Genel Energy plc (GENL) Earnings Call Transcript & Summary

Good morning, and welcome to the Genel Energy plc full year results investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives and needs to get solved, and company will review the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to let the following poll. And I'd now like to hand you over to Bill Higgs, CEO.

Good morning, everybody, and welcome to our 2021 results presentation, and thank you for joining us this morning. I know some of you may have seen the presentation we gave on Tuesday, and this follows a very similar format. So we'll run through it, but then open up to questions at the end, and I look forward to answering those questions for you as we get towards the end of the presentation. Before we begin, we clearly recognize that we're making this presentation in -- with the backdrop of the horrible events in Ukraine and the impact that that's had on oil price in the short term. And like everybody else, we hope for a swift resolution to those -- that horrible situation, but that may not be quite as simple as we thought. The -- so we move on and obviously stop on the disclaimer for a second just to make sure you have an opportunity to read that. And then, so we're Genel Energy. Who's Genel Energy? We are an oil and gas exploration company with production predominantly within the Kurdistan Region of Iraq, and we have a highly cash-generative business. And we focus on generating cash from these low-cost, low-carbon oil production, which enables us to implement a very simple strategy. Our strategy is quite simply is to generate cash, invest in growth and return excess cash to shareholders. And that will become the theme of the conversation as we talk over the next few slides. It is making sure that we can give a clear line of sight to the investors on how we plan to return excess cash to shareholders and how that -- those returns will be delivered through a progressive and sustainable dividend. It's an important year for us in 2022. We have a very strong balance sheet today and we're forecast to generate significantly more free cash flow as the year goes on. And so I think it's very important for us to put our balance sheet to work in 2022, so we can create that line of sight on the future. If we take a look at our portfolio, we have a balanced portfolio. We have the most diverse production portfolio of any of the KRI operators with about just over 30,000 barrels a day of production coming from 3 licenses in the Kurdistan Region, which I highlighted in green on the map on the right-hand side. And we have the bulk of our production coming out of the Tawke and Peshkabir fields, which is operated by DNO, where we have a lot of activity planned for the coming year which we'll talk a little bit about that later. Growing production from Sarta, and I think the key thing here on this slide is to look at the 100 million barrels of 2P reserves. So it's how do we monetize most efficiently those 2P results. But also, as you can see in the 2C resources, we have more than 100 million barrels of 2C resources. So the question becomes is how do we efficiently convert those resources to reserves to production so to give us this longer view and longer time horizon on our asset production and cash generation. We're also -- should make a note of the fact that we have 2 assets in Africa, 1 in Morocco and Somaliland. And we were really pleased at the end of last year to be joined by CPC, the Taiwanese national oil company to join us in our Somaliland exploration activity where they've taken a 49% interest and more on that a little bit later. This -- our strategy is supported by what is now a very well-established business model. It's a business model where we focus very hard on making sure that we're resilient to everything, but all the uncertainties that before this particular sector, so it's resilient in times of low oil price, and we thrive in times of high oil price. So it's based around financial discipline. We keep our costs to as low a level as we can. We have a rigorous downside mitigation as part of the structure of our thinking. And that enables us to focus on high capital velocity, which is the speed at which we can move from production to cash to reinvestment as being part of the way that generates this engine that supports our strategy of generate cash invest in growth and return excess cash to shareholders. You can -- I think that the best example of this was the fact that we actually retained our material dividend in 2020, while many around us were reducing or canceling their dividend program. And clearly, as we've seen in the first half of '21, we -- once the environment improved, we increased our dividend. And again, we'll talk more about our proposal to the AGM coming up in a second. ESG is a cornerstone of the way we think. It has to be part of how any management team things with response with a social response to being in the resources sector. It is fundamental to the way that the management team applies our thinking to the business. And it has been an essential part of the business model underpinning this idea that as well as generating cash from low-cost barrels and making sure that those low-cost barrels are also lowering carbon and have a low carbon footprint and so where we have a best-in-class view of that. But thirdly and very importantly, for me and the rest of the team is the third branch of what we call our business strategy and business model, which is those barrels are produced in societies and communities where they can have a material effect and benefit. And so we're very, very pleased with the efforts that we make in supporting the communities and businesses in which we operate. And this year is a milestone year for Genel. We've been operating in the Kurdistan Region of Iraq for 20 years. And so we're set to commemorate that through our Genel20 program, which we'll be investing some further activities in the -- social activities bringing you through the year that are linked to the UN Sustainable Development Goals as a way of acknowledging that very strong relationship we've had with the region for over 2 decades. The -- one of the key things to think about in that time is that over that 20 years, we've actually, through the production that we've had at Tawke and Taq Taq delivered more than $20 billion of revenue to the Kurdistan regional government, for which obviously, which has a material benefit for people of Kurdistan. This is very well explained in our sustainability reports, and I encourage you to take a look at our already-issued reports, and we have an updated report which will come out of the -- in time with the AGM that will also show some of these benefits that we've had over the last time we've been in Kurdistan. So let's talk about cash generation from '21, so the '21 results. Think about this slide in terms of how do we generate cash and what do we do with it? So if we start with the low-cost productions that we averaged