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Heritage Oil Making Major Play In Nigerian Oil Bonanza

Jersey-based FT250 Oil Explorer Seeks Shareholder Support for Quantum Leap into West African Production.

by Frank Quin

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Heritage Oil (HOIL) has launched a $370 million (£238 million) rights issue to part-fund the purchase of a sizeable slug of Nigerian oil production. At the end of June, trading in Heritage shares on the LSE was suspended on its announcement of a deal to acquire a 45 percent interest in the OML 30 inland field in western Nigeria. The Jersey-based oil-co. is to pay $850 million to a consortium of Shell (RDS.A), Total (TOTF.PA) and Eni (ENI.MI), with the balance of the interest remaining with the Nigerian government.

On its return to the boards on 7 August, Heritage common stock rose 40 percent over two consecutive days, to reach 160p. The climb continued into the third day, with the price hitting 180p before finishing at 164.

But it’s a far cry from the lofty heights of early January last year, when Heritage peaked a shy under £5 on news of the sale of its Ugandan exploration interest to rival Tullow Oil. The fact is, since then and until announcement of the Nigerian deal, Heritage had been bumping along amongst a raft of speculative oil and minerals stocks, long on prospects and short on performance. It plainly needed a game-changer and seems to have found it in Nigeria.

So now Heritage looks a lot more interesting. We take a closer look at this current oil play – and its founder and CEO, Tony Buckingham.

Following its public float in 2008, Heritage became the quintessential oil play – setting off to some pretty dodgy parts of the world armed with intelligence about oil found or suspected and some publicly subscribed cash to buy in. But of the interests acquired in eight different countries, only one is actually producing, at least according to the Heritage website. This is in Siberia, Russian Federation, and in 2011 averaged a very modest 673 barrels per day. Elsewhere, Heritage’s interests are at the exploratory or, at best, developmental stage.

Of these, the most promising looks to be the production sharing agreement stitched up pre-float in 2007 with the government of the autonomous region of Kurdistan in northern Iraq, close to the borders with Turkey and Syria. The region has become the new Kuwait with estimates of oil and gas reserves putting it as the sixth-largest in the world.

The Heritage interest is in the Miran Block, covering some 1,045 square kilometres in close proximity to – 50 or so kilometres north of – the giant Kirkuk oil-field. But it seems that the initial value to Heritage of its Iraqi interest will come from natural gas extraction and supply, at first locally to a cement works and power station and later – with necessary transmission infrastructure funded and installed – to Turkey and possibly western buyers.

Heritage Oil’s other interests present as much more speculative and most are in what equity markets would tend to see as high-risk locations – leaving aside a small offshore prospect in Malta, Heritage has acquired prospecting interests in the Democratic Republic of Congo, Mali, Pakistan and Tanzania. It’s also present in Libya, via the acquisition of Sahara, an oil-field services enterprise.

What all these countries have in common is the prospect of problems for foreign investors. Again excluding Malta, and adding in Nigeria, Heritage has chosen to buy into some of the most corrupt and unstable locations on the planet. Indeed, and again excluding Malta, those eight countries just mentioned average just 2.36 on Transparency International’s 2011 Corruption Perception Index. This on a scale of 0 to 10, where 10 is virtually free of corruption and zero is totally corrupt.

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