Hertiage Oil

Our OperationsOur OperationsIn this section

Our Operations

Heritage typically focuses on regions which may have been overlooked and where it can participate as an early entrant. 


 

  • Nigeria

  • Russia

  • Papua New Guinea

  • Tanzania

  • Malta

  • Libya

  • Pakistan

  • Nigeria

    OML 30 is a world class asset with gross oil reserves of over 1.1 billion barrels and has all the infrastructure in place to produce up to 395,000 bpd.

    Nigeria Maplegends

    Nigeria

    Current Production

    Gross production from OML 30 has reached over 50,000 bopd, in part from the benefit of continued maintenance and rehabilitation programmes and as a result of production from the Uzere West Field recommencing in December 2013 after having been shut-in for over two years. Production in Q4 2013 averaged c.13,300 bopd net to Heritage, up from c.8,150 bopd for the first nine months of the year.

    This asset remains the main development priority for the Company. All existing facilities have been reviewed to identify opportunities for improvement and maintenance. A number of comprehensive operational, engineering and community projects that commenced in 2013 are generating and contributing to significant production increases.

    The Work Programme

    To date, work on the licence has commenced with the ordering of new gas lift compressors, installation of diesel generators and new instrument air compressors. Over the course of this year further work will continue aimed at optimisation of existing facilities.

    Gas lift is the single method of artificial lift within OML 30 and six of the eight fields have gas lift installed, with the two remaining fields planned to have gas lift installed in 2014-2015. The drilling of new wells, planned to commence in the second half of 2014, should provide a significant increase to production with the longer term potential estimated at approximately 300,000 bopd gross.

    The Asset

    OML 30 lies onshore within the Niger Delta in one of the most prolific oil and gas provinces in the world. The licence covers 1,097 square kilometres and includes eight producing fields with oil and gas contained in numerous stacked reservoirs. The fields are deltaic shallow marine shelf sands at intermediate depth level in growth fault structural setting. The fields each contain up to 40 stacked reservoirs and the reservoirs are underlain by substantial aquifers that provide nearly infinite pressure support. The oil is good quality 30° API and typically sells at a 3% premium to Brent.

    Since 1961 over 200 wells have been drilled on the licence and the strong aquifer support has enabled the majority of these to become producers. There is the potential to both stabilise and increase production in the near term through refurbishing infrastructure and restarting non-producing existing wells. Additionally, existing wells will be worked over to further increase production.

    Infrastructure

    The licence benefits from infrastructure being in place with nine flow stations that have the capacity to handle 395,000 bpd thereby handling several years of projected production growth. The facilities have been robustly designed and constructed, and benefit from a standard design so equipment can easily be replaced if required.

    The acquisition included a 45% interest in the segment of the Trans Forcados pipeline between the Eriemu Manifold and the Forcados River Manifold, which is largely buried. The pipeline is used by several other operators and provides additional revenue for the pipeline owners through the tariff charged.

    Interest in OML 30

    On 9 November 2012, Heritage announced that Shoreline, a special purpose private Nigerian company formed between a subsidiary of Heritage and a local Nigerian partner, Shoreline Power, successfully completed the acquisition of a 45% interest in OML 30, together with a 45% interest in other assets under the joint operating agreement for OML 30, for a total cash consideration of $850 million, net of costs.

    The acquisition and partnership with Shoreline Power enhances Heritage’s profile in Nigeria and creates a platform for further growth in this prolific hydrocarbon region. Shoreline has become one of the leading indigenous companies producing in Nigeria, combining Shoreline Power’s energy and infrastructure operating expertise and respected network of relationships within Nigeria with Heritage’s strong technical team.

    Shoreline Option

    Shoreline was structured with 55% of its equity interest held by Shoreline Power Company Limited (“Shoreline Power”) and the remaining 45% held by Heritage, through a wholly owned subsidiary. Under the arrangements Heritage’s economic interest was 97.5%.

    In December 2012, Heritage announced that Shoreline Power had exercised its call option to acquire a 30% economic interest in Shoreline. This would have the effect of reducing Heritage’s economic interest in Shoreline from 97.5% to 68.25%, with 68.25% being an effective 30.71% working interest in OML 30.  In order to fund a portion of the consideration of c.$120 million, Shoreline Power has entered into an agreement with Cedar Oil and Gas Exploration and Production Limited (“Cedar”), a local Nigerian company, to sell half of its option rights. This has been facilitated by Shoreline entering into a farm-out agreement with Cedar on 22 August 2013 to sell a 6.75% working interest in OML 30 thereby reducing Shoreline’s working interest in OML 30 to 38.25%. Following completion of this transaction, Heritage’s effective working interest in OML 30 of 30.71% remains unchanged, as its economic interest in Shoreline post option exercise increases from 68.25% to 80.29%. 

    Completion of the farm-out and release of the initial consideration is subject to Nigerian government approval which is expected imminently.  On completion, Heritage will receive $31.5 million in cash and provide an interest bearing loan to Shoreline Power secured on the preferential recovery of 80% of Shoreline Power’s cash distributions from Shoreline. In addition, the consideration will be used by Shoreline to reduce the Reserve Based Lending Facility by 15% in line with the proportional reduction of its working interest in OML 30.

