Heritage has agreed to acquire a further 7% interest in the Noumbi License for $7 million in the event that the option is exercised. This will increase the Company's interest in this license to 14%. The Noumbi License lies to the north of the Kouilou Permit, where the large M'Boundi oil field is located. The permit holds considerable potential for discovering additional oil reserves in the Vandji sandstone, most notably the Doungou prospect, which lies on the same geological trend and relies on the same potential reservoir as both the Kouakouala and M'Boundi fields. The Noumbi permit was awarded to Maurel et Prom's consortium in 2003 despite heavy competition from a number of other oil companies.
This sale further demonstrates the value generated by the management team. If the option is exercised, the sale of the Company's 30% interest in the Kouilou Permit in 2002 will have generated up to $78.6 million (Cdn$107 million). Additionally, the overall level of potential consideration is in line with the asset value evaluated by Scott Pickford as at December 31, 2003.
Micael Gulbenkian, Chairman and CEO stated "This option gives the Company an opportunity to transform our overriding royalty into cash in short order. We will receive cash of $9.4 million (net of $7 million cost of further 7% interest in Noumbi License) on closing, together with a loan note for $14 million. We are in discussions with a number of financial institutions who have shown interest in acquiring the loan note for cash. This transaction generates additional cash for the Company to be used in various existing and new opportunities which are being pursued, notably in the Middle East. This includes the accelerated work program in Uganda being implemented following the encouragement generated by Turaco-2 well, notwithstanding the test program being abandoned."
Mr. Gulbenkian added that "management decided to sell the royalty to generate cash to create further reserves, revenue and value for the Company in the short to medium term, since no reserves were able to be attributed to the royalty and the royalty is not slated to commence producing revenue until after 2007 at the earliest."
The option may be exercised at any time up to July 30, 2004. Entering into the exclusive option agreement with Maurel et Prom is subject to conditions precedent, including the board approval of Heritage, which is scheduled to take place next week.
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