Heritage Oil Limited has entered into a non-binding Memorandum of Understanding (MoU) with Genel Enerji A.S. The MoU is subject to various conditions and execution of binding documentation to acquire Genel Energy International Limited (Genel), a private independent oil and gas exploration and production company, which holds licences in the Kurdistan Region of Iraq (Kurdistan). The proposed acquisition would be paid for wholly in new shares of Heritage and would result in Genel shareholders owning approximately 50% of the enlarged ordinary share capital of Heritage. It is anticipated that following the Proposed Acquisition, the Company, as enlarged by the acquisition of Genel will be re-named HeritaGE Oil plc.

Heritage’s management believe that the Proposed Acquisition will offer considerable shareholder value as it will create a prominent Main Market London listed production company which should have the financial capacity to bring into production its enlarged development and exploration portfolio, create the infrastructure for the development of the Taq Taq and Miran assets in Kurdistan, while also generating significant cash flow following the commencement of oil exports on 1 June 2009.

Proposed Acquisition of Genel The Proposed Acquisition will create the Enlarged Group with expected net working interest production of approximately 45,000 bbl/d by year end, increasing in the medium term to approximately 90,000 bbl/d from the Taq Taq and Tawke fields in 2011, with the potential to double production with the development of the Miran oil field. The development of the refinery will, in addition, allow increased production by up to 60,000 bbl/d once the refinery is running at peak capacity.

Based on current information, management expects the Enlarged Group to have net proved and probable reserves of approximately 300 million barrels of oil and multi-billion barrel oil potential.

In addition, the Enlarged Group should offer shareholder value with high impact exploration programmes in Kurdistan and Uganda and further potential in other areas: Tanzania, Malta, the Democratic Republic of Congo, Mali and Pakistan. The Enlarged Group will retain strategic focus on the Middle East and Africa.

The KRG has been consulted on the Proposed Acquisition and welcomes the transaction.

Commenting on today’s announcement, Dr Ashti Hawrami, Minister of Natural Resources for the Kurdistan Regional Government said: "We are very pleased that the two companies are coming together. The new Company, trading on the London Stock Exchange, will bring together an integrated plan for the development and fast track production of the Taq Taq and Miran oil fields. The financial capability and skill base of the enlarged Heritage should ensure earlier production and therefore significantly faster generation of revenues for Iraq to create substantial value as an employer, as a tax payer and as a provider of oil revenue for the benefit of the people of Iraq."

Tony Buckingham, Chief Executive Officer of Heritage, commented: "The potential combination of our two companies brings together a long held ambition to develop the assets in our core areas. We believe that shareholders will support the transaction which is anticipated to create significant shareholder value by bringing these fields to production in a timely manner and generating cash flow to explore and develop our multi-billion barrel resource potential both in Northern Iraq and Uganda. Heritage also recognises the strategic benefits of working with a partner such as Genel with a track record of turning exploration into production in the region and the positioning it will provide with respect to the rest of Iraq and the Middle East."

Mehmet Sepil, Chief Executive Officer of Genel, said,"We are excited about the possibility of combining with Heritage to create a significant Main Board listed company with a strong financial capability and access to international capital markets, international expertise and with the aim of expanding the activities of the Enlarged Group in other countries in the Middle East. We intend to bring our world-class Taq Taq and Tawke assets into production immediately and the Miran asset subsequently. Production will be for both exports to the world market and also to serve the local market, generating significant cash flows for the benefit of all shareholders. The combination of Heritage with its worldwide experience and Genel’s Turkish nationality together with its significant long experience and track record in the Kurdistan Region would help to develop our assets in an efficient and timely manner and would deliver excellent value to all stakeholders including the people of Iraq."

Tags: Genel Enerji, Heritage Oil Limited