THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR
FOR DISSEMINATION IN THE UNITED STATES.
Heritage Oil Plc (TSX:HOC)(LSE:HOIL), an independent upstream exploration and
production company, announces the publication of its interim results for the six
months ended 30 June 2010.
Operational Highlights
-- Miran West-2 well, Kurdistan Region of Iraq ("Kurdistan"), is drilling
ahead close to the base of the Jurassic section where initial results
from wireline logging, shows and sampling indicate the presence of
hydrocarbon-bearing fractured reservoir intervals
-- It was previously announced on 7 April 2010 that the well had
intersected significant hydrocarbon-bearing intervals over approximately
1,800 metres in the Cretaceous section
-- In addition to intervals already secured behind casing in the Cretaceous
section of the well, which are designated for testing, further intervals
have been identified for testing in the Jurassic after reaching total
depth
-- The well is drilling ahead at 3,468 metres and testing of these numerous
intervals will commence once total depth, estimated at 4,600 metres, has
been reached in the Triassic
-- 336 kilometres of seismic was acquired during the first quarter of 2010
on the Zamzama North Licence, Pakistan
-- Net average daily production of 583 bopd in the first half of 2010
Financial Highlights
-- Completed the sale of the Ugandan assets in July 2010 for which Tullow
Uganda Limited ("Tullow") paid $1.45 billion in cash (including the
contractual settlement of $100 million), of which Heritage received and
retained $1.045 billion
-- Remaining proceeds have been set aside due to an assessment by the
Uganda Revenue Authority ("URA") of tax payable, which Heritage is
disputing. Heritage deposited $121,447,500 with the URA and $283,447,500
has been retained in escrow
-- Special dividend of 100 pence per share declared on 2 August 2010 and
paid on 27 August 2010 to shareholders on the register on 13 August 2010
-- Strong balance sheet with cash of approximately $700 million, excluding
amounts related to the tax dispute, stated after the receipt of $1.045
billion and the payment of the special dividend
Outlook
-- Full results from the Miran West-2 well expected late September/early
October
-- Acquisition of 3D seismic planned to begin across the Miran Block in
the fourth quarter of 2010
-- Well planning has commenced for an exploration well on the Zamzama North
Licence, Pakistan. Recent floods in our licence area have delayed the
well into the first quarter of 2011
-- Production expected to increase in Russia with additional development
drilling
-- Actively looking for new acquisitions and opportunities
Tony Buckingham, Chief Executive Officer, commented:
"We are encouraged with progress of the Miran West-2 well and will provide an
update when we have reached total depth. We have a very attractive prospective
portfolio that has the potential to create significant shareholder value in the
next year through several high impact exploration wells. In addition, the
proceeds received from the disposal of the Ugandan assets leave the Company with
a strong balance sheet capable of executing the current strategy and we are
actively looking for new acquisitions and opportunities."
Heritage's 2010 interim report is available on its website at
www.heritageoilplc.com.
Notes to Editors
-- Heritage is listed on the Main Market of the London Stock Exchange and
is a constituent of the FTSE 250 Index. The trading symbol is HOIL.
Heritage has a further listing on the Toronto Stock Exchange (TSX:HOC).
-- Heritage is an independent upstream exploration and production company
engaged in the exploration for, and the development, production and
acquisition of, oil and gas in its core areas of Africa, the Middle East
and Russia.
-- Heritage has a producing property in Russia and exploration projects in
the Kurdistan Region of Iraq, the Democratic Republic of Congo, Malta,
Pakistan, Tanzania and Mali.
-- All dollars are US$ unless otherwise stated.
-- For further information please refer to our website,
www.heritageoilplc.com.
If you would prefer to receive press releases via email please contact Jeanny So
(jeanny@chfir.com) and specify "Heritage press releases" in the subject line.
CHAIRMAN'S & CHIEF EXECUTIVE OFFICER'S REVIEW
The sale of our Ugandan assets has placed Heritage in a strong financial
position with approximately $700 million of cash, excluding amounts related to
the tax dispute, after the sale of the Ugandan assets and payment of the special
dividend of 100 pence per share. We believe the sale of our Ugandan assets is
one of the largest oil deals in Sub-Saharan Africa, moving the Ugandan oil
industry a significant step closer to full development. Our activities in Uganda
over the last 13 years have created material benefits for both our shareholders
and the people of Uganda. The monetisation of these assets demonstrates clearly
the success of Heritage's strategy of first mover advantage supported by sound
technical and operating expertise. We now have the financial flexibility to
consider new opportunities to create value, whilst at the same time accelerating
programmes in our existing core areas where we continue to make progress. In
Kurdistan drilling continues on the Miran West structure and elsewhere in our
portfolio seismic acquisition continues in several areas to support planning for
new drilling activity. Delays in the completion of the disposal of our Ugandan
assets absorbed more management time than envisaged. This has caused minor
delays in some areas, but we are now firmly focused on our diversified high
impact exploration programmes.
Operational Overview
Kurdistan
The Miran West discovery was made in the first quarter of 2009, confirming the
presence of oil in the structure. The Miran West-2 well commenced drilling on 26
November 2009 and is currently drilling ahead on prognosis at a depth of 3,468
metres, close to the base of the Jurassic section. Data acquired after drilling
operations commenced indicates that the Miran West-2 well is positioned
optimally to test deeper exploration objectives with further potential for
substantial quantities of hydrocarbons.
The well intersected hydrocarbon-bearing intervals over approximately 1,800
metres within the Cretaceous section, which was the initial appraisal objective
of the well. Additionally, within the Jurassic section of the well, wire-line
logging, in conjunction with hydrocarbon shows and down-hole sampling have
already resulted in the definition of a number of hydrocarbon-bearing fractured
intervals suitable for flow testing. Testing of all of these intervals, in
addition to those already secured behind casing in the Cretaceous section of the
well, is planned after reaching total depth. Drilling is proceeding as planned
to a total depth of 4,600 metres to investigate further potential in the
underlying Triassic section.
The acquisition of 3D seismic over the Miran Block is scheduled to begin in the
fourth quarter of 2010 and will help define further appraisal drilling locations
designed to exploit the reservoirs' fracture networks. The Miran West-1 well,
and other Kurdistan drilling, have demonstrated that where open fractures are
encountered in wells, the reservoirs can support potential production rates of
up to 10,000 bopd.
Future plans for drilling in Kurdistan will focus on appraisal drilling on the
Miran West structure which, depending on rig availability, will start in the
first half of 2011. The Miran East-1 exploration well will also be drilled in
2011 and we are currently considering whether to contract one or two rigs for
the drilling programme next year.
Russia
Production averaged 583 bopd in the first half of 2010, an increase of 152% from
the six month period ended 30 June 2009. During the second quarter, the first
export sales of Zapadno Chumpasskoye crude via the Black Sea were completed.
Work continues on the Chumpasskoye Field and well P14, initially drilled in
1977, has been re-entered and re-logged. The Jurassic and Cretaceous potential
reservoirs in P14 are to be retested during the latter part of the year. Field
development work is continuing and we have commenced design and tendering phases
for the horizontal drilling programme which is scheduled to begin at the end of
the year.
Malta
In Malta, Heritage has an extensive data set of approximately 3,500 kilometres
of 2D seismic which was acquired in 2000. The acquisition of a further 1,000
kilometres of 2D seismic is planned to commence in the fourth quarter of 2010.
Current data indicates the presence of a variety of potentially significant
prospects which could contain approximately 500 mmboe. Discussions are ongoing
to contract a rig for drilling in 2011.
Pakistan
During the first quarter of 2010, 336 kilometres of 2D seismic was acquired on
the Zamzama North Licence in Pakistan. A structure has been identified and
planning has begun for an exploration well. Due to the recent floods in our
licence area this has been delayed until the first quarter of 2011. With gas
infrastructure close to the licence, the potential exists for discovered
hydrocarbons to be brought into production relatively quickly.
Tanzania
In Tanzania, Heritage is actively looking to firm up leads on drillable
prospects in all areas through the reprocessing of existing 2D seismic and the
possible acquisition of additional seismic data.
Mali
In Mali, 1,000 kilometres of 2D seismic will be acquired towards the end of the
year to identify potential drilling targets. Previous drilling in the region
encountered oil and gas shows indicating the potential for a working hydrocarbon
system.
