Hayward finds life anything but easy in Kurdistan

It was supposed to be easy.

When in 2011 Tony Hayward announced an investment vehicle he had set up with financier Nat Rothschild was to buy a Turkish oil company with assets in the semi-autonomous Kurdistan region of Iraq, the former BP boss described the area as “the last big onshore ‘easy’ oil province . . . anywhere in the world”.

The deal for the Turkish company — called Genel Energy — was supposed to mark a successful return to the oil and gas industry for Mr Hayward, who just a year earlier had resigned as chief executive of BP following fierce criticism of him and the UK energy group during its response to the Deepwater Horizon oil disaster in the US.

It also promised to be a potentially highly lucrative transaction for the four founders of the investment vehicle, called Vallares, as the deal was structured so they would receive ordinary shares in Genel equivalent to a combined 6.7 per cent stake. The founders, who also included Julian Metherell, the former head of UK investment banking for Goldman Sachs, had originally put £100m into Vallares.

Six years on, however, Mr Hayward’s venture into Kurdistan has looked anything but easy. 

When he departs Genel in June — he is due to resign both as chairman and as a director of the company at its annual meeting — Mr Hayward will leave behind a heavily lossmaking business. Its share price, which peaked at £11.44 in 2014, has slumped to 81.25p.

Mr Hayward signalled in 2015 he would consider a bid for Genel at the right price but no deal has been forthcoming.

Genel is not the only oil explorer that has found Kurdistan to be far trickier than when overseas investors first visited the area following the second Iraq war and returned with excited tales of oil seeping from the ground.

But Genel has been hit by a number of significant downgrades to its flagship oilfield, Taq Taq. The company has twice downgraded estimates of the oil at the field and it last month warned key producing wells have “exhibited high rates of decline”.

Problems with its assets have added to wider difficulties in the region. Energy companies active in Kurdistan have had to cope with the oil price crash since mid-2014 and difficulties in securing regular payments in exchange for their crude exports from the cash-strapped Kurdistan regional government in Erbil, which had to contribute resources towards the battle against militant group Isis.

But analysts point out some of Genel’s wounds have also been self-inflicted. In particular, they highlight the company’s decision to explore for oil in multiple territories outside Kurdistan — including Angola, the Ivory Coast and Malta — which have come to nothing.

“Most of the other Kurdistan names are Kurdistan-focused. What Genel did differently to everyone else was try to build a second leg which has become a drain on resources,” says Al Stanton, analyst at RBC Capital Markets.

Genel, which took a UK stock market listing after the deal with Vallares, started out on gross cash of $2bn, but this figure had dwindled to $407m by the end of last year. The attempts to build a second strand to the business were a “step too far”, adds Mr Stanton.

Stephane Foucaud, analyst at GMP FirstEnergy, suggests Genel also overpaid for gas assets in Kurdistan, which have yet to come into production.

My Hayward, who turns 60 this year, declined to comment on his future on Monday but Genel is not expected to be his final act in the energy industry. 

He is chairman of Glencore, the mining company and commodities trader. He is also working in an unpaid capacity with private equity group Carlyle to identify oil assets in Latin American countries such as Brazil, Colombia and Argentina. Should a desirable asset be identified, both Carlyle and Mr Hayward would potentially invest, says one person with knowledge of the collaboration. 

For Genel, life after Mr Hayward may mean fewer media headlines but the company still believes there is scope for improvement — albeit in a much reduced size compared with that originally envisaged.

Genel confirmed last month that it was in talks with TEC, the Turkish state-backed energy company, on potential financial assistance for its two Kurdish gasfields.

Stephen Whyte, Mr Hayward’s replacement as chairman, on Monday stressed an improvement in the operating environment in Kurdistan, with more regular payments coming from the Kurdistan regional government.

“Genel has operated in a very tough environment in recent years but I believe the company has renewed momentum and significant opportunities in the portfolio,” he said.