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Faroe Petroleum taken out by DNO, could more North Sea oilers follow?

The Norwegian firm's hostile takeover of AIM 100 Faroe has some contemplating whether this may have opened the door to other mergers and acquisitions in the region
Offshore oil rig
DNO won out on Wednesday after raising its takeover offer to 160p from 152p per share on Tuesday

Norwegian oiler DNO has finally succeeded in its hostile takeover of AIM 100 North Sea-focused firm Faroe Petroleum PLC (LON:FPM).

DNO said on Wednesday that it had received acceptances for its bid representing 52.44% of Faroe’s shares, up from 43.8% a few days ago, after upping its takeover bid on Tuesday to 160p from 152p.

READ: Norway’s DNO gains control of Faroe Petroleum after increasing hostile takeover bid

The news has some contemplating whether this may have opened the door to other mergers and acquisitions (M&A) in the region.

The answer seems to be both yes and no.

Speaking to Proactive, a City analyst said that the DNO takeover of Faroe was more of an exception rather than the rule, mