The government of Iraqi Kurdistan will take an equity stake in an energy company to be formed by combining Canada's Heritage Oil and Turkey's Genel Enerji, which both operate in the semiautonomous Kurdish region. Genel produces and exports oil from Kurdistan's Taq Taq and Tawke oilfields, while Heritage recently announced it had found a new Kurdish oilfield that may contain up to three billion barrels of recoverable crude. The deal would leave Cukorova Group, a privately held Turkish conglomerate that holds most of Genel's shares, in control of HeritaGE, the merged oil enterprise. The Kurdish government would get a 16.8 per cent stake in the proposed company."The KRG has confirmed that it intends to be a long-term shareholder and is therefore willing to enter into a lock-up agreement in respect of the Heritage shares it will receive, but with the ability to sell shares periodically to fund new infrastructure and local community support projects," Heritage said in a statement. Although the Kurds in recent years have signed about 25 deals with foreign companies for oil and gas exploration and production in their region, this is the first time the government has made a direct investment in a company operating in its territory. It is a further indication of the KRG's determination to push ahead with regional oil and gas development, regardless of an intractable dispute with Baghdad over oil jurisdiction and revenue sharing. Heritage will issue 286.3 million ordinary shares to acquire the entire share capital of Genel, doubling its shares outstanding. The Kurdistan Regional Government (KRG) will receive 96 million of the new shares, in exchange for extinguishing Genel's US$1.1 billion (Dh4.04bn) obligation to build oil and gas infrastructure in the Kurdish bloc of three northeastern Iraqi provinces. The Iraqi oil minister, Dr Hussain al Shahristani, has declared the KRG oil deals "illegal", as they have not been approved by Baghdad. Nonetheless, he allowed oil exports from Kurdistan to start in June, after the Kurds agreed to let the Iraqi government's oil marketing agency collect and distribute the revenue. The KRG has yet to reach an agreement with Baghdad on how the foreign companies pumping the oil will get paid. "We are delighted at this opportunity to create the leading integrated oil and gas company in the Kurdistan region," said Mehmet Sepil, the chief executive officer of Genel. The creation of HeritaGE, which still requires shareholder and regulatory approvals, is also a strategic move aimed at strengthening ties between the Iraqi Kurdish region and Turkey, amid Turkish government efforts to address the long-held political concerns of its Turkey's substantial minority of ethnic Kurds. The KRG's involvement as a shareholder of HeritaGE will add a new dimension to the initiative. "We recognise the important role Turkey is playing in the region and are delighted that the KRG will be a significant long-term shareholder," said Tony Buckingham, the chief executive of Heritage. The equity position will also give the KRG with its first exposure to oil and gas projects outside Kurdistan. Heritage has also made major oil discoveries in Uganda, which it plans to develop. tcarlisle@thenational.ae