The president of the largest independent energy company in northern Iraq’s Kurdish region says prospects for natural resources are the best economic opportunity in the region since the times of the Ottoman Empire, denying that political tension will affect exploration efforts.
Genel Enerji President Mehmet Sepil thinks the opportunities in northern Iraq are the best they have been since Ottoman times and does not believe that the recent political tension between Baghdad, Arbil and Ankara will affect efforts to explore and produce oil and gas in the region.
“Oil will find its way,” Sepil said. “When the world is so energy hungry and when the prices of energy resources are so high, it is impossible for the oil not to be unearthed for political reasons. It’s only a matter of time … The world does not have the luxury of leaving oil and gas underground.”
When did you shift your focus to energy issues in the region?
For many years I worked in the international construction sector. I came to the Kurdish region as a construction engineer. I was invited by Celal Talabani [the current Iraqi president] and Berham Salih [former Kurdistan Regional Government – KRG – prime minister]. We undertook several construction projects in Suleymaniah and since not many serious construction companies were coming to the region, they [Kurdish leaders] appreciated our work very much. One day in 2002, Talabani said, “Mehmet, why don’t you set up a big group and enter the oil business.” He talked about the Taq Taq oil field. In the beginning I joked that the only time I had ever seen oil was in my car’s depot. To cut a long story short, I joined hands with Mehmet Emin Karamehmet, with whom I was already partnering in other businesses, and set up Genel Enerji. Exploration and production is unfortunately an area the Turkish private sector has not expanded much, due to the presence of the state giant TPAO. Plus, as there is not much oil in Turkey the sector has not seen the emergence of big companies.
At that time the region was highly unstable; surely Talabani’s support was not the only factor for you to take that risk.
When we were working in the Taq Taq oil field, we could see Americans bombing Kirkuk. But the only risk is not political – there is also the risk of not finding oil. We call this risk mitigation. The political risks were high, but the chances of finding oil were very high.
Why are we calling this place the last frontier for oil exploration onshore? The hit rate [the possibility of finding oil] is 20 percent on average in the world. Here it may be 70 percent. Yes, perhaps the political risks are higher, but so are the chances of finding oil.
But you are a Turkish firm and the strain in relations between Ankara and Iraqi Kurds must have been an additional risk factor.
Obviously we did not seek the government’s approval. But when we told all the relevant authorities that we were going and we did not receive any negative reactions.
Don’t you think that you are feeling the consequences of the risks more today, due to the disagreement between central government in Baghdad and the Kurdistan Regional Government?
The political risk was always there, but it has changed in nature. Last year my revenues were much higher than the money I spent in the region. If everybody had concerns about the risks, then what are Exxon or Chevron doing here? They have the same reading of the region.
And what is that reading currently?
Oil will find its way. Even if we separate Kurdistan and do not include disputed territories like Kirkuk, the oil and gas potential here will put it in the top 10 in the world. When the world is so energy hungry and when the prices of energy resources are so high, it is impossible for the oil not to be unearthed for political reasons. It’s only a matter of time. You have to be patient enough and have enough money. The world does not have the luxury of leaving oil and gas underground.
So you claim the contention between Baghdad and Arbil will not prevent Kurdish oil and gas from reaching markets?
With potentials so high, economics will outweigh politics.
But precisely when the economic potential is so high, politics might interfere. We are talking about sharing a very big cake. Don’t you see the potential for a hot conflict between Arbil and Baghdad?
I personally don’t see a risk of a hot conflict because there is a lot to lose for both sides. Look, we are the company that buys the most fields, and we are the ones with the highest production. We are going to do everything in our capacity to grow further here. In the last six months we have made $1 billion worth of new acquisitions. Genel Enerji is expanding to Africa, but Kurdistan is our locomotive. BP started on the Iran-Kurdish frontier. Only places with such huge potential create serious oil companies. We received an award from the KRG, called “small and beautiful.” Actually we are a company worth $4 billion and are ranked in Turkey’s top 20. But these are the scales here.
How about your plans for gas?
We say we can bring gas to the Turkish frontier by the end of 2015. Our first target is four bcm [billion cubic meters].
And you say you can build the pipeline.
Constructing pipelines is not our business. What we say is that if others won’t solve the infrastructure problems, be it oil or gas, we are ready to do it. But we don’t insist that we should be the ones doing it.
What are your expectations from Turkey?
Well, we expect Turkey to buy the gas if it is so much in need of gas. It will definitely be much cheaper. Which one is better, to get gas from places far away or from next door? You can always find oil but [Kurdish] gas has a strategic advantage for Turkey.
But a standard Turkish citizen might accuse the government of encouraging Iraq’s disintegration by letting the KRG directly export its natural resources.
There is no obstacle whatsoever in the Iraqi Constitution that can prevent this. There is nothing in the Constitution that says the state company, Somo, should be a monopoly. The Constitution says that whether it is sold from Baghdad or from the north, the revenues belong to the whole Iraqi nation. In other words, the revenue from the sales done by the north going only into the pockets of the north is against the Constitution. But this will not be done. So there could be a pragmatic solution to the revenue sharing. If sales from the north are equally distributed among all of Iraq, then there won’t be anything unconstitutional.
So what you are saying is that buying gas and oil directly from the KRG won’t lead to the disintegration of Iraq.
What I am saying is that striking these deals requires political decisions. But the economic scale is so huge, in terms of economic benefit and in terms of energy security. I believe Turkey will take that decision.
If you were to advise the Turkish government, what would be your suggested roadmap?
I would work for days and days about how I could use the energy resources of northern Iraq for the benefit of Turkey. An opportunity like this has not come to Turkey since Ottoman times. We lack energy resources, but we are a fast-growing economy and the biggest deficit stems from energy. I think Turkey is also aware of the potential. We have seen times in the past when some did not even believe there was oil here.
And it seems the KRG is ready to work with Turkey.
Are you joking? Once, when Turkey started an operation in northern Iraq, that same day I signed an agreement with Nechirvan Barzani.
It seems that there is also an investment-friendly and efficient business environment.
The biggest advantage they have is human capital. And there is something new that is being built here. It is easier to build something new, and there is also the positive energy of building something new. If it takes three months to bring specific equipment, it takes three days here. This is the definition of investment friendly. Why? Because they are hungry for foreign investment.
What would you say is the most striking difference between 2002 and 2012?
Culture. All right, hotels and all are being built, but look at how Arbil is becoming green. Making your environment greener is a matter of culture; even that culture is fast-developing.
There is, at the same time, a cultural revolution here. You know you can build buildings, that’s just about money. But learning to make your environment green – to find the relevant companies to do it to choose the right trees and so on – there is a fast mentality change as well.
Who is Mehmet Sepil ?
Mehmet Sepil holds a Civil Engineering degree and an MSc in Coastal and Harbor Engineering from the Middle East Technical University.
In 2002, Sepil founded Genel Enerji, which was among the first companies to be awarded a production sharing contract by the Kurdistan Regional Government (KRG). With nearly a decade’s experience in the Kurdistan region – longer than any other exploration and production company – Genel Enerji has built an extensive portfolio of exploration and production assets in various regions of northern Iraq.
Sepil became President of Genel Energy plc in November 2011, following the merger of Vallares plc and Genel Energy International.