Democratic Republic of Congo
In June 2010, the DRC government took the extraordinary step of awarding our
existing licences (Blocks 1 and 2) via Presidential Decree to two British Virgin
Islands-registered companies. The operator has commenced legal proceedings to
challenge that award. $1.6 million is capitalised and no impairment has been
recognised.
Corporate Overview
In December 2009, a Sale and Purchase Agreement (the "SPA") was executed with
ENI International B.V. ("Eni") to sell Heritage's 50% working interests in
Blocks 1 and 3A in Uganda (the "Assets"). In January 2010, Tullow Uganda Limited
("Tullow") exercised its right of pre-emption on the same terms and conditions
as agreed with Eni. The transaction completed on 26 July 2010. The Government of
the Republic of Uganda ("Government") has assessed the sale as a taxable event
which, after taking legal advice, we dispute. Heritage's position, based on
comprehensive advice from leading tax experts in Uganda, the United Kingdom and
North America, is that the disposal of the Assets is not taxable in Uganda. We
pride ourselves on our track record of compliance and good relations in all of
the jurisdictions in which we operate and intend to pay any lawfully imposed
tax. Discussions with Government continue with a view to resolving the tax
dispute.
Financial Results
As at 30 June 2010, Heritage had a cash position of approximately $141 million,
which is sufficient to cover the planned 2010 work programme. Additionally, the
disposal of the Assets in Uganda completed in July 2010 and Tullow paid cash of
$1.45 billion, of which Heritage received and retained $1.045 billion. Tullow
paid the agreed cash consideration of $1.35 billion for the Assets. A further
$100 million was paid by Tullow in full and final settlement of a potential
contractual dispute between the parties on the interpretation of the SPA
provisions relating to the contingent deferred amount, which could have been
payable up to the amount of $150 million dependent on certain conditions being
achieved.
Heritage deposited $121,477,500 with the URA, representing 30% of the disputed
tax assessment of $404,925,000 which the URA claims arises from the sale of the
Assets. $283,447,500 has been retained in escrow, pursuant to an agreement
between Heritage, Tullow and Standard Chartered Bank pending resolution between
Government and Heritage of a mechanism to resolve the tax dispute. This could
include the provision of a guarantee or letter of credit from an international
bank to Government to provide security for the remainder of the disputed amount.
Government has recently issued a further tax assessment of $30 million in
connection with the sale. Heritage continues to work with Government to agree a
way forward for the tax dispute to be resolved.
There are no further monies due to Heritage under the SPA apart from a working
capital adjustment, with respect to the Assets at the effective date of the
transaction of 17 January 2010, which will be agreed in the next few months with
Tullow.
On 27 August, 2010, Heritage returned approximately $490 million to shareholders
through a 100 pence per share special dividend. The remainder of Heritage's
funds, of approximately $700 million, excluding amounts related to the tax
dispute, will be allocated between accelerating the work programmes on our
existing asset portfolio and potential acquisitions.
Corporate Social Responsibility ("CSR")
CSR policies developed since the Company's formation are, in our view, a
fundamental element of our successful business record. Our CSR systems are
reviewed regularly and are an important responsibility of our CSR Board
Committee which was established in April 2010. The framework of our CSR policy
has been refined through our experiences in Uganda where we have worked
diligently with stakeholders. We believe that our active, ongoing involvement in
community projects in areas where we operate is fundamental in developing and
maintaining strong relationships within these regions. During the first half of
2010 we continued with our programmes in Uganda with the completion of the water
gravity system in Hoima, providing over 6,000 villagers across five villages
with clean water. Heritage was commended for the support given to the
communities in our areas of operation. Our community programmes in Kurdistan,
Tanzania and Pakistan are developing and we are pleased to report some case
studies of our activities in each area below.
Kurdistan
Our current activities in this region are focused on supporting the local
education system and assisting the development of the local infrastructure. At
the end of 2009, we ran a competition, engaging with schools near our drilling
site, to draw a picture for the cover of our 2009 Annual Report and Accounts.
During this process we discovered that one of the pupils had a hearing
disability, affecting his ability to learn. Our CSR Committee took the decision
to provide him with hearing aids for both ears and as a consequence his hearing
capacity has increased from 20% to 60%.
In addition, further work has been undertaken in the region to help repair some
of the main access roads to villages near our operations.
Tanzania
Our activities in this region have focused on supporting the local health
services. In June 2010, we made a donation to the Baobab Maternity Hospital in
Dar es Salaam where a new maternity hospital is urgently needed. The government
has donated land for the hospital and will provide support in terms of salaries,
supplies and equipment. The donation has been provided to contribute towards the
construction, management and service delivery of the Baobab Maternity Hospital.
The expectation is that every year this hospital will save thousands of lives,
reduce the spread of HIV/AIDS and prevent the occurrence of disabilities.
Currently, reproductive health services in Dar es Salaam are insufficient and do
not meet the needs of the hundreds of daily births. Consequently, maternal and
newborn death rates are very high and much of this suffering can be prevented.
Pakistan
In light of the recent unprecedented floods in Pakistan, Heritage is
contributing $72,000 which will be allocated between a disaster relief fund and
immediate relief to those most affected in our Zamzama North Licence area.
Health, Safety and the Environment
Health and Safety has risen to prominence again in the energy sector after the
unfortunate situation in the Gulf of Mexico earlier this year. Our track record
for Health and Safety is strong and we continually review our systems to ensure
we operate to the highest standards. The health and safety of our employees, and
those living around the areas where we operate is of paramount importance to us.
We have had no environmental spills or incidents or incurred any fines relating
to our environmental management in the first half of 2010.
Corporate Strategy
With the benefit of our strong cash position we aim to continue to generate
growth in shareholder value by focusing on high impact international plays with
the potential to discover significant hydrocarbon reserves. We look to acquire
and invest in exploration and early development opportunities throughout the
world, with a particular emphasis on our core areas of Africa and the Middle
East where we have a strong technical understanding. By entering into regions
early, we seek to obtain a large equity interest and operatorship.
Outlook
Our immediate focus is on Kurdistan where we continue to drill the Miran West-2
well and expect to announce full results from this shortly, including testing of
a number of potential reservoir intervals. We have a very attractive prospective
portfolio that has the potential to create significant shareholder value in the
next year through several high impact exploration wells. In addition, the
proceeds received from the disposal of the Ugandan assets leave the Company with
a strong balance sheet capable of supporting our current plans and also we are
actively looking for new acquisitions and opportunities.
Michael J. Hibberd
Chairman and Non-Executive Director
Anthony Buckingham
Chief Executive Officer
FINANCIAL REVIEW
Selected Operational and Financial Data
Six months Restated(1)Six
ended 30 June months ended 30
2010 June 2009 Change
----------------------------------------------------------------------------
Production bopd 583 231 152%
Sales volume bopd 580 311 86%
Average realised
price $/bbl 23.4 15.0 56%
Petroleum and natural
gas revenue $ million 2.5 0.8 213%
Loss from continuing
operations $ million (12.3) (12.1) (2%)
Loss from
discontinued
operations $ million (1.9) (0.7) (171%)
Net loss $ million (14.2) (12.8) (11%)
Total cash capital
expenditures -
continuing operation $ million (29.3) (19.4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at 30 June As at 31
2010 December 2009
----------------------------------------------------------------------------
Period end cash
balance $ million 140.8(2) 208.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Uganda and Oman have been classified as discontinued operations (see
note 4 of the condensed financial statements).
(2) Post the sale of Uganda and payment of the special dividend the
Company has cash balances of approximately $700 million.
Trading Performance
Production
Following the disposal of the Oman operations with effect from 1 January 2009,
all production and revenue is generated from the Zapadno Chumpasskoye Field in
Russia.
Average daily production increased by 152% from 231 bopd in the six months ended
30 June 2009 to 583 bopd in the six months ended 30 June 2010. This increase
resulted from the work over of existing wells, which improved flow rates, and
because production was shut-in for most of the first quarter of 2009 due to
unfavourable market conditions in Russia. Production in the first half of 2010
was 35% higher than the second half of 2009.
Revenue
Petroleum and natural gas revenue increased by 213% to $2.5 million due to both
higher volumes of crude oil sales from the Zapadno Chumpasskoye Field in Russia
and higher average realised prices. The average realised price in the first half
of 2010 of $23.43 per barrel was 56% higher than in the first half of 2009 due
to increased average commodity prices in Russia in 2010.