just over just under 32,000 barrels a day, in line with 2020. So stable production, and we're forecasting the same for '22. The bulk of that production was in the Tawke PSC. And if you look at the chart on the top right-hand side, you can see that it's fairly simple maths. But our low-cost operations, we generated $239 million of net income, and OpEx cost of -- cost to produce of around $4 a barrel. And so with that, where we end up is a net margin of around $21 a barrel, which gives you that $239 million. So very healthy margins on the barrels we produce. And then once you take out around $40 million for corporate and interest costs and about $50 million that we invested in growth, it's delivered a free cash flow of $86 million for 2021 pre-dividend payments. That would have been potentially $65 million higher if it had not been for the unilateral decision by the Kurdistan Regional Government to move back from paying on a monthly basis to moving to a 3-monthly payment horizon. So essentially meaning that we got 10 payments in the year of '21 rather than 12 payments. If we take a look at the dividend, so the key thing here is, I've mentioned already, that it's very important to us that we're able to support this 3-pronged strategy of fast cash generation, investment in growth and returning money to shareholders through the dividend program. So the dividend has to, therefore, be predictable in our eyes, has to be predictable and progressive and we remain very committed to this material and progressive dividend. And you can see the chart on the right-hand side shows the dividend returns since we implemented our hard dividend policy in 2018. So we -- again, you can see in 2020 that as oil price dipped, we still maintained that dividend through 2020. And as we've moved into '21, we've kind of increased that dividend such that we're making a recommendation to the AGM to increase the final dividend for 2021 by another 20% increase. And we believe that, that policy and that approach gives -- again, gives us a very clear line of sight to the investors that you can place value on our policy. And it's important that we can be ready to return further capital to the shareholders in an environment if there is excess available beyond what we see as being important to deliver the growth that's required to make that dividend sustainable. So if we take a look at the balance sheet, how the balance sheet will change in 2022, so it's the same story, really. You can see again, on the chart on the right-hand side, what we've tried to do is give you a few different margin scenarios dependent on oil price, pick your own oil price and you can fairly easily work out what the revenue for the company is going to be because our production will be -- remain solid and quite flat. And so in the example, we used with a pre the Ukraine situation of $90 a barrel, you can see that in that world, that we are generating on the order of $250 million of free cash flow post our investment of around $50 million in Sarta and again, managing the corporate costs and the interest payments. So $250 million of free cash flow this year alone, obviously, is very close to half of our market cap. So the company is in a very strong position. Assuming those cash payments come through, have those prices to use that capital to, again, sort of, provide this clear line of sight to investors as to how we can deliver on a progressive and sustained dividend, going forward. If you roll that into the balance sheet, again, the story starts in 2018, where we took a look at the strategy and the business model for the company and set the strategy and business model that we see today. And I think again, the chart on the right-hand side is a very good indication of that strategy at work. It's really -- it's a cumulative investment in growth and dividends since 2018 and essentially shows that we've been investing about $100 million a year in both in growth and returns to shareholders over that period of time, while continuing to maintain our production and I think give this line of sight. We have a strong balance sheet today, so a cash of $314 million, net cash of $44 million at the end of '21 with, as I mentioned, the potential to have $250 million of additional free cash flow added to the balance sheet before the end of this year. So as I mentioned earlier, clearly 2022 is a very important year for us to make sure that we put that balance sheet to work in the most efficient way possible to deliver the most returns, the highest returns for investors. And that is a significant amount of opportunity. The first priority, of course, is how do we most efficiently convert those 100 million barrels of reserves to production and cash. And then secondly, it's the investment in the growth element of our organic portfolio, which is investing in Sarta to convert as many of those barrels of contingent resources to reserves and production as we can. So that, again, that gives longevity to our production horizon and cash generation horizon. And then I think we need to -- we then start looking at the opportunities to add additional income streams to the portfolio as we go through the next 12 to 18 months as a way of diversifying and managing downside risk. And as a way of, again, provide a clear line of sight on the -- on how we can sustain our dividend and materially grow our dividend over the course of time. So if we move on and take a look at the operations for a 2022 point of view, again, once again, it's a focus on maximizing our low-cost, high-margin production and where there will be a significant increase in activity at the Tawke field. I'll let DNO, as the operator, describe the details of that activity, but they expect the production at the Tawke field will be circa 105,000 barrels of oil a day again in 2022. So more than 100,000 barrels a day, again, I think for the fourth, fifth year in a row. So that -- the activity there has been -- is a real focus for this year to successfully deliver those barrels. At Taq Taq, we continue to look to the opportunity to invest in an asset that continues to make money, particularly in these oil prices, but it is about managing the decline in life of that asset. And with a big focus on Sarta, we'll touch on Sarta again in a second, but a big focus on Sarta, now that we have Sarta-1D on production, we're producing around 7,000 barrels a day there today. and the opportunity to clearly look at the results of the Sarta appraisal program Sarta-5 and Sarta-6, which are important to replace the declines in the rest of the portfolio with high-margin barrels. So if we take a look at -- take a look at Sarta because it is important for us. It's a very important year again because it defines this ability of Sarta to act as a replacement of declining production in the more mature assets. And the starting point is obviously, clearly, Sarta has not delivered in its first year of production, everything that we may have expected or hoped for, but it certainly has done its