x Abu Dhabi, UAESunday 23 July 2017

Oil adventurers strike rich booty in Kurdistan

Analysis Payday is approaching for Tony Buckingham and Jean-Claude Gandur, the buccaneering founders of Heritage Oil and Addax Petroleum.

Oil workers at a drilling facility in Taq Taq.
Oil workers at a drilling facility in Taq Taq.

Payday is approaching for Tony Buckingham and Jean-Claude Gandur, the buccaneering founders of Heritage Oil and Addax Petroleum, two oil firms based in Canada that are involved in the first exports from Iraqi Kurdistan. The two companies have much in common. Both are small international players that have scored exploration coups in politically unstable corners of Africa and the Middle East. Both maintain stock listings in London and Toronto, the two exchanges most supportive of development-stage resource ventures.

And both are led and shaped by fast-moving adventurers. The companies have also attracted well-heeled suitors. Heritage's prospective buyer is Cukurova Group, the sprawling Turkish conglomerate controlled by the business tycoon Mehmet Emin Karamehmet. According to recent press reports, Addax is being wooed by Sinopec, the Chinese state-owned petroleum refiner, and the Korean National Oil Corporation (KNOC).

The proposed US$5.5 billion (Dh20.18bn) merger between Heritage and Cukurova's oil unit, Genel Enerji, would leave Mr Buckingham with a 16 per cent stake worth more than $1bn in a new FTSE 100 company. Sinopec's rumoured £4.8bn (Dh29.06bn) bid for Addax, which reportedly trumped an earlier KNOC bid, would be worth about $2bn to Mr Gandur, who directly owns 3.6 per cent of the company and controls another 35 per cent stake through his investment vehicle, Addax and Oryx Group (AOG).

The two men's colourful pasts and their present good fortune are reminders that successful international oil entrepreneurs are seldom the product of prestigious business schools or staid accounting careers. Boldness, charisma and a good eye for opportunities are often more important. Mr Buckingham, 57, started out in the oil industry as a North Sea diver in the 1970s. In 1992, he launched Heritage to exploit opportunities in Angola's emerging oil sector. But within months, communist rebels had seized the company's oil installations.

Mr Buckingham responded by becoming a partner in Executive Outcomes, a provider of mercenaries that recovered Heritage's assets. The oil company's London share-offering prospectus says Mr Buckingham became an adviser to the government of Angola in 1989 and assisted the country's oil ministry in establishing Sonangol, the national oil company. Heritage subsequently became one of Sonangol's earliest partners in oil exploration and production.

Executive Outcomes, which Mr Buckingham founded with Lt Col Eeben Barlow, a former Apartheid-era member of the South African Defence Force, and the former British soldier Simon Mann, in 1995 became involved in training the Sierra Leone army and supporting its fight against rebel insurgents. It was dissolved in 1999 but not before Mr Buckingham had become a principal in Sandline International, a controversial British mercenary company.

Sandline became notorious for breaking a UN arms embargo in Sierra Leone, reportedly in exchange for diamond exploration permits. It was also engaged by the government of Papua New Guinea to quell an uprising. Both episodes became the subjects of government inquiries before Sandline was dissolved in 2004. That was the year when Mr Buckingham's former business partner, Mr Mann, was arrested in Zimbabwe on charges of leading a failed coup in Equatorial Guinea, where he is now in prison.

Despite apparent connections between companies linked to Mr Buckingham and Mr Mann, such as shared addresses in tax havens, the Heritage prospectus says the two have had no substantive business contact since 1998, and no contact whatsoever since 2000. Heritage "has no assets or current intentions to operate in the countries in which Executive Outcomes or Sandline International operates", it adds. But the prospectus does not dispute Mr Buckingham's involvement as principal shareholder in Indigo Sky Gem, a mining company that bought diamond prospecting rights from the Namibian government.

That company was embroiled in a controversy over the forced eviction of about 1,000 small miners from properties where they had been digging for the gems for years. "Adverse media or other public speculation about the chief executive officer's past associations could materially adversely affect the group's reputation and the market price of the ordinary shares," the Heritage prospectus warns. None of that changes Heritage's recent achievements in finding hundreds of millions of barrels of oil in Uganda and as much as 3 billion barrels of recoverable crude in Kurdistan.

