Kur­dis­tan woes hurt in­de­pen­dent oil ma­jors

Even as the bat­tle in Mo­sul winds to a close, other prob­lems still fes­ter Spe­cial to Gulf News

Gulf News - - Comment & Analysis -

re­tail share­hold­ers, as well as a num­ber of in­sti­tu­tional ones, see­ing the value of their eq­uity col­lapse to nearly zero.

There­fore, do the com­pa­nies that re­main stand­ing of­fer com­pelling value or are they po­ten­tially the next vic­tims of the un­fold­ing se­cu­rity and po­lit­i­cal sit­u­a­tion and the lack of suf­fi­cient un­der­stand­ing of the re­gion’s ge­ol­ogy? Genel En­ergy and DNO are both in an en­vi­able po­si­tion of be­ing in­ter­est hold­ers in the two of the most sig­nif­i­cant pro­duc­ing as­sets in the KRI, the Tawke and Taq Taq fields. Their pres­ence and the con­tin­ued op­er­a­tion of those as­sets is fun­da­men­tal to the rev­enue stream re­quired by the Kur­dis­tan Re­gional Gov­ern­ment (KRG) to con­tinue to wage its wars and de­fend it­self from Daesh and any other hos­tile neigh­bours.

Crit­i­cal as­set

While the pres­ence and sup­port of US forces has been in­valu­able and, ar­guably, piv­otal in the re­cent cam­paign, it is the sus­tained pro­duc­tion from such fields which could en­able the re­gion to be­come fi­nan­cially self-suf­fi­cient on a long-term ba­sis.

As a re­sult, Genel En­ergy and DNO are far more valu­able to the KRG than any other in­de­pen­dents op­er­at­ing in the re­gion. How­ever, in terms of the peck­ing or­der for the al­lo­ca­tion of avail­able cash, the Kur­dish forces (Pesh­merga) and their mil­i­tary re­quire­ments must al­ways come first. This has led to sig­nif­i­cantly de­layed pay­ments and mount­ing re­ceiv­ables.

Genel En­ergy and DNO re­main op­ti­mistic that these out­stand­ing sums will ul­ti­mately be paid, but his­tory sug­gests that much of this pro­duc­tion will ul­ti­mately have to been given to their host gov­ern­ment for free.

Thus, what is the true value of these in­de­pen­dent oil and gas com­pa­nies and do they rep­re­sent com­pelling in­vest­ment op­por­tu­ni­ties? The abil­ity to ac­cu­rately place a value on the ex­ist­ing as­sets is chal­lenged.

The vis­i­bil­ity to re­ceiv­ing pay­ments for pro­duc­tion, while it has im­proved over the past 12 months, is un­cer­tain. The po­ten­tial up­side op­por­tu­nity from ad­di­tional ex­plo­ration, when there is fund­ing avail­able for it, could be enor­mous.

How­ever, for the time be­ing, the in­vest­ment cases are, to my mind, bi­nary. For many in­sti­tu­tional in­vestors, such com­pa­nies are un­in­vestible. For many re­tail share­hold­ers, such com­pa­nies hold the al­lure of an in­vest­ment that could rise sub­stan­tially in value over a very short pe­riod of time. Both of these as­ser­tions are valid, but if one plumps for the lat­ter op­tion, then one must be­ware of the po­ten­tial to lose the shirt off one’s own back.

The writer is Di­rec­tor at Han­nam and Part­ners.

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