Genel Energy set for highly significant year

[Siciid1986]

The tectonic plates are shifting in Kurdistan with the semi-autonomous region of Iraq gearing up to move oil exports through Turkey, rather than via the established network to the south, controlled by Baghdad.

An agreement was reached in December making way for an "energy corridor" at the border, providing new opportunities for oil companies on the ground.

And according to analysts, the Kurdistan Regional Government (KRG) is now well-advanced with plans for a pipeline that takes oil out to the Med via its northern neighbour.

The first phase is already complete and connects the Taq Taq Field to the Erbil refinery and Kirkuk-Ceyhan export pipeline at Khurmala.

The next stage will link producing fields to Fishkabur on the border and then onto the Turkish coast where the oil will be sold.

The pipeline will have the capacity to transport one million barrels of oil a day and Kurdistan's energy minister Ashti Hawrami has claimed the final pieces of the jigsaw could be in place by the summer.

Most observers reckon this deadline is optimistic, and suggest the work will be complete by the end of 2013.

Even so, the companies working in the country are bullish about the developments.

“I don’t think this is something the market could have ever envisaged a few months ago,” said Julian Metherell, chief financial officer of Genel Energy (LON:GENL).

The London-listed group owns 44% of the Taq Taq Field and 25% of Tawke, which between them produce 45-55,000 barrels of oil a day. The plan is to lift output to 140,000.

“We are currently trucking oil to Turkey,” Metherell explained. “We are getting US$76 a barrel. We will get Brent [spot price] by piping.

“But more importantly the pipeline will allow us to increase our production from 50 to 140,000 barrels a day in the next 12 to 18 months. This is very, very significant.”

Turkey will likely also provide the export destination for the gas from its 10.5 trillion cubic feet Miran Field.

“The country is desperate for gas. It takes a lot of its gas from Iran today,” said Metherell.

“In order to keep the Turkish economic story going it needs access to cheap energy. So, we are going to sell them gas from Miran.

“We are going to develop the Miran Field gas to Turkey for the winter of 2015, so this is a significant development for us.”

 

Finally, there is Somaliland, which John Hurst, the company’s head of exploration, believes is Genel’s most exciting asset. It owns 40,000 square kilometres prospective for oil and is targeting a resource of 1bn barrels unrisked from licences SL-10B and SL-13.

“We believe Somaliland is in the same Cretaceous rift as Yemen, which has around seven billion barrels recoverable [reserves],” said Metherell. “There are oil shows all across the acreage and the potential for some very, very material finds.”

At around £8 a share the group trades at a 40-50% discount to the consensus price target for the stock. VSA Capital, the latest to publish research on the group, reckons the stock is worth £12 a share based solely on its producing and near-term development assets. Adding in the gas and exploration opportunities would bump up an already punchy price target by a further £9 a share.

The potential value kickers come thick and fast - whether it is the oil and gas export story, the five-well drilling programme in Kurdistan, or Morocco, Malta and Somaliland.

And there is also the hint of a special dividend if Genel is unable to usefully deploy all the cash it is generating.