December 2015
the field had produced 184 mmbbls.
Gross remaining recoverable 2P reserves
at 31 December 2015 were estimated at
172 mmbbls by McDaniel in its technical
reserves assessment dated 27 February
2016. The proven plus probable plus
possible (‘3P’) reserves at 31 December 2015
were assessed by McDaniel at 416 mmbbls.
Going forward, the Company’s strategy
at Taq Taq will be to maximise recovery of
the 2P reserves through its discretionary
investment programme, while also exploring
opportunities to unlock upside potential
by targeting prospective resources in the
Cretaceous Qamchuqa reservoir.
The Taq Taq field produced a gross
average of 116,000 bopd in 2015, compared
to 103,000 bopd in 2014, representing
13% growth year-on-year. Production
performance was strong in the first half of
2015, averaging 128,900 bopd on the back of
high surface capacity utilisation as the KRG
maximised exports through the KRI-Turkey
pipeline. During the second half of 2015,
production declined, averaging 104,000
bopd and ending the year at 85,000 bopd.
These declines reflected reservoir
underperformance and also reflected a
suspension of sub-surface investment in
the second half of the year as the Company
waited for regular export payments to be
established. During the year 63% of Taq Taq
output was exported by the KRG through
the KRI-Turkey pipeline, 27% was sold to
the Bazian refinery with the remainder
sold into the KRI domestic market.
In H1 2015, two production wells (TT-23
and TT-24) were drilled and brought on
production. At end 2015, a total of 28 wells
had been drilled across the field, 24 of which
were in the main Cretaceous reservoir and
4 in the shallower Tertiary Pilaspi reservoir.
The 2016 firm activity programme envisages
side-tracks to existing wells and workover
operations to arrest production declines.
Further activity, which is contingent on
implementation of the 1 February 2016
monthly export payment mechanism, could
see a horizontal production well drilled in the
Cretaceous in addition to further workover
operations and side-tracks of existing wells.
During 2015, good progress was made in
the construction of the second central
processing facility (‘CPF 2’). CPF 2 is
designed to process 90,000 bpd of oil and
has 45,000 bpd of water handling capacity.
CPF 2 will commence operations in Q2 2016.
Tawke (25% working interest)
The Tawke field produced a gross average
of 135,000 bopd in 2015, compared to
91,000 bopd in 2014, representing 48%
growth year-on-year. In H1 2015, wellhead,
processing and pipeline capacity was
successfully doubled to 200,000 bopd
which allowed for a significant ramp-up in
field production and exports through the
KRI-Turkey pipeline. Peak production of
180,000 bopd was achieved in May 2015.
During the second half of 2015, production
declined, with the field exiting the year
at 124,000 bopd. The decline reflects the
suspension of sub-surface investment during
H2 2015 as the Tawke partners waited for
a regular export payment stream to be
established. During the year 85% of Tawke
sales were exported by the KRG through the
KRI-Turkey pipeline, 13% was delivered into
the KRI domestic market with the remainder
being sold into the Tawke refinery.
In H1 2015, the final well (Tawke-30) of the
approved development plan was drilled
and brought onstream. As of end-2015,
30 production wells had been drilled at the
field. The proposed 2016 work programme,
which is contingent on export payments
continuing, consists of further production
wells and construction of water handling
facilities at the existing central processing
facility. The Tawke partners will also drill
the Peshkabir-2 exploratory appraisal well
in 2016.
KRI pipeline
infrastructure
During 2015, the KRG continued to
upgrade the capacity and integrity
of the pipeline system through which
oil is exported from the KRI to the
port of Ceyhan on the Mediterranean
coast. The pipeline consists of a
number of sections. The first, from
the Taq Taq field to the Khurmala
Dome, has capacity of 150,000 bopd.
The second section, from Khurmala
to the KRI border, has capacity of
700,000 bopd. At the border, both the
KRI pipeline and the dedicated export
pipelines from the Tawke field, which
have capacity in excess of 250,000
bopd, are tied into the 40-inch section
of the Iraq-Turkey pipeline. The 40-inch
section currently has 700,000 bopd
of capacity. Pipelines on both the KRI
and Turkey sides of the border have
sufficient capacity to facilitate all
current or future oil exports from
Genel’s fields.
19
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com
OPERATING REVIEW - KRI GAS ASSETS
Developing our
KRI gas business
The development of Miran and Bina Bawi is a unique opportunity,
underpinned by the KRI-Turkey Gas Sales Agreement, with the
onshore location and scale of the development delivering an
industry leading cost structure.
KRI gas: commercial structure
Upstream
MidstreamCo
Miran and Bina Bawi, 100% operated
and owned by Genel Energy1
Responsible for the gas treatment
facilities at Miran and Bina Bawi
Delivery of raw gas at 1,200 mmscfd
to KRG
Genel leading on EPC tender and
securing equity and debt financing
Payment mechanism on take-or-pay
basis
Receives a Tolling fee from the KRG
on a toll-or-pay basis
Raw gas price guaranteed by
Turkey/KRG GSA and crude oil exports
Tolling fee guaranteed by Turkey/KRG
GSA and crude oil exports
Raw gas price: $1.20/mcf
Genel to retain a stake in
MidstreamCo, targeting 10%
Raw gas price: $1.20/mcf
Raw gas
KRG
Tolling fee
Sales gas
Export gas Export gas price
Turkey/KRG GSA
Binding intergovernmental GSA
signed November 2013
Gas exports commencing at 4 bcma
and ramping up to 10 bcma
1.
Assumes transfer of the KRG’s interests in Miran and Bina Bawi
20
Genel Energy plc Annual Report 2015genelenergy.com Miran (75% working interest, operator)
and Bina Bawi (80% working interest)
During the first half of 2015, Genel
continued its negotiations with the KRG
on the commercial framework for the
development of the Miran and Bina Bawi
fields. Detailed term sheets for the upstream
and midstream elements of the KRI gas
project were signed in early H2 2015,
replacing the original documentation
announced in November 2014. The revised
structure delivers complete alignment along
the value chain, from the KRI-Turkey Gas
Sales Agreement through the midstream
to the upstream, and helps the KRG manage
its obligations and de-risks the wider project.
Genel expects to convert these term sheets
into fully termed documents during Q2 2016.
In September 2015, the Company
acquired OMV’s 36% operated stake in
the Bina Bawi field. Genel now has an 80%
operated working interest in Bina Bawi.
The consideration comprised an upfront
payment of $5 million. A contingent
payment of $70 million is payable once
gas production exceeds agreed threshold
volumes from the Miran and Bina Bawi
fields. A further contingent payment of $75
million is payable two years after the date of
the second payment. In consideration of the
KRG agreeing to the transfer of OMV’s stake
in the Bina Bawi field, on completion Genel
offset $25 million against monies owed by
the KRG to Genel in respect of past expenses
incurred on the Miran field.
Upstream
The main elements of the upstream gas
structure are as follows:
• Genel will be sole contractor in both
Miran and Bina Bawi with a 100% interest
in both fields
• The responsibilities of Genel will be drilling
of gas wells, installation of flowlines and
first stage condensate separation at Miran
and Bina Bawi. The Company will also be
responsible for development of the oil
resources at Miran and Bina Bawi
• Genel’s entitlement share of the raw gas,
first stage condensate and oil production
from Miran and Bina Bawi will be dictated
by the terms of an amended upstream PSC
Gross life of field capex for the upstream
gas development is estimated at $2.9 billion,
with $1 billion of this expected to be incurred
before the onset of gas and first stage
condensate production. Gross life of
field capex for the development of the
oil resources at Miran and Bina Bawi is
estimated at $400 million, with $60 million
of this expected to be incurred before first
oil. This represents a combined oil and gas
unit life of field development cost of less
than $2 per barrel of oil equivalent (’boe’).
Upstream opex remains estimated at
less than $1/boe. Bids for the upstream
development plan have been received,
are being evaluated, and the contract is
expected to be awarded in April.
Assuming satisfactory completion of the
pre-FEED studies, the project will then
progress to a full FEED study in H2 2016.
Expression of Interest letters have been
sent to eligible engineering, procurement
and construction (EPC) contractors, with
the $2.5 billion midstream cost and 30-36
month construction window verified by
EPC contractor responses. The Company
also intends to award the contract for the
Environmental & Social Impact Assessment
in Q2 2016.
Award of the EPC tender and final
investment decision on the KRI gas project
would follow successful delivery of the steps
outlined above.
Development of the Miran and Bina Bawi
oil resources is scheduled to commence
in H1 2017, although sanctioning of
this development activity is subject
to continued export payments for oil
production, prevailing oil prices and
the success of any farm-down process.
During 2015, the Summail field on the Dohuk
licence (Genel 40% working interest) ceased
production following significant declines
on the back of reservoir underperformance.
The Summail facilities were subsequently
decommissioned and the Company is in the
process of relinquishing its interest in the
Dohuk licence.
In order to achieve the appropriate balance
of risk and reward, as well as help fund the
Miran and Bina Bawi upstream development,
the Company intends to farm-down part of
its existing equity interests in both fields.
Midstream
For the midstream gas processing plant,
a company (’MidstreamCo’) was created
during 2015 and will be contracted by the
KRG on a build, own, operate and transfer
basis for the treatment facilities. Genel is
working with the KRG on the midstream
development and is currently leading the
engineering design process.
Genel is also leading efforts to secure
an equity consortium and debt financing.
During 2015, Genel mandated ING Bank
as financial advisor on the midstream
debt financing. Genel has also commenced
discussions with potential midstream
equity partners.
For the midstream, capex for two separate
facilities, totalling 14 billion cubic metres per
annum (‘bcma’) of raw gas (10 bcma sales
gas) processing capacity at Miran and Bina
Bawi, is estimated at c.$2.5 billion gross.
In December 2015, the Company initiated
the pre-Front End Engineering Design
(FEED) and technical consultancy study
package tender for both the Miran and Bina
Bawi gas treatment and processing facilities.
Genel expects to award the pre-FEED
contact in April 2016. The pre-FEED is
expected to complete by end H1 2016 and
will focus on site selection and technical
design for the gas processing facilities at
Miran and Bina Bawi. It will also result in
a basic procurement matrix which will
facilitate initial discussions with export
credit agencies as part of the project
financing solution.
21
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com OPERATING REVIEW - EXPLORATION AND APPRAISAL
Creating value
with the drill bit
Genel continues to prioritise near-term spend on our KRI production
and development assets, while our refocused exploration strategy will
target lower cost onshore opportunities. In 2016, the focus will be on
the upside potential in the existing KRI portfolio, where the Company
will participate in two exploration wells on Chia Surkh and Peshkabir.
2015 EXPLORATION REVIEW
A combination of the unsuccessful 2014
exploration programme and falling oil prices
led to a decision in early 2015 to prioritise
investment on the Company’s producing and
development assets. As a result, there was a
significant reduction in exploration activity
during the year, with only one well drilled
across the portfolio.
Exploration for new accumulations of oil and
gas remains a key element of Genel’s
strategy, as it has the potential to deliver
resource to underpin future growth. In 2016,
the focus will be on the upside potential in the
existing KRI portfolio, where the Company
will participate in exploratory appraisal wells
on the Chia Surkh and Peshkabir structures.
The Company will also continue to screen
opportunities to acquire prospective acreage
in its core areas, albeit with a focus on
minimising upfront capital commitments.
KRI
In October 2015, Genel disposed of a
20% interest in the Chia Surkh Production
Sharing Contract to its partner Petoil,
thereby reducing its interest to 40%.
As consideration for the sale of the 20%
interest, Petoil will carry Genel’s share of
the costs associated with the Chia Surkh-12
(‘CS-12’) appraisal well. The total cost of the
CS-12 well is estimated at c.$50 million, with
drilling expected to commence in April 2016.
The drilling will help refine the contingent
resource estimate for the Chia Surkh licence,
which is now estimated at 225 million barrels
of oil equivalent.
Under the terms of the disposal, Petoil has
transferred $10 million to Genel in the form
of security which will be released at different
stages of well operations in accordance with
cash calls, well completion and testing. The
operatorship of the Chia Surkh PSC will also
transfer from Genel to Petoil for the duration
of the CS-12 well.
22
Genel Energy plc Annual Report 2015genelenergy.com On the Tawke licence, the Peshkabir-2
exploratory appraisal well is scheduled for
H2 2016. The operator estimates 32 mmbbls
and 225 mmbbls of 2P reserves and
prospective resources respectively for
the Peshkabir structure.
The Company’s 40% working interest in
the Ber Bahr licence is in the process of
relinquishment as part of a portfolio
high-grading exercise.
Africa
In December 2015, Genel announced that
the Aigle-1X exploration well on the CI-508
licence offshore Côte d’Ivoire (Genel 24%
working interest) had been plugged and
abandoned after failing to encounter
hydrocarbons. The completion of this well
concluded Genel’s committed Côte d’Ivoire
drilling programme.
On the Sidi Moussa licence (Genel 60%
working interest) offshore Morocco, work
has continued to incorporate the results of
the SM-1 well drilled in Q4 2014. A farm-out
process has commenced as part of the
Company’s ongoing portfolio management
activities, with encouraging levels of
interest. Genel will consider its options
regarding future activity on the Sidi Moussa
licence once the farm-out process is
concluded. The Company has agreed with
the Moroccan authorities that commitments
associated with the Mir Left licence be
transferred to Sidi Moussa, with Genel
subsequently withdrawing from Mir Left.
The Company is also withdrawing from the
Juby Maritime licence.
Onshore Somaliland the acquisition of
2D seismic data on the Odewayne (Genel
50%, operator) and SL-10B/13 (Genel 75%,
operator) licences is proposed for 2016. The
results of a surface seep study completed
early in 2015 confirmed the outstanding
potential offered by this huge acreage
position (41,000 km2). Genel continues to
support the government’s efforts to provide
the appropriate level of security in order to
conduct future operations. Genel continues
to seek a strategic partner for its Somaliland
assets, in keeping with its strategy of
balancing risk and reward and reducing
upfront capital commitments.
After a review of licence potential, Genel
has decided to exit its 44% working interest
in the Adigala block onshore Ethiopia.
Future exploration activity
KRI
Chia Surkh
On the Chia Surkh licence (Genel 40% working interest) drilling
will help refine the contingent resource estimate, which is
currently estimated at 225 million barrels of oil equivalent.
The costs of the CS-12 well, which is expected to commence in
April 2016, will be carried by our partner in the licence, Petoil.
Peshkabir
The Jurassic aged Peshkabir discovery is located on the Tawke
licence, with the operator estimating 2P reserves of 32 mmbbls
and contingent resources of 225 mmbbls. The Peshkabir-2 well
will appraise the Jurassic discovery and explore the Cretaceous
horizon, and is scheduled for H2 2016. If successful, the discovery
could be quickly tied in to existing infrastructure.
AFRICA
Onshore Somaliland
Onshore Somaliland is a relatively unexplored region, with
few exploration wells drilled. The total size of the blocks is
approximately equivalent to the entire Kurdistan Region of Iraq.
The acquisition of 2D seismic data on the Odewayne (Genel
50%, operator) and SL-10B/13 (Genel 75%, operator) licences is
proposed for 2016. Genel continues to support the government’s
efforts to provide the appropriate level of security in order to
conduct future operations.
23
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com FINANCIAL REVIEW
Maintaining a
strong balance sheet
Results summary
Revenue ($million)
EBITDAX1
2015
343.9
279.4
2014
519.7
410.6
Loss before tax ($million)
(1,160.6)
(312.8)
Cash flow from operating activities ($million)
Capital expenditure ($million)
Free cash flow2 ($million)
Cash ($million)
Net assets ($million)
EPS (cents)
71.2
157.2
(179.2)
455.3
134.8
676.9
(560.9)
489.1
2,574.8
3,733.5
(417.30)
(112.97)
1.
2.
EBITDAX is profit before interest, tax, depreciation, amortisation, impairment and exploration expense
Free cash flow is cash flow from operating activities less capital expenditure and associated working capital movements
$344m
Revenue
$455m
Cash
$157m
Capex
24
Genel Energy plc Annual Report 2015
genelenergy.com
“We ended the year with $455 million of
cash, providing us with a robust liquidity
position relative to our cash expenses
from which to weather a prolonged
downturn in the oil price.”
Ben Monaghan
Chief Financial Officer
Results for the period
For the year ended 31 December 2105, the
Company reported revenue of $343.9
million (2014: $519.7 million), a loss before
tax of $1,160.6 million (2014: $312.8 million
loss) and a loss per share of 417.30 cents
(2014: 112.97 cents loss). Free cash flow for
the period was an outflow of $179.2 million
(2014: outflow of $560.9 million).
Revenue
Revenue of $343.9 million (2014: $519.7
million) and EBITDAX of $279.4 million
(2014: $410.6 million) decreased from the
comparable period as a result of lower oil
price despite higher production volumes.
Operating costs
Cost of sales of $208.3 million (2014: $203.1
million) is comprised of production costs of
$36.3 million, reduced from $62.1 million
in 2014 and depreciation charges of $172.0
million (2014: $141.0 million) which increased
broadly in line with production levels.
Impairment of property, plant and equipment
included $1,038.0 million relating to Taq Taq
(2014: $80.9 million relating to Dohuk).
Exploration costs written-off of $173.0
million (2014: $476.8 million) represent the
write-off of expenditure principally relating
to exploration activity in KRI, Morocco,
Côte d’Ivoire and Ethiopia.
General and administrative costs amounted
to $28.7 million (2014: $47.0 million) for
the period.
Finance expense
Finance expense of $56.5 million (2014:
$24.7 million) represents interest on the
$730 million bonds, together with $7.7 million
of discount unwind (2014: $1.8 million).
Taxation
In the KRI, all corporation tax due has been
paid on behalf of the Company by the KRG
from the KRG’s own share of revenues and
there is no tax payment required or expected
to be made. Tax presented in the income
statement relates to taxation of the Turkish
and UK service companies.
Dividend
No dividend (2014: nil) will be paid for the
year ended 31 December 2015.
Capital expenditure
Capital expenditure in the year amounted
to $157.2 million (2014: $676.9 million).
Development spend of $109.2 million
(2014: $193.4 million) was incurred on
the producing assets in KRI with spend
on exploration assets amounting to
$48.0 million (2014: $480.8 million).
Cash flow
Net cash flow from operations was $71.2
million (2014: $134.8 million), which was
impacted by an increase of $189.0 million
in amounts due from the KRG. This together
with capital expenditure of $250.4 million
(2014: $676.9 million), which included
significant working capital movements
of net $93.2m relating principally to the
payment of brought forward accruals
relating to 2014 activity, resulted in a free
cash outflow of $179.2 million (2014: $560.9
million). Net cash spend on acquisitions was
$3.9 million (2014: $76.8 million). Financing
raised from the issue of bonds raised a net
$196.2 million with interest costs on the
bond of $46.1 million and foreign exchange
loss of $0.8 million on cash. Overall there
was a net cash outflow of $33 million
(2014: $210.6 million outflow) in the year.
Cash
At 31 December 2015, the Comany had
a cash balance of $455.3 million (2014:
$489.1 million) and net debt of $238.8
million (2014: $2.3 million).
Acquisitions
The Company spent $5.0 million (2014:
$76.8 million) on the acquisition of the
additional 36% operated stake in the Bina
Bawi field, thereby increasing the Company’s
interest to 80%. The consideration is
comprised of: an upfront payment of net
$3.9 million; a contingent payment of
$70m payable once gas production exceeds
certain threshold volumes from the Miran
and Bina Bawi fields; and a second payment
of $75m payable two years after the date of
the contingent payment.
Net assets
Net assets at 31 December 2015 were
$2,574.8 million (2014: $3,733.5 million)
and consist primarily of oil and gas assets
of $926.8 million (2014: $2,010.7 million),
exploration and evaluation assets of $1,671.0
million (2014: $1,676.6 million) and net debt
of $238.8 million (2014: $2.3 million net debt).
Liquidity/counterparty risk management
The Company monitors its cash position,
cash forecasts and liquidity on a regular
basis. The Company takes a conservative
approach to cash management, with surplus
cash held in government gilts or treasury
bills or on time deposits with a number of
major financial institutions. Suitability of
banks is assessed using a combination of
sovereign risk, credit default swap pricing
and credit rating.
Going concern
The directors have assessed that the
cash balance held provides the Company
with adequate headroom over forecast
operational and potential acquisition
expenditure for the 12 months following
the signing of the annual report for the
period ended 31 December 2015 for the
Group to be considered a going concern.
Accounting policies
UK listed companies are required to comply
with the European regulation to report
consolidated statements that conform to
International Financial Reporting Standards
(IFRS) as adopted by the European Union.
Principal accounting policies adopted by the
Group and applicable for the period ended
31 December 2015 can be found in the 2015
annual report on page 86.
Ben Monaghan
Chief Financial Officer
25
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com CORPORATE RESPONSIBILITY
A partner for local
communities
Powering economic growth and working in partnership with local
people in order to support and sustain the communities in which
we operate is fundamental to our ongoing success.
26
Genel Energy plc Annual Report 2015
genelenergy.com
1.5m
spent on projects in the KRI
100+
community
investments projects
“We are proud to have worked on over
100 projects in the region in recent years,
all of which were carefully chosen to
provide lasting benefits.”
Murat Özgül
Chief Executive Officer
HEALTH
AND SAFETY
COMMUNITY
DEVELOPMENT
KEY
FOCUS
AREAS
PEOPLE
ENVIRONMENT
As well as the direct cost of funding the
Peshmerga, the conflict in Iraq and Syria has
forced a multitude of people away from their
homes and into the sanctuary of the KRI.
Having worked with the KRG for well over a
decade, we at Genel Energy are keen to help
support the region at this difficult time.
The focus of our efforts in 2015 centred on
the Syrian refugees and internally displaced
persons (IDPs) seeking refuge in the KRI. To
put the crisis into perspective, the influx of
people has caused a 30% increase in the total
population of the Kurdistan Region of Iraq.
The provision of emergency support has
helped to tackle pressing short-term needs,
but we remain committed to our operations
making a tangible long-term difference to
those communities in which we operate.
This remains a key focus of the business,
and our ongoing work in this area central to
what we see as the success of Genel Energy.
We are proud to have worked on over 100
projects in the region in recent years, all
of which were carefully chosen to provide
lasting benefits.
27
Supporting the Kurdistan Region of Iraq
The Kurdistan Region of Iraq continued
to face significant challenges in 2015.
The ongoing fight against ISIS remains
a financial drain on the Kurdistan Region
of Iraq at a time when the sustained low
oil price is already placing a major burden
on the economy.
Left : Koya refugee camp funded
through a donation from TTOPCO
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com
CORPORATE RESPONSIBILITY
continued
We are committed
to conducting all
of our operations
in a manner that protects
Genel’s employees and
contractors from injuries
and illnesses, as well as
having regard to the
health and safety of the
general public and the
protection of the
environment.
28
HEALTH AND SAFETY
We firmly believe that a safe workplace
is fundamental to protect our people and
our business. Our primary consideration
is always the safety and wellbeing of our
employees, something that we never
compromise. Everyone at Genel has to follow
our HSE management system requirements,
which we appraise and review regularly.
Genel’s HSE management system defines
our approach to managing health, safety
and environment matters across all of
its facilities and activities. The system
provides compliance requirements as
well as practical guidance and procedures
for all staff conducting operations or
managing sites to achieve our health,
safety and environmental objectives
as an integrated part of our overall goals.
Highlights
During 2015 Genel’s HSE performance
continued to improve. In particular, we:
• Reduced the number of lost time incidents
to zero, compared to one in 2014
• Further developed and updated our
HSE strategy and plans
• Improved TTOPCO’s HSE and process
safety performance
• Continued to roll out procedures and
tools for enhanced HSE management
• Continued to report our greenhouse
gas emissions
Leadership
In 2015 we continued to enhance operational
leadership by conducting a number of
learning sessions to further embed HSE
management systems and processes to
assure a focused and integrated approach
to risk management.
Process safety
We commissioned gas dispersion and
consequence modelling studies in order
ensure that process safety was included
in the early stages of a project life cycle.
This was done to ensure that the risks are
understood and necessary risk reduction
measures implemented in a timely fashion.
Working with contractors
Working safely with contractors continues
to be a priority for Genel. We continue to
focus on rigorous and consistent on-site
implementation of our HSE policies
and procedures. During 2015 further
improvements were made to our on-site
leadership and supervision thereby ensuring
more effective management of contractors.
Measuring our performance
Lost time incident frequency (LTIF) measures
the number of lost time incidents per million
work hours and is the headline indicator of
the success of our safety programmes. In
2015 we achieved zero LTIF versus a 2014
performance of 0.40. The combined Genel/
TTOPCO 2015 LTIF was 0.65 versus a 2014
performance of 1.01. These improvements
reflect the progress achieved in our safety
culture and performance.
Genel Energy plc Annual Report 2015genelenergy.com Aid for refugees and internally
displaced persons
In 2015, the refugee crisis was putting a
significant economic burden on the KRG,
and this formed the focus of our
community efforts.
Liaising with local authorities and NGOs,
Genel Energy provided emergency aid to
IDPs finding shelter in Erbil, Suleimaniah
and Duhok governorates, as we focused
on those areas in close proximity to our
operations and those located in places
less frequently visited by NGOs.
In the Suleimaniah governorate, Genel
purchased and delivered essential items,
including beds, blankets, milk, and
fans, to local IDP sites and aid centres,
targeting the needs of children,
women and the elderly.
Our key contribution in the year was
the opening of a refugee camp near
Koya in February. The camp, funded
through a donation from TTPOCO,
shelters over fifty families, providing
them with permanent housing,
electricity, and sanitation.
In the Koya and Taq Taq districts food
packs, women’s items and children’s toys
were distributed to 668 IDP families. Out
of the 3,350 IDPs in those two districts,
259 were children under the age of 5.
In the Erbil governorate, Genel Energy
conducted a significant aid campaign,
helping displaced families sheltering in
school buildings, churches and the camp
located within Erbil’s Ainkawa quarter. Aid
was distributed to families belonging to
religious minorities, including Christians,
Yezidis, Shabaks and Kakayees. A total
of 200 families were given food packs,
bedding items, children’s shoes and
baby necessities.
Our work with NGOs continued in 2015.
With Save the Children, we helped to fund
the provision of child resilience support
and purchase life-saving hygiene and
household equipment in three refugee
camps, while our partnership with the
International Rescue Committee saw 435
refugee households supported with the
provision of essential supplies, with direct
financial support then given to a further
2000 families, which in turn boosts the
local economy.
This partnership, which followed a
fundraising initiative in which Genel
Energy matched all donations made by
employees and friends, helps reduce the
burden on the local community and
supports the integration of IDP families.
PEOPLE
Our talented, experienced and motivated
staff are key to the success of our Company,
and we are committed to developing our
employees, promoting diversity, fairness
and respect in the workplace and
providing recognition based on success
and achievement.
Highlights
At 31 December 2015, Genel employed
145 people. Of these 145 employees, 74
are based in Ankara, 25 in London, 20 in
the Kurdistan Region of Iraq and 26 in our
African operations. TTOPCO employed
533 people at the end of 2015.
Unfortunately, during the year we have had
to re-align the business to reflect the current
operating environment. Steps have been
taken to reduce general and administrative
costs, and the business has re-focused on
our producing assets, in turn scaling back
our African exploration programme to
target low-cost, onshore opportunities.
This has resulted in a large reduction in
our workforce across all regions which,
while a difficult decision, was the right
one to take for the future of the business.
Training and skills
Continually investing in the technical and
professional development of our people
gives them the tools they need to drive
our business forward, operate safely
and efficiently and help Genel achieve
our strategic and operational goals.
Providing staff development opportunities
is a priority, and we use an external
provider to give employees access
to a wide range of professional skills
training, including geoscience, technical
and engineering courses.
Conduct
Adherence to the highest standards of
corporate governance is a key pillar of
our strategy, and our commitment to
acting responsibly, ethically and in a
safe manner across our entire business
is embraced by all of our operations.
During 2015 our employees undertook
face-to-face training on our Code of
Conduct. We are proud of our staff and the
way that our extremely high standards gain
the respect and trust of the governments
and communities that host our operations,
underpinning the sustainability of our
current and future business.
Pay and benefits
A transparent and competitive reward
framework allows us to attract and retain a
highly skilled employee base. Performance-
related-pay is available to all our staff, in line
with a well-structured and clearly defined
performance management process.
29
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com CORPORATE RESPONSIBILITY
continued
It is essential for us to uphold our
commitment to hiring local people in the
countries where we operate and continue
to be a responsible and attractive employer.
To do this, we participate in salary and
benefits benchmarking surveys within
the various regions to ensure we remain
externally competitive and effectively
retain and reward all of our employees.
Diversity
Our commitment to employing a diverse and
balanced workforce enables us to build an
effective and talented workforce at all levels
of the organisation, including the Board.
The value we place on equal opportunities
and diversity of ideas, skills, knowledge,
experience, culture, ethnicity and gender
is evident in our daily operations as well as
formalised in our policies and procedures.
Our recruitment policy is to appoint
individuals based solely on their skills,
experience and suitability to the role.
32% (46 employees) of our workforce
are women. Of those, 9% (four employees)
hold senior management positions within
our organisation.
ENVIRONMENT
Our operations are managed in accordance
with our policy of minimising environmental
impacts and potential adverse effects. This
includes a focus on effective design, efficient
operation, and responsible energy use.
Greenhouse gas emissions
We are reporting our 2015 greenhouse gas
(GHG) emissions in accordance with the
requirements of the UK’s Companies Act
2006 (Strategic Report and Directors’
Reports) Regulations 2013. The regulations
require companies to report on their GHG
emissions from activities for which they are
responsible. To determine responsibility for
our activities we applied the ‘operational
control approach’ to setting organisational
boundaries as defined by the WRI/WBCSD
GHG Protocol Corporate Accounting and
Reporting Standard (the GHG Protocol).
The reported data has been sourced from
operations where we have identified Genel
as having operational control of the facility
or asset during 2015.
The regulations require the reporting of
emissions associated with: 1) the combustion
of fuel, e.g. in stationary equipment and
vehicles; and 2) the operation of facilities,
e.g. through the purchase of electricity,
execution of physical or chemical processes,
and unintentional releases through leaks.
These two categories are closely aligned
with the scope 1 and scope 2 emissions
categories as defined by the GHG Protocol.
The majority of energy and fuel data
collected has been based on actual,
measured consumption. 0.26% of emissions
(4 tonnes of CO
2 equivalent (tCO2e))
30
has been extrapolated from actual
consumption figures. Emissions are
calculated using appropriate conversion
factors sourced from: the Defra/DECC UK
Government Conversion Factors for
Company Reporting 2015 and the IEA
CO2 Emissions from Fuel Combustion
Highlights 2013 Edition.
According to the methodologies outlined
above, our total reportable scope 1 emissions
in 2015 were 1,185 tCO2e, which included the
combustion of diesel and LPG. Our total
reportable scope 2 emissions were 420
tCO2e, attributable to purchased electricity
at our offices and field operations. Our total
reportable scope 1 and 2 emissions were
therefore 1,605 tCO2e, normalised to 9.85
tCO2e per employee (based on the 2015
monthly average number of employees).
The GHG emissions from facilities we operate
were 1,605 tCO2e in 2015, which is lower
than those reported (36,284 tonnes tCO2e)
in 2014. The main reasons for this significant
decrease were the completion and
abandonment of exploration wells in
Africa and the exploration well at Miran
in Kurdistan Region of Iraq.
Environmental impact assessments
During 2015 we commissioned
environmental impact assessment studies
during the planning phase related to
significant activities or the management of
projects, such as the drilling testing of wells
and the design of early production facilities.
The EIA process is applied prior to major
decisions and commitments being made
and is designed to identify, predict and
evaluate the environmental effects of
proposed actions and projects, including
the identification of measures to reduce
or avoid these effects where possible.
This systematic process helps to ensure
compliance with applicable legislation and
is an effective way to maintain alignment
with industry best practice.
COMMUNITY DEVELOPMENT
We partner with and invest in communities
close to our operations to achieve mutual
long-term benefits, with a focus on four
key areas.
Sustainable Economic Development
Our infrastructure development, capacity
building payments and employee and
contractor wages have a direct and material
impact on development in the countries
where we operate.
Our most significant contribution to
economic growth so far has been in the KRI,
where we continue to play a key part in the
development of the oil and gas sector and
remain the biggest oil producer and largest
holder of reserves and resources.
Lasting economic benefit
Our business operations in the KRI create
an economic benefit not only for Genel but
also for the wider region, its people and
government. Oil production from our fields
is of vital importance to the KRI, helping to
provide the region with the funds to fuel its
economy. As the gas from Miran and Bina
Bawi begins flowing to Turkey, there is the
clear potential for transformational
economic growth.
At Genel we do not wish the benefit to the
KRG to be purely the result of direct revenues
from oil and gas, and strive to ensure that our
operations have a long-term benefit to the
community. Genel and TTOPCO employed
over 550 people in the KRI, 75% of whom
are from the local area, with many others
employed by contractors who work for us.
We also continue to utilise local companies
and suppliers wherever possible.
In 2015, the refugee crisis was putting a
significant economic burden on the KRG,
and this formed the focus of our
community efforts.
Meaningful Community Relations
The development of positive and enduring
relationships with the people and communities
in which we operate is crucial to our success.
Our work in the community is based on
working in partnership to identify and
meet community needs. Proactive and
constructive engagement with people
living and working near our operations
is maintained in order to develop an
understanding of, and create a spirit of
collaboration with, our work and the way
it is developing their area and region.
Aligning with local development goals
The people best placed to identify local
community needs are local community
members. Ongoing communication helps us
to identify appropriate projects to support
them and their development goals. With this
in mind 2015 saw the development of Five
Year Plans for communities surrounding
the Miran and Taq Taq fields.
The process was done through an open
dialogue with local people, authorities
and the KRG, listening to feedback and
connecting with our operational teams to
find ways to improve our interaction with
communities and plan for the future.
Approximately 20 villages were visited,
demographic data collected, and requests
prioritised. Following discussion with the
Ministry of Natural Resources the ‘Miran Five
Year Plan’ and ‘Taq Taq Five Year Plan’ were
successfully completed. Genel Energy has
developed a clear picture and overview, which
will help determine service projects that can
be implemented over the next five years.
