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Kurdistan oil exports “just around corner” says Deutsche Bank

Published: 11:37 13 May 2014 BST

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The Kurdistan region of Iraq is set become a major exporter of oil, says Deutsche Bank analyst Tom Robinson, who today identified Genel Energy and Gulf Keystone as ‘top picks’ in the region.

Robinson has expanded his coverage of the region by initiating on GKP with a ‘buy’ recommendation, with a 145p target, and repeated an existing ‘buy’ recommendation for Genel.

The analyst says that stockpiles of crude, transported by pipeline from fields in Kurdistan, currently awaiting shipment from the Turkish port of Ceyhan will reach 2.5mln barrels in a matter of days.

He believes this burgeoning crude stockpile and the pending election results in Iraq may mean that first export sales, out of the pipeline, are now be around the corner.

“Referred to as the last great oil frontier, after a number of false dawns we believe the Kurdistan region of Iraq (KRI) is poised to become a major exporter of oil,” Robinson said in a note.

“A unique combination of resource scale, low onshore cost and low subsurface risk differentiates. 

“Prime acreage remains in the hands of mid-cap E&P who are set to gain from higher volumes and pricing.”

“As ever, the risk is politics and investor fatigue if pipeline exports fail to materialise. 

“However, with the clock ticking on crude storage capacity and Iraq elections behind us, a recent pull back in share prices offers an attractive entry point.”

Robinson, repeating a ‘buy’ and a £13.75 price target, highlights that Genel has the largest resource holding in the Kurdistan region and that it has a mix of both oil and gas resources.

Crucially, he points out that the Taq Taq and Tawke fields, both of which he describes as being ‘tier 1’, are at the front of the queue when it comes to access to export capacity.

This is a significant point, as Robinson reckons Kurdistan will have potential for production in the order of 750,000 barrels per day, yet pipeline capacity will be closer to 400,000 barrels.

He doesn’t believe, for example, that GKP’s flagship Shaikan heavy oil field will benefit immediately from export sales out of Kurdistan.

That said, Robinson claims the recent 35% drop in GKP’s share price that followed a reserve downgrade was ‘overdone’. Similarly, he says investor fears over the company’s near term cash generation are also ‘overdone’.

Robinson says the remainder of the 2014 drilling programme has the potential to lift reserves by around 30%, and this could be a catalyst for investors.

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