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CALGARY,
ALBERTA--(Marketwire - June 9, 2009) -
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE
SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.
Heritage Oil Limited (TSX:HOC)(LSE:HOIL), an independent upstream
exploration and production company, announces that it has entered into
a non-binding Memorandum of Understanding ("MoU") with Genel Enerji
A.S. The MoU is subject to various conditions and execution of binding
documentation to acquire Genel Energy International Limited
("Genel"), a private independent oil and gas exploration and
production ("E&P") company, which holds licences in the Kurdistan
Region of Iraq ("Kurdistan"). The proposed acquisition (the
"Proposed Acquisition") would be paid for wholly in new
shares of Heritage and would result in Genel shareholders owning
approximately 50% of the enlarged ordinary share capital of Heritage. It
is anticipated that following the Proposed Acquisition, the Company, as
enlarged by the acquisition of Genel ("the Enlarged Group")
will be re-named HeritaGE Oil plc.
Heritage's management believe that the Proposed Acquisition will offer
considerable shareholder value as it will create a prominent Main
Market London listed production company which should have the financial
capacity to bring into production its enlarged development and
exploration portfolio, create the infrastructure for the development of
the Taq Taq and Miran assets in Kurdistan, while also generating
significant cash flow following the commencement of oil exports on 1
June 2009.
Highlights
- Proposed Acquisition will create an Anglo-Turkish integrated oil
company with two core areas; Kurdistan and Uganda
- Genel is a private, independent E&P company in Turkey, and was
awarded its first licence in Kurdistan in 2002
- Genel has interests in two producing oil fields, being the joint
operator of the Taq Taq field holding a 55% working interest (44%
participating interest) as well as having a 25% working interest in the
Tawke field
- In addition, Genel owns 25% of the Miran licence (the balance of
which is owned by Heritage), 40% of the Duhok licence, 40% of the
Barbahar licence and a 20% interest in the Chia Surkh licence
- Genel also owns the right to develop the Taq Taq Petroleum Refinery. This
refinery in Kurdistan is primarily being built through the phased
construction and operation of a 60,000 barrels of oil per day
("bbl/d") refinery in the vicinity of the Taq Taq and Miran
oil fields. The phased construction of the refinery is expected to be
completed by 2012 with 40,000 bbl/d expected to be operational in 2011
- The Enlarged Group will own a number of key licences in Kurdistan
where exports from the Taq Taq and Tawke fields commenced on 1 June
2009. Production is transported by the main export pipeline to the
Mediterranean port city of Ceyhan in Turkey and marketed by the State
Oil Marketing Organization ("SOMO")
- Net production to the Enlarged Group from Kurdistan is currently
approximately 30,000 bbl/d and is estimated to be around 43,000 bbl/d
by year end 2009, which should generate significant cash flow
- Cash flow generation should provide the financial flexibility to
fast-track development of other assets within the Enlarged Group's
portfolio
- The Enlarged Group will benefit from the additional expertise of
Genel with its experience in developing the Taq Taq field, and local
knowledge which should result in considerable costs savings and other
benefits to the development of the Miran field
- Genel recognises the advantages of Heritage's Main Market London
listing, its highly prospective portfolio, a proven technical team and
management with a history of finding significant oil resources
- Based on current information, management expects the Enlarged Group
to have estimated proved and probable reserves of approximately 300
million barrels of oil with multi-billion barrels of oil potential
- Suspension in trading of Heritage shares to be lifted following the
release of this announcement
Summary of Transaction
- Heritage will issue 260 million ordinary shares, constituting 100% of
the current issued share capital of Heritage, in exchange for acquiring
the entire share capital of Genel. The new Heritage shares issued as
consideration will rank pari passu with Heritage's existing ordinary
shares
- The proposed executive board of the Enlarged Group following
completion will include: Mr Tony Buckingham, the current CEO of
Heritage, who will be appointed as Executive Chairman of the Enlarged
Group; Mr. Mehmet Sepil, the current CEO of Genel, who will be
appointed as CEO; Mr. Mehmet Emin Karamehmet, currently Chairman of the
Cukurova Group, who will be appointed as Executive Director and Mr.
Paul Atherton who will remain as CFO
- A prospectus and circular describing the proposed transaction are
being prepared, including relevant Mineral Experts' Reports for the key
assets of both the Company and Genel
- The Proposed Acquisition would be classified as a reverse takeover of
Heritage under the Listing Rules of the Financial Services Authority
and accordingly, would be subject to the approval by a majority of
Heritage's shareholders voting at an extraordinary general meeting to
be called by Heritage at the appropriate time
- The Enlarged Group will be one of the largest E&P companies
listed on the Main Market of London and would be expected to become a
member of the FTSE100 index
- The eligibility of the Enlarged Group to be admitted to the Official
List has not yet been agreed with the UK Listing Authority
Transaction Details
The MoU is not legally binding in respect of its principal terms and
therefore execution of binding documentation in relation to the Proposed
Acquisition is subject to, among other things: (i) the respective
parties conducting detailed due diligence; and (ii) the parties
reaching agreement on definitive and legally binding documentation
including an implementation agreement. Subject to satisfactory completion
of these conditions and the ones referred to in the MoU, Heritage is
targeting the third quarter of 2009 for the execution of definitive
documentation. Once the legally binding documentation has been
executed, completion of the Proposed Acquisition will be conditional on
among other things: (i) the approval of Heritage's shareholders voting
at an extraordinary general meeting to be called at the appropriate
time; and (ii) admission of the ordinary shares of Heritage, as
enlarged by the issue of shares in relation to the Proposed
Acquisition, to the Official List of the UK Listing Authority and to
trading on the London Stock Exchange. Accordingly, there can be no
assurances that the Proposed Acquisition will complete or that it will
complete on the terms outlined in the MoU or herein.
Should the Proposed Acquisition proceed, it will be treated as a
reverse takeover under the Listing Rules of the UK Listing Authority
(the "Listing Rules"). On 3 June 2009, at Heritage's request
following a significant movement in its share price, Heritage's shares
were suspended from trading on the London Stock Exchange and Heritage
announced that it was in preliminary discussions with a third party
regarding a possible merger. This announcement provides information in
relation to this possible merger, together with details of where
certain publicly available information on the licences in which Genel
has interests can be obtained. Accordingly, the UK Listing Authority
has confirmed that the suspension in the trading of Heritage's shares
will be lifted following the release of this announcement.
The Enlarged Group would be an Anglo-Turkish oil company with a unique
footprint in Kurdistan, producing oil for export and for the local
markets, together with an exciting prospect in the Albert Basin in
Uganda. The Enlarged Group should benefit from the additional expertise
of Genel, with its proven track record of turning exploration into
production in Kurdistan. Together with the Ugandan assets and other
assets in Africa, the Middle East and Russia, the Enlarged Group would
create a leading London listed international E&P company. The
financial flexibility of the Enlarged Group should also facilitate the
fast track development of oil production in Kurdistan and Uganda.
It was recently announced that Genel was the nominated party by the
Kurdistan Regional Government ("KRG") to acquire third party
back-in rights to a number of licences in Kurdistan including the Tawke
and Miran licences and there exists an associated long-term community
and corporate social responsibility support liability of approximately
US$1.1 billion to fund local infrastructure projects within Kurdistan
which is to be funded gradually from Genel's future profits. In the
event of a change of control of Genel, approximately US$605 million of
such liability will become the direct responsibility of Genel's vendors
to be settled on terms acceptable to the KRG. The remaining US$495
million will remain a long-term liability of Genel's acquirer and will
be payable to the KRG each quarter on an asset by asset basis from a
percentage of the future oil profit share of Genel. As part of the due
diligence, and in consultation with the KRG, an understanding of this
liability is a key part of determining the relative valuation of Genel.
