Resilience
Growth
Returns
ANNUAL REPORT 2020
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A socially responsible contributor to the global energy mix
Genel is a socially responsible oil
producer with an asset portfolio that
positions us well for a future of fewer
and better natural resources projects.
Our strategy is to generate cash, invest
in growth, and to return excess cash to
shareholders, as we strive to deliver on
our ambition of being a world-class
creator of shareholder value, fulfi lling
our goal of being a socially responsible
contributor to the global energy mix.
Our values
Integrity
Respect
Accountability
A culture of accountability and
responsibility in which people
take pride in their commitments
supports the safe delivery of
objectives and drives the quality
of our work
These values are fundamental to
our behaviour, decision making,
and the delivery both of our
purpose and strategic objectives.
Dealing with all stakeholders
in an honest and transparent
way is vital to having a positive
corporate reputation, garnering
trust and supporting our
activities, providing the social
licence to operate, and driving
investor support
Respecting people, valuing
employees of all cultures
and developing an inclusive
environment motivates people,
and treating all partners and
stakeholders in a way that
builds relationships helps drive
the delivery of common goals.
Respecting the environment,
minimising the impact of our
operations and promoting
biodiversity is also necessary
to retaining the social licence
to operate
Collaboration
Ingenuity
Working with a collaborative
mindset, both internally and
externally, maximises synergies
and increases the quality of
outputs across the business, also
boosting motivation and inclusivity
in a way that drives production
and a feeling of being valued
Ingenuity is where Genel can set
itself apart. A culture of a curious
and open minded workforce, bold,
inquisitive, and ready to challenge
accepted ways of doing things can
help open up new opportunities
and drive profi tability
Front cover image: Road on Qara Dagh licence
This page: Pipeline at Peshkabir (photo courtesy of DNO)
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Strategic report
Highlights
Contents
NET PRODUCTION
31,980bopd
DIVIDENDS DECLARED
$41million
LOST TIME INCIDENTS
0
since 2015
PRODUCTION COST
$2.8/bbl
CASH GENERATED FROM PRODUCING ASSETS*
$85million
CASH AT END 2020 (POST BOND SETTLEMENT)*
$274million
FREE CASH OUTFLOW*
$4 million
2P OIL RESERVES
117MMbbls
2C OIL RESOURCES
143MMbbls
PRODUCING EMISSIONS
13kgCO2e/bbl
Strategic report
1 Business highlights
2 Genel at a glance
4 Chairman’s statement
6 Chief Executive Offi cer’s statement
10 Our business model and strategy
13 Key performance indicators
14 Financial review
20 Operating review
24 Sustainability
34 Principal risks and uncertainties
38 Viability statement
39 Stakeholder engagement
Governance
41 Chairman’s statement on corporate governance
42 Governance statements
48 HSSE Committee
50 International Relations Committee
52 Reserves Committee
54 Division of responsibilities
59 Board of Directors
63 Executive Committee
64 Nomination Committee report
66 Audit, risk and internal control
69 Audit Committee report
73 Directors’ remuneration report
91 Other statutory and regulatory information
95 Statement of Directors’ responsibilities
Financial statements
96 Independent Auditors’ report
102 Financial statements and notes
Other information
125 Report on payments to governments
126 Glossary of technical terms
127 Shareholder information
* Free cash fl ow, cash generated from producing assets, and cash
at year end 2020 are non GAAP measures and are explained
and reconciled in the fi nancial review section on page 14.
Genel Energy Annual Report 2020
1
Genel at a glance
What we do
Generate cash
Invest in growth
Genel’s low-cost production is cash generative
even at a low oil price.
$358million
in cash generated since 2017
This cash generation provides the funds to invest in
growth, focused on material assets with near-term
cash generation.
$41million
capital expenditure on Sarta and Qara Dagh in 2020
Return excess cash
to shareholders
Our fi nancial strength and positive outlook allows
us to return material cash to our shareholders.
$41million
dividends declared in 2020
Why we do it
Genel aims to be a socially responsible contributor to
the global energy mix, creating value for shareholders
through a resilient business model focused on low-cost
and low-carbon oil production that is rapidly recycled
into growth opportunities, with suffi cient cash
remaining to pay a material and sustainable dividend.
We strive to have the right people doing the right things. Our values
– Integrity, Respect, Accountability, Collaboration and Ingenuity – are
inherently linked to our business model and strategic success. If we
deliver our values, we will deliver our ambition: to become a world-class
independent E&P creator of shareholder value.
As we deliver on our goals, we aim to have a positive economic
impact on the Kurdistan Region of Iraq both by growing the production
of the hydrocarbons that fuel the economy and directly supporting
the communities in which we operate by improving infrastructure
and providing employment and development opportunities.
15
villages near Taq Taq
receiving medical visits
217
Kurdish workers
employed by Genel
and TTOPCO
14
social projects funded
in the KRI in 2020
28
local companies
supported by
Genel assets
2
Genel Energy Annual Report 2020
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Genel at a glance
How we are doing
NET 2P OIL
RESERVES
(MMbbls)
NET 2C OIL
RESOURCES
(MMbbls)
WORKING INTEREST
PRODUCTION
(bopd)
ASSET LEVEL
CASH GENERATION
($ million)
117
143
31,980
85
TAWKE
PESHKABIR
TAQ TAQ
SARTA
61
31
15
10
SARTA
BINA BAWI
TAWKE
QARA DAGH
MIRAN
79
17
10
19
18
TAWKE
14,390
TAWKE
PESHKABIR
13,180
PESHKABIR
TAQ TAQ
4,250
TAQ TAQ
40
37
8
Sarta
160
Where we do it
MOROCCO
Kurdistan Region of Iraq
Development assets
Oil production
Exploration and appraisal analysis
TAWKE
25% working interest
SARTA
30% working interest
BINA BAWI
100% working interest, operator
TAQ TAQ
44% working interest, joint operator
MIRAN
100% working interest, operator
QARA DAGH
40% working interest, operator
Morocco
LAGZIRA
75% working interest, operator
Somaliland
ODEWAYNE
50% working
interest, operator
SL10B13
100% working
interest, operator
T U R K E Y
KURDISTAN
I R A N
I R A Q
SOMALILAND
Genel Energy Annual Report 2020
3
Strategic report
Chairman’s
statement
Heading
Text
“Genel is confident
that we can continue
delivering on our
strategy and create
material value for
our stakeholders.”
DAVID MCMANUS
CHAIRMAN
4
Genel Energy Annual Report 2020
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Chairman’s statement
Delivering value to our shareholders
I am pleased to welcome you to Genel Energy’s ninth annual report. 2020
was a difficult year for everybody, with COVID-19 impacting the global business
environment in a way that was unexpected and unforeseeable. The challenges
that it presented were unique, but the low-oil price environment that it created
was a powerful reminder of the need to have a business model that is both
robust and adaptable to rapidly changing external conditions.
Genel has worked to put in place a business model that is appropriate
for fluctuating market conditions, allowing the Company to continue
strategic delivery when times are tough and lay the foundations to
thrive in better times ahead. 2020 was a strong indicator that our
strategy is the right one as we not merely survived but had the
financial strength to invest in our key growth projects, and maintain
our material dividend, delivering on our promises to investors with
a reliability for which we are striving to be well known.
Focusing on key areas
As the impact of COVID-19 became clear and the oil price collapsed
in the first quarter of the year, the flexibility and elasticity of our
business model was demonstrated. Swift decisions were made to
focus on key areas and fit our investment programme to the external
environment. We reshaped our capital expenditure programme to
live within our means, removing c.$80 million from our original
guidance, while still investing in growth and maintaining the dividend.
The low oil price helped to reinforce our capital investment
priorities, which as you would expect support our strategic
priorities. Investment at Tawke was delayed appropriately by the
operator DNO, with whom we are closely aligned, and the decision
was made to continue investing in the delivery of first oil at Sarta.
This was achieved in November, only 21 months after completing
the acquisition of the stake in the field. This rapid delivery, despite
the challenges of COVID-19, was an exceptional achievement and
a testimony to our workforce and field partners.
Already the only multi-licence oil producer in the Kurdistan Region
of Iraq, the addition of Sarta provides us with a material growth
opportunity going forward, as we work with Chevron to develop
what could potentially be the largest field in the KRI.
Our final capital allocation priority is the dividend, and we are
proud of our ability to retain this at such a significant level despite
the external upheaval, a testament to the resilience of our strategy
and business model.
A strategy resilient by design
Our strategy remains very simple. We aim to increase our low-cost
production, invest in growth, and retain surplus cash to pay a material
and sustainable dividend.
Central to this strategy is prudent financial planning, as your Board
and management team look to minimise risk and create sustainable
shareholder value. The successful bond refinancing in September
allowed us to extend the tenor of our debt while reducing the interest
cost. Genel remains committed to retaining a robust balance sheet
and strong liquidity, providing the foundation for our flexible capital
investment programme.
It is this financial strength and focus on the balance sheet, together
with a positive business outlook, that underpins our confidence in
the sustainability of our dividend, which we are once again pleased
to maintain in 2021.
With the worst of the pandemic hopefully now behind us and a
recovery in the oil price further boosting our finances as we enter
a year of exciting investment in the portfolio, Genel is confident
that we can continue delivering on our strategy and create material
value for our stakeholders.
The ramp up of work at Sarta promises to increase our low-cost
production in 2021, with the possibility for much more to come
in 2022 and the years ahead. Work at Qara Dagh also offers the
potential to unlock value from a fifth field in the KRI, and we will
of course remain prudent in our expenditure as we aim to provide
a compelling mix of growth and returns.
A socially responsible contributor
Last year I discussed the period of significant and necessary
change into which the energy industry is entering. Despite the
pressures and challenges of 2020, we retained our focus on
ensuring that Genel is at the forefront of this process.
As we grow, we continue to focus on our social and environmental
responsibilities as we look to live up to our mantra of having the
right assets, in the right location, with the right emissions, in the
hands of the right people. The frequency and intensity of Board
discussions on ESG signify how seriously we take the issue, and
we firmly believe that responsible producers have a key part to
play in the energy transition and delivering the goals of the
Paris Agreement.
We will be measured against the promises that we make, and we
issued our first GRI compliant Sustainability Report in 2020 setting
out where we are on our sustainability journey. The report illustrates
our commitment to support the communities in which we operate
and solidify our place in the energy transition, minimising emissions
as we look to play our part through delivering some of the fewer
and better natural resources projects that the world needs as it
moves towards clean energy.
Given our low-cost and low-carbon barrels, and the positive social
impact our operations have on the Kurdistan Region of Iraq, it is
our belief that Genel has the right portfolio to continue powering
the energy transition and deliver value to our shareholders as
a socially responsible contributor to the global energy mix.
Genel Energy Annual Report 2020
5
Strategic report
Chief
Executive
Heading
Officer’s
statement
Text
“With the external
environment looking
far brighter, 2021 is
now about delivering
the growth that we
spent 2020 gearing
up for.”
BILL HIGGS
CHIEF EXECUTIVE OFFICER
6
Genel Energy Annual Report 2020
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Chief Executive Officer’s statement
Driving sustainable growth
and social progress
It would be an understatement to say that 2020 was not the year that anyone
expected. In spite of the challenges that resulted, we continued to do what
we say and delivered on our strategy.
Strengthening the foundations
Given the lower oil price and overdue payments, the fact that
we still ended 2020 in a net cash position - even after dividend
distributions and making the investment to bring Sarta to
production this year - was a testament to our resilience.
This resilience comes in part due to our focus on the minimisation
of risk and the retention of a strong balance sheet, combining to
provide us with the ability to invest in areas that have the potential
to provide the highest returns to shareholders. Our production is
robust, and assets generate cash flows even at a low oil price.
Our financial strength was bolstered by our decision to refinance
our bond early, which gives us the certainty about our near-term
liquidity position to invest confidently in future growth.
Following the refinancing, we have liquidity of over $270 million,
no debt maturity until 2025, a flexible capital programme, and the
financial foundations from which to grow. Investment programmes
at the Tawke licence resumed as conditions improved through the
second half of 2020, and the operator expects another year of
production over 100,000 bopd. With the external environment
looking far brighter, 2021 is now about delivering the growth that
we spent 2020 gearing up for.
Executing our strategy
Our first strategic priority remains the maximisation of the value of
our low-cost production. Despite the reduction of investment at
Tawke, production at the licence remained over 100,000 bopd again
in 2020, and this continues to form the bedrock of our production,
which averaged just under 32,000 bopd in the year. We see this
as being a platform for Genel going forward, as we expect
year-on-year production growth in both 2021 and 2022.
This robust and predictable production, and the low production
cost, meant that we continued to generate material cash at an
asset level. Taken in isolation, our producing assets generated $85
million of cash, even allowing for the low oil price, delayed KRG
payments and suspended override proceeds. Despite the
suspension of the override payments, and $159 million of unpaid
KRG debts in 2020, our free cash outflow in the year was only $4
million. Given the fact that we also continued to invest in the
priority growth projects that provide us with exciting value creation
potential, this is a creditable performance powered by a cost base
that is amongst the lowest in the sector.
Further diversifying production
The key project that formed the bulk of our investment in growth in
2020 was Sarta, and first oil was successfully delivered in November.
This was an important strategic and operational milestone for Genel,
not least given the challenges presented by COVID-19. This operational
delivery, brought in on budget, was a tribute to the quality and
professionalism of our workforce, and the close cooperation
we enjoy with partners and contractors.
Production began with the Sarta-3 well, which has produced in line
with expectations. Sarta-2 then entered production in Q1 this year,
and the Sarta-1 well will hopefully add to production around the
end of this year. Should we have appraisal success in 2021, then
material further production can be added in 2022.
It is not just the geological potential of Sarta that excites us, but
the low-cost of the field and impressive margins that promise
material value creation. The unrecovered back costs support PSC
economics that mean field production achieves a margin of c.$21/
bbl at a Brent oil price of $60/bbl, which to put it into context is
more than equal to that of Tawke with the override. This cash
generation makes Sarta a perfect fit for our low-cost and high-margin
portfolio, and a key growth and value driver for Genel, and hopefully
the KRI oil industry as a whole going forward.
Genel Energy Annual Report 2020
7
Chief Executive Officer’s statement
Delivering growth and returns
The key focus of our near-term growth investment remains Sarta
and Qara Dagh.
At Sarta, our appraisal campaign is targeting a material reserves
addition, with net 79 MMbbls currently designated as 2C resources.
This is only scratching the surface of the field’s potential. Appraisal
activity is scheduled to begin early in the second quarter, with the
drilling of the Sarta-5 well. This will immediately be followed by
Sarta-6, with results from the first well expected in Q3, and both
will be completed by end-Q4. We very much look forward to the
results of these wells, which could provide a roadmap for significant
and long-term growth.
The second area of focus of our growth investment is Qara Dagh
where the QD-2 well is set to be spud around the end of Q1. This
well will test the commerciality of a potentially very large resource,
estimated by Genel at gross mean c.400 MMbbls. We are already
the only multi licence oil producer in the KRI and the potential to
add a fifth field is very exciting, especially one that could possibly
be so material and with light oil.
As we invest in these growth projects and significantly increase our
capital expenditure year-on-year, increased payments from the KRG
will help us retain our strong financial position. From January 2021,
invoices once again include our contractual override payments and
a receivable recovery mechanism tabled in December 2020 and
implemented by the KRG starting with the January 2021 payment.
Payments in 2020 were impacted by external factors, of which the
volatile oil price was then the final straw, that temporarily derailed
the KRG’s ability to make payments in the first two months of the
year. Consistent payments from March onwards once again
illustrated the KRG’s willingness and ability to prioritise payments
to IOCs, and the track record over the last six years gives us
confidence that these will continue going forward.
Bill Higgs, CEO, and Esa Ikaheimonen, CFO, at Taq Taq
We have a constructive relationship with the government, and we
are hopeful that the confirmation of a new oil minister will also help
provide the clarity that the industry requires as we work together
for the benefit of all stakeholders. We look forward to working with
the minister as we continue to search for a solution that will help
unlock the potential of Bina Bawi, the priority of our gas strategy.
Supporting the energy transition
A core stakeholder group on which we continue to focus is the local
community in Kurdistan. We continue to invest in the local community,
while maximising local employment. We are committed to utilising
local people and companies wherever possible, and currently
employ around 217 Kurdish nationals directly, with just under
30 local companies supported by Genel assets.
Providing meaningful benefit to society while providing the power
to increase living standards is something that we see as key to
deciding which barrels of oil should be produced as we transition
to clean energy. As activity ramps up at Sarta, and hopefully in turn
Qara Dagh, we look forward to deepening our local community
involvement and increasing our positive impact on the local area.
Of course, the production of natural resources has a wider impact
than just that of the financial benefits to the local area, and we
recognise that as a natural resources company we have a role to
play in the energy transition. As such, we have evaluated the best
way to manage emissions in order to deliver the Paris Agreement
goals of limiting global warming to 1.5 degrees and leading to net
zero by 2050. In order to meet this goal, energy efficiency and
flaring management practices have been formalised in a GHG
Emissions Management Standard that emphasises an asset
life-cycle approach to emission mitigation. This standard applies
to all operated and non-operated assets, and provides a systematic
framework to identify an asset’s carbon budget that aligns with
the Paris Agreement pathway.
8
Genel Energy Annual Report 2020
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Chief Executive Officer’s statement
The enhanced oil recovery project at the Tawke PSC was a key step
on our emission reduction journey, and the carbon intensity of our
portfolio reduced to 7kg CO2e/bbl for scope 1 and 2 emissions in the
second half of 2020 following the material reduction in flaring at
the Tawke PSC. This intensity will rise during early production at
Sarta, but we are already committed to a flares out programme at
the asset as production increases, and we will aim to live up to our
value of ingenuity by seeking innovative ways to further reduce our
footprint going forward.
As well as the local community and global environment, our
commitment to safe operations remains at the forefront of
everything that we do. We are proud of our safety record, and we
have not had a lost time incident for five years and 13 million hours
worked. This is the result of a lot of hard work and a commitment
to a culture of incident-free operations for which I would like to pay
tribute to our team. Our success in this area does not make us
complacent, and we will endeavour to repeat this performance
going forward.
A year of growth and catalysts
With the challenges of 2020 hopefully now receding, the work we
did in the year to build the foundations for growth can now be
delivered on, as we continue to execute our simple strategy. Sarta
will help us to increase our low-cost production, and investment in
growth both there and at Qara Dagh will tell us a lot more about
their value creation potential, with four appraisal wells that have
the potential to add reserves and production going forward.
Despite this material expenditure we expect to generate material
free cash flow at the prevailing oil price. Our strong financial
position, and confidence in increased payments, also supports the
maintenance of material distributions to shareholders, as we aim
to fulfil our goal of being a world-class creator of shareholder value.
Scenery at Qara Dagh
QD-2 well pad construction, Qara Dagh
Genel Energy Annual Report 2020
9
Our business model and
strategy
E F O R G O V E R N M ENTS
U
L
A
G V
T I N
A
G E N E R
Our business model and strategy
Our resilient business model supports
our ambition of being a world-class
creator of shareholder value
OUR PURPOSE
HOW WE CREATE VALUE
To be a socially
responsible
contributor to the
global energy mix
WHAT MAKES US DIFFERENT
Experience
Our Board and management team have
significant experience in international oil and
gas markets, with the technical and commercial
experience to create value out of opportunities,
and to execute a strategy fit for an uncertain
macroeconomic environment.
Approach
Our strategy is based around a strong balance
sheet and capital efficiency, benefitting
shareholders, and giving back to the local
community. We are committed to ESG issues,
with clear values and commitments underpinning
all business decisions and a low-cost, low-carbon
portfolio of assets that fit a future of fewer and
better natural resources projects.
Returns
We have a balanced portfolio of assets, with
high-margin and low-cost production, appraisal
assets that offer material growth and near-
term production, with a financial approach that
offers shareholder returns even in a low-oil price
environment.
Focused on cash generation, the below aspects of our business model form
a virtuous circle that generates cash and recycles it into key growth areas,
with enough remaining to pay a material dividend, offering shareholders a
compelling mix of growth and returns.
High-margin production
Low-cost and high-margin producing assets are the bedrock of our business,
with material asset level cash generation even at a low oil price.
> See page 21
Financial discipline
We take a prudent approach to capital allocation, retaining our financial
strength through targeted investment in key growth areas, focused on
near-term cash generation.
> See page 15
Downside risk mitigation
We are committed to operating in a way that minimises possible downside
and maximises benefits, acquiring and developing assets in a cost-effective
way, accelerating cash generation.
> See page 34
Capital velocity
Our assets provide a speed of payback which is hard to match, with rapid
recycling of cash allowing deployment of capital to key growth areas.
> See pages 16
Capital returns
The end result of the business model is the generation of sufficient cash
throughout the investment cycle to fund a material and sustainable dividend.
> See page 16
10
Genel Energy Annual Report 2020
Our business model and strategy
Genel aims to generate value for all stakeholders, generating cash
from low-cost and low-carbon production in order to be a world-class
independent E&P creator of shareholder value, and having a positive
impact by fueling economic growth and directly supporting the
communities in which we operate.
F O R G O V E R N M ENTS
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E
U
V A L
G E N E R A T I N G
Growing our
resource base
Increasing reserves and resources through
cost-effective development, exploration
and appraisal campaigns, and selective
acquisitions
Development
and production
Safely and efficiently deliver development
projects for the benefit of both Genel and
the communities in which we operate
Finance and portfolio
management
Manage financial and business assets to
provide flexibility in our capital structure in
order to invest in growth and pay a material
and progressive dividend
Genel Energy Annual Report 2020
11
Our business model and strategy
Our simple strategy aims to provide investors with a compelling mix of growth
and returns, as we aim to deliver on our ambition of being a world-class creator
of shareholder value.
OUR STRATEGY
Generate cash
Invest in growth
Safely and efficiently delivering
high-margin oil production, with a
disciplined use of capital minimising
cost and maximising cash generation,
for the benefit of both Genel and the
communities in which we operate.
The cash we generate is rapidly
recycled into development projects
that offer quick payback and the
potential to deliver significant and
sustained cash flow growth.
Return excess
cash to
shareholders
Retaining a strong balance sheet and
generating sufficient cash throughout
the investment cycle funds a material
and sustainable dividend.
UNDERPINNED BY
Minimising downside and maximising benefit
Financial discipline and a focus on rapid returns, helps reduce expenditure and optimise cash generation.
> See pages 15 to 17
Risk management
Genel brings the same rigour to organisational risk management processes as we do to health, safety and the environment,
as we look to mitigate key risks through firm oversight, a resilient business model, and a strong balance sheet.
> See pages 34 to 37
Strong corporate governance practices
Robust corporate governance is proven to provide benefits to a business and value to shareholders, and Genel has a strong
Board overseeing all key business aspects.
> See pages 41 to 47
THE VALUE WE CREATE
Dividend and
share value
> See pages 15 to 17
Value for wider
stakeholders
employees, suppliers and
contractors, customers,
the public
> See page 28
Contribution to
local economy
> See pages 27 and 28
Direct community
development
programmes
> See pages 27 and 28
12
Genel Energy Annual Report 2020
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Key performance indicators
Measuring our progress
NET PRODUCTION
31,980 bopd
2020
2019
2018
2017
2016
31,980
36,250
34,000
35,000
53,000
Definition
Production is measured in barrels
of oil produced per day.
FREE CASH FLOW
$-4 million
2020
-4
2019
2018
2017
2016
-7
99
99
164
Definition
Cash flow generated from operating
activities, minus capital expenditure.
NET 2P RESERVES
117MMbbls
2020
2019
2018
2017
2016
117
124
155
150
161
Definition
2P reserves are proved plus
probable reserves.
DIVIDENDS ANNOUNCED
Performance
2020 net production averaged just short
of 32,000 bopd, a decrease of 12% on
2019 as a result of a reduction in drilling at
both Tawke and Taq Taq, as spending was
reduced due to the collapse in oil price and
uncertainty caused by COVID-19. An active
drilling programme at Tawke in 2021 will help
reduce the decline rate at the field, and Genel
expects a year-on-year production increase
as volumes at Sarta more than outweigh
declines at our mature fields.
Relevance to strategy
Production from our fields provides Genel’s
revenue generation, and is a key measure
of our operational performance. Our oil
production in the KRI is managed to ensure
long-term value creation and maximise cash
generation, with production maximised over
the life of the field.
$41million
2020
2019
2018
0
2017
0
2016
0
Definition
The combined total distribution
of the final and interim dividends
announced in the calendar year.
41
41
Performance
The final dividend of 10¢ per share, and
interim dividend of 5¢ per share, were
maintained in 2020. Our ability to retain this
at such a significant level despite the external
upheaval is a testament to the resilience of
our business model. Due to Genel’s robust
financial position and confidence in future
prospects, the Board is recommending a
final dividend of 10¢ per share.
Relevance to strategy
Genel’s strategy aims to increase low-cost
production, invest in growth, and retain
sufficient liquidity to pay a material and
sustainable dividend. Dividend distributions
are therefore a signifier of the success of
Genel’s overall strategy.
Performance
Free cash flow (pre dividend payment) was
impacted by a lower oil price, with Brent
averaging $42/bbl in 2020, compared
to $64/bbl in 2019. The fall in the oil
price, amongst other factors, led to the
non-payment by the KRG of $121 million
relating to oil sales from November 2019
to February 2020, and the suspension of
override payments with a cashflow impact
totalling $38 million in 2020. Considering
these outstanding funds, the performance
indicates our resilience and low-costs and,
in line with Genel’s strategy, helped us retain
the financial strength to invest in growth
assets and pay a material dividend.
Relevance to strategy
Production from operating activities forms
Genel’s revenue generation. Free cash flow
illustrates the success of monetisation of these
activities, reflecting both money received and
the minimisation of operating costs.
Performance
Gross upward technical revisions of 47
MMbbls at the Tawke PSC, relating to both
the Tawke and Peshkabir fields, more than
offset the 40 MMbbls of production at the
licence, and contributed to our reserves
remaining materially unchanged. The
appraisal campaign getting underway at
Sarta in 2021 has the potential to convert
material 2C resources into reserves.
Relevance to strategy
Our strategy is to enhance the value of
our existing 2P reserves through active
reservoir management and cost-effective
development. The Company also looks to
replace 2P reserves through a combination
of maturing contingent resource to
commerciality, exploration for new sources
of hydrocarbons and M&A activity.
LOST TIME INCIDENTS
0
2020 0
2019
0
2018
0
2017
0
2016
0
Definition
Lost time incident frequency
measures the number of lost time
incidents per millions work hours.
Performance
There were no lost time incidents in 2020,
and it is now over five years and more than
13 million hours worked since the last incident.
As Genel increases its operated activities,
work continues to ensure that processes and
procedures remain of the highest possible
standard. Robust training and emergency
preparedness planning has been implemented
across the workforce. 67 HSE management
site visits conducted, 77 emergency response
drills took place, and 626 safety observations
were submitted, illustrating the continuous
focus on safety despite COVID-19 restrictions.
Relevance to strategy
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.
SPILLS – LOSS OF PRIMARY CONTAINMENT
0
2020 0
2019
0
2018
0
2017
2016
Performance
There were zero tier one loss of primary
containment incidents in 2020, and it is
now three years since our last incident.
Relevance to strategy
Part of our commitment to being a
sustainable business is for the impact on
the environment around our operations
to be minimised. Asset integrity is a major
priority for Genel and we plan and execute
the operations of our business and our
engagement of subcontractors so as to
minimise risk and mitigate potential impact.
1
2
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.
Genel Energy Annual Report 2020
13
Financial
review
“The combination of
oil price, payment for
overdue receivables,
and the resumption
of override payments,
significantly increases
the cash generation
of our production
business.”
ESA IKAHEIMONEN
CHIEF FINANCIAL OFFICER
14
Genel Energy Annual Report 2020
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Financial review
Financial strength driving growth
Our now well-established and proven business model enabled us to successfully
navigate the extremely challenging conditions faced in 2020, with COVID-19’s
adverse impact on oil price and operating conditions severely testing our ability
to deliver against our priorities. Our success in doing so has positioned us well to
maximise the benefit from the recent oil price improvement with a stronger and
more diverse portfolio.
Resilient operating model and assets
2020 demonstrated the resilience of our operating model and
assets in three principal ways. Firstly, through the speed at which
we were able to reduce capital activity and spend. Secondly, by
the ability of our production assets to be profitable even at low oil
prices. That profitability meant that we generated sufficient income
to cover our outgoings. Thirdly, our success at Sarta proved the
benefits of bringing assets onto production quickly and at low cost,
meaning that the cost to first oil was affordable even in stressed
conditions.
• Our producing assets have delivered predictable production, and
liquidity has been preserved by taking quick steps to materially
reduce capex to a level appropriate to the oil price
• General and administration costs have been optimised
Strong balance sheet with no near-term
debt maturity
Maintaining a strong balance sheet remains one of our key priorities.
We reported net cash at the end of the year, despite not being paid
$159 million owed to us by the KRG for oil sales.
The resilient business, strong balance sheet and significant liquidity
enabled the Company to take an important and proactive step
forward and derisk the balance sheet and the funding of our capital
activity programme by refinancing our debt, thereby moving the
maturity date from December 2022 to October 2025.
The old bonds of $300 million were settled at an average redemption
price of 106.5, a small premium over the 103 that we would have paid
if we had waited until the final year of the bond to redeem, or 102 if
we waited as late as the last 6 months.
New bonds, maturing in 2025, were issued in October at a 3% discount.
The issue discount of 3% results in an implied coupon of 9.85%. The
Company has taken the opportunity to purchase $20 million of its
own bonds, in order to reduce interest cost but retain optionality.
Our current debt level of $280 million reduced materially after year-end
following settlement of the remaining $77 million 2022 bonds at the
call price of 105, resulting in net cash of $6 million.
FY2020 financial priorities and financial performance
The table below summarises our progress against the 2020 financial priorities of the Company as set out at our 2019 results.
FY2020 FINANCIAL PRIORITIES
PROGRESS
Maintaining our financial strength through existing market
conditions
Net cash position maintained at YE2020, with the expectation
of the same in 2021 at the prevailing oil price
Continued focus on capital allocation, with prioritisation of
highest value investment in assets with ongoing or near-term
cash and value generation
Despite COVID-19 bringing material challenges: we invested to
bring Sarta to first oil in 2020 and prepared for the drilling of
the Qara Dagh-2 well in 2021
Delivery of a 2020 work programme on time and on budget,
that is appropriate to the external environment
A recut 2020 work programme and budget, appropriate to the
external environment, was delivered on time and within budget
Continued focus on identifying and developing additional
assets that offer potential for significant value to the Company
with near to mid-term cash generation, primarily to further
build the Company’s cash generation options when the
override royalty agreement ends in Q3 2022 and provide
the basis for increasing the dividend in the future
With a specific reference to progressing Sarta and Qara Dagh,
management continues to seek to mature further growth
opportunities that fit the Company’s capital structure and
business model both within and outside the existing portfolio
Genel Energy Annual Report 2020
15
Financial review
The table below summarises our financial performance in the year
(all figures $ million unless stated) reporting a free cash outflow of
only $4.4 million despite the non-payment of $159 million that was
due in the period:
(all figures $ million)
Brent average oil price
Revenue
Production costs
Producing asset capex
Working capital
Cash generated from producing
assets
G&A (excl. depreciation and
amortisation)
Net cash interest2
Free cash flow before investment
in growth
Pre-production capex
Working capital and other
Free cash flow
Sales receipts due but not received
(see note 10) plus suspended
override1
FY2020
$42/bbl
FY2019
$64/bbl
159.71
(32.7)
(56.5)
14.9
85.41
(12.4)
(23.8)
49.2
(53.2)
(0.4)
(4.4)
158.6
377.2
(37.7)
(115.1)
(59.7)
164.7
(17.7)
(23.4)
123.6
(43.0)
18.4
99.0
54.1
1. Revenue does not include $37.8 million of invoiced override revenue where
payment was suspended from March 2020 to December 2020 because it did not
meet criteria for recognition (see note 1)
2. Net cash interest is bond interest payable less bank interest income (see note 5)
Fully funded appraisal and
development programme for Sarta;
Qara Dagh funded in success case
The combination of our resilient assets, strong balance sheet, and
extended debt maturity puts us in a position where we are not
dependent on oil price or recovery of monies owed by the KRG to
execute Sarta and Qara Dagh appraisal and, in the success case,
subsequent expansion of both.
We are pleased to note the recent oil price improvement and are
encouraged at the progress regarding payment of the monies owed
to us by the KRG. The KRG has announced incremental repayments
based on 50% of the surplus of average monthly Brent price above
$50/bbl multiplied by production. The first payment on this basis
was received in March.
The combination of oil price, payment for overdue receivables, and
the resumption of override payments, significantly increases the
cash generation of our production business. Our production covers
costs and investment in production maintenance and growth at
lower oil prices and is significantly cash generative based on the
current oil price and outlook.
Dividend
In 2019, our confidence in our business plan to replace and grow
producing asset cash generation at value accretive cost was
demonstrated by the commencement of a material and sustainable
dividend, and $41 million was distributed to shareholders in the year.
The Company was committed to and able to maintain our dividend
unchanged through the challenges of 2020, illustrating a resilience
that we believe sets us apart from many of our peers. The dividend
is an important part of our investment story and the hard work done
in 2020 has put us in a good position to benefit from oil price
improvement and continue that story. Our dividend capacity is solid,
despite having Sarta, Qara Dagh and Bina Bawi that all have potential
to require near-term capital in the success case. The Board has
approved the final dividend unchanged at 10c per share, resulting in
a final dividend payment of around $28 million.
16
Genel Energy Annual Report 2020
Including the earlier distributed interim dividend, this brings our total
dividends for the financial year to 15c per share, a total payment of
$42 million. We continue to look to increase the dividend, with
confidence in a growing reserve base and outlook cash being key to
that decision.
Outlook and financial priorities for 2021
With cash of $274 million after settlement of bonds, producing asset
cash flows that cover corporate and bond interest costs and fund
pre-production investment, and Sarta now contributing meaningfully
to our cash generation, the Company is well positioned for 2021.
The Company has a portfolio that contains discovered resource
with potential for creation of material shareholder value.
We will continue to focus our capital allocation where we see it
delivering most value and the most rapid returns. For 2021, capital
expenditure guidance is $150-200 million, which at the upper end
of the range is nearly double our spend in 2020 as we appraise
Sarta and drill Qara Dagh-2. Although the objective of these wells
is primarily to deliver incremental reserves and resources, they have
the potential to add significantly to production already in 2022.
For 2021, our financial priorities are the following:
• Maintain our financial strength and continue protecting
the balance sheet
• Maximise NPV by prioritising highest value investment in
assets with ongoing or near-term cash and value generation
• Deliver 2021 work programme, on time and on budget
• Continue to focus on growing our income streams and cash
generation, bringing greater resilience and diversity to the
business and supporting our sustainable and progressive
dividend programme
Financial results for the year
Income statement
(all figures $ million)
FY 2020
Production (bopd, working interest)
31,980
Profit oil
Cost oil
Override royalty
Revenue
Production costs
G&A (excl. depreciation and amortisation)
EBITDAX
Depreciation and amortisation
Impairment
Exploration expense
Net finance expense
Income tax expense
(Loss) / Profit
55.4
84.9
19.4
159.7
(32.7)
(12.4)
114.6
(153.7)
(323.2)
(2.2)
(52.2)
(0.2)
(416.9)
FY 2019
36,250
117.2
147.2
112.8
377.2
(37.7)
(17.7)
321.8
(158.5)
(29.8)
(1.2)
(27.7)
(0.7)
103.9
Working interest production of 31,980 bopd decreased year-on-year
(2019: 36,250 bopd), with the decrease in revenue from $377.2
million to $159.7 million, principally caused by:
• lower Brent oil price
• lower capex resulting in lower cost oil
• override unpaid from March onwards
$108 million
$62 million
$38 million
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Financial review
Production costs of $32.7 million decreased from last year (2019:
$37.7 million) as a result of scaled back activity on producing assets.
Production cost per barrel was $2.8/bbl in 2020 (2019: $2.9/bbl).
General and administration costs were $12.8 million (2019: $19.1
million), of which corporate cash costs were $9.6 million (2019:
$13.3 million). The reduction from the prior period is a result of
optimisation of costs and increased capital activity, principally
at Sarta and Qara Dagh.
The decrease in revenue resulted in a similar reduction to EBITDAX
of $114.6 million (2019: $321.8 million). EBITDAX is presented in
order for the users of the financial statements to understand the
cash profitability of the Company, which excludes the impact of
costs attributable to exploration activity, which tend to be one-off
in nature, and the non-cash costs relating to depreciation,
amortisation and impairments.
Depreciation of $98.7 million (2019: $88.8 million) and Tawke
intangibles amortisation of $54.6 million (2019: $68.3 million) slightly
decreased in total as a net result of decrease in production and
impairments at half year lowering the deprecation rate per barrel.
At the half year, an impairment expense of $254.7 million for Tawke
CGU, $31.6 million for Taq Taq and $34.9 million for trade receivables
was booked which is explained further in note 1 (2019: $29.8 million).
There was no further impairment at year-end.
Bond interest expense of $31.5 million was slightly increased due to
higher bond payable at year end. Call option for remaining part of
existing bond was settled in January 2021. Finance income of $2.0
million (2019: $6.6 million) was bank interest income. Other finance
expense of $22.7 million (2019: $4.3 million) included premium on
bond buyback and non-cash discount unwind expense on liabilities.
In relation to taxation, under the terms of the KRI production sharing
contracts, corporate income tax due is paid on behalf of the Company by
the KRG from the KRG’s own share of revenues, resulting in no corporate
income tax payment required or expected to be made by the Company.
Tax presented in the income statement was related to taxation of the
service companies (2020: $0.2 million, 2019: $0.7 million).
Capital expenditure
Capital expenditure is the aggregation of spend on production
assets ($56.5 million) and pre-production assets ($53.2 million)
and is reported to provide investors with an understanding of
the quantum and nature of investment that is being made in the
business. Capital expenditure for the period was $109.7 million,
predominantly focused on production assets and the Sarta PSC
($30.0 million) and Qara Dagh ($10.6 million):
(all figures $ million)
FY 2020
FY 2019
Cost recovered production capex
Pre-production capex – oil
Pre-production capex – gas
Other exploration and appraisal capex
Capital expenditure
56.5
30.0
10.0
13.2
109.7
115.1
22.1
11.9
9.0
158.1
Cash flow, cash, net cash and debt
Gross proceeds received totalled $173.4 million (2019: $317.4
million), of which $22.9 million (2019: $91.5 million) was received for
the override royalty.
Free cash flow is presented in order to show the free cash generated
that is available for the Board to invest in the business. The measure
provides the reader a better understanding of the underlying business
cash flows. Free cash out flow before dividend was $4.4 million (2019:
positive $99.0 million), with an overall decrease in cash of $36.2
million in the year (2019: $56.4 million increase).
