x Abu Dhabi, UAESaturday 20 January 2018

UAE in line for bigger oil presence in Kurdistan

Two of the first companies to pump oil in Iraqi Kurdistan are interested in pursuing talks as the race for oil in this relatively undeveloped region heats up.

Oil workers near the city of Erbil. AFP
Oil workers near the city of Erbil. AFP

ERBIL, Iraq // The UAE could increase its presence in Iraqi Kurdistan's energy assets as the prospect of a merger between two of the first companies to pump oil in the northern region of Iraq improve.

A top executive from Norway's DNO said yesterday that Turkey's Genel Enerji would make an attractive partner, a day after the head of the Turkish company said he was eager to begin discussions on an acquisition. Crude oil from their core fields, Tawke and Taq Taq, is so far the only oil to be exported from Kurdistan.

"That would be a good match," Magne Normann, the managing director of DNO Iraq, said in Erbil. "We are coming from the same background. We have the same sort of thinking behind what we are doing."

DNO is in the process of a merger with RAK Petroleum, which is based in Ras Al Khaimah and owns 30 per cent of DNO.

Expectations of negotiations between DNO and Genel come after Ashti Hawrami, the natural resources minister in the Kurdistan Regional Government, predicted a round of consolidation and mergers on the heels of a landmark deal by ExxonMobil to explore in Kurdistan.

DNO and Genel executives cautioned that any talks between them would have to wait until they both completed mergers of their own. Genel expects next week to complete a US$2.2 billion (Dh8.08bn) merger with Vallares, an investment vehicle co-founded bythe former BP chief executive Tony Hayward.

"We have a serious amount of cash in our coffers and DNO is already our natural partner in northern Iraq," Mehmet Sepil, the chief executive of Genel, told Bloomberg News this week. "We can start official talks after our listing."

If Genel and DNO were to combine, it would give the UAE an even bigger footprint in Kurdistan's energy sector, which was opened up to foreign investors for the first time less than a decade ago and is estimated to have oil reserves of at least 45 billion barrels. Dana Gas, an operator based in Sharjah, and OMV, an Austrian oil company quarter-owned by Abu Dhabi, also operate there.

The promise of Kurdistan, where in some areas oil seeps to the surface, is shadowed by a long-running disagreement between Baghdad and Erbil over whether contracts entered into by the Kurdish authorities are valid. Baghdad blacklists producers in Kurdistan from operating in the rest of Iraq, which has until recently barred major oil companies with service contracts in the south from exploring in the north.

The dispute was further inflamed this week when the Kurdistan Regional Government announced it had signed contracts with ExxonMobil for six blocks, forcing Baghdad either to enforce its blacklisting policy against producers in the Kurdish zone or tacitly give them the green light.

DNO and Genel insist their contracts are safe because they were signed before the formation of the current government in Baghdad. But neither has been immune to Baghdad's reluctance to pay companies in Kurdistan for exploration costs or exports, which has constrained production.

If Genel were to buy DNO, it would be likely to offer between 12 and 20 Norwegian kroner per share - a hefty premium over the company's current share price of 8.78 kroner a share, estimates Teodor Nilsen, an analyst at First Securities in Oslo.

"By building a larger company, you will have a lower volatility in terms of cash flow and maybe less uncertainty about payments from the Tawke field," said Mr Nilsen. "They definitely will control a larger portion of the local market. The local market is pretty predictable in terms of payments."


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