The enlarged group — which will likely be big enough to enter the FTSE 100 index of blue-chip London-listed companies — will be known as Genel Energy Plc and Genel’s existing shareholders will own half of it, Vallares said on Wednesday.

Kurdistan has enjoyed a surge of investment in the past year as relations between its regional government and Iraq’s national government in Baghdad improved. That has seen the central government lifting a bar on paying companies in Kurdistan for oil exported from the region.

Mehmet Karamehmet, one of Turkey’s richest men owns 56 per cent of Genel, while chief executive Mehmet Sepil owns 29 per cent.

On completion of the transaction, Hayward and Metherell will be awarded stakes in the group, each worth around US $21 million, while Rothschild will receive a stake worth US $210 million. Hayward will be CEO and Metherell will be finance director.

The founders could be in for additional payouts if the new venture is a success, due to their entitlement to additional shares if the company’s shares rise above a threshold of 25 per cent in the four years.

Hayward’s stake represents almost twice what he was paid for his three years as CEO of BP, which he left after the company’s blown-out Macondo well caused the US’s worst ever offshore oil spill, and after he inflamed public opinion with a series of comments, including saying he would like his “life back”.Separately on Wednesday, BP said it had found more oil at its Mad Dog field in the Gulf of Mexico.

The use of reverse takeovers to give fast-track London Stock Exchange listings to emerging market groups has been criticised for posing corporate governance risks and devaluing the cache of an LSE listing.

Rothschild previously employed the technique with another vehicle, Vallar, which bought Indonesian coal assets to form Bumi Plc. The choice of Genel as a partner is especially controversial.

Karamehmet is currently facing embezzlement charges in Turkey related to loans made by collapsed lender Pamukbank. Last year, he was sentenced to almost 12 years in jail before an appeal court overturned the ruling and referred the case back to a lower court.

Like other business tycoons, he has benefited from economic recovery in Turkey under Prime Minister Tayyip Erdogan’s AK party. But he is not among a new generation of businessmen, many of them pious Muslims from Turkey’s Anatolian heartland, who have prospered from links to the AK.

One of the newspapers he owned but which he closed last year due to poor circulation was seen as more sympathetic to opposition nationalists than to the AK. Sepil was given a record fine last year by Britain’s Financial Services Authority for insider dealing.

Two other executives were also fined in the case, which involved trading in shares of Heritage Oil, a partner in one of Genel’s fields. Vallares chairman Rodney Chase said the Turkish side had since come up to speed on norms in the London market. “The London governance framework has been embraced with complete enthusiasm,” he told reporters on a conference call.

While Iraq paid Genel and other operators in Kurdistan for oil produced in the first quarter, there is no final agreement on how oil revenues will be allocated and companies are still awaiting payments for the second quarter. Nonetheless, Hayward told reporters he looked forward to expanding in the region. “We expect to participate as a major player in any future consolidation in the region”. The deal will see Vallares issue new shares worth US $2.1 billion at 1,000 pence apiece.
Agencies

“We have just received the approval. We are studying the data. We are confident that there is more gas and output can be raised. But these things take time, it may take a couple of years,” BP India head Sashi Mukundan said.

Reliance Industries, the country’s largest listed firm, has been under pressure over the past few months from an industry regulator and investors over slowing gas output from its main D6 block in the KG basin off the Andhra Pradesh coast.

In May, the director general of hydrocarbons said the company was producing 48 mscmd (million standard cubic metres per day of gas) from the block, lower than 60 mscmd it produced last year and far off the planned peak capacity of 80 mscmd.

But India’s approval of Reliance’s plan to sell stake in some oil and gas blocks to BP is expected to aid the Indian company in boosting output from the deepwater blocks.

Shares in Reliance rose as much as 3.6 per cent on Tuesday in the Mumbai market that was up 0.6 per cent. The stock is down more than 20 per cent so far this year, mainly triggered by concerns about slowing D6 output.
Agencies

Oil giants including Royal Dutch Shell, BP, US-based Exxon, China’s CNPC, and Italy’s Eni signed technical service contracts to develop three oilfields in southern Iraq in 2009-2010. But the oil deals to develop the Zubair, Rumaila and West Qurna 1 fields near Basra oblige the big oil contractors to surrender the gas they do not use for reinjection or power generation to Iraq’s state-run South Gas Co (SGC).

