Oil and Gas News

Heritage Oil Limited anounces interim results 2008

Heritage Oil Limited (LSE: HOIL), an independent upstream exploration and production company, announces the publication of its interim results for the six months ended 30 June 2008.

Operational Highlights
 The Kingfisher-2 well in Block 3A, Uganda, encountered 37 metres of net oil pay and is currently being production tested over three reservoir intervals. The three corresponding intervals in Kingfisher-1 flowed at an aggregate 9,773 bopd
 Exploration risks of prospects in Block 1, Uganda, significantly lowered following the recent drilling success in the northern part of adjacent Block 2
 Portfolio expansion with farm-ins in Tanzania, seismic programmes to begin in September 2008
 Development of West Bukha, Oman, progressing as planned, on production by year-end
 Acquisition of 330 kilometres of 2D seismic in the Miran block, Kurdistan Region of Iraq, exploration drilling locations identified
Financial Highlights
 Primary listing on the Main Market of the London Stock Exchange completed on 31 March 2008. Joined the FTSE 250 Index on 23 June 2008
 Net production increased by 83%
 Strong balance sheet with cash position of $145 million as at 30 June 2008
Upcoming Exploration Activity
Heritage is about to commence its largest and most important multi-well drilling programme with the following wells expected to be drilled in the near-term:
 
Tony Buckingham, Chief Executive Officer, commented:
“The remainder of 2008 and the beginning of 2009 will be an exciting time for Heritage as we test Kingfisher-2, embark on a multi-well drilling programme in Uganda and spud our first well in the Kurdistan Region of Iraq. We continue to focus all available resources on generating growth in shareholder value through high-impact exploration activities on our diversified portfolio of assets.”

Heritage’s 2008 interim report is available on its website at www.heritageoilltd.com.

 
For further information please contact:
Heritage Oil Limited
Tony Buckingham, CEO / Paul Atherton, CFO
+44 (0) 1534 873 000 / +41 91 973 1800 / +1 403 234 9974
Email: info@heritageoilltd.com

Heritage Oil Limited – Investor Relations
Tanya Clarke
+44 (0) 20 7518 0838
tc@heritageoilltd.com

Bell Pottinger Corporate & Financial – PR - Europe
Nick Lambert / Andrew Benbow
+44 (0) 20 7861 3232
NLambert@bell-pottinger.co.uk / ABenbow@bell-pottinger.co.uk
CHF Investor Relations – Investor Relations - Canada
Cathy Hume / Lindsay Carpenter
+1 416 868 1079 x231 / x239
cathy@chfir.com / lindsay@chfir.com

This press release is not for distribution to United States Newswire Services or for dissemination in the United States.
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CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S STATEMENT
Africa
Uganda – Block 3A
The Albert Basin in Uganda remains one of the key focus areas for Heritage. We estimate that this Basin has a multi-billion barrel reserve potential in a gross acreage position covering in excess of 12,000 square kilometres, roughly equivalent to 55 North Sea blocks.

The Kingfisher-2 appraisal well in Block 3A has encountered oil-bearing zones which preliminary interpretation indicates to be the lateral equivalent of the three pay zones in Kingfisher-1. The Kingfisher-2 zones have an estimated net oil pay of 37 metres over a gross interval of approximately 100 metres. In Kingfisher-1, completed in March 2007, the corresponding intervals flowed 30º–32º API oil at an aggregate rate of 9,773 barrels of oil per day when production tested. Although the deeper Kingfisher-2 target was not charged with hydrocarbons, we encountered basal sands comprising approximately 30 metres of reservoir overlain by an effective shale top-seal. We still view the basal sands as an important potential reservoir target for other prospects in Block 3A.

Production testing on Kingfisher-2 has commenced and results are due imminently, following which the rig will be moved south along the shoreline to drill Kingfisher-3. The drill site is located approximately three kilometres south of Kingfisher-2.