Genel Energy plc Annual Report 2015genelenergy.com In 2016 the focus at Taq Taq will be on the
construction of facilities to provide clean
water to five local villages. At Miran, the
focus is set to be on the provision of various
training courses such as literacy, sewing,
learning first aid and awareness-raising
regarding health issues. A six classroom
building is also set to be constructed.
Garbage collection projects at local
villages will continue around both fields.
Significant projects in 2015 carried out in
the Taq Taq region included the maintenance
of the Darbasar village road and electricity
supply to Elenjakh, while rubbish collection
was ongoing.
At the Miran site, as well as a rubbish
collection programme for local villages,
over 3000 plants were planted to help
enrich the environment surrounding the site.
Land acquisition
Genel continues to strictly adhere to the
government process and fully support
local landowners in receiving land and crop
compensation payments. A roadmap for
land acquisition and crop compensation
has been designed by our CSR team based
on MNR guidelines. In 2015, Genel’s CSR
team in coordination with the administration
department, helped landowners to receive
appropriate land and crop compensation
in a timely manner.
Improved Community Health
We support local health services and
contribute to emergency refugee aid projects
to help both local and regional communities.
Some of our operations are in regions that,
due to their remoteness and development
challenges, can lack consistent access to
medical services and infrastructure. We
have undertaken a number of projects that
directly contribute to the development of
the Kurdistan Region of Iraq’s health sector
and have a direct positive impact on both
local and regional communities.
The provision of clean drinking water is
a key consideration in areas around our
more remote sites. Three villages in close
proximity to the Chia Surkh operations
- Kani Pamu, Parwezkhan and Sarqizil -
were provided with drinking water in 2015.
As well as ongoing projects to improve
living conditions in local communities,
Genel has also been providing support
to the Hiwa Cancer Centre, located in
Suleimaniah. The Centre is the region’s
leading cancer specialist, and the hospital
provides treatment to sufferers across the
entire KRI, and Iraq as a whole. A total of
$120,000 was provided to the Centre
in 2015.
In the villages near the Taq Taq field, our
medical team has continued regular visits,
twice a month, and medical services have
been provided to more than 10 villages
throughout the year. The medical team
also started to visit the newly built camp
for refugees at Koya and launched the
provision of immediate medical support
to the families on a weekly basis.
Local and regional capacity building
We are helping to unlock the potential
of our host countries’ natural resources,
developing infrastructure and supporting
economic growth. We also have a
responsibility to help the people who
live near our sites develop the skills to
thrive and play a central part in this
exciting process.
Employing locally
The greatest demand we have from local,
and the most direct way we can improve the
lives of local people, is for jobs. By employing
and buying locally whenever possible, and
requiring that our contractors do the same,
we can make an immediate difference to
local families.
Our commitment to this was formalised
in our policies and procedures in 2014,
including a specific local content procedure
for the KRI.
For further details about
our CSR activities, including an
educational poster developed
for the KRI, please visit the
Genel Energy website.
Education as a priority
A focus on education remains one of
our priorities, and we strive to help
each and every child be given a proper
education through creating more
effective learning environments and
emphasising the significance of education
in local communities.
We continue to run educational and training
programmes, teaching vocational skills
that are mutually beneficial for the area
and our company, as it helps grow a local,
skilled workforce.
A comprehensive graduate recruitment
plan has also been developed and approved
by Genel, and will be executed as operations
commence in the Chia Surkh region.
Donations of equipment and materials
to the schools in the Miran area helped
to raise the educational environment.
It is also of vital importance to the lives
of children in the refugee camps that their
educational needs are met. Students at
the Arbat Camp were provided with office
equipment, desks, chairs, whiteboards and
other necessary schooling items to allow
them to continue with their education even
in trying circumstances.
31
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com RISK MANAGEMENT
The changing environment
reinforces the need for
careful monitoring across
all operations
Maintaining the highest level of corporate governance is a strategic
priority as explained on page 2, with the Board’s oversight of the risk
management systems structured to:
The Board is responsible for Genel’s risk management, which it does
primarily by:
• accurately identify and assess the principal risks to the business
• mitigate controllable risks to an acceptable level; and
• where possible, build resilience to accepted non-controllable risks
• Setting the overall risk appetite of the Company
• Assessing what level of risk is acceptable to bear
• Providing oversight of appropriate risk management systems
and internal control processes
The risk management systems and internal control processes
are designed to support the Board in identifying key risks and
associated judgements, enabling them to make effective,
timely and appropriate decisions.
The Board and its Committees
The Board is supported by its Committees, which apply their expertise to the assessment and management of certain risks.
The Committees report findings and/or recommendations to the Board.
The allocation of risks to the appropriate Committees is summarised in the table below:
Committee
Board
Audit Committee
Remuneration Committee
Nomination Committee
HSSE Committee
Responsibility
• Overall responsibility for risk oversight
• Overall responsibility for all principal risks
• Risk management systems and internal control
• Financial controls
• Compensation and reward
• Board composition
• Health and safety risks
• Security risks
• Environmental risks
32
Genel Energy plc Annual Report 2015genelenergy.com RESPONSIBILITIES
Board
• Identifies and assesses the potential impact,
likelihood and sensitivity of the principal risks
of the business
• Identifies new risks or changes in the nature,
probability or impact of existing risks
• Makes effective, appropriate and timely decisions
on how principal risks are managed or accepted
• Ensures that decisions taken are appropriately
executed throughout the business through
appropriate delegation of authorities and policies
• Approves policies on key risks and provides direction
on risk management and appropriate risk mitigation
• Monitors the effectiveness of controls in place
through reporting, assurance and detailed reviews
in order to assess where action is required
• Identifies where controls are not appropriate
or not operating effectively
Executive Committee
• Leads the identification, understanding and
assessment of risks to the business for review
and discussion by the Board
• Assigns risks to relevant Executive Committee
members as risk owners
Risk owners
• Put in place processes and procedures that execute
the policy decision taken by the Board for the
management or mitigation of each principal risk
• Assess and report risk and monitor the design and
operating effectiveness of any mitigating controls
and procedures
• Provide oversight of the daily operations of the key
areas of the business
Strategy
Risk assessment and review
identifies risks
Board of
Directors
Board sets policies on controls
to mitigate or manage risks
Executive
Committee
Risk register documents risks and
allocates each risk to a risk owner
Reporting and
assurance on
effectiveness
of controls
Risk owner
reports
assessment of
risks to the
Board
Risk owner designs, operates,
monitors and reports on controls
The principal risks and uncertainties set out on pages 34 to 39 represent the Board’s assessment of the most significant risks that may
seriously affect the performance, future prospects or reputation of the Company and may threaten its business model, future performance,
solvency or liquidity.
They do not comprise all the risks and uncertainties faced by the Company – risks that are generally part of normal activity as an E&P
company are identified, assessed, managed and monitored at the functional level with close oversight and reporting to the Board by
a member of the Executive Committee.
33
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com PRINCIPAL RISKS AND UNCERTAINTIES
RISK
DESCRIPTION AND IMPACT
MITIGATION AND MANAGEMENT
ASSESSMENT
CHANGE
Audit Committee
Development
and recovery
of reserves
and resources
Estimates of commercial reserves and contingent resources can change with time. Adjustments to estimates can arise from
a number of circumstances, including but not limited to:
- the inherent uncertainty in any oil and gas asset, which can impact well and reservoir performance
and recoverable volumes;
- sub-optimal development and use of an asset either as a result of subsurface or reservoir uncertainty
or plans made with inadequate data; and
- poor reservoir performance and realisation of value as a result of failure to consider the most suitable
development option for an asset.
A change in estimates may impact field production volumes, capital expenditure, operating costs and the life of field,
all of which contribute to the valuation of the relevant asset.
The Company’s generation of returns depends on its ability to exploit, develop and commercialise present assets successfully,
as well as to select and acquire suitable assets for exploitation, development and commercialisation in the future.
The performance of its producing assets and commercialisation of its exploration and appraisal assets are fundamental to the
business going forward. If the Company is unable to develop its reserves and resources there may be material and adverse
effects on its business, financial condition, the results of operations and its prospects.
The Company has an established subsurface team responsible
For much of 2015, the Company was unable to invest in its
for defining workflows and modelling reservoirs and processes
producing assets because it was not being paid for the export
to optimise the development and use of the Company’s assets.
sales made from those assets. At the same time the production
Unchanged
Allocation of spend for development of assets is assessed by
the Executive Director and the Board.
at Taq Taq assets was below expectation.
Following the decline in production at Taq Taq, management
commenced an internal study and commissioned a Competent
Persons Report from McDaniel.
The result of the internal study was a reduction in assessed
gross recoverable proven and probable reserves estimates from
683 mmbls (as of June 2011) to 356 mmbbls (as of December
2015), of which 172 mmbbls remains - this has been confirmed
by the competent person. Further explanation is provided on
page 14.
At Tawke, the annual reserves review by the Operator in March
2015 confirmed the gross recoverable proven and probable
reserves estimates at 603 mmbls at 31 December 2014. The
results of the Operator’s review for the year ended 31 December
2015 are expected in March 2016.
The Completion of the Operator’s review at Tawke, together
with the Company’s own detailed analysis of Taq Taq, will provide
management with an improved understanding of its assets.
This understanding will be enhanced by further work planned
for 2016, and should assist in assessing the most appropriate
development plans for achieving the maximum realisation of
value from both assets.
The major gas assets at Miran and Bina Bawi require significant
spend in order to deliver value to the Company and its
shareholders.
pages 16 to 23.
Further explanation is provided in the Operating Review on
Board
Major capital
projects
The Company is reliant on the completion of major projects to achieve its planned growth.
It is necessary to ensure that there is appropriate oversight of projects, whether outsourced to third parties or managed
internally, to minimise the risk of projects being delayed or completed above their budgeted cost. If projects are not executed
on time and to budget, the planned growth and profitability of the Company will be negatively impacted.
Senior management is involved in the approval, initiation,
The development of the Miran and Bina Bawi gas assets is
planning, monitoring, testing and completion of major projects and
a major focus for the business over the next few years and
Increased
the oversight of the performance of contractors, with a specific
is a significant component of its planned growth.
owner being accountable for each project of significance.
Further explanation is provided in the Chief Executive’s
Project plans, updates, possible risks and outcomes of reviews
statement on page 12 and the Operating review on pages
are reported to the Board and appropriate actions are agreed.
20 and 21.
M&A activity
In accordance with Company strategy, management review selective M&A opportunities in the pursuit of value
accretive transactions.
An experienced Board oversees and signs off on all M&A decisions.
The pursuit of selective, value accretive M&A opportunities
Unchanged
is part of our Strategy, outlined on page 2.
Execution of a transaction could adversely impact the Company’s liquidity, balance sheet, valuation, asset quality,
and equity story, among other factors.
The Company has an established process to ensure that an
appropriate level of due diligence (including sub-surface,
engineering, financial, legal, tax and anti-bribery and corruption)
is performed in order to appropriately assess each transaction
that is considered.
KRI natural
resources
industry
The Company is dependent on its strong relationship with the KRG in order to realise the value of its principal oil and gas assets:
Taq Taq, Tawke, Miran and Bina Bawi.
The relationship with the KRG is significant in a number of areas, including but not limited to: availability of and access
to infrastructure and services in the KRI (including export pipelines, utilities, oilfield police force and third-party services);
compliance and observance of the terms of the PSC agreements, including mechanism for calculation of entitlement and
payment of monies owed; future development plans and operation of licences; and engagement with local communities.
Deterioration in the relationship with the KRG or a change in policy by the KRG may result in a significant loss of value for the
Company either through perceived risk of operating in the region or through reduced ability to realise the value of the assets.
Internal disputes amongst the parties that form the Kurdistan Regional Government, and pressure being placed on the Ministry
of Natural Resources, may lead to a change in the composition of the government or the removal of ministers that may have
a detrimental effect on Genel’s relationships.
The Company has been operating in the region since 2002 and
The KRI natural resources industry has made significant
hence has a long history of working effectively with the KRG and
operational progress in 2015 in both establishing an independent
Unchanged
contributing to the development of its natural resources industry.
oil export route and increasing production volumes.
The Company maintains regular dialogue with the KRG and
For the Company, 2015 has seen progress made towards
seeks to work collaboratively with the KRG, local communities,
both the normalisation of payments for export sales and the
local suppliers and subcontractors to achieve mutually
development of the Company gas assets. The development
benefical objectives.
of the Company’s gas assets is an important part of the KRG’s
contractual commitment to deliver gas to Turkey.
Further explanation is provided in the Market Overview on
pages 4 and 5.
34
Genel Energy plc Annual Report 2015genelenergy.com RISK
DESCRIPTION AND IMPACT
MITIGATION AND MANAGEMENT
ASSESSMENT
CHANGE
Audit Committee
Development
and recovery
of reserves
and resources
Estimates of commercial reserves and contingent resources can change with time. Adjustments to estimates can arise from
a number of circumstances, including but not limited to:
- the inherent uncertainty in any oil and gas asset, which can impact well and reservoir performance
- sub-optimal development and use of an asset either as a result of subsurface or reservoir uncertainty
- poor reservoir performance and realisation of value as a result of failure to consider the most suitable
and recoverable volumes;
or plans made with inadequate data; and
development option for an asset.
A change in estimates may impact field production volumes, capital expenditure, operating costs and the life of field,
all of which contribute to the valuation of the relevant asset.
The Company’s generation of returns depends on its ability to exploit, develop and commercialise present assets successfully,
as well as to select and acquire suitable assets for exploitation, development and commercialisation in the future.
The performance of its producing assets and commercialisation of its exploration and appraisal assets are fundamental to the
business going forward. If the Company is unable to develop its reserves and resources there may be material and adverse
effects on its business, financial condition, the results of operations and its prospects.
The Company has an established subsurface team responsible
for defining workflows and modelling reservoirs and processes
to optimise the development and use of the Company’s assets.
Allocation of spend for development of assets is assessed by
the Executive Director and the Board.
Unchanged
For much of 2015, the Company was unable to invest in its
producing assets because it was not being paid for the export
sales made from those assets. At the same time the production
at Taq Taq assets was below expectation.
Following the decline in production at Taq Taq, management
commenced an internal study and commissioned a Competent
Persons Report from McDaniel.
The result of the internal study was a reduction in assessed
gross recoverable proven and probable reserves estimates from
683 mmbls (as of June 2011) to 356 mmbbls (as of December
2015), of which 172 mmbbls remains - this has been confirmed
by the competent person. Further explanation is provided on
page 14.
At Tawke, the annual reserves review by the Operator in March
2015 confirmed the gross recoverable proven and probable
reserves estimates at 603 mmbls at 31 December 2014. The
results of the Operator’s review for the year ended 31 December
2015 are expected in March 2016.
The Completion of the Operator’s review at Tawke, together
with the Company’s own detailed analysis of Taq Taq, will provide
management with an improved understanding of its assets.
This understanding will be enhanced by further work planned
for 2016, and should assist in assessing the most appropriate
development plans for achieving the maximum realisation of
value from both assets.
The major gas assets at Miran and Bina Bawi require significant
spend in order to deliver value to the Company and its
shareholders.
Further explanation is provided in the Operating Review on
pages 16 to 23.
Board
Major capital
projects
The Company is reliant on the completion of major projects to achieve its planned growth.
It is necessary to ensure that there is appropriate oversight of projects, whether outsourced to third parties or managed
internally, to minimise the risk of projects being delayed or completed above their budgeted cost. If projects are not executed
on time and to budget, the planned growth and profitability of the Company will be negatively impacted.
M&A activity
accretive transactions.
Execution of a transaction could adversely impact the Company’s liquidity, balance sheet, valuation, asset quality,
and equity story, among other factors.
Senior management is involved in the approval, initiation,
planning, monitoring, testing and completion of major projects and
the oversight of the performance of contractors, with a specific
owner being accountable for each project of significance.
Project plans, updates, possible risks and outcomes of reviews
are reported to the Board and appropriate actions are agreed.
The development of the Miran and Bina Bawi gas assets is
a major focus for the business over the next few years and
is a significant component of its planned growth.
Further explanation is provided in the Chief Executive’s
statement on page 12 and the Operating review on pages
20 and 21.
Increased
In accordance with Company strategy, management review selective M&A opportunities in the pursuit of value
An experienced Board oversees and signs off on all M&A decisions.
The Company has an established process to ensure that an
appropriate level of due diligence (including sub-surface,
engineering, financial, legal, tax and anti-bribery and corruption)
is performed in order to appropriately assess each transaction
that is considered.
The pursuit of selective, value accretive M&A opportunities
is part of our Strategy, outlined on page 2.
Unchanged
KRI natural
resources
industry
The Company is dependent on its strong relationship with the KRG in order to realise the value of its principal oil and gas assets:
Taq Taq, Tawke, Miran and Bina Bawi.
The relationship with the KRG is significant in a number of areas, including but not limited to: availability of and access
to infrastructure and services in the KRI (including export pipelines, utilities, oilfield police force and third-party services);
compliance and observance of the terms of the PSC agreements, including mechanism for calculation of entitlement and
payment of monies owed; future development plans and operation of licences; and engagement with local communities.
Deterioration in the relationship with the KRG or a change in policy by the KRG may result in a significant loss of value for the
Company either through perceived risk of operating in the region or through reduced ability to realise the value of the assets.
Internal disputes amongst the parties that form the Kurdistan Regional Government, and pressure being placed on the Ministry
of Natural Resources, may lead to a change in the composition of the government or the removal of ministers that may have
a detrimental effect on Genel’s relationships.
The Company has been operating in the region since 2002 and
hence has a long history of working effectively with the KRG and
contributing to the development of its natural resources industry.
The KRI natural resources industry has made significant
operational progress in 2015 in both establishing an independent
oil export route and increasing production volumes.
Unchanged
The Company maintains regular dialogue with the KRG and
seeks to work collaboratively with the KRG, local communities,
local suppliers and subcontractors to achieve mutually
benefical objectives.
For the Company, 2015 has seen progress made towards
both the normalisation of payments for export sales and the
development of the Company gas assets. The development
of the Company’s gas assets is an important part of the KRG’s
contractual commitment to deliver gas to Turkey.
Further explanation is provided in the Market Overview on
pages 4 and 5.
35
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com PRINCIPAL RISKS AND UNCERTAINTIES
continued
RISK
Board
Recovery of
amounts owed
for export sales
DESCRIPTION AND IMPACT
MITIGATION AND MANAGEMENT
ASSESSMENT
CHANGE
The Company sells its exported oil to the KRG and therefore is reliant on the KRG for payment. In addition to being paid for
current sales, the Company is owed a significant balance, reported in the balance sheet as $423 million, for sales made in
the past.
The KRG has always been fully committed to paying the Company full entitlement but has been unable to do so for a number
of reasons, including: non-payment of monies to the KRG by the FGI for monies owed for both pre-2014 export sales and budget
allocations; underpayment of budget allocations by the FGI in 2015; severe financial stress on the KRI fiscal regime as a result
of decreased oil price; a significant number of displaced people coming to the region as a result of the conflict with ISIS in Syria
and Iraq; and funding the war against ISIS.
Non-recovery of amounts owed for both past and current sales would have a significant impact on the liquidity and value of the
business and significantly impact its access to capital markets, sources of debt or ability to refinance.
Regional risk
There is a history of political and social instability in Iraq and of disputes between the FGI and the KRG. In 2015, additional
pressure was added to the political and social instability of Iraq by the economic uncertainty caused by the fall in oil price
relative to 2014 and the continued military conflict with ISIS. This has caused significant economic challenges to both the
KRG and the FGI, which both parties are working to overcome.
Deterioration in the economic, political, diplomatic or social circumstances of Iraq and the KRI, or in the security of the KRI
border with Iraq, would represent an increased risk to the operations, revenue, security and development of the Company.
The KRG is dependent on its continuing good relationship with Turkey to maintain its export route for its oil production and also
intends to market its gas to Turkey in the future. Both these arrangements are underpinned by the energy deal between Turkey
and the KRG that was signed in 2013.
The Company is a significant producer of the oil that is exported through Turkey and will be a cornerstone provider of the
gas that the KRG intends to supply to Turkey. Should diplomatic relations between the KRG and Turkey deteriorate, this may
have a negative impact on the Company’s operations and potentially impact the cash flows, planned growth and valuation
of the Company.
Risk of new
hydrocarbon
legislation
in the KRI
There remains an ongoing dialogue between the KRG and the FGI in relation to both monies owed to the KRG for past exports
and awarding of new PSCs, and there is an ongoing risk that new laws may be enacted in the future, governing the regulation
of Iraqi oil and gas resources.
The enactment of any new law may alter the regulation of oil and gas resources in Iraq and the KRI, reduce the value of the
Company’s existing PSCs and increase the regulatory requirements placed on the Company. Additionally, depending on the
content of any future enacted law, the Company’s existing PSCs with the KRG may be subject to review or revision of terms.
In the past, the Iraqi Ministry of Oil has disputed the validity of PSCs entered into by the KRG, which granted the licences to the
Company’s principal assets. If the validity of the Company’s PSCs were successfully challenged, the Company could be required
by the KRG to accept contractor entitlements that may be materially less favourable than the current PSCs.
Increased legislative requirements could cause a material and adverse effect on the Company’s business, financial conditions,
results of operations and prospects.
The Company continues to maintain a regular dialogue with
There have been no new laws or regulations introduced in 2015
its key stakeholders in the region, such as the KRG, the Turkish
that might adversely impact the Company’s PSCs.
Unchanged
The Company may be unable to obtain or renew required drilling rights, concessions, licences, and other authorisations or such
rights may be suspended, terminated or revoked prior to their expiration.
The Company conducts its exploration, development and production operations pursuant to drilling rights under a wide variety
of licences. There can be no assurance that the host government will not significantly alter the conditions of, or that any
third-party will not challenge, the licences held by the Company.
government and other regional public bodies, and expects
to obtain and maintain all approvals necessary to operate
its business.
Revocation
of licence
or change of
licensing terms
36
The Company’s principal management of the risk is through its
The Company is in regular dialogue with the KRG
strong relationship and regular dialogue with the KRG.
and has confidence that the KRG will stand by its
Unchanged
Over the past year, management has worked with the KRG to
contractual commitments.
put in place processes that are expected to facilitate both regular
The KRG has consistently publicly committed to full payment
payment and recovery of amounts owed at a time when KRG
of IOCs and the Company recognises the significant progress
finances are under significant stress.
that has been made in the last year at a time when oil price
At the same time, the Company has maintained liquidity
and a robust balance sheet by accessing capital markets
opportunistically.
has remained low.
Firstly, five monthly payments have been received from the
KRG between September 2015 and the end of February 2016.
Secondly, on 1 February 2016 the KRG announced a regularised
payment mechanism that included a repayment process for the
accrued receivable. The KRG made an additional commitment
that the allocation of revenues to IOCs would be raised following
an increase in oil price.
Further explanation is provided in the Chief Executive’s
statement on page 13.
The Company assesses political, social, legal and economic risks
The war in Iraq and increased economic risk in the region
as part of its business model and in the evaluation of its projects
increased the risk of social and political instability. Against
Unchanged
and investment decisions.
The Company actively monitors developments in Iraq and the KRI,
as well as the economic and political relationship between Turkey
and the KRG so that it is positioned to make the appropriate
decisions that mitigate risks as much as possible.
The Company has taken measures to protect its employees,
equipment and other assets from security risks. Steps include
the provision of security personnel and surveillance equipment,
and the imposition of security checks and procedures at the sites
this difficult backdrop, the KRI borders have remained safe
and secure. In May 2015, following underpayment of budget
allocations by the FGI, the KRG returned to the independent
export sales that it had established in 2014. The success of its
independent oil exports has been facilitated by the continued
strength of the KRG’s relationship with Turkey.
Throughout the second half of 2015, the KRG and FGI reiterated
their intentions to work together and dialogue between the two
governments is ongoing.
that it operates. However, there can be no guarantee that such
Further explanation is provided in the Market Overview on pages
measures will prove effective against all safety risks.
4 and 5.
The Company has regular dialogue with the KRG and is not aware
Throughout the second half of 2015, the KRG and FGI reiterated
of any current plans for the enactment of new oil and gas laws
their intentions to work together and resolve differences. There
Unchanged
that would impact its assets.
have been no new laws or regulations implemented in 2015 that
Based on legal advice obtained by the Company, the directors
might impact the Company’s PSCs.
believe that the Company has good title to its oil and gas assets.
Further explanation is provided in the Market Overview on pages
4 and 5.
Genel Energy plc Annual Report 2015genelenergy.com RISK
Board
Recovery of
amounts owed
for export sales
the past.
DESCRIPTION AND IMPACT
MITIGATION AND MANAGEMENT
ASSESSMENT
CHANGE
The Company sells its exported oil to the KRG and therefore is reliant on the KRG for payment. In addition to being paid for
current sales, the Company is owed a significant balance, reported in the balance sheet as $423 million, for sales made in
The KRG has always been fully committed to paying the Company full entitlement but has been unable to do so for a number
of reasons, including: non-payment of monies to the KRG by the FGI for monies owed for both pre-2014 export sales and budget
allocations; underpayment of budget allocations by the FGI in 2015; severe financial stress on the KRI fiscal regime as a result
of decreased oil price; a significant number of displaced people coming to the region as a result of the conflict with ISIS in Syria
and Iraq; and funding the war against ISIS.
Non-recovery of amounts owed for both past and current sales would have a significant impact on the liquidity and value of the
business and significantly impact its access to capital markets, sources of debt or ability to refinance.
The Company’s principal management of the risk is through its
strong relationship and regular dialogue with the KRG.
Over the past year, management has worked with the KRG to
put in place processes that are expected to facilitate both regular
payment and recovery of amounts owed at a time when KRG
finances are under significant stress.
At the same time, the Company has maintained liquidity
and a robust balance sheet by accessing capital markets
opportunistically.
The Company is in regular dialogue with the KRG
and has confidence that the KRG will stand by its
contractual commitments.
Unchanged
The KRG has consistently publicly committed to full payment
of IOCs and the Company recognises the significant progress
that has been made in the last year at a time when oil price
has remained low.
Firstly, five monthly payments have been received from the
KRG between September 2015 and the end of February 2016.
Secondly, on 1 February 2016 the KRG announced a regularised
payment mechanism that included a repayment process for the
accrued receivable. The KRG made an additional commitment
that the allocation of revenues to IOCs would be raised following
an increase in oil price.
Further explanation is provided in the Chief Executive’s
statement on page 13.
Regional risk
There is a history of political and social instability in Iraq and of disputes between the FGI and the KRG. In 2015, additional
pressure was added to the political and social instability of Iraq by the economic uncertainty caused by the fall in oil price
relative to 2014 and the continued military conflict with ISIS. This has caused significant economic challenges to both the
KRG and the FGI, which both parties are working to overcome.
Deterioration in the economic, political, diplomatic or social circumstances of Iraq and the KRI, or in the security of the KRI
border with Iraq, would represent an increased risk to the operations, revenue, security and development of the Company.
The KRG is dependent on its continuing good relationship with Turkey to maintain its export route for its oil production and also
intends to market its gas to Turkey in the future. Both these arrangements are underpinned by the energy deal between Turkey
and the KRG that was signed in 2013.
The Company is a significant producer of the oil that is exported through Turkey and will be a cornerstone provider of the
gas that the KRG intends to supply to Turkey. Should diplomatic relations between the KRG and Turkey deteriorate, this may
have a negative impact on the Company’s operations and potentially impact the cash flows, planned growth and valuation
of the Company.
Risk of new
hydrocarbon
legislation
in the KRI
There remains an ongoing dialogue between the KRG and the FGI in relation to both monies owed to the KRG for past exports
and awarding of new PSCs, and there is an ongoing risk that new laws may be enacted in the future, governing the regulation
of Iraqi oil and gas resources.
The enactment of any new law may alter the regulation of oil and gas resources in Iraq and the KRI, reduce the value of the
Company’s existing PSCs and increase the regulatory requirements placed on the Company. Additionally, depending on the
content of any future enacted law, the Company’s existing PSCs with the KRG may be subject to review or revision of terms.
In the past, the Iraqi Ministry of Oil has disputed the validity of PSCs entered into by the KRG, which granted the licences to the
Company’s principal assets. If the validity of the Company’s PSCs were successfully challenged, the Company could be required
by the KRG to accept contractor entitlements that may be materially less favourable than the current PSCs.
Revocation
of licence
or change of
licensing terms
Increased legislative requirements could cause a material and adverse effect on the Company’s business, financial conditions,
results of operations and prospects.
The Company may be unable to obtain or renew required drilling rights, concessions, licences, and other authorisations or such
rights may be suspended, terminated or revoked prior to their expiration.
The Company conducts its exploration, development and production operations pursuant to drilling rights under a wide variety
of licences. There can be no assurance that the host government will not significantly alter the conditions of, or that any
third-party will not challenge, the licences held by the Company.
The Company assesses political, social, legal and economic risks
as part of its business model and in the evaluation of its projects
and investment decisions.
The Company actively monitors developments in Iraq and the KRI,
as well as the economic and political relationship between Turkey
and the KRG so that it is positioned to make the appropriate
decisions that mitigate risks as much as possible.
The war in Iraq and increased economic risk in the region
increased the risk of social and political instability. Against
this difficult backdrop, the KRI borders have remained safe
and secure. In May 2015, following underpayment of budget
allocations by the FGI, the KRG returned to the independent
export sales that it had established in 2014. The success of its
independent oil exports has been facilitated by the continued
strength of the KRG’s relationship with Turkey.
The Company has taken measures to protect its employees,
equipment and other assets from security risks. Steps include
the provision of security personnel and surveillance equipment,
and the imposition of security checks and procedures at the sites
that it operates. However, there can be no guarantee that such
measures will prove effective against all safety risks.
Throughout the second half of 2015, the KRG and FGI reiterated
their intentions to work together and dialogue between the two
governments is ongoing.
Further explanation is provided in the Market Overview on pages
4 and 5.
Unchanged
The Company has regular dialogue with the KRG and is not aware
of any current plans for the enactment of new oil and gas laws
that would impact its assets.
Based on legal advice obtained by the Company, the directors
believe that the Company has good title to its oil and gas assets.
Throughout the second half of 2015, the KRG and FGI reiterated
their intentions to work together and resolve differences. There
have been no new laws or regulations implemented in 2015 that
might impact the Company’s PSCs.
Further explanation is provided in the Market Overview on pages
4 and 5.
Unchanged
The Company continues to maintain a regular dialogue with
its key stakeholders in the region, such as the KRG, the Turkish
government and other regional public bodies, and expects
to obtain and maintain all approvals necessary to operate
its business.
There have been no new laws or regulations introduced in 2015
that might adversely impact the Company’s PSCs.
Unchanged
37
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com PRINCIPAL RISKS AND UNCERTAINTIES
continued
RISK
HSE
Local
communities
Health and
safety risks
DESCRIPTION AND IMPACT
MITIGATION AND MANAGEMENT
ASSESSMENT
CHANGE
Local communities may regard IOC operations as detrimental to their environmental, economic or social circumstances.
An ongoing community investment and education programme,
The financial strain of supporting the significant influx of refugees
Increased
Currently the economic challenges faced by the KRG have led to a backlog in salary payments to public sector workers at
a time that payments have been made to IOCs. Failure to manage relationships with local communities, government and
non-government organisations could adversely affect the Company, and negatively impact the Company’s ability to operate
efficiently or its ability to finance an operation. A loss of local community support could give rise to disruption to projects
or operations, or cause material reputational damage, which could in turn affect the Company’s revenues, operations,
and cash flows.
and commitment to providing local employment.
and IDPs into the KRI, compounded with the fall in the oil price
and the failure of the FGI to make full budgetary payments, has
worsened the financial situation of the KRG. The consequent
failure by the KRG to pay salaries of civil servants has led to
sporadic civil disturbances in the KRI, and increased the risk
of local community unrest in the last 12 months.
Examples of work done by the Company with local communities
is provided on pages 30 and 31.
The Company’s operations are subject to general and specific regulations and restrictions governing workplace health and
safety requirements, environmental requirements, social impacts, and other laws and regulations.
The Company has implemented health, safety and environmental
Health and safety is an important part of our business model set
policies and complies with international standards for crude oil
out on page 2, with further explanation provided on page 28.
Unchanged
The Company’s primary operational safety risks are those inherent in the oil and gas industry, including the release of hydrogen
sulphide gas during flaring, fires, blowouts, explosions, equipment or system failures and transportation accidents, which may
result in death or injury to staff or local residents.
Certain of the Company’s operations may also create environmental risks in the form of spills, the release of gas or soil
contamination from site operations, recycling and waste disposal.
Unexpected disruptions in the supply of essential utility services, such as water and electricity, could halt or delay the
recommencement of Company’s production operations. A health, safety or environmental incident could lead to the Company
having to make material changes to its facilities or processes and pay compensation to any injured parties. There can be
no assurance that the Company will not incur substantial financial obligations, which may lead to an adverse effect on the
Company’s business, financial condition and prospects.
exploration and production, for example those issued by the
International Association of Oil and Gas Producers.
The Company monitors compliance with its health, safety and
environment policies regularly through a reporting system,
inspections, third-party audits and management site inspections
as overseen by the Company HSSE Committee.
The Company has put in place production operation and
maintenance procedures to minimise the impact of unexpected
disruptions to the supply of essential utility services.
Viability statement
In accordance with provision C.2.2 of the 2014 revision of the
Code, the Directors have assessed the prospects of the Company
over a longer period than the 12 months required by the ‘Going
Concern’ provision.
The Directors conducted this review for the period up to June 2019,
which was felt to be an appropriate period for the following reasons:
• it aligns with the Board’s strategic activity plan
• it captures the maturity of the Company’s senior unsecured bonds
• forecasting further than three years is likely to be inaccurate given
oil price volatility
The Company benefits from a proven producing oil reserves base
that allows us to create production and associated cash flow
scenarios covering the forecast period. The low-cost onshore nature
of our oil business, together with the terms of our Production
Sharing Agreements, results in an asset cash flow profile that is
resilient to commodity prices below current market levels. In
particular, we benefit from asset level operating costs of less than
$2 per barrel and currently forecast asset level cash flow neutrality
after capital expenditures at an oil price under $20 per barrel.