Under the US $17 billion gas deal to be ratified by the Iraqi cabinet, Baghdad has pledged to do what it takes to ensure these fields supply the Shell-led Basra Gas Company (BGC) joint venture with all the raw gas and natural gas liquids (LNG) it needs, including for an LNG export plant.

“SGC shall procure that all raw gas produced from the dedicated fields (other than utilised gas but including all NGLs) … shall, on and from commencement of operations, be dedicated solely to the venture,” the contract reads.

“The Ministry shall ensure that SGC fulfils its obligation to supply and make available to BGC all committed volumes and planned volumes of raw gas, including by making available deficit volumes as needed,” said a letter of confirmation from the energy ministry attached to the contract.

Under the terms of the oil contracts, SGC owns all the gas not used for oil recovery or power generation at the oil fields. With production from some of the world’s largest underdeveloped oilfields expected to surge over the next decade as Iraq boosts capacity towards 12 million barrels per day, there is likely to be much more gas than the country needs before long.

The other big oil companies could propose alternatives for using some of it and some are understood to be considering their own gas projects. But the oil ministry’s confirmation letter attached to the deal said the government will make sure SGC meets its side of the supply deal and ensure that other parties do not prevent it from doing so, including “not permitting any other entity to do a specified thing.”

Shell declined to comment. The quantities of raw unprocessed gas SGC will deliver to the Shell-led joint venture, backed by minority partner Japan’s Mitsubishi, are not in the draft and will be revised in line with output from the oilfields.

But the signatories expect dedicated volumes at plateau of at least 2,000 million standard cubic feet per day (mmcfd) of raw gas to be available to the BGC project — a vital part of Iraq’s master plan to boost electricity and domestic industry output.

SGC will be legally obliged to supply at least 85 per cent of the agreed volumes, while BGC will be obliged to take and pay for, or pay for even if not taken, 90 per cent of that volume, the contract says.

LNG PLAN
Providing Iraq’s own modest gas needs are met first, the contract gives BGC the right to build and operate a 4 million-tonne per year (mtpa) LNG terminal and, subject to government approval, another LNG export facility later.

If BGC decides to go ahead with the LNG part, SGC has pledged to supply it with enough raw gas to produce a minimum of 600 million cubic feet per day of LNG feedstock gas within four to seven years of the start up of the gas processing unit. A wholly owned affiliate of Shell will buy all the LNG produced at market prices and would be able to sell it anywhere it chooses for at least 20 years, providing it is not to a country then embargoed by the government of Iraq.

PRICING
A simplified official agreement presented to the Iraqi parliament and obtained by Reuters in early August indicated BGC would sell the dry gas back to SGC under a fuel-oil linked pricing formula.

The full draft contract shows that, once investments by the private shareholders have matched the value of assets transferred from state-owned SGC, BGC would sell dry gas back to SGC at a price based on the average daily high and low quotations of spot High Sulphur Fuel Oil (HSFO) 180 FOB Arab Gulf in the previous quarter from pricing agency Platts.

According to Reuters calculations based on an average daily closing price for Platts’ HSFO 180 CST FOB Arab Gulf in the second quarter of 2011 of US $647.77 per tonne, the reference price for gas sold to SGC would be US $5.78 per million British thermal units (mmbtu) for the present quarter.

This compares to current US front month gas prices of around US $4.4/mmbtu and UK prices of around US $9.2/mmbtu.

The Iraqi government has decided SGC will then sell the dry gas to Iraqi industry at just US $1.04/mmbtu, according to the summary presented to Baghdad lawmakers, to ensure Iraq has cheap fuel it needs to be competitive in a region of subsidised gas supplies.

The price of any condensate BGC sells to SGC would similarly be priced off Platts’ spot Dubai crude assessments, while LPG prices would be based on Argus’ Asia Far East indices for propane and butane.

The monthly pricing of raw gas from the dedicated fields that BGC will pay SGC is complicated. It would take into account BGC fuel and any power sales in the previous month and include a windfall adjustment for the difference between BGC’s dry gas revenue and a dry gas base price linked to Brent crude.
Agencies

While giving the NOC, the Home Ministry asked if Reliance could not have offered the stake to state-owned gas utility GAIL India or any other PSU. Reliance brought in BP to leverage Europe’s second biggest firm’s expertise in producing oil and gas from deep-sea areas.

