Anadarko, Dana May Be Targets on `Cheaper' Reserves

By Anthony DiPaola and Fred Pals

Nov. 10 (Bloomberg) -- Anadarko Petroleum Corp. and Dana Petroleum Plc, oil drillers that lost more than 25 percent in market value this year, may become acquisition targets as they show it's cheaper to buy oil and gas reserves than to go and find them.

Anadarko's proven deposits had a stock market value of $6.99 a barrel Nov. 7 after its shares tumbled 45 percent this year in New York trading, while Dana's were at $7.80 a barrel. That's more than 39 percent below the $12.87 a barrel Royal Dutch Shell Plc spent last year to find and develop its own fields, data compiled by Bloomberg show, and may attract offers.

Exxon Mobil Corp., Shell, BP Plc, Chevron Corp. and Total SA, the five largest non-state oil companies, held $82 billion of cash at the end of September, enough between them to acquire seven of the 11 members of the Standard & Poor's 500 Oil & Gas Exploration & Production Index. Smaller companies such as Talisman Energy Inc. may also have funds for acquisitions.

``It's cheaper to buy a barrel on Wall Street instead of a barrel that companies need to find and develop,'' said Andrew Bartlett, global head of oil and gas corporate advisory at Standard Chartered Plc in London. ``Companies with cash are looking for infill-opportunities with a large resource base.''

The last time oil plunged, when crude fell to $10 a barrel in 1998, led to a transformation of the industry as BP bought Amoco Corp., Exxon acquired Mobil Corp. and Total Fina SA took over Elf Aquitaine SA. Deals now are for niche targets.

Acquisition Trail

``It may prove better value to buy than to build over the course of the next 12 to 24 months,'' Talisman Chief Executive Officer John Manzoni said Nov. 4. BP CEO Tony Hayward said Oct. 28 the credit crisis may create opportunities which BP would look at ``very closely.''

As oil stocks trade close to their lowest in four years, smaller producers are more vulnerable to takeovers. The 224- member Bloomberg World Oil and Gas index tumbled more than 40 percent this year as crude declined 59 percent from its July record of $147.27 a barrel on forecasts a global recession will cause oil demand to slump to its slowest growth rate since 1993.

International oil companies are seeking reserves as decades-old fields from the North Sea to Alaska dry up and as producing nations keep their best resources and more profits for themselves.

Analysts say targets include The Woodlands, Texas-based Anadarko, the second-largest independent U.S. oil and natural- gas producer. It's among 25 companies with the lowest ratio of reserves to market value on the World Oil & Gas index.

Stock Decline

Anadarko had 81 percent of revenue last year in the U.S. and in September announced a deep-sea discovery off Brazil. The stock market valuation of its deposits compares with $7.68 a barrel for ConocoPhillips, $14.25 for Chevron and $18.29 for Exxon, according to data compiled by Bloomberg.

``Anadarko has gotten killed,'' Gene Pisasale, who helps oversee about $13 billion at PNC Capital Advisors in Baltimore, said of the company's stock price, which this year has fallen more than Apache Corp., Devon Energy Corp. and EOG Resources Inc. ``All four of those are large enough companies that they'd be attractive,'' Pisasale said.

The company's ``capital structure and liquidity position remain very strong,'' said John Christiansen, an Anadarko spokesman. Its market value is $16.7 billion, compared with between $19.9 billion and $33.6 billion for Apache, Devon and EOG. ``We don't comment on rumors or speculation,'' said Chip Minty, a Devon Energy spokesman.

Other U.S. explorers whose asset valuations have plunged include Exco Resources Inc., valued at $2.68 a barrel, and Pioneer Natural Resources Co., at $2.99 a barrel. Neither could be reached for comment.

Credit Markets

``The liquidity crisis is hurting small to midsized companies with difficulty funding growth and operations,'' said Alessandra Pasini, a Milan-based banker at Citigroup Inc.

In Europe companies priced below $9 per barrel of oil equivalent reserves include Aberdeen, Scotland-based Dana Petroleum, DNO International ASA of Oslo and JKX Oil & Gas Plc.

``That's below the finding and producing cost for the majors,'' said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh who recommends buying Shell, Total and Eni SpA shares. ``Market conditions are creating unique opportunities to make targeted acquisitions.''

Dana Petroleum produces oil in the North Sea and explores in Africa. ``Dana benefits from an attractive combination of asset backing, exposure to exploration upside and takeover risk,'' Jessica Saadat, oil analyst at Cazenove, wrote in a report Oct. 21.

Dana Petroleum rose to its highest in nearly a week today, adding as much as 7.4 percent, or 71 pence, to 1,032 pence. It traded up 6.6 percent at 1,024 pence as of 11:54 a.m. London time.

Algerian Gas

Dana has fallen 26 percent this year, valuing it at 890 million pounds ($1.41 billion). Angela Bisset, who handles investor relations, said officials were unavailable for comment.

DNO, whose barrels were valued at $3.26 on Nov. 7, according to Bloomberg data, may be attractive for assets it's developing in the Kurdish area of northern Iraq, ING's Kenney said. JKX operates in Ukraine.

``There are some great opportunities out there,'' said Ian Taylor, CEO of Vitol Group, which is seeking to buy out Awarak Energy Ltd., an explorer in Russia and Kazakhstan of which it already owns 41 percent.

``When companies are trading so far below their net asset value, then the obvious thing to do is to, quite frankly, buy them.,'' Taylor said at a London conference Oct. 28.

Energy Assets

The world's five biggest non-state oil companies have spent more than $12.5 billion on acquisitions in 2008, with Shell agreeing in July to buy Canada's Duvernay Oil Corp. for C$5.9 billion ($5.0 billion), including debt.

Eni agreed Sept. 8 to pay C$923 million for First Calgary Petroleums Ltd. to gain Algerian gas. Oil & Natural Gas Corp. of India said Aug. 26 it would buy Imperial Energy Plc for 1.4 billion pounds to tap Siberian deposits. China Petrochemical Corp., or Sinopec, offered $1.8 billion Sept. 25 for Canada's Tanganyika Oil Co. to gain Syrian resources.

To contact the reporters on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.netFred Pals in Amsterdam on fpals@bloomberg.net