Citigroup cuts Genel to 'neutral' on Taq Taq field downgrade
Updated : 14:37
Citigroup downgraded Genel Energy to ‘neutral’ from ‘buy’ and slashed the price target to 120p from 253p.
It pointed to the fact the company has reduced the expected gross ultimate recovery from its Taq Taq field in Iraqi Kurdistan on the back of revised assumptions on the fracture porosity within the Shiranish reservoir at the field.
On Monday, Genel downgraded its assumptions for Taq Taq – its largest oil field – to 356m barrels of oil from 683m.
As a result of the reserve downgrade, Genel also said it expects to record an impairment of around $1bn due to a lower carrying value for the Taq Taq field in its full year 2015 results, which is around 28% of its current equity value.
“Our ‘buy’ case on Genel was based on a view that despite the political uncertainties in the Kurdistan region, Genel held a significant low cost resource base that was undervalued and remained relevant to the wider industry,” Citigroup said.
However, Monday’s news changes this investment thesis and makes it more challenging for Genel to fund its Miran gas development, Citi said.
“With continued political uncertainty (and ongoing pipeline issues), we believe Genel could trade at a discount to core NAV in the near-term.”
At 1430 GMT, Genel shares were up 1.6% to 75.16p.