job. It is a pilot program for -- primarily to manage the uncertainty that we had in the reservoir performance. And remarkably, in its first year, it's actually been a profitable pilot. We averaged 6,000 barrels a day in 2021, so 2.5 million barrels produced and actually made $30 million of net revenue and a $15 million operating profit. That, I can assure you, is a good outcome for a pilot program. And we've learned a lot about these reservoirs. We've learned a lot about how to optimize the production from the field. And we have much more to learn with the appraisal program. But we've added in the smart completion from 1D. It's worth remembering that Sarta-3 and 2 were both exploration wells, so they had very little, shall we say, sophistication in their controls around the subsurface. So we've essentially, they've been -- think of them as being rather on and off. But with Sarta-1D, we've got the different reservoir intervals of which there are a number different reservoir intervals that are isolated, and we can actually choose which intervals we choose to produce at any one time. So the -- what is also clear in the performance of the field is that we have seen that some of these reservoirs are producing water from first production of oil. And that is, again, quite typical over the reservoir. These fractured -- or complex fractured carbonate reservoirs in Kurdistan. And it is something that is expected over the course of life of these assets. So what we've had to do is react to that, react to that early water, and we've done that by establishing Sarta-4, which was another exploration well that was in the field and converting that to water injection well. We'll have that water injection well up and running in the next -- in the coming weeks. And that will provide us with the ability to increase the throughput of the early production facility, so increase the amount of water that we can take and, therefore, increase the amount of oil that we can put through the facility by having that water disposal available to us. So again, it demonstrates this ability to be very reactive and agile to deal with the circumstances that we have in front of us. So if we move away from the postage stamp of 1D to the bigger picture, and again, I've already mentioned that how important it is to us that we get the results from the Sarta-5 and Sarta-6 result -- wells. As you can see from the map of the bottom, Sarta-5 is a step out towards the East, about 15 kilometers away from the pilot area in Sarta-6, about 8 kilometers to the West. So these are material step-outs and they have uncertainty associated with them. Clearly, in the success case, both of these wells would materially add to the reserves and the conversion of contingent resources to reserves as we only have reserves on our ledger today associated with the pilot area. But we need to find out because we need to find out how much capital that we need to invest in the development of Sarta in '23 and '24. So these 2 wells are material information points, data-gathering points for us to be able to demonstrate what the capacity of the field will be in the future -- in the current future years for Genel. Sarta-5 well test should be starting in April. So hopefully, we'll have some results in May from that. And Sarta-6, I would expect the results in the early part of Q3, and that will enable us to be able to then forecast what we can do with this field in the years to come. If we take a quick look at Somaliland. I mentioned earlier, we're very pleased to farm out Somaliland. This is, in many ways, we've always seen this asset as a bit of a potential crown jewel in the portfolio or lost sort of gem in many ways. We've been in Somaliland for 10 years. We talked about being in Kurdistan for 20 years. We've been in Somaliland for 10 years. And we've stuck at it because it's a very exciting -- has a lot of potential. We're talking about basins that are analogous to the prolific Yemen basins, which just across the way on the other side of the [ bay ]. And they are under-explored basins. So when we move ahead to drill our exploration well in the Sarta exploration well, the last part of towards the end of 2023, this will be the first exploration drill -- well drilled in Somaliland for over 30 years. The good news is that the indications are that there is a basin and an interesting basin to be explored in and around our block SLB1013. And also the fact actually that license encompasses the whole of the basin. So in a success case, we have all of the prospectivity within the license. Very pleased to have CPC join us in that license. And I think importantly, when we started out on the journey with Somaliland and certainly over the last 4 or 5 years, we've always said that, that we wouldn't take on the risk of drilling a wildcat exploration in Somaliland by ourselves. And we've been through this transaction with bringing in the partner being able to move to a place where essentially our first well on the license will be paid for through the deal of bringing CPC into the business. So exciting to see that happen. It's a good time for Somaliland. I mean, we had the management team trip there. a few weeks ago, and I was incredibly impressed with the work going on at Berbera port, where there's about $430 million of investment going in with DP World as the primary investor to develop that port, which is a deepwater port. Clearly, one of the differences from Kurdistan but there are many parallels as well. This very much fits our model of those 3 things, which is that in a success case, these will be low-cost barrels in a success case. These will be low carbon barrels. And in the success case, these barrels will clearly have a material impact on the communities and the society in which they're produced. So it very much fits our portfolio thinking. So finishing on wrapping up and taking a look at the outlook for 2022. Again, just to reemphasize, it's clearly come at about a significant amount of free cash flow generation. depending on your view of oil price. And as we've indicated in the chart here for about every $10 of increase in oil price, we generate about $50 million of incremental free cash flow. So it's taking our balance sheet, putting our balance sheet to work with the first priority on being to convert our reserves to production to cash and leveraging that reserve ledger as effectively as possible. Then it's about demonstrating what can our organic portfolio deliver? What can Sarta do, converting Sarta contingent resources to reserves to give line-of-sight on the sustainability of our production within KRI. And I think it's been about looking at diversifying, using our balance sheet and our balance sheet strength to diversify our cash flow to give us a lower risk profile, but also to give a line of sight on the fact that we can truly deliver on our promise to pay a material and progressive dividend for years to come. So with that, I think I'll wrap up there, and we'll go back and start the Q&A.

