NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO
THE UNITED STATES, AUSTRALIA, SOUTH AFRICA AND JAPAN
Heritage Oil Plc ("Heritage" or the "Company") (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 2012.
Operational Highlights
-- Execution of an agreement to acquire a transformational major interest
in OML 30 in Nigeria ("Proposed Acquisition"), which is subject to
shareholder approval, and is expected to complete in the second half of
this year
-- Active work programme in the Kurdistan Region of Iraq ("Kurdistan") with
two rigs operating:
-- The Miran West-3 well reached the primary target of the Jurassic gas
reservoir and was successfully tested in May 2012
-- The Miran West-4 well commenced drilling on 22 June 2012 to further
appraise the Upper Cretaceous oil reservoir
-- The Miran East-1 well is drilling ahead on prognosis and is
currently evaluating the Lower Cretaceous reservoir before drilling
ahead to the main Jurassic targets
-- Planning and development studies on the Miran Field and conceptual
design studies on a gas export pipeline are ongoing
-- Tanzania work programme continues on the Kyela and Rukwa licences with
the reprocessing of legacy 2D seismic data and completion of a high
resolution gravity survey
-- Net average daily production of 567 bopd in the first half 2012, an
increase of 35% on the same period in the prior year. Production for the
month of July 2012 averaged 711 bopd
Corporate Highlights
-- Cash position of approximately $35 million, excluding $407 million
related to the Ugandan tax dispute and after paying a deposit of $85
million in connection with the Proposed Acquisition
-- Publication of independent reserves and resources report that provides
significant upside potential for certain existing assets and the future
diversified portfolio
-- Legal proceedings arising from the sale of the Group's interests in
Blocks 1 and 3A in Uganda are ongoing
-- Appointment of two new independent Non-Executive Directors
Outlook
-- An Extraordinary General Meeting ("EGM") for shareholders to vote on the
Proposed Acquisition is scheduled for 30 August 2012, with completion
expected later this year
-- Heritage plans to undertake an extended well test of the Miran oil
bearing reservoirs with the objective of selling between 3,000 to 5,000
barrels of oil per day (gross) into the local market in Kurdistan
-- Work programme in Tanzania will continue with the acquisition of 2D
seismic scheduled to commence this month
-- Further horizontal wells are planned to be drilled in Russia, commencing
in the second half of this year
Tony Buckingham, Chief Executive Officer, commented:
"We are delighted to have entered into an agreement to acquire a significant
interest in the transformational OML 30 in Nigeria. OML 30 is expected to
provide significant production and be cash flow generative immediately, thereby
de-risking Heritage's financial profile. The recently published independent
reserves report gave an economic valuation of between US$3.4 billion and US$4.1
billion, using a discount rate of 10%, for the current 2P reserves at OML 30 and
our assets in Russia, highlighting the underlying value within the enlarged
portfolio."
Notes to Editors
-- Heritage is listed on the Main Market of the London Stock Exchange and
is a constituent of the FTSE 250 Index. The trading symbol is HOIL.
Heritage has a further listing on the Toronto Stock Exchange (TSX:HOC).
-- Heritage is an independent upstream exploration and production company
engaged in the exploration for, and the development, production and
acquisition of, oil and gas in its core areas of Africa, the Middle East
and Russia.
-- Heritage has an exploration, appraisal and development asset in the
Kurdistan Region of Iraq, exploration assets in Malta, Tanzania, Mali,
Pakistan, Libya and the Democratic Republic of Congo and a producing
property in Russia.
-- Heritage Energy Middle East, a wholly-owned subsidiary of Heritage, is
operator and holds a 75% interest in the Miran Block. There are third
party back-in rights which could reduce the holding to 56.25%.
-- All dollars are US$ unless otherwise stated.
-- For further information please refer to our website,
www.heritageoilplc.com.
This press release is not for distribution to United States Newswire Services or
for dissemination in the United States.
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 AND CHIEF EXECUTIVE'S REVIEW
On 29 June 2012, Heritage announced that Shoreline Natural Resources Limited
("Shoreline"), a special purpose private Nigerian company formed between a
subsidiary of Heritage and a local Nigerian partner, Shoreline Power Company
Limited ("Shoreline Power"), had agreed to acquire a 45% interest in a producing
oil mining lease in Nigeria ("OML 30"), together with a 45% interest in other
assets under a joint operating agreement for OML 30 (the "Acquisition Assets"),
for a total cash consideration of US$850 million, net of costs ("Proposed
Acquisition"). OML 30 is expected to be cash generative immediately following
completion of the Proposed Acquisition ("Completion").
OML 30, located onshore in the delta in Nigeria, includes eight producing fields
and associated infrastructure, including a segment of the 850,000 bpd capacity
Trans Forcados pipeline. The Proposed Acquisition will further diversify
Heritage's portfolio, balancing exploration with production, while extending
Heritage's geographic footprint within its core areas of Africa and the Middle
East. The Proposed Acquisition represents a significant opportunity for Heritage
to achieve a material change in production and reserves. OML 30 is currently
averaging gross production of c.35,000 bopd, increasing Heritage's net
production from a current level of 567 bopd to c.11,320 bopd. There is the
potential to increase production from OML 30 in the short term by refurbishing
and improved maintenance of existing infrastructure. RPS Energy Consultants
Limited ("RPS") estimate that OML 30 has gross proved and probable reserves of
1,114 mmbbls of oil, with an economic valuation between US$3,089 million and
US$3,789 million, depending on the income tax scenario (post-tax, net Heritage
share, assuming a 10% discount rate). In addition, Heritage management estimates
2.5 TCF gross reserves of gas which has not been included in the RPS review or
valuation. Upon completion, RPS estimates that Heritage's proved and probable
reserves increase 568% from 61 mmbbls to 408 mmbbls. The Proposed Acquisition
provides Heritage with exposure to Nigeria, which is reported to contain the
second largest proved reserves in Africa, and provides further growth
opportunities in a prolific hydrocarbon region.
Shoreline will be one of the leading indigenous companies producing in Nigeria.
It combines Shoreline Power's energy and infrastructure operating expertise and
respected network of relationships within Nigeria with Heritage's strong
technical team with relevant geographic expertise. Shoreline and Heritage will
work to develop close relationships with local communities and other
stakeholders.
OPERATIONAL OVERVIEW
Kurdistan
Current Work Programme
In May 2012, the Miran West-3 well reached a total depth of 3,528 metres after
encountering the primary gas bearing reservoir interval in the Jurassic.
Subsequent well testing operations within the main Jurassic reservoir were
completed and resulted in a constrained flow of up to 22 MMscf/d of wet gas with
a yield of 20 bbl/MMscf of 55 degrees API condensate. This tested interval was
shown to be in pressure communication with the main reservoir interval
discovered and tested in the Miran West-2 well c.4.3 kilometres to the North
West. Examination of wireline log data, in conjunction with well test data,
indicated that a pervasive and productive fracture network had been intercepted
as planned. It is estimated that once the well is completed and placed on
production it will be capable of delivering 50 MMscf/d of wet gas and 1,000
bbl/d of condensate. The well has been suspended pending re-entry and completion
as a production well.
An active Miran work programme continues with two rigs operating in country. The
Miran West-4 appraisal well commenced drilling in June. The well is currently at
its target depth of 1,905 metres and the main reservoir target is being
evaluated. This is the fifth well drilled on the licence and the fourth on the
Western structure. This highly deviated step out well is targeting the oil
within the Upper Cretaceous on the flank of the structure and has 877 metres of
high angle reservoir penetration. Successful drilling of Miran West-4 has
enabled the extension of its target depth beyond that planned and is ahead of
schedule. The first of a planned series of tests has been carried out and a
maximum flow rate of oil of 1,350 bopd was achieved. The well tested oil similar
to that found at Miran West-1 and Miran West-3 of 16-18 degrees API with low gas
oil ratio and in the same pressure regime. It is expected that the well
evaluation will be completed by the end of August 2012.
Drilling of the Miran East-1 exploration well commenced in March 2012, with an
estimated target depth of c.4,000 metres. The well is targeting exploration
potential within the Cretaceous and Jurassic reservoir intervals of the Eastern
structure. The well is currently at a depth of 3,207 metres in the regional seal
above the main Jurassic reservoirs. The Upper Cretaceous reservoir interval is
shown to be in pressure communication with the Miran West structure. Oil shows
observed whilst drilling the Upper Cretaceous and gas shows observed whilst
drilling the Lower Cretaceous are consistent with wireline log interpretation
indicating the presence of hydrocarbons at these levels. Operations on Miran
East-1 well are on schedule and drilling is expected to take a further three
months.
Heritage plans to undertake an extended well test of these oil bearing
reservoirs for a minimum period of six months which is expected to commence
before year end. It is planned that 3,000 to 5,000 barrels of oil gross per day
will be sold into the local market in Kurdistan.
Current Resources
In Kurdistan, RPS estimated that the Miran Field contained Contingent Resources
(mean estimate of Heritage working interest of 56.25% thereby assuming that the
Kurdistan Regional Government ("KRG") exercises its back in right, gross of
royalty) of 366 million barrels of oil equivalent, comprising 53 million barrels
of oil and condensate and 1,815 billion cubic feet of gas, resulting in a mean
net entitlement volume to Heritage of 136 million barrels of oil equivalent.
