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Turkey's Genel Energy Takes Gamble in Iraq

The top executive at Turkish company Genel Energy announced a deal with Heritage Oil increased its stake in the Miran exploration block in the Kurdish north of Iraq. The block is said to contain more than 10 trillion cubic feet of natural gas in place, suggesting the Kurdish provinces are carving out their position among regional energy leaders. The deal, however, comes against the backdrop of long-standing political issues between Kurdish leaders and the central government in Baghdad. While international majors like Exxon Mobil and Chevron have the financial stomach to ride out the storm, Genel Energy may be taking a gamble.

Heritage Energy Middle East Ltd. entered into a production sharing contract in the Miran block with the semiautonomous Kurdistan Regional Government in 2007. Turkish energy company Genel came on board under the terms of the PSC in 2009 and, this week, announced it took a 51-percent stake in the project through a multimillion dollar deal with Heritage.

"This acquisition represents an excellent opportunity to extend our interest in, and assume joint operatorship of, a commercial gas discovery and high quality asset in the Kurdistan Region of Iraq," said Genel's CEO Tony Hayward in a statement.

The Turkish company said an independent analysis of Miran prepared in March for Heritage estimates the area holds as much as 10.5 trillion cubic feet of natural gas in place. That could be good for Turkish ambitions to secure a position as a regional energy hub given the series of natural gas pipelines planned for the region. Political disputes between the Kurdish and central government over energy issues, however, may add an element of risk to the equation.

Baghdad said foreign energy companies that sign unilateral deals with the KRG could get blacklisted. In April, the Kurdish government retaliated by blocking oil exports but has since sent some shipments over the border to Turkey. French supermajor Total recently brushed off the threats, as did Marathon Oil. For those companies, explains Kirk Sowell, who publishes the biweekly Inside Iraqi Politics newsletter, the risk is worth the reward. For Genel, however, the situation is different. If for some reason political alliances shift, or divisions emerge because of the Syrian crisis, the consequences would be "immensely damaging to Genel."

Victoria Nuland, a spokeswoman for the U.S. State Department, told reporters this week that Washington has warned U.S. energy companies of the risks associated with working in an Iraq handicapped by political infighting.  While business decisions are separate from most political affairs, she said, "there are risks for them" in Iraq.

Nevertheless, Tony Buckingham, an alleged former mercenary and founder of Heritage Oil, said the deal represented a "significant value" for shareholders. Sowell told OilPrice.com that the Genel deal wasn’t a coup on par with Kurdish deals from the likes of Chevron or Exxon Mobil, however.

"Because they are so heavily identified with the KRG's energy policy as it is, it's not a slap in the face like Chevron or Exxon," he said.

By. Daniel J. Graeber of Oilprice.com

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  • Bob Berke on August 24 2012 said:
    A valuable and interesting article on an important part of the world seldom covered in the main stream press. One suggestion: Please consider adding the effects of these deals on the stock price of these companies.

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