Operating Results
Petroleum and natural gas operating costs of $1.0 million in the six months
ended 30 June 2010 were 40% higher than in the same period last year, due to
higher crude oil production. The average operating cost reduced from $17.60 per
barrel in the first half of 2009 to $9.80 per barrel in the first half of 2010,
in part due to higher levels of production and the fixed nature of certain
costs.
Production tax increased from $0.4 million in the first half of 2009 to $1.3
million in the first half of 2010 as a result of both higher volumes of
production and increased average commodity prices in 2010, both of which are
used in the calculations to determine production tax.
General and administrative expenses increased from $6.4 million in the first
half of 2009 to $8.1 million in the first half of 2010. This is due principally
to expenses relating to corporate initiatives undertaken in the first half of
2010 which were not completed and therefore expensed. If non-cash share-based
compensation and expenses related to aborted corporate initiatives and
acquisitions are excluded, general and administrative expenses increased from
$4.2 million in the first half of 2009 to $4.8 million in the first half of
2010.
Depletion, depreciation and amortisation expenses increased by 37% to $1 million
in the first half of 2010, primarily due to increased production volumes.
Exploration expenditures expensed and not capitalised increased from $0.03
million in the first half of 2009 to $0.9 million in the first half of 2010.
Interest income of $0.3 million in the first half of 2010 was $0.2 million
higher than in the same period in 2009 as a result of both higher average cash
balances and interest rates in 2010. Cash and cash equivalents are typically
held in interest bearing treasury accounts.
Other finance costs decreased from $2.5 million in the first half of 2009 to
$1.4 million in the first half of 2010, due primarily to bondholders converting
$30.6 million of convertible bonds in 2009 thereby foregoing the right to earn
any interest. The level of interest costs capitalised, at $6.4 million, was
higher in the first half of 2010 compared to the same period in 2009 ($5.9
million) due to increased cumulative amounts of capital expenditures financed
from interest bearing borrowings.
The Company incurred foreign exchange losses of $0.9 million in the first half
of 2010 (first half of 2009 - $0.7 million), primarily because of an
intercompany US dollar denominated loan provided to the Russian subsidiary to
develop the Zapadno Chumpasskoye Field. The revaluation of this loan in Russian
roubles, the functional currency of the Russian subsidiary, created the foreign
exchange losses due to the weakening of the Russian rouble against the US dollar
during the first half of 2010. In accordance with Heritage's accounting policy,
the revaluation loss was recognised in the financial statements of the Russian
subsidiary in Russian roubles and on consolidation, the revaluation losses were
translated into US dollars and included in the income statement.
Heritage recognised an unrealised loss on the fair value of its investment in
Afren plc ("Afren") warrants of $0.4 million during the first half of 2010,
compared to a $0.7 million gain in the first half of 2009. The gain or loss is
determined by the performance of the share price of Afren in which Heritage
holds 1,500,000 warrants with an exercise price of GBP 0.60 per warrant,
received as partial consideration from the sale of Heritage Congo Limited in
2006. The warrants have a term until 22 December 2011. At 30 June 2010, Afren's
share price was GBP 0.85 per share.
Heritage's net loss from continuing operations in the first half of 2010 was
$12.3 million, compared to $12.1 million in the first half of 2009. The adjusted
net loss in the first half of 2010 was $7.6 million compared to $7.5 million in
the first half of 2009 if certain non-cash items (share-based compensation
expense, impairment of investment in unlisted securities, foreign exchange
losses and unrealised gain/loss on revaluation of Afren warrants) and the
one-off aborted corporate initiatives and acquisition costs are excluded.
Disposals
On 18 December 2009, Heritage announced that the Company, and its subsidiary
Heritage Oil & Gas Limited ("HOGL"), had entered into the SPA, with Eni for the
sale of its 50% interests in Blocks 1 and 3A in Uganda. On 17 January 2010,
Tullow exercised its right to pre-empt the sale of the Assets on the same terms
and conditions as agreed with Eni. The transaction completed on 26 July 2010 and
Tullow paid cash of $1.45 billion, of which Heritage has received and retained
$1.045 billion (see "Important Events Since 30 June 2010" section of the
financial review).
On 7 April 2009, the Company completed the sale of Eagle Energy (Oman) Limited
("Eagle Energy"), a wholly-owned subsidiary of Heritage, to RAK Petroleum Oman
Limited for $28 million, plus a working capital adjustment of $0.4 million, both
of which were received in 2009. The Company acquired Eagle Energy, which had a
10% interest in Block 8 offshore Oman, in 1996. Block 8 contains the Bukha field
which has been producing since 1994 and the West Bukha field which commenced
production in February 2009.
The results of operations in Uganda and Oman have been classified as
discontinued operations. The loss on disposal of discontinued operations in
Uganda was $1.9 million in the first half of 2010 being expensed (the gain on
disposal will be recognised in the second half of 2010). The loss on disposal of
discontinued operations in Oman was $0.7 million in the first half of 2009.
In the first half of 2010 the basic and diluted loss per share was $0.05 which
is the same as the basic and diluted loss per share of $0.05 in the first half
of 2009.
Cash Flow and Capital Expenditures
Cash used in operating activities of continuing operations was $13 million in
the first half of 2010 compared to $12.2 million in the first half of 2009.
Total cash capital expenditures for continued operations in the first half of
2010 were $29.3 million compared to $19.4 million in the first half of 2009. The
following major work programmes were undertaken in the first half of 2010:
-- The Miran West-2 well, Kurdistan, commenced drilling on 26 November 2009
and drilling continued throughout the first half of 2010. The well is
being drilled to a target depth of 4,600 metres and is expected to be
completed by the end of September/beginning of October 2010; and
-- 336 kilometres of 2D seismic were acquired on the Zamzama North Licence,
Pakistan.
Financial Position
Liquidity
Heritage had a net decrease in cash and cash equivalents during the first half
of 2010 of $67.3 million. At 30 June 2010, Heritage had a working capital
surplus of $302.4 million, including cash and cash equivalents of $140.8
million. Subsequent to 30 June 2010, the Company completed the sale of its
interests in Uganda and received net proceeds of $1.045 billion from Tullow,
after $121,477,500 was deposited with the URA and $283,447,500 was retained in
escrow pending resolution of the tax dispute. In addition, the Company paid a
special dividend of approximately $490 million (see note 4 of the condensed
financial statements).
Capital Structure
Heritage's financial strategy has been to fund its capital expenditure
programmes and any potential acquisitions by selling assets, reinvesting funds
from operations, using existing treasury resources, finding new credit
facilities and, when considered appropriate, either issuing unsecured
convertible bonds or equity.
On 7 April 2009, the Company completed the sale of Eagle Energy, a wholly-owned
subsidiary of Heritage, to RAK Petroleum Oman Limited for $28 million, plus a
working capital adjustment of $0.4 million.
On 18 June 2009, the Company completed the placing of 25,400,000 new Ordinary
Shares at a price of 520 pence per share for gross proceeds of $216,848,944 (GBP
132,080,000). Share issue costs were $11,820,609 (GBP 7,157,379).
On 26 July 2010, the Company completed the disposal of the Assets in Uganda for
cash consideration of $1.35 billion and an additional contractual settlement
amount of $100 million.
At 30 June 2010, Heritage had a working capital surplus of $302.4 million. It
also had a net cash deficit of $15.7 million (cash and cash equivalents less
total liabilities) and 4% gearing (net debt as a percentage of total
shareholders' equity) compared with net cash of $41.7 million and nil gearing at
31 December 2009.
Important Events Since 30 June 2010
On 18 December 2009, Heritage announced that the Company and HOGL had entered
into the SPA, with Eni for the sale of the Assets and on 17 January 2010, Tullow
exercised its rights of pre-emption. The sale of the Assets completed on 26 July
2010 and Tullow paid cash of $1.45 billion (including $100 million from a
contractual settlement), of which Heritage received and retained $1.045 billion.
