Hayward to Spark Oil Fight in Iraqi ‘Last Great Frontier’
Tony Hayward’s $2.1 billion deal for oil assets in Iraq’s Kurdistan region may spark a battle for resources from the area as its export prospects brighten.
Vallares Plc, an investment firm led by the ex-BP Plc (BP/) chief executive officer who left the company following the Gulf of Mexico spill last year, announced plans yesterday to buy Genel Energy International Ltd., an oil producer in Kurdistan. Hayward said more assets will likely be acquired in the northern Iraqi region, “one of the last great oil and gas frontiers.”
Gulf Keystone Petroleum Ltd. (GKP) and DNO International ASA (DNO) received the first payments for exports this year as the explorers tapped Kurdistan’s estimated 20 to 25 billion barrels of oil and gas, enough to meet U.S. demand for more than three years. While post-Iraqi war tensions between the government in Baghdad and Kurdish authorities deterred entry by Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA) and BP Plc, improved relations and a series of discoveries now may draw them in.
The deal “is part of a growing appetite for Kurdish assets,” said Stuart Joyner, an analyst at Investec Securities. “It’s a new beginning for the Kurdish oil industry. In a few years there will probably be as many players there as in the southern part of Iraq, where Exxon, Shell and BP are involved. Most companies want to participate.”
Kurdistan has 20 billion to 25 billion barrels of “oil in place” and the reserves are unlikely to exceed 40 billion to 45 billion barrels, Natural Resource Minister Ashti Hawrami said at a conference in March last year.
Genel, based in Turkey and set to trade in London as Genel Energy Plc, has proved and probable reserves of 356 million barrels, a figure Hayward said would rise quickly given the exploration potential of licenses it holds. The cost of finding and developing the oil is $2 to $4 a barrel, low compared with other regions of the world, the executive said yesterday.
The deal values Genel’s reserves at $5.90 a barrel, the second-lowest among oil companies on the FTSE 350 Oil & Gas index after JKX Oil & Gas Plc, a producer with assets in the former Soviet Union. Premier Oil Plc’s market capitalization values its reserves at $9.35 a barrel, and Afren Plc, which also has assets in Iraq, are valued at $19.20 a barrel.
Iraq resumed oil exports from the region earlier this year, ending a yearlong halt caused by a dispute over oil revenue between Kurdish authorities and Baghdad. Kurdistan, a region of ethnic minorities extending into northwest Iran and southeastern Turkey, attracted more than $10 billion in energy investments from more than 40 companies from 17 countries, Kurdistan Regional Government Prime Minister Barham Salih said on May 5.
“Clearly Kurdistan five years from now will be a far more important part of the Iraqi oil industry,” said Bijan Mossavar- Rahmani, chairman of DNO, the first foreign company to start pumping oil from Kurdistan since the 1970s. “The process of smaller players being replaced by or partnering up with larger players” has started as Marathon Oil Corp. (MRO), Repsol YPF SA (REP), Talisman Energy Inc. (TLM) and Hess Corp. (HES) enter the region.
Hayward said today that the company would use a third of the $2 billion in cash on acquisitions and another third to develop existing fields.
Gulf Keystone and Heritage Oil Plc (HOIL), another London-based explorer with assets in the region, have gained at least 13 percent since the Genel deal was announced yesterday, more than double the 5.4 percent gain in the FTSE oil benchmark.
Limited access to major pipelines, as well as the revenue- sharing dispute, has hindered operations of exploration companies. DNO was forced to sell its oil locally at lower prices. Hess, the New York-based oil company, was barred from competing in Iraq’s fourth licensing after signing a production- sharing agreement with the Kurdish Regional Government in July.
The dispute between the regional and central government is “far from being solved,” Samuel Ciszuk, the London-based senior Middle East and North Africa energy analyst at IHS Global Insight, said in a telephone interview.
DNO received the first payment of $103.7 million for February and March oil exports as part of an interim system in place until an oil law is passed in Iraq. Chief Executive Officer Helge Eide said that the company is putting further investments to increase production at its Tawke field on hold until the payment situation has been clarified.
Disagreement between regions and sectarian groups delayed a nationwide oil law in Iraq, even as officials push to increase production after almost two decades of sanctions and war.
A draft oil law was submitted to Iraq’s federal parliament last month. The Kurdistan Regional Government and the federal government together will collect 83 percent of the export revenue, and agreed in principle to split it equally, Vallares said yesterday.
Jersey, U.K.-based Vallares raised more than $2 billion in a London initial public offering in June. The investment vehicle was set up by Hayward, Julian Metherell, Nathaniel Rothschild and fellow financier Tom Daniel, who contributed 100 million pounds between them. The deal will allow the four founders to almost double their investment when it goes through as they receive 6.67 percent share capital in the new company.
“Kurdistan has clearly made its way onto the maps of mid- size and larger oil companies,” Ciszuk said. “You have an increasing number of mid-size companies, but the majors are waiting on the sidelines.”
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