Heritage Oil has sold stakes in Kurdish oilfields to Genel Energy, in the latest of a string of transactions consolidating the varied interests in the regions oil and gas exploration blocks.
Heritage has announced it is selling a 26% interest in the Miran block, for cash consideration of $156 million and a $294 million exchangeable loan to be provided by Genel.
Genel and Heritage will now jointly operate the gas-rich block.
The loan, which carries an initial eight percent interest rate and is to be secured on Heritage Oil's Middle East subsidiary, will be repaid before its term if either Heritage completes a Nigerian asset purchase, or Genel and Heritage’s shareholders agree to that Genel should buy out Heritage’s interests in the Kurdish region wholesale by acquiring its Middle East subsidiary.
Heritage says the sale is expected to be completed, and the loan drawn down, on or before Wednesday, 22 August 2012.
Genel Energy has been on an acquisition spree in the Kurdish region since the company was listed in London late last year, recently taking an enlarged interest in the Bina Bawi block.
"We believe that as an Anglo-Turkish company we are uniquely placed to execute the full field development of the Miran Field including gas exports to Turkey and we aim to build a material gas business alongside our existing oil business in the medium term," said Tony Hayward, CEO of Genel.
Following completion of the sale, Heritage will hold a 49% interest in the Miran PSC and Genel will hold the remaining 51%. The deal values Heritage’s share in Miran at $450 million.
A competent person's report prepared by RPS Energy Consultants as at for Heritage estimates that the block contains mean gas in place at the end of March of 10.5 trillion cubic feet, with mean contingent and risked prospective resources of 3.75tcf of gas and 161 mmboe, or million barrels of oil equivalent, of liquids.
Heritage has held the Miran PSC since October 2007 and has been exploring ever since, pouring $211 million into the block.
“Heritage aims to generate growth in shareholder value through the development, production and acquisition of a portfolio of oil and gas interests and through effective portfolio management, including the use of industry farm-outs and realising value through asset disposals,” the company said in a statement explaining the rational for the transaction. “The level of consideration is considered attractive and the rationale for the sale underlines the company’s stated strategy of value creation and effective portfolio management.”
“We believe this sale and loan financing crystallises significant value for shareholders, demonstrating our ability to invest in and monetise assets at an appropriate stage,” said Heritage’s CEO Tony Buckingham. “The proceeds provide significant financial flexibility allowing us to fund the proposed acquisition of OML 30 without any rights issue or other additional capital requirement from, or potential dilution to, our existing shareholders.”
The deal is not the first time the companies have tried to do business together. In late 2009 Genel and Heritage aborted $6 billion merger talks. In the fallout, the UK's Financial Services Authority fined then Genel Enerji CEO Mehmet Sepil - now Generl Energy's President - £967,005 for dealing in the shares of Heritage on the basis of inside information. Other senior Genel staff were also fined.