Heritage Oil Interim Management Statement

Heritage Oil Interim Management Statement

This press release is not for distribution to United States Newswire Services or for dissemination in the United States.
Heritage Oil Plc (TSX:HOC)(LSE:HOIL), an independent upstream exploration and production company, issues its Interim Management Statement for the period from 1 July 2012 to 14 November 2012, in accordance with reporting requirements of the EU Transparency Directive.
Corporate highlights
— Acquisition of OML 30 (as defined below) in Nigeria was successfully
completed in November 2012
— The acquisition of OML 30 provides a step change in Heritage’s
production, reserves and cash flow generation:
— proved and probable reserves net to Heritage, gross of royalty, have
increased to 412 mmbbls(1) of oil, as estimated by RPS Energy
Consultants Limited
— year end production exit rate net to Heritage is estimated to be
c.11,350 bopd(2)
— Initial sale of a 26% interest in the Miran Block, in the Kurdistan
Region of Iraq (“Kurdistan”) announced in August 2012
— Proposed divestment of the remaining 49% interest in the Miran Block,Kurdistan, as repayment of exchangeable loan, announced in November 2012
— Total cash proceeds of $450 million received in August 2012
— Production for the third quarter 2012 averaged 617 bopd, a 9% increase over the first half of the year
— Cash position of approximately $172 million, excluding approximately $405 million related to the Ugandan tax dispute, as at 30 September 2012
— To date 15.3% of PetroFrontier Corp. (“PetroFrontier”) has been acquired for investment purposes
Operational highlights
— Legacy 2D seismic data has been reprocessed on the Rukwa Production Sharing Agreement (“PSA”), Tanzania
— A further 650 kilometres of 2D seismic data will be acquired on the Rukwa PSA
— A full tensor gravity survey has now been completed and interpreted on the Kyela PSA, Tanzania
— Initial work-over operations to prepare the Miran West-1 well,Kurdistan, for completion took place during September 2012
Tony Buckingham, Chief Executive Officer, commented:
“It has been an exciting time for Heritage Oil as we have completed a significant acquisition providing the Company with cash generating assets and a substantial increase in our reserves and production outlook. Our interest in Nigeria provides a new direction for the Company and a larger foundation upon which we can build. The current management team has been very successful in value creation for Heritage, generating cash of over $2 billion from asset sales in the last decade. We look forward to completing the proposed divestment of the Miran asset and focusing on opportunities to expand our portfolio.”
TRANSACTIONS
Acquisition of OML 30, Nigeria
On 9 November 2012, Heritage announced that Shoreline Natural Resources Limited (“Shoreline”), a special purpose private Nigerian company formed between a subsidiary of Heritage and a local Nigerian partner, Shoreline Power Company Limited (“Shoreline Power”), successfully completed the acquisition of a 45% participating interest in a producing oil mining licence in Nigeria (“OML 30”), together with a 45% interest in other assets under the joint operating agreement for OML 30, for a total cash consideration of US$850 million, net of costs (the “Acquisition”).
OML 30, located onshore in the delta region, covers 1,097 square kilometres and includes eight producing fields with oil and gas contained in numerous stacked reservoirs, and the Acquisition Assets include a 45% interest in the segment of the Trans Forcados pipeline between the Eriemu Manifold and the Forcados River Manifold.
The Acquisition provides a significant increase to the net proved and probable reserves of Heritage which increase from 65 mmbbls to 412 mmbbls, gross of royalty, based on the competent person’s report produced by RPS Energy Consultants Limited and included in the Company’s prospectus published on 6 August 2012 in connection with the Acquisition. It is expected that the year end production exit rate for Heritage will increase to c.11,350 bopd, compared to an average production of 617 bopd for the Company in the third quarter 2012. This is based on Heritage’s participating interest in Shoreline, assuming the exercise of an option by Shoreline Power to acquire a 30% participating interest in Shoreline.
