Heritage Oil confident Baghdad will recognise KRG contracts in near to medium term

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Heritage Oil is confident its contracts with the Kurdish Regional Government will be given legal status by the Iraqi Government in the short to medium term, dealReporter reports. Heritage added the issue would not have a material impact on its proposed reverse takeover of Genel Energy.

A report this week, citing Iraqi government officials, said contracts signed between Kurdish authorities and private oil companies remained illegal until they were ratified by the oil ministry in Baghdad. The report, which was based on a news conference with Iraqi Oil Minister Hussain al-Shahristani, also said that the Iraqi government and the KRG would not pay firms, such as DNO International, Addax Petroleum and Genel, that have developed oil fields in Northern Iraq.

A spokesperson for Heritage downplayed the significance of the report, saying it contrasted with other news reports from the conference. “Heritage has good sources in both Baghdad and Kurdistan and is confident [the contract] will become legal in the near to medium term,” said the spokesperson.

The president of Iraq has previously said the contract was legal and the company is still confident, the spokesperson added, that the two parties would not have proceeded this far with the deal if they thought the issue would be a problem. Referring to the Iraqi Government officials’ comments, the spokesperson claimed that saying the contract was “not yet completely legal” is different to it being “not legal”.

However, a source with a material interest in the contract issue stressed its importance to exploration and production companies. “It has not yet been determined how these companies will get paid. It has been described as a ’detail’ in the legislature, but it is important for E&P companies.”

Shares in Heritage closed down around 10% on Wednesday, having lost the majority of the gains they made since the beginning of the month when the Iraqi Government allowed crude to start being exported from Kurdistan. Both Heritage and Genel have significant interests in the region.

The source and a sector banker said Heritage needed cash to develop its Kurdistan and Uganda assets. The source said it was key for Heritage to raise funds and that the company was likely to do this by selling down its joint venture with Tullow in Uganda. The source also indicated that the Uganda assets still required pipeline infrastructure to the east for exports.

Meanwhile, a third source involved in carrying out due diligence in Kurdistan, said “a non-aligned” oil company looked at a bid for Heritage at the start of this year and that this process could still be active. The source did not elaborate on the phrase ”non-aligned”, but Imperial Petroleum Recover Corporation (IPRC), which is a subsidiary of Petrowave, a Texas-based oilfield technology group which owns IPRC, has been reported in the media to be interested in Heritage.

The sector banker said that he did not think that Abu Dhabi owned International Petroleum Investment Company, Norway’s DNO International and Perenco of France were bidding for Heritage, despite earlier reports to the contrary.

The first source with a material interest in the contract issue noted that Heritage CEO and founder Anthony Buckingham, who owns more than 33% of the company, had good connections within Africa and Kurdistan and was key to the deal. Any rival bid would need his support, said the source. This information was also confirmed by the due diligence source.

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