The Company has ownership of a material gas development project
that has not yet progressed to a final investment decision and so
has limited committed cash spend. The project is expected to be
financed predominantly through asset farm-outs and project
financing and is expected to generate material positive cash
flows for the Company after the forecast period.
The Directors considered these cash flow scenarios using a base
case oil price outlined in our impairment note on page 89. The
underlying assumptions were stress tested and reviewed, in the
context of the Company’s liquidity and the principal risks of the
region and industry in which it operates and with regard to the
risks set out in the Principal Risks on pages 34 to 38 including:
- Recovery of amounts owed for export sales
- Development and recovery of reserves and resources
- Major capital projects
- KRI natural resources industry
- Regional risk
The Directors also considered the Company’s outstanding $730
million bond and the likely refinancing options on its maturity in
2019, together with the results of interim covenant tests, again in the
context of the Company’s current cash balance of $455 million and
the expected recovery of the $423 million receivable from the KRG.
Based on their assessment of this analysis, the Directors have a
reasonable expectation that the Company will be able to continue
in operation and manage its liabilities as they fall due over the
three-year period to June 2019.
Our 2015 strategic report, as set out on pages 1 to 39, has been
reviewed and approved by the Board of Directors on 2 March 2016.
Murat Özgül
Chief Executive Officer
38
Genel Energy plc Annual Report 2015genelenergy.com RISK
HSE
Local
communities
Health and
safety risks
DESCRIPTION AND IMPACT
MITIGATION AND MANAGEMENT
ASSESSMENT
CHANGE
Local communities may regard IOC operations as detrimental to their environmental, economic or social circumstances.
Currently the economic challenges faced by the KRG have led to a backlog in salary payments to public sector workers at
a time that payments have been made to IOCs. Failure to manage relationships with local communities, government and
non-government organisations could adversely affect the Company, and negatively impact the Company’s ability to operate
efficiently or its ability to finance an operation. A loss of local community support could give rise to disruption to projects
or operations, or cause material reputational damage, which could in turn affect the Company’s revenues, operations,
and cash flows.
An ongoing community investment and education programme,
and commitment to providing local employment.
The Company’s operations are subject to general and specific regulations and restrictions governing workplace health and
safety requirements, environmental requirements, social impacts, and other laws and regulations.
The Company’s primary operational safety risks are those inherent in the oil and gas industry, including the release of hydrogen
sulphide gas during flaring, fires, blowouts, explosions, equipment or system failures and transportation accidents, which may
result in death or injury to staff or local residents.
Certain of the Company’s operations may also create environmental risks in the form of spills, the release of gas or soil
contamination from site operations, recycling and waste disposal.
Unexpected disruptions in the supply of essential utility services, such as water and electricity, could halt or delay the
recommencement of Company’s production operations. A health, safety or environmental incident could lead to the Company
having to make material changes to its facilities or processes and pay compensation to any injured parties. There can be
no assurance that the Company will not incur substantial financial obligations, which may lead to an adverse effect on the
Company’s business, financial condition and prospects.
The Company has implemented health, safety and environmental
policies and complies with international standards for crude oil
exploration and production, for example those issued by the
International Association of Oil and Gas Producers.
The Company monitors compliance with its health, safety and
environment policies regularly through a reporting system,
inspections, third-party audits and management site inspections
as overseen by the Company HSSE Committee.
The Company has put in place production operation and
maintenance procedures to minimise the impact of unexpected
disruptions to the supply of essential utility services.
The financial strain of supporting the significant influx of refugees
and IDPs into the KRI, compounded with the fall in the oil price
and the failure of the FGI to make full budgetary payments, has
worsened the financial situation of the KRG. The consequent
failure by the KRG to pay salaries of civil servants has led to
sporadic civil disturbances in the KRI, and increased the risk
of local community unrest in the last 12 months.
Examples of work done by the Company with local communities
is provided on pages 30 and 31.
Increased
Health and safety is an important part of our business model set
out on page 2, with further explanation provided on page 28.
Unchanged
39
STRATEGIC REPORTGenel Energy plc Annual Report 2015genelenergy.com CORPORATE GOVERNANCE
Committed to operating
to the highest standards
of corporate governance
The Board, assisted by the work of the
Audit Committee, keeps under review the
governance framework, risk management
and internal controls.
We comply with the UK Corporate
Governance Code as appropriate to support
our business and as such, and in accordance
with our shareholder approved Remuneration
Policy, have voluntarily applied malus
and clawback to all performance related
remuneration made to executives during the
year. Details of how we have applied malus
and clawback to our remuneration
arrangements are set out in the annual
report on remuneration on pages 58 and 62.
In April/May 2015 we successfully issued
and listed a further $230m 7.5% senior
unsecured bonds on the Nordic ABN
Exchange adding further strength to
our balance sheet.
We have continued to monitor our
performance as a Board. In last year’s
annual report we had undertaken to
complete an external effectiveness review
in 2015, however, given the Board changes
during the year it was felt appropriate to
complete an internal effectiveness review
for 2015.
More details of the findings and our
improvement programme are set out
in this report.
Tony Hayward
Chairman
I am pleased to present my first Corporate
Governance Report to shareholders as your
new Chairman.
This has been a year of significant transition
in the composition of your Board. Julian
Metherell and Mark Parris stood down
as Directors at the end of our 2015 AGM.
In July, Rodney Chase stood down as
Chairman and Murat Özgül, a longstanding
member of the Genel executive team, was
appointed CEO. The Board felt that as a
founding member of the Company it was
appropriate that, on this occasion and as
an exception to the Code, I be appointed to
the role of Chairman in order to continue
supporting the development of the Company
in the challenging environment that we
are operating in. Murat Özgül has overseen
the growth of our KRI oil production and
is very well qualified as CEO to progress
the development of our world class KRI
gas fields.
Furthermore, on 19 January 2016 and 23
February 2016 respectively, we announced
that as part of the ongoing evolution of the
Board, Sir Graham Hearne would stand
down as an Independent Non-Executive
Director and Jim Leng would stand down as
the Senior Independent and Non-Executive
Director, both at the conclusion of the 2016
AGM. George Rose would be appointed
Senior Independent Director in Jim’s stead.
Simon Lockett was appointed on 19 January
2016 as an Independent Non-Executive
Director and has also joined the HSSE and
Remuneration Committees.
Mehmet Sepil, Genel’s founder, retired
from his position as President in October to
pursue other interests. In December, Murat
Yazici also stood down as a Non-Executive
Director as Mehmet Sepil reduced his
shareholding to below 10%, thereby losing
his right to nominate a Director to the Board.
Following my appointment as Chairman,
I have ensured that we remain committed
to operating at the highest standards of
corporate governance to support us in
delivering on our business objectives.
2015 achievements
• Successful issuance and listing on the
Nordic ABN Exchange of a second
issuance of 7.5% senior unsecured bonds
• Smooth transition of Board changes
at both the Chairman and CEO level
• Successful appointment of
Simon Lockett as an Indpependent
Non-Executive Director as part of
the ongoing refreshing of the Board
• Maintained strong operational oversight
ensuring safe ongoing operation of our
producing assets
• Undertook an internal review of our
effectiveness concluding that the
Board continued to operate to a
high standard
40
Genel Energy plc Annual Report 2015genelenergy.com THE BOARD
Our Committee structure
Board of
Directors
Audit
Committee
Ensuring integrity and
objectivity of published
financial information
Chairman
George Rose
Members
Jim Leng
Chakib Sbiti
Mehmet Ög˘ütçü
Meetings in 2015
4
Read more
p.52
Remuneration
Committee
Ensuring an appropriate
approach to
remuneration that
supports delivery of the
business strategy
Chairman
Jim Leng
Members
George Rose
Simon Lockett
Sir Graham Hearne
Meetings in 2015
4 scheduled 1 ad hoc
Read more
p.56
Nomination Committee
Ensuring the continuance
of a high calibre Board
Chairman
Tony Hayward
Members
Mehmet Ög˘ ütçü
George Rose
Sir Graham Hearne
Meetings in 2015
2 scheduled 3 ad hoc
HSSE
Committee
Ensuring a responsible
and credible approach
to HSSE
Chairman
Chakib Sbiti
Members
Mehmet Ög˘ütçü
Simon Lockett
Sir Graham Hearne
Meetings in 2015
3
Read more
p.54
Read more
p.55
The Political Risk Committee met once in 2015 subsequent to being disbanded in April 2015.
Board composition
Skills and experience of the Board
60% – Independent non-executive directors
30% – Non-independent non-executive
directors
10% – Executive directors
International diversity
Oil and gas – 5 directors
Managing and leading – 10 directors
Governance – 6 directors
Financial/capital markets – 4 directors
HSSE – 5 directors
Remuneration – 5 directors
Foreign affairs – 4 directors
Total directors 10
5 directors
2 directors
1 director
1 director
1 director
41
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com
BOARD OF DIRECTORS
A strong Board
with demonstrable
skills and experience
in international
oil and gas markets
Murat Özgül
Chief Executive Officer
Appointed as an Executive
Director and Chief Executive
Officer: 12 July 2015
Age: 44
Skills and experience: Murat Özgül has more than 20
years’ experience in the defence, satellite and oil and gas
sectors. He joined Genel in 2008 as Chief Commercial
Officer and was responsible for leading its merger with
Vallares PLC in 2011. Prior to joining the Company, Murat
was the CEO of INTA Spaceturk, an imaging satellite
operating company, and held engineering and managerial
positions at Roketsan and INTA Defense. He holds a BSc
and MSc in Aeronautical Engineering from the Middle East
Technical University in Ankara.
Tony Hayward
Chairman
Appointed: 2 June 2011
Age: 58
Tony Hayward was appointed to the Board as Non-
Executive Director on 2 June 2011 and as an Executive
Director and Chief Executive Officer on 21 November 2011.
Tony stepped down as Chief Executive Officer and was
appointed as Chairman of the Board on 12 July 2015.
Committee memberships: Chairman of the Nomination
Committee.
Skills and experience: Tony is the Non-Executive Chairman
at Glencore plc and a Partner and Member of the Advisory
Board of AEA Capital. He is a fellow of the Royal Society
of Edinburgh and holds honorary doctorates from the
University of Edinburgh, Aston University and the
University of Birmingham. Tony was Group Chief Executive
of BP plc from 2007 to 2010 having joined BP plc in 1982
as a rig geologist in the North Sea. He became Group
Treasurer in 2000, Chief Executive for BP plc’s upstream
activities and a member of the main board of BP plc in
2003. He has also served on the board’s of TNK-BP,
Corus and Tata Steel.
Tony studied Geology at Aston University in Birmingham
and holds a PhD from Edinburgh University.
42
Genel Energy plc Annual Report 2015genelenergy.com Jim Leng
Senior Independent
Non-Executive Director
Appointed: 2 June 2011
Age: 70
George Rose
Independent
Non-Executive Director
Appointed: 2 June 2011
Age: 63
Committee memberships: Chairman of the Remuneration
Committee and member of the Audit Committee.
Skills and experience: Jim is a Director of Aon plc and
in December 2015 Jim was appointed as a Director and
Non-Executive Chairman of Nomura Europe Holdings plc.
From 2010 to 2013, he was a Director, and from August
2012 Chairman, of HSBC Bank plc. From 2003 to 2008
he was Chairman of Corus Group plc and subsequently
Deputy Chairman of Tata Steel of India.
Other past Non-Executive Directorships include, Pilkington
plc, Hanson plc, IMI plc and TNK-BP Limited. In an executive
capacity, Jim was Chief Executive Officer of Laporte plc and
before that Low & Bonar plc. His early business years were
spent at John Waddington plc where he was Managing
Director of a number of their subsidiaries.
Committee memberships: Chairman of the Audit
Committee and member of the Remuneration and
Nomination Committees.
Skills and experience: George is Senior Independent
Non-Executive Director of Experian plc. On 16 February
2016 George was appointed as a Non-Executive Director
of EXPO 2020 LLC.
Until December 2015 George served as Non-Executive
Chairman of the Audit Committee of Laing O’Rourke plc.
George retired from the Board of National Grid plc in July
2013 where he served as a Non-Executive Director and
was Chairman of the Audit Committee. He was also on the
Board of BAE Systems plc until March 2011, where he had
served as Group Finance Director for 13 years. Other past
Non-Executive Directorships include Orange plc and Saab
AB. He was previously a member of the UK’s Financial
Reporting Review Panel and the Industrial Development
Advisory Board. George’s earlier career consisted of
several financial management positions in the automotive
sector, at Ford Motor Company, Leyland Vehicles Ltd and
the Rover Group.
He is a Fellow of the Chartered Institute of Management
Accountants.
Chakib Sbiti
Independent
Non-Executive Director
Appointed: 19 April 2012
Age: 61
Mehmet Ög˘ütçü
Independent
Non-Executive Director
Appointed: 21 November 2011
Age: 54
Committee memberships: Chairman of the HSSE
Committee and member of the Audit Committee.
Committee memberships: Member of the Audit Committee,
Nomination Committee and the HSSE Committee.
Skills and experience: Chakib has over 30 years’ experience
at Schlumberger, an international oilfield services company,
where he was Executive Vice President of Oilfield Services
from 2003 to 2010 and President Asia from 1999, a role
which was expanded to include the Middle East for the
period 2001 to 2003. He has also been special adviser to the
Chairman and Chief Executive Officer of Schlumberger (since
2010) and held various senior operational roles prior to 1999.
Chakib studied electrical engineering in France and holds
a MSc from the École Nationale Supérieure d’Ingénieurs
in Caen, France.
Skills and experience: Mehmet is currently Chairman
of the Global Resources Partnership, a natural resources
strategy group. In February 2016 Mehmet was appointed
as a Non-Executive Director of Saudi Crown Holding.
He was also appionted as an Independent Board member
of Sisecam Group in April 2015 and as the Energy Charter
Secretary - General’s special envoy for the MENA region
in March 2013. He leads Bosphorus Energy Club, a
gathering of top energy, investment and geopolitical
executives in Eurasia, MENA and Southeast Europe
since September 2013.
Previously, Mehmet served as Director for International
Government and Corporate Affairs at BG Group
(2005-2011), the head of the OECD’s global forum
on international investment and regional outreach
programmes (2000-2005), the Principal Administrator
for Asia-Pacific and Latin America at the International
Energy Agency (1994-2000), a Turkish diplomat in Ankara,
Beijing, Brussels and Paris (1986-1994), Deputy Inspector
at Is Bankasi, NATO Research Fellow, the EU’s Jean Monnet
Fellow and adviser to the late President Turgut Ozal.
43
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com BOARD OF DIRECTORS
continued
Simon Lockett
Independent Non-Executive
Director
Appointed: 19 January 2016
Age: 51
The Honourable
Nathaniel Rothschild
Non-Executive Director
Appointed: 19 May 2011
Age: 44
Committee memberships: Member of the Remuneration
Committee and the HSSE Committee.
Skills and experience: Simon is currently the Chairman
and a member of the Audit, Nomination and Remuneration
Committees of Loyz Energy Limited. He is a Non-Executive
Director of Triyards Holdings Limited where he also serves
as the Chairman of the Remuneration Committee and a
member of the Audit and Nomination Committees. He is
also a Non-Executive Advisor to the Board and CEO of
Pico Petroleum Limited, a privately owned exploration
and production company based in Cairo.
Between 2005 and 2014 Simon was the Chief Executive
Officer of Premier Oil plc. Prior to being appointed as CEO
Simon held a number of senior operational roles at Premier
Oil plc including Operations Director between 2003 and 2005.
Simon studied Biochemistry at Sheffield University and holds
an MBA from Manchester Business School.
Gulsun Nazli
Karamehmet Williams
Non-Executive Director
Appointed: 21 November 2011
Age: 38
Skills and experience: Between 2004 and August 2014
Mrs Karamehmet Williams worked at Digiturk, a leading
satellite broadcasting network. She was Chief Content
Officer between 2007 and August 2014, with primary
responsibility for overseeing all content acquisitions,
production and creative services (including on-air
promotion and print TV guides) and overall content
strategy. Previously, she worked for the advertising
and sales division at BSkyB in London.
Nazli was also a Board member of Turkcell lletis¸im
Hizmetleri A.S¸ a leading GSM operator in Turkey, until
2013. Turkcell’s shares trade on the Istanbul (IMKB)
and New York Stock Exchanges (NYSE).
Skills and experience: Nathaniel was appointed Executive
Chairman of Volex plc in November 2015 following
his appointment to the Board of the company as a
Non-Executive Director in October 2015. Until January
2013, he was a Non-Executive Director of Barrick Gold
Corporation, the world’s largest gold company. He was
previously Co-Chairman of Asia Resource Minerals plc.
Nathaniel is a member of the Belfer Center’s International
Council at the John F. Kennedy School of Government at
Harvard University.
He holds an MA in History from Oxford University and
an MSc in addiction studies from King’s College London.
Sir Graham Hearne,
CBE
Independent
Non-Executive Director
Appointed: 2 June 2011
Age: 78
Committee memberships: Member of the Remuneration
Committee, Nomination Committee and HSSE Committee.
Skills and experience: Sir Graham is the Senior Independent
Director of Rowan Companies Inc. Sir Graham served as
Chairman of Enterprise Oil plc between 1991 and 2002 and
as Chief Executive from 1984 to 1991. He has also served
as a director of a number of public and private companies
including Courtaulds plc (where he was Finance Director),
Gallaher Group PLC, Wellcome plc, Reckitt & Colman plc as
well as Novar plc, Catlin Group Limited and Braemar Shipping
Services Group plc (where he was Chairman). He qualified as
a solicitor in England and Wales in 1959 and practised law in
England and the US from 1959 to 1967, following which he
joined as an executive of the Industrial Reorganisation
Corporation and then as an Executive Director of NM
Rothschild & Sons Limited.
Sir Graham was appointed a Commander of the Most
Excellent Order of the British Empire in 1990 and a Knight
Bachelor in 1998.
Sarah Robertson
Company Secretary
Sarah Robertson was appointed as Company
Secretary to the Board on 25 July 2013.
Skills and experience: Sarah was Deputy
Company Secretary at Misys plc prior to
joining Genel in July 2012. Previously she
was Regional Head of Secretariat EMEA &
the Americas for Standard Chartered Bank plc
and had also held senior positions in the
secretariat at RSA plc and Telewest
Communications plc (now Virgin Media).
Sarah is a Fellow of the Institute of Chartered
Secretaries and Administrators and holds
a MSc in corporate governance.
44
Genel Energy plc Annual Report 2015genelenergy.com SENIOR MANAGEMENT
Experienced in the
industry and the KRI
Ben Monaghan
Chief Financial
Officer
Stephen
Mitchell
General Counsel
Pars Kutay
Head of
Government &
Public Affairs
Ben Monaghan joined Genel as CFO in 2015.
Prior to joining the Company he was Head of
European Oil and Gas Investment Banking at
J.P. Morgan in London, where he worked for
20 years raising equity and debt capital and
advising on mergers, acquisitions, joint
ventures and divestitures in the global energy
sector. Ben also has two years’ experience as
an auditor with Arthur Andersen in the UK,
Russia and France, and holds an MA degree
from Cambridge University.
Stephen Mitchell has practiced as a lawyer for
over 30 years. Prior to joining the Company
he was Vice President – Group Legal with BHP
Billiton plc and prior to that he was Group
General Counsel and Head of Risk Management
at Reuters Group plc, in which he advised on
a broad range of matters including mergers
and acquisitions, joint ventures, corporate
governance and compliance. Stephen was a
partner in Freehills in Australia for six years
prior to joining Reuters and holds a BEc and
LLB from Monash University in Australia.
Pars Kutay joined Genel in December
2010. Pars is responsible for developing,
co-ordinating and implementing policies
on government and public affairs in countries
where we operate. Pars was a partner at AB
Consultancy and Investment Services from
1995 to 2010. Between 1984 and 1995 he
served in Turkey’s Undersecretariat of
Treasury and Foreign Trade. He is a graduate
of Law from Ankara University and holds
degrees in International Finance and
Environmental Law from Ankara University.
Macit Merey
Deputy Chief
Financial Officer
Elliot Milne
Commercial
Director
Gozde Tutanc
Head of Human
Resources
Macit Merey has over 20 years’ experience in
finance including ten years in oil and gas. Macit
joined Genel in 2005 and was the Finance and
Accounting Manager of the Taq Taq Operating
Company (TTOPCO) from 2006 until 2009. He
was CFO of Genel Energy International Limited
from 2009 until its merger with Vallares PLC
in 2011. Macit holds a BSc degree in Food
Engineering and an MBA from the Middle East
Technical University in Ankara.
Elliot Milne joined Vallares PLC in 2011 and
advised on the merger with Genel that year,
following which he has worked at Genel in a
variety of commercial roles. Prior to joining
Vallares, Elliot worked in Ethiopia for 12 months
as a consultant to the Coffee Initiative Project,
established by the Bill Gates Foundation. From
2006 to 2010 he worked at Goldman Sachs in
their leveraged finance and natural resources
M&A teams in Australia. Elliot holds a BEc and
LLB from the University of Sydney.
Gozde has over 20 years’ experience in the
telecom, consultancy, FMCG and media
sectors. She joined Genel in 2014 as Head
of Human Resources for Turkey and the
Kurdistan Region of Iraq. Prior to joining
the Company, Gozde worked in different HR
management roles at Turkcell, the leading
Turkish telecoms company, and held HR
positions at DDI-Development Dimensions
International and Coca-Cola. She started
her career in Turkish Radio and Television in
1992 as a News Reader. Gozde holds a BSc in
Psychology from the Middle East Technical
University in Ankara, and an Executive-MBA
from the Koc University in Istanbul.
45
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com CORPORATE GOVERNANCE
Corporate governance
Our objective remains to create long-term
value for shareholders through the
exploration, development and production of
oil and gas resources. We have high quality
assets that are important to the growth of
the Kurdistan region and Turkey. In doing
this, we have committed to a high level of
governance and to developing a culture
that values exemplary ethical standards,
personal and corporate integrity and
respect for others. The Board governs
the Company consistent with our business
strategy and commitment to a transparent
and high-quality governance system.
also been decided to undertake an internal
effectiveness review rather than an externally
facilitated review for 2015 due to the changes
on the Board during the year as described on
page 47. A copy of the Code can be found at
www.frc.org.uk/corporate/ukcgcode.cfm
As corporate governance principles continue
to evolve, we will continue to adopt best
practice guidelines as appropriate to our
business. For example, in 2015, in line with
our undertaking to adopt the changes to
the Code, we applied malus and clawback
to performance related remuneration for
our executive management team.
Model code
We have voluntarily adopted the model code
for share dealing as set out in the Listing Rules.
The Board is responsible for taking all proper
and reasonable steps to ensure compliance
with the model code, including training staff
in the requirements set out in the model code.
We will be reviewing our share dealing policies
during the course of the upcoming year to
align with the new Market Abuse regime
coming into effect in July 2016.
Code of conduct
Our code of conduct defines what we stand
for as a Company and sets out the principles
that guide all of our business activities.
All staff have received training on how to
represent Genel in accordance with the
principles of the code of conduct. We strive
for operational excellence and aim to
conduct our business in a responsible,
ethical and safe manner with the highest
standards of financial reporting, corporate
governance, and compliance with applicable
laws. The code of conduct sets guidelines
by which we conduct our business and how
we expect our board, employees, suppliers,
partners and others to behave. As a result,
being able to demonstrate behaviours
aligned with the code of conduct forms
part of the performance objectives for
every employee.
Our view is that governance is not just a
matter for the Board and that a strong
governance culture must be fostered
throughout the organisation. Our
expectations of our employees and of
those with whom we conduct business
are set out in our code of conduct, which
is summarised below and is available on
our website at www.genelenergy.com
This report aims to provide shareholders with
a comprehensive summary of our governance
arrangements and an explanation of how the
Company has approached the main principles
of the UK Corporate Governance Code (the
‘Code’) during 2015.
Genel Energy plc is a Jersey incorporated
company with a standard listing on the
London Stock Exchange. Notwithstanding
our standard listing, we are committed to
complying with the regulatory requirements
in both Jersey and the UK, together with
prevailing standards of best practice, as if
we were a premium listed company. We are
in full compliance with the provisions of the
Code with the exception of A.3.1 due to Tony
Hayward being appointed Chairman of Genel
on 12 July 2015 having previously served as
CEO. Accordingly, he was not independent
on appointment. Whilst in his role as CEO,
Tony Hayward was also appointed Chairman
of Glencore plc and as such, for the period
to 12 July 2015 we were not in compliance
with provision B.3.3. of the Code. It has
46
SpeakUp
All employees are encouraged to raise any
concerns they may have and to report any
suspected or known violations of the code
of conduct without fear of retaliation. We
operate an independently run and confidential
‘SpeakUp’ hotline. All issues raised via this
route are reported to the Audit Committee.
Business conduct
We conduct our business in an open, honest
and ethical manner. We do not tolerate any
form of bribery. We aim to ensure that all
financial and non-financial information we
create is complete and accurate, and we
strive to provide accurate and timely
information to external stakeholders,
including governments, in the locations in
which we operate. We take steps to protect
against inappropriate use of confidential and
privileged information and we aim to protect
and use our business assets appropriately.
Our policy is not to make political donations
and we have not done so in the period under
review (2014: nil).
Conflicts of interest
We seek to avoid conflicts of interest
wherever possible. We believe it is important
that the decision making process is not
impaired by an individual being conflicted
by either an actual or a potential conflict.
However, we recognise that from time to
time situations may arise which could result in
actual or potential conflicts and, accordingly,
we have a formal system in place enabling
Directors and members of the executive team
to declare any such conflicts and for those
conflicts to be reviewed and, if appropriate,
authorised by the Board. A register of
conflicts is maintained by the Company
Secretary. The Audit Committee and the
Board have applied the principles and
processes set out above during 2015 and
confirm that they have operated effectively.
Third parties
We maintain high standards of business
conduct in our dealings with all third parties
in order to promote mutually beneficial
Genel Energy plc Annual Report 2015genelenergy.com Board and Committee attendance
Tony Hayward1
Murat Özgül2
Julian Metherell3
George Rose4
Jim Leng
Chakib Sbiti5
Sir Graham Hearne6
Mehmet Ög˘ütçü7
Nathaniel Rothschild
Gulsun Nazli
Karamehmet Williams
Rodney Chase8
Murat Yazici8
Mark Parris8
Board
Audit
Nomination
Remuneration
HSSE
Political Risk9
Scheduled/
attended
Ad hoc/
attended
Scheduled/
attended
Scheduled/
attended
Ad hoc/
attended
Scheduled/
attended
Ad hoc/
attended
Scheduled/
attended
Scheduled/
attended
7(7)
7(3)
7(3)
7(6)
7(7)
7(7)
7(7)
7(7)
7(6)
7(7)
7(4)
7(7)
7(3)
1(1)
1(1)
1(1)
1(1)
1(1)
1(1)
1(1)
1(0)
1(1)
1(1)
1(1)
1(1)
2(1)
3(1)
4(4)
4(4)
4(3)
4(3)
2(2)
3(3)
2(1)
2(2)
3(1)
3(3)
4(3)
4(4)
4(4)
1(1)
1(1)
1(1)
2(1)
3(2)
4(1)
4(1)
3(3)
3(3)
3(3)
3(2)
1(1)
1(1)
1(1)
Appointed as Chairman of the Nomination Committee on 12 July 2015
1.
2. Appointed as a Director on 12 July 2015
3. Retired as a Director on 21 April 2015
4. Appointed as a member of the Remuneration Committee on 21 April 2015
5. Appointed as a member of the Audit Committee on 21 April 2015
6. Appointed as a member of the Nomination Committee on 23 July 2015
7.
Appointed as a member of the Audit Committee on 21 April 2015
8. Mark Parris, Rodney Chase and Murat Yazici resigned as Directors on 21 April 2015, 12 July 2015 and 15 December 2015 respectively
9.
The Political Risk Committee was disbanded on 21 April 2015
relationships and protect our reputation.
We do not seek to win or maintain business
by acting illegally or contrary to our
contractual agreements. Our relationships
with third parties are conducted on a fair
and honest basis. We expect our third
parties to maintain the same standards
of business conduct as we adhere to.
Communities and environment
Protecting and sustaining the communities
and environment in which we operate
is fundamental to maintaining our
operating licences and to creating a
long-term sustainable business. We strive
to maintain high standards of environmental
protection and we do not compromise
our environmental values for profit or
production. We seek to maintain proactive
and constructive engagement with the local
communities affected by our operations and
assets, and invest to help them develop in
a sustainable manner. We contribute to
socio-economic development and provide
transparency in respect of our contributions
and their impact. Further information on
how we engage with communities can be
found in the community engagement and
investment section of this report on pages
26 to 31.
The role of the Board
The Board’s role is to provide leadership in
delivering on the long-term success of the
Company. It is responsible for approving the
Company’s strategy and the business plan
and keeping under review the financial and
operational resources of the Company.
It monitors the performance of the business
and management against those strategic
objectives with the overall objective of
creating and delivering value to shareholders.
The performance of the Board and the
contributions of Directors to the Board’s
decision making processes are essential
to fulfilling this role. The Directors may
exercise all the powers of the Company
subject to the provisions of relevant law,
the Company’s articles and any special
resolution of the Company in the
furtherance of their role.
The Board has reserved certain matters for
its own consideration and decision making.
Authorities have been delegated to Board
Committees and these are set out clearly in
each Committee’s terms of reference which
are available on our website.
Specific matters reserved for the Board
include setting the Company’s objectives and
business strategy and its overall supervision.
Significant acquisitions, divestments and other
strategic decisions will all be considered and
determined by the Board in accordance with
the Company’s delegated authorities matrix.
The Board provides leadership within
a framework of prudent and effective controls.
The Board reviews the matters reserved
for its decision annually, subject to the
limitations imposed by the Company’s
constitutional documents and applicable law.
The Board and its Committees have access
to the advice and services of the Company
Secretary and the General Counsel and may
seek advice from independent experts at
the expense of the Company as appropriate.
Individual Directors may also seek
independent legal advice at the expense of
the Company, in accordance with the Board’s
agreed procedure.
In addition, the Board has extensive access
to members of senior management, who
attend Board meetings by invitation from
time to time, and present to the Board on
the performance of the business.
Board composition
There are ten Directors on the Board, of
whom one is Executive and nine (including
the Chairman) Non-Executive. Six are
independent under the Code and four are
considered not independent (including the
Chairman) who was not considered
independent on appointment.
The Company announced on 19 January
2016 and on 23 February 2016 that Sir
Graham Hearne and Jim Leng would
retire as Director’s of the Company at the
conclusion of the 2016 AGM. Simon Lockett
joined the Company as an Independent
Non-Executive Director on 19 January 2016.
During the year, Rodney Chase, Julian
Metherell, Mark Parris and Murat Yazici
stepped down as Directors.
47
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com CORPORATE GOVERNANCE
continued
Further details of the Directors and their
experience are set out on pages 42 to 44
of this annual report.
Each Director will be submitted for
re-election at the 2016 AGM (save
for Sir Graham Hearne and Jim Leng,
who will retire as Director’s on the
date of the 2016 AGM).
Meetings of the Board
The Board meets around seven times
each year and schedules other meetings
as necessary to fulfil its role. During the year
we held eight meetings in various locations.
One of those meetings was in addition to
those scheduled. The Board receives
updates from management inbetween
meetings on the performance
of the business against the agreed strategy
and on its operations and has a rolling
agenda that sets out the key topics for
consideration at each meeting.
Independence of the Board
Following the retirement of Graham Hearne
and Jim Leng as Directors, the Independent
Non-Executive Director’s (George Rose,
Chakib Sbiti, Simon Lockett and Mehmet
Ög˘ütçü) make up exactly half the Board
and are responsible for ensuring that the
management and decisions of the Board
are properly checked and balanced. The
Independent Directors meet in private
session at the end of each scheduled Board
meeting of which there were seven such
meetings during 2015.
Roles and responsibilities
There is a clear division of roles between the Chairman, Chief Executive Officer and Senior Independent Director of the Company.
Tony Hayward
Chairman
Tony Hayward is the Chairman. The
Chairman reports to the Board and is
responsible for the leadership and overall
effectiveness of the Board, overseeing
the strategy of the Company and for
setting the Board’s agenda. Specific
responsibilities of the Chairman include
ensuring the effective running of the
Board, ensuring that the Board agenda
is forward-looking with an emphasis
on strategic issues and ensuring the
performance of the Board and its
committees is effective and in line with
best practice. A culture of openness and
debate is encouraged by the Chairman
through ensuring constructive relations
between Executive and Non-Executive
Directors and ensuring effective
communication between the Company
and its shareholders. The Chairman’s
other significant commitments are
included in his biography on page 42,
there have been no changes to these
during 2015.
Murat Özgül
Chief Executive
Officer
Murat Özgül is the Chief Executive
Officer. The Chief Executive Officer
is responsible for all executive
management matters of the Group.
He reports to the Chairman and to the
Board directly. Specific responsibilities
include the day-to-day management of
the Group within delegated authority
limits, identifying and executing
strategic opportunities, managing the
risk profile and ensuring appropriate
internal controls are in place, maintaining
a dialogue with the Chairman and the
Board on important and strategic issues,
ensuring the proper development
of Executive Directors and Senior
Executives and succession planning
for executive positions.
Jim Leng
Senior Independent
Non-Executive
Director
Jim Leng is the Senior Independent
Director up until the date of his retirement
at the 2016 AGM, following which George
Rose will step into the role. The Senior
Independent Director is available to
shareholders who have concerns that
cannot be addressed through the normal
channels of the Chairman or the Chief
Executive Officer. He chairs the
Nomination Committee when it is
considering succession to the role
of Chairman and acts as a sounding
board for the Chairman and an
intermediary for other Directors
if and when necessary.
48
Genel Energy plc Annual Report 2015genelenergy.com The Directors who are not independent
comprise the founders of the Company
(Nathaniel Rothschild, Non-Executive
Director and Tony Hayward, Chairman)
plus Gulsun Nazli Karamehmet Williams
who has been nominated for appointment
to the Board by Focus Investments.
