Ithaca to double production after £203m Valiant deal

North Sea focused driller Ithaca Energy yesterday unveiled plans to buy rival Valiant Petroleum for £203m in cash and shares in a move that will double its oil production to around 15,000 barrels a day.

The deal, backed by Valiant’s board, also brings Ithaca significant tax advantages and 19 million barrels of proven reserves of oil.

Aberdeen-based Ithaca, which is listed in London and Toronto, specialises in appraisal and development rather than exploration. The company, headed by chief executive Iain McKendrick, said the acquisition would be “highly accretive” and a good strategic fit because it left it with a better balance of producing assets compared to those still in development.

Valiant, chaired by Kevin Lyon, former head of venture capital company 3i in Scotland, was formed in 2004 to develop assets in the northern North Sea.

Ithaca chairman Jack Lee said: “This proposed acquisition represents a significant step forward in the execution of Ithaca’s strategy to build a highly profitable, 25,000 barrels a day North Sea oil and gas company.

“The combined assets of the two groups have a strong strategic fit, with the acquisition materially increasing and broadening Ithaca’s producing asset base and reserves portfolio.”

He said the “highly cash generative” nature of the enlarged portfolio and further enhancement of Ithaca’s financial strength provided “an exciting springboard” from which to continue growing the business.

However, analysts pointed out that Ithaca had paid a hefty price for Valiant, which effectively put itself up for sale in September when it announced a strategic review.

The company apparently found few suitors and saw its shares slump in the intervening months. Yesterday’s offer is a 37 per cent premium on Thursday’s closing price but just 3 per cent above Valiant’s market value when it launched last year’s review. Ithaca’s shares fell after it announced its bid.

Ian McLelland, analyst at Edison Investment Research, said: “More than anything else, Ithaca’s full-price offer for Valiant smacks of being a defensive move to fend off unwanted approaches in what remains an extremely active North Sea M&A market.”

He said the price was “a hefty sum” for Valiant’s reserves and the market had reacted accordingly.

But he added: “Price apart, in terms of the longer-term future for Ithaca, the deal probably ticks most of the right boxes. It certainly accelerates Ithaca’s aspirations to become a leading mid-cap North Sea player.”

Ithaca recently unveiled plans to invest £224.6m on developing its North Sea assets this year. Its main asset is a 54.7 per cent working interest in a number of blocks in the Greater Stella area, about 148 miles south-east of

Peterhead.

The deal allow it to offset Valiant’s £330m of tax losses against production due to be ramped up next year, and the firm said it should pay no UK tax on its cashflows until at least 2015.

Ithaca says it has more than 40 per cent of Valiant’s investors onside already, and expects the deal to complete in April following a shareholder meeting. Valiant shareholders will be given 307p in cash and will also own 18 per cent of the combined business, while the company’s creditors will be paid off.