Reliance has been facing sub-surface technical problems at its eastern offshore KG-D6 fields, where production has fallen from 61.5 million standard cubic metres per day to about 48 mmscmd, instead of rising to the planned 69 mmscmd.  RIL hopes BP will help fix the reservoir issues and rapidly raise output to the peak of 80 mmscmd.

The official said no Indian company — private or public sector — has deep-sea expertise and a gas marketing company like GAIL could not have added any value to KG-D6 or other blocks of Reliance.

Oil and Natural Gas Corp, the nation’s largest state explorer, is in fact struggling to put together a viable development plan for discoveries it has made in a block adjacent to KG-D6 in the Krishna-Godavari basin. ONGC itself has been seeking partners for that block and had shortlisted BP as a potential ally. The official said the Home Ministry has also asked if oil and gas can be exported. “That is ridiculous to even think. Production Sharing Contract (PSC) bars export of oil outside India and the Supreme Court has upheld the government’s absolute powers to decide users of natural gas. So while India is energy deficit, no government can even think of exporting gas.”

“There is no way that BP can take oil and gas produced from Reliance blocks to the UK,” he added.
Agencies

BP said its replacement cost net profit was US $5.5 billion in the quarter, the company said in a statement on Wednesday. Excluding one-offs, such as asset sales, BP’s underlying results were US $5.37 billion, short of an average forecast of US $5.70 billion from a Reuters poll of nine analysts.

BP said production fell 11 per cent compared to the same period last year after it sold fields to pay for America’s worst ever oil spill.The London-based company said it was pursuing a range of options to try and solve its ongoing dispute with its Russian partners in TNK-BP over a planned tie-up with Rosneft.
Agencies

“We are not going to offer large amounts or significant shareholdings in BP,” he added. The share swap and Arctic exploration deal with Rosneft, which was supposed to mark the beginning of a recovery at BP after its Gulf of Mexico oil spill disaster, have been blocked in the courts by BP’s oligarch partners in TNK-BP.

The AGM was marred by campaigners protesting against the oil giant’s role in last year’s Gulf spill. Earlier on Thursday, BP extended by a month the deadline to complete a US $16 billion share swap with Rosneft hours before its expiry, giving the oil major more time to salvage a deal beset by problems from the start.

Sources close to TNK-BP’s Russian shareholders said that BP had offered US $27 billion for their 50 per cent stake, which they declined as insufficient, although that figure could not be independently confirmed and was regarded as high by another source close to Rosneft. BP’s Russian partners, a group of oligarchs represented by the Alfa-Access-Renova (AAR) consortium have no plans to sell up, its chief executive told Reuters.

“AAR is a long-term strategic investor in TNK-BP and has no plans to exit,” Stan Polovets, chief executive of AAR said. Industry sources have said AAR, representing tycoons Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, is trying to get a piece of the action in the Arctic or to partner with BP abroad.

DEADLOCK

Thursday’s decision to postpone the deadline suggests Rosneft believes it needs BP as much as BP needs it. Exxon Mobil, Royal Dutch Shell and others tried to gain access to Rosneft’s Arctic fields before BP agreed to fund a new US $1.2-US $2 billion exploration venture, and industry sources said Rosneft could still find plenty of takers for this part of the deal.

However, Rosneft’s prime backer in government, Deputy Prime Minister Igor Sechin, wanted a deal that would help Rosneft become a global player, and the share swap was seen as key to ensuring BP helped Rosneft to achieve this ambition. Executives at other oil giants have indicated their companies would not be willing to engage in a share swap of the kind BP agreed.

“The deal is too important for Russia’s strategic development of the Arctic to fail,” said Chris Weafer, chief strategist at Uralsib in Moscow. “Although other companies have the technical competence, BP is the more ideal partner because it allows Russia to say that a company with a chequered experience in Russia will still invest.”

