UK's Heritage Oil and Turkey's Genel Energy agree merger

Heritage's founder and chief executive, former mercenary Tony Buckingham, is betting that years of wrangling between Baghdad and Iraqi Kurdish leaders over oil revenue sharing is nearly over, enabling Genel's producing fields to fund his undeveloped assets, Reuters reported. 

Heritage said the deal, which is currently non-binding, would be structured as a takeover of Genel by Heritage, it added.

Heritage will pay with shares and Cukurova Group, one of Turkey's biggest conglomerates with interests ranging from leading mobile phone firm Turkcell, to media, construction, and financial services, will end up with around 50 percent of the enlarged group.

Genel is worth around $3.3-3.6 billion, Heritage Chief Financial Officer Paul Atherton told reporters on a conference call, adding he expects the enlarged group to be included in the FTSE 100 index of the UK's largest listed companies.

"We consider that this acquisition can transform Heritage into being a regional player," he was quoted by Reuters as saying.

The proposed executive board of the enlarged group on conclusion of the merger will include Buckingham, who will be appointed as executive chairman of the enlarged group; Mehmet Sepil, the current CEO of Genel, who will be appointed as CEO; Mehmet Emin Karamehmet, currently chairman of the Cukurova Group, who will be appointed as executive director and Atherton who will remain as CFO. 

IRAQI BET

Heritage has two main assets -- stakes in oil blocks in Uganda which it believes contain hundreds of millions of barrels of oil and a controlling stake in the Miran block in the semi-autonomous regional Kurdish administration in northern Iraq.

Last month Heritage said a successful well suggested the Miran West structure on the block contained up to 4.2 billion barrels of oil, with the potential for other finds.

However, the fields will require hundreds of millions of dollars to develop and investors have questioned whether the company will be able to finance the plans.

Atherton says the Genel tie-up solves this problem as Genel's Iraqi Kurdish fields are producing and should generate $400 million in revenues next year and $600 million in 2011.

Exports of crude from northern Iraq started last week, after being blocked for years as the central government and the regional Kurdish administration fought over revenue sharing.

However, the oil minister in Baghdad still maintains the contracts the Kurdish administration signed with foreign governments are not legal and no mechanism has been agreed to compensate companies for the oil the put into Iraq's state-controlled export pipeline system.

Atherton said he expected this soon but until then Genel is only being paid for the few thousand barrels per day its fields sell to the local Kurdish market.

Genel's two producing fields are Taq Taq, in which its partner is Toronto-listed Addax and the Tawke field, which is operated by Norway's DNO International.

Taq Taq currently has gross production capacity of 40,000 barrels per day (bpd) and Genel is targeting 162,000 bpd by the end of 2010. Tawke is expected to reach a production rate of 50,000 bpd by the year end.