Shell to buy Heritage?

By Agencies

Sale of Heritage Uganda assets to Shell more likely

The oil exploration sector is rife with takeovers and speculation at the moment, and traders are currently hearing of another possible bid, Royal Dutch Shell for Heritage Oil.

Initially, the value of Heritage shares rose over the news but the wrinkle is that Heritage has already agreed to a merger with Turkey’s Genel Energy.

Subsequently, Heritage shares fell back as speculators moved to bank profits from recent gains as Shell was rumoured to be eyeing Heritage, with some in the market quoting a potential offer price of as much as 700p per share.

But Pali International, which weighed in on the chatter, played down the probability of an offer, saying that while the potential for an approach could not be ruled out, in its view there was only a 10 per cent to 15 per cent chance of a counter-bid. “We believe that the sale of Heritage’s assets in Uganda to a large oil player (like Shell) could be a more likely scenario,” the broker said, adding that it would be surprised if such an asset sale takes place before the completion of Heritage’s merger with Genel.

Heritage, which is listed in London but is incorporated in Jersey, has oil and gas assets in two main regions ” Uganda and the Kurdish region of northern Iraq, where it recently announced a significant discovery on the Miran block that could contain as much as 4.2 billion barrels of oil.

It also has smaller interests in the Democratic Republic of Congo, Tanzania and Russia. Genel is a private company 56 per cent-owned by Cukorva, one of the largest industrial conglomerates in Turkey, with interests in the car, media, telecoms and technology industries.

Tony Buckingham, the former mercenary, will become a FTSE 100 chief executive when Heritage Oil merges with Genel Energy, of Turkey, to create a Kurdish-focused oil explorer valued at £3.5 billion.

Buckingham, the founder and chief executive of Heritage, said that the all-paper deal would take the form of a takeover of Genel, part of Turkey’s Cukorva Group.

Investors in Genel will be paid in shares and will own 50% of the new company, which is to be called HeritaGE. The merger will create a company large enough to enter the FTSE 100.

Buckingham, who owns 33% of shares in Heritage, will become executive chairman of the new organisation, in which he will own 16%.

Mehmet Emin Karamehmet, a Turkish billionaire and the chairman of Cukorova Group, will become executive director of the new HeritaGE group. The announcement yesterday was a memorandum of understanding, but the two companies hope to complete a deal by September.

Heritage is already collaborating with Genel in Kurdish Iraq, where the two companies are developing the Miran block together. Genel has a range of assets in the region and is producing oil and gas from two other blocks, Taq Taq and Tawke, where exports began this month.

The two companies will have combined proved and probable reserves of 308 million barrels of oil, making HeritaGE the largest mid-sized oil exploration company in the FTSE 100 after Tullow and Cairn.

Buckingham, an oil and diamonds magnate, said: “The potential combination of our two companies brings together a long-held ambition to develop the assets in our core areas.

“The transaction [will] create significant shareholder value by bringing these fields to production in a timely manner and generating cashflow to explore and develop our multibillion-barrel resource potential, both in northern Iraq and in Uganda.”

The combined group’s interests in Kurdish Iraq carry some risk. The Iraqi Government in Baghdad is in dispute with the Kurdish regional government in Erbil over the legality of the oil and gas contracts it has signed with companies active in the semi-autonomous region. Baghdad has said that the licences the regional authority has signed with companies such as Heritage and Genel are illegal, although it is under pressure to recognise them to boost oil export revenues.

Buckingham, who has links to Sandline and Executive Outcomes ” private military companies that were founded in the 1990s but are now defunct ” is a former business associate of Simon Mann, the British former soldier who is in jail in Equatorial Guinea after being found guilty of participating in a failed plot to overthrow the President.

Heritage said Buckingham has had no substantive business contact with Mann since 1998 and no contact with him at all since 2000. It said that he had no involvement with, or knowledge of, Mann’s activity in Equatorial Guinea.