Heritage switches to Mid East

Heritage Oil, this month will sell its Ugandan operations for $1.35bn after more than a decade of development work. writes Miles Johnson in the Financial Times

The cash will be used to pay investors a special dividend of between 75p and £1 per share, and to delve into fresh projects in Africa and the Middle East.

In particular, Heritage will switch its attention to its operations in the oil-rich autonomous Kurdish region of northern Iraq, an area that Paul Atherton, chief financial officer, predicts could deliver Ugandan-like returns.

When the London-listed independent oil explorer arrived there in 1997, Uganda was a landlocked frontier economy with little infrastructure and a history of political instability.

The Uganda it departs, via the sale of its assets to its project partner Tullow Oil, has been transformed into one of the top 10 oil nations in Africa, with multinationals clambering over each other to harness the country’s energy wealth.

“The strategy of the company has always been to create value through the drill bit,” he says. “We do an inordinate amount of due diligence and often engage with a country or a government earlier than others. This has given us a first mover advantage.”

It is this approach of applying technical expertise to difficult locations, according to Mr Atherton, that has driven Heritage’s success.

A glance over much of Heritage’s portfolio away from Uganda – which includes projects in Iraq, Democratic Republic of Congo and Pakistan – reads like a tour guide of hot spots.

The strategy has rewarded shareholders. Listed in Toronto in 1999 with a market value of C$20m, Heritage, which took a London listing in 2008, is now worth more than £1.3bn.

Heritage was one of the first companies to enter Iraq after the 2003 war and one of the first to be awarded an exploration licence there in October 2007.

“There are very few places left in the world where you have the ability to go and drill and find a billion barrels of oil. Kurdistan is clearly one of those areas,” he says. “We were able to cherry-pick what we considered to be the best assets.”

The region, controlled by the Kurdish regional government, has huge potential. In May last year Heritage discovered reserves of 2bn-4bn barrels at its Miran West project, sending its share price soaring.

However, at present there is no export route because of a payment dispute between the Kurdish regional government and Baghdad – an impasse Mr Atherton believes will be resolved following the recent Iraqi elections.

And in spite of the risks, he says the Heritage model is well suited to a world where large oil reserves are to be discovered in increasingly far-flung locations.

“Supermajors are moving away from exploration, and this offers opportunities for companies like ours.

“Without question there are still billions of barrels to be found out there and Heritage is very well placed to find them.”

( Financial Times )

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