The share swap deal, which now has until May 16 to be completed, would see Kremlin-controlled Rosneft become BP’s largest shareholder.
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“The fact that such a long extension was granted would suggest that there must have been high-level political intervention at the last minute,” added Weafer. A Rosneft spokesman said on Thursday that it was not looking for another partner to replace BP in the Arctic pact.
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BP shares, which have lagged rivals by around 10 per cent since the deal was signed in January, traded down 0.8 per cent on Thursday against a 0.6 per cent drop in the STOXX Europe 600 Oil and Gas index.
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BP said it would continue to try and resolve the disagreement with its TNK-BP partners, who are angry BP did not negotiate the transaction through TNK-BP.
Agencies

The world’s fourth-largest economy is expanding at more than 8 per cent a year. But it struggles to pump even a third of the oil it guzzles, while gas use — limited by poor infrastructure — is already 30 per cent more than production. India has sought to attract the big international players since 1999 with its New Exploration Licensing Policy (NELP) but still only two foreign companies — BG and Cairn Energy — are producing any serious amounts in the country.

“This deal brings in one of the majors in a material way. Twenty-three blocks and an important gas play,” said Richard Quin, lead analyst for West Asia, North Africa and India at energy research consultancy Wood Mackenzie. “I suspect the Indian government is very happy about it.”

BP, which has only one block, picked up through Indian government auctions, is now paying privately-owned Reliance for a 30 per cent stake in 23 of its blocks, including the big gas producer D6 in the Krishna Godavari basin. The blocks now produce about 1.8 billion cubic feet/day (bcf/d) — more than 40 per cent of India’s total production and more than 30 per cent of total consumption.

The British-based company figures there are at least 15 trillion cubic feet (tcf) of gas resources in the blocks — enough to meet India’s current rate of consumption for seven years.  It is BP’s biggest investment in exploration and production in Asia, with a potential total of US $20 billion linked to exploration successes.

“It would be wrong to downplay the prospectivity of the 23 blocks. There has to be a reason BP bought in. Fundamentally, BP is in the business of producing hydrocarbons,” Quin said. At the same time, BP could use its technical expertise to boost output at Reliance’s D6 block.

It is India’s biggest gas find but output has slipped because of technical problems to about 52 million cubic metres a day (mcm/d) from 60 mcm/d in October and short of a target 80 mcm/d.

Reliance Industries will benefit from the tie-up with BP by being able to take advantage of BP’s technical capabilities, analysts said, in turn enhancing the valuation of India’s biggest company’s existing assets. BP India head Sashi Mukundan would not be drawn on future output estimates.
Agencies

The Mukesh Ambani-owned firm, India’s biggest company by market value, holds a 90% stake in the KG D6 field off the eastern coast of India, which was hailed as the world’s largest natural gas discovery in 2002. Canadian hydrocarbon explorer Niko Resources Ltd owns the remaining 10% stake.

“From among the world majors, ultimately BP was short-listed. The talks have been on for some time now. BP is quite serious,” said a senior executive at RIL, who also declined to be named. “It can also be a barter deal with some compensation in assets and some in cash.”

Both the persons aware of the matter declined to elaborate on the valuation of the stake.
Rajeev Kumar, vice-president, BP India, declined to comment.

“We do not comment on market rumours or speculation,” said a BP India spokesperson in response to questions emailed to BP’s offices in the US and the UK.  An external spokesperson for RIL also declined to comment.

After the Deepwater Horizon spill in the Gulf of Mexico in the US in April, BP has been looking to invest in new locations. Last month, the oil and gas multinational and Russian oil producer OAO Rosneft announced a $7.8 billion (Rs35,568 crore) deal on a strategic equity-linked partnership.

BP’s new chief executive Robert Dudley had met Ambani when he visited India in October.  “Both are extremely stable players in their own right. If there was to be some sort of partnership between them, it will give BP a tremendous footprint in India,” said Monish Chatrath, executive director at consultancy firm Mazars India. “As far as RIL is considered, in fields like these, any access to technological advancement is welcome. A lot of technological advances are taking place in this space.”

The development comes at a time when gas output at the offshore block has fallen to 50-52 million standard cu. m per day (mscmd) from over 60 mscmd in mid-2010.  The explorer is currently pumping gas from 18 wells in the block.

“The plan was to produce 40 mscmd in the phase one of production and 80 mscmd in the second phase. The plan was to drill 44 wells for producing 80 mscmd. During testing it was observed that per well could produce 8-9 mscmd of gas.

There was no pressure decline for some time but lately we have seen the pressure dropping,” said the Reliance official cited earlier. “We are now drilling four new wells for sustaining production of 60 mscmd… the reservoir is not behaving in a manner that was expected.”

