Companies valued at less than £300m on the lower reaches of the London Stock Exchange would not normally be considered a matter of national importance in Turkey.
But Genel Energy’s shrunken share price — currently trading at less than a 10th of its level when the company floated in 2011 — belies its potential to help Turkey reduce dependence on Russian gas. Genel is in talks with potential investors including TEC, a state-owned Turkish energy company, to develop the Miran and Bina Bawi gasfields in Kurdish-controlled northern Iraq, 350km from the Turkish border.
“Turkey has a strategic interest in the project,” says Murat Ozgul, Genel’s chief executive. “They are looking to diversify their sources of gas and [northern Iraq] is the closest and cheapest option and, politically, it is the right one.”
Genel is counting on the Miran and Bina Bawi fields to revive its fortunes after a succession of setbacks since it was set up six years ago by an array of prominent UK and Turkish investors. The company, until recently led by Tony Hayward, the former chief executive of BP, became a standard-bearer for efforts to develop rich oil and gas reserves in Iraq’s autonomous Kurdish territory.
After peaking at £3.1bn in 2014, Genel’s market capitalisation went into a tailspin as crude prices crashed and production from its much-vaunted Taq Taq oilfield fell far below expectations. Incursions by Isis militants in the region struck another blow as oil revenues owed to Genel by the Kurdistan Regional Government (KRG) were diverted to its peshmerga army in their fight against the jihadi group.
Genel’s travails have been watched closely in Turkey — and not only because the company is 23 per cent controlled by one of the country’s richest men, Mehmet Emin Karamehmet, whose Cukurova conglomerate spans telecoms, construction and energy.
Turkey also has a keen interest in Genel’s economic importance to the KRG, in a region where Ankara wants to promote stability while deterring a separatist movement among its own Kurdish people.
Leadership of Genel tilted back towards its Turkish roots this month after the departure from its board of Mr Hayward and Nat Rothschild, the British financier who still owns an 8 per cent stake in the company. The reshuffle has coincided with improved business conditions prompted by a part recovery in oil prices and more reliable payments from the KRG, which exports oil from the territory via pipeline to Turkey.
Genel has been paid for 18 consecutive months as the security situation improves and the KRG’s finances stabilise. But with output from Taq Taq already past its peak, Genel needs gas from Miran and Bina Bawi to avert terminal decline.
Mr Ozgul says the project will take three years to develop, with an initial 4bn cubic metres of annual gas production. Output is forecast to eventually reach 10bn cubic metres — more than a fifth of Turkey’s current annual gas consumption. To achieve these goals, Genel must find technically competent partners with deep pockets to help develop the field and build a pipeline to the Turkish border.
Sohbet Karbuz, an oil and gas analyst, estimates the total project cost to be about $5bn. Another analyst, Shwan Zulal, reckons the figure could be higher because of the field’s challenging geology and the “sour” nature of its gas, which requires extra processing. “Genel will need a high enough gas price to justify investment, but the project only works for Turkey if the gas is cheap,” says Mr Zulal.
Mr Ozgul insists the economics can work, however, and says talks are under way with some “very powerful international companies” interested in the project, as well as TEC. He is aiming to strike a deal by the end of this year.
However, prospects for development have been complicated by the KRG’s recent decision to call a referendum in September on Kurdish independence from Iraq. Turkey has declared the vote a “grave mistake”, fearing it will inflame Kurdish separatist sentiment across the region and inside its own borders.
Some analysts say the dispute could make it harder for Genel to secure Turkish backing for its gasfields, but others counter that Ankara would relish the opportunity to gain more economic leverage over the KRG through bankrolling them. “The knee jerk reaction to the [KRG’s] referendum in Ankara is consternation, but they will try to turn it to their advantage,” says Matthew Bryza, former US ambassador to Azerbaijan and a director of Turcas, a Turkish energy company. “Turks are nothing if not adaptable.”
Unsubstantiated rumours of Chinese and Russian interest in Genel reflect the high strategic value of its resources in a region brimming with overlapping geopolitical rivalries. Others suggest that Turkish state entities might want to take control of the company as part of a deal to develop Miran and Bina Bawi.
Whatever the outcome, Mr Karbuz warns that with Genel in a position of financial weakness the company’s long-suffering shareholders should not expect a big payday. “Whoever comes in will want to make money. They won’t be doing it to save Genel,” he says.