Kurdish Pipeline Exports Unaffected by Iraq Turmoil

The largest oil producer in Iraqi Kurdistan is confident that the region will maintain independent pipeline exports unimpeded by the violence and political turmoil engulfing the country.

The Kurdistan regional government has loaded five cargoes in Ceyhan, Turkey, and two have been sold and paid for, Julian Metherell, chief financial officer at Genel Energy Plc, said in an interview today. One went to Singapore and one to Israel, he said. A third is docked off the U.S., where it’s the subject of a legal dispute with Iraq’s federal government.

Genel, the London-based explorer led by former BP Plc Chief Executive Officer Tony Hayward, said that production rose to a record level in the first half and operations haven’t been affected by the fighting between Islamic militants and the Kurdish military known as Peshmerga. The company expects to export more than 20,000 barrels of oil a day through the pipeline in the second half of the year, about a third of its total production.

“Our operations remain safe and secure, pumping record volumes,” Metherell said. “We and all the other operators in the region are fully manned and operating at the highest levels. We remain confident that the exports are here to stay.”

Genel Energy reported first-half revenue today of $192 million that was within analysts’ estimates of $189 million to $230 million. Earnings per share topped projections, at 25 cents a share, compared with a range of 6 cents to 21 cents.

Genel Energy fell for a second day, dropping 3.2 percent to 936 pence at close in London.

Export Dispute

The Kurdistan regional government has been in a dispute with the Iraqi central administration for years over the semi-autonomous region’s desire to export oil independently.

The Kurds maintain they have “an exclusive authority to manage oil and gas in the Kurdistan Region extracted from fields that were not in production in 2005,” referring to a section in the Iraqi federal constitution. Nouri al-Maliki’s government disagrees, saying that the oil belongs to every citizen of Iraq and must be centrally managed.

“We’re seeing some progress on the political front in Iraq,” Metherell said. “There seems to be more cohesion in Baghdad.”

A deal to supply gas to neighboring Turkey is expected to be signed this year and could eventually account for about half of the value of Genel Energy’s business in Kurdistan, Metherell said. The company is set to supply 10 billion cubic meters of gas a year to Turkey by 2017 and infrastructure construction for the project is expected begin at the end of the year.

“In our view, the gas sales offtake agreement currently being negotiated between the KRG and Genel is a key catalyst for H2,” said James Thompson, an analyst at JPMorgan Securities Plc today in a note to clients. The development of the gas fields will “provide the longer term production and cash flow growth that should differentiate it from peers in the region.”

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