    OML 30 – SUMMARY Of RESERVES(1,2)

      Gross Remaining Reserves  Heritage Group Net
    Entitlement Reserves 
      Gross of Royalty (mmstb) Net of Royalty (mmstb) Gross of
    Royalty (mmstb)
    Net of
    Royalty (mmstb)
    Proved
    Reserves (1P)
    538 430 168 134

    Proved &

    Probable
    Reserves (2P)

    1,114 891 347 277
    Proved &
    Probable & Possible
    Reserves (3P)
    1,733 1,387  539 431

    1) Post exercise of Shoreline Power option.
    2) As per RPS, as at 31 March 2012.

    OML 30 – POST TAX EVALUATION NET TO HERITAGE

     

    Base Income Tax Scenario1
    ($ million)

    Alternative Income Tax Scenario2
    ($ million)

     

    Post–tax
    NPV (10%)

    Post–tax
    NPV (10%)

    Proved
    Reserves (1P)
    1,189 1,410

    Proved &

    Probable
    Reserves (2P)

    2,162 2,652
    Proved &
    Probable &
    Possible
    Reserves (3P)
    3,129 3,820

    1) Assumes the income tax applicable under current Nigerian law.
    2) Assumes the income tax under changes to Nigerian Law which Heritage believes might occur.

  • Russia

    Since 2005, the Group has held a 95% equity interest in ChumpassNefteDobycha Limited, a Russian company whose sole asset is a 100% interest in the Zapadno Chumpasskoye licence.

    Russia Maplegends

    Russia

    The Zapadno Chumpasskoye licence is in the hydrocarbon-rich West Siberian province of KhantyMansiysk, approximately 100 kilometres from the city of Nizhnevartovsk and in the area of the region’s prolific Samotlor oilfield, which makes it accessible to existing infrastructure. The licence contains the Zapadno Chumpasskoye Field, discovered in 1997. A total of 13 wells have been drilled on the licence including four by the Group. The Chumpasskoye crude is light, sweet (42º API) oil, with moderate gas-to-oil ratios.

    Since 2006, the Group has acquired 2D seismic data covering an area of 200 kilometres, constructed pilot production facilities, commenced field production, drilled four wells and re-entered existing well 226. Production facilities were commissioned and production commenced in May 2007. In 2009, an electric submersible pump was installed on well 226 to arrest the natural well production decline and a water shut-off operation was completed on well P4.

    Based on positive results from the horizontal well drilled in August 2011, a revised field development plan was submitted for Zapadno Chumpasskoye replacing vertical producers with horizontal wells. The change in well type should result in a 50% reduction in the number of production wells required to develop the field and a corresponding reduction in drilling expenditure of approximately $200 million. The development proposal was approved by regulatory authorities at the end of December 2012.

    Production for the first half of 2013 averaged 472 bopd, a decline of 17% compared to the same period in the prior year due to the replacement of the electric submersible pump in horizontal well 363 in the first quarter of 2013. Production averaged 675 bopd in July 2013, over 40% higher than the first six months of the year.

    INDEPENDENTLY ESTIMATED RESERvES AT THE ZAPADNO CHUMPASSKOYE FIELD(1)

     

    Net working and
    entitlement
    reserves
    MMbbls

    Net present
    value
    ($ million
    in money
    of the day

    Proved 23 152

    Probable
    Additional

    42 284
    Total Proved
    + Probable
    65 336

    Total Proved +
    Probable +
    Possible
    163 976

    1) A summary of RPS’s net working interest reserves and their Net Present Value, based on forecast prices and costs, discounted at 10%, as of 31 March 2012.

  • Papua New Guinea

    Heritage has four licences onshore PNG, entered into in 2013.

    Png Maplegends

    PNG

    Heritage has four licences entered into in 2013 with active work programmes including wells planned for 2014.

    PPL 319/PRL 13

    In April 2013, Heritage announced the farm-in to Petroleum Prospecting Licence No:319 ("PPL 319") and Petroleum Retention Licence No:13 ("PRL 13") to be appointed as operator with the right to obtain an 80% working interest. The contiguous licences are located onshore and have respective gross areas of approximately 2,025 and 160 square kilometres. The transaction completed in April 2013 following receipt of consent from the Papua New Guinea government and Heritage has been appointed operator. In return for earning the working interests and operatorship, Heritage will fund the costs of seismic acquisition and the cost of drilling an exploration well. In addition, Heritage has made a $4 million contribution to Esrey Energy Ltd’s back costs on the licences.

    The licences are located at the junction of the Papuan fold belt and the Miocene carbonate platform where there are multiple producing fields and discoveries including the multi-TCF Triceratops and Elk/Antelope discoveries. The licences benefit from being close to current and under-construction infrastructure with the Kutubu oil export pipeline and the PNG Liquefied Natural Gas pipeline crossing the acreage. The licences also benefit from the Kikori River which provides a link to the open sea, thereby increasing transport options.

    The work programme began with the acquisition of the first 62 kilometres of 2D seismic data over the Tuyuwopi structure in PPL 319. Processing of the new seismic data, combined with the reprocessing of c.300 kilometres of legacy seismic data over licences PPL 319 and PRL 13 completed in 2013 and data delivery is expected in January 2014. Further seismic data acquisition over leads within the licences will continue in first quarter 2014, in order to firm-up these leads as additional prospects for drilling. Well and logistical planning continues to enable drilling of the Tuyuwopi prospect in 2014. 

    PPL 337

    In October 2013, Heritage announced the farm-in to Petroleum Prospecting Licence No:337 ("PPL 337"), which has a gross area of approximately 5,508 square kilometres.  Heritage will earn a 70% working interest and operatorship, by funding the costs of drilling two shallow exploration wells. In addition, Heritage will make a $500,000 contribution to Kina Petroleum’s back costs on the licence and in the event of a discovery, Heritage will carry Kina Petroleum’s costs of up to 100 kilometres of appraisal seismic data.

