UPDATE 2-Kurdistan to take stake in merged Heritage/Genel

* Kurdistan govt to acquire about 17 pct of merged firm

* Heritage to issue 286.3 mln shares vs proposed 260 mln

* Genel shareholders to hold about 33 pct of enlarged co

(Adds comments from Genel and analyst, updates share price)

By Julie Crust

LONDON, Aug 4 (Reuters) - UK-based oil explorer Heritage Oil Plc HOIL.L said the Kurdistan Regional Government (KRG) will acquire about 17 percent of the enlarged company to be created by the proposed merger with Genel Energy International Ltd.

Heritage said on Tuesday it will issue 286.3 million shares, or about 50 percent of the company as enlarged by the planned acquisition, to acquire Genel.

In June, Heritage said it agreed to merge with Genel, a unit of Turkey’s Cukurova Group [CUKRO.UL], to create an oil producer focused on Iraqi Kurdistan worth around $5.5 billion. [ID:nL9405539]

Genel Energy Chief Executive Mehmet Sepil, who will become CEO of the merged company, said the company agreed with Heritage to raise the number of shares to be issued from the previously announced 260 million.

The KRG will receive a total of 96.0 million shares to extinguish Genel’s previously announced $1.1 billion infrastructure projects liability in Kurdistan. The KRG said it intends to be a long-term shareholder in the merged group.

Shares in Heritage rose as much as 5.7 percent before paring gains to trade up 0.3 percent at 557 pence at 1002 GMT.

“Heritage’s update on the proposed merger with Turkey’s Genel Energy shows that the deal is moving ahead with the key issue of Genel’s $1.1 bln liability with the KRG now resolved,” said Richard Griffith, analyst at Evolution Securities.

“More good news could follow in the next couple of weeks with the result of the Miran West-1 flow test,” he added.

Heritage has two main assets: stakes in oil blocks in Uganda, which it believes contain hundreds of millions of barrels of oil, and a controlling stake in the Miran block in Kurdistan.

Genel shareholders will acquire the remaining 190.3 million shares to be issued, giving them about 33 percent of the enlarged company.

Heritage plans to hold an extraordinary general meeting in September when shareholders will be asked to approve the transaction. (Additional reporting by Ercan Ersoy; Editing by Lorraine Turner and Hans Peters)