[Operator Instructions] I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. Andrew, as you can see, we've received a number of questions. Could I perhaps hand over to you for the Q&A, and then I'll pick up for you at the end. Andrew, I think you might be on mute.

There I can probably pick up on a couple of the questions. So I'll start with a couple of questions that were submitted earlier. And then we'll -- hopefully, we'll get Andrew back and we'll take a look at the other questions that were submitted. So one question that was submitted earlier, which was why are we not paying off all debt given the interest costs and the lack of meaningful plan around the use of cash on the books? Some clarity required on planned use of cash on the books. So obviously, debt actually provides optionality in itself. And one has to remember that if you go back to 2020, when oil process was trading at around, I guess, it was right around $40, $45 a barrel when we refinanced the bond. And one of the reasons we did that was to be able to provide line of sight that we -- that the balance sheet was going to remain strong through this period of time in 2021 and 2022, where we were going to be making a material investment in Sarta and Qara Dagh to know what that was going to do. Obviously, in a situation where oil prices has performed substantially above maybe many of -- and all of our expectations, that gives us additional optionality and the ability to look at our capital allocation priorities. But I think it's worth saying that we still see that the best way that we can deliver returns to shareholders is by being able to invest in high-returning cash flows. And then being able to deliver those cash flows through the process of being able to demonstrate that we've got a progressive and material dividend program. Now we continue to look at -- we'll continue to look at the options to optimize the cost of debt, obviously, through the program. But also it's worthwhile remembering that again, a good example last year is the Kurdistan Regional Government's decision to delay their payments from 1 month to 3 months actually resulted in $65 million, not appearing on our balance sheet when we were forecasting it to be. So there is a need to maintain a minimum liquidity level within this company to manage some of these external risks.

Thank you, Bill. I think my microphone is now back and working. I think in relation to that, there's one other question actually that's come in on the side that's quite worth taking at the same time. And that is about, do you have a view on the amount of cash you'd look to leave on your balance sheet? Is there a minimum liquidity position that you would have?

