Heritage Announces the Sale of an Interest in the Miran Block and Receipt of an Exchangeable Loan for Combined Proceeds of $450 Million

LONDON, UNITED KINGDOM--(Marketwire - Aug. 21, 2012) -

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION. THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS. THE SECURITIES REFERRED TO HEREIN ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. A CIRCULAR AND PROSPECTUS (PUBLISHED ON 6 AUGUST 2012) IN CONNECTION WITH THE PROPOSED ACQUISITION AND RIGHTS ISSUE ARE AVAILABLE FROM THE COMPANY'S REGISTERED OFFICE AND FROM 34 PARK STREET, LONDON, W1K 2JD AND ARE AVAILABLE FOR VIEWING ON THE COMPANY'S WEBSITE.

Heritage Oil Plc (TSX:HOC.TO - News)(LSE:HOIL.L - News) ("Heritage" or the "Company"), an independent upstream exploration and production company, and its wholly owned subsidiary, Heritage Energy Middle East Limited ("HEME"), announce signed binding agreements with Genel Energy plc ("Genel") for: (i) the sale of a 26% interest in the production sharing contract relating to the Miran Block (the "Miran PSC") in the Kurdistan Region of Iraq ("Kurdistan") and corresponding interest in the related joint operating agreement (the "Miran JOA") to Genel for cash consideration of $156 million (the "Sale"); and (ii) a $294 million exchangeable loan to be provided by Genel to the Company contemporaneously with completion of the Sale (the "Loan").

The Sale is expected to be completed, and the Loan drawn down, on or before Wednesday, 22 August 2012.

Highlights

-- Sale by HEME of a 26% interest in the Miran PSC and Miran JOA to Genel
for $156 million valuing the entire interest currently held by HEME at
$450 million
-- Loan of $294 million to be provided by Genel to Heritage
-- The Loan will carry an interest rate of 8% and will have a fixed
term ending on the date which is the earlier of: (i) 15 months after
the date of the completion of the proposed acquisition by Heritage,
through its interest in Shoreline Natural Resources Limited, of an
interest in OML 30 in Nigeria, as previously announced by Heritage
on 29 June 2012 (the "Proposed Acquisition"); and (ii) 6 February
2014
-- Following the election of either the Company or Genel and subsequent
approval from the shareholders of the Company, the Loan will be
repaid through the transfer to Genel of the entire issued share
capital of HEME, with the effect that Genel would then hold a 100%
interest in the Miran PSC and Miran JOA
-- If the Proposed Acquisition completes, the combined proceeds from the
Sale and drawdown of the Loan, totalling $450 million, will be used to
partially fund the Proposed Acquisition, to continue the exploration,
appraisal and development of the Company's existing portfolio, fund
further potential acquisitions and as general working capital
-- If the Sale is completed and the Loan is drawn down on or prior to 22
August 2012, the proposed rights issue (the "Proposed Rights Issue")
described in the prospectus issued by Heritage on 6 August 2012 (the
"Prospectus") to be undertaken in connection with the Proposed
Acquisition will no longer be required. In addition, none of the
potential advance capital raisings described in the Prospectus will be
required
-- The Company intends to publish a supplementary Prospectus and a
supplementary Circular (defined below) following completion of the Sale
and draw down of the Loan, expected to be on 23 August 2012. The
extraordinary general meeting of the Company convened in respect of the
Proposed Acquisition (the "EGM") will continue to be held on 30 August
2012

The Sale

Overview

HEME, the Company and Genel entered into a sale and purchase agreement on 20 August 2012 (the "Sale Agreement") relating to the sale by HEME of a 26% interest in the Miran PSC and Miran JOA (the "Sale Assets") to Genel for cash consideration of $156 million. In accordance with the terms of the Sale Agreement the Sale will be deemed to have taken effect on 1 July 2012. Genel will therefore reimburse HEME for any expenditures made by HEME in respect of the Sale Assets between 1 July 2012 and 20 August 2012 resulting in an additional payment by Genel to HEME on completion of the Sale.

