Boss’s fight for oil in the IS warzone
THE Iraqi National Army and the Kurdish Peshmerga are closing in on the Islamic State-held city of Mosul.
It is one of the world’s hottest trouble spots. It is also where Gulf Keystone operates its largest oilfield, just 30 miles from the IS-held territory.
For Jon Ferrier, chief executive of the London-listed company, it makes a visit to the shop floor a tense affair. Once a month, he flies out to Erbil in northern Iraq. He then drives two hours further North, to the Shaikan oilfield.
‘The odd thing is that it is remarkably quiet. But as you drive through, there’s these huge refugee camps, with people from Syria and also western Iraq that have both been pushed out by IS.’
And with so-called Islamic State forces so close, security is vital. ‘If I am going to the field I have one car trailing me with security guards and I have a security person with a handgun in my car too.’
For 58-year-old Ferrier, it is only the most recent job to take him to the world’s hotspots. Since studying geology at Aberystwyth and gaining an MSc at London’s Imperial College, he has worked at a series of oil groups, including Maersk, Conoco and Petro Canada, inevitably often in troubled areas such as Syria.
‘Once I was holed up in a container with the Bedouin threatening to kill us with a machine gun. There was an argument about which tribes were getting work. They said they were going to kill all the Canadians. They did not know the difference,’ says British-born Ferrier. ‘I was in the container for a day until the army turned up to liberate us.’
A year later in 2010, he was in charge of developing a major gas plant at Elba near Palmyra in Syria – a project he regards as one of his proudest achievements. Four years later it was blown up by Islamic State, killing 30 of Ferrier’s former colleagues. ‘So sad. It’s such a waste.’ Eighteen months ago, Ferrier became chief executive of Gulf Keystone. Once a darling of the stock market and a favourite among private investors – 35,000 UK small investors own shares – the group has been through its own turbulent period.
The company was close to going bust, crippled by a collapsing oil price and huge debts. Ferrier and his new board have spent most of 2016 negotiating with the company’s creditors to avoid bankruptcy, getting them to convert Gulf Keystone’s debts into shares. Existing investors were virtually wiped out. Many small investors are furious and upset.
‘It’s no fun to get letters from people saying they have lost money. Ordinary people on modest salaries, teachers and so on, who invested an inheritance in Gulf Keystone thinking it would double or make ten times their money and it didn’t work. What can I say to someone like that? It’s a very tough deal for that person.’ But as a chief executive of a public limited company, he cannot write to them individually even though he wants to: ‘Of course I do, that’s my intuition. I’d love to put my arm around someone and say sorry mate, but this is how it is and explain it. But that is not realistic in this world.’
However, Ferrier does keep some of those handwritten letters in his desk drawer for ‘humility’.
Gulf Keystone’s problems were compounded by the fact that the government in the autonomous region of Kurdistan has at times failed to pay the company for its oil. In its latest results statement from September, Gulf Keystone estimates that the government owes it $28 million (£22.9million) in lost revenue and should hand over another $61million for its share of development costs of the field.
Most recently, payments for oil shipped in August and September have not been made.
The reason is simple – the Kurdistan government pays its soldiers, the Peshmerga, before it pays anyone else. These are the troops currently closing in on Mosul from the North and East.
Ferrier says: ‘There are exceptional reasons behind budget stresses at the moment, namely Mosul. That is currently the number one priority for the government. It is making sure the Peshmerga are paid, as you need a pretty motivated workforce to take on what they are.
‘It is in most external players’ interests that there is stability in the region, and so I hope Mosul is the beginning of that new stability. And that thereafter the country can get back to normal business as opposed to being at war.’
Of course, that doesn’t mean that Ferrier is happy to lose a sixth of his annual revenue, but he has little choice.
‘The government is the government. I can’t go beyond it. So you’ve got to make it work. And that’s why we put an enormous effort into working with the government and understanding what it does. And I have worked in places like this for a long time and I know how to make it work. And it’s not a fight. It’s a dance.’ What sort of dance? ‘A tango.’ And that’s why he pays Iraqi-born British MP Nadhim Zahawi £20,000 a month as a ‘chief strategy officer’.
The payments have earned the company the wrath of those small investors who have seen their shares collapse in value. But Ferrier insists having Zahawi on board is hugely valuable to the company.
Ferrier says: ‘To have someone on your team with his expertise is hugely helpful. He helps me to figure out what is going on because the politics are so complicated and nuanced. For example, he’s helped me to understand the pressures on the government’s budget and the timetable for Mosul.’
And Ferrier is confident that Gulf Keystone will eventually be paid by the Kurdish government.
‘I met the prime minister about a month ago and the deputy prime minister and they both gave me a commitment to support the oil companies. They know how valuable we are to the economy,’ he says.
Gulf Keystone is the third-biggest producer of crude oil in the country, and the top three produce 90 per cent of its income. Or as Ferrier puts it: ‘Oil income allows the country to exist.’
For Ferrier, his interest and those of his shareholders are aligned with the long-suffering people of the region, who want nothing more than a return to normality.
The longer-term issue for the company is the political future of Kurdistan: an autonomous state, but not a separate country, in war-torn Iraq. Its neighbours are civil-war torn Syria; Turkey, with its own longstanding confrontation with the Kurds; and Iran, where relations with the West have been improving but remain chilly.
And yet the Shaikan oilfield has a lifespan of at least 30 years – time for a lot more political instability or for a stable period of profitable work.
The offensive to retake Mosul will be a critical step in determining which it is to be.
A Bedouin was threatening to kill us with a machine gun until the army came to free us
I’d love to put my arm around an investor and say sorry mate, but this is how it is