(all figures $ million)
Brent average oil price
FY 2020
$42/bbl
FY 2019
$64/bbl
Operating cash flow
Producing asset cost recovered capex
Development capex
Exploration and appraisal capex
Restricted cash release
Interest and other
Free cash flow
129.4
(60.2)
(25.3)
(24.2)
3.0
(27.1)
(4.4)
272.9
(105.1)
(18.7)
(26.5)
7.0
(30.6)
99.0
(all figures $ million)
FY 2020
FY 2019
Free cash flow
Dividend paid (incl. expenses)
Purchase of own shares
Bond refinancing
Other
Net change in cash
Opening cash
Closing cash
Debt reported under IFRS
Net cash
(4.4)
(55.3)
(3.4)
28.9
(2.0)
(36.2)
390.7
354.5
(348.3)
6.2
99.0
(29.0)
(13.5)
-
(0.1)
56.4
334.3
390.7
(297.9)
92.8
The bonds maturing 2025 have two financial covenant
maintenance tests:
Financial covenant
Equity ratio (Total equity/Total assets)
Minimum liquidity
Test
YE 2020
> 40%
> $30m
60%
$355m
Net assets
Net assets at 31 December 2020 were $929.8 million (2019: $1,386.1
million) and consist primarily of oil and gas assets of $1,095.1 million
(2019: $1,412.5 million), trade receivables of $94.0 million (2019:
$150.2 million) and net cash of $6.2 million (2019: $92.8 million).
Liquidity / cash counterparty risk management
The Company monitors its cash position, cash forecasts and
liquidity on a regular basis. The Company holds surplus cash in
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.
Dividend
Total dividends declared in 2020 amounted to $41.5 million (2019:
$40.8 million), representing 15¢ per share (2019: 15¢ per share).
The Board is recommending no change in the final dividend of 10¢
per share (2019: 10¢ per share), a total distribution of c.$27.9 million.
The payment timetable for the final dividend is below:
• Annual General Meeting: 6 May 2021
• Ex-dividend date: 28 May 2021
• Record Date: 29 May 2021
• Payment Date: 29 June 2021
Going concern
The Directors have assessed that the Company’s forecast liquidity
provides adequate headroom over forecast expenditure for the 12
months following the signing of the annual report for the period
ended 31 December 2020 and consequently that the Company is
considered a going concern. In assessing going concern, the
Directors have assessed that prolonged prevalence of COVID-19 may
have a further negative impact on the oil price and in turn revenues,
operational activity and receipt of amounts owed. The Company’s
low run rate costs, flexible capital programme, and strong cash
position provide appropriate mitigation of the reduction of cash
inflows that COVID-19 may cause for the going concern basis to
remain appropriate.
Genel Energy Annual Report 2020
17
Strategic report Financial strength driving growth
Business model in action
Sarta
Genel entered the Sarta licence in 2019, acquiring
30% of the licence and partnering with Chevron.
Despite the challenges of COVID-19, the field was
rapidly brought to production, with first oil in
November 2020. Sarta has the potential to grow
to be one of the largest fields in the Kurdistan
Region of Iraq, and three appraisal wells are set
to be drilled in 2021. The field illustrates our
business model.
GROSS 2P RESERVES
34MMbbls
GROSS 2C RESOURCES
264MMbbls
Financial discipline
Genel acquired equity in the Sarta licence in exchange for paying a 50% share of
ongoing field development costs until a specific production target is reached. This
aligned with our value of ingenuity and also illustrates our financial discipline,
providing access to a material growth asset for zero upfront cost.
Downside risk mitigation
The lack of upfront acquisition cost, and work done with Chevron to materially
reduce the pre-production capital expenditure programme, significantly mitigated
the financial risk of the acquisition. Delivering early production also provides
revenues to help fund the appraisal programme and bring forward free cash generation.
Capital velocity
Genel aims to only spend capital and invest in growth in a way that can deliver rapid
returns. Bringing Sarta to production within 20 months of the acquisition completing
perfectly fits this strategic imperative.
High-margin production
Benefitting from material unrecovered back costs, PSC economics mean that 2021
production is expected to deliver a margin of c.$21/bbl at a $60/bbl Brent oil price.
This is comparable to the Tawke PSC with override payments, and illustrates the
cash generation potential.
Capital returns
The high-margin of production and potential for a rapid return on investment, coupled
with the material growth potential, makes Sarta a perfect fit for our strategy, and in a
success case will further Genel’s robust financial situation and finances, solidifying our
platform for the payment of a material and sustainable dividend.
FY2021 MARGIN PER BARREL ($/BBL)
20
15
10
5
0
21
17
14
10
$45/bbl
$50/bbl
$55/bbl
$60/bbl
Brent
18
Genel Energy Annual Report 2020
GROSS 2P RESERVES
34MMbbls
GROSS 2C RESOURCES
264MMbbls
Strategic report Financial strength driving growth
“Sarta was a
tremendous addition
to our portfolio, and
the rapid delivery of
fi rst oil a testament
to the alignment and
co-operation of the
fi eld partners and
contractors. The fi eld
provides Genel with
high-margin production
and has material
reserve potential.”
MIKE ADAMS
TECHNICAL DIRECTOR
Genel Energy Annual Report 2020
19
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Strategic report
Operating
review
Production
potential for
production growth in
“Sarta provides the
2021 and beyond.”
PAUL WEIR
CHIEF OPERATING OFFICER
20 Genel Energy Annual Report 2020
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Operating review Production
The only multi-licence producer in
the Kurdistan Region of Iraq
Reserves and resources development
Genel’s proved (1P) and proven plus probable (2P) net working
interest reserves totalled 69 MMbbls (31 December 2019: 69 MMbbls)
and 117 MMbbls (31 December 2019: 124 MMbbls) respectively at
the end of 2020.
Gross upward technical revisions of 47 MMbbls at the Tawke PSC,
relating to both the Tawke and Peshkabir fields, more than offset
the 40 MMbbls of production at the licence, and contributed to our
reserves remaining materially unchanged. The appraisal campaign
getting underway at Sarta in 2021 has the potential to convert
material 2C resources into reserves.
Production
Working interest production in 2020 averaged 31,980 bopd (2019:
36,250 bopd). This decrease was largely due to the delay in the
investment programme at the Tawke PSC following the
deterioration of the external environment, which resumed later
in 2020 as things stabilised and improved.
Production currently comes from 76 wells, with the addition of
Sarta meaning that we now have four producing fields, making
production yet more diverse and reliable. Production from Sarta in
2021 is expected to more than offset declines from Tawke and Taq
Taq, and full-year production is expected to be slightly above the
2020 average. Year to date production averages c.33,000 bopd.
Depending on the success of the Sarta appraisal programme and
the timing of possible production from the Sarta-1 well, there is the
clear potential for a higher 2021 exit rate and further production
growth in 2022.
Producing assets
Tawke PSC (25% working interest)
Gross production at the Tawke PSC averaged 110,280 bopd in 2020,
of which Peshkabir contributed 52,710 bopd.
There will be an active drilling campaign in 2021 on the Tawke licence
as we continue to work in close alignment with the operator, DNO.
Up to eight new development wells are set to be drilled and multiple
workovers on existing producing wells to be undertaken in the drive
to maintain production above 100,000 bopd.
Sarta (30% working interest)
Bringing Sarta to production was a key goal in 2020. As expenditure
was reduced across the portfolio, the decision was made to continue
investment in this goal, as Sarta is a key growth asset going forward.
With first oil having been achieved in November 2020, the field is
now generating cash that will support the funding of future appraisal
and development, as we look to replicate the success of the
Peshkabir produce while appraise model.
The first well on production was Sarta-3. This was joined in February
2021 by the Sarta-2 well, and production from the field is now over
10,000 bopd with more to come following the optimisation of
facilities configuration, expected shortly.
Sarta will again form the majority of our pre-production expenditure
in 2021, with c.$60 million to be spent on the appraisal drilling
campaign and associated facilities work. The campaign will begin at
the start of Q2 and Sarta-5 and Sarta-6 will be drilled back to back,
with results from the first well expected in Q3, and operations on
both wells complete in Q4 2021. The campaign is targeting a material
portion of the 250 MMbbls of existing contingent resources, and
prospective resources, in Jurassic formations.
Re-entry and deepening of the Sarta-1 (S-1D) well is expected
around the middle of the year. Should this be successful, a flowline
will be constructed in order to enable the well to enter production
around the end of 2021.
Taq Taq (44% working interest, joint operator)
Gross production at Taq Taq averaged 9,670 bopd in 2020,
following the suspension of drilling activity in H1 2020.
Operations at Taq Taq are focused on optimising cash flow, and no
drilling is scheduled in 2021, with activity limited to workovers that
will help manage field decline. Genel continues to explore the best
way to obtain value from future production at the licence.
Remaining reserves (MMbbls)
Resources (MMboe)
1P
2P
1C
2C
Contingent
Prospective
Best
Gross
Net
Gross
Net
Gross
258
(44)
-
-
-
48
69
(12)
-
-
-
12
455
(44)
-
-
-
26
124
(12)
-
-
-
5
1,294
-
-
-
-
(34)
Net
1,173
-
-
-
-
(9)
Gross
2,592
-
-
-
-
(38)
Net
2,313
-
-
-
-
(10)
Gross
4,372
-
-
-
-
1,335
Net
3,536
-
-
-
-
931
31 December 2019
Production
Acquisitions
Extensions and discoveries
New developments
Revision of previous
estimates
31 December 2020
262
69
437
117
1,259
1,164
2,554
2,303
5,706
4,467
Genel Energy Annual Report 2020
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Strategic report The only multi-licence producer in the Kurdistan Region of Iraq
Operating
review
Pre-production
an exciting appraisal
“Qara Dagh offers
opportunity.”
MIKE ADAMS
TECHNICAL DIRECTOR
22 Genel Energy Annual Report 2020
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Operating review Pre-production
The potential for material
organic growth
Pre-production assets
Qara Dagh (40% working interest, operator)
Preparations were well under way to spud the QD-2 well in H1 2020,
prior to the uncertainty caused by COVID-19 forcing Genel to notify
the KRG of the occurrence of a force majeure event preventing
the Company from being able to perform its contractual obligations
as scheduled.
The increased certainty in the operating environment, and Genel’s
ability to operate under the expected level of restrictions, allowed the
lifting of force majeure at Qara Dagh in early Q4 2020. Genel was able
to proceed with approvals for activities necessary in order to reach
a spud date for the QD-2 well, which is expected in coming weeks.
The Parker rig has now been mobilised, and the well is expected to
spud in line with this schedule, with drilling operations anticipated
to complete in Q3 2021.
Qara Dagh offers an exciting appraisal opportunity. The QD-1 well,
completed in 2011, tested light oil in two zones from the Shiranish
formation. The QD-2 well location has been selected c.10 km to the
northwest of QD-1, and will test a more crestal position on the
structure with a high angle well to maximise contact with reservoir
fractures. The field holds resources estimated by Genel at gross
mean c.400 MMbbls.
Bina Bawi and Miran (100% working interest, operator)
Bina Bawi and Miran are assets that have the potential to generate
significant shareholder value, and efforts have continued to explore
a commercial solution to allow the unlocking of the material resources.
Discussions with the KRG are ongoing at the highest levels, which
would enable the Company to progress to the next stage of activity.
Genel continues to maintain capex discipline, and will only commence
investment upon certainty of alignment with the KRG and a clear
path to monetisation.
African exploration
The uncertainty created by COVID-19 delayed the search for partners
to fund and minimise Genel’s spend on our potentially high-impact
exploration wells, but the farm-out process relating to the highly
prospective SL10B13 block in Somaliland (100% working interest
and operator) continues to progress, with potential partners
involved in assessing the opportunity.
A farm-out campaign is also planned relating to the Lagzira block
offshore Morocco (75% working interest and operator), with the
aim of bringing a partner onto the licence prior to considering
further commitments.
COVID-19 response
In the wake of the COVID-19 pandemic,
Genel put in place an action plan to
understand the scale of the challenge,
develop protection mechanisms for
staff, and mitigate the impact on our
operations. The plan was executed
through a steering Committee led
by the CEO.
Early in the pandemic, Genel evacuated all non-essential workers
from operating fields in the KRI and quickly organised very
reliable working from home arrangements, then implemented
a pandemic plan for ongoing field development work. Staffing
requirements were re-examined to keep work site numbers to
a minimum, critical operations were identified, groups of
personnel were organised into discrete working ‘bubbles’, PPE
distributed and logistical solutions were formalised, including
transportation, hotel quarantines, catering, medical support,
suspected case management, medevac arrangements, and
infection control. Genel also adapted arrangements with
regulators, host governments, business partners and suppliers,
to achieve timely approvals for operations and minimise supply
chain disruptions.
It is a testament to the success of these controls, and the
commitment of our workforce and field partners, that there was
no day of production downtime from our operations due to the
pandemic in 2020, and that Sarta first oil was successfully
delivered in the year.
Genel Energy Annual Report 2020
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Sustainability
A socially responsible
contributor to the
global energy mix
A core element of Genel’s success is our
dedication to supporting and respecting the
environment and communities in which we
operate. We believe our portfolio fi ts a future
of fewer and better natural resources projects
- they provide value for all stakeholders, they
are low-cost, generate social benefi ts, provide
local employment and foster wider economic
opportunities for the Kurdistan Region of
Iraq. Recognising this context is fundamental
to our business as we strive to be a socially
responsible contributor to the global
energy mix.
The COVID-19 pandemic brought with it many challenges in 2020, not
least for our number one priority – the safety of our workforce and local
communities. I am proud of the work that has been done this past year,
with early actions and our strong governance structure enabling us to
respond quickly and provide essential resources to staff in the fi eld in
order to remain safe and healthy. This response builds upon our excellent
health and safety record that we have demonstrated over the past few
years. Working together as a business to continue delivering on our goals
during this challenging time has really demonstrated how embedded
our corporate values are in our daily practices.
The pandemic caused many people to reassess the fundamentals of the
global economy, highlighting the importance of adapting to the energy
transition and integrating climate awareness into business strategies.
We see our low-carbon and low-cost asset strategy as being the right
one for the energy transition, and this has been a key focus area for our
management team this past year. 2020 saw the elimination of routine
fl aring at Peshkabir, our implementation of a GHG emissions management
standard, our fi rst submission to CDP, and the issuing of our fi rst GRI
compliant Sustainability Report.
“We strongly believe
that fulfilling our
purpose requires
that Genel not only
be measured by what
we achieve, but also
by the way in which
we achieve it”
BILL HIGGS
CHIEF EXECUTIVE OFFICER
24 Genel Energy Annual Report 2020
Sustainability
As we move forward we are focused on an asset life-cycle
approach to emissions management, ensuring assets deliver an
environmental footprint over the life of field production period that
will leave us well placed to grow our business in a way that supports
the goals of the Paris Agreement. More information on these
endeavours and Genel’s approach to climate change was included
in our Sustainability Report, the release of which represented an
important opportunity for us to communicate with our stakeholders
and demonstrate the progress we are making towards implementing
our long-term ESG strategy.
As part of our efforts to further strengthen our ESG performance,
Genel pledged its commitment to the UN Sustainable Development
Goals and UN Global Compact’s 10 Principles on human rights, labour
standards, environment and anti-corruption. Genel is also a member
of both Transparency International UK and Trace. Combined,
adherence to these international agreements illustrates our
commitment to maintain high ethical standards throughout our
business practices and effectively manage environmental and
social concerns.
We strongly believe that fulfilling our purpose requires that Genel
not only be measured by what we achieve, but also by the way in
which we achieve it. Our corporate values embody the way in which
we live and work on a daily basis, the Code of Conduct that we
refreshed in 2020 stems from these values and illustrates our
dedication to acting the right way towards all stakeholders. It
outlines corporate commitments as well as individual requirements
for Genel’s entire workforce and encompasses the ethos of Genel.
As our operations continue to grow and take root in Sarta and Qara
Dagh we will be provided with greater opportunities to demonstrate
our responsible business practices and make further significant
contributions to society. The following pages showcase the progress
we’ve made to date and outline our future goals and ambitions as
we continue to fulfil our promise of being a socially responsible
contributor to the global energy mix.
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Sustainability Report
In order to better communicate our strategy towards the environmental,
social and governance topics that matter most to our stakeholders, and
underline its importance to Genel, we reached a significant milestone
on our ESG journey with the publication of our first GRI compliant
Sustainability Report in September 2020.
The report demonstrates how our projects,
investment, and direct employment has benefited
the KRI in both 2019 and in the previous decade,
illustrating our longstanding commitment to the
underlying principles of ESG. The report includes
greater detail on the energy transition, GHG
emissions management, and the ongoing actions
we are taking to advance our environmental
performance. The report also highlights some of
the extensive operational and training practices
we have put in place that help deliver our excellent
health and safety record, and the investment
we make in our employees, our inclusive work
environment, and the governance policies and
procedures we have established. We will continue
to publish an annual sustainability report and
further enhance our disclosures, as we work to
illustrate what it means to Genel to be a socially
responsible contributor to the global energy mix.
Genel Energy Annual Report 2020
25
Sustainability
Code of conduct
It is important to all of us working at Genel that we are measured not just by what we achieve but also by the way in which we achieve it.
Infusing our corporate values in all decisions that we make both individually and as a business will help deliver our strategic goals in a way
that can make each employee and contractor proud.
The values are practical and aligned with Genel’s goals – they are values that we live and work by on a daily basis that guide the direction
in which the Company is going. As we adhere to these values, it is our belief that the strategic goals of the business will be delivered.
We look to attract employees who share them – the right people, delivering the right actions, in the right way.
We refreshed our formal code of conduct in 2020, which solidifies what these values mean to Genel.
A CULTURE OF FAIRNESS AND RESPECT
PROVIDING A SAFE, SECURE, AND HEALTHY
WORKPLACE
Creating a workplace that values diversity, where everyone
is treated fairly and with respect, in a spirit of collaboration,
openness, and entrepreneurialism, and behaving with
respect, integrity and working collaboratively in all our
dealings with stakeholders, large or small.
Creating a safe, secure and healthy workplace for our
employees and contractors to prevent work-related injury
or illness, reducing risk through regular training and the
right equipment and processes, and empowering the
workforce to stop unsafe work.
BEHAVING LAWFULLY AND ETHICALLY
RESPECTING HUMAN RIGHTS
Ensuring transparency in our business and supply chains,
where bribery in any form is not tolerated, as we commit
to conducting our business in accordance with the more
stringent of the local laws and regulations of each
jurisdiction where we operate.
Conducting our business in a manner that respects the
human rights and the dignity of people, we support and
respect the protection of internationally recognised
human rights in our areas of operation.
RESPECTING THE ENVIRONMENT
WORKING WITH OUR COUNTERPARTS
Adhering to high environmental standards, minimising
emissions and resource use, and not compromising our
environmental values for profit or production, minimising
our environmental footprint and protecting biodiversity,
as we support the goals of the energy transition.
Working collaboratively with third parties who reflect our
values and operate accordingly, ensuring that they operate
in compliance with all applicable local laws and are aligned
with the same ethical standards that we support.
MARKET DISCLOSURE AND PREVENTING INSIDER
DEALING
RESPONSIBLE COMMUNITY ENGAGEMENT AND
INVESTMENT
Reporting on our business in a transparent, accurate and
timely manner, committing to providing the governance,
systems and processes to identify if the Company is in
possession of inside information and control employee
dealing in shares and other securities.
Treating the communities in which we operate with respect,
with a social investment and engagement programme
based on sustainable economic development, meaningful
community relations, capacity building through education
and training, and community health.
OUR ASSETS
DUTY TO SPEAK UP AND REPORT
Protecting the Company’s physical and intangible assets
for the benefit of its shareholders.
Providing a secure, safe and healthy workplace, positively
encouraging all employees and contractor staff to raise
any work related concerns, supporting staff who raise
genuine concerns, and taking action against any individual
who threatens or retaliates against an employee for raising
a concern in good faith.
Integrity
Respect
Accountability
Collaboration
Ingenuity
26 Genel Energy Annual Report 2020
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Sustainability
14
social investment and community
projects funded and delivered near
Qara Dagh and Taq Taq
217
employees from the KRI working
for Genel and TTOPCO
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local companies established to
provide services and implement
projects at Genel assets
15
villages around Taq Taq receive
regular medical visits
Koya Arts College orchestra students
Contributions to
society
Stakeholder & community engagement
At the centre of Genel’s sustainability strategy is a focus on local
communities. Genel has a responsibility and obligation to our host
societies and communities and as such, the proper implementation
of our CSR programme aims to enhance local social capital, improving
community and stakeholder relationships through sharing the
benefits of our work.
Genel has a decade long track record of working with the community
in the KRI, and is now implementing a company outreach CSR
policy that was first introduced in 2019 and is based on ISO 26000
Guidance on Social Responsibility. This policy helps Genel manage
regional community expectations and the broader internationally
accepted scope of CSR, including areas such as sustainable
development, human rights, and the environment. It also promotes
sustainability and expands Genel’s efforts to create more strategic
plans and apply a systematic methodology to the implementation
of the Company’s CSR programmes.
Plans in 2020 were impacted by COVID-19, limiting the movement
of our staff and their interaction with the local community from
March until October. To adapt to the new circumstances the CSR
team prioritised projects that were urgent and required less
personal interaction with community members over other more
interactive projects such as group trainings. In total our CSR team
successfully delivered 14 social investment projects valued at over
$900,000, focused on the key areas of economic opportunity and
development, improved community health and local education.
Genel Energy Annual Report 2020
27
Economic development & local
employment
Genel believes that investment in high-impact community
development projects is essential as it allows host communities
to invest their own resources into future projects and enhance the
overall well-being of the entire area. In 2020 Genel helped connect
homes in the village of Jafaran to the power grid, bringing access
to electricity to its 450 people. Genel also donated firefighting
equipment to the Forestry Policy Department of Qara Dagh and
renovated the Dewana bridge in the neighbouring Sarko village.
Also in the village, Genel sponsored the replacement of water
pipelines in order to improve the potable water supply for its 210
inhabitants. The contract was awarded to a local company and
lead to the additional hiring of locals.
Genel is committed to the utilisation of local workforce development
programmes to employ locals in its projects, making them
stakeholders and adding value to the local economy through
their participation in our operations. In 2020, 28 local companies
provided services across our four blocks of operation, through
which 355 locals were indirectly employed. Another way Genel
creates economic benefits is through the hiring and rental of
local vehicles and heavy machinery. This past year Genel and its
contractors rented 234 vehicles and pieces of machinery. Genel
is proud of its social impacts on our host communities and the
multitude of ways in which we deliver these.
Sustainability
Social investments in
health & education
At our Taq Taq site, Genel continues to share its medical team’s
resources and expertise with the local communities and conducted
nine medical visits to 15 villages surrounding the field. As always,
these clinic services are free of charge. The medical team also
conducted 865 PCR COVID-19 tests. Genel also distributed
emergency food packages to poor families in the Qara Dagh and
Sewsenan areas, and continued its waste management collection
service for nine villages surrounding Taq Taq.
Education remains a key priority, and Genel aims to help develop
the workforce of the future through empowering local children and
young adults to improve their competency skills and enhance their
own capabilities. This past year Genel funded the renovation of a
primary school in the Goshan village in Qara Dagh, and at Taq Taq
49 local university students participated in the summer training
programme. Genel also renovated a sports facility for children in
the town of Qara Dagh and supplied equipment for two youth
athletic sports clubs.
In an effort to provide critical life-saving equipment and supplies to
the people of Somaliland, a country with less than a dozen intensive
care unit beds for the entire population, Genel funded the procurement
and instalment of an oxygen plant capable of simultaneously filling
15 sets of high pressure oxygen cylinders per day. Genel also
supplied thirty oxygen concentration machines and thirty patient
monitors. The medical equipment, valued at c.$100,000, was
delivered to the Burano Regional Hospital in collaboration with the
African Network for Prevention and Protection Against Child Abuse
and Neglect-Somali Chapter (ANPPCAN-SOM). This investment will
have a significant impact on the local community and serve medical
benefits beyond the pandemic.
“Genel is committed to
the utilisation of local
workforce development
programmes to employ
locals in its projects,
making them stakeholders
and adding value to the
local economy”
28 Genel Energy Annual Report 2020
Local students at an environmental awareness day, Sulaimaniyah
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Sustainability
People & diversity
ESG management
ESG management & responsible
business practices
2020 was defined by a significant advancement in developing the
internal awareness, capabilities and processes necessary to deliver
a first-class ESG management system. In recognition of its growing
importance to stakeholders, ESG metrics are now incorporated
in annual incentive plans and in 2020, Genel held ESG-themed
meetings and workshops for the management committee on a
monthly basis in order to monitor progress on the completion of
the annual ESG workplan. These events complemented the regular
HSSE Committee meetings to further foster a culture of ESG
integration and effective governance. Placing greater emphasis
on our commitments, 2020 was also the first year a portion of
our annual bonus for all Genel employees was linked to broad
based ESG related goals. The inclusion of ESG criteria in Genel
remuneration packages has also been approved for 2021.
Central to our ESG management is a commitment to continue to
conduct our business in a manner that respects human rights, and
we are committed to acting ethically and with integrity in all of our
business dealings, implementing and enforcing effective systems
that mitigate the risk of modern slavery in our own business or
in any of our supply chains. We expect the same high standards
from all our contractors, suppliers and other business partners.
As part of our contracting processes, we include specific
prohibitions against the use of forced, compulsory or trafficked
labour, or anyone held in slavery or servitude. Further information
is available under our Modern Slavery Act 2015 disclosure obligations.
Employee & talent management
The success of our business is reliant on the diversity, talent,
experiences, and commitment of our world-class workforce. Our
employees embody our Corporate Values daily and help us deliver
our strategy. Accordingly, Genel aims to foster a rewarding work
environment based on equal opportunity for all employees and
job applicants.
We promote positive employee relationships that enable all
individuals to make use of their skills free from discrimination or
harassment, with all decisions based on merit as outlined in our
Diversity & Equal Opportunities Policy. We also commit to providing
a competitive compensation package that enables the Company
to attract and retain highly skilled and talented employees for all
positions. We utilise a salary structure to ensure equitable pay
levels among all titles and the Human Resources Department
collects market data from reliable third parties to analyse and
compare each position’s level and pay. Our talent management
process enables Genel’s employees to capitalise on their skillset
and maximise their value and impact on the Company and its work.
The process, first completed in 2020, assesses culture, leadership,
talent potential, and alignment with Company strategy and goals.
Moving forward, Genel will continue this process on an annual basis.
COVID-19 led to new challenges for the human resources
department and drove innovative solutions to make the transition
to remote working from home easy and effective. The physical,
mental health and wellbeing of employees were central points
of discussion on a weekly basis for senior management, and
mental health awareness guidelines were distributed to all
employees. Furthermore, two employee surveys were sent out
with 120 responses and Genel introduced an Employee Assistance
programme to help monitor the transition. A home working
ergonomics outline assessment was also rolled out with products
delivered to homes. The long-term effects of the pandemic will
continue to be assessed.
Diversity
As a truly international enterprise, Genel champions diversity in all
forms whether through ideas, skills, knowledge, experience, culture,
ethnicity and gender through our daily operations as well as
formalised in our policies and procedures. Genel’s commitment
to inclusivity is evident in its employee profile. As of 31 December
2020, we employed 127 people across four regional offices, with
56 employees in Ankara, 33 in London, 21 in the Kurdistan Region
of Iraq, and 17 in our African operations. Our talented employees
come from around the world, representing 14 different nationalities.
Genel is proud of its promotion of women into leadership positions
across all levels of the Company. 35% of our total workforce are
women, and women make up 18% of the Board of Director positions,
12.5% of the Executive Committee and 15% of management.
Genel Energy Annual Report 2020
29
Sustainability
Health and safety
COVID-19 pandemic response
The health and safety of our workforce has always been a top
priority at Genel and never has that been more important than
during the COVID-19 pandemic. Our HSE management team
responded swiftly to enact the procedures, controls and protocols
necessary to minimise risk and continue safe operations. Leadership
and direction were provided on a weekly basis by the steering
committee, led by the CEO, and continuous review was carried
out on COVID-19 procedures to ensure correct measures were
implemented according to the latest medical information available
through International SOS, World Health Organization (WHO),
Center for Disease Control and Prevention (CDC) and local Kurdish
Ministry of Health.
We worked effectively within KRI to deliver a revised work plan
and to establish safe practices at both our production and pre-
production assets. The HSE and operational teams re-examined
manning requirements to keep work site numbers at a minimum
and establish measures at operational sites for improved hygiene,
safe facilities, and social distancing to reduce COVID-19 risk. For
employees operating in the KRI, Genel established travel and crew
change arrangements consistent with regulatory requirements
and implemented new working arrangements at operational sites
to minimise the potential for an outbreak.
Dissemination of the latest up-to-date COVID-19 prevention
information was provided via all staff townhall meetings and was
communicated on a site level through site-specific induction. All
persons, whether it was company or contractor, were subject to
Genel COVID-19 procedures. Strict quarantine measures were
taken to ensure all persons working in field-based operations
were COVID-19 free. These measures were also implemented
contractually with Genel service providers to ensure clarity
and transparency.
Emergency preparedness & training
Genel implemented a robust emergency preparedness plan
throughout 2020 to ensure employees are trained and equipped
for safe field operations as we step up our field operated activities
in KRI. The trainings also involved senior managers who are
responsible for crisis management, business support and in country
incident management teams. Genel has also recruited and
developed dedicated emergency response teams who have
undertaken fire response and rescue training. As part of Genel’s
emergency response equipment we have purchased a three agent
(water, foam and dry-powered) fire response vehicle. The purpose
of the response vehicle with an array of rescue equipment is to
enhance our capabilities to protect lives in a fire or rescue incident.
Crude trucking & spill mitigation
In recognition that one of our greatest future risks is the trucking
of crude oil from the Sarta facility to the offloading station some
100 km away, we prepared extensive risk mitigation measures
throughout 2020. As part of our these, a driver competency training
package was developed where all drivers engaged on the project
were assessed by a ROSPA certified driving examiner. This included
additional elements covering hazard identification, working in
operation facilities, and spill response. By the end of 2020, a total of
101 drivers successfully achieved a certificate of competency. Genel
has also invested in spill response equipment and provided training
to personnel involved in spill response, including the company
responsible for the crude oil trucking contract.
Genel distributing PPE to local hospitals in response to Covid-19
30 Genel Energy Annual Report 2020
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Sustainability
Operational safety
Site training, monitoring, supervision of ongoing activities and
regular audits and inspections are key to Genel’s strong operational
safety record with 2020 another year of successful operations
without major incident or lost time injury. All projects are subject
to an operational readiness review that confirms all HSE deliverables
(training, competency, procedures, risk controls etc) are in place
before a contractor can commence work on site. Once operations
commence, Genel’s HSE representative visits the sites daily to
confirm contractors are following the agreed safety practices.
At the Sarta Early Production Facility, the HSE team implemented
a prestart up readiness document to ensure all elements required
in operating a new facility in a safe manner had been detailed and
tracked to closure. Furthermore, with Sarta being a sour field, an
H2S procedure was implemented with training and regular drills
to reinforce safety requirements.
All lifting activities are considered of a higher level of risk, and
in order to mitigate this risk Genel has retained the service of an
independent lifting inspection company to inspect and certify all
of its lifting equipment, including those provided and used by all
contractors, regardless of whether the equipment is supplied with
a valid certificate upon its rental. This strategy has led to no lifting
incidents occurring as a result of a failure of equipment.
Process safety & asset integrity
Managing process safety and asset integrity risks underpins our
commitment to safe and reliable operations and an Asset Integrity
Management Plan (‘AIMP’) is developed and implemented. Each of
the AIMP elements has a specific aim and a clear set of expectations
to continuously improve operational integrity. Safety Critical
Elements (‘SCE’) are identified at all facilities and operations. SCE
are those systems whose failure could result in a major accident,
and defined associated operational performance standards to
improve operational integrity and the safe working environment
critical to the long-term success of Genel.
Tier 1 and 2 Process Safety Events (‘PSE’) are reported and
investigated to determine how to improve equipment reliability and
related operating integrity practices, and to identify barriers aimed
at managing and mitigating major accident hazards. Our Tier 1 and
2 process safety definitions align with those of the American
Petroleum Institute, and the International Association of Oil and
Gas Producers. Tier 1 events are classified as those involving any
major release of hazardous materials with the potential for serious
consequences resulting in injuries, harm to the environment and/or
asset damage. In 2020, we had zero T1 or T2 PSE.
H2S training drill at Sarta
Genel Energy Annual Report 2020
31
Sustainability
Climate risk mitigation
GHG management approach
Genel is committed to producing the low carbon intensity and
high-margin barrels that will characterise industry leaders in a
sustainable world, and our operations will continue to be managed
in accordance with our aim of minimising emissions in order to
mitigate potential adverse effects. We focus on effective design,
efficient operations and responsible energy use to lower emissions
to as low as reasonably possible to provide assurance to our
investors that Genel’s asset development plans are sustainable
from an economic and a climate perspective.
Our emissions reduction, energy efficiency and flaring
management practices have been formalised in a corporate-wide
GHG Emissions Management Standard that emphasises an asset
life-cycle approach to emission mitigation. The standard applies to
all operating and non-operating assets including legacy assets and
future acquisitions across the entire life-cycle phases of the asset
and provides a systematic framework to identify an asset’s carbon
budget that aligns with the Paris Agreement 1.5°C pathway.
GHG emissions profile
In 2020 Genel took the significant step to enhance GHG emissions
reporting by shifting to an equity-shared approach for Scope 1 and 2
emissions. This represents a move towards best practice and provides
a more comprehensive overview of our GHG impact. Genel reports
its global GHG emissions and intensity ratio in compliance with the
Companies Act 2006 (Strategic Reports and Directors’ Report)
Regulations 2013. In addition, Genel Energy is also reporting last
year’s GHG emissions data, its underlying energy consumption for
2020 and 2019, the contribution of UK operations to global energy
consumption and GHG emissions, and information relating to energy
efficiency action, in alignment with the additional requirements
implemented as part of the Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018 for Streamlined Energy and Carbon Reporting
(SECR). The methodology used for reporting Genel’s operated
assets follows the 2015 GHG Protocol Corporate Accounting and
Reporting Standard. Non-operated assets’ GHG emissions data are
provided by our joint venture partners.
Our 2020 GHG and energy figures on an equity share control basis
are as below:
Scope 1 emissions (tCO2e)
Scope 2 emissions (tCO2e)
Associated energy use (kWh)
Intensity ratio (kgCO2e/bbl)
Global
148,318
263
125,258,811
13
UK
-
8.43
36,162
-
In addition, we have presented our 2020 numbers on the same
basis as our published 2019 figures i.e. operational control basis:
Global Scope 1 emissions (tCO2e)
Global Scope 2 emissions (tCO2e)
2020
3,876
263
2019
816.16
507.45
Our operational emissions increased significantly due to the
inclusion of Sarta production commencing from 27 November
2020.
32 Genel Energy Annual Report 2020
Emission reduction efforts
One of the biggest factors influencing our GHG emissions profile
is flaring and in June 2020, with our joint venture partner and
operator of the Tawke PSC, DNO, we successfully completed the
first gas injection project in the KRI. The project eliminated the
need for routine flaring, reducing total flaring volume by over
65%, with the potential for enhanced oil recovery that will
make the project a cost benefit. Moving forward with our Sarta
operations, we are committed to a flares out programme at the
asset as production increases, and are currently in the process
of evaluating possible solutions to achieve this.
Climate disclosures
Genel is committed to communicating its climate strategy and
resilience to the investor community in order to illustrate the
efforts we are taking to reduce our carbon footprint. As such, in
2020 we submitted our first ever disclosure to CDP for scoring with
the aim of continuing to further enhance our data collection and
reporting capabilities. We are also in the process of calculating our
Scope 3 emissions profile and will disclose this figure in our
upcoming CDP submission and 2020 sustainability report.
Checking recordings on an air monitoring station tracking pollutants
Sustainability
Environmental stewardship
Environment management system
At Genel we are focused on reducing our emissions, managing
waste, reducing resource and water use, and protecting biodiversity
throughout our operations. As such we continue to design our
policies, procedures and plans to align with ISO 14001 environment
management system requirements. In line with the International
Finance Corporation Performance Standard 6 on Biodiversity, we
are in the process of developing an offset programme at Qara
Dagh. We develop environment, social and health impact
assessment (ESHIA) reports and seek regulatory approvals for all
field development activities and develop environmental and social
management plan (ESMP) to monitor and respond to potential
impacts and grievances that may arise with local communities and
the environment.
Water management
As part of our environmental responsibilities, we recognise that
we operate in a water-restricted region and that availability of
fresh water is valuable. Therefore, it remains a key priority of
the Company to efficiently manage its water consumption and
implement recycling practices wherever feasible. As we increase
our operational footprint in the KRI, we have developed a new
reporting format to start collecting data on our water use, its
source and post use disposal at all of our sites. For example, at
Sarta, Genel has invested in a high-grade sewage treatment unit
that will treat effluent wastewater to meet the regulatory limits.
Waste management
Genel continues to build upon its strong waste management
reputation in the KRI. At Taq Taq we successfully surpassed our
annual internal non-hazardous recycling rate of 60%. At Sarta,
prior to commencing operations we implemented a waste
segregation awareness programme with all site personnel and
contractors to ensure that the principles and hierarchy of waste
management will be followed. As operations progress, we are
developing plans for waste removal, recycling and treatment
contractors from local communities as part of our ongoing support
for capacity building for local enterprises. Our staff liaise closely
with our waste contractors, introducing them to new recycling
initiatives and mentoring the workforce in effective and safe
waste handling, disposal and management processes.
Air quality monitoring
In our efforts to mitigate any adverse effects associated with our
operations, Genel has successfully implemented three new continuous
air quality monitoring units following first oil at Sarta in November
2020. The goal of this programme is to establish a baseline
understanding of local air quality conditions around the early
production facility at the site, and enable the constant supervision
of our operations in a way that does not adversely impact the
public health of neighbouring communities.
Biodiversity and land management
Genel is working in collaboration with partners to protect nature
and achieve no net loss of biodiversity wherever we operate. Genel
acknowledges the importance of conserving biodiversity as an integral
part of sustainable development, and is committed to protecting
the flora and fauna in the proximity of its assets throughout the
project cycle. The Biodiversity Management Plan (‘BMP’) provides
a framework for managing project risks and impacts specifically
to biodiversity and to identify and prioritise appropriate impact
management actions relating to assets in the Kurdistan Region
of Iraq. For example, our environmental consultants, in partnership
with government forest authorities and a local NGO, will further
develop Genel’s BMP to include the implementation of an offset
programme of additional conservation measures that will achieve
a net positive impact in biodiversity values for habitat temporarily
affected during the Qara Dagh project.
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Biodiversity survey at Qara Dagh
Genel Energy Annual Report 2020
33
Strategic report
“Our approach to
COVID-19 illustrates
the robust risk
management policies
and procedures that
we have in place”
VK GUPTA
HEAD OF HSE AND RISK MANAGEMENT
34 Genel Energy Annual Report 2020
Risk management
Principal risks and
uncertainties
Mitigating downside risk is a key component
of our business model. The benefi ts of this
approach, and the resilience that it provides,
was demonstrated in 2020, as Genel retained
a robust fi nancial position and continued to
deliver on its operational strategy despite
the collapse in the oil price and logistical
challenges resulting from COVID-19.
