Dana Acquires UK Assets from Petro-Canada
Dana has entered into an agreement with Petro-Canada UK, a wholly owned subsidiary of Suncor, to acquire Petro-Canada UK's interests in certain UK assets (the "PCUK Assets") for a cash consideration of £240 million (approximately $372 million). The cash consideration will be adjusted at completion for various working capital balances at July 1, 2010 and movements in the interim period which are expected to result in a net benefit to Dana. In addition, on completion Dana will also gain additional UK capital allowances of £60 million.
The package consists of two main production hubs in the UK Continental Shelf ("UKCS"). These are the Petro-Canada UK operated fields around the Central North Sea Triton Area and the Nexen-operated Scott/Telford Moray Firth fields. Additionally, the Acquisition includes the prospective Inner Moray Firth exploration portfolio.
Key Acquisition highlights
The Acquisition provides to Dana significant technical, operational and value benefits, including:
- an additional 33.5 million barrels of oil equivalent ("mmboe") of proven and probable reserves and 44.3 mmboe of proven, probable and possible reserves as at July 1, 2010. The additional proven and probable and possible reserves have been evaluated by an external, independent expert, Senergy (GB) Limited ("Senergy"), and Senergy has valued the proven and probable assets at £368 million using a Brent oil price forecast as specified in the report and valued the proven and probable and possible assets at £555 million1;
- an ability to rapidly utilize the £60 million of capital allowances, received as part of the Acquisition, due to the high level of cash generation from the producing assets;
- an attractive acquisition price equivalent to approximately US $11.1 per barrel of proven and probable reserves, based on the £240 million consideration and, after accounting for post-tax synergies, falling to less than US $10 per barrel;
- additional net production to Dana of approximately 20,000 barrels of oil equivalent per day ("boepd") upon completion, an increase of approximately 40% on Dana's current production giving a predicted exit production rate at the end of 2010 for Dana of approximately 70,000 boepd;
- additional value in the development and exploration portfolio, with discoveries including the Surprise, Nutmeg, Dee and Maria fields adding 44.4 mmboe of Contingent Resources and an unrisked prospective exploration resource portfolio totaling 57 mmboe;
- an immediate, significant contribution to Dana's existing portfolio, with an expected enhancement of earnings per Dana share in the first full year following the Acquisition;
- a predominantly oil based production portfolio with oil comprising 95% of the proven and probable reserves;
- an increase in Dana's total number of producing fields from 55 to 63 providing further opportunities to enhance future production performance;
- two further significant production hubs in Dana's core North Sea area, including the operatorship of five subsea fields in the Central North Sea, strengthening Dana's existing North Sea operating capabilities; and
- the opportunity to create significant additional value via infill drilling and production optimization in the producing fields, potential developments in the core areas and exploitation of the exploration prospectivity, particularly in the Petro-Canada UK operated Inner Moray Firth area.
Finance for the Acquisition will be provided by the Royal Bank of Canada Europe Limited ("RBC Capital Markets") and certain other banks, who are lenders under Dana's existing US $900m facility, via a US $300 million extension of Dana's existing facility. The enlarged facility of US $1.2 billion will allow Dana to fund the Acquisition, maintain its planned development and exploration expenditure and should also ensure that Dana retains the capacity to re-pay the 2.90 percent. convertible bonds, issued by Dana Petroleum (Jersey) Limited and guaranteed by Dana, should bondholders exercise the investor put set out in the terms of the convertible bonds in July 2012.
Given the requirement for third party consents, regulatory approvals and the existence of certain pre-emption rights under the terms of the relevant Joint Operating Agreements relating to the PCUK Assets, Dana expects the Acquisition to complete before the end of 2010. The effective date of the Acquisition will be July 1, 2010.
Commenting on the Acquisition, Tom Cross, Chief Executive Officer of Dana, said, "Dana's acquisition of these Suncor UK assets is strongly value accretive. The Acquisition is directly in line with our strategic goals of increasing Dana's operated North Sea reserves and production. With this deal, Dana becomes a much stronger business, increasing our OECD oil production and cash flow significantly. By year-end 2010, our total daily production will have risen to around 70,000 boepd, which is nearly double the production rate at the start of the year."
Background to and reasons for the Acquisition
Dana's strategy is to build a balanced portfolio of assets at all stages in the exploration and production life-cycle. Following the acquisition by Dana and its subsidiary undertakings (the "Group") of Petro Canada Netherlands B.V., which completed on 13 August 2010, the Group increased its proven and probable reserves to an estimated 254 mmboe and is currently producing from 55 fields. Dana also has a full and on-going program of field development opportunities and on August 11, 2010 announced first gas production from phase one of the Babbage field development in the Southern North Sea. In addition, Dana has an active exploration drilling program, with a total of 22 exploration wells (including Dana Petroleum Netherlands B.V.) planned for 2010, offering the potential for material additions to the Group's reserves and resources base with six discoveries in 2010 to date. These discoveries deliver 23 mmboe of proven and probable reserves.
As part of Dana's strategy, and alongside the Group's commitment to achieving organic growth principally through development and exploration activities, Dana seeks to identify opportunities to acquire reserves and production on a commercially attractive basis. The board of directors of Dana believes that the Acquisition represents an important step in the execution of this strategy. The Acquisition will significantly add to the Group's reserves and production, extend the Group's core operating area of the North Sea, provide synergies with its existing portfolio of assets and further strengthen the Group's operating capabilities in the UKCS.