Shell in surprise deal for exploratino company
Anglo-Dutch oil giant Shell shocked financial markets today with a surprising move for the UK’s biggest independent operator, Enterprise Oil.
Italian rival Eni had been widely linked with the London-based exploration and production business after it revealed a third party approach in January.
But Shell said Enterprise’s board had accepted its 725p per share offer, which values the group at €5.7bn. It is also taking on debts of €1.3bn.
Shell’s deal, which will up its presence in the North Sea, marks a 15% premium to the closing price of Enterprise’s shares before the Easter break.
If no counter-bid is forthcoming, the deal will need approval from shareholders and the regulatory authorities before it can be completed.
Shell chairman Philip Watts said his team had long considered Enterprise a target but had only been in talks with the group for the past month.
He added: ‘‘As a matter of course we look at all sorts of operations. It so happened that the opportunity arose and we have been happy to pursue that.
‘‘For a fair price we are obtaining an excellent set of assets that not too long ago were undervalued.’’
Shell’s production will increase by 6% if today’s deal goes through with a 30% rise coming in the North Sea and a 50% jump in Norway.
But more jobs at Enterprise are set to go if Shell implements plans to combine certain parts of the two businesses.
At least 350 jobs could be cut, more than half Enterprise’s total, with around 200 to 250 staff likely to be offered new jobs within Shell.
Half the cuts could come in the UK and Shell admitted it was highly likely that Enterprise’s office in Aberdeen would eventually close.
Despite the prospect of redundancies, investors lapped up the deal and shares in Enterprise soared by almost 16%, or 97½p to 726½p, by mid-afternoon.
Enterprise floated in 1984 after being created from the oil assets separated from the privatised British Gas.
The company operates 41 oil and gas producing fields around the world, from Brazil to Morocco, and churns out almost 250,000 barrels a day.
In February, Enterprise unveiled plans to shake up its business and increase shareholder value, including 100 job cuts at its London head office.
Today, chief executive Sam Laidlaw said Shell’s cash offer delivered returns to shareholders ‘‘quicker than otherwise would have been the case’’.
Shell said it would generate $300m (€340m) in cost savings from the deal, with Enterprise’s exploration budget set to tumble.
Most of the savings would come by the end of next year, Shell said, adding that the deal would boost its oil and gas reserves by 1.5 billion barrels.
Shell’s shares were up 4p at 527p by mid-afternoon, with analysts saying the deal made sense given the overlap in the two groups’ operations.
Tony Alves, oil analyst at Investec, said: ‘‘I need to be convinced that it’s the best Shell could do.
‘‘It strikes me Shell could have discovered an Enterprise Oil within its own business rather than going out and buying it.
‘‘But if you are looking at it in terms of the financials, such as dollars per barrel, the acquisition is fundamentally quite good value.’’
Enterprise reported pre-tax profits of €1bn for last year, down on €1.7bn in 2000 due to lower production and falling oil prices.
Its shareholders will still be entitled to their final dividend of 5.35p per share, declared two months ago, despite today’s deal.