The Board considers that there is an
appropriate balance between Executive
and Non-Executive, independent and
non-independent Directors, with a view
to promoting shareholder interests and
governing the business effectively.
Skills, knowledge, experience and
attributes of Directors
The Board considers that a diversity of
skills, background, knowledge, experience,
perspective and gender is required in order
to govern the business effectively. The
Board and its Committees work actively
to ensure that the Executive and Non-
Executive Directors continue to have
the right balance of skills, experience,
independence and group knowledge
necessary to discharge their responsibilities
in accordance with the highest standards
of governance.
The Non-Executive Directors bring
with them international and operational
experience gained both in the sectors in
which we operate and in other areas of
business and public life. Murat Özgül brings
additional perspectives to the Board’s
work through a deep understanding of
the business. Together they oversee the
strategy of the Group and monitor the
pursuit of the corporate strategy. All
Directors are required to devote sufficient
time and demonstrate commitment to
their role.
Operation of the Board
The Chairman is responsible for
ensuring that the Board operates
effectively. The Board has an open style
of communication and debates issues
openly and constructively within an
environment that encourages healthy
debate and challenge both inside and
outside the boardroom.
The Directors receive board papers and
other relevant information in a timely
manner ahead of meetings. Board papers
are delivered through an electronic portal
that enables Directors to access them
wherever they are in the world. The timely
provision of relevant information to
Directors is vital in ensuring they are
able to fulfil their role of effective
oversight and challenge and for enabling
the Board to make effective decisions.
Directors’ induction and ongoing
development
In order to govern the Group effectively,
Non-Executive Directors must have a
clear understanding of the overall strategy,
together with a sound knowledge of the
business and the industry within which
it operates.
The Chairman, together with the Company
Secretary, is responsible for ensuring that
all new directors receive a full, formal and
tailored induction upon appointment to the
Board. This includes a detailed overview of
the Company and its governance practices
and meetings with key personnel from
across the Group in order to develop a full
understanding of the business, its strategy
and business priorities in each area.
Upon his appointment Simon Lockett
received a full and comprehensive
induction on the operations, processes,
policies and procedures across the
business. The induction included a
comprehensive schedule of meetings
with senior management on the
operations and controls of the business.
Risk monitoring and reporting
The Group keeps under constant scrutiny
the major risks to which its operations in all
regions are exposed by leveraging its local
expertise, industry knowledge and strategic
relationships. In particular, the Group
continues to have a regular dialogue
with its key stakeholders in the Kurdistan
Region of Iraq, such as the KRG, the Turkish
government and other regional public
bodies. We maintain similar relationships
within the Africa region to ensure the risks
across the organisation as a whole are
fully understood and mitigated.
The Group’s risk management process,
established by the executive management
and endorsed by the Board, is used to
identify the key risks to the business,
the controls by which these are managed,
and how these controls are monitored. The
executive management review and update
the risk management process and the risks
identified on a quarterly basis. The Board
undertakes a robust assessment of the
principal risks facing the Company at least
annually. It focuses its assessment on those
risks that could impact our business model,
solvancy, liquidity or future performance.
The Board also reviews and monitors the
risk management and internal control
systems and each such review covers
all material controls, including financial,
operational and compliance controls.
Further details of the principal risks
and uncertainties to which the Group’s
operations are exposed, and the framework
within which these risks are managed,
are set out on pages 34 to 39 of this
annual report.
49
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com CORPORATE GOVERNANCE
continued
Board effectiveness
In our last annual report we indicated our intention to commission an external effectiveness review in 2015. However, given the number of
changes at Board level, including at the Chairman and CEO level, it was felt appropriate to conduct an additional internal review in 2015 to
allow the Board to embed. The 2015 review was facilitated by the Company Secretary.
2014 actions for the year
Progress made against the actions
Board composition and balance The Nomination Committee will continue
to keep under review the composition of
the Board with the aim of ensuring that an
appropriate balance of skills and experience
is present in the boardroom.
Simon Lockett was appointed to the Board on 19 January
2016, strengthening oil & gas representation on the Board.
Sir Graham Hearne and Jim Leng will stand down as
Director’s at the 2016 AGM.
Strategy
Risk management
Board development
Board effectiveness
Political risk
Remuneration
The Nomination Committee keeps under review the
composition of the Board to ensure that it remains
appropriate both in size and skill set.
It was recognised that whilst the business
had a clear strategic agenda for business
development, in the context of a falling oil
price and tensions in the region, the strategic
agenda would be kept under close scrutiny
in light of the risks facing the business.
The Board has closely monitored the risks faced by the
business during the year, including the impact of a falling
oil price. Internal Audit also conducted a review of security
in light of the potential security risks posed by the
instability in the region. The Board was satisfied that the
risks were being managed and mitigated appropriately.
During the year, a Head of Internal Audit was
appointed to reflect the growing complexity
of the business. The Directors will keep under
review the internal audit programme and the
effectiveness of bringing internal audit
in-house.
The Head of Internal Audit reported to the Audit Committee
on the first full year’s work since his appointment. The
business had been supportive of the work of Internal Audit
and had responded well to any audit findings taking swift
remedial action in a timely manner. The Committee is of the
opinion that the appointment of a full time Head of Internal
Audit has proved effective.
2015 actions
Given the significance of the gas development to the Company, the Board would focus its development plan
for the year on the development cycle of the gas project, including project financing.
It was recognised that following the changes to Board composition during the year, the need to ensure that
the new Board operated effectively was a priority for 2016.
During the year, the Political Risk Committee was disbanded as it was felt that given the importance of
political risk to the Company, this should be a matter for the whole Board. As this is a complex region in
which to operate regular updates would be provided to Directors from appropriate commentators.
Whilst the Remuneration Committee scrutinises management targets when considering remuneration
payouts to the executives, it will pay particular attention to this area given the difficult economic
environment the Company is operating in.
The Board considers that each of the Directors continues to make an effective and valuable contribution and demonstrates their
commitment to the role. Accordingly, the Board recommends the election/ re-election of each Director with the exception of Sir Graham
Hearne and Jim Leng who will both stand down at the 2016 AGM.
50
Genel Energy plc Annual Report 2015genelenergy.com Key investor relations activities during 2015
Q1
Jan – Mar
Q2
Apr – Jun
Q3
Jul – Sept
Q4
Oct – Dec
Key events
• Trading statement
• Full year results
• Senior unsecured
bond raise
Key activities
• 4 conferences in the US
and UK
• Investor meetings in
UK, US and Middle East
Key events
• AGM
Key activities
• 5 conferences in the US
and EU
Key events
• Trading statement
• Half year results
Key activities
• Investor trip to Ankara
• Investor meetings in UK
office
Key events
• Trading Statement
Key activities
• 8 conferences in UK,
EU, & Middle East
• Investor meetings in UK
and Asia
• 3 conferences in UK,
& US
EU & US
• Investor meetings in
UK, EU & US
Internal controls
The Board is responsible for maintaining and
reviewing the effectiveness of the Group’s
system of internal control. This system is
designed to identify, evaluate and manage
the significant risks to which the Group is
exposed. The Board has established
processes to meet the expectations of the
UK Corporate Governance Code and those of
a premium listed company. These processes
were developed further during 2015 to
reflect the most recent changes to the Code
requiring companies to publish long-term
viability statements and to continually
monitor systems of risk management and
internal control. Our long-term viability
statement can be found on page 38. These
processes include having clear lines of
responsibility, documented levels of
delegated authority and appropriate
operating procedures. We recognise that
the system is designed to manage, rather
than eliminate, the risk of failure to achieve
business objectives, and can only provide
reasonable, and not absolute, assurance
against misstatement or loss.
The Audit Committee supports the Board
in the performance of its responsibilities by
reviewing those procedures that relate to
risk management processes and financial
controls. The Audit Committee considers the
reports of the internal audit function and the
external auditor and reports to the Board on
such matters as it feels should be brought to
the Board’s attention.
A detailed budget is produced annually
in accordance with our financial processes
and reviewed and approved by the Board.
Operational reports are provided to
executive management on a monthly basis
and performance against the budget kept
under regular review in accordance with
the Group’s financial procedures manual.
The Chief Executive Officer reports to the
Board on performance and key issues as
they arise.
annual investor calendar. We also liaise
with them on an ad hoc basis as and when
questions arise.
The assessment of controls and risk
management processes provide a reasonable
basis for the Board to make proper
judgements on an ongoing basis as to the
financial position and prospects of the Group.
The Board has conducted a review of the
effectiveness of the system of internal
control for the year ended 31 December
2015 and up to the date of the signing of
the financial statements, and is satisfied
that it remains appropriate to the business.
Communication with stakeholders
Part of the Group’s code of conduct sets
a framework for how it partners with, and
invests in, communities (local, regional and
global) to achieve mutual long-term benefits.
The Group contributes to socio-economic
development through taxes, royalties and
other local payments and donations. Further
details of our community programmes can be
found on pages 26 to 31 of this annual report.
2016 AGM
The 2016 AGM will be held on Wednesday,
27 April 2016 at Linklaters LLP, One Silk
Street, London, EC2Y 8HQ UK at 11.00am.
The notice of AGM accompanies this annual
report and sets out the business to be
considered at the meeting. The AGM will
provide an opportunity for shareholders
to meet with the Directors and senior
management. Both this annual report
and the notice of AGM are available on
our website at www.genelenergy.com
Communication with institutional investors
We communicate on a regular basis with our
shareholders via presentations, calls and
scheduled investor trips as part of our
Our major shareholders are also encouraged
to meet with the Chairman to discuss any
matters that they would like to raise outside
the formal investor calendar. Tony Hayward
has maintained a regular dialogue with
major shareholders following his
appointment as Chairman.
The Board receives investor relations
updates at each scheduled Board meeting
covering key investor meetings and
activities, as well as shareholder and
investor feedback.
We also engage with our shareholders
at our AGM and via our website at
www.genelenergy.com
Board committees
The Board has established four committees:
the Audit Committee, the Remuneration
Committee, the Nomination Committee
and the Health, Safety, Security and
Environment Committee.
The Political Risk Committee was disbanded
during the year as it was felt political risk
was a matter for the whole Board.
These Committees have adopted terms
of reference under which authority is
delegated by the Board and copies of
which are available on our website at
www.genelenergy.com. Each Committee
consists only of Independent Non-Executive
Directors (with the exception of the
Nomination Committee which is chaired
by Tony Hayward who was not independent
on his appointment as Chairman).
51
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com
CORPORATE GOVERNANCE
AUDIT COMMITTEE
Ensuring integrity and
objectivity of published
financial information
Objectives:
• To increase shareholder confidence by
ensuring the integrity and objectivity of
published financial information
• To advise the Board on whether the annual
report taken as a whole is fair, balanced
and understandable, and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy
• To assist the Board in meeting its financial
reporting, risk management and internal
control responsibilities
• To assist the Board in ensuring the
effectiveness of the internal accounting
and financial controls of the Company
• To strengthen the independent position
of the Company’s external auditors by
providing channels of communication
between them and the Non-Executive
Directors
• To review the performance of the
Company’s internal and external
auditing arrangements
• To assist the Board in monitoring and
addressing potential conflicts of interest
between members of the Group and the
Directors and/or certain senior managers
of the Company
Progress:
• Reviewed and received reports from the
external auditors on the annual financial
statements and other published financial
information; in doing so, the Audit
Committee has reviewed and discussed the
preliminary results and annual financial
statements with management and the
external auditors, focusing particularly on:
- the quality and appropriateness of the
accounting policies and practices and
financial reporting disclosures and
changes thereto
- areas involving significant judgement,
estimation or uncertainty
- the basis for the going concern
assumption
- the long-term viability statement
and underlying assumptions
- review of reserves, resources
and revenue
- reviewed impairments
- compliance with financial reporting
standards and relevant financial
and governance requirements
- whether the annual report taken
as a whole is fair, balanced and
understandable
• Monitored the cash position of the
Company in a difficult economic
environment
• Monitored the work of internal audit
and received the output from audits
performed in the period
• Monitored the effectiveness and
independence of the external auditor
• Reviewed key accounting policies and
practices to ensure they remain
appropriate
• Monitored the risk register and the
Group risk framework
• Reviewed the conflicts of interests
of Directors and senior executives
• Kept under review the compliance
programme and anti-bribery and
corruption processes and procedures
• Reviewed the operation and compliance of
the ‘SpeakUp’ arrangements for the Group
• Reviewed its own effectiveness and terms
of reference
All the members of the Committee are
Independent Non-Executive Directors.
The Chairman, George Rose, has recent
and relevant financial experience.
The Committee relies on information and
support from management to enable it to
carry out its duties and responsibilities
effectively.
The Audit Committee has detailed terms
of reference which set out its areas of
responsibility. The Company also operates
an independent ‘SpeakUp’ hotline for all
staff and the Committee reviews annually
the number of matters reported and the
outcome of any investigations.
Audit Committee
Chairman
George Rose
Meetings in 2015
4
Members
Jim Leng
Chakib Sbiti
Mehmet Ög˘ütçü
52
Genel Energy plc Annual Report 2015genelenergy.com The significant issues considered by the
Committee in relation to the 2015 accounts
and how these were addressed were:
• Impairment triggers were reviewed
following the announcement on
29 February of a revision in the estimate
of the initial gross recoverable proven
and probable reserves from 683 to 356
mmbbls as well as significant change
in the oil price
• Reserves and resources – an internal
review of the reserves and resources was
conducted following production declines
seen at the field during 2015. The updated
McDaniel Competent Person’s Report will
be completed shortly
• Risk reporting – the Committee considered
and endorsed a paper prepared by
management setting out further
enhancements to the process for oversight
and the reporting of risk, controls and
assurance to the Committee and the Board
Internal audit
In September 2014, a full time Head of
Internal Audit was appointed. Each year the
Committee approves an internal audit plan
for the year ahead which is aligned to the
Group’s risk matrix, the outcome of the
previous year’s audit and the outcome of
the annual assessment of the effectiveness
of internal control. In November 2015 the
Committee reviewed the internal audit
output for the first full year operating under
the new model and was satisfied that the
internal audit process had been enhanced
as a result of the change in approach.
External audit
The effectiveness and the independence of
the external auditor are key to ensuring the
integrity of the Group’s published financial
information. Prior to the commencement
of the audit, the Committee reviews and
approves the external auditor’s audit plan.
PwC present to the Committee their
proposed plan of work which is designed
to ensure that there are no material
misstatements in the financial statements.
The Committee monitors and approves
the provision of non-audit services by
the Company’s external auditors and has
in place a policy on non-audit services.
The provision of non-audit services is
generally limited to services that are
closely connected to the external audit
or to projects that require a detailed
understanding of the Group (for
example, taxation advice) which require
pre-authorisation by the Committee
under the terms of the policy.
The level of non-audit fees for 2015 was
$0.2m, further details of which can be found
on page 92 of the notes to the financial
statements. These fees reflect the services
and advice provided by PwC in respect of tax
during the year. PwC have been appointed
as the Company’s auditors for the past four
years following a tendering process in 2011.
When considering the re-appointment of
the Company’s external auditors, the
Committee reviewed the external auditor’s
independence and objectivity and the
overall effectiveness of the audit process.
At its meeting in November 2015, the
Committee reviewed the effectiveness
of the external audit process. It reviewed
papers from both management and the
external auditors, which set out the planning
and execution of the audit process. The
Audit Committee met privately with the
external auditors in the absence of
management. Following this review, the
Audit Committee was satisfied that the
external auditor remains both effective
and independent and on that basis we
will be recommending their reappointment
at the forthcoming AGM.
The Committee reviewed its own
effectiveness during the year. The
Committee has also reviewed its terms
of reference to ensure they reflect its
responsibilities in the context of the review
of internal financial control systems and
financial risk management systems. The
Committee terms of reference can be found
on our website at www.genelenergy.com
53
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com CORPORATE GOVERNANCE
NOMINATION COMMITTEE
Ensuring a continuance
of a high calibre Board
When considering candidates for
appointment to the Board, the Committee
undertakes a comprehensive search process
using an independent external search
agency to consider candidates from a
wide range of backgrounds.
During 2015 the Committee appointed
Spencer Stuart, an independent external
search agency, to assist with the refreshing
of the Board over time. As part of their
remit they were asked to provide a pool
of candidates from a diverse range of
backgrounds and with due regard to gender
diversity. Spencer Stuart have no other
connection with the Company.
When considering the appointment of Simon
Lockett to the Board all candidates were
assessed on merit with the express desire
to retain oil and gas expertise on the Board.
The Board and the Company are committed
to employing a diverse and balanced
workforce. Diversity of ideas, skills,
knowledge, experience, culture, ethnicity
and gender are important when building an
effective and talented workforce at all levels
of the organisation, including the Board.
Objectives:
• To maintain a high calibre Board, by:
- reviewing the structure, size and
composition of the Board, having due
regard to the Company’s strategic,
operational and commercial
requirements and overall diversity
of Board members
- identifying and nominating suitably
qualified candidates for appointment
to the Board as opportunities arise
- annually reviewing the time required
from Non-Executive Directors and
making recommendations as to their
reappointment at the AGM
- keeping under review succession
arrangements for Directors and other
senior executives
- reviewing Board Committee membership
Progress:
• Oversaw the transition process of Tony
Hayward to Chairman and Murat Özgül
as CEO. This was facilitated by Jim Leng
as the Senior Independent Director
• Conducted the search and appointment
process for Simon Lockett, Independent
Non-Executive Director
The Committee meets formally at least
twice a year. Inbetween formal meetings
it provides regular updates to the Board
on matters of relevance. All the members
of the Nomination Committee, with the
exception of Tony Hayward, are Independent
Non-Executive Directors.
The Nomination Committee keeps under
review the composition and balance of
the Board. It assists the Board in ensuring
that the Board consists of high-calibre
individuals whose background, skills,
experience and personal characteristics
will augment the present Board and meet
its future needs and diversity aspirations.
Currently there is one female director on
the Board and, when the opportunity arises
in the future, we will consider candidates
based on merit and against objective
criteria and with due regard for the
benefits of diversity on the Board.
Nomination Committee
Chairman
Tony Hayward
Meetings in 2015
5
Members
Mehmet Ög˘ütçü
George Rose
Sir Graham Hearne
54
Genel Energy plc Annual Report 2015genelenergy.com CORPORATE GOVERNANCE
HSSE COMMITTEE
Ensuring a focused
approach to HSSE
The Committee receives regular updates
from management on progress against the
HSSE strategy. The HSSE policy reflects
international best practice including but not
limited to the IFC Performance Standard and
ICMM Sustainable Development Framework.
We recognise that good management and
governance include a strong moral and
social commitment to all health, safety
and environmental matters. As such,
the Company’s health, safety and
environment management system defines
the Company’s approach to managing its
standards across all of its facilities and
activities. The Committee receives reports
from management on performance against
those systems.
The Committee recognises the importance
of aligning both community development
and our business strategy with our
approach to community investment and
keeps compliance with our CSR policy
and investment guidelines under review.
All the members of the Committee are
Independent Non-Executive Directors.
Objectives:
• To ensure that the Company maintains
a responsible and credible approach to
HSSE matters (including asset integrity
and major hazard risk management),
in line with international best practice
and emerging legal requirements
• To assist the Company in maintaining
its relationships with the communities in
which it operates, including through social
investment and development activities
• To assist the Board and other committees
in assessing HSSE risks, in determining,
implementing and reviewing the
Company’s HSSE strategy and processes
• To ensure the quality of the Company’s
reporting and disclosure (both internally
and to shareholders) in relation to
HSSE matters
Progress:
• Kept under review progress made
against the medium-term HSSE
strategy approved in 2014
• Received detailed updates on progress
made in respect of internal audit
action points
• Kept under review our
environmental impact
• Reviewed the HSSE performance
measures in respect of the 2015
annual bonus
• New HSSE policy launched on
16 December 2015
• CSR overview
• Reviewed its effectiveness and its
terms of reference
HSSE Committee
Chairman
Chakib Sbiti
Meetings in 2015
3
Members
Simon Lockett
Mehmet Ög˘ütçü
Sir Graham Hearne
55
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com DIRECTORS’ REMUNERATION REPORT
As I have outlined, our policy is to adopt the
highest standards of corporate governance
and accordingly we comply with the
remuneration aspects of the Code. As a
consequence we have introduced clawback
provisions for both the annual bonus and
the PSP in respect of performance periods
commencing in 2015.
Changes to Management Team
During the year the Company has seen
changes to the executive director team.
Julian Metherell, the Company’s CFO,
retired on 21 April 2015, Tony Hayward
stepped down as CEO on 12 July 2015 and
was subsequently appointed as Chairman.
Murat Özgül was appointed as Tony’s
sucessor as a Director and CEO, also on
12 July 2015.
Details of the remuneration arrangements
regarding these Executive Director
changes is set out in the annual report
on remuneration on page 60. In summary,
their salaries and cash supplements ceased
on their respective departure dates and
annual bonus opportunities were pro-rated
to their periods in office as detailed below.
On the appointment of Murat Özgül as CEO,
the Committee were conscious of the need
to provide him with appropriate incentives
during this critical time in the life of the
Company and to more closely align his
interests with those of shareholders.
The Committee accordingly granted
him an award of shares in respect of
his appointment as CEO. Further details
of this award are set out in the annual
report on remuneration on page 60.
Remuneration for 2015
The past year was a very difficult one for
the oil industry in general, with brent crude
oil prices falling by 34%. Genel with its oil
resources located in Kurdistan – Northern
Iraq, had to deal with operating in a region
with significant political and security
challenges. In addition, in February 2016,
following a review of the Taq Taq reservoir
model, Genel announced an impairment
of $1,038 million to the carrying value
of the Taq Taq field, based on the revised
assumptions on recoverable reserves and
the impact of lower oil prices.
In the face of all these challenges the
Committee has sought to ensure that
remuneration outcomes reflect these. The
Committee recognises that the Company did
achieve strong performance in several areas,
particularly operationally, which in normal
circumstances would have resulted in a 2015
annual bonus outcome of 72.5% of maximum
for Executive Directors (see page 59 for details
of how Genel performed against these targets).
However, having regard to the announcement
of the 2015 impairment, the Committee
determined that awards of this size would not
be an appropriate outcome and so exercised
its discretion to reduce the outcome by half.
Consequentially the 2015 annual bonus
outcome for Murat Özgül was 36.25%
of maximum opportunity, pro-rated for
the period he served as an Executive
Director of the Company. Tony Hayward
and Julian Metherell were eligible to be
considered to receive pro-rated bonus awards
for 2015 but elected to waive such eligibility.
Regarding the PSP awards granted in
2013, Genel’s Total Shareholder Return
(TSR) performance relative to the 13
peer companies over the three years to 31
December 2015 resulted in Genel finishing
7th. This would normally have resulted in
30% of the shares vesting. However, given
the current challenges, and in particular the
announcement of the 2015 impairment, the
Committee, again exercised their discretion
under the PSP, determining that no shares
would vest and, as a result, the 2013 PSP
awards lapsed in full.
Approach to 2016
The Committee has reviewed Murat Özgül’s
salary for 2016 and, taking into account his
recent appointment as CEO, and the difficult
operating environment, it was agreed that no
salary increase would be awarded in 2016.
Regarding PSP awards for 2016, the normal
policy would be for the CEO to receive an
award of 150% of salary. However, given the
announcement of the 2015 impairment, the
Committee intends to review its approach to
the 2016 annual award in the coming months.
Further details of how we will apply our
remuneration policy throughout the coming
year are set out on page 62.
Structure of the report
This report is in two sections:
• The Directors’ annual report on
remuneration on pages 58 to 62, sets
out the details of how our remuneration
policy was implemented during 2015
and will be implemented during 2016.
This report will be put to an advisory
shareholder vote at our 2016 AGM; and
• The Directors’ remuneration policy report
on pages 63 to 69. This contains details
of the remuneration policy which was
approved by Shareholders at the 2014
AGM. As there are no changes to our
approved policy, this policy will not be
put to Shareholders at this year’s AGM.
Jim Leng
Chairman of the Remuneration Committee
On behalf of the Remuneration Committee,
I am pleased to present the Directors’
Remuneration Report for the year ended
31 December 2015.
Although as a Jersey registered company
there is no legal requirement for us to
prepare our remuneration report in
accordance with the UK legislation on
the disclosure of executive remuneration,
it remains the policy of Genel to comply
with the highest standards of corporate
governance and we continue to do so
voluntarily. Once again we have prepared
our report in accordance with the Large
and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008
(as amended), as well as the provisions
of the UK Corporate Governance Code
(the Code) and the UK Listing Rules as
they apply to premium listed companies.
Our remuneration policy continues to
offer a clear remuneration structure for
our executives with four components:
base salary, a cash supplement in lieu
of all benefits (including pension), an
annual cash bonus and awards under the
performance share plan (PSP). Furthermore,
any shares vesting under the PSP are
normally retained for an additional three
years, making this a six year period from
award to unrestricted ownership.
Our remuneration policy has been designed
to appropriately support the delivery of
our strategic objectives. Both the annual
bonus and PSP awards have stretching
performance targets that have to be met
and are aligned to the Company’s strategy.
56
Genel Energy plc Annual Report 2015genelenergy.com Together with my fellow Committee
members and Board colleagues, I will be
available at our 2016 AGM to answer any
questions regarding our policy on executive
remuneration and the activities of the
Committee more generally.
As announced on 23 February 2016 I will
be retiring as a Non-Executive Director at
the 2016 AGM and consequently this is my
final report as Chairman of the Committee.
I would like to take this opportunity to thank
both my fellow Committee members and
shareholders for their support during my
tenure as Chairman of the Committee.
Jim Leng
Chairman of the Remuneration Committee
Consideration by the Directors of matters
relating to directors’ remuneration
Remuneration Committee membership
Name
Jim Leng
George Rose
Simon Lockett1
Sir Graham Hearne
Role
Chairman
Member
Member
Member
1.
Appointed to the Committee on 19 January 2016
All of the members of the Committee are
Independent Non-Executive Directors.
The Committee has adopted clearly defined
terms of reference in line with the Code
which are available on our website at
www.genelenergy.com. The Committee
is responsible for determining the
remuneration policy for the Executive
Directors and the Chairman of the Board.
The Committee also reviews, approves
and administers all aspects of the
Company’s share incentive plans.
The Chairman of the Board together with the
Executive Director determine the fees and
overall remuneration for the Non- Executive
Directors. Their fees have remained
unchanged since the Company was listed
(with the exception of the Chairman’s fees
which were increased from 1 January 2013).
Activities of the Remuneration Committee
The Committee held four scheduled meetings
during the year and a further meeting to
consider the remuneration arrangements
in respect of the appointment of Murat Özgül
as CEO and Tony Hayward as Chairman.
Other key activities during the year included
the following:
• Preparation and approval of the Directors’
remuneration report
• Review of the executive base salary level in
the context of pay for the wider workforce
and the current operating environment
• Review of performance objectives of the
executive in order to determine the level
of bonus earned in respect of the 2015
financial year
• Review of the TSR performance outcomes in
respect of the vesting of the 2013 PSP award
• Approval of the annual bonus plan
framework for 2016
• Consideration of the remuneration
arrangements of the new Chief
Executive Officer
• Consideration and determination of the
performance criteria for the 2015 PSP
awards, including a review of the
comparator group
• Approval of share plan awards including
to those below Board level
• Consideration of corporate governance
and market practice developments
Details of the attendance of Committee
members at meetings during 2015 is set out
on page 47 of this annual report. Committee
members attended 100% of meetings held
during the year.
Advisers to the Committee
The Committee has appointed Deloitte LLP
(‘Deloitte’) to provide independent advice on
remuneration matters under consideration
by the Committee. They were appointed by
the Committee as it was felt they had the
most relevant experience and expertise to
advise the Committee on remuneration
related matters.
Deloitte is a leading remuneration adviser
and a member of the Remuneration
Consultants Group and as such voluntarily
operates under the code of conduct
in relation to executive remuneration
consulting in the UK. Deloitte have also
provided support and advice to the
Company including in respect of the
operation of the Company’s share plans
and advice in relation to employment
arrangements for new employees below
Board level during the year. The Committee
is satisfied that the advice they have
received has been objective and
independent. Deloitte’s fees in respect
of advice to the Committee in the year
under review were £41,050 and were
charged on the basis of their standard
terms of business for the advice provided.
The Committee also consulted during the
year with the Chairman (Rodney Chase and
subsequently Tony Hayward), CEO (Tony
Hayward and subsequently Murat Özgül),
CFO (Julian Metherell up to date of his
retirement), and the Company Secretary
(Sarah Robertson).
No member of the Committee nor any
party from whom advice was sought
participated in discussions regarding
their own remuneration.
Shareholder voting
At the AGM held on 21 April 2015, votes cast by proxy and at the meeting in respect of the annual report on remuneration for the year ended
31 December 2014 were as follows:
To approve the annual report on remuneration for the year ended
31 December 2014
Number of votes cast
For
Against
Abstentions
152,738,299
149,032,065
(97.57%)
3,706,234
22,120,918
The Committee is pleased to note that the vast majority of our shareholders approved the annual report on remuneration.
57
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com DIRECTORS’ REMUNERATION REPORT
continued
ANNUAL REPORT ON REMUNERATION
This part of the annual report provides details of the implementation of the Directors’ remuneration policy (‘the Policy’) for the year ended
31 December 2015 and discusses how the Policy will be implemented in the 2016 financial year. Details of the Policy can be found on pages
63 to 69 .
Audited information
Single total figure table showing remuneration for each Director
The following table sets out the total remuneration for Executive Directors and Non-Executive Directors for the year ended 31 December
2015, and comparison figures for 2014.
Name
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Salary/fees £’000
Benefits £’000
Bonus £’000
PSP1 £’000
Total £’000
Executive Directors
Murat Özgül2
Tony Hayward3
Julian Metherell4
296
374
153
–
685
475
74
94
38
–
171
119
161
0
0
–
925
641
0
0
0
–
740
478
531
468
191
–
2,521
1,713
The 2013 awards under the PSP lapsed following the announcement of the Company’s results in 2016
1.
2. Murat Özgül was appointed as a Director and CEO on 12 July 2015
3.
4.
Tony Hayward stepped down as CEO on 12 July 2015 and was subsequently appointed Chairman (see below)
Julian Metherell retired as a Director on 21 April 2015
Salary/fees £’000
Benefits £’000
Bonus £’000
PSP £’000
Total £’000
Name
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Non-Executive Directors
Tony Hayward1
Rodney Chase2
Jim Leng5
Sir Graham Hearne5
Mehmet Ög˘ütçü
Mark Parris3
George Rose
Nathaniel Rothschild
Chakib Sbiti
Gulsun Nazil
Karamehmet Williams
Murat Yazici4
122
204
115
100
100
46
120
80
115
80
77
-
260
115
100
100
150
120
80
115
80
80
-
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
122
204
115
100
100
46
120
80
115
80
77
-
260
115
100
100
150
120
80
115
80
80
Tony Hayward was appointed Chairman on 12 July 2015
1.
2. Rodney Chase resigned as a Director on 12 July 2015
3. Mark Parris resigned as a Director on 21 April 2015
4. Murat Yazici resigned as a Director on 15 December 2015
5. Sir Graham Hearne and Jim Leng will retire as Directors at the conclusion of the 2016 AGM
Tony Hayward serves as the Non-Executive Chairman of Glencore plc for which he received and retained fees of £367,341 up to 12 July 2015
when he became Chairman of Genel. Julian Metherell is Non-Executive Director of GASLOG LNG Shipping for which he received and
retained fees of $42,192 and a Non-Executive Director of Euronav NV for which he received and retained fees of €49,726 up to the date
of his retirement on 21 April 2015.
Additional disclosures in respect of the single total figure table
Base salary
The table below shows base salaries which were effective during 2015.
Base salary on 1 Jan 2015 or as at
date of appointment as a Director
Base salary on
1 Jan 2014
Murat Özgül
Tony Hayward1
Julian Metherell
£625,000
£705,000
£490,000
–
£685,000
£475,000
1.
Tony Hayward received a fee of £260,000 per annum with effect from 12 July 2015,
the date of his appointment as Chairman
Salary information for 2016 is provided on page 62.
Benefits
In line with the Committee’s aim to provide a simple, transparent
package, Executive Directors receive a cash supplement in lieu of all
benefits, including pension, private health insurance, life assurance
and company car provision. The cash supplement is not used in the
calculation of bonus and long-term incentive quantum.
For 2015 the benefit allowance was 25% of base salary.
Tony Hayward ceased to receive a benefit allowance upon his
appointment as Chairman.
58
Genel Energy plc Annual Report 2015genelenergy.com Annual bonus
The 2015 annual bonus scorecard was based on the Company’s
performance against key business objectives (with a weighting
of 70%) and individual performance (with a weighting of 30%).
Key business objectives included financial and operational targets
(45%), health and safety (15%) and people (10%).
Performance share plan awards made in 2015
PSP awards are granted in the form of nil-cost options over shares
in the Company with the number of options granted determined
by reference to a percentage of base salary. The 2015 awards were
based on a face value of 150% of salary for the CEO and 140% of
salary for the CFO at the time of award.
Although Genel delivered strong performance against operational,
safety and people capability objectives, inevitability the Company’s
financial performance was impacted by the extremely difficult
trading environment, both globally and in Kurdistan, as well as the
Taq Taq reserves. Overall, the performance delivered would have,
in normal circumstances, resulted in a 2015 annual bonus outcome
of 72.5% of maximum. Details of the Company’s performance
against each of the objectives are set out below.
However, in the context of the Taq Taq review the Committee
determined that awards of this size would not be an appropriate
outcome and so exercised their discretion to reduce the outcome
by 50%. Consequentially the 2015 annual bonus outcome for
Murat Özgül was 36.25% of maximum opportunity, pro-rated for
the period he served as an Executive Director of the Company.
Tony Hayward and Julian Metherell were eligible to be considered
to receive pro-rated bonus awards for 2015 but elected to waive
that eligibility and consequently received no bonus.
The Committee decided that, for the 2015 awards, it would continue
to measure the performance of the Company against that of its
sectoral peers using a relative TSR measure. The Committee
consider that TSR is the most appropriate measure to create
maximum alignment with shareholders and encourage long-term
value creation. The sectoral peer group for the 2015 PSP awards
was reviewed in November 2014 to ensure that it remained
appropriate. Following that review the Companies highlighted
in bold below were added to the peer group.
