Heritage Oil confirms sale to Italian firm
LONDON
UK explorer Heritage Oil has confirmed that it agreed to sell its Ugandan interests to Italy's Eni for up to $1.5 billion as the Italian oil major builds its presence in Africa through acquisitions.
Eni is buying Heritage's 50 percent interest in block 1 and block 3A, which cover the northern and southern end of Lake Albert, in Uganda.
Heritage said in its statement that the blocks represented reserves of around 300 million barrels, although on its website Heritage said Block 1 alone has "multi-billion barrel potential".
Tullow Oil, Heritage's partner in these blocks, is currently running an auction to sell up to half its shares, and up to a 50 percent share in Block 2, in which Tullow holds 100 percent.
Heritage said it expected to complete the sale in the first quarter of 2010 and that part of the proceeds could be used to pay a special dividend of 75-100 pence/share. Heritage shares closed at 507-1/2 pence on Friday.
Eni will pay $1.35 billion upfront and a further consideration of either $150 million in cash or a stake in a producing oil field of a similar value within two years, provided certain conditions are met.
In recent years, Eni has bought hundreds of millions of barrels of reserves in Africa with its takeover of London-listed Burren Energy in 2008 and its acquisition of French explorer Maurel & Prom's interest in the M'Boundi field in 2007.
The deal could be good news for Italian energy engineering company Saipem, which is controlled by Eni.
According to the statement, Tony Buckingham, Heritage Chief Executive Officer, said, “Following a strategic review, we have decided to enter into this letter of intent with Eni as we recognise the very large multi-billion dollar investment which is required to develop the Albert Basin and the related infrastructure."
He added that, " The disposal proceeds would provide Heritage with significant financial flexibility to accelerate our existing exploration and development programmes, participate in value generating opportunities as and when they arise, as well as give us the ability to pay a special dividend to shareholders.”
Heritage, whose other main assets are undeveloped fields in Iraq's semi-autonomous Kurdish region, added it had terminated merger talks with Turkey's Genel Energy, a unit of the Cukurova Group, one of Turkey's largest conglomerates.
Heritage entered the merger talks with the plan that cashflow from Genel's new Kurdish oil fields, which were ramping up production, could be used to bring Heritage's Kurdish fields onstream.
However, a spat between the Kurdish region and Baghdad means companies producing in the region are not paid for any oil they try to export through Iraq. Heritage had hoped the long-running dispute would have been resolved by now.
As Uganda has limited local demand for petroleum products, analysts expect most of the oil to be exported by a pipeline to the Kenyan coast for onward supply to international markets.
As the crude under Lake Albert is of a thick consistency, the pipeline will need to be heated, making it an expensive project. Saipem has considerable experience in pipelines and often works closely with Eni.
Keith Morris, oil analyst at Evolution Securities, said it made sense for Heritage to exit the asset before such complex development work began as its competence was in exploration.
Heritage has spent approximately US$150 million on its oil and gas interests in Uganda, since being awarded its first licence in 1997.
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