DANA Petroleum, the oil production company, has offered shares worth £3.05 million for Petroceltic, a smaller rival. The deal would give nine Dana shares, each worth 35p, for every four Petroceltic shares.
Petroceltic last traded at 30p.
Dana said yesterday the deal made operational and financial sense for both companies. The company's chief executive, Mr Tom Cross, said it should mean that Dana investors, 25 per cent of whom are Irish, could expect profits by the end of next year.
"It's a good technical fit and a good financial fit. It's quite strategic from our point of view. Dana has two fields that we control and operate in Russia. Both now have pipelines built to them oil flow and cash flow is starting to happen. They give us strong cash flow from 1998 to 2004," Mr Cross said.
The company's plan, he added, was to look for two types of project some delivering short term cash flow and others, exploration developments, that would start yielding after 2004.
Petroceltic's principal assets are royalty interests in the Kinsale Head and Ballycotton gas fields off the south coast, which are operated by Marathon. In the year to March 31st 1996, the net royalty income came to £394,803.
Petroceltic also has other off shore exploration interests in Ireland, as well as in Australia and west Africa.
Dana's current operations are all in Siberia, and include half of YoganOil, which has a profitable field with probable reserves of 35 million barrels, 30 per cent of YuganskOil, which operates the Sortymskoye field and has probable reserves of 130 million barrels and 5 per cent of Evikhon, which has a joint venture with Royal Dutch Shell for the development of the Salym group of fields.
Petroceltic, whose main shareholders include NatWest Irish Smaller Companies Trust and Standard Life, said its directors were all backing the acquisition.
The firm's managing director, Mr John Craven, said he had made the initial approach to Dana, arranging a meeting just six weeks ago in London with Mr Cross.
"It gives us the opportunity to put together a sensible company," he said. Mr Craven added that he would be joining Dana after the acquisition.
The deal does not require the permission of Dana's shareholders, a majority of which are London based institutions. Morgan Grenfell, which owns over 10 per cent of Dana, has been quoted as saying that it was not selling its Dana shares.
"I believe this offer represents an opportunity for Dana to secure a stream of high quality royalty revenue to augment our Russian earnings," said Mr Charles Smith, Dana's chairman. "In addition, the offer makes available exploration interests in some promising regions where Dana's directors have prior experience."
The broadening of Dana's portfolio carries the full support of the company's existing Russian partners who may now co venture with Dana in certain of the new areas where their expertise and experience will add value Mr Smith added.
Dana said in a statement that it intended to continue to devote the majority of its exiting financial resource to the development of its existing assets in west Siberia.
"However, it is the strategy of Dana's board to seek opportunities to widen Dana's portfolio of oil and gas interests, in part to reduce its reliance on future revenues from operations in a single country, but also to give the opportunity for Dana's existing partners to coventure with Dana, in new areas," the statement continued.
In a separate document, Dana said its interim results for the six months to June 1996 showed a loss of £284,058 sterling, or 0.085p per share. This represents an improvement of around 50 per cent on the same period last year, when losses totalled £530,444 sterling.
In January 1996, Dana was admitted to the official list of both the London and Dublin stock exchanges. The company's central, management and control functions are now based in Britain, and it has changed its board of directors and now reports in sterling.
