Costly case of mistaken identity

“THERE’S a whole ocean of oil under our feet! No one can get at it except for me!” So screams Daniel Day Lewis as Plainview in Paul Thomas Anderson’s film There Will be Blood. Until yesterday, Heritage was on the verge of a similarly huge find in the semi-autonomous Iraqi region of Kurdistan.

Heritage did find something, but it wasn’t an ocean of oil. Instead, the company has stumbled on one of Iraq’s biggest gas fields. Investors, who had piled into the stock on the expectation of striking crude, have left in their droves.

At first glance, it’s not clear why finding so much gas is necessarily bad news, but it is. It is hard to monetise a gas discovery in Kurdistan, which has strict rules on exports and quotas for domestic gas needs – even harder for an oil company. House broker JP Morgan has cut its net asset value from 542p to 381p.

If Heritage doesn’t want to monetise the gas itself, it could sell the asset to a more suitable company, although analysts – and the market– clearly think it isn’t worth much.

Having lost so much of its market value after yesterday’s shock news, Heritage is looking increasingly vulnerable to predators. Central European gas group OMV is tipped as a potential bidder, as is Hungarian MOL. Both serve markets that want to lessen their reliance on Russian gas.

As Plainview found out to his eternal cost, oil exploration is an unpredictable game.