OIL explorer Cairn Energy unveiled a $450 million (£280m) acquisition of Agora Oil & Gas to boost its drilling activity in Britain and Norway and reduce its exposure to high risk activities on Tuesday.
The deal follows the $1.2 billion the company has spent drilling in Greenland over the past two years. Despite that outlay, it has failed to strike oil and has mustered opposition from environmentalists.
The Agora sale price is made up of an enterprise value of $375m and net working capital of $75m. Agora is based in Stavanger in Norway and its shareholders will receive the payment in a combination of 43 per cent cash and 57 per cent in Cairn shares.
It is owned by investment trust RIT Capital Partners, Lord Rothschild’s family interests and the oil group’s management and staff. The acquisition includes Agora’s 15 per cent stake in the Catcher area and a 20 per cent interest in the Tybalt discovery, both of which have further drilling programmes planned this year. Cairn chairman and founder Sir Bill Gammell hinted at more acquisitions to accelerate its recently announced strategy.
Simon Thomson, Cairn’s chief executive, said: “This is an important first step in establishing balance in the Cairn portfolio. This acquisition secures a building block in areas where we see the opportunity to build cashflow from near-term, lower risk exploration, development or producing properties.
“Agora possesses attractive core assets and significant exploration potential both in 2012 and beyond in an area offering future organic growth.”
Analysts said Cairn had resources for further purchases, with $1.2bn in cash available, even after returning $3.5bn to shareholders earlier this year.
The group could also raise additional funds by selling its remaining 22 per cent stake in its Cairn India business, whose value the board estimated at $2.9bn when it posted results last month.
Liberum Capital analyst Andrew Whittock said the Agora deal would rebalance Cairn’s portfolio away from high-risk exploration “but the price looks full”.