Encore Oil aims to 'look tasty' to lure oil-hungry buyer

ENCORE Oil, the exploration firm behind potentially the largest North Sea find in a decade, is likely to be put up for sale within a year, though analysts believe it may be too early to attract a buyer.

Alan Booth, the chief executive, who owns 2.8 per cent of the firm, currently valued at 260m, said the directors were "trying to make ourselves look tasty to get eaten".

"Whether we are going to be here in another year is another matter," said Booth. "What we have found is pretty significant. It is likely another company will see it as significant too and as more appropriate for their portfolio."

He said the firm had worked to ensure the City was aware of the board's "fairly frank views" that "everything is available at the right price". He said: "The investment community in the City has now started to understand that this is the case."

Encore announced in June it had found a "significant" discovery, the Catcher field, which analysts estimated could provide 300 million barrels of light recoverable crude oil.

The find was compared to Buzzard, a discovery in 2001 which is estimated to hold 550 million barrels. Booth, along with his team at Encore including operations director Graham Dor and finance director Eugene Whyms, had previously run EnCana UK, the business which discovered Buzzard.

Last month, Encore announced an "exceptional result" on tests at Cladhan. Since June, the firm's share price has more than trebled but analysts believe it is too early for a bid.Nathan Piper, director of oil and gas research at RBC Capital Markets, said: "The problem is we don't quite know what they have got yet. All the signs are encouraging and that is why the stock price has rallied. We find the stock market tends to overpay through he exploration phase. Industry would currently pay a much lower price for Encore than the stock market value.

"But as they drill more wells and show what they have got, the gap would reduce. I don't think anyone knows enough about Cladhan and Catcher for industry to give the offer Encore would like to see. It's too early for a bid in our view."

The firm expects to begin drilling Catcher in October subject to regulatory approvals. He admits the firm has to be "extra diligent" in its approach to drilling as the Health and Safety Executive tightens rules following the Gulf of Mexico disaster.

Encore has not yet actively contacted potential buyers but Booth expects that a shortage of good quality North Sea development projects and an "appetite for exploration" among investors will raise the firm's appeal among suitors.

Although prospects for Catcher have raised expectation that the North Sea will extend its productive life, Booth says the number of explorers will decline as they face tighter fiscal requirements expected by government. "Unfortunately it is the nature of the game that a lot of companies came in under-capitalised and now no more than a handful of small cap companies will be there and by this time next year there will be even fewer."