RE: RE: RE: $850M OML 30 Nigeria Field takeover Heritage Oil: Analysts cautious of Nigeria deal
Mon 4:10 pm by Jamie Ashcroft Heritage Oil is buying a 45 per cent stake in 30 Nigerian oil fieldsHeritage Oil is buying a 45 per cent stake in 30 Nigerian oil fields
Heritage Oil (LON:HOIL) has a reputation for taking a chance where others dare not.
It was one of the first oil firms in post-war Iraq and in similar fashion it has made moves in Libya following last year’s revolution.
And today’s £540 million (US$850 mln) move into Nigeria is another example of the company’s unflinching approach to challenging environments.
That said, today’s deal has been met with caution in the City.
The company is buying a 45 per cent stake in 30 Nigerian oil fields from a group of oil majors, led by Shell.
These assets currently yield 35,000 barrels of production per day and they contain 700 million barrels of oil reserves – over a billion barrels oil equivalent if you include gas.
Heritage says the deal is ‘transformational’ and ‘very exciting’.
It increases the firm’s daily production volumes significantly to 11,350 barrels from 605 million. And it is hoped that this can be boosted further by refurbishing infrastructure.
The acquisition has an estimated ‘per barrel’ price of just US$1.7 which is cheap by industry standards.
But analysts have already pointed out that these assets have been on the market for a while and the deal is cheap for a reason.
Singer Capital’s Simon Hawkins points out that as the operator Shell’s efforts were frustrated by ‘a crippling backlog’ of cash calls from the Nigerians.
And the analyst highlights that the Nigerians will now take control. He says that HOIL’s ambitions for production and reserves growth will rely upon a third party publicly owned company.
On top of that, Hawkins says that Shell’s operation had been ‘plagued’ by community issues and industrial scale theft of crude oil. He also points to the major changes the Nigerian authorities are making to the oil industry as another source of uncertainty.
“Although we regard doing a deal as a potential positive for Heritage we are cautious about this given the risks associated with investing in a non-operated role in one of the world’s most challenging environments,” Hawkins said in a note to clients.
Meanwhile Westhouse Securities Peter Bassett also highlights that Nigeria has been a difficult operating environment in the past and as a result few western firms have established businesses there.
“The low acquisition price of reserves reflects the challenging environment and high level of Nigerian taxes,” the analyst said in a note.
“Heritage has had notable success in operating in challenging environments, so have the experience to take on the challenge.”
The deal itself sees the creation of a joint venture company called Shoreline Natural Resources – a partnership between a subsidiary of HOIL and a Nigerian businessman.
The joint venture company will then buy the Nigerian assets with a US$850 million cash payment, being separately financed by a US$550 million secured loan from South Africa’s Standard Bank and a US$370 million rights issue.
In London, Heritage shares have now been suspended so that the deal can be completed as a reverse takeover.