Heritage Oil Plc (LSE: HOIL) announced that it has entered into a binding letter of intent, with Eni S.p.A for the sale of its entire interests in Blocks 1 and 3A in Uganda for up to $1.5 billion in a cash deal. Additionally this morning, Heritage declared that merger discussions with Genel have been terminated.
Under the terms of the deal Eni will acquire Heritage's 50% working interest in Blocks 1 and 3A in Uganda for an initial cash payment of $1.35 billion. Heritage may also receive an additional payment of $150 million, or an interest in a producing oil field of similar value. The remained 50% interest in the two blocks is held by FTSE 350 constituent, Tullow Oil (LSE: TLW).
Heritage will use part of the cash raised from the asset disposal to pay a special dividend in the range of 75p to £1.00 per share. In the event that the dividend is paid, Heritage would still expect to retain a cash position of over US$1 billion.
The remaining proceeds of the sale will be used for working capital and the acquisition of producing assets.
In relation to its proposed merger with Genel , Heritage stated that discussions had been terminated, ‘in light of the continuing situation in Kurdistan where, in particular, the revenue payment mechanism for oil exports has not yet been established’.
Heritage said it still remains ‘committed to being one of the leading oil companies operating in Kurdistan’ and will continue to consider other opportunities in this region as and when they arise. Some of the proceeds from the Eni sale will be used in the exploration, appraisal and development of its assets in Kurdistan.
The company also has a producing property in Russia and exploration projects in the Democratic Republic of Congo, Malta, Pakistan, Tanzania and Mali. Heritage plans to embark on drilling programmes in certain of these territories next year. According to Heritage Oil a number of the territories have potential ‘high-impact’ exploration wells which could continue to generate significant value for shareholders.
Heritage Oil CEO, Tony Buckingham commented on the latest developments:
"Following a strategic review, we have decided to enter into this letter of intent with Eni as we recognise the very large multi-billion dollar investment which is required to develop the Albert Basin and the related infrastructure.
Heritage has had remarkable operational success in Uganda as a result of technical excellence and first mover advantage ... The disposal proceeds would provide Heritage with significant financial flexibility to accelerate our existing exploration and development programmes, participate in value generating opportunities as and when they arise, as well as give us the ability to pay a special dividend to shareholders."