Earnings Transcript for GENL.L - Q4 Fiscal Year 2015

Executives: Tony Hayward - Chairman Murat Ozgul - CEO Ben Monaghan - CFO

Analysts: Brendan Warn - BMO Capital Markets Daniel Ekstein - UBS Rafal Gutaj - Bank of America Merrill Lynch Robin Haworth - Stifel James Thompson - JPMorgan Stephane Foucaud - First Energy Michael Alsford - Citi Thomas Adolff - Credit Suisse

Tony Hayward: Ladies and gentlemen, good morning. Welcome to our 2015 results presentation. I'm joined by Murat Ozgul, our CEO and Ben Monaghan, our CFO. Murat and Ben will handle the formal presentation and we have a number of other Genel exes and new audience today including Fevzi Gumrah, our Reservoir Engineering Team Leader and Pars Kutay, Head of Government and Public Affairs. Before we begin the formal presentation let me just make a few comments. I think it's fair to say that 2015 was a very mixed and challenging year for Genel. The external environment was the most challenging we've seen in the industry for more than 15 years. We achieve record production of 85,000 barrels a day up 22% percent year on year and through the second half of the year we were paid for our pipeline exports. And against all of that earlier this week we reported a major revision to the assessment reserves at our Taq Taq field. This is clearly deeply disappointing, for Genel stakeholders, for myself as one of those and for the team and for the Kurdistan Regional Government. And it's important I think to recognize that while this is a major setback it should not overshadow the real progress that the business has made under Murat's leadership. Even based on our current reserve assessment Taq Taq remains a material low cost oil assets and we’re clear at task going forward is to restore the markets confidence in our oil business. Murat will take you through our work program the morning at Taq Taq to further reduce the uncertainty over the coming months and years and progressively rebuild confidence. With Taq Taq and Tawke, we continue to enjoy some of the lowest costs oil producing assets in the world made even lower by the actions we've taken this year to reduce field operating costs and G&A overhead. With many years of production ahead of them and with the pipeline route to world markets now firmly established and a payment mechanism consistent with the PSC now in place. We're a very long way forward from where we were when we last met in August of last year. And I'm Bina Bawi and Miran we have two very large low cost undeveloped gas assets adjacent to one of the world's largest gas markets. Our progress [indiscernible] ID has been slower than any of us would like, Murat will demonstrate we’re steadily moving forward with every prospects of partner involvement in the course of this year. In addition, we have a strong balance sheet that will enable us to weather the downturn in the environment and emerge at the end whenever that may be and finally I would argue most importantly we have a new young dynamic and very able management team who are motivated and energized to take the business forward that. Let me now hand over to Murat and Ben to take you through today's presentation.