As the Proposed Acquisition, if completed, will be classified as a
reverse takeover of Heritage under the Listing Rules, applications will
be made in due course to the UK Listing Authority and the London Stock
Exchange for the Enlarged Group's ordinary shares to be admitted to the
Official List of the UK Listing Authority and to trading on the London
Stock Exchange respectively. The eligibility of the Enlarged Group to
be admitted to the Official List has not yet been agreed with the UK
Listing Authority.
Information on Genel
Genel is a private, independent E&P company. Genel is 56% owned by
the Cukurova Holding Group, which itself is one of the largest
industrial and commercial conglomerates in Turkey, and which has a
number of investments across the automotive, telecommunications, media,
textile, energy and information technology sectors.
Genel has been operating in Kurdistan since 2002, following the
establishment of Kurdistan as an autonomous region of Iraq. Genel's
interests are set out in the table below. Genel also has a 100%
interest in a development project for an oil refinery near the Taq Taq
and Miran fields.
---------------------------------------------------------------------------- Licence Genel PSC Operator Award/ Estimated Proved (all located working Acquisition and Probable in Kurdistan) Interest Date Reserves (Mb bl) ---------------------------------------------------------------------------- Production ---------- Taq Taq 44% TTOPCO July 2002 186.7 (1) (Addax/Genel) ---------------------------------------------------------------------------- Tawke 25% DNO March 2009 56.1 (2) ---------------------------------------------------------------------------- Exploration ----------- ---------------------------------------------------------------------------- Kewa Chirmila 44% TTOPCO July 2002 - (Addax/Genel) ---------------------------------------------------------------------------- Duhok 40% DNO March 2009 - ---------------------------------------------------------------------------- Miran 25% Heritage Oil March 2009 - ---------------------------------------------------------------------------- Barbahar 40% Genel March 2009 - ---------------------------------------------------------------------------- Chia Surkh 20% To be April 2009 - determined ---------------------------------------------------------------------------- Source: (1) Taq Taq and Kewa Chirmila reserve data from McDaniel & Associates report dated 30 June 2008 (2) Tawke reserve data from Beicip Franlab report 18 March 2009
Taq
Taq oil field
Genel was a signatory to the original Production Sharing Contract
("PSC") for the Taq Taq oil field in July 2002, which was
subsequently updated and re-signed by the KRG and Genel in January
2004.
In July 2005, Addax Petroleum International Ltd (a wholly-owned
subsidiary of Addax Petroleum Corporation, an E&P company listed on
the London and Toronto Stock Exchanges) ("Addax") farmed-in
to the Taq Taq licence. In November 2006, Genel (55%) and Addax (45%)
formed TTOPCO, a special purpose entity responsible for all petroleum
operations under the Taq Taq licence. Genel and Addax currently hold
44% and 36% interests in the PSC, respectively, with the KRG retaining
the remaining 20% interest.
The PSC was revised and amended on 21 November 2006. The revised PSC extends
the geographic scope of the original PSC to include further exploration
acreage, which encompases the Kewa Chirmila exploration structure that
is currently being drilled. The PSC was further amended on 26 February
2008 in light of new legislation (the KRG Oil and Gas Law of Kurdistan,
dated 8 August 2007).
Addax, under its continuing obligations as a reporting issuer in Canada
and as a listed company in Toronto and London, is required to disclose
certain information to the market in relation to its interest in the
Taq Taq licence. This information in relation to the Taq Taq oil field
is available on the Addax corporate website - www.addaxpetroleum.com - and on SEDAR, a regulatory filing service for Canadian
reporting issuers, with the following website address - www.sedar.com.
The appraisal phase of the Taq Taq field's development has been
completed and the field development is in the process of being
finalised. A total of 11 wells have been drilled in the field.
On 1 June 2009, export of crude oil commenced from both the Taq Taq and
Tawke oil fields through the main export pipeline to the Mediterranean
port city of Ceyhan in Turkey. The crude oil is marketed by SOMO.
Taq Taq currently has gross production capacity of 40,000 bbl/d, which
is in the process of being expanded to 70,000 bbl/d by year end. Crude
is currently trucked approximately 115km to an uploading facility at
Khurmula and further pumped into the export pipeline Kirkuk -
Yumurtalik, which has a total capacity of 1.6 million bbl/d. A pipeline
extension from Taq Taq to the main export pipeline is planned with a
capacity of 450,000 bbl/d at an estimated cost of approximately US$130-150
million. Once the pipeline construction is completed over the next 12
months, the Taq Taq field production is expected to gradually increase
from 70,000 bbl/d base production at year end to production of 162,000
bbl/d by year end 2010. The spare capacity in the field pipeline is
expected to be used to carry future Miran production and other nearby
discoveries.
Tawke
Genel has a 25% interest in the Tawke PSC, which is 55% owned and
operated by DNO International ("DNO"), a Norwegian E&P
company listed on the Oslo Stock Exchange. The KRG holds the remaining
20% interest in the PSC which is carried exclusively by DNO.
DNO, under its continuing obligations as a listed company in Oslo, is
required to disclose certain information to the market in relation to
its interest in the Tawke licence. This information in relation to the
Tawke oil field is available on the DNO corporate website - www.dno.no.
Tawke has also commenced exports and due to its favourable location, a
pipeline has already been constructed to the main export pipeline. This
pipeline was completed in Q1 2009. The Tawke oil field commenced
production on 1 June 2009 and gross production is expected reach 50,000
bbl/d by the year end.
Miran
Genel has a 25% interest in the Miran PSC, an exploration asset. The
balance of the interest in this PSC is owned by Heritage. The KRG's
interest in the Miran PSC is carried until there is a commercial
discovery, upon which the KRG has a back-in right to obtain 25%, thus
pro-rata diluting the interests of both Genel and Heritage.
As stated in the announcement by Heritage, dated 6 May 2009, the
Company believes that first production from Miran could be fast tracked
to begin as early as the end of 2009. Miran is located adjacent to Taq
Taq, requiring an extension to the pipeline of approximately 30 km,
allowing Miran to access the Taq Taq infrastructure and the export
pipeline.
Further information in relation to the Miran oil field is available on
the Heritage corporate website - www.heritageoilltd.com.
Taq Taq Petroleum Refinery Company Limited ("TTPRC")
There is currently a deficit of approximately 97,500 bbl/d of refined
oil products in Northern Iraq, requiring the import of approximately
US$4bn of refined oil products per annum.
TTPRC is building the refinery in Kurdistan primarily through the
phased construction and operation of the 60,000 bbl/d Taq Taq Petroleum
Refinery near the city of Koya, in the vicinity of the Taq Taq and
Miran fields.
TTPRC anticipates construction of the Taq Taq Petroleum Refinery will
take place in two phases, the first of which will reach 40,000 bbl/d
refining volume by 2011 with the subsequent phase adding 20,000 bbl/d
in 2012.
TTPRC has already entered into or negotiated a number of the key
contracts to implement this strategy, in particular a Petroleum
Operations Contract (dated 26 February 2008 and amended 12 September
2008) pursuant to which the KRG approved and authorised the
construction and operation of the proposed refinery and also a
Processing Agreement expected to be entered into shortly and governing
the provision by the KRG of crude oil feedstock. The land adjacent to
the TTOPCO Truck Loading Station has already been allocated for the
construction of the refinery and has been designed in accordance with
Taq Taq crude oil specifications.
