Heritage Oil Interim Management Statement
Heritage Oil Plc (“Heritage” or the “Company”) (TSX:HOC)(LSE:HOIL), an independent upstream exploration and production company, issues its Interim Management Statement for the period from 1 January 2013 to 15 May 2013.
— Total revenues of $236.2 million in the first quarter 2013 ($2.3million, Q1 2012), of which $234.5 million was from the interest in Shoreline Natural Resources Limited (“Shoreline”), Nigeria, and $1.7 million was from the interest in the Zapadno Chumpasskoye Field, Russia.
— Production for the first quarter 2013, net to Heritage, averaged 7,373 bopd (605 bopd, Q1 2012).
— The major temporary factors causing production to be lower than expected in the first quarter have been addressed with current gross production from OML 30 of c.20,000 bopd and expected to be back over 35,000 bopd within a month.
— 2013 gross production from OML 30 is expected to average 35,000 bopd.
— Cash position of $184.1 million, as at 31 March 2013, excluding approximately $405 million related to the Ugandan tax dispute and $101 million used as part security in respect of OML 30 financing.
— Excess cash led to a debt repayment of $52.5 million in April 2013 to reduce the bridge facility from $550 million to $497.5 million.
— Refinancing of the bridge facility by way of a five year $550 million senior secured revolving reserve based facility is expected to be completed in June 2013.
— Expanded the exploration portfolio with the farm in to two licences in Papua New Guinea (“PNG”); Petroleum Prospecting Licence 319 (“PPL 319”)and Petroleum Retention Licence 13 (“PRL 13”).
— Acquisition of 2D seismic has begun across the Tuyuwopi structure in PPL 319.
— Processing has been completed of the reconnaissance seismic survey acquired across the Kyela Block, Tanzania, confirming structures previously indicated by the gravity data.
— Acquisition of the 2D seismic programme on the Rukwa Licence, Tanzania,has been completed and the data is being processed.
Tony Buckingham, Chief Executive Officer, commented:
“Heritage achieved a transformational increase in production and revenue in the first quarter of 2013 following the acquisition of an interest in the world class OML 30 licence in Nigeria. Production from OML 30 is increasing back to previous levels and we expect to see gross production at 35,000 bopd within a month. Further substantial gains are anticipated in the second half of this year through optimising current facilities and improving the gas lift system. Our acquisition of an interest in OML 30 remains the largest upstream onshore asset transaction in sub-Saharan Africa on a 2P basis and positions Shoreline as one of the largest indigenous oil companies in Nigeria. Activity across the exploration portfolio has also increased with active work programmes in Tanzania and Papua New Guinea.”
Production for the quarter, net to Heritage, averaged 7,373 bopd with 6,932 bopd from the interest in Nigeria and 441 bopd from Russia. As previously announced, production in Nigeria was impacted by a manifold issue and strikes by local workers. Both of these have been resolved resulting in gross production increasing quickly to a current level of c.20,000 bopd and it is expected to be back over 35,000 bopd within a month. For 2013, gross production from OML 30 is expected to average 35,000 bopd.
During the period, the OML 30 flow stations were temporarily shut down as a result of a strike from local employees responsible for non-technical work in the plants. Access to the stations was restricted but following a series of meetings, nearly all of the workers at the stations in OML 30 accepted compensation in line with the adjacent licences. This has resulted in the key fields being brought back on production. Technical projects, notably gas lift compressor refurbishment, did not stop during this period.
In the first quarter of 2013, National Petroleum Development Company (“NPDC”), the operator, and Shoreline agreed the 2013 budget, which sets out the work programme for the year. The 2013 budget includes the procurement and installation of gas lift compressor units, five generators, two air compressors, two export pumps and three metering units. The first gas compressor is expected to be delivered in June. Over the course of this year further work will continue aimed at optimising existing facilities.
Shoreline believes that the OML 30 fields were producing inefficiently, with intermittent gas lift resulting from sub-optimal compressor maintenance and a lack of refurbishment and historic sabotage of flowlines and equipment. The principal elements of the development plan in the short-term include optimisation of gas lift in existing wells, both producing and non-producing, reopening wells currently shut-in and drilling a number of new, chiefly horizontal, wells to increase recovery and production rates with drilling commencing in the second half of 2014, as previously announced. The flowline and compressor repairs expected to be carried out in 2013 should enable all wells to operate at optimum rates going forward.