Murat Ozgul: Thank you, Tony. Good morning everyone. You may see our usual disclaimers on page two. My section of the presentation will cover business performance during 2015 and the resumption of monthly care export payments which was a key positive in the second half of the year. Of course that will be a focus on Taq Taq following the reserve's downgrade announced earlier this week. I will be sharing you additional detail, the 2016 Taq Taq work program during the presentation. I will finish on the KRI gas business outlining progress in the 2015, outlook for 2016 and beyond. Let me start on slide 4, which sets out the KRG's successful strategy to become a significant independent oil producer in 2015. The Kurdistan region of Iraq exported the majority of its oil through federal government in the first half of 2015 and in return received around $2 billion. In the second half of 2015 KRG commenced independent oil sales from Jehan generating around $4 billion. This allowed to KRG to make sustainable export payments to international oil companies resulting in a significant positive impact on the business environment in the region. The KRGs export volumes has been around 600,000 barrels per day since September. This represented 15% to 20% of all Iraqi oil exports over the period. These exports have enabled the KRG to resume regular payments to the IOCs. We shouldn't underestimate the importance of regular and sustainable export payments to the contractors. It encouraged IOCs to invest and create a positive investment climate in the Kurdistan region of Iraq. Moving on to slide 5, I would like to highlight some important figures reflecting the company performance in 2015. Genel's net production reached around 85,000 barrel per day at 22% increase over 2014, $148 million cash proceeds received from export and domestic sales. In the low oil price environment capital expenditures was cut by over 75% year on year. Similarly operational expenditures and G&A costs were cut by 40% in 2015. The next slide use the 2016 outlook, we have already made real progress in 2016 with the MRS [ph] February announcement which has changed the basis of IOC export payments. The new payment mechanism is based on PSC entitlements [ph]. For the first time it also established a payment mechanism for the receivables with 5% of the field revenue directed towards the recovery of the receivables. This new payment mechanism has been the catalyst for IOCs to resume investments in the fields. Genel continues to enjoy low production cost of less than $2 per barrel at Taq Taq and Tawke. Our entitlement breakeven at both assets is significantly below the current oil prices. Our 2P reserves have fall by toward the 9% year-over-year as a result of Taq Taq reserve downgrade announced earlier this week. Our 2016 Taq Taq development plan contains activity designed to produce the 2P reserves and gather additional information on reservoir parameters. I will return to this subject later in the presentation. Slide 8 gives an update on Taq Taq and Tawke operations. Taq Taq and Tawke average 116,000 and 135,000 barrels per day respectively delivering significant growth on year-over-year. This was achieved despite the suspension of drilling activities at coal fields in April 2015 on a lack of export payments. Following them MRS February favorite announcement, Eric [ph] is now on location at Taq Taq and just commenced the work over operation on Taq Taq. The rig will then commence the first well side track operation. This year Taq Taq budget includes side tracks of existing wells, work over operations and then ESP for [indiscernible] oil recovery. The contingent program consist of further sidetracks, a horizontal well plus the development wells and the installation of ESPs. As monthly payments are received and increased from the current levels this activity will move into the firm budget. The top tier well program includes drilling off the Peshkabir-2 well and facility upgrades. As for Taq Taq further development drilling, it's contingent on sustained and increasing monthly payments. Since mid-February the export pipeline has been shut in, during this period Taq Taq has continued to supply the [indiscernible] finally and at the end of last week we resumed sales into the domestic markets. The field is currently producing 74,000 barrels per day in line with the average over first two months off the years. Tawke field production has averaged 99,000 barrel per day in the first two months of the year. Moving on to the Taq Taq reserve revision on slide 9, the updated McDaniel's reservoir study resulted in original recoverable 2P reserves of 356 million compared to 683 million barrels per previously. The main difference is lowered assumed fracture positive in the Qamchuqa, Kometan and Shiranish reservoirs, as well as classifying the bypass Qamchuqa oil as prospective resources. I will now go into the details on the key areas of focus for future Taq Taq activity. The image on the right hand side of slide 10 illustrates the fractured distribution in the Shiranish, we believe that there are areas in Shiranish with significant micro-fracture porosity which have yet to be targeted by new development to us. Moreover, we believe that there are areas within the flanks of the Shiranish which have yet to be set. To access both micro-fracture porosity and [indiscernible] we’re