Prospective Resources (mean un-risked estimate of working interest of 56.25% to
Heritage, gross of royalty) were estimated at 142 million barrels of oil
equivalent, comprising 96 million barrels of oil, 256 billion cubic feet of gas
and condensate of 3.1 million barrels(1).
(1) In the event of discovery and development Heritage net entitlement resources
will be a function of the contract terms and will be less than the net working
interest resources.
Gas Monetisation and Development of the Miran Field
Heritage is considering a phased development of the Miran Field which involves
early development by the end of 2013, targeting between 80 and 180 MMscfd of gas
for local supplies and the production of between 10,000 and 15,000 bpd of oil
and condensate. Full field development should comprise an integrated development
of the oil, gas and condensate, with export of the gas produced to Turkey
estimated to commence at the end of 2015. A conceptual design study has been
commissioned to consider building a gas pipeline to the border with Turkey,
which is c.320 kilometres away.
Work on conceptual development studies, gas marketing plans and strategies has
continued. Heritage is in discussions with the KRG, gas buyers and contractors
regarding both early and full field development, including the export of the gas
to Turkey where gas demand is increasing significantly and where average gas
commodity prices are attractive.
Tanzania
Heritage was appointed operator and awarded new Production Sharing Agreements
("PSAs") in Tanzania over the Rukwa Block in November 2011 and the Kyela Block
in January 2012. In both of these areas the Company recognises certain
geological similarities with the Albert Basin of Uganda, where Heritage has had
previous experience and significant commercial success. The work programme on
Rukwa has commenced with reprocessing of legacy 2D seismic data and the
acquisition of further 2D seismic is scheduled to commence this month. On the
unexplored Kyela Block the acquisition of a high-resolution gravity survey has
been completed and a seismic programme will be conducted.
Russia
Production for the first half of 2012 averaged 567 bopd, an increase of 35%
compared to the same period in the prior year. However, this was 39% lower than
average production in the second half of 2011 due to natural well decline and a
temporary mechanical issue on well 363, which has now been resolved. Production
for the month of July 2012 averaged 711 bopd. Well 363 was the first horizontal
well to be drilled in the field and further horizontal wells are planned to be
drilled, commencing in the second half of this year.
RPS estimates that Proved plus Probable net entitlement reserves to Heritage are
65 million barrels of oil, with an economic valuation of $336 million (post-tax,
net Heritage share, assuming a 10% discount rate).
CORPORATE
Cash
As at 30 June 2012, Heritage had a cash position of approximately $35 million,
excluding amounts related to the Uganda tax dispute of approximately $407
million and the deposit made in connection with the proposed acquisition of OML
30.
Board Appointments
Heritage appointed two new independent Non-Executive Directors during the
period. Carmen Rodriguez joined on 23 March 2012, replacing Salim Macki who
retired, and Colonel Mark Erwin was appointed with effect from 1 May 2012.
Share Buy Back
Heritage's share buy back programme, which commenced in April 2011, was
terminated in May 2012. A total of 34,602,442 Ordinary Shares were acquired and
are held in treasury. Consequently, Heritage has 255,485,078 Ordinary Shares in
issue (excluding treasury shares) as well as 2,471,918 Exchangeable Shares of no
par value of Heritage Oil Corporation, each carrying one voting right in
Heritage.
The total number of voting rights in Heritage, excluding treasury shares as at
30 June 2012, was 257,956,996.
Uganda
As reported on 18 May 2012 in the Interim Management Statement, legal
proceedings arising from the sale of the Group's interests in Blocks 1 and 3A in
Uganda are ongoing:
a. Heritage Oil & Gas Limited ("HOGL"), the Company's wholly owned
subsidiary, is engaged in appeals to the Ugandan High Court;
b. HOGL is also engaged in international arbitration proceedings in London
against the Ugandan Government which commenced last year; and
c. Heritage and HOGL are together engaged in defending Commercial Court
proceedings in the High Court of Justice in London against Tullow Uganda
Limited.
Heritage's position remains, based on comprehensive advice from leading counsel,
legal and tax experts, that no tax is payable.
OUTLOOK
Heritage is working towards the completion of the proposed acquisition of OML 30
and looking forward to the significant benefits that it should provide, given
that the licence is expected to be cash generative immediately following
Completion. The licence is currently producing 35,000 bopd and following
completion, Heritage plans to increase this to 55,000 bopd in the short term.
Heritage intends to use the cash flow generated from OML 30 to develop and
explore the licence, its existing portfolio as well as pursuing additional value
generating opportunities.
FINANCIAL REVIEW
Heritage is very well positioned to continue to generate shareholder value
through the proposed acquisition of an interest in OML 30.
Selected Operational and Financial Data
Six months Six months
ended ended Change
30 June 2012 30 June 2011
Production bopd 567 420 35%
Sales volume bopd 567 411 38%
Average realised price $/bbl 39.9 38.3 4%
Petroleum revenue $ million 4.12 2.85 45%
Loss from continuing
operations $ million (50.0) (9.7) (415%)
Loss from discontinued
operations $ million (2.2) (1.7) (29%)
Net loss $ million (52.2) (11.4) (358%)
Total cash capital
expenditures $ million 36.1 52.7
As at 30 As at 31
June 2012 December 2011
Period end cash
balance(i) $ million 34.6 310.9
(i)Excluding amounts related to the tax dispute in Uganda of $407 million, and
Heritage's proportionate economic share of the cash deposited in an escrow
account in June 2012 in connection with the Proposed Acquisition of $78 million.
Operating performance
Production and sales volumes
Average daily production from the Zapadno Chumpasskoye Field in Russia increased
from 420 bopd in the six month period ended 30 June 2011 to 567 bopd in the six
month period ended 30 June 2012. This increase resulted from increased
production from the drilling of well 363, the first horizontal well drilled in
the field, which was completed in August 2011.
Revenue
Petroleum revenue increased by 45% to $4.12 million, which comprised:
-- $1.1 million from an increase in sales volumes from 411 bopd in the six
month period ended 30 June 2011 to 567 bopd in the six month period
ended 30 June 2012; and
-- $0.17 million from an increase in average commodity prices from
$38.28/bbl in the six month period ended 2011 to $39.92/bbl in the six
month period ended 30 June 2012.
Operating results
Expenses
Petroleum operating costs increased by 21% to $1.6 million in the six month
period ended 30 June 2012, primarily due to increased production from well 363,
which completed drilling in August 2011. Average operating cost per produced
barrel of oil decreased from $17.8/bbl in the six month period ended 30 June
2011 to $15.9/bbl in the six month period ended 30 June 2012, due primarily to
the lower level of production in 2011 and the fixed nature of certain costs
including certain personnel.
Production tax increased from $1.5 million in the six month period ended 30 June
2011 to $2.2 million in the six month period ended 30 June 2012 as a result of
the 45% increase in revenues in the six month period ended 30 June 2012.
General and administrative expenses decreased from $8.8 million in the six month
period ended 30 June 2011 to $6.3 million in the six month period ended 30 June
2012. This was due, principally, to decreased legal and professional fees.
General and administrative expenses are comprised of salaries of management,
finance and administrative staff, consulting, legal and professional fees,
transportation costs and other costs.
Depletion, depreciation and amortisation Six months ended 30 June
2012 2011
$ million $ million
Petroleum and natural gas assets 0.7 0.5
Other corporate assets 0.5 0.5
------------------------------
Total 1.2 1.0
------------------------------
Depletion, depreciation and amortisation expenses increased from $1.0 million in
the six month period ended 30 June 2011 to $1.2 million in the six month period
ended 30 June 2012, due to the higher production.
Exploration expenditures expensed in the period and not capitalised, decreased
from $2.8 million in the six month period ended 30 June 2011 to $1.7 million in
the six month period ended 30 June 2012. Exploration expenditures in the six
month period ended 30 June 2012 related principally to activities in Africa as
the Company looked to expand its portfolio in its core areas.
Acquisition costs in the six month period ended 30 June 2012 of $18.1 million
(six month period ended June 2011 - nil) related principally to costs incurred
and accrued for legal, professional fees and including stamp duty of $10.5
million arising from the Proposed Acquisition, which have been classified as
acquisition costs.
The Group recognised an impairment of intangible exploration and evaluation
assets in the six month period ended 30 June 2012 of $18.4 million (compared to
nil in the six month period ended 30 June 2011). After a technical review and
consideration of the security situation, management decided to relinquish the
licences and fully write-off expenditure of $18.4 million in Mali.
Finance income/costs
Interest income of $2.1 million in the six month period ended 30 June 2012 was
$1.1 million lower than in the six month period ended 30 June 2011 primarily as
a result of lower average cash balances in the six month period ended 30 June
2012. Cash and cash equivalents are typically held in interest bearing treasury
accounts.