Following completion of the Sale, Heritage, through its interest in HEME, will hold a 49% interest in the Miran PSC and Genel will hold the remaining 51%. Pursuant to the terms of the Sale Agreement, Genel and HEME will act as joint operators in relation to the Miran Block, operating pursuant to an amended Miran JOA to reflect the new joint operatorship structure. As was the case previously, a 75% majority approval of the operating committee will be required with respect to any material decisions affecting the Miran joint operations. Therefore, each of HEME and Genel will retain control over such decisions with both parties having an effective veto right. Genel will have the right to appoint the general manager of the Miran joint operations.

Background

HEME was established by Heritage in 2007 to hold the Company's interest in the Miran PSC, which entered into a contract with the Kurdistan Regional Government (the "KRG") on 2 October 2007. Pursuant to the terms of the Miran PSC, Genel was nominated as the third-party participant in April 2009, with the effect that the interest of each of HEME and Genel in the Miran PSC became 75% and 25% respectively.

The Miran Block covers approximately 1,015 square kilometres and its eastern and western structures are the subject of exploration and development activities pursuant to the Miran PSC and Miran JOA. Heritage provides regular updates to the market in respect of the exploration and development of the Miran Block, which information can be found in consolidated form in respect of the last three financial years and in respect of the last financial year through to July 2012 in each of the Prospectus and the circular to shareholders published by the Company in connection with the Proposed Acquisition on 6 August 2012 (the "Circular").

Most recently:

-- the Miran West-3 well reached the primary target of the Jurassic gas
reservoir and was successfully tested. The well is suspended pending
completion as a production well;
-- the Miran West-4 well commenced drilling in June 2012 to further
appraise the Upper Cretaceous oil reservoir and reached a target depth
of 1,905 metres. A maximum flow rate of oil of 1,350 bopd was achieved
in the one test undertaken, with oil quality similar to that found at
Miran West-1 and Miran West-3;
-- the Miran East-1 exploration well commenced drilling in March 2012 and
is currently at a depth of 3,700 metres and drilling through the main
Jurassic reservoir targets. Drilling is expected to complete in November
2012; and
-- fully processed 3D seismic across the Miran Block is available and
initial interpretation of the data has been completed. Planning and
development studies on the Miran Field and conceptual design studies on
a gas export pipeline are on-going.

Between October 2007 and 1 July 2012, the deemed effective date of the Sale, HEME has spent approximately $211 million in respect of the Miran PSC operations and, as the Miran Block operations are still in the exploration phase, no profits have been generated to date. The unaudited gross assets subject to the Sale are estimated at $74 million.

Rationale for the Sale

Heritage aims to generate growth in shareholder value through the development, production and acquisition of a portfolio of oil and gas interests and through effective portfolio management, including the use of industry farm-outs and realising value through asset disposals. The level of consideration is considered attractive and the rationale for the Sale underlines the Company's stated strategy of value creation and effective portfolio management. The reduction in HEME's funding obligations under the Miran JOA, following amendment as a result of the Sale, will allow the Company to continue to acquire and invest in, and subsequently explore and develop, oil and gas properties throughout the world with a focus on the Middle East and Africa.

Key Conditions of the Sale Agreement

Conditions for completion of the Sale include, amongst others: relevant approvals of the Sale being granted by the Minister of Natural Resources for the KRG and the Regional Council for the Oil and Gas Affairs of Kurdistan; the execution of an amendment and novation agreement in respect of the Miran PSC and the Sale Assets; obtaining written approval of the KRG and the Miran JOA operating committee to the appointment of Genel and HEME as joint operators and obtaining approvals of the Sale as required by the facilities agreement (the "Facilities Agreement") entered into by the Company and certain of its subsidiaries in respect of financing the Proposed Acquisition (as detailed in the Prospectus and the Circular issued on 6 August 2012 as well as the announcement issued by the Company on 29 June 2012).

Satisfaction of all conditions and completion of the Sale and draw down of the Loan is expected to occur on, or before, 22 August 2012.