planning to drill a number of side tracks of existing wells during 2016. Ladies and gentlemen, slide 11 is important. Taq Taq well testing in late January and first half of February provided the first indications that the free water level had advanced into the lower Shiranish especially on the reservoir crest of the field. However there remains a degree of uncertainty as to the exact position of the field water level between the wells. We believe that the concentration of the development wells on the crest of the field has led to an elevated free water level in this part of the reservoir. In other words the free water level is not rising uniformly across the field. In order to address the irregular free water level we will drill side track wells targeting the flanks of the structure and reduce the rate of production from the wells on the crest. These actions will aim to ensure a uniform free water level. The third area of focus has bypassed oil in the Qamchuqa. Slide 12 shows the reservoir saturation through the results for one of the Taq Taq production wells. You can see the oil saturation in the Qamchuqa matrix in the middle of log in red. McDaniel has assessed to enter to 40 million barrels of [indiscernible] oil in Qamchuqa. We believe that this oil can be produced by installing high pressure pumps in the existing wells or through coiled tubing operations. Slide 13 is important as it's sets out our 2016 work program and our expectations of Taq Taq gross production over the next three years. We have split the work program plan by firm and contingent activity. We have also specified what the activity is targeting in terms of the three main areas of uncertainty. I mentioned earlier that we have commenced the work over operation on Taq Taq. After that we will drill a sidetrack, this first part of the 2016 firm work program will aim to give us better insight into the development of fracture systems in the field. It will also be a part of the reservoir management plan, the other element of the firm activity plan contains a further sidetrack which will address fracture system that will augment on the flank of the field. Additionally there will be an ESP or coiled tubing operation for Qamchuqa oil in matrix. Providing monthly payments continue and we will look to bring contingent activity into firm. As you can see the contingent activity is primarily focused on fracture systems development and reservoir management. In particularly we have a new horizontal development well in the contingent project. It is important to note that this program may change depending on the results of ongoing activity. The near term Taq Taq production profile on this slide is what we expect to deliver based on the work program and further activity in 2017 and 2018. We aim to average around 80,000 barrels per day this year 65,000 to 75,000 in 2017 and 50,000 to 70,000 barrels per day in 2018. The key message to take away from this slide is that we have a significant amount of activity planned for 2016 which will gather additional information on the Shiranish reservoir. Our year-end 2015 reserves and resources are on slide 14, 2P reservoirs to that 264 million of barrels at the end of the year. This is represents toward the 9% decrease on 2014 with the fall reflecting Taq Taq downgrade and 2015 production. 2C [ph] figure increased from around 1 billion to 1.25 billion barrels with the main driver being the Bina Bawi stake acquisition. On slide 16, you can see two appraisal wells which are firm 2016 work program. [Indiscernible] will be spotted in April while we expect to drill Peshkabir-2 second half of the year. These two wells should refine existing contingent resource estimates while the Peshkabir-2 will also test the prospective of the [indiscernible]. Now let me turn to our KRI gas business on slide 18, during the year we acquired 44% stake in be Bina Bawi for an upfront payment of $5 million and contingent payments of $145 million dependent on production milestones. Development planning for the midstream has now commenced with the mid-stream [indiscernible] and technical consultant standards initiated in December 2015 and we expect to award these contracts in April 2016. The profit [ph] will focus on site selection and technical design of the gas processing facilities at Miran and Bina Bawi. Slide 19 sets out the activity plan for the gas business in 2016 and beyond. The gas development plant contract will be awarded in the second quarter of 2016, expression of interest letters have been sent to eligible EPC contractors. Midstream CapEx of $2.5 billion and a 30 to 36 month construction window have been ratified by the EPC contractor responses. We are also aiming to make progress this year on introducing new equity partners into both upstream and mid-stream. Assuming successful completion of all steps above, the EPC tender award and final investment decision will follow. It's fair to say that our KRI gas business has not advanced as quickly as we originally expected. However you feel we’re are now starting to make real progress and that the Turkish government remains a key supporter of the projects. This will be the catalyst to move the project forwards. We remain confident that it remains a major source of future value for Genel which is currently unrecognized by the markets. Now I will hand over to Ben for the financial review.