Uganda – Block 1
Drilling activity in Block 1 is planned to commence in September with an initial two to three well exploration programme. Recent drilling success in Block 2, very close to the Block 1 border, has lowered the exploration risk significantly the exploration risks in Block 1. A structural trend, characterised by high amplitude anomalies in the seismic data, can be traced northwards from Tullow Oil Plc’s Kasamene-1 discovery, just 2.5 kilometres south of Block 1, through the Warthog, Giraffe and Buffalo prospects in Block 1. Both the Buffalo and the Giraffe prospects were assessed independently by RPS Energy, as at 30 September 2007, to have mean gross un-risked prospective resources of 420 million and 89 million barrels of oil, respectively.

Tanzania
In April 2008, Heritage entered into farm-in agreements on two licences, covering four blocks, in Tanzania. In September of this year we plan to commence the acquisition of 2D seismic on the Kimbiji block and the Kisangire block. A drilling programme is expected to commence in the second half of 2009. Heritage’s licences are close to the Mkuranga-1 gas discovery and there is evidence in a neighbouring licence of a working hydrocarbon system generating both gas and oil.

Mali
Heritage entered Mali in 2007, targeting large hydrocarbon-bearing structures. This is a relatively unexplored country with only five exploration wells drilled to date. Both oil and gas shows have been encountered close to our acreage. Heritage has a 75% working interest in two blocks in Mali and within the next year the acquisition of 2D seismic is planned.

Middle East
The Kurdistan Region of Iraq
The Kurdistan Region of Iraq is one of our core focus areas. The Miran block covers an area of 1,015 square kilometres with two large anticlines that potentially contain significant quantities of oil from multiple reservoir targets. The initial indicative estimate from RPS Energy, based on the structure size and evaluations from neighbouring fields was that the Miran structure could contain over 3 billion barrels of oil in place. This estimate was made before approximately 330 kilometres of 2D seismic was acquired between April and June 2008. Given the encouraging results from our seismic programme we plan to start drilling Miran in the first quarter of 2009.
The operating environment in the Kurdistan Region of Iraq remains relatively stable and secure. In June 2008, Baghdad and the Kurdistan Regional Government began discussions with regard to key issues in the area. More recently, a committee was established to address the issue of the federal oil and gas law. Both Prime Minister Barzani of the Kurdistan Regional Government and Federal Iraqi Prime Minister Nouri Al-Maliki serve on the committee and are working to find a solution to the current situation.

Oman
The West Bukha field, in Oman, is expected to start production during the fourth quarter of 2008 which will increase our production levels from this area significantly. Heritage holds a 10% working interest in Block 8, an offshore licence including the producing Bukha gas/condensate field and West Bhuka.
Development of the West Bukha field is proceeding as planned. The platform was installed in June 2008 and an 18.5 kilometres sub-sea pipeline tying the West Bukha field into the existing Bukha pipeline, and then to the onshore facilities, was completed in July 2008.
The “Offshore Courageous” drilling rig has drilled the West Bukha-3 well successfully and commenced operations to tie-back the West Bukha-2 and 3 wells to the existing Bukha platform and pipeline system to facilitate early production. The West Bukha-2 appraisal/development well was completed at the end of 2006. The well test produced a combined flow rate from zones tested (Mishrif/Mauddud) of approximately 12,750 bopd and 26 MMscf/d. The oil is light at approximately 42° API.

Pakistan
Heritage was awarded a 60% interest in the Sanjawi Block in November 2007. This is located in the highly prospective Baluchistan province, close to the Sui and Pirkoh gas fields. There are a number of oil seeps to the south of the licence giving encouragement for development of an oil play. Recently Heritage farmed into, and assumed operatorship of, the Zamzama North Block which lies immediately north of the 2.3 TCF Zamzama gas/condensate field and very close to infrastructure. We have a 54% interest in this Block.