The Exchangeable Loan

The Company, HEME, Heritage Oil and Gas Limited and Genel entered into a facility agreement in respect of the Loan on 20 August 2012 (the "Loan Agreement"), whereby Genel agreed to loan Heritage $294 million at an interest rate of 8% (subject to adjustment) for a fixed term ending on the date which is the earlier of (i) 15 months after the date of the completion of the Proposed Acquisition and (ii) 6 February 2014 ("Repayment Date"). The full amount of the Loan, plus any interest accrued thereon, must be repaid by Heritage in full on the Repayment Date unless, prior to such date, the parties have elected, and Heritage shareholders have given approval, to repay the loan by way of a transfer of the entire issued share capital of HEME to Genel (the "Exchange Option").

The Exchange Option may be triggered at the election of either Heritage or Genel at any time during the period commencing on the date the Proposed Acquisition is completed and ending three months prior to the Repayment Date. If either party gives notice of its wish to exercise the Exchange Option, then following the delivery of such notice, Heritage will have 65 days in which to convene a general meeting of its shareholders to vote on the Exchange Option, which notice of meeting will be accompanied by a circular providing Heritage shareholders with additional information in respect of the Exchange Option.

The Company will be obliged to pay Genel a fee of $6.6 million and the interest rate applicable to the Loan will increase to 12% in the event that: (a) the Proposed Acquisition does not complete by 6 November 2012, subject to requirements under the listing rules of the Financial Services Authority which apply prior to Heritage's shareholders approving the Proposed Acquisition, in which case the fee will be payable and the interest will increase five days following 6 November 2012; or (b) either (i) the Exchange Option is not approved at the general meeting of the shareholders or (ii) Heritage fails to convene the general meeting of its shareholders to approve the Exchange Option and procure the transfer of the entire issued share capital of HEME within 65 days from the date the Exchange Option notice is served, in which case the fee will be payable and the interest will increase following the date of the general meeting at which shareholder approval is not obtained or on the date that is 65 days from the date the Exchange Option notice is served, as applicable. The Loan will be secured by a charge over the shares of HEME as well as a charge over the remaining assets of HEME and will be supported by a guarantee from the Company. Drawdown of the Loan in full is expected to occur on, or before, 22 August 2012.

Use of Proceeds

As a result of the Sale and the Loan the Company will have newly available funds totalling $450 million in aggregate (the "Proceeds"). If the Proposed Acquisition completes, Heritage intends to apply the Proceeds towards the cash consideration for the Proposed Acquisition and costs associated with the Proposed Acquisition as well as to fund continued exploration, appraisal and development of the Company's portfolio and general working capital. In the event that the Proposed Acquisition is not approved by shareholders, the current intention of the Company is to: (i) invest a portion of the Proceeds in furthering the Company's exploration and development campaigns across its licence areas, together with any relevant acquisitions and enhancements to its existing portfolio; (ii) cover any portion of the $85 million deposit paid in respect of the Proposed Acquisition that is non-refundable; and (iii) use the remaining portion to repay the Loan.

The Rights Issue and the Advanced Capital Raisings

Conditional upon receipt by the Company of Proceeds on or prior to 22 August 2012, the Proposed Rights Issue would no longer be required. In addition, none of the advanced capital raisings referred to in the announcement dated 6 August 2012 relating to the Proposed Rights Issue would, in such circumstances, be required at this time. If the Proceeds are not received on or prior to 22 August 2012, the Company intends to continue with the Proposed Rights Issue. Following completion of the Sale and drawdown of the Loan, the Company intends to publish a supplementary Prospectus and a supplementary Circular, expected on 23 August 2012. It is still intended that the EGM to approve the Proposed Acquisition will be held on 30 August 2012.

Tony Buckingham, Chief Executive Officer, commented:

"We believe this sale and loan financing crystallises significant value for shareholders, demonstrating our ability to invest in and monetise assets at an appropriate stage. The proceeds provide significant financial flexibility allowing us to fund the proposed acquisition of OML 30 without any rights issue or other additional capital requirement from, or potential dilution to, our existing shareholders."