Yes, there is. We do have a minimum liquidity. And we talked about -- and it's a very, again, interesting and topical question at the moment because our minimum liquidity that we've looked at historically has been around $150 million. But one can make an argument, obviously, clearly, in a situation where oil price is high and assuming that we continue to move on with our oil -- our production, and we continue to get paid, actually, the minimum liquidity level for the business could be reduced. And we're thinking about that in the context of the use of capital and I think it's -- the situation today, one of the ways -- the way I think about the business today is that we clearly are going to generate a lot of cash over the coming year. But we have this remaining uncertainty about what Sarta is going to require in terms of capital allocation. And the results of the appraisal program will tell us a lot about the capital allocation from Sarta. But in a world when we talk about getting towards the half year results, which is something we alluded to in our announcement, when we talk about getting to the half year results, I think we'll have more certainty on what the capital allocation requirements are for Sarta. A little bit more certainty on the -- on how much cash we've added to the portfolio. And then I think an outlook on what we're doing with the capital allocation priorities going forward so we can take a look at -- take a look at the possibility of returning more cash to shareholders and our preferred way of doing that would be through a dividend program. But if we do, we want to make that dividend something that is value -- can be easily valued by the market and investors. We don't have a strong -- we don't particularly like special dividends that come without a set of criteria that show when those special dividends might be delivered again in the future so that everybody can take a position on that.

And then continuing on with that question, I think there's -- someone has asked if there's a risk if we would do a large acquisition, where the net debt of Genel will significantly increase? I think to add a second part to that question, where would you be looking at acquisitions? Would you look to expand outside of the Kurdistan Region of Iraq?

Yes. Clearly, I made a point at the beginning of this presentation that one of the things that we pride ourselves on in our business model is that we -- we spent a lot of time thinking about downside risk and mitigating downside risk. And that will be no different in our approach to looking at new opportunities. And a good example of that in many ways, it is actually Sarta. We have to think back to 2018. In 2018, we, as a management team, were already looking at the fact that the overriding royalty payments would be ending in 2022, and that will have an impact on the cash generation of the business. So that was one of the reasons why we generated the -- took the Sarta opportunity forward and were successful with that opportunity. And Sarta is a great example of what you can do to manage downside risk and generate upside potential in higher oil price because we didn't invest -- we didn't spend any money to get into that asset. The pilot, although underperforming compared to our expected outcome is profitable at the oil prices that we had in 2021. And incremental barrels are highly profitable. And so in fact, actually, once we get up to around 15,000 barrels a day of production at Sarta that, the net margin is actually more than equivalent to a net margin at Tawke today -- barrel net margin at Tawke today, even with the [ EOR ] on top. So it provides that replacement. So that's the way that we think. And I think -- so from a downside mitigation point of view, we will not do anything that puts the balance sheet at risk because we clearly recognize that at the moment, this is a high-priced environment, and therefore, we've got to be able to protect ourselves if the circumstances are different. In terms of diversification, again, I come back to the 3 -- the 3 points I keep making, which is that we focus on assets that are low-cost, low in carbon and can have a material impact on the societies and communities in which they are produced as being our sort of screening criteria for what we look at. So that tells you a lot about the types of assets that we would look at to diversify the risk of our cash generation, which is an option. But it does not mean that we are solely focused on outside of KRI either. We still see that there's a lot of opportunity in KRI, so it's about actually as much as anything it's about making sure that we can demonstrate through M&A that we've given that clear line of sight on this progressive dividend and growth that investors should be able to see.

And then speaking of the KRI, I've had a couple of questions as you'd expect on the politics and then that we get a lot from investors all the time. A couple of points. First is about payments and the payment is becoming increasingly delayed. And then what's your view of payments going forward? And then there's been other questions as well about how do you view security at the moment in Erbil, especially following the recent rockets that landed from Iran?