As well as being a core part of our overall approach to running the
business, we also have a diligent approach to individual risks, bringing the
same rigour to Genel’s organisational risk management processes as we
do to health, safety and the environment.
Mitigating the risks presented by
COVID-19
Our approach to COVID-19 illustrates the robust risk management policies
and procedures that we have in place, how we identify risks and then take
a proactive approach to design and implement robust controls to mitigate
them. We view risk through the same lens as we view HSE, looking to
prevent problems before they arise, having the right controls in place to
mitigate as much as possible any potentially negative outcomes.
Following the World Health Organization (WHO) declaring COVID-19 to be
a Public Health Emergency of International Concern in January 2020,
Genel identifi ed the risk, began monitoring the situation and exploring
ways in which the Company may be affected. From our fi elds to head
offi ce, we implemented quick actions to keep people safe and continue
business critical operations without interruptions. For staff in London and
Ankara this included locking down our offi ces, preventing non-essential
travel, and supporting work from home arrangements. At our fi elds strict
procedures were put in place, including quarantine, preventing visitors to
camps, regular disinfection of facilities, safe transportation, mandatory
facemasks, social distancing and hygiene practices.
Through these steps and appropriate controls we attempted to reduce the
risk to As Low As Reasonably Practical (‘ALARP’).
The impact of COVID-19 was swift and constantly changing, and we
continued to assess it on a weekly basis through the COVID-19 steering
committee, ensuring a continuous fl ow of information from all our sites. In
line with our governance procedures, the risk was allocated to the HSSE
Committee, who received an initial update on the Genel action plan on 10
March 2020, with the Board as a whole being updated in May. Given the
impact of COVID-19 it was a tremendous performance to safely continue
operations at all fi elds, and bring Sarta into production in 2020.
As with HSE, we will continue to use the bowtie method to support the
identifi cation, design and management of prevention and mitigation
controls, as we take a proactive approach to risk management.
TREND APPROACH
OPPORTUNITIES
THREATS
CONTROLS
Risk management Principal risks and uncertainties
Risk Improved
Risk Unchanged
Risk Deteriorated
RISK
BOARD
Development and
recovery of oil
reserves
Paul Weir, COO
> Read more – page 23
Genel aims to realise
the reserves value in
its portfolio through
deploying capital in line
with the value creation
expected from our
Asset Development
Plans.
• Correctly
characterising
uncertainty in
reserves outcomes
• Cost effective
development of fields
• Successful
exploration and
appraisal activity
increase resources
• Moving projects and
developments into
execution increases
reserves
• Progress on current
assets (Sarta, Bina
Bawi, Qara Dagh,
and Miran) unlocks
resource value
• Successful addition
of inorganic
opportunities to the
portfolio
Reserve
replacement
Mike Adams, TD
> Read more – page 21
Genel aims to grow
through adding
reserves and in turn
long-term cash-
generative production
both from existing and
new assets added to
the portfolio.
Commercialisation
of KRI gas
business
Bill Higgs, CEO
> Read more – page 8
M&A activity
Esa Ikaheimonen, CFO
> Read more – page 16
The development and
commercialisation of
Genel’s existing gas
assets in the KRI is
a key focus for the
Company. There is
potential to generate
material and stable
cash flows from these
assets once onstream.
The pursuit of selective,
value accretive M&A
opportunities is part of
the Company growth
strategy.
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• Underestimation of
reservoir uncertainty
and reservoir
performance to the
downside
• Poor drilling
execution
performance
• Poor reservoir
performance
• COVID-19 prevents
execution of field
development plans
• Inability to progress
assets in the
portfolio and convert
contingent resources
to reserves
• Failure to add
inorganic
opportunities to the
portfolio
• COVID-19 prevents
execution of field
appraisal plans
• Life of field Asset
Development Plans
in place
• Active and optimised
performance drilling
across all producing
assets
• Active reservoir
management
• HSE, Asset Integrity
and Operations
Management
Systems
• Life of field Asset
Development Plans
in place
• Active management
of contingencies to
convert contingent
resources to reserves
• Sarta Phase 1A
production project
executed, appraisal
activity also
commenced at Sarta
and Qara Dagh
• Progress on the
• The gas project is
• Expenditure
gas business moves
Bina Bawi and Miran
towards commercial
development and
transformational
monetisation
reliant on certain key
milestones some of
which are beyond
the control of the
Company
• Slow progress in
negotiations with
KRG
maintained at an
appropriate level for
current probability of
success
• Ongoing dialogue
with the MNR
• Execution of a
• Execution of a
• Clearly defined
transaction positively
impacts the
Company’s valuation,
asset quality, and
equity story, among
other factors
transaction that
adversely impacts
the Company’s
long-term liquidity,
balance sheet, asset
quality, and equity
story, among other
factors
• Misalignment with
major shareholders
strategic framework
and characteristics
for deals that Genel
should pursue
• Senior management
review and assess
resilience of
investment to
downside risks
• An experienced
Board oversees
and signs off on
all material M&A
decisions
Genel Energy Annual Report 2020
35
Risk management Principal risks and uncertainties
RISK
TREND APPROACH
OPPORTUNITIES
THREATS
CONTROLS
KRI natural
resources
industry and
regional risk
Pars Kutay, Head of
Government Affairs
> Read more – page 8
A strong relationship
with the KRG
facilitates the
realisation of the
value of Genel’s
principal oil and
gas assets.
• Ongoing strong
relationship with
KRG facilitates
further success
in KRI
• Stable environment
for operations
allows Genel to
pursue strategic
objectives
Payment for KRI
export sales
Bill Higgs, CEO
> Read more – page 8
The Kurdistan
Regional Government
purchases all crude
oil at the wellhead
and arranges for
payment to be made
to Genel for ongoing
exports.
Corporate
governance
failure
Stephen Mitchell, GC
> Read more – page 41
The Company’s
strategy is to
maintain high
standards
of corporate
governance.
• Payments provide
increased cashflow
strengthening
balance sheet and
enabling growth
• Regular payments
improve market
sentiment
• Payment plan
proposed by the
KRG for unpaid
2020 receivable
• Good corporate
governance is
proven to provide
benefits to business
and value to
shareholders
• A change in situation
of the KRG, Turkey
or of Baghdad
and the wider
region adversely
effects operating
environment in
the KRI, including
payments
• In the past, the Iraqi
Ministry of Oil has
disputed the validity
of PSCs entered
into by the KRG. 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
• Ongoing pandemic,
low oil price, OPEC
quota challenges,
and the ongoing
inability for Baghdad
and Erbil to form a
lasting agreement
on oil and revenue
sharing
• Payments from
the KRG delayed,
reducing the
Company’s ability
to re-invest in line
with its strategic
priorities
• Payment plan
initiated by KRG that
includes monthly
ORRI payments
• Regular dialogue with key
decision makers in the
KRI, including meetings
with the Prime Minister
of the Kurdistan Regional
Government
• Payments not made for sales
entitlements from November
2019 to February 2020
• KRG has made monthly
payments on their updated
payment plan for nine months
• Genel continues dialogue with
KRG regarding recovery of
monies owed, with payment
recovery beginning in Q1 2021
• Corporate
• Carrying out detailed
governance failure
would have a
negative impact on
investor perception
of the Company
Board Evaluation exercises
(including externally
facilitated reviews
periodically) to monitor and
assess performance of the
Board
• Effective set of governance
policies deployed across
Genel
• Commitment to an effective
legal compliance training
program periodically to the
Genel workforce
Environmental,
social &
governance
expectations
Bill Higgs, CEO
> Read more – page 24
Position the
Company as a
natural winner
during the energy
transition.
• Develop a
• Reduced access to
• ESG strategy in place and
competitive
advantage for Genel
and distinguish it
from its peers
• Position Genel as a
socially responsible
contributor to the
global energy mix,
widening the pool of
potential investors
capital
agreed by Board
• Negative stakeholder
• ESG plan, leadership and
publicity
progress review
• Introduction of
• ESG specific scorecard
punitive carbon or
other taxation
included in the 2020 annual
targets
• First GRI compliant
Sustainability Report issued
in September 2020
• First CDP submission in 2020
• Proactive engagement with
ESG rating agencies
36 Genel Energy Annual Report 2020
Risk management Principal risks and uncertainties
RISK
TREND APPROACH
OPPORTUNITIES
THREATS
CONTROLS
AUDIT COMMITTEE
Liquidity outlook
sources and uses,
capital structure
and financing
Esa Ikaheimonen, CFO
> Read more – page 16
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.
• Strong balance
sheet protects
the company
against volatility in
commodity prices
and geopolitics
• Strong and visible
liquidity runway
ensures debt
repayment
• Appropriate
capital structure
and discipline in
allocating capital
allows for the
company to self-
finance organic
growth and to benefit
from in-organic
opportunities
• Failure of KRG to
make payments for
sales (as above)
• A deterioration in the
oil price
• Lack of access to
capital due to macro
developments
• A failure in executing
M&A strategy
• Disciplined capital
allocation, clear
investment priorities
and strong expenditure
controls
• Low cost of production,
competitive onshore
development costs
• Strong balance sheet
and asset level free
cash flow even at
distressed oil price
• Early refinancing
successfully completed
in October 2020, with
no debt maturity until
2025
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HSSE COMMITTEE
Local
communities
Pars Kutay, Head of
Government Affairs
> Read more – page 27
Supporting and
sustaining the
communities in
which we operate is
fundamental to Genel’s
success.
• Positive local
relationships
continue to facilitate
Genel’s pursuit of
strategic objectives
Health and safety
risks
Vrijesh Kumar Gupta,
Head of HSE and Risk
> Read more – page 30
Health, safety
and environment
management is a
primary consideration
across all Genel
operations.
COVID-19
Vrijesh Kumar Gupta,
Head of HSE and Risk
> Read more – page 30
New Proactive assessment
of the latest scientific
advice to design fit for
purpose and flexible
COVID-19 controls with
a learning mindset for
all business-critical
operations through
expert led health risk
assessments.
• Continued strong
HSE performance
reduces business
loss, boosts
employee motivation
and enhances
Company reputation
• Positive HSE
reputation enables
timely approvals
of environmental
permits and asset
development plans
• Prevent COVID-19
infection and keep
people safe and
healthy
• Continue business
critical operations
without interruptions
• A loss of local
• Appropriate
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
• Failure of HSE
procedures and
controls leads to
injuries/illnesses and/
or fatalities, adverse
environmental
impact, process
safety accidents and
material reputational
damage
• Poor HSE
performance can
have license to
operate risks
• Inadequate design
and implementation
of COVID-19 protocols
and controls
• Prolonged pandemic
waves
• Government
restrictions that
impact or delay
business travel or
operations adversely
• Delays in vaccination
community projects
developed in
accordance with the
CSR policy, stakeholder
management policies,
commitment to local
employment and local
contractors
• Sustainability Report
issued in Kurdish, with
increased social media
activity in the local
language
• Ongoing continuous
improvement in
processes, procedures
and performance as we
aim for HSE excellence
and incident-free
operations
• Regular HSE &
process safety risk
assessments
• Regular HSE
leadership site visits
• Regular HSE
supervision and
assurance
• COVID-19 protocols
and controls for all
business-critical
operations, that include
shielding vulnerable,
seven days quarantine
with two PCR tests,
safe transportation,
mandatory masks,
social distancing,
hygiene, disinfection,
and more.
• Expert medical
advice, education and
awareness
• COVID-19 steering
committee and all staff
townhall
• Work-at-home ICS, HR,
line manager support
• Ergonomics online
assessment, employee
assistance programme,
staff support survey
Genel Energy Annual Report 2020
37
Viability statement & going
concern assessment
Consideration of principal risks
The principal assumptions underlying the forecasts above were
reviewed in the context of the risks and mitigating actions set out in
the Principal Risks in the Annual Report including in particular those
that specifically relate to the company’s viability including:
• Payment for KRI sales
• Development and recovery of reserves and resources
• KRI natural resources industry
Viability assessment
Based on their review of these assumptions and sensitivities in
the context of the funding options and risks referred to above,
the Directors found that there was a reasonable expectation that
the company will be able to continue in operation and manage its
liabilities as they fall due over the five year period to December 2025.
Our 2020 Strategic Report from pages 1 to 39 has been reviewed and
approved by the Board of Directors on 17 March 2021.
Bill Higgs
Chief Executive Officer
In accordance with provision 31 of the 2018 revision of the UK Corporate
Governance Code (“the ‘Code’), the Directors have assessed the prospects
and viability of the Company over a longer period than the 12 months
required by the ‘Going Concern’ provision.
Choice of assessment period
The Directors retain their assessment of five years as the appropriate
period for their viability statement. Although inevitably introducing
cash flow uncertainty given the inherent volatility in long-term oil
price, cost and production forecasting, five years was felt to be an
appropriate period for the following reasons:
• The production assumptions are supported by recent external
reserve reports on all existing producing assets
• The period captures the maturity of the Company’s bonds,
maturing December 2025
• The override paid from the Tawke PSC as part of the RSA ends in
2022
• The period captures when there is potential for material capital
investment on a number of the Company’s pre-production assets
• The Board runs a five-year plan, beyond which there is considered
to be limited visibility
Review of financial forecasts
In reviewing the expected evolution of the company’s business, cash
flows and capital structure over the review period the Directors took
into account:
• The Company’s five-year plan, which incorporates the Company’s
latest life of field cash flow projections for the oil producing assets
• The various capital allocation scenarios that may evolve and the
Company’s potential asset portfolio investment decisions
• The Company’s bond and compliance with its financial covenants
• The availability of debt capital markets and other sources of
finance, together with the debt capacity of the business
• The oil price forecast set out in the notes of our financial
statements
A range of sensitivities were run on the assumptions set out above
to reflect different scenarios including, but not limited to, changes to
production profiles, commodity price assumptions, capital allocation
and payments.
38 Genel Energy Annual Report 2020
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Stakeholder Engagement
As a Jersey registered company, Genel Energy plc is not required to prepare a s172
statement in accordance with UK legislation, however, it remains the policy of the
Company to comply with high standards of corporate governance and so we have
voluntarily chosen to report how we take our stakeholders into consideration in
running the business.
We recognise the Company has a range of stakeholders including
but not limited to our investors, the local government and
communities in the regions in which we operate, our joint venture
partners, employees and suppliers. When making business
decisions the Board of Directors of Genel Energy plc consider, both
individually and collectively, that they have acted in the way they
consider, in good faith, would be most likely to promote the success
of the Company for the benefit of its members as a whole (having
regard to the stakeholders and matters set out in s172(1) ((a-f) of
the Act) in the decisions taken during the year ended 31 December
2020 (see Corporate Governance report). In particular the Board
considered this to be the case, by reference to the approval of our
strategy and business model supported by our viability statement
on page 38:
(a) The likely consequences of any decision in the long-term
Genel has a balanced portfolio, with material high-margin
production and significant growth opportunities in the pipeline.
Growth of our oil business continues to be well funded from our
liquidity and, despite the impact of COVID-19 on the oil price,
our outlook illustrates that our financial strength allows for
ongoing portfolio investment and the payment of a material
dividend. In order to maintain our strong balance sheet through
cycles and proactively manage our liquidity runway and debt
maturity profile, during 2020 the Board took the decision to
refinance our bond that was due to mature in 2022. See CFO
reports for more information.
(b) The interests of the Company’s employees
Our talented, experienced, and motivated staff are key to the
success of our Company. As the COVID-19 global pandemic
impacted the business we sought to support and ensure the
safety of our employees; new health and safety protocols
were introduced for field based staff and office employees
transitioned to working from home. Further information on
this can be found on page 30 of the report. The Board has
also appointed a Designated Independent Non-Executive
Director who is responsible for workforce engagement and is
able to provide insight into our employees’ perspectives on
the business to the Board. Further information on workforce
engagement can be found on page 47 of our Corporate
Governance report.
Genel continues to be committed to employing a diverse and
balanced team, enabling 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. Further information can be found in the
sustainability report on pages 24 to 33.
(c) The need to foster the Company’s business relationships
with suppliers, customers and others
Long-term strategic thinking, allying our goals with those of
host governments and business partners to build deep and
valuable relationships, helping to unlock value in complex
commercial situations helps Genel to fulfil its strategy. Further
information can be found in the Strategic Report.
(d) The impact of the Company’s operations on the community
and the environment
Supporting and sustaining the communities in which we
operate is fundamental to Genel’s success. Genel has developed
policies and procedures that help us maintain and strengthen
relations with the local communities near our operations.
These include a Local Content Policy and Local Workforce
Development Plan that promote local employment and
contracting so that the economic benefits generated from our
operations are shared within the region. Furthermore, our CSR
policy strategically prioritises long-term high-impact projects
centred on education, health, and economic development
with the aim of generating self-sustaining prosperity. In
addition to generating economic benefits for the region, Genel
takes significant steps to minimise environmental impacts
by reducing resource use, mitigating emissions, managing
waste, and preventing pollution. More information on our
positive social and economic impacts and our environmental
management practices can be found in the sustainability
section of this report on pages 24 to 33.
(e) The desirability of the Company maintaining a reputation
for high standards of business conduct
Genel Energy plc is a Jersey incorporated, UK tax domiciled
Company with a standard listing on the London Stock
Exchange. Notwithstanding our standard listing, we
are committed to complying with applicable regulatory
requirements in both Jersey and the UK. Genel remains
committed to operating to high standards of corporate
governance. Our 2020 Corporate Governance report illustrates
how the Board and its Committees have supported business
activities while maintaining a strong governance culture.
Further information can be found in the Corporate Governance
report.
(f) The need to act fairly towards members of the Company
The Board of Directors’ ambition is to behave responsibly
toward our shareholders and treat them fairly and equally,
so they too may benefit from the successful delivery of our
plan. The Chairman and Independent Non-Executive Directors
meet regularly as part of the Board responsibility to ensure
all shareholders are treated equally. More information on our
relationship with shareholders can be found in the Corporate
Governance report.
Genel Energy Annual Report 2020
39
Sarta-5 well site, Sarta
40 Genel Energy Annual Report 2020
Chairman’s
statement
Continued
commitment to
high standards
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governance
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Dear Shareholder,
I am pleased to present my second
Corporate Governance Report to
shareholders as your Chairman. Genel
remains commited to operating to high
standards of corporate governance, and
our 2020 Governance Report illustrates
how the Board and its Committees have
supported business activities while
maintaining a strong governance culture.
As the external environment deteriorated in 2020 due to COVID-19
our corporate governance framework continued to support decision
making by the Board of Directors, including rapid confirmation of
a reduction in planned activity for 2020. While reducing activity,
we continued to invest in key areas that will drive future growth,
and were pleased in November 2020 to announce the achievement
of first oil at Sarta, a key capital allocation priority for the year.
The delivery of this milestone safely during a global pandemic
is an incredible achievement.
Genel entered 2021 with a robust financial position, boosted by
the October 2020 refinancing of our bond. This provides us with
a stable platform from which to execute our strategy and meet
our business objectives as we move through these difficult times.
In our 2019 Annual Report the Board recognised that the majority
of the Board (excluding the Chairman) was not independent and
committed to returning the Board to an equal balance of
independent and non independent Directors. Following an analysis
of which additional skills and experience was required around the
boardroom, performed by the Nomination Committee, a search
process was commenced and in June 2020 Canan Edibog˘lu
was appointed to the Board of Directors as an Independent
Non-Executive Director.
Following her appointment to the Board, Canan Edibog˘lu received a
comprehensive induction programme which due to travel restrictions
was delivered remotely. The induction programme included meeting
with key departments heads and relevant external advisors.
On 17 March 2021 we announced that after over nine year's on the
Board George Rose would be standing down as an Independent
Non-Executive Director at the conclusion of our 2021 AGM. I
would like to thank George for his significant contribution to the
Company over his tenure on the Board. The Board will continue to
keep its size and composition under review, including the balance
between independent and non-independent directors in light of
the recommendations under the UK Corporate Governance Code,
to ensure the Board as a whole contains a broad range of skills,
experience and backgrounds
Throughout the year the Company continued to engage with our
shareholders and stakeholders on the current position of the
business and its future strategy. Further information on stakeholder
engagement can be found on page 39.
The Board is cognisant of the changing environment in which
we operate, and in September 2020 we published our first GRI
compliant Sustainability Report detailing our ESG activities as we
strive to be a socially responsible contributor to the global energy
mix. Further information on the Company’s focus on sustainability
can be found on pages 24 to 33.
In accordance with the Company’s commitment to comply with the
UK Corporate Governance Code, the Board undertook a formal and
rigorous external evaluation of its own performance and that of its
Committees and each individual Director led by Russell Reynolds.
Further details of the Board evaluation can be found on page 58.
David McManus
Chairman
Genel Energy Annual Report 2020
41
Governance statements
Genel Energy plc is a Jersey incorporated company with a standard listing on
the London Stock Exchange. We are committed to complying with the regulatory
requirements in both Jersey and the UK.
In 2020, we announced that in order to facilitate the creation
of shareholder value through the ability to make rapid capital
allocation decisions, it was an appropriate time to step back
from our previous decision to act as if we were a premium listed
company. Notwithstanding this change, the Board continues to be
committed to a high standard of corporate governance and will
continue to comply with the UK Corporate Governance Code and
with the Remuneration Regulations.
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 on page 26 and is available on our website at
www.genelenergy.com.
Compliance statement
The Board is committed to high standards of corporate governance
and has decided to manage Genel’s operations in accordance
with the UK Corporate Governance Code 2018. A full version of
the Code can be found on the Financial Reporting Council’s (FRC)
website at www.frc.org.uk. The Company has applied the principles,
as explained on pages 43 to 44. We are in full compliance with
the provisions of the Code with the exception of provision 11 as
between 3 December 2019 and 21 June 2020 at least half the Board
(excluding the Chairman) were not independent.
Going concern
The going concern statement is made on page 38.
Viability
The viability statement is made on page 38. Further details of the
Board’s assessment of the viability of the Company are set out in
Audit, risk and internal control on pages 66 to 68.
Robust assessment of principal risks
The Board has undertaken a robust assessment of the Group’s
emerging and principal risks, including those that would threaten
its business model, future performance, solvency, liquidity and
reputation. Our Annual Report identifies principal risks and
uncertainties on pages 34 to 37 and the procedures followed
to identify these risks on pages 66 to 68.
Review of risk management and
internal control
A continous process for identifying, evaluating and managing the
risks the Company faces has been established. The effectiveness of
the internal control systems are reviewed by the Audit Committee.
Further details are set out in Audit, risk and internal control on
pages 66 to 68.
Fair, balanced and understandable
The Annual Report and Accounts taken as a whole are fair,
balanced and understandable and provide the information
necessary for shareholders to assess the Group’s performance,
business model and strategy. See the Audit Committee report on
pages 69 to 72 for further information on how this conclusion was
reached.
Section 172(1)
A Section 172(1) statement is made on page 39. It provides
cross-references to the required detail set out throughout this
Annual Report.
42 Genel Energy Annual Report 2020
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Governance statements
Application of
UK Corporate Governance
Code Principles
The Code has placed increased emphasis on “apply and explain” with regard to the Principles of the Code. Our explanations about how
we have applied the main principles of the Code can be found as follows:
BOARD LEADERSHIP AND COMPANY PURPOSE
Principle A. A successful company is led by an effective and entrepreneurial board,
whose role is to promote the long-term sustainable success of the company,
generating value for shareholders and contributing to wider society.
> Strategic report pages 1 to 39
> Governance pages 41 to 95
> Directors’ Remuneration Report pages 73 to 90
Principle B. The board should establish the company’s purpose, values and strategy,
and satisfy itself that these and its culture are aligned. All directors must act with
integrity, lead by example and promote the desired culture.
Principle C. The board should ensure that the necessary resources are in place for the
company to meet its objectives and measure performance against them. The board
should also establish a framework of prudent and effective controls, which enable risk
to be assessed and managed.
> Strategic report pages 1 to 39
> Company purpose, values and strategy 10 to 12
> Division of responsibilities pages 54 to 56
> Directors’ Remuneration Report pages 73 to 90
> Sustainability pages 24 to 33
> Principal risks and uncertainties pages 34 to 37
> Section 172 statement page 39
> Audit, risk and internal control pages 66 to 68
> Audit Committee Report pages 69 to 72
Principle D. In order for the company to meet its responsibilities to shareholders and
stakeholders, the board should ensure effective engagement with, and encourage
participation from, these parties.
> Sustainability pages 24 to 33
> Section 172 statement page 39
> Communication with investors page 47
Principle E. The board should ensure that workforce policies and practices are
consistent with the company’s values and support its long-term sustainable success.
The workforce should be able to raise any matters of concern.
> Sustainability pages 24 to 33
> Section 172 Statement page 39
> Directors’ Remuneration Report pages 73 to 90
DIVISION OF RESPONSIBILITIES
Principle F. The chair leads the board and is responsible for its overall effectiveness
in directing the company. They should demonstrate objective judgement throughout
their tenure and promote a culture of openness and debate. In addition, the chair
facilitates constructive board relations and the effective contribution of all non-
executive directors, and ensures that directors receive accurate, timely and clear
information.
Principle G. The board should include an appropriate combination of executive and
non-executive (and, in particular, independent non-executive) directors, such that no
one individual or small group of individuals dominates the board’s decision-making.
There should be a clear division of responsibilities between the leadership of the
board and the executive leadership of the company’s business.
> Division of responsibilities pages 54 to 58
> Division of responsibilities pages 54 to 58
> Board biographies pages 59 to 62
Principle H. Non-executive directors should have sufficient time to meet their board
responsibilities. They should provide constructive challenge, strategic guidance, offer
specialist advice and hold management to account.
> Division of responsibilities pages 54 to 58
Principle I. The board, supported by the company secretary, should ensure that it has
the policies, processes, information, time and resources it needs in order to function
effectively and efficiently.
> Sustainability pages 24 to 33
> Division of responsibilities pages 54 to 58
> Audit, risk and internal control pages 66 to 68
Genel Energy Annual Report 2020
43
Application of UK Corporate Governance Code Principles
COMPOSITION, SUCCESSION AND EVALUATION
Principle J. Appointments to the board should be subject to a formal, rigorous and
transparent procedure, and an effective succession plan should be maintained for
board and senior management. Both appointments and succession plans should be
based on merit and objective criteria and, within this context, should promote diversity
of gender, social and ethnic backgrounds, cognitive and personal strengths.
> Nomination Committee Report pages 64 to 65
Principle K. The board and its committees should have a combination of skills,
experience and knowledge. Consideration should be given to the length of service of
the board as a whole and membership regularly refreshed.
> Board biographies pages 59 to 62
Principle L. Annual evaluation of the board should consider its composition, diversity
and how effectively members work together to achieve objectives. Individual
evaluation should demonstrate whether each director continues to contribute
effectively.
> Nomination Committee Report pages 64 to 65
> Board effectiveness page 58
AUDIT, RISK AND INTERNAL CONTROL
Principle M. The board should establish formal and transparent policies and procedures
to ensure the independence and effectiveness of internal and external audit functions
and satisfy itself on the integrity of financial and narrative statements.
> Audit, risk and internal control pages 66 to 68
> Audit Committee Report pages 69 to 72
Principle N. The board should present a fair, balanced and understandable assessment
of the company’s position and prospects.
Principle O. The board should establish procedures to manage risk, oversee the
internal control framework, and determine the nature and extent of the principal risks
the company is willing to take in order to achieve its long-term strategic objectives.
> Strategic report pages 1 to 40
> Audit, risk and internal control pages 66 to 68
> Audit Committee Report pages 69 to 72
> Financial Statements pages 102 to 123
> Principal risks and uncertainties pages 34 to 37
> Viability statement page 38
> Audit, risk and internal control pages 66 to 68
> Audit Committee Report pages 69 to 72
REMUNERATION
Principle P. Remuneration policies and practices should be designed to support
strategy and promote long-term sustainable success. Executive remuneration should
be aligned to company purpose and values, and be clearly linked to the successful
delivery of the company’s long-term strategy.
> Company purpose, values and strategy pages 10
to 12
> Directors’ Remuneration Report pages 73 to 90
Principle Q. A formal and transparent procedure for developing policy on executive
remuneration and determining director and senior management remuneration should
be established. No director should be involved in deciding their own remuneration
outcome.
Principle R. Directors should exercise independent judgement and discretion when
authorising remuneration outcomes, taking account of company and individual
performance, and wider circumstances.
> Directors’ Remuneration Report pages 73 to 82
> Directors’ Remuneration Report pages 73 to 74
44 Genel Energy Annual Report 2020
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Board leadership and company purpose
Our objective remains to create long-term value for shareholders through the
exploration, development and production of oil and gas resources. We have
low-cost oil producing assets and large-scale gas development assets that are
important to the growth of the KRI. Further information on our business model
can be found on pages 10 to 12.
ACTIVITY HIGHLIGHTS
January
• Approved the trading and operations update
• Board effectiveness review face-to-face meetings held
February
• Appointed David McManus, Sir Michael Fallon, Hasan Gozal and
Tolga Bilgin to the Board of Directors
March
• Reviewed and approved the 2020 Annual Report and Accounts
• Approved the declaration of a 2020 final dividend payment
• Discussed implications of COVID-19 on the business
April
• Discussed the outstanding receivable
• Discussed Bina Bawi PSC
May
• AGM
• Approved a revised 2020 work programme and budget
June
• Appointed Canan Edibo˘glu to the Board of Directors
July
• Discussed Bina Bawi PSC
August
• Reviewed and approved the half-year results statements
• Reviewed stakeholder engagement activities
September
• Reviewed business strategy (including ESG strategy)
• Reviewed the five-year business plan
• Approved the Sustainability Report
• Approved refinancing of the high yield bond
November
• Approved the trading and operations update
December
• Approved the 2021 work programme and budget
• Approved the call of the 2022 high yield bond
The role of the Board
The Board’s role is to provide leadership in delivering on the long-
term success of the Company within a framework of prudent and
effective controls. It is responsible for approving the Company’s
strategy and business plan and keeping under review the financial
and operational resources of the Company. As part of the strategy
review process the Board considered and discussed trends across
the industry, the implications of these trends for the business
including areas of potential opportunities and risks that could
impact the future success of the business. Further information on
our purpose, business model and strategy can be found on pages
10 to 12.
As part of the Company’s governance processes the Board
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. Specific matters reserved for the Board
include setting the Company’s purpose, values, objectives,
business and ESG 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
matters reserved for the Board.
Authorities have been delegated to Board Committees and these
are set out clearly in each Committee’s terms of reference which are
reviewed regularly to ensure they remain appropriate and relevant.
Copies of the terms of reference are available on our website.
The Board of Directors has delegated day-to-day management of
the business to the CEO who operates within delegated authority
limits. The Board reviews the matters reserved for its decision and
the authorities it has delegated 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 General Counsel and Company Secretary 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, and
present regularly to the Board on various aspects of the business.
Genel Energy Annual Report 2020
45
Board Leadership and Company Purpose
Code of conduct
Our code of conduct defines what we stand for as a Company, sets
out the principles that guide all of our business activities and how
we expect our Board, employees, suppliers, partners and others to
behave. In January 2020 the Board adopted a refreshed version of
the code of conduct, a summary of which can be found on page 26
and a full copy is availible on our website. We strive for operational
excellence and aim to conduct our business in a responsible, ethical
and safe manner with high standards of financial reporting,
corporate governance, and compliance with applicable laws.
During 2020, all members of staff received scenario based training
on our refreshed code of conduct and legal compliance. The training
was delivered in small group sessions held via video conference and
facilitated by at least two members of the Executive Committee,
demonstrating the importance the Company places on compliance
with our code of conduct.
Culture
The Board of Directors review and approve key policies including
the Company’s values and code of conduct in order to establish
a tone from the top and ensure they support the long-term
sustainable success of the business. The Board recognises the
importance of monitoring culture throughout the business, in order
to ensure practices and behaviours are aligned with the Company’s
purpose, values and strategy. In order to monitor organisational
culture throughout the year the Board and its Committee’s receive
reports on various topics including organisational effectiveness, the
understanding of culture and values throughout the business,
health and safety, compliance matters, workforce remuneration
and talent development.
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 or company policies without fear of retaliation. We operate
an independently run and confidential ‘SpeakUp’ whistleblowing
hotline for all staff. During the year all staff members were
reminded of the ‘SpeakUp’ facility available to them. All issues
raised via this route are investigated and reported to the full Board.
Market Abuse Regulation
The Board is responsible for taking all proper and reasonable steps
to ensure full compliance with the Market Abuse Regulation,
including ensuring that staff are fully trained and understand their
obligations under the regime.
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 year under review (2019: 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 senior management 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 Company’s conflict of interest policy also requires
our employees to declare any actual or potential conflicts of
interest. The Audit Committee and the Board have applied the
principles and processes set out above during 2020 and confirm
that they have operated effectively.
In addition, on an annual basis the Company Secretary writes to
each of our significant shareholders requesting their co-operation
to identify conflicts of interest and continues to engage with them
to identify any actual or potential conflict of interest that may arise
on an ongoing basis.
Third parties
We maintain high standards of business conduct in our dealings
with all third parties in order to promote mutually beneficial
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.
Engagement with stakeholders
During the year, the Board continued to monitor the Company’s key
stakeholders, their impact on key strategic objectives and how the
Company was engaging with each stakeholder. As well as ad-hoc
updates from management, two annual updates from management on
engagement activity that has been undertaken with the Company’s
key stakeholders are scheduled in the Board calendar. Further
information on stakeholder engagement and how the Board has
complied with s172(1) of the UK Companies Act 2006 can be found
on page 39.
The Group’s code of conduct also 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 in our sustainability section on pages 27 to 28.
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. Further
information on how we engage with communities can be found in
the sustainability section of this report on pages 27 to 28.
46 Genel Energy Annual Report 2020
Board Leadership and Company Purpose
Workforce engagement
The Board recognises the importance of our workforce as a key
component in the Company’s ability to deliver its strategy. Martin
Gudgeon has been appointed as the Designated Independent
Non-Executive Director (‘DINED’) for workforce engagement.
The global pandemic meant that workforce engagement activity
was unable to take place as planned. However, in order to ensure
the employee voice continued to be represented to the Board,
employee engagement surveys were introduced with the results
shared with Martin Gudgeon and regular updates on support
given to the workforce provided to the Board. Following the results
of the employee engagement surveys one of the actions taken
included introducing an employee assistance programme focused
on professional wellbeing support. In addition, throughout the
year, where appropriate, the Executive Committee and their direct
reports were provided the opportunity to present various topics to
the Board or relevant Board Committee for discussion.
Communication with investors
We communicate on a regular basis with our investors via
presentations and calls as part of our annual investor calendar.
We also liaise with them on an ad-hoc basis as and when questions
arise. During the year we also communicated with our bondholders
via calls and scheduled meetings.
In 2020, the Chairman and Independent Non-Executive Directors
held meetings with shareholders in order to discuss the current
position of the business and its future strategy. Our major
shareholders are encouraged to meet with the Chairman to discuss
any matters that they would like to raise outside the formal investor
calendar. We welcome an open dialogue with all our investors.
The Board receives regular investor relations updates covering
key investor meetings and activities, as well as shareholder and
investor feedback.
We also engage with our shareholders via our website at www.
genelenergy.com
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2020 INVESTOR ACTIVITY
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Over 160 institutional meetings held
Q1
1 conference in Oslo
1 conference in London
1 roadshow in London
1 roadshow in Edinburgh
Q2
COVID-19 investor strategy
implemented, focused on
online engagement
Q3
Launch of new investor
website
Publication of Sustainability
Report
2 virtual conferences
Bond refinancing roadshow
Q4
Virtual conference
Virtual presentation alongside
trading update
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2021 AGM
The 2021 AGM will be held on Thursday, 6 May 2021 at 36 Broadway, Victoria, London, SW1H 0BH UK at 11.00am.
The Notice of AGM accompanies this Annual Report and sets out the business to be considered at the meeting.
Both this Annual Report and the Notice of AGM are available on our website at www.genelenergy.com
Genel Energy Annual Report 2020
47
HSSE Committee
Ensuring a focused
approach to HSSE
MEETINGS IN 2020
3 MEETINGS HELD (3 SCHEDULED)
Members
Tim Bushell (Chairman)
David McManus2
Attendance
scheduled1
100%
100%
• • •
• • •
1 Denotes the attendance percentage at scheduled Committee
meetings by each Director
2 David McManus was appointed as a member of the Committee on the
5 February 2020
HSSE COMMITTEE TIME SPENT
PLANNING AND MONITORING
37%
CULTURE
SECURITY
RISK MONITORING
AND MITIGATION
22%
16%
25%
HIGHLIGHTS OF HSSE
COMMITTEE ACTIVITY
• Monitored progress made against the 2020 HSE plan
• Received updates on COVID-19 protocols and controls
• Approved the 2020 corporate KPI’s in relation to HSE
• Reviewed disclosures made in the 2019 Annual Report
in relation to HSSE
• Reviewed key risks in relation to HSE
• Received security updates
• Reviewed CSR activity and budget
• Reviewed progress made against the localisation agenda
48 Genel Energy Annual Report 2020
Dear Shareholder,
I am pleased to present this report from
the HSSE Committee. The health, safety
and security of our workforce, has been
central to the culture of Genel and none
more so than in 2020. Genel’s HSE
policy continues to refl ect international
best practice including, but not limited
to, the IFC Performance Standards
and ICMM Sustainable Development
Framework.
Throughout 2020 at each meeting of the Committee, an update
was provided by management on security in the region and the
progress made against the HSE strategic plan which the Committee
approved at the beginning of the year. In addition, the Committee
was regularly kept abreast of measures and protocols established
to ensure the safety of our workforce and enable critical business
activity to continue in the face of the global pandemic.
In 2020 the HSE plan contained actions in the following areas:
leadership, culture and capability, risk, contractor management,
emergency incident and performance management, operations
management and assurance. During the course of the year
progress was made against each of these areas. Activities
undertaken included designing protocols and systems to ensure
operations in the KRI could continue as the COVID-19 pandemic
progressed. As part of the operations work to reach fi rst oil at
Sarta the HSE team worked closely with Oilserv to ensure the Sarta
production facility met safety requirements before the introduction
of hydrocarbons into the facility. Environmental, social and health
impact assessments were completed, and regulatory approvals
received in preparation for the 2021 drilling campaign at Sarta. The
HSE team also continued preparatory work to enable the drilling of
the QD-2 exploration well at Qara Dagh in 2021. Ongoing health and
safety training was provided for all new fi eld based employees.
