The UK’s Heritage Oil has cancelled its proposed merger with Turkey’s Genel Energy International which would have created the largest oil exploration firm working in the Kurdistan region of Iraq.

Heritage says the deal was cancelled because of concerns over payment mechanisms in Kurdistan and the sale of its two oil blocks in Uganda to Italian oil major Eni.

“Following entry into the letter of intent with Eni, and in light of the continuing situation in Kurdistan where, in particular, the revenue payment mechanism for oil exports has not yet been established, discussions with Genel have been terminated,” says Heritage Oil.

Heritage was to issue 260 million new shares to investors in Genel, giving both sides 50 per cent of the enlarged company. The firm was would have been rebranded as Heritage Oil.

The two companies are already collaborating over developing the Miran West Block in Kurdistan.