FTSE 250 oil and gas group Heritage Oil is to sell off half of its stake in a production sharing contract (PSC) in Iraq to Genel Energy, led by ex-BP frontman Tony Hayward, in order to pay back a loan.
Heritage has proposed divesting of Heritage Energy Middle East's (HEME's) 49% interest in the PSC at the Miran Block in the Kurdistan region, under the terms of $294m exchangeable loan provided to it by Genel in August, including the sum of cash calls paid by Genel to the operator of Miran on HEME's behalf.
The sale will reduce Heritage's interest in the Miran Block to nil. The divestment will need the approval from the shareholders before completion.
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Heritage said that its "board of directors believe that the proposed divestment is the most advantageous option to repay the loan due to the attractive valuation secured for a development asset with a very significant future capital expenditure requirement."
HEME sold a 26% interest in the Miran PSC and Miran join operating agreement to Genel in August for a cash consideration of $156m in August. At the same time, the companies entered into a loan agreement in which Genel agreed to loan Heritage $294m at an interest rate of 8% ending in February 2014.
Heritage used the money from Genel to partially finance the acquisition of a 45% interest in a producing oil mining licence in Nigeria (OML 30).
"The divestment of our remaining 49% interest in Miran will allow Heritage to monetise the asset at an attractive valuation and the total proceeds will have funded a significant part of the completed acquisition of OML 30 in Nigeria," said Heritage's Chief Executive Tony Buckingham.
"Completion of these transactions will provide Heritage with a balanced portfolio of assets generating cash flow from production which will assist with work programmes on high impact exploration whilst allowing the Company to continue considering further opportunities."
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