The Oil Council interview with Paul Atherton, CFO, Heritage Oil

Heritage Oil (LON:HOIL) is an independent oil and gas production and exploration company listed on the London Stock Exchange, with a secondary listing on the Toronto Stock Exchange. The Company's immediate focus is on its operations in Africa, the Middle East and Russia. Drake Lawhead from the Oil Coucil interviews Paul Atherton, CFO, Heritage Oil.

DL: With assets in Russia, Kurdistan, and Tanzania, Heritage is involved in some very intriguing plays. How did the decision to focus on these areas come into being?

PA: Heritage’s portfolio of international oil and gas assets has been based on a strategy of gaining a first mover advantage, supported by sound decision making and technical and operating expertise.

DL: You’re also involved in some very frontier plays – Mali, Pakistan, and Malta in particular. How important are these to your business, and what does it reveal about Heritage’s business strategy?

PA: First mover advantage is key. Malta and Mali demonstrate that we are a wild cat explorer whose portfolio includes high impact exploration targets which have the ability to transform the company and generate substantial value for our shareholders.

DL: What one line would best describe Heritgae to investors?

PA: We are a proven, successful, cash rich international, high impact exploration oil and gas company that moves quickly to invest and operate in certain of the more challenging locations in the world to maximise returns to shareholders

DL: In April last year you sold your Ugandan assets to Tullow for $1.45bn. Was the billion barrels of oil not enough to tempt you to develop or farm it out?

PA: Heritage has had remarkable operational success in Uganda as a result of technical excellence and first mover advantage. In 1997, Heritage became the first oil and gas company in almost 60 years to undertake exploration in Uganda after being awarded a licence in the Albert Basin of western Uganda.  We believed that the sale of the interests was the right time to monetise our investment since we estimate that the development of the fields and related infrastructure will costs in excess of $12 billion, which is beyond our current capability.

DL: In January, you made Iraq’s largest gas discovery in over 30 years and lost nearly 30% of your share value the same day. Can you describe your reaction to that at the time?

PA: We estimate that the Miran West field has 9.1 TCF of gas as well as oil and condensate. Its vast size means that it is a commercial discovery that has the ability to generate billions of dollars of value to Heritage shareholders. It’s only a matter of time before the market values this success.

DL: What are your plans now in Iraq?

PA: Following the discovery of the Miran field in January 2011, we have expanded and accelerated the work programme. The 3D seismic programme which we began acquiring in Q4 2010, has been increased from 550 to 730 sq km, we have contracted a rig to spud the Miran West-3 well in July and we will have brought a second rig into country before the end of this year, following completion of the seismic programme, to drill the Miran East-1 exploration well.

DL: From a CFO point of view, what have been the most important changes over the last few years to the way independent O&G companies are financed, manage their money and deploy their capital?

PA: Heritage is unusual, in having a strong balance sheet with approximately $600 million of available cash and a further $400 million reserved for a tax dispute with the Government of Uganda. Heritage is therefore not cash constrained and has not experienced any issues with raising finance in the capital markets which has impacted many oil companies.

DL: What trends in M&A and A&D do you see on the two-five year horizon for independent O&G companies? Do you believe independents can realistically compete with the growing presence of emerging market NOCs?

PA: The question should be whether emerging market NOCs will be able to compete with entrepreneurial independent companies and the answer will continue to be no. A fast moving independent company has the ability to obtain licences and explore in the more remote and challenging parts of the world without challenge from the super majors or NOCs. Heritage will have acquired seismic and drilled a well before these parties have made a decision.

DL: Where do you see most value in today’s oil and gas markets?

PA: International conventional oil plays. There are still a number of massive oil and gas fields to find.

DL: What do you see as the greatest challenge O&G CFOs will face over the next 12 months?

PA: The continued difficulties in raising debt and equity finance in the capital markets

DL: What is the best piece of professional advice you received?

PA: Fortune favours the bold.

DL: What’s the one surprising fact about you that not everyone may know?

PA: Now that would be telling!

DL: Finally, something we always ask: What three things would you bring to a desert island?

PA: Satellite phone, computer and solar power generator.

You can meet Paul Atherton in November in London as he is part of The Oil Council’s World Assembly speaking faculty talking on CFO leadership and financial challenges in today’s markets. www.oilcouncil.com/weca