Kurdistan M & A general

20th Jun '09 by ManSiarad

14 comments 3170 reads

I'm creating this thread separately from ee's general M & A thread and the HOIL stuff to allow for news, discussion etc related to the wider range of companies involved in Iraqi Kurdistan, without it disappearing under a company specific thread.. Besides Addax, Genel Enerji / HOIL and DNO, there are lots of other smaller fry, like Western Zagros, Gulf Keystone et al. Also other foreign firms, e.g. Dana Gas of the UAE and some larger Asian firms - I don't have all details to hand. Provided that the issue of payment for oil produced gets sorted out satisfactorily, we might well see some more acquiisitions, so perhaps we can use this thread as a way of following things, as well as via company-specific threads.

Man Siarad

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ManSiarad

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ManSiarad

20th Jun '09

To kick it off:

http://www.dno.no/Press--Media/Press-Releases/2747/DNO-International-ASA---Press-Release-from-Oslo-Stock-Exchange/

DNO have been penalised by the Oslo Stock Exchange for allegedly concealing the fact that a chunk of their shares were bought by Genel Enerji late last year. The DNO argument is that they didn't know who bought them:

Reference is made to a press release issued today by the Oslo Stock Exchange (OSE) concerning a decision by the board of OSE to impose certain penalty payments on DNO, due to an alleged breach of its obligations to release information to the market.

The alleged breach of such obligations to release information to the market is according to OSE related to DNO's sale of 43,873,960 treasure shares on 10 October, 2008. Prior to the sale of the treasury shares, DNO searched potential buyers both through direct and indirect contact. The sale of the shares was as required under applicable regulations reported immediately to the market on 10 October, 2008. The shares sold by DNO were held under a UK nominee account and the beneficiary ownership of the shares was at the time not known to the Company.

DNO had no knowledge of the beneficiary of the shares until the Company was advised by Genel Enerji, and the disclosure from DNO on 6 April 2009 confirming Genel's ownership was made in order to satisfy OSE request the make such disclosure, although it is DNO's firm opinion that this was not required.

So presumably the HOIL/Genel Enerji group will now hold these 43,873,960 DNO shares, or getting on for five per cent.

Genel Enerji are more diversified in terms of their Kurdish interests than I had realised:

http://www.iraqoilreport.com/the-biz/krg-firms-are-takeover-prospects-1720/

If shareholders approve, Heritage will purchase Genel for about $2.5 billion in stock, forming the new company HeritaGE Oil.

Genel is spread throughout the KRG, beyond its 44 percent stake in TTOPCO. It owns a 25 percent share in DNO’s Tawke project – the other field to begin exports earlier this month – as well as 40 percent in the Norwegian firm’s Dohuk project. It owns 40 percent and 20 percent, respectively, in two other young projects in the KRG.

And, it has a 25 percent stake in Heritage’s Miran project.

Addax owns 36 percent of the TTOPCO project, and 27 percent of the Sangaw North project – with the potential of the KRG reducing it to 20 percent – operated by the UK’s Sterling Energy.

Further consolidation to come as the new HeritaGE Oil tries to position itself as the largest of all the Kurdistan independents, with the additional benefit of, presumably, political support from Turkey? Thoughts welcome

Man Siarad

djpreston

20th Jun '09

Edited - double post. Sorry.

djpreston

20th Jun '09

Afternoon MS. Taking a break from shifting a few ton of composted bark... What is amazing is how Heritage has positioned itself so quickly as possibly the pre-eminent Kurdistan play. Everyone I know was expecting Buckers to pop another well on Miran (and a bit more on Uganda) in H2 and then sell up to spend the rest of his days with his yachts. Genel are presumably the driver behind all this and they've played it very well with their stakes and licences. I'm still slightly concerned about the comments at the AGM about the merger and how terms are not set in stone but that's a minor niggle. Have to say that the politics still scare me silly and I don't trust Sharistani one iota. Longer term will kurdistan split (with the backing of Turkey - odd given the history between Turkey and the PKK). What would the ramifications be? Dunno and that's not really for this thread. DNO would certainly seem to be the next logical add in to the group, especially given their still far from certain finances. IIRC Niko have a licence nearby (Groundstar did the running on it but got a bit shafted eventually with only a 6% stake). GKP won't be around for long if they succeed imo. You know my distrust of their management. Btw, I'm sure that I heard their presneter at OB say they would logg each zone on the way down and issue regular RNSs. That's the only reason I have a punt sized position there. WZR has long been my favoured kurdistan play and its entirely KRG focussed. I do like their tie up with Talisman so there's plenty of muscle in that grouping. Perhaps Talisman could be a dark horse in any m&a activity in the area? Must dash. This stuff aint going to shift itself. D

