Why Shares In Heritage Oil PLC Jumped

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

Oil well

What: Shares in Heritage Oil (LSE: HOIL) sprinted 10% to 232p during early trade, making it the biggest riser on the FTSE All-Share. The oil and gas explorer, with operations in Africa, the Middle East and Russia, successfully concluded tax rebate negotiations in Nigeria that may reduce the firm’s 2013 tax liability, paving the way for dividend payments.

So what: The company also updated investors on the performance of its OML 30 licence in Nigeria.

This time last year Heritage was forced to defend its $850m investment in Nigeria following output falls amid strikes and mechanical failures. A production target of 150,000 barrels a day — to be reached in 2018 — appeared optimistic six months on as gross production lagged targets at 20,000 barrels.

So far in 2014, production is 17% higher than in the three months ended 31 December. Further increases in production are expected to be met through mechanical improvements, such as the installation of gas compressors and refurbishment of equipment.

Now what: Since the companies inception it hasn’t paid a dividend, but the chief executive, Tony Buckingham, indicated income payments may be on the cards:

“OML 30 operations are progressing in line with expectations, providing significant revenues and cash flow to Heritage which should enable the Company to achieve its goal of paying a sustainable dividend stream to shareholders. Our interest in OML 30 will be used as a platform to grow and obtain additional interests in Nigeria and in other core areas.”

The aforementioned tax rebate may have saved the firm around $190m in cash, and we should see the benefits of this in the firm’s upcoming year-end results.

Heritage Oil has a market cap of £580m and presently trades at 24 times earnings.

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> Mark does not own shares in Heritage Oil.