The Indian government, which has allocated gas from the field to priority sectors such as fertilizer, liquefied petroleum gas, steel, petrochemical plants and city gas distribution companies and refineries, is not worried about the decline.

“These are small ups and downs. Once the 22 wells are operational, things will become normal and a production of 60 mscmd will be reached by March,” said a senior official at Directorate General of Hydrocarbons, requesting anonymity.

According to the projections made by India’s oil ministry regarding gas availability from the D6 block, which were reviewed by Mint, the field is expected to produce 59.4 mscmd in 2010-11, with the production reaching a peak of 88.5 mscmd in 2012-13.

Mint

Production by the private explorers climbed 94 per cent to 9,51,700 tons. Output from Rajasthan state, the site of the country’s biggest onshore oil deposit operated by Cairn India, surged more than six fold to 5,41,000 tons last month, according to the data. Cairn India started output at the field in August 2009.

State-owned Oil & Natural Gas Corp., the nation’s largest energy explorer, produced 2.1 million tons of oil, a 0.4 percent drop from a year earlier, according to the ministry.

Output at ONGC’s Mumbai High fields declined 0.7 per cent to 1.5 million tons. The fields, 100 miles (160 kilometers) northwest of Mumbai in the Arabian Sea, account for about 44 percent of India’s oil production.

Oil India Ltd., the second-biggest state-run crude producer, reported a 2 percent increase in output to 309,900 tons, according to the statement. India is Asia’s third-largest oil producer, behind China and Indonesia, according to the BP Statistical Review of World Energy.

Natural gas output in India fell for the first time in 22 months, declining 0.2 percent to 4.4 billion cubic meters, according to the data. Reliance Industries Ltd., India’s biggest company by market value, cut production from the country’s biggest gas field off the east coast from a maximum level of 60 million standard cubic meters a day earlier this year because of reduced pressure in the reservoir.

Bloomburg

“Non-OECD Asia will account for nearly two-thirds of non-OECD consumption growth over the next 20 years and more than three-quarters of the net global increase, rising by nearly 13 million barrels a day,” Christopher Ruhl, chief economist of the oil major, said in a statement.

BP, which has been producing benchmark annual statistical reports for the past 60 years, on Wednesday launched its first long-term energy outlook to 2030, with most findings coinciding with the benchmark report by the International Energy Agency.
Under BP’s base case, primary energy use will grow by nearly 40 per cent over the next 20 years, with 93 per cent of the growth coming from countries that are not part of the OECD (Organisation of Economic Co-operation and Development).

OECD oil demand peaked in 2005 and is projected to return to 1990 levels in 20 years, while China will displace the US to become the largest oil consumer. Consumption in China is forecast to grow by 8 million barrels per day to 17.5 million by 2030, and the country is likely to implement policies to slow growth, BP said.

Move away from oil and coal
The oil major sees the fuel mix diversifying away from oil and coal and into renewables. BP sees fossil fuels accounting for 64 per cent of the growth in energy in 2030 compared with 83 per cent over the past 20 years; while renewables including bio-fuels will account for 18 per cent of the growth. Oil excluding bio-fuels will grow relatively slowly at 0.6 per cent per year, while natural gas will be the fastest growing fossil fuel at 2.1 per cent per year, according to the figures provided.

“In percentage terms, oil demand is reduced the most in the power sector — minus 30 per cent – because this is the easiest oil to displace with gas or renewables and is the sector most likely to employ carbon pricing,” BP said. Coal will increase by 1.2 per cent a year and is likely by 2030 to provide virtually as much energy as oil excluding bio-fuels.

Transport demand growth will continue to be dominated by oil, but higher oil prices, improving fuel economy, vehicle saturation in mature economies and expected increases in taxes and subsidy reductions in developing economies should curb demand.

OPEC remains key
The importance of reserves-rich OPEC will rise as its share of global oil production will increase to 46 per cent, a position not seen since 1977. “The largest increments of new supply will come from OPEC – conventional crude in Saudi Arabia and Iraq, as well as OPEC natural gas liquids (NGLs), which are not subject to OPEC quotas,” BP said.

Iraqi crude output is projected to grow to more than 5.5 million barrels per day (bpd) from 2.5 million bpd currently, while Saudi output is likely to expand by nearly 3 million bpd.
Agencies