Dana sale to spur flurry of energy takeover moves

THE fall of Dana Petroleum is expected to spark further consolidation in the oil and gas sector as cash-rich companies hunt for acquisitions, with Faroe Petroleum a likely candidate to attract bidders.

Callum D'Ath, senior divisional director for Brewin Dolphin in Scotland, said: "There are plenty of companies out there with lots of cash on their balance sheets but they are not getting much return and are looking to buy businesses."

He referred to BHP Billiton's recent bid for Potash Corp as an example of a company looking to put its cash pile to good use. "There is evidence of it happening in other sectors but to date the oil and gas sector hasn't seen much consolidation and I believe it is ripe for it."

D'Ath argues the Korea National Oil Corporation's acquisition of Dana highlights the attraction of oil and gas firms, particularly to potential buyers from the East.

"The likes of the Koreans and the Chinese are keen on acquiring energy and raw material assets but are also looking to diversify away from holding US government bonds given concerns about the US economy."

KNOC's victory has raised speculation around the future of Faroe Petroleum, the Aberdeen-based explorer in which Dana owns a 27.5 per cent stake. On Friday shares in the company reached record levels following KNOC's announcement. They have now almost doubled in the past year, taking its market value to just over 340m.

Although Faroe's chief executive Graeme Stewart has played down talk of a possible bid from KNOC, analysts believe the company could offload its stake to another potential buyer.

"I think KNOC are more interested in production and have targets to achieve on that," said one analyst. "Faroe is much more of an exploration company and given that, the Koreans may not be interested. They could look to just sell the stake to someone who is or retain it as a strategic long term holding."

KNOC's takeover of Dana is the first time an Asian state-owned company has ever proceeded with an unsolicited bid for a business and it is thought its success could encourage others to take a more aggressive approach to acquisitions in future.

The Dana deal, KNOC's largest since buying Canadian group Harvest Energy for $1.7 billion last October, will also help bolster KNOC's standing as a serious buyer following an earlier series of failed bids. China's largest oil refiner, Sinopec, outbid it for London-listed Addax Petroleum in 2009 and Italian group ENI edged it out of the fight for Burren Energy in 2007.

Dana's board had maintained that the company was worth more than the Koreans were willing to pay but eventually conceded defeat after KNOC announced it had control of 64 per cent of the shares. Dana chairman Colin Goodall stressed Dana "would have continued to grow strongly as an oil and gas independent" and paid tribute to the achievements of the company under chief executive Tom Cross.