Afren
BP
Cairn Energy
DNO
Dragon Oil
Enquest
Gulf Keystone
Nostrum Oil & Gas
Ophir Energy
Premier Oil
Royal Dutch Shell
Seplat Petroleum
SOCO International
Tullow Oil
Murat Özgül
Tony Hayward
Julian Metherell
2015
bonus
£161,000
–
–
As % of
maximum
36.25%
0%
0%
Awards will vest according to the following schedule:
TSR ranking of the Company
Below median
Median
Between median and upper quartile
Upper quartile
Proportion
of award vesting
0%
30%
Straight-line basis
100%
2015 – Annual Bonus, Remuneration Committee assessment of performance against targets
The 2015 Annual Bonus was assessed based on the Company’s performance against key business objectives (with a weighting of 70%) and
based on the individual’s performance (with a weighting of 30%). The Committee has reviewed the Company’s performance against key
business objectives. Further detail is set out in the table below:
Weighting Performance target
Assessment of performance against metrics
Bonus
performance
measures
Operational
and Financial
45% Secure the financial strength
of the Company
Meet key operational KPIs in
relation to production, costs,
capex and reserve replacement
Completion of Taq Taq CPF2
Progress the
commercialisation of the
gas business
Maintain existing safety
performance
Strengthen internal capability
and contractor management
Enhance the existing HSE
culture
Safety and
Environment
15%
10%
Building
Operational
Capacity
through
People
While cash payments received from the KRG were below expectations due
to the Government’s liquidity crisis, management proactively scaled back
capital expenditure and cut G&A by c.45%.
Working interest production for 2015 of 85kbopd was slightly below
guidance of 90kbopd. Capex was within guidance. No reserves were added
during the year.
Was not completed in 2015.
A revised commercial structure was agreed with the KRG in 2015 including
updated PSC terms, gas supply terms and the creation of an independent
midstream company. However progress on converting this deal into full form
agreements was not completed in 2015.
Further progress was made on the midstream project in relation to financing
and engineering. ING was appointed as project finance adviser and work
commenced on obtaining project finance for the project. An EOI for the EPC
contract was completed and a tender for engineering studies commenced.
Strong performance with zero LTI’s, no high potential incidents and no spills
reported in 2015.
Made good progress, hiring a local advisor and enhancing the contractor
management processes.
Continued to build on the positive HSE culture through coaching, HSE
leadership training and further embedding of management systems
throughout the Company.
A robust performance management cycle in place for all employees with
regular communications to all employees in all parts of the business.
Embed and mature the
performance management
process
Right size the organisation
to align with the business
environment
Enhance the compliance culture All staff completed mandatory training on the code of conduct. Anti-bribery
During the year the organisation was re-sized to reflect the changes to
the 2015 work plans.
and trade sanctions training was provided to relevant staff.
Performance
assessment
17.5%
15%
10%
59
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com
DIRECTORS’ REMUNERATION REPORT
continued
The following table provides details of the awards made under the PSP on 15 April 2015. Performance for these awards is measured over the
three financial years from 1 January 2015 to 31 December 2017.
Tony Hayward
Julian Metherell
Type of award
Nil-cost
options
Face value
(£)
1,057,500
686,000
Face value
(% of salary)
Threshold vesting
(% of face value)
Maximum vesting
(% of face value)
End of performance
period
150%
140%
30%
(median)
100%
(upper quartile)
31 Dec 2017
Face value has been calculated using the average share price 10 dealing days, prior to the date of grant, of 498.75p.
Share awards
The following table provides a summary of all share awards as at 31 December 2015.
Scheme
Grant date
Exercise
price
(pence)
At 1
January
2015
Granted
during
the year
Vested/
released
during
the year
Exercised
during
the year
Lapsed
during
the
year
At 31
December
2015
Performance
period end/
Vesting date
Expiry date
787.58
Nil
Nil
Nil
Nil
31,764
49,009
34,588
–
–
–
–
–
112,757
260,210
–
375,000
–
–
–
–
–
–
123,796
134,352
98,231
–
–
–
–
212,030
102,131
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31,764 19/12/2014
19/12/2021
49,009 31/12/2015 01/03/2023
34,588 31/12/2016 21/03/2024
15/03/2025
112,757 31/12/2017
n/a 15/04/2025
260,210
375,000
n/a 21/08/2025
21,665
–
–
–
102,131 31/12/2014 29/05/2022
134,352 31/12/2015 01/03/2023
98,231 31/12/2016 21/03/2024
212,030 31/12/2017 15/04/2025
Murat
Özgül2
Tony
Hayward3
Julian
Metherell4
SOP
PSP
PSP
PSP
RSP
CEO
award
19/12/2011
01/03/20131
21/03/2014
15/03/2015
15/03/2015
21/08/2015
PSP
PSP
PSP
PSP
PSP
PSP
PSP
PSP
29/05/2012
01/03/20131
21/03/2014
15/04/2015
29/05/2012
01/03/20131
21/03/2014
15/04/2015
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
79,991
86,739
63,575
–
–
–
–
137,543
–
–
–
–
65,992
–
–
–
13,999
19,981
35,881
123,475
– 31/12/2014 29/05/2022
66,758 31/12/2015 03/09/2016
–
27,694 31/12/2016
–
14,068 31/12/2017
1.
2.
3.
4.
The 2013 awards under the PSP lapsed following the announcement of the Company’s results in 2016
Awards made to Murat Özgül prior to 12 July 2015 were made to him in his capacity as President, KRI and Turkey
Awards made to Tony Hayward prior to 12 July 2015 were made to him in his capacity as CEO
Julian Metherell’s awards expire six months from the date of vesting. The awards vest immediately following the announcement of the Company’s annual results
CEO Award
On 21 August 2015 Murat Özgül was granted a share award over 375,000 shares in respect of his appointment to the role of CEO of the
Company on 12 July 2015. The award was made under Listing Rule 9.4.2(2) and was granted in the form of a nil-cost option. The award will
normally become exercisable in three tranches: 25% on the first anniversary of his appointment as CEO, 25% on the second anniversary
and 50% on the third anniversary of appointment. Vesting is subject to his continued employment with the Company. To the extent that
awards vest, his award will be exercisable until the tenth anniversary of his appointment. The award is non-pensionable.
Upon vesting, the acquired shares will be subject to a further holding period of three years from the vesting date. The other terms of the
award are consistent with awards made under the RSP described in the Directors’ Remuneration Policy stated on page 64.
Retaining Murat Özgül as CEO is critical to the future success of the Company, in particular in navigating the exceptional circumstances
related to our operations in Kurdistan. This award is intended to support the retention of the CEO and to more closely align his interests with
those of shareholders over the next four to six years.
Payments to past Directors
Tony Hayward stepped down as CEO on 12 July 2015 and was appointed as Chairman. For the period 1 January to 12 July 2015 he received
his base salary and benefits allowance as CEO. He was also eligible to be considered to receive a pro-rated annual bonus for this period but
has since waived his eligibility. From 12 July 2015 onwards he received a fee for his role as Chairman. He did not receive a benefits allowance
and was not eligible for an annual bonus in respect of his role as Chairman. In accordance with our remuneration policy, his outstanding PSP
awards will continue, with performance assessed at the normal time and will remain subject to a three year holding period following vesting.
He will not be granted any share awards in respect of his role as Chairman.
Julian Metherell retired as a Director on 21 April 2015. For the period 1 January to 21 April 2015 he received his base salary and benefits
allowance. He was also eligible to be considered to receive a pro-rated annual bonus for this period but has since waived his eligibility. In
accordance with our remuneration policy, his outstanding PSP awards were pro-rated based on the proportion of the performance period
completed prior to his retirement. The performance conditions for these awards will be assessed at the normal time and vested awards will
remain subject to a holding period which will expire three years after his retirement date.
60
Genel Energy plc Annual Report 2015genelenergy.com Payments for loss of office
In 2015, there were no payments to directors for loss of office.
Statement of Directors’ shareholding and share interests
The beneficial interests of the Directors in the Company’s shares as at 31 December 2015 are shown in the table below. There have been
no changes in the Directors’ shareholdings and interests since 31 December 2015.
The Company does not currently operate a formal shareholding guideline as Executive Directors must normally hold any vested shares
under the PSP for three years following vesting and are expected to build up their holding over time.
Director
Murat Özgül
Tony Hayward
Jim Leng
Sir Graham Hearne
Mehmet Ög˘ütçü
George Rose
Nathaniel Rothschild
Gulsun Nazli Karamehmet Williams
Chakib Sbiti
Rodney Chase
Julian Metherell
Mark Parris
Murat Yazici
This represents the end of the audited section of the report.
Historical TSR performance and CEO remuneration outcomes
The following graph shows the Company’s TSR since trading of
Genel Energy plc’s shares began on the London Stock Exchange on
21 November 2011 against the FTSE 350 Oil & Gas Producers Index.
The Committee believes that the FTSE 350 Oil & Gas Producers
Index remains the most appropriate Index as these companies are
Genel’s direct UK listed comparators.
Total shareholder return
140
120
100
80
60
40
20
0
21/11/11
21/05/12
21/11/12
21/05/13
21/11/13
30/05/14 21/11/14
21/05/15
31/12/15
Genel Energy
FTSE 350 Oil & Gas Producers
Ordinary shares as
at 31 December
2015 or date of
leaving
Interest in share options
granted under the
Company share plans as at
31 December 2015
Ordinary shares as
at 31 December
2014 or
appointment date
37,942
1,483,876
50,000
90,000
–
90,000
22,119,970
–
80,100
400,000
1,633,876
31,603
–
863,328
546,744
–
–
–
–
–
–
–
–
108,520
–
–
7,942
1,633,876
50,000
90,000
–
90,000
22,119,970
–
80,100
400,000
1,633,876
31,603
946,919
Percentage change in remuneration of the Chief Executive Officer
The table below shows the percentage change in the Chief Executive
Officer’s salary, benefits and annual bonus between the financial 2015
compared to the average for permanent employees of the Group.
Chief Executive Officer
All employees
% change
in base
salary
2015/2014
-2.2%
-25%
% change in
benefits
2015/2014
-1.8%
-38%
% change
in annual
bonus
2015/2014
-74.8%
-4%
The percentage change in base salary for the CEO for 2015 includes
data for Tony Hayward up to 12 July 2015 and Murat Özgül thereafter.
The percentage change in base salary and annual bonus for all
employees reflects a significant decrease in the number of
employees at all levels in the organisation during the year.
Relative importance of the spend on pay
The table below illustrates the current year and prior year overall
expenditure on pay. The regulations require that we report
distributions received by Shareholders through dividends and share
buy backs. It is currently the Company’s policy not to pay dividends.
We did not buy back shares during 2015.
The table below summarises the CEO single figure for total
remuneration, annual bonus pay-outs and LTIP vesting levels as a
percentage of maximum opportunity over the period since listing to
the end of the 2015 financial year.
2014
2015
Spend on share buyback
Chief Executive Officer
2011
2012
2013
2014
2015
Tony
Hayward
Murat
Özgül
2014
2015
Remuneration paid to all employees
$m
74.8
43.7
$m
24
0
139 1,691
CEO single figure of
remuneration (£’000)
Annual bonus pay-out (as a
% of maximum opportunity) n/a 90% 95% 90%
Long-term incentive vesting
out-turn (as a % of
maximum opportunity)
n/a 82.5%
2,521
1,779
n/a
n/a
468
531
0% 36.25%
0%
0%
Remuneration paid to all employees represents total staff costs
from continuing operations. The $31.1 million decrease in staff costs
relates to a decrease in the number of employees (41% reduction
during 2015).
61
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com DIRECTORS’ REMUNERATION REPORT
continued
Implementation of remuneration policy in 2016
This section provides an overview of how the Committee is
proposing to implement our remuneration policy in 2016.
Base salary
In determining Executive Director salary increases for 2016, the
Committee took into consideration a number of factors including:
• The individual’s skills and experience
• Business performance
• Salary levels for similar roles within the industry
• Pay and conditions elsewhere in the Company
The Committee has decided that no salary increase would be made
for Murat Özgül in 2016. At the time of his appointment as CEO in
July 2015 a salary increase was awarded commensurate to the
change in his role. The table below shows base salaries for 2016.
Performance share plan
PSP awards are granted in the form of nil-cost options over shares
in the Company with the number of options granted normally
determined by reference to a percentage of base salary.
For 2016 awards, given the fall in share price in February 2016
following announcement of the 2015 impairment charge, the
Committee intends to review whether a normal award of 150%
of salary is appropriate in the current circumstances.
The Committee continues to consider that relative TSR is the
most appropriate measure to create maximum alignment with
shareholders and encourage long-term value creation. The vesting
of the PSP award will therefore continue to be determined based
on the Company’s relative TSR against a sectoral peer group.
The Committee has reviewed the TSR peer group and accordingly
the peer group for the 2016 award will be as follows:
Murat Özgül
Base
salary from
1 Jan 2016
£625,000
Benefits
As outlined above, Murat Özgül receives a cash supplement in lieu
of all benefits, including pension, private health insurance, life
assurance and company car provision. The cash supplement is not
included in calculating bonus and long-term incentive quantum.
For 2016, the cash supplement remains set at 25% of base salary.
Murat Özgül
2016 Benefits
allowance
£
£156,250
2016 – Annual bonus targets
The target bonus for Murat Ozgul for 2016 remains at 100% of base
salary, with a maximum bonus of 150% of base salary.
For 2016, the performance of the Executive Director will be
measured 70% against company metrics and 30% against
individual performance. The metrics have been changed to place a
greater emphasis in 2016 on operational and financial performance,
55% of the company metric’s will relate to operational and financial
performance compared to 40% in 2015.
Bonus performance
measures
Specific targets
Percentage
Gas
Financial
Safety and
environment
Operational
Individual
performance
Demonstrably progress the gas
project towards project sanction
Secure the financial strength
of the Company
Manage the Group on a cash flow
neutral basis
Maintain existing zero performance
rate on LTI’s, high potential incidents,
fatalities and spills
Maintain and continue to embed
a pro-active HSSE culture
Manage the group within guidance
Objectives linked to strategy
25%
15%
15%
15%
30%
BP
Cairn Energy
DNO
Dragon Oil
Enquest
Gulf Keystone
Nostrum Oil & Gas
Ophir Energy
Premier Oil
Royal Dutch Shell
Seplat Petroleum
SOCO International
Tullow Oil
The vesting schedule will remain the same as for awards made
in 2015, as outlined on page 59.
Clawback provisions
The Committee has considered clawback in the context of the Code
and will apply clawback provisions to both the annual bonus and the
PSP where it is considered appropriate. Such circumstances may
include a material misstatement of the Company’s audited results,
misconduct of the individual and any error in the calculation of any
performance condition. Clawback may be applied up to one year
after payment for bonus awards and three years after vesting for
PSP awards. In compliance with the UK Corporate Governance Code,
PSP awards are subject to malus provisions. Details of these
provisions are set out in the policy report on page 65.
Chairman and Non-Executive Director remuneration
The fee policy for the Chairman and Non-Executive Directors
remains unchanged in 2016.
Role
Non-Executive Chairman
Senior Independent Director
Non-Executive Director fee
Additional fee for membership of
two Board Committees
Additional fee for Committee chairmanship:
Role
Audit Committee
Remuneration Committee
HSSE Committee
Nomination Committee
Fee
£260,000
No additional fee
£80,000
£20,000
Fee
£20,000
£15,000
£15,000
No additional fee
Jim Leng
Chairman of the Remuneration Committee
2 March 2016
62
Genel Energy plc Annual Report 2015genelenergy.com
REMUNERATION POLICY REPORT
This part of the report sets out a summary of the Directors’ remuneration policy as determined by the Remuneration Committee
(“the Committee”) and approved by shareholders at the 2014 Annual General Meeting. A copy of the shareholder approved Policy
is available at www.genelenergy.com in the Investors Relations section.
The Company is incorporated in Jersey rather than the UK. Accordingly, the Company does not have the benefit of the statutory
protections afforded by the UK Companies Act 2006 in the event that there were to be any inconsistency between this Policy and any
contractual entitlement or other rights of a Director. Therefore, in the event that there were to be any payment which was inconsistent
with this Policy, the Company would not have the statutory right, under section 226E of the UK Companies Act 2006, to recover such
payments from its Directors.
Remuneration policy table
Fixed remuneration
Element
Salary
Purpose and link
to strategy
Operation
• To provide fixed
remuneration
which is
balanced,
taking into
account the
complexity of
the role and the
skills and
experience of
the individual
• The Committee takes into account a
number of factors when setting salaries,
including:
— scope and complexity of the role
— the skills and experience of the individual
— salary levels for similar roles within the
international industry
— pay elsewhere in the Group
• Salaries are reviewed, but not necessarily
increased, annually with any increase
usually taking effect in January
Benefits
• To provide a
• A cash supplement is provided in lieu of
simple
and broadly
market
competitive
benefit
cash allowance
benefits (including pension)
• The cash supplement is not included in
calculating bonus and long-term incentive
quantum
Performance measures
None
None
Maximum
opportunity
• While there is no defined
maximum opportunity,
salary increases are
normally made with
reference to the average
increase for the Company’s
wider employee population
• The Committee retains
discretion to make higher
increases in certain
circumstances, for example,
following an increase in
the scope and/or
responsibility of the role
or the development of the
individual in the role
• Cash supplement is set
as a percentage of base
salary and paid in lieu of all
benefits (including pension)
• While there is no defined
maximum opportunity,
the cash supplement is
currently 25% of
base salary
• The Committee keeps the
benefit policy and level
of cash supplement under
review. The Committee
may adjust cash
supplement levels in line
with market movements
63
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com REMUNERATION POLICY REPORT
continued
Remuneration policy table continued
Variable remuneration
Purpose and link
to strategy
Operation
Element
Annual
bonus
• To incentivise
and reward the
achievement
of annual
financial,
operational
and individual
objectives
which are key
to the delivery
of the
Company’s
short-term
strategy
Performance
share plan
(PSP)
• To incentivise
and reward
the creation
of long-term
shareholder
value
• To align the
interests of
the Executive
Directors with
those of
Shareholders
Maximum
opportunity
• Maximum award
opportunity for
Executive Directors is
150% of base salary
for each financial year
• The usual maximum award
opportunity in respect of a
financial year is 200% of
base salary
• However, in circumstances
that the Committee deems
to be exceptional, awards of
up to 300% of base salary
may be made
• Awards are based on objectives set by
the Committee over a combination of
financial, operational and individual
goals measured over one financial year
• Objectives are set annually to ensure
that they remain targeted and focused
on the delivery of the Company’s
short-term goals
• The Committee sets targets which require
appropriate levels of performance, taking
into account internal and external
expectations of performance
• As soon as practicable after the year-end,
the Committee meets to review
performance against objectives and
determines payout levels
• Bonus payments are made in cash,
although there is the flexibility to
pay in shares
• No part of the bonus is currently subject
to deferral, although the Committee
retains the flexibility to apply deferral to
all or part of the bonus (in cash or shares)
in the future should it be considered
appropriate
• Awards granted under the PSP (normally
in the form of conditional share awards
or nil-cost options) vest subject to
achievement of performance conditions
measured over a period of at least
three years
• Awards can be reduced or cancelled in
certain circumstances as set out below
• Any shares that vest may benefit from
the value of dividends (if any) which would
have been paid during the period between
award and vesting and may assume
reinvestment in the Company’s shares
• Shares that vest are normally subject to
a holding period of three years from the
vesting date although the Committee
retains the discretion to apply a different
holding period, or no holding period
• Any vested options must be exercised
within ten years of the date of grant
Performance measures
• At least 70% of the
award will be assessed
against Group metrics
including financial,
operational, safety
and environment,
and CSR performance.
The remainder of the
award will be based on
performance against
individual objectives
• A sliding scale of
between 0% and 100%
of the maximum award
is paid dependent on the
level of performance
• Vesting of awards is
dependent on financial,
operational and/or share
price measures, as set
by the Committee,
which are aligned with
long-term strategic
objectives of the
Company. No less than
half of an award will
be based on share
price measures. The
remainder will be based
on either financial,
operational or share
price measures
• At the minimum level of
acceptable performance,
no more than 30% of
the award will vest rising
to 100% for maximum
performance
• Awards will only be
made to Executive
Directors in recruitment
scenarios
• The Committee may
attach performance
conditions to awards
if appropriate
Restricted
share plan
(RSP)
• Normally used
to buy-out
awards
forfeited by
new Executive
Directors on
recruitment
• Murat Özgül will
not participate
in this plan
from his date
of appointment
as CEO
• The Committee will where possible make
buy-out awards on a like-for-like basis as
set out in the recruitment policy
• Awards can be reduced or cancelled in
certain circumstances as set out below
• Awards will vest on a date determined by
the Committee at grant, subject to the
individual’s continued employment and,
if the Committee considers appropriate,
performance conditions
• Any shares that vest may benefit from the
value of dividends paid (if any) during the
period between award and vesting which
may assume reinvestment in the
Company’s shares
• The plan rules allow for a
maximum award of 300%
of base salary in respect
of a financial year. Only in
circumstances that the
Committee deems to be
exceptional will awards
be made at this level
64
Genel Energy plc Annual Report 2015genelenergy.com Notes to the policy table
The Committee reserves the right to make any remuneration
payments and payments for loss of office notwithstanding that they
are not in line with the Policy set out above, where the terms of that
payment were agreed:
• before the Policy came into effect; or
• at a time when the relevant individual was not a Director of
the Company and, in the opinion of the Committee, the payment
was not in consideration for the individual becoming a Director of
the Company
For these purposes ‘payments’ includes the Committee satisfying
awards of variable remuneration (including awards under any of the
Company’s share plans) and, in relation to an award or option over
shares, the terms are ‘agreed’ at the time the award is granted.
Performance measures and targets
Annual bonus
The annual bonus performance measures are designed to provide
an appropriate balance between incentivising Executive Directors to
meet financial targets for the year and to deliver specific strategic,
operational and personal goals. This balance allows the Committee
to review the Company’s performance in the round against the key
elements of our strategy and appropriately incentivise and reward
Executive Directors.
Bonus targets are set by the Committee each year to ensure that
Executive Directors are focused on the key objectives for the next
12 months. In doing so, the Committee takes into account a number
of internal and external reference points, including the Company’s
business plan.
PSP
The ultimate goal of our strategy is to provide long-term sustainable
returns to shareholders. The Committee currently considers that
relative TSR is the most appropriate measure to assess the
underlying financial performance of the business while creating
maximum alignment with Shareholders and encouraging long-term
value creation.
Malus provisions
Under the PSP and RSP, prior to vesting, the Committee may cancel
or reduce the number of shares awarded or impose additional
conditions on an award in circumstances where the Committee
considers it to be appropriate. Such circumstances may include a
material misstatement of the Company’s audited financial results, a
material breach of health and safety regulations, a material failure of
risk management or serious reputational damage to the Company.
Plan rules
The PSP and RSP shall be operated in accordance with the rules of
the plans as approved by Shareholders and amended from time to
time in accordance with those rules. In particular:
• The plan rules provide for adjustments in certain circumstances,
for example, awards may be adjusted in the event of variation of
the Company’s share capital, demerger, special dividend,
reorganisation or similar event;
• In the event of a change of control of the Company, existing share
awards will vest in line with the plan rules to the extent the
Committee determines, taking into account the extent to which
any performance conditions (where applicable) have been satisfied
and, unless the Committee determines otherwise, the time elapsed
since that time. The Committee may, in the event of a winding-up
of the Company, demerger, delisting, special dividend or other
event which the Committee considers may affect the price of
shares, allow awards to vest on the same basis;
• The performance conditions may be replaced or varied if an event
occurs or circumstances arise which cause the Committee, acting
fairly and reasonably, to determine that a substituted or amended
performance condition would be more appropriate (taking into
account the interests of the Shareholders of the Company)
provided that the amended performance condition would not be
materially less difficult to satisfy; and
• The Committee may elect, prior to vesting or exercise in the case
of options, to deliver the value of vested awards as cash.
Remuneration arrangements throughout the Company
The remuneration policy for Executive Directors is designed in line
with the remuneration principles that underpin remuneration across
the Company. When making decisions in respect of Executive
Director remuneration arrangements, the Committee takes into
consideration the pay and conditions for employees throughout the
Company, including the local inflationary impact for the countries in
which we operate. As stated in the policy table, salary increases are
normally made with reference to the average increase for the wider
employee population.
The Company places a significant focus on variable remuneration,
ensuring that a meaningful proportion of remuneration across all
employees is based on performance, through its operation of the
annual bonus plan throughout the Company and participation in
share incentive plans.
Genel is committed to strengthening and widening employee share
ownership by the use of share incentives granted under our share
plans. As a result approximately 90% of employees participate in
our share plans.
The Committee has considered malus provisions in the context of
the annual bonus and is satisfied that malus is appropriately taken
into account at the time the Committee approves a bonus payment.
The Committee does not directly consult with our employees as part
of the process of determining executive pay. However, there is wide
employee participation in our share plans.
65
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com REMUNERATION POLICY REPORT
continued
Chairman and Non-Executive Directors
Element
Chairman
fees
Purpose and link
to strategy
Operation
Opportunity
Performance metrics
• The fee for the Chairman is normally
• Whilst there is no maximum
• None
• To provide an
appropriate
reward to
attract and
retain a
high-calibre
individual
with the
relevant skills,
knowledge and
experience
reviewed annually but not necessarily
increased
• The remuneration of the Chairman is
set by the Committee
• The Chairman receives a set fee for
the role; no additional fees are payable
for other Committee memberships
• The fee is payable in cash, although
the Committee retains the right to
make payment in shares
fee level, fees are set
considering:
— market practice for
comparative roles
— the time commitment
and duties involved
— the requirement to attract
and retain the quality
of individuals required
by the Company
• Expenses reasonably
and wholly incurred in the
performance of the role of
Chairman of the Company
may be reimbursed or paid
for directly by the Company,
as appropriate, and may
include any tax due on
the expense
• The Chairman does not
participate in any of the
Group’s incentive plans
• Whilst there is no maximum
• None
fee level, fees are set
considering:
— market practice for
comparative roles
— the time commitment
and duties involved
— the requirement to attract
and retain the quality
of individuals required
by the Company
• Expenses reasonably and
wholly incurred in the
performance of the role
of Non-Executive Director
of the Company may be
reimbursed or paid for
directly by the Company,
as appropriate, and may
include any tax due on
the expense
• The Non-Executive
Directors do not participate
in any of the Group’s
incentive plans
Non-Executive
Director
(NED) fees
• To provide an
appropriate
reward to
attract and
retain
high-calibre
individuals
with the
relevant skills,
knowledge and
experience
• The fees for the Non-Executive Directors
are normally reviewed annually but not
necessarily increased
• The remuneration of the Non-Executive
Directors is a matter for the Chairman
and the Executive Directors
• Non-Executive Directors receive a
standard basic fee. Where applicable,
they also receive additional fees for
Committee chairmanship and for the
membership of two or more Committees
• Although no additional fee is currently
paid for the role of the Senior
Independent Director or the Chairman of
the Nomination Committee, the Company
retains the flexibility to pay such a fee
if appropriate
• The fee is payable in cash, although
the Committee retains the right to
make payment in shares
66
Genel Energy plc Annual Report 2015genelenergy.com Non-Executive Directors may receive professional advice in respect
of their duties with the Company which will be paid for by the
Company. Non-Executive Directors will also be covered by the
Company’s directors and officers insurance policy.
Recruitment policy
In determining remuneration for new appointments to the Board,
the Committee will consider all relevant factors including, but not
limited to, the calibre of the individual and their existing package, the
external market and the existing arrangements for the Company’s
current Executive Directors, with a view that any arrangements
offered are in the best interests of the Company and shareholders
and without paying any more than is necessary.
Where the new appointment is replacing a previous Executive
Director, salaries and total remuneration opportunity may be higher
or lower than the previous incumbent. If the appointee is expected
to develop into the role, the Committee may decide to appoint the
new Executive Director to the Board at a lower than typical salary.
Larger increases (above those of the wider employee population)
may be awarded over a period of time to move closer to market level
as their experience develops.
Benefits will normally be limited to those outlined in the
remuneration policy table above. However, additional benefits may
be provided by the Company where the Committee considers it
reasonable and necessary to do so. Such circumstances may include
where an Executive Director is required to relocate in order to fulfil
their duties. In such cases, a cash payment higher than the 25% of
salary that is ordinarily paid would normally be provided under the
Company’s standard expatriate policy in lieu of certain benefits,
which may include the provision of a housing allowance, education
support, health insurance, tax advice, a relocation or repatriation
allowance and a home leave allowance.
It is expected that the structure and quantum of the variable pay
elements would reflect those set out in the policy table above.
However, the Committee recognises that, as an independent oil and
gas company, it is competing with global firms for its talent. As a
result, the Committee considers it important that the recruitment
policy has sufficient flexibility in order to attract the calibre of
individual that the Company requires to grow a successful business.
Therefore:
• Under the annual bonus, the Committee reserves the right to provide
either a one-off or ongoing maximum bonus opportunity of up to
200% of salary if this is required to secure an external appointment
• The Committee would also retain the discretion to flex the balance
between annual and long-term incentives and the measures used
to assess performance for these elements, whilst maintaining the
intention that a significant portion of variable pay would be
delivered in shares
• Variable pay could, in exceptional circumstances, be delivered via
alternative structures, again with the intention that a significant
portion would be share-based, but in all circumstances subject to
an ongoing over-riding cap of 600% of salary. This cap excludes
any awards made to compensate the director for incentive awards
or any other remuneration arrangements forfeited from their
previous employer (see below)
The above flexibility will only be used if the Committee believes such
action is absolutely necessary to recruit and motivate a candidate
from the global market. The Committee commits to explain to
shareholders the rationale for the relevant arrangements following
any appointment.
Where an Executive Director is appointed from within the Group,
the normal policy of the Company is that any legacy arrangements
would be honoured in line with the original terms and conditions.
Similarly, if an Executive Director is appointed following an
acquisition of or merger with another company, legacy terms and
conditions would be honoured.
The Committee retains the discretion to make appropriate
remuneration decisions outside the standard policy to meet the
individual circumstances of the recruitment, when an interim
appointment to fill an Executive Director role is made on a short-
term basis or a Non-Executive Director or the Chairman takes on an
executive function on a short-term basis.
Buy-outs
In order to facilitate recruitment, the Committee may make a one-off
award to ‘buy-out’ incentive awards and any other compensation
arrangements that a new hire has had to forfeit on leaving their
previous employer. In doing so, the Committee will take into account
all relevant factors including any performance conditions attached to
the forfeited awards, the likelihood of those conditions being met, the
proportion of the vesting/performance period remaining and the form
of the award (e.g. cash or shares). Where possible, the forfeited
awards will normally be bought out on an estimated like-for-like basis.
The Committee is at all times conscious of the need to pay no more
than is necessary, particularly when determining any possible
buy-out arrangements.
67
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com REMUNERATION POLICY REPORT
continued
Executive Director service contracts
The key employment terms and other conditions of the current Executive Director, as stipulated in his service contract, is set out below.
Element
Policy
Notice period
• 12 months’ notice by either the Company or the Executive Director. This is also the policy for new recruits
Termination
payment
• It is the Company’s policy for new service contracts that it may terminate employment by making a payment in lieu
of notice (PILON) equivalent to (i) 12 months’ base salary and (ii) the Executive Director’s annual benefit allowance
• Upon termination by the Company, an Executive Director has a duty to mitigate, and use reasonable endeavours to secure
alternative employment as soon as reasonably practicable. In Murat Özgül’s service contract, there are specific provisions
requiring a reduction in any phased PILON payments in the event that he finds alternative employment
Remuneration
and benefits
• Participation in all incentive plans, including the annual bonus and the PSP, is non-contractual
• Outstanding awards will be treated in accordance with the relevant plan rules
Recruitment of Chairman and Non-Executive Directors
In the event of the appointment of a new Chairman and/or
Non-Executive Director, remuneration arrangements will normally
be in line with those detailed in the relevant table above. The
service contract of an Executive Director may also be terminated
immediately and with no liability to make payment in certain
circumstances, such as the Executive Director bringing the
Group into disrepute or committing a fundamental breach of
their employment obligations.
Unless otherwise approved, an Executive Director may accept
only one position as a Non-Executive Director (but not as a
Non-Executive Chairman) of a FTSE 100 company that is not a
competitor of the Company, subject to prior notification to the
Chairman of the Company and the approval of the Board or
duly authorised Committee thereof.
Policy on payment for loss of office
In the event that the employment of an Executive Director is
terminated, any compensation payable will be determined in
accordance with the terms of the service contract between the
Company and the employee, as well as the rules of any incentive plans.
The Company considers a variety of factors when considering
leaving arrangements for an Executive Director, including
individual and business performance, the obligation for the
Director to mitigate loss (for example by gaining new employment)
and other relevant circumstances (e.g. ill health).
If the Executive Director’s employment is terminated by the
Company, the Executive Director may receive a time pro-rated
bonus, subject to remuneration committee discretion.
The treatment of outstanding share awards is governed by the
relevant share plan rules. The following table summarises the
leaver provisions of share plans under which Executive Directors
may currently hold awards.
Plan
Leaver reasons where
awards may continue to vest
Vesting arrangements
Treatment for any
other leaver reason
Performance
share plan
and restricted
share plan
• Death
• Injury, ill-health or disability
• Retirement
• Sale of the Company or business by
which the participant is employed
outside the Group
• Any other scenario in which the
Committee determines good leaver
treatment is justified (other than
summary dismissal)
• Awards will vest to the extent determined by the
• Awards lapse in full
Committee taking into account the achievement of any
performance conditions at the relevant vesting date
and, unless the Committee determines otherwise, the
period of time which has elapsed between grant and
cessation of employment
• The vesting date for such awards will normally be the
original vesting date, although the Committee has the
flexibility to determine that awards can vest upon
cessation of employment
• In the event of death, all unvested awards will normally
vest at that time to the extent determined by the
Committee taking into account the achievement of any
relevant performance conditions as at the date of death
and, unless the Committee determines otherwise, the
period of time that has elapsed since grant
68
Genel Energy plc Annual Report 2015genelenergy.com Chairman and Non-Executive Director letters of appointment
The Chairman and Non-Executive Directors have letters of appointment which set out their duties and responsibilities. They do not have
service contracts with either the Company or any of its subsidiaries.