HSSE Committee
OBJECTIVE
ACTIONS
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
practices and emerging legal requirements
To assist the Company in maintaining its
relationships with local communities in which it
operates, including through social investment and
sustainable development activities
• Discussed and monitored the approach taken
to ensure the safety of the workforce and
operations in response to the global pandemic
• Supported participation of the Company in
the Carbon Disclosure Project and became a
member of the UN Global Compact
• Reviewed the Company’s GHG Emissions
Management Standard
• Received regular updates on security within the
KRI
• The environmental and social impact arising
from our operations is reviewed regularly
and any areas of concern are reviewed by the
Committee
• Reviewed the Company’s localisation strategy
for the KRI
• Reviewed CSR activity in 2020 and plan for 2021
> See pages 30 to 32
> See pages 27 to 29
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To assist the Board and other committees
in assessing HSSE risks and their effective
management in determining, implementing and
reviewing the Company’s HSSE strategy and
processes
• Risks allocated to the Committee under the risk
management system are reviewed in detail and
a report provided to the Audit Committee on
the effectiveness of the HSSE controls and risk
mitigation processes
> See page 37
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To ensure the quality of the Company’s
reporting and disclosure (both internally and to
shareholders) in relation to HSSE matters
To assist the Company in developing the HSSE
culture
• Monitored performance against the HSE KPI
> See pages 13 and 32
targets and LTI targets
• Reviewed and monitored the GHG emissions
output and disclosure made in the Annual
Report within the sustainability section
• Received regular updates on the approach
to safety culture and security across the
organisation
• Provided feedback to the Remuneration
Committee on the HSE performance elements of
the 2020 annual bonus performance targets
> See page 30 to 31 and 85
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During the year the Committee monitored progress against the
Company’s environmental, social and governance implementation
plan. This included participation in the Carbon Disclosure Project
and becoming a signatory to the UN Global Compact. In September
2020 the Company published a standalone Sustainability
Report, which was prepared in accordance to Global Reporting
Initiative (GRI) Standards core option. The Sustainability Report
illustrates the key values that continue to drive decision making
within the business and support the delivery of Genel’s strategy.
The Committee also reviewed the Company’s GHG Emissions
Management Standard that is aligned to the focus on developing
low-cost and low carbon producing assets which was subsequently
approved by the Board of Directors in January 2021.
In line with the UK’s Streamlined Energy and Carbon reporting
requirements our greenhouse gas emissions in 2020 are being
reported using an equity share approach for the first time. Further
information can be found on page 32.
In line with the Company’s commitment to developing local
capability in the countries in which it operates the Committee
reviewed the progress made in 2020 against our localisation
agenda. Further information on activities undertaken by the
Company as a socially responsible contributor to the global energy
mix can be found on pages 27 to 33.
In recognition of the importance of HSE to our business the 2020
annual bonus objectives contain an element specifically allocated
to HSE. The Committee reviewed progress against the 2020 HSE
objectives and made recommendations to the Remuneration
Committee on these elements, the details of which may be found
on page 85 of the Annual Report on Remuneration.
The HSSE Committee effectiveness for the year ending 31
December 2020 was reviewed as part of the wider Board
effectiveness Review, details of the Board effectiveness review
can be found on page 58. The Committee also reviews its terms of
reference annually, which can be viewed at www.genelenergy.com.
Tim Bushell
Chair, HSSE Committee
Genel Energy Annual Report 2020
49
International
Relations
Committee
Monitoring external
developments
Dear Shareholder,
I am pleased to present the fi rst
report of the International Relations
Committee. The purpose of the
Committee is to provide oversight to
external developments and risks that
may impact Genel’s activities.
Genel operates in an area of perceived high political risk, and
the ongoing success of the Company is interlinked with a clear
understanding of the political environment for the natural
resources industry in both the KRI and other jurisdictions.
The Board has members with signifi cant regional, international, and
political experience, and this provides the International Relations
Committee with a breadth of knowledge that can be brought to
bear on the latest political developments in the regions in which
Genel operates. In turn, this supports the delivery of a successful
strategy.
The Committee held three meetings during the year and received
regular reports between meetings on developments within the KRI
and Federal Iraq and the possible implications for the business.
Given the global and wide-ranging impact of COVID-19 in 2020, the
Committee also closely monitored the implications of the pandemic
on the KRI and Federal Iraq in respect of the wider implications
on the business. These included the operating environment, fi scal
impact, and the receipt of monthly payments for exports.
Following the US election, the Committee also considered possible
policy changes the new administration may bring forward to foreign
policy, trade policy and climate change agenda which may in turn
have a wider impact on the region and our industry.
During the year, the Committee reviewed enhancements proposed
by management to the Company’s political risk policy and
procedures. The Committee also considered the Company’s key
external stakeholders in relations to the strategic objectives.
As part of its remit, the Committee reviewed each of the risks
allocated to it under the Company’s risk management system,
including the effectiveness of the controls and mitigations in place.
MEETINGS IN 2020
3 MEETINGS HELD (3 SCHEDULED)
Members
Rt Hon Sir Michael
Fallon (Chairman)
Hassan Gozal
Tolga Bilgin
Canan Edibog˘lu2
David McManus
George Rose
Attendance
scheduled1
100%
100%
100%
100%
100%
100%
• • •
• •
• • •
• •
• • •
• • •
1 Denotes the attendance percentage at scheduled Committee
meetings by each Director
2 Canan Edibog˘lu appointed to the Committee on 21 June 2020
INTERNATIONAL RELATIONS
COMMITTEE TIME SPENT
9%
MACRO ENVIRONMENT
22%
68%
EXTERNAL RISKS
GOVERNANCE
HIGHLIGHTS OF INTERNATIONAL RELATIONS
COMMITTEE ACTIVITY
• Reviewed and monitored political developments within the
regions in which the Company operates
• Reviewed key risks including prevention and mitigation
controls relevant to international relations
• Reviewed the political risk policy and procedures
• Discussed external stakeholder engagement
• Considered implications of the new US Administration for
US foreign policy, trade policy and climate change agenda
50 Genel Energy Annual Report 2020
International Relations Committee
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Distribution of Wonderbags,
Somaliland
OBJECTIVE
ACTIONS
To monitor and review political developments in
the regions in which the Company operates
• Received regular reports on political
developments within Iraq, Middle East and USA
To provide an independent assessment of the
external environment in respect of international
relations as it affects the Company and decision
making by the Board
• Received reports and reviewed potential
implications for external political events on
the Company and the industry within which it
operates
To review the quality of the Company’s reporting in
relation to political risk and controls
• Reviewed disclosures contained with the Annual
> See pages 35 to 37
Report
• Reviewed in detail risks allocated to the
Committee under the risk management system
and reported the effectiveness of these controls
and risk mitigation processes to the Audit
Committee
In the year ahead, the Committee will continue to draw on the
extensive international experience of Genel’s Board members to
provide an independent assessment of the external environment
in respect of international relations as they affect the business and
impact decision making by the Board.
The International Relations Committee has detailed terms of
reference which can be viewed at www.genelenergy.com. As part
of the Company’s governance practices, an effectiveness review
for the year ending 31 December 2020 was completed as part of
the wider Board Effectiveness Review, further details of this can
be found on page 58.
Rt HON Sir Michael Fallon
Chair, International Relations Committee
Genel Energy Annual Report 2020
51
Reserves
Committee
Ensuring a robust
reserves and
resources process
Dear Shareholder,
I am pleased to present this report from
the Reserves Committee. The objective
of the Committee is to provide oversight
of the assessment of the Company’s
reserves and resources.
As part of the Committee’s work ahead of approving the 2020
annual reserves and resources statement, the Committee
received and considered reports from management, and external
independent reserves evaluators.
The Committee reviewed assessment from DeGolyer and
MacNaughton on the Tawke and Peshkabir licences at which Genel
has a 25% working interest. The Committee also considered the
positive impact of the Enhanced Oil Recovery project at the Tawke
fi eld and agreed that pending further work on the project the 23
MMbbls of 2P and 45 MMbbls of 3P gross reserves that DeGolyer
and MacNaughton previously included in their fi gures would
continue to be maintained as 2C and 3C resources by Genel. The
Committee reviewed an assessment of the Taq Taq licence at which
Genel has a 44% working interest an assessment performed by
McDaniel & Associates. The outcome of this assessment resulted in
a downward revision of gross 2P reserves by 8 MMbbls as a result
of a reduction to the number of wells planned for the future, and
their associated expected productivity. Further information on our
reserves and resources can be found on page 21.
In September 2020, the Reserves Committee held a meeting
during which asset development plans were presented to the
Committee by each of the Asset Managers. The asset level strategy,
opportunities and risks were reviewed by the Committee for
each of the Company’s assets. The annual review of each asset
development plan enables the Committee to scrunitise the way
forward to monetise value from each of our assets. A separate
meeting of the Committee was also held during which a deep dive
into the Company’s assets in Somaliland was discussed.
MEETINGS IN 2020
5 MEETINGS HELD (3 SCHEDULED, 2 AD-HOC)
Members
Tim Bushell (Chairman)
David McManus2
Bill Higgs
Attendance
scheduled1
100%
100%
100%
• • • • •
• • • • •
• • • • •
1 Denotes the attendance percentage at scheduled Committee
meetings by each Director
2 David McManus was appointed to the Committee on 5 February 2020
RESERVES COMMITTEE TIME SPENT
RESERVES AND RESOURCES
GOVERNANCE
ASSET DEVELOPMENT
PLANS
47%
50%
3%
HIGHLIGHTS OF RESERVES COMMITTEE
ACTIVITY
• Reviewed the reserves and resources for each of the
Company’s assets
• Approved the 2019 reserves and resources statement
• Review of disclosures made in the Annual Report in
relation to reserves and resources
• Reviewed asset development plans for each asset
• Reviewed each Independent Qualifi ed Reserves Evaluator
• Deep dive performed on Somaliland assets
52 Genel Energy Annual Report 2020
Reserves Committee
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Site visit, Sarta
OBJECTIVE
ACTIONS
To increase shareholder confidence by ensuring a
robust reserves and resources review process
• Reviewed the reserves and resources
> See page 21
assessment procedure
• Review asset development plans for each of the
operated and non operated assets
To review the Company’s statement of reserves,
independent reserves evaluators reports and any
material changes in reserves volumes
• Approved the Company’s annual statement of
reserves and resources
• Reviewed the independent reserves evaluator
> See page 21
> See page 52
reports
To review the qualification and independence of
the independent qualified reserves evaluator
• Endorsed the appointment of each of the assets
> See page 52
reserves evaluator
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The Reserves Committee has detailed terms of reference which can
be viewed at www.genelenergy.com and, as part of the Company’s
governance practices, an effectiveness review of the Committee
for the year ending 31 December 2020 was completed as part of
the wider Board Effectiveness Review, further details of this can
be found on page 58.
Tim Bushell
Chair, Reserves Committee
Genel Energy Annual Report 2020
53
Division of responsibilities
Independence of the Board
The Independent Non-Executive Directors Tim Bushell, Canan
Edibog˘lu, Sir Michael Fallon, Martin Gudgeon and George Rose are
responsible for ensuring an appropriate challenge of management
and the decisions of the Board. David McManus (as Chairman)
was considered independent at the time of his appointment. The
Independent Directors and the Chairman meet regularly in a
private session after Board meetings and on other occasions.
The Non-Executive Directors who are not considered independent
are Tolga Bilgin and Hassan Gozal who were both appointed on
5 February 2020 and Nazli K. Williams who has been nominated
for appointment to the Board by Focus Investments Limited in
accordance with the relationship agreement between the Company
and Focus.
Roles and responsibilities
We believe that it is important to ensure that there is a clear division of roles between the Chairman, Chief Executive Officer and Senior
Independent Director of the Company.
Bill Higgs
Chief Executive Officer
Bill Higgs 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 senior management and
succession planning for executive positions.
Sir Michael Fallon
Deputy Chairman and
Senior Independent
Non-Executive Director
Sir Michael Fallon is the Deputy Chairman
and Senior Independent Director. Sir
Michael Fallon is available to shareholders
who have concerns that cannot be
addressed through the normal channels
of the Chairman or the Chief Executive
Officer. He acts as a sounding board for the
Chairman and an intermediary for other
Directors if and when necessary.
David McManus
Chairman
David McManus 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 60.
54 Genel Energy Annual Report 2020
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Division of responsibilities
THE BOARD - OUR COMMITTEE STRUCTURE
BOARD OF DIRECTORS
Audit Committee Remuneration
Committee
Nomination
Committee
HSSE Committee
Reserves
Committee
International
Relations
Committee
Ensuring
integrity and
objectivity
of published
financial
information
Ensuring an
appropriate
approach to
remuneration
that supports
delivery of
the business
strategy
Ensuring the
continuation of
a high calibre
Board
Ensuring a
responsible
and credible
approach to
HSSE
Ensuring a
robust reserves
review process
Monitoring
external
developments
Chairman:
George Rose
Chairman:
Martin Gudgeon
Chairman:
David McManus
Chairman:
Tim Bushell
Chairman:
Tim Bushell
Chairman:
Sir Michael Fallon
Members:
Canan Edibog˘lu
Martin Gudgeon
Members:
Sir Michael Fallon
George Rose
Members:
Tim Bushell
Sir Michael Fallon
George Rose
Canan Edibog˘lu
Members:
David McManus
Members:
David McManus
Bill Higgs
Meetings in
2020:
4 scheduled
>Read more
page 69
Meetings in
2020:
6 scheduled
4 ad hoc
>Read more
page 73
Meetings in
2020:
2 scheduled
2 ad hoc
>Read more
page 64
Meetings in
2020:
3 scheduled
>Read more
page 48
Meetings in
2020:
3 scheduled
2 ad hoc
>Read more
page 52
Members:
David McManus
Tolga Bilgin
Canan Edibog˘lu
Hassan Gozal
George Rose
Meetings in
2020:
3 scheduled
>Read more
page 50
BOARD ATTENDANCE
MEMBER
SCHEDULED MEETINGS
AD-HOC MEETINGS
% ATTENDED THROUGHOUT
THE YEAR7
DAVID McMANUS1
SIR MICHAEL FALLON2
BILL HIGGS
ESA IKAHEIMONEN
TOLGA BILGIN3
TIM BUSHELL
CANAN EDIBOG˘LU4
HASSAN GOZAL5
MARTIN GUDGEON
GEORGE ROSE6
NAZLI K. WILLIAMS
6/6
6/6
7/7
7/7
6/6
7/7
4/4
4/6
7/7
7/7
7/7
12/12
12/12
13/13
13/13
11/12
13/13
6/6
10/12
12/13
13/13
13/13
100%
100%
100%
100%
94%
100%
100%
78%
94%
100%
100%
1. David McManus was appointed as Non-Executive Director and Chairman on 5 February 2020
2. Sir Michael Fallon was appointed as Senior Independent Non-Executive Director and Deputy Chairman on 5 February 2020
3. Tolga Bilgin was appointed as Non-Executive Director on 5 February 2020
4. Canan Edibog˘lu was appointed as an Independent Non-Executive Director on 21 June 2020
5. Hassan Gozal was appointed as Non-Executive Director on 5 February 2020
6. George Rose stepped down as Interim Chairman on 5 February 2020
7. Denotes the attendance percentage at scheduled and ad-hoc Board Meetings by each Director
Genel Energy Annual Report 2020
55
Division of responsibilities
Meetings of the Board
During the year the Board held twenty meetings in total of
which thirteen were in addition to those scheduled. Due to
the global COVID-19 pandemic and restrictions placed on
gatherings of groups of individuals throughout the year, face-
to-face meetings of the Board of Directors could only be held
in January, March and September, each of the other meetings
was held virtually.
There are detailed agendas for each Board meeting which
are developed by the Chairman, the CEO and the Company
Secretary. The Board also has an annual rolling agenda that
sets out the key topics for consideration at each meeting.
In addition to the scheduled meetings of the Board, Directors
receive updates from management in-between meetings on the
performance of the business against the agreed strategy and
on its operations.
Operation of the Board
The Chairman is responsible for ensuring that the Board
operates effectively. The Non-Executive Directors provide
scrutiny and oversight to hold account the performance of
management and Executive Directors. The Board operates
within 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.
Board Committees
The Board has established six committees: the Audit
Committee, the Remuneration Committee, the Nomination
Committee, the Health, Safety, Security and Environment
Committee, the Reserves Committee and the International
Relations Committee.
Each Committee has adopted terms of reference under which
authority is delegated by the Board and copies of which are
available at www.genelenergy.com. The Audit Committee,
Remuneration Committee and Nomination Committee consists
only of Independent Non-Executive Directors. David McManus,
who was independent upon his appointment as Chairman,
chairs the Nomination Committee.
BOARD TIME SPENT (%)
BUSINESS STRATEGY
FINANCE
CORPORATE
GOVERNANCE AND
RISK MANAGEMENT
PROJECTS
44%
17%
15%
24%
56 Genel Energy Annual Report 2020
Composition, succession and evaluation
A strong Board with demonstrable skills
and experience in international oil and
gas markets
TOTAL NUMBER OF
DIRECTORS:
11
BOARD COMPOSITION:
Independent Directors: (6)
55%
Non-Independent Directors: (3)
27%
Executive Directors: (2)
18%
INTERNATIONAL
DIVERSITY:
Number of Directors
British
Finnish
Swiss
Turkish
Azerbaijani
6
1
1
2
1
SKILLS AND EXPERIENCE
OF THE BOARD:
Number of Directors
Oil and gas
Managing and leading
Governance
Financial capital markets
6
11
8
5
5
6
6
HSSE
Remuneration
Foreign affairs
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Board composition
There are eleven directors on the Board, of whom two are
Executives and nine (including the Chairman) are Non-Executive.
Five (excluding the Chairman) are independent under the Code. In
addition the Chairman who was independent on appointment and
three Shareholder representative Directors are not considered
independent.
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 high 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.
All Directors are required to devote suffi cient time and demonstrate
commitment to their role. Further details of the Directors’ skills and
experience are set out on pages 57 to 62 of this Annual Report.
Genel Energy Annual Report 2020
57
Composition, succession and evaluation
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. Following her appointment to the Board
Canan Edibog˘lu received a full and comprehensive induction to the
operations, processes, policies and procedures across the business.
The induction included a comprehensive schedule of meetings
during June and July 2020. Due to COVID-19 restrictions the
induction was completed virtually. The Board induction programme
also includes new Directors visiting each of the Company’s offices
in London, Ankara and in the KRI. Due to travel restrictions during
2020 it was not possible to complete this aspect of the induction,
it is intended that each of these visits will be arranged as travel
restrictions ease.
As part of the ongoing training and development programme
throughout the year training on specific topics including the code
of conduct and Market Abuse Regulations were scheduled into the
Board calendar. It is intended that this programme will continue
throughout 2021.
Board effectiveness
The Board engaged independent advisors Russell Reynolds to
facilitate an evaluation of the Board’s effectiveness during 2020.
The previous two Board evaluations were conducted internally by
the Chairman, with the last external evaluation being conducted
in 2017. The scope of the evaluation covered performance of the
Board, its Committees and the Directors. The external evaluation
considered strategic, risk and ESG oversight; composition including
an assessment of the balance of skills, experience, diversity,
independence and knowledge of the company; functioning of Board
processes and meetings and the quality of materials presented
and Board culture and behaviors. As part of the Board evaluation
Russell Reynolds conducted an electronic survey among Board
members, held one-to-one virtual meetings with each member of
the Board and the Executive Team and an external audit partner
and a broker, and were invited to observe a Board meeting. Russell
Reynolds was also engaged by the Nomination Committee at
the beginning of the year to undertake a comprehensive search
process for the appointment of a new Independent Non-Executive
Director. Russell Reynolds has no other connection with the
Company or any of its individual Directors.
OUTPUT FROM THE 2020 EFFECTIVENESS REVIEW
Overall, the 2020 Board effectiveness review concluded that the Board functions well and each of its Committees was effective
with strong leadership and engagement, allowing adequate time to discuss areas within their remit. An independent review of the
performance of each of the Directors was undertaken by Russell Reynolds.
Following these performance reviews, the Board considers that each of the Directors continues to make an effective and valuable
contribution and demonstrates their commitment to the role. It is the Board’s intention to continue to review its performance annually
including that of its Committees and individual Directors. Accordingly, the Board recommends the election/re-election of each Director
with the exception of George Rose who will stand down as a Director at the Company’s forthcoming AGM.
The key actions arising from the effectiveness review are:
Board dynamics
To ensure adequate communication among Board Directors. The Board of Genel appointed five
new Directors in 2020 including the Chairman and to an extent the board is still forming as a
team. The pandemic has further complicated the Board’s ability to meet in person.
Long-term strategy
To create further alignment on long-term strategy and risk appetite, especially on the way the
growth strategy is implemented.
Talent management and succession
To review succession plans to ensure they are appropriate and support development of a
diverse pipeline of executives.
ACTIONS TAKEN FOLLOWING THE 2019 EFFECTIVENESS REVIEW
Strategy
Risk
Effectiveness
During the year, the Board of Directors continued to focus on executing the Company’s strategy,
including arranging a two day meeting focused on strategy. Key topics of focus continued to be
monetisation of Bina Bawi, monitoring progress ahead of achieving first oil at Sarta, refinancing
of the high yield bond and progress against our ESG strategy, including the publication of our
Sustainability Report in September 2020.
During the year the Board of Directors undertook regular reviews of the Company’s risk register
and a deep dive into ‘process safety incident’ was conducted. The Board will continue to
perform deep dives into specific risks throughout 2021.
Following changes to the Board composition in 2020 with the appointment of five new Non-
Executive Directors and moving to an environment of virtual board meetings the effectiveness
of the Board was closely monitored and Russell Reynolds were asked to provide an external
perspective as part of the 2020 review.
58 Genel Energy Annual Report 2020
Composition, succession and evaluation
Board of Directors
1.
4.
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2.
5.
8.
10.
11.
3.
6.
9.
1. David McManus
2. Bill Higgs
3. Esa Ikaheimonen
4. Rt Hon Sir Michael Fallon KCB
5. George Rose
6. Canan Edibog˘lu
7. Martin Gudgeon
8. Tim Bushell
9. Hassan Gozal
10. Ümit Tolga Bilgin
11. Nazli K Williams
59
Strategic reportGovernanceFinancial statementsOther informationGenel Energy Annual Report 2020
Composition, succession and evaluation Board of Directors
2. Bill Higgs (56)
Chief Executive Officer
Appointed
As an Executive Director and Chief
Executive Officer on 7 April 2019.
Committee memberships
Member of the Reserves Committee.
Key skills and experience
Bill has more than 30 years of global
exploration, development and operations
experience, including nearly ten years
in executive roles for independent E&P
companies. He is a qualified geologist with
extensive expertise in all engineering and
other technical and commercial aspects of
hydrocarbon development and production.
Bill joined Genel as Chief Operating
Officer in 2017 where he was responsible
for delivering all aspects of the asset
lifecycle. Prior to joining Genel, he was
Chief Operating Officer for Ophir Energy
plc, he was responsible for managing the
global asset portfolio. Prior to joining Ophir
he was CEO of Mediterranean Oil and
Gas, overseeing the successful sale of the
company in 2014. Bill previously spent 23
years at Chevron across a number of global
roles.
Current external appointments:
None.
Previous relevant experience
Between August 2014 and July 2017 Bill
was a director of Ophir Energy plc, and an
Independent Non-Executive Director of
San Leon Energy from 2018 to 2020.
1. David McManus (67)
Chairman
Appointed
5 February 2020.
Committee memberships
Chairman of the Nomination Committee
and member of the HSSE, Reserves and
International Relations Committees.
Key skills and experience
David has vast experience as an international
business leader in the energy sector with
strong technical and commercial skills. He
has over 40 years in technical, commercial,
business development, general management
and executive roles across all aspects of
the oil & gas and energy business, spanning
most regions of the world.
Current external appointments
David is currently serving as a Non-Executive
Director for a number of listed companies
including Hess Corporation, a large,
integrated US oil and gas company; and
FlexLNG, a Norwegian-listed LNG shipping
company.
Previous relevant experience
Between May 2014 and May 2020, David
was a Non-Executive Director on the Board
of Costain Group PLC. David retired as a
Non-Executive Director from the Board of
Rockhopper Exploration plc in May 2019,
where he served as Chairman from 2016 to
2019. Other past Directorships include
Costain plc, Caza Oil & Gas Inc and Cape
plc, where he served as Chairman from
2006 to 2008. David’s earlier career
consisted of a number of executive
positions including at Pioneer Natural
Resources, where he was executive vice
president for international operations, BG
Group, Atlantic Richfield Company (ARCO),
LASMO plc, and Shell UK.
3. Esa Ikaheimonen (57)
Chief Financial Officer
Appointed
As Chief Financial Officer on 3 July 2017
and as an Executive Director on 7 April
2019.
Key skills and experience
Esa has over 25 years of oil and gas
industry experience, most recently as CFO
of publicly listed offshore drilling companies
Transocean and Seadrill. Prior to that, he
had a c.20 year career at Royal Dutch Shell.
Esa holds a Masters Degree in Law from the
University of Turku, specialising in tax law
and tax planning.
Current external appointments
Senior Independent Director and Chairman
of the Audit Committee of Independent Oil
and Gas plc. Esa is also the Non-Executive
Chairman of Lamor Corporation, a leading
environmental service company.
Previous relevant experience
Between February 2016 and August 2018
Esa was a director of Vantage Drilling
International, he was Chairman of
Transocean Partners plc from April 2014 to
June 2015, and Non-Executive Director of
Ahlstrom plc from April 2011 to April 2015.
60 Genel Energy Annual Report 2020
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Composition, succession and evaluation Board of Directors
4. Rt Hon Sir Michael Fallon
KCB (68)
Senior Independent Non-Executive
Director and Deputy Chairman
Appointed
5 February 2020.
Committee memberships
Chairman of the International Relations
Committee and member of the
Remuneration Committee and Nomination
Committee.
Key skills and experience
Sir Michael is a former UK Defence
Secretary with 30 years of senior political
and business experience, serving in four
British Cabinets, and as a Non-Executive
Director on City and commercial boards.
Current external appointments
Sir Michael is currently a member of the
International Advisory Board of Investcorp,
an alternative investment management
company; Chairman of Avanton Ltd (a
property development firm) and Deputy
Chairman of Nova Innovation Ltd (tidal
stream energy).
Previous relevant experience
Sir Michael was Energy Minister in the UK
Government from 2013-2014: responsible
for oil, gas, electricity, nuclear and
renewables.
5. George Rose (68)
Independent Non-Executive
Director
6. Canan Edibog˘lu (65)
Independent Non-Executive
Director
Appointed
2 June 2011.
Appointed
21 June 2020.
Committee memberships
Chairman of the Audit Committee and
member of the Remuneration Committee,
Nomination Committee and International
Relations Committee.
Key skills and experience
George brings with him recent and relevant
financial experience. Until March 2011
George served as the Group Financial
Director and member of the Board of BAE
Systems plc a position he held for 13 years.
George is also a Fellow of the Chartered
Institute of Management Accountants and
has a wealth of experience in governance
to draw on from his former appointment
as Non-Executive Chairman of the Audit
Committee of Laing O’Rourke plc amongst
other appointments.
Current external appointments
George is the Senior Independent Non-
Executive Director of Experian plc and on
16 February 2016 George was appointed
as a Non-Executive Director of EXPO 2020
LLC.
Previous relevant experience
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. 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.
Committee memberships
Member of the Audit Committee, the
International Relations Committee and the
Nomination Committee.
Key skills and experience
Canan has significant financial, corporate
and industry experience. She had almost
30 years’ experience at Royal Dutch Shell,
culminating in her role as the country chair
and CEO of Shell Turkey between 2001 and
2009. Prior to this she was the CFO of Shell
Turkey, preceded by a series of positions at
the company across numerous aspects of
the business, notably marketing, treasury
and planning. Since leaving Shell, Canan has
advised a number of companies including
Accenture, Maersk and APM Terminals in
developing their businesses in Turkey.
Current external appointments
Canan is a Non-Executive Director of ING
Bank and Tupras¸ in Turkey, since 2010 and
2017 respectively.
Previous relevant experience
Between 2011 and 2017 Canan was a
Non-Executive Directorship of Aygaz, a
Turkish LPG marketing and distribution
company, and between 2013 and 2019
a Non-Executive Director of Prysmian
Turkey. Canan is the former President of
PETDER (Turkish Association of Petroleum
Industrialists) and Chair of the Oil Industry
Council Turkish Union of Chambers and
Commodity Exchanges and board member
of WWF. She is also an active member of
various NGOs, and is a board member of
the Turkish Autism Society, the Global
Relations Forum, and Embarq where she
was previously Chairperson for five years –
the Centre for Sustainable Transport.
Genel Energy Annual Report 2020
61
Current external appointments
Since 2006 Tolga has been serving as
the Chairman of the Wind Power and
Hydropower Plants Businessmen’s
Association and was also appointed as
Deputy Chairman of Turkish Electricity
Producers Association in 2018.
11. Nazli K Williams (43)
Non-Executive Director
Appointed
21 November 2011.
Key skills and experience
Nazli has experience in managing and
leading large corporations. Between 2004
and August 2014 Nazli 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.
Previous relevant experience
Until 2013 Nazli was also a board member
of Turkcell lletis¸im Hizmetleri A.¸S a leading
GSM operator in Turkey. Turkcell’s shares
trade on the Istanbul (IMKB) and New York
Stock Exchanges (NYSE).
Composition, succession and evaluation Board of Directors
7. Martin Gudgeon (54)
Independent Non-Executive
Director
Appointed:
11 September 2017.
Committee memberships:
Chairman of the Remuneration Committee
and member of the Audit Committee.
Key skills and experience:
Martin Gudgeon has significant financial
and corporate experience, and is a Partner
at PJT Partners. Prior to joining PJT
Partners he worked at Blackstone for
eight years, serving as a Senior Managing
Director, and was the Chief Executive at
Close Brothers Corporate Finance. Before
that, he was at Hill Samuel, including two
years on secondment to Macquarie Bank in
Sydney, Australia.
Current external appointments:
None.
8. Tim Bushell (61)
Independent Non-Executive
Director
Appointed
11 September 2017.
Committee memberships
Chairman of the HSSE and Reserves
Committees, and member of the
Nomination Committee.
Key skills and experience
Tim Bushell is a qualified geologist with
over 38 years’ experience working in
the oil and gas sector. He has worked at
British Gas, Ultramar, LASMO, and Paladin
Resources. Most recently Tim spent a
decade as Chief Executive Officer at
Falkland Oil and Gas Limited, and was co-
founder of Core Energy AS.
Current external appointments
Tim is a Non-Executive Director and Deputy
Chairman at Wentworth Resources, and
Non-Executive Director at Petro Matad and
Sval Energi AS.
9. Hassan Gozal (50)
Non-Executive Director
Appointed
5 February 2020.
Committee memberships
Member of the International Relations
Committee.
Key skills and experience
Hassan Gozal has significant international
business experience in the energy,
oil & gas, construction and property
development sectors as well as with public
private partnership (PPP) projects in
the healthcare sector. Hassan is the sole
owner and Chairman of Daax Corporation
FZE. Through his current roles and
previous positions, Hassan brings regional
knowledge and an understanding of
business development to the Board.
Current external appointments
Hassan is currently the owner and
Chairman of Santevita Healthcare Limited,
a company recently set up to develop new
health initiatives in Iraq and the Middle
East; Kuraz Enerji Ltd, an energy production
business in Iraq; Daax Construction MMC, a
construction company; and Ocean Energy
FZE, an oil trading company.
10. Ümit Tolga Bilgin (46)
Non-Executive Director
Appointed
5 February 2020.
Committee memberships
Member of the International Relations
Committee.
Key skills and experience
Tolga Bilgin has current experience within
the energy sector as CEO and Deputy
Chairman of Bilgin Enerji Yatirim Holding
A.S. and has held this position since
2014. Bilgin Energy is one of the largest
companies within the Turkish energy
sector. Through his current role and various
positions held at Bilgin Energy managing
the development, financing and execution
of wind, hydro and thermal energy projects,
Tolga brings experience in management,
leadership, M&A and project financing to
the Board.
62 Genel Energy Annual Report 2020
Composition, succession and evaluation
Executive Committee
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4.
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5.
3.
6.
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3. Stephen Mitchell
General Counsel
Stephen Mitchell has practiced as a lawyer
for over 35 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.
4. Pars Kutay
Head of Government & Public
Affairs
Pars Kutay joined Genel in December
2010. Pars is responsible for developing,
co-ordinating and implementing policies
on government and public affairs as
regards 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.
1. Mike Adams
Technical Director
Formerly Head of Exploration and New
Business, Mike was appointed as Technical
Director on 1 June 2019, with responsibility
for all pre-production activities relating to
exploration, appraisal, and new business,
as well as the subsurface department.
Mike has 28 years of experience in the
oil and gas industry in a wide variety
of exploration, exploitation and global
business development roles. Prior to joining
Genel in 2012, Mike worked in a series
of technical and leadership positions for
companies including British Gas, Amerada
Hess, Gulf Keystone Petroleum and Sterling
Energy. Mike holds a MSc in Petroleum
Geology from Imperial College London and
is a Fellow of the Geological Society.
2. Paul Weir
Chief Operating Officer
Paul joined Genel as Chief Operating Officer
in January 2020, with responsibility for all
production assets and functional leadership
of the operational disciplines. Paul has
worked for more than 30 years in upstream
E&P having spent time in the North Sea,
South East Asia and Africa with experience of
onshore and offshore Oil and Gas Operations.
Before joining Genel, Paul was Group Head of
Operations and Safety at Tullow Oil. Prior to
that Paul spent 13 years at Talisman, where
he was VP Production & Exploration, leading
Operations in Malaysia. Before that Paul
worked in a variety of Operational roles for
Nippon Oil, Elf, Occidental and Total. Paul
holds an MBA in Oil & Gas Management from
Robert Gordon University in Aberdeen.
5. VK Gupta
Head of HSE and Risk Management
Previously Genel’s Head of HSE, VK
was appointed Head of HSE and Risk
Management on 1 June 2019. VK has 30
years of experience in oil and gas industry.
Immediately prior to joining Genel, he was
Vice President for HSSE for BG Group, UK.
At the beginning of his career he worked
with ONGC and Enron Oil & Gas at offshore
oil and gas platforms in operational roles
across projects, maintenance and production
for twelve years and became an offshore
installation manager. Then he moved to HSSE
management and worked in India, UK, North
Africa and South America for BG Group
delivering transformational performance
improvement. VK holds a B.Tech Honours
in Electrical Engineering and an MBA from
Indian Institute of Technology.
6. Berna Özkoç Öztınaz
Chief HR Officer
Berna joined Genel in June 2020, and has
over 20 years of HR experience. Her most
recent role was Chief Human Resources
Officer at DeFacto. She has been Chairman
and Executive Board Member of PERYON
(People Management Association of
Turkey) and Board Member of European
Association of People Management since
2019. Prior to DeFacto, she worked at
STFA Holding for 3 years as Strategy and
Human Resources Chief Officer. She spent
11 years at ENERJISA, where she held
number of leading HR roles and was the
Board Member of AYEDAS and BASKENT
Electricity Distribution Companies. She
previously worked at KORDSA and TURSAB.
Genel Energy Annual Report 2020
63
Nomination
Committee report
Ensuring a high
calibre Board
Dear Shareholder,
I am pleased to present this report
from the Nomination Committee. The
purpose of the Committee is to help the
Board discharge its responsibilities by
leading the process for appointments,
ensuring plans are in place for orderly
succession to both the board and senior
management positions, and overseeing
the development of a diverse pipeline
for succession.
In discharging its duties, the Committee keeps in mind the need to
align the Board’s composition with the Company’s strategy and to
ensure the Board has the necessary skills to ensure the Company’s
long-term success. As part of its work, the Committee assists the
Board in ensuring that it consists of high calibre individuals whose
background, skills, experience and personal characteristics will
augment the present Board and meet its future needs.
As part of the Company’s commitment to return the Board to an
equal balance of independent versus non-independent directors,
the Committee spent time considering which additional skills and
experience were required around the boardroom in order to ensure
the Board as a whole contained the appropriate experience and
skills to deliver the Company’s strategy. The Company’s strategic
priorities, main trends and factors affecting the long-term success
and future viability of the Company were taken into consideration.
George Rose completed nine years as a member of the Board of
Directors and Audit Committee Chair in June 2020, in order to
prepare for his eventual retirement from the Board of Directors the
Committee agreed to focus the search for a new Independent Non-
Executive Director on an individual who had relevant fi nancial and
industry experience.
MEETINGS IN 2020
4 MEETINGS HELD (2 SCHEDULED, 2 AD-HOC)
Members
David McManus2
(Chairman)
Tim Bushell
Rt Hon Sir Michael Fallon2
Canan Edibog˘lu 3
George Rose
Attendance
scheduled1
100%
100%
100%
n/a
100%
• • •
• • • •
• • •
n/a
• • • •
1 Denotes the attendance percentage at scheduled Committee
meetings by each Director
2 David McManus and Sir Michael Fallon were appointed to the
Committee on 10 March 2020
3 Canan Edibog˘lu was appointed to the Committee on 17 March 2021
NOMINATION COMMITTEE TIME SPENT
SUCCESSION
GOVERNANCE
9%
38%
25%
38%
62%
25%
HIGHLIGHTS OF NOMINATION
COMMITTEE ACTIVITY
• Discussed Board succession planning; including the key
skills and experience around the Board
• Conducted a search for a new Independent Non-Executive
Director and made a recommendation to the Board
• Reviewed Directors independence and made
recommendations on proposals for Director re-election/
election
• Discussed Board succession planning
• Considered talent management across the business
64 Genel Energy Annual Report 2020
Nomination Committee report
OBJECTIVE
ACTIONS
Review 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
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
• Reviewed the size and composition of the Board
taking into consideration the future strategic
direction of the Company and overall diversity of
Board members
> See pages 64 to 65
• As part of the external board effectiveness
> See pages 57 to 58
review performance of the CEO, CFO and each of
the Non-Executive Directors was undertaken.
• Recommended the re-election/election of each
Director at the 2021 AGM
• During the course of the year recommended the
appointment of Canan Edibog˘lu to the Board of
Directors
• Undertook a review of talent management
across the Company
> See page 65
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The Committee engaged Russell Reynolds, an independent
executive search agency to undertake a comprehensive search
process and then made a recommendation to the Board. The
Committee as a whole was closely involved in identifying and
agreeing a shortlist of candidates. Following initial interviews with
the Committee the candidates met with other members of the
Board. In June 2020, the Board approved the recommendation
of the Committee that Canan Edibog˘lu be appointed as an
Independent Non-Executive Director.
Although the Board does not have specific Board diversity targets,
the Company’s Diversity and Equal Opportunities policy remains
unchanged, a copy of which can be found on our website. We
are committed to employing a diverse and balanced workforce,
including our Board of Directors. We recognise 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. The importance of
this is highlighted in our code of conduct and underpinned by our
recruitment practices and dealings with our partners and suppliers.
Further information on diversity within the Company can be found
on page 29.
When conducting the search for a new Board Director we consider
candidates based on merit and against objective criteria giving
due regard to the benefits of diversity on the Board. Following the
appointment of Canan Edibog˘lu to the Board there are now two
female Directors and as part of its remit the Nomination Committee
will continue to keep under review the composition and balance of
the Board including diversity.
In late 2020, a revised Talent Management process was rolled
out across Genel globally, identifying current and future talent
potential, learning and development needs, and succession plan
gaps. At present our succession planning is focussed on two key
areas; senior management and operational capability in the KRI.
The Committee discussed a succession gap analysis put together
following discussion by our Executive Committee. This provided
us with both internal candidates and aligned development needs
as well as key areas where outside talent mapping exercises may
be required. During 2021, planning will take place to reduce our
succession gaps for the near term and future.
The Nomination Committee has detailed term of references
which can be viewed at www.genelenergy.com and as part of
the Company’s governance practices an effectiveness review
of the Committee for the year ending 31 December 2020 was
completed as part of the wider Board Effectiveness Review.