Ben Monaghan: Thank you, Murat and good morning everyone. Let me start by summarizing our 2015 financial performance on slide 21. Accrued revenues of $344 million were down by a third year on year. As the full in benchmark oil prices negatively impacted realizations which more than offset 2015 production growth of 22%. The impact of lower revenues on EBITDAX was cushioned by the measures taken during 2015 to reduce both production and administrative costs. KRI cash proceeds of $148 million from domestic and export sales generated operating cash flow before interest of $71 million dollars. Capital expenditure was reduced by more than three quarters in 2015. As we significantly reduced activity levels across the business in response to both lower oil prices and the lack of KRI export payments in the first half of the year. I'm pleased to report however that the receivable with the KRG in respect to unpaid production stabilized in the second half of 2015. As export payments recommenced and ended the year at 423 million falling further in January to $405 million following the January 2016 payment. This compares to $409 million at the end of September 2015. We ended the year with $455 million in cash which provides us with a robust liquidity position relative to our cash expenses from which to weather a prolonged downturn in the oil price. Slide 22, illustrates a breakdown of our 2015 cash flow. As I mentioned we generated a $148 million of cash proceeds from KRI oil sales split evenly between domestic and export sales. This export proceeds figure of $74 million does not have caused include the $24 million payment by the KRG in early January. 2015 cash proceeds more than covered KRI OpEx, Central G&A and Africa cash exploration expense as well as our bond interest payments. This reflects both the low cost nature of our operations and the cost reduction measures implemented during 2015. During 2015 $93 million of cash was paid out in respect of 2014 capital activity which had been accrued and 2015 capital expenditure incurred in the year was $157 million with the bulk of this spent in the KRI and approximately 80% of that KRI CapEx was spent on our producing assets at Taq Taq and Tawke. Planning and drilling of the well offshore Côte d'Ivoire was the main element of the Africa CapEx. The net proceeds of the March 2015 bond issue totaled $196 million delivering end 2015 cash balances of $455 million and net debt of 239 million. Slide 23, provides details of the asset impairments and exploration write off during 2015. We've used an oil price deck for impairment testing which assumes brent prices broadly in line with the current futures curve in the near term then rising steadily to $75 a barrel nominal from 2020 onwards and discounted the cash flows at 12.5%. The $1 billion reduction in the book value of Taq Taq recorded as an impairment at the end of 2015 was approximately half due to oil price with the other half being related to the reserves revision. We have also run impairment tests at Tawke but due to lower caring values we’re not taking an impairment. The Tawke operator is currently carrying out its annual review of reserves and we will consider the results of that review when it's available later in March. Exploration costs written off totaled $173 million during the year and the main elements of the write off with a [indiscernible] license in the KRI which we recently relinquished, licenses offshore Morocco and the Côte d'Ivoire well I mentioned earlier. Slide 24, provides a breakdown of our 2015 income statement. I've already touched on the changes in production and revenue during the year. We reacted quickly and comprehensively to lower oil prices by reducing both production costs and G&A by 40% which mitigated the impact of lower oil prices on accrued revenue. Depreciation increased in line with production although after the expiration write-off Taq Taq impairment and interest expense on our senior bond the net loss for the year was $1.2 billion. Let me now turn to the 2016 outlook starting on slide 25 with the recently revised export payment mechanism. On the 1st of February the KRG announced that monthly payments to producing. International oil companies will be based on contractual entitlements on the production sharing contracts. As Murat has already stated we see this as a significant positive which allows both the IOCs and the wider market clarity on the timing and quantum of the monthly export payments. The monthly payment is calculated as a percentage of the monthly field revenue which is based on an average of brent assessments during the month less of a $5 a barrel discount for Taq Taq and a $12 a barrel discount for Tawke. These discounts reflect quality differentials and applicable transportation and handling tariffs. The percentage is agreed between the contractor group and the KRG. This percentage is based on the contract entitlement including cost recovery and profit sharing and the KRG aims to process each of the monthly payments within 10 days of the following month. You will also appreciate that given the 1st of February structure represents a proxy for entitlement, it may not deliver payments exactly in line with our modeling of the PSC entitlement. In addition, the KRG will pay 5% of monthly field revenue to the IOCs towards recovery of outstanding receivables. We anticipate that the 5% figure will increase in the future to allow for accelerated recovery of receivable balances. Slide 26 summarizes our proposed capital expenditure for 2016. I've already highlighted how we reduce both OpEx and G&A by 40% during 2015. The reduction in CapEx last year was even more significant falling by over 75% this was primarily due to the reduction in Africa exploration activity and spend. During 2016 we expect to demonstrate a similar focus, prioritizing investment in our production assets. Net spend at Genel across Taq Taq and Tawke is budgeting that 50 million to 90 million of our unchanged 2016 CapEx guidance of 80 million to 120 million. At the same time we will continue to allocate capital to our KRI gas business in order to progress financing and structuring of the midstream as well as upstream development planning. Now let me move to summarize 2016 guidance on slide 27, production guidance is unchanged at 60,000 to 70,000 barrels per day, average production across the first two months of 2016 was 57,000 barrels per day. As Murat stated production levels in early 2016 have been impacted by pipeline downtime and also the well testing at Taq Taq. With the 2016 investment programs at Taq Taq and Tawke now underway we expect our 2016 production will be biased towards the second half of the year underpinning the unchanged production guidance. Production costs are guided at $1.25 to $1.75 and G&A of $1 to $1.25 per barrel. In our January trading statement we gave the market and estimate of our 2016 accrued revenue based on $45 brent and that was the price that most analyst were using at the time. To complement this and to help the market calibrate forecast we're also giving you an estimate of 2016 accrued revenue of $160 million to $220 million based on a $35 a barrel brent price. Finally, let me now move to slide 28 which summarizes our current balance sheet in the context of the oil price environment. In recent days, we've had a number of questions asked on the balance sheet and financing that I'd like to address. These broadly group into liquidity refinancing, covenants and our ability to fund the gas business. Let me take each briefly in turn. On the liquidity and refinancing I would reiterate that we look at the $730 million bond debt due in 2019 in the context of $455 million of cash on the balance sheet. A low cost oil business that has shown its ability to generate positive operating cash flow despite the low oil price environment and payment situation that existed in 2015. License expires for both Taq Taq and Tawke are off to 2030 and we expect both assets will continue to generate material cash flow post 2019 and a balance sheet receivable of $423 million where mechanism is now in place to begin repayments. On covenants, you will see that we have considerable headroom at the end of 2015. Based on the 2016 production guidance and the spending plans that we've reiterated today as well as implementation of the February export payment mechanism we will continue to have meaningful headroom on our bond covenants at the current forward curve. We also have the flexibility to reduce spending below currently guided levels. Turning to the gas business, we have always based our KRI gas strategy on the assumption that external financing would be needed and we continue to have the liquidity to progress the project to that financing decision. We continue to target a minority equity stake in the gas midstream and a farm down of our upstream equity. Whilst lower reserves clearly mean lower relative cash flows over the long term. The final balance of debt and equity in the gas business will clearly depend on a broad range of inputs not least the all oil environment and our resulting cash flows at that time. I will now hand over to Murat to summarize.