Pursuant to the above-mentioned agreements, TTPRC is guaranteed a
tolling fee of US$15 per barrel of oil for the first 158 million
barrels of oil and US$7.5 per barrel of oil thereafter, providing an
additional market for the Taq Taq and Miran oil field production.
The first phase of construction is estimated to require funding of
approximately US$340 million. The second phase is estimated to require
approximately US$170 million bringing the total estimated funding to
approximately US$510 million.
Genel's other exploration assets in Kurdistan
- Kewa Chirmila licence - 44% interest in the licence and joint
operator, 36% owned by Addax and the KRG has a 20% carried interest. An
exploration well is in the process of being drilled, following the
acquisition of a 2D seismic survey in 2007
- Duhok licence - 40% interest in the Duhok PSC, an exploration asset,
which is 40% owned and operated by DNO. The KRG will retain the
remaining 20% interest in the PSC
- Barbahar licence - 40% interest in Barbahar PSC, an exploration
asset. Genel is operator under the PSC, with a further 40% interest to
be assigned to a third party (still to be determined). The KRG will
retain the remaining 20% interest in the PSC
- Chia Surkh - 20% interest in the Chia Surkh PSC, an exploration asset
and a further interest to be assigned to two third parties (still to be
determined)
Proposed New Executive Directors to the board of Heritage
Mehmet Sepil, proposed CEO of the Enlarged Group, 55, is a graduate of
the Civil Engineering Department of the Middle East Technical
University, in Ankara, Turkey and holds a Master of Science Degree in
Coastal and Harbor Engineering from the same university. Mr. Sepil has
over 27 years of construction engineering, financial and administrative
management experience in construction and high tech companies, which
includes advanced field operations, international contracting and business
development experience within NATO, the US and Turkish Government
projects as well as private sector projects.
Mehmet Emin Karamehmet, proposed Executive Director, is Chairman of the
board of directors of the Cukurova Holdings Group.
Proposed Acquisition of Genel
The Proposed Acquisition will create the Enlarged Group with expected
net working interest production of approximately 45,000 bbl/d by year
end, increasing in the medium term to approximately 90,000 bbl/d from
the Taq Taq and Tawke fields in 2011, with the potential to double
production with the development of the Miran oil field. The development
of the refinery will, in addition, allow increased production by up to
60,000 bbl/d once the refinery is running at peak capacity.
Based on current information, management expects the Enlarged Group to
have net proved and probable reserves of approximately 300 million
barrels of oil and multi-billion barrel oil potential.
In addition, the Enlarged Group should offer shareholder value with
high impact exploration programmes in Kurdistan and Uganda and further
potential in other areas: Tanzania, Malta, the Democratic Republic of
Congo, Mali and Pakistan. The Enlarged Group will retain strategic
focus on the Middle East and Africa.
The KRG has been consulted on the Proposed Acquisition and welcomes the
transaction.
Commenting on today's announcement, Dr Ashti Hawrami, Minister of
Natural Resources for the Kurdistan Regional Government said:
"We are very pleased that the two companies are coming together. The
new Company, trading on the London Stock Exchange, will bring together
an integrated plan for the development and fast track production of the
Taq Taq and Miran oil fields. The financial capability and skill base
of the enlarged Heritage should ensure earlier production and therefore
significantly faster generation of revenues for the Government of Iraq
to create substantial value as an employer, as a tax payer and as a
provider of oil revenue for the benefit of the people of Iraq."
Tony Buckingham, Chief Executive Officer of Heritage, commented:
"The potential combination of our two companies brings together a
long held ambition to develop the assets in our core areas. We believe
that shareholders will support the transaction which is anticipated to
create significant shareholder value by bringing these fields to
production in a timely manner and generating cash flow to explore and
develop our multi-billion barrel resource potential both in Northern
Iraq and Uganda. Heritage also recognises the strategic benefits of
working with a partner such as Genel with a track record of turning
exploration into production in the region and the positioning it will
provide with respect to the rest of Iraq and the Middle East."
Mehmet Sepil, Chief Executive Officer of Genel, commented:
"We are excited about the possibility of combining with Heritage
to create a significant Main Board listed company with a strong
financial capability and access to international capital markets,
international expertise and with the aim of expanding the activities of
the Enlarged Group in other countries in the Middle East. We intend to
bring our world-class Taq Taq and Tawke assets into production
immediately and the Miran asset subsequently. Production will be for
both exports to the world market and also to serve the local market,
generating significant cash flows for the benefit of all shareholders. The
combination of Heritage with its worldwide experience and Genel's
Turkish nationality together with its significant long experience and
track record in the Kurdistan Region would help to develop our assets
in an efficient and timely manner and would deliver excellent value to
all stakeholders including the people of Iraq."
Notes to Editors
Heritage
- Heritage is listed on the Official List of the UKLA and admitted to
trading on the Main Market of the London Stock Exchange and is a
constituent of the FTSE 250 Index. The trading symbol is (LSE:HOIL).
Heritage has a further listing on the Toronto Stock Exchange (TSX:HOC).
- Heritage is an independent upstream exploration and production
company engaged in the exploration for, and the development, production
and acquisition of, oil and gas in its core areas of Africa, the Middle
East and Russia.
- Heritage has a producing property in Russia and exploration projects
in Uganda, Kurdistan, the Democratic Republic of Congo, Malta,
Pakistan, Tanzania and Mali.
- For further information please refer to our website at www.heritageoilltd.com.
Genel
- Genel is a private and independent upstream exploration and
production company engaged in the exploration of, and development and
production of oil and gas assets in Kurdistan.
- Genel has two producing licences, five exploration projects and a
100% in the development of an oil refinery, all of which are in
Kurdistan.
- For further information please refer to our website at www.genel-enerji.com.
Financial Information for Genel for the year ended 31 December 2008
Set out below are the audited financial statements for Genel for the
year ended 31 December 2008 which have been prepared in accordance with
International Financial Reporting Standards (IFRS).
Should the Proposed Acquisition proceed, a prospectus will be required
to be published in relation to the issue of shares to shareholders of
Genel. This prospectus will include, pursuant to the Listing Rules and
Prospectus Rules of the UK Listing Authority, audited financial statements
for Genel prepared on a consistent basis with the accounting policies
adopted in Heritage's annual accounts for the year ended 31 December
2008. It is possible, therefore, that the financial information
contained in the prospectus may differ from the financial statements
set out below.
As described in this announcement, Genel has acquired interests in the
Tawke, Miran, Duhok, Barbahar and Chia Surkh licences in the Kurdistan
Region of Iraq since 31 December 2008. These acquisitions are not
reflected in the summary financial statements presented below.