Further information can be found on page 58.
David McManus
Chair, Nomination Committee
Genel Energy Annual Report 2020
65
Audit, risk and internal control
Risk monitoring and reporting
The Company keeps under continuous review the major risks, both
current and emerging, to which its operations in all regions are
exposed by leveraging its local expertise, industry knowledge and
strategic relationships. In particular, the Company continues to
have a regular dialogue with its key stakeholders in the Kurdistan
Region of Iraq, such as the KRG and other regional public bodies.
We maintain similar relationships in Somaliland and Morocco
to ensure the risks across the organisation as a whole are fully
understood and mitigated appropriately and within the Company’s
tolerance for risk.
Our risk management procedures facilitate the identification of the
key risks and indicators, the assessment and management of risks
by designing and implementing prevention and mitigation controls,
and monitoring of these controls. Senior management review and
update the risk management process and keep the risk register
under regular review. The Board conducts a robust assessment
of the principal risks facing the Company at least annually with
a focus on those risks that could impact our business model,
strategy, solvency, liquidity, future performance and reputation
of the Company. 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 is set out on pages 34 to 37.
Risk management
The Company has put in place robust risk management policies
and procedures in order to manage day-to-day risks. The Company
takes a proactive approach to risk management to design and
implement robust controls and policies to mitigate as much as
possible any potentially negative outcomes.
Overall responsibility for risk management remains with the Board
of Directors and in order to ensure that appropriate oversight is
provided. Risks have been classified as strategic, external,
operational and financial, and allocated to the appropriate
Board Committee or the Board. As part of the Company’s risk
management process relevant Committees and the Board review
the annual risk sign-off forms that are submitted by the risk
owners.
Risk management process
A qualitative risk assessment matrix (5x5) that is aligned to industry
best practices is used to aid with risk assessment processes.
Management hold regular risk register workshops for all asset
operations and projects to identify and assess risks, review current
controls and design additional controls where needed to reduce
the residual risk to As Low As Reasonably Practical (‘ALARP’). The
outcomes of these workshops are reported back to the Board and
relevant Committee.
Bowtie method
The Company uses the bowtie method of risk management which is
widely used in the industry to improve the identification, design and
management of prevention and mitigation controls. Departmental
champions are identified to develop and maintain bowtie diagrams
for the risks that they are managing. An example of a bowtie is
shown below.
The left-hand side of the diagram is constructed from fault tree
(causal) analysis and involves those causes (threats) associated
with the hazard, the prevention controls (barriers) associated
with each cause and any escalation factor control (that have the
potential to increase the likelihood).
The right-hand side of the diagram is constructed from the event
tree (consequence) analysis and involves mitigation controls
(recovery measures for detection, control, mitigation and
emergency response) and escalation factor control (that have the
potential to increase the consequence).
The centre of the bowtie is referred to as the ‘risk event’ or ‘top
event’, the undesired event at the end of the fault tree and at the
beginning of the event tree.
BOWTIE METHOD
Prevention
Control
Prevention
Control
Cause
Cause
RISK
RISK
EVENT
Mitigation
Control
Mitigation
Control
Consequence
Consequence
Prevention
Control
Prevention
Control
Mitigation
Control
Mitigation
Control
Escalation
Factor
Escalation
Factor
LEADING INDICATOR
Escalation
Factor
Escalation
Factor
66 Genel Energy Annual Report 2020
Audit, risk and internal control
COMPANY RISK MANAGEMENT PROCESS & STRUCTURE
1. Risk Register identifies, assesses and
documents the risks of the Company
RISK REGISTER
2. Each risk has a Risk Owner responsible
for the design and operation of effective
controls (prevention and mitigation) to
manage that risk
3. Risk Owners report and sign-off risk
management form that is presented to
the Board and Committees responsible
for oversight of that risk
Risk
Owner
Risk
Owner
Risk
Owner
Risk
Owner
Risk
Owner
Risk
Owner
Risk
Owner
Board
Audit
Committee
HSSE
Committee
Reserves
Committee
International
Relations
Committee
Remuneration
Committee
Nomination
Committee
Overall
responsibility
for risk
oversight
Overall
responsibility
for all principal
risks
Risk
management
and internal
control
systems
Financial
controls
Health and
safety risks
Security risks
Environmental
risks
Community
risks
Review
reserves and
resources
Manage
external risk
Compensation
and reward
Board
compostion
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4. The Audit Committee oversees the risk
management system of the Company and
makes recommendation to the Board
AUDIT COMMITTEE
Oversees risk management systems and makes
recommendation to the Board
5. The Board signs-off on internal controls
and risk management of the Company
BOARD
Signs-off on internal controls and risk management
RESPONSIBILITIES
Board
Strategy
Risk assessment and
review identified risks
• 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
• Where appropriate, approves policies on key risks and provides direction on risk
management and appropriate risk mitigation
Board sets controls to
mitigate or manage risks
• 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
Risk register documents
risks and allocates each risk
to a risk owner
• 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 owner reports
assessment of risks
to the Board
Risk owner reports
assessment of risks to the
Board/Committees
Risk Owners
Risk owner designs,
operates, monitors and
reports on controls
Control Owners
Control owner manages the
risk on a day-to-day basis
• Put in place process and procedures that execute the decision taken by the Board for the
appropriate management or mitigation of each principal risk
• Assess and report risk and monitor the design and operating effectiveness of any
prevention and mitigation controls and related policies and procedures
• Provide oversight of the daily operations of the key areas of the business
Genel Energy Annual Report 2020
67
Audit, risk and internal control
Leading indicators
Leading indicators are identified measures to test the robustness
of controls. These are developed and implemented for selected
controls to manage and measure risk proactively including for
drilling projects and production operations and other principal risks
as per the Company risk register, as part of our risk management
process.
Internal controls
The Board is responsible for maintaining and reviewing the
effectiveness of the Company’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 also established
processes to meet the obligations placed on listed companies and
the expectations of the UK Corporate Governance Code to publish
a long-term viability statement and to continually monitor systems
of risk management and internal control. 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. Our long-term viability and going concern statement can be
found on page 38.
The Audit Committee supports the Board in the performance of its
responsibilities by reviewing those procedures that relate to risk
Site visit, Taq Taq
management and internal control. 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. Further information on the actions
taken by the Audit Committee during the year can be found on
pages 69 to 72.
A detailed budget and work programme for the Company is
produced annually in accordance with our processes and reviewed
and approved by the Board. Operational reports are provided to
the Executive Committee on a monthly basis and performance
against the budget kept under regular review in accordance with the
Group’s financial procedures manual. The CEO reports to the Board
on performance and key issues as they arise.
The assessment of controls and risk management processes
provides 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 2020
and up to the date of the signing of the financial statements, and is
satisfied that it remains appropriate to the business.
68 Genel Energy Annual Report 2020
Audit Committee
Report
Ensuring integrity
and clarity of
published financial
information
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MEETINGS IN 2020
4 MEETINGS HELD (3 SCHEDULED, 1 AD-HOC)
Members
George Rose (Chairman)
Martin Gudgeon
Canan Edibog˘lu 2
Attendance
scheduled1
100%
100%
100%
• • • •
• • • •
• • •
1 Denotes the attendance percentage at scheduled Committee
meetings by each Director
2 Canan Edibog˘lu was appointed to the Committee on 21 June 2020
AUDIT COMMITTEE TIME SPENT
3%
9%
38%
25%
25%
GOVERNANCE AND AUDIT
RISK MANAGEMENT AND
INTERNAL CONTROL
FINANCIAL REPORTING
FINANCING
RESERVES AND RESOURCES
HIGHLIGHTS OF AUDIT
COMMITTEE ACTIVITY
• Reviewed the 2019 Annual Report and Accounts and 2020
half-year results
• Reviewed signifi cant estimates and judgements in relation
to the 2019 full-year accounts and 2020 half-year accounts
• Received reports from the external auditors
• Undertook an external auditor tender process
• Reviewed internal control and risk
• Approved the 2020 internal audit plan
• Received reports from internal audit
• Received updates on the legal compliance programme
• Reviewed risk management processes and the risk register
• Reviewed the effectiveness of external and internal audit
functions
Dear Shareholder,
I am pleased to present this report from
the Audit Committee describing the
Committee’s activities during the year.
The remit of the Committee includes:
• monitoring the integrity of the fi nancial statements and
formal announcements relating to the Company’s fi nancial
performance, and reviewing signifi cant fi nancial reporting
judgements contained in them
• advising the Board on whether the Annual Report and Accounts,
taken as a whole, are fair, balanced and understandable, and
provides the information necessary for shareholders to assess the
Company’s position and performance, business model and strategy
• reviewing the company’s internal fi nancial controls and internal
control and risk management systems
• ensuring the external auditor is independent and makes
recommendations to the Board regarding the appointment of
the external auditor
• Monitoring and reviewing the effectiveness of the internal audit
function
The Committee’s terms of reference are available on our website at
www.genelenergy.com
Genel Energy Annual Report 2020
69
Audit Committee Report
OBJECTIVE
ACTIONS
To increase shareholder confidence by ensuring
the integrity and objectivity of published financial
information
• Scrutinised areas involving significant
judgement, estimation or uncertainty in
particular impairments
> See pages 71 to 72
> See pages 21 to 23
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 monitor the Company’s treasury and financing
arrangements
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
• Monitored changes to reserves and resources
• Reviewed and received reports from the external
auditors on the annual financial statements and
interim results statement
• Ensured compliance with financial reporting
standards and relevant financial and governance
requirements
• Considered the quality and appropriateness
of the accounting policies and practices and
financial reporting disclosures and changes
thereto
• Considered the Annual Report as a whole
including the basis for the going concern
assumption, the viability statement and
underlying assumptions
• Assessed the Annual Report in the context of
whether, taken as a whole, it is fair, balanced and
understandable
> See pages 69 to 72
• Monitored compliance with financial reporting
> See Note 1, page 106 to 112
standards and relevant financial and governance
requirements
• Kept under review the risk register and retained
oversight of the Group risk framework and by
doing so supported the Board in assessing the
Company’s tolerance for risk
• Kept key accounting policies and practices under
review to ensure that they remain appropriate
• Kept under review the effectiveness of the
systems of internal control, including the
adherence to Company policies, internal audit
outputs and the compliance programme
including the anti-bribery and trade sanctions
processes and procedures
> See pages 66 to 68
> See pages 66 to 68, and 71
• Monitored the cash position of the Company and
kept the treasury policy under review to ensure
it remains appropriate and aligned with the
Company’s cash position
> See page 17
• Held private meetings with the external auditors
> See page 71
without the presence of management
• Undertook an external auditor tender process
• Monitored the effectiveness and independence
of the external auditor and compliance with the
non-audit services policy
• Received reports from the Company’s internal
auditor on audits performance in the period and
monitored their performance and effectiveness
> See page 72
> See page 71
To assist the Board in monitoring and addressing
potential conflicts of interest between members
of the Group and the Directors and/or senior
managers of the Company
• Continued to assist the Board in reviewing
> See page 46
conflicts of interests of Directors and senior
managers
70 Genel Energy Annual Report 2020
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Audit Committee Report
Membership
In June 2020, following her appointment to the Board of Directors,
Canan Edibo˘glu was appointed as a member of the Audit Committee.
Canan brings her wealth of financial and sector experience to the
Committees deliberations. During 2020 all members of the Audit
Committee were Independent Non-Executive Directors and are
considered by the Board to have recent and relevant financial
experience. The Committee as a whole is considered to be
competent in the oil and gas sector.
In order to discharge its duties and responsibilities effectively the
Committee relies on information and support from management
and invites the CEO (Bill Higgs), CFO (Esa Ikaheimonen), Head
of HSE and Risk Management (VK Gupta), General Counsel and
Company Secretary (Stephen Mitchell), Head of Finance and
Planning (Luke Clements) to regularly attend its meetings.
Significant issues and judgements
The significant issues considered by the Committee in relation to
the 2020 accounts and how these were addressed were:
Oil price forecast – following changes in the macro environment
as a result of the global COVID-19 pandemic’s impact on brent
oil price when assessing the half year and full year accounts
the Committee reviewed the Company’s oil price forecast. When
considering the Company's oil price forecast, at the half-year a
forward oil price evolving to a long-term price of $60/bbl in line
with market consensus at the time was used. For the year ended 31
December 2020, an oil price deck reviewed by the Board in January
2021, updated to reflect the forward oil price at the 31 December
2020, was adopted. This resulted in an increase in oil price outlook
relative to the half-year.
Discount rate – following significant changes in the macro
geo-political, economic and industry environment in 2020 the
Company’s discount rate was assessed at the half-year. The
resulting discount rate used to assess the recoverable amount of its
producing assets increasing from 12.5% to 13%. This was reviewed
again at 31 December 2020 and maintained at 13% for the full year
accounts.
Impairment of production oil assets – When considering potential
indicators of impairment, the Audit Committee considered the
matters outlined above, together with the production performance
of the assets, activity schedules, costs and payments. At the
half-year the impact of lower oil price outlook on cash flows was
assessed as an indicator of impairment, with the impairment
assessment resulting in impairment of the Tawke PSC and the Taq
Taq PSC. At the full-year the Committee also considered the output
of the Reserves Committee process, there were no impairment
indicators for the full-year accounts.
Impairment indicators for gas assets – with active discussions
ongoing with the KRG regarding the development of the Company's
gas assets there were no impairment indicators for Bina Bawi or
Miran present in the year.
ORRI – in 2020 the KRG suspended payment under the ORRI, as a
result no revenue had been recognised by the Company in respect
of the ORRI. The Committee reviewed the approach and accounting
treatment of the ORRI at the half-year, this was reconsidered at the
full-year and it was determined that there should be no change in
revenue recognition position.
Receivable – the Committee has also considered the approach
taken to accounting for the outstanding receivable owed to
the Company by the KRG. Key inputs to this assessment were
confidence in the payment mechanism communicated by the KRG
on 6 December 2020, oil price and production and production
outlook. The Committee concluded that the expected credit loss
recorded and the resulting reported receivable balance were
appropriate and confirmed that it would be assessed again at the
next reporting date, with updates for any changes in mechanism,
oil price and in the context of confidence in payments.
Going concern – the key inputs and sensitivities applied to the
Company's viability statement and going concern assessment were
reviewed by the Committee. The Committee concluded that the
Company remains a going concern and is expected to remain viable
over the next five year period.
Risk management
As part of the Company’s control framework the Committee
assisted the Board in monitoring and reviewing risk management
procedures, risk reporting and the full risk register. An overview of
the Company’s risk management procedures and principal risks can
be found on pages 66 to 67 and 34 to 37.
Internal audit
The Board recognises that an effective Internal Audit function,
responsible for providing independent and objective assurance
on internal control, governance and risk management, is an
important part of delivering a strong governance culture. Following
a competitive tender process in 2017, Ernst & Young LLP (‘EY’) was
appointed as the Group’s internal auditor. Each year the Committee
approves an internal audit plan for the year ahead, which is aligned
to the Group’s risk profile. Before approving the plan for the year
ahead the Audit Committee takes into consideration recent internal
audits that have been performed as well as an indicative multi-year
plan ensuring the Internal Audit function provides assurance across
a range of focus areas. Audit fieldwork planning, review and follow
up is delivered by EY. Internal Audit has a direct reporting line to
the Audit Committee and provides regular updates throughout
the year on the findings identified in the audits and opportunities
to improve the design and operating effectiveness of internal
controls together with updates on the status of management’s
implementation of agreed actions.
In December 2020, the Committee reviewed the outcome of the
internal audit work that had been performed in accordance with the
2020 internal audit plan. Internal Audit reported that management
had been co-operative, for each audit performed and provided an
overview of each of their findings and recommendations made to
management including a timescale for implementation. Due to the
impact of COVID-19 pandemic and with the agreement of the Audit
Committee two internal audits that were due to be executed in
2020 will now occur in 2021. Annually, the Committee also reviews
the effectiveness of the internal audit arrangements the Company
had put in place.
During the year the Audit Committee held private meetings with
Internal Auditors without the presence of management. The
external auditors also met separately with the Head of Internal
Audit to discuss internal audit findings and areas of common focus.
Genel Energy Annual Report 2020
71
Audit Committee Report
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 at the year-end. At the year-end the
Committee received and discussed a detailed report from PwC
regarding the work performed as part of the audit including the
scope, materiality thresholds and risks.
PwC have been appointed as the Company’s auditors for the past
nine years following a tendering process in 2011. In 2016, the Audit
Partner was rotated and Michael Timar was appointed as the Senior
Statutory Auditor to the Company. The year ending 31 December
2020 will be Michael Timar's fifth and final year as the Senior
Statutory Auditor to the Company.
In 2020, the Audit Committee commenced a formal audit
tender process in which five firms including PwC were invited to
participate, the invitation to tender included details of the process
that would be followed and criteria against which each firm would
be assessed. The assessment criteria focused on audit quality but
also the industry knowledge, experience, the team and track record.
A subset of the firms invited to tender accepted the invitation,
submitted a written proposal and made an oral presentation. The
Audit Committee assessed the written and oral presentations
against the predetermined criteria, and went on to make a
recommendation to the Board that BDO LLP be appointed as the
Company’s auditor for the year ending 31 December 2021. In March
2021 the Board endorsed the Audit Committee’s recommendation to
appoint BDO LLP. This appointment remains subject to approval by
the Company’s shareholders at the 2021 AGM.
The Committee monitors and approves the provision of non-audit
services by the Company’s external auditors in accordance with the
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
preauthorisation by the Committee under the terms of the policy.
In 2020, the ratio of non-audit to audit and audit related fees paid
to PwC was 1.08:1, the non-audit fee paid was $0.6 million, further
details of which can be found on page 114 of the notes to the
financial statements. These fees reflect the services and advice
provided by PwC in respect of tax and other assurance services
received during the year.
Effectiveness
As part of the Company’s governance practices, an effectiveness
review of the Committee for the year ending 31 December 2020 was
completed as part of the wider Board Effectiveness Review, further
information can be found on page 58.
George Rose
Chair, Audit Committee
72 Genel Energy Annual Report 2020
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Governance
MEETINGS IN 2020
10 MEETINGS HELD (6 SCHEDULED, 4 AD-HOC)
Members
Martin Gudgeon
(Chairman)
George Rose
RT Hon Sir Michael
Fallon
Attendance
scheduled1
• • • • • • • • • • 100%
• • • • • • • • • • 100%
• • • • • • • • • 90%2
1. Denotes the attendance percentage at scheduled Committee
meetings by each Director
2. Sir Michael Fallon was appointed to the Board on 6 February 2020
REMUNERATION COMMITTEE TIME SPENT
25%
34%
17%
24%
EXECUTIVE DIRECTOR
REMUNERATION
ALL EMPLOYEE
REMUNERATION
LONG TERM INCENTIVE
PLANS FOR ALL EMPLOYEES
GOVERNANCE
ACTIVITIES OF THE REMUNERATION
COMMITTEE
The Committee held six scheduled and four ad-hoc meetings
during the year. Details of the key activities carried out are
set out on page 74. All of the members of the Committee are
Independent Non-Executive Directors.
Directors’
remuneration
report
Remuneration
Committee
Chairman’s
statement
On behalf of the Remuneration
Committee, and in my position of
Chairman of the Committee, I am
pleased to present Genel’s Directors’
Remuneration Report for the year
ended 31 December 2020.
We have once again prepared our Directors’ Remuneration Policy
Report and Annual Report on Remuneration in accordance with
the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended). As a Jersey registered
company we are not required to prepare a remuneration report in
accordance with UK legislation, however, it remains the policy of
Genel to comply with high standards of corporate governance.
Remuneration Policy
In my letter of 2020 I explained that we proposed to renew the 2017
Policy pending a fuller review of our Policy in 2020. This was to ensure
that our review took into account developments that were occurring
at Genel as the Company increasingly becomes an operator of assets.
The Committee undertook a thorough review of our Policy during
the year and has concluded that the main aspects of the 2017
Policy renewed last year remain appropriate for Genel. Short term
incentives are based on an operational performance scorecard and
long term incentives are based on a combination of relative and
absolute TSR. Accordingly, we are proposing to refresh the 2020
Policy with a small number of minor administrative changes aligned
to the new share plans and this revised Policy will be brought to
shareholders in 2021. The Policy is set out on pages 75 to 82.
The purpose of our Remuneration Policy continues to be to drive
performance to deliver shareholder value through the attraction,
retention and motivation of the high quality of talent required to
develop and implement our strategy. In order to ensure a focus
on short-term delivery and align all individual interests with the
long-term success of the Company, the same incentive structure for
Executive remuneration, including the cash bonus and long-term
incentive plans, applies throughout the workforce.
Genel Energy Annual Report 2020
Genel Energy Annual Report 2020
73
73
Directors’
remuneration
report
Directors’ remuneration report Remuneration Committee Chairman’s statement
Remuneration for 2020
Full details of the Remuneration Committee’s decisions for 2020 are
set out in the Annual Report on Remuneration on pages 83 to 90
Approach to remuneration in 2021
Details of how we intend to apply our Policy over the coming year
are set out on pages 88 to 89.
In 2020, the delivery of culture across the organisation in terms of
ESG planning and compliance was excellent, and the necessary
COVID-19 measures put in place during the year were all met. Our
safety performance remains high. We were pleased to see production
delivered as planned following our reassessment of this target in
light of the pandemic and activity in the KRI was particularly strong
at Sarta where first oil was achieved. However, not all financial
performance targets were met and progress at Somaliland and
Bina Bawi was missed, as detailed in the company scorecard seen
on page 85.
The Committee has reviewed the impact of COVID-19 upon the
workforce, and note that no employees were placed on furlough
and that no government assistance was received. In addition,
management under the guidance of the Executive Directors prevented
any negative impact upon workforce headcount or remuneration.
Therefore, the Committee did not make any further adjustments
to the bonus outcome and determined that 75% of the maximum
potential annual bonus was achieved.
For 2021, the Committee approved an increase in base salary for
the Executive Directors at a rate of 1% which is in line with the
wider UK workforce. The annual bonus for 2021 for the Executive
Directors will again be based on a combination of achievement
against the Company scorecard metrics at 80% and 20% of the
bonus reflecting personal performance.
The 2021 company scorecard will focus on delivery of culture,
balance sheet, production and activity, measuring delivery of the
work plan and budget and annual performance. The measurements
set out in the Company scorecard have been adjusted (as set
out on page 89) to drive the performance of our Executives and
wider workforce. The Committee considers that these targets
are appropriately stretching and that maximum vesting would
represent significant value creation.
2021 AGM
At the AGM in 2021, our shareholders will be asked to approve this
Annual Report on Remuneration, the Remuneration Policy for the
next three years along with the new share plans and I encourage
you to vote in favour. I will be available, along with my Committee
members, to answer any questions regarding our Policy on
executive remuneration and the activities of the Committee.
Martin Gudgeon
Chairman of the Remuneration Committee
Key Activities of the Remuneration Committee
OBJECTIVE
ACTION
To implement the Remuneration Policy for the
Chairman, Executive Directors and members of the
Executive Committee
Applied the Remuneration Policy principles in discussion and implementation of
remuneration for Executive Directors and Executive Committee members
Applied the Remuneration Policy respect of the appointment of the Chairman
To review and have regard to remuneration
practices across the Company
Considered remuneration practices across the Company including management
recommendations for salary increases, bonus payments and share awards
Reviewed the executive base salary level and benefits allowance in the context of
pay for the wider workforce and the external market
In respect of performance related elements of the
Remuneration Policy formulate suitable performance
related criteria and monitor their operation
Completed a mid-year review of performance against bonus targets, including a
adjustment for COVID-19
Review of performance objectives of the Executive Directors and Executive Committee
in order to determine the level of bonus earned in respect of the 2020 financial year
To review all aspects of any equity incentive plans
operated or to be established by the Company
The Committee set targets for 2020 PSP awards and reviewed the relative TSR peer
group for 2021 awards
Review of term sheets for PSP and DBP being put forward for shareholder approval
at the 2021 AGM
To have regard in the performance of its duties
to any published guidelines or recommendations
regarding the remuneration of directors of listed
companies and formation and operation of share
schemes
As part of its deliberations during the year, governance updates were received from
both Deloitte and the Company Secretary to ensure that any decisions taken and
recommendations made were done so in the context of the wider remuneration
landscape whilst remaining appropriate for the specific challenges facing the
Company
To ensure that provisions regarding the disclosure
of information, including pensions, as set out
in The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations and
the UK Corporate Governance Code, are fulfilled
Reviewed the Annual Report on Remuneration for 2020 prior to submission to
shareholders for a non-binding vote at the AGM
Considered the remuneration-related elements of the 2018 UK Corporate
Governance Code
Revised the Remuneration Policy for 2021
74 Genel Energy Annual Report 2020
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Directors’ remuneration report
Remuneration Policy
This part of the report sets out our proposed Directors’ Remuneration Policy
(the ‘Policy’). This Policy will be put forward for shareholder approval at the
2021 AGM, and it will take effect from the date on which it is approved by
shareholder vote.
As outlined in the Remuneration Committee Chairman’s
statement, the Committee reviewed the Company’s remuneration
arrangements during 2020 to ensure that they are aligned with
the Company’s strategy of delivering shareholder value through
maximising the value of our asset portfolio. Following this review,
and introduction of our updated Performance Share Plan (‘PSP’)
and new Deferred Bonus Plan (‘DBP’) the revised policy set out on
pages 75 to 82 will be put forward for approval at our 2021 AGM.
The Policy includes a number of changes from that which was
approved by shareholders in 2020. These changes have been made
in order to align our Remuneration Policy with the terms of our new
PSP and DBP.
The Company is incorporated in Jersey. 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. Consistent with the Company’s commitment to adhere to
UK legislation, the Company commits to only making payments to
Directors in accordance with this policy.
In order to avoid any conflicts of interest the Company’s executives
can only attend meetings of the Remuneration Committee at the
invitation of the Remuneration Committee Chairman and will not be
involved in determining their own pay.
Remuneration Policy table
FIXED REMUNERATION
Element
Purpose and link to
strategy
Operation
Maximum opportunity
Performance
measures
Salary
• To provide fixed
• The Committee takes into
• While there is no defined maximum opportunity,
None
remuneration which
is balanced, taking
into account the
complexity of the
role and the skills
and experience of
the individual
• Salary is set at a
level to attract and
retain individuals
with the requisite
level of experience/
background necessary
to deliver the
Company’s strategy
• To provide a simple
and broadly market
competitive benefit
cash allowance
Benefits
account a number of factors
when setting salaries, including:
– scope and complexity of
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
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
• A cash supplement is
provided in lieu of benefits
(including pension)
• Cash supplement is set as a percentage of base
salary and paid in lieu of all benefits (including
pension)
None
• The cash supplement is not
included in calculating bonus
and long-term incentive
quantum
• While there is no defined maximum opportunity, the
cash supplement is currently 20% of base salary
• Should an individual participate in the Mandatory
Pension Scheme provided by the Company to all
UK based employees the cash supplement will be
reduced in line with the Company contribution made
• 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
• For any newly appointed Executive Director, that part
of the benefits allowance which relates to pension
will be limited to the rate for the Company’s wider
workforce in the jurisdiction in which the Executive
Director is employed or resides
Genel Energy Annual Report 2020
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Directors’ remuneration report Remuneration Policy
VARIABLE REMUNERATION
Element
Annual
bonus
Purpose and link to
strategy
Operation
Maximum opportunity
Performance measures
• Maximum award
opportunity for
Executive Directors
is 150% of base
salary for each
financial year
• At least 70% of
the award will be
assessed against
Group metrics
including financial,
operational, safety
and environment,
and CSR performance.
Any 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
• To incentivise
• Awards are based on objectives set by the
and reward the
achievement of
annual financial,
operational and
individual objectives
which are key to
the delivery of the
Company’s strategy
Committee over a combination of goals which
may include financial, operational and individual
goals measured over one financial year
• Objectives and the mix of goals 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
• The Committee has overall discretion to adjust
the extent to which bonuses are paid including
reducing payment to nil where the Committee
determines that the outcomes would not reflect
underlying performance
• A minimum of 25% of the bonus will normally
be subject to deferral, although the Committee
retains the flexibility to set a higher or lower
level of deferral (including zero) where
appropriate. Deferral can be in cash or shares.
Deferral into shares will be in the form of
awards under the DBP. DBP awards may be
conditional share awards or nil-cost options. DBP
awards that vest may benefit from the value of
dividends (if any) which would have been paid
during the period between award and exercise
and may assume reinvestment in the Company’s
shares. The Committee retains the flexibility over
the deferral period but would usually apply a two
year deferral period. Any vested options must be
exercised within ten years of the date of grant
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
• 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 other than in the case of
Buy-Out Awards - see below
• 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, such
as recruitment
scenarios, awards of
up to 300% of base
salary may be made
• The Committee has overall discretion to
adjust the extent to which PSP awards vest
including where the Committee determines
that the outcomes would not reflect underlying
performance
• 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 exercise
and may assume reinvestment in the Company’s
shares
• Shares that vest are normally subject to a
holding period of two 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
• The PSP can also be used to buy out share plans
awards forfeited by new Executive Directors
on recruitment who are of sufficient calibre
to deliver the Company’s strategy (‘Buy-Out
Awards’). Such Buy-Out Awards, as set out in
the recruitment policy below, need not be made
subject to the achievement of performance
conditions.
• Other than Buy-
Out Awards, the
vesting of awards
is dependent on
financial, operational
and/or share price
measures, as set
by the Committee,
which are aligned
with 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 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
76 Genel Energy Annual Report 2020
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Directors’ remuneration report Remuneration Policy
Notes to the Policy table
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any
discretions available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above
where the terms of the payment were agreed (i) before the 2014 AGM (the date the Company’s first shareholder-approved Directors’
Remuneration Policy came into effect); (ii) before the Policy contained in this report comes into effect, provided that the terms of the
payment were consistent with the shareholder-approved Directors’ Remuneration Policy in force at the time they were agreed; or (iii)
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 and, in relation to an award over shares, the terms of the payment 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 a combination of specific strategic, operational and/or 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 a
mix of relative and abosolute 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 and clawback provisions
Malus provisions allow that the Committee may cancel or reduce (including to nil) any annual bonus payment or DBP award prior to
payment/grant, or cancel or reduce including to nil the number of shares awarded under the PSP prior to vesting.
Clawback provisions apply to any or all of the annual bonus (including DBP) and PSP awards where it is considered appropriate by the
Committee. Clawback may be applied up to one year after payment for bonus awards (or the vesting of the DBP awards) and two years
after vesting for PSP awards.
The circumstances in which the above provisions apply may include fraud, misconduct or misbehaviour by the participant, the information
used or the calculation of an award or performance condition is found to be materially incorrect, a material misstatement of the Company’s
audited financial results for which the participant has significant responsibility or which led to an award vesting to a greater extent than
would otherwise have been the case, a significant downturn in financial performance that the Participant’s actions significantly contributed
towards, a material breach of health and safety regulations, or any other similar circumstances as determined by the Committee.
Plan rules
The PSP and DBP 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, re-organisation 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
• The Committee may elect, prior to vesting or exercise in the case of options, to deliver the value of vested awards as cash
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Directors’ remuneration report Remuneration Policy
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 uses the annual bonus and share incentive schemes to reward its employees and create alignment with the
Company’s culture.
In the UK, employee remuneration packages consist of the same four elements as Executive Directors’ remuneration packages: base salary,
benefits, annual bonus and share awards. In all other jurisdictions in which the business operates we aim to replicate this structure to the
extent that it is possible but take local considerations into account.
Genel is committed to strengthening and widening employee share ownership by the use of share incentives granted under our share
plans. As a result currently approximately 80% of employees participate in our share plans.
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.
CHAIRMAN AND NON-EXECUTIVE DIRECTORS
Element
Chairman fees
Purpose and link to
strategy
Operation
• To provide an
appropriate
reward to attract
and retain a high
calibre individual
with the relevant
skills, knowledge
and experience to
lead the Board of
Directors
• The fee for the Chairman is normally
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
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
• The Committee has the flexibility to pay
an additional fee for the roles of Senior
Independent Director and Deputy
Chairman
• Although no additional fee is currently
paid for the role of 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
Maximum opportunity
Performance
measures
• Whilst there is no maximum level, fees
• None
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 Company’s incentive plans
• Whilst there is no maximum level, fees
• None
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 Directors may receive professional advice in respect of their duties with the Company which will be paid for by the Company.
Non-Executive Directors are also covered by the Company’s directors’ and officers’ insurance policy and provided with an indemnity.
78 Genel Energy Annual Report 2020
Directors’ remuneration report Remuneration 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, additional allowances would normally be provided under a
standard expatriate package in respect 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.
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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. Any such awards may be made under the terms of the PSP or as
permitted under the Listing Rules.
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.
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Directors’ remuneration report Remuneration Policy
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.
Executive Director service contract
The key employment terms and other conditions of the current Executive Directors, as stipulated in their service contracts which are not of
any fixed term, are 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. There are specific
provisions requiring a reduction in any phased PILON payments in the event that the Executive Director
finds alternative employment
Remuneration and benefits
• Participation in all incentive schemes, including the annual bonus, the DBP and the PSP, is non-contractual
• Outstanding awards will be treated in accordance with the relevant plan rules
Executive Director services contracts and Non-Executive Director letters of appointment are available for inspection at the Company’s
registered office address.
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. Payments for loss of
office may only be made within the terms of the Remuneration Policy.
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). The Committee may make other payments in connection with a Director’s cessation of office or employment
where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an
obligation) or by way of settlement of any claim arising in connection with the cessation of a Director’s office or employment. Any such
payments may include but are not limited to paying any fees for outplacement assistance and/or the Director’s legal and/or professional
advice fees in connection with his cessation of office or employment.
If an 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 Company’s Share Retention Policy continues to apply once an Executive Director leaves office,
subject to Remuneration Committee discretion where the Remuneration Committee considers there are exceptional circumstances or
on death.
Payments for loss of office can be made where an amendment to the Remuneration Policy authorising the Company to make the payment
has been approved by the shareholders.
80 Genel Energy Annual Report 2020
Directors’ remuneration report Remuneration Policy
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
PSP
Leaver reasons where awards
may continue to vest
Vesting
arrangements
• Death
• Redundancy, 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 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
and not accelerated, 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
• Under ordinary circumstances the
Company’s Share Retention Policy will
continue to apply, unless the Committee
determines otherwise
• The vesting date for such awards will
normally be the original vesting date
and not accelerated, 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
Treatment for any
other leaver reason
• Awards lapse in full
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• Summary dismissal – awards
lapse in full
• If there is an ongoing
investigation unless otherwise
determined by the Committee,
awards will only vest, become
exercisable or settled after the
conclusion of the investigation
DBP
• Death
• Any other scenaro
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
Period
Policy
• 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 loss of office
• The Chairman and Non-Executive Directors are entitled to payment in lieu of notice in line with their letter of appointment
Illustration of the remuneration policy
Genel’s remuneration arrangements have been designed to ensure that a significant proportion of pay is dependent on the delivery of
stretching short-term and long-term performance targets, aligned with the creation of sustainable shareholder value. The Committee
considers the level of remuneration that may be received under different performance outcomes to ensure that this is appropriate in the
context of the performance delivered and the value added for shareholders.
Genel Energy Annual Report 2020
81
Directors’ remuneration report Remuneration Policy
The charts that follow provide illustrative values of the remuneration package for Executive Directors under four assumed performance
scenarios. These charts are for illustrative purposes only and actual outcomes may differ from that shown.
CHIEF EXECUTIVE OFFICER
Bill Higgs
Minimum
Target
Maximum
Maximum
+50% SP Growth
100% £655,207
52%
29%
19% £1,266,734
32%
27%
27%
22%
41% £2,020,222
51% £2,429,727
CHIEF FINANCIAL OFFICER
Esa Ikaheimonen
Minimum
Target
Maximum
Maximum
+50% SP Growth
100% £545,400
52%
29%
19% £1,054,440
32%
27%
27%
22%
41% £1,681,650
51% £2,022,525
Assumed performance
Assumptions used
All performance scenarios
• Consists of total fixed pay, consisting of base salary and cash supplement in lieu of benefits and pension
• Base salary – salary effective as at 1 January 2021
• Benefits – 20% of base salary
Minimum performance
• No pay-out under the annual bonus
• No vesting under the PSP
Performance in line with
expectations
• Two thirds of the maximum pay-out under the planned operation of the annual bonus for 2021. This represents
67% of base salary for both executive directors
• 30% vesting under the PSP
• Value of awards under the PSP based on 2021 award levels of 150% of salary
Maximum performance
• 100% of the maximum pay-out under the planned operation of the annual bonus for 2021. This represents 100%
of base salary for both executive directors. This is lower than the maximum limit set out in the Policy
• 100% vesting under the PSP
• Value of awards under the PSP based on 2021 award levels of 150% of salary
Maximum performance
(including 50% share
price growth)
• 100% of the maximum pay-out under the planned operation of the annual bonus for 2021. This represents 100%
of base salary for both executive directors. This is lower than the maximum limit set out in the Policy 100%
vesting under the Performance Share Plan, and assuming 50% share price growth between grant and vesting
• Value of awards under PSP based on 2021 award levels of 150% of salary
• The basis of the calculation of the share price appreciation is that the share price embedded in the calculation for
the ‘maximum’ bar chart is assumed to increase by 50% across the performance period
Unless otherwise stated, PSP awards have been shown at face value, with no share price growth or dividend accrual assumptions.
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 has 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.
82 Genel Energy Annual Report 2020
Bill Higgs
Minimum
Target
Maximum
Maximum
+50% SP Growth
Minimum
Target
Maximum
Maximum
+50% SP Growth
The charts that follow provide illustrative values of the remuneration package for Executive Directors under four assumed performance
scenarios. These charts are for illustrative purposes only and actual outcomes may differ from that shown.
CHIEF EXECUTIVE OFFICER
100% £655,207
52%
29%
19% £1,266,734
32%
27%
27%
22%
41% £2,020,222
51% £2,429,727
CHIEF FINANCIAL OFFICER
Esa Ikaheimonen
100% £545,400
52%
29%
19% £1,054,440
32%
27%
27%
22%
41% £1,681,650
51% £2,022,525
Assumed performance
Assumptions used
All performance scenarios
• Consists of total fixed pay, consisting of base salary and cash supplement in lieu of benefits and pension
• Base salary – salary effective as at 1 January 2021
• Benefits – 20% of base salary
Minimum performance
• No pay-out under the annual bonus
• No vesting under the PSP
Maximum performance
• 100% of the maximum pay-out under the planned operation of the annual bonus for 2021. This represents 100%
of base salary for both executive directors. This is lower than the maximum limit set out in the Policy
• 100% vesting under the PSP
• Value of awards under the PSP based on 2021 award levels of 150% of salary
Maximum performance
• 100% of the maximum pay-out under the planned operation of the annual bonus for 2021. This represents 100%
(including 50% share
price growth)
of base salary for both executive directors. This is lower than the maximum limit set out in the Policy 100%
vesting under the Performance Share Plan, and assuming 50% share price growth between grant and vesting
• Value of awards under PSP based on 2021 award levels of 150% of salary
Unless otherwise stated, PSP awards have been shown at face value, with no share price growth or dividend accrual assumptions.
