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Citi paints a rosy picture of Kurdistan oil and gas

Published: 19:46 01 Oct 2013 AEST

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Citi paints a rosy picture of Kurdistan oil and gas as the export pipeline out via Turkey heads towards completion by the end of the year.

It reckons the traditional 20-25% discount applied to the value of companies operating in the semi-autonomous region of Iraq should unwind as this provides a means to monetise discoveries.

It also points out that gas agreements between Turkey and the Kurdistan Regional Government provides a further catalyst, particularly for companies such as Genel (LON:GENL), which is sitting on huge discoveries such as Miran and Bina Bawi.

Meanwhile, farm-ins and buy-outs will become a theme as majors (Exxon, Total et al) and the large independents (Hess and Marathon) start to become the dominant players in an oil province with a high success rate and which is very firmly low-cost.

“We continue to believe that the discount rate that the market ascribes to Kurdistan-focused names is too high,” said analyst Michael Alsford in a note to clients.

“While regional tensions (such as Syria) remain challenging, the strengthening relationship between Kurdistan and Turkey could see sustainable oil exports and the completion of long-term gas supply agreements over the next three to six months.

“We think this should lead to the discount rate ascribed to Kurdistan-focused names narrowing further.

“We also expect larger oil and gas companies will move to gain a greater exposure to the significant resource potential in Kurdistan, which sits in the first quartile of our global cost curve.”

Citi has Genel, Norway’s DNO International and Afren (LON:AFR) on its ‘buy’ list.