Following previous reports, Ex-CEO boss Tony Hayward is on the cusp of returning to the oil business as his Vallares private equity fund confirmed its acquisition of a $2.1 billion 50% stake in Turkey’s Genel Enerji.
Hayward, who quit as BP CEO following the disaster at the Macondo oil well in the Gulf of Mexico last year, has been casting around for suitable investment opportunities after the Vallares fund he established with Nat Rothschild raised an above-estimate $2.2 billion for emerging market oil ventures.
Hayward is set to take over as Genel Energy’s CEO, having previously announced that he would become chief of any target company. He has assembled a team of big names around him, including former deputy CEO of BP and Chairman of Petrofac, Rodney Chase.
“The Kurdistan region of Iraq is undoubtedly one of the last great oil and gas frontiers,” Hayward said in the statement. “Arguably, it is the last big onshore ’easy’ oil province available for exploration by private companies anywhere in the world.”
Genel Enerji is one of the largest players in the Kurdish region of Iraq, and has assets in Columbia. The $2.1 billion Vallares deal will be done as an all-share reverse takeover, according to a statement released by the London-listed fund, which will allow Genel to inhabit Vallares’s position on the London Stock Exchange.
Vallares will issue new shares worth 10 British pounds ($15.98) each to acquire Genel, leaving the Vallares’s and Genel Energy’s current shareholders with equal stakes, and will change its name to Genel Energy Plc.
The acquisition give Genel premium access to the world’s most mature and liquid equity market Middle East’s upstream industry. The Financial Times’s ‘Alphaville’ team reports the deal is similar to “regulatory arbitrage”, as Genel would almost certainly not have been able to list alone due to an instance of market abuse by Mehmet Sepil, the current CEO and a company founder, which led to Sepil copping a c.$1.6 million fine from the UK’s Financial Services Authority in 2009.
Indeed, Genel is gaining access to a priviledged index position regulated and liquid capital market and a substantial cash boost offering little more more than huge potential wedded to substantial political and economic risk.
The structure of the deal is particularly attractive to several other Kurdistan–focused independents, who have found excellent reserves prospects but may struggle to raise the tens or hundreds of millions needed to start comprehensive drilling programs without access to equity markets.
Vallares is clearly unperturbed by the continuing spat between the Kurdish government and the central Ministry of Oil in Baghdad. The Kurdish government recently condemned the new cabinet-approved draft oil law that would give independents in Kurdistan certainty over the legal status of their contracts with the Kurdish authority, and Hess was yesterday booted off the approved bidders list for the auction of Iraq’s southern exploration blocks after disclosures of its investments within the semi-autonomous region.
In addition, there remains significant financial risk for explorers in Kurdistan over when they will get paid for production in the country due to the Erbil-Baghdad dispute. Norwegian firm DNO had to wait to begin getting paid by the Kurdish authority for oil exported since May 2009. Genel’s proposed merger with Hertitage Oil fell through in November 2009, partly due to the fact that Genel saw “no foreseeable prospect of receiving any payment for its Kurdish exports.”
The move may also see the risk profile of the FTSE 100 – or certainly FTSE 250 – increase, as Genel has concentratrated assets in a difficult emerging Middle East market.
The tie-up will need to be blessed by the Kurdish Regional Government, which Vallares says it expects to obtain next month.
Hayward, Rothschild and the other Vallares founders are together entitled to a 6.67% stake in the enlarged group, following the completion of a deal, worth around $140.7 million based on a 50% stake.
[Story updated at 5.16pm 7/9/11]
