Oryx Sees Kurdistan Growth as Stock Below IPO: Corporate Canada

Oryx Petroleum Corp. (OXC), Canada’s newest publicly traded oil explorer, is testing whether a property near its main Kurdistan discovery has similar reserves.

In the third quarter, Oryx plans to drill a well at its Banan site, which may have the same type of reserves to its Demir Dagh discovery in the semi-autonomous region of Iraq, Chief Executive Officer Michael Ebsary, 52, said.

“The fact that it looks like it could be a joined-up structure is that much more exciting and could mean we have one of the most significant structures in Kurdistan,” Ebsary said in an interview in Bloomberg’s Toronto bureau on July 5. “We go after a large accumulation of reserves in one location. That is what does attract big players who can pay big checks.”

Oryx, based in Calgary with offices in Geneva, has seven exploration licenses covering 10,602 square kilometers focused on Africa and the Middle East, including the Hawler property west of Erbil in Kurdistan. The Demir Dagh discovery holds 160 million barrels of proved and probable reserves and 200 million of contingent resources, according to Ebsary.

The company expects to produce about 10,000 barrels of oil per day in the first half of 2014, rising to about 30,000 barrels by the end of 2014 and 100,000 in two to three years, Ebsary said.

Addax Example

Oryx was spun out by Addax & Oryx Group Ltd. in an initial public offering in May that raised C$250 million ($239 million), 29 percent less than planned, to fund expansion in Iraq and Africa. Closely held AOG, established by Swiss-based billionaire Jean Claude R Gandur in 1987, owns about 80 percent of Oryx, according to data compiled by Bloomberg. AOG sold Addax Petroleum Corp to China’s Sinopec Group for C$8.3 billion in 2009.

The wager on Kurdistan hasn’t yet convinced investors. Shares of Oryx have fallen 4.7 percent since the initial public offering on May 9 at C$15, after marketing the stock at between C$20 and C$23 apiece. That’s compared with a 2.2 percent decline for the Standard & Poor’s/Toronto Stock Exchange Composite Index in that period. The shares fell 0.3 percent to C$14.26 at 10:21 a.m. today in Toronto.

“Generally it’s very difficult to make an investment in these smaller oil producers now because of issues like demand and the overall macro picture,” John Stephenson, a Toronto-based fund manager with First Asset Investment Management Inc. who helps manage C$2.7 billion and doesn’t own Oryx shares, said in an interview.

Political Risk

“It’s really difficult for them to make money,” Stephenson said. “If you add political risk to that, you’re taking on a huge risk.” The International Monetary Fund forecasts economic growth of 9 percent for Iraq in 2013 and 8.4 percent in 2014.

The company will consider a secondary listing on the London Stock Exchange “sometime next year” in order to draw more investors who may not be comfortable with purchasing stocks on the Toronto Stock Exchange, he said.

“The Hawler block in Kurdistan underpins the valuation of this company,” said Gerry Donnelly, an analyst at FirstEnergy Capital in London, in a phone interview. “Oryx comes with a track record of having delivered in what were perceived maybe six or 10 years ago as some of the more riskier jurisdictions of the international oil and gas industry.”

Scared Investors

The stock’s performance doesn’t worry Ebsary, who says investor sentiment is based on the lack of success of other oil producers. The stock is rated “buy” by four of the five analysts covering it, with one recommending investors hold the shares, which have the potential to rise 42 percent in the next 12 months, according to the consensus target price of C$20.30.

“Oil and gas investors are a bit scared at the moment,” he said. “They are not looking for opportunities like us which have huge growth opportunities.”

Oil prices may help. Crude is more likely to climb to between $120 and $150 per barrel than decline to $50 in the next five years, bolstering the company’s plans for rapid expansion in the region, said Ebsary. Brent, the global benchmark, rose 32 cents to $108.15 a barrel on the London-based ICE Futures Europe exchange.

“There’s been a lot of talk about shale oil and other forms of energy and a lot of people are thinking and betting a little bit on a lower oil price,” he said. “We are bullish on oil prices.”

Pipeline Prospects

Oryx must be able to get its oil out of Kurdistan and there’s uncertainty about the prospects of a pipeline connecting the region with Turkey, said First Energy’s Donnelly.

“For Turkey to go down this road and accept crude coming from Kurdistan against the wishes of a sovereign nation, could be a little bit tricky,” said FirstEnergy’s Donnelly. The company also needs Iraq and Kurdistan to reach an agreement on oil transport, he said.

The pipeline to Turkey as well as political disagreements between the Kurds and Iraqis will likely be sorted out by the time the company is ready to start producing about 100,000 barrels of oil per day in a few years, Ebsary said. The company is in a “very comfortable position,” he said.

Selling Oryx at some point is a “strong possibility,” Ebsary said, adding the company doesn’t have a specific strategy to become a takeover candidate.

“AOG has no plans to sell Oryx Petroleum at this point,” Karen Saddler, a Geneva-based spokeswoman for AOG, said in an e-mail today.

Kurdistan has improved in the eight years since Ebsary first traveled to the area and had to wear a helmet and flak jacket, he said.

“You felt you were in a militarized zone,” Ebsary said.

To contact the reporters on this story: Divya Balji in Toronto at dbalji1@bloomberg.net; Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editors responsible for this story: Joanna Ossinger at jossinger@bloomberg.net; Susan Warren at susanwarren@bloomberg.net

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