A combination of continued pressure on the oil price and some disappointment over a lack of further clarity on export payments from the Kurdistan Regional Government (KRG) conspires to knock 4.9% of Genel Energy’s (GENL) share price as it publishes interim results this morning.

Genel, now trading at 414.5p, received a boost on Monday (3 Aug) this week when the KRG announced operators in the semi-autonomous part of northern Iraq would begin to receive regular payments for their crude from September 2015. At first these are only likely to be sufficient to cover costs at best, with back payments following in 2016 – it was owed $378.4 million as at 30 June.

Alongside today’s results Genel repeats 2015 guidance for oil production of 90,000 to 100,000 barrels of oil per day (bopd) and reassures on safety after a new ramp up in tensions in the region. The company is selling some crude domestically but cash flow from operating activities is zero for the first six months of the year.

Deutsche Bank, which has a ‘buy’ recommendation and 700p price target on the stock, says this is a creditable performance in the circumstances. ‘With the Kurdish government withholding export payments for c. 70% of sales volumes, this was never going to be a stellar six months for Genel's cash generation.

'However, the extent to which the c. 30% of volumes directed into the domestic market has acted as a counterbalance is impressive, particularly in light of the lower commodity and discounted local pricing.

‘All told, nil operating cash flow from what is a small portion of overall sales demonstrates the reliance of Genel's low-cost portfolio, and ultimately, the operating leverage one can expect from payment normalisation and a higher commodity.’

Issue Date: 06 Aug 2015