There is the potential to both increase and stabilise production in the near term through refurbishing infrastructure and re-starting non-producing existing wells. Additionally, existing wells can be worked over to improve completions and gas lift can be installed in a number of existing wells without artificial lift. In the longer term, drilling will target additional reservoir intervals which will provide a further increase in production levels. It is expected that OML 30 will be cash generative immediately.
The Acquisition and partnership with Shoreline Power enhances Heritage’s profile in Nigeria and creates a platform for further growth in this prolific hydrocarbon region.
Proposed Divestment
On 22 August 2012, Heritage and its wholly owned subsidiary, Heritage Energy Middle East Limited (“HEME”), announced the completion of the sale of a 26% interest in the production sharing contract relating to the Miran Block (the “Miran PSC”) in Kurdistan and corresponding interest in the related joint operating agreement (the “Miran JOA”) to Genel Energy plc (“Genel”) for cash consideration of US$156 million (the “Initial Sale”) and receipt of a $294 million exchangeable loan provided by Genel to the Company (the “Loan”). In accordance with the terms of the Initial Sale, it was deemed to have taken effect on 1 July 2012.
On 12 November 2012, Heritage announced the proposed divestment of HEME’s remaining 49% interest in the Miran PSC and the Miran JOA to Genel Energy (Miran) Limited, a wholly owned subsidiary of Genel for consideration equal to the aggregate of the principal amount of the Loan and the sum of all cash calls paid or payable by Genel to the operator of the Miran Block on HEME’s behalf in respect of its 49% interest, from 1 July 2012 until completion of the proposed divestment (the “Divestment”).
The proposed Divestment constitutes a class 1 transaction under Listing Rules of the Financial Services Authority (“FSA”) and therefore requires approval by the Company’s shareholders. A shareholder circular in respect of the proposed Divestment, together with a notice to convene an extraordinary general meeting of the Company’s shareholders, is being prepared and will be sent to shareholders in due course.
The Board of Directors believe that the proposed Divestment is the most advantageous Loan repayment option and is in the best interests of the Company’s shareholders as a whole. The valuation achieved is considered by the Board to be attractive taking into account the stage of development and the significant future capital expenditure requirements associated with developing the Miran gas field, as described in the independent technical report prepared by RPS Energy Consultants Limited and included in the Company’s prospectus published on 6 August 2012.
OPERATIONS
Kurdistan
Following the Initial Sale, HEME currently holds a 49% interest in the Miran Block and continues to act as operator.
Miran West
Initial work-over operations to prepare the Miran West-1 well for completion took place during September 2012. It is anticipated that the extended well test will begin in December 2012 and will last for a maximum period of six months. The resulting planned production of 3,000 to 5,000 barrels of oil gross per day will be sold into the local market in Kurdistan.
Miran East
The Miran East-1 exploration well is the first well to be drilled on the Eastern structure, which is contiguous with the large hydrocarbon-bearing Western structure. The well commenced drilling in March 2012, targeting exploration potential within the Cretaceous and Jurassic intervals. As at 14 November 2012, the well has reached a depth of 4,850 metres and evaluation of the well is ongoing. The Upper Cretaceous reservoir interval has been shown to be in pressure communication with the Western structure and shows observed whilst drilling the Lower Cretaceous section are consistent with wireline log interpretation indicating the presence of hydrocarbons. Well operations are ongoing and expected to take up to six weeks.
Tanzania
The work programme in respect of the Rukwa PSA in Tanzania, awarded in November 2011, commenced in early 2012 with reprocessing 2,300 kilometres of legacy 2D seismic data acquired from the Tanzanian Petroleum Development Corporation. Heritage is shortly to acquire an additional 650 kilometres of 2D seismic data to infill this legacy data.
The work programme in respect of the Kyela PSA, awarded in January 2012, commenced with the acquisition of a full tensor gravity survey which has now been interpreted. The acquisition of 100 kilometres of 2D seismic data has commenced and this is intended to further delineate features of interest identified in the gravity data.