    PPL 337 is located within the south eastern part of the North New Guinea Basin, in the underexplored Ramu Sub Basin.  To date, three prospects and one lead have been identified on the licence. A local depocentre has been identified in proximity to mapped prospects in clastic and carbonate reef geological settings and the presence of gas seeps within the licence indicates an active petroleum system. These mapped prospects are in clastic and carbonate reef geological settings, with principal exploration targets at the large Banam anticline with an area of over 200 square kilometres and potential reef structures in the north of the licence respectively.

    Legacy datasets, which include regional gravity and magnetic data and surface geological mapping, in addition to c.140 kilometres of 2D seismic acquired in 1997 and offset well data have been evaluated.

    Two prospects are proposed for initial drilling; the Kwila prospect, where a Pleistocene age clastic target has been mapped in the footwall of the Banam anticline, and the Raintree prospect where a Pliocene/Miocene age reef target is identified. The shallow nature of the targets identified makes the early drilling of wells the most cost effective method of assessing the potential within the licence. Well planning has commenced to enable drilling of these two prospects in 2014.

    PPL 337 has good road access and is close to potential local gas markets and the deep water port of Madang, which could be suitable for LNG export. 

    PPL 437

    In October 2013, Heritage announced the farm-in to Petroleum Prospecting Licence No:437 ("PPL 437"), that has a gross area of approximately 1,530 square kilometres.  Heritage will earn an initial 30% working interest, by carrying Kina Petroleum’s seismic acquisition costs for a minimum of 100 kilometres of data and make a $300,000 contribution towards Kina Petroleum’s back costs on the licence. During this phase Heritage will be the operator of the seismic work programme. Additionally, Heritage has an option to acquire a further 20% working interest from Kina Petroleum and operatorship of the licence by carrying them through the drilling of an exploration well.

    PPL 437 lies within a proven hydrocarbon system less than 20 kilometres north of the Elevala and Ketu c.1.0 TCF gas condensate fields and the recent Tingu-1 exploration discovery well.

    Legacy datasets, which include regional gravity and magnetic data and surface geological mapping, in addition to c.250 kilometres of 2D seismic, have been evaluated. The identified prospectivity in the licence is within several structural leads present on this legacy seismic.

    Two shallow wells are slated for drilling in 2014 on PPL 337, one on the Kwila prospect and one on the Raintree prospect where a Pliocene/Miocene age carbonate reef target is identified. On PPL 437, the identified prospectivity in the licence is within several structural leads identified from the legacy database. Detailed remapping of the existing database is ongoing and the planned 2014 seismic programme will be incorporated into this process with the aim of maturing these leads to prospect status ready for potential drilling within the next two years

    The licence is located close to an existing gas pipeline from the PNG LNG gas fields to the LNG plant in Port Moresby and stated gas commercialisation options for the Elevala and Ketu fields include a mid-scale LNG project with a LNG plant located at Daru.

     

     Blocks

    Approximate Area 
    (sq km)

    Date 
    Farm-in

    Heritage
    Equity

    Partners

    Operator

    PPL 319 2,025 March 2013 80% Esrey Energy Heritage

    PRL 13

    160 March 2013 80% Esrey Energy Heritage

    PPL 337

    5,508 October 2013 70% Kina Petroleum Heritage

    PPL 437

    1,530 October 2013 30%

    Kina Petroleum

    Cott Oil & Gas

    Kina Petroleum
  • Tanzania

    Heritage has two Blocks in Tanzania, which are considered to be geologically analogous to the Lake Albert Basin in Uganda.

    Tanzania Maplegends

    Tanzania

    RUKWA

    In November 2011, Heritage announced the award of a PSA that covers virtually the entire Rukwa Rift Basin, split into two separate areas, Rukwa North and Rukwa South. Heritage is the operator with a 100% interest. A limited amount of exploration activity was undertaken in the region in the mid-1980s which resulted in the acquisition of c.2,300 kilometres of 2D seismic data and the drilling of two wells. Reprocessing of legacy 2D seismic data in Rukwa was completed in 2012 and the acquisition and processing of approximately 600 kilometres of 2D seismic was completed in the first quarter of 2013. The data has been processed and initial interpretation completed with the results indicating that the principal prospectivity lies in the Rukwa South area and as such the Rukwa North licence has been relinquished. Focused interpretation over the retained Rukwa South Licence area has resulted in the identification of several prospects, geologically analogous to the Kingfisher discovery in Uganda, for which detailed prospect mapping and evaluation is ongoing.

    South

    Area 
    (sq km)

    Date 
    Awarded

    Heritage
    Equity

    Partners

    Operator

    8,745 Nov 2011 100% - Heritage

    KYELA

    In January 2012, Heritage was awarded the Kyela PSA covering the entire northern onshore area of the Lake Nyasa (Livingstone) Basin that lies within Tanzanian territory. The Block has never previously been targeted for hydrocarbon exploration. Gravity data over the area suggests the presence of a sedimentary section of sufficient thickness to allow for the generation of oil. The work programme commenced with the acquisition of a c.1,500 square kilometre very high resolution gravity survey. This indicated the presence of probable structural highs adjacent to a main depocentre, modelled as a potential hydrocarbon kitchen. A 100 kilometre reconnaissance seismic survey, completed in January 2013, confirmed the structures indicated by the gravity data. A geochemical survey of the Kyela licence has been completed and interpretation of the data is proceeding to schedule with results due first quarter of 2014. Infill seismic acquisition, designed to increase the density of the seismic grid to enable the mapping of potential prospects, is planned for the second half of 2014.