Yes. So payments is clearly one of the challenges for all of us who -- particularly those of us on the public companies, and we have to tell the world when we've been paid or not. And it's an area of frustration for myself and other CEOs of other companies, the IOCs invested in Kurdistan is that it's really to understand why we're unable to be paid sort of uniformly and within a short period of time. There is -- there was -- we expected to have some increased delays to payments associated with the recovery of the economy because that's what the Kurdistan Regional Government had indicated back in 2020 when we -- when they established the receivable for nonpayment for the end of '19 and the first 2, months of 2020. They promised to pay us within a month and then with an expectation as things recover, we would get those delays. But it's also a source of frustration that payments that are now actually being distributed over quite a long time period. And I think it's worth saying at this point is it's clear from -- clear for the history of Kurdistan and it's clear from the recent behavior of the Kurdistan Regional Government that they clearly are motivated to pay the IOCs. That is without doubt have been very, very good at paying us. It feels more like a process thing. So in any one month, one month, you could be the first to be paid over the next month, it could be the last to be paid. We, at Genel, have 5 invoices that we submit because of our fields and the operating royalty and receivable. And as it happens, we -- this last month, one of our invoices was the first to be paid and the fifth of the invoices was the last to be paid. So we announced our payments last. But in fact, actually, over that period, we were getting all the payments. So we continue to talk to the government about the need for greater transparency over the payment process and giving us clear line of sight on making that more efficient. So -- but they are committed to paying and that's clear. In terms of security, obviously the recent incident is very disappointing, really, I suppose, and shocking to see and hear about. It was clearly, rockets that were directed from Iran and it was the anniversary of the death of Saeidnejad who had been killed in Iraq on -- it was the anniversary of his death. So I think it was very political in its motivation. There was nobody injured or killed in the rocket attack. So it feels like it was quite orchestrated from that point of view. We see from a security risk perspective that our operations today are as safe as they have been in many ways that we continue to work to deliver our production and feel very much -- I feel as if we're getting a lot of support from the Kurdistan Regional Government and the security of our operations.

It's probably worth mentioning just in terms of security of our operations, we never had a single day of downtime even during the ISIS crisis in Iraqi Kurdistan. That was clearly a more present threat than Iranian rockets, which are very targeted on individual areas. So we don't see any reason for investors to be concerned about the security of our assets at this time. Another question people have had while sticking on the Kurdistan theme and politics is about the recent Iraqi Supreme Court judgment on February 15. Should investors be concerned about that at all?

Yes, and so if you look at the Supreme Court judgment, it was a majority judgment of the Supreme Court. The -- unsurprisingly, the folks that voted against it on Supreme Court were they -- were Kurdish representatives. And it's clearly politically motivated. It was motivated by the -- to try to disrupt the formation of government and in Baghdad. And -- but what I would say is even though it was clearly motivated politically and related to Baghdad, what it has done, it's probably got some unintended consequences. And the real unintended consequences, of course, is that, that judgment sits there and it requires the government to the government to do something about it. Now the Kurdistan Regional Government's reaction was fantastic. They came out within 24 hours and basically restated their position that as far as they're concerned, the production and export of crude from Kurdistan Region of Iraq is constitutional and meets the constitution and therefore, they fully support their investors and the IOCs that are producing and the contracts that remain in full force. So that is exactly what we'd expect to see from Kurdistan Regional Government is business as usual. We've been paid by them since that judgment. And -- but what I think hopefully, the glass half full perspective is that with the formation of the government in Baghdad, I think what it will require is it will require Baghdad to get together and resolve once and for all this legality in the eyes of Baghdad and hopefully, we can get that resolved in line with our expectations, which is that there's nobody in Baghdad that particularly wants to change the situation. There's nobody in Baghdad that wants to think about taking on Kurdistan Regional Government's debt. And so that our contracts will continue to be honored as we move forward. It is -- so I think that is the real opportunity, but we do see it as unfortunate noise in the backdrop of what has been a strong, as I mentioned, strong and enduring relationship that we've had with the Kurdistan region for 20 years now.

Thank you, Bill. Changing back onto the geology. It's always dangerous when you have a geologist answering questions. So I'll ask you to keep it short. In terms of Sarta-1D, how effective is the smart completion going to be in terms of keeping water out of the production stream? And will there still be a need for water disposal at Sarta?

There will be. So the smart completions enable us to do is to be able to isolate zones that are behaving differently from each other. And the way to think about it is, at the moment, what we've done is we've opened up a zone that is essentially 100% oil, and we're flying that at the moment while we get -- while we finish off the preparation for the water injection at Sarta-4. But managing water is a big part of the oil and gas business. With oil comes water, obviously, with the bigger -- biggest reservoirs, that water tends to come later. And with smaller fractured reservoirs like the ones that we're dealing with in Kurdistan, some of that sometimes, that water will come quickly as we know all too well with the story on Taq Taq. But it does -- it is about managing fluid and it's about managing water. And once we have that system in place to manage the water in terms of surface system of processing and disposal, then it enables us to bring more intervals on production and therefore, increase the production rate in the pilot.

