Late last week I wrote about a new teaser from the Phase 1 newsletter at Stansberry & Associates — as far as these things go it’s actually a relatively low-hype, fact-based teaser ad, since there’s a pretty big fundamental argument in favor of anyone who can profit from Iraq’s oil reserves (as well as lots and lots and lots of risks, of course).

So we sniffed out the oil services half of that teaser, which I determined must be a company with a big binary risk — either it gets its joint venture agreement with the Iraqi Drilling Company, or it doesn’t … if it does, the stock should go up smartly; if it doesn’t, no one’s likely to be excited about these shares at all. You can read that writeup here, it also includes some of the broader Iraq big picture stuff.

But there was a second company teased as well — not a service company, but an actual oil company that’s already on the ground in Iraq. There were several folks throwing out the same answer in the comments last week, and I expect they’re probably right (and it’s a company I’ve written about before), but let’s go through the clues to make sure …

“$8 Company Strikes Largest Oil Field In Northern Iraq

“Many oil companies are trying to get into Iraq today, but only a few actually had the guts to set up shop there in 2003 prior to the U.S. invasion.

“And one of these companies, which arrived that year, is an independent oil explorer that is now sitting on the largest oil find to date in the Kurdish region of Iraq. Today, the company still trades at less than $10 a share.

“According to official estimates this field holds 2.3 billion to 4.2 billion barrels of oil.

“In an effort to fast-track development, this company is even merging with a private oil company to start production within the next five months.”

Sounds impressive, no? They also make an argument that the company is dirt cheap — based, I assume on their price relative to their reserves.

“Consider that if this company were valued using similar metrics to the big oil companies in North America, it would be worth $40 billion… nearly 20-times this company’s market cap.

“And this first giant discovery is just the beginning.

“This very savvy company also owns parts of six other oil fields in Iraq, two of which are already in production. Together, these fields could hold over 6.2 billion barrels of oil.

“The point is, we don’t have to try to guess WHICH company is going to own the first big new oil field in Iraq. It’s already been decided… and we can take full advantage of the situation with a tiny penny stock today. ”

OK, so it’s certainly a stretch to call this a penny stock, in my mind, but this is indeed …

Heritage Oil (HOC in Toronto, HOIL in London, HGOCF on the pink sheets)

Heritage is a diversified oil company that’s on the verge of going from explorer to producer in a significant way, though they do already produce a small amount of oil from their properties in Russia. Their main focus is on Uganda, where they’ve discovered a big field and have some other properties that seem to be impressive enough to build up an oil infrastructure in that country, and in Kurdistan, Northern Iraq, where they have found one potentially large field and are planning to merge with another local producer.

Iraq is the one that gets people excited here, and their Miran West field is the one that has that potential of 2.3 to 4.2 million barrels (according to them and their recent exploratory drilling), though Uganda sounds like it’s a little further along. You can see the information about their Iraq holdings here, and about Uganda here. Uganda oil export could start as soon as 2011 using rail transport, or 2013 or 2014 if a pipeline is built; their major Kurdistan field, Miran West, could possibly start a small amount of production by the end of this year with truck transport.

The big deal that they’ve proposed is basically a merger of equals with Genel Energy, a Turkish company which owns some properties in Kurdistan and working interests in two fields that are already producing, including Taq Taq. This will create (assuming it goes through) a very large company in the region, with possible production of over 40,000 bbl/d by the end of the year from Kurdistan. And it would also create a much bigger company — Genel is private, so Heritage would essentially be doubling its share count and Genel’s owners would own half of the new Heritage (which they plan to change to HeritaGE) … in effect, it’s technically a reverse takeover of Heritage by Genel.

And when I say that I don’t consider this a penny stock, that’s because it’s nearly a midcap company now by many measures, and will probably be considered one by most people if the merger goes through — it has a market cap of better than 1.5 billion pounds, which at the current rate is about $2.5 billion, so after the merger it would be in the neighborhood of a $5 billion company. It may well be undervalued based on the prospective reserves, though those are still really being explored in many cases, but it’s not what I’d call a penny stock or an undiscovered gem, this is one of the biggest exploration and production oil companies in London and, after the reverse takeover/merger, may well make it into the FTSE 100.

Heritage is an interesting company, and it may well become a world-beater if it develops a strong foothold in those big Kurdistan oil fields and manages to avoid falling prey to the corruption or shifting political tides in the region — after all, their half-owner would be Turkish, and among Iraq, Kurdistan and Turkey one might expect some real tension to persist for many years to come. As of 2008 they were certainly not profitable, but they are increasing production quickly at their operating fields, and Uganda and Miran West certainly should keep them in silk ties for a long time … throw in the bonus oil fields they’re exploring around the world, from Malta to Mali, and from Pakistan to Tanzania, and there may well be an oil major developing here if they play their cards right.

I’d still call this one very speculative, given the nature of this big corporate transaction, but I like the big insider ownership and I would like Heritage better if the deal went through — Uganda’s oil territory sounds nice, but Kurdistan is where the real action is right now, and Genel has an impressive history in the region and a nice share of the oil that has just started to be exported from Northern Iraq this Summer. The attention has been strong for this one and optimism about oil prices has returned, so while you could have bought shares for less than $7 back in April, when I wrote about Heritage for a Crisis Trader teaser, they will currently set you back about $9.