Heritage Oil, the explorer founded and led by Tony Buckingham, a former mercenary, has received a takeover approach.

Shares in the company were suspended as it announced that it was in "preliminary discussions with a third party".

It said the talks centred on a possible merger that would be treated as a reverse takeover.

Likely candidates include a large oil company, such as BP or Shell, although other possible contenders include Tullow Oil, the group's FTSE 250 peer, and Chinese state players such as, CNOOC.

Heritage emphasised that no agreement had been reached, but Mr Buckingham, the chief executive, who holds 33 per cent of the company, is thought to have been looking for an exit.

Last month, shares in Heritage closed up 24.9 per cent at 500p, a record high, after it made a huge oil discovery in the Kurdish region of Iraq.

Heritage said that tests completed on a well drilled in its Miran West concession revealed reserves of between 2.3 billion and 4.2 billion barrels.

The company estimates between 50 per cent and 70 per cent of the oil is recoverable, suggesting that at least one billion barrels can be brought to the surface.

Analysts concluded the find would transform the fortunes of Heritage just as Rajasthani oil made the fortune of Cairn Energy and Ghana did for Tullow.

Heritage, which at last night's close had a market capitalisation of £1.4 billion, was in talks last September to dipose of certain assets. However, the talks were terminated.

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