The URA has assessed tax payable on this disposal of $404,925,000 which Heritage
is disputing. Heritage continues to work with the Government to agree a way
forward to resolve the tax dispute. Tullow paid cash consideration of $1.35
billion and an additional contractual settlement amount of $100 million. On
closing, Heritage deposited $121,477,500 with the URA, representing 30% of the
disputed tax assessment which the URA determines arises from the sale. A further
$283,447,500 has been retained in escrow, pursuant to an agreement between
Heritage, Tullow and Standard Chartered Bank pending resolution between
Government and Heritage for a mechanism to resolve the tax dispute. This could
include the provision of a guarantee or letter of credit from an international
bank to Government to provide security for the remainder of the disputed amount.
Heritage's position, based on comprehensive advice from leading tax experts in
Uganda, the United Kingdom and North America, is that the disposal of the Assets
is not taxable in Uganda. The Company will pay any lawfully imposed tax.
The additional contractual settlement amount of $100 million was paid by Tullow
in full and final settlement of a potential contractual dispute between the
parties on the interpretation of the SPA provisions relating to the contingent
deferred amount, which could have been payable up to the amount of $150 million
dependent on certain conditions being achieved. On 19 August 2010, the URA
issued an additional notice of assessment requesting Heritage to pay $30 million
which is 30% of the contractual settlement of $100 million paid by Tullow. The
Company will discuss with Government the way to resolve this additional
assessment as part of the tax dispute resolution process described above.
There are now no further monies due to Heritage under that agreement apart from
a working capital adjustment with respect to the Assets, at the effective date
of the transaction of 17 January 2010, which is expected to be agreed in the
next few months with Tullow.
On 2 August 2010, Heritage announced the declaration of a special dividend of
100 pence per ordinary share of the Company and Heritage Oil Corporation
("HOC"), a wholly owned subsidiary, also announced the declaration of a special
dividend of Cdn$1.62 per exchangeable share of HOC, calculated at an exchange
rate of GBP 1.00:Cdn$1.62. The dividend was paid on 27 August 2010 to those on
the register on 13 August 2010 and is considered to be an eligible dividend for
Canadian tax purposes.
The special dividend has also been paid to Bondholders. As disclosed in an
announcement on 31 December 2009, certain amendments to the terms of the
$165,000,000 8.00% convertible bonds due 2012 (the "Bonds") were approved by
Bondholders. Pursuant to such amendments, no adjustments will be made to the
conversion rights under the terms of the Bond (the "Conversion Rights") in
respect of any dividend paid or made by the Company. Instead, the Company agreed
to pay the holder of each Bond outstanding on the record date for such dividend
a pass-through dividend (the "Pass-through Dividend") which is equal to the
dividend which would be received by the holder of a number of ordinary shares of
the Company ("Ordinary Shares") equal to the number of Ordinary Shares to which
the Bondholder would have been entitled if it had exercised its Conversion
Rights on the record date for the relevant dividend. The record date for these
purposes was 13 August 2010.
The aggregate principal amount of Bonds outstanding at the record date of 13
August 2010 was $127,100,000. These Bonds are convertible into 27,042,553
Ordinary Shares pursuant to the Conversion Rights and accordingly the Company
paid to Bondholders a Pass-through Dividend of GBP 27,042,553 on the dividend
payment date.
Primary Risks and Uncertainties Facing the Business
Heritage's business, financial standing and reputation may be impacted by
various risks, not all of which are within its control. The Group identifies and
monitors the key risks and uncertainties affecting the Group and operates in a
way that minimises the impact of such risks where possible. The primary risks to
the business include:
-- Exploration and development expenditures and success rates - the Group
has experienced management and technical teams with a track record of
finding attractive oil discoveries and has a diversified portfolio of
exploration, development and production assets. Considerable technical
work is undertaken to reduce related areas of risk and maximise
opportunities.
-- Factors associated with operating in developing countries, political,
fiscal and regulatory instability - the Group maintains close contact
with Governments in the areas within which it operates and, where
appropriate, invests in community projects. Considerable work is
undertaken before commencing operations in any new territory.
-- Title disputes - notwithstanding potential challenges in the DRC,
Kurdistan and Malta, the Group believes that it has good title to its
oil and gas properties. However, the Group cannot control or completely
protect itself against the risk of title disputes or challenges and
there can be no assurance that claims or challenges by third parties
against the Group's properties will not be asserted at a future date.
Naturally the Group strives to employ the best internal and advisory
knowledge available to help to minimise this risk associated with its
activities.
-- Oil and gas sales volumes and prices - whilst not under the direct
control of the Company, a material movement could impact on the Group.
The Group did not hedge oil prices in the first half of 2010.
-- Loss of key employees - remuneration packages are regularly reviewed to
ensure key executives and senior management are properly remunerated.
Long-term incentive programmes have been established.
-- Foreign Currency Exposure - generally, it is the Group's policy to
conduct and manage its business in US dollars, its reporting currency.
Cash balances are primarily held in US dollars but small amounts may be
held in other currencies in order to meet immediate operating or
administrative expenses or to comply with local currency regulations.
More detailed information on the Group's key risks is provided on pages 34 to 37
of the 2009 Annual Report issued on 30 April 2010. There is further information
on the risks facing the Company in the Directors' Report on pages 62 to 64 and
also in note 3 of the financial statements on pages 83 to 84 of the 2009 Annual
Report and Accounts.
Paul Atherton
Chief Financial Officer
Responsibility Statement of the Directors in Respect of the Interim Report and
Accounts
We confirm on behalf of the Board that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
-- the interim report and accounts includes a fair review of the
information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of
the current financial year and that have materially affected the
financial position or performance of the Group during that period;
and any changes in the related party transactions described in the
last annual report that could do so.
For and on behalf of the Board
Anthony Buckingham
Chief Executive Officer
27 August 2010
Paul Atherton
Chief Financial Officer
27 August 2010
Independent Review Report to Heritage Oil Plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the Interim Report and Accounts for the six months ended 30 June
2010 which comprises the condensed consolidated income statement, condensed
consolidated statement of comprehensive income, condensed consolidated balance
sheet, condensed consolidated statement of changes in equity, condensed
consolidated cash flow statement and the related explanatory notes. We have read
the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Disclosure
and Transparency Rules (the "DTR") of the UK's Financial Services Authority (the
"UK FSA"). Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Directors' Responsibilities
The Interim Report and Accounts is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the Interim
Report and Accounts in accordance with the DTR of the UK FSA.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the EU. The condensed set of
financial statements included in this half-yearly financial report has been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the
EU.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the Interim Report and Accounts based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the Interim Report and
Accounts for the six months ended 30 June 2010 is not prepared, in all material
respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK
FSA.
