Genel plummets after slashing reserves estimate

Shares in Genel plunged after the oil explorer slashed its reserves estimate for its largest field almost by half.

Iraq,Kurdustan-focused Genel said its gross recoverable proven and probable reserves, or so-called 2P reserves, at the Taq Taq field were 356m barrels, down from a prior estimate of 683m.

That came after an internal review and competent persons´ review using recently acquired data found that the fractured porosity at one of the three producing units at the field, Shiranish, was lower than originally estimated.

After recovering 184m barrels from that field up until 31 December the outfit estimated the remaining gross recoverable 2P reserves at 172m barrels.

The company had a 44% working interest in the field.

Gross output from Taq Taq was still seen at approximately 80,000 barrels per day in 2016 and the company´s production at between 60,000 to 70,000 barrels per day.

However, management now expected production would possibly decline to as little as 50,000 barrels of crude oil a day in 2018.

On 20 January the company had told shareholders it was reviewing its reservoir model for the Taq Taq field as a result of the falls in production observed in 2015.

Genel would incur an impairment of about $1bn linked to the now lower carrying value of the field on its balance sheet resulting from the review and lower oil prices.

Commenting on the announcement, Investec´s Brian Gallagher wrote: "Today’s Taq Taq reserves update showed a much larger than anticipated reserves reduction (down to 172mmbo), a fall of c.330mmbo versus our estimate of -192mmbo. Given the scale of the downgrade, we think this could undermine confidence in future company guidance. It may also impair Taq Taq’s asset status (is it big enough anymore to attract M&A interest?). Despite this, the valuation and cash flow impact is not proportionate to the downgrade; value is still ultimately linked to recurring Kurdistan payments."

Gallagher reiterated his 'buy' stance on Genel but lowered his target price from 245p to 205p.

As of 12:07 stock in Genel was down 36.47% to 79.25p.