    A drilling programme across the two licences is planned for 2014/2015. 

    Area 
    (sq km)

    Date 
    Awarded

    Heritage
    Equity

    Partners

    Operator

    1,934 Jan 2012 100% - Heritage

     

    Satellite radar surveys indicate areas of wave-calming in Lake Rukwa and in Lake Nyasa that may be associated with oil seeps. In the event of an oil discovery, at either Rukwa or Kyela, economic scoping shows the commercial viability of either rail export to Dar es Salaam or export by pipeline depending on exploration success. Heritage recognises that the Rukwa and Kyela licences share certain geological similarities with the prolific Albert Basin of Uganda where Heritage had previous experience and significant success.

     

  • Malta

    In December 2007, the Group entered into a PSC with the Maltese government for a 100% interest in Areas 2 and 7 in the south-eastern offshore region of Malta.

    Malta Maplegends

    Malta

    The Maltese licences cover almost 18,000 square kilometres and are situated approximately 80 kilometres (Area 2) and 140 kilometres (Area 7) offhore, in water depths of up to approximately 300 metres. The two Areas are close to, and geologically similar to, a number of producing fields offshore Libya and Tunisia.

    With only one well previously drilled in Area 2, the Medina Bank-1 well in 1980 which did not reach its target, both licences are considered to be under explored. Although drilled to a depth of 1,225 metres, the well failed to reach the objective horizons, estimated to be between 1,500 and 4,500 metres.

    The interpretation of seismic data in Heritage’s extensive dataset of approximately 5,000 kilometres of 2D seismic, has confirmed a highly attractive Lower Eocene carbonate reef play. Detailed mapping of a prospect in Area 7 has also identified the presence of an additional deeper carbonate reef target within the Cretaceous section of the prospect. These primary targets are recognised as major hydrocarbon producing zones in the central part of the Mediterranean.

    In addition, the Company has recognised the presence of a north-south trending shelf margin on the eastern part of the blocks where a number of attractive reef prospects have been mapped.

    A drillable prospect has been identified and preparations are underway to drill a well in Area 7 subject to Maltese government approval.

    Area 2

    Area 
    (sq km)

    Date 
    Awarded

    Heritage
    Equity

    9,190 December 2007 100%

    Area 7

    Area 
    (sq km)

    Date 
    Awarded

    Heritage
    Equity

    8,778 December 2007 100%
  • Libya

    In August 2011, Heritage acquired a controlling 51% interest in Sahara Oil which holds the necessary long-term permits and licences to provide oil field services in Libya.

    Libya Maplegends

    Libya

    Heritage has pursued its strategy of ‘first mover advantage’ through pursuing participation in the restoration of the Libyan oil production sector which presents a dynamic and evolving environment.

    Libya is considered to be a highly attractive oil province due to the low cost of oil recovery, high quality oil which is generally sweet with API gravity ranging between 32-44º, proximity to European markets and well developed infrastructure.

    A wholly owned subsidiary of Heritage acquired a 51% equity interest and control of Sahara Oil which owns the entire share capital of Sahara, a Libyan registered company providing services to the oil industry, for cash consideration of $19.5 million.

    Sahara Oil was established in April 2009 and has been granted long-term licences to provide full oil field services in Libya, including the ability to drill onshore and o«shore and hold both oil and gas licences. Our efforts have the aim of playing a key role in the substantial rehabilitation work needed to resume, maintain and increase Libya’s hydrocarbon production in line with National Oil Company (“NOC”) and Oil Ministry targets.

    Heritage established a base in Benghazi in the first half of 2011, having been in discussions with senior members of the National Transitional Council, the legitimate and recognised government of Libya at the time, as well as with its Executive Committee, the NOC and certain subsidiaries. The dialogue with these parties continues, with Heritage now also active in Tripoli and exploring ways to assist the newly appointed interim government, under the General National Congress elected in July 2012, the NOC and the state oil companies, rehabilitate and re-shape Libya’s hydrocarbons sector, placing it on a sustainable path that will meet the future needs of the country.

  • Pakistan

    Heritage is operator of two Blocks in Pakistan.

    Pakistan Maplegends

    Pakistan

    SANJAWI

    Heritage has a 54% interest and is operator of the Sanjawi licence (number 3068-2) in Zone II (Baluchistan), which was awarded in November 2007, and which covers a gross area of 2,258 square kilometres. The Block is considered prospective due to an oil discovery to the west, a number of gas fields to the south-east and the presence of oil seeps in the licence. The licence area is dominated by a series of broad east-west trending surface features including the large Dabbar and Warkan Shah anticlines, the former being some 300 square kilometres in area.

    Area 
    (sq km)

    Date 
    Awarded

    Heritage
    Equity

    Partners

    Operator

    2,258 Nov 
    2007
    54%

    Hycarbex

    American Energy

    Sprint Energy

    Trakker Energy

     

    Heritage

    ZAMZAMA NORTH

    In December 2008, Heritage obtained a 48% interest in the Zamzama North licence (number 2667-8) and was appointed operator. The Zamzama North licence covers an area of 1,229 square kilometres and is located in the south of Pakistan, in the western part of the Sindh Province, approximately 200 kilometres north-west of Hyderabad.

    There is considerable infrastructure in the area as one of the main pipelines runs through the licence and any discovered hydrocarbons could be readily connected. The Zamzama Gas Field, a major gas field in production, lies immediately to the south of, and adjacent to, Zamzama North.

