Cautious Premier paying £221m to take over Encore Oil

While the headline price being paid represents a heady $20 per barrel for Encore’s reserves, chief financial officer Tony Durrant pointed out that the deal included tax losses and exploration potential.

Citigroup said the tax losses brought the purchase price down to $17 a barrel, still at the upper end of recent transactions.

The bank also noted that raising Premier’s stake in the Catcher field to 50 per cent could allow the company to accelerate development of the field, potentially raising earnings.

Premier shares traded down 0.8 per cent to close at 336.9p, a fall of 1p, against a 4.3 per cent rise in the STOXX Europe 600 Oil and Gas index.

Premier said yesterday it was offering 70p per Encore Oil share, a 55 per cent premium to Tuesday’s close, and that Encore investors could take the bid in cash or Premier shares.

Encore was advised on the deal by Rothschild.

London-based Premier also said it was on track to deliver on its stated strategy and to realise its medium-term target of pumping 100,000 barrels of oil equivalent per day.

Premier generally takes a more conservative approach to exploration than some rivals such as Tullow Oil and Heritage Oil, keeping its exploration budget at only one third of cashflow.

Nonetheless, it is present in some frontier areas including East Africa, which many oil executives believe has the potential to emerge as a major new oil and gas producing region.

Yesterday, United States oil and gas firm Anadarko Petroleum Group said a gas find it made in Mozambique was larger than earlier believed.

The appraisal of its most recent exploration well at the Camarao prospect encountered about 240 net feet (73 metres) of natural gas in an excellent-quality reservoir, the company said.

Anadarko is the operator of the 2.6-million-acre Offshore Area 1 with a 36.5 per cent working interest.

Co-owners in the area include Mitsui E&P Mozambique Area 1, BPRL Ventures Mozambique BV, Videocon Mozambique Rovuma 1 and Cove Energy Mozambique Rovuma Offshore.