Heritage oil taken out by Energy Investments Global Ltd (Bidco) in £924 million cash deal

Well, well….Nigerian focused oil producer Heritage Oil has announced this morning that it is recommending a 320p per share offer by Energy Investments Global Ltd (Bidco), a wholly owned subsidiary of Al Mirqab Capital SPC.

Its been quite a ride over the last couple of years for Heritage Oil shareholders having seen their shares drifting around the 150p mark at the end of 2013 and seen a stellar recovery in 2014 as production has increased from its Nigerian OML30 assets together with some additional tax breaks being offered by the government. With a 2.8% fall in the shares yesterday, there’s going to be disappointed investors who sold out before the takeover news!

Heritage Oil was founded my mercenary, Tony Buckingham, and he is currently chief executive and largest shareholder with a 34 per cent share of the company. He has agreed to remain as an adviser and retain a 20 per cent stake in the company for at least five years.

The company became mired in a complex legal dispute with Tullow oil following the sale of its Ugandan Lake Albert fields for $1.45 billion and a resultant tax bill in 2010. Heritage insisted it was not liable to pay a $434m capital gains tax bill on the transaction, and paid the Ugandan government only $121.5m. The Ugandan government then stopped Tullow from working on the field and proceeding with deals to sell down stakes to China’s CNOOC and France’s Total until it stumped up the remaining $313m as “security” on Heritage’s behalf. Tullow then sued Heritage to reclaim the $313 million and won the case against Heritage in mid-2013.

In July 2012 Heritage spent $800 million buying into Nigeria via a reverse takeover accompanied by a  $370 million rights issue forming a joint venture with local Nigerian company Shoreline Energy to buy the 45% stake in the block owned by Shell, Total and Eni. The majority 55% stake is owned by the Nigerian National Petroleum Corporation.

OML 30 lies onshore within the Niger Delta, with the licence covering 1,097 square kilometres and includes eight producing fields. Gross production from OML 30 reached over 50,000 bopd by the end of last year, in part from the benefit of continued maintenance and rehabilitation programmes and as a result of production from the Uzere West Field recommencing in December 2013 after having been shut-in for over two years. Production in Q4 2013 averaged c.13,300 bopd net to Heritage, up from c.8,150 bopd for the first nine months of the year.

In addition to Nigeria, Heritage has interests in Russia, Papua New Guinea, Russia, Tanzania, Malta, Libya and Pakistan.

The offer document points out the significant premium, ” 25.2 per cent. to the Closing Price of 255.6 pence per Ordinary Share on 29 April 2014 (being the last Business Day prior to the Announcement Date); 35.5 per cent. to the volume weighted average price of 236.2 pence per Ordinary Share for the three month period between 30 January 2014 and 29 April 2014 (being the last Business Day prior to the Announcement Date); and 115.1 per cent. to the Closing Price of 148.8 pence per Ordinary Share on 31 December 2013.”

Al Mirqab is owned by Sheikh Hamad bin Jassim Al Thani, the country’s former prime minister and former chief of Qatar’s sovereign wealth fund, and his family in a private capacity.

The deal follows the $1.35 billion offer for Caracal Energy by Glencore in mid-April. The small-mid cap oil sector seems to be hotting up!

Contrarian Investor UK

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