Jimmy Daboo
for and on behalf of KPMG Audit Plc
Chartered Accountants
15 Canada Square
Canary Wharf
London E14 5GL
27 August 2010
Condensed Consolidated Income Statement
Six months Six months
ended 30 June ended 30 June
2010 2009
$ $
----------------------------------------------------------------------------
Revenue
Petroleum 2,457,618 846,629
Expenses
Petroleum operating (1,034,027) (739,893)
Production tax (1,332,960) (378,362)
General and administrative (8,075,970) (6,379,304)
Depletion, depreciation and amortisation (1,030,888) (751,742)
Exploration expenditures (862,566) (28,113)
----------------------------------------------------------------------------
Operating loss (9,878,793) (7,430,785)
----------------------------------------------------------------------------
Finance income/(costs)
Interest income 275,597 86,987
Impairment of investment in unlisted
securities - (2,352,825)
Other finance costs (1,415,856) (2,501,375)
Foreign exchange losses (926,149) (658,581)
Unrealised (loss)/gain on other financial
assets (371,085) 743,564
----------------------------------------------------------------------------
(2,437,493) (4,682,230)
----------------------------------------------------------------------------
Loss from continuing operations (12,316,286) (12,113,015)
----------------------------------------------------------------------------
Loss on disposal of discontinued operations
(note 4) (1,852,306) (698,763)
----------------------------------------------------------------------------
Net loss for the period attributable to
owners of the Company (14,168,592) (12,811,778)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statement of Comprehensive Income
Six months Six months
ended 30 June ended 30 June
2010 2009
$ $
----------------------------------------------------------------------------
Loss for the period (14,168,592) (12,811,778)
Other comprehensive loss
Exchange differences on translation of
foreign operations (382,830) (1,059,783)
Cumulative gains on available-for-sale
investments transferred to income
statement on impairment of investments - (168,000)
----------------------------------------------------------------------------
Other comprehensive loss, net of income tax (382,830) (1,227,783)
----------------------------------------------------------------------------
Total comprehensive loss for the period (14,551,422) (14,039,561)
----------------------------------------------------------------------------
Attributable to:
Owners of the Company (14,551,422) (14,039,561)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net loss per share from continuing
operations
Basic and diluted (0.04) (0.05)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net loss per share from discontinued
operations
Basic and diluted (0.01) -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net loss per share
Basic and diluted (0.05) (0.05)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Balance Sheet
31 December
30 June 2010 2009
$ $
----------------------------------------------------------------------------
ASSETS
Non-current assets
Intangible exploration assets (note 5) 145,816,822 121,278,468
Property, plant and equipment (note 5) 59,679,331 59,297,735
Other financial assets (note 6) 783,140 1,154,225
----------------------------------------------------------------------------
206,279,293 181,730,428
----------------------------------------------------------------------------
Current assets
Inventories 23,289 12,969
Prepaid expenses 505,490 568,166
Assets of a disposal group classified as
held for sale (note 4) 183,082,200 163,414,518
Trade and other receivables 2,956,020 2,203,707
Cash and cash equivalents (note 7) 140,797,193 208,094,355
----------------------------------------------------------------------------
327,364,192 374,293,715
----------------------------------------------------------------------------
533,643,485 556,024,143
----------------------------------------------------------------------------
LIABILITIES
Current liabilities
Liabilities of a disposal group classified
as held for sale (note 4) 13,383,938 12,558,727
Trade and other payables 10,675,737 23,278,030
Borrowings (note 7) 884,641 615,892
----------------------------------------------------------------------------
24,944,316 36,452,649
----------------------------------------------------------------------------
Non-current liabilities
Borrowings (note 7) 131,144,894 129,553,752
Provisions 372,140 355,073
----------------------------------------------------------------------------
131,517,034 129,908,825
----------------------------------------------------------------------------
156,461,350 166,361,474
----------------------------------------------------------------------------
Net Assets 377,182,135 389,662,669
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY ATTRIBUTABLE TO OWNERS
OF THE COMPANY
Share capital (note 8) 460,279,555 460,279,555
Reserves 84,234,755 82,546,697
Retained deficit (167,332,175) (153,163,583)
----------------------------------------------------------------------------
377,182,135 389,662,669
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2010
--------------------------------------------------------
Foreign currency
translation Share-based
Share Capital reserve payments reserve
$ $ $
----------------------------------------------------------------------------
Balance at 1 January
2010 460,279,555 (815,746) 58,713,288
Total comprehensive
income for the
period
Loss for the period - - -
Other comprehensive
loss
Exchange differences
on translation of
foreign operations - (382,830) -
Total other
comprehensive loss - (382,830) -
----------------------------------------------------------------------------
Total comprehensive
loss for the period - (382,830) -
----------------------------------------------------------------------------
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Share-based payment
transactions and
exercise of share
options - - 2,070,888
----------------------------------------------------------------------------
Total transactions
with owners - - 2,070,888
----------------------------------------------------------------------------
Balance at 30 June
2010 460,279,555 (1,198,576) 60,784,176
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended 30 June 2010
--------------------------------------------------------
Equity portion of
Retained deficit convertible debt Total equity
$ $ $
----------------------------------------------------------------------------
Balance at 1 January
2010 (153,163,583) 24,649,155 389,662,669
Total comprehensive
income for the
period
Loss for the period (14,168,592) - (14,168,592)
Other comprehensive
loss
Exchange differences
on translation of
foreign operations - - (382,830)
Total other
comprehensive loss - - (382,830)
----------------------------------------------------------------------------
Total comprehensive
loss for the period (14,168,592) - (14,551,422)
----------------------------------------------------------------------------
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Share-based payment
transactions and
exercise of share
options - - 2,070,888
----------------------------------------------------------------------------
Total transactions
with owners - - 2,070,888
----------------------------------------------------------------------------
Balance at 30 June
2010 (167,332,175) 24,649,155 377,182,135
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2009
----------------------------------------------------------
Available-for-
Foreign sale
currency investments Share-based
translation revaluation payments
Share Capital reserve reserve reserve
$ $ $ $
----------------------------------------------------------------------------
Balance at 1
January 2009 218,283,881 (220,784) 168,000 54,564,393
Total
comprehensive
income for the
period
Loss for the
period - - - -
Other
comprehensive
loss income
Exchange
differences on
translation of
foreign
operations - (1,059,783) - -
Cumulative gains
on available-for-
sale investments
transferred to
income statement
on impairment of
investments - - (168,000) -
Total other
comprehensive
loss - (1,059,783) (168,000) -
----------------------------------------------------------------------------
Total
comprehensive
loss for the
period - (1,059,783) (168,000) -
----------------------------------------------------------------------------
Transactions with
owners, recorded
directly in
equity
Contributions by
and distributions
to owners
Issue of shares,
net 205,028,335 - - -
Issue of shares on
conversion of
bonds 30,801,620 - - -
Share-based
payment
transactions and
exercise of share
options 1,569,947 - - 1,956,643
----------------------------------------------------------------------------
Total transactions
with owners 237,399,902 - - 1,956,643
----------------------------------------------------------------------------
Balance at 30 June
2009 455,683,783 (1,280,567) - 56,521,036
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended 30 June 2009
---------------------------------------------
Equity portion
Retained of convertible
deficit debt Total equity
$ $ $
---------------------------------------------------------------
Balance at 1
January 2009 (113,816,696) 30,641,750 189,620,544
Total
comprehensive
income for the
period
Loss for the
period (12,811,778) - (12,811,778)
Other
comprehensive
loss income
Exchange
differences on
translation of
foreign
operations - - (1,059,783)
Cumulative gains
on available-for-
sale investments
transferred to
income statement
on impairment of
investments - - (168,000)
Total other
comprehensive
loss - - (1,227,783)
---------------------------------------------------------------
Total
comprehensive
loss for the
period (12,811,778) - (14,039,561)
---------------------------------------------------------------
Transactions with
owners, recorded
directly in
equity
Contributions by
and distributions
to owners
Issue of shares,
net - - 205,028,335
Issue of shares on
conversion of
bonds - (5,410,790) 25,390,830
Share-based
payment
transactions and
exercise of share
options - - 3,526,590
---------------------------------------------------------------
Total transactions
with owners - - 233,945,755
---------------------------------------------------------------
Balance at 30 June
2009 (126,628,474) 25,230,960 409,526,738
---------------------------------------------------------------
---------------------------------------------------------------
The notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Cash Flow Statement
Six months Restated(1) Six
ended 30 June months ended 30
2010 June 2009
$ $
----------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
Net loss from continuing operations for the
period (12,316,286) (12,113,015)
Items not affecting cash
Depletion, depreciation and amortisation 1,030,888 751,742
Finance costs-accretion expenses 473,543 2,176,301
Foreign exchange losses/(gains) 481,039 (1,569,577)
Share-based compensation 1,561,743 1,329,436
Loss/(gain) on other financial assets 371,085 (743,564)
Impairment of investment in unlisted
securities - 2,352,825
Increase in trade and other receivables (188,181) (188,933)
Decrease/(increase) in prepaid expenses 62,676 (1,894,030)
(Increase)/decrease in inventory (10,320) 287,841
Decrease in trade and other payables (4,451,560) (2,574,733)
----------------------------------------------------------------------------
Continuing operations (12,985,373) (12,185,707)
Discontinued operations (2,194,884) -
----------------------------------------------------------------------------
(15,180,257) (12,185,707)
----------------------------------------------------------------------------
Investing activities
Exercise of third party back-in rights for
Miran - 6,737,635
Property, plant and equipment expenditures (1,412,484) (698,988)
Intangible exploration expenditures (27,892,906) (25,445,541)
----------------------------------------------------------------------------
Continuing operations (29,305,390) (19,406,894)
Discontinued operations
Net consideration on disposal - 28,198,780
Property, plant and equipment and
intangible exploration expenditures (18,842,470) (38,820,668)
----------------------------------------------------------------------------
(48,147,860) (30,028,782)
----------------------------------------------------------------------------
Financing activities
Shares issued for cash - 216,848,944
Shares issued for cash, proceeds from
exercise of share options - 964,934
Shares issue costs - (11,820,609)
Payment of consent fee to the Bondholders
(note 7) (2,378,000) -
Repayment of long-term debt (372,619) (299,122)
----------------------------------------------------------------------------
(2,750,619) 205,694,147
----------------------------------------------------------------------------
(Decrease)/increase in cash and cash
equivalents (66,078,736) 163,479,658
Cash and cash equivalents - beginning of
period 208,094,355 90,620,385
Foreign exchange (loss)/gain on cash held
in foreign currency (1,218,426) 1,307,382
----------------------------------------------------------------------------
Cash and cash equivalents - end of period 140,797,193 255,407,425
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Non-cash investing and financing activities
(note 11)
Supplementary information
The following have been included within
cash flows for the period under operating
and investing activities:
Interest received 272,266 139,026
Interest paid 5,246,866 7,135,964
----------------------------------------------------------------------------
(1) Uganda has been classified as discontinued operations (see note 4).
The notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
1. Reporting Entity
Heritage Oil Plc (the "Company") was incorporated under the Companies (Jersey)
Law 1991 (as amended) on 6 February 2008. The Company changed its name to
Heritage Oil Plc on 18 June 2009. Its primary business activity is the
exploration, development and production of petroleum and natural gas in Africa,
the Middle East and Russia. The Company was established in order to implement a
corporate reorganisation of Heritage Oil Corporation ("HOC", the "Corporation").
2. Basis of Accounting and Presentation and Significant Accounting Policies
These interim consolidated financial statements of the Company, as at and for
the six months ended 30 June 2010, include the results of the Company and all
subsidiaries over which the Company exercises control (together referred to as
the "Group").
The Group had available cash of $140.8 million at 30 June 2010. Subsequent to 30
June 2010, the Company completed the sale of its interests in Uganda and
received net proceeds of $1.045 billion from Tullow, after $121,477,500 was
deposited with the Uganda Revenue Authority ("URA") and $283,477,500 was
retained in escrow pending resolution of the tax dispute, and paid a special
dividend of approximately $490 million (see note 4).
After making enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern basis
in preparing the Interim Report and Accounts.
The condensed interim consolidated financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34 Interim Financial
Reporting as adopted by the European Union ("EU"). They do not include all
information required for full annual financial statements, and should be read in
conjunction with the consolidated financial statements of the Company and all
its subsidiaries as at the year ended 31 December 2009.
The Company's condensed interim consolidated financial statements are presented
in US dollars, which is the Company's functional and presentation currency.
The accounting policies applied in the preparation of these condensed
consolidated interim financial statements are consistent with those applied by
the Company and all its subsidiaries in its consolidated financial statements as
at and for the year ended 31 December 2009.
The condensed interim consolidated financial statements were approved by the
Board and authorised for issuance on 27 August 2010. The comparative information
at 30 June 2009 and 31 December 2009 is abridged and therefore not the Company's
statutory accounts for those financial periods.
3. Segment Information
The Group has a single class of business which is international exploration,
development and production of petroleum oil and natural gas. The geographical
areas are defined by the Company as operating segments in accordance with IFRS 8
Operating Segments. The Group operates in a number of geographical areas based
on location of operations and assets, being Russia, Uganda (discontinued),
Democratic Republic of Congo ("DRC"), Kurdistan Region of Iraq ("Kurdistan"),
Pakistan, Tanzania, Malta, Mali and formerly in Oman (discontinued). The Group's
reporting segments comprise each separate geographical area in which it
operates.
Six months ended 30 June 2010
-----------------------------------------------------
External Revenue Segment result Total Assets
$ $ $
----------------------------------------------------------------------------
Russia 2,457,618 (1,478,313) 49,678,901
DRC - - 1,693,203
Kurdistan - (11,842) 95,212,773
Pakistan - - 4,262,691
Tanzania - - 21,493,571
Mali - - 2,451,853
Malta - - 11,589,600
Uganda - discontinued
operations - (1,852,306) 183,082,200
----------------------------------------------------------------------------
Total for reportable
segments 2,457,618 (3,342,461) 369,464,792
Corporate (10,826,131) 164,178,693
Elimination of
discontinued
operations - 1,852,306 (183,082,200)
----------------------------------------------------------------------------
Total from continuing
operations 2,457,618 (12,316,286) 350,561,285
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended 30 June 2010
-----------------------------------------------------
Depreciation,
Total Capital depletion and
liabilities additions amortisation
$ $ $
----------------------------------------------------------------------------
Russia 787,743 2,032,394 (696,356)
DRC - 30,587 -
Kurdistan 3,363,015 21,103,368 -
Pakistan - 1,584,680 -
Tanzania 134,211 1,266,898 -
Mali - 332,096 -
Malta 70,793 436,966 -
Uganda - discontinued
operations 13,383,938 19,946,018 -
----------------------------------------------------------------------------
Total for reportable
segments 17,739,700 46,733,007 (696,356)
Corporate 138,721,650 14,059 (334,532)
Elimination of
discontinued
operations (13,383,938) (19,946,018) -
----------------------------------------------------------------------------
Total from continuing
operations 143,077,412 26,801,048 (1,030,888)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended 30 June 2009 (restated(1))
-----------------------------------------------------
External revenue Segment result Total assets
$ $ $
----------------------------------------------------------------------------
Russia 846,629 (1,462,238) 47,095,822
DRC - - 1,646,778
Kurdistan - - 66,215,363
Pakistan - - 1,817,157
Tanzania - - 17,997,510
Mali - - 1,523,937
Malta - - 9,408,207
Uganda - discontinued
operations - - 149,993,253
Oman - discontinued
operations - (698,763) -
----------------------------------------------------------------------------
Total for reportable
segments 846,629 (2,161,001) 295,698,027
Corporate - (10,650,777) 273,746,959
Elimination of
discontinued
operations - 698,763 (149,993,253)
----------------------------------------------------------------------------
Total from continuing
operations 846,629 (12,113,015) 419,451,733
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended 30 June 2009 (restated(1))
-----------------------------------------------------
Depreciation,
Total Capital depletion and
liabilities additions amortisation
$ $ $
----------------------------------------------------------------------------
Russia 490,832 1,549,751 (246,655)
DRC - 40,013 -
Kurdistan 8,953,047 14,907,589 -
Pakistan - 256,828 -
Tanzania 478,719 4,697,547 -
Mali - 290,931 -
Malta 15,141 781,475 -
Uganda - discontinued
operations 5,477,193 14,518,175 -
Oman - discontinued
operations - 500,000 -
----------------------------------------------------------------------------
Total for reportable
segments 15,414,932 37,542,309 (246,655)
Corporate 144,503,316 315,728 (505,087)
Elimination of
discontinued
operations (5,477,193) (15,018,175) -
----------------------------------------------------------------------------
Total from continuing
operations 154,441,055 22,839,862 (751,742)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Uganda has been classified as discontinued operations (see note 4).
In June 2010 the DRC government took the extraordinary step of awarding
Heritage's existing licences (Blocks 1 and 2) via Presidential Decree to two
British Virgin Islands-registered companies. The operator has commenced legal
proceedings to challenge that award. Heritage has assessed the situation and no
impairment provision is deemed to be appropriate at this stage.
Corporate activities include the financing activities of the Group and is not an
operating segment. There have been no changes to the basis of segmentation or
the measurement basis for the segment results since 31 December 2009.
4. Discontinued Operations
Uganda
On 18 December 2009, Heritage announced that the Company and Heritage Oil & Gas
Limited ("HOGL") had entered into the Sale and Purchase Agreement (the "SPA"),
with ENI Holdings B.V. ("Eni") for the sale of its entire interests in Blocks 1
and 3A in Uganda (the "Assets") and on 17 January 2010, Tullow Uganda Limited
("Tullow") exercised its rights of pre-emption. The sale of the Assets completed
on 26 July 2010 and Tullow paid cash of $1.45 billion (including $100 million
from a contractual settlement), of which Heritage received and retained $1.045
billion (see subsequent events note).
The results of the Ugandan operations have been classified as discontinued
operations. The segment was classified as held for sale or discontinued
operations at 31 December 2009.
Expenses incurred by the Company as at 30 June 2010 in respect of this disposal
are included within loss on disposal of discontinued operations as follows:
Six months Six months
ended 30 June ended 30 June
2010 2009
$ $
----------------------------------------------------------------------------
Loss on disposal of discontinued operations (1,852,306) -
----------------------------------------------------------------------------
(1,852,306) -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table provides additional information with respect to the
discontinued operations amounts included in the balance sheet at 30 June 2010.
