When Heritage Oil publishes its next set of interim results in 12 months' time, they should reflect a radically enhanced production profile following the proposed acquisition of a large non-operating stake in the OML 30 onshore block in Nigeria. Nevertheless, the principal catalyst for future earnings upgrades remains the group's huge Miran oil & gas discovery in Kurdistan – a project partially de-risked by the recent success of Gulf Keystone and the fact that half of the world's big oil majors are now committed to the region.
The $850m (£545m) acquisition of the OML 30 interests is to be funded by a $370m – as yet unpriced – discounted rights issue, in addition to a $550m bridging loan. It's envisaged that Heritage will be able to immediately raise current production from 567 barrels of oil per day (bopd) to 11,320 bopd on completion of the deal, but gross output from OML 30 could conceivably reach 145,000 bopd by 2018.
An independent Competent Persons Report compiled by RPS Energy in the wake of the announcement ascribed a net value of $3.1-$3.8bn for OML 30, implying that Heritage had secured the assets at a significant discounted price. In all, RPS estimates that Heritage's proven and probable reserves will rise from 61m to 408m barrels of crude.
The immediate cash flow from OML 30 is sorely needed as Heritage's cash position declined from $311m to $34.6m over the past six months, with another $407m tied up in escrow pending the outcome of a capital gains tax dispute with Ugandan authorities. The group's operating loss blew out to $45.3m, from $12.5m in the corresponding period last year, due to increased exploration expenses and impairments.
A revenue stream outside Heritage's Russian assets was needed to fund ongoing work in Kurdistan, where evaluation is under way at Miran East-1. It's hoped that the extended well tests on the Miran reservoirs will allow Heritage to sell between 3,000-5,000 barrels of crude/condensate daily into local markets as the first step in monetising its Kurdistan assets. Early drilling indications are positive.
Broker estimates are under review post the OML 30 acquisition.
| HERITAGE OIL (HOIL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 139p | MARKET VALUE: | £355m | |
| TOUCH: | 138.5-139p | 12-MONTH HIGH: | 249p | Low: 115p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 345¢* | NET CASH**: | $22m | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011 | 2.85 | -9.6 | -3 | nil |
| 2012 | 4.12 | -49.9 | -19 | nil |
| % change | +45 | - | - | - |
*Includes intangible assets of $287m, or 112¢ a share £1 = $1.56 **Excludes $407m related to Ugandan tax dispute and calculated after paying $85m deposit on proposed acquisition | ||||
