Thursday, 23 June 2011

Border dispute blocks Heritage's progress in Malta

Heritage's Area 7 is claimed by Libya and Malta

Border disputes got the attention of UBS this week, as it cuts its stock price target for Heritage Oil in a research note on Tuesday 21st June due to the continuing border dispute between Malta and Libya.

Heritage Oil, which operates Area 2 and Area 7 in the waters lying south of Malta, is contractually obliged to drill at least one well by the end of 2011, however this is looking unlikely as ownership over Area 7 continues to be disputed.

UBS's research note said “As the Libyan crisis shows little sign of abating we view it as unlikely the company can resume discussion between the two countries in the near term, and therefore assume a low probability that Heritage will drill in the next 12 months.”

The border dispute between Malta and Libya dates back to 1974, when Valetta awarded Texaco four blocks that lay north of the median line between Malta and Libya. When Texaco spudded their first well in 1980, Tripoli sent in a gunboat, and forced exploration activities to a halt.

The dispute was taken to the International Court of Justice (ICJ) in 1982 and in 1985 it was decided that the border would lie 18' north of the median line in order to take into account the disparity in length of Libya and Malta's coastlines.

While both sides accepted the agreement, it only applied to a narrow strip of water and so border disputes have continued since. Area 7 lies to the east and south of the designated border, and as such, Libya considers it to be in its territory.

Soon after Heritage received the block in 2008, Libya's then National Oil Company head, Dr Shukri Ghanem sent a letter to Heritage's CEO Tony Buckingham, informing him that Area Seven lies within the Libyan continental shelf and was under contract with the Sirte Gulf Oil Company.

The dispute has not progressed since, and with civil war in Libya continuing, it is unlikely to get much attention anytime soon. As such, UBS decided Heritage was unlikely to drill within the next year and so removed the Malta prospect from their net asset value assessment for Heritage, which resulted in a stock target price of 230p, down from 280p.

Heritage released an operational update on 20th June, in which it said, “a seismic vessel has been mobilised to start acquisition of a 1,400 kilometre 2D seismic survey in Area 7 over the large Caravaggio target. Acquisition is expected to begin within two weeks. Processing and interpretation of this date, during the second half of 2011, will help define a precise drilling location.”

Sources: Citywire, Dow Jones, Heritage Oil, the Independent, Malta Today

For more information, please see the Menas Borders website, here.

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