The proposed sale of Ugandan assets to to Italian oil major ENI for between $1.35bn and $1.5bn has at a stroke allowed oil explorer Heritage Oil to allay investor concerns about its now-scrapped all-paper merger with Turkish energy company Genel Enerji.
This is jam today. Analysts reckon Heritage has achieved a good price for its prolific discoveries in Blocks 1 and 3A around Uganda's Lake Albert, and monetising them now avoids development risk. From the sale proceeds, Heritage should be able to pay out its planned 75-100p special dividend to shareholders, and still have some $1bn (£596m) cash on its balance sheet to pursue other opportunities.
Yet herein lies the rub. With Uganda sold off, Heritage's major asset will be the possibly billion-barrel Miran discovery in the autonomous Kurdistan region of northern Iraq. And the now-defunct Genel merger helped address some of the obvious political risks surrounding Kurdish assets. Specifically, Genel is already the partner of choice for the Kurdish Regional Government (KRG), which habitually nominates the Turkish company as its chosen candidate under its back-in rights to all contracts in the region.
The market has been blowing cold both on Kurdistan and Genel. Despite the high-quality Kurdish discoveries, investors have been rattled by the suspension of nascent exports from KRG territory. That's down to the impasse with central government in Baghdad over payment for this oil, for which none of the exporting companies (Chinese-owned Addax, DNO of Norway and Genel itself) have yet received a cent. Further tension came from a recent spat between the KRG itself and DNO. And an FSA investigation into some of the proposed Turkish directors of the merged Genel/Heritage entity didn't help sentiment, either.
The merger with Genel would have given significant comfort in relations with the KRG, and shifted Heritage into that most-favoured-company spot. Now Miran looks a lot more stand-alone, and a lot more exposed to local political risk than it would be with Genel involved.