Thank you, Bill. And moving on to Qara Dagh. I think in relation to Qara Dagh, I'd urge everyone to have a look at our annual results presentation given a couple of days ago where Mike Adams, our Technical Director, gave a quite detailed explanation to what happened with the drill. One of the questions we've had is when are you expecting to decide on the next steps for Qara Dagh?

Yes. And then just probably right to what makes it even worse is when you have a CEO. So there's a structural geologist. And I can get into moving hands and drawing diagrams, which you don't want me to do so I'll avoid that, other than to replay back the -- obviously, it's extremely disappointing not to be able to get to our reservoir objectives on Qara Dagh to -- I'll replay back the analogy that we've used quite often now, which is that next time that you're in a warm sandy beach, go to the where the sand is dry and try and dig a hole. And you'll see that the sand will fall in on you, and that was essentially what's happening to us on the Crestone structure way above where the reservoir was but a very complex situation where we were unable to be able to move forward with the drilling of that well with that trajectory. So we needed to abandon it. Clearly, having not got to the target, it means that the opportunity is maintained. We have a that we have the ability within the contract to seek 2 1-year extensions. And the first of those 1-year extensions is essentially to prepare ourselves and our partner, Chevron, to be able to make a decision on how and where and when we will be ready to go ahead and drill another Qara Dagh well. So by the time we get towards the end of this year, we need to be in a position to have decided on a strategy forward for that so that we can then execute that strategy within the -- towards the end of the following year. So I think that's how it will play out. And there's work to be done because we obviously -- we've learned something from the well, and we need to be able to drill with confidence if we drill again to be able to know that we can get to the reservoir and test it.

We've had a question about potential sanctions and the impact of those. The question is worded is the Jeyhan pipeline is owned by Rosneft. Is this an issue regarding sanctions going forward? I'd just like to make one slight clarification there. The pipeline as soon as it gets the Turkish border to Jeyhan is run by BOTAS. Now Rosneft has -- they have a stake in the pipeline on the Kurdish side of the border only. So just with that little clarification given, Bill, are you concerned about potential sanctions on Rosneft?

Yes. So we made a comment in -- I think we had a comment in the results statement. We said we got a comment coming out in the annual report around the fact that, clearly, we're paying attention to how the sanctions landscape is unfolding and there are probably -- there are 2 areas that really -- that we're looking at. And those 2 areas are the transportation of crude oil because for 2 reasons. One is the -- as Andrew said, the ownership of the Kurdistan part of the pipeline, but also the potential for crude to be sold to Russian entities in Jeyhan So that's sort of both of those need to be paid attention to. In terms of the pipeline, that's actually an easy an easy route around that from an operations point of view, which is to actually take the crude to [ fishable ] and by truck, and actually put it into the BOTAS line directly. So that can be managed, but I suspect also that there may be other things that Kurdistan Regional Government are thinking about in terms of how to remove that potential risk. So we think that's going to be manageable. The other area is supply chain. And again, we continue to focus on supply chain as being one of the critical areas where we're making sure that we're there are no breaches of any sanctions. There is -- there are bits of equipment that some of the operators do pick up from Russia, so it's an area of focus.

I'd just like to say to people if they have any more questions, then please do fire away because well, we have time to take a couple more. We have 6 people, Bill, effectively asking the same question in different ways. And it's asking in relation to Bina Bawi, Miran and the arbitration that is said to be ongoing. It might just be worth you -- judging from the questions that people are asking in terms of, do you know who might develop it? Are they dead in the water? Do you think the [ carrier ] will use another company. I think it might just be worth you clarifying the status of Bina Bawi and Miran in relation to Genel and what the Board decision was last December. There's very, very little that we can say, I'm afraid, in relation to an ongoing legal issue. But it's worth, I think, Bill, just clarifying what the current status of the PSCs is and what the arbitration and why the arbitration was launched.

