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Dana Petroleum targets Petro Canada Netherlands in largest acquisition yet

Monday, Jun 14 2010 by
3
Dana Petroleum targets Petro Canada Netherlands in largest acquisition yet

Dana Petroleum Plc (LON:DNX) this morning set out plans to buy Petro Canada Netherlands from Petro Canada (International) in a €328m cash deal that represents Dana’s largest acquisition to date. Petro Canada Netherlands operates in the Dutch sector of the North Sea and promises to give Dana a “significant growth step” in a third core area in Europe and a complementary asset base in the North Sea. Shares in the group edged up 0.5% to 1094p on the news. 

The addition of Petro Canada Netherlands will provide Dana with an additional 31m barrels of oil equivalent (mmboe) of proved and probable reserves and 51 mmboe of proved, probable and possible reserves. Further, the company boasts unrisked prospective resources of up to a further 67 mmboe across its portfolio and 20 mmboe on a risked basis. Last year, Petro Canada Netherlands' average daily production was 14,589 boepd, which generated profits before tax of €123.4m.

In the year to April 2010 Petro Canada Netherlands’ net production averaged 12,136 barrels of oil equivalent per day (boepd) with the annual maintenance shut-downs on the De Ruyter and Hanze fields yet to occur. The deal will increase Dana's previous 2010 production guidance by some 10-12% on an annualised basis, subject to timing of deal completion. Dana estimates that its production will increase by 8,000-9,000 boepd in 2011, equivalent to a 20-25% increase in previous guidance, with a production increase of 10,000-14,000 boepd in 2012 as new projects are brought onstream in the Netherlands. The deal will take Dana's total number of producing fields to 54 from 36 currently, as well as bolting on an experienced management team with significant regional North Sea operating experience.

Petro Canada Netherlands has interests in a number of currently producing fields, namely the De Ruyter (54.07%) and Hanze (45%) oil fields, both of which it operates, as well as the Hanze gas field (27%) and a number of non-operated gas interests in the L05b&c (30%) and L08b area (25-30%) operated by Wintershall, and the P15 area (9-11%) and P18 area (0.7-4%) operated by TAQA. In addition, Petro Canada Netherlands has a 12% equity interest in the Alkmaar (PGI) gas storage project operated by TAQA. Gas production in the Netherlands has the added benefit of a strong oil price linkage in the commercial gas sales agreements.

Tom Cross, Dana’s chief executive, said: “This transaction represents Dana's fourth international acquisition in the past three years and is the most significant and exciting development in the company's history. It builds upon our portfolio approach to the E&P business and provides a significant production and reserve growth step for the group. In addition, the acquisition adds considerably to our operating capability in the North Sea, better positioning Dana to capitalise on the operated developments emerging from our own organic portfolio and to pursue further operated opportunities in the future. Together with the Dana's emerging gas development potential in the Nile Delta and offshore Morocco, the group will, following completion of the acquisition, be more balanced with an approximately 60:40 oil:gas ratio in terms of 2P reserves and approximately 70:30 oil:gas ratio in terms of near term production.”

The acquisition remains conditional on the approval of Dana shareholders but is expected to complete in the third quarter of 2010. In connection with the deal, and as part of a broader corporate refinancing initiative, Dana has agreed at US$900m term loan and revolving credit facility underwritten by Royal Bank of Canada.

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8 Comments on this News show/hide all

flyinghorse 14th Jun '10 1 of 8
2

Very "Venture like " move when they bought CH4,later to be swallowed up by Centrica.

FH

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djpreston 14th Jun '10 2 of 8
2

Interesting valuations (2P based I mean). Certainly makes Cirrus look interesting ona 2P valn half that implied by this deal.

Fund Management: European Wealth
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uncommon13 14th Jun '10 3 of 8
1

Do we know the exact percentage of 2P reserves from Petro Canada Netherlands that are gas and oil? Compared to the Bow Valley acquisition which was predominately oil, a figure of US$ 9.47 per barrel of 2P reserves was a good price. In this case, I'm not sure a figure of US$ 12.16 per barrel of 2P reserves is good value...especially if Tom says: "...following completion of the Acquisition, be more balanced with an approximately 60:40 oil:gas ratio in terms of 2P reserves."

References:
http://www.investegate.co.uk/article.aspx?id=201006140700245373N&fe=1
http://www.investegate.co.uk/article.aspx?id=200902160700123534N&fe=1

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ArtNouveau 15th Jun '10 4 of 8
5

I've just received a buy note by Merrill Lynch and price target of £14.50 issued today. Feel free to email me if you'd like a copy.

ArtN

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marben100 24th Jul '10 5 of 8
2

I have this morning received the 171 page tome, with the details of the Petro-Canada acquisition. Extraordinarily ;0), it is also available on Dana's web-site: http://www.dana-petroleum.com/PDF_Files/Dana_Circular_GM_2010.pdf 

Lots of interesting detail I haven't yet had the time to study. The CPR by Senergy shows 2P reserves of 12.7mmbbls + 105.7bcf = 31.0mmboe. 3P is 20.0mmbbls + 178.9bcf = 51.0mmboe.  Senergy's NPV8 valuation for the 2P reserves is €390.6m, based on $77.8/bbl for 2010 and $83.5/bbl for 2011, with 2%p.a. price inflation thereafter. These seem like "aggressive" assumptions to me. However, I think the real case for the deal is the upside potential it brings beyond the 2P reserves, from further E, A & D activity.

Surprise, surprise the EGM relating to the acquisition is to be held at the usual venue in Aberdeen, at 11:00 on 9th August. Subject to shareholder approval, the deal is scheduled for completion before the end of August - i.e. almost certainly before Dana's shareholders accept any bid.

Cheers,

Mark

PS flyinghorse's comment at #1 was rather prescient!

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thegreatgeraldo 24th Jul '10 6 of 8

Mark,

How did you get your copy? All I received this morning was the EGM notice, which informed me that I'd elected (or been deemed to have elected) to make do with an URL in place of hard copy & a proxy form! Same thing happened with the AR. Presumably I've failed to opt in for hard copy ahead of an URL.....

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marben100 24th Jul '10 7 of 8
1

In reply to thegreatgeraldo, post #6

Hi TGG,

Yup, by default all shareholders were opted-in for electronic communications at the time of the 2009 AGM. At the AGM itself, I succeeded in persuading the registrar to opt me out & so continue to get hard copies of this sort of stuff.

I think you'd now have to write to the registrars to receive hard-copy communications in future.

Cheers,

Mark

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emptyend 25th Jul '10 8 of 8

In reply to marben100, post #7

Yes - that is broadly correct, chaps. Of course one could also ask the company for a hard copy - but in the case of the current document I think it is more convenient to look at it online (and download a copy). I continue to be a fan of hardcopies for Annual Reports (as I scribble notes on them) but more or less anything else is fine online.

In this case of course there is a tight timescale, which also inclines me to online.

I don't think I'll be going up for this EGM - though I may go for the next one  ;-)

ee

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