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Message: NR sale 26% Minan PSA to Genel $156m + loan...to pay for OLM30

21 August 2012

Heritage Oil Plc ("Heritage" or the "Company")

HERITAGE ANNOUNCES THE SALE OF AN INTEREST IN THE MIRAN BLOCK AND RECEIPT OF AN EXCHANGEABLE LOAN FOR COMBINED PROCEEDS OF $450 MILLION

Heritage (LSE: HOIL), an independent upstream exploration and production company, and its wholly owned subsidiary, Heritage Energy Middle East Limited ("HEME"), announce signed binding agreements with Genel Energy plc ("Genel") for: (i) the sale of a 26% 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 for cash consideration of $156 million (the "Sale"); and (ii) a $294 million exchangeable loan to be provided by Genel to the Company contemporaneously with completion of the Sale (the "Loan").

The Sale is expected to be completed, and the Loan drawn down, on or before Wednesday, 22 August 2012.

Highlights

Sale by HEME of a 26% interest in the Miran PSC and Miran JOA to Genel for $156 million valuing the entire interest currently held by HEME at $450 million

Loan of $294 million to be provided by Genel to Heritage

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The Loan will carry an interest rate of 8% and will have a fixed term ending

on the date which is the earlier of: (i) 15 months after the date of the completion of the proposed acquisition by Heritage, through its interest in Shoreline Natural Resources Limited, of an interest in OML 30 in Nigeria, as previously announced by Heritage on 29 June 2012 (the "Proposed Acquisition"); and (ii) 6 February 2014

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o Following the election of either the Company or Genel and subsequent approval from the shareholders of the Company, the Loan will be repaid through the transfer to Genel of the entire issued share capital of HEME, with the effect that Genel would then hold a 100% interest in the Miran PSC and Miran JOA

If the Proposed Acquisition completes, the combined proceeds from the Sale and drawdown of the Loan, totalling $450 million, will be used to partially fund the Proposed Acquisition, to continue the exploration, appraisal and development of the Company’s existing portfolio, fund further potential acquisitions and as general working capital

If the Sale is completed and the Loan is drawn down on or prior to 22 August 2012, the proposed rights issue (the "Proposed Rights Issue") described in the prospectus issued by Heritage on 6 August 2012 (the "Prospectus") to be undertaken in connection with the Proposed Acquisition will no longer be required. In addition, none of the potential advance capital raisings described in the Prospectus will be required

The Company intends to publish a supplementary Prospectus and a supplementary Circular (defined below) following completion of the Sale and draw down of the Loan, expected to be on 23 August 2012. The extraordinary general meeting of the Company convened in respect of the Proposed Acquisition (the "EGM") will continue to be held on 30 August 2012

The Sale

Overview

HEME, the Company and Genel entered into a sale and purchase agreement on 20 August 2012 (the "Sale Agreement") relating to the sale by HEME of a 26% interest in the Miran PSC and Miran JOA (the "Sale Assets") to Genel for cash consideration of $156 million. In accordance with the terms of the Sale Agreement the Sale will be deemed to have taken effect on 1 July 2012. Genel will therefore reimburse HEME for any expenditures made by HEME in respect of the Sale Assets between 1 July 2012 and 20 August 2012 resulting in an additional payment by Genel to HEME on completion of the Sale.

Following completion of the Sale, Heritage, through its interest in HEME, will hold a 49% interest in the Miran PSC and Genel will hold the remaining 51%. Pursuant to the terms of the Sale Agreement, Genel and HEME will act as joint operators in relation to the Miran Block, operating pursuant to an amended Miran JOA to reflect the new joint operatorship structure. As was the case previously, a 75% majority approval of the operating committee will be required with respect to any material decisions affecting the Miran joint operations. Therefore, each of HEME and Genel will retain control over such decisions with both parties having an effective veto right. Genel will have the right to appoint the general manager of the Miran joint operations.

Background

HEME was established by Heritage in 2007 to hold the Company’s interest in the Miran PSC, which entered into a contract with the Kurdistan Regional Government (the "KRG") on 2 October 2007. Pursuant to the terms of the Miran PSC, Genel was nominated as the third- party participant in April 2009, with the effect that the interest of each of HEME and Genel in the Miran PSC became 75% and 25% respectively.

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The Miran Block covers approximately 1,015 square kilometres and its eastern and western structures are the subject of exploration and development activities pursuant to the Miran PSC and Miran JOA. Heritage provides regular updates to the market in respect of the exploration and development of the Miran Block, which information can be found in consolidated form in respect of the last three financial years and in respect of the last financial year through to July 2012 in each of the Prospectus and the circular to shareholders published by the Company in connection with the Proposed Acquisition on 6 August 2012 (the "Circular").

Most recently:

the Miran West-3 well reached the primary target of the Jurassic gas reservoir and was

successfully tested. The well is suspended pending completion as a production well;

the Miran West-4 well commenced drilling in June 2012 to further appraise the Upper Cretaceous oil reservoir and reached a target depth of 1,905 metres. A maximum flow rate of oil of 1,350 bopd was achieved in the one test undertaken, with oil quality

similar to that found at Miran West-1 and Miran West-3;

the Miran East-1 exploration well commenced drilling in March 2012 and is currently

at a depth of 3,700 metres and drilling through the main Jurassic reservoir targets.

Drilling is expected to complete in November 2012; and

fully processed 3D seismic across the Miran Block is available and initial

interpretation of the data has been completed. Planning and development studies on the Miran Field and conceptual design studies on a gas export pipeline are on-going.

Between October 2007 and 1 July 2012, the deemed effective date of the Sale, HEME has spent approximately $211 million in respect of the Miran PSC operations and, as the Miran Block operations are still in the exploration phase, no profits have been generated to date. The unaudited gross assets subject to the Sale are estimated at $74 million.