Yes. Yes. Obviously, it was a very tough decision at the end of last year for the Board to make. But it had become very clear since 2019, that if you go back to 2019, we reached agreement with the Kurdistan Regional Government on how we and they were agreed on how we were going to progress Bina Bawi and Miran -- and following that -- from that point, it became very clear that the Kurdistan Regional Government did not want to continue with those agreements and certainly clearly wanted its gas assets back and wanted to terminate the 2017 PSCs. Now obviously, it's for them to tell us all and to tell you why they wanted that, but it's clear that that's what they wanted. And so they were not performing their obligations under those contracts and ultimately it led to the point where we had to make the call that they were in repudiation of those contracts and put them to a [ Q3 ] bridge. The act of doing that under English law started an arbitration process. But also the act of doing that under English law meant that we have handed the assets back to the Kurdistan Regional Government, and it's for them to decide what they do with those assets going forward. It's not for us. The arbitration process will be what it will be, as Andrew said, we can't say very much about that other than to, of course, mention again that the fact that we had already invested $1.4 billion in those assets in good faith and on the expectation that we'd be able to progress them is -- clearly forms part of our view of needing to protect shareholder interest in a circumstance where they were not willing to perform their obligations under those contracts. I think in the broader scheme, if you look at the bigger picture, clearly, the situation in Ukraine and the desire of Europe to stop using hydrocarbons from Russia opens up the opportunity for Northern Iraq gas and other gas sources around the European arena to be developed and produced and exported to Europe. So we'll see what happens on the way forward.

And then before I pass on the last question, Bill, I'd just like to say these have been a very good question submitted, but do please feel free to reach out directly to us as a company if you ever do have any of these questions. I think that I'd much rather people contact the company rather than speculate on certain things. You can find my e-mail address and my phone number are both available on our website. I'm very happy to answer any questions that you may have. Our smallest shareholder is as important as our largest to me, and you will get the same responses and you'll get the same response time as well. So please do feel free to send us these questions at any time. So the final question that we have, it's going back to the acquisitions point. People have been asking for a bit of a clarification, and I think it's a valuable one to give, which is how actively are you looking for acquisitions? Could you give us a feel about how big they could be? And also, there's been a question about how you would look to fund them?

Yes. So we're always looking. And which I think is part of the job, really, we should -- the way we think about it, again, coming back to the business model, we talk about financial discipline and downside risk mitigation. And the way that you manage financial discipline and downside risk mitigation in the world of acquisitions, is to be able to look for what's the discontinuity that you are convicted about the means that you can make a good return on the investment in the range of environments and the cycles that we see within the oil and gas business. And it is looking for those discontinuities. And those discontinuities can take on different forms at different times through the cycle. And so and they can be different geographically as well. So we're always looking for that angle for that discontinuity, for that little something that gives us the opportunity to create superior returns to shareholders. That in the common world, I mean, in many ways, one of the biggest discontinuities that sits today is that it is clear that in the current world, that oil and gas companies are materially discounted to the future value of brands, and we can debate why that is. But it, broadly, some of the reasons why it could be is that you've got uncertainty. Only the near-term cash flows are being valued as near-term cash flows, being valued because of concerns about the energy transition, concerns about carbon pricing concerns about windfall profit taxes coming into the sector and just concerns about overall economic development and the possibility of actually having a downturn in oil price in the future. So but that could create a discontinuity for the use of equity as a trading currency. So we try to look at keeping all of our options open whether that be cash directly also with the strong cash balance sheet we have, but in the current price environment, you can't buy as well. as you could have done a year or so ago with -- directly with cash. We look at equity as being a possible currency views, and we look at that as being a currency to use. But in the balance, it has to fit within one of those 3 criteria principles: low cost, low carbon and making a difference. And then secondly, it has to be able to meet our criteria of being able to manage the downside risk and meet our financial requirements. But ultimately, again, I think it's important and we will wrap up, but it's important that it's about generating line of sight to investors the fact that this company can now can deliver a material and sustainable dividend going forward, and one that you can place value.

Thank you very much, Bill. There are no further questions, unless you have any closing remarks.

Thanks everybody for making the time to listen today. In many ways, I much still would much prefer to be doing this in a room and having a chat and seeing faces and being able to talk to you all. But again, I appreciate the time that you put into listening to us tell you about Genel today and again, it is about up for us a material -- a year of material cash generation and the opportunity for using that cash to continue our journey of delivering returns to shareholders, but more importantly, developing the portfolio so that you can see that we can do that for many years to come.

Bill, Andrew, thank you very much for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback, a lot of management team can better understand your views and expectations. This then takes a few moments to complete and I'm sure it will be greatly valued by the company. On behalf of the management at Genel Energy plc, I would like to thank you for attending today's presentation, and good morning to you all.