    Using the current seismic database Heritage has mapped a number of structural prospects and leads and a drilling programme is under consideration. The database comprises some 1,000 kilometres of good quality 2D seismic data.

    Area 
    (sq km)

    Date 
    Awarded

    Heritage
    Equity

    Partners

    Operator

    1,229 Dec
    2008
    48%

    Hycarbex

    American Energy

    Sprint Energy

    Trakker Energy

    Heritage

Nigeria

OML 30 is a world class asset with gross oil reserves of over 1.1 billion barrels and has all the infrastructure in place to produce up to 395,000 bpd.

Nigeria Maplegends

Nigeria

Current Production

Gross production from OML 30 has reached over 50,000 bopd, in part from the benefit of continued maintenance and rehabilitation programmes and as a result of production from the Uzere West Field recommencing in December 2013 after having been shut-in for over two years. Production in Q4 2013 averaged c.13,300 bopd net to Heritage, up from c.8,150 bopd for the first nine months of the year.

This asset remains the main development priority for the Company. All existing facilities have been reviewed to identify opportunities for improvement and maintenance. A number of comprehensive operational, engineering and community projects that commenced in 2013 are generating and contributing to significant production increases.

The Work Programme

To date, work on the licence has commenced with the ordering of new gas lift compressors, installation of diesel generators and new instrument air compressors. Over the course of this year further work will continue aimed at optimisation of existing facilities.

Gas lift is the single method of artificial lift within OML 30 and six of the eight fields have gas lift installed, with the two remaining fields planned to have gas lift installed in 2014-2015. The drilling of new wells, planned to commence in the second half of 2014, should provide a significant increase to production with the longer term potential estimated at approximately 300,000 bopd gross.

The Asset

OML 30 lies onshore within the Niger Delta in one of the most prolific oil and gas provinces in the world. The licence covers 1,097 square kilometres and includes eight producing fields with oil and gas contained in numerous stacked reservoirs. The fields are deltaic shallow marine shelf sands at intermediate depth level in growth fault structural setting. The fields each contain up to 40 stacked reservoirs and the reservoirs are underlain by substantial aquifers that provide nearly infinite pressure support. The oil is good quality 30° API and typically sells at a 3% premium to Brent.

Since 1961 over 200 wells have been drilled on the licence and the strong aquifer support has enabled the majority of these to become producers. There is the potential to both stabilise and increase production in the near term through refurbishing infrastructure and restarting non-producing existing wells. Additionally, existing wells will be worked over to further increase production.

Infrastructure

The licence benefits from infrastructure being in place with nine flow stations that have the capacity to handle 395,000 bpd thereby handling several years of projected production growth. The facilities have been robustly designed and constructed, and benefit from a standard design so equipment can easily be replaced if required.

The acquisition included a 45% interest in the segment of the Trans Forcados pipeline between the Eriemu Manifold and the Forcados River Manifold, which is largely buried. The pipeline is used by several other operators and provides additional revenue for the pipeline owners through the tariff charged.

Interest in OML 30

On 9 November 2012, Heritage announced that Shoreline, a special purpose private Nigerian company formed between a subsidiary of Heritage and a local Nigerian partner, Shoreline Power, successfully completed the acquisition of a 45% interest in OML 30, together with a 45% interest in other assets under the joint operating agreement for OML 30, for a total cash consideration of $850 million, net of costs.

The acquisition and partnership with Shoreline Power enhances Heritage’s profile in Nigeria and creates a platform for further growth in this prolific hydrocarbon region. Shoreline has become one of the leading indigenous companies producing in Nigeria, combining Shoreline Power’s energy and infrastructure operating expertise and respected network of relationships within Nigeria with Heritage’s strong technical team.

Shoreline Option

Shoreline was structured with 55% of its equity interest held by Shoreline Power Company Limited (“Shoreline Power”) and the remaining 45% held by Heritage, through a wholly owned subsidiary. Under the arrangements Heritage’s economic interest was 97.5%.

In December 2012, Heritage announced that Shoreline Power had exercised its call option to acquire a 30% economic interest in Shoreline. This would have the effect of reducing Heritage’s economic interest in Shoreline from 97.5% to 68.25%, with 68.25% being an effective 30.71% working interest in OML 30.  In order to fund a portion of the consideration of c.$120 million, Shoreline Power has entered into an agreement with Cedar Oil and Gas Exploration and Production Limited (“Cedar”), a local Nigerian company, to sell half of its option rights. This has been facilitated by Shoreline entering into a farm-out agreement with Cedar on 22 August 2013 to sell a 6.75% working interest in OML 30 thereby reducing Shoreline’s working interest in OML 30 to 38.25%. Following completion of this transaction, Heritage’s effective working interest in OML 30 of 30.71% remains unchanged, as its economic interest in Shoreline post option exercise increases from 68.25% to 80.29%. 

Completion of the farm-out and release of the initial consideration is subject to Nigerian government approval which is expected imminently.  On completion, Heritage will receive $31.5 million in cash and provide an interest bearing loan to Shoreline Power secured on the preferential recovery of 80% of Shoreline Power’s cash distributions from Shoreline. In addition, the consideration will be used by Shoreline to reduce the Reserve Based Lending Facility by 15% in line with the proportional reduction of its working interest in OML 30.