Rationale for the Sale

Heritage aims to generate growth in shareholder value through the development, production and acquisition of a portfolio of oil and gas interests and through effective portfolio management, including the use of industry farm-outs and realising value through asset disposals. The level of consideration is considered attractive and the rationale for the Sale underlines the Company’s stated strategy of value creation and effective portfolio management. The reduction in HEME’s funding obligations under the Miran JOA, following amendment as a result of the Sale, will allow the Company to continue to acquire and invest in, and subsequently explore and develop, oil and gas properties throughout the world with a focus on the Middle East and Africa.

Key Conditions of the Sale Agreement

Conditions for completion of the Sale include, amongst others: relevant approvals of the Sale being granted by the Minister of Natural Resources for the KRG and the Regional Council for the Oil and Gas Affairs of Kurdistan; the execution of an amendment and novation agreement in respect of the Miran PSC and the Sale Assets; obtaining written approval of the KRG and the Miran JOA operating committee to the appointment of Genel and HEME as joint operators and obtaining approvals of the Sale as required by the facilities agreement (the "Facilities Agreement") entered into by the Company and certain of its subsidiaries in respect of financing the Proposed Acquisition (as detailed in the Prospectus and the Circular issued on 6 August 2012 as well as the announcement issued by the Company on 29 June 2012).

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Satisfaction of all conditions and completion of the Sale and draw down of the Loan is expected to occur on, or before, 22 August 2012.

The Exchangeable Loan

The Company, HEME, Heritage Oil and Gas Limited and Genel entered into a facility agreement in respect of the Loan on 20 August 2012 (the "Loan Agreement"), whereby Genel agreed to loan Heritage $294 million at an interest rate of 8% (subject to adjustment) for a fixed term ending on the date which is the earlier of (i) 15 months after the date of the completion of the Proposed Acquisition and (ii) 6 February 2014 ("Repayment Date"). 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, the parties have elected, and Heritage shareholders have given approval, to repay the loan by way of a transfer of the entire issued share capital of HEME to Genel (the "Exchange Option").

The Exchange Option may be triggered at the election of either Heritage or Genel at any time during the period commencing on the date the Proposed Acquisition is completed and ending three months prior to the Repayment Date. If either party gives notice of its wish to exercise the Exchange Option, then following the delivery of such notice, Heritage will have 65 days in which to convene a general meeting of its shareholders to vote on the Exchange Option, which notice of meeting will be accompanied by a circular providing Heritage shareholders with additional information in respect of the Exchange Option.

The Company will be obliged to pay Genel a fee of $6.6 million and the interest rate applicable to the Loan will increase to 12% in the event that: (a) the Proposed Acquisition does not complete by 6 November 2012, subject to requirements under the listing rules of the Financial Services Authority which apply prior to Heritage’s shareholders approving the Proposed Acquisition, in which case the fee will be payable and the interest will increase five days following 6 November 2012; or (b) either (i) the Exchange Option is not approved at the general meeting of the shareholders or (ii) Heritage fails to convene the general meeting of its shareholders to approve the Exchange Option and procure the transfer of the entire issued share capital of HEME within 65 days from the date the Exchange Option notice is served, in which case the fee will be payable and the interest will increase following the date of the general meeting at which shareholder approval is not obtained or on the date that is 65 days from the date the Exchange Option notice is served, as applicable. The Loan will be secured by a charge over the shares of HEME as well as a charge over the remaining assets of HEME and will be supported by a guarantee from the Company. Drawdown of the Loan in full is expected to occur on, or before, 22 August 2012.

Use of Proceeds

As a result of the Sale and the Loan the Company will have newly available funds totalling $450 million in aggregate (the "Proceeds"). If the Proposed Acquisition completes, Heritage intends to apply the Proceeds towards the cash consideration for the Proposed Acquisition and costs associated with the Proposed Acquisition as well as to fund continued exploration, appraisal and development of the Company’s portfolio and general working capital. In the event that the Proposed Acquisition is not approved by shareholders, the current intention of the Company is to: (i) invest a portion of the Proceeds in furthering the Company’s exploration and development campaigns across its licence areas, together with any relevant acquisitions and enhancements to its existing portfolio; (ii) cover any portion of the $85 million deposit paid in respect of the Proposed Acquisition that is non-refundable; and (iii) use the remaining portion to repay the Loan.

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The Rights Issue and the Advanced Capital Raisings

Conditional upon receipt by the Company of Proceeds on or prior to 22 August 2012, the Proposed Rights Issue would no longer be required. In addition, none of the advanced capital raisings referred to in the announcement dated 6 August 2012 relating to the Proposed Rights Issue would, in such circumstances, be required at this time. If the Proceeds are not received on or prior to 22 August 2012, the Company intends to continue with the Proposed Rights Issue. Following completion of the Sale and drawdown of the Loan, the Company intends to publish a supplementary Prospectus and a supplementary Circular, expected on 23 August 2012. It is still intended that the EGM to approve the Proposed Acquisition will be held on 30 August 2012.

Tony Buckingham, Chief Executive Officer, commented:

"

We believe this sale and loan financing crystallises significant value for shareholders, demonstrating our ability to invest in and monetise assets at an appropriate stage. The proceeds provide significant financial flexibility allowing us to fund the proposed acquisition of OML 30 without any rights issue or other additional capital requirement from, or potential dilution to, our existing shareholders."

Analyst Conference Call

There will be a conference call for analysts at 11:00am BST today to be hosted by Paul Atherton, Chief Financial Officer. For further information, contact Stephanie Power at FTI Consulting on + 44 (0) 20 7269 7277 or [email protected].

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