ManSiarad

2nd Sep '09

A new presentation from DNO today at the Pareto's O & G conference in Oslo

http://hugin.info/36/R/1338857/319577.pdf

Production from Tawke going swimmingly, producing around 50,000 bpd, with 45,000 of that for export. All fine and dandy, until you get to the financials at the end, where it states:

"Payment procedures for Tawke exports are still pending, revenues and receivables booked in accordance with PSC agreement."

Whatever payment per barrel DNO eventually receive, that's an awful lot of money already due. No wonder the SP remains depressed... Must be causing sleepless nights in Oslo, since DNO are pretty strapped for cash, though fortunately Yemen production is holding up okay.

So - perhaps it will become the next Kurdistan M & A story after all?

As noted above, HOIL/Genel Enerji already own around 5% of DNO and Genel have 25 per cent of Tawke and 40% of the DNO Dohuk acreage. Wells due on the Tawke West prospect and Dohuk Q2 2010.

A closer tie-up would seem logical, and if HOIL/GE don't move, perhaps a much larger fish might go after both?

Now, IF such a fish were to be linked with a Government with SERIOUS political clout, then perhaps Baghdad might stop dragging its feet on the payment structure? One assumes that payment for oil from Tawke (and the other Kurdish fields) WILL come one day !

As for the Yemen interests, they seem pretty mature now. 34 million barrels produced for DNO's interest, 9.4 million left, in the producing fields. Time for a sell-off on the SIA pattern? Good to see such figures spelt out clearly, though.

Man Siarad

djpreston

2nd Sep '09

In reply to ManSiarad (post #4)

Ive looked at DNO a few times in relation to just such a M&A type move. For my money, the Chinese would be the most obvious givent he AXC takeover. Now that would bring real political clout to the table and further cement their position in the country.

Of course, the same can be argued of HOIL following the Genel deal gtivent he Turkish angle but that woudnt necessarily sort out the logjam in Baghdad, unless of course the Turks fancy supporting the Kurds in seeking autonomy (not a pleasnt thought).

Until we see the payment for produced barrels then there wil continue to be a massive discount on all the KRG players even those with discoveries. Then there is the separate political risk angle (obvious overlap in some respects with the payment risk).

Of the companies out there, DNO looks, to me, like the better option at the moment.

djpreston

22nd Sep '09

Seems as if DNO (or rather the Oslo Exchange) has rather offended KRG. Broker comment

The KRG has demanded DNO suspend all operations in Kurdistan for 6 weeks with no right to revenue during this period. If its demands are not met, KRG is threatening the forfeit of all DNO's involvement in Kurdistan. This reflects KRG anger at Oslo Stock Exchange suggestions of improper share sales benefitting the oil minister. This is a major challenge to our positive rating on DNO, as this theat to remove title to most of DNO's asset value. To assauge the KRG, DNO needs to move vigorously to defend its reputation. The threat to DNO's title may be susbisde, but they are still no closer to being paid for exports. This all appears to reflect a DNO specific issue

Now still no closer to seeing any revenues from production and DNO is under intense financial stress. I can only see them being sold off to another, stronger company.

emptyend

22nd Sep '09

In reply to djpreston (post #6)

This all appears to reflect a DNO specific issue

IMO that is wishful thinking. It might appear to be DNO specific in relation to this particular set of circumstances, but what it indicates is that the KRG government is ready to chuck its weight around. In circumstances where producers in Kurdistan STILL appear not to be being paid for exports, this IMO undermines the investment case for investing in the region.

