x Abu Dhabi, UAE Friday 21 July 2017

Uganda dims outlook for bidding pay-off

What's down Heritage oil. Government sends mixed signals on bids from Tullow and Eni.

When a company has two potential buyers vying for the assets it wants to sell, that is usually good for its share price. Heritage Oil, however, has proved there is an exception to every rule. The small Canadian oil and gas explorer wants to sell its 50 per cent stake in hundreds of millions of barrels of undeveloped Ugandan oil reserves to raise funds for operations in Iraqi Kurdistan, where it has struck a multibillion-barrel oilfield. Uganda has no commercial oil production, pipelines or refineries, and Heritage lacks the money and experience for large-scale infrastructure projects, so its decision to sell up makes sense.

In November, Heritage received an offer of US$1.5 billion (Dh5.51bn) from the Italian oil firm Eni, which its partner in Uganda, the Irish company Tullow Oil, recently decided to pre-empt with its own offer. Heritage's stock fell after the November 23 announcement of Eni's offer, suggesting investors thought the bid was too cheap. Now they might reasonably hope for a bidding war, but the Ugandan government may have nipped that prospect in the bud.

Last Thursday, the energy minister Hilary Onek said the government supported Eni's bid and might block a Tullow acquisition over monopoly concerns. Yesterday, however, the Ugandan president's office said the government would review both proposals. That followed a meeting on Saturday between the president, Yoweri Musaveni and the Tullow chief executive, Aidan Heavey, which the latter said was "very positive".

The government previously said it would choose "only capable and competent companies" to participate in Uganda's oil sector, meaning firms capable of developing export pipelines and refineries. At the least it needs a company of Eni's stature to supplement the efforts of smaller firms, like Tullow and Heritage, which specialise in finding and producing oil. An inflexible government decision either way, however, would kill any chance of competitive bidding. Investors have reacted by felling Heritage's share price by 14 per cent to C$8.75 (Dh30.37) last Friday from a December 10 peak of C$10.20.

The stock could perk up, however, if Heritage shareholders vote at a meeting today to support Tullow's offer and Tullow lines up a major oil company to buy into the Ugandan project. With Tullow still potentially in the running, Eni may yet sweeten its offer. @Email:tcarlisle@thenational.ae