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RE: the canadien press

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Canadian acquisition adds string to Dana’s North Sea bow
February 17 2009

Dana Petroleum is acquiring a big chunk of North Sea acreage through the purchase of a cash-strapped rival in the latest sign of the consolidation pressures caused in the oil and gas industry by tumbling oil prices.

The Aberdeen-based independent has agreed to acquire Bow Valley, a Canadian listed rival, for C$219m (£123m) including the assumption of C$175m debt. Dana has also secured a big funding package from Bank of Scotland despite the credit crunch, which chief executive Tom Cross said would give it firepower for more deals.

The takeover of Bow Valley is one of the biggest yet proposed by Dana and represents a significant statement of faith in the potential of the mature North Sea.
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While Bow valley has exploration acreage in Alaska, all its other interests are in the North Sea.

Subject to regulatory and shareholder approval, the deal will allow Dana to add four producing North Sea fields to a portfolio that already includes 15 in UK waters.

A fifth field, Ettrick, should go onstream shortly.

Including Ettrick, Bow Valley's fields should produce 7800 barrels of oil equivalent daily. This is equivalent to around 20% of Dana's average production in 2008, of 39,400 boepd.

The purchase price equates to about $15.8 for each of the 11.3 million barrels oil equivalent reserves being acquired. However, Bow Valley has £154m tax losses that Dana could use to reduce its tax bills.

Factoring these in, the price per barrel of reserves falls to just $9.47 per barrel.

This should make the purchase profitable and cash generative even if oil prices remain at the current depressed levels of around $40 per barrel.

Cross told The Herald: "We are buying five producing fields (including Ettrick) for around $9.50 a barrel. We think that's an absolute winner.

Even at current oil prices Dana is highly profitable and these assets are highly profitable."

He noted Dana already had a working knowledge of Bow Valley's North Sea assets, which fit closely with its existing portfolio.

Bow Valley is one of a number of oil and gas firms that built up a portfolio using debt when loans were readily available and oil and gas prices were soaring.

The plunge in oil prices from $147 in July has left some struggling to service their debts.

In January, Canada's Oilexco put its North Sea unit under administration.

In November, Bow Valley's directors launched a strategic review they said could result in the sale of the company.

Bank of Scotland has extended a new three-year US$400m (£280m) revolving credit facility, akin to an overdraft, which could be used for approved acquisitions. Dana had £159m cash at December 31.

In 2007, Dana bought Devon Energy's upstream oil and gas business in Egypt for some £180m.