LONDON -- Genel Energy (LSE: GENL.L ) is beefing up its presence in Kurdistan, one of the oil sector's hot regions at the moment, by buying a 26% stake in the Miran Block from Heritage Oil (LSE: HOIL.L ) , taking its working interest up to 51%.
The price is $156 million, but Genel will also be providing Heritage with a $294 million short-term loan at an interest rate of 8% per annum as part of this deal, and Genel will become the joint operator of the Miran Block.
According to recent report, the Miran Block contains mean gas in place of 10.5 tcf with mean contingent and risked prospective resources of 3.75 tcf of gas and 161 mmboe of liquids. Five wells have been drilled on the block since the current drilling campaign began in December 2008, including one that is currently being tested and another that is yet to reach its target depth.
Genel is still perhaps best known for the fact that it is led by Tony Hayward, the former CEO of BP. Commenting on the deal, Hayward said:
This acquisition represents an excellent opportunity to extend our interest in, and assume joint operatorship of, a commercial gas discovery and high quality asset in the Kurdistan Region of Iraq. Following our recent acquisition of a 44% interest in Bina Bawi, it will further enhance our position as the leading oil and gas company in Kurdistan. We believe that as an Anglo-Turkish company we are uniquely placed to execute the full field development of the Miran Field including gas exports to Turkey and we aim to build a material gas business alongside our existing oil business in the medium term.
Genel investors appeared to be fairly indifferent to the deal with the shares up around 1% to 707.5 pence this morning.
However, Heritage shares leaped 12% to 188 pence as the company said that should this deal proceed, it would no longer need the rights issue announced earlier this month to buy a stake in OML 30 field in Nigeria from Royal Dutch Shell, Total and Eni. Heritage CEO Tony Buckingham said:
We believe this sale and loan financing crystallises significant value for shareholders, demonstrating our ability to invest in and monetise assets at an appropriate stage. The proceeds provide significant financial flexibility allowing us to fund the proposed acquisition of OML 30 without any rights issue or other additional capital requirement from, or potential dilution to, our existing shareholders.
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