30 June 2010
$
----------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------
Non-current assets
----------------------------------------------------------------------------
Intangible exploration assets 178,464,565
----------------------------------------------------------------------------
178,464,565
----------------------------------------------------------------------------
Current assets
----------------------------------------------------------------------------
Accounts receivable 4,617,635
----------------------------------------------------------------------------
4,617,635
----------------------------------------------------------------------------
Total assets 183,082,200
----------------------------------------------------------------------------
Current liabilities
----------------------------------------------------------------------------
Trade and other payables 13,115,187
----------------------------------------------------------------------------
13,115,187
----------------------------------------------------------------------------
Current liabilities
----------------------------------------------------------------------------
Provisions 268,751
----------------------------------------------------------------------------
268,751
----------------------------------------------------------------------------
Total liabilities 13,383,938
----------------------------------------------------------------------------
Net assets 169,698,262
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oman
On 7 April 2009, the Company completed the sale of Eagle Energy (Oman) Limited
("Eagle Energy"), a wholly-owned subsidiary of Heritage, to RAK Petroleum Oman
Limited for $28 million, plus a working capital adjustment of $0.4 million.
Eagle Energy holds a 10% interest in Block 8, Oman.
The effective date of the transaction was 1 January 2009. The cash consideration
of $28 million and a working capital adjustment of $0.4 million have been
received. The Company acquired Eagle Energy, which had a 10% interest in Block 8
offshore Oman, in 1996. Block 8 contains the Bukha field which has been
producing since 1994 and the West Bukha field which commenced production in
February 2009.
The results of operations of Eagle Energy have been classified as losses from
discontinued operations. There were no revenues or costs associated with Block
8, Oman between 1 January 2009 and 7 April 2009 included in the condensed
consolidated income statement as there were no sales in that period.
The following table provides additional information with respect to the
discontinued operations amounts included in the balance sheet at 7 April 2009.
7 April 2009
$
----------------------------------------------------------------------------
Assets
Non-current assets
Intangible exploration assets 1,051,083
Property, plant and equipment 27,448,917
----------------------------------------------------------------------------
28,500,000
----------------------------------------------------------------------------
Current assets
Accounts receivable 246,783
Inventories 65,282
----------------------------------------------------------------------------
312,065
----------------------------------------------------------------------------
Net assets 28,812,065
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The loss on disposal of discontinued operations has been derived as follows:
7 April 2009
$
----------------------------------------------------------------------------
Consideration received
Sales proceeds 28,000,000
Working capital adjustments 390,242
----------------------------------------------------------------------------
Total disposal consideration 28,390,242
----------------------------------------------------------------------------
Less:
Carrying amount of net assets sold (28,812,065)
Other expenses (276,940)
----------------------------------------------------------------------------
Loss on disposal of discontinued operations (698,763)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Property, Plant and Equipment
Capital Additions
During the six months ended 30 June 2010 the Group acquired property, plant and
equipment and intangible exploration assets with a cost of $46,747,066 (six
months ended 30 June 2009 - $37,858,037), including $19,946,018 relating to
discontinued operations (six months ended 30 June 2009 - $15,018,175).
6. Other Financial Assets
30 June 2010 31 December 2009
$ $
----------------------------------------------------------------------------
Investment in warrants 783,140 1,154,225
----------------------------------------------------------------------------
783,140 1,154,225
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The investment in Afren plc warrants is classified as held for trading.
7. Borrowings
30 June 2010 31 December 2009
$ $
----------------------------------------------------------------------------
Non-current borrowings
Convertible bonds-unsecured 117,832,941 115,276,942
Non-current portion of long-term debt 13,311,953 14,276,810
----------------------------------------------------------------------------
131,144,894 129,553,752
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt-secured
Current 884,641 615,892
Non-current 13,311,953 14,276,810
----------------------------------------------------------------------------
14,196,594 14,892,702
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2007 Convertible Bonds
On 16 February 2007, the Company raised $165,000,000 by completing a private
placement of convertible bonds. Issue costs amounted to $6,979,268 resulting in
net proceeds of $158,020,732. The Company issued 1,650 unsecured bonds at par,
which have a maturity of five years and one day and an annual coupon of 8%
payable semi-annually on 17 August and 17 February of each year. Bondholders
have the right to convert the bonds into ordinary shares of the Company
("Ordinary Shares") at a price of $4.70 per share at any time. The number of
Ordinary Shares receivable on conversion of the bonds is fixed. The Company had
the right to redeem, in whole or part, the bonds for cash at any time on or
before 16 February 2008, at 150% of par value (the "Company call option"). This
right was not exercised.
The fair value of the host liability component of the bonds (net of issue costs)
was estimated at $140,154,215 on 16 February 2007. The difference between the
$165,000,000 due on maturity and the initial liability component is accreted
using the effective interest rate method and is recorded as finance costs. As
the Company call option meant that the conversion feature could be settled in
cash in accordance with IAS 32, the conversion was treated as a derivative
liability. The fair value of this derivative liability (estimated using the
Black-Scholes option pricing model) was $17,866,517 at 16 February 2007 and
subsequent gains and losses have been recorded in finance income and costs up to
the expiry of the Company call option on 17 February 2008. As a result of the
expiry of this option, and hence the cash settlement feature, the Company has
reassessed the classification of the conversion option and determined that it
qualifies to be treated as equity under IAS 32, being an option to convert a
fixed amount of cash for a fixed number of shares. Therefore, the fair value of
the conversion option was reclassified to equity at that date.
Bondholders have a put option requiring the Company to redeem the bonds at par,
plus accrued interest, in the event of a change of control of the Company or
revocation or surrender of the Zapadno Chumpasskoye Licence in Russia (the
"contingent put option"). In the event of a change of control and redemption of
the bonds or exercise of the conversion rights, a cash payment of up to $19,700
on each $100,000 bond will be made to the bondholder, the amount of which
depends upon the date of redemption and market value of shares at the date of
any change of control event. The contingent put option has been valued
separately.
The fair value of the contingent put option has been estimated to be de minimis
by the Company at 30 June 2010 (31 December 2009 - de minimis).
On 18 December 2009, the Company announced it had entered into the SPA for the
sale of its entire interests in Blocks 1 and 3A in Uganda (note 4). The Company
also announced that it would consider returning a portion of the disposal
proceeds to shareholders through a special dividend on completion of the
proposed transaction. Under the terms and conditions of the bonds, the Company
was restricted from making or declaring a dividend or making any other
distributions to its shareholders which constitute on a consolidated basis more
than 30% of its earnings for the immediately preceding financial year.
In December 2009, the Company approached Bondholders with the proposal to agree
to remove this restriction and to make some other changes in the terms and
conditions of the bonds. In considerations the Company proposed to pay to those
Bondholders who vote on the proposal the sum of $2,000 per $100,000 of bonds
held by such bondholders. The majority of the Bondholders voted in favour of
this proposal at a meeting on 31 December 2009 and the restriction of making or
declaring a dividend or making any other distributions to shareholders has been
removed. On 15 January 2010, the Company paid $2,378,000 to the Bondholders who
voted. In accordance with IAS 39, this amendment to the terms and conditions of
the bonds does not constitute a redemption and therefore this amount was offset
against the convertible bonds liability and is recognised in the income
statement over the period of the borrowings using the effective interest method.
Long-Term Debt
In January 2005, a wholly owned subsidiary of the Company received a sterling
denominated loan of GBP 4.5 million to refinance the acquisition of a corporate
office. Interest on the loan was fixed at 6.515% for the first five years and is
then variable at a rate of Bank of Scotland base rate plus 1.4%. The loan, which
is secured on the property, is scheduled to be repaid by 240 instalments of
capital and interest at monthly intervals, subject to a residual debt at the end
of the term of the loan of $3.5 million (GBP 1,860,000). The principal balance
outstanding as at 30 June 2010 was $6,081,407 (GBP 4 million) (31 December 2009
- $6,573,584 (GBP 4.1 million)).
