Heritage’s Genel purchase runs into hurdle

Heritage Oil, the U.K. explorer buying Turkey’s Genel Energy International, said the takeover is being delayed by the formation of a new regional government in northern Iraq, where the companies operate.

Heritage aims to sign an implementation agreement with Genel and publish a prospectus by the end of the year, the St. Helier, Jersey-based company said on Monday in a statement. In June, Heritage had said it hoped to wrap up the deal before October.

“We remain committed to the Genel Energy merger,” Chief Executive Officer Tony Buckingham said in the statement. The 1.52 billion-pound ($2.47 billion) purchase would create the biggest oil producer in northern Iraq.

After winning regional parliamentary elections in July, the Patriotic Union of Kurdistan, or PUK, led by Jalal Talabani, said it would form a new government with the Kurdistan Democratic Party, or KDP, led by Massoud Barzani. The creation of a regional government, as well as the appointment of oil and gas committees, is likely to continue until early November, Heritage said.

Heritage shares were trading at 514 pence at noon on Tuesday, having gained 140 percent since Jan. 1. The stock has lost 7.6 percent since Oct. 14.

The autonomous region’s oil exports, which started in June, have been hampered as the regional and central governments dispute arrangements for paying international producers. Exports are sent through pipelines run by the federal government and revenue from the sales flows to state coffers.

As of Oct. 14, all production from Genel’s Taq Taq oil field has been diverted to the Iraqi market, Heritage said on Monday, citing Genel. The Turkish company hasn’t been paid for exports to date and has stopped sending oil overseas until a profit-sharing agreement is in place, the explorer said.

Legislation that would establish how oil revenue is shared between the central government and provincial administrations, including that of the Iraqi Kurds, has been held up in the Baghdad parliament as the country prepares for January elections.

The Kurds and the central government, led by Prime Minister Nuri al-Maliki, are at loggerheads over the final borders of the Kurds’ self-rule region. The Kurds are seeking to annex parts of four provinces to the south that they say make up part of their traditional homeland, including a section of Kirkuk province, the oil hub of Iraq’s north.

An investigation by the U.K.’s Financial Services Authority that may prevent some of Genel’s managers from taking roles in the merged entity remains open, the company said. The delay in publishing a prospectus is unrelated to the FSA inquiry.