Other finance costs increased from $1.7 million in the six month period ended 30
June 2011 to $2.5 million in the six month period ended 30 June 2012, this is
due to financing fees for the two bridge facilities and guarantee relating to
the Proposed Acquisition which was partially offset by lower convertible bond
accretion expense following repayment of the convertible bond at their term in
February 2012.
In the six month period ended 30 June 2012, the Group had a foreign exchange
loss of $0.01 million compared to a $1.2 million gain in the six month period
ended 30 June 2011. The small loss arose from net foreign exchange gains and
losses on revaluation of balances denominated in currencies different from the
functional currency.
Heritage recognised an unrealised loss on other financial assets of $4.1 million
in the six month period ended 30 June 2012 compared to a $0.3 million gain in
the six month period ended 30 June 2011. The loss in the six month period ended
30 June of 2012 is comprised of a decrease of $4.1 million in market value of
investments in shares of PetroFrontier Corp. ("PetroFrontier"). As at 30 June
2012, the Company held 9,748,200 shares of PetroFrontier representing 15.23% of
outstanding shares of the company. The investment in share capital of
PetroFrontier is valued at fair value determined using market price at the end
of the period. The unrealised gain in the six month period ended June 2011 of
$0.3 million was recognised on the fair value of Heritage's investment in Afren
plc ("Afren") Heritage was awarded 1,500,000 warrants in Afren with an exercise
price of GBP 0.60 per warrant, as partial consideration from the sale of
Heritage Congo Limited in 2006. On 4 November 2011, the Afren warrants were
exercised and the Company acquired 1,500,000 shares in Afren. The investment in
Afren shares is valued at fair value which is determined using market price at
the end of the period. The valuation at market price at 30 June 2012 resulted in
a gain of $0.4 million which was recognised in equity.
Proposed Acquisition of an Interest in OML 30
On 29 June 2012, the Company announced that Shoreline had entered into agreement
(the "Acquisition Agreement") with The Shell Petroleum Development Company of
Nigeria Limited ("Shell"), Total E&P Nigeria Limited ("Total") and Nigerian Agip
Oil Company Limited ("Agip") (the "Vendors") to acquire the Acquisition Assets
for cash consideration of $850 million, net of costs.
Shoreline is a private limited Nigerian company whose ownership interests are
held by Heritage Oil SNR (Nigeria) B.V., a wholly-owned subsidiary of Heritage,
and a local Nigerian partner, Shoreline Power. The Acquisition Assets are being
acquired for cash consideration of $850,000,000, net of costs, of which: (i) a
deposit of $85,000,000 was paid by Shoreline upon the signing of the Acquisition
Agreement (with $5,000,000, being the portion of such deposit not exceeding 1%
of the market capitalisation of the Company as at 29 June 2012, paid to the
Vendors, and the remaining $80,000,000, paid into a dedicated escrow account);
and (ii) the balance of the consideration, being $765,000,000 (which is
guaranteed by Standard Bank SA) payable on Completion Heritage's economic share
of the $80,000,000 deposit has been classified as restricted cash in its balance
sheet at 30 June 2012.
The Proposed Acquisition is classified as a reverse takeover transaction for the
purposes of the Listing Rules. However, no change of voting control or the
management of Heritage will occur as a result of the Proposed Acquisition. The
Proposed Acquisition will be primarily financed through: (i) a $550,000,000
Standard Bank SA Bridge Facility, a term facility provided to Shoreline; and
(ii) the proposed issue by way of rights of new Ordinary Shares to holders of
Ordinary Shares on the register of members of the Company at the record date,
and holders of Exchangeable Shares on the register maintained by and on behalf
of HOC in respect of the Exchangeable Shares, at the record date (the "Rights
Issue"), the proposed Rights Issue which will raise proceeds of up to
$370,000,000, which Rights Issue is supported by the $215,000,000 JPM Bridge
Facility, a term facility provided to Heritage and on-lent by Heritage to
Shoreline. Following Completion, the Group as enlarged by the Proposed
Acquisition (the "Enlarged Group") plans to refinance the Standard Bank Bridge
Facility by implementing a resource-based lending facility in respect of OML 30.
In the event that the proceeds of the Rights Issue are not received by Heritage
prior to Completion and amounts are drawn down by Heritage under the JPM Bridge
Facility to enable Shoreline to make payment of the Consideration Balance in
accordance with the terms of the Acquisition Agreement, the JPM Bridge Facility
will be repaid from the proceeds of the Rights Issue as and when received.
Completion is subject to the satisfaction of a number of conditions, including:
(i) confirmation from the United Kingdom Listing Authority (the "UKLA") that the
Ordinary Shares will be readmitted to the Official List at Completion or as soon
as practicable thereafter; (ii) the written consent of the Nigerian Minister of
Petroleum Resources to the Proposed Acquisition; and (iii) the approval by
Heritage shareholders of the Resolutions. For the purposes of the Condition set
out at (i) above, it is expected that such confirmation shall be treated as
having been given where the Company and the UKLA have taken all steps necessary
for Readmission and where the Company has not received any indication that
Readmission will not take place. Further, the New Ordinary Shares will be
included in the share capital that shall be readmitted to the Official List at
Completion. Since the Proposed Acquisition is classified as a reverse takeover
transaction for the purposes of the Listing Rules, the Company has to publish
the Prospectus and the Information Circular (the "Circular") in which it will
seek the approvals of the Proposed Acquisition and certain other matters in
connection therewith at the EGM.
Heritage's current effective 97.5% share of the results of Shoreline have been
included in the Group's income statement as at 30 June 2012 as follows:
Six months ended
30 June 2012
$'000
Expenses
Acquisition costs (16,693)
----------------
Operating loss (16,693)
Finance costs
Other finance costs (1,864)
----------------
(1,864)
Loss from continuing operations before tax (18,557)
Heritage's own costs incurred for the transaction have been included within
acquisition costs in the Group income statement as at 30 June 2012 as follows:
Six months ended
30 June 2012
$'000
Expenses
Acquisition costs (1,395)
----------------
(1,395)
Heritage's net loss from continuing operations after tax in the six month period
ended June 2012 was $50.0 million, 415% higher than the loss of $9.7 million in
the six month period ended June 2011.
Results from continuing operations
Heritage's loss from continuing operations after tax in the six month period
ended June 2012 was $50.0 million, compared to $9.7 million for the six month
period ended June 2011. The adjusted loss from continuing operations in the six
month period ended June 2012 was $6.7 million compared to $6.9 million in the
six month period ended June 2011 if certain non-cash and one-off items
(share-based compensation expense, impairment of intangible exploration and
evaluation assets, foreign exchange gains/ losses, unrealised gains on
revaluation of Afren warrants, unrealised loss on investments in PetroFrontier,
exploration expenditures and acquisition costs) are excluded.
Disposal of Ugandan Assets
On 18 December 2009, Heritage announced that it and its wholly owned subsidiary
HOGL, had entered into a Sale and Purchase Agreement ("SPA"), with ENI
International B.V. ("Eni") for the sale of HOGL's 50% interests in Blocks 1 and
3A in Uganda (the "Ugandan Assets"). On 17 January 2010, Tullow Uganda Limited
("Tullow") exercised its rights of pre-emption. The transaction was
overwhelmingly approved by Heritage shareholders at the General Meeting on 25
January 2010.
On 27 July 2010, Heritage announced that HOGL had completed the disposal of the
Ugandan Assets. Tullow paid cash of $1.45 billion, including $100 million from a
contractual settlement, of which Heritage received and retained $1.045 billion.
The Ugandan Revenue Authority ("URA") contends that income tax is due on the
capital gain arising on the disposal and it raised assessments of $404,925,000
prior to completion of the disposal. Heritage's position, based on comprehensive
advice from leading legal and tax experts in Uganda, the United Kingdom and
North America, is that no tax should be payable in Uganda on the disposal of the
Ugandan Assets.
On closing, Heritage deposited $121,477,500 with the URA, representing 30% of
the disputed tax assessment of $404,925,000. $121,477,500 has been classified as
a deposit in the balance sheet at 30 June 2012. A further $283,447,000 has been
retained in escrow with Standard Chartered Bank in London, pursuant to an
agreement between HOGL, Tullow and Standard Chartered Bank pending resolution
between the Ugandan Government and HOGL of the tax dispute. Including accrued
interest, an amount of $285,941,000 is classified as restricted cash in the
balance sheet at 30 June 2012.
In August 2010, the URA issued a further income tax assessment of $30 million
representing 30% of the additional contractual settlement amount of $100
million. HOGL has challenged the Ugandan tax assessments on the disposal of
HOGL's entire interest in the Ugandan Assets.
In November 2011 and December 2011, the Tax Appeals Tribunal in Uganda dismissed
HOGL's applications in relation to the two assessments amounting to
$434,925,000. In December 2011 and January 2012, HOGL commenced appeals to the
Ugandan High Court in relation to the rulings from the Tax Appeals Tribunal. The
rulings from the Tax Appeals Tribunal in Uganda are part of a domestic process
and are not final and determinative. HOGL has appealed the rulings, which it
believes are fatally flawed in many respects, through the Ugandan court system
commencing with the High Court and subsequently the Court of Appeal and Supreme
Court if necessary.