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 has 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.
Directors’ remuneration report Annual report on remuneration
Advisers to the Committee
The Committee has once again appointed Deloitte LLP (‘Deloitte’)
to provide independent advice on remuneration matters under
consideration by the Committee. The Committee continues to believe
that Deloitte has the most relevant experience and expertise on
remuneration related matters to effectively advise the Committee.
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. During 2020, Deloitte also provided the
Company with risk advisory services, and advised on the revision
of the Company’s share plans as required by law. Deloitte’s fees in
respect of advice to the Committee in the year under review were
£89,350 and were charged on the basis of their standard terms of
business for the advice provided. The Committee is satisfied that
the advice they have received has been objective and independent.
The Committee also consulted during the year with the Chairman,
(David McManus), CEO (Bill Higgs), the Company Secretary
(Stephen Mitchell) and the Chief Human Resources Officer
(Berna Öztınaz).
No member of the Committee nor any party from whom advice was
sought participated in discussions regarding their own remuneration.
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 2020 and discusses how the Policy has been
implemented in the 2020 financial year. Details of the Policy can
be found on pages 75 to 82.
UK Corporate Governance Code: Provision 40
The following table sets out how the Committee has addressed the factors set out in Provision 40 of the UK Corporate Governance Code in
setting and operating the Directors’ Remuneration Policy.
Clarity
Simplicity
Risk
The Policy is designed to support the financial and strategic objectives of the Company, taking into account UK corporate
governance expectations
The Committee is committed to providing open and transparent disclosure of our approach to pay with our shareholders
The remuneration structure is simple, comprising three main elements: fixed pay (base salary and benefits allowance),
annual bonus, and PSP awards
The Committee took great care to ensure that the remuneration framework throughout the Company is easy to understand
for both participants and shareholders
The Committee is mindful of ensuring that incentive arrangements do not encourage excessive risk taking. The Committee
follows a robust process when setting performance targets to ensure that targets are sufficiently stretching and balanced
The use of deferral of annual bonus awards and holding periods on PSP awards ensure that executive Directors are
exposed to the long-term performance of the Company. Variable pay awards are also subject to malus and clawback
Predictability
The Policy sets out the maximum opportunity levels for different elements of pay
Page 82 contains charts illustrating the implementation of the Remuneration Policy for Executive Directors under four scenarios,
including one scenario demonstrating the impact of share price appreciation on the overall size of remuneration packages
Performance in line with
• Two thirds of the maximum pay-out under the planned operation of the annual bonus for 2021. This represents
Proportionality
expectations
67% of base salary for both executive directors
• 30% vesting under the PSP
• Value of awards under the PSP based on 2021 award levels of 150% of salary
Payment of the annual bonus and awards under the PSP are subject to the achievement of stretching performance targets.
The targets are considered annually and take account of expectations and strategic priorities at the time
The Committee also retains the right to apply discretion where these outcomes do not accurately reflect the performance
of the Company and/or the individual
Alignment
to culture
The Remuneration Policy has been developed in order to align the interests of the Executive Directors with the Company’s
KPIs and the interests of shareholders
Shareholder voting
At the AGM held on 14 May 2020, votes cast by proxy and at the meeting in respect of the Annual Report on Remuneration for the year
ended 31 December 2019 were as follows:
• The basis of the calculation of the share price appreciation is that the share price embedded in the calculation for
the ‘maximum’ bar chart is assumed to increase by 50% across the performance period
To approve the Annual Report on Remuneration
for the year ended 31 December 2019
Number of
votes cast
For
Against
Abstentions
201,669,968
196,814,878
4,636,633
215,857
To approve the Directors’ Remuneration Policy
201,669,968
199,377,586
99.76%
97.70%
2.30%
473,925
0.24%
1,815,857
Audited information
The following tables set out the total remuneration for the Executive Directors and Non-Executive Directors for the period in office for the
year ended 31 December 2020, and comparison figures for 2019.
Salary/
fees
£’000
2019
£’000
2020
£’000
2020
Benefits
£’000
2019
£’000
2020
Total
Fixed
Pay
£’000
2019
£’000
2020
Bonus
£’000
2019
£’000
2020
LTIP2
£’000
2019
£’000
2020
Total
Variable
Pay
£’000
2019
£’000
2020
Total
£’000
2019
Name
Executive Director
Bill Higgs1
Esa lkaheimonen1
540
450
390
323
108
90
78
65
648
540
468
388
422
351
254
207
48
450
390
225
470
801
644
432
1,118
1,341
1,112
820
1. 2019 data relates to the period held as Executive Director
2. LTIP includes shares under the Company’s PSP and RSP
Genel Energy Annual Report 2020
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Directors’ remuneration report Annual report on remuneration
Name
2020
Non-Executive Directors
David McManus1
208
Sir Michael Fallon1
Tolga Bilgin1
Tim Bushell
Canan Edibog˘lu2
Hassan Gozal1
Martin Gudgeon
George Rose3
Nazli K. Williams
90
51
91
37
51
84
96
56
Salary/
fees
£’000
2019
-
-
-
91
-
-
81
93
56
Benefits
£’000
2019
2020
2020
Bonus
£’000
2019
2020
LTIP
£’000
2019
-
-
-
-
-
-
-
-
-
–
-
-
-
–
-
–
–
–
-
-
-
-
-
-
-
-
-
–
-
-
-
–
–
–
–
–
-
-
-
-
-
-
-
-
-
–
-
-
-
–
–
–
–
–
Total
£’000
2019
-
-
-
91
-
-
81
93
56
2020
208
90
51
91
37
51
84
96
56
1. Appointed to the Board on 5 February 2020
2. Appointed to the Board on 21 June 2020
3. George Rose was appointed Interim Chairman from 3 December 2019 until 5 February 2020 for which an interim fee of £200,000 was set
Additional disclosures in respect of the single total figure table
Base salary
The table below shows base salaries which were effective during 2020.
Bill Higgs1
Esa lkaheimonen2,3
Base salary on
1 Jan 2019 or date of
appointment
£530,000
£422,300
Base Salary on
1 January 2020
£540,600
£450,000
1. Bill Higgs was appointed as CEO on 7 April 2019
2. Esa Ikaheimonen was appointed as Executive Director on 7 April 2019
3. Esa Ikaheimonen’s base salary was increased to £450,000 on 1 August 2019 to reflect increased functional responsibilities
Salary information for 2021 is provided on page 88.
Benefits
In line with the Committee’s aim to provide a simple, transparent package, the Executive Directors receive a cash supplement of a
percentage of base salary 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. In the event that the Executive Directors
participate in the Mandatory Pension Plan offered by the Company the cash supplement will be reduced by the amount contributed by the
Company into the Mandatory Pension Plan.
Annual bonus
The 2020 annual bonus scorecard was approved based on the Company’s performance against key business objectives with a combination
of 20% personal and 80% company metrics for both Bill Higgs and Esa Ikaheimonen.
Bill’s score at 90% demonstrates his continued personal success against operational readiness and leadership objectives in a challenging
year, in particular the swift and effective decision to reshape our capital expenditure programme in the first quarter of 2020 and the
successful decision to press ahead and invest in the delivery of first oil at Sarta. The personal score for Esa of 90% reflects a year of
continued strong financial management. Our robust balance sheet, supported by the successful bond refinancing in September, has allowed
the Company to invest in our key growth projects, and maintain our material dividend despite the impact of COVID-19 and the oil price
collapse early in 2020.
Bill Higgs chose to defer £80,120 of his 2019 bonus into Company shares, and Esa Ikaheimonen elected to defer £194,392. The Executive
Directors will again be invited to voluntarily defer up to 100% of their 2020 annual bonus into Company shares. Any bonus that is deferred
will vest after a two year period and will be subject to malus provisions during this period. The portion of 2020 bonuses that are deferred
will be reported in the 2021 Annual Report.
Bill Higgs
Esa lkaheimonen
84 Genel Energy Annual Report 2020
2020
bonus
As % of
maximum
£422,000
£351,000
78%
78%
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Directors’ remuneration report Annual report on remuneration
2020 – Annual bonus, Remuneration Committee assessment of performance
against targets
In light of the impact of the COVID-19 pandemic and the material adverse impact on prevailing oil price, the 2020 work programme and budget
was revised early in the year. As a result, the Committee reassessed the scorecard and approved changes accordingly in May. Company
metrics focused on the delivery of culture, dividend, production and activity, based on our final 2020 budget and work programme. This
included increased weightings on culture delivery given the importance of safety, and on activity delivery that will support share price
growth. The weighting on production delivery was reduced to reflect the anticipated lower production activity in 2020.
The company scorecard was assessed by the Committee, based upon the achievement of these performance targets, which resulted in a
corporate scorecard outcome of 75% of maximum.
Bonus
performance
measure
Culture
Delivery
Dividend
Delivery
Production
Delivery
Activity
Delivery
Weighting
Performance target
Assessment of performance against metrics
Performance
assessment
30%
• Excellent safety record
• Implementation of ESG plan completed on
time
• Successful derisking and completion of early
10%
refinancing
30%
20%
• Safety
• ESG implementation plan complete
• Strong compliance culture
• Free cash flow neutral for the year
• Finance plan that delivers business
objectives at $40/bbl
• Derisk impact of bond covenants on
dividend payments
5%
• Deliver production as per plan
• Full year production in line with plan and
5%
budget
45%
• 2020 activity programme delivered within
• Activity delivered within Opex and Capex
30%
Capex and Opex budget
• Delivery of Sarta first oil
• Progress objectives at Bina Bawi and
Somaliland
budget
• First oil at Sarta delivered successfully
• Somaliland and Bina Bawi progress not in
place
Share plan awards made in 2020
During 2020 the Committee assessed the appropriateness of TSR metrics. Genel has several near term strategic and operational
milestones and we determined to replace the absolute TSR targets in 2020 with PSP awards linked to our organic FID pipeline to deliver
high margin production. Whilst details of the strategic goals and measures, accounting for 50% of the assessment, remain commercially
sensitive (and therefore will only be disclosed retrospectively following any vesting), the measures have appropriately challenging targets.
PSP awards continued to be assessed 50% on relative TSR against our peer group. The peer group for the 2020 PSP awards is below.
Africa Oil
Aker BP
Cairn Energy
DNO
Energean Oil and Gas
Enquest
Gulf Keystone
Hurricane
Kosmos
Lundin
Nostrum Oil & Gas
Premier Oil
Seplat Petroleum
Pharos Energy
Tullow Oil
Awards will vest according to the following schedule:
Relative 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%
The following table provides details of the awards made under the PSP and DBP during 2020. Performance for the PSP awards is measured
over the three years from the date of grant.
Bill Higgs
Esa Ikaheimonen
Type of award
Face value
(£)
Basis of awards
Threshold
vesting
(% of face
value)
Maximum
vesting
(% of face
value)
End of
performance
period/Vesting
PSP1
DBP2
PSP1
DBP2
£810,900
150% of salary
30%
100%
02/04/2023
£80,120
voluntary election
22/06/2022
£675,000
150% of salary
30%
100%
02/04/2023
£194,392
voluntary election
22/06/2022
1. The face value of the PSP is calculated as a percentage of base salary as at 1 January 2020
2. The Executive Directors were invited to defer a percentage of their 2019 bonus into Company shares under the DBP. The face value (£) is calculated using the average
share price. ten dealing days prior to the date of grant, of 126.3 pence
Genel Energy Annual Report 2020
85
Directors’ remuneration report Annual report on remuneration
Share awards
The following table provides a summary of all share awards as at 31 December 2020. Further details of the Company’s share plans are set
out on pages 121 and 122.
Scheme
Grant date
Bill Higgs1
PSP
PSP
PSP
PSP
RSP
RSP
DBP
22/12/2017
11/04/2018
07/05/2019
22/06/2020
22/12/2017
07/05/2019
22/06/2020
Esa Ikaheimonen1
PSP
PSP
PSP
PSP
RSP
RSP
DBP
25/08/2017
11/04/2018
07/05/2019
22/06/2020
25/08/2017
27/08/2019
22/06/2020
Exercise
price
(pence)
As at 1
Jan 2020
Granted
during
the year
Dividend
during the
year
Vested
during
the year
Exercised
during the
year
Lapsed
during
the year
As at 31
Dec 2020
Performance
period end
Expiry date
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,595
35,1842
63,773
303,158
378,755
–
–
-
31,357
39,177
- 642,042
19,893
146,603
185,566
–
-
7,581
80,884
14,395
46,391
–
63,436
1,965
–
35,635 357,2043
507,067
379,254
301,788
–
–
-
39,228
31,215
-
534,441
16,559
455,643
127,381
–
16,173
246,312
12,119
34,082
–
153,912
4,768
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35,185
35,183
22/12/2020
22/12/2027
–
–
–
–
-
–
334,515
11/04/2021
11/04/2028
417,932
07/05/2022 07/05/2029
661,935
03/04/2023 22/06/2030
154,184
22/12/2020
22/12/2027
199,961
07/05/2022
07/05/2029
65,401
22/06/2022 22/06/2030
185,498
357,204 25/08/2020 25/08/2027
–
–
–
–
–
–
418,482
11/04/2021
11/04/2028
333,003
07/05/2022 07/05/2029
551,000
03/04/2023 22/06/2030
471,816
25/08/2020
25/08/2027
139,500
21/08/2022
27/08/2029
158,680
22/06/2022
22/06/2030
Performance
August 2017:
• Based on the Company’s TSR performance over the performance period the
Company is ranked 1st against the comparator group and achieved vesting of
100% of this element.
• Absolute TSR performance: The Company’s absolute TSR performance over
the three year performance period was 15.47% p.a., resulting in vesting of
31.64% of this element.
• Cumulative performance outcome: the cumulative impact of the above
performance for the relative and absolute TSR elements results in 65.82% of
August 2017 awards vesting.
Dec 2017:
• Based on the Company’s TSR performance over the performance period the
Company is ranked 1st against the comparator group and achieved vesting of
100% of this element.
• Absolute TSR performance: Based on the Company’s TSR performance over
the performance over the three year performance period was 7.69% p.a.,
resulting in vesting of 0% of this element.
• Cumulative performance outcome: The cumulative impact of the above
performance for the relative and absolute TSR elements results in 50% of
December 2017 awards vesting.
Performance against targets for 2017 PSP awards
Targets
Both Dec 2017 PSP and Aug 2017 PSP
1. Relative TSR vesting schedule and comparator group (accounting for
50% of the assessment)
The Relative TSR element of the Award vested in accordance with the following
schedule:
Relative TSR ranking of the Company
Proportion of Award Vesting
Below median
Median
Between median and upper quartile
Upper quartile
0%
30%
Straight line basis
100%
The Award was subject to the Company’s ranked TSR performance against the
following Comparator Group:
Relative TSR peer group
BP
Cairn Energy
DNO
EnQuest
Gulf Keystone
Nostrum Oil & Gas
Ophir Energy
Premier Oil
Royal Dutch Shell
Seplat Petroleum
Pharos Energy
Tullow Oil
2. Absolute TSR vesting schedule (accounting for 50% of the assessment)
The Absolute TSR Performance Target means the compound annual growth
rates (CAGR) in the TSR of the company.
The Absolute TSR element of the Award vested in accordance with the following
schedule:
Relative TSR ranking of the Company
Proportion of Award Vesting
Below 15% p.a
15% p.a
Between 15% p.a. and 35% p.a.
35% p.a. or more
0%
30%
Straight line basis
100%
1. Awards made to Bill Higgs and Esa Ikaheimonen prior to 7 April 2019 were made to them before they held Executive Directorships
2. £6,450 of the 2020 LTIP value shown for Bill Higgs on page 83 is due to share price growth between grant and vesting of the 22 December 2017 PSP award (excluding
dividend equivalents)
3. No element of the 2020 LTIP value shown for Esa Ikaheimonen on page 83 is due to share price growth between the grant and vesting of the 25 August 2017 PSP award
(excluding dividend equivalents)
86 Genel Energy Annual Report 2020
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Payments to past Directors
In 2020, there were no payments made to past Directors.
As disclosed in the 2019 Annual Report, Murat Özgül stepped down as CEO in April 2019 but continued employment with the Company in a
different role which does not include any Board responsibilities. Any remuneration received during 2020 was in respect of this new role.
Payments for loss of office
In 2020, there were no payments made 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 2020 are shown in the table below.
The Company does not currently operate a formal shareholding guideline as Executive Directors must normally hold any vested shares
under the PSP for two years following vesting for share awards. Executive Directors are expected to build up their holding over time.
Director
David McManus
Sir Michael Fallon
Bill Higgs
Tolga Bilgin1
Tim Bushell
Canan Edibog˘lu
Hassan Gozal
Martin Gudgeon
Esa Ikaheimonen
George Rose
Nazli K. Williams
Ordinary shares
as at 31 Dec 2019
Ordinary shares
as at 31 Dec 2020
Interest in share options
granted under the Company
share plans as at 31 Dec 20
-
-
37,829
-
–
–
–
100,000
–
90,000
–
-
9,000
37,829
-
–
–
46,338,6222
150,000
–
90,000
–
-
-
1,869,112
-
–
–
–
2,429,685
–
–
1. Bilgin Grup Dog˘al Gaz A.S¸, of which Tolga Bilgin is the CEO, holds 62,523,017 shares in the Company as at 31 December 2020
2. These shares are held by Daax Corporation FZE, of which Hassan Gozal is the sole owner
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
180
160
140
120
100
80
60
40
20
0
21/11/2011
21/11/2012
21/11/2013
21/11/2014
21/11/2015
21/11/2016
21/11/2017
21/11/2018
21/11/2019
31/12/2020
GENEL ENERGY
FTSE350 OIL & GAS PRODUCERS
Genel Energy Annual Report 2020
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Directors’ remuneration report Annual report on remuneration
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 2020 financial year.
Chief Executive Officer
CEO single figure
remuneration (£’000)
Annual bonus pay-out (as a
% of maximum opportunity)
Long-term incentive
vesting out-turn (as a %
of maximum opportunity)
2012
2013
2014
2015
2015
2016
2017
2018
2019
2019
2020
Tony
Hayward
Tony
Hayward
Tony
Hayward
Tony
Hayward2
Murat
Özgül2
Murat
Özgül
Murat
Özgül
Murat
Özgül
Murat
Özgül2
Bill
Higgs2
Bill
Higgs
1,691
1,779
2,521
468
531
1,519
1,765
1,882
299
1,112
1,118
90%
95%
90%
0% 36.25%
71.4% 82.14% 72.5%
60%
65%
78%
n/a
n/a
82.5%
0%
0%1
0%
0%
0%
0%
n/a
50%3
1. The Committee exercised its discretion to reduce the vesting under the 2013 PSP awards from 30% to 0%
2. Pro-rated according to period holding Executive Directorship
3. This vesting is in relation to the December 2017 PSP award granted to Bill Higgs prior to his appointment as CEO
Percentage change in remuneration of the Executive Directors
The table below shows the percentage change in the Executive Directors’ salary, benefits and annual bonus between the financial years
ended 31 December 2019 and 31 December 2020 compared to the average for permanent employees of the Company.
Bill Higgs
Esa Ikaheimonen
All employees
% change in
base salary
2019/2020
% change in
benefits
2019/2020
% change in
annual bonus
2019/2020
38.4%
38.4%
66.08%
39.39%
39.39%
69.88%
10.4%
6.8%
9.7%
The percentage change in annual bonus for the Executive Directors compares outcomes of the period spent holding the Executive
Directorships in 2019 against 2020.
Non-executive Directors received only a fee in 2020 and did not receive benefits or an annual bonus. For those Non-executive Directors
that were in role in 2019 and 2020, the year-on-year changes in their fee received were: Tim Bushell and Nazli K. Williams: 0%; Martin
Gudgeon: 3.7%; George Rose: 3.2%.
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. The cost to the Company of dividends paid to shareholders in 2020 was
$41m.
Remuneration paid to all employees
2019
2020
$m
20.2
23.9
Remuneration paid to all employees represents total staff costs from continuing operations.
Implementation of Remuneration Policy in 2021
This section provides an overview of how the Committee is proposing to implement our Remuneration Policy in 2021.
In determining Executive Director salary increases for 2021, the Committee once again 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 decided to increase the base salaries of the Executive Directors by 1% with effect from 1 January 2021, in line with the
wider UK workforce. The table below shows the base salaries for Executive Directors in 2021.
Base salary from 1 Jan 2021
Bill Higgs
Esa Ikaheimonen
88 Genel Energy Annual Report 2020
£546,006
£454,500
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Directors’ remuneration report Annual report on remuneration
Benefits
As outlined above, the 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 included in calculating bonus and long-term incentive quantum.
For 2021, the cash supplement remains 20% of base salary. This is in line with Company ambition to align Executive remuneration with the
wider workforce, and is in line with our Executive Committee members.
2021 benefits allowance
Bill Higgs
Esa Ikaheimonen
£109,201
£90,900
2021 – Annual bonus targets
The target bonuses for the Executive Directors for 2020 will be at a maximum of 100% of base salary. For 2021, the performance of the
Executive Directors will be measured 20% against personal performance metrics and 80% against Company metrics.
The focus for the 2021 cash bonus will again be on short-term delivery over the year. In order to continue our focus on the performance
required to deliver share price growth, the financial measure has been renamed. 50% of the bonus will rely on the delivery of production
and activity. We continue to maintain the focus on high performance in safety and compliance with an added focus on personal high
performance culture across the workforce in all functions. The implementation of the ESG plan that was delivered in 2020 will be measured
in 2021.
Bonus performance measures
Specific targets
Culture Delivery
• Health and Safety
• ESG implementation
• Strong compliance culture
• High performance culture
Balance Sheet Delivery
• Maintain strong balance sheet
• Significant reduction in unpaid receivables
Production Delivery
• Production delivered within budget
Activity Delivery
• 2021 activity programme delivered within Capex and Opex budget
• Drilling campaign within budget
• Progress to operatorship at Sarta
Percentage
20%
30%
10%
40%
Performance share plan
PSP awards are normally granted as nil-cost options to UK based participants, and conditional share awards to participants in Turkey. The
number of awards granted are normally determined by reference to a percentage of base salary.
The ultimate goal of our strategy is to provide long-term sustainable returns to shareholders. Following a thorough review of a range of
alternative long term incentive plans the Committee has concluded that the plan that best meets shareholders’ objectives is an equal
combination of relative and absolute TSR measures as has been successfully implemented in prior years.
The 2021 award for the Executive Directors will continue to be based on a face value of 150% of base salary.
The peer group for the measurement of the relative TSR element of the 2021 award, representing 50% of the award, has been reviewed
and revised to reflect the latest market developments as shown below:
Africa Oil
Aker BP
Cairn Energy
DNO
Energean Oil & Gas
Enquest
Gulf Keystone
Harbour
Kosmos
Lundin
Pharos Energy
Shamaran
Savannah
Tethys
Tullow Oil
The relative TSR vesting schedule will remain the same as for awards made in 2020, as outlined on page 85.
ABSOLUTE TSR
Absolute TSR of the Company
Below 10% p.a.
10% p.a.
Between 10% p.a. and 15% p.a.
15% p.a. or more
Proportion of element vesting
0%
30%
Straight–line basis
100%
Genel Energy Annual Report 2020
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Directors’ remuneration report Annual report on remuneration
Chairman and Non-Executive Director remuneration
Non-Executive Director fees were reviewed in 2020 against benchmark data for companies with a similar market cap, and also against
comparable E&P companies. The fees for all remain unchanged for 2020.
Role
Non–Executive Chairman
Deputy Chairman
Senior Independent Director
Non–Executive Director
Additional fee for membership of two or more Board Committees
Additional fee for Committee chairmanship:
Role
Audit Committee
Remuneration Committee
HSSE Committee
Reserves Committee
Nomination Committee
International Relations Committee
Fee
£230,000
£10,000
£10,000
£56,000
£14,000
Fee
£14,000
£14,000
£10,500
£10,500
No additional fee
£10,000
The Committee is responsible for determining the Remuneration Policy for the Executive Directors and the Chairman of the Board. The
Chairman of the Board together with the Executive Directors determine the fees and overall remuneration for the Non-Executive Directors.
Martin Gudgeon
Chairman of the Remuneration Committee
17 March 2021
90 Genel Energy Annual Report 2020
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Directors’ Report
Other statutory and regulatory
information
Management report
The Directors’ Report, together with the Strategic Report set out on pages 1 to 40, form the Management Report in alignment with
the purposes of Disclosure Guidance and Transparency Rule (DTR) 4.1.5R.
Statutory information contained elsewhere in the Annual Report
Information required to be part of a Directors’ Report can be found elsewhere in the Annual Report as indicated in the table below
and is incorporated into this report by reference.
INFORMATION
Results and dividends
Likely future developments in the business of the Company or its subsidiaries
Subsequent events
Corporate social responsibility
Greenhouse gas emissions
Section 172 statement and stakeholder engagement
Colleagues (employment of disabled persons, workforce engagement and policies)
Engagement with suppliers, customers and others in a business relationship
Corporate Governance Statement
Directors’ details (including changes made during the year)
Related party transactions
Diversity
Share capital
Viability statement
Going concern and Fair, balanced and understandable statements
Employee share schemes (including long-term incentive schemes)
Financial instruments: information on the Group’s financial instruments and risk
management objectives and policies, including our policy for hedging
LOCATION IN ANNUAL REPORT
> Pages 96 to 120
> Page 23
> Page 122
> Pages 24 to 33
> Page 32
> Pages 39
> Pages 26, 29
> Pages 29, 39
> Pages 41 to 44
> Pages 59 to 62
> Note 22 on page 122
> Page 29
> Note 17 on page 119
> Page 38
> Pages 38 and 42
> Note 20 on pages 121-122
> Notes 15 and 16 on pages 118 to 119
Statements of responsibilities
> Page 95
Disclosure table pursuant to Listing Rule (LR) 9.8.4C
The following table provides references to where the information required by Listing Rule 9.8.4C is disclosed:
Listing Rule and requirement*
9.8.4(4) Long-term incentive schemes (LR 9.4.3R)
> Disclosure
> Note 20 on pages 121 to 122
*Each of the other disclosures required under Listing Rule 9.8.4c are not applicable to Genel Energy plc
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.
Genel Energy plc is a Jersey incorporated company with a standard listing on the London Stock Exchange. We are committed to complying
with the regulatory requirements in both Jersey and the UK. We are in full compliance with the provisions of the Code with the exception
of provision 11 as between 3 December 2019 and 21 June 2020 as at least half the Board (excluding the Chairman) were not independent.
A copy of the Code can be found at www.frc.org.uk/corporate/ukcgcode.cfm
Genel Energy Annual Report 2020
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Directors’ Report Other statutory and regulatory information
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 36 Broadway, Victoria, London,
SW1H 0BH UK on Thursday, 6 May 2021 at 11.00am.
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.
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.
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.
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 and Focus
Investments.
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 59 to 62. Details of Directors’ service
agreements and letters of appointment are set out on pages 80
and 81.
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 Annual Report on Remuneration on page 87.
Details of Directors submitting themselves for re-election and
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.
Employee share schemes
Details of the Company’s employee share schemes are set out in
note 20 to the financial statements of this Annual Report.
Employee Benefit Trust (‘EBT’)
Equiniti Jersey Limited was appointed as trustee of Genel Energy’s
EBT in 2012. The voting rights relating to the shares held by
the employee benefit trust are exercisable by the trustees in
accordance with their fiduciary duties.
Further details regarding the EBT and of shares issued pursuant to
Genel Energy’s various employee share plans during the year, are
set out in note 20 to the financial statements.
Political donations
No political donations were made, nor was any political expenditure
incurred, by any Group company in the year ending 31 December
2020 (2019: nil).
Share Capital
As at 17 March 2021, 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. These consist of
277,670,478 voting ordinary shares and 2,577,720 shares held as
treasury shares.
Resolutions in relation to share capital
At the AGM of the Company held on 14 May 2020, the shareholders
granted the Company authority to make market purchases of up
to 27,767,047 ordinary shares (representing approximately 10%
of the aggregate issued ordinary share capital of the Company
at 9 April 2020) and hold as treasury shares any ordinary shares
so purchased. During 2020, no shares were purchased by the
Company under this authority.
Shareholders will be asked to renew this authority at the
forthcoming AGM. Full details are included in the Notice of AGM.
Rights attaching to the ordinary
shares
Holders of 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 of 24 February 2016 the Company no longer has any suspended
voting ordinary shares in issue.
92 Genel Energy Annual Report 2020
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Directors’ Report Other statutory and regulatory information
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 policy, (iii) as imposed
from time to time by law and regulation and (iv) as set out in the
Merger Agreement1. Save as set out in the Merger Agreement 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.
Related party transactions
Details of transactions with Directors and Officers are set out in note
22 to the financial statements. There were no other related party
transactions to which the Company was a party during the period.
Shareholder agreements
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.
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’).
On 14 October 2015 Mehmet Sepil retired 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.
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 Focus Investments (and their Associates) and that
all transactions and relationships between the Company 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 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, the Company felt it prudent to amend
it to align it to the specific obligations under Listing Rule 6.1.4(d)
in effect at the time.
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.
Pursuant to the terms of the Relationship Agreement, it has been
agreed that, among other things:
a) For so long as Focus Investments and its respective Associates
are entitled to exercise or control the exercise of, in aggregate,
10% or more of the Voting Rights, Focus Investments will, and
will procure so far as it is reasonably able to do so, that each of
its Associates will:
i.
not take any action which precludes or inhibits any member
of the Group from carrying on its business independently
of Focus Investments and its 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 Focus
Investments or any of its 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 Focus Investments and its respective Associates
are, between them, entitled to exercise or control the exercise
of, in aggregate, 10% or more of the Voting Rights, 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
iii. 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;
1 Following the transfer of a certain number of shares in the Company from Focus Investments to Türkiye İs¸ Bankası A.S¸, the Company has entered into a separate
agreement with Türkiye İs¸ Bankası A.S¸ providing the Company with a right of first refusal over its shares in the Company on substantially the same terms as those
contained in the Merger Agreement.
Genel Energy Annual Report 2020
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Directors’ Report Other statutory and regulatory information
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; and
d) For so long as Focus Investments together with their Associates
are 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 Focus Investments is 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)–(d) above will terminate and cease to be
of any effect 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.
The Director nominated by Focus Investments pursuant to the
Relationship Agreement is Nazli K. Williams (Non- Executive Director).
Substantial shareholdings
As at 31 December 2020, 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.
Name
Number of ordinary shares
Bilgin Grup Dog˘al Gaz A.S¸.
Daax Corporation FZE
Focus Investments Limited
NR Holdings Limited
Türkiye I˙s¸ Bankası A.S¸.
62,523,017
46,338,622
39,419,883
21,214,583
19,000,000
Auditors
Following the completion of a competitive tender process, a
resolution to appoint BDO LLP as the Company’s auditor will
be proposed at the 2021 AGM.
By order of the Board
Bill Higgs
Chief Executive Officer
17 March 2021
94 Genel Energy Annual Report 2020
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Statements of responsibilities
Statement of directors’ responsibilities
in respect of the financial statements
The Directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
the Group financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union. Under company law, Directors must not approve the
financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group for that period. In
preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors 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.
The Directors are responsible for keeping adequate 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 and enable them to ensure that
the Group financial statements comply with the Companies (Jersey)
Law 1991 and the Directors’ Remuneration Report comply with the
Companies Act 2006 and Article 4 of the IAS Regulation, given the
Company voluntarily prepares a Directors’ Remuneration Report in
accordance with the provisions of the United Kingdom Companies
Act 2006.
The Directors are responsible for the maintenance and integrity
of the Group’s website. Legislation in the United Kingdom and
Jersey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors, whose names and functions are listed in
Statement of Directors’ Responsibilities confirm that, to the best
of their knowledge:
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give
a true and fair view of the assets, liabilities, financial position
and loss of the Group; and
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces.
In the case of each Director in office at the date the Annual Report
is approved:
• so far as the Director is aware, there is no relevant audit
information of which the Group’s auditors are unaware; and
• they have taken all the steps that they ought to have taken as
a Director in order to make themselves aware of any relevant
audit information and to establish that the Group’s auditors
are aware of that information.
By order of the Board
Bill Higgs
Chief Executive Officer
17 March 2021
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Independent auditors’ report to
the members of Genel Energy Plc
Report on the audit of the
financial statements
Opinion
In our opinion, Genel Energy Plc’s group financial statements:
• give a true and fair view of the state of the group’s affairs as at
31 December 2020 and of its loss and cash flows for the year
then ended;
• have been properly prepared in accordance International
Financial Reporting Standards as adopted in the European
Union; and
• have been prepared in accordance with the requirements of the
Companies (Jersey) Law 1991.
We have audited the financial statements, included within
the Annual Report, which comprise: the consolidated balance
sheet as at 31 December 2020; the consolidated statement of
comprehensive income, the consolidated statement of changes in
equity, and the consolidated cash flow statement for the year then
ended; and the notes to the financial statements, which include a
description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities
for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as
applicable to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit approach
Context
The collapse of global oil prices, delayed KRG payments and
suspended override proceeds amid the COVID-19 pandemic set
the context for this year’s audit. The group’s main cash flow
generating assets continue to be its interests in the Tawke and Taq
Taq producing oil fields in the Kurdistan Region of Iraq (‘KRI’). In
December, the group achieved first oil on Sarta its development
asset in the KRI. In addition, discussions with the Kurdistan Region
Government (‘KRG’) on the development of the potential gas
and oil projects on the Bina Bawi and Miran Production Sharing
Contracts (‘PSC’) continued but had not concluded by the date of
this report.
Overview
Audit scope
• We identified two significant components out of the group’s 23
reporting entities
• Specific financial statement line items were in scope for an
additional 8 entities
• Overall, our scoping strategy resulted in a minimum of 75% of
each financial statement line item being in scope for testing
Key audit matters
• Risk of impairment of oil producing assets
• Risk of recoverability of overdue debtors
• Risk of impairment of exploration assets
• COVID-19
Materiality
• Overall materiality: $15 million (2019: $8 million) based on 1% of
total assets (2019: 2.5% of EBITDAX).
• Performance materiality: $11.25 million.
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements.
Capability of the audit in detecting irregularities
Including fraud Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined in the Auditors’ responsibilities
for the audit of the financial statements section, to detect material
misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to failure to comply with employment laws,
environmental regulations, health and safety regulations and
anti-bribery and corruption law, and we considered the extent to
which non-compliance might have a material effect on the financial
statements. We also considered those laws and regulations
that have a direct impact on the preparation of the financial
statements such as the Companies (Jersey) Law 1991. We evaluated
management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of
override of controls), and determined that the principal risks were
related to posting inappropriate journal entries and management
bias in accounting estimates. Audit procedures performed by the
engagement team included:
• Discussions with management including the group legal function
to determine whether there were any known or suspected
instances of non-compliance with laws and regulation and fraud.
96 Genel Energy Annual Report 2020
Independent auditors’ report to the members of Genel Energy Plc
• Understanding and evaluating controls designed to prevent and
detect irregularities and fraud.
• Assessing significant judgements and estimates in particular
those relating to impairment of producing assets, exploration
assets and overdue debtors and the disclosure of these items
(and as outlined further in the ‘Key audit matters’ section of this
report).
• Identifying and testing journal entries, in particular journal
entries posted with unusual account combinations.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related
to events and transactions reflected in the financial statements.
Also, the risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of our
audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
This is not a complete list of all risks identified by our audit.
Risk of recoverability of overdue debtors and COVID-19 are new key
audit matters this year. Otherwise, the key audit matters below are
consistent with last year.
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KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
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RISK OF IMPAIRMENT OF OIL PRODUCING ASSETS
IAS 36 requires management to consider whether there are
indicators of impairment on a Cash Generating Unit (‘CGU’) basis,
and if any are identified, to carry out a full impairment assessment
of the relevant assets.
At 30 June 2020, primarily due to the significant decline in
current and forecast oil prices, management concluded that
impairment indicators existed for both Tawke and Taq Taq.
As required, management therefore performed full impairment
assessments of the Tawke and Taq Taq CGUs as at 30 June 2020.
This resulted in impairment charges of $254 million and $32
million for Tawke and Taq Taq, respectively.
At 31 December 2020, as part of their review for impairment
indicators, management considered forward looking information
in each of the following key areas for both CGUs: reserves,
production, costs, oil price and discount rate.
Following their assessment, management have not identified any
further impairment indicators for the Taq Taq and Tawke CGUs
during the period.
At 30 June 2020, in order to challenge management’s assessment of
the recoverable amount of each CGU, we reviewed the reasonableness of
management’s key assumptions as follows:
Reserves, production and cost profile – we compared management’s
reserves, production and cost assumptions with those of management’s
experts in the Competent Person’s Report (‘CPR’s), and 3rd Party Operators
as relevant. We also held discussions with management’s experts and
discussed production performance and future drilling plans with operational
management. We agreed drilling plans and costs to approved asset
development plans. We did not identify any issues from this work.
Oil price forecast – we benchmarked management’s oil price forecast
against independent brokers and consultant estimates. We found
management’s assumptions to be in the lower (less optimistic) quartile of
our sample range.
Discount rate – we benchmarked management’s discount rate against
an independently determined range calculated by our valuation experts.
Management’s discount rate was below the lower (more optimistic) end of
our acceptable range.
We also performed sensitivity analysis over management’s key assumptions
used in their impairment assessments taking into account the CPRs and our
own view of future oil prices and discount rate.
Whilst management’s discount rate fell outside our acceptable range, when
considered in conjunction with their cautious view of oil price forecasts, we
found management’s assessment of the recoverable values of the Tawke
and Taq Taq CGUs at 30 June 2020 to be reasonable, and the calculations
of the related impairment charges appropriate.
At 31 December 2020, our audit work focused on the reasonableness of
management’s key assumptions, and by comparison with 30 June 2020,
considered whether there was any indicator of impairment.
We compared management’s reserves, production and cost assumptions
with those of management’s experts in the Competent Person’s Reports
(‘CPR’s), and the operators as relevant. We also held discussions with
management’s experts and discussed production performance and future
drilling plans with management. We had no matters to report arising from
this work.
We benchmarked management’s oil price forecast against independent
broker and consultant estimates, and assessed management’s discount rate
against a discount rate range independently determined by our valuation
experts. In both cases, our benchmarks had improved since the impairment
assessment as at 30 June 2020.
Accordingly, we concurred with management that there were no indicators
of impairment at 31 December 2020.
We also considered management’s disclosure of the impairment testing to
be in accordance with IAS 36.
Genel Energy Annual Report 2020
97
Independent auditors’ report to the members of Genel Energy Plc
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
RISK OF RECOVERABILITY OF OVERDUE DEBTORS
In March 2020, the Company was informed by the Kurdistan
Regional Government (‘KRG’) that due to the significant fall in
the oil price, payments for November 2019 to February 2020 that
were overdue would be deferred, and override payments would be
suspended.
Given the suspension of the override mechanism, management
concluded that revenue in respect of the override should not be
recognised from 1 March 2020.