Murat Ozgul: Thank you, Ben. Let me sum up today's presentation on slide 30. Following the Taq Taq reserve downgrades Genel still has a significant 2P oil reserves of 264 million barrels and 1.25 billion barrels of 2C reserves. On the back of the February 2016 MRA announcement, monthly export payments are now on the PSC entitlement basis. And the KRG has started to address the outstanding receivables by paying initial 5% of gross field revenue. This mechanism will encourage the IOCs to resume and sustain upstream investments. The Miran and Bina Bawi gas project is strategically important for 30 [ph] to diversify the gas imports and to reduce NRG import cost. It also has potential to generate significant future value for you Genel. This year's two exploration wells CS-12 and Peshkabir-2 hold meaningful upside potential for Genel and finally our balance sheet is still robust with the available cash and low cost production with discretionary future activities. Ladies and gentleman, thank you for your attention. And we will move to the Q&A session now.

Operator: [Operator Instructions]

Brendan Warn: It's Brendan Warn from BMO Capital Markets. Just two questions if I may just the first one obviously you refer to that the operator you’re going to be announcing their reserves assessment on Tawke mid-March and I think couple of weeks away. I guess just in terms of you've reiterated your 2P reserves today of 265 million barrels I guess, being a partner, being that it's an material asset to your own value. I guess in terms of your own independent work and knowledge of the asset, can you just talk about the risks in terms of what we've seen at Taq Taq and I recognize they are different fields and in terms of not being completely homogeneous and then just secondly I guess on terms of the downgrade at Taq Taq in terms of the 1P reserve estimate and I understand a reserve as a reserve but we’ve had a material downward revision since 2011. I guess can you just talk about in terms of as you move further towards the flank and the lower density on the flank your change in model and your inability to do history or true history matching. Can you just talk about the uncertainty and risk of the reserve and production expectations from the flank at Taq Taq, please?

Murat Ozgul: I think operators work is ongoing. So we're following that. But I think it's important to recognize the reservoirs are different. I mean generically the same but actually quite different. The field is much earlier in its life and we haven't seen the production issues that led us to the conclusions that we've reached at Taq Taq with respect to reserves. At the moment without any further information that's all we can say but I don't think there is anything at the moment that would suggest we have the same issues in Tawke that we have had at Taq Taq. With respect to Taq Taq, I think as you look at the remaining uncertainties it's important to look first at the distribution and there are sort of there are four key numbers. The first is the oil we have produced almost 200 million barrels. The second is obviously the 1P number 256 I remember correctly, the third is the 2P number which is not that much above the 1P number and then there is a very big gap 300 million barrels plus to the 3P number and that's how you should think about the uncertainty. Clearly, we have only extrapolated our understanding of the flanks of the field. What we've done is taken the a conservative view of from crest of the structure to the flanks seems appropriate and we'll see as we get further data from the flanks of the field. I think the other thing I would remind people is that this is quite an imprecise science. We are continuously integrating dynamic data with static data to sort of back solve what the implied fracture porosity is. We clearly have taken, I would describe it as a relatively conservative approach on the basis of what we've seen so far.

Daniel Ekstein: It's Daniel Ekstein from UBS. Questions on a couple of areas, firstly on governance. I think you said on the call on Monday that emerged sort of from the middle of last year on what's the free water levels were rising more rapidly than expected and I guess in that context it's surprising that an insider has been selling very significant amounts of stock over the past two to three months or if you could just describe the process around that?

Murat Ozgul: It's right on the head Dan, because what you say is quite inaccurate. The key data emerged in January and February of this year in particular on the February 19th when we got the updated free water level in the Taq Taq 10 well. So whilst we were seeing some production issues in the back half of last year, the key data that has laid to our current view of reserves is not obtained until January and February of this year.

Daniel Ekstein: The second questions relate to Miran. So you've got about 80 million of liquids in Miran, could you give us the P10 to P90 range on that and so obviously it has a big impact on the economics of that development and hen just on the pipeline, on the gas pipeline on the gas pipeline, on the circuit side of the border. I don't know how advanced this sort of concept is that but what sort of distance are we talking about for that to be tied into the grid say and is the plan for that to be above ground or will it be buried? Thanks.

Murat Ozgul: Let me answer both of them and start from the second question the pipeline. I couldn't recall the exact kilometer but it should be around 200 to 250 kilometers, it was on the [indiscernible]. I don't know the technical details was some parts should be buried, some parts will be on the ground and it will reach to the main distribution point in Turkey and BOTAS is the government responsible corporation and they issued the tender process and they are continuing the standish and the expectation following the tender award in two years' time they will complete this construction. On the first parts, we have two types of liquids both in Miran and Bina Bawi. Miran we have toward the million barrels of oil and Bina Bawi we have around 4 million - 5 million barrels of oil. But both of them is also including the condensate when we’re producing the gas we will be producing condensate also. In Miran our condensate ratio is higher almost double according to the Bina Bawi but in Bina Bawi our gas amount is high so we will reach a considerable condensate in our field and both liquids in our economics will be on our side and we will deliver the raw gas after taking the condensate, early condensate out. We will not take of course like LPG products. It will go to the raw gas and it will be separated in the midstream parts. We will supply this details later because I couldn't recall the exact total numbers on the condensate.

Daniel Ekstein: Yes the range would be very helpful there.

Unidentified Analyst: David Mezi [ph], Deutsche Bank. Just couple of questions really kind of Kurdistan local politics. The down time currently experienced in the pipeline has been quite sketchy getting news reports out of Turkey and could you just give us an update on your expectations and also an idea on to a layman industry, how has the political environment changed in the last 12 months regarding the various Kurdistan bad parties [ph] in the region? Thank you.

