Heritage Oil has provided an update on the status of negotiations of the proposed acquisition of Genel Energy International Limited.
On June 9, 2009, Heritage announced that it had entered into a non-binding Memorandum of Understanding ("MoU") with Genel Enerji A.Ş. The Proposed Acquisition would be paid for wholly in new shares of Heritage and would result in Genel shareholders (the "Vendors") owning approximately 50% of the enlarged ordinary share capital of Heritage.
Further to this, it has been agreed in principle, subject to completion of a definitive binding implementation agreement, that Heritage will issue 286.3 million ordinary shares (representing approximately 50% of the voting rights of Heritage as enlarged by the Proposed Acquisition (the "Enlarged Group")) in consideration for acquiring the entire share capital of Genel. Additionally, it has been agreed that Genel's previously announced US $1.1 billion capacity building liability for infrastructure support to the Kurdistan Region of Iraq ("Kurdistan") will be extinguished in its entirety at, or before, completion. Out of the 286.3 million ordinary shares to be issued as consideration, the Kurdistan Regional Government ("KRG") will receive a total of 96.0 million ordinary shares in consideration for extinguishing the infrastructure projects liability. The KRG has confirmed that it intends to be a long-term shareholder and is therefore willing to enter into a lock-up agreement in respect of Heritage shares it will receive but with the ability to sell shares periodically to fund new infrastructure and local community support projects, indicating its support of the post merger entity and the growth prospects it believes exist for the Enlarged Group. The Vendors will receive the remaining 190.3 million ordinary shares and any loans outstanding from them (or their related parties) will be fully extinguished at, or before, completion of the Proposed Acquisition.
Completion of the Proposed Acquisition remains subject to various conditions. These include: (i) agreeing definitive legally binding documentation, including an implementation agreement; (ii) formal ratification of the Proposed Acquisition by the Ministry of Natural Resources of the Kurdistan Region of Iraq and the Kurdistan Region Oil and Gas Council; (iii) the approval of Heritage's shareholders voting at an Extraordinary General Meeting of the Company; and (iv) confirmation as to the eligibility of the Enlarged Group to be admitted to the Official List by the UK Listing Authority ("UKLA") and the admission of the ordinary shares of Heritage, as enlarged, to the Official List of the UKLA and to trading on the London Stock Exchange. Assuming the parties execute an implementation agreement shortly, Heritage currently intends to make available to shareholders later this month a Prospectus and Circular describing the Proposed Acquisition, which will include the relevant Mineral Experts' Reports for the key assets of both the Company and Genel, with a view to holding an Extraordinary General Meeting in September, at which time Heritage shareholders will be asked to approve the transaction.
Mehmet Sepil, Chief Executive Officer of Genel, commented, "We are delighted at this opportunity to create the leading integrated oil and gas company in the Kurdistan Region. Cash flow from the sale of production from our Taq Taq and Tawke fields which is exported and sold in the domestic market is expected to generate significant cash flow for the benefit of all shareholders and deliver excellent value to all stakeholders, including the people of Iraq."
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