BALANCE SHEET As at 31 December 2008 (In United States Dollars) Notes 2008 2007 ---- ---- Current assets Cash and cash equivalents 5 108,183 2,036,048 Inventory 6 7,377,984 2,742,323 Trade and other receivables 7 3,402,922 646,145 ----------------------------- Total current assets 10,889,089 5,424,516 ----------------------------- Non-current assets Intangible assets 8 117,954,358 78,919,790 Tangible assets 9 15,666,746 507,007 Other non-current assets - 48,115 ----------------------------- Total non-current assets 133,621,104 79,474,912 ----------------------------- Total assets 144,510,193 84,899,428 ----------------------------- ----------------------------- LIABILITIES AND EQUITY Current liabilities Accounts payable 11 11,209,595 2,788,000 Accrued liabilities 12 14,991,708 6,449,005 Short-term debt to shareholders 13 982,091 722,054 Short-term debt from Joint Venture 13 5,699,570 - ----------------------------- Total current liabilities 32,882,964 9,959,059 Non-current liabilities Long-term Payable to joint venture partner 10 52,633,779 52,633,778 Long-term payable to shareholders 13 67,757,799 26,769,249 Reserve for employee severance indemnity 38,908 21,065 ----------------------------- Total non-current liabilities 120,430,486 79,424,092 ----------------------------- Total liabilities 153,313,450 89,383,151 Equity Share capital 14 50,000 50,000 Accumulated loss (8,853,257) (4,533,723) ----------------------------- (8,803,257) (4,483,723) ----------------------------- Total liabilities and equity 144,510,193 84,899,428 ----------------------------- ----------------------------- ---------------------------------------------------------------------------- The notes are an integral part of these financial statements. STATEMENT OF OPERATIONS For the year ended 31 December 2008 (In United States Dollars) Notes 2008 2007 ---- ---- Revenue 15 2,137,221 - Cost of sales (1,235,821) - ----------------------------- Gross profit 901,400 - Operating expenses 16 (2,686,976) (941,945) General and administrative expense 17 (343,850) (174,516) ----------------------------- Results from operating activities (2,129,426) (1,116,461) ----------------------------- Finance expense (2,209,144) - Finance income 19,036 - ----------------------------- Net finance expense 18 (2,190,108) - ----------------------------- Net Loss (4,319,534) (1,116,461) ----------------------------- ----------------------------- ---------------------------------------------------------------------------- The notes are an integral part of these financial statements. STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2008 (In United States Dollars) Share Accumulated Capital Loss Total ------- ---- ----- Appropriations: Net loss for the year (1,116,461) (1,116,461) ------------------------------------------ At 31 December 2007 50,000 (4,533,723) (4,483,723) ------------------------------------------ ------------------------------------------ Appropriations: Net loss for the year (4,319,534) (4,319,534) ------------------------------------------ At 31 December 2008 50,000 (8,853,257) (8,803,257) ---------------------------------------------------------------------------- The notes are an integral part of these financial statements. STATEMENT OF CASH FLOWS For the year ended 31 December 2008 (Amounts in tables in United States Dollars) Cash flows from operating activities Notes 2008 2007 ----- ---- ---- Loss for the year (4,319,534) (1,116,461) Adjustments for: Depreciation and amortization 8 597,677 - Change in inventories 6 (4,635,661) (2,041,511) Change in trade and other receivable 7 (2,756,777) (584,628) Change in other non-current assets 48,115 - Change in accrued liabilities 12 8,542,703 - Change in accounts payable 11 8,421,595 5,490,925 Change in debt from joint venture 13 5,699,570 - Change in reserve for employee severance indemnity 17,843 16,123 ----------------------------- Net cash from operating activities 11,615,531 1,764,448 Cash flows from investing activities Change in payable to joint venture partner 10 - 31,599,131 Change in debt from shareholders 13 41,248,587 22,517,816 Acquisition of intangible and intangible assets 8,9 (54,791,983) (53,845,347) ----------------------------- Net cash from (used for) investing activities (13,543,396) 271,600 Net increase/(decrease) in cash and cash equivalents (1,927,865) 2,036,048 Beginning cash 2,036,048 - Ending cash 5 108,183 2,036,048 ---------------------------------------------------------------------------- The notes are an integral part of these financial statements.
NOTES
TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(Amounts in tables in United States Dollars unless otherwise noted)
1. Reporting entity
Genel is domiciled in Anguilla, British West Indies. It was established
on 13 November 2006. The financial statements of Genel as at and for
the year ended 31 December 2008 comprise Genel and Genel's interest in
jointly controlled entity "Taq Taq Operating Company".
Genel and Addax Petroleum International Limited signed a joint
operating agreement relating to the "Taq Taq Development
Block" and "Kewa Chirmila Exploration Block" (the
agreement area) in Northern Iraq. Taq Taq Operating Company is jointly
owned by Genel and Addax Petroleum International Limited at a ratio of
55% and 45% respectively. Taq Taq Operating Company is currently
devoting most of its efforts to activities such as exploring for and
developing of crude oil resources in the agreement area. In Iraq, the
ownership of unexploited petroleum resources remains with the state,
whereas exploration and production is carried out by private
contractors under a specific production sharing contract, or PSC. The
PSC is a contract between an oil-producing company and the host
government that governs the rights and duties of both parties in
respect of the operations of a production block, and in particular
governs how the revenues from oil produced are to be shared between the
government and the contracting oil producers. Genel is entitled to
operate under the PSC in Northern Iraq. The counterparties of the PSC
are on one part Genel and Addax Petroleum International Limited as the
private contractor and on the other part, the Federal Region of
Kurdistan as the owner of the petroleum resources.
Under the PSC, the contractors Genel and Addax Petroleum International
Limited typically bear all risks and costs for exploration, development
and production through jointly controlled entity (Taq Taq Operating
Company Limited). In return, if exploration is successful, Genel
recovers the sum of its investment and operating costs ("cost
oil") from a percentage of the production and sale of the crude
oil. Genel is also entitled to receive a share of production in excess
of cost oil ("profit oil"). In general, the sharing of profit
oil varies between the working interest holders and the government from
one PSC contract to another PSC contract. The sum of cost oil
attributable to Genel's share of costs and Genel's share of profit oil
represents Genel entitlement to oil produced under a PSC.
"Crude Oil" means crude mineral oil, asphalt, ozokerite and
all kinds of hydrocarbons whether in a solid, liquid or mixed state at
the wellhead or separator or which is obtained from Natural Gas through
condensation or extraction.
The term of the contract is for twenty-five consecutive years
commencing from 25 February, 2003, unless the Contract is terminated
earlier in accordance with Article 28 of the contract. The contract was
initially made on 25 February 2003 between Genel Enerji A.S and the
Kurdistan Regional Government which was transferred to Genel on 21
November 2006.
The government is entitled to terminate the contract by giving ninety
(90) days' advance written notice thereof to all parties, when the
contractor commits a material breach in relation to its obligations
indicated in the contract or if the contractor has not accomplished its
warranties. At any time, if in the opinion of the contractor,
circumstances do not warrant continuation of the petroleum operations;
the contractor may, by giving written notice to that effect to the
Government relinquish its rights and be relieved of its obligations
pursuant to the contract except for the contractor's obligations to
complete the minimum work program.
Management's plan regarding going concern
Based on the announcement by KRG, the Management expects that in June
2009 some 40,000 bbl/d of crude oil shall commence (by trucking) from
the Taq Taq Field to the newly installed temporary loading and
unloading facilities at the Khurmala Station and from there onwards it
will be transported through the existing pipeline networks to the
export pipeline. Moreover, the Management has taken the necessary
precautions to increase the amount of crude oil sold to the local
market. The local sales commenced in 2008 at an average rate of 1,300
bbl/d and continued to grow at a rapid rate. In April 2009, the average
daily local sales increased to 7,300 bbl/d which is expected to
increase 10,000 bbl/d in May. With the above mentioned sales figures,
Genel will recover from its current position in a short period of time.
2. Basis of preparation
(a) Statement of compliance
These financial statements of Genel have been prepared in accordance
with International Financial Reporting Standard (IFRS).
