Heritage Oil Plc (HOIL.L), an upstream exploration and production company, Friday reported a narrower loss for the first half of 2009, despite a sharp decline in revenues. However, shares of the company were down on the news that an investigation by the Financial Services Authority could potentially influence the proposed acquisition of Genel Enerji A.S.
Heritage reported a first-half loss attributable to owners of $12.81 million or $0.05 per share, compared with a loss attributable to owners of $16.49 million or $0.07 per share last year. The company said that the prior year results were restated.
Loss from continuing operations was $12.11 million, narrower than $16.97 million in the previous year.
Adjusted net loss from continuing operations also narrowed to $8.3 million from $12.7 million last year excluding certain non-cash items and one-off reorganization costs.
The company's six-month period petroleum and natural gas revenue declined 60% to $847 thousand from $1.98 million a year ago. The company attributed the revenue drop to both lower volumes of crude oil sales from the Zapadno Chumpasskoye field in Russia and lower average realized prices.
Heritage's net production decreased 38% in the period to an average of 231 bopd from 372 bopd last year. Following the disposal of the Oman operations, production and revenue are currently only generated from the Zapadno Chumpasskoye field in Russia. The decline in production was due to the shut-in of production from December 2008 through February 2009 due to unfavorable Russian domestic market conditions, the company stated.
Sales volume declined 15% to 311 bopd from 364 bopd a year ago. Average realized price slid 50% to $15/bbl from 29.9/bbl in the same period last year, due to lower average commodity prices in Russia.
Cash capital expenditures were $60.9 million in the six-month period, up from $56.3 million in in the previous year, principally on drilling programmes in Uganda and Kurdistan and a seismic acquisition programme in Tanzania.
General and administrative expenses totaled $6.4 million in the first half of 2009, lower than $20.1 million in the same period of 2008. Exploration expenditures decreased to $28.11 million from $301.25 million in the previous year.
Moving ahead, Heritage said its production is expected to average 500 bopd for the remainder of the year.
On June 9, Heritage had announced a non-binding Memorandum of Understanding, or MoU, with Genel to acquire the entire share capital of Genel.
The company said it came to know of an investigation by the Financial Services Authority, or FSA, that could potentially affect the ability of certain members of Genel's operational management team to assume their proposed roles in the combined entity. Heritage understands that relevant members of the Genel team are assisting the FSA with a view to bringing this matter to a conclusion faster.
Elections took place in Kurdistan at the end of July and a new government is in the process of being formed. Heritage said both the companies are monitoring it and are waiting for the subsequent approval of the deal, with an understanding of the pricing and payment mechanism for the purpose of international sales from Kurdistan.
"With production expected to increase, potential resource growth from our active drilling campaigns and completion of the Genel acquisition, the growth prospects for Heritage have never looked better," Heritage said.
HOIL.L is trading at 522.70 pence on the LSE, down 15.30 pence, on a volume of 1.2 million shares.
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