On 6 December 2020, the KRG announced a payment mechanism
for both the overdue receivables and the outstanding override
payments, which is dependent on a combination of oil production and
the prevailing oil price. Whilst this payment mechanism commenced
prospectively from January 2021, the company has not yet agreed
to the terms, and there remain areas of interpretation as to how it
should operate. In addition, the amount of override revenue due as at
31 December 2020 has not been agreed with the KRG.
As management does not have sufficient confidence in the value
or timing of payment of the 2020 override revenue of $37.8 million,
this amount continues to be unrecognised under IFRS 15.
In respect of the overdue payments, management performed the
expected credit loss (ECL) assessment based on the KRG proposed
terms using a range of oil price scenarios and an effective interest
rate of 13%. As a result, an impairment of $34.9 million to trade
receivables was recorded.
RISK OF IMPAIRMENT OF EXPLORATION ASSETS
Under IFRS 6, management is required to consider whether there
are indicators of impairment and if any are identified, to carry out a
full impairment assessment of the relevant assets under IAS 36.
Whilst management are continuing discussions with the KRG on the
development of Bina Bawi and Miran towards becoming producing
assets, following the failure to agree a Gas Lifting Agreement by
30 April 2020 for Bina Bawi and 31 May 2020 for Miran, the PSCs
contain clauses which would give the KRG the right to give the
company notice that they intend to terminate the related PSCs.
The Company’s view is that it does not accept that any such right
arose or could now be exercised. In addition, the Company has been
informed by the KRG that, while negotiations are ongoing, it will not
seek to serve notice of an intention to terminate the Bina Bawi PSC.
Following their assessment, management have not identified any
impairment indicators for the Bina Bawi and Miran CGUs.
We consider this to be a key audit matter due to the significance
of the carrying value of these exploration assets and the level of
judgement being exercised in the impairment assessment.
We have reviewed the relevant correspondence with the KRG and concur
with management that it is appropriate under IFRS to not recognise the
override revenues.
Our review of management’s ECL assessment focused on the
reasonableness of the key assumptions used in the impairment
assessment.
Oil price - We benchmarked management’s Brent scenarios against our
range of independent broker and consultant estimates
Production - We agreed the production profiles utilised to the Asset
Development Plans approved by the Board for each field.
Discount rate - Our valuation experts provided an independent view of
an appropriate discount rate range, which management’s discount rate of
13% is within.
Recovery scenarios - We confirmed that the models reflect the payment
mechanism proposed by the KRG. We reviewed correspondence from
management to the KRG seeking improved terms, and as a result
consider this approach to be a reasonable worst-case scenario.
Mathematical accuracy - We checked the mathematical accuracy of the
ECL model.
Our work did not identify any issue which would indicate that the ECL
recorded is materially misstated. We also considered management’s
disclosure of the ECL assessment to be in accordance with IFRS 9.
Our work focused on whether the lack of a field development plan agreed
with the KRG as at the date of our audit report, combined with the KRG’s
right to terminate the PSCs, resulted in an impairment indicator under
IFRS 6, which would then require a full impairment assessment to be
undertaken.
We have confirmed with management and the company’s legal advisers
their views with regards to rights under the PSCs and that no notification
of intention to terminate the PSCs has been received from the KRG.
We held meetings with management to discuss the current strategy for
development of the assets and understand the outcome of the latest
meetings held with the KRG. We reviewed proposals submitted to the
KRG in August, and compared these to the basis for management’s
valuations of the assets at the 2019 year-end.
We also reviewed a report by the US Department of Energy on the KRI’s
natural gas sector which emphasised the importance of collaboration
amongst operators and the KRG to unlock the large gas developments,
specifically highlighting the role Bina Bawi and Miran can play in meeting
the future gas demand in the region.
Based on these enquiries we concur with management’s assessment that
no impairment indicators exist for both Bina Bawi and Miran CGUs as at
31 December 2020.
We also reviewed the related disclosures in the Annual Report in order to
ensure that they were appropriate and obtained representations from the
Directors in relation to the current status of discussions with the KRG.
COVID-19
COVID-19 was declared a pandemic by the World Health
Organisation on 11 March 2020 and the on-going response is having
an unprecedented impact on the global economy. It is therefore
necessary to consider the impact on the Company.
Our procedures in respect of the related financial reporting issues being
impairment of producing assets, impairment of exploration assets and
recoverability of overdue debtors are set out in the related key audit
matter above.
As set out in the Annual Report, management has considered the
impact of COVID-19 on the Company, alongside the actions that
have been taken in response to the pandemic.
Our procedures and conclusions in respect of going concern are set out
separately within the Conclusions relating to going concern section of
this report.
The primary impact of COVID-19 on the Company has been the
adverse movement in global oil prices which led to delayed KRG
payments and suspended override proceeds. Management has also
considered the potential impact of COVID-19 in undertaking their
assessment of going concern.
We determined management’s consideration of the impact of
COVID-19 to be a key audit matter.
98 Genel Energy Annual Report 2020
We considered the appropriateness of disclosures in the Annual Report
with regards to the impact and risks related to the pandemic and
consider these to be appropriate.
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Independent auditors’ report to the members of Genel Energy Plc
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 structure of the
group, the accounting processes and controls, and the industry in
which it operates.
The group is structured along two reporting segments being the
type of assets it operates: Production assets and Pre-production
assets. The group financial statements are a consolidation comprising
the group’s operating businesses in these reporting segments
as well as centralised functions. While the group’s key assets are
almost entirely based in the Kurdistan Region of Iraq, accounting
functions are largely performed in the company’s office in Ankara.
Our group scoping was based on total assets, we have identified
two financially significant components comprising a high proportion
of total group assets, which required an audit of their complete
financial information. These two significant components are (a) the
trading entity for the Kurdistan oil producing assets Taq Taq and
Tawke and (b) the entity that holds the Miran and Bina Bawi assets.
We also performed specific procedures on certain financial
statement line items within eleven other components in the group
including: operating expenses, finance expenses, cash and cash
equivalents and borrowings.
Overall, our scoping strategy resulted in a minimum of 75% of each
financial statement line item being in scope for testing. The PwC
UK group engagement team performed all of our audit work. As a
result of Covid-19, we were unable to visit the accounting function
in Ankara but performed our procedures remotely, in most cases
with communication through video conferencing.
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 in
aggregate 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
How we
determined it
Rationale for
benchmark
applied
$15 million (2019: $8 million)
1% of total assets (2019: 2.5% of EBITDAX)
This reflects the events of 2020 including
the fall in oil price, the delay in payments
from the KRG and suspension of the
ORRI which result in the key risk areas
being balance sheet related (a departure
from 2019 where we used an EBITDAX
benchmark). We used a lower specific
materiality for certain income statement
financial statement line items. In 2020, we
used 5% of EBITDAX (defined in Note 1) ($5.7
million) for revenue, production costs, and
general and administrative costs.
For each component in the scope of our group audit, we allocated a
materiality that is less than our overall group materiality. The range of
materiality allocated across components was $0.4 million to $13.5
million. Certain components were audited to a local statutory audit
materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use
performance materiality in determining the scope of our audit and
the nature and extent of our testing of account balances, classes
of transactions and disclosures, for example in determining sample
sizes. Our performance materiality was 75% of overall materiality,
amounting to $11.25 million for the group financial statements.
In determining the performance materiality, we considered a number
of factors - the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls - and concluded
that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above $0.8 million (2019:
$0.4 million) as well as misstatements below that amount that, in
our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s ability to
continue to adopt the going concern basis of accounting included:
• Obtaining and reviewing management’s paper to the Audit
Committee which outlines the basis for the going concern
conclusion, and summarised base case forecasts and downside
scenario models;
• Reviewing the key inputs into the model, including production
profiles, oil price forecasts, capital expenditure and operating
expenditure estimates, to ensure that these were consistent with
our understanding of the business, and with the inputs used in
other key accounting judgements in the financial statements
such as impairment and debtor recoverability;
• Performing our own independent sensitivity analysis to
understand the impact of severe changes in cash flows such as
complete suspension of payments from the KRG;
• Reviewing the covenants applicable to the Group’s borrowings
and requirements of farm-in agreements and assessing whether
the forecasts supported ongoing compliance with these
covenants.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
group’s ability to continue as a going concern for a period of
at least twelve months from when the financial statements are
authorised for issue.
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the group’s
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in
the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of
this report.
Genel Energy Annual Report 2020
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Independent auditors’ report to the members of Genel Energy Plc
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the
other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not express
an audit opinion or, except to the extent otherwise explicitly stated
in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated. If we identify an
apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a
material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report based on these responsibilities.
Based on our work undertaken in the course of the audit, the ISAs
(UK) require us also to report certain opinions and matters as
described below.
Corporate governance statement
ISAs (UK) require us to review the directors’ statements in relation to
going concern, longer-term viability and that part of the corporate
governance statement relating to the company’s compliance
with the provisions of the UK Corporate Governance Code, which
the Listing Rules of the Financial Conduct Authority specify for
review by auditors of premium listed companies. Our additional
responsibilities with respect to the corporate governance statement
as other information are described in the Reporting on other
information section of this report.
Based on the work undertaken as part of our audit, we have concluded
that each of the following elements of the corporate governance
statement, included within the Governance section of the Annual
Report is materially consistent with the financial statements and
our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and
an explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether
they considered it appropriate to adopt the going concern basis
of accounting in preparing them, and their identification of any
material uncertainties relating to the group’s ability to continue
to do so over a period of at least twelve months from the date of
approval of the financial statements;
• The directors’ explanation as to their assessment of the group’s
prospects, the period this assessment covers and why the period
is appropriate; and
• The directors’ statement as to whether they have a reasonable
expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term
viability of the group was substantially less in scope than an audit and
only consisted of making inquiries and considering the directors’
process supporting their statement; checking that the statement
is in alignment with the relevant provisions of the UK Corporate
Governance Code; and considering whether the statement is
consistent with the financial statements and our knowledge and
understanding of the group and its environment obtained in the
course of the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess
the group’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems;
and
• The section of the Annual Report describing the work of the
audit committee.
We have nothing to report in respect of our responsibility to
report when the directors’ statement relating to the company’s
compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified under the Listing
Rules for review by the auditors
100 Genel Energy Annual Report 2020
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Responsibilities for the financial
statements and the audit
Responsibilities of the directors for the
financial statements
As explained more fully in the Statement of Directors’ responsibilities,
the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for
being satisfied that they give a true and fair view. The directors
are also responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either
intend to liquidate the group or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number
of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on
their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population
from which the sample is selected.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at: www.frc.
org.uk/auditorsresponsibilities. This description forms part of our
auditors’ report.
Use of this report
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.
Other required
reporting
Companies (Jersey) Law 1991
exception reporting
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; or
• proper accounting records have not been kept, or proper returns
adequate for our audit have not been received from branches
not visited by us; or
• the financial statements are not in agreement with the
accounting records and returns
We have no exceptions to report arising from this responsibility.
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Other voluntary
reporting
Directors’ remuneration (United
Kingdom Companies Act 2006)
The parent company voluntarily prepares a Directors’ Remuneration
Report in accordance with the provisions of the United Kingdom
Companies Act 2006. The directors requested that we audit the part
of the Directors’ Remuneration Report specified by the United
Kingdom Companies Act 2006 to be audited as if the parent
company were a quoted company.
In our opinion, the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the United
Kingdom Companies Act 2006.
Michael Timar
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Recognized Auditor
London
18 March 2021
Genel Energy Annual Report 2020
101
Consolidated statement
of comprehensive income
For the year ended 31 December 2020
Revenue
Production costs
Depreciation and amortisation of oil assets
Gross (loss) / profit
Exploration expense
Impairment of intangible assets
Impairment of property, plant and equipment
Impairment of receivables
General and administrative costs
Operating (loss) / profit
Operating (loss) / profit is comprised of:
EBITDAX
Depreciation and amortisation
Exploration expense
Impairment of intangible assets
Impairment of property, plant and equipment
Impairment of receivables
Finance income
Bond interest expense
Other finance expense
(Loss) / Profit before income tax
Income tax expense
(Loss) / Profit and total comprehensive (expense) / income
Attributable to:
Owners of the parent
(Loss) / earnings per ordinary share
Basic
Diluted
Underlying1
1. Underlying EPS is EBITDAX divided by weighted average number of ordinary shares
102 Genel Energy Annual Report 2020
Note
2
3
3
3
3-8
3-9
10
3
3
3
3-8
3-9
10
5
5
5
6
7
7
2020
$m
159.7
(32.7)
(153.3)
(26.3)
(2.2)
(44.3)
(242.0)
(36.9)
(12.8)
(364.5)
114.6
(153.7)
(2.2)
(44.3)
(242.0)
(36.9)
2.0
(31.5)
(22.7)
(416.7)
(0.2)
(416.9)
(416.9)
(416.9)
¢
(152.0)
(152.0)
41.8
2019
$m
377.2
(37.7)
(157.1)
182.4
(1.2)
-
(29.8)
-
(19.1)
132.3
321.8
(158.5)
(1.2)
-
(29.8)
-
6.6
(30.0)
(4.3)
104.6
(0.7)
103.9
103.9
103.9
¢
37.8
37.0
116.9
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Consolidated balance sheet
At 31 December 2020
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Current assets
Trade and other receivables
Restricted cash
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Trade and other payables
Deferred income
Provisions
Interest bearing loans
Current liabilities
Trade and other payables
Deferred income
Interest bearing loans
Total liabilities
Net assets
Owners of the parent
Share capital
Share premium account
Accumulated losses
Total equity
Note
8
9,19
10
10
11
11
12-19
13
14
15
12-19
13
15
2020
$m
2019
$m
699.4
395.7
52.1
1,147.2
48.9
-
354.5
403.4
775.6
636.9
-
1,412.5
157.4
3.0
390.7
551.1
1,550.6
1,963.6
(100.4)
(19.7)
(45.9)
(267.7)
(433.7)
(99.0)
(7.5)
(80.6)
(187.1)
(118.8)
(26.7)
(37.4)
(297.9)
(480.8)
(91.7)
(5.0)
-
(96.7)
(620.8)
(577.5)
929.8
1,386.1
17
43.8
3,991.9
(3,105.9)
929.8
43.8
4,033.4
(2,691.1)
1,386.1
These consolidated financial statements on pages 102 to 123 were authorised for issue by the Board of Directors on 17 March 2020 and
were signed on its behalf by:
Bill Higgs
Chief Executive Officer
Esa Ikaheimonen
Chief Financial Officer
Genel Energy Annual Report 2020
103
Consolidated statement
of changes in equity
For the year ended 31 December 2020
At 1 January 2019
Profit and total comprehensive income
Share-based payments
Purchase of shares to satisfy share awards
Purchase of treasury shares
Dividends provided for or paid1
At 31 December 2019 and 1 January 2020
Loss and total comprehensive income
Share-based payments
Purchase of shares for employee share awards
Dividends provided for or paid1
Note
Share capital
$m
Share premium
$m
Accumulated
losses
$m
Total equity
$m
43.8
4,074.2
(2,786.6)
1,331.4
20
18
20
18
-
-
-
-
-
-
-
-
-
(40.8)
103.9
5.1
(8.2)
(5.3)
-
103.9
5.1
(8.2)
(5.3)
(40.8)
43.8
4,033.4
(2,691.1)
1,386.1
-
-
-
-
-
-
-
(41.5)
(416.9)
5.5
(3.4)
-
(416.9)
5.5
(3.4)
(41.5)
At 31 December 2020
43.8
3,991.9
(3,105.9)
929.8
1. The Companies (Jersey) Law 1991 does not define the expression “dividend” but refers instead to “distributions”. Distributions may be debited to any account or reserve of
the Company (including share premium account)
104 Genel Energy Annual Report 2020
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Consolidated cash flow statement
For the year ended 31 December 2020
Cash flows from operating activities
(Loss) / Profit for the year
Adjustments for:
Net finance expense
Taxation
Depreciation and amortisation
Exploration expense
Impairments
Other non-cash items
Changes in working capital:
Decrease / (Increase) in trade receivables
Decrease / (Increase) in other receivables
Increase in trade and other payables
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
Movement in restricted cash
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to company’s shareholders, including expenses
Purchase of own shares
Bond refinancing: part-settlement and new issuance
Other
Interest paid
Net cash used in financing activities
Net (decrease) / increase in cash and cash equivalents
Foreign exchange loss on cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Post year-end payments1
Cash and cash equivalents after post year-end payments
Note
5
6
3
3
3
3
5
11
18
15
11
11
15
2020
$m
(416.9)
52.2
0.2
153.7
2.2
323.2
(3.7)
15.8
0.6
0.4
127.7
2.0
(0.3)
129.4
(24.2)
(85.5)
3.0
(106.7)
(55.3)
(3.4)
28.9
(3.3)
(25.8)
(58.9)
(36.2)
-
390.7
354.5
(81.0)
273.5
2019
$m
103.9
27.7
0.7
158.5
1.2
29.8
(2.4)
(55.4)
(0.2)
3.3
267.1
6.6
(0.8)
272.9
(26.5)
(123.8)
7.0
(143.3)
(29.0)
(13.5)
-
(0.6)
(30.0)
(73.1)
56.5
(0.1)
334.3
390.7
(13.6)
377.1
1. On 8 January 2021, shortly after the balance sheet date, the Company paid $81.0 million to settle $77.1 million of old bonds reducing its gross debt balance to $280 million,
with $267.7 million reported under IFRS in the balance sheet. In the prior year, an interim dividend payment of $13.6 million was made on 8 January 2020, which has been
shown as a comparative.
Genel Energy Annual Report 2020
105
Notes to the consolidated
financial statements
1. Summary of significant accounting policies
1.1 Basis of preparation
Genel Energy Plc – registration number: 107897 (the Company) is a public limited company incorporated and domiciled in Jersey with a
listing on the London Stock Exchange. The address of its registered office is 12 Castle Street, St Helier, Jersey, JE2 3RT.
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards
as adopted by the European Union and interpretations issued by the IFRS Interpretations Committee (together ’IFRS’); are prepared under
the historical cost convention except as where stated; and comply with Company (Jersey) Law 1991. The significant accounting policies are
set out below and have been applied consistently throughout the period.
The Company prepares its financial statements on a historical cost basis, unless accounting standards require an alternate measurement
basis. Where there are assets and liabilities calculated on a different basis, this fact is disclosed either in the relevant accounting policy or
in the notes to the financial statements.
Items included in the financial information of each of the Company’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The consolidated financial statements are presented in US dollars to
the nearest million ($m) rounded to one decimal place, except where otherwise indicated.
For explanation of the key judgements and estimates made by the Company in applying the Company’s accounting policies, refer to
significant accounting judgements and estimates on pages 107 and 109.
Going concern
The Company regularly evaluates its financial position, cash flow forecasts and its compliance with financial covenants by considering multiple
combination of oil price, discount rates, production volumes, payments, capital and operational spend scenarios. The Company has reported
liquidity after settlement of bonds post year-end of $273.5 million, with no debt maturing until the second half of 2025 and significant headroom
on both the equity ratio and minimum liquidity covenant. Our business model has demonstrated its resilience in 2020, when oil price was low
and 4 months of payments with a value of $120.8 million that were due in the year were not received, by delivering a small free cash out flow
after investing significantly in bringing Sarta to first production. The strength of the balance sheet is expected to be maintained through 2021,
with Sarta adding a new income stream and diversifying production risk, and capital activity in the year focused on expanding the sources of
income of the business further. Our low-cost assets with flexibility on commitment of capital means that we are resilient to oil prices as low as
the levels reached last year, with the KRG also demonstrating its ability to pay consistently in times of financial stress. In addition, specifically for
the purposes of the going concern, management have modelled a downside scenario, recognising the impact of the COVID19 pandemic, which
includes a significant reduction in oil price from current levels combined with a reduction in production. As a result, the Directors have assessed
that the Company’s forecast liquidity provides adequate headroom over its forecast expenditure for the 12 months following the signing of the
annual report for the period ended 31 December 2020 and consequently that the Company is considered a going concern.
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 companies.
Subsidiaries
Subsidiaries are all entities over which the Company has control. The Company controls an entity when 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 companies are eliminated.
Joint arrangements and associates
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 has neither control nor joint control are classified as associates and accounted for under the equity method.
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.
106 Genel Energy Annual Report 2020
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Notes to the consolidated financial statements
1. Summary of significant accounting policies continued
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. The resulting exploration and evaluation asset is then assessed for impairment indicators under
IFRS 6.
1.2 Significant accounting judgements and estimates
The preparation of the financial statements in accordance with IFRS requires the Company to make judgements and estimates 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. The Company has assessed the following as being areas where changes in judgements or estimates
could have a significant impact on the financial statements.
Significant judgements
The significant judgements that the directors have made in the process of applying the Company’s accounting policies and that have the
most significant effect on the amounts recognised in the financial statements include; i) IFRS 15 criteria have not been met for override
revenue; ii) the Bina Bawi and Miran projects will progress which are explained in the context of the significant estimates below.
Significant estimates
The following are the critical estimates that the directors have made in the process of applying the Company’s accounting policies and that
have the most significant effect on the amounts recognised in the financial statements.
Estimation of hydrocarbon reserves and resources and associated production profiles and costs
Estimates of hydrocarbon reserves and resources are inherently imprecise and are subject to future revision. The Company’s estimation of
the quantum of oil and gas reserves and resources and the timing of its production, cost and monetisation impact the Company’s financial
statements in a number of ways, including: testing recoverable values for impairment; the calculation of depreciation, amortisation and
assessing the cost and likely timing of decommissioning activity and associated costs. This estimation also impacts the assessment of going
concern and the viability statement.
Proved and probable reserves are estimates of the amount of hydrocarbons that can be economically extracted from the Company’s assets.
The Company estimates its reserves using standard recognised evaluation techniques. Assets assessed as having proven and probable
reserves are generally classified as property, plant and equipment as development or producing assets and depreciated using the units of
production methodology. The Company considers its best estimate for future production and quantity of oil within an asset based on a
combination of internal and external evaluations and uses this as the basis of calculating depreciation and amortisation of oil and gas assets
and testing for impairment.
Hydrocarbons that are not assessed as reserves are considered to be resources and the related assets are classified as exploration and
evaluation assets. These assets are expenditures incurred before technical feasibility and commercial viability is demonstrable. 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 and are likely to contain estimates and judgements with a wide
range of possibilities. These assets are considered for impairment under IFRS 6.
Once a field commences 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.
Assessment of reserves and resources 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.
Change in accounting estimate
The Company has updated its estimated reserves and resources with the accounting impact summarised below under estimation of oil and
gas asset values.
Estimation of oil and gas asset values
Estimation of the asset value of oil and gas assets is calculated from a number of inputs that require varying degrees of estimation. Principally
oil and gas assets are valued by estimating the future cash flows based on a combination of reserves and resources, costs of appraisal,
development and production, production profile and future sales price and discounting those cash flows at an appropriate discount rate.
Future costs of appraisal, development and production are estimated taking into account the level of development required to produce
those reserves and are based on past costs, experience and data from similar assets in the region, future petroleum prices and the planned
development of the asset. However, actual costs may be different from those estimated.
Discount rate is assessed by the Company using various inputs from market data, external advisers and internal calculations. A post tax
nominal discount rate of 13% derived from the Company’s weighted average cost of capital (WACC) is used when assessing the impairment
testing of the Company’s oil assets at year-end. Risking factors are also used alongside the discount rate when the Company is assessing
exploration and appraisal assets.
Genel Energy Annual Report 2020
107
Notes to the consolidated financial statements
1. Summary of significant accounting policies continued
In addition, estimation of the recoverable amounts of the Bina Bawi and Miran cash generating units (‘CGU’s), which are classified under
IFRS as exploration and evaluation intangible assets and consequently carry the inherent uncertainty explained above, include the key
assessment that the projects will progress. Progression of the project is outside of the control of management and is dependent on the
progress of government discussions regarding supply of gas and sanctioning of development of both of the midstream for gas and the
upstream for oil. The KRG and the Company have been focusing on progressing the Bina Bawi asset first, with success on Bina Bawi likely to
inform both of the likely structure, midstream and downstream solution for Miran. Lack of progress on Bina Bawi could result in significant
delays in value realisation and consequently a materially lower asset value for both assets. Under the existing production sharing contracts
(‘PSC’) for both Bina Bawi and Miran, the KRG had a right (not an obligation) effective from 30 April 2020 and 31 May 2020 respectively to
take steps to terminate the PSCs if no new Gas Lifting Agreement(s) was in place. Whilst the Company does not accept that any such right
arose, or could now be exercised, the Company has in any event been informed by the KRG that, while negotiations are ongoing, it will not
seek to serve notice of an intention to terminate the Bina Bawi PSC. Discussions are ongoing.
Change in accounting estimate – Discount rate for assessing recoverable amount of producing assets
Following the significant change in the macro geo-political, economic and industry environment, for the period ended 30 June 2020 the
Company has updated the discount rate used for assessing the recoverable amount of its producing assets from 12.5% to 13.0%. At the
half year this had a negative impact on the recoverable amount of the Tawke CGU and the Taq Taq CGU. The results of the assessments
combining with other factors are explained below. The Company disclosed the sensitivities on net present values in note 9. At the year-end
the discount rate is unchanged from the half year at 13.0%.
Change in accounting estimate – Tawke asset and Tawke RSA (receivable settlement agreement) carrying value; Taq Taq carrying value
At the half year, as a result of lower oil prices and lower levels of investment than were forecasted in the preparation of the financial
statements for the year-ended 31 December 2019 were finalised, together with the higher discount rate explained above, management
assessed that there were impairment indicators for both Tawke and Taq Taq. Management performed impairment assessments and assessed
their recoverable values on a fair value less cost to sell basis, resulting in an impairment of $210.4 million for the Tawke; $44.3 million for the
Tawke RSA; and $31.6 million for the Taq Taq asset respectively. There were no impairment indicators at the end of the year, and in particular,
the oil price outlook has improved since the half year as disclosed below.
Change in accounting estimate – Taq Taq and Tawke depreciation
Management has reassessed the depreciation rate per barrel during the second half, principally as a result of lower estimate of future
production and costs for Taq Taq, increased future cost estimate for Tawke and the impact of HY impairments on both assets. Change
in future cost estimates do not materially impact NPV as a result of cost recovery which is explained further in the sensitivity to capital
expenditure disclosure in note 9. The adjusted depreciation rate results in a depreciation expense that is $6 million higher for Taq Taq and
$4 million higher for Tawke than if the previous depreciation rate per barrel was used.
Estimation of future oil price and netback price
The estimation of future oil price has a significant impact throughout the financial statements, primarily in relation to the estimation of the
recoverable value of property, plant and equipment and intangible assets. It is also relevant to the assessment of going concern and the
viability statement.
The Company’s forecast of average Brent oil price for future years is based on a range of publicly available market estimates and is
summarised in the table below, with the 2025 price then inflated at 2% per annum.
$/bbl
Actual / Forecast
HY 2020 forecast
Prior year forecast
2020
2021
2022
2023
2024
42
40
65
55
43
67
55
50
68
60
55
72
60
60
73
The netback price is used to value the Company’s revenue, trade receivables and its forecast cash flows used for impairment testing and
viability. It is the aggregation of realised oil price less transportation and handling costs. The Company does not have direct visibility on the
components of the netback price realised for its oil because sales are managed by the KRG, but invoices are currently raised for payments
on account using a netback price agreed with the KRG.
Estimation of the recoverable value of trade receivables
At the end of March, in line with other International Oil Companies (IOCs) in Kurdistan, the KRG informed the Company that payments owed
for sales made in the four months from November 2019 to February 2020 would be deferred. For Genel this amounted to $120.8 million.
For the period ended 30 June 2020, the Company estimated recovery of these overdue amounts, which resulted in an impairment of
$34.9 million.
In December 2020, the KRG announced a reconciliation model for payment of the receivable relating to the unpaid invoices, whereby for
each dollar above a monthly dated Brent average of $50/bbl, 50 cents per working interest barrel shall be paid towards monies owed.
In order to assess the recoverable amount of overdue trade receivables at 31 December 2020, the Company has compared the carrying
value of trade receivables with the present value of the estimated future cash flows based on the KRG’s communications, and using
estimations of future oil prices and production scenarios. Under IFRS9, the Company has used a forward-looking impairment model based
on a lifetime expected credit loss (ECL) assessment.
The model calculates the net present value of outstanding receivables using the effective interest rate for the period in which the revenue
was recognised, which was 13%. The expected credit loss is the weighted average of these scenarios and is recognised in the income
statement. The result of the Company’s assessment was no change to the reported receivable balance, with the impairment of $34.9 million
maintained. The accounting and valuation of the receivable will be an output of clarity on the mechanism and that it is working effectively,
oil price and production. The Company has provided the detailed disclosures required by IFRS 9 ECL assessment in note 10.
108 Genel Energy Annual Report 2020
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1. Summary of significant accounting policies continued
Recognition of revenue generated by the override royalty, arising from the RSA
Since 2017 when the RSA was signed, the Company has received override revenue from Tawke sales. At the end of March, the KRG informed
the Company that this override income was suspended for a minimum period up to December 2020. Because management did not have visibility
on how or when this contractual right would be received, it has assessed that the criteria for revenue recognition under IFRS15, specifically on
payment terms and collectability, have not been met, and consequently no override revenue has been recognised from 1 March 2020. The total
amount of override revenue for the period between 1 March 2020 to 31 December 2020 that has not been recognised is $37.8 million.
1.3 Accounting policies
The accounting policies adopted in preparation of these financial statements are consistent with those used in preparation of the annual
financial statements for the year ended 31 December 2019, adjusted for transitional requirements where necessary, further explained under
revenue and changes in accounting policies headings.
Revenue
Revenue for oil sales is recognised when the control of the product is deemed to have passed to the customer, in exchange for the
consideration amount determined by the terms of the contract. For exports the control passes to the customer when the oil enters the
export pipe, for domestic sales this is when oil is collected by truck by the customer.
Revenue is earned based on the entitlement mechanism under the terms of the relevant PSC; overriding royalty income (‘ORRI’), which
is earned on 4.5% of gross field revenue from the Tawke licence until July 2022; and royalty income. Entitlement has two components:
cost oil, which is the mechanism by which the Company recovers its costs incurred on an asset, and profit oil, which is the mechanism
through which profits are shared between the Company, its partners and the KRG. The Company pays capacity building payments on profit
oil entitlement earned on the Sarta and Taq Taq licences, which becomes due for payment once the Company has received the relevant
proceeds. Profit oil revenue is always reported net of any capacity building payments that will become due. On the Tawke licence, the
Company also receives override revenue (“ORRI”), which is calculated as 4.5% of Tawke PSC field revenue. The override began in August
2017 and is due to end in July 2022.
The Company’s oil sales are made to the KRG which is the counterparty of the PSCs and are valued at a netback price, which is calculated
from the estimated realised sales price for each barrel of oil sold, less selling, transportation and handling costs and estimates to cover
additional costs. A netback adjustment is used to estimate the price per barrel that is used in the calculation of entitlement and is explained
further in significant accounting estimates and judgements.
The payment terms for the Company’s sales are due within 30 days. The Company does not expect to have any contracts where the period
between the transfer of oil to the customer and the payment exceeds one year. Therefore, the transaction price is not adjusted for the time
value of money.
The Company is not able to measure the tax that has been paid on its behalf and consequently revenue is not reported gross of income tax paid.
Intangible assets
Exploration and evaluation assets
Oil and gas assets classified as exploration and evaluation assets are explained under Oil and Gas assets below.
Tawke RSA
Intangible assets include the Receivable Settlement Agreement (‘RSA’) effective from 1 August 2017, which was entered into in exchange
for trade receivables due from KRG for Taq Taq and Tawke past sales. The RSA was recognised at cost and is amortised on a units of
production basis in line with the economic lives of the rights acquired.
Other intangible assets
Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and less accumulated
impairment losses. Amortisation is expensed on a straight-line basis over the estimated useful lives of the assets of between 3 and 5 years
from the date that they are available for use.
Property, plant and equipment
Producing and Development assets
Oil and gas assets classified as producing and development assets are explained under Oil and Gas assets below.
Other property, plant and equipment
Other property, plant and equipment are principally the Company’s leasehold improvements and other assets and are carried at cost, less
any accumulated depreciation and accumulated impairment losses. Costs include purchase price and construction cost. Depreciation of these
assets is expensed on a straight-line basis over their estimated useful lives of between 3 and 5 years from the date they are available for use.
Oil and gas assets
Costs incurred prior to obtaining legal rights to explore are expensed 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 so long as the activity is assessed to be de-risking the asset and the Company expects continued
activity on the asset into the foreseeable future. Costs of activity that do not identify oil and gas reserves are expensed.
Genel Energy Annual Report 2020
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Notes to the consolidated financial statements
1. Summary of significant accounting policies continued
All 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 assessed as being 2P reserves and commercially viable.
Once assessed as being 2P reserves they are tested for impairment and transferred to property, plant and equipment 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 assets are classified under producing assets following the commercial production commencement.
Development expenditure is accounted for in accordance with IAS 16 – Property, plant and equipment. Producing assets are depreciated once they
are available for use and are depleted on a field-by-field basis using the unit of production method. The sum of carrying value and the estimated
future development costs are divided by total barrels to provide a $/barrel unit depreciation cost. Changes to depreciation rates as a result of
changes in forecast production and estimates of future development expenditure are reflected prospectively.
The estimated useful lives of property, plant and equipment and their residual values are reviewed on an annual basis and 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 costs incurred are neither de-risking nor adding value to the
asset, the associated costs are expensed to the income statement.
Impairment testing of oil and gas assets is considered in the context of each cash generating unit. A cash generating unit is generally a
licence, with the discounted value of the future cash flows of the CGU compared to the book value of the relevant assets and liabilities. As
an example, the Tawke CGU is comprised of the Tawke RSA intangible asset, property, plant and equipment (relating to both the Tawke field
and the Peshkabir field) and the associated decommissioning provision.
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.
Business combinations
The recognition of business combinations requires the allocation of the excess of the purchase price of acquisitions over the net book value
of assets acquired 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. The Company uses all available information to make the fair value determinations.
In determining fair value for acquisitions, the Company utilises 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.
Financial assets and liabilities
Classification
The Company assesses the classification of its financial assets on initial recognition at amortised cost, fair value through other
comprehensive income or fair value through profit and loss. The Company assesses the classification of its financial liabilities on initial
recognition at either fair value through profit and loss or amortised cost.
Recognition and measurement
Regular purchases and sales of financial assets are recognised at fair value on the trade-date – the date on which the Company commits
to purchase or sell the asset. Trade and other receivables, trade and other payables, borrowings and deferred contingent consideration 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 payment
is expected within one year or less, trade receivables are classified as current assets otherwise 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.
Under the Tawke, Taq Taq and Sarta PSCs, payment for entitlement is due within 30 days. The Company’s assessment of impairment model
based on expected credit loss is explained below under financial assets.
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 and includes the Company’s share of cash held in joint operations.
Interest-bearing borrowings
Borrowings are recognised initially at fair value, net of any discount in issuance and 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.
110 Genel Energy Annual Report 2020
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Notes to the consolidated financial statements
1. Summary of significant accounting policies continued
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.
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.
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 the Company’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 cost is capitalised to property, plant and equipment and 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.
Impairment
Oil and gas assets
The carrying amounts of the Company’s oil and gas 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. For value in use, the estimated future
cash flows arising from the Company’s future plans for the asset are discounted to their present value using a nominal post tax discount
rate that reflects market assessments of the time value of money and the risks specific to the asset. For fair value less costs of disposal,
an estimation is made of the fair value of consideration that would be received to sell an asset less associated selling costs (which are
assumed to be immaterial). 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. Non-financial assets that suffered impairment are
reviewed for possible reversal of the impairment at each reporting date.
Property, plant and equipment and intangible assets
Impairment testing of oil and gas assets is explained above. When impairment indicators exist for other non-financial assets, impairment
testing is performed based on the higher of value in use and fair value less costs of disposal. The Company assets’ recoverable amount is
determined by fair value less costs of disposal.
Financial assets
Impairment of financial assets is assessed under IFRS 9 with a forward-looking impairment model based on expected credit losses (ECLs).
The standard requires the Company to book an allowance for ECLs for its financial assets. The Company has assessed its trade receivables
as at 31 December 2020 for ECLs. Further explanation is provided in significant accounting judgements and estimates.
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.
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, is
net of any tax effects and is recognised as a deduction in equity. Repurchased shares are classified as treasury shares and are presented as
a deduction from total equity. When treasury shares are subsequently sold or reissued, the amount received is recognised as an increase in
equity and the resulting surplus or deficit of the transaction is transferred to/from retained earnings.
Genel Energy Annual Report 2020
111
Notes to the consolidated financial statements
1. Summary of significant accounting policies continued
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 Company 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 Company operates equity-settled share-based compensation plans. The expense required in accordance with IFRS2 is recognised in
the statement of comprehensive income over the vesting period of the award. The expense is determined by reference to option pricing
models, principally Monte Carlo and adjusted Black-Scholes models.
At each balance sheet date, the Company 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.
Finance income and finance costs
Finance income comprises interest income on cash invested, foreign currency gains and the unwind of discount on any assets held at
amortised cost. Interest income is recognised as it accrues, using the effective interest method.
Finance expense comprises interest expense on borrowings, foreign currency losses and discount unwind on any liabilities held at
amortised cost. 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.
Taxation
Under the terms of KRI PSC’s, corporate income tax due is paid on behalf of the Company by the KRG from the KRG’s own share of
revenues, resulting in no corporate income tax payment required or expected to be made by the Company. It is not known at what rate
tax is paid, but it is estimated that the current tax rate would be between 15% and 40%. If this was known it would result in a gross up of
revenue with a corresponding debit entry to taxation expense with no net impact on the income statement or on cash. In addition, it would
be necessary to assess whether any deferred tax asset or liability was required to be recognised. Current tax expense is incurred on profits
of service companies.
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 CEO, the chief operating decision
maker, in order to allocate resources to the segment and assess its performance.
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 new accounting standards, amendments to existing standards and interpretations are effective on 1 January 2020.
Amendments to References to the Conceptual Framework in IFRS Standards, Amendments to IAS 1 and IAS 8: Definition of Material,
Amendments to IFRS 9, IAS 39 and IFRS17: Interest Rate Benchmark Reform, Amendments to IFRS 3 Business Combinations, Amendment
to IFRS 16 Leases Covid 19-Related Rent Concessions (1 Jun 2020). Nothing has been early adopted, and these standards are not expected
to have a material impact on the Company’s results or financials statement disclosures in the current or future reporting periods.
The following new accounting standards, amendments to existing standards and interpretations have been issued but are not yet effective
and have not yet been endorsed by the EU: IFRS 17 Insurance contracts (effective 1 Jan 2023), Amendments to IAS 1 Presentation of
Financial Statements: Classification of Liabilities as Current or Non-current (1 Jan 2022), Amendments to IFRS 3 Business Combinations;
IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; Annual Improvements 2018-2020 (1
Jan 2022), Amendments to IFRS 4 Insurance Contracts – deferral of IFRS19 (1 Jan 2021), Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16 Interest Rate Benchmark Reform – Phase 2 (1 Jan 2021).