Murat Ozgul: Let me start from the pipeline, rather than only making the maintenance on the pipeline this time Turkish government is taking some extra security measures on the pipeline. So this is the reason it's taking more time than the previous cases. And we’re expecting within a couple of days I think it will be again up and running and with these security measures I'm expecting again very low downtime during the course of the future in 2016. On the politics side I think the big change last year KRG tried data best with federal government on [indiscernible] and delivered the most majority of toll [ph] to federal government, in return they received $2 billion. Well in the second half of the year they sold through Jehan their own oil and made almost double $4 billion which gave the KRG the comfort to star the payment mechanism and asked in August with declining oil prices it was around 55, 60 when KRG announced this payment mechanism. They stick data as they promised and they paid their 75 million monthly total in each month till the end the year and as I said in the early 2016 we agreed with the government to it meant to put the mechanism based on the PSC which will be fair for everybody according to their production and which will encourage all IOCs to invest in the fields. So this will be the big shift on the politics and during this time period the second half, naturally KRGs and Turkish relationship get better.

Rafal Gutaj: It's Rafal Gutaj from Bank of America Merrill Lynch. Just a first question obviously your exports in February were lower than usual, I just wondered if you could give some guidance on the amount that you’ve invoiced the KRG for in February 1st exports and what the number we could expect and then just secondly on the gas business in the upstream farm down process potentially down the line how many partners have you engaged in discussions with and is there a data room open? Thanks.

Murat Ozgul: Starting from the first question, Taq Taq and Tawke different run the downtime is on place. Taq Taq has a continuous supply to [indiscernible] finally around 35,000 barrels. In the first week, 10 days off this downtime we didn't start with the local sales but at the end of last week we started the local sales from both Taq Taq and Tawke. So you can assume this two weeks' time the first ten days on Taq Taq around 25,000 barrel per day and the rest last five days we are between 75,000 and 80,000 and Tawke in the first off very close to zero in the second part they started also local sales. And I gave the average number for both fields 74,000 barrel per day in the first two months for Taq Taq and 99 for Tawke and we agreed with KRG this local sales amount will be at the same mechanism. So we invoiced yesterday to KRG including our local sales amounts with same pricing, same mechanism on the export. So we will be getting paid including the local sales in the coming 10 days. On the second part of your question related to gas projects, we’re talking a number of equity partnership including the international companies but we’re aiming a strategic partnership and we’re talking with Turkish NRG Company which is the Turkish government entity and it's early discussions but it's developing very well and as I said in my presentation Turkish government is looking at this gas project very strategic and if you look at the Turkish gas mix today we have three main sources, Russia, Iran, Azerbaijan and Russia supplies more than 50%. So Turkey needs to diversify this gas supply and needs to reduce NRG cost. So we’re giving the priority that the Turkish government entity to be the part of this.

Robin Haworth: It's a Robin Haworth from Stifel. Just on the material balance question if I may say. So if I'm not a reservoir - if I remember my DP training at all I seem to remember that after 10% to 20% of field our reserves have been produced. You should start to get a reasonable estimate of the resource, clearly we're now at 50, so it's been a substantial time period when material balance calculations could have said something interesting about the ultimate recoverable reserves in the field. I'm just wondering how that relates to your decision not to do a reserve update for the last five years or so? The second question is on the gas fields, could you just remind us to what extent they are appraised please, specifically in terms of I guess days of flow testing would seem to be the most relevant metric at this point.

Murat Ozgul: I think on the material balance. That's true if your static model isn't moving around but if you have significant uncertainty on your static model and you're changing the storage volume then you can end up with you know you can end up with a good answer or bad answer and in this particular case it was really only when we started producing the upper reservoir unit that we began to see a misalignment and that really only occurred through the second half of last year. So until we started producing the Shiranish which is the biggest reservoir unit in terms of its gross volume, so therefore small variations in porosity within it can have a very big impact which is exactly what we're seeing until we started producing that everything had been completely in line with our static model for the lower reservoir unit and the dynamic balance you achieve from it. And you know that is the reality.

Robin Haworth: So just to be clear, there was very little production from the Shiranish until midway through that.

Murat Ozgul: So until really, we really didn't start production from the Shiranish hardly at all until last year and it's only as we got through the second half of the year that we had enough volumes you can start doing sensible material balance. It was only in January that the water actually entered the Shiranish reservoir over the crest.

Ben Monaghan: On the second one we have wells in Miran and Bina Bawi and we have tests on Miran each well is producing at around 25 million to 35 million scuff [ph] per day, the test is leading in this range. On Bina Bawi it's highish, it's 40 million to 70 million scuff per day.

Robin Haworth: What's the length of those tests basically if you could just remind us, roughly are they a few hours, are they few days or few weeks?

Murat Ozgul: It's over days not weeks. I think what you could say though is that given the fractured nature of the reservoirs the issue will not be connectivity. So you know we have a big storage volume again, clearly this is different reservoir [indiscernible] reservoirs particularly in the case of Bina Bawi. So we’re pretty confident in deliverability of the flow rates that we assumed for worlds in the gas development and again because of the nature of the PSC these developments I'm not very sensitive to capital assumptions because of the cost recovery mechanism. So if you ended up having to drill move wells it would impact fundamentally the economics.

Ben Monaghan: It's starting with 100% cost recovery. Whenever we reach to full cost recovery the profit will start from 100% and will reach to 50%.

