July 12, 2011

Ex BP Chief to spur a takeover frenzy in Kurdistan Region - By Shwan Zulal

It has been reported in the Sunday Times that former BP boss, Tony Hayward, and his investment vehicle Vallares, which he has set up with Nat Rothschilds, have made a move on the Turkish Genel Enerji. Since leaving BP, Hayward's fund attracted many inventors including BlackRock, Paulson and Co Hedge fund and Mubadala among many others.

Mr Hayward told FT in June: "Vallares will not use the capital it raises to buy assets for cash “because we have no competitive advantage in doing that”. Instead, the company will target an emerging market player with “good quality assets that have neither the capital nor the capability to move them forward but by the same token don’t want to sell out”.

The Guardian has reported that Vallares is seeking a reverse takeover of Genel Enerji which one of Turkey's largest oil companies, and has a strong presence in Kurdistan Region. The company has been keeping a low profile since the UK regulator has fined its Boss for insider dealing when the company was in merger talks with UK based Heritage oil.

The fact that a fund like Rothschilds and Hayward's are considering Kurdistan is a confirmation that US and European investors have started to look at investing in Kurdistan Region favourably. It is over eight years since Saddam Hussain was toppled from power and oil exploration companies have moved to explore the largely untapped Kurdistan Region of Iraq. Nevertheless, the oil majors have so far stayed away from the Region with few exceptions due to doubts about the legality of the PSCs and PSAs awarded by the Kurdish Authorities and fear of being excluded from the auctioning rounds in Baghdad.

Chinese and South Koreans state oil companies along with smaller western oil explorers ignored these fears and nearly 40 companies are operating in the Region today. Many have been successful and found significant hydrocarbon reserves. The companies on the ground and investors willing to take risks could not resist the commercial terms offered by KRG on the oil and gas contracts. The move by these companies were very risky at the time but they are about to be awarded as it becoming clear that the Kurdish authorities are not willing to bow to Baghdad.

While at BP's helm, Hayward must have come across this issue and BP must have researched the possibility of entering the Region at one point. Nevertheless,  After his abrupt departure from BP, Hayward has set up Vallares to invest in emerging energy markets and has made its move to Kurdistan. The fund is already oversubscribed according to Bloomberg. And it is not a surprise that they decided to look at Kurdistan as it is the most important onshore untapped energy source, which could play an immense role in future European energy supplies.

Vallares takeover is at the due diligence stage at the moment according to Sunday Times and it is reported that Hayward-Roshcilds duo are looking at a number of other oil explorers in Kurdistan Region. If Vallares manage to enter the Region successfully, it will open the door for more activity and will be a boost for risk averse investors' confidence.

Many of the companies involved in Kurdistan Region are smaller exploration companies and have neither the resources nor the expertise to build up the underdeveloped infrastructure. Therefore, it is inevitable that a large number of them would be a takeover target for the larger oil companies and Vallares move has set the pace.

The arrival of Hayward would commence a race among investors to take part in a new emerging energy player in the region. It is inevitable that in the coming months, we will be seeing much more activates in Kurdistan Region as mergers and hostile takeovers ensue.
Hayward's CV is impressive and he understands the Energy market more than anyone else does. He has chosen one of the most strategically important companies in Kurdistan as the company holds seven licences and is Turkish owned.  Turkey is a big player in the region and positioning itself to become the alternative energy supplier for Europe and the region, which Kurdistan Region can play a big role with its oil and gas reserves. Moreover, a number of the blocks Genel holds are close to the Turkish border and it is immensely important to the Turkish government for strategic reason. 

KRG would be chuffed at the news as the long awaited momentum has been building recently. First, the UK consulate has opened in Erbil and the US followed. And now, first class investors are showing the wiliness to invest in the Kurdish energy sector which would lead to attracting more investors in other sectors.


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