Syria spillover rattles KRG-focused upstream firms

The spillover of Syria’s civil war into Turkish territory in recent days is causing consternation for those independent crude producers operating in the semi-autonomous Kurdistan region of northern Iraq.

Genel Energy, Gulf Keystone Petroleum (GKP) and DNO have already spent a year being punch bags in a stand-off between Erbil and Baghdad that has prevented them getting paid. Now, an eruption of violence along Turkey’s southern border is posing a threat to them even being able to move their crude to market.

To recap, the Kurdistan Regional Government (KRG) has taken control of shipments of Iraqi crude through the Turkish port of Ceyhan from Iraqi state-owned marketer Somo. This is the culmination of the long-standing payment dispute that has led to the KRG-focused producers operating on an IOU basis.

London-listed Turkish independent Genel was owed $378mn by the KRG at the end of June, GKP is owed around $100mn and Norway’s DNO around $700mn. All have little or no certainty about when or if this situation will be resolved, and this has been hanging over their respective share prices, eclipsing an otherwise good-news production story.

Genel, operator of the Taq Taq field, registered a 41pc increase in working interest production in the first half of this year, but its share price is down by 43pc so far this year. DNO doubled capacity at its Tawke field and hit a record high daily production in May, although its shares have halved in value since the start of 2015. GKP has maintained a steady output at Shaikan despite a lack of export outlets, and investors have been rewarded with a 50pc fall in the company’s share price so far in 2015.

GKP’s relative lack of access to export markets has, oddly enough, shielded it from the latest round of pain. The bombing of targets in Syria by Turkish warplanes and the rejection of a long-held ceasefire by Kurdish rebel group PKK has put right in the line of fire the crude pipeline that connects Kurdistan’s oil fields and the export berths at Ceyhan, Turkey.

Shares in Genel and DNO, which both rely on this pipeline’s successful operation, are down by around 5pc today. Frontier production work has seldom looked so challenging.

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