Newly founded Vallares, an investment vehicle headed by former BP Chief Executive Tony Hayward, announced a $2.1 billion deal to purchase Genel Energy International, the biggest oil producer in Iraq's autonomous Kurdistan region.
The merger will be achieved through an all-share reverse-takeover in which Vallares will issue new shares worth $2.1 billion at a price of £10/share to acquire 100% of Genel, giving Vallares and Genel's current owners equal stakes in the combined business.
Vallares, founded by Hayward, financier Nathaniel Rothschild, and banker Julian Metherell, raised $2.2 billion from investors in June.
Hayward will serve as chief executive officer of the new firm, while Metherell will be chief financial officer. Both will sit on the board. Rothschild will be a nonexecutive director.
Mehmet Karamehmet is Genel's current majority owner with a 56.18% stake, while Mehmet Sepil, who has 29.06% and is currently chief executive of Genel, will become president.
Karamehmet and Sepil have committed to retain their interests in the newly enlarged company for 1 and 2 years, respectively.
The new firm is expected to be among the top three independent UK-listed exploration and production companies by 2P reserves, with an estimated unrisked resource base of 1.4 billion boe, including proved and probable reserves of 356 million bbl. Current production is 41,000 b/d, and is expected to reach 90,000 b/d by 2013.
The transaction is subject to approval by the Kurdistan Regional Government (KRG), which is expected to be given later this month.
Genel, the largest oil producer in Iraq’s Kurdistan Region, has stakes in two world-scale producing oil fields, a major gas condensate discovery, and significant exploration acreage.
Genel's biggest producing asset is the Taq Taq field where it has a 44% stake and is joint operator. Genel holds a 25% stake in the smaller Tawke field, near the Turkish border which is operated by DNO.
The proved and probable gross reserves of the two fields are estimated at 647 million boe and 286 million boe, respectively under a McDaniel & Associates competent persons report.
Genel's exploration portfolio, which Hayward described as the most exciting element of the transaction, comprises interests in six licences and runs from Peshkabir in the North of the region to Chia Surkh in the extreme south.
A further five exploration wells are planned over the next 12 months to assess the full potential of the acreage.
In announcing the agreement, Haywood cited a US Geological Survey estimate that put the Kurdistan Region’s undiscovered hydrocarbons at 40 billion bbl of oil and 60 tcf of gas.
Hayward said finding and development costs were typically $2-4/bbl and he said that the prevailing transportation fee of around $3/bbl would fall as more pipeline infrastructure was built, particularly the planned South-North KICE link to the Kirkuk-Ceyhan pipeline.
Hayward was upbeat also on political relations between the KRG and Iraq’s central government.
"The debate on Iraqi oil law continues but, while the outcome remains to be finalized, what is clear is that the [KRG] and their elected representatives in Baghdad will have a major influence on any legislation that is ultimately passed,” he said.
Meanwhile, Hayward said Genel will use its $2.2 billion in cash on acquisitions and developing existing fields, allocating one third of the cash to accelerate development of its six oil fields in the Kurdistan region.
An equal amount will be spent on acquisitions of some of the 41 oil companies operating in the region, while the remainder will be used to buy companies in the Middle East.
“We will be participating in the inevitable consolidation among the 41 companies in the Kurdish region,” Hayward said. “There will be a series of consolidations and we want to have the dominant position in the region by building a bigger company.”
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