London-listed independent Heritage Oil and Turkeys Genel Enerji on 9 June announced they have signed a memorandum of understanding (MOU) to merge. If realized, the new entity HeritaGE will become the biggest upstream investor in the Kurdistan Regional Government (KRG) area of Iraq, and potentially a FTSE-100 company. The $5.5bn deal could see the creation of an international oil company with major production in both the KRG and Uganda and assets in Tanzania, Malta, Russia, the Democratic Republic of Congo, Mali and Pakistan. KRG production from the new company would be used to fund HeritaGE development in Ugandas Albert Basin.

The merger news underlines the KRG areas emergence as a new producing region and exploration hotspot, potentially shaping the futures of investing companies. But substantial question marks still remain. Iraqs federal Ministry of Oil still refuses to accept all KRG upstream contracts until ratified by central oil authorities. Minister of Oil Husain al-Shahristani and [Iraqi] prime ministers spokesman 'Ali Dabbagh held a press conference yesterday and they confirmed that all the KRG contracts need to be sanctioned by the oil ministry in Baghdad, Ministry of Oil spokesman 'Asim Jihad, told MEES on 10 June. He added that the first bidding round would happen on schedule on 29-30 June. Norways DNO and Genel on 1 June inaugurated the KRGs first ever crude exports with Baghdads approval (MEES, 8 June).

The federal government still does not recognize the contracts on which the exports are based, and no agreement has been reached on how to compensate the companies for their investment. The mechanism that deals with the payment is not yet completed, acknowledged DNO Managing Director Helge Eide in an 11 June presentation. Mr Eide stressed that he expected a resolution to the issue soon. While the KRG does not possess the vast reserves available in the south of Iraq, terms production sharing contracts are standard are more investor-friendly and production costs are low in global terms. DNO estimates its finding and development costs at Tawke at $1.50/B and operating costs at $4.60/B.

The Heritage/Genel deal comes amid expectations of other mergers and takeovers of KRG investors. Chinas Sinopec is working on an $8bn bid for Switzerland-based Addax, Genels partner in Taq Taq and Kiwa Chirmila, MEES understands.

KRG Area Exploration And Production Licenses