As a result of the actions of the tax authorities in Uganda, HOGL and its
advisers consider that it was compelled to take part in a Ugandan domestic
process before a Tax Appeals Tribunal, notwithstanding HOGL's belief that
arbitration, which is ongoing in London and detailed below, is the correct forum
to settle such disputes, in view of the existence of valid and binding
arbitration provisions in its PSAs with the Ugandan Government.
In May 2011, HOGL commenced international arbitration proceedings in London
against the Ugandan Government. HOGL is seeking a decision requiring, among
other things, the return or release of approximately $405 million, plus
interest, in aggregate currently on deposit with the URA or in escrow with
Standard Chartered Bank in London. Accordingly, the arbitration proceedings
concern HOGL's claims that the Ugandan Government wrongfully or unreasonably
withheld consent to the sale by HOGL of the rights under the PSAs for the
Ugandan Assets, including by making this consent conditional upon the payment of
a sum alleged to be a tax liability of HOGL. The arbitration proceedings are
being held in London in accordance with the provisions of the PSAs in relation
to the Ugandan Assets.
On 15 April 2011, Heritage and its wholly owned subsidiary HOGL received
Particulars of Claim filed in the High Court of Justice in England by Tullow
seeking $313,447,500 for alleged breach of contract as a result of HOGL's and
Heritage's refusal to reimburse Tullow in relation to a payment made by Tullow
of $313,447,500 on 7 April 2011 to the URA. Heritage and HOGL believe that the
claim has no basis and are in the process of vigorously and robustly defending
it. Heritage and HOGL have filed their Defence and Counterclaim against Tullow
seeking instead the release to HOGL of the $283,447,000 plus interest currently
being held in escrow with Standard Chartered Bank in London.
Although disputes of this nature are inherently uncertain, the Directors believe
that the monies on deposit and held in escrow will ultimately be recovered by
Heritage.
The results of the Ugandan operations have been classified as discontinued
operations. Loss on disposal of discontinued operations as at the six month
periods ended 30 June 2012 and 2011 is as follows:
Six months Six months
ended ended
30 June 2012 30 June 2011
$'000 $'000
Loss on disposal of discontinued operations (2,234) (1,654)
(2,234) (1,654)
The 2012 and the 2011 losses relate to legal fees incurred in connection with
the tax dispute which are considered to be an adjustment to the profit on
disposal of the Ugandan Assets.
Loss per share
In the six month period ended June 2012 the basic and diluted loss per share
from continuing operations was $0.19, compared to the basic and diluted loss per
share of $0.03 in in the six month period ended June 2011.
Heritage's net loss in the six month period ended June 2012 was $52.4 million,
compared to $11.3 million in the six month period ended June 2011.
In the six month period ended June 2012 basic and diluted loss per share was
$0.20, compared to basic and diluted loss per share of $0.04 in in the six month
period ended June 2011.
Cash flow and capital expenditures
Cash used in operating activities from continuing operations was $17.6 million
in the six month period ended June 2012 compared to $9.5 million in the six
month period ended June 2011. Total cash capital expenditures for continued
operations in the six month period ended June 2012 was $36.1 million compared to
$52.7 million in the six month period ended June 2011. The following major work
programmes were undertaken in the six month period ended June 2012:
-- Drilling and testing of the Miran West-3 well completed in May 2012. The
well was drilled to a total depth of 3,528 metres and the primary target
of the Jurassic gas reservoir was successfully tested. The well is
suspended pending completion as a production well;
-- The Miran East Well-1 is currently drilling and is scheduled to reach
target depth in the second half of this year;
-- Planning and development studies on the Miran field and Front End
Engineering Design studies on a gas export pipeline are ongoing; and
-- The Tanzanian the work programme commenced in the recently awarded Kyela
and Rukwa licences with the reprocessing of legacy 2D seismic data and
acquisition of a high resolution gravity survey.
Buy back programme
At the Annual General Meetings ("AGMs") held on 17 June 2010 and 20 June 2011, a
special resolution was passed by shareholders authorising the Company to make
market purchases of its own shares. In April 2011, the Company announced its
intention to commence a buy back programme to acquire its Ordinary Shares using
the authority granted at the 17 June 2010 AGM. Shareholders approved the
resolution at the AGM on 20 June 2011 to acquire up to 28,900,000 Ordinary
Shares from that date. Purchased Ordinary Shares are held in treasury.
In July 2011, the Company announced that share purchases would be made via a
trading plan to allow the buy back programme to continue independently through
close periods. The trading plan agreement was terminated by the Company in May
2012. As at 30 June 2012 the Company held a total of 34,602,442 Ordinary Shares
in treasury at a total acquisition cost of these shares was $126.9 million.
Heritage has 255,485,078 Ordinary Shares in issue (excluding treasury shares) as
well as 2,471,918 exchangeable shares of no par value of Heritage Oil
Corporation ("HOC", the "Corporation"), each carrying one voting right in
Heritage. The total number of voting rights in Heritage, excluding treasury
shares as at 6 August 2012 was 257,956,996.
Repayment of Convertible bonds
In February 2012 Heritage repaid $127.1 million to holders of the $165,000,000
8.00% convertible bonds (the "Bonds"), on maturity of the Bonds.
Financial position
Liquidity
There was a net decrease in cash and cash equivalents during the six month
period ended June 2012 of $276.4 million, in part following the $127.1 million
repayment of the Bonds. At 30 June 2012, Heritage had a working capital surplus
of $479.9 million, including cash and cash equivalents of $34.6 million.
Like most oil and gas exploration companies, Heritage raises finance for its
activities from time to time using a variety of sources. Sources of funding for
future exploration and development programmes will be derived from, inter alia,
disposal proceeds from the sale of assets, such as the sale of the Ugandan
Assets in 2010 (see Disposal section of the Financial Review on pages 12 to 14),
using its existing treasury resources, new credit facilities, reinvesting its
funds from operations, farm-outs and, when considered appropriate, issuing debt
and additional equity. Accordingly, the Group has a number of different sources
of finance.
Capital structure
Heritage's financial strategy has been to fund its capital expenditure
programmes and any potential acquisitions by selling non-core 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 26 July 2010, the Company completed the disposal of the Ugandan Assets for
cash consideration of $1.35 billion and an additional contractual settlement
amount of $100 million.
At 30 June 2012, Heritage had net debt of $22.6 million (31 December 2011 net
cash - $135.1 million) (cash and cash equivalents less total liabilities) and 3%
gearing (31 December 2011 - nil) (net debt as a percentage of total
shareholders' equity). As referred to above, as at 30 June 2012, Heritage had
acquired 34,602,442 Ordinary Shares, which are held in treasury, at a total cost
of $126.9 million.
Important Events Subsequent to 30 June 2012
In July 2012 a wholly owned subsidiary of Heritage received a loan of
$30,000,000 to refinance the acquisition of an aircraft. Interest on the loan is
at a rate of 5.5%. The loan, which is secured on the aircraft, is scheduled to
be repaid by 19 consecutive quarterly instalments of principal. Each instalment
equals $789,000 with the final instalment being $15,000,000. The Company
provided a corporate guarantee to the lender.
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 it and runs its business 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 hydrocarbon 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 including
political, fiscal and regulatory instability - the Group maintains close
contact with governments in the areas where 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 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 in commodity prices could
impact on the Group. The Group did not hedge oil prices in the six month
period ended June 2012.
-- 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. Employees are
encouraged to develop their potential and, where appropriate, to further
their careers within the Group. This is one on the Group's Key
Performance Indicators and continues to remain at low levels.
-- Foreign exchange exposure - generally, it is the Group's policy to
conduct and manage its business in US dollars, which is its reporting
currency. Cash balances in Group subsidiaries 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.
Further details on risks and how the Company mitigates them are disclosed on
pages 34 to 37 of the Annual Review within the 2011 Annual Report and Accounts
which were issued on 18 April 2012.
Paul Atherton, Chief Financial Officer
6 August 2012
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 International Accounting Standard ("IAS") 34 Interim
Financial Reporting as adopted by the European Union ("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 ("DTR"), 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 and Accounts that could do so.
For and on behalf of the Board
Anthony Buckingham, Chief Executive Officer
6 August 2012
Paul Atherton, Chief Financial Officer
6 August 2012
INDEPENDENT REVIEW REPORT TO HERITAGE OIL PLC
Introduction
We have been engaged by Heritage Oil Plc ("the Company") to review the condensed
set of financial statements in the Interim Report and Accounts for the six
months ended 30 June 2012 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 Interim Report and Accounts
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") as if those requirements applied to it. 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 have accepted responsibility 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 International Financial Reporting Standards ("IFRS")
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 The 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 2012 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the DTR of the UK FSA.
Emphasis of matter - uncertain outcome of tax dispute
In forming our conclusion on the condensed set of financial statements, which is
not modified, we have considered the adequacy of the disclosures made in note 4
to the condensed set of financial statements concerning the dispute as to
whether or not tax is payable on the disposal of the Group's interest in Uganda.