Both Shoreline and NPDC have engaged with communities within the licence area. This engagement will lead to a long-lasting Global Memorandum Of Understanding forming the framework and policies of the community/operator interface.
The world class nature of OML 30 and the significance of the acquisition through Shoreline of an interest in it was highlighted in May 2013, with Africa investor (Ai) Infrastructure Investment Awards 2013 naming Shoreline as Developer of the Year.
Production in Russia was impacted by a workover to replace the ESP on the horizontal well. The work was delayed due to availability of specialised equipment. The work has been successfully completed and the well is back on production and currently cleaning up. It is expected the well will be back at its pre-workover rate by the end of May.
Papua New Guinea
In April 2013, Heritage agreed to acquire up to an 80% working interest in PPL 319 and PRL 13 from LNG Energy. In return for earning an 80% working interest and operatorship, Heritage will fund the costs of the seismic acquisition and the cost of drilling an exploration well. Government approval has been received and the work programme has begun with acquisition of 44 kilometres of 2D Seismic data over the Tuyuwopi structure. This will be followed by the acquisition of approximately 92 kilometres of reconnaissance seismic over leads identified on a large gravity high on the PPL 319 licence.
The licences are onshore and close to multiple producing fields and discoveries, including the multi-TCF Triceratops and Elk/Antelope discoveries. There is also a close proximity to current and under-construction infrastructure with the Kutubu oil export pipeline and the PNG Liquefied Natural Gas pipeline crossing the acreage.
The work programmes continue on the Rukwa and Kyela licences. In January 2013 a 100 kilometres reconnaissance seismic survey across the Kyela Block was acquired, confirming structures previously indicated by the gravity data. The interpretation of this processed data will enable the positioning of targeted infill 2D seismic which is scheduled to be acquired later this year. Approximately 600 kilometres of 2D seismic has been acquired in the southern part of the Rukwa basin. This consisted of both lake and land data and was targeted at leads identified on the legacy seismic data. It is currently being processed.
As at 31 March 2013, Heritage had a cash position of $184.1 million, excluding amounts related to the Uganda tax dispute of approximately $405 million and $101 million used as part security in respect of OML 30.
The average realised commodity price achieved in Nigeria was $116.87 per barrel in the first quarter of 2013. Cash has been received from all of the revenue generated in the first quarter. Over the quarter, there were seven liftings in Nigeria which have generated revenues net to Heritage of $234.5 million. Going forward, liftings are expected at approximately one per month. Excess cash flow enabled Shoreline to make a payment of $52.5 million in April 2013 to reduce the bridge loan from $550 million to $497.5 million. The refinancing of the bridge loan to a reserve based loan has recently been launched and is expected to be closed in June 2013, at which time the funds from Shoreline Power exercising their option are also due to be received.
Heritage holds common shares (“Shares”) of PetroFrontier for investment purposes and currently holds 19.98% 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.
As previously announced, a number of proceedings in connection with the sale of the Group’s interests in Blocks 1 and 3A in Uganda to Tullow Uganda Limited remain ongoing. Heritage Oil and Gas Limited (“HOGL”) continues to challenge both the Uganda Revenue Authority (“URA”) in the Ugandan courts and, in accordance with the Production Sharing Agreements, the Ugandan government through international arbitration proceedings in London, which commenced in May 2011. The arbitration tribunal ruled in April 2013 that the determination of tax was outside its jurisdiction, but that there were two areas of HOGL’s claims which it will consider, in respect of contractual income tax stabilisation clause protection and breach of other contractual obligations.
The determination by the arbitral tribunal marks the end to the preliminary phase. The proceedings have now continued to deal with the merits phase of Heritage’s contractual claims against the Ugandan government and the underlying substantive Ugandan tax matters remain under appeal in the Ugandan courts.
In April 2011, Tullow made a payment to the URA and subsequently filed a claim in the High Court in England seeking compensation for alleged breach of contract as a result of HOGL’s and Heritage’s refusal to reimburse Tullow. In March 2013, an 11 day hearing took place in the Commercial Court in London. A first instance judgment is expected during the course of 2013.
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 internationally.
— Heritage has producing assets in Nigeria and Russia and exploration
assets in Tanzania, Papua New Guinea, Malta, Libya and Pakistan.
— All dollars are US$ unless otherwise stated.
— For further information, please refer to:
Heritage Oil Plc
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