As it happens there was an interesting article yesterday that addressed the issue (and drew a comparison with Verenex being forced to sell cheaply in Libya):

producers have been caught in a bitter feud between the Kurdish government and Baghdad over territory and resources. Their contracts are with the Kurds, and Baghdad has not budged from its position that they are “illegal”, even though they predate Iraq’s current constitution, and despite Baghdad’s decision to allow Kurdish oil exports to commence.

“These contracts have to be reviewed by the government of Iraq and amended if necessary,” the Iraqi oil minister, Dr Hussain al Shahristani, said earlier this month on the sidelines of an OPEC meeting in Vienna.
“The contracts have no standing with us and we will not consider any payment to these companies. Whoever signed the contracts will have to take care of that.”
The snag with that position is that allowing Baghdad to amend Kurdish oil contracts would amount to handing control of the region’s most valuable resource to the central government – not a proposition acceptable to the Kurds.

And if Baghdad ignores the companies pumping the oil when it splits the export revenues it collects, then the Kurds and their foreign partners could all lose money.

I see no sign of an early solution to this impasse. Accordingly I'll continue to avoid all companies operating in Kurdistan, especially those which are relatively small and undiversified, because they will be less able to ride out lack of cashflow whilst the political process grinds slowly on.

AbAngus

10th Oct '09

An interesting link giving the Kurdistani view:

http://www.krg.org/uploads/documents/Ashti_Hawrami_comments_on_events.pdf

Many thanks to 'eardrumbuzz' on the TMF - with apologies for shamelessly lifting the link....

ManSiarad

13th Oct '09

Not so much Kurdistan M & A (the title of the thread), but a reason as to why, perhaps, there may not be too much M & A activity there for a while - the Kurdish Government has suspended exports until such time as Baghdad coughs up for what has already been exported.

http://www.nytimes.com/2009/10/13/world/middleeast/13iraqoil.html?_r=1&ref=world

BAGHDAD — The semiautonomous Kurdish region has reopened a rift with the central government after announcing that it had halted all petroleum exports from Kurdistan until Baghdad pays the international companies that are pumping oil in the region.

Oil extracted in Kurdistan can be exported only through Iraqi government pipelines running to Turkey, giving Baghdad a stranglehold on the transport of oil produced there. At the same time, the government needs all the revenue it can get to pay for a host of pressing needs.

The amount of oil involved currently, about 100,000 barrels a day, is relatively small compared with Iraq’s total production of 2.4 million barrels a day. But with production from the Kurdish areas likely to increase markedly in coming years, the dispute has taken on added importance.

Kurdistan’s minister of natural resources, Ashti Hawrami, said in a letter dated Oct. 9 and posted on the Kurdish government’s Web site Monday that the decision to stop exports had been made in concert with the two international companies now extracting oil there.

“We have jointly agreed that no free oil will be pumped for export, and payments have to be made,” Dr. Hawrami wrote in the letter. “We will only resume exports with guaranteed payments.”...

We should, perhaps, have seen this coming.

When the KRG announced the other day that DNO could resume its operations, it was stated that DNO would only produce for sales INSIDE Kurdistan.

http://www.dno.no/Press--Media/Press-Releases/3273/DNO-International-ASA---Restarting-operations-in-Kurdistan-region-of-Iraq/

DNO has been in continuous discussions with the KRG over the past weeks to address the issues raised in the Notice. Based on these discussions, the Company has sent the following two letters on behalf of the Board of Directors of DNO International ASA:

One letter to distinguished leaders in the Kurdistan Region and Iraq

One letter to MNR, Kurdistan Region

Both letters are posted on DNO's web site (www.dno.no).

As a result of the attached letter from MNR, DNO's rights to its production sharing contracts are reinstated with immediate effect. DNO can thereby resume the role of Operator without any restrictions. Until a future payment mechanism for crude exports is in place, DNO will focus on local sales.

Not very good news for DNO and the others exporting. Mind you, apart from the slight interruption to DNO's activities, they have been producing for export for over 3 months without any income at all.

The KRG / Baghdad spat looks as though it could rumble on for a while yet.