The key terms of the appointments are set out in the table below.
Provision
Policy
Period
• In line with the UK Corporate Governance Code, the Chairman and all Non-Executive Directors are subject to annual
re-election by shareholders at each AGM
• After the initial three-year term, the Chairman and the Non-Executive Directors are typically expected to serve a further
three-year term
Termination
• The appointment of the Chairman and Non-Executive Directors is terminable by either the Company or the Director by giving
three months’ notice
• The Chairman and Non-Executive Directors are not entitled to any compensation upon leaving office
Consideration of shareholder views
The Committee continues to be mindful of shareholder views
when evaluating and setting ongoing remuneration strategy and
we commit to consulting with Shareholders prior to any significant
changes to our remuneration policy.
It is the Committee’s policy to correspond with Shareholders
that have engaged on remuneration matters during the year,
which it has done and the Committee have considered their views
at its meetings.
Minor changes
The Committee may make minor amendments to the Policy set out
above for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation without
obtaining Shareholder approval for that amendment.
69
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com OTHER STATUTORY AND REGULATORY INFORMATION
Principal activities
The Company is the holding company for the Group. The Group
is principally engaged in the business of oil and gas exploration
and production.
Results and dividends
Ordinary activities after taxation of the Group for the period
1 January 2015 to 31 December 2015 amounted to a loss of
$1,161.6 million. No interim dividend was paid and the Directors
are not recommending a final dividend for the period ended
31 December 2015.
Subsequent events
There have been no subsequent events since 31 December 2015.
Share capital
As at 2 March 2016, the Company had allotted and fully paid up
share capital of 280,248,198 ordinary shares of 10 pence each with
an aggregate nominal value of £28,024,819.80. 1,865,720 shares
are held as treasury shares.
Founder securities
Prior to admission, the Founders (including Nathaniel Rothschild,
Tony Hayward and Julian Metherell) were issued C shares in Vallares
Holding Company Limited (since renamed Genel Energy Holding
Company Limited), known as founder securities.
These founder securities were put in place to encourage the
Founders to grow the Company following an acquisition in order
to maximise value for holders of ordinary shares by entitling the
Founders to a share of the upside in the Company’s value once
certain performance has been achieved. The exchange of founder
securities for ordinary shares was subject to certain performance
conditions which were required to be met by 21 November 2015.
These performance conditions were not met by this date and
accordingly the right to exchange founder securities for ordinary
shares in Genel Energy plc has now lapsed.
Resolutions in relation to share capital
At the AGM of the Company held on 21 April 2015, the Shareholders
granted the Company authority to make market purchases of up to
24,870,080 voting ordinary shares (representing approximately
10% of the aggregate issued voting ordinary share capital of the
Company at 17 March 2015) and hold as treasury shares any voting
ordinary shares so purchased.
Shareholders will be asked to renew this authority at the
forthcoming AGM. Full details are included in the notice of AGM.
The right of Founders to exchange founder securities for ordinary
shares in the Company lapsed on 21 November 2015. Accordingly,
authorities granted on 16 June 2011 for: (a) the allotment of relevant
securities; and (b) the disapplication of pre-emption rights for the
purposes of the allotment of equity securities, for the purposes of
or in connection with: (i) satisfying the share matching award; or
(ii) satisfying the rights of Founders to exchange founder shares
and founder securities for ordinary shares, have now lapsed and
will not be renewed.
Rights attaching to the voting ordinary shares
Holders of voting ordinary shares are entitled to attend, speak and
vote at general meetings of the Company and may receive a dividend
and, on a winding-up, may share in the assets of the Company.
As at 24 February 2016 the Company no longer has any suspended
voting ordinary shares in issue, however they were in issue during
2015 and accordingly the rights attaching to the suspended voting
ordinary shares are set out below.
70
Except as set out below, the suspended voting ordinary shares rank
pari passu with the voting ordinary shares (and any other suspended
voting ordinary shares issued on substantially equivalent terms to
the suspended voting ordinary shares) in all respects and no action
may be taken by the Company in relation to, or offer made by the
Company to the holders of, the voting ordinary shares (or any other
suspended voting ordinary shares issued on substantially equivalent
terms to the suspended voting ordinary shares) unless the same
action is taken in respect of, or the same offer is made to the holders
of, the suspended voting ordinary shares.
On the 23 October 2015 the Code Committee of the Takeover Panel
punlished its response statement followng the consultation on PCP
2015/2 in relation to restrictions and suspensions of voting rights
(‘RS 2015/2’).
As stated in RS 2015/2, with effect from 23 November 2015 the
definition of ‘Voting Rights’ in the Takeover Code will change, so that
any shares which are subject to a suspension of voting rights will
normally be regarded as having voting rights which are currently
exercisable at a general meeting.
Paragraph 1.8 of RS 2015/2 provides that companies that have in the
past issued suspended voting shares, which remain in issue, should
consult with the Panel Executive in order to obtain a ruling regarding
the application of the Takeover Code to the Company, taking
account of the facts of the particular case.
The Company had 29,621,685 existing suspended voting shares in
issue and it had consulted with the Panel Executive in accordance
with paragraph 1.8 of RS 2015/2.
The Panel Executive has confirmed to the Company that its
suspended voting shares would not be treated as having ‘Voting
Rights’ for the purposes of the Takeover Code.
The following rights attach to the suspended voting ordinary
shares as set out in a statement of rights submitted to the Jersey
Financial Services Commission by the Company on 8 April 2013
(the ‘Statement of Rights’).
(a) Voting at general meetings
A holder of suspended voting ordinary shares shall be entitled to
receive notice of, and to attend and speak at, any general meeting
of the Company, but shall not be entitled to vote in respect of any
suspended voting ordinary shares held, except on any resolution:
(i) proposed by any person other than a Seller or any of its Affiliates
or any person acting in concert with a Seller or any of its
Affiliates, to wind up the Company or to present a petition to wind
up the Company, other than for the purposes of a reconstruction
or amalgamation whilst solvent;
(ii) proposed by any person other than a Seller or any of its Affiliates
or any person acting in concert with a Seller or any of its
Affiliates, to appoint an administrator or to present a petition for
the appointment of an administrator in relation to the Company,
or to approve any arrangement with the Company’s creditors;
(iii) proposed by the board for the purposes of, or in connection with,
any scheme of arrangement of the Company under the Jersey
Companies Law (or its equivalent in any other jurisdiction) under
which a body corporate (Newco) will acquire the Company and
the holdings of the members of Newco following the scheme
becoming effective will be substantially the same as the holdings
of the members of the Company immediately before the scheme
becoming effective; or
Genel Energy plc Annual Report 2015genelenergy.com Company in his absolute discretion). The Company shall be under
no obligation to verify the validity of any Conversion Notice
(or notification of nominees) or the authority and capacity of the
relevant signatory.
(c) Conversion at the instance of a Seller (or any Affiliate)
At any time, a Seller (or any of its Affiliates) shall be entitled (but
shall not be bound) to require the Company to convert suspended
voting ordinary shares held by such Seller (or such Affiliate) into
voting ordinary shares, on a one-for-one basis, so long as such
conversion does not result in the Sellers’ Voting Shareholding being
more than the Maximum Voting Percentage.
(d) Conversion following a pre-emptive offer
If the Company makes an offer of suspended voting ordinary shares
in accordance with the provisions of the articles of association,
it shall be entitled to convert into voting ordinary shares, on a one
for-one basis, any suspended voting ordinary shares issued to
persons other than the Sellers or any of their respective Affiliates
in connection with such offer.
Within 21 days after the conversion of any suspended voting
ordinary shares into voting ordinary shares, the Company shall
forward to the relevant Seller (or relevant Affiliate) at its own risk,
free of charge, a definitive certificate for the appropriate number
of fully paid up voting ordinary shares and a new certificate for any
unconverted suspended voting ordinary shares comprised in the
certificate surrendered by it. Pending the despatch of definitive
certificates, transfers shall be certified against the register of
members of the Company.
(e) General
The Company shall use best endeavours to procure that the voting
ordinary shares arising on conversion of the suspended voting
ordinary shares are admitted to the Official List and to trading
on the London Stock Exchange’s market for listed securities. No
admission to listing or admission to trading shall be sought for the
suspended voting ordinary shares whilst they remain suspended
voting ordinary shares.
Restrictions on transfer of shares
There are no specific restrictions on the transfer of shares in the
Company other than (i) as set out in the articles of association (ii)
pursuant to the Company’s share dealing code (iii) as imposed from
time to time by law and regulation and (iv) as set out in the Merger
Agreement and in the Statement of Rights. Save as set out in the
Merger Agreement, the Statement of Rights and the Relationship
Agreement, the Company is not aware of any arrangements or
agreements between holders of the Company’s shares that may
result in restrictions on the transfer of securities or on voting rights.
No person has any special rights of control over the Company’s
share capital and all issued shares are fully paid.
Employee share schemes
Details of the Company’s employee share schemes are set out
in note 19 to the financial statements of this annual report.
(iv) proposed by any person other than a Seller or any of its Affiliates
or any person acting in concert with a Seller or any of its
Affiliates, in accordance with the articles of association, to
vary, modify or abrogate any of the class rights attaching to the
suspended voting ordinary shares, in which case each holder of
suspended voting ordinary shares on a show of hands shall have
one vote, and on a poll shall be entitled to vote on the resolution
on the basis of one vote for each suspended voting ordinary
share held. For the purposes of any resolution of a type referred
to in paragraphs (i) to (iii) above, the suspended voting ordinary
shares shall be treated for all purposes as being of the same
class as the voting ordinary shares (and any other suspended
voting ordinary shares issued on substantially equivalent terms
to the suspended voting ordinary shares) and no separate
meeting or resolution of the holders of the suspended voting
ordinary shares shall be required to be convened or passed.
The rights attaching to the suspended voting ordinary shares
shall not be, and shall not be deemed to be, varied or abrogated in
any way by the creation, allotment or issue of any voting ordinary
shares and the rights attaching to the voting ordinary shares shall
not be, and shall not be deemed to be, varied or abrogated in any
way by the creation, allotment or issue of any suspended voting
ordinary shares.
(b) Conversion
Upon a transfer of suspended voting ordinary shares by any
person to a person who is not a Seller or an Affiliate of any Seller,
such suspended voting ordinary shares shall convert into voting
ordinary shares (on a one-for-one basis) automatically upon,
and contemporaneously with, registration by the Company (or its
registrars) of the transfer in the register of members of the Company.
Upon:
(i) a transfer of voting ordinary shares to a person who is not a Seller
or an Affiliate of any Seller as a result of which the Seller’s Voting
Shareholding is reduced below the Maximum Voting Percentage;
or
(ii) any issue of further shares by the Company or conversion of
suspended voting ordinary shares as referred to below, as a
result of which the Sellers’ Voting Shareholding is reduced below
the Maximum Voting Percentage,
such number of suspended voting ordinary shares as, immediately
following conversion, will result in the Sellers’ Voting Shareholding
being equal to the Maximum Voting Percentage, shall convert into
voting ordinary shares (on a one-for-one basis) automatically upon,
and contemporaneously with, registration by the Company (or
its registrars) of the transfer in the register of members of the
Company or the issue of such further shares or conversion of such
suspended voting ordinary shares. In any such case, each Seller and
its Affiliates’ holding of suspended voting ordinary shares (whether
held directly or on their behalf by an escrow agent) at the time of
such transfer, issue or conversion shall be subject to conversion
into voting ordinary shares in accordance with a written notice of
instructions as to the proportion of the suspended voting ordinary
shares held by each of them (including by an escrow agent on their
behalf) to be converted. Such notice shall be executed by each Seller
(or such nominee of a Seller as the relevant Seller may notify the
Company in writing from time to time) and must be received by the
Company at its registered address not less than five business days
before registration by the Company (or its registrar) of the transfer
in the register of members of the Company or the issue of such
further shares or conversion of such suspended voting ordinary
shares (the “Conversion Notice”) (in each case rounded up or down
to the nearest whole number as determined by any Director of the
71
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com OTHER STATUTORY AND REGULATORY INFORMATION
continued
Articles of association of the Company
Under the Jersey Companies Law, the capacity of a Jersey company
is not limited by anything contained in its memorandum or articles
of association. Accordingly, the memorandum of association of
a Jersey company does not contain an objects clause.
Certain provisions have been incorporated into the articles
of association to enshrine rights that are not conferred by
the Jersey Companies Law, but which the Company believes
shareholders would expect to see in a company listed on the
London Stock Exchange.
Agreements with substantial shareholders
Merger Agreement
On 7 September 2011, the Company, Elysion Energy Holding B.V.
(formerly Genel Energy Holdings B.V.), Focus Investments and PRM
entered into a merger agreement (the “Merger Agreement”)
pursuant to which the Company agreed to purchase, and the
Sellers agreed to sell, the entire issued ordinary share capital of
Genel Energy International Limited in consideration for the issue
of 130,632,522 ordinary shares (the “Consideration Shares”).
The Merger Agreement was amended by a deed of amendment
entered into on 29 October 2011.
Provisions in the articles of association also require Shareholders
to make disclosures pursuant to chapter 5 of the Disclosure and
Transparency Rules, and require the Directors to comply with
chapter 3 of the Disclosure and Transparency Rules and themselves
to require any persons discharging managerial responsibilities
(within the meaning ascribed in the Disclosure and Transparency
Rules) in relation to the Company who are not Directors to do so,
and to use reasonable endeavours to procure that their own and
such persons’ connected persons do so. The articles of association
may be amended by a special resolution of the Shareholders.
Due to the size of the interest the Sellers have in the Company
following completion, the Sellers agreed that part of the
consideration they received under the Merger Agreement would be
in the form of suspended voting ordinary shares in order to ensure
that the Sellers’ aggregate holding of voting ordinary shares does
not exceed the Maximum Voting Percentage. The suspended voting
ordinary shares will automatically convert into voting ordinary
shares in the event of further equity issues by the Company,
provided that, following conversion, the Sellers’ holding of voting
ordinary shares does not exceed the Maximum Voting Percentage.
Appointment and replacement of directors
The rules for the appointment and replacement of Directors are
set out in the articles of association. Certain additional provisions
relating to the appointment of Directors are included in the
Relationship Agreement between the Company, Elysion and
Focus Investments.
Notwithstanding any other restriction or obligation under the
Merger Agreement, PRM was permitted to distribute all ordinary
shares owned by it to its shareholders in proportion to the shares in
PRM held by such shareholders, which it duly made on 8 April 2013.
In connection with this distribution, the relevant PRM shareholders
agreed to be bound by the terms of the Merger Agreement.
Directors
The biographical details of the Directors of the Company who were
in office during the year and as at the date of this annual report are
set out on pages 42 to 44. Details of Directors’ service agreements
and letters of appointment are set out on pages 68 to 69.
Relationship Agreement
On 7 September 2011, the Company, Elysion and Focus Investments
entered into a relationship agreement which regulates the ongoing
relationship between Elysion, Focus Investments and the Company
(the ‘Relationship Agreement’).
Details of the Directors’ interests in the ordinary shares of the
Company and in the Group’s long-term incentive schemes are set
out in the remuneration report on page 61 of this annual report.
Details of Directors submitting themselves for election and
re-election at the AGM are set out in the notice of meeting.
Service contracts and letters of appointment for all Directors are
available for inspection at the registered office of the Company
and will be available for inspection at the AGM.
Subject to applicable law and the articles of association and to any
directions given by special resolution, the business of the Company
will be managed by the Board, which may exercise all the powers
of the Company.
Directors’ indemnities
As at the date of this annual report, indemnities granted by the
Company to the Directors are in force to the extent permitted under
Jersey law. The Company also maintains directors’ and officers’
liability insurance cover, the level of which is reviewed annually.
Related party transactions
Details of transactions with Directors and Officers are set out in
note 22 to the financial statements on page 102 of this annual
report. There were no other related party transactions to which
the Company was a party during the period.
The principal purpose of the Relationship Agreement is to ensure
that the Company is capable at all times of carrying on its business
independently of Elysion and Focus Investments (and their
respective Associates) and that all transactions and relationships
between the Company, Elysion and Focus Investments are at arm’s
length and on a normal commercial basis. For the purposes of the
Relationship Agreement, the term ‘Associate’ includes, in the case
of Elysion, Mehmet Sepil and, in the case of Focus Investments,
Mehmet Emin Karamehmet.
On 12 February 2015 the Relationship Agreement was amended
to reflect changes to the Listing Rules that apply to controlling
shareholders. Whilst the Relationship Agreement reflected the
majority of the requirements we felt it prudent to amend it to align
it to the specific obligations under Listing Rule 6.1.4(d).
The Relationship Agreement will terminate upon the earlier of (i)
the Company ceasing to have any of its ordinary shares listed on the
Official List and admitted to trading on the London Stock Exchange’s
main market for listed securities, and (ii) Elysion and Focus
Investments together with their respective Associates ceasing
between them to be entitled to exercise, or control the exercise of,
in aggregate 10% or more of the Voting Rights.
72
Genel Energy plc Annual Report 2015genelenergy.com Pursuant to the terms of the Relationship Agreement, it has been
agreed that, among other things:
(a) For so long as Elysion and Focus Investments and their respective
Associates are, between them, entitled to exercise or control the
exercise of, in aggregate, 10% or more of the Voting Rights, each
of Elysion and Focus Investments will, and will procure so far as it
is reasonably able to do so, that each of its Associates will:
(e) For as long as Elysion and Focus Investments and their respective
Associates are between them entitled to exercise or control
the exercise of 10% or more of the Voting Rights, but provided
neither Elysion nor Focus Investments (in each case, together
with its Associates) is entitled to exercise or control the exercise
of 10% or more of the Voting Rights, Elysion and Focus
Investments will, acting jointly, be entitled to nominate for
appointment to the Board one director by giving notice to
the Company;
(f) Provided that Elysion and its Associates are between them
entitled to exercise or to control the exercise of, in aggregate,
10% or more of the Voting Rights, Mehmet Sepil will have the
title of President;
(g) For so long as Elysion or Focus Investments together with their
respective Associates are between them entitled to exercise or
to control the exercise of, in aggregate, 10% or more of the
Voting Rights, subject to compliance by the Company with its
legal and regulatory obligations, the Company shall procure that
Elysion and Focus Investments are provided with financial and
other information as is necessary or reasonably required by
them for the purposes of their accounting or financial control
requirements or to comply with their legal or tax obligations
as a shareholder of the Company.
The rights described at (b)–(g) above will terminate and cease to be
of any effect:
i. (in the case of Elysion, in the event that it, or any Affiliate (as
defined in the Merger Agreement) of Elysion that holds any
ordinary shares) ceases to be controlled by Mehmet Sepil; or
ii. in the case of Focus Investments, in the event that Focus
Investments (or any Affiliate (as defined in the Merger
Agreement) of Focus Investments that holds any ordinary
shares) ceases to be controlled by Mehmet Emin
Karamehmet.
In addition, certain rights and/or obligations (as the case may be)
of Elysion under the Relationship Agreement (subject to certain
exceptions) shall cease to be of any effect in the event that Mehmet
Sepil ceases to beneficially own (directly or indirectly through other
entities controlled by Mehmet Sepil) ordinary shares carrying,
in aggregate, 10% or more of the Voting Rights.
i. not take any action which precludes or inhibits any member
of the Group from carrying on its business independently of
each of Elysion and Focus Investments and their respective
Associates;
ii. not exercise any of its Voting Rights to procure any
amendment to the articles of association of the company
which would be inconsistent with or breach any provision
of the Relationship Agreement;
iii. if and for so long as paragraph 11.1.7R(3) of the Listing
Rules applies to the Company, abstain from voting on any
resolution required by paragraph 11.1.7R(3) of the Listing
Rules to approve a ‘related party transaction’ (as defined
in paragraph 11.1.5R of the Listing Rules) involving Elysion
or Focus Investments or any of their Associates as the
related party;
iv. comply with all provisions of the Listing Rules, the Disclosure
and Transparency Rules, the requirements of the London
Stock Exchange and the FSMA that apply to it in connection
with the Company;
v. ensure that the business and affairs of the Company are
conducted in accordance with its articles of association; and
vi. exercise all of its Voting Rights in a manner consistent with
the intention that at all times at least half of the Directors
(excluding the Chairman) are Independent Non-Executives
and that certain committees of the Board shall comply with
the UK Corporate Governance Code;
(b) For so long as Elysion and Focus Investments and their respective
Associates are, between them, entitled to exercise or control the
exercise of, in aggregate, 10% or more of the Voting Rights, each
of Elysion and Focus Investments will, and will procure that each
of its Associates will:
i. conduct all transactions and arrangements with any
member of the Group on arm’s length and on normal
commercial terms;
ii. not take any action that would have the effect of preventing
the Company from complying with its obligations under the
Listing Rules; and
i. not propose or procure the proposal of a Shareholder
resolution which is intended or appears to be intended to
circumvent the proper application of the Listing Rules;
(c) Provided that Focus Investments and its Associates are entitled
to exercise or control the exercise of 10% or more of the Voting
Rights, Focus Investments shall be entitled to nominate for
appointment to the Board one director by giving notice to
the Company;
(d) Provided that Elysion and its Associates are entitled to exercise
or control the exercise of 10% or more of the Voting Rights,
Elysion shall be entitled to nominate for appointment to the
Board one director by giving notice to the Company;
73
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com OTHER STATUTORY AND REGULATORY INFORMATION
continued
Between the 31 December 2015 and 2 March 2016 the Company
has received a notification from Morgan Stanley that they hold
13,794,745 (5.55%) voting ordinary shares and subsequently the
Company has received a notification that their holding has reduced
to less than 5%. The Company has also received notifications from
Elysion Energy Holding BV and Putnam Investments LLC that their
holdings have reduced to less than 5% of voting ordinary shares.
Political donations
No political donations were made, and nor was any political
expenditure incurred, by any Group company in the year ending
31 December 2015 (2014: nil).
Auditors and disclosure of relevant audit information
So far as each Director is aware, there is no relevant information of
which the Company’s auditor is unaware. Each Director has taken
all steps that ought to have been taken as a Director to make him
or herself aware of any relevant audit information and to establish
that PwC are aware of that information.
Following a review of the independence and effectiveness of the
auditor, a resolution to reappoint PricewaterhouseCoopers LLP
as the Company’s auditor will be proposed at the AGM.
AGM
Your attention is drawn to the notice of AGM enclosed with this
report, which sets out the resolutions to be proposed at the
forthcoming AGM. The meeting will be held at Linklaters LLP,
One Silk Street, London, EC2Y 8HQ UK on Wednesday, 27 April 2016
at 11.00am.
By order of the Board
Murat Özgül
Chief Executive Officer
The Directors nominated by Elysion and Focus Investments pursuant
to the Relationship Agreement were Murat Yazici (Non-Executive
Director) and Gulsun Nazli Karamehmet Williams (Non-Executive
Director), respectively.
On 14 October 2015 Mehmet Sepil resigned as President and on 18
November 2015 Mehmet Sepil’s holding in the Company fell to below
10% of the voting rights in the Company. Accordingly, certain rights
of Elysion under the Relationship Agreement ceased to have effect
including the right to nominate a representative to the Genel Board.
On 15 December Murat Yazici (Elysion’s nominated Director)
resigned from his position as a Non-Executive Director.
Information in strategic report
Particulars of the Group’s use of financial instruments, an indication
of the Group’s financial risk management objectives and policies,
including its policy for hedging each major type of forecasted
transaction for which hedge accounting is used and details of the
exposure of the Group to price risk, credit risk, liquidity risk and cash
flow risk are set out in note 17 to the financial statements and in the
strategic report in this annual report.
Particulars of important events affecting the Group which have
occurred since the last financial year and indications of likely future
developments in the business of the Group are set out in the
strategic report in this annual report. Details of our approach
to greenhouse gas emissions are set out on page 30.
Corporate responsibility
The Group is fully committed to high standards of environmental,
health and safety management. The report on the Group’s corporate
responsibility programme, together with an outline of the Group’s
involvement in the community, are set out on pages 26 to 31 of this
annual report.
Employment policies
We are an equal opportunities employer and base all decisions
on individual ability regardless of race, religion, gender, sexual
orientation, age or disability. Applications for employment by
disabled persons will always be considered, having regard to their
particular aptitudes and abilities. Should any employee become
disabled, every practical effort is made to provide continued
employment. Depending on their skills and abilities, they will enjoy
the same career prospects and scope for realising their potential
as other employees. Appropriate training will be arranged, including
retraining for alternative work for those who become disabled,
to promote their career development within the Group.
Substantial shareholdings
As at 31 December 2015, the Company had been notified of the
following significant holdings (being 5% or more of the voting rights
in the Company) in the Company’s ordinary share capital, which are
set out below.
Name
Focus Investments Limited
NR Holdings Limited
Encompass Capital Advisors
LLC
Elysion Energy Holding BV
Putnam Investments LLC
Number of
ordinary
shares
Number of
voting
ordinary
shares
Number of
suspended
voting
ordinary
shares
64,589,351 42,917,339
22,119,970
22,119,970
21,672,012
–
22,785,255 22,785,225
25,474,594 24,412,834
12,450,160 12,450,160
–
1,061,761
–
74
Genel Energy plc Annual Report 2015genelenergy.com STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the annual report,
Directors’ remuneration report and the Group financial statements
in accordance with applicable law and regulations.
The Directors prepare financial statements for each financial year.
The Directors are required by the IAS Regulation to prepare the
Group financial statements under International Financial Reporting
Standards (IFRS) as adopted by the European Union. The Directors
must not approve the accounts unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and of
the profit or loss of the Group for that period.
In preparing the financial statements, International Accounting
Standard 1 requires that Directors:
• properly select and apply accounting policies
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in Jersey or the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position
and profit or loss of the Group and the undertakings included in
the consolidation taken as a whole;
• the Directors’ report contained in this annual report includes
a fair review of the development and performance of the business
and the position of the Company and the Group together with a
description of the principal risks and uncertainties that they face;
and
• provide additional disclosures when compliance with the specific
requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity’s financial position and financial performance and
• the annual report and accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company’s performance, business
model and strategy.
• make an assessment of the Group’s ability to continue as a
going concern
By order of the Board
The Directors are responsible for keeping proper accounting records
that are sufficient to show and explain the Group’s transactions and
disclose with reasonable accuracy at any time the financial position
of the Group.
They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Murat Özgül
Chief Executive Officer
75
DIRECTORS’ REPORT AND GOVERNANCEGenel Energy plc Annual Report 2015genelenergy.com INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF GENEL ENERGY PLC
REPORT ON THE GROUP FINANCIAL STATEMENTS
Our opinion
In our opinion, Genel Energy plc’s group financial statements (the “financial statements”):
• give a true and fair view of the state of the group’s affairs as at 31 December 2015 and of its loss and cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union;
and
• have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.
What we have audited
The financial statements, included within the Annual Report, comprise:
• the consolidated balance sheet as at 31 December 2015;
• the consolidated statement of comprehensive income for the year then ended;
• the consolidated cash flow statement for the year then ended;
• the consolidated statement of changes in equity for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as
adopted by the European Union.
Overview
Materiality
• Overall group materiality: $35 million which represents 1% of total assets.
• We performed an audit of the complete financial information of two reporting units
due to their size and risk characteristics. These reporting units are the producing assets
in Kurdistan.
• Specific audit procedures on certain balances and transactions were performed on 10
other reporting units, relating to exploration activity in the African territories, operating
expenses and the bond accounting in the UK.
• Risk of impairment of oil and gas properties.
• Risk of recoverability of debtors.
• PSC revenue recognition and interpretation
Audit scope
Areas
of focus
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed
the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order
to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be
read in this context. This is not a complete list of all risks identified by our audit.
76
Genel Energy plc Annual Report 2015genelenergy.com AREA OF FOCUS
HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS
IFRS 6 and IAS 36 impairment reviews of oil and gas properties
(Note 9 and Note 10)
In 2015, world oil prices continued to decline significantly with
the performance of the Company’s producing assets being
below expectation, partly caused by lack of investment. Both
are indicators of potential impairment in the company’s assets.
Management performed an impairment assessment of each of its
assets in accordance with the requirements of IFRS 6 – Exploration
for and evaluation of mineral resources (“IFRS 6”) and IAS 36 –
Impairment of assets (“IAS 36”) as at 31 December 2015.
We assessed management’s evaluation of each of the exploration
assets in both the Africa and Kurdistan portfolios and corroborated
this evaluation by making enquiries of management and reading
information in the public domain such as press releases from joint
venture partners.
Based on our assessment, we agreed with management on the
impairment triggers and resulting impairment charges recorded
against the Ethiopia concession, Mir Left in Morocco and the
concession in Côte d’Ivoire. We also agreed with the full write off
of Ber Bahr in Kurdistan after the decision to relinquish the licence.
A number of exploration assets in Africa and Kurdistan were either
relinquished or no hydrocarbons were encountered during test well
drilling in 2015. Full write offs totalling $173 million were recorded in
the income statement relating to these exploration assets.
The oil producing assets, Taq Taq and Tawke, were assessed for
impairment by management and a charge of $1,038 million was
recorded in accordance with IAS 36 reflecting the fall in oil prices
and a reduction in 2P reserves in the Taq Taq oil field.
For the Miran/Bina Bawi exploration and evaluation assets we
evaluated management’s plans for the business, the underlying
resource model and management’s estimate of the associated costs
and volumes of gas available for development by agreeing these
assumptions to the competent person’s reports and assessing the
competent persons’ qualifications, experience and independence to
determine whether there were any impairment indicators. We also
assessed management’s pricing assumptions by referencing them to
consensus broker prices. We agreed with management’s assessment
that there are no significant indicators of impairment and that
therefore no impairment assessment was required.
We evaluated management’s assessment for impairment triggers in
its producing assets in Kurdistan and agreed with management that
impairment triggers exist.
For both Taq Taq and Tawke we agreed the cash flow forecast used
in the impairment models for 2016 to Board approved budgets. These
budgets were also approved by both the joint venture partners and
the Kurdistan Regional Government (“KRG”). We agreed the cash
flow forecast for periods after 2016 to management’s business plans
which are based on management’s update of the reserves. For Taq
Taq, 2P reserves have been downgraded since the last year-end.
We checked that the oil reserve estimates incorporated in the model
were consistent with the estimates prepared by qualified reservoir
engineers. We considered the directors’ expectations in respect of
cash receipts from the KRG from the sale of oil in Taq Taq and Tawke
under the terms of the production sharing contracts and the recent
announcement made by the KRG on 1 February 2016 and consider
the assumptions to be aligned with this 2016 announcement.
We compared short and long term price assumptions used by
management to the assumptions used by a collection of 13 brokers
and 5 independent consultants. We found that management’s
assumptions were close to consensus prices.
We independently calculated a weighted average cost of capital by
making reference to market data and verified the long term growth
rate market data. The discount rate of 12.5% falls within what we
considered a reasonable range.
We assessed the mathematical accuracy of the model and assessed
the compliance of the model with the requirements of IAS 36.
We assessed the sufficiency of the impairment charge and the
extent of disclosure made in note 10 of the financial statements.
We considered the impairment charges and the disclosure provided
to be appropriate.
77
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF GENEL ENERGY PLC
AREA OF FOCUS
HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS
Risk of recoverability of trade receivable (Note 1 and Note 11)
The trade receivable has increased to $423 million from $233
million since December 2014.
Cash receipts totalling approximately $74 million were received for
export sales in September 2015, October 2015 and December 2015.
In January 2016 a payment of $24 million was received and on
1 February 2016, the Ministry of Natural Resources of the KRG
released an announcement explaining that 2016 payments would
be based on the entitlement revenue derived from each field on a
netback basis, adjusting for crude quality differentials compared to
Brent prices plus a deduction for applicable transportation charges.
The amount is based on the contractual entitlements under the
Production Sharing Contract for each licence. In addition, the KRG
will make further monthly payments equivalent to 5% of the
respective monthly netback revenue derived from each field.
The KRG envisages raising the allocation of netback revenues as
oil price levels rebound to permit an accelerated recovery of
outstanding receivable balances.
The timing of the recovery of the trade receivable at 31 December
2015 is uncertain and there is a risk that it is impaired.
Management has made significant judgements and estimates
in calculating the present value of the receivable. The principal
judgement is in estimating the timing and quantum of the acceleration
of payments by the KRG to international oil companies which is driven
by the pace of recovery of oil prices, the KRG’s financial budget,
the ability of the KRG to raise finance, and oil production within the
Kurdistan Region of Iraq (“KRI”) as a whole which management has
disclosed in note 1 of the accounts. Management has used information
available in the market, has relied on dialogue with the Minister for
Natural Resources and estimated when oil prices are going to recover
in forecasting the timing of the recovery of the outstanding trade
receivable balance. This is estimated between two and four years
from the balance sheet date. The impact of discounting is offset
principally by management including full PSC entitlements in the
present value calculation whereas the receivable itself is recognised
on the balance sheet after deducting netback costs (principally selling,
transportation and handling costs) at the higher end of a likely range.
PSC revenue recognition and interpretation (Note 1)
The Production Sharing Contracts (“PSCs”) to which the
Group is party are complex in nature and subject to potential
alternative interpretation.
The terms of the PSCs dictate the amount of revenue recognised by
the Group. The Group maintains a revenue model which is developed
from the terms in the PSCs. The main inputs into this model are
volumes, price and capital expenditure. Certain assumptions and
estimates are made within the PSC model. There is an inherent risk
that these inputs, assumptions and estimates are inaccurate and
that the interpretations and calculations made are not appropriate.
This complexity of the PSCs and alternative interpretations could
result in misstatements in various balances (revenue, cost of sales,
property plant and equipment, trade and other receivables, trade
and other payables and income taxes) in the financial statements.
78
We reconciled the opening trade receivable balance to the closing trade
receivable balance by testing revenue (as described in our area of focus,
‘PSC revenue recognition and interpretation’) and vouching cash
receipts in 2015 to bank statements. No misstatements were noted.
