Genel’s Hayward Sees End to Erratic Kurdish Oil Payments

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Genel Energy Plc Chief Executive Officer Tony Hayward
Genel Energy Plc Chief Executive Officer Tony Hayward said, “The oil industry is the life-blood of Kurdistan. Without a thriving oil industry that’s investing for the future, Kurdistan has no future, as simple as that.” Photographer: SeongJoon Cho/Bloomberg

Genel Energy Plc, the oil producer led by former BP Plc chief Tony Hayward, sees an end to haphazard earnings in Iraq as a regular payment schedule for its exports is established.

“Over the course of the year, the payments will become progressively regularized,” Hayward said in an interview in London on Wednesday. The company expects to receive the next installment for its Kurdish crude in a month or two, he said.

Kurdistan authorities in December resolved months of feuding with Iraq’s central government over who had rights to export crude from the semi-autonomous region. With export payments from the Kurdish administration becoming more predictable, Genel will be able to reduce its reliance on less lucrative domestic sales in Iraq.

Genel has raised production to about 100,000 barrels a day from 69,400 barrels a day in 2014, according to Hayward. It receives about $20 million a month from sales to the Kurdish market, covering its capital spending even as crude prices drop.

Genel shares climbed 2.8 percent to 473 pence, valuing the company at 1.32 billion pounds ($1.96 billion) at the close in London.

The Kurdish government last month agreed to share revenue from local oil sales equally with producers while a regular payment cycle for exports is established. That gives the companies, which previously got a 30 percent cut, funds to invest.

“The oil industry is the life-blood of Kurdistan,” Hayward, 57, said. “Without a thriving oil industry that’s investing for the future, Kurdistan has no future, as simple as that.”

Oil Slide

Rising output has helped Genel weather the slump in crude, which has fallen 45 percent in six months. Prices will remain low for a couple of years until the supply glut is absorbed by growing consumption, according to the chief executive officer.

“With the global economy recovering and demand rising, it won’t take long to consume the oversupply and the markets will be tight again,” he said.

Oil output in Kurdistan, where Gulf Keystone Petroleum Ltd. and DNO ASA of Norway also pump crude, will expand to about 700,000 barrels a day at the end of the second quarter from more than 500,000 barrels now, he said.

Hayward is a veteran of the oil industry, having worked for BP since the 1980s and led the U.K. producer from 2007 to 2010 when a massive blowout of a well off Louisiana spewed out crude for almost three months. He is also chairman of commodities miner and trader Glencore Plc and will seek the same role at Genel when he steps down as CEO within a year.

Moving On

“I have been the CEO for four years; I created it and got it up and running,” he said. “Now it’s time to move on, but not move out, and continue my involvement in a less operational manner.”

Genel has spent more than $1 billion since 2012 on acquisitions in Kurdish-controlled northern Iraq, giving the London-based company joint ventures in seven of the region’s oil and natural-gas fields. Its operational Taq Taq and Tawke deposits as well as development projects make it an attractive company, according to Hayward.

“For Genel there are two things going forward,” he said. “We either continue to grow or somebody comes along and makes our shareholders an offer they can’t refuse. I think either one is equally likely.”

The company has received interest from potential buyers since becoming a public company in 2011, he said, without identifying any.

M&A Opportunities

“It all comes down to value, do-ability and acceptability,” Hayward said. “And the company is strategically important for Kurdistan. For anyone to acquire us, they clearly need to have the support of the regional government.”

Equally, Genel may itself snap up competitors or assets in the region.

“When we look at consolidation, we would be guided by asset quality and not doing anything that would compromise the strength of the balance sheet,” he said. “There are certainly going to be opportunities over the next six to 12 months.”

Gulf Keystone, which has a 75 percent stake in Kurdistan’s giant Shaikan oil field, said in February it was in talks on a possible sale of assets or the company. Hayward declined to comment on whether Genel was party to the discussions.

“The issue for Shaikan is not the quality in terms of the scale of the resource but the capital investment required to bring it to the market in large volumes,” Hayward said.

Gas Fields

Until now, Genel has pumped only oil in Kurdistan. From the second half of this year, it will start developing a gas project after agreeing in November to take on the Miran and Bina Bawi fields. The regional government plans to deliver 4 billion cubic meters of gas a year to Turkey starting in 2018, rising to 10 billion cubic meters by the end of the decade.

Genel said last year it would need to spend about $1 billion over three years at the fields, which hold 11 trillion cubic feet of gas. That investment figure is “probably substantially reduced now because of where the market is,” Hayward said. “This is a very good time to be starting the project.”

The company will fund exploration and production at the sites while private and public funds in Turkey and Kurdistan will finance a processing plant and pipeline, he said.

Kurdistan, which already ships crude to Turkey via a pipeline, will find gas is also “very strategic in their relations” with the neighboring country, he said. “It can be produced and sold into the Turkish market cheaply and still make a very good return for ourselves and Kurdistan.”

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