News that BG is paying $1.3bn for a stake in a US gas field has been well received by the market.
The company is paying the cash to Dallas based Exco Resources in return for a 50% shareholding in the Haynesville shale gas area in Texas and Louisiana. In the market BG shares added 9p to £10.46, as analysts rushed to welcome the deal. Panmure Gordon's Peter Hitchens said:
"We believe that this is a very exciting move and gets the company involved in a significant market at the bottom of the cycle. The group is taking advantage of the very depressed gas price to acquire reserves cheaply.
"Shale gas is deemed an unconventional source of natural gas and involves the extraction of gas from difficult to produce low permeability reservoirs. This requires expensive wells that need to be drilled horizontally and need to be fracced. However, once these wells have been drilled, they tend to have very long production lives."
Collins Stewart issued a buy note with a £12.50 target, saying:
"In our view the deal has good strategic rationale in that it gives BG access to sizeable long-term resources; it retains Exco as operator of the joint venture, and hence harnesses the skills in shale gas that BG does not yet have; it has good synergies with BG's US LNG import and gas marketing businesses; and it creates a base for future growth in shale gas."
Still with resource companies, Dana Petroleum is higher on talk of a possible offer from RWE. Its shares are 57p better at £14.27, although traders are uncertain about the likelihood of any bid. They point out that Dana is geographically more spread than rival FTSE 250 companies which are already in play, while any bidder would have to pay a huge - possibly unjustifiable - premium to the current share price to win over the company. Still, stranger things have happened.
Overall the FTSE 100 is now in positive territory, up 1.91 points at 4295.94, but you'd be hard pushed to say traders were working flat out. Joshua Raymond, market strategist at City Index said:
"The European markets continued to trade within tight ranges today as low volumes and low volatility contributed to a directionless market.
"The miners and defensive equities are helping to lift the mood somewhat but overall we are seeing sideways movements and very tight trading ranges.
"The UK GDP figure showed that the UK economy may be deteriorating more than previously estimated but due to the lack of volume, this made little impact upon equity trading. We have however seen currency traders look to profit take from strong rises in sterling and the GDP figure has helped speed this up today.
"Later this afternoon, traders will have an eye on consumer confidence data in the US which may provide a spark to the latter stages of the European session."
Rio Tinto has risen 10p to £21.63 on continuing talk that Chinalco was likely to take up its full entitlement in the miner's rights issue. Meanwhile Evolution Securities moved its recommendation from sell to add and raised its price target from £16.40 to £24. Evo said:
"Rio Tinto is soon to bank the $15.2bn requested in its rights issue. The money substantially transforms Rio Tinto's balance sheet and puts the company back on a growth footing. Importantly, it can now negotiate other transactions from a position of strength and many assets have been taken off the for sale list. We have revisited our valuation of Rio Tinto and removed the financial risk and Chinalco-related discount that we applied to the stock when we were concerned about its future."
Elsewhere IT group Micro Focus International fell 2.75p to 369.5p as shares in its US bid target Borland continued to move higher. Micro Focus has offered $1.15 a share, while a rival bidder has come in with a $1.25 a share bid. Last night Borland shares closed at $1.29. George O'Connor of Panmure Gordon said:
"Micro Focus has the inclination and the cash to pay more – aroun $1.70 we feel, but should hold firm for now. We acknowledge as a name coupled with an acquisition price that on the surface looks cheap Borland was likely to attract other bidders. Yet Borland has been going wrong for a time - there is much work to do to make it fit for purpose. For now, until [rival bidder] company A does due diligence it does not know if it has raised enough funds to cover the inevitable restructuring."