Murat Ozgul: And that of course applies equally to Taq Taq. We are going to keep pulling capital into this field to the last barrel is produced because of the nature of the PSC and the fact that you get cost recovery instantaneously.

James Thompson: It's James Thompson from JPMorgan, couple of questions for me. Just in terms of the Miran upstream you’ve given us guidance on the midstream wanting to fine down to a minority stake. Could you talk about what percentage you'd like to keep in the upstream on an ideal basis and then secondly two questions on Taq Taq, obviously the CPF tool be commissioned next quarter. What is the operational plan at Taq Taq? Are you looking to demobilize and decommission the earlier production facilities and just flip everything into CPF-2 and then just finally in terms of horizontal drilling on Taq Taq, it's a bit of a theoretical question but what would be the sort of benchmark flow as if you like from the three different reservoir groups, you had a horizontal well in the Shiranish versus the Kometan versus the Qamchuqa. What would be the sort of flow rate you would expect from them I guess in terms of reservoir quality for those three intervals? Thanks.

Murat Ozgul: Let me start from Miran, the upstream part. Ideally we are aiming 50

James Thompson: The current Shiranish horizontal well is producing about 15,000 barrels a day.

Murat Ozgul: Yes.

Stephane Foucaud: It's Stephane Foucaud from First Energy, the two digital question and perhaps one more general. What sort of recovery factor are the 1P, 2P and 3P at Taq Taq implying and then the quarter [ph] forecast you gave for Taq Taq in '17 and '18 is it based on the 1P's, the 2P's, something else and lastly on Miran and Bina Bawi for the upstream part you were saying that you hope to get an upstream partner into an '16, how confident would you be for that to happen? One in two, one in three, one in one? Thank you.

Murat Ozgul: Let me answer the last question first, offstream partners. I think giving your percentage is not the right. We should be we’re confident because as I said the logic behind this project. If you look at the Turkish position over that, the gas sales agreement in place and we changed the PSC structure according to the gas sales agreement we separated all value chains and stick to take or pay commitment of Turkey. So I explained also the Turkish gas mix and supply. If you look at the Turkish government perspective definitely Turkey should diversify the gas sources and it's the best opportunity and if you look at this mix Russia, Azerbaijan and Iran this is the cheapest one. It's just 250 kilometer far away from our borders and their relationship between Turkey and KRG is also leading at that direction. So I shouldn't say any number percentage but all the evidences that you can understand it's the real right structure for everybody to take a Turkish government entity in.

Stephane Foucaud: '16, '17, '18, '19?

Murat Ozgul: I'm expecting, after immediate in the third quarter we should reach so much.

Ben Monaghan: In terms of recovery factor in the fracture system is 80% which is what you would expect in a year in a fracture system. In terms of the production profile, I would describe it as a production profile design to maximize the recovery from the field. So to ensure that we get self-sustainable and uniform sweep across the field that's what we're trying to do, so we can clearly produce more today if we pull harder but we’re not. And I guess if you want to link it therefore to a reserve base you'd say stupid. But actually you know what's going to happen in this field is we will keep investing to keep pulling barrels forward. So you will not see a long slow decline here because of the nature of the PSU you're going to keep investing to pull the barrels forward from the movement we’re still producing 25,000 barrels a day at the end of the contract life. So you know what you’re going to see is keep pulling things forward and what we're trying to do with that 75,000 barrels a day, 80,000 barrels a day is manage the reservoir.

Unidentified Analyst: Could I ask what the new oil in place number is for Tawke after at Taq Taq after these reserve provisions? Could I ask how many reserves you need to drill to recover the 2P? Will you be publishing the reserve report at Taq Taq once it's completed? And on Tawke, the production decline is we have seen historically can you tell us if they have been managed production declines or they underlying production declines? That was Tawke the final one.

Murat Ozgul: We will I can't recall the oil in place numbers off the top of my head and we haven't disclosed them as yet, we will be making a disclosure of the full CPR in some form when it's completely, it's obviously not complete. This is all being done very quickly over the last few weeks. In terms of Taq Taq - the decline from a 130 to 120 is that the question? I'm still not clear what the question is at Tawke.

Unidentified Analyst: At Tawke, I think we go back through the published data. I forget it was April or May last year there was a production number given and we have obviously the January production number and we have some current production numbers now. From April, May last year through until January I think the production decline was about 32% at Tawke. It was about 42% at Taq Taq over a similar period. You've stated that you manage the Taq Taq declines to manage the reservoir.

Murat Ozgul: Tawke is much more about the stopping of investment. It's not about the reservoir it's about we shut down investment in the spring of last year.

Q - Unidentified Analyst: So [indiscernible] let's try one in finance for this morning, just in relation to the 5% I mean that's coming back against receivables. Is it your expectation and this might be somewhere in the future, the 5% is not just expected to pay off the receivable in the balance sheet but also the receivable that's not reflected in the balance sheet for export volumes unremunerated prior to 2014.