Analyst Conference Call

There will be a conference call for analysts at 11:00am BST today to be hosted by Paul Atherton, Chief Financial Officer. For further information, contact Stephanie Power at FTI Consulting on + 44 (0) 20 7269 7277 or heritageoil.sc@fticonsulting.com.

Notes to Editors

-- Heritage is listed on the Main Market of the London Stock Exchange and
is a constituent of the FTSE 250 Index. The trading symbol is HOIL.
Heritage has a further listing on the Toronto Stock Exchange (TSX:HOC.TO - News).

-- Heritage is an independent upstream exploration and production company
engaged in the exploration for, and the development, production and
acquisition of, oil and gas in its core areas of Africa, the Middle East
and Russia.

-- Heritage has an exploration, appraisal and development asset in the
Kurdistan Region of Iraq, exploration assets in Malta, Tanzania,
Pakistan, Libya and the Democratic Republic of Congo and a producing
property in Russia.

-- Heritage Energy Middle East Limited, a wholly-owned subsidiary of
Heritage, is operator and until completion of the Sale described in this
announcement holds a 75% interest in the Miran Block and Genel Energy
International Limited holds the remaining 25%, subject to back-in rights
of the KRG upon commerciality. The Miran Block has an area of 1,015
square kilometres and is located west of the city of Suleimaniah.

-- All dollars are US$ unless otherwise stated.

-- For further information please refer to our website,
www.heritageoilplc.com.

This press release is not for distribution to United States Newswire Services or for dissemination in the United States.

J.P. Morgan Limited, which conducts its UK investment banking business as J.P. Morgan Cazenove and is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as Sole Financial Adviser to Heritage and for no one else in connection with the Proposed Acquisition only and will not be responsible to anyone other than Heritage for providing the protections afforded to its clients nor for providing advice in relation to the matters set out in this announcement.

J.P. Morgan Securities plc, which conducts its UK investment banking business as J.P. Morgan Cazenove and is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as Sole Sponsor to Heritage in connection with the Proposed Acquisition and Proposed Rights Issue only, and Joint Global Coordinator, Joint Bookrunner and Underwriter in connection with the Proposed Rights Issue and any other advanced capital raising as set out in the announcement of 6 August to Heritage and for no one else and will not be responsible to anyone other than Heritage for providing the protections afforded to its clients nor for providing advice in relation to such matters or any other matters set out in this announcement. For the purposes of this announcement, references to "J.P. Morgan Cazenove" are to both J.P. Morgan Limited and/or J.P. Morgan Securities plc, as appropriate.

If you would prefer to receive press releases via email please contact Jeanny So (jeanny@chfir.com) and specify "Heritage press releases" in the subject line.

Certain information in this announcement is based on management estimates. Such estimates have been made in good faith and represent the genuine belief of applicable members of management. Those management members believe that such estimates are founded on reasonable grounds. However, by their nature, estimates may not be correct or complete. Accordingly, no representation or warranty (express or implied) is given that such estimates are correct or complete. No representation or warranty (express or implied) is given that such estimates are so founded. None of the Company, J.P. Morgan Cazenove, Standard Bank Group or Canaccord undertake any obligation to correct or complete any estimate whether as a result of being aware of information (new or otherwise), future events or otherwise.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION:

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements include, but are not limited to, statements with regard to the outcome of the Proposed Acquisition, Sale, Loan, future production and grades, projections for sales growth, estimated revenues, reserves and resources, targets for cost savings, the construction cost of new projects, the timing and outcome of exploration projects and drilling programmes, projected capital expenditures, the timing of new projects, future cash flow and debt levels, the outlook for the prices of hydrocarbons, the integration of acquisitions, the outlook for economic recovery and trends in the trading environment, statements about strategies, cost synergies, revenue benefits or integration costs and production capacity and future production levels and timing, and may be (but are not necessarily) identified by the use of words such as "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "aims", "plans", "predicts", "continues", "assumes", "positioned", "will", or "should" and other similar expressions that are predictions of or indicate future events and future trends or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations. An investor should not place undue reliance on forward-looking statements because, by their nature, they involve known and unknown risks, uncertainties and other factors and relate to events and depend on circumstances that may or may not occur in the future that are in many cases beyond the control of the Company. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. In particular, there is no assurance that the conditions precedent to completion of the Acquisition or the Sale, or to drawdown of the Loan, will be satisfied or waived and the Company may not realise the anticipated benefits, operational and other synergies and/or cost savings from the Proposed Acquisition, the Sale or the Loan.

