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Kurdistan, Iraq, Turkey to gain from a comprise crude export agreement, UBS

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A resolution to the current legal impasse over Kurdistan’s crude exports via Turkey would be a win-win-win, according to City broker UBS.

In a note entitled “A future so close you can almost touch it” the blue-chip broker says that Kurdistan, Iraq and Turkey all stand to gain from a comprise export agreement, which press reports claim is now “close”.

UBS highlights the reports that there is now almost a compromise in place over key issues such as joint marketing, revenue sharing and national budgets.

This progress has been helped by the completion of the crude pipeline infrastructure and American support, ahead of April elections, as these events have “brought Erbil and Baghdad” back to the table.

The pipeline is operable, and it is believed that around 700,000 barrels of crude produced in Kurdistan is already stockpiled in storage in Turkey awaiting sale and shipment.

 “We estimate the pipeline will generate $8-9bn per annum of state revenues and so expect economic and political pragmatism will bring the parties to an agreement,” said UBS analyst Daniel Ekstein.

“Importing oil and gas from Kurdistan is also an economic no-brainer for Turkey, reducing its energy import bill by about $3bn per annum.”

According to Ekstein, Genel is well placed once exports formally begin as it has 1.68bn oil equivalent barrels of resources, which will have a low cost to develop.

“Initial horizontal well rates (Tawke) have been stellar (about 30,000bbl/d) and technology provides upside to existing reserve estimates.

“It is already debt free and should become materially cash flow positive from 2015.”

“We believe Genel could be a natural candidate for industry consolidation. There are also two high impact exploration wells drilling in 1H14 – Morocco (Cap Juby) and Malta (Haqar Qim) – in our view either could add a material new leg to the investment case.”

Ekstein’s research note followed Genel’s somewhat low-key, though positive, financial results last week.

UBS was not the only City broker running the rule over the London listed E&P.

Deutsche Bank’s Lucas Hermann said the results statement revealed solid financials and outlook, and that Genel’s resource base was now materially ahead of some of its larger peers.

Elsewhere, Goldman Sachs’ Henry Morris maintained a positive view on Genel’s assets in Kurdistan, and said an export deal would “not only drive a significant near-term ramp-up in production and cash flow, but also remove a key hurdle for future accretive asset disposals, which we see as the next key driver of Genel’s valuation.”

That said, Morris claimed there was still a risk that an export deal may not be done soon enough for Genel’s forecasts and that, due to good recent performance, this wasn’t sufficiently discounted into the current share price. For that reason, the Goldman analyst said he could not justify a ‘buy’ rating and instead sees the stock as ‘neutral’.

 

*Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.* Reported by Proactive Investors 4 hours ago.

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