Kurdistan oil workers

Oil workers in Iraqi Kurdistan, the home base for Vallares' planned expansion across the Arab world. (Source: AFP)

There were plenty of questions to be asked after Wednesday's announcement of a planned merger between London-listed Vallares and Turkey's Genel Energy, a major player in the oil industry in Iraq's Kurdistan region. Will the company meet the governance standards expected of an FTSE 100 member?
How risky is the whole enterprise? And what does the development say about investor sentiment towards Iraq?

But one question put to Vallares chief Tony Hayward at the briefing event following the announcement brought out a pretty revealing answer about how the former BP chief - and presumably, others like him - see the opportunities for business in the Middle East in the wake of the Arab spring: What else is Vallares planning on doing with the $2.1bn in cash it raised from its London listing?

Hayward quickly gave the two obvious answers: "accelerate the development of any future discoveries" in Kurdistan and eye up M&A opportunities -- or at least joint ventures -- given the fact there are more than 40 oil companies currently at work there.

Turkey map vallares

Source: Vallares / Genel

But he also spoke of a "second leg" in Genel's geographic exposure in the MENA region over the next 6-12 months, citing the investment opportunities triggered by the region's changing political complexion. The company wants to go beyond Kurdistan and into the Arab world, he said: (Emphasis ours)

With the tide of change that's sweeping through the region, old relationships are falling away, new relationships are being established, and we think new opportunities will emerge. We think we are well positioned to pursue that - we've got a great operating capacity, we have a very interesting brand, an Anglo-Turkish brand that I think will play well politically in the region, and we have the financial strength to go out and do things.

Anglo-Turkish, of course, carries a few meanings in the current context: the ascendency of Turkey as a major diplomatic and economic power in the Arab world, and, at least in Libya, a huge amount of goodwill toward the UK for its role in overthrowing the Gaddafi regime.

Turkey's leaders are carefully cultivating their country's positioning in an Arab world that is transforming politically by the month. The country is playing a nuanced role in the Syrian uprising, remaining both in contact with the Assad regime and credible among the opposition. And Syria's revolutionaries, who like the new Libyan government (for those who missed the memo: they're not rebels anymore), are seriously unimpressed with the support given to the old regime by Russia and China.

"New opportunities will emerge," Hayward said.

Mehmet Sepil, a founder of Genel, who took the company into Kurdistan in 2002 - prior to the US-led invasion - has become a skilled operator in the complicated political and economic landscape of Iraq. He is "incredibly efficient and effective at getting stuff done in Kurdistan," Hayward said, and this skill gives the company a natural advantage: "we can execute more effectively and efficiently than probably anyone else."

That kind of on-the-ground savvy is worth money, as we said yesterday - and will also be valuable in building Genel's "second leg" in the Arab world.

Sepil said yesterday that getting an internationally-known leader like Hayward as CEO of the post-merger Genel company was a major reason he chose to do the deal with Vallares over many other competing offers - including better paying ones.

"Who wouldn't want Tony to be CEO of their company?," Sepil said. "Let's be realistic. The best offer we had definitely was not from Vallares. At the end of the day you have to realize, the first question Tony asked was, 'do you want any cash' - and we said 'no, we want to do this deal against shares.' That's how much we believe in this company."

See also:
Vallares analyst presentations and webcast - Vallares
Coverage of oil - FT Tilt