OIl company Cairn Energy has unveiled a £414 million cash bid for Nautical Petroleum, its second swoop this year on an explorer focused on the North Sea.
The company acquired Norway-based Agora Oil & Gas for $450m (£289.1m) in April and yesterday’s move was seen as a further rebalancing of its portfolio between projects soon to become oil producing with its high risk exploratory assets, such as those in Greenland.
Cairn’s 450p per share bid for Nautical represents a 51.1 per cent premium on the closing price on Tuesday.
Analysts speculated that Cairn’s offer could spark a bidding war with other oil firms such as Enquest, Wintershall or Premier Oil, which operates the important Catcher field in the North Sea. Cairn’s acquisition of Nautical would boost its access to Catcher as well as other assets such as Kraken, another large, North Sea oil development project.
Werner Riding at brokers Peel Hunt said that Cairn’s bid represented good value, estimating that it valued Nautical’s reserves at $7.70 per barrel (bbl), but that these were set to be re-rated to between $12 and $20 bbl.
In a note he said: “In our view there remains clear valuation upside,” adding that “we believe there is reasonable possibility of a counter offer in the coming weeks”.
Cairn, however, sits in good position to acquire Nautical. It said it has already secured acceptances from investors owning 27.25 per cent of Nautical shares. The board of Nautical, which listed on the London Stock Exchange in 2005, has unanimously recommended the proposed offer.
Simon Thomson, chief executive of Cairn, insisted the deal “in no way diminishes our enthusiasm for Greenland”.
Last year the firm spent $1.2bn and abandoned eight wells off the coast of Greenland, opting instead to farm-out exploration in the region to oil giant Statoil.
If the deal goes ahead, Cairn will have spent $1bn out of the $1.2bn cash pile it set aside for acquisitions after disposing of part of its stake in its Indian business last year.
The deal, which is expected to complete in August barring any rival bids, will boost Cairn’s access to the important Catcher discovery to 30 per cent.
Thomson said: “For us Nautical is a perfect strategic fit. There is shared ownership in one of the key assets. It gives us critical mass in the North Sea and in that asset holding and provides an engine room for growth in the future by delivering in the relatively near term sustainable cash flow to fund both growth in that lower risk side of the portfolio but also, very importantly, to fund our transformational exploration that we will continue to offer shareholders whether in Greenland, Spain or if we are successful, in Cyprus.”
Catcher was discovered in 2010 and was hailed as the biggest North Sea find since the Buzzard reservoir in 2001. Initial estimates suggested it could hold more than 300 million barrels of oil, with the first oil expected to flow from the development by 2015.
Premier Oil, the project leader on the Catcher development, estimated the cost of bringing Catcher onstream at between $1.6bn and $2.8bn.
Shares in Cairn Enery closed down slightly at 290p.
£414m bid for Nautical follows £289m acquisition of Agora
Between £1bn and £1.8bn – estimated cost of bringing Catcher field onstream
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