These financial statements have been approved by the board of
Directors.
(b) Basis of measurement
The financial statements are prepared on the historical cost basis
except that the liability "reserve for employee severance
indemnity" is stated at its fair value if reliable measures are
available.
(c) Functional and presentation currency
The financial statements are presented in US Dollars, which is Genel's
functional currency. All financial information is presented in US
Dollar.
(d) Use of estimates and judgments
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Valuation of crude oil reserves represents a significant estimate that
requires judgment.
Genel obtained an appraisal report of the Crude Oil Reserves from
McDaniel and Associates Consultants Limited as of 30 June 2008 for Taq
Taq field in Iraq. The appraisal report is based on the forecast prices
and costs of crude oil. Genel's share of total proved and probable and
possible light and medium crude oil gross (i) reserves are 314,464,000
and net (ii) reserves are 97,309,000 barrels respectively.
(i) Gross reserves include the working interest reserves before
deductions of royalties payable to others
(ii) Net reserves are based on the on Genel's share of Cost Oil and
Profit Oil revenues
3. Significant accounting policies
Genel and Addax Petroleum International Limited
("Contractor") shall provide or procure the provision of all
funds required to conduct Petroleum operations under the agreement and
the contractors shall be entitled to recover its costs and expenses
from proceeds of Petroleum produced from the agreement area.
(a) Interests in Joint Venture
A jointly controlled operation is a joint venture carried on by each
venturer using its own assets in pursuit of the joint operations. The
financial statements include the assets that Genel controls and the
liabilities that it incurs in the course of pursuing the joint
operation and the expenses that Genel incurs and its share of the
income that it earns from the joint operation.
Intercompany balances and any unrealized gains and losses or income and
expenses arising from transactions between Genel and the joint venture,
are eliminated in preparing the accompanying financial statements.
(b) Intangible assets
(i) Recognition and measurement
IFRS 6 "Exploration for and Evaluation of Mineral Resources"
requires that exploration and evaluation assets are classified as tangible
or intangible according to the nature of the asset. Some exploration
and evaluation assets are treated as intangible (e.g. drilling rights),
whereas others are tangible (e.g. vehicles and drilling rigs). To the
extent that a tangible asset is consumed in developing an intangible
asset, the amount reflecting that consumption is part of the cost of
the intangible asset. However, using a tangible asset to develop an
intangible asset does not change a tangible asset into an intangible
asset.
Genel uses the "Full Cost" method to account for the
exploration and development costs. All expenditures on pre-licence,
licence acquisition, exploration, appraisal and development activities
including enhanced oil recovery and extended life projects are
capitalized and amortized using the units-of-production method based on
proven and probable mineral reserves.
All other costs are expensed as incurred including operating and
production-related costs, such as tariffs and royalties, and also
administrative and other general overhead costs not directly
attributable to the activities referred to in the paragraph above.
Changes in the cost and reserve estimates do not give rise to prior
year adjustments. Where estimates are revised, the carrying amount is
amortized using the revised estimates from the date of the revision.
(ii) Amortization
Amortization is charged using the unit-of-production method for the
intangible assets based on the proven and probable reserve of
424,300,000 barrels as at December 31, 2008.
(c) Inventories
(i) Materials and Supplies
Materials and supplies are valued at the lower of average cost or net
realizable value.
(d) Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and at banks and daily
deposits.
(e) Trade receivables
Trade receivables are recorded at the original invoice amount.
(f) Reserve for Employee Severance Indemnity
In accordance with the existing social legislation in Turkey, the
subsidiary Company (TTOPCO) is required to make lump-sum payments to it
Turkish employees whose employment is terminated due to the retirement
or for other reasons other than resignation or misconduct.
In the accompanying financial statements Genel has reflected a reserve
for employee severance indemnity calculated by using a discount factor
by taking into consideration the current market yield at the balance
sheet date on government bonds, in accordance with IAS 19
"Employee Benefits".
(g) Provision
A provision is recognized in the balance sheet when Genel has a present
obligation (legal or constructive) because of a past event and it is
probable that an outflow of economic benefits will be required to
settle the obligation. If the effect is material, provisions are
determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessment of the time value of money
and, where appropriate, the risks specific to the liability.
(h) Asset retirement obligation
The fair value of a liability for an asset retirement obligation is
recognized in the period in which it is incurred. Upon the Production
Sharing Agreement, Genel has no asset retirement obligation.
(i) Revenue
Revenue is recognized to the extent that is probable that the economic
benefit will flow to Genel and the revenue can be reliably measured. Revenues
represent the invoiced value of services rendered. The PSC between
Genel and "Addax Petroleum International Limited as the private
contractor and on the other part, the Federal Region of Kurdistan as
the owner of the petroleum resources, set all the sale and production
sharing activities.
(j) Accounts payable
Accounts payable, other payables and accrued expenses are carried at
cost and not discounted per IAS 39, due to their short-term nature.
(k) Taxes
According to the PSC agreement article numbered 16, the Kurdistan
Regional Government is liable for payment of the taxes of the
Contractor in respect of the payment to the appropriate taxation or
other governmental authorities, courts or other judicial bodies in the
Kurdistan Region of all or any duties or taxes which may be levied,
charged, calculated or assessed against or all any of the operator, the
contractor. According to the tax jurisdiction of Anguilla, Genel is not
subject to corporation tax.
(l) Related Parties
For the purpose of this report, the shareholders of Genel, the
companies controlled by/ associated with them and top management are
referred to as related parties.
(m) Offsetting
Financial assets and liabilities are offset and the net amount reported
in the balance sheet when there is a legally enforceable right to set
off the recognized amounts and there is an intention to settle on a net
basis, or realize the asset and settle the liability simultaneously.
(n) New Standards and Interpretations not yet adopted
A number of new standards, amendments to standards and interpretations
are not yet effective for the year ended December 31, 2008, and have
not been applied in preparing these consolidated financial statements:
- IFRS 8, Operating Segments (effective for financial years beginning
on or after 1 January 2009) IFRS 8 replaces IAS 14 Segment Reporting
and adopts a management approach to segment reporting. The information
reported would be that which management uses internally for evaluating
the performance of operating segments and allocating resources to those
segments. This information may be different from that reported in the
balance sheet and income statement and entities will need to provide
explanations and reconciliations of the differences. Genel is in the
process of assessing the impact of this new standard will have on its
financial statements.
- Revised IAS 23 Borrowing Costs removes the option to expense
borrowing costs and requires that an entity capitalise borrowing costs
directly attributable to the acquisition, construction or production of
a qualifying asset as part of the cost of that asset. The revised IAS
23 will become mandatory for Genel's 2009 financial statements and will
constitute a change in accounting policy for Genel. In accordance with
the transitional provisions Genel will apply the revised IAS 23 to
qualifying assets for which capitalisation of borrowing costs commences
on or after the effective date.
- Revised IAS 1 Presentation of Financial Statements (2007) introduces
the term total comprehensive income, which represents changes in equity
during a period other than those changes resulting from transactions
with owners in their capacity as owners. Total comprehensive income may
be presented in either a single statement of comprehensive income
(effectively combining both the income statement and all non-owner
changes in equity in a single statement), or in an income statement and
a separate statement of comprehensive income. Revised IAS 1, becomes
mandatory for Genel's 2009 financial statements. Genel plans to provide
total comprehensive income in a single statement of comprehensive
income for its 2009 financial statements.
