Weekend press reports Heritage Oil in $850m Nigerian Oil deal

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From Reuters today. Click here for news link

Heritage Oil has agreed to buy a stake in a string of Nigerian oilfield assets, known as OML 30, in a deal which Heritage said on Sunday would diversify its portfolio and significantly increase its production capabilities.

Heritage and its Nigerian partner, Shoreline Power, have agreed to buy a 45 percent stake in OML 30 from oil majors Shell , Total and ENI.

They will also buy a further 45 percent stake in other assets under the joint operating agreement for OML 30, which includes a segment of the Trans Forcados pipeline, for a total cash consideration of $850 million, net of costs.

“The acquisition of OML 30 is transformational for Heritage, providing a material change in production and reserves,” Heritage chief executive Tony Buckingham said in a statement.

Nigeria is Africa’s leading oil producer. Heritage said the OML 30 deal would increase its net production to around 11,350 barrels of oil per day (bopd) from 605 at present.

The acquisition will be financed by a $550 million secured bridge finance facility provided by Standard Bank of South Africa, and an underwritten rights issue raising proceeds of up to $370 million.

Heritage added that the acquisition would be structured as a reverse takeover, meaning that shares in Heritage Oil would be suspended from July 2.

SBM TAKE –

It looks like a 3 for 4 rights issue at the current price is probable (I can’t see Tony Buckingham issuing paper at a material discount to the current nonsensically low price given an estimated NAV of over 300p unless he is the primary underwriter!). We need to see the terms of the bridge finance and just what is to be at the other end of the ‘bridge’ – possibly a renegotiation of the outstanding Convertible? What is interesting is that the bridge finance is remarkably similar to the $405m Ugandan tax dispute… Perhaps a sign that they are still confident in receiving this back?

To us, this looks to be a deal that stabilises the cash run down on the balance sheet that the Miran development and other prospect drills out would have created over the next 12 months through the receipt of hard petrodollars from OML 30 – 11000 barrels a day is a decent flow rate and will put significant millions in Hoil’s coffers.

As the shares will be suspended at the open, the devil will be in the detail, of which we will look closely at before deciding whether to take up the rights and posting here.

The chart below shows just what a drubbing the stock has taken during the last 2 years since the divi payout following the now controversial Ugandan asset sale. If this is the deal we hope it is then we are likely to trade closer to 200p in the short term than 100p.


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