Genel Builds For The Future

BMI View: Genel Energy is looking to use a US$1bn war chest to build a substantial E&P business in the Middle East and Africa over the next five years. It has already got to work in H112, acquiring new assets in Morocco and Malta, as well as boosting its stake in the giant Miran gas field. While the strategy is intended to help diversify the company's portfolio, Genel remains committed to its core operations in Iraqi Kurdistan. The bitter dispute between Baghdad and Erbil hit production in H112 but chief executive Tony Hayward is confident that a lasting settlement will soon be reached, either via a bilateral deal between the KRG and Turkey, or a settlement between the Kurdish authorities.

Genel Energy, the largest independent oil producer in Iraqi Kurdistan, is seeking to transform itself into a regional player in the Middle East and Africa. In the company's half-yearly results, Genel said it had over US$1bn in cash and was 'actively exploring a number of compelling opportunities' in the region with a view to building a 'major exploration and production (E&P) company' over the next three to five years.

Pastures New

The independent, which was acquired by a cash shell floated by chief executive Tony Hayward and financier Nat Rothschild in 2011, has already broadened its footprint. Its H112 results revealed two deals which will see Genel take stakes in licences offshore Morocco and Malta. It has also signed a mutual interest agreement (MIA) with Mediterranean Oil and Gas which will see the duo pursue future acquisitions in Libya, Malta and Tunisia.

Shopping Spree
Country Block Interest Operator Initial Fee (US$mn) Drilling Carry (US$mn)
Source: BMI, Company data
Malta Area 4 75% Yes 10 30
Morocco Sidi Moussa 60% No* 1.3 50
Iraq Miran 26% Joint 156** -

* Genel has the option to become operator after the completion of the first exploration well.

**Genel also agreed to supply a US$294mn loan facility.

The deals signal Genel's intention to build a high impact exploration portfolio, with new acreage in the rift basins of Central and East Africa, the Mediterranean's Sirte Basin, and the Jurassic carbonate and submarine fan plays of northwest Africa.

Old Haunts

While these acquisitions will help to diversify Genel's portfolio, the independent remains committed to the full development of its core Kurdish assets despite repeated disruption to operations as a result of disputes between Baghdad and Erbil. The company's H112 results revealed that output dropped from 41,000 barrels a day (b/d) in H111 to 39,000b/d in H212 after the KRG suspended southern shipments (exports resumed in August 2012 at approximately 116,000b/d). This has not deterred Genel, which acquired a further 26% stake in the Miran licence from Heritage Oil for US$156mn earlier this month. It will now be joint operator of the block with a 51% share.

Hayward clearly remains optimistic that the dispute will not prevent the full development of Genel's growing Kurdish portfolio. He told the Financial Times: 'I don't know anywhere in the world where you have 1m b/d behind pipe and it doesn't find its way to market.' He added that a deal to get the oil to market was likely, either through a bilateral deal between the KRG and Turkey, or a settlement between the Kurdish authorities and Baghdad.

Such a deal looks increasingly likely as the KRG strengthens its hand in the long-running dispute. Erbil reached an accord with Ankara in May 2012 that will enable the construction of a 1mn b/d pipeline to the Turkish border. If that pipeline is completed as planned by the end of 2013, it will be a boon for Kurdish players such as Genel, giving them an independent route to market beyond the control of Baghdad.

Erbil's confidence is also growing because oil majors ExxonMobil, Chevron and Total have all farmed-in to Kurdish licences. Rumours abound that Norwegian national oil company Statoil could be next in line. Baghdad is furious, threatening to strip Exxon and Total of their assets in the south; however, that may not be enough to prevent Kurdish oil getting to market. Baghdad is, therefore, likely be forced back to the negotiating table or risks being bypassed altogether.

This article is tagged to:
Sector: Oil & Gas
Geography: Iraq, Morocco