- IFRIC 13, Customer Loyalty Programmes addresses the accounting by
entities that operate, or otherwise participate in, customer loyalty
programmes under which the customer can redeem credits that operate,
customer loyalty programmes under which the customer can redeem credits
for awards such as free or discounted goods or services. IFRIC 13,
which becomes mandatory for Genel's 2009 financial statements, is not
expected to have any impact on the financial statements.
- Amendments to IAS 32 Financial Instruments: Presentation and IAS 1
Presentation of Financial Statements - Puttable Financial Instruments
and Obligations Arising on Liquidation requires puttable instruments,
and instruments that impose on the entity an obligation to deliver to
another party a pro rata share of the net assets of the entity only on
liquidation, to be classified as equity if certain conditions are met. The
amendments, which become mandatory for Genel's 2009 financial
statements, with retrospective application required, are not expected
to have any impact on the financial statements.
- Amended IAS 27 Consolidated and Separate Financial Statements (2008)
requires accounting for changes in ownership interests by Genel in a
subsidiary, while maintaining control, to be recognized as an equity
transaction. When Genel loses control of a subsidiary, any interest
retained in the former subsidiary will be measured at fair value with
the gain or loss recognized in profit or loss. The amendments to IAS
27, which become mandatory for 2010 financial statements, are not
expected to have an impact on Genel's financial statements.
- The IFRIC issued on 3 July 2008 an Interpretation, IFRIC 15
Agreements for the Construction of Real Estate. The Interpretation will
standardize accounting practice across jurisdictions for the
recognition of revenue among real estate developers for sales of units,
such as apartments or houses before construction is complete. The
Interpretation is effective for annual periods beginning or after 1
January 2009 and is not expected to have any effect on the financial
statements of Genel.
- Amendment to "IAS 39 Financial Instruments: Recognition and
Measurement - Eligible Hedged Items" clarifies the existing
principles that determine whether specific risks and portions of cash
flows are eligible for designation in a hedging relationship. The
amendments are to be applied retrospectively for annual periods
beginning on or after 1 July 2009, with earlier application permitted. The
amendment is not expected to have any effect on the consolidated
financial statements.
4. Financial risk management
Genel has exposure to the following risks from its use of financial
instruments:
i. credit risk
ii. liquidity risk
iii. market risk
This note presents information about Genel's exposure to each of the
above risks, Genel's objectives, policies and processes for measuring
and managing risk, and Genel's management of capital. Further
quantitative disclosures are included throughout these financial
statements.
Genel management has overall responsibility for the establishment and
oversight of Genel's risk management framework.
Genel's risk management policies are established to identify and
analyze the risks faced by Genel, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management
policies and systems are reviewed regularly to reflect changes in
market conditions and Genel's activities.
Credit risk
Credit risk is the risk of financial loss to Genel if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from Genel's cash and cash
equivalents.
Liquidity risk
Liquidity risk is the risk that Genel will not be able to meet its
financial obligations as they fall due. Genel's approach to managing
liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions without incurring unacceptable losses
and risking damage to Genel's reputation.
Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates will affect Genel's income. Genel does
not use any hedging instruments in order to manage volatility in profit
or loss.
(i) Currency risk
Genel is exposed to currency risk on purchases that are denominated in
a currency other than the US Dollar which is the functional currency of
Genel. The purchases are primarily the US Dollar and accordingly Genel
does not face any significant currency risk.
(ii) Interest rate risk
Genel has not entered into any type of derivative instrument in order
to hedge interest rate risk at 31 December 2008.
5. Cash and cash equivalents
Cash and cash equivalent include cash at banks.
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Cash at banks 108,183 2,036,048 ---------------------------------------------------------------------------- Cash and cash equivalents 108,183 2,036,048 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
6.
Inventory
As at 31 December 2008 and 2007, inventories are as follows:
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Tubing & Casing 3,922,801 1,365,872 Mud and Cement 845,946 559,083 Completion. Equipment 711,715 274,216 Well Head Equipment 539,925 81,969 Materials 534,562 - Drillbits 520,909 118,873 Cement Additives and Casing Accessories 271,626 304,349 Other 30,500 37,961 ---------------------------------------------------------------------------- Total 7,377,984 2,742,323 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
7.
Trade and other receivables
As at 31 December 2008 and 2007, trade and other receivables are as
follows:
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Trade receivable 2,137,221 - Other receivable 1,265,701 646,145 ---------------------------------------------------------------------------- Total current assets 3,402,922 646,145 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Trade
receivable arises from local sales.
Other receivable represents receivables from Taq Taq Production
Refinery Company. Genel undertook a "Refinery Project" which
is being set up in the Taq Taq Field. The licences, the necessary legal
framework and agreements are finalised with the Kurdistan Regional
Government (KRG) a separate Refinery Company is established. The costs
incurred for the Project is billed to the Refinery Company. Such costs
incurred for the project are treated as other receivable. The Refinery
will primarily use Taq Taq Crude and therefore will provide economic
benefit to Taq Taq project. Genel's exposure to credit and currency
risk and impairment losses related to trade and other receivable are
disclosed in note 21.
8. Intangible assets
As at 31 December 2008 and 2007, intangible assets are as follows:
January 1, December 31, Cost 2008 Additions Disposal 2008 --------- --------- -------- ------------ Drilling (exploration and appraisal) 37,663,679 13,487,364 - 51,151,043 Employee Costs 10,532,513 6,268,750 - 16,801,263 Geological and Geophysical Researches 11,972,802 2,351,726 - 14,324,528 Security Expenses 3,689,473 3,784,376 - 7,473,849 PSC Requirements 2,750,000 3,492,500 - 6,242,500 Infrastructure Upgrades 3,113,520 2,248,051 - 5,361,571 Health Safety Environment 2,178,415 361,542 - 2,539,957 Fees 1,365,393 558,489 - 1,923,882 Travel 1,109,121 612,320 - 1,721,441 Development overhead - 1,383,686 - 1,383,686 Exploration overhead - 1,616,110 - 1,616,110 Total Exploration Block 3,502,779 2,083,917 - 5,586,696 Other 1,042,095 1,383,414 - 2,425,509 ---------------------------------------------------------------------------- Capitalized Exploration and Appraisal Costs (i) 78,919,790 39,632,245 - 118,552,035 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Accumulated January 1, December 31, depreciation 2008 Depreciation Disposal 2008 ---------------------------------------------------------------------------- Capitalized Exploration and Appraisal Costs - 597,677 - 597,677 ---------------------------------------------------------------------------- - 597,677 - 597,677 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net book value 78,919,790 39,034,568 - 117,954,358 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (i) Capitalized exploration and appraisal costs are comprised of the costs of Taq Taq Block and Kewa Chirmila Block.
Drilling
costs include expenditures whether directly or indirectly incurred for
well drilling, completing and reworking operations including labor,
engineering, subcontractor fees, material and equipment consumed or
lost, perforation, formation testing, cementing, well-lodging and
transportation.
Geological and geophysical expenditures are used to locate and identify
properties with the potential to produce commercial quantities of oil
as well as to determine the optimal location for exploratory and developmental
wells
Security expenses are comprised of costs incurred to secure the oil
field and its environment. PSC requirements represent a contractual
liability arising from the terms of the PSC signed between joint
venture partners and KRG.
