Gulf Keystone Sued by Ex-Soldier on Iraq Oil-Field Rights

Rex Wempen said he introduced Gulf Keystone Petroleum Ltd. Chairman Todd Kozel to opportunities in Iraq’s Kurdistan region in 2005, and used his contacts to help win oil-exploration rights from the government. Now the company owes him for his effort, he claimed at a trial today.

The lawsuit by the former captain in the U.S. Army Special Forces in London may be worth about $1.6 billion, according to a person familiar with the matter who wasn’t authorized to speak about it publicly.

The company’s shares have soared from 13 pence to about 200 pence since its August 2009 discovery in the Shaikan region of as much as 15 billion barrels of oil, enough to supply the U.S. for two years. The trial casts a shadow over Gulf Keystone’s plans to exploit what Peel Hunt LLP analyst Werner Riding described as a “world class” oil find.

“There’s been a lot of speculation about the company being bid for, but that’s unlikely while the court case is here,” Riding said in a telephone interview. “Until the uncertainty is removed entirely, it’s a deterrent to an acquisition.”

Mark Antelme, a spokesman for Hamilton, Bermuda-based Gulf Keystone, declined to comment in an e-mail. Shares of the company rose 1 percent to 206 pence in London trading today at 2:40 p.m.

A collaboration agreement signed by Kozel’s Texas Keystone Inc. company gives Wempen a 30 percent share of the Shaikan concession, Wempen said in court documents. Wempen said in the lawsuit that Gulf Keystone was an agent of Texas Keystone.

‘Dishonestly Assisted’

Gulf Keystone “dishonestly assisted Texas Keystone’s breach of fiduciary duty,” to prevent his company from getting its share, Wempen said in the documents.

Wempen, who served in the U.S. Special Forces in Korea and Japan in the 1990s and is a founding member of the U.S.- Kurdistan Business Council, trekked across the Turkish border into Iraq during the second Gulf war, and stayed there for more than a year, eventually meeting the Kurdish prime minister at his palace, his lawyer, Simon Picken, said at the start of the trial today.

Wempen’s work in dangerous conditions “resulted in the vast riches now enjoyed by Gulf and indeed, by Mr. Kozel personally,” Picken said. Wempen’s firm Excalibur Ventures LLC “was then cut out of the deal completely.”

Kurdistan Rush

Some of the world’s biggest oil companies have begun work in Kurdistan, a semi-autonomous region in northern Iraq, which the government has said may hold 45 billion barrels of crude, about a third of Iraq’s total. Exxon Mobil Corp., Chevron Corp. and Total SA have all committed to the region in the past year.

Tony Hayward, the former chief executive officer of BP Plc, who left following the 2010 Gulf of Mexico oil spill, took the helm of the region’s biggest producer, Genel Energy Plc, last year. The $2.1 billion all-share purchase of the company valued its 356 million barrels of reserves at $5.90 a barrel.

Gulf Keystone said Wempen’s Excalibur wasn’t authorized by the Kurdish government to participate in any deal and additionally broke its side of the bargain by failing to contribute to exploration costs.

Kozel and his brother Robert, an executive at Texas Keystone, aren’t credible witnesses, Picken told the judge today. Kozel “reconstructed” a letter to the Kurdish government two years after it was supposed to have been written to support his case that Gulf Keystone had asked whether Excalibur could be included in the deal.

Kozel Brothers

While the letter was presented as evidence in pre-trial hearings, Kozel later admitted he probably didn’t send it, Picken said.

“The Wempens are truthful people,” Picken told the court. The same conclusion “can’t be safely reached about the Kozel brothers.”

Gulf Keystone prompted takeover speculation in March when it announced share payouts totaling 26 million pounds for employees in the event it was sold.

Gulf Keystone said last month that it lost $31.4 million in the first half of the year as it built production facilities for the Kurdistan oil discoveries. It plans to move from the Alternative Investment Market to the main list of London Stock Exchange Group Plc.

The trial is scheduled to last 12 weeks and Kozel, Wempen and Gulf Keystone Chief Executive Officer John Gerstenlauer are set to testify. Wempen’s lawyers will question Kozel’s “opaquely structured and incompletely disclosed” holdings in the company he co-founded, according to court filings.

The case is: Excalibur Ventures LLC v. Texas Keystone Inc. & Ors, High Court of Justice, Queen’s Bench Division, Commercial Court, 10-1517.

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