Weekly Update: Hayward's Vallares announces Kurdistan merger

Mark Young
Evaluate Energy

Vallares Plc, the acquisition vehicle formed in June 2011 by former BP Chief Exec Tony Hayward and Nathaniel Rothschild, announced the $2.1 billion reverse takeover of Turkish company Genel Energy International Ltd. this week. Not only is Genel the largest producer in the Kurdistan region, with production of around 41,000 boe/d, the company has major exploration potential in its other blocks, and plans to ramp production up to 90,000 boe/d by 2013. Whilst Vallares gets access to what Hayward calls “world-scale” producing fields with low finding and development costs, the deal also represents a triumph for Genel, who will gain 50% of the combined company (Genel Energy Ltd.), a listing on the FTSE, much needed cash to fund the production plans mentioned above, and a new management structure. Current Genel CEO, Mehmet Sepil will not be on the board, which removes the obstacle that his being fined nearly £1 million in February 2010 in London for insider trading would have provided to Genel gaining a FTSE listing.

Vallares’ acquisition follows moves by both Hess Corp and London-listed Afren Plc to buy into the region this year. There have been rumours that China is also looking for a way into the area, and smaller companies such as Gulf Keystone are sitting on major discoveries, so Vallares’ acquisition could be one of many more acquisitions to take place in Kurdistan this year.

The Utica Shale was also predominant in this week’s news with two deals taking place. The biggest was CONSOL Energy’s second large farm-out in as many months. Following the $3.4 billion farm-out of Marcellus assets to Noble Energy in August, CONSOL has now agreed to farm out a 50% interest in 200,000 acres in Ohio that form part of the emerging Utica shale play. Hess Corp. is the acquirer, and will enter the play for around $6,000 an acre. This may seem a large sum for such an under-developed play, after all, land in the overlapping Marcellus play is currently being valued at roughly the same amount, and the Marcellus is much further developed. But the Utica play has been found to be liquids rich, unlike its neighbor, and this is reflected in the price. CONSOL has said that without this deal, little resources would have been assigned to working on this acreage, and now it can be more aggressive with development.

The other deal to take place in the Utica this week involved PDC Energy, who agreed to acquire a total of 30,000 acres in Ohio for an investment of $50 million. 75% of the land acquired is Held by Production from shallow producing wells, which will provide the Denver-based company with enough time to “technically de-risk and efficiently develop its lease position.” This is just the beginning of PDC’s acreage purchases in the region, with the company also stating that it is currently looking for an industry partner to fund an expansion of the company’s position in the play.

Away from E&P, Encana was making headlines with its $590 million sale of a portion of its Piceance natural gas midstream assets in Colorado. The acquirer of the assets, which serve Encana’s Mamm Creek, Orchard and South Parachute production in Colorado, was not announced. This sale follows that of the Fort Lupton gas plant earlier in the year for $303 million, marking another stage in the company’s midstream divestiture strategy. Encana will continue these plans in the coming months, with processes underway to sell the Cabin Gas Plant in Horn River and its Cutbank Ridge midstream assets in Canada. In addition to its midstream sales, Encana has also been looking to sell its interests in the Texan Barnett Shale play, British Columbian Jean Marie assets and its Carrot Creek assets in the Deep Basin of Alberta, so the immediate future is shaping up to be extremely busy for the Canadian company.

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