"The fact is that Tony and Heritage have a proven track record in finding big oil. The rest is irrelevant," says Paul Atherton, the company's finance director. Mr Gandur's personal history is equally unusual. The Swiss citizen, aged 60, was born in France as the son of an Italian paediatrician. He grew up in Alexandria where he learnt Arabic and developed a lifelong fascination with Egyptian antiquities.

After studying law and political science at the University of Lausanne, Mr Gandur found work in 1976 at Philipp Brothers, the aggressive Swiss trading house that spawned Marc Rich, the fugitive financier whom Bill Clinton pardoned in connection with tax evasion and fraud on his last day as US president. Mr Gandur, who joined Philipp after Mr Rich had left, rose to become the manager of the firm's African oil trading operations where he developed a taste for risk and a reputation for thinking on his feet.

In 1987, after stints at rival trading houses, he was ready to branch out on his own. He and three partners set up AOG as a west African trading operation. In 1994, Mr Gandur established Addax Petroleum as a unit of AOG. He made the jump into oil exploration and production two years later, winning initial production-sharing contracts in Ivory Coast and Benin. The big break came in 1998, when Mr Gandur convinced the French energy group Total and the US company Ashland Petroleum to sell four offshore blocks with 8,000 barrels per day (bpd) of oil production, and 30 million barrels of reserves to Addax for less than $50 million, after crude had plunged to $12 a barrel. That deal and $1bn of further investment formed the basis for 100,000 bpd of oil production for Addax.

But AOG's activities, based largely on the personal relationships Mr Gandur forged with the ruling and business elites in Africa, have seldom been free of controversy. For instance, Addax co-operated closely with the Nigerian strongman Sani Abacha, who died in office in 1998 and is widely thought to have skimmed more than $3bn from the state treasury. In 2000, two former AOG employees were convicted and fined in Switzerland for laundering embezzled funds linked to Mr Abacha.

In a related French case, Richard Granier-Deferre, a former Addax executive, was tried as an accessory in a money laundering and bribery scandal involving the French company Elf Acquitaine, which is now part of Total. Mr Gandur declined to speak to The National but has previously said the allegations against Mr Granier-Deferre had nothing to do with Addax, and that the company conducted its business in accordance with the law and high ethical standards.

"In Africa, people like to talk to company builders," he told a Canadian newspaper last year. "If you want successes there you must create friendships; they must like you." But as a result, Addax has been involved in several west African oil deals awarded amid allegations of government cronyism and corruption. In 2006, it signed production-sharing contracts on three blocks in an offshore area shared by Nigeria and Sao Tome and another block off Nigeria's coast, partnering companies controlled by a business associate of the former Nigerian president, Olusegun Obasanjo.

"In these parts of the world you are invariably going to be dealing with people connected to someone powerful in the ruling elite. That's just the way it is," said Michael Ebsary, the chief financial officer of Addax. As the company's crude output grew, Mr Gandur started to look for new frontiers. He found a likely prospect in Kurdistan, where the regional government was moving to establish control over the oil resources in its territory, following the ousting of Saddam Hussein.

In 2004, the Kurds signed a production-sharing deal with Genel. The next year, after Mr Gandur travelled to Ankara to meet the Turkish company's chief executive, Mehmet Sepil, Genel agreed to pass on 45 per cent of the concession to Addax. That deal has proved highly controversial, landing the company at the heart of a politically charged dispute between the Kurds and Iraq's central government over autonomy and jurisdiction over resources.

If the rumours of an imminent Chinese takeover of Addax are accurate, it might be a problem Mr Gandur will not have to deal with. He would also miss the chance to work with Mr Buckingham, who has been named executive chairman of the merged Heritage-Genel entity. However the dust settles in Kurdistan, the shareholders of Heritage and Addax, two erstwhile minnows in the international oil pool, for now have good reason to celebrate.

Mr Gandur has said he wants to buy more antiquities with his Addax profits, to add to his world-class collection. @Email:tcarlisle@thenational.ae