Since the production has commenced in the current year, these
capitalized costs including Taq Taq Block and Kewa Chirmila Block
costs, are amortized using the units of production method based on
proven and probable mineral reserves. Upon the appraisal report of the
Crude Oil Reserves from McDaniel and Associates Consultants Limited as
of 30 June 2008, the reserves details are as follows:
Total Crude Oil Reserves ---------------------------------- Property Company Company Reserve Category Gross Mbbl Gross Mbbl Net Mbbl ------------------------------------- ---------------------------------- Proved Undeveloped Reserves 118,135 51,980 21,524 Probable Reserves 306,165 134,713 43,312 Proved +Probable Reserves 424,300 186,692 64,836 Possible Reserves 290,390 127,771 32,473 Proved +Probable +Possible Reserves 714,690 314,464 97,309
As
at 31 December 2008 total amortization of capitalized cost is amounting
to 597,677 USD and net value of the capitalized cost is amounting to
117,954,358 USD.
9. Tangible assets
Tangible asset is comprised of cost of facility which is in
construction in progress phase as of 31 December 2008. Total addition
to the facility in the current year is USD 15,159,738.
10. Payable to joint venture partner
This account represents payable to Addax Petroleum International
Limited; the other joint venture party in the jointly controlled entity
Taq Taq Operating Company Limited. As per the agreements between Addax
Petroleum International Limited and Genel, the account will be paid
from the proceeds of the project.
11. Accounts payable
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Accounts Payable 11,209,595 2,788,000 ---------------------------------------------------------------------------- Total 11,209,595 2,788,000 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Trade
payables are mainly comprised of amounts outstanding from purchases and
ongoing costs. Genel management considers that the carrying amount of
trade payables approximates their fair value.
12. Accrued liabilities
As at 31 December 2008 and 2007, accrued liabilities are as follows:
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Drilling (Exploration & Appraisal) + (Workovers) 4,537,304 1,735,279 Exploration Overhead Accrual 3,443,335 443,540 Facilities 2,808,958 22,612 Expenses accrual 2,209,144 - PSC Requirement 898,062 2,750,000 Security Expenses 250,936 205,398 Employee Cost 206,389 116,094 Inventory 127,684 436,994 IT & Communications - 182,138 Others 509,896 556,950 ---------------------------------------------------------------------------- Total 14,991,708 6,449,005 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
13.
Related party balances and transactions
Related party balances represent payables to Genel Enerji AS for
funding of the investments. Details of significant related party
transactions with shareholders are set out below.
As at December 31, 2008 and December 31, 2007, the amounts due to and
due from related parties were as follows:
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Due from related parties Taq Taq Petroleum Refinery Company 1,265,701 - Due to related parties Addax 52,633,779 52,633,778 Taq Taq Operating Company 5,699,570 - Genel Enerji Suleimaniah 982,091 722,054 Genel Enerji A.S 67,757,799 26,769,249
There
is not any significant related party transaction in the current year.
14. Share Capital
Genel's shareholder and its ownership interest at 31 December 2008 is
as follows:
--------------------------------------------------- 2008 2007 --------------------------------------------------- Number of % Ownership Number of % Ownership Shares of Shares Shares of Shares --------------------------------------------------- Genel Enerji AS. 50,000 100% 50,000 100%
15. Revenue
As at 31 December 2008 and 2007, revenue are as follows:
---------------------------------------------------------------------------- 31 December 31 December 2008 2007 ---------------------------------------------------------------------------- Oil sales (local) 2,137,221 - ---------------------------------------------------------------------------- Total 2,137,221 - ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
16. Operating expenses
Although, the production process has started in the last quarter of
2008; the exploration, appraisal and development phase have still
continued. Operating expenses represent the expenses incurred
particularly for the extraction of the oil given to the government
free-of-charge and costs of unsuccessful explorations which are not
capitalized by Genel.
17. General and administrative expenses
As at 31 December 2008 and 2007, general and administrative expenses
are as follows:
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Consultancy fee 206,479 140,523 Salary expenses 79,248 17,994 Travel expenses 50,270 15,550 Other 7,853 449 ---------------------------------------------------------------------------- Total 343,850 174,516 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
General and Administrative Expenses mainly
represent expenses incurred for the appraisal report on the Taq Taq
field prepared by McDaniel and Associates Consultants Limited in 2008 and
the fee for audit services from KPMG.
18. Net finance expense
As at 31 December 2008 and 2007, net finance expenses are as follows:
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Interest expense (2,209,144) - Other 19,036 - ---------------------------------------------------------------------------- Total (2,190,108) - ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
19. Operating lease
Genel leases drilling rig and temporary production facilities under
operating leases. The drilling rig lease runs for a period of 2 years
starting from the commencement date, 14 August 2008, with an option to
cancel the lease by paying early termination fee.
Early production facilities are leased for a term of 1 year starting
from 05 June 2008. The contract can be cancelled with 10 days notice.
During the year ended 31 December 2008, USD 3,332,881 was recognised as
an expense in the income statement in respect of operating leases
(2007:nil).
20. Commitments and contingencies
Genel does not have any commitments or contingencies as of 31 December
2008.
Even after the establishment of new Iraqi government in May 2006, the
public security situation and political instability in Iraq is still a
major problem. Attacks against multinational forces, Iraqi security
units and even multinational companies engaged in the reconstruction of
Iraq, are common in Iraq where oil fields are located.
21. Financial instruments
Exposure to credit, interest rate and currency risks arises in the
normal course of Genel's business.
Credit Risk
Exposure to credit risk:
The carrying amount of financial asset represents the maximum credit
exposure. The maximum exposure to credit risk at the reporting date is:
---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Cash and cash equivalents 5 108,183 2,036,048 Trade and other receivables 6 3,402,922 646,145
Liquidity risk
The following are the contractual maturities of financial liabilities,
including estimated interest payments:
2008 ---------------------------------------------------- Carrying Contractual 6 months 6-12 More than amount Cash flows Or less months 1 year -------- ---------- ------- ------ --------- Non-derivative financial Liabilities Accounts payable 11,209,595 11,209,595 11,209,595 - - Short-term debt to shareholders 982,091 982,091 982,091 - - Short-term debt from subsidiaries 5,699,570 5,699,570 5,699,570 Long-term Payable to joint venture partner 52,633,779 52,633,779 52,633,779 Long-term payable to shareholders 67,757,799 67,757,799 67,757,799 138,282,834 138,282,834 17,891,256 - 120,391,578 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 2007 ---------------------------------------------------- Carrying Contractual 6 months 6-12 More than amount Cash flows Or less months 1 year -------- ---------- ------- ------ --------- Non-derivative financial Liabilities Accounts payable 2,788,000 2,788,000 2,788,000 - - Short-term debt to shareholders 722,054 722,054 722,054 Short-term debt from subsidiaries - - - - - Long-term Payable to joint venture partner 52,633,778 52,633,778 52,633,778 Long-term payable to shareholders 26,769,249 26,769,249 26,769,249 ---------------------------------------------------------------------------- 82,913,081 82,913,081 3,510,054 - 79,403,027 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Currency risk
Exposure to currency risk:
Genel is exposed to foreign currency risk on purchases that are
denominated in a currency other than the respective functional currency
of Genel. The currencies giving rise to this risk are primarily Turkish
Lira, Pounds Sterling ("GBP") and Euro.
