Upstream exploration and production group Heritage Oil saw losses widen significantly in the six months to June 30th, though it is waiting to complete a 'transformational' acquisition in Nigeria before production really ramps up.
Losses from continuing operations surged 415% from $9.7m to $50.0m during the period. However, the adjusted loss from continuing operations was just $6.7m (first half of 2011: $6.9m) is certain non-cash and one-off items are excluded.
Net production averaged 567 barrels of oil per day (bopd) in the first half, up 35% year-on-year. Meanwhile, production for July alone stood at 711bopd. Sales volumes increased by 38% from 411bopd to 567bopd. Meanwhile, the average realised price rose 4% from $38.3 per barrel to $39.9 per barrel.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
During the period, the company entered in to an agreement through a joint venture to acquire a 45% interest in a producing oil mining lease offshore Nigeria (OML 30), together with a 45% interest in other assets for a total cash consideration of $850m.
The proposed acquisition is expected to provide significant production and be cash-flow generative immediately, "thereby de-risking Heritage's financial profile", according to Chief Executive Officer Tony Buckingham.
"The recently published independent reserves report gave an economic valuation of between $3.4bn and $4.1bn, using a discount rate of 10%, for the current 2P reserves at OML 30 and our assets in Russia, highlighting the underlying value within the enlarged portfolio," he said.
OML 30 is currently producing 35,000bopd and following completion of the purchase, Heritage plans to increase this to 55,000bopd in the short term.
Heritage's cash position stood at $35m by the end of the period, down fro $310.9 previously, though this exclude some $407m relating to a Ugandan tax dispute. The firm said that the outcome of this dispute is uncertain and it could be a while before it is resolved.
"Heritage intends to use the cash flow generated from OML 30 to develop and explore the licence, its existing portfolio as well as pursuing additional value generating opportunities," the firm said.
BC
Filtronic: a UK success story cashing in on the space race
How to use SAYE and SIP schemes to multiply your money
