WesternZagros Resources, the Canadian oil explorer with assets in the Kurdistan region of northern Iraq, is considering plans for a London listing to help boost the valuation of its stranded oil and gas reserves.
Board discussions at the Calgary-based company over whether to pursue a London listing come amid diplomatic clashes between Iraq’s federal government in Baghdad and Turkey, seen as the obvious destination for Kurdistan’s oil exports.
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Two weeks ago Taner Yildiz, Turkey’s energy minister, announced his backing for plans by the Kurdistan Regional Government to build a pipeline capable of delivering 1m barrels a day of oil from the semi-autonomous region into his country.
Plans for the pipeline have been attacked as “hostile” by Iraq’s federal government.
Simon Hatfield, chief executive of WesternZagros, admitted that relations between Turkey and Iraq – traditionally a key supplier of crude to its northern neighbour – had worsened significantly after Ankara’s endorsement of the pipeline project.
“The politics are frankly the worst I’ve known,” he said. But he argued that WesternZagros, along with other western investors, could still make some margin from selling output at slightly less than $60 a barrel on the local market until a final route to export was established.
Tensions between Baghdad and the KRG government in Erbil have also been heightened since ExxonMobil’s decision late last year to become the first oil major to invest in the area.
In April, the Kurdish authorities halted exports of oil through the federal pipeline system, complaining the country had not received payments under an interim revenue-sharing agreement from the federal government for 10 months.
Mr Hatfield argued the latest impasse in agreeing exports though Baghdad-controlled territory would hit the finances of both sides. “The Kurds agreed to it, then the ‘feds’ started messing with it,” he said.
The company’s key assets are 40 per cent stakes in two gas-rich blocks in the far south of the Kurdistan region close to the border with Iran.
WesternZagros reported a quarterly loss of $2m last week and ended the quarter to March 31 with net cash of $30.6m. It has estimated capital expenditure commitments of $30-40m in its second quarter.
Mr Hatfield would not be drawn on whether a move to list in London by WesternZagros, which is already listed in Toronto, would involve raising much fresh capital.
But its result statement conceded WesternZagros “may be required to raise additional debt or equity financing during 2012” dependent on commitments to drilling costs and expenses demanded production sharing agreements with the regional government.
Key to the level of its financing requirements is the timing of the sale of a 40 per cent stake by the KRG in the Garmian block operated by WesternZagros which is being offered to other western oil companies.
A quick sale would allow WesternZagros to recoup development costs spent on the field.
Mr Hatfield added that in addition to any fundraising, a London listing would help tackle the “huge valuation difference” in gauging the worth of Kurdistan assets between Toronto and the London market that has “more awareness and tolerance of risk”.
Last October WesternZagros raised C$47m by placing 74m shares at C
.63 each with TAQA, the Abu Dhabi National Energy Company. The US hedge fund Paulson & Co has a 15.5 per cent stake.
On Friday, WesternZagros shares closed at C$1.01, valuing its equity at C$375m.
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