Genel has not entered into any forward transactions in order to manage
the foreign currency risks
31 December 2008 31 December 2007 ------------------ ------------------ Original USD Original USD Assets Currency currency -------- -------- Cash and cash equivalents EUR 24 34 - - ---------------------------------------------------------------------------- Total foreign currency assets 34 - Liabilities Trade Payables EUR 67,107 94,996 145,972 214,340 GBP 59,965 86,932 20,900 41,737 TL 86,511 57,205 15,031 12,906 ---------------------------------------------------------------------------- Total foreign currency liabilities 239,133 268,983 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net foreign currency position (239,099) (268,983) ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Sensitivity analysis
Considering the foreign currency position as at December 31, 2008, it
is estimated that a general decrease of one percentage point in the
value of the USD against other foreign currencies would decrease
Genel's income before tax approximately by $ 2,390 (31 December 2007: $
2,689).
22. Subsequent events
Subsequent to 31 December 2008 Genel acquired new assets in Northern
Iraq where its current assets (Taq Taq and Kewa Chirmila Oil Fields)
are located. Genel committed one billion one hundred million US Dollars
Capacity Building Payment to KRG for the purchase of the following
assets. This
consideration will be payable on quarterly basis by allocating 30% of
the profit oil generated from the assets.
On March 31, 2009, an "Assignment, Novation and Ammendment
Agreement" has been signed between Kurdistan Regional Government
of Iraq, DNO Iraq AS and Genel. As per the agreement, DNO Iraq AS
transferred so called "3rd party interest" corresponding to
25% of the Tawke Block in Northern Iraq to Genel.
On March 31, 2009, an "Assignment, Novation and Ammendment
Agreement" has been signed between Kurdistan Regional Government
of Iraq, DNO Iraq AS and Genel. As per the agreement, DNO Iraq AS
transferred so called "3rd party interest" corresponding to
40% of the Dohuk Block in Northern Iraq to Genel.
On March 31, 2009, an "Assignment, Novation and Ammendment
Agreement" has been signed between Kurdistan Regional Government
of Iraq, Heritage Energy Middle East Limited and Genel. As per the
agreement, Heritage Energy transferred so called "3rd party
interest" corresponding to 25% of the Miran Block in Northern Iraq
to Genel.
On March 31, 2009, a "Production Sharing Contract" has been
signed between Kurdistan Regional Government of Iraq and Genel for the
Barbahar Block in Northern Iraq. As per the contract, Genel is entitled
to 40% of the Barbahar Block in Northern Iraq. In addition the contract
appoints Genel as the operator of the field.
On 5 January 2009, Genel has assigned the USD 61,062,473 receivable due
from Genel to Focus Investments Limited.
If you would prefer to receive press releases via email please contact
Lindsay Carpenter (lindsay@chfir.com)
and specify "Heritage press releases" in the subject line.
Certain information in this announcement is based on management
estimates. Such estimates have been made in good faith and represent
the genuine belief of applicable members of management. Those
management members believe that such estimates are founded on
reasonable grounds. However, by their nature, estimates may not be
correct or complete. Accordingly, no representation or warranty
(express or implied) is given that such estimates are correct or
complete. No representation or warranty (express or implied) is given
that such estimates are so founded. The Company and J.P. Morgan
Cazenove do not undertake any obligation to correct or complete any
estimate whether as a result of being aware of information (new or
otherwise), future events or otherwise.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION:
This announcement includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking
statements include, but are not limited to, statements with regard to
the outcome of the Proposed Acquisition, future production and grades,
projections for sales growth, estimated revenues, reserves and
resources, targets for cost savings, the construction cost of new
projects, projected capital expenditures, the timing of new projects,
future cash flow and debt levels, the outlook for the prices of
hydrocarbons, the outlook for economic recovery and trends in the
trading environment, statements about cost synergies, revenue benefits
or integration costs and capacity and may be (but are not necessarily)
identified by the use of words such as "believes",
"estimates", "plans", "projects",
"anticipates", "expects", "intends",
"may", "aims", "plans", "predicts",
"continues", "assumes", "positioned",
"will", or "should" and other similar expressions
that are predictions of or indicate future events and future trends or,
in each case, their negative or other variations or comparable
terminology. These forward-looking statements include matters that are
not historical facts and include statements regarding the Company's
intentions, beliefs or current expectations. An investor should not
place undue reliance on forward-looking statements because, by their
nature, they involve known and unknown risks, uncertainties and other
factors and relate to events and depend on circumstances that may or
may not occur in the future that are in many cases beyond the control
of the Company. A number of factors could cause actual results and
developments to differ materially from those expressed or implied by
the forward-looking statements. In particular, there is no assurance
that the Company will enter into a binding implementation agreement in
respect of the Proposed Acquisition or that such an agreement will be
entered into on the terms described in this announcement. There is also
no assurance that even if a binding implementation agreement is entered
into that any such transaction will be completed.
Any forward-looking statements in this announcement reflect the
Company's view with respect to future events as at the date of this
announcement and are subject to risks relating to future events and
other risks, uncertainties and assumptions relating to the Company's
operations, results of operations, growth strategy and liquidity. The
Company (and J.P. Morgan Cazenove) undertake no obligation publicly to
release the results of any revisions or up-dates to any forward-looking
statements in this announcement that may occur due to any change in its
expectations or to reflect events or circumstances after the date of
this announcement.
Subject to certain exceptions, neither this announcement nor any copy
of it may be taken or transmitted into the United States of America,
its territories or possessions or distributed, directly or indirectly,
in or into the United States of America, its territories or
possessions. Neither this announcement nor any copy of it may be taken
or transmitted into Australia, Canada, Japan or South Africa or to
Canadian persons or to any securities analyst or other person in any of
those jurisdictions. Any failure to comply with this restriction may
constitute a violation of United States, Australian, Canadian, South
African or Japanese securities law. The distribution of this
announcement in other jurisdictions may be restricted by law and
persons into whose possession this document comes should inform
themselves about, and observe, any such restrictions. This announcement
does not constitute or form a part of any offer or solicitation to
purchase or subscribe for securities in the United States. The
securities referred to herein have not been and will not be registered
under the US Securities Act of 1933 (the "Securities Act"),
and may not be offered or sold in the United States unless they are
registered under the Securities Act or pursuant to an exemption from,
or in a transaction not subject to the registration requirements of the
Securities Act. There will be no public offer of any securities of
Genel or the Enlarged Group in the United States. The securities
referred to herein have not been and will not be registered under the
applicable securities laws of Canada, Australia, South Africa or Japan
and, subject to certain exceptions, may not be offered or sold within
Canada, Australia, South Africa or Japan or to any national, resident
or citizen of Canada, Australia, South Africa or Japan.
This announcement constitutes an advertisement within the meaning of
the Prospectus Rules of the United Kingdom Financial Services Authority
and is not a prospectus and has been prepared solely in connection with
the Proposed Acquisition. A prospectus and circular (the
"Prospectus") will be published by Heritage in due course in
connection with the Proposed Acquisition. Copies of the Prospectus will
be available, following publication, from the Company's registered
office and from 34 Park Street, London, W1K 2JD, being the Company's
principal place of business in the UK.
Important Information
This announcement does not constitute an offer to sell, or the
solicitation of an offer to buy, exchange, or transfer any securities of
Heritage. The value of Heritage's ordinary shares can go down as well
as up and past performance cannot be relied on as a guide to future
performance.
J.P. Morgan Cazenove, which is authorised and regulated in the United
Kingdom by the Financial Services Authority, is acting for Heritage and
no-one else in connection with this announcement and will not be
responsible to anyone other than Heritage for providing the protections
afforded to its clients or for providing advice in relation to the
contents of this announcement, or for any other transaction,
arrangement or matters referred to in this announcement.
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