Oil company Petroceltic has gushed up by more than a fifth after a near £500m takeover offer from fellow energy group Dragon Oil, prompting analysts to suggest a rival bid could emerge.
Dragon is proposing to pay 230p a share in a move intended to boost its presence in Algeria, valuing Petroceltic at £492m. Dragon's main assets are in Turkmenistan but it recently won new drilling licences in Algeria in a consortium with Italy's Enel.
Petroceltic said it would be willing to recommend the offer if it was made firm with acceptable conditions and it was approved by both companies' shareholders - including Dragon's 54% investor ENOC (Emirates National Oil Company) - as well as the Algerian government.
The move has pushed Petroceltic 37.75p higher to 216.25p while Dragon is down 6.5p at 567.5p.
Analyst Werner Riding at Peel Hunt said the offer looked too low and could prompt a counter bid:
Our target price and estimate of risked net asset value of 250.3p a share comprises core net asset value of 51.6p a share, appraisal development net asset value of 198.7p a share with no value attributed for any exploration upside and suggests that Dragon would be getting a good deal.
The absolute value for Petroceltic's resource base is relatively straightforward to define, what is less straightforward however is the more qualitative strategic value that an acquiring company would be prepared to pay for long-term security of gas supply. In our view, if a firm offer for Petroceltic is made by Dragon we would not be surprised to see a counter offer made by another party closer to...250p a share.
Meanwhile SP Angel said:
The announcement that Petroceltic may have received an offer is good news for investors who have seen significant headwinds to the growth of their investment, related to third party issues in Algeria. Dragon Oil has the cash, more than enough, and sufficient access to further resources should it be required, so the only issue is shareholder approval.
Given that ENOC owns the majority of the company, and Dragon maintains an open dialogue with ENOC for a variety of reasons, it is inconceivable that this has not been tested in theory beforehand. For Dragon, Petroceltic's asset base brings a welcome diversification in the portfolio and the ENOC connection should assist it to make headway at the highest level.
And Oriel Securities said, looking at the Dragon side of the possible deal:
The proposed offer would represent a $786m acquisition (excluding debt), and as such would represent a meaningful inroad into Dragon's $2bn cash pile, the fate of which has been the key element of Dragon's investment case for some time. This may be taken negatively by those seeking a cash return. While the transaction appears to represent a reasonably full price, it serves to re- balance Dragon's portfolio towards development and, in the Kurdistan assets, provides meaningful exposure to exploration.
