Hayward’s Vallares to Acquire Iraq Fields in $2.1 Billion Genel Merger

Vallares Plc, the investment vehicle led by BP Plc (BP/)’s former Chief Executive Officer Tony Hayward, will merge with Turkey’s Genel Energy International Ltd. in a $2.1 billion deal to gain oil fields in Iraq’s Kurdistan region.

The transaction will be completed as an all-share reverse takeover and leave current holders of Vallares and Genel Energy with equal stakes. The new company will trade in London as Genel Energy Plc, headed by Hayward as CEO.

Vallares, a so-called “blank check” company founded by Hayward, financier Nathaniel Rothschild and banker Julian Metherell, raised 1.35 billion pounds ($2.2 billion) from investors in June. Today’s deal values Genel’s reserves at $5.90 a barrel, cheaper than all but one member of London’s FTSE 350 Oil & Gas Index. Genel produces 41,000 barrels a day, a figure projected to reach 90,000 barrels by 2013.

“Genel has good assets and their fields were some of the first on stream in Kurdistan,” said Doug Youngson, an analyst at Arbuthnot Securities Ltd. in London. “The deal is good for sentiment in the region.”

The company has proved and probable reserves of 356 million barrels, a figure Hayward said would rise quickly given the exploration potential of licenses held by Genel. The cost of finding and developing the oil is low compared with other regions of the world at between $2 and $4 a barrel, he said.

‘World Scale’

“These are world scale producing fields,” Hayward said on a conference call today. Kurdistan is one of the “last great frontiers in the oil and gas industry, with low finding and development costs, and proximate to significant markets.”

Genel will drill five exploration wells in the next year, seeking total resources in excess of 750 million barrels, according to the statement.

Vallares will issue new shares worth 10 pounds each to acquire Genel. Former Goldman Sachs Group Inc. banker Metherell will be chief financial officer. Rothschild will be a non- executive director.

Goldman Sachs and JPMorgan Cazenove advised Vallares on the transaction. Kurdistan’s regional government is expected to approve the deal later this month, Vallares said.

Mehmet Sepil, Genel’s CEO and owner of 29 percent of its shares, will become president of the new company. He will nominate Murat Yazici to represent him on the board.

Sepil was fined a record 967,005 pounds by the U.K. Financial Services Authority in February 2010 after he bought and sold shares in joint venture partner Heritage Oil Plc using inside information about successful drilling results.

‘Genuine Mistake’

“If you refer to the FSA’s description of what occurred, it was a genuine mistake,” Hayward said. “He didn’t recognize he was infringing the rules. We have done extensive due diligence and we are very satisfied this is a fit and proper company.”

Mehmet Karamehmet, Genel’s current majority owner with 5 percent, will nominate his daughter, Gulsun Nazli Karamehmet Williams, as a non-executive director. Sepil committed to retain his holdings for 2 years and Karamehment for a year.

“That Hayward will run it is probably good for Genel, and prudent given the management issues they’ve had in the past,” Youngson said.

The company will be chaired by former BP executive and ex- Petrofac Chairman Rodney Chase. Mark Parris, a former U.S. ambassador to Turkey, will become a non-executive director.

Hayward Comeback

Vallares was set up by Hayward, Metherell, Nathaniel Rothschild and fellow financier Tom Daniel, contributing 100 million pounds between them. It marks a comeback for Hayward, who left BP last year after the worst oil spill in U.S. history.

The founders are set to receive 6.67 percent of the company’s share capital on completion of the Genel transaction, valued at $286 million. Hayward contributed 8 percent of the founders’ capital, putting him in line to receive $22.9 million of shares. Rothschild contributed 80 percent, yielding him a $100 million profit on his 80 million pound ($128 million) investment.

The deal values Genel’s proved and probable reserves at $5.90 a barrel, the second-lowest among oil companies on the FTSE 350 index after JKX Oil and Gas Plc, a producer with assets in the former Soviet Union. Premier Oil Plc’s market capitalization values its reserves at $8.90 a barrel, and Afren Plc, which also has assets in Iraq, are valued at $18.15 a barrel.

To contact the reporters on this story: Kari Lundgren in London at klundgren2@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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