How To Invest With A Rothschild – In Iraqi Oil
Whether there is war or peace in Iraq, whether the country holds together or falls apart, the oil will flow. If you want to take a flyer on your own little piece of the future of Iraqi oil, the stock to buy is probably Genel Energy. The company has the highest production volumes and arguably the best oilfield assets in the Kurdish Region of Iraq. And its prospects are protected not just by the loyal peshmerga forces of the Kurdish Regional Government, but also by a robust safety net of international business giants.
Genel’s big backers are banking scion Nathaniel Rothschild and Turkish billionaire Mehmet Emin Karamehmet. The company’s CEO is Tony Hayward, the former head of BP , who also happens to be chairman of commodities giant Glencore PLC. Genel’s CFO used to be the head of U.K. investment banking for Goldman Sachs.
With pull like that, no wonder Genel has plunged into developing virgin oilfields in the region despite insistence from Iraq’s oil ministry in Baghdad that their contracts with the KRG are illegal.
In an operational update released last week, Genel says that its net oil production has doubled in the past year to a current 84,000 barrels per day. Most of that comes from two world-class fields. Taq Taq, in which Genel has a 44% interest, is currently producing 113,000 bpd. While Tawke (25% Genel interest) is doing 116,000 bpd. Today In: Business
When these fields first came on line Genel and its partners had no option but to haul the oil to market; tanker trucks eventually carried 70,000 bpd of oil from Taq Taq over the border into Turkey, according to Genel. But now, with the completion of a pipeline between the Kurdish region and Turkey’s port of Ceyhan, exports have been surging.
A couple weeks ago the KRG even found a buyer for one of its first ocean cargoes, offloading the oil in Israel. Genel indicated in its update that some of its oil was among the cargo — “Proceeds from the first cargo, sold at international prices, have been paid into a bank account in Turkey controlled by the Kurdistan Regional Government.”
Baghdad’s already tenuous influence on the KRG is now all but completely severed. Oil revenues are vital to the Kurds’ ambitions of creating an independent state. Genel and its partners and peers (including Gulf Keystone, DNO International, Afren, Hunt Oil, Sinopec and Oryx Petroleum) are expected to increase the flow of oil from the Kurdish region to 400,000 bpd by the end of the year.
For its part, Genel expects $550 million in revenue this year, up from $350 million last year. It will lay out more than $500 million in capital spending, financed in part by a $500 million sale of unsecured bonds in May.
The origin of Genel goes back to billionaire Mehmet Emin Karamehmet, chairman of Cukurova Holdings. He and Genel president Mehmet Sepil have deep connections with the Kurds, having negotiated with them for rights to explore northern oil prospects even before the fall of Saddam Hussein.
Nat Rothschild, 42, is the only son of Jacob Rothschild, the head of the famed family’s London-based branch. Having built up his experience in investment banking and hedge fund management, Rothschild in 2011 joined with Tony Hayward to raise $2 billion in the IPO of a blank-check shell company called Vallares with the intent of buying up oil assets. In 2011 Vallares and Genel entered into a 50/50 all-stock merger. In addition to Iraqi oil, Rothschild (among many interests) is also deeply invested in Indonesian coal through mining company Bumi as well as Russian aluminum, through his investment in billionaire Oleg Deripaska’s UC Rusal .
The biggest owners of Genel shares continue to be Karamehmet’s Focus Investments (72 million shares), Sepil’s Elysion Energy Holding (38 million shares), and Rothschild (22 million). Genel has about 280 million shares outstanding and a market cap of 2.75 billion pounds sterling, or about $4.7 billion. Shares are up about 50% in the past two years but down nearly 6% in the past month.
Credit Suisse analyst Thomas Adolff has rosy expectations for Genel’s future. He sees revenue surpassing $1 billion in 2016 and pre-tax profit jumping from $240 million this year to more than $400 million in 2016. His target price for Genel shares is 1,330 GBp, about 33% higher than where they trade today.
Iraq’s Oil – June 2014. (Source: Platts) Christopher Helman
Based in Houston, Texas, Chris has written for Forbes since 1999.