2. Segmental information
The Company has two reportable business segments: Production and Pre-production. Capital allocation decisions for the production
segment are considered in the context of the cash flows expected from the production and sale of crude oil. The production segment is
comprised of the producing fields on the Tawke PSC (Tawke and Peshkabir), the Taq Taq PSC (Taq Taq) and the Sarta PSC (Sarta) which are
located in the KRI and make sales predominantly to the KRG. The pre-production segment is comprised of discovered resource held under
the Qara Dagh PSC, the Bina Bawi PSC and the Miran PSC (all in the KRI) and exploration activity, principally located in Somaliland and
Morocco. Sarta asset was transferred from pre-production to production following the production commencement close to the end of the
year, whereas capital expenditure incurred for the development of the field until production commenced is reported under pre-production
segment. ‘Other’ includes corporate assets, liabilities and costs, elimination of intercompany receivables and intercompany payables, which
are non-segment items.
112 Genel Energy Annual Report 2020
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Notes to the consolidated financial statements
2. Segmental information continued
For the period ended 31 December 2020
Revenue from contracts with customers
Revenue from other sources
Cost of sales
Gross loss
Exploration expense
Impairment of intangible asset
Impairment of property, plant and equipment
Impairment of receivables
General and administrative costs
Operating loss
Operating loss is comprised of
EBITDAX
Depreciation and amortisation
Exploration expense
Impairment of intangible assets
Impairment of property, plant and equipment
Impairment of receivables
Finance income
Bond interest expense
Other finance expense
Loss before income tax
Capital expenditure
Total assets
Total liabilities
Production
$m
Pre-production
$m
Other
$m
155.0
4.7
(186.0)
(26.3)
-
(44.3)
(242.0)
(34.9)
-
(347.5)
127.0
(153.3)
-
(44.3)
(242.0)
(34.9)
-
-
(1.6)
(349.1)
56.5
672.5
(146.3)
-
-
-
-
(2.2)
-
-
-
-
(2.2)
-
-
(2.2)
-
-
-
-
-
(0.3)
(2.5)
53.2
539.0
(98.2)
-
-
-
-
-
-
-
(2.0)
(12.8)
(14.8)
(12.4)
(0.4)
-
-
-
(2.0)
2.0
(31.5)
(20.8)
(65.1)
-
339.1
(376.3)
Total
$m
155.0
4.7
(186.0)
(26.3)
(2.2)
(44.3)
(242.0)
(36.9)
(12.8)
(364.5)
114.6
(153.7)
(2.2)
(44.3)
(242.0)
(36.9)
2.0
(31.5)
(22.7)
(416.7)
109.7
1,550.6
(620.8)
Revenue from contracts with customers includes $14.7 million (2019: $104.3 million) arising from the ORRI, which is explained further in note 1. The ORRI
was suspended from March 2020 to December 2020 and consequently no revenue has been recognised relating to this period.
Total assets and liabilities in the other segment are predominantly cash and debt balances.
For the period ended 31 December 2019
Revenue from contracts with customers
Revenue from other sources
Cost of sales
Gross profit
Exploration expense
Impairment of property, plant and equipment
General and administrative costs
Operating profit / (loss)
Operating profit / (loss) is comprised of
EBITDAX
Depreciation and amortisation
Exploration expense
Impairment of property, plant and equipment
Finance income
Bond interest expense
Other finance expense
Profit / (Loss) before income tax
Capital expenditure
Total assets
Total liabilities
Production
$m
Pre-production
$m
Other
$m
368.7
8.5
(194.8)
182.4
-
(29.8)
-
152.6
339.5
(157.1)
-
(29.8)
-
-
(1.8)
150.8
115.1
998.1
(99.4)
-
-
-
-
(1.2)
-
-
(1.2)
-
-
(1.2)
-
-
-
(0.3)
(1.5)
43.0
595.2
(149.9)
-
-
-
-
-
-
(19.1)
(19.1)
(17.7)
(1.4)
-
-
6.6
(30.0)
(2.2)
(44.7)
-
370.3
(328.2)
Total
$m
368.7
8.5
(194.8)
182.4
(1.2)
(29.8)
(19.1)
132.3
321.8
(158.5)
(1.2)
(29.8)
6.6
(30.0)
(4.3)
104.6
158.1
1,963.6
(577.5)
Total assets and liabilities in the other segment are predominantly cash and debt balances.
Genel Energy Annual Report 2020
113
Notes to the consolidated financial statements
3. Cost of sales
Operating costs
Trucking costs
Production cost
Depreciation of oil and gas property, plant and equipment
Amortisation of oil and gas intangible assets
Cost of sales
Exploration expense
Impairment of intangible assets (note 8)
Impairment of property, plant and equipment (note 9)
Impairment of receivables (note 10)
Corporate cash costs
Other operating expenses
Corporate share-based payment expense
Depreciation and amortisation of corporate assets
General and administrative expenses
2020
$m
(32.6)
(0.1)
(32.7)
(98.7)
(54.6)
(186.0)
2019
$m
(37.7)
-
(37.7)
(88.8)
(68.3)
(194.8)
(2.2)
(1.2)
(44.3)
(242.0)
(36.9)
(9.6)
(1.8)
(1.0)
(0.4)
(12.8)
-
(29.8)
-
(13.3)
(0.8)
(3.6)
(1.4)
(19.1)
Exploration expense relates to spend and accruals for costs or obligations relating to licences where there is ongoing activity or that have
been, or are in the process of being, relinquished.
Trucking costs are not cost-recoverable and relate to the Sarta licence only, where production is in its early stages.
Fees payable to the Company’s auditors:
Audit of consolidated and subsidiary financial statements
Tax and advisory services
Total fees
4. Staff costs and headcount
Wages and salaries
Contractors costs
Social security costs
Share based payments
Staff costs include cost of contractors.
Average headcount was:
Turkey
KRI
UK
Somaliland
Contractors
5. Finance expense and income
Bond interest paid
Bond interest accrued
Accelerated cost of bond settlement (note 15)
Other finance expense (non-cash)
Finance expense
Bank interest income
Finance income
Net finance expense
2020
$m
(0.6)
(0.6)
(1.2)
2020
$m
(21.9)
(7.7)
(2.0)
(5.8)
(37.4)
2019
$m
(0.7)
(0.2)
(0.9)
2019
$m
(18.6)
(1.6)
(1.6)
(5.8)
(27.6)
2020
number
2019
number
56
21
33
17
38
165
2020
$m
(25.8)
(5.7)
(19.4)
(3.3)
(54.2)
2.0
2.0
(52.2)
62
18
24
17
28
149
2019
$m
(30.0)
-
-
(4.3)
(34.3)
6.6
6.6
(27.7)
Bond interest payable is the cash interest cost of the Company bond debt. Other finance expense (non-cash) primarily relates to the
discount unwind on the bond and the asset retirement obligation provision.
114 Genel Energy Annual Report 2020
Notes to the consolidated financial statements
6. Income tax expense
Current tax expense is incurred on the profits of service companies. Under the terms of the KRI PSCs, the Company is not required to pay
any cash corporate income taxes as explained in note 1.
7. (Loss) / earnings per share
Basic
Basic (loss) / earnings per share is calculated by dividing the (loss) / profit attributable to owners of the parent by the weighted average
number of shares in issue during the period.
(Loss) / Profit attributable to owners of the parent ($m)
Weighted average number of ordinary shares – number1
Basic (loss) / earnings per share – cents per share
1. Excluding shares held as treasury shares
2020
(416.9)
2019
103.9
274,202,853
(152.0)
275,197,007
37.8
Diluted
The Company purchases shares in the market to satisfy share plan requirements so diluted earnings per share is adjusted for performance
shares, restricted shares and share options not included in the calculation of basic earnings per share. Because the Company reported a
loss for the year ended 31 December 2020, diluted EPS is anti-dilutive and therefore diluted EPS is the same as basic EPS:
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(Loss) / Profit attributable to owners of the parent ($m)
Weighted average number of ordinary shares – number1
Adjustment for performance shares, restricted shares and share options
Weighted average number of ordinary shares and potential ordinary shares
Diluted (loss) / earnings per share – cents per share
1. Excluding shares held as treasury shares
8. Intangible assets
Cost
At 1 January 2019
Additions
Discount unwind of contingent consideration
Other
At 31 December 2019 and 1 January 2020
Additions
Other
At 31 December 2020
Accumulated amortisation and impairment
At 1 January 2019
Amortisation charge for the period
At 31 December 2019 and 1 January 2020
Amortisation charge for the period
Impairment
At 31 December 2020
Net book value
At 31 December 2019
At 31 December 2020
2020
(416.9)
2019
103.9
274,202,853
-
274,202,853
(152.0)
275,197,007
5,859,457
281,056,464
37.0
Exploration
and evaluation
assets
$m
1,493.2
20.9
5.2
(0.8)
1,518.5
23.2
(0.2)
Tawke
RSA
$m
425.1
-
-
-
425.1
-
-
1,541.5
425.1
(1,005.3)
-
(1,005.3)
-
-
(1,005.3)
(94.9)
(68.3)
(163.2)
(54.6)
(44.3)
(262.1)
Other
assets
$m
6.8
0.5
-
-
7.3
0.1
-
7.4
(6.5)
(0.3)
(6.8)
(0.4)
-
(7.2)
Total
$m
1,925.1
21.4
5.2
(0.8)
1,950.9
23.3
(0.2)
1,974.0
(1,106.7)
(68.6)
(1,175.3)
(55.0)
(44.3)
(1,274.6)
513.2
536.2
261.9
163.0
0.5
0.2
775.6
699.4
Tawke RSA asset was impaired by $44.3 million, further explanation is provided in note 1.
Genel Energy Annual Report 2020
115
Notes to the consolidated financial statements
8. Intangible assets continued
Book value
Bina Bawi PSC
Miran PSC
Somaliland PSC
Qara Dagh PSC
Exploration and evaluation assets
Tawke overriding royalty
Tawke capacity building payment waiver
Tawke RSA assets
Discovered gas and oil, appraisal
Discovered gas and oil, appraisal
Exploration
Exploration / Appraisal
2020
$m
360.5
123.2
34.7
17.8
536.2
73.3
89.7
163.0
2019
$m
352.9
120.3
33.8
6.2
513.2
160.2
101.7
261.9
Sensitivity of the Tawke CGU is provided in note 9. The Miran intangible asset is most sensitive to timing of its commercialisation. The table
below shows the indicative sensitivity of the Bina Bawi CGU net present value to changes to long term Brent, discount rate or production
and reserves, assuming no change to other inputs.
Long term Brent +/- $5/bbl
Discount rate +/-2.5%
Production and reserves +/- 10%
9. Property, plant and equipment
Cost
At 1 January 2019
Asset acquisitions
Additions
Right-of-use assets
Net change in payable
Non-cash additions for ARO/SBP1
At 31 December 2019 and 1 January 2020
Additions
Right-of-use assets (note 19)
Net change in payable
Non-cash additions for ARO/SBP/Production bonus
Transfer to producing assets
At 31 December 2020
Accumulated depreciation and impairment
At 1 January 2019
Depreciation charge for the period
Impairment
At 31 December 2019 and 1 January 2020
Depreciation charge for the period
Impairment
At 31 December 2020
Net book value
At 31 December 2019
At 31 December 2020
$m
+/- 13
+/- 101
+/- 32
Total
$m
2,766.8
49.4
137.5
3.6
(3.6)
3.9
2,957.6
87.5
8.1
(5.4)
11.1
-
9.6
-
0.3
3.6
-
-
13.5
1.0
8.1
-
-
-
22.6
3,058.9
(8.9)
(1.1)
-
(2,201.0)
(89.9)
(29.8)
(10.0)
(2,320.7)
(1.8)
-
(11.8)
3.5
10.8
(100.5)
(242.0)
(2,663.2)
636.9
395.7
Producing
assets
$m
Development
assets
$m
Other
assets
$m
2,757.2
-
115.1
-
-
3.8
2,876.1
56.5
-
-
2.3
101.4
3,036.3
(2,192.1)
(88.8)
(29.8)
(2,310.7)
(98.7)
(242.0)
(2,651.4)
-
49.4
22.1
-
(3.6)
0.1
68.0
30.0
-
(5.4)
8.8
(101.4)
-
-
-
-
-
-
-
-
565.4
384.9
68.0
-
1. ARO: Asset retirement obligation, SBP: Share-based payment
Sarta asset was transferred from development assets to producing assets following the commencement of production from the field.
Book value
Tawke PSC
Taq Taq PSC
Sarta PSC
Producing assets
Oil production
Oil production
Oil production / development
2020
$m
228.2
56.2
100.5
384.9
2019
$m
474.9
90.5
68.0
633.4
116 Genel Energy Annual Report 2020
S
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a
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c
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i
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a
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a
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t
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O
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i
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a
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Notes to the consolidated financial statements
9. Property, plant and equipment continued
The sensitivities below provide an indicative impact on net asset value of a change in long term Brent, discount rate or production and
reserves, assuming no change to any other inputs.
Long term Brent +/- $5/bbl
Discount rate +/- 2.5%
Production and reserves +/- 10%
10. Trade and other receivables
Trade receivables - current
Trade receivables - non-current
Other receivables and prepayments
Taq Taq CGU
$m
Tawke CGU
$m
+/- 2
+/- 3
+/- 4
2020
$m
41.9
52.1
7.0
101.0
+/- 16
+/- 37
+/- 39
2019
$m
150.2
-
7.2
157.4
Under the Tawke, Taq Taq and Sarta PSCs, payment for entitlement is due within 30 days. Since February 2016, there was a track record of
payments being received three months after invoicing, which was previously assessed as the operating cycle under IAS1. Since April 2020
the KRG has been settling invoices within one month of invoicing, which is now assessed as the operating cycle under IAS1.
Trade receivables at 31 December 2019 (nominal)
Trade receivables at 31 December 2020 (nominal)
Year of sale of amounts overdue
Not due
$m
98.8
14.8
2020
$m
n/a
55.4
2019
$m
54.1
65.4
Total overdue
$m
54.1
120.8
At 31 December 2020, $120.8 million relating to invoices from November 2019 to February 2020 was overdue and at the half year required
impairment of $34.9 million as explained in note 1.
Movement on trade receivables in the period
Carrying value at 1 January
Revenue from contracts with customers
Cash proceeds
Offset of payables due to the KRG
Expected credit loss
Capacity building payments
Carrying value at 31 December
2020
$m
150.2
155.0
(173.4)
(5.5)
(34.9)
2.6
94.0
2019
$m
94.8
368.7
(317.4)
-
(0.5)
4.6
150.2
Recovery of the carrying value of the receivable
The Company expects to recover the full nominal value of $120.8 million receivables owed from the KRG, but the terms of recovery are not
finalised. Explanation of the assumptions and estimates in assessing the net present value of the deferred receivables are provided in note 1.
Nominal balance to be recovered
Estimated net present value of total cash flows
Total
$m
120.8
85.9
Sensitivities
The table below shows the sensitivity of the net present value of the overdue trade receivables to oil price, assuming flat production and
payment is received in line with the mechanism proposed by the KRG in December 2020.
Nominal
receivables ($m)
t
n
e
r
B
$55/bbl
$60/bbl
$65/bbl
$70/bbl
Year 1
30.0
60.0
90.0
120.8
Timing of repayment
Year 2
30.0
60.8
30.8
-
Year 3
30.0
-
-
-
Year 4
30.0
-
-
-
11. Cash and cash equivalents and restricted cash
Cash and cash equivalents
Restricted cash
Cash is primarily held on time deposit with major financial institutions or in US Treasury bills.
Total
120.8
120.8
120.8
120.8
2020
$m
354.5
-
354.5
NPV13.0
89.6
100.6
103.8
106.8
2019
$m
390.7
3.0
393.7
Genel Energy Annual Report 2020
117
Notes to the consolidated financial statements
12. Trade and other payables
Trade payables
Other payables
Accruals
Non-current
Current
2020
$m
16.7
128.1
54.6
199.4
100.4
99.0
199.4
2019
$m
10.3
144.4
55.8
210.5
118.8
91.7
210.5
Current payables are predominantly short-term in nature or are repayable on demand and, as such, for these payables there is minimal
difference between contractual cash flows related to the financial liabilities and their carrying amount. For non-current payables, liabilities
are recognised at discounted fair value using the effective interest rate, with the unwind either expensed as finance cost or capitalised
against the relevant asset. Other payables include a balance of $73.7 million (2019: $73.7 million) recognised at its discounted fair value
using the effective interest rate, which has been added to the book value of Bina Bawi intangible asset. The nominal value of this balance is
$145.0 million and its payment is contingent on gas production at the Bina Bawi and Miran assets meeting a certain volume threshold. The
unwind of the discount is capitalised against the relevant intangible assets. Additionally, other payables include contingent consideration
relating to the acquisition of the Sarta asset. It has been recognised at its discounted fair value using the effective interest rate, which has
been added to the book value of the Sarta asset. Lease liabilities are included in other payables, further explanation is provided in note 19.
13. Deferred income
Non-current
Current
14. Provisions
Balance at 1 January
Interest unwind
Additions
Balance at 31 December
2020
$m
19.7
7.5
27.2
2020
$m
37.4
1.5
7.0
45.9
2019
$m
26.7
5.0
31.7
2019
$m
32.9
1.3
3.2
37.4
Provisions cover expected decommissioning and abandonment costs arising from the Company’s assets. The decommissioning and
abandonment provision are based on the Company’s best estimate of the expenditure required to settle the present obligation at the end of
the period inflated at 2% (2019: 2%) and discounted at 4% (2019: 4%). The cash flows relating to the decommissioning and abandonment
provisions are expected to occur between 2028 and 2038.
15. Interest bearing loans and net cash
2022 Bond 10.0% (current)
2025 Bond 9.25% (non-current)
Own bonds held (non-current)
Cash
Net cash
1 Jan 2020
$m
Discount
unwind
$m
Buyback /
Refinance
$m
Purchase of
own bonds
$m
Net other
changes
$m
31 Dec 2020
$m
(297.9)
-
-
390.7
92.8
(0.5)
(0.3)
-
-
(0.8)
221.7
(286.8)
-
28.9
(36.2)
-
-
19.4
-
19.4
(3.9)
-
-
(65.1)
(69.0)
(80.6)
(287.1)
19.4
354.5
6.2
In October 2020, the Company issued a new $300 million senior unsecured bond with maturity in October 2025. The new bond has a fixed
coupon of 9.25% per annum. In connection with the issue, the Company repurchased $222.9 million of its existing $300.0 million senior
unsecured bond issue with maturity date in December 2022 at a price of 107. On 22 December 2020, the Company wrote to the Trustees
confirming that they were exercising the right to call the remaining $77.1 million of the 2022 bond at the call price of 105. This settlement
completed on 8 January 2021.
At 31 December 2020, the fair value of the nominal $77.1 million of 2022 bonds is $81.0 million and of the nominal $280.0 million of 2025
bonds held by third parties is $291.0 million (2019: $316.5 million).
118 Genel Energy Annual Report 2020
Notes to the consolidated financial statements
15. Borrowings and net cash continued
2022 Bond 10.0%
Cash
Net Cash
1 Jan 2019
$m
(297.3)
334.3
37.0
Discount
unwind
$m
Net change
in cash
$m
(0.6)
-
(0.6)
-
56.4
56.4
31 Dec 2019
$m
(297.9)
390.7
92.8
16. Financial Risk Management
Credit risk
Credit risk 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 and other receivables
Cash and cash equivalents
2020
$m
98.3
354.5
452.8
2019
$m
155.3
390.7
546.0
S
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All trade receivables are owed by the KRG. Cash is deposited with the US treasury or term deposits with banks that are assessed as
appropriate based on, among other things, sovereign risk, CDS pricing and credit rating.
Liquidity risk
The Company is committed to ensuring it has sufficient liquidity to meet its payables as they fall due. At 31 December 2020 the Company
had cash and cash equivalents of $273.5 million (2019: $390.7 million) adjusted for settlement of bond debt post-year end.
Oil price risk
The Company’s revenues are calculated from Dated Brent oil price, and a $5/bbl change in average Dated Brent would result in a (loss) /
profit before tax change of circa $15 million. Sensitivity of the carrying value of its assets to oil price risk is provided in notes 8 and 9.
Currency risk
Other than head office costs, substantially all of the Company’s transactions are denominated and/or reported in US dollars. The exposure
to currency risk is therefore immaterial and accordingly no sensitivity analysis has been presented.
Interest rate risk
The Company reported borrowings of $348.3 million (2019: $297.9 million) in the form of a bond maturing in December 2022, with fixed
coupon interest payable of 10% on the nominal value of $77.1 million and a bond maturing in October 2025, with fixed coupon interest
payable of 9.25% on the nominal value of $280.0 million. Although interest is fixed on existing debts, whenever the Company wishes to
borrow new debt or refinance existing debt, it will be exposed to interest rate risk. A 1% increase in interest rate payable on a balance
similar to the existing debts of the Company would result in an additional cost of circa $3 million per annum.
Capital management
The Company manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder
value. The Company’s short-term funding needs are met principally from the cash flows generated from its operations and available cash of
$354.5 million (2019: $390.7 million).
17. Share capital
At 1 January 2019 – fully paid1
At 31 December 2019, 1 January 2020 and 31 December 2020 – fully paid1
Total
Ordinary
Shares
280,248,198
280,248,198
1. Ordinary shares include 2,577,720 (2019: 2,577,720) treasury shares. Share capital includes 3,236,109 (2019: 4,303,249) of trust shares
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.
Genel Energy Annual Report 2020
119
Notes to the consolidated financial statements
18. Dividends
Ordinary shares
Final dividend of 10¢ per share
Interim dividend of 5¢ per share
Total dividends provided for or paid
Paid in cash
Movement in payable
Foreign exchange (expense) / income on dividend paid
2020
$m
28.0
13.5
41.5
55.3
(13.2)
(0.6)
41.5
2019
$m
27.6
13.2
40.8
27.4
13.2
0.2
40.8
19. Right-of-use assets / Lease liabilities
The Company’s right-of-use assets are related to the Sarta early production facility, office, car, warehouse leases and included within
property, plant and equipment. The Company has elected to apply the exemptions for short-term and low-value leases.
Drill rig contracts are service contracts where contractors provide the rig together with the services and the contracted personnel on a
day-rate basis for the purpose of drilling exploration or development wells. The Company has no right of use of the rigs. 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.
Cost
At 1 January 2019
Additions
At 31 December 2019 and 1 January 2020
Additions
Disposals due to terminations
At 31 December 2020
Accumulated depreciation
At 1 January 2019
Depreciation charge for the period
At 31 December 2019 and 1 January 2020
Depreciation charge for the period
At 31 December 2020
Net book value
At 31 December 2019
At 31 December 2020
Book value
Office
Warehouse
Production facility
Right-of-use assets
Right-of-use
assets
$m
1.9
1.7
3.6
8.4
(0.3)
11.7
-
(0.9)
(0.9)
(1.3)
(2.2)
2.7
9.5
2019
$m
2.6
0.1
-
2.7
2020
$m
2.4
-
7.1
9.5
Lease liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing
rate and included within trade and other payables. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities
except Sarta early production facility was 2.5%. 4% was applied for the facility. Right-of-use assets are depreciated over the lifetime of the
related lease contract. The lease terms vary from one to five years.
At 1 January
Additions
Disposals due to terminations
Payments of lease liabilities
Interest expense on lease liabilities
At 31 December (note 12)
120 Genel Energy Annual Report 2020
2020
$m
(3.0)
(8.4)
0.4
1.3
(0.1)
(9.8)
2019
$m
(1.9)
(1.7)
-
0.6
-
(3.0)
Notes to the consolidated financial statements
19. Right-of-use assets / Lease liabilities continued
Included within lease liabilities of $9.8 million (2019: $3.0 million) are non-current lease liabilities of $6.8 million (2019: $2.2 million). The
identified leases have no significant impact on the Company`s financing, bond covenants or dividend policy. The Company does not have
any residual value guarantees. Extension options are included in the lease liability when it, based on the management’s judgement, is
reasonably certain that an extension will be exercised. The contractual maturities of the Company’s lease liabilities are as follows:
31 December 2019
31 December 2020
Less than
1 year
$m
(1.0)
(3.3)
Between
1 -2 years
$m
Between
2 - 5 years
$m
Total contrac-
tual cash flow
$m
(0.8)
(3.4)
(1.4)
(4.0)
(3.2)
(10.7)
Carrying
Amount
$m
(3.0)
(9.8)
20. Share based payments
The Company has three share-based payment plans: a performance share plan, restricted share plan and a share option plan. The main
features of these share plans are set out below.
Key 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 30 days to grant.
Performance conditions will apply.
Awards granted from 2017 are
based on relative and absolute
TSR measured against a group of
industry peers over a three year
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.
Provision of additional cash/
shares to reflect dividends over
the vesting period may or may not
apply.
Provision of additional cash/
shares to reflect dividends over
the vesting period may or may not
apply.
In 2020, awards were made under the performance share plan and restricted share plan, no awards were made under the share option
plan, the numbers of outstanding shares under the PSP, RSP and SOP as at 31 December 2020 are set out below:
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
RSP
(nil cost)
Share option
plan
SOP
weighted avg.
exercise price
Outstanding at 1 January 2019
Granted during the year
Dividend equivalents
Forfeited during the year
Lapsed during the year
Exercised during the year
PSP
(nil cost)
10,148,551
1,930,702
592,675
(2,439,495)
(241,580)
-
1,511,298
850,408
84,657
-
(18,251)
(704,568)
132,334
-
-
-
(12,746)
-
Outstanding at 31 December 2019 and 1 January 2020
9,990,853
1,723,544
119,588
Granted during the year
Dividend equivalents
Forfeited during the year
Lapsed during the year
Exercised during the year
4,041,711
641,685
(1,569,870)
(279,283)
(2,778,121)
598,039
120,450
-
(2,194)
(280,347)
-
-
-
(31,764)
-
Outstanding at 31 December 2020
10,046,975
2,159,492
87,824
The range of exercise prices for share options outstanding at the end of the period is 742.00p to 1,046.00p.
803p
-
-
-
742p
-
810p
-
-
-
788p
-
817p
Genel Energy Annual Report 2020
121
Notes to the consolidated financial statements
20. Share based payments continued
Fair value of awards granted during the year has been measured by use of the Monte-Carlo pricing model. The model takes into account
assumptions regarding expected volatility, expected dividends and expected time to exercise. Expected volatility was also analysed with 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 2020 and fair values per share using the model were as
follows:
Share price at grant date
Exercise price
Fair value on measurement date
Expected life (years)
Expected dividends
Risk-free interest rate
Expected volatility
Share price at balance sheet date
Change in share price between grant date and 31 December 2020
RSP
22/06/2020
PSP
22/06/2020
119p
-
119p
1-3
-
0.04%
64.50%
144p
21%
119p
-
107p
3-6
-
0.04%
64.50%
144p
21%
The weighted average fair value for RSP awards granted in the period is 119p and for PSP awards granted in the period is 107p.
The inputs into the fair value calculation for RSP and PSP awards granted in 2019 and fair values per share using the model were as follows:
Share price at grant date
Exercise price
Fair value on measurement date
Expected life (years)
Expected dividends
Risk-free interest rate
Expected volatility
Share price at balance sheet date
Change in share price between grant date and 31 December 2019
RSP
07/05/2019
RSP
21/08/2019
PSP
07/05/2019
PSP
21/08/2019
211p
-
211p
1-3
-
0.83%
57.37%
189p
(10%)
183p
-
183p
1-3
-
0.42%
55.26%
189p
3%
211p
-
130p
3-6
-
0.83%
57.37%
189p
(10%)
183p
-
109p
3-6
-
0.42%
55.26%
189p
3%
The weighted average fair value for PSP awards granted 2019 is 129p and for RSP awards granted in 2019 is 206p.
Total share-based payment charge for the year was $5.8 million (2019: $5.8 million).
21. Capital commitments
Under the terms of its production sharing contracts (‘PSC’s) and joint operating agreements (‘JOA’s), the Company has certain
commitments that are generally defined by activity rather than spend. The Company’s capital programme for the next few years is
explained in the operating review and is in excess of the activity required by its PSCs and JOAs.
22. Related parties
The directors have identified related parties of the Company under IAS 24 as being: the shareholders; members of the Board; and members
of the executive committee, together with the families and companies, associates, investments and associates controlled by or affiliated
with each of them. The compensation of key management personnel including the directors of the Company is as follows:
Board remuneration
Key management emoluments and short-term benefits
Share-related awards
2020
$m
1.0
7.6
2.5
11.1
2019
$m
0.7
5.6
0.6
6.9
There have been no changes in related parties since last year and no related party transactions that had a material effect on financial
position or performance in the year. There are not significant seasonal or cyclical variations in the Company’s total revenues.
23. Events occurring after the reporting period
None.
122 Genel Energy Annual Report 2020
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Notes to the consolidated financial statements
24. Subsidiaries and joint arrangements
The Company has four joint arrangements in relation to its producing assets Taq Taq, Tawke, Sarta and pre-production asset Qara Dagh.
The Company holds 44% working interest in Taq Taq PSC and owns 55% of Taq Taq Operating Company Limited. The Company holds 25%
working interest in Tawke PSC which is operated by DNO ASA. The Company holds 30% working interest in Sarta PSC which is operated by
Chevron. The Company holds 40% working interest in Qara Dagh PSC which is operated by the Company.
For the period ended 31 December 2020 the principal subsidiaries of the Company were the following:
Entity name
Barrus Petroleum Cote D’Ivoire Sarl1
Barrus Petroleum Limited2
Genel Energy Africa Exploration Limited3
Genel Energy Finance 2 Limited4
Genel Energy Finance 4 plc3
Genel Energy Finance plc (in liquidation)5
Genel Energy Gas Company Limited4
Genel Energy Holding Company Limited4
Genel Energy International Limited6
Genel Energy Miran Bina Bawi Limited3
Genel Energy Morocco Limited3
Genel Energy No. 6 Limited3
Genel Energy Petroleum Services Limited3
Genel Energy Qara Dagh Limited3
Genel Energy Sarta Limited3
Genel Energy Somaliland Limited3
Genel Energy UK Services Limited3
Genel Energy Yo¨netim Hizmetleri A.S¸.7
Taq Taq Drilling Company Limited8
Taq Taq Operating Company Limited9
Country of
Incorporation
Ownership %
(ordinary shares)
Cote d’Ivoire
Isle of Man
UK
Jersey
UK
UK
Jersey
Jersey
Anguilla
UK
UK
UK
UK
UK
UK
UK
UK
Turkey
BVI
BVI
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
55
55
1. Registered office is 7 Boulevard Latrille Cocody, 25 B.P. 945 Abidjan 25, Cote d’Ivoire
2. Registered office is 6 Hope Street, Castletown, IM9 1AS, Isle of Man
3. Registered office is Fifth Floor, 36 Broadway, Victoria, London, SW1H 0BH, United Kingdom
4. Registered office is 12 Castle Street, St Helier, JE2 3RT, Jersey
5. Registered office is 3 Field Court, London, WC1R 5EF
6. Registered office is PO Box 1338, Maico Building, The Valley, Anguilla
7. Registered office is Sehit Omer Haluk Sipahioglu Sokak (Eski Noktali Sokak) No:1 Sheraton Lugal Ofisleri Daire: 21 Kavaklidere 06700, Ankara, Turkey
8. Registered office is PO Box 146, Road Town, Tortola, British Virgin Islands
9. Registered office is 3rd Floor, Geneva Place, Waterfront Drive, PO Box 3175, Road Town, Tortola, Virgin Islands, British
25. Annual report
Copies of the 2020 annual report will be despatched to shareholders in April 2021 and will also be available from the Company’s registered
office at 12 Castle Street, St Helier, Jersey JE2 3RT and at the Company’s website – www.genelenergy.com.
Genel Energy Annual Report 2020
123
Governance
Governance
124
Genel Energy Annual Report 2020 S
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Report on payments to governments
for the year 2020
Introduction and basis for preparation
This report sets out details of the payments made to governments by Genel Energy plc and its subsidiary undertakings (‘Genel’) for the
year ended 31 December 2020 as required under the Disclosure and Transparency Rules of the UK Financial Conduct Authority (the ‘DTRs’)
and in accordance with our interpretation of the Industry Guidance issued for the UK’s Report on Payments to Governments Regulations
2014, as amended in December 2015 (‘the Regulations’). The DTRs require companies in the UK and operating in the extractives sector
to publically disclose payments made to governments in the countries where they undertake exploration, prospection, development and
extraction of oil and natural gas deposits or other materials.
This report is available to download at www.genelenergy.com/investor-relations/results-reports-presentations.
Governments
All of the payments made in relation to licences in the Kurdistan Region of Iraq (‘KRI’) have been made to the Ministry of Natural Resources
of the Kurdistan Regional Government (‘KRG’).
Production entitlements
Production entitlements are the host government’s share of production during the reporting period from projects operated by Genel.
Production entitlements from projects that are not operated by Genel are not covered by this report. The figures reported have been
produced on an entitlement basis rather than on a liftings basis. Production entitlements are paid in-kind and the monetary value disclosed
is derived from management’s calculation of revenue from the field.
Royalties
Royalties represent royalties paid in-kind to governments during the year for the extraction of oil. The terms of the Royalties are described
within our Production Sharing Contracts and can vary from project to project. Royalties have been calculated on the same barrels of oil
equivalent basis as production entitlements.
Materiality threshold
Total payments below £86,000 made to a government are excluded from this report as permitted under the Regulations.
Payments to governments – 2020
Country/Licence
Production entitlement (bbls)
Royalties in kind (bbls)
Total (bbls)
Value of production entitlements ($million)
Value of royalties ($million)
Capacity building payments ($million) (3)
Total ($million)
KRI Total1
Taq Taq2
1,580,718.64
355,074.89
1,580,718.64
355,074.89
1,935,793.53
1,935,793.53
56.98
12.71
2.59
72.28
56.98
12.71
2.59
72.28
1. Under the lifting arrangements implemented by the KRG, the KRG takes title to crude at the wellhead and then transports it to Ceyhan in Turkey by pipeline. The crude is
then sold by the KRG into the international market. All proceeds of sale are received by or on behalf of the KRG, out of which the KRG then makes payment for cost and
profit oil in accordance with the PSC to Genel, in exchange for the crude delivered to the KRG. Under these arrangements, payments are in fact made by or on behalf of
the KRG to Genel, rather than by Genel to the KRG. For the purposes of the reporting requirements under the Regulations however, we are required to characterise the
value of the KRG’s entitlement under the PSC (for which they receive payment directly from the market) as a payment made to the KRG. Therefore, estimated value in
$millions is not paid to the KRG, and is calculated to meeting the reporting requirements under the regulations
2. The amount reported for Taq Taq, is the gross payment made to the KRI by the operating company (TTOPCO), Genel’s share of these payments is equal to 55% (with the
exception of capacity building payments)
3. Capacity building payments reported are payments made by Genel directly to the KRI in cash as required by the PSC
Genel Energy Annual Report 2020
125
Glossary of technical terms
annual general meeting
Cash Generating Unit
Companies Act 2006, as amended
Genel Energy plc
Elysion Energy Holding B.V.
Focus Investments Limited
UK Financial Reporting Council
the Financial Services and Markets Act 2000 of the UK, as amended
FTSE International Limited
May refer to Genel Energy plc and/or one of its subsidiaries and/or one or more employees as
the case may be. It is used for convenience only and is in no way indicative of how the Genel
group, or any entity within it, is structured, managed or controlled.
greenhouse gases
the Genel Energy group of companies
health, safety and environment
the sustainable development framework set out by the International Council
on Mining and Metals
the performance standards set out by the International Finance Corporation
International Oil Company
Companies (Jersey) Law 1991 (as amended)
the Kurdistan Regional Government
the Kurdistan Region of Iraq
the Listing Rules of the UK Listing Authority
lost time incident
non-governmental organisation
the voting ordinary shares and/or the suspended voting ordinary shares as the context
requires
Petroleum Resources Management N.V.
production sharing contract
performance share plan
PricewaterhouseCoopers LLP
receivable settlement agreement
restricted share plan
share option plan
a standard listing under Chapter 14 of the Listing Rules
total shareholder return
Taq Taq Operating Company Limited
proved reserves
proved plus probable reserves
proved plus probable plus possible reserves
contingent resources
barrel
billion cubic metres per annum
billion barrel oil equivalent
barrels of oil per day
barrels of oil equivalent per day
kilometres
thousand cubic feet
millions of barrels
million barrels of oil equivalent
trillion cubic feet
tonnes of CO2 equivalent
‘AGM’
‘CGU’
‘Companies Act 2006’
‘Company’
‘Elysion’
‘Focus Investments’
‘FRC’
‘FSMA’
‘FTSE’
‘Genel’
‘GHG’
‘Group’
‘HSE’
‘ICMM Sustainable Development Framework’
‘IFC Performance Standard’
‘IOC’
‘Jersey Companies Law’
‘KRG’
‘KRI’
‘Listing Rules’
‘LTI’
‘NGO’
‘Ordinary Shares’
‘PRM’
‘PSC’
‘PSP’
‘PwC’
‘RSA’
‘RSP’
‘SOP’
‘Standard Listing’
‘TSR’
‘TTOPCO’
Certain resources and reserves terms
‘1P’
‘2P’
‘3P’
‘2C’
Units of measurement
‘bbl’
‘bcma’
‘Bboe’
‘bopd’
‘boepd’
‘km’
‘mcf’
‘MMbbls’
‘MMboe’
‘tcf’
‘tCO2e’
126 Genel Energy Annual Report 2020
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 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 36 Broadway, Victoria, London, SW1H 0BH UK on
Thursday, 6 May 2021 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
The Company’s 2019 final dividend was paid on 29 June 2020 and an interim
dividend on 11 December 2020. Further information can be found on page 16.
Payment of dividends to UK resident
shareholders
Shareholders whose dividends are currently sent to their registered address
should consider having their dividends paid directly into their personal bank
or building society account. This has a number of advantages, including the
crediting of cleared funds on the actual dividend payment date. If you would
prefer to have future dividends paid in this way, please contact the Registrar for
a bank mandate form. Under this arrangement, dividend confirmations are still
sent to your registered address.
Ordinary shares
The Company’s ordinary shares of nominal value 10p each are traded on the main
market for listed securities on the London Stock Exchange (LON: GENL).
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 2893 lines are open Monday – Friday excluding UK Bank
Holidays, 8.30am – 5.30pm (from outside the UK: +44 121 415 7593).
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
C/O Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Independent Auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London
WC2N 6RH
Registered Office
12 Castle Street
St Helier
Jersey
JE2 3RT
London Office
Fifth Floor
36 Broadway
Victoria
London
SW1H 0BH
Ankara Office
Gaziosmanpasa
Mahallesi Bogaz
Sokak No:10
D.21 Cankaya / Ankara
Turkey
Jersey Company Registration
Number: 107897
together
Consultancy, design and production
cbgtogether.com
127
Strategic reportGovernanceFinancial statementsOther informationGenel Energy Annual Report 2020 Registered offi ce
12 Castle street
St Helier
Jersey
JE2 3RT
London offi ce
Fifth Floor
36 Broadway
Victoria
London
SW1H 0BH
Ankara offi ce
Gaziosmanpasa
Mahallesi Bogaz
Sokak No:10
D.21 Cankaya / Ankara
Turkey
genelenergy.com
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