We assessed management’s review of the recoverability of the
receivable and note that a number of significant assumptions were
made in concluding that the trade receivable is recoverable and is
not impaired.
Based on the recent payment profile by the KRG and the 1 February
2016 announcement we agreed with management that the trade
receivable is recoverable and is not materially impaired. There is
also uncertainty in the pace of recovery of the debtor and we agreed
that the judgements made by management are significant and that
appropriate disclosure has been made in note 1 and note 17 to the
financial statements. We evaluated management’s judgements
and estimates by agreeing the KRG’s production targets to those
reported publicly, future oil prices to broker consensus data that we
independently verified, KRG cash costs to publicly available
information and checked that the assumptions used in the recovery
of the trade receivable were consistent with the assumptions used
in the impairment discounted cash flow models.
We also assessed the classification of the trade receivable between
current and non-current and checked that the current portion
represents amounts already received in 2016 that relate to the
31 December 2015 receivable and amounts forecasted for the
remainder of 2016 under the 1 February 2016 payment mechanism
(being Genel’s share of 5% of the respective netback revenue
derived for each field).
We designed our procedures to test that the revenue recorded is
in accordance with the PSCs and tested the calculations in the PSC
model. We tested the capital expenditure by agreeing a sample of
transactions to third party evidence. We tested the volumes sold
and prices as follows:
— Volume of oil sold – for a sample of domestic and export sales,
we agreed the internal daily production reports to third party
signed volume reports and third party signed loading
documents. Our testing did not identify any material
misstatements.
— Pricing of oil sold – for a sample of domestic sales, we agreed
the price recognised to KRG ministerial pricing orders. For
export sales, we assessed the pricing assumptions made
by management. We compared the pricing estimates to
the historical pricing information provided by third parties
and to industry and market data available. We found that
management’s estimates fell within a reasonable range
indicated by this data, noting that an element of contingency
in the pricing reflects the uncertainty in the amount that
is expected to be received in cash.
Genel Energy plc Annual Report 2015genelenergy.com
AREA OF FOCUS
HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS
Management continued to account for export sales on an accruals
basis in 2015. The key pricing assumptions on transportation and
other netback costs are based on management estimates owing
to the absence of formal pricing agreements with the KRG.
Management has reassessed accrual accounting for export sales
and continues to be able to estimate revenue earned and has
confidence that cash receipts on export and Bazian refinery
sales from the KRG will continue.
We reconciled the financial statements to the revenue calculated in
the PSC models. We did not identify any material misstatements.
We checked the disclosure provided by management in note 1,
significant estimates and judgements. We agreed with management
that the pricing assumption is a significant judgement that leads to
an estimate in the amount of revenue recorded.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the geographic structure of the group, the accounting processes and controls, and the industry in which the
group operates.
The group is structured along two business segments being the geographic areas in which it operates: Kurdistan and Africa. The group
financial statements are a consolidation of reporting units, comprising the Group’s operating businesses in these segments
and centralised functions.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the reporting units
to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial
statements as a whole.
We performed an audit of the complete financial information of two reporting units. Because of its size, the majority of our audit work was
performed on one of these – the main trading entity for Kurdistan assets. The other reporting unit relates to the gas assets, Miran and Bina
Bawi. We also performed specified procedures on certain account balances within the other reporting units, including the audit of the
following items: exploration expenses within the entities that hold the Africa exploration licences, operating expenses and related payables
within the UK and Ankara companies, and cash and cash equivalents and the bond in the UK.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality
$35 million (2014: $45 million).
How we determined it
1% of total assets.
Rationale for benchmark applied
In 2015, we calculated materiality using a total assets benchmark and applied a ‘rule of thumb’ of 1%.
We benchmarked our materiality level against published materiality thresholds used by auditors of
other mid-size exploration and production companies and noted that the materiality level we selected
is consistent with those benchmarked.
We considered using an income statement benchmark in determining materiality; however, as a significant
portion of the value of the Company is locked up in exploration/development oil and gas assets, we believe
an asset measure remains more relevant. When the Company begins production on its significant oil and
gas exploration/development assets, we will revisit our determination of materiality.
We applied a lower specific materiality of $5 million (2014: $10 million) for the following areas: Revenue,
Cost of Sales, Exploration Expense, Operating Expense and Interest Expense.
Additionally we applied a threshold of $0.5 million on the Remuneration Report and related party transactions.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $1.75 million
(2014: $2.5 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
The directors have voluntarily complied with Listing Rule 9.8.6(R)(3)(a) of the Financial Conduct Authority and provided a statement
in relation to going concern, set out on page 75, required for companies with a premium listing on the London Stock Exchange.
The directors have requested that we review the statement on going concern as if the company were a premium listed company.
We have nothing to report having performed our review.
79
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF GENEL ENERGY PLC
continued
The directors have chosen voluntarily to report how they have applied the UK Corporate Governance Code (the “Code”) as if the company
were a premium listed company. Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw
attention to in relation to the directors’ statement about whether they considered it appropriate to adopt the going concern basis in
preparing the financial statements. We have nothing material to add or to draw your attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing
the financial statements. The going concern basis presumes that the group has adequate resources to remain in operation, and that the
directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded
that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted,
these statements are not a guarantee as to the group’s ability to continue as a going concern.
Other required reporting
Consistency of other information – ISAs (UK & Ireland) reporting
As a result of the directors’ voluntary reporting on how they have applied the Code, under ISAs (UK & Ireland) we are required to report
to you if, in our opinion:
• information in the Annual Report is:
— materially inconsistent with the information in the audited financial statements; or
— apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired in the course of
performing our audit; or
— otherwise misleading.
We have no exceptions to report.
• the statement given by the directors on page 75, in accordance with provision C.1.1 of the Code, that they consider the Annual Report taken
as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the group’s position
and performance, business model and strategy is materially inconsistent with our knowledge of the group acquired in the course of
performing our audit.
We have no exceptions to report.
• the section of the Annual Report on page 52, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does
not appropriately address matters communicated by us to the Audit Committee.
We have no exceptions to report.
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity
of the group
As a result of the directors’ voluntary reporting on how they have applied the Code, under ISAs (UK & Ireland) we are required to report
to you if we have anything material to add or to draw attention to in relation to:
• the directors’ confirmation on page 75 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out
a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance,
solvency or liquidity.
We have nothing material to add or to draw attention to.
• the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
We have nothing material to add or to draw attention to.
• the directors’ explanation on page 75 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed
the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing material to add or to draw attention to.
Adequacy of information and explanations received
Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion, we have not received all the information and
explanations we require for our audit. We have no exceptions to report arising from this responsibility.
Other voluntary reporting
Opinions on additional disclosures
Strategic Report and Directors’ Report and Governance
In our opinion, the information given in the Strategic Report and the ‘Directors’ Report and Governance’ for the financial year for which the
financial statements are prepared is consistent with the financial statements.
80
Genel Energy plc Annual Report 2015genelenergy.com Directors’ remuneration report
The company voluntarily prepares a Directors’ Remuneration Report in accordance with the provisions of the UK Companies Act 2006.
The directors have requested that we audit the part of the Directors’ Remuneration Report specified by the Companies Act 2006 to be
audited as if the parent company were a UK Registered listed company.
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
Corporate governance statement
The company voluntarily prepares a corporate governance statement that includes the information with respect to internal control and risk
management systems and about share capital structures required by the Disclosure Rules and Transparency Rules of the Financial Conduct
Authority. The directors have requested that we report on the consistency of that information with the financial statements.
In our opinion the information given in the Corporate Governance Statement set out page 51 with respect to internal control and risk
management systems and about share capital structures is consistent with the financial statements.
Matter on which we have agreed to report by exception
Corporate governance statement
The company’s voluntary Corporate Governance Statement includes details of the company’s compliance with the UK Corporate
Governance Code. The directors have requested that we review the parts of the Corporate Governance Statement relating to the company’s
compliance with the ten further provisions of the UK Corporate Governance Code specified for auditor review by the Listing Rules of the
Financial Conduct Authority as if the company were a premium listed company. We have nothing to report having performed our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Directors’ Responsibilities Statement set out on page 75, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Article 113A
of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately
disclosed;
• the reasonableness of significant accounting estimates made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a
reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures
or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Nicholas Blackwood (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
2 March 2016
(a)
(b)
The maintenance and integrity of the Genel Energy plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions
81
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 31 DECEMBER
Revenue
Production costs
Depreciation
Gross profit
Exploration costs written-off
Impairment and write-off of property, plant and equipment
General and administrative costs
Operating loss
EBITDAX
Depreciation of oil and gas assets
Exploration costs written-off
Impairment of property, plant and equipment
Finance expense
Loss before income tax
Income tax expense
Loss for the period
Other comprehensive items
Total comprehensive loss for the period
Attributable to:
Shareholders’ equity
Notes
4
4
3
10
4
4
3
10
6
7
2015
$m
343.9
(36.3)
(172.0)
135.6
(173.0)
(1,038.0)
(28.7)
(1,104.1)
279.4
(172.5)
(173.0)
(1,038.0)
(56.5)
(1,160.6)
(1.0)
(1,161.6)
–
(1,161.6)
2014
$m
519.7
(62.1)
(141.0)
316.6
(476.8)
(80.9)
(47.0)
(288.1)
410.6
(141.0)
(476.8)
(80.9)
(24.7)
(312.8)
(1.5)
(314.3)
–
(314.3)
(1,161.6)
(1,161.6)
(314.3)
(314.3)
Earnings per ordinary share attributable to the ordinary equity holders of the Company
Basic loss per share – cents per share
Diluted loss per share – cents per share
8
8
(417.30)
(417.30)
(112.97)
(112.97)
82
Genel Energy plc Annual Report 2015genelenergy.com
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Trade and other payables
Deferred income
Provisions
Bank and other borrowings
Current liabilities
Trade and other payables
Deferred income
Total liabilities
Net assets
Equity shareholders
Share capital
Share premium
Retained earnings
Total shareholders’ equity attributable to equity holders
Non-controlling interest
Total equity
Notes
2015
$m
2014
$m
9
10
11
11
12
13
14
15
16
13
14
18
1,672.7
929.4
365.3
2,967.4
79.0
455.3
534.3
3,501.7
(78.0)
(46.0)
(25.2)
(694.1)
(843.3)
(80.6)
(3.0)
(83.6)
(926.9)
1,679.3
2,015.2
–
3,694.5
303.7
489.1
792.8
4,487.3
(5.0)
(47.8)
(19.4)
(491.4)
(563.6)
(184.0)
(6.2)
(190.2)
(753.8)
2,574.8
3,733.5
43.8
4,074.2
(1,543.2)
2,574.8
43.8
4,074.2
(392.3)
3,725.7
–
7.8
2,574.8
3,733.5
These consolidated financial statements on pages 82 to 102 were authorised for issue by the Board of Directors on 2 March 2016 and were
signed on its behalf by:
Murat Özg¨ul
Chief Executive Officer
Ben Monaghan
Chief Financial Officer
83
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 31 DECEMBER
At 1 January 2015
Loss and total comprehensive expense for
the period
Transactions with shareholders:
Share-based payment transactions
Release of non-controlling interest1
Notes
Share
capital
2015
$m
43.8
Share
premium
account
2015
$m
Accumulated
losses
2015
$m
Total equity
attributable to
equity holders
2015
$m
Non-
controlling
interest
2015
$m
Total
equity
2015
$m
4,074.2
(392.3)
3,725.7
7.8
3,733.5
–
–
–
–
–
–
(1,161.6)
(1,161.6)
–
(1,161.6)
2.9
7.8
2.9
7.8
–
(7.8)
2.9
–
At 31 December 2015
43.8
4,074.2
(1,543.2)
2,574.8
–
2,574.8
At 1 January 2014
Loss and total comprehensive expense for
the period
Transactions with shareholders:
Share-based payment transactions
Purchase of shares for ESOP2
Purchase of own shares3
Notes
Share
capital
2014
$m
43.8
Share
premium
account
2014
$m
4,074.2
Accumulated
losses
2014
$m
Total equity
attributable to
equity holders
2014
$m
Non-
controlling
interest
2014
$m
Total
equity
2014
$m
(21.6)
4,096.4
7.8
4,104.2
–
–
–
–
–
–
–
–
(314.3)
(314.3)
6.8
(39.2)
(24.0)
6.8
(39.2)
(24.0)
–
–
–
–
(314.3)
6.8
(39.2)
(24.0)
At 31 December 2014
43.8
4,074.2
(392.3)
3,725.7
7.8
3,733.5
1.
2.
3.
The non-controlling interest of $7.8 million was released following the expiry of the C shares in Genel Energy Holding Company Limited
Purchase of shares in the open market to satisfy the Company’s commitments under various employee share plans
Purchase of own shares in the open market and held as treasury shares
84
Genel Energy plc Annual Report 2015genelenergy.com CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 31 DECEMBER
Cash flows from operating activities
Loss for the period
Adjustments for:
Finance expense
Taxation
Depreciation and amortisation
Exploration costs written off
Impairment of property, plant and equipment
Other non-cash items
Changes in working capital:
Trade and other receivables
Trade and other payables and provisions
Cash generated from operations
Interest received
Taxation paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Acquisition of intangibles
Net cash used in investing activities
Cash flows from financing activities
Purchase of ESOP shares
Purchase of own shares
Net proceeds from bond issuance
Interest paid1
Net cash generated from financing activities
Net decrease in cash and cash equivalents
Foreign exchange loss
Cash and cash equivalents at 1 January
Notes
2015
$m
2014
$m
(1,161.6)
(314.3)
6
4
56.5
1.0
172.5
154.8
1,038.0
1.1
24.7
1.5
144.3
471.1
80.9
6.8
(190.2)
(0.9)
(287.8)
8.1
71.2
1.0
(1.0)
71.2
9
10
20
(130.2)
(120.2)
(3.9)
135.3
1.0
(1.5)
134.8
(482.1)
(194.8)
(76.8)
(254.3)
(753.7)
–
–
196.2
(46.1)
(39.2)
(24.0)
490.3
(18.8)
150.1
408.3
(33.0)
(0.8)
489.1
(210.6)
–
699.7
Cash and cash equivalents at 31 December
12
455.3
489.1
1.
The presentation of the prior year cash flows has been amended to include interest expense as part of financing activities
In the year the Company acquired an additional interest in Bina Bawi. Consideration includes gross $145.0 million of deferred consideration
(see note 20).
85
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Basis of preparation
The consolidated financial statements of Genel Energy Plc (the
Company or the Group) have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union (IFRS) and interpretations issued by the IFRS
Interpretations Committee (IFRIC) are prepared under the historical
cost convention and comply with Jersey company law. The
significant accounting policies are set out below and have been
consistently applied throughout the period.
Items included in the financial information of each of the Company‘s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).
The consolidated financial statements are presented in US dollars to
the nearest million ($m) rounded to one decimal place, except where
otherwise indicated.
For explanation of the key judgements and estimates made by
management in applying the Company’s accounting policies, refer to
significant accounting estimates and judgement on pages 86 to 88.
Going concern
At the time of approving the consolidated financial statements,
the directors have a reasonable expectation that the Company
has adequate resources to continue in operational existence for
the foreseeable future and therefore its consolidated financial
statements have been prepared on a going concern basis.
Foreign currency
Foreign currency transactions are translated into the functional
currency of the relevant entity using the exchange rates prevailing
at the dates of the transactions or at the balance sheet date where
items are re-measured. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation at
period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the statement
of comprehensive income within finance income or finance costs.
Consolidation
The consolidated financial statements consolidate the Company and
its subsidiaries. These accounting policies have been adopted by all
Group companies.
Subsidiaries
Subsidiaries are all entities (including structured entities) over
which the Company has control. The Company controls an entity
when the it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Company. They are deconsolidated from the date that control
ceases. Transactions, balances and unrealised gains on
transactions between Group companies are eliminated.
Investments in joint ventures and associates are accounted for using
the equity method, under which the investment is initially recognised
at cost and subsequently adjusted for the Company’s share of
post-acquisition income less dividends received and the Company’s
share of other comprehensive income and other movements in
equity, together with any loans of a long-term investment nature.
Where necessary, adjustments are made to the financial statements
of joint ventures and associates to bring the accounting policies
used into line with those of the Company. In an exchange of assets
and liabilities for an interest in a joint venture, the non-Group share
of any excess of the fair value of the assets and liabilities transferred
over the pre-exchange carrying amounts is recognised in income.
Unrealised gains on other transactions between the Company and
its joint ventures and associates are eliminated to the extent of the
Company’s interest in them; unrealised losses are treated similarly
but may also result in an assessment of whether the asset
transferred is impaired.
The Company recognises its assets and liabilities relating to its
interests in joint operations, including its share of assets held jointly
and liabilities incurred jointly with other partners.
Acquisitions
The Company uses the acquisition method of accounting to account
for business combinations. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are
measured at their fair values at the acquisition date. The Company
recognises any non-controlling interest in the acquiree at fair
value at time of recognition or at the non-controlling interest‘s
proportionate share of net assets. Acquisition-related costs are
expensed as incurred.
Farm-in/farm-out
Farm-out transactions relate to the relinquishment of an interest in
oil and gas assets in return for services rendered by a third party or
where a third party agrees to pay a portion of the Company’s share
of the development costs (cost-carry). Farm-in transactions relate to
the acquisition by the Company of an interest in oil and gas assets in
return for services rendered or cost-carry provided by the Company.
Farm-in/farm-out transactions undertaken in the development or
production phase of an oil and gas asset are accounted for as an
acquisition or disposal of oil and gas assets. The consideration given
is measured as the fair value of the services rendered or cost-carry
provided and any gain or loss arising on the farm-in/farm-out is
recognised in the statement of comprehensive income. A profit is
recognised for any consideration received in the form of cash to the
extent that the cash receipt exceeds the carrying value of the
associated asset.
Farm-in/farm-out transactions undertaken in the exploration phase
of an oil and gas asset are accounted for on a no gain/no loss basis
due to inherent uncertainties in the exploration phase and
associated difficulties in determining fair values reliably prior to the
determination of commercially recoverable proved reserves.
Joint arrangements
Arrangements under which the Company has contractually agreed
to share control with another party or parties are joint ventures
where the parties have rights to the net assets of the arrangement,
or joint operations where the parties have rights to the assets
and obligations for the liabilities relating to the arrangement.
Investments in entities over which the Company has the right to
exercise significant influence but neither control nor joint control
are classified as associates.
Significant accounting judgements and estimates
The preparation of the financial statements in accordance with IFRS
requires management to make judgements and assumptions that
affect the reported results, assets and liabilities. Where judgements
and estimates are made, there is a risk that the actual outcome
could differ from the judgement or estimate made. Management
has assessed the following as being areas where changes in
estimates or assumptions could have a significant impact on the
financial statements.
86
Genel Energy plc Annual Report 2015genelenergy.com Estimation of oil and gas reserves
Reserves and resources impact the Company’s financial statements
in a number of ways, including: the calculation of depreciation and
amortisation; testing for impairment; determining the timing of
decommissioning activity and associated costs and going concern
and viability.
Estimates of oil and gas reserves are inherently imprecise, require
the application of judgement and are subject to future revision.
Proven and probable reserves are estimates of the amount of oil
and gas that can be economically extracted from oil and gas assets.
The Company estimates its reserves using standard recognised
evaluation techniques. Proven and probable reserves are
determined using estimates of oil and gas in place, recovery factors
and future commodity prices, the latter having an impact on the
total amount of recoverable reserves. Future development costs are
estimated taking into account the level of development required to
produce the reserves.
Trade receivables
The Company reported trade receivables of $422.9 million owed by
the KRG principally for export sales that were made after 2014. The
KRG has stated publicly on a consistent basis that it intends to fully
repay the debt and has demonstrated its commitment by making 5
monthly payments between September 2015 and the end of February
2016. On 1 February 2016, the KRG announced an interim measure
whereby monthly payments to IOCs would be made based on an
agreed mechanism. The mechanism has been put in place with the
objective of simplifying the calculation of a monthly payment that will
include an element that is a proxy for entitlement for the month,
together with an element that is intended to contribute towards
repayment of the receivable. The KRG has stated that it intends to
increase the repayment contribution as the oil price improves.
Management expect that ultimately a reconciliation calculating full
entitlement under the terms of the PSC will be agreed with the KRG
– this reconciliation will form the basis for calculating amounts owed
and the final settlement of the balance.
The Company assess the receivable balance as fully recoverable, with
management expectation that it will be settled with cash, although it
is possible that the debt could be settled in a number of ways. The
success and pace of the recovery of the balance depends on some or
all of a number of factors, including: the financial environment in the
KRI and the financial budget of the KRG; oil price; volumes of
production from the KRI as a whole; and ongoing negotiations with
regard to various sources of potential finance. Management does not
have direct visibility on the working capital of the KRG or its budget
constraints, but continues to monitor the position based on its regular
conversations with the KRG.
Management has compared the carrying value of trade receivables
reported in the balance sheet to its fair value. When assessing fair
value, management has taken into account a range of inputs related
to likely pricing of domestic, government refinery and export sales,
interest accruing at LIBOR plus 2% in line with the PSC and
management’s assessment of the likely timing of discounted
cash flows.
No revenue or receivable has been recognised for export sales that
were made before 2014 (including exports marketed by SOMO) where
payment is outstanding), the total unrecognised receivable balance is
estimated of circa $340 million.
In general, estimates of resources for undeveloped or partially
developed fields are subject to greater uncertainty over their future
life than estimates of reserves for fields that are substantially
developed and being depleted. As a field goes into production, the
amount of proved reserves will be subject to future revision once
additional information becomes available through, for example, the
drilling of additional wells or the observation of long-term reservoir
performance under producing conditions. As those fields are further
developed, new information may lead to revisions.
Future development costs used in impairment testing and
depreciation of oil and gas properties
Certain classes of property, plant and equipment related to oil and
gas exploration and production activities are depreciated using a
unit-of-production method over 2P reserves. Since 2P reserves
assume future development cost to access the proved and probable
reserves, an estimate of future development costs is required for the
calculation of depreciation.
The Group’s estimation of future development costs is based on past
costs, experience and data of similar in the region, future petroleum
prices and the Company’s plans to develop its assets. However,
actual costs may be different from those estimated. Changes in
estimates of reserve quantities and/or estimates of future
development expenditure are reflected prospectively in the
depreciation and amortisation calculation.
Estimation of realised export price used to calculate reported
revenue and trade receivables
Export sales are accrued using a netback, principally comprised of the
estimated realised sales price for each barrel of oil sold, less selling,
transportation and handling costs and estimates to cover additional
costs. The Company does not have direct visibility on the components
of netback because sales are managed by the KRG. As no
reconciliation has been performed and agreed with the KRG,
management has estimated the price or cost for each component of
netback. For each component of netback, management has made its
best estimate of prices or costs based on a range communicated by
the KRG. Management has estimated the costs outlined above at the
higher end of the likely range, reflecting uncertainties in actual
realised netback.
Actual realised sales price used to calculate netback and entitlement
when a reconciliation is performed with the KRG may be different to
the estimate made by management.
87
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
1. Summary of significant accounting policies
continued
Decommissioning costs
Provision for decommissioning represents the present value of
decommissioning costs relating to the Kurdistan oil and gas
interests, which are expected to be incurred at the end of field life,
currently estimated to be in the period 2031 – 2039. These provisions
have been created based on the Company’s internal estimates.
Assumptions, based on the current economic environment, have
been made which management believe are a reasonable basis upon
which to estimate the future liability. Those estimates are reviewed
regularly to take into account any material changes to the
assumptions. However, actual decommissioning costs will
ultimately depend upon future market prices for the necessary
decommissioning works required, which will reflect market
conditions at the relevant time. Furthermore, the timing of
decommissioning is likely to depend on when the fields cease
to produce at economically viable rates. This in turn will depend
upon future oil and gas prices, which are inherently uncertain.
Business combinations
The recognition of business combinations requires the excess of the
purchase price of acquisitions over the net book value of assets
acquired to be allocated to the assets and liabilities of the acquired
entity. The Company makes judgements and estimates in relation to
the fair value allocation of the purchase price.
The fair value exercise is performed at the date of acquisition. Owing
to the nature of fair value assessments in the oil and gas industry,
the purchase price allocation exercise and acquisition-date fair value
determinations require subjective judgements based on a wide
range of complex variables at a point in time. Management uses
all available information to make the fair value determinations.
In determining fair value for the acquisition, the Company has
utilised valuation methodologies including discounted cash flow
analysis. The assumptions made in performing these valuations
include assumptions as to discount rates, foreign exchange rates,
commodity prices, the timing of development, capital costs, and
future operating costs. Any significant change in key assumptions
may cause the acquisition accounting to be revised.
Segmental reporting
IFRS 8 requires the Company to disclose information about its
business segments and the geographic areas in which it operates. It
requires identification of business segments on the basis of internal
reports that are regularly reviewed by the entity’s chief operating
decision maker in order to allocate resources to the segment and
assess its performance. The Company has two reportable business
segments: Kurdistan and Africa. These are described in note 2.
Intangible assets
Exploration assets
Exploration assets are explained under oil and gas assets in
property, plant and equipment below.
Other intangible assets
Other intangible assets (predominantly software) that are acquired
by the Company are stated at cost less accumulated amortisation
and less accumulated impairment losses.
Amortisation is charged to the statement of comprehensive income
on a straight-line basis over the estimated useful lives of intangible
assets from the date they are available for use, unless such lives are
indefinite. Intangible assets with an indefinite useful life and goodwill
are systematically tested for impairment at each balance sheet date.
88
Property, plant and equipment
Property, plant and equipment comprises the Company’s tangible
oil and gas assets together with leasehold improvements and other
assets and is carried at cost, less any accumulated depreciation and
accumulated impairment losses. Costs include purchase price and
construction costs together with borrowing costs where applicable
for qualifying assets. Depreciation of these assets commences when
the assets are available for their intended use.
Oil and gas assets
Costs incurred prior to obtaining legal rights to explore are
expensed immediately to the statement of comprehensive income.
Exploration, appraisal and development expenditure is accounted
for under the successful efforts method. Under the successful
efforts method only costs that relate directly to the discovery and
development of specific oil and gas reserves are capitalised as
exploration and evaluation assets within intangible assets. Costs
of activity that do not identify oil and gas reserves are expensed.
All lease and licence acquisition costs, geological and geophysical
costs and other direct costs of exploration, evaluation and
development are capitalised as intangible assets or property, plant
and equipment according to their nature. Intangible assets comprise
costs relating to the exploration and evaluation of properties which
the directors consider to be unevaluated until reserves are appraised
as commercially viable, at which time, following an impairment review,
they are transferred to property, plant and equipment and reclassified
as development assets. Where properties are appraised to have no
commercial value, the associated costs are expensed as an
impairment loss in the period in which the determination is made.
Development expenditure on producing assets is accounted for in
accordance with IAS 16–Property, plant and equipment.
Assets are depreciated once they are available for use and are
depleted on a field-by-field basis using the unit of production
method. Depreciation takes account of book costs and estimated
future development costs and uses the unit of production method
by dividing production for the period by 2P reserves by production.
Changes to depreciation rates as a result of changes in reserve
quantities and estimates of future development expenditure are
reflected prospectively.
Depreciation is charged so as to write off the cost, less estimated
residual value, over the estimated useful lives of the assets using the
straight-line method:
Motor vehicles
Computer equipment
Other equipment
5 years
3 years
3-5 years
The estimated useful lives of property, plant and equipment and
their residual values are reviewed on an annual basis and, if
necessary, changes in useful lives are accounted for prospectively.
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in the statement of
comprehensive income for the relevant period.
Where exploration licences are relinquished or exited for no
consideration or exploration expenses are neither derisking an asset
nor adding value to the asset, the associated costs are expensed to
the income statement as exploration costs written-off.
Genel Energy plc Annual Report 2015genelenergy.com Subsequent costs
The cost of replacing part of an item of property and equipment is
recognised in the carrying amount of the item if it is probable that
the future economic benefits embodied within the part will flow to
the Company, and its cost can be measured reliably. The net book
value of the replaced part is expensed. The costs of the day-to-day
servicing and maintenance of property, plant and equipment are
recognised in the statement of comprehensive income.
Leases
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the statement
of comprehensive income on a straight-line basis over the period
of the lease.
Financial assets and liabilities
Classification
The Group assesses the classification of its financial assets on initial
recognition as either at fair value through profit and loss, loans and
receivables; or available for sale. The Group assesses the
classification of its financial liabilities on initial recognition as fair
value through profit and loss or amortised costs.
Recognition and measurement
Regular purchases and sales of financial assets are recognised at fair
value on the trade date – the date on which the Group commits to
purchase or sell the asset. Loans and receivables are subsequently
carried at amortised cost using the effective interest method.
Trade and other receivables
Trade receivables are amounts due from crude oil sales, sales of
gas or services performed in the ordinary course of business. If
collection is expected in one year or less (or in the normal operating
cycle of the business if longer), they are classified as current assets.
If not, they are presented as non-current assets.
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
Cash and cash equivalents
In the consolidated balance sheet and consolidated statement
of cash flows, cash and cash equivalents includes cash in hand,
deposits held on call with banks, other short-term highly liquid
investments with original maturities of three months or less and
includes the Group’s share of cash held in joint operations.
Interest-bearing borrowings
Borrowings are recognised initially at fair value, net of transaction
costs incurred. Borrowings are subsequently carried at amortised
cost; any difference between the proceeds (net of transaction costs)
and the redemption value is recognised in the statement of
comprehensive income over the period of the borrowings using the
effective interest method.
Fees paid on the establishment of loan facilities are recognised as
transaction costs of the loan to the extent that it is probable that
some or all of the facility will be drawn down. In this case, the fee
is deferred until the draw-down occurs. To the extent there is no
evidence that it is probable that some or all of the facility will be drawn
down, the fee is capitalised as a pre-payment for liquidity services and
amortised over the period of the facility to which it relates.
Borrowings are presented as long or short-term based on the
maturity of the respective borrowings in accordance with the loan or
other agreement. Borrowings with maturities of less than twelve
months are classified as short-term. Amounts are classified as
long-term where maturity is greater than twelve months. Where no
objective evidence of maturity exists, related amounts are classified
as short-term.
Trade and other payables
Trade and other payables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.
Provisions
Provisions are recognised when the Company has a present
obligation as a result of a past event, and it is probable that the
Company will be required to settle that obligation.
Provisions are measured at management’s best estimate of the
expenditure required to settle the obligation at the balance sheet
date, and are discounted to present value where the effect is material.
The unwinding of any discount is recognised as finance costs in the
statement of comprehensive income.
Decommissioning
Provision is made for the cost of decommissioning assets at the
time when the obligation to decommission arises. Such provision
represents the estimated discounted liability for costs which are
expected to be incurred in removing production facilities and
site restoration at the end of the producing life of each field. A
corresponding item of property, plant and equipment is also
created at an amount equal to the provision. This is subsequently
depreciated as part of the capital costs of the production facilities.
Any change in the present value of the estimated expenditure
attributable to changes in the estimates of the cash flow or the
current estimate of the discount rate used are reflected as an
adjustment to the provision.
Offsetting
Financial assets and liabilities are offset and the net amount
reported in the balance sheet when there is a legally enforceable
right to offset the recognised amounts and there is an intention to
settle on a net basis or realise the asset and settle the liability
simultaneously.
Impairment
Property, plant and equipment
The carrying amounts of the Company’s non-financial assets are
reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists then the
asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the
greater of its value in use and its fair value less costs of disposal. In
assessing fair value, an estimation is made of the price that would
be received to sell an asset. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
Key assumptions in the discounted cash flows used to assess the fair
value of property, plant and equipment are oil price, reserves and
resources, operating expenditure and government deductions from
revenue and discount rate.
89
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
1. Summary of significant accounting policies
continued
For the purpose of impairment testing, assets are grouped together
into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows
of other assets or groups of assets (cash generating unit).
The estimated recoverable amount is then compared to the carrying
value of the asset. Where the estimated recoverable amount is
materially lower than the carrying value of the asset an impairment
loss is recognised if the carrying amount of an asset or its cash-
generating unit exceeds its recoverable amount.
Non-financial assets that suffered impairment are reviewed for
possible reversal of the impairment at each reporting date.
Financial assets
A financial asset is assessed at each reporting date to determine
whether there is any objective evidence that it is impaired. A
financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the
estimate of future cash flows of that asset.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount, and the present value of the estimated future cash flows
discounted at the original effective interest rate. All impairment
losses are recognised as an expense in the statement of
comprehensive income.
An impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss
was recognised.
Share capital
Ordinary shares are classified as equity.
Revenue
Revenue for petroleum sales are recognised when the significant
risks and rewards of ownership have passed to the buyer and the
associated revenue can be reliably measured. Revenue is measured
at the fair value of the consideration received excluding discounts,
rebates, value added tax (VAT) and other sales tax or duty.
The significant risks and rewards of ownership are deemed to have
passed on delivery of crude oil to the customer at the point of
loading and revenue is recognised accordingly to the extent that the
receipt of cash is assessed as sufficiently probable and the amount
of revenue can be reliably measured.
Where income tax arising from the Group’s activities under
production sharing contracts is settled by a third party at no cost
and on behalf of the Group and where the Group would otherwise
be liable for such income tax, the associated sales are shown gross
including the notional tax and a corresponding income tax charge
is presented in the statement of comprehensive income.
Employee benefits
Short-term benefits
Short-term employee benefit obligations are expensed to the
statement of comprehensive income as the related service is
provided. A liability is recognised for the amount expected to be paid
under short-term cash bonus or profit-sharing plans if the Group has
a present legal or constructive obligation to pay this amount as a
result of past service provided by the employee and the obligation
can be estimated reliably.
Share-based payments
The Group operates a number of equity-settled, share-based
compensation plans. The economic cost of awarding shares and
share options to employees is recognised as an expense in the
statement of comprehensive income equivalent to the fair value
of the benefit awarded. The fair value is determined by reference
to option pricing models, principally Monte Carlo and adjusted
Black-Scholes models. The charge is recognised in the statement
of comprehensive income over the vesting period of the award.
At each balance sheet date, the Group revises its estimate of
the number of options that are expected to become exercisable.