OML 30 – SUMMARY Of RESERVES(1,2)

  Gross Remaining Reserves  Heritage Group Net
Entitlement Reserves 
  Gross of Royalty (mmstb) Net of Royalty (mmstb) Gross of
Royalty (mmstb)
Net of
Royalty (mmstb)
Proved
Reserves (1P)
538 430 168 134

Proved &

Probable
Reserves (2P)

1,114 891 347 277
Proved &
Probable & Possible
Reserves (3P)
1,733 1,387  539 431

1) Post exercise of Shoreline Power option.
2) As per RPS, as at 31 March 2012.

OML 30 – POST TAX EVALUATION NET TO HERITAGE

 

Base Income Tax Scenario1
($ million)

Alternative Income Tax Scenario2
($ million)

 

Post–tax
NPV (10%)

Post–tax
NPV (10%)

Proved
Reserves (1P)
1,189 1,410

Proved &

Probable
Reserves (2P)

2,162 2,652
Proved &
Probable &
Possible
Reserves (3P)
3,129 3,820

1) Assumes the income tax applicable under current Nigerian law.
2) Assumes the income tax under changes to Nigerian Law which Heritage believes might occur.

Russia

Since 2005, the Group has held a 95% equity interest in ChumpassNefteDobycha Limited, a Russian company whose sole asset is a 100% interest in the Zapadno Chumpasskoye licence.

Russia Maplegends

Russia

The Zapadno Chumpasskoye licence is in the hydrocarbon-rich West Siberian province of KhantyMansiysk, approximately 100 kilometres from the city of Nizhnevartovsk and in the area of the region’s prolific Samotlor oilfield, which makes it accessible to existing infrastructure. The licence contains the Zapadno Chumpasskoye Field, discovered in 1997. A total of 13 wells have been drilled on the licence including four by the Group. The Chumpasskoye crude is light, sweet (42º API) oil, with moderate gas-to-oil ratios.

Since 2006, the Group has acquired 2D seismic data covering an area of 200 kilometres, constructed pilot production facilities, commenced field production, drilled four wells and re-entered existing well 226. Production facilities were commissioned and production commenced in May 2007. In 2009, an electric submersible pump was installed on well 226 to arrest the natural well production decline and a water shut-off operation was completed on well P4.

Based on positive results from the horizontal well drilled in August 2011, a revised field development plan was submitted for Zapadno Chumpasskoye replacing vertical producers with horizontal wells. The change in well type should result in a 50% reduction in the number of production wells required to develop the field and a corresponding reduction in drilling expenditure of approximately $200 million. The development proposal was approved by regulatory authorities at the end of December 2012.

Production for the first half of 2013 averaged 472 bopd, a decline of 17% compared to the same period in the prior year due to the replacement of the electric submersible pump in horizontal well 363 in the first quarter of 2013. Production averaged 675 bopd in July 2013, over 40% higher than the first six months of the year.

INDEPENDENTLY ESTIMATED RESERvES AT THE ZAPADNO CHUMPASSKOYE FIELD(1)

 

Net working and
entitlement
reserves
MMbbls

Net present
value
($ million
in money
of the day

Proved 23 152

Probable
Additional

42 284
Total Proved
+ Probable
65 336

Total Proved +
Probable +
Possible
163 976

1) A summary of RPS’s net working interest reserves and their Net Present Value, based on forecast prices and costs, discounted at 10%, as of 31 March 2012.

Papua New Guinea

Heritage has four licences onshore PNG, entered into in 2013.

Png Maplegends

PNG

Heritage has four licences entered into in 2013 with active work programmes including wells planned for 2014.

PPL 319/PRL 13

In April 2013, Heritage announced the farm-in to Petroleum Prospecting Licence No:319 ("PPL 319") and Petroleum Retention Licence No:13 ("PRL 13") to be appointed as operator with the right to obtain an 80% working interest. The contiguous licences are located onshore and have respective gross areas of approximately 2,025 and 160 square kilometres. The transaction completed in April 2013 following receipt of consent from the Papua New Guinea government and Heritage has been appointed operator. In return for earning the working interests and operatorship, Heritage will fund the costs of seismic acquisition and the cost of drilling an exploration well. In addition, Heritage has made a $4 million contribution to Esrey Energy Ltd’s back costs on the licences.

The licences are located at the junction of the Papuan fold belt and the Miocene carbonate platform where there are multiple producing fields and discoveries including the multi-TCF Triceratops and Elk/Antelope discoveries. The licences benefit from being close to current and under-construction infrastructure with the Kutubu oil export pipeline and the PNG Liquefied Natural Gas pipeline crossing the acreage. The licences also benefit from the Kikori River which provides a link to the open sea, thereby increasing transport options.

The work programme began with the acquisition of the first 62 kilometres of 2D seismic data over the Tuyuwopi structure in PPL 319. Processing of the new seismic data, combined with the reprocessing of c.300 kilometres of legacy seismic data over licences PPL 319 and PRL 13 completed in 2013 and data delivery is expected in January 2014. Further seismic data acquisition over leads within the licences will continue in first quarter 2014, in order to firm-up these leads as additional prospects for drilling. Well and logistical planning continues to enable drilling of the Tuyuwopi prospect in 2014. 

PPL 337

In October 2013, Heritage announced the farm-in to Petroleum Prospecting Licence No:337 ("PPL 337"), which has a gross area of approximately 5,508 square kilometres.  Heritage will earn a 70% working interest and operatorship, by funding the costs of drilling two shallow exploration wells. In addition, Heritage will make a $500,000 contribution to Kina Petroleum’s back costs on the licence and in the event of a discovery, Heritage will carry Kina Petroleum’s costs of up to 100 kilometres of appraisal seismic data.

