Heritage deal’s end a blow to Genel Enerji

By Delphine Strauss

For Genel Enerji, it has been a brutal reversal of fortune. In June, the Turkish exploration group was celebrating the start of exports from northern Iraq’s Taq Taq field, after a breakthrough in talks between Baghdad and the Kurdish authorities.

The flow of oil, promising a revenue stream to fund development of other fields, was the key to the merger with Heritage Oil, under which Genel would gain a London listing and a 50 per cent share in assets valued at up to $6bn (£3.6bn).

In six months, the twists of Iraqi politics have obliterated those prospects. With Erbil and Baghdad deadlocked on how to pay contractors, Genel has halted exports and lost its main appeal to potential partners – its fortunes reflecting the rise and fall of investors’ interest in the Kurdistan region as a whole.

“It leaves them in a fairly difficult position,” said one analyst, noting that Genel had planned to use Heritage shares to settle a $1.1bn debt to the Kurdish authorities, while most other potential partners in the region were also under financial strain.

Mehmet Sepil, Genel’s chief executive and co-founder, declined to comment on Monday, only confirming that the merger had fallen through because there was no foreseeable prospect of receiving any payment for its Kurdish exports.

But the merger talks were complicated by a Financial Services Authority investigation that Heritage had said could prevent executives from Genel or its unlisted parent Cukurova joining the management of the new company.

Genel’s ties with the Kurdish administration also came under scrutiny this summer when Norwegian authorities began a probe into its dealings in shares of DNO, another Kurdistan-focused exploration group.

It is not clear how the end of talks will affect the partnership at the Miran oilfield in Iraqi Kurdistan, where Heritage has a controlling stake and Genel owns a 25 per cent share.

Analysts say there are concerns Heritage could find the going tougher if its relations with Genel or with the regional authorities have soured.

Copyright The Financial Times Limited 2009.