Any forward-looking statements in this announcement reflect the Company's view with respect to future events as at the date of this announcement and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth strategy and liquidity. None of the Company, J.P. Morgan Cazenove, Standard Bank Group or Canaccord undertake any obligation publicly to release the results of any revisions or up-dates to any forward-looking statements in this announcement that may occur due to any change in its expectations or to reflect events or circumstances after the date of this announcement.

Subject to certain exceptions, neither this announcement nor any copy of it may be taken or transmitted into the United States of America, its territories or possessions or distributed, directly or indirectly, in or into the United States of America, its territories or possessions. Neither this announcement nor any copy of it may be taken or transmitted into any other jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction or to any securities analyst or other person in any of those jurisdictions. Any failure to comply with this restriction may constitute a violation of United States or other applicable securities law. The distribution of this announcement in other jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. This announcement does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States. The securities referred to herein have not been and will not be registered under the US Securities Act of 1933 (the "Securities Act"), and may not be offered or sold in the United States absent an exemption from, or in a transaction not subject to the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of any securities of Heritage in the United States. The securities referred to herein have not been and will not be registered under the applicable securities laws of any other restricted jurisdiction and, subject to certain exceptions, may not be offered or sold within any jurisdiction where to do so would constitute a violation of the relevant laws or to any national, resident or citizen of such jurisdiction.

This announcement constitutes an advertisement within the meaning of the Prospectus Rules of the United Kingdom Financial Services Authority and is not a prospectus and has been prepared solely in connection with the Proposed Acquisition. Copies of the Circular and Prospectus are available from the Company's registered office and from 34 Park Street, London, W1K 2JD and are available for viewing on the Company's website at www.heritageoilplc.com.

Important Information

This announcement does not constitute an offer to sell, or the solicitation of an offer to buy, exchange, or transfer any securities of Heritage. The value of the ordinary shares of Heritage and the exchangeable shares of Heritage Oil Corporation exchangeable into ordinary shares of Heritage can go down as well as up and past performance cannot be relied on as a guide to future performance.

Contacts

Tony Buckingham
Heritage Oil Plc
CEO
+44 (0) 1534 835 400

Paul Atherton
Heritage Oil Plc
CFO
+44 (0) 1534 835 400
info@heritageoilplc.com

Tanya Clarke
Heritage Oil Plc
Investor Relations
+44 (0) 20 7518 0827

Claire Harrison
Heritage Oil Plc
Investor Relations
+44 (0) 20 7518 0827
ir@heritageoilplc.com
www.heritageoilplc.com

Global Coordinator and Joint Bookrunner in respect of the
Sole Financial Adviser, Sole Sponsor, Joint Global
Proposed Acquisition and Proposed Rights Issue
J.P. Morgan Cazenove
Barry Weir / James Taylor / Neil Haycock
+44 (0) 20 7742 4000

Global Coordinator and Joint Bookrunner in respect of the
Financial Adviser in connection with the Sale and Joint
Proposed Rights Issue
Standard Bank Group
Roger Brown / Simon Matthews / Donald Hultman
+44 (0) 20 3145 5000

Canaccord Genuity Limited
Lead Manager in respect of the Proposed Rights Issue
Giles Fitzpatrick / Tim Hoare / Rob Collins / Tarica Mpinga
+44 (0) 20 7523 8103

John Waples / Ben Brewerton
Media Enquiries
+44 (0) 20 7831 3113
heritageoil.sc@fticonsulting.com

Cathy Hume
Canada
+1 416 868 1079 x231
cathy@chfir.com

Jeanny So
Canada
+1 416 868 1079 x225
jeanny@chfir.com