Any revision to the original estimates is reflected in the statement
of comprehensive income with a corresponding adjustment to
equity immediately to the extent it relates to past service and the
remainder over the rest of the vesting period. The proceeds received
net of any directly attributable transaction costs are credited to
share capital (nominal value) and share premium when the options
are exercised.
Finance income and finance costs
Finance income comprises interest income on funds invested and
foreign currency gains. Interest income is recognised as it accrues,
using the effective interest method.
Finance expense comprises interest expense on borrowings, and
foreign currency losses. Borrowing costs directly attributable to the
acquisition of a qualifying asset as part of the cost of that asset are
capitalised over the respective assets.
Borrowing costs, including the accretion of any discount on initial
recognition of borrowings, incurred for the construction of any
qualifying asset are capitalised during the period of time that is
required to complete and prepare the asset for its intended use
or sale. Other borrowing costs are expensed in the consolidated
statement of comprehensive income.
Taxation
Under the terms of the Kurdistan PSCs, under which oil sales are
made, any tax due is paid directly from the government’s take of
revenues. This would normally be presented for as a gross up of
revenue with a corresponding taxation expense in the statement of
comprehensive income. No gross up of revenue and presentation of
taxation expense has been accounted for in the period because, as a
consequence of the uncertainty over the payment mechanism for oil
sales in Kurdistan, it has not been possible to measure the quantum
of taxation that has been paid on behalf of the Group by the KRG.
Related parties
Parties are related if one party has the ability, directly or indirectly,
to control the other party or exercise significant influence over the
party in making financial or operational decisions. Parties are also
related if they are subject to common control. Transactions between
related parties are transfers of resources, services or obligations,
regardless of whether a price is charged and are disclosed
separately within the notes to the consolidated financial information.
New standards
The following standards have been adopted by the Group for
the first time for the financial year beginning on or after 1 January
2014 and do not have a material impact on the group: IFRS 10,
‘Consolidated financial statements’, IFRS 11, ‘Joint arrangements’
and IFRS 12, ‘Disclosures of interests in other entities’.
A number of new standards and amendments to standards and
interpretations have been issued but are not yet effective and not
early adopted. None of these are expected to have significant effect
on the consolidated financial statements of the Group.
90
Genel Energy plc Annual Report 2015genelenergy.com 2. Segmental information
The Group has two reportable business segments, which are its oil and gas exploration and production business in the KRI and its oil and gas
exploration business in Africa. Capital expenditure decisions for the KRI business segment are considered in the context of the cash flows
expected to be made from the production and sale of crude oil. Capital expenditure for the African segment is considered in the context of
the available cash of the Group.
Finance income is not considered part of a business segment and forms part of the reconciliation to reported numbers. For the period ended
31 December 2015:
Revenue
Cost of sales
Gross profit
Exploration costs written-off
Impairment and write-off of property, plant and equipment
General and administrative costs
Operating loss
Finance expense
Loss before tax
Capital expenditure
Total assets
Total liabilities
KRI
$m
343.9
(208.3)
135.6
(69.1)
(1,038.0)
(1.5)
(973.0)
Africa
$m
Other
$m
–
–
–
(103.9)
–
–
(103.9)
–
–
–
–
–
(27.2)
(27.2)
Total
reported
$m
343.9
(208.3)
135.6
(173.0)
(1,038.0)
(28.7)
(1,104.1)
(1.0)
–
(55.5)
(56.5)
(974.0)
(103.9)
(82.7)
(1,160.6)
139.3
3,080.6
(195.5)
17.9
43.8
(21.1)
–
377.3
(710.3)
157.2
3,501.7
(926.9)
General and administrative costs represent non-segmental items related to head office activities. Total assets and liabilities in the other
segment are predominantly cash and debt balances.
For the period ended 31 December 2014:
Revenue
Cost of sales
Gross profit
Exploration costs written-off
Impairment and write-off of property, plant and equipment
General and administrative costs
Operating profit/(loss)
Finance expense
Profit/(Loss) before tax
Capital expenditure
Total assets
Total liabilities
KRI
$m
519.7
(203.1)
316.6
–
(80.9)
(1.9)
233.8
Africa
$m
Other
$m
–
–
–
(476.8)
–
–
(476.8)
–
–
–
–
–
(45.1)
(45.1)
Total
reported
$m
519.7
(203.1)
316.6
(476.8)
(80.9)
(47.0)
(288.1)
(0.9)
–
(23.8)
(24.7)
232.9
(476.8)
(68.9)
(312.8)
331.2
3,946.1
(168.1)
343.0
115.1
(78.8)
2.7
426.1
(506.9)
676.9
4,487.3
(753.8)
General and administrative costs represent non-segmental items related to head office activities. Total assets and liabilities in the other
segment are predominantly cash and debt balances.
91
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
3. Exploration costs written-off
Write off of previously capitalised exploration assets (see note 9)
Current year exploration expenses
2015
$m
144.1
28.9
173.0
2014
$m
471.1
5.7
476.8
Write off of previously capitalised exploration costs includes costs previously capitalised principally in relation to the following licences:
Ber Bahr, Morocco Mir Left, Côte d’Ivoire and Ethiopia. Current year exploration expenses related principally to work commitments and
costs incurred on assets that the Company has exited or is in the process of exiting.
4. Operating costs
Operating loss is stated after charging cost of sales and general and administration costs:
Depletion and amortisation of oil and gas assets
Production costs
Cost of sales
Share based payment charge
Depreciation and amortisation of other fixed assets
Other administrative costs
General and administrative expenses
Fees payable to the Company’s auditors for:
Audit of parent company and consolidated financial statements
Tax services
Total fees
5. Staff numbers and costs
Turkey
UK
Other
2015
$m
172.0
36.3
208.3
1.5
0.5
26.7
28.7
0.4
0.2
0.6
2014
$m
141.0
62.1
203.1
4.0
3.3
39.7
47.0
0.4
0.3
0.7
Average
number
2015
Average
number
2014
102
32
51
185
126
56
136
318
The numbers presented above are the average for the year. They include all employees of Group companies but exclude the employees of
all joint operations including 577 employees (2014: 624) in TTOPCO.
The Company incurs payroll costs related to a number of different activities. Some of the costs are expensed to the income statement and
some are capitalised against assets, depending on the related activity and whether the cost meets capitalisation requirements under IFRS.
Wages and salaries
Share-based payments (note 19)
Social security costs
6. Finance/expense income
Interest on bank deposits
Interest payable on bond
Unwind of discounts
92
2015
$m
38.1
2.9
2.7
43.7
2015
$m
1.3
(50.1)
(7.7)
(56.5)
2014
$m
70.0
6.8
3.5
80.3
2014
$m
0.6
(23.5)
(1.8)
(24.7)
Genel Energy plc Annual Report 2015genelenergy.com 7. Income tax expense
A taxation charge of $1.0 million (2014: $1.5 million) was made in the Turkish and UK services companies. All other corporation tax due in KRI
is deemed paid on behalf of the Group by the KRG from it’s own share of revenues. There is no tax payment required or expected to be made
by the Group as revenue is received after tax.
The tax paid by the government in accordance with the terms of the KRI PSCs would usually be presented as a gross up of revenue and
a corresponding taxation expense in the statement of comprehensive income with no cash outflow. In the Group’s results for the periods
ended 31 December 2015 and 31 December 2014, no presentation of taxation expense with an equivalent gross up for revenue has been
accounted for because it has not been possible to measure reliably the amount of taxation paid on behalf of the Group because of
uncertainties over how the amount of taxation should be calculated. This is an accounting presentational issue and there is no taxation
to be paid. For the same reason, it has not been possible to assess whether it is necessary to gross up the acquired assets for deferred tax.
8. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number
of shares in issue during the period.
Loss for the period attributable to equity holders of the Company ($million)
Weighted average number of ordinary shares (number)1
Basic earnings per share (cents per share)
1.
Excluding the purchase of own shares now held as treasury shares
2015
$m
2014
$m
(1,161.6)
278,351,746
(417.30)
(314.3)
278,177,070
(112.97)
Diluted
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to include all potential dilutive ordinary
shares. The Group has four types of potential dilutive ordinary shares:
• Shares granted to directors and employees under the performance share plan, to the extent that performance conditions have been met
at the period end
• Share options granted to employees under the share option plan, where the exercise price is less than the average market price of the
Company’s ordinary shares during the period
• Shares granted to employees under the restricted share plan
• Shares and securities issued to the founders of the Company, to the extent that performance conditions have been met at the period end
Further details of these potentially dilutive shares are shown in note 19.
Loss for the period attributable to equity holders of the Company ($million)
2015
$m
(1,161.6)
2014
$m
(314.3)
Weighted average number of ordinary shares (number)1
Adjustment for performance shares, restricted shares, share options and founder shares and securities (number)2
Weighted average number of ordinary shares for diluted earnings per share (number)
Diluted earnings per share (cents per share)
278,351,746
-
278,351,746
(417.30)
278,177,070
–
278,177,070
(112.97)
Excluding the purchase of own shares now held as treasury shares
1.
2. As the Group reported a loss in 2014, there are no dilutive adjustments to be made
93
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
9. Intangible assets
Cost
At 1 January 2015
Acquisitions (note 20)
Additions
Transfer to property, plant and equipment (see note 10)
Other
Disposals and exploration costs written off (see note 3)
At 31 December 2015
Accumulated amortisation and impairment
At 1 January 2015
Amortisisation charge for the period
Balance at 31 December 2015
Net book value
At 31 December 2015
Cost
At 1 January 2014
Acquisitions (note 20)
Transfer to property, plant and equipment (see note 11)
Disposals and exploration costs written off
Additions
At 31 December 2014
Accumulated amortisation and impairment
At 1 January 2014
Amortisation charge for the period
At 31 December 2014
Net book value
At 31 December 2014
Exploration and
evaluation
assets
$m
Other assets
$m
Total
$m
1,676.6
101.0
48.0
(12.9)
2.4
(144.1)
1,671.0
–
–
–
5.8
–
0.5
–
–
–
6.3
(3.1)
(1.5)
(4.6)
1,682.4
101.0
48.5
(12.9)
2.4
(144.1)
1,677.3
(3.1)
(1.5)
(4.6)
1,671.0
1.7
1,672.7
Exploration and
evaluation
assets
$m
Other assets
$m
Total
$m
1,630.9
76.8
(40.8)
(471.1)
480.8
1,676.6
–
–
–
4.5
–
–
–
1.3
5.8
(1.5)
(1.6)
(3.1)
1,635.4
76.8
(40.8)
(471.1)
482.1
1,682.4
(1.5)
(1.6)
(3.1)
1,676.6
2.7
1,679.3
The exploration write off represents exploration expenditure in respect of Angola, Malta, Morocco (Sidi Moussa and Juby Maritime fields),
Côte d’Ivoire and Ethiopia now expensed to the income statement.
Exploration and evaluation assets are comprised of the Group’s PSC interests in exploration assets in the Kurdistan Region of Iraq and
Africa. Exploration and evaluation assets are not amortised as they are not available for use but are assessed for impairment indicators
under IFRS 6.
The net book value of $1.7 million (2014: $2.7 million) of other assets is principally software.
94
Genel Energy plc Annual Report 2015genelenergy.com 10. Property, plant and equipment
Cost
At 1 January 2015
Additions
Transfer from intangible assets (see note 9)
Other
At 31 December 2015
Accumulated depreciation and impairment
At 1 January 2015
Depreciation charge for the period
Impairment
At 31 December 2015
Net book value
At 31 December 2015
Cost
At 1 January 2014
Additions
Write-off
Transfer from intangible assets (see note 9)
At 31 December 2014
Accumulated depreciation and impairment
At 1 January 2014
Depreciation charge for the period
At 31 December 2014
Net book value
At 31 December 2014
Oil and gas
assets
$m
2,432.8
109.2
12.9
4.0
2,558.9
(422.1)
(172.0)
(1,038.0)
(1,632.1)
Other assets
$m
Total
$m
9.2
–
–
(0.3)
8.9
(4.7)
(1.6)
–
(6.3)
2,442.0
109.2
12.9
3.7
2,567.8
(426.8)
(173.6)
(1,038.0)
(1,638.4)
926.8
2.6
929.4
Oil and gas
assets
$m
2,279.5
193.4
(80.9)
40.8
2,432.8
(281.1)
(141.0)
(422.1)
Other assets
$m
Total
$m
7.8
1.4
–
–
9.2
(3.0)
(1.7)
(4.7)
2,287.3
194.8
(80.9)
40.8
2,442.0
(284.1)
(142.7)
(426.8)
2,010.7
4.5
2,015.2
Oil and gas assets comprise principally the Group’s share of oil assets at the Taq Taq and Tawke producing fields in the Kurdistan Region of
Iraq. Other assets include leasehold improvements, office furniture and motor vehicles.
Property, plant and equipment is assessed annually for impairment indicators and if impairment indicators exist the assets are then
assessed for impairment. In the current year, sustained low oil price and production that was lower than expectation represented indicators
of impairment for the Company’s two producing oil assets: Taq Taq and Tawke. Impairment assessments for both assets were prepared on a
value in use basis using discounted future cash flows based on estimated 2P reserves profiles. The key assumptions used for the impairment
testing were:
Kurdistan
Short-term
Brent oil price
assumption
2016/2017
Long-term
Brent oil price
assumption
from 2020
Discount
rate
12.5% $40–45/bbl
$75/bbl
The Taq Taq asset was impaired by $1,038 million following a reduction in reserves and long term oil price. For the Tawke asset, where there
was no impairment, a $5/bbl change in Brent oil price assumption would result in an impairment of circa $50 million; and a 1% change in
discount rate assumption would result in an impairment of circa $25 million.
95
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
11. Trade and other receivables
Trade receivables – non current
Trade receivables – current
Other receivables
Prepayments
2015
$m
365.3
57.6
17.2
4.2
444.3
2014
$m
–
232.9
49.4
21.4
303.7
Trade receivables are monies owed by the KRG, principally for export sales. Although the trade receivable balance is due for payment,
management has assessed that, based on current price of oil and the current payment mechanism in place, it is unlikely that the full balance
will be recovered before the end of 2016. Management has therefore classified the balance expected to be recovered in the year, based on
current oil prices, as current, with the remainder of the balance presented as non-current. The pace of recovery of the balance owed may
vary according to a number of factors, including oil price. Further information is provided in note 17 and in the Significant accounting
estimates and judgements in note 1.
12. Cash and cash equivalents
Cash and cash equivalents
2015
$m
455.3
2014
$m
489.1
Cash is primarily held in US Treasury bills or treasury bills or on time deposit with a major financial institution. They include the Group’s
share of cash held in its joint operations and $21 million (2014: $166.1 million) of restricted cash used as cash collateral on letters of credit
and performance guarantees.
13. Trade and other payables
Trade payables
Other payables
Accruals
Deferred consideration (see note 20)
Non-current
Current
2015
$m
15.1
15.2
50.3
78.0
158.6
78.0
80.6
158.6
2014
$m
69.0
16.5
98.5
5.0
189.0
5.0
184.0
189.0
The Company’s payables are predominantly short-term in nature or are repayable on demand and, as such, for these payables there is
minimal difference between the value of these financial liabilities and their carrying amount.
Deferred consideration includes a balance of $73.0 million. The principal value of this balance is $145.0 million and its payment is contingent
on gas production at the Bina Bawi asset meeting a certain volume threshold. The unwind of the discount on the deferred consideration will
be capitalised against the asset and the balance reassessed at each balance sheet date.
14. Deferred income
Non-current
Current
2015
$m
46.0
3.0
49.0
2014
$m
47.8
6.2
54.0
Deferred income is royalty income received in advance for the Taq Taq PSC. The deferred income is recognised in the statement of
comprehensive income in a manner consistent with how the royalty income becomes due. Once the deferred income has been fully
recognised, the joint operating partner will recommence cash payment for the royalty.
96
Genel Energy plc Annual Report 2015genelenergy.com 15. Provisions
At 1 January
Interest unwind
Additions
At 31 December
Non-current
Current
2015
$m
19.4
0.8
5.0
25.2
25.2
–
25.2
2014
$m
16.9
0.8
1.7
19.4
19.4
–
19.4
Non-current provisions cover expected decommissioning and abandonment costs resulting from the net ownership interests in petroleum
and natural gas assets, including well sites and gathering systems. The decommissioning and abandonment provision is based on
management’s best estimate of the expenditure required to settle the present obligation at the end of the period.
The cash flows relating to the decommissioning and abandonment provisions are expected to occur between 2031 and 2039. The provision
is the discounted present value of the cost, using existing technology at current prices.
16. Borrowings and net debt
2014 bond issue maturing May 2019
2015 bond issue maturing May 2019
Cash
1 Jan
2015
$m
491.4
–
(489.1)
2.3
New Bond
Issue
$m
–
196.2
(196.2)
–
Merger of
bonds
$m
196.2
(196.2)
–
–
Discount
unwind
$m
Net Cash
Outflow and FX
$m
6.5
–
–
6.5
–
–
230.0
230.0
31 Dec
2015
$m
694.1
–
(455.3)
238.8
The Company completed the issue of senior unsecured bonds on 26 March 2015 on the same commercial terms and coupon as the existing
bonds issued 14 May 2014. The bonds were priced in line with the trading level of the existing bonds and consequently were issued at
discount. Posit-issuance, the new bonds were merged with the existing bonds resulting in a merged senior unsecured $730 million bond with
a coupon rate of 7.5% ($54.8 million per annum) payable on a biannual basis. The fair value of the $730 million bond at 31 December 2015
was $511 million (at 31 December 2014, the fair value of the $500 million bond was $452 million).
17. Financial risk management
Financial risk factors and fair values
Counterparty risk
Credit risk is managed centrally and arises from cash and cash equivalents, trade and other receivables and other assets. The carrying
amount of financial assets represents the maximum credit exposure, the maximum credit exposure to credit risk at 31 December was:
Trade receivables
Other receivables
Cash and cash equivalents
2015
$m
422.9
17.2
455.3
895.4
2014
$m
232.9
49.4
489.1
771.4
97
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
17. Financial risk management
continued
Trade receivables
The Company reported trade receivables of $422.9 million owed by the KRG principally for export sales that were made after 2014. The KRG
has stated publicly on a consistent basis that it intends to fully repay the debt. On 1 February 2016, the KRG announced an interim measure
whereby monthly payments to IOCs would be made based on an agreed mechanism. The mechanism has been put in place with the
objective of simplifying the calculation of a monthly payment that will include an element that is a proxy for entitlement for the month,
together with an element that is intended to contribute towards repayment of the receivable. The KRG has stated that it intends to
increase the repayment contribution as the oil price improves.
Management expect that ultimately a reconciliation calculating full entitlement under the terms of the PSC will be agreed with the KRG
– this reconciliation will form the basis for calculating amounts owed and the final settlement of the balance.
The Company assess the receivable balance as fully recoverable, with management expectation that it will be settled with cash, although it
is possible that the debt could be settled in a number of ways. The success and pace of the recovery of the balance depends on some or all
of a number of factors, including: the financial environment in the KRI and the financial budget of the KRG; oil price; volumes of production
from the KRI as a whole; and ongoing negotiations with regard to various sources of potential finance. Management does not have direct
visibility on the working capital of the KRG or its budget constraints, but continues to monitor the position based on its regular
conversations with the KRG.
Management has compared the carrying value of trade receivables reported in the balance sheet to its fair value. When assessing fair value,
management has taken into account a range of inputs related to likely pricing of domestic, government refinery and export sales, interest
accruing at LIBOR plus 2% in line with the PSC and management’s assessment of the likely timing of discounted cash flows.
No revenue or receivable has been recognised for export sales that were made before 2014 (including exports marketed by SOMO), where
payment is outstanding the total recognised recievable balance is estimated at circa $340 million.
Cash
The Company takes a conservative approach to its cash management. Cash is deposited in treasury bills or term deposits with banks that
are assessed as appropriate based on, among other things, sovereign risk, CDS pricing and credit rating.
All of the Company’s financial assets are payable on demand. Generally the timing of the cash flows associated with the assets results in the
carrying value being a reasonable estimation of their fair value.
Liquidity risk
The Group is committed to ensuring it has sufficient liquidity to meet its payables as they fall due. At 31 December 2015 the Group had cash
and cash equivalents of $455.3 million (2014: $489.1 million).
Commodity price risk
The revenue of the Company is sensitive to oil price, although impact is somewhat reduced by the PSC mechanism of calculating revenue
based on cost oil and profit oil.
Interest rate risk
The Group had borrowings of $694.1 million (2014: $491.4 million) as of 31 December 2015. Interest is payable at a fixed coupon rate of 7.5%
on the nominal value of $730 million.
Capital management
The Company manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder
value. The funding needs of the Company are met principally from the cash flows generated from its operations, with a robust balance sheet
and cash at year-end of $455.3 million.
98
Genel Energy plc Annual Report 2015genelenergy.com 18. Share capital
At 1 January 2015
Conversion of 3,916,616 suspended ordinary voting shares on 13 February 2015
as a result of a sale of 2,000,000 and 1,400,000 ordinary shares by affiliated
shareholders to third parties on 10 December 2014 and 16 December 2014 respectively
At 31 December 2015 – fully paid1
At 1 January 2014
Sale of 3,250,000 ordinary shares by affiliated shareholders to third parties
on 27 January 2014 and 21 February 2014
Sale of 2,170,000 ordinary shares by affiliated shareholders to third parties
on 10 March 2014
Sale of 1,120000 and 3,000,000 ordinary shares by affiliated shareholders
to third parties on 2 July 2014 and 7 July 2014 respectively
At 31 December 2014 – fully paid1
1.
Voting ordinary shares includes 1,865,720 (2014: 2,006,362) treasury shares
Suspended
voting
ordinary
shares
2015
Voting
ordinary
shares
2015
Total
ordinary
shares
2015
33,538,301
246,709,897
280,248,198
(3,916,616)
29,621,685
3,916,616
250,626,513
–
280,248,198
Suspended
voting
ordinary
shares
2014
Voting
ordinary
shares
2014
Total
ordinary
shares
2014
47,166,873
233,081,325
280,248,198
(4,642,857)
4,642,857
(3,100,000)
3,100,000
–
–
(5,885,715)
33,538,301
5,885,715
246,709,897
–
280,248,198
On the sale of voting ordinary shares from an affiliated shareholder to a third party, the affiliated shareholders have a right of conversion of
suspended voting ordinary shares to voting ordinary shares in order to maintain their voting ordinary share percentage at just below 30%
of the Company. Details of those sales and resulting conversions are set out below.
On 13 February 2015, 3,916,616 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the
terms of the suspended voting ordinary shares.
On 27 January 2014 2,250,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 21 February 2014
a further 1,000,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 7 March 2014 4,642,857
suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting
ordinary shares.
On 10 March 2014 2,170,000 voting ordinary shares were transferred from affiliated shareholders to third parties and on the 11 March 2014
3,100,000 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended
voting ordinary shares.
On 2 July 2014, 1,120,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 7 July 2014 a further
3,000,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 24 July 2014, 5,885,715 suspended
voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended voting ordinary shares.
On 10 December 2014 2,000,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 16 December
2014 a further 1,400,000 voting ordinary shares were transferred from affiliated shareholders to third parties. On 13 February 2015
3,916,616 suspended voting ordinary shares were converted to voting ordinary shares in accordance with the terms of the suspended
voting ordinary shares.
On 16 December 2014 a further 1,400,000 voting ordinary shares were transferred from affiliated shareholders to third parties.
There have been no changes to the authorised share capital since it was determined to be 10,000,000,000 ordinary shares of
£0.10 per share.
99
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
19. Share-based payments
The Company has three share-based payment plans. These plans have been accounted for in accordance with IFRS 2 – Share
based payments.
Performance Share Plan (PSP), Restricted Share Plan (RSP) and Share Option Plan (SOP)
The Company operates a performance share plan, restricted share plan and a share option plan. In 2015, awards were made under the
performance share plan and restricted share plan, no awards were made under the share option plan. The main features of these share
plans are set out below.
features
Form of awards
Performance conditions
Vesting period
Dividend equivalents
PSP
RSP
SOP
Performance shares. The intention
is to deliver the full value of vested
shares at no cost to the participant
(e.g. as conditional shares or
nil-cost options).
Restricted shares. The intention
is to deliver the full value of
shares at no cost to the participant
(e.g. as conditional shares or
nil-cost options).
Market value options. Exercise price
is set equal to the average share
price over a period of up to 10 days
to grant date.
Performance conditions will apply.
For awards granted to date, these
are based on relative TSR measured
against a Group of industry peers
over a threeyear period.
Awards will vest when the
remuneration committee determine
whether the performance
conditions have been met at the
end of the performance period.
Performance conditions may
or may not apply. For awards
granted to date, there are no
performance conditions.
Performance conditions may or
may not apply. For awards granted
to date, there are no performance
conditions.
Awards typically vest over
three years.
Awards typically vest after three
years. Options are exercisable until
the 10th anniversary of the grant
date.
Provision of additional cash/shares
to reflect dividends over the vesting
period may or may not apply. For
awards granted to date, dividend
equivalents do not apply.
Provision of additional cash/shares
to reflect dividends over the vesting
period may or may not apply. For
awards granted to date, dividend
equivalents do not apply.
Provision of additional cash/shares
to reflect dividends over the vesting
period may or may not apply. For
awards granted to date, dividend
equivalents do not apply.
The numbers of outstanding shares under the PSP, RSP and SOP as at 31 December 2015 are set out below:
PSP
RSP
SOP
CEO award
Options
(at nil cost)
Weighted
average
exercise price
Options
(at nil cost)
Weighted
average
exercise price
Weighted
average
exercise price
Options
Weighted
average
exercise price
Options
Outstanding at beginning
of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end
of the period
Exercisable at the end
of the period
1,333,961
1,022,795
(461,284)
146,649
1,748,823
102,131
–
–
–
–
–
–
182,265
1,067,588
(126,941)
154,774
968,138
84,463
1,550,627
–
–
–
– (1,224,900)
–
–
844p
–
787p
–
–
375,000
–
–
–
–
325,727
847p
375,000
53,368
774p
–
–
–
–
–
–
–
The range of exercise prices for share options outstanding at the end of the period is nil to 1,046.00p. The weighted average remaining
contractual life of the outstanding share options is 1.6 years. The weighted average fair value for PSP awards granted in the period is
322.4p and for RSP awards granted in the period is 563.05p.
100
Genel Energy plc Annual Report 2015genelenergy.com Fair value was measured either by use of the Black-Scholes pricing model or by use of a formula based on past calculations. The model
takes into account assumptions regarding expected volatility, expected dividends and expected time to exercise. In the absence of sufficient
historical volatility for the Company, expected volatility was estimated by analysing the historical volatility of FTSE-listed oil and gas
producers over the three years prior to the date of grant. The expected dividend assumption was set at 0%. The risk-free interest rate
incorporated into the model is based on the term structure of UK Government zero coupon bonds. The inputs into the fair value calculation
for RSP and PSP awards granted in 2015 and fair values per share using the model were as follows:
Share price
Exercise price
Expected life
Expected dividends
Fair value on measurement date
PSP
15th Apr
2015
5th May
2015
559p
–
3
–
320p
603p
–
3
–
345p
15th Apr
2015
559p
–
1-3years
–
559p
RSP
5th May
2015
603p
–
1-3 years
–
603p
17th Sep
2015
338p
–
1-3 years
–
338p
Total share based payment charge for the year was $2.9 million (2014: $6.8 million). The numbers of outstanding shares under the PSP, RSP
and SOP as at 31 December 2014 are set out below:
PSP
RSP
SOP
Options
(at nil cost)
Weighted
average exercise
price
Options
(at nil cost)
Weighted
average exercise
price
891,569
473,403
(31,011)
–
1,333,961
–
–
–
–
–
–
–
301,087
40,124
(38,041)
(120,905)
182,265
68,380
–
–
–
–
–
–
Weighted
average exercise
price
773p
1,008p
936p
781p
844p
787p
Options
1,230,449
708,755
(377,909)
(10,668)
1,550,627
324,070
Outstanding at beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
20. Acquisitions
On 22 September 2015 the group acquired a 36% operated stake in the Bina Bawi field, thereby increasing its interest to 80%. The
consideration comprises an upfront payment of $5 million; a contingent payment of $70 million is payable once gas production exceeds
certain threshold volumes from the Miran and Bina Bawi fields; a second contingent payment of $75 million is payable two years after the
date of the second payment. In addition, in consideration for the KRG approving the transaction, the Company released the KRG from
monies owed of $25 million, which was owed in relation to past expenses incurred on the Miran field that accured after KRG exercised it back
in right in September 2013.
Intangible assets
Liabilities
Cash acquired
Fair value of assets agreed
Bina Bawi
2015
$m
101.0
(1.5)
1.1
100.6
In order to recognise the deferred consideration at its fair value, the balance has been discounted using an estimate for the credit risk of the
Company by using the implied cost of debt of the Company at the time of the transaction of circa 13%. This has resulted in a balance of
$70.6 million being recognised at the acquisition date.
101
FINANCIAL STATEMENTSGenel Energy plc Annual Report 2015genelenergy.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
21. Capital commitments and operating leases
Under the terms of its PSCs and JOAs, the Group has certain commitments that are generally defined by activity rather than spend.
The Group’s capital programme for the next few years is explained in the operating view on pages 16 to 23 and is in excess of the activity
required by its PSCs and JOAs. The Company has a work obligation of $33.0 million in relation to its Sidi Moussa licence.
The Group leases temporary production and office facilities under operating leases. During the period ended 31 December 2015 $4.0 million
(2014: $5.1 million) was expensed to the statement of comprehensive income in respect of these operating leases.
Drill rigs are leased on a day-rate basis for the purpose of drilling exploration or development wells. The aggregate payments under drilling contracts
are determined by the number of days required to drill each well and are capitalised as exploration or development assets as appropriate.
The Group had no material outstanding commitments for future minimum lease payments under non-cancellable operating leases.
22. Related parties
Transactions with key management personnel
The compensation of key management personnel including the directors of the Company is as follows:
Directors’ fees
Key management emoluments and short-term benefits
Share-related awards
2015
$m
1.8
9.0
1.6
12.4
2014
$m
1.8
16.8
3.6
22.2
The directors have identified senior management and the Board members, Their associates, investments and joint ventures as related
parties of the Group under IAS24.
There are no other significant related party transactions.
23. Subsidiaries and joint arrangements
For the period ended 31 December 2015 the principal activity of all companies related to oil and gas exploration, development
and production.
Country of
Incorporation
2015
Ownership %
(ordinary shares)
Genel Energy International Ltd
A&T Petroleum Company Limited
Barrus Petroleyum Côte d’Ivoire Sarl
Barrus Petroluem Limited
Genel Energy Gas Company Limited
Genel Energy Holding Company Limited
Genel Energy Finance 2 Limited
WRG Angola Block 38 Limited ( in liquidation as of 9 October 2015)
WRG Angola Block 39 Limited ( in liquidation as of 9 October 2015)
Phoenicia Energy Company Limited
Genel Energy Netherlands Holding 1 Cooperatief B.A.
Genel Energy Netherlands Holding 2 B.V.
Genel Energy Yonetim Hizmetleri Anonim Sirketi
Genel Energy Limited
Genel Energy Petroleum Services Limited
Genel Energy UK Services Limited
Genel Energy Finance 3 plc
Genel Energy Miran Bina Bawi Limited
Genel Energy Somaliland Limited
Genel Energy Africa Exploration Limited
Genel Energy Africa Limited
Genel Energy Exploration 2 Limited
Genel Energy Finance plc
Taq Taq Petroleum Refining Company Limited
Taq Taq Drilling Company Limited
Taq Taq Operating Company Limited
Anguilla
Cayman Islands
Côte d’Ivoire
Isle of Man
Jersey
Jersey
Jersey
Jersey
Jersey
Malta
Netherlands
Netherlands
Turkey
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
British Virgin Islands
British Virgin Islands
British Virgin Islands
100
100
100
100
100
100
100
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
55
55
Taq Taq Operating Comapny Limited is the service company through which the Group jointly operates the Taq Taq PSC with its partner,
it has a branch in Turkey. The Company shares equal voting rights with its partner.
102
Genel Energy plc Annual Report 2015genelenergy.com SHAREHOLDER INFORMATION
ShareGift
If you hold a small number of shares and find it uneconomical to sell
them, you may wish to donate your shares to charity free of charge
through ShareGift. ShareGift collects donations of unwanted shares,
sells them and then donates the proceeds to UK charities.
Further details are available at www.sharegift.org or by calling
+44 (0) 20 7930 3737.
AGM
This year’s AGM will be held at Linklaters LLP, One Silk Street,
London, EC2Y 8HQ, UK on Wednesday, 27 April 2016 at 11:00am.
Details of the business to be considered at the AGM are set out in the
accompanying notice of meeting.
Dividend and dividend history
We have not paid any dividends to shareholders to date and no final
dividend is proposed in respect of the year ended 31 December 2015.
Registrars
Our registrars are Equiniti Registrars.
All enquiries relating to the administration of shareholdings should
be directed to Equiniti Registrars, Aspect House, Spencer Road,
Lancing, West Sussex, BN99 6DA.
Telephone: 0371 384 2030 lines are open Monday – Friday excluding
UK Bank Holidays, 8.30 am – 5.30 pm (from outside the
UK: +44 121 415 7047).
Share price information
The current price of the Company’s shares is available on the
Company’s website at www.genelenergy.com
Contacts and Auditors
Registrar
Equiniti (Jersey) Limited
PO Box 75
26 New Street
St. Helier
Jersey
Channel Islands
JE4 8PP
Independent Auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London
WC2N 6RH
Registered Office
12 Castle Street
St Helier
Jersey
JE2 3RT
London Office
Fourth Floor
One Grafton Street
London
W1S 4FE
Ankara Office
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Eskis¸ehir Yolu
Dumlupınar Bulvarı No:3A-101
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Ankara, Turkey
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Registered Office
12 Castle Street
St Helier
Jersey
JE2 3RT
London Office
Fourth Floor
One Grafton Street
London
W1S 4FE
Ankara Office
Next Level Is¸ Merkezi
Eskis¸ehir Yolu
Dumlupınar Bulvarı No:3A-101
Sög˘ütözü 06500
Ankara, Turkey
www.genelenergy.com