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Genel Energy PLC And Gulf Keystone Petroleum Limited Have A Problem On Their Hands

The long-awaited completion of Kurdistan’s new oil pipeline to Turkey, was supposed to be boon for Genel Energy (LSE: GENL) and Gulf Keystone Petroleum (LSE: GKP). The two companies have been waiting for the ability to be able to export their oil to the international market for years now, and in the words of Gulf Keystone’s Chief Executive, Todd Kozel

“Exports are what we’ve been waiting for since 2007, so the pipeline is very big and instrumental for a company like Gulf Keystone,”

But there is a problem; no one wants the Kurdish oil.

Pipeline problems

Both Gulf Keystone and Genel had been relying on the newly constructed pipeline, from Kurdistan to Turkey, to boost their sales this year. 

Before the construction of the pipeline, Kurdish oil exports were constrained to a small volume shipped by truck to two Turkish ports on the Mediterranean. Companies could also sell their output into the domestic market at a significant discount to the Brent benchmark. 

Oil wellThe pipeline was constructed last year, and the Kurds have been exporting oil to Turkey through the pipeline since December. However, Turkey had refrained from selling the oil on, saying it would wait for the Kurdish Regional Government and Baghdad to reach an agreement on oil exports before it made a move. 

As of yet, no agreement has been reached, but during May, Turkey changed its position and allowed the United Leadership tanker to be loaded with 1 million barrels of Kurdish oil.

Upon hearing the news that Turkey was allowing exports, Iraq swiftly filed an arbitration case against Turkey with the International Chamber of Commerce and things are now getting worse. 

No home

Despite Iraq’s threats, at the end of May, according to ship tracking data, the United Leadership set sail for the US Gulf Coast. Kurdistan had claimed that the oil was purchased by parties within Germany and Italy.

On its way toward the United States the tanker reversed course, just south of Portugal, with a new destination: Gibraltar, where it would await further orders.

This change of course came as the US State Department revealed that it did not condone oil sales bypassing Baghdad, and any buyers of the oil risked a legal suit with the federal government.

“We do not support the export or sale of oil absent the appropriate approval of the federal Iraqi government,”

After heading towards Gibraltar, the tanker tried to unload in Morocco where it was swiftly turned away, and according to the latest data, the vessel is still waiting offshore Rabat.

So far, United Leadership has not made any attempt to head towards Italy, or Germany. Italy has warned that any private firms buying what has been deemed ‘illegal’ oil from Kurdistan are liable to legal action from the Italian and Iraqi government.  

Still, even though United Leadership has been turned away from several ports, a second tanker was loaded up with Kurdish crude yesterday. With nowhere to unload this cargo, the vessel’s crew could be in for a long voyage. 

Not worried just yet

Still, Gulf Keystone has been successfully its production to Turkey since late November 2013, with the first sales commencing in late January 2014 and first payment received in May 2014. So, as of yet the company does not seem worried. 

Foolish summary 

It would seem that oil pumped from Kurdistan is currently being rejected by the international community.

With this being the case and no agreement in sight between Baghdad and Kurdistan regarding exports, the growth of Genel and Gulf Keystone could be stunted going forward. 

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Rupert does not own any share mentioned within this article.