Morning Equity Briefing
Dana Petroleum Plc
(DNX LN)
Buys more North Sea assets from Petro Canada
Job Langbroek
| Closing Price: | 1808p | Rating: | Neutral | 15/07/10 |
FACTS: Dana has announced (September 8th) the acquisition of 33.5m proven and probable barrels from Petro Canada UK Limited for £240m. The purchase adds another eight fields to Dana's portfolio and will bring its exit production to c.70,000 barrels of oil per day by the end of the year. The assets acquired include £60m of capital allowances.
ANALYSIS: The deal follows the purchase of a similar amount of reserves and resources, also from Suncor, located in the Dutch sector of the North Sea in June this year. The purchase price of just over $11 per proven and probable barrel is reasonable, especially in light of location and attached tax allowances. It also matures the group's production profile with politically acceptable reserves and resources. In short, it is exactly the kind of package that might be attractive to KNOC in its quest to secure oil reserves and production. The purchase is predominately oil-based and according to guidance, will be earnings accretive almost immediately. The deal will be financed through debt available under the group's new $900m facility in addition to a $300m extension. Interestingly, there are pre-emption rights over one-third of the current assets being purchased.
DAVY VIEW: The deal was undoubtedly made with the defence of the KNOC bid in mind. The argument will be that KNOC should pay for the additional value created. Dana will point to the report by an independent expert which values the purchased proven and probable assets at £368m, £128m (or 140p per Dana share) above the price paid by Dana. The deal is well pitched in that it gives KNOC an opportunity to increase its offer without being seen to change its mind on its former 'not a penny more' position. However, we suspect that the Dana acquisition will complete either way.