In this respect, based on advice received, the Directors believe that the
amounts on deposit ($121,477,500) and held in escrow ($285,941,000) shown in the
condensed consolidated balance sheet will be recovered. However, the ultimate
outcome of the matter is uncertain and it may be some considerable time before
the issue is resolved.
Jimmy Daboo
for and on behalf of KPMG Audit Plc
Chartered Accountants
15 Canada Square
London
E14 5GL
6 August 2012
HERITAGE OIL PLC
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months Six months
ended ended
30 June 2012 30 June 2011
$'000 $'000
Revenue
Petroleum 4,122 2,850
Expenses
Petroleum operating (1,628) (1,349)
Production tax (2,239) (1,491)
General and administrative (6,257) (8,761)
Depletion, depreciation and amortisation (1,180) (993)
Exploration expenditures (1,712) (2,765)
Acquisition costs (note 5) (18,088) -
Impairment of intangible exploration and
evaluation assets (18,370) -
Operating loss (45,352) (12,509)
Finance income/(costs)
Interest income 2,123 3,202
Other finance costs (2,523) (1,749)
Foreign exchange (losses)/gains (5) 1,202
Unrealised (losses)/gains on other financial
assets (4,098) 303
(4,503) 2,958
Loss from continuing operations before tax (49,855) (9,551)
Income tax expense (119) (174)
Loss from continuing operations after tax (49,974) (9,725)
Loss on disposal of discontinued operations
(note 4) (2,234) (1,654)
Loss for the period attributable to owners of
the Company (52,208) (11,379)
The notes are an integral part of these condensed consolidated financial
statements.
HERITAGE OIL PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months
ended ended
30 June 2012 30 June 2011
$'000 $'000
Loss for the period (52,208) (11,379)
Other comprehensive gain/(loss)
Exchange differences on translation of
foreign operations (603) 998
Net change in fair value of available-for-
sale financial assets 433 (885)
Other comprehensive (loss)/gain, net of
income tax (170) 113
Total comprehensive loss for the period (52,378) (11,266)
Attributable to
Owners of the Company (52,378) (11,266)
Net loss per share from continuing operations
(dollars)
Basic and diluted (0.19) (0.03)
Net loss per share from discontinued
operations (dollars)
Basic and diluted (0.01) (0.01)
Net loss per share (dollars)
Basic and diluted (0.20) (0.04)
The notes are an integral part of these condensed consolidated financial
statements.
HERITAGE OIL PLC
CONDENSED CONSOLIDATED BALANCE SHEET
31 December
30 June 2012 2011
$'000 $'000
ASSETS
Non-current assets
Intangible exploration and evaluation assets
(note 6) 287,316 271,859
Property, plant and equipment (note 6) 106,736 106,852
Prepaid expenses (note 5) 4,875 -
Other financial assets (note 7) 9,530 13,268
408,457 391,979
Current assets
Inventories 65 78
Prepaid expenses 834 1,344
Trade and other receivables 5,188 1,788
Deposit with URA (note 4) 121,477 121,477
Other financial assets (note 5) 4,724 -
Restricted cash (notes 4, 5) 363,941 284,479
Cash and cash equivalents 34,609 310,882
530,838 720,048
939,295 1,112,027
LIABILITIES
Current liabilities
Trade and other payables 42,950 35,391
Current tax liabilities 216 104
Borrowings (note 8) 7,797 134,397
50,963 169,892
Non-current liabilities
Borrowings (note 8) 4,920 5,110
Provisions 1,301 783
Deferred tax 46 38
6,267 5,931
57,230 175,823
Net assets 882,065 936,204
SHAREHOLDERS' EQUITY ATTRIBUTABLE TO OWNERS
OF THE COMPANY
Share capital (note 9) 342,359 345,682
Reserves 84,718 83,326
Retained earnings 454,988 507,196
882,065 936,204
The notes are an integral part of these condensed consolidated financial
statements.
HERITAGE OIL PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June 2012
Foreign Available-for-sale
currency investments
Share translation revaluation
capital reserve reserve
$'000 $'000 $'000
Balance at 1 January 2012 345,682 (1,823) 120
Total comprehensive loss
for the period
Loss for the period - - -
Other comprehensive
income/(loss)
Exchange differences on
translation of foreign
operations - (603) -
Net change in fair value
of available- for-sale
financial assets - - 433
Total other comprehensive
income/(loss) - (603) 433
Total comprehensive
income/(loss) for the
period - (603) 433
Transactions with owners,
recorded directly in
equity
Contributions by and
distributions to owners
Share buy back (3,323) - -
Share-based payment
transactions and
exercise of share
options - - -
Total transactions with
owners (3,323) - -
Balance at 30 June 2012 342,359 (2,426) 553
Share-based Equity portion
payments Retained of convertible Total
reserve earnings debt equity
$'000 $'000 $'000 $'000
Balance at 1 January 2012 60,380 507,196 24,649 936,204
Total comprehensive loss
for the period
Loss for the period - (52,208) - (52,208)
Other comprehensive
income/(loss)
Exchange differences on
translation of foreign
operations - - - (603)
Net change in fair value
of available- for-sale
financial assets - - - 433
Total other comprehensive
income/(loss)
- - - (170)
Total comprehensive
income/(loss) for the
period - (52,208) - (52,378)
Transactions with owners,
recorded directly in
equity
Contributions by and
distributions to owners
Share buy back - - - (3,323)
Share-based payment
transactions and
exercise of share
options 1,562 - - 1,562
Total transactions with
owners 1,562 - - (1,761)
Balance at 30 June 2012 61,942 454,988 24,649 882,065
The notes are an integral part of these condensed consolidated financial
statements
HERITAGE OIL PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June 2011
Foreign Available-for-
currency sale investments
Share translation revaluation
capital reserve reserve
$'000 $'000 $'000
Balance at 1 January 2011 460,280 (940) -
Total comprehensive
income for the period
Loss for the period - - -
Other comprehensive
gain/(loss)
Exchange differences on
translation of foreign
operations - 998 -
Net change in fair value
of available- for-sale
financial assets - - (885)
Total other comprehensive
gain /(loss) - 998 (885)
Total comprehensive
gain/(loss) for the
period - 998 (885)
Transactions with owners,
recorded directly in
equity
Contributions by and
distributions to owners
Share buy back (66,630) - -
Exercise of share options
net of attributable
dividends 1,225 - -
Share-based payment
transactions and
exercise of share
options 7,752 - -
Total transactions with
owners (57,653) - -
Balance at 30 June 2011 402,627 58 (885)
Share-based Equity portion
payments Retained of convertible Total
reserve earnings debt equity
$'000 $'000 $'000 $'000
Balance at 1 January 2011 62,969 575,867 24,649 1,122,825
Total comprehensive
income for the period
Loss for the period - (11,379) - (11,379)
Other comprehensive
gain/(loss)
Exchange differences on
translation of foreign
operations - - - 998
Net change in fair value
of available- for-sale
financial assets - - - (885)
Total other comprehensive
gain /(loss)
- - - 113
Total comprehensive
gain/(loss) for the
period - (11,379) - (11,266)
Transactions with owners,
recorded directly in
equity
Contributions by and
distributions to owners
Share buy back - - - (66,630)
Exercise of share options
net of attributable
dividends (1,225) (1,781) - (1,781)
Share-based payment
transactions and
exercise of share
options (3,008) - - 4,744
Total transactions with
owners (4,233) (1,781) - (63,667)
Balance at 30 June 2011 58,736 562,707 24,649 1,047,892
The notes are an integral part of these condensed consolidated financial
statements
HERITAGE OIL PLC
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six months Six months
ended ended
30 June 2012 30 June 2011
$'000 $'000
Cash provided by (used in) operating
activities
Net loss from continuing operations for the
period (49,974) (9,725)
Items not affecting cash
Depletion, depreciation and amortisation 1,180 993
Finance costs-accretion expenses 178 641
Foreign exchange gains (543) (473)
Share based compensation 934 1,536
Loss/(gain) on other financial assets 4,098 (303)
Impairment of intangible exploration and
evaluation assets 18,370 -
(Increase)/decrease in trade and other
receivables (31) 734
Decrease/(increase) in prepaid expenses 511 (757)
Decrease/(increase) in inventory 14 (44)
Increase/(decrease) in trade and other
payables 9,013 (1,859)
Accrued interest on restricted cash (1,462) (238)
Increase in tax payable 120 -
Continuing operations (17,592) (9,495)
Discontinued operations (1,918) (1,858)
(19,510) (11,353)
Investing activities
Acquisition of assets (note 5) (4,875) -
Increase in restricted cash for acquisition
of assets (note 5) (78,000) -
Loan to joint venture (2,125) -
Property, plant and equipment expenditures (1,064) (9,125)
Intangible exploration expenditures (35,011) (43,526)
Other financial assets - (19,870)
(121,075) (72,521)
Discontinued operations
Transaction related expenses and other - 9,901
(121,075) (62,620)
Financing activities
Share buy back (note 9) (3,323) (58,138)
Shares issued for cash, proceeds from
exercise of share options - 2,659
Payment on exercise of share options (note 9) - (1,781)
Payment of guarantee fees for bridge facility (4,858) -
Repayment of long-term debt (127,581) (346)
(135,762) (57,606)
Decrease in cash and cash equivalents (276,347) (131,579)
Cash and cash equivalents-beginning of period 310,882 598,275
Foreign exchange gain on cash held in foreign
currency 74 1,575
Cash and cash equivalents-end of period 34,609 468,271
Non-cash investing and financing activities
Supplementary information
The following have been included within cash
flows for the period under operating and
investing activities
Interest received 2,213 3,781
Interest paid 5,216 5,216
The notes are an integral part of these consolidated financial statements.