PPL 337 is located within the south eastern part of the North New Guinea Basin, in the underexplored Ramu Sub Basin.  To date, three prospects and one lead have been identified on the licence. A local depocentre has been identified in proximity to mapped prospects in clastic and carbonate reef geological settings and the presence of gas seeps within the licence indicates an active petroleum system. These mapped prospects are in clastic and carbonate reef geological settings, with principal exploration targets at the large Banam anticline with an area of over 200 square kilometres and potential reef structures in the north of the licence respectively.

Legacy datasets, which include regional gravity and magnetic data and surface geological mapping, in addition to c.140 kilometres of 2D seismic acquired in 1997 and offset well data have been evaluated.

Two prospects are proposed for initial drilling; the Kwila prospect, where a Pleistocene age clastic target has been mapped in the footwall of the Banam anticline, and the Raintree prospect where a Pliocene/Miocene age reef target is identified. The shallow nature of the targets identified makes the early drilling of wells the most cost effective method of assessing the potential within the licence. Well planning has commenced to enable drilling of these two prospects in 2014.

PPL 337 has good road access and is close to potential local gas markets and the deep water port of Madang, which could be suitable for LNG export. 

PPL 437

In October 2013, Heritage announced the farm-in to Petroleum Prospecting Licence No:437 ("PPL 437"), that has a gross area of approximately 1,530 square kilometres.  Heritage will earn an initial 30% working interest, by carrying Kina Petroleum’s seismic acquisition costs for a minimum of 100 kilometres of data and make a $300,000 contribution towards Kina Petroleum’s back costs on the licence. During this phase Heritage will be the operator of the seismic work programme. Additionally, Heritage has an option to acquire a further 20% working interest from Kina Petroleum and operatorship of the licence by carrying them through the drilling of an exploration well.

PPL 437 lies within a proven hydrocarbon system less than 20 kilometres north of the Elevala and Ketu c.1.0 TCF gas condensate fields and the recent Tingu-1 exploration discovery well.

Legacy datasets, which include regional gravity and magnetic data and surface geological mapping, in addition to c.250 kilometres of 2D seismic, have been evaluated. The identified prospectivity in the licence is within several structural leads present on this legacy seismic.

Two shallow wells are slated for drilling in 2014 on PPL 337, one on the Kwila prospect and one on the Raintree prospect where a Pliocene/Miocene age carbonate reef target is identified. On PPL 437, the identified prospectivity in the licence is within several structural leads identified from the legacy database. Detailed remapping of the existing database is ongoing and the planned 2014 seismic programme will be incorporated into this process with the aim of maturing these leads to prospect status ready for potential drilling within the next two years

The licence is located close to an existing gas pipeline from the PNG LNG gas fields to the LNG plant in Port Moresby and stated gas commercialisation options for the Elevala and Ketu fields include a mid-scale LNG project with a LNG plant located at Daru.

 

 Blocks

Approximate Area 
(sq km)

Date 
Farm-in

Heritage
Equity

Partners

Operator

PPL 319 2,025 March 2013 80% Esrey Energy Heritage

PRL 13

160 March 2013 80% Esrey Energy Heritage

PPL 337

5,508 October 2013 70% Kina Petroleum Heritage

PPL 437

1,530 October 2013 30%

Kina Petroleum

Cott Oil & Gas

Kina Petroleum

Tanzania

Heritage has two Blocks in Tanzania, which are considered to be geologically analogous to the Lake Albert Basin in Uganda.

Tanzania Maplegends

Tanzania

RUKWA

In November 2011, Heritage announced the award of a PSA that covers virtually the entire Rukwa Rift Basin, split into two separate areas, Rukwa North and Rukwa South. Heritage is the operator with a 100% interest. A limited amount of exploration activity was undertaken in the region in the mid-1980s which resulted in the acquisition of c.2,300 kilometres of 2D seismic data and the drilling of two wells. Reprocessing of legacy 2D seismic data in Rukwa was completed in 2012 and the acquisition and processing of approximately 600 kilometres of 2D seismic was completed in the first quarter of 2013. The data has been processed and initial interpretation completed with the results indicating that the principal prospectivity lies in the Rukwa South area and as such the Rukwa North licence has been relinquished. Focused interpretation over the retained Rukwa South Licence area has resulted in the identification of several prospects, geologically analogous to the Kingfisher discovery in Uganda, for which detailed prospect mapping and evaluation is ongoing.

South

Area 
(sq km)

Date 
Awarded

Heritage
Equity

Partners

Operator

8,745 Nov 2011 100% - Heritage

KYELA

In January 2012, Heritage was awarded the Kyela PSA covering the entire northern onshore area of the Lake Nyasa (Livingstone) Basin that lies within Tanzanian territory. The Block has never previously been targeted for hydrocarbon exploration. Gravity data over the area suggests the presence of a sedimentary section of sufficient thickness to allow for the generation of oil. The work programme commenced with the acquisition of a c.1,500 square kilometre very high resolution gravity survey. This indicated the presence of probable structural highs adjacent to a main depocentre, modelled as a potential hydrocarbon kitchen. A 100 kilometre reconnaissance seismic survey, completed in January 2013, confirmed the structures indicated by the gravity data. A geochemical survey of the Kyela licence has been completed and interpretation of the data is proceeding to schedule with results due first quarter of 2014. Infill seismic acquisition, designed to increase the density of the seismic grid to enable the mapping of potential prospects, is planned for the second half of 2014.

A drilling programme across the two licences is planned for 2014/2015. 

