Heritage Oil Plc, an independent upstream exploration and production company, and its wholly owned subsidiary, Heritage Energy Middle East Limited (HEME), announce the proposed divestment of HEME’s remaining 49% interest in the production sharing contract relating to the Miran Block (the Miran PSC) in the Kurdistan Region of Iraq (Kurdistan) and corresponding interest in the related joint operating agreement (the Miran JOA) to Genel Energy (Miran) Limited, a wholly owned subsidiary of Genel Energy plc (Genel) under the terms of a US$294 million exchangeable loan (the Loan) provided to Heritage by Genel in August 2012, including the sum of cash calls paid by Genel to the operator of the Miran Block on HEME’s behalf in respect of its 49% interest (the Cash Calls), since 1 July 2012 (the Divestment). Completion of the Divestment is subject to approval of the Company’s shareholders.
- Notice served by Heritage to Genel on 9 November 2012, stating that the Loan repayment is to be satisfied by the proposed Divestment of HEME’s 49% interest in the Miran PSC and the Miran JOA (the Divestment Assets), reducing Heritage’s interest in the Miran Block to nil
- Board of Directors believe that the proposed Divestment is the most advantageous option to repay the Loan due to the attractive valuation secured for a development asset with a very significant future capital expenditure requirement
- The proposed Divestment constitutes a class 1 transaction under the Financial Services Authority’s (FSA) Listing Rules, thereby requiring approval from the Company’s shareholders by ordinary resolution prior to completion
- Combined proceeds of US$450 million received from Genel on 22 August 2012, further details of which are contained in the announcements made by the Company on 21 August 2012 and 23 August 2012, were used to partially finance 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, without need for additional capital raising and without delay to the acquisition process
- Successful completion of the acquisition of OML 30 was announced by the Company on 9 November 2012
- A circular containing information on repayment of the Loan and details on the proposed Divestment, together with a notice to convene an extraordinary general meeting (EGM), will be sent to the Company’s shareholders in due course
On 22 August 2012, HEME completed the sale of a 26% interest in the Miran PSC and Miran JOA to Genel for cash consideration of US$156 million (the Initial Sale). Contemporaneously, the Company and Genel entered into a loan agreement in respect of the Loan (the Loan Agreement), as amended by deed on 9 November 2012, whereby Genel agreed to (i) loan Heritage US$294 million at an interest rate of 8% (subject to adjustment) ending on 1 February 2014 (the Repayment Date) and (ii) pay the Cash Calls. The Loan Agreement states that the full amount of the Loan, plus any interest accrued thereon, must be repaid by Heritage in full on the Repayment Date unless, prior to such date, either of the parties have elected, and Heritage shareholders have given their approval by way of ordinary resolution, to Heritage repaying the Loan by way of a transfer of the Divestment Assets.
On 9 November 2012, Heritage gave notice to Genel of its election to repay the Loan and the Cash Calls, excluding accrued interest, by way of the proposed Divestment, subject to shareholder approval. Following completion of the proposed Divestment, HEME will not hold an interest in the Miran PSC or Miran JOA.
Divestment and rationale
By executing the Loan Agreement contemporaneously with the Initial Sale, the Company received aggregate proceeds of US$450 million and was able to proceed, without delay and without the need for any equity capital rising, with the acquisition of OML 30, which successfully completed and was announced on 9 November 2012.
The proposed Divestment constitutes a class 1 transaction under the FSA’s Listing Rules and therefore requires approval by ordinary resolution from the Company’s shareholders. Circular including information on the repayment of the Loan and details on the proposed Divestment together with a notice to convene the EGM 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 for the Miran PSC and Miran JOA is considered by the Board to be attractive taking into account the stage of development and the very 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.
The Board therefore unanimously recommends that the Company’s shareholders vote in favour of the proposed Divestment in order to effect full repayment of the Loan, as each of the Directors intend to do in respect of their own beneficial shareholdings, representing approximately 34.2% of the voting share capital.
Key Conditions of the proposed Divestment
In addition to requiring shareholder approval by ordinary resolution, the proposed Divestment is conditional on: (i) relevant approvals in respect of the proposed Divestment being granted by the Minister of Natural Resources for the Kurdistan Regional Government and the Regional Council for the Oil and Gas Affairs of Kurdistan; (ii) the execution of an amendment and novation agreement between HEME and Genel Energy (Miran) Limited in respect of the Divestment Assets; and (iii) other customary closing conditions.
Tony Buckingham, Chief Executive Officer, commented: “The divestment of our remaining 49% interest in Miran will allow Heritage to monetise the asset at an attractive valuation and the total proceeds will have funded a significant part of the completed acquisition of OML 30 in Nigeria. Completion of these transactions will provide Heritage with a balanced portfolio of assets generating cash flow from production which will assist with work programmes on high impact exploration whilst allowing the Company to continue considering further opportunities.”