Esther Nakkazi
22 June 2009
Nairobi — Heritage Oil is set to merge with Genel Energy International to create an Anglo-Turkish company that would operate in Uganda and Iraq's autonomous oil-rich region of Kurdistan.
The new firm -- Heritage Oil Plc, valued at $5.5 billion -- will result from Heritage Oil's issuance of 260 million ordinary shares that constitute 100 per cent of its share capital, in exchange for acquiring the entire share capital of Genel.
This means that Heritage Oil will own 50 per cent of the newly formed company.
Heritage Oil Plc will be re-listed on the London Stock Exchange as an international E&P company. Heritage shares were suspended from trading after announcing its preliminary discussions regarding a merger two weeks ago.
According to experts, the move will enable the new company to generate sufficient cashflow to fund exploration of oil and gas in Uganda that had stalled.
"If a credible company buys into a less capitalised one, the projects move faster because there are usually good benefits and an increase in cashflow. You have seen what has happened after Tullow oil bought Hardman," Fred Kabagambe-Kallisa, the Permanent Secretary in the Ministry of Energy and Mineral Development, said.
The new company will benefit from Genel's expertise and experience in developing large oil fields in Iraq and cost savings from local knowledge, which has been built over time.
While gaining from Heritage Oil's main market London listing, its highly prospective portfolio, a proven technical team and management with a history of finding significant oil resources.
The statement from Heritage said that the enlarged group should benefit from the expertise of Genel, which has a proven track record of turning exploration into production in Kurdistan.
Heritage Oil which recently announced oil reserves so far discovered in Uganda exceed the commercial threshold for development holds half of the interest in Blocks 1 and 3A in the Albertine basin in Uganda where oil and gas exploration is going on.
Beyond Uganda, Heritage Oil is looking at potential in Tanzania, Malta, the Democratic Republic of Congo, Mali and Pakistan. On the other hand Genel, privately owned by Cukurova Holding Group -- one of the largest industrial and commercial conglomerates in Turkey -- has two producing licenses, five exploration projects, and is developing an oil refinery Kurdistan.
However, the Ugandan government is now looking for significant gains from transactions such as this merger, reasoning that companies exploring oil in its territory raise profiles using its resources.
"The government should benefit with any transfer of licence. It could be in cash or otherwise but am yet to get a formal communication from Heritage Oil about this," said Mr Kabagambe-Kallisa.
"It is a good thing that will improve the company's cashflow but I think Uganda should benefit in cash terms given that it is partly our resource that has pushed up Heritage's market value," said a senior official from the Energy Ministry who requested anonymity.
However information from Heritage Oil at this stage does not signal any such benefit.
"Our company has signed an MoU for a possible merger with Genel which will not affect our Production Sharing Agreement with the Uganda government in anyway," Heritage Oil East Africa manager Bryan Westwood said.
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