In October 2007, a wholly owned subsidiary of the Company received a loan of
$9,450,000 to refinance the acquisition of the corporate jet. Interest on the
loan is variable at a rate of LIBOR plus 1.6% The loan, which is secured on the
corporate jet, is scheduled to be repaid by 19 consecutive quarterly instalments
of principal. Each instalment equals to $117,500 with the final instalment being
$7,217,500. The Corporation provided a corporate guarantee to the lender. The
additional security of $2,454,000 was paid to the bank on 19 January 2010 to
maintain the loan to value ratio specified in the loan agreement. This
additional security is included in Cash and cash equivalents in the balance
sheet.
8. Share Capital
The Company was incorporated under the Companies (Jersey) Law 1991 (as amended)
on 6 February 2008. The Company's authorised share capital is an unlimited
number of Ordinary Shares without par value.
Ordinary Shares
Six months ended Six months ended
30 June 2010 30 June 2009
--------------------------------------------------------
Amount Amount
Number $ Number $
----------------------------------------------------------------------------
At 1 January 284,842,830 457,696,879 251,858,374 215,509,055
Issue of shares - - 25,400,000 205,028,335
Exchange of
Exchangeable Shares
of HOC
("Exchangeable
Shares") for
Ordinary Shares - - 225,000 192,150
Issued on conversion
of bonds - - 5,936,160 30,801,620
Issued on exercise
of stock options - - 470,000 1,569,947
----------------------------------------------------------------------------
At 30 June 284,842,830 457,696,879 283,889,534 453,101,107
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Special Voting Share
Six months ended 30 June Six months ended 30 June
2010 2009
--------------------------------------------------------
Amount Amount
Number $ Number $
----------------------------------------------------------------------------
At 1 January 1 - 1 -
Issued during the
period - - - -
----------------------------------------------------------------------------
At 30 June 1 - 1 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exchangeable Shares Each Carrying One Voting Right in the Company
Six months ended 30 June
2010 Six months ended 30 June 2009
-----------------------------------------------------------
Number Amount $ Number Amount $
----------------------------------------------------------------------------
At 1 January 3,024,108 2,582,676 3,249,108 2,774,826
Exchange of the
Exchangeable
Shares for
Ordinary Shares - - (225,000) (192,150)
----------------------------------------------------------------------------
At 30 June 3,024,108 2,582,676 3,024,108 2,582,676
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance of
Ordinary Shares
of the Company
and Exchangeable
Shares of HOC -
at 30 June 287,866,938 460,279,555 286,913,642 455,683,783
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. Loss per Share
The following table summarises the weighted average Ordinary Shares and
Exchangeable Shares used in calculating net loss per share:
Six months ended 30 June
------------------------------
2010 2009
----------------------------------------------------------------------------
Weighted average Ordinary and Exchangeable
Shares
Basic 287,866,938 258,507,387
Diluted 305,330,803 287,660,501
----------------------------------------------------------------------------
The reconciling item between basic and diluted weighted average number of
Ordinary Shares is the dilutive effect of stock options and the Long Term
Incentive Plan ("LTIP"). A total of 27,042,553 of shares relating to the
convertible bonds (30 June 2009 - 27,680,851) were excluded from the above
calculation, as they were anti-dilutive. However, since the Company has made a
loss in each period for the purposes of calculating diluted loss per share, all
potential Ordinary Shares have been treated as anti-dilutive.
10. Related Party Transactions
During the six months ended 30 June 2010, the Company incurred transportation
costs of $31,649 (30 June 2009 - $59,175) with respect to the services provided
by a company indirectly owned by Mr. Anthony Buckingham, CEO of the Company.
11. Non-Cash Investing and Financing Activities Supplementary Information
30 June 2010 30 June 2009
$ $
----------------------------------------------------------------------------
Capitalised portion of share-based
compensation (509,144) (1,232,210)
Non-cash property, plant and equipment and
intangible exploration assets additions
relating to the capitalised portion of
share-based compensation 509,144 1,232,210
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12. Subsequent Events
On 18 December 2009, Heritage announced that the Company and HOGL had entered
into the SPA, with Eni for the sale of the Assets and on 17 January 2010, Tullow
exercised its rights of pre-emption. The sale of the Assets completed on 26 July
2010 and Tullow paid cash of $1.45 billion (including $100 million from a
contractual settlement), of which Heritage received and retained $1.045 billion.
Tullow paid cash consideration of $1.35 billion and an additional contractual
settlement amount of $100 million. On closing, Heritage deposited $121,477,500
with the URA, representing 30% of the disputed tax assessment of $404,925,000
which the URA determines arises from the sale of the Assets. Heritage continues
to work with the Government of the Republic of Uganda ("Government") to agree a
way forward for the tax dispute to be resolved. A further $283,447,500 has been
retained in escrow, pursuant to an agreement between Heritage, Tullow and
Standard Chartered Bank pending resolution between the Government and Heritage
of a mechanism to resolve the tax dispute. This could include the provision of a
guarantee or letter of credit from an international bank to Government to
provide security for the remainder of the disputed amount.
The $100 million contractual settlement amount was paid by Tullow in full and
final settlement of a potential contractual dispute between the parties on the
interpretation of the SPA provisions relating to the contingent deferred amount,
which could have been up to $150 million dependent on certain conditions being
achieved. On 19 August 2010, the URA issued an additional notice of assessment
requesting Heritage to pay tax of $30 million which is 30% of the contractual
settlement of $100 million paid by Tullow. The Company will discuss with
Government the way to resolve this additional assessment as part of the tax
dispute resolution process described above.
There are now no further monies due to Heritage under that agreement apart from
a working capital adjustment with respect to the Assets at the effective date of
the transaction of 17 January 2010 which is expected to be agreed in the next
few months with Tullow.
On 2 August 2010, Heritage announced the declaration of a special dividend of
100 pence per ordinary share of the Company and HOC, the Company's wholly owned
subsidiary, also announced the declaration of a special dividend of Cdn$1.62 per
exchangeable share of HOC, calculated at an exchange rate of GBP 1.00:Cdn$1.62.
The special dividend was paid on 27 August 2010.
The special dividend resulted in a payment to Bondholders. As disclosed in the
announcement of 31 December 2009, certain amendments to the terms of the
$165,000,000 8.00% convertible bonds due 2012 (the "Bonds") were approved by
Bondholders. Pursuant to such amendments, no adjustments will be made to the
conversion rights under the terms of the Bond (the "Conversion Rights") in
respect of any dividend paid or made by the Company; instead, the Company agreed
to pay the holder of each Bond outstanding on the record date for such dividend
a pass-through dividend (the "Pass-through Dividend") which is equal to the
dividend which would be received by the holder of a number of Ordinary Shares
equal to the number of Ordinary Shares to which the Bondholder would have been
entitled if it had exercised its Conversion Rights on the record date of 13
August 2010.
The aggregate principal amount of Bonds outstanding on the record date was
$127,100,000. These Bonds are convertible into 27,042,553 Ordinary Shares
pursuant to the Conversion Rights and accordingly the Company paid to
Bondholders a Pass-through Dividend of GBP 27,042,553 on 27 August 2010.
FORWARD-LOOKING INFORMATION:
Except for statements of historical fact, all statements in this news release -
including, without limitation, statements regarding production estimates and
future plans and objectives of Heritage - constitute forward-looking information
that involve various risks and uncertainties. There can be no assurance that
such statements will prove to be accurate; actual results and future events
could differ materially from those anticipated in such statements. Factors that
could cause actual results to differ materially from anticipated results include
risks and uncertainties such as: risks relating to estimates of reserves and
recoveries; production and operating cost assumptions; development risks and
costs; the risk of commodity price fluctuations; political and regulatory risks;
and other risks and uncertainties as disclosed under the heading "Risk Factors"
in its Prospectus and elsewhere in Heritage documents filed from time-to-time
with the London Stock Exchange and other regulatory authorities. Further, any
forward-looking information is made only as of a certain date and the Company
undertakes no obligation to update any forward-looking information or statements
to reflect events or circumstances after the date on which such statement is
made or reflect the occurrence of unanticipated events, except as may be
required by applicable securities laws. New factors emerge from time to time,
and it is not possible for management of the Company to predict all of these
factors and to assess in advance the impact of each such factor on the Company's
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
information.
Anglo-Canadian Mining Corp. (TSXV:URA)
過去 株価チャート
から 5 2024 まで 6 2024
Anglo-Canadian Mining Corp. (TSXV:URA)
過去 株価チャート
から 6 2023 まで 6 2024