Area 
(sq km)

Date 
Awarded

Heritage
Equity

Partners

Operator

1,934 Jan 2012 100% - Heritage

 

Satellite radar surveys indicate areas of wave-calming in Lake Rukwa and in Lake Nyasa that may be associated with oil seeps. In the event of an oil discovery, at either Rukwa or Kyela, economic scoping shows the commercial viability of either rail export to Dar es Salaam or export by pipeline depending on exploration success. Heritage recognises that the Rukwa and Kyela licences share certain geological similarities with the prolific Albert Basin of Uganda where Heritage had previous experience and significant success.

 

Malta

In December 2007, the Group entered into a PSC with the Maltese government for a 100% interest in Areas 2 and 7 in the south-eastern offshore region of Malta.

Malta Maplegends

Malta

The Maltese licences cover almost 18,000 square kilometres and are situated approximately 80 kilometres (Area 2) and 140 kilometres (Area 7) offhore, in water depths of up to approximately 300 metres. The two Areas are close to, and geologically similar to, a number of producing fields offshore Libya and Tunisia.

With only one well previously drilled in Area 2, the Medina Bank-1 well in 1980 which did not reach its target, both licences are considered to be under explored. Although drilled to a depth of 1,225 metres, the well failed to reach the objective horizons, estimated to be between 1,500 and 4,500 metres.

The interpretation of seismic data in Heritage’s extensive dataset of approximately 5,000 kilometres of 2D seismic, has confirmed a highly attractive Lower Eocene carbonate reef play. Detailed mapping of a prospect in Area 7 has also identified the presence of an additional deeper carbonate reef target within the Cretaceous section of the prospect. These primary targets are recognised as major hydrocarbon producing zones in the central part of the Mediterranean.

In addition, the Company has recognised the presence of a north-south trending shelf margin on the eastern part of the blocks where a number of attractive reef prospects have been mapped.

A drillable prospect has been identified and preparations are underway to drill a well in Area 7 subject to Maltese government approval.

Area 2

Area 
(sq km)

Date 
Awarded

Heritage
Equity

9,190 December 2007 100%

Area 7

Area 
(sq km)

Date 
Awarded

Heritage
Equity

8,778 December 2007 100%

Libya

In August 2011, Heritage acquired a controlling 51% interest in Sahara Oil which holds the necessary long-term permits and licences to provide oil field services in Libya.

Libya Maplegends

Libya

Heritage has pursued its strategy of ‘first mover advantage’ through pursuing participation in the restoration of the Libyan oil production sector which presents a dynamic and evolving environment.

Libya is considered to be a highly attractive oil province due to the low cost of oil recovery, high quality oil which is generally sweet with API gravity ranging between 32-44º, proximity to European markets and well developed infrastructure.

A wholly owned subsidiary of Heritage acquired a 51% equity interest and control of Sahara Oil which owns the entire share capital of Sahara, a Libyan registered company providing services to the oil industry, for cash consideration of $19.5 million.

Sahara Oil was established in April 2009 and has been granted long-term licences to provide full oil field services in Libya, including the ability to drill onshore and o«shore and hold both oil and gas licences. Our efforts have the aim of playing a key role in the substantial rehabilitation work needed to resume, maintain and increase Libya’s hydrocarbon production in line with National Oil Company (“NOC”) and Oil Ministry targets.

Heritage established a base in Benghazi in the first half of 2011, having been in discussions with senior members of the National Transitional Council, the legitimate and recognised government of Libya at the time, as well as with its Executive Committee, the NOC and certain subsidiaries. The dialogue with these parties continues, with Heritage now also active in Tripoli and exploring ways to assist the newly appointed interim government, under the General National Congress elected in July 2012, the NOC and the state oil companies, rehabilitate and re-shape Libya’s hydrocarbons sector, placing it on a sustainable path that will meet the future needs of the country.

Pakistan

Heritage is operator of two Blocks in Pakistan.

Pakistan Maplegends

Pakistan

SANJAWI

Heritage has a 54% interest and is operator of the Sanjawi licence (number 3068-2) in Zone II (Baluchistan), which was awarded in November 2007, and which covers a gross area of 2,258 square kilometres. The Block is considered prospective due to an oil discovery to the west, a number of gas fields to the south-east and the presence of oil seeps in the licence. The licence area is dominated by a series of broad east-west trending surface features including the large Dabbar and Warkan Shah anticlines, the former being some 300 square kilometres in area.

Area 
(sq km)

Date 
Awarded

Heritage
Equity

Partners

Operator

2,258 Nov 
2007
54%

Hycarbex

American Energy

Sprint Energy

Trakker Energy

 

Heritage

ZAMZAMA NORTH

In December 2008, Heritage obtained a 48% interest in the Zamzama North licence (number 2667-8) and was appointed operator. The Zamzama North licence covers an area of 1,229 square kilometres and is located in the south of Pakistan, in the western part of the Sindh Province, approximately 200 kilometres north-west of Hyderabad.

There is considerable infrastructure in the area as one of the main pipelines runs through the licence and any discovered hydrocarbons could be readily connected. The Zamzama Gas Field, a major gas field in production, lies immediately to the south of, and adjacent to, Zamzama North.

Using the current seismic database Heritage has mapped a number of structural prospects and leads and a drilling programme is under consideration. The database comprises some 1,000 kilometres of good quality 2D seismic data.

Area 
(sq km)

Date 
Awarded

Heritage
Equity

Partners

Operator

1,229 Dec
2008
48%

Hycarbex

American Energy

Sprint Energy

Trakker Energy

Heritage