The Company expects its assessment of the Rukwa and Kyela block’s to be assisted by certain geological similarities between these blocks and the Albert Basin of Uganda, where the Company has gained previous experience and commercial success.
Libya
Heritage established a base in Benghazi in the first half of 2011, having been in discussions with senior members of the National Transitional Council, the legitimate and recognised government of Libya at the time, as well as with its Executive Committee, the National Oil Company (“NOC”) and certain subsidiaries. The dialogue with these parties continues, with Heritage now also active in Tripoli and exploring ways to assist the newly appointed Interim Government (under the General National Congress elected in July 2012), the NOC and the state oil companies rehabilitate and re-shape Libya’s hydrocarbons sector, placing it on a sustainable path that will meet the needs of the country going forward. Work is ongoing through Sahara Oil Services in Benghazi, the gateway to the majority of Libya’s current producing fields, with the aim of playing a key role in the substantial amounts of rehabilitation work needed to resume, maintain and increase Libya’s hydrocarbon production in line with NOC and Oil Ministry targets.
Russia
Production for the third quarter of 2012 averaged 617 bopd, a 9% increase over the first half of the year, due to resolution of a temporary mechanical issue on well 363. Work is ongoing for developing the field using horizontal drilling techniques following the success of the well drilled last year.
CORPORATE
As at 30 September 2012, Heritage had a cash position of approximately $172 million, excluding amounts related to the Uganda tax dispute of approximately $405 million.
Heritage has continued to acquire common shares (“Shares”) of PetroFrontier for investment purposes and currently holds 15.3% of the outstanding Shares of PetroFrontier. PetroFrontier is listed on the TSX Venture Exchange and has a high-impact drilling programme in Australia targeting billions of barrels of resources.
UGANDA
As previously announced on 6 August 2012, multiple proceedings in connection with the sale of the Group’s interests in Blocks 1 and 3A in Uganda to Tullow Uganda Limited remain ongoing:
a. Heritage Oil & Gas Limited (“HOGL”), the Company’s wholly owned
subsidiary, is engaged in appeals to the Ugandan High Court;
b. HOGL is also engaged in international arbitration proceedings in London
against the Ugandan Government which commenced last year; and
c. Heritage and HOGL are together engaged in defending Commercial Court
proceedings in the High Court of Justice in London in respect of claims
made by Tullow Uganda Limited.
Heritage’s position, based on comprehensive advice from leading counsel, legal and tax experts is that no tax is payable in respect of the sale of the Group’s interests in Blocks 1 and 3A in Uganda.
Notes to Editors
— Heritage is listed on the Main Market of the London Stock Exchange and
is a constituent of the FTSE 250 Index. The trading symbol is HOIL.
Heritage has a further listing on the Toronto Stock Exchange (TSX:HOC).
— Heritage is an independent upstream exploration and production company
engaged in the exploration for, and the development, production and
acquisition of, oil and gas in its core areas of Africa, the Middle East
and Russia.
— Heritage has producing assets in Nigeria and Russia, exploration assets
in Malta, Tanzania, Pakistan, Libya and the Democratic Republic of Congo
and an exploration, appraisal and development asset in Kurdistan (being
the asset which is the subject of the proposed Divestment).
— Following completion of the proposed Divestment, Heritage will no longer
hold an interest in the Miran Block.
— All dollars are US$ unless otherwise stated.
— For further information please refer to our website,
www.heritageoilplc.com.
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THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS OR CIRCULAR. A CIRCULAR WILL BE AVAILABLE FROM THE COMPANY’S REGISTERED OFFICE AND FROM 34 PARK STREET, LONDON, W1K 2JD AND WILL BE AVAILABLE FOR VIEWING ON THE COMPANY’S WEBSITE.
THE SECURITIES REFERRED TO HEREIN ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.

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