Genel Energy announced Monday what it described as a "step forward" in its strategy to consolidate its position as a leading oil and gas player in the Kurdistan region of Iraq by becoming the Kurdistan Regional Government's sole contractor in the Chia Surkh exploration block.
London-listed Genel, which is headed by former BP chief executive Tony Hayward, is to increase its interest in Chia Surkh from 20 percent to 80 percent. The block covers an area of 379 square miles (984 square kilometers) and is located in the southern part of the Kurdistan region.
As part of the deal to boost its interest in Chia Surkh, Genel is paying a total of $68 million for the 40 percent of the block currently held by Forbe & Manhattan (Kurdistan) – a subsidiary of Longford Energy. This consists of $42 million to be paid directly to F&M and $26 million to be paid to the KRG.
Genel is also paying $26 million to Petoil Petroleum for its 20 percent interest in the Chia Surkh block.
"These are excellent deals for Genel. For what we consider a very good price, they give us 80 percent of a high-quality asset in one of the last great hydrocarbon provinces accessible to international investors. Becoming operator will allow us to take the lead in shaping and driving forward a thorough exploration and appraisal programme," said Hayward, who is the firm's CEO.
The deals mean that the interests being acquired add some 183.4 million barrels of prospective resources to Genel's resource base.
Commenting on the deal, London-based investment bank Westhouse Securities said that the acquisition works out at around 51 cents per prospective barrel, which "is on par with the value of prospective resources" achieved in recent farm-outs in the East African offshore oil industry.
However, Westhouse also warned: "The main risk is that squabbles between the Kurdistan Regional Government and the Iraqi Central Government in Baghdad will continue, and the start-up of exports from Kurdistan will be delayed".
Kurdistan has received plenty of interest from oil explorers since the invasion of Iraq in 2003. Recently, in November 2011, Exxon Mobil became the first 'supermajor' to venture into the Kurdistan after signing contracts with the KRG to explore for oil and gas in six blocks.
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