UK-based oil explorer Heritage Oil said on Tuesday it had agreed to merge with Genel Energy International, a unit of Turkey's Cukurova Group, to create an oil producer focused on Iraqi Kurdistan worth around $5.5 billion.

Heritage's founder and chief executive, former mercenary Tony Buckingham, is betting that years of wrangling between Baghdad and Kurdish leaders over oil revenue sharing is nearly over, enabling Genel's producing fields to fund his undeveloped assets.

Heritage said the deal, which is currently non-binding, would be structured as a takeover of Genel by Heritage.

Heritage will pay with shares and Cukurova, controlled by one of Turkey's richest men, Mehmet Emin Karamehmet, will end up with around 50 percent of the enlarged group.

Heritage's shares, which were suspended last week after the company said it was in merger talks, were up 4.1 percent at 609-1/2 pence at 1045 GMT, valuing the company at around $2.5 billion.

The shares have tripled in value since the beginning of the year on a big oil find in Kurdistan and positive drilling results at its Ugandan fields.

Genel is worth around $3.3-3.6 billion, Heritage Chief Financial Officer Paul Atherton told reporters on a conference call, adding he expects the enlarged group to be included in the FTSE 100 index of the UK's largest listed companies.

'We consider that this acquisition can transform Heritage into being a regional player,' he said.-Reuters