Russia
Western Siberia
The development of Zapadno Chumpasskoye has continued. The third exploration and appraisal well drilled by Heritage was completed in the first half of 2008. Average daily production of 39º API oil increased to 372 bopd during the first half of this year. Current production is 550 bopd and is expected to increase during the second half of 2008.

Financial Results
The Group’s net production increased by 83% to an average of 503 bopd in the first six months of this year compared to the same period last year. Production is expected to increase significantly before year-end with new production from the West Bukha field.
The Group’s net loss in the six month period ended 30 June 2008 was $58.0 million, compared to $73.2 million in the same period last year. If the non-cash loss on derivative financial liability relating to convertible bonds and share-based compensation expenses, as well as the one-off reorganisation costs are excluded, the net loss in the six month period ended 30 June 2008 was $8.4 million, compared to $18.9 million in the same period last year.

Market Comment
Although oil prices have recently fallen from record high levels, the price remains higher than last year. However, it is reported that, spare global oil capacity remains low, at approximately 2 mmbbl/day and global demand for oil is still growing. The International Energy Agency, the OECD energy watchdog, and the Energy Information Administration of the USA have 2009 oil demand growth forecasts of 1.1% and 1.2%, respectively. Non-OECD demand from China and India remains strong, despite the increase in prices seen earlier this year. Against a backdrop of strong oil demand, existing oil and gas fields continue to mature and oil companies are increasingly looking to new frontier areas. As the international oil majors struggle to replace reserves and grow production, exploration in new areas will continue.

Strategy
Heritage’s strategy is to have a presence in frontier areas at an early stage and focus on large high-impact hydrocarbon prospects. Frontier regions can attract risk; political, environmental and operational, but Heritage has a diversified portfolio and an experienced management team to counter these potential challenges. Heritage currently has interests in Africa, the Middle East and Russia which combine high-impact exploration with fields that are in development and production.

Corporate Social Responsibility
Heritage is mindful of the areas in which it operates and engages actively with local communities to ensure their needs are taken into consideration during both the planning and the implementation of projects. The Company is involved in many community, nature conservation and educational projects as we firmly believe these are fundamental in building trust and a respected corporate identity within these areas.
Non-Executive Director Appointment
Heritage is pleased to welcome Salim Hassan Macki to the board. Salim is an oil and gas executive, based in Oman, with considerable experience and an extensive network of contacts and corporate knowledge. He is a valuable addition to the Company as Heritage continues to expand its business in its core areas of the Middle East, Africa and Russia.

Outlook
Heritage’s strong cash position of $145 million enables us to continue to seek out and explore in highly prospective areas to create shareholder value without concern about potential dilution.
The remainder of 2008 and the beginning of 2009 will be an exciting time for Heritage as we test Kingfisher-2, embark on a multi-well drilling programme in Uganda and spud our first well in the Kurdistan Region of Iraq. We believe that continued successful drilling in the Albert Basin in 2008 will prove up sufficient reserves for commercial development in Uganda, marking a significant milestone for your Company.
Michael J. Hibberd

Chairman
Tony Buckingham
Chief Executive Officer
 

FORWARD-LOOKING INFORMATION:
Except for statements of historical fact, all statements in this news release – including, without limitation, statements regarding production estimates and future plans and objectives of Heritage – constitute forward-looking information that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from those anticipated in such statements. Factors that could cause actual results to differ materially from anticipated results include risks and uncertainties such as: risks relating to estimates of reserves and recoveries; production and operating cost assumptions; development risks and costs; the risk of commodity price fluctuations; political and regulatory risks; and other risks and uncertainties as disclosed under the heading “Risk Factors” in its Prospectus and elsewhere in Heritage documents filed from time-to-time with the London Stock Exchange and other regulatory authorities. Further, any forward-looking information is made only as of a certain date and the Company undertakes no obligation to update any forward-looking information or statements to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events, except as may be required by applicable securities laws. New factors emerge from time to time, and it is not possible for management of the Company to predict all of these factors and to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information.

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