June 4, 2009 / 8:12 PM / 10 years ago

UPDATE 1-Genel Enerji in merger talks with Heritage-sources

* Genel Enerji in merger talks with Heritage Oil

* Focus on Kurdish oil field (Adds detail, background)

By Tom Bergin and Thomas Grove

LONDON/ISTANBUL, June 4 (Reuters) - Unlisted Turkish Energy company Genel Enerji is the unnamed party in merger talks with British oil explorer Heritage Oil HOIL.L, sources close to the situation said on Thursday.

Heritage, which has a market capitalisation of around $2.5 billion, said on Wednesday it was in merger talks with an unnamed party, and its shares were suspended.

The company has two main assets - stakes in oil blocks in Uganda and Iraq’s semi-autonomous Kurdistan region where discoveries, potentially containing billions of barrels of oil, have been made.

The tie-up talks with Genel Enerji, which is part of the Cukurova Group, one of Turkey’s largest industrial conglomerates, are centered on Heritage’s Miran field in Kurdistan, the sources said.

“Iraq is the focus,” one source said.

Rather than buy out Heritage shareholders, Genel would contribute assets to the enlarged entity, one of the sources, who spoke on condition of anonymity, said.

The talks could prompt a bidding battle for Heritage but industry sources said there was a limited field of potential acquirers.

The government in Baghdad has described the oil deals signed by the Kurdish Regional Government as illegal and anyone investing there is effectively blocked from investing in the rest of Iraq.

Chinese state-owned oil companies which have been major buyers of oil assets internationally in recent years, are actively bidding for contracts in Iraq, as are the Western oil majors, making it unlikely they will shift their focus to Kurdistan.

Privately-owned French oil company Perenco, whose name has been linked with Heritage in the press, is not interested in buying the company, industry sources said.

Heritage’s shares have soared in recent months, on the back of a major oil find at Miran.

However, some industry executives believe investors have become too optimistic about Miran given the estimate of oil in place of up to 4.2 billion barrels was based on the results of just one well.

“They could put in assets, they wouldn’t need to raise cash,”

Heritage, which has its roots in Angola, was founded by Briton Anthony Buckingham, who owns around 33 percent of the company.

After Unita rebels overran one of its Angolan oilfields, Buckingham and partners including Simon Mann, who is serving 34 years for a failed coup plot in Equatorial Guinea, founded military contractors Executive Outcomes to retake the field, according the prospectus for Heritage Oil’s London listing last year.

Buckingham was also a principal of another military contractor, Sandline International, but the prospectus said he has had no involvement with any military or security operations since the spring of 1998.

Reporting by Tom Bergin and Thomas Grove; Editing by Phil Berlowitz, Bernard Orr

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