Genel Energy Expands Into North Africa

on Aug 30, 2012
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On Thursday (August 23), Genel Energy (GENL:LSE), an Iraq-focused oil explorer, announced deals that will help it to diversify into the Mediterranean and North African regions. Building on its strategy to expand outside its core Kurdistan Regional Government (KRG) territory in northern Iraq, Genel bought licences to explore for oil in Morocco, Malta, Ivory Coast and Somaliland.

Genel Energy was launched last year when former BP Chief Executive Tony Hayward and financier Nathaniel Rothschild’s bid vehicle bought Turkey’s Genel Enerji. After building up its position in Kurdistan, the newly-formed company announced that it now aims to diversify and with its Turkish background the North African region is naturally advantageous. Accordingly, Genel’s first venture outside Kurdistan is the acquisition of 60 per cent of the Sidi Moussa block offshore Morocco for up to $50 million (£31.5 million) as well as asset purchases in Somaliland and Ivory Coast. Genel also announced the acquisition of 75 per cent of Mediterranean Oil & Gas’s (MOG:LSE) interests in an offshore Malta contract for up to $30 million (£18.9 million), with an additional agreement to acquire further assets in Malta, Libya and Tunisia. Overall, the deals, which cost the company almost $1 billion (£631 million), will add about 25,000 square kilometres of acreage to Genel’s portfolio.

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“This is a high-impact exploration portfolio to pursue outside of Kurdistan,” Chief Financial Officer Julian Metherell said for Bloomberg News. “We’re playing in a huge geography and we continue to see huge opportunities,” he added.
The acquisitions mark the first foray for Genel into North Africa. The oil company plans to spend another $1 billion on further diversification into the region, according to Genel’s Chief Executive, Tony Hayward. The funds needed to finance the investment in new assets will be provided by the company’s acreage in Kurdistan. Mr Hayward stated his commitment to the region despite a dispute between KRG and Baghdad’s federal government over $1.5 billion (£949 million) that the city of Erbil, the capital of Iraqi Kurdistan, says is owed to companies in the region by Baghdad. Genel is owed some of that money. “It’s material but nothing like $1.5 billion,” said Mr Hayward. “We certainly want to be paid.”

Even if the KRG cannot cut a deal with Baghdad, Genel is generating enough money to invest by selling into the domestic market. Thursday’s deals were announced alongside Genel’s first-half earnings results. The oil company ended the six-month period with a pre-tax profit of $22.3 million (£14 million). Its sales generated revenues of $123 million (£77.6 million), while production averaged 39,000 barrels per day.

Genel is targeting increased production of about 200,000 barrels of oil a day in Kurdistan by the time a new export pipeline to Turkey is completed next year. “We’re going to continue to build production capacity because that creates momentum for a resolution [between Baghdad and KRG],” Mr Hayward said. The arrival of multinational oil companies such as Chevron (CVX:NYQ), Total (TOT:NYG) and Gazprom (GAZ:LSE) in the region also strengthens the Kurds’ hand, he said.

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