HOIL- Miran Reserves & Revenue from KRG

24th May '09 by JPGH

62 comments 12086 reads

First Stockopedia post here. Bought some HOIL on day of Miran drill results (smallish punt, 468p). However SP has stabilised and now I am thinking about adding some more.

(i) Miran Reserves

Does everyone 100% believe that there is 2500 MMbo recoverable here (with potentially more to come from other part of Miran (East?) with the bulk of oil located in fractures where recvoery rates of 70% are expected, with matrix oil recovery is very low here and hence this oil has an almost negligible contribution to overall reserves.

(ii) Revenues from KRG

My understadning is as follows. KRG, by way of its share of overall Iraqi population, get 17% of ALL Iraqi oil revenues. From that share KRG must pay all its bills e.g Infrastructure, gov and local autohrity salaries......and money to IOCs operating and producing in their turf. So far so good. IOCs get paid by selling oil locally into Kurdistans and by exporting oil. The export oil revenues are receiptable as soon as oil leaves regional Kurd oil pipelines and enter export pipelines (controlled by Iraq Oil Ministry). Is this understanding correct?

My main concern here is that IOCs in Kurdistan are operating under relatively generous terms (30% gross oil revenue shares ...etc) compared to the revenue handcuff that will cap the IRR that IOCs will be operating under elsewhere in Iraq under the service agreement type contracts that are being bandied about. I do realise though that the capped IRR service agreements/contracts will generally apply to low risk explo or field that were formerly producing ..etc and that PSA's may be on offer for the more risky undeveloped unexplored assets in future. However if I was KRG I would be a bit pissed off to see me having to cough up significanly more revenue that my collegues in rest of Iraq and possibly having budget deficits. The rosy PSA situation that HOIL (and Addax, DNO, and hopfully GKP/SEY and others) may change after a couple of years of KRG "envy". Anyone else feel the same?

(iii) June 7th 2009 - just found an old thread (Sept 2008) from Motley Fool which may be useful for this discussion

http://boards.fool.co.uk/Message.asp?mid=11232108&sort=whole

and also http://www.krg.org/uploads/documents/Comparative-Analysis__2008_06_30_h13m28s23.pdf

for a comparison between the vastly different remuneration approaches of Iraq MoO RSC's and KRG PSA's

JPGH

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emptyend

4th Jun '09

I've not been following the details here and indeed have been "out of touch" since before yesterday's announcement. However, my 2p on it is that it could easily be a "left field" candidate who is interested in buying HOIL - perhaps one with a somewhat "exotic" profile, given the Kurdistan/Uganda mix, though the Perenco possibility also seems valid......and there are also a clutch of other companies who might also fit the bill.

More pertinently, I'm surprised there seems to have been little attention being given to what price a deal might be done at. And I'm surprised that the news seems to have warranted the shares being suspended, given the apparent "preliminary" nature of the approach.

On closer examination of the RNS, I see that one of the advisers to HOIL is a personal friend of mine and, given his track record, I'd suggests that bodes well for HOIL holders..... ;-) [nb I have absolutely zero information from that source and I wouldn't dream of even bothering to ask for any!] As a longshot, I'd suggest you might also want to consider the possibility of a South African buyer.....

Interesting times, in any event - for both HOIL holders and for others in the sector that are bid targets, especially given the rising oil price environment and, for example, the new Goldman oil price forecast - which must surely now be concenrating the minds of those who are structurally short of oil but who have been holding off for fear of oil price weakness: http://www.businessinsider.com/an-unrecognized-energy-crisis-will-deliver-100-barrels-of-oil-by-2010-says-goldman-2009-6

rpcroft

5th Jun '09

Gooseman on the GBP thread shared this:

http://in.reuters.com/article/oilRpt/idINN0424165620090604

So it seems it is Genel Enerji, who already have a share of Miran and many other Kurdish prospects and fields. See

http://www.genel-enerji.com/map_ceromony_1st_june_en.pdf

The resulting company will be heavily focused on Kurdistan, so what becomes of the Uguandan assets is a question.

It doesnt seem this will be an exit for shareholders, we will become shareholders in the larger entity.

It will be interesting to see the terms of the deal if it gets done and to see what the city makes of a large Kurdistan focused company, with revenues flowing from Genel's share of Addax and DNO's producing fields and lots of reserves and prospects.

oilretire

6th Jun '09

Times have the Turkish story too

http://business.timesonline.co.uk/tol/business/markets/article6440854.ece

and

http://www.thepeninsulaqatar.com/Display_news.asp?section=Business_News&subsection=market+news&month=June2009&file=Business_News200906067376.xml

just found an old thread (Sept 2008) from Motley Fool which may be useful for this discussion

for a comparison between the vastly different remuneration approaches of Iraq MoO RSC's and KRG PSA's. I have added these links ti the thread title area.

7th Jun '09

And yet more press coverage. Scotsman this time hinting at £7/share

http://business.scotsman.com/business/Heritage-Oil-tipped-for-Turkish.5341843.jp

rhomboid

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6445880.ece

A Turkish billionaire is to become one of the biggest shareholders in Heritage Oil under a deal that could transform the FTSE 250 group into the biggest player in Iraqi Kurdistan.

http://business.timesonline.co.uk/tol/business/columnists/article6446170.ece -scroll to end of p2

BOTH Royal Dutch Shell and BP have been around so long it is easy to forget where their early roots lie. The former owes much to Iraq and the latter was built out of Anglo Persian. Are we about to see the creation of another oil giant with UK-listed Heritage Oi

Seems to be a fair degree of excitement...

