Anglo-Turkish oil giant, HeritaGE

Heritage Oil has just announced the details of a takeover of Genel Enerji that will transform it into the largest oil company in the autonomous Kurdistan Region of Iraq.  The newly merged company will be named HeritaGE and will have an estimated net worth of U$6bn.  It is currently listed as a FTSE 250 group and will most likely move into the FTSE 100 category.

Security guard at Tawke oil refinery near Zakho (Photo credit: ALI AL-SAADI/AFP/Getty Images)

Security guard at Tawke oil refinery near Zakho (Photo credit: ALI AL-SAADI/AFP/Getty Images)

Heritage is listed in London, incorporated in Jersey, and has headquarters in Canada.  Its founder and CEO is Tony Buckingham, who gained notoriety as a leading figure with mercenary groups Executive Outcomes and Sandline International.  Genel is owned by the Çukurova Group, a conglomerate that spans media to cars to shipping and is controlled by Mehmet Emin Karamehmet, a Turkish billionaire.

The deal involves the acquisition of Genel for U$2.5bn in stock and will be completed in September.  Buckingham, current CEO of Heritage and a 33% owner, will become Executive Chairman of HeritaGE and Karamehmet will be its Executive Director.  Mehmet Sepil, who is CEO of Genel Enerji, will become CEO of the newly-formed HeritaGE group.

There are two major oil fields in the Kurdistan Region involving HeritaGE: Taq Taq and Tawke.  Taq Taq is managed by the Taq Taq Operating Company (TTOPCO), a joint venture between Genel (holding 44%) and Addax (holding 36%).  Addax Petroleum (Swiss-Canadian) is facing a takeover of its own by China’s SINOPEC.  Tawke field, operated by the Norwegian company DNO, first struck oil in late December of 2005.  Genel owns a 25% stake in DNO’s Tawke operations.

Oil from Taq Taq is loaded into tankers at an export facility at Khurmala, south-west of Erbil, from which it is pumped

KRG oil fields and pipelines

KRG oil fields and pipelines

to Baiji and into the northbound Kirkuk pipeline to the Turkish port of Ceyhan.  Oil from Tawke is pumped directly into the same pipeline.

The crude being extracted from the first newly developed oilfield to have come on stream anywhere in Iraq for 30-odd years is cause for celebration and pride amongst Iraq’s Kurds.   It is also the first instance of exploration leading to extraction and export by private companies in Iraq since Saddam nationalised the oil industry in 1972.

Iraq still has no federal petroleum law, and the exports are being conducted under an informal arrangement between Kurdistan and Iraq’s federal government.  The terms of the Taq Taq agreement are for Baghdad to receive 88% of the profits with the oil companies keeping 12%.  Baghdad will then send back to the KRG 17% of what it receives.  In effect, the KRG will net just under 15% of total oil revenue.  Terms for Tawke operations are similar.

However there are still lingering doubts about how HeritaGE, Addax and DNO will be paid for the oil they are pumping.  Iraqi Oil Minister Hussein al-Shahristani has rejected paying the three firms as part of the contracts signed independently with the KRG.  He says the exports are not completely legal but hopes that the oil law now (still) being discussed will allow it to happen.  Al-Shahristani says the KRG must pay the companies from its 17% share of the federal budget it receives annually.

Additionally, the Iraqi cabinet agreed on Tuesday to draft a law allowing the government to allocate U$0.50 from each barrel to the province where it was produced.  This is the first time Baghdad will send any revenues back to the provinces in such a fashion.

Net production for the new company from Kurdistan is now approximately 30,000 barrels a day and is estimated to rise to about 43,000 barrels a day by the end of the year.  Kurdish Oil Minister, Ashti Hawrami, aims to increase total production from the region from 100,00 barrels a day by the end of the year to more than 1 million barrels by 2012.

HeritaGE has said it will use its share of the revenues to finance a 1,300km pipeline linking its Ugandan oil fields to Kenya’s coast.

Sources:

Hume, Neil.  False news shock – Heritage Oil edition, Financial Times Blog, 10 June 2009

Lando, Ben.  KRG firms are takeover prospects.  Iraq Oil Report, 09 June 2009

Forston, Danny.  Turks’ Heritage delight.  TimesOnline/The Sunday Times, 07 June 2009

Rasheed, Ahmed.  Iraq says Kurd oil deals illegal, Kurds foot bill.  Guardian Online, 10 June 2009

Salaheddin, Sinan.  Iraq gov’t hopes to end oil dispute with Kurds, AP, Forbes.com, 10 June 2009.

Iraqi Kurdistan begins first time oil exports, Al Arabiya, 01 June 2009

Kurdistan goes glug glug, The Economist, 28 May 2009

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