Murat Ozgul: First, of all 5% is the small percentage but the importance of this one KRG publicly recognizing the receivable and are starting to pay and in this statement again you can read this percentage will increase run the oil price increase, or the production volume will increase. Whenever KRG has a financial room to increase tonnage will increase. On the second part of your question before 2014 we delivered the oil to KRG and KRG made the agreement with the federal government but [indiscernible] sold it that federal government end to dissolve this oil. So till now we didn't take into account this one in our balance sheet, but one we’re discussing the receivable chapters that came into the table with my discussion with KRG and they ask why it's not consistent with the Taq Taq gross numbers and this is the reason we put this one again it doesn't mean that this will be 100% confidence we will be recovering but it should be consistent with the gross recoverable at the Taq Taq fields still we will see higher risk on the other parts than the recent two years receivables. Tony, would you like to add anything?

Tony Hayward: I mean just paraphrase for those who haven't read all the footnotes to the accounts. There's an additional - we have made a footnote that there is the 340 million receivable from those sales that Murat just discussed, they're not part of the balance sheet but as Murat said they came up in the discussions with the KRG, so we just wanted to give that number to give us a footnote.

Michael Alsford: It's Michael Alsford from Citi. Just ask a question actually on one of the comments you made Tony in the full year results, you talked about still looking at selective M&A opportunities depending on Genel strict criteria. So perhaps you could elaborate on that point as to what you're looking at you - what region? What type of asset? What size of asset? It will be helpful. Thanks.

Tony Hayward: I think our focus is clearly in Kurdistan today and there is an opportunity to consolidated at a time of great stress in the industry globally and even more stress in the industry in Kurdistan that’s something that we should look at seriously.

Unidentified Analyst: And so you’re looking for some development top assets or would it be?

Tony Hayward: We're looking at everything and anything - anything that could create shareholder value.

Unidentified Analyst: Alex Mahler [ph] from Deutsche Bank, with your bonds now trading at $0.47 it's $0.37 cost of liquidity there, 37% yield to maturity any thoughts about a buyback or otherwise how did the trade-offs figure into your M&A in CapEx plans?

Tony Hayward: We clearly look all the time what is the right balance between preserving a very strong balance sheet at a time of great uncertainty in the industry and with no real clear view as to how long it might last certainly know the year or two I would imagine against some very compelling investment opportunities in both the debt and equity side of our balance sheet today and alongside maybe M&A as well and I think it's something that we will continue to look at and continue to review and it's a subject of considerable discussion around the boardroom as you might expect with still quite a significant insider shareholding.

Thomas Adolff: It's Thomas Adolff from Credit Suisse. Question for Murat, Turkey and gas. You talked about Turkey being reliant on Russian gas, Iranian gas, gas from Azerbaijan, some LNG imports and obviously it's all about not all about but a lot of about pricing and the global gas market especially European gas market look quite ugly at least for the next five to six years. So if I think about pricing if I think about gas problem as an example. I think they'll be preserving market share that will be moving away from oil indexation and lower prices. LNG prices will be very low, there's a lot of spot availability, so I wonder from a Turkey standpoint as there's a lot of cheap gas out there for at least in the next five to six years is the strategic rational still there for me ramping up above? Is there a rush to go forward with the project? And the other question is assuming successful in monetizing the upstream 50

Murat Ozgul: Let me start from the first question. First of all there is gas sales agreement in place between Turkey and KRG and in terms of the price formula details it's very attractive for Turkey, very good KRG. There is a logic behind it because it's the cost of KRG is less when you compared with any alternative. If you compare with the East Mad Gas [ph] the alternative the cost is almost more than doubled. If you compare with the Russian it's coming 1000 kilometer away, it's also the same. So there is a natural advantage on the cost and the gas sales agreement in place accordingly the formula reflects this one and either lower oil prices decreasing gas prices and also it's the same for the upside and protecting Turkey also. There is a nice formula and let me give concrete answer on this one. With today's pricing and expected less gas pricing it's still giving on the current formula to KRG to upstream, to pay midstream, to pay the pipeline and keep still a margin for KRG. And with the comparable low gas prices it's also very attractive for Turkey, how much they are paying. So it's a nature advantage and the gas sales agreement signed accordingly this is the last gas sales agreement after the three of them with all experience on Turkish side. This is attractive for Turkey in terms of commercial sense and also the other side strategically important to diversify the source to make it a good mix. Now we have more than 50% in the mix from one country.

Tony Hayward: I think it's very important for people to understand this, this is a geopolitical project. When it's in place we will bind the Kurdistan Region of Iraq to Turkey in perpetuity. It is part of Turkey's strategy to try and create some semblance of stability along its southeastern border and the driver is as much from that as it is commercial that is why it will be a Turkish solution.

Tony Hayward: Ladies and gentleman Thank you very much for joining us.