ManSiarad

Ironic, really

HOIL got into Kurdistan, largely, anyway, IIRC, thanks to the fact that they used to have Micael Gulbenkian, great grandson, IIRC, of the original Mr. 5 per cent, on their board, Micael having left the Gulbenkian Foundation, owners of Partex, who held the original five per cent and still hold 2 per cent shares in some concessions in Abu Dhabi and Oman. The Gulbenkian name is, I gather, fondly remembered in Kirkuk and points north. then Micael and Buckingham fell out, and Micael left.

Hope he held on to a few shares...

Gradders73

This seems like an excellent deal all round. Very clear benefits for both parties, the Cukurova (the dealings I have had with them, I found them to be smart and honourable people) angle, will help.

Turkey has made vast investments in infrastructure in the expectation of securing supplies of the high quality crude found in this region, as the stability of supply is enormously important to the country, given the position of it's industrial base.

The one caveat I would raise is the potential for absurdism in the Iraqi business mentality, whereby, they play a strange version of the prisoners dilemma. We could have a situation where the constant bickering between Kurds and Iraqis in the central government end up damaging the whole operation, as both sides focus more on trying to prevent the other from making too much. There is a risk that HOIL could end up being the business that has to deal with all the nonsense, and other players that arrive in the game later have a much easier time of it.

But, if all goes well, this could become a hugely successful venture. The thing about this region is not just potential size of the reserves, but the quality of the crude.

alano20

8th Jun '09

In reply to oilretire (post #27)

From theScotsman: Its Miran field in northern Iraq could yield more than four million barrels of oil. - can't see what the fuss is about.

9th Jun '09

http://www.investegate.co.uk/Article.aspx?id=200906090705075784T

In conjunction with today's announcement by Heritage Oil Limited regarding its signing of a Memorandum of Understanding with Genel Enerji A. ?. to create the leading oil company in the Kurdistan Region of Iraq, the Company will today host two conference calls for analysts.

Mr. Paul Atherton, Chief Financial Officer, will host two conference calls, at 08.30 (all times British Summer time) for European analysts and 15.30 for analysts in North America.

The presentation that accompanies these calls will be available on the Heritage Oil website (www.heritageoilltd.com) at 07.30.

Other RNS, with all the deal details:

http://www.investegate.co.uk/Article.aspx?id=200906090700125786T

And the presentation referred to is here: http://www.heritageoilltd.com/pdf/Heritage_Oil_Presentation_09_Jun_09_FINAL.pdf

Edit 7.48:

Note that the suspension has been lifted in London - so holders may need to form a quick view. My only comments are that the deal doesn't come with a pile of cash (far from it!) - but they are ALSO clearly regarding Uganda as core.....so where is the cash going to come from to develop these assets?

Looking forward to informed comments ..... :-)

Cuthbert C

The HOIL analyst presentation is at http://www.heritageoilltd.com/pdf/Heritage_Oil_Presentation_09_Jun_09_FINAL.pdf and is required reading.

Have to raise my eyebrows just a little at the idea that a 1200km (or whatever it is) pipeline can be built from Kampala to Mombassa by 2013-14. I simply don't believe it.

My broker tells me that Evolution has raised its target price to £9 odd

Waiting for a copy of the latest research note - anyone here got it?

In reply to tournesol (post #34)

Surely they can't have written any research yet? The analyst conference call is only just starting now!

The stand-out question for me is "where are they going to get the development funding from?"........I'd guess that the market will be expecting a big fund raising as soon as the deal is consummated. Longer term of course it looks a sensible move - though surely £1bn+ of new funds will be needed before they head towards £9?

Morning EE

1) the presentation says there will be a fund raising later this year amounting to 10% of the enlarged capital base

2) of course they've not had time to rewrite their research notes yet - but I'd still like to read their most recent note whenever it was

3) the £9 is apparently a comment made this morning in response to the news - ie a price target stated in advance of the analyst presentation and in isolation from a full note

wistman

If tHeritaGE convinces the market that they can surmount the political hazards of Kurdistan, this will give greater credence to anyone else with Kurdish interests, for example GKP.

Also, if they can accelarate the development of Uganda, that won't do Tullow any harm, will it?

(Might this be a good point for Tullow to monetise Uganda?)

Might these be better "plays" just at the moment?

In reply to tournesol (post #36)

Aaah - OK - missed that on my quick skim (since I'm neutral on it). It ISN'T 10% of the enlarged capital base though - it is 10% of the present! See p11 of the presentation.

.......£160mn or so doesn't sound enough to me! - though of course they may also have debt-raising plans and I also note that they seem to be expecting to convert the KRG debt into an equity holding. I suspect the analysts' comments on the funding needs may be interesting.

rgds

doverbeach

Apart from the debt-raising, the other thing that concerns me (and I sold my HOIL at 540, so I obviously got that wrong!) is Buckingham's situation. From memory he owned a third of HOIL. Will he be happy continuing to hold 15% odd of HeritaGE?

haiderali

I would have thought that the choice of a Turkish company has been deliberate - in terms of the local politics. Post 2003 the Turks could have made life very difficult for the central gov't in Iraq and they haven't. And then there's the Turkomen population in Kurdistan, who may have less incentive to get restive with more local Turkish involvement.

In reply to doverbeach (post #39)

I doubt that having sold at 540p will look too bad in a few months time - and it is a substantial gain over whatever you paid for them :-)

[edit - though of course I may be wrong too ;-)]

omh

Sold just under half my HOIL to return slightly more than I paid for the whole bundle.

Merger announcement has some good positives and could produce a strongly focussed company with local clout and assets that they can use to raise finance and develop potential for multibag gains. OTOH there are polotical risks with all their acreage and they WILL need financing to develop anything.

Bird in the hand and all that and I am always happy to run slightly riskier holdings when I have taken my initial investment off the table.

HOIL- Miran Reserves & Revenue from KRG

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JPGH

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