(MENAFN- ProactiveInvestors) Next year could prove to be a turning-point for Kurdistan’s oil industry as sales and export arrangements reveal the true value of the region’s potential.
A series of substantial discoveries in the latter part of the last decade meant the investment risks weren’t (for the most part) technical or geological.
For several years the big unanswered questions were about exports and payments.
Could Kurdistan develop and control its own infrastructure Were the exports unauthorised by Baghdad legal Who would be brave enough to buy the oil And would the oil companies get paid
These were the uncertainties that held back investors and events over the past year have to some degree answered those questions.
2014 but for the lowest oil price in more than five years plus the insurgency of ISIS would likely have been a very good year for those invested in Kurdistan oil companies.
Nevertheless significant developments in late 2014 mean what would otherwise be consigned as a year of conflict and turmoil actually brought a breakthrough and potentially a longer term resolution to issues of concern of investors.
Amid Iraq’s changing political dynamics there is a notably more cordial relationship between Erbil and Baghdad.
Finally arrangements are in place to facilitate legal oil exports from Kurdistan.
A recent agreement allows the sale of 550000 barrels of oil from Kurdistan-controlled fields via Baghdad’s oil marketing organisation SOMO and reportedly leaves the KRG open to export independently and sell any excess above that threshold.
Oil export payments have now begun to flow back to producers which have already been shipping oil on the regional government’s instruction.
In December () part owner of the Taq Taq and Tawke fields was the recipient of US$24mln of payments for pipelined crude while Gulf Keystone Petroleum () was paid US$15mln due for trucked exports.
Genel is a ‘top pick’ of analyst Thomas Adolff who in a note said: “Since the formation of a new government in Sept 2014 the 'above ground' progress has been more than encouraging.
“The pace of resource monetisation is key to the investment case and 2014 has turned out to be a defining year for that.
“In a resource rich world it is about accessing resources on the lower end of the cost curve – resources in the Kurdish Region of Iraq (KRI) fit the bill.”
Looking ahead it is anticipated that a more formalised payment schedule will be agreed in the early part of 2015.
It will be an important achievement and share price catalyst.
The likes of DNO and Gulf Keystone have plenty of catching up to do and in terms of share price performance the current weak oil price will naturally dampen enthusiasm.
Nevertheless with funded expansion programmes already in place export proceeds being paid and no shortage of reserves in the ground 2015 could be the year that valuations get back on-track for Kurdistan oil firms.
’s ‘overweight’ rating and £11.73 price target for Genel implies some 60% upside to the current price of 720p.
Shares have gained around 20% from 600p since the export arrangement and initial oil payments.
For oil investors looking or a good story in the current harsh climate it is one to follow closely.
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