Heritage Oil is to list on the main market in London before the end of the month and, with a market capitalisation of some C$1.3bn (£652m), will enter the FTSE 250.
A notice of intention to list will be issued this week on the proposal that Paul Atherton, the chief financial officer of Heritage, expects to be endorsed overwhelmingly. Shares are likely to be admitted for trading on March 26 with the listing sponsored by JPMorgan Cazenove.
The move will be accompanied by a 10-for-one share split. There will be no additional financing as Heritage raised C$182m late last year. London will be the company’s primary listing.
Heritage was established in 1992 and listed in Toronto in 1999. The founder and chief executive is Tony Buckingham, a colourful figure who negotiated concessions for several oil companies.
According to Heritage, Mr Buckingham “was previously a security adviser to various governments”. He owns about one third of Heritage.
The oil company has a portfolio of exploration assets in the Middle East and Africa. These include a production sharing agreement with the government of Iraqi Kurdistan.
However, Mr Atherton said that the “jewel in the crown” was its stake in Ugandan acreage that has recently boosted valuations of Tullow Oil.
Indeed, Heritage preceded Tullow in the region, selling stakes in two blocks to Energy Africa that were subsequently acquired by Tullow.
Several arguments are put forward for the migration. The Heritage board believes that London analysts and investors have a better understanding of exploration and development companies. The chief executive of another TSX-listed oil explorer agrees, arguing that North American analysts are loath to value companies on anything other than cash flow multiples.
Rafi Khouri, an analyst at Canaccord Adams in London, agrees the move could bring a revaluation of Heritage. African exploration companies in London trade at a much higher enterprise value to potential resource barrel rate than Heritage currently does, according to Mr Khouri.
London’s main market is also more liquid than TSX. This, combined with the share split, is expected to boost the volume of Heritage shares traded from a current level of only 40,000-50,000 a day.
Mr Atherton said Heritage was also keen to be peer reviewed, particularly against Tullow. A recent note from Credit Suisse argued that on the basis of Ugandan assets alone, versus Tullow, Heritage trades at a 50 per cent discount.
The listing in London comes as output increases at Heritage’s modest producing assets in Russia and Oman. Potentially more exciting will be the drilling of the high-impact Kingfisher-2 well in Uganda, appraising a previous discovery and targeting a deeper reservoir.