Man Siarad

emptyend

19th Oct '09

Well worth noting this Upstream article

International oil companies signing deals with the Iraqi government are taking a big risk as the next government, to be elected in January, may revise or cancel those contracts, a senior lawmaker said today.

"Oil companies, which expect to invest billions, should take into consideration the big risk behind these contracts. The new government will at a minimum alter the contract terms and that will not make the oil company’s happy," Ali Hussain Balou, head of parliament's oil and gas committee, told Reuters.

"There are no guarantees for the oil companies that the new government will follow the same path in dealing with them. These contracts might be cancelled or at the very least revised," said Balou, a Kurdish lawmaker and sharp critic of Iraq's oil policy.

Plenty of mileage left in this political spat, IMO.......

ManSiarad

18th Nov '09

Kurdistan has been quiet for a bit, but I thought this might be worth posting (here and on the UAE and Arabian Gulf O & G thread)

http://www.stockopedia.com/forum/view/28763?comment=27#27

RAK Petroleum have picked up over 5 per cent of DNO and have offered to buy DNO's Treasury shares at a meaningful premium to the current market price,

http://www.dno.no/Press--Media/Press-Releases/3273/DNO-International-ASA---Disclosure-of-large-shareholding/

A rather dusty response from DNO:

The Board appreciates the interest shown in the company.

After the recent sale of DETNOR shares, DNO`s capital position is satisfactory and the Board has no plans to sell any treasury shares at this time.

I wonder how any approach to buy DNO treasury shares at a MORE-than-meaningful premium would be treated?

Anyway, political risk notwithstanding - and there's still plenty of that - it's good to see signs of interest in M & A activity in the wholly or largely Kurdistan players picking up again.

Perhaps RAK Petroleum will continue to hoover up some more on the market? Some Kurdish interests would complement their Tanzanian acreage, but that, of course, is another story...

Man Siarad

oilretire

7th Dec '09

New Iraqi election law approved. Which will eventually lead to the oil law & payment mechanism getting sorted out.

Who knows what the knock on effect will be on current Kurdistan contracts or M&A activity, but at least the situation will move forward rather than stagnate.

http://news.bbc.co.uk/1/hi/world/middle_east/8398377.stm

ManSiarad

18th Jan '10

A press release from the KRG today.

http://www.krg.org/articles/detail.asp?rnr=223&lngnr=12&smap=02010100&anr=33405

Provides a view of where the KRG, at least, would like to be going in terms of getting the payment-for-oil issue sorted out with Baghdad.

Some useful figures on estimated future production - aiming to reach 1 mbpd by July 2014

The DNO and Genl contracts are also published, all useful transparent stuff.

Now - how will Baghdad respond?

Man Siarad

ManSiarad

19th Mar '10

Al little snippet of Kurdistan relevance in an interview with iraq's Oil Minister Al Shahristani yesterday of relevance to Kurdistan

http://www.thenational.ae/apps/pbcs.dll/article?AID=/20100317/BUSINESS/703179866&SearchID=73385048962358

In the next few months, Iraq could boost exports by as much as 100,000 bpd by restarting Kurdish crude exports that were halted last September in a long-running dispute over oil jurisdiction between the semi-autonomous regional government and Baghdad.

“We expect to resume exports from the Tawke field [in Kurdistan] shortly, within a month,” Dr al Shahristani said.

“The issue of exporting oil from those fields is a completely separate issue from the contracts that were signed.”

That should be good news not only for DNO (Tawke), but also for other companies producing, or near-to-producing in Kurdistan., making them potentially more attractive.

This may also be of some interest (from the same story)

Iraq’s oil sector is changing, and so could the identity of the man in charge.

Asked if he hoped to keep his post as the minister of oil in the next Iraqi government, Dr Hussain al Shahristani said he would be happy to step aside.

“I wouldn’t try to stay unless I was forced to stay. It wouldn’t be my wish,” Dr al Shahristani said before yesterday’s OPEC meeting.

Let's see - plenty of negotiations to be held before a new Iraqi Government emerges, methinks.

Man Siarad

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ManSiarad

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