HERITAGE OIL PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Reporting entity
Heritage Oil Plc (the "Company") was incorporated under the Companies (Jersey)
Law 1991 (as amended) (the "Jersey Companies Law") on 6 February 2008 as
Heritage Oil Limited. 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
HOC
2. Basis of accounting and presentation and significant accounting policies
These interim condensed set of financial statements of the Company as at and for
the six months ended 30 June 2012 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 $34.6 million at 30 June 2012, excluding amounts
related to the tax dispute with the Ugandan Government and amounts held in
escrow for the acquisition of the Acquisition Assets.
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 set of financial statements has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the 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 2011.
The Company's condensed set of financial statements are presented in thousand US
dollars unless otherwise stated. US dollars are the Company's functional and
presentation currency.
The accounting policies applied in the preparation of these condensed set of
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 2011.
The condensed set of financial statements were approved by the Board and
authorised for issuance on 6 August 2012. The comparative information at 31
December 2011 is abridged and therefore is not the Company's statutory accounts
for that financial period.
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, Kurdistan, Pakistan,
Tanzania, Malta, Mali, Uganda (discontinued), Libya (entered in 2011) and
Nigeria (entered in 2012). The Group's reporting segments comprise each separate
geographical area in which it operates.
Six months ended 30 June 2012
External Segment
revenue result Total assets
$'000 $'000 $'000
Russia 4,122 (1,144) 57,897
Kurdistan - - 213,488
Libya - - 20,956
Pakistan - - 4,715
Tanzania - (70) 19,972
Nigeria - (18,557) 100,517
Mali - (18,370) -
Malta - - 20,668
Uganda -discontinued operations - (2,234) -
Total for reportable segments 4,122 (40,375) 438,213
Corporate - (11,833) 501,082
Elimination of discontinued
operations - 2,234 -
Total from operations 4,122 (49,974) 939,295
Depreciation,
Total Capital depletion and
liabilities additions amortisation
$'000 $'000 $'000
Russia 1,255 1,637 (682)
Kurdistan 15,658 27,218 -
Libya - 780 -
Pakistan 36 20 -
Tanzania 2,283 4,743 -
Nigeria 13,177 - -
Mali - 499 -
Malta 29 611 -
Uganda -discontinued operations - - -
Total for reportable segments 32,438 35,508 (682)
Corporate 24,792 96 (498)
Elimination of discontinued
operations - - -
Total from operations 57,230 35,604 (1,180)
Six months ended 30 June 2011
External Segment
revenue result Total assets
$'000 $'000 $'000
Russia 2,850 169 60,749
Kurdistan - - 163,786
Pakistan - - 5,306
Tanzania - - 24,398
Mali - - 16,515
Malta - - 15,534
Uganda -discontinued operations - (1,654) -
Total for reportable segments 2,850 (1,485) 286,288
Corporate - (9,894) 952,388
Elimination of discontinued
operations - 1,654 -
Total from operations 2,850 (9,725) 1,238,676
Depreciation,
Total Capital depletion and
liabilities additions amortisation
$'000 $'000 $'000
Russia 2,914 6,398 (501)
Kurdistan 13,741 28,361 -
Pakistan - 564 -
Tanzania 213 4,294 -
Mali 6,236 13,167 -
Malta 63 1,741 -
Uganda -discontinued operations - - -
Total for reportable segments 23,167 54,525 (501)
Corporate 167,717 268 (492)
Elimination of discontinued
operations - - -
Total from operations 190,784 54,793 (993)
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 2011.
4. Discontinued Operations
On 18 December 2009, Heritage announced that it and its wholly owned subsidiary
HOGL, had entered into a SPA, with Eni for the sale of the Ugandan Assets. On 17
January 2010, Tullow exercised its rights of pre-emption. The transaction was
overwhelmingly approved by Heritage shareholders at the General Meeting on 25
January 2010.
On 27 July 2010, Heritage announced that HOGL had completed the disposal of the
Ugandan Assets. 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 contends that income tax is due on the capital gain arising on the
disposal and it raised assessments of $404,925,000 prior to completion of the
disposal. Heritage's position, based on comprehensive advice from leading legal
and tax experts in Uganda, the United Kingdom and North America, is that no tax
should be payable in Uganda on the disposal of the Ugandan Assets.
On closing, Heritage deposited $121,477,500 with the URA, representing 30% of
the disputed tax assessment of $404,925,000. $121,477,500 has been classified as
a deposit in the balance sheet at 30 June 2012. A further $283,447,000 has been
retained in escrow with Standard Chartered Bank in London, pursuant to an
agreement between HOGL, Tullow and Standard Chartered Bank pending resolution
between the Ugandan Government and HOGL of the tax dispute. Including accrued
interest, an amount of $285,941,000 is classified as restricted cash in the
balance sheet at 30 June 2012.
In August 2010, the URA issued a further income tax assessment of $30 million
representing 30% of the additional contractual settlement amount of $100
million. HOGL has challenged the Ugandan tax assessments on the disposal of
HOGL's entire interest in the Ugandan Assets.
In November 2011 and December 2011, the Tax Appeals Tribunal in Uganda dismissed
HOGL's applications in relation to the two assessments amounting to
$434,925,000. In December 2011 and January 2012, HOGL commenced appeals to the
Ugandan High Court in relation to the rulings from the Tax Appeals Tribunal. The
rulings from the Tax Appeals Tribunal in Uganda are part of a domestic process
and are not final and determinative. HOGL has appealed the rulings, which it
believes are fatally flawed in many respects, through the Ugandan court system
commencing with the High Court and subsequently the Court of Appeal and Supreme
Court if necessary.
As a result of the actions of the tax authorities in Uganda, HOGL and its
advisers consider that it was compelled to take part in a Ugandan domestic
process before a Tax Appeals Tribunal, notwithstanding HOGL's belief that
arbitration, which is ongoing in London and detailed below, is the correct forum
to settle such disputes, in view of the existence of valid and binding
arbitration provisions in its PSAs with the Ugandan Government.
In May 2011, HOGL commenced international arbitration proceedings in London
against the Ugandan Government. HOGL is seeking a decision requiring, among
other things, the return or release of approximately $405 million, plus
interest, in aggregate currently on deposit with the URA or in escrow with
Standard Chartered Bank in London. Accordingly, the arbitration proceedings
concern HOGL's claims that the Ugandan Government wrongfully or unreasonably
withheld consent to the sale by HOGL of the rights under the PSAs for the
Ugandan Assets, including by making this consent conditional upon the payment of
a sum alleged to be a tax liability of HOGL. The arbitration proceedings are
being held in London in accordance with the provisions of the PSAs in relation
to the Ugandan Assets.
On 15 April 2011, Heritage and its wholly owned subsidiary HOGL received
Particulars of Claim filed in the High Court of Justice in England by Tullow
seeking $313,447,500 for alleged breach of contract as a result of HOGL's and
Heritage's refusal to reimburse Tullow in relation to a payment made by Tullow
of $313,447,500 on 7 April 2011 to the URA. Heritage and HOGL believe that the
claim has no basis and are in the process of vigorously and robustly defending
it. Heritage and HOGL have filed their Defence and Counterclaim against Tullow
seeking instead the release to HOGL of the $283,447,000 plus interest currently
being held in escrow with Standard Chartered Bank in London.
Although disputes of this nature are inherently uncertain, the Directors believe
that the monies on deposit and held in escrow will ultimately be recovered by
Heritage.
The results of the Ugandan operations have been classified as discontinued
operations. Loss on disposal of discontinued operations as at 30 June 2012 and
2011 is as follows:
Six months ended Six months ended
30 June 2012 30 June 2011
$'000 $'000
Loss on disposal of discontinued
operations (2,234) (1,654)
(2,234) (1,654)
The 2012 and the 2011 losses relate to legal fees incurred in connection with
the tax dispute which are considered to be an adjustment to the profit on
disposal of the Ugandan Assets.
5. Proposed Acquisition of an interest in OML 30
On 29 June 2012, the Company announced that Shoreline had entered into the
Acquisition Agreement with Shell, Total and Agip to acquire the Acquisition
Assets, for cash consideration of $850 million, net of costs.
Shoreline is a private limited Nigerian company whose ownership interests are
held by Heritage Oil SNR (Nigeria) B.V., a wholly-owned subsidiary of Heritage,
and a local Nigerian partner, Shoreline Power. The Acquisition Assets are being
acquired for cash consideration of $850,000,000, net of costs, of which: (i) a
deposit of $85,000,000 was paid by Shoreline upon the signing of the Acquisition
Agreement (with $5,000,000, being the portion of such deposit not exceeding 1%
of the market capitalisation of the Company as at 29 June 2012, paid to the
Vendors, and the remaining $80,000,000, paid into a dedicated escrow account);
and (ii) the balance of the consideration, being $765,000,000 (which is
guaranteed by Standard Bank SA) payable on Completion. Heritage's economic share
of the $80,000,000 deposit has been classified as restricted cash in its balance
sheet at 30 June 2012.
The Proposed Acquisition is classified as a reverse takeover transaction, for
the purposes of the Listing Rules. However, no change of voting control or the
management of Heritage will occur as a result of the Proposed Acquisition. The
Proposed Acquisition will be primarily financed through: (i) a $550,000,000
Standard Bank SA Bridge Facility, a term facility provided to Shoreline; and
(ii) the proposed Rights Issue which will raise proceeds of up to $370,000,000,
which Rights Issue is supported by the $215,000,000 JPM Bridge Facility, a term
facility provided to Heritage and on-lent by Heritage to Shoreline. Following
Completion, the Enlarged Group plans to refinance the Standard Bank Bridge
Facility by implementing a resource-based lending facility in respect of OML 30.
In the event that the proceeds of the Rights Issue are not received by Heritage
prior to Completion and amounts are drawn down by Heritage under the JPM Bridge
Facility to enable Shoreline to make payment of the Consideration Balance in
accordance with the terms of the Acquisition Agreement, the JPM Bridge Facility
will be repaid from the proceeds of the Rights Issue as and when received.
The Completion is subject to the satisfaction of a number of conditions,
including: (i) confirmation from the UKLA that the Ordinary Shares will be
readmitted to the Official List at Completion or as soon as practicable
thereafter; (ii) the written consent of the Nigerian Minister of Petroleum
Resources to the Proposed Acquisition; and (iii) the approval by Heritage
shareholders of the Resolutions. For the purposes of the Condition set out at
(i) above, it is expected that such confirmation shall be treated as having been
given where the Company and the UKLA have taken all steps necessary for
Readmission and where the Company has not received any indication that
Readmission will not take place. Further, the New Ordinary Shares will be
included in the share capital that shall be readmitted to the Official List at
Completion. Since the Proposed Acquisition is classified as a reverse takeover
transaction for the purposes of the Listing Rules, the Company has to publish
the Prospectus and the Circular in which it will seek the approvals of the
Proposed Acquisition and certain other matters in connection therewith at the
EGM.
As Shoreline is a joint venture, Heritage is proportionately consolidating
Shoreline's assets and liabilities in accordance with its 97.5% economic
interest at 30 June 2012. OML 30 is an unincorporated joint venture between
Shoreline and the Nigerian National Petroleum Company and Shoreline will
proportionally consolidate its 45% in OML 30. As Shoreline is jointly
controlled, Heritage reflects 97.5% of the Shoreline assets and liabilities in
its consolidated financial statements. Heritage's 97.5% interest in Shoreline
included as at 30 June 2012:
30 June 2012
$'000
ASSETS
Non-current assets
Prepaid expenses 4,875
---------------
4,875
Current assets
Trade and other receivables 2,647
Other financial assets 4,724
Restricted cash 78,000
Cash and cash equivalents 10,270
95,641
100,516
LIABILITIES
Current liabilities
Trade and other payables 13,177
---------------
13,177
Net assets 87,339
Heritage's current effective 97.5% share of the results of Shoreline have been
included in the Group income statement as at 30 June 2012 as follows:
Six months ended
30 June 2012
$'000
Expenses
Acquisition costs (16,693)
------------------
Operating loss (16,693)
Finance costs
Other finance costs (1,864)
------------------
(1,864)
Loss from continuing operations before tax (18,557)
Acquisition costs comprise Heritage's share of costs, professional fees and
stamp duty of $10.5 million incurred and accrued in connection with the proposed
acquisition of OML 30. As at 30 June 2012 Heritage had provided Shoreline with a
loan of $105,896,000 to meet its commitments on signing the Acquisition
Agreement and related acquisition expenses.
Heritage's own costs incurred for the transaction have been included within
acquisition costs in the Group income statement as at 30 June 2012 as follows:
Six months ended
30 June 2012
$'000
Expenses
Acquisition costs (1,395)
------------------
(1,395)
6. Property, plant and equipment and intangible exploration and evaluation assets
Capital additions
During the six months ended 30 June 2012, the Group acquired property, plant and
equipment and intangible exploration and evaluation assets with a cost of
$35,604,000 (six months ended 30 June 2011 - $54,793,000).
Impairment
In the period to 30 June 2012, the Group recognised an impairment of intangible
exploration and evaluation assets of $18,370,000 (period to 30th June 2011 -
nil). After a technical review and consideration of the security situation in
country, management decided to relinquish the licences and fully write-off
expenditure of $18,370,000 in Mali.
7. Other financial assets
30 June 2012 31 December 2011
$'000 $'000
Current assets
Deposit for the Acquisition Assets
(note 5) 4,724 -
Non-current assets
Investment in listed securities 9,530 13,268
14,254 13,268
The investment in 1,500,000 Afren shares is classified as available-for-sale and
valued at fair value which is determined using market price at the end of the
period. The valuation at market price at 30 June 2012 resulted in a gain of
$433,000 which was recognised in equity.
As at 30 June 2012, the Company held 9,748,200 of the listed shares of
PetroFrontier representing 15.23% of the outstanding shares of PetroFrontier.
The investment in share capital of PetroFrontier is classified as
available-for-sale, and valued at fair value determined using market price at
the end of the period.
The Group recorded an impairment of its investment in PetroFrontier to reflect
the market value as at 30 June 2012. The loss of $4,098,000 was recognised as an
unrealised loss on other financial assets in the income statement.
8. Borrowings
30 June 2012 31 December 2011
$'000 $'000
Current borrowings -secured
Convertible bonds-unsecured - 126,406
Current portion of long-term debt-
secured 7,797 7,991
7,797 134,397
Non-current borrowings
Non-current portion of long-term debt-
secured 4,920 5,110
4,920 5,110
The convertible bonds were paid in full in February 2012.
9. Share capital
The Company was incorporated under the Jersey Companies Law on 6 February 2008.
The Company's authorised share capital is an unlimited number of Ordinary Shares
without par value. At incorporation, there was one Ordinary Share issued at $42.
On 22 February 2008, a second Ordinary Share was issued at $41.
As part of the Reorganisation described in the 2008 Annual Report and Accounts,
the rights of different classes of shares are the same and therefore
economically equivalent. As such, Ordinary and Exchangeable Shares are treated
as one class of shares for the net earnings/ (loss) per share calculation.
Ordinary Shares
Six months ended Six months ended
30 June 2012 30 June 2011
Number Amount Number Amount
$'000 $'000
At 1 January 256,519,296 343,280 284,899,830 457,746
Exchange of Exchangeable
Shares of HOC for Ordinary
Shares 339,490 290 155,700 132
Issued on exercise of stock
options - - 4,692,500 8,977
Shares bought back and held in
treasury (1,373,708) (3,323) (18,347,696) (66,630)
At 30 June 255,485,078 340,247 271,400,334 400,225
Special Voting Share
Six months ended Six months ended
30 June 2012 30 June 2011
Number Amount Number Amount
$'000 $'000
At 1 January 1 - 1 -
Issued during the period - - - -
At 30 June 1 - 1 -
Exchangeable Shares of Heritage Oil Corporation Each Carrying One Voting Right
in the Company
Six months ended Six months ended
30 June 2012 30 June 2011
Number Amount Number Amount
$'000 $'000
At 1 January 2,811,408 2,402 2,967,108 2,534
Exchange of Exchangeable
Shares for Ordinary Shares (339,490) (290) (155,700) (132)
At 30 June 2,471,918 2,112 2,811,408 2,402
Balance of Ordinary Shares of
the Company, excluding
treasury shares, and
Exchangeable Shares of HOC -
at 30 June 257,956,996 342,359 274,211,742 402,627
On 26 April 2011, the Company announced a buy back programme to acquire Ordinary
Shares. Shareholders approved the resolution at the AGMs on 17 June 2010 and 20
June 2011 to acquire up to 28,786,693 and 28,900,000 Ordinary Shares
respectively from the date of the AGM until the next AGM. The purchased Ordinary
Shares are held in treasury. At 30 June 2012, the Company held 34,602,442
Ordinary Shares in treasury.
On 28 June 2011, the Company and Standard Bank Jersey Limited entered into a
non-discretionary trading plan for the purchase of Ordinary Shares ("Trading
Plan Agreement"), to allow for the continuation of the Buyback Programme during
a regulatory black-out. Pursuant to this Trading Plan Agreement, Ordinary Shares
purchased under this plan are held in treasury.
Pursuant to the terms of the Trading Plan, repurchases made under the Buyback
Programme during the regulatory black-out were: (i) managed by an independent
third party that makes trading decisions in relation to the Company's securities
independently of, and uninfluenced by, the Company; and (ii) effected within
certain pre-set parameters and in accordance with the Listing Rules, other
applicable laws and the limitations of the authority approved by the
Shareholders in respect of the Buyback Programme.
The Trading Plan Agreement was terminated by the Company in May 2012.
Following the payment of a special dividend of 100 pence per share in August
2010, holders of share options are entitled to receive 100 pence per share when
the option is exercised. The net exercise price for the 2,150,000 options
exercised was less than 100 pence per share, which resulted in net payment of
$1,781,000 to the option holders on exercise of these share options during the
period ended 30 June 2011.
10. (Loss)/Earnings per share
The following table summarizes the weighted average Ordinary Shares and
Exchangeable Shares used in calculating net (loss)/earnings per share:
Six months ended 30 June
2012 2011
Weighted average Ordinary and Exchangeable
Shares
Basic 258,682,315 287,573.271
Diluted 269,157,668 302,355,193
The reconciling item between basic and diluted weighted average number of
Ordinary Shares is the dilutive effect of share options, LTIP awards and in the
period to 30 June 2011 convertible bonds. A total of 3,450,000 options (30 June
2011 - nil), 3,898,754 shares relating to the LTIP (30 June 2011- nil) and nil
shares relating to the convertible bonds (30 June 2011 - 27,042,553 shares) were
excluded from the above calculation, as they were anti-dilutive. However, since
the Company has made a loss for the period to 30 June 2012 for the purposes of
calculating diluted loss per share, all potential Ordinary Shares have been
treated as anti-dilutive in that year.
13. Related party transactions
During the six months ended 30 June 2012, the Company incurred transportation
costs of $76,000 (six months ended 30 June 2011 -$75,000) with respect to the
services provided by a company indirectly owned by Mr. Buckingham, CEO and a
Director of the Company.
Anthony Buckingham used the corporate jet a few times during the period to June
2012 for personal trips. The cost of these trips was reimbursed at independently
assessed commercial rates of $363,000 (30 June 2011 - $131,000).
Related party transactions described above have been made on an arm's length basis.
14. Non-cash investing and financing activities supplementary information
30 June 2012 30 June 2011
$'000 $'000
Capitalised portion of sharebased compensation (629) (459)
Capitalised portion of interest (3,214) (6,422)
Non-cash property, plant and Additions
relating to the capitalised portion of
sharebased compensation 4,144 6,881
15. Subsequent events
In July 2012 a wholly owned subsidiary of Heritage received a loan of
$30,000,000 to refinance the acquisition of an aircraft. Interest on the loan is
at a rate of 5.5%. The loan, which is secured on the aircraft, is scheduled to
be repaid by 19 consecutive quarterly instalments of principal. Each instalment
equals $789,000 with the final instalment being $15,000,000. The Company
provided a corporate guarantee to the lender.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This news release contains forward-looking information that is subject to
various risks, uncertainties and other factors. Such statements include, but are
not limited to, statements with regard to intentions, beliefs or current
expectations concerning, amongst other things, the outcome of the proposed
acquisition of OML 30, future production and grades, the economic limit or
viability of assets, estimated revenues, reserves and resources, the timing and
outcome of exploration projects and drilling programmes, projected capital
expenditures, transportation costs, the timing of new projects, future cash flow
and debt levels, fiscal regimes, the outcome of legislative changes, the outlook
for the prices of hydrocarbons, the outlook for trends in the trading
environment, statements about strategies, cost synergies, revenue benefits,
integration and future production levels and timing of the Company, including
OML 30, and the industry and countries in which it operates. All statements
other than statements and information of historical fact are forward-looking
statements. The use of any words "estimate", "forecast", "expect", "project",
"plan", "target", "vision", "goal", "outlook", "may", "will", "should",
"believe", "intend", "anticipate", "potential", and similar expressions are
intended to identify forward-looking statements. Forward-looking statements are
based on the Company's experience, current beliefs, assumptions, information and
perception of historical trends available to the Company, and are subject to a
variety of risks and uncertainties including, but not limited to those
associated with resource definition and expected reserves and contingent and
prospective resources estimates, unanticipated costs and expenses, the
consummation of the proposed acquisition of OML 30, regulatory approval,
fluctuating oil and gas prices, expected future production levels and timing,
the ability to access sufficient capital to finance future development and
credit risks, changes in regulatory framework in applicable jurisdictions where
the Company has oil and gas assets, including changes to regulatory approval
process and land-use designations, royalty, tax, environmental, greenhouse gas,
carbon and other laws or regulations and the impact thereof and the costs
associated with compliance.
Although the Company believes that the expectations represented by such
forward-looking statements are reasonable, there can be no assurance that such
expectations will prove to be correct. A number of factors could cause actual
results and developments to differ materially from those expressed or implied by
the forward-looking statements. In particular, there is no assurance that the
conditions precedent to completion of the proposed acquisition of OML 30 will be
satisfied or waived. Readers are cautioned that the assumptions and factors
discussed in this information release are not exhaustive and readers are not to
place undue reliance on forward-looking statements as our actual results may
differ materially from those expressed or implied. The Company disclaims any
intention or obligation to update or revise any forward-looking statements as a
result of new information, future events or otherwise, subsequent to the date of
this news release, except as required under applicable legislation. The
forward-looking statements speak only as of the date of this news release and
are expressly qualified by these cautionary statements. Readers are cautioned
that the foregoing lists are not exhaustive and are made as at the date hereof.
For a full discussion of material risk factors, see the section entitled "Risks"
in the Annual Review included in our most recently filed Annual Report for the
year ending 31 December 2011, which is available on the SEDAR website at
http://www.sedar.com/ or the Company's website under the tab "Reports" at
http://www.heritageoilplc.com/annualReports.cfm.
Statements in this news release relating to reserves and resources are deemed to
be forward-looking information, as they involve the implied assessment, based on
certain estimates and assumptions, that the described reserves and resources, as
the case may be, exist in the quantities predicted or estimated, and can be
profitably produced in the future. This news release contains estimates of the
Company's contingent resources. There is no certainty that it will be
commercially viable to produce any portion of the Company's contingent
resources. The assumptions relating to the Company's reserves and resources are
contained in the CPR.
Forward-looking statements appear in a number of places in the CPR. The CPR
reproduces data derived from studies conducted on behalf of the Company relating
to its interest in reserves and resources of crude oil and gas in certain of the
Company's properties and the reserves and resources of crude oil and gas of OML
30, and contains projections and estimates relating to the Company's current
plans regarding volume of crude oil and gas, well development, amount and type
of equipment and transportation infrastructure necessary to implement the
Company's exploration and production plans and associated timeline and capital
and operating expenditures required to purchase or build such equipment and
infrastructure. In estimating facilities and costs estimates for OML 30,
including capital expenditure, drilling costs, operating costs and abandonment
costs, RPS relied on recent Company studies together with in-house RPS data. The
estimates and projections contained in the CPR are based certain assumptions,
such as geological and engineering estimates (which have inherent
uncertainties), the assumed effects of regulation by governmental agencies, the
assumed fiscal regime and tax on the extraction of commercial minerals and
estimates of future commodity prices, operating costs and development costs,
which may prove to be incorrect.
The projections and estimates contained in the CPR may differ materially from
actual results. The Company may not pursue its exploration and development plans
in their current form or on the timelines proposed in the CPR, or development or
operating costs may differ materially from those assumed by RPS in the
preparation of the CPR. There can be no assurances that the results and events
contemplated by the forward-looking statements contained in the CPR will, in
fact, occur.
CAUTIONARY NOTE REGARDING REPORTING STANDARDS
Unless otherwise indicated, RPS has, in compiling the CPR, used the definitions
and guidelines set out by the 2007 SPE/WPC/AAPG/SPEE Petroleum Resource
Management System ("PRMS") and has not used the standards of reserves
measurement applied by the US Securities and Exchange Commission ("SEC"). The
SEC standards differ from PRMS. The SEC permits oil and gas companies, in their
filings with the SEC, to disclose only proved reserves, probable reserves and
possible reserves, each term as defined by the SEC. This announcement contains
data, such as prospective and contingent resources, presented in accordance with
PRMS standards, which the SEC's guidelines would prohibit the Company from
including in filings with the SEC. Accordingly, information concerning
descriptions of oil and gas reserves and resources contained in this document
may not be comparable to information required or permitted to be made public by
US or other international companies engaged in oil and gas producing activities
and subject to the reporting and disclosure requirements of the SEC.
National Instrument 51-101 ("NI 51-101") of the Canadian Securities
Administrators imposes oil and gas disclosure standards for public companies in
Canada engaged in oil and gas activities. The Company and Heritage Oil
Corporation have obtained an exemption from Canadian securities regulatory
authorities to permit them to provide disclosure in accordance with the relevant
legal requirements for public companies in the United Kingdom. This facilitates
comparability of oil and gas disclosure with that provided by the United Kingdom
and other international issuers, given that the Company is listed on the United
Kingdom capital markets.
Accordingly, the reserves and resources data and other oil and gas information
included in this press release is disclosed in accordance with United Kingdom
disclosure requirements and practices. Such information, as well as the
information that the Company and Heritage Oil Corporation disclose in the future
in reliance on the exemption, may differ from the corresponding information
prepared in accordance with NI 51-101 standards.
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