Enterprise Oil rules out large acquisition

Enterprise Oil yesterday scotched speculation that it is about to embark on a big acquisition as it reported a 40 per cent jump in post-tax profits for last year and an increased dividend.

Investors were relieved that the exploration group ruled out an imminent strike and marked the shares up 18.5p to 652p. Weekend press reports had suggested Enterprise was eyeing up a bid for Monument Oil and Gas, armed with a pounds 1bn war chest. British Borneo was also mentioned as a possible takeover target.

But Pierre Jungels, who took over as chief executive at the start of the year, quashed the reports, saying: "We are looking forward to strong internal growth with the asset base and the people we have. We are under no pressure to do anything and we have nothing specific in mind."

To underline the point, he said that Enterprise expected to increase production to 320,000 barrels a day in 1999 compared with total group production last year of just under 243,000 barrels a day.

Enterprise launched an unsuccessful pounds 1.6bn bid for fellow exploration group Lasmo three years ago and since then it has concentrated on building up its own exploration base. This year it expects to invest a further pounds 500m in appraisal drilling and oilfield development which is more than the group's expected cash flow based on an oil price of pounds 12 a barrel.

In particular, Enterprise has high hopes for developments in Norway and Italy, where it has several fields under appraisal in the Southern Apennine region.

The advance in after-tax profits was driven on by a continuing reduction in operating costs and a strengthening in oil prices to pounds 13.17 a barrel compared with pounds 10.72 in 1995. The dividend increase to 17p for the year, up by 1p, helped lift the shares even though the post-tax figure was towards the bottom end of forecasts.

Few analysts expect to make any radical move on profits forecasts on the back of the 1996 results, although news of a reserve replacement ratio of 193 per cent and the production targets provided a fillip to sentiment. "There is no doubt Enterprise is on a roll, with a good record of exploration and drilling success and a very positive news flow over the past year," one analyst said.

Another said he would raise his net asset valuation for Enterprise Oil from 549p to around 553p, largely on the back of the company's reduced net debt position. Further upgrades to this figure may be possible on the back of positive news on the Clair field, which BP highlighted yesterday, and its Norwegian interests.

On a more cautious note, Jon Wright, oils analyst at Merrill Lynch, said that while he was impressed by Enterprise's reserve replacement figures in 1996, he felt too much reliance was being placed on its Italian reserves. "About half of the increase in reserves in 1996 [of around 160 million barrels] was due to Italy," he said.

He also expressed concern about Enterprise's rising tax charge - which climbed from pounds 99.6m to pounds 212.9m largely due to the high levels of Norwegian tax - and the difficulties it may face in a low-price oil environment.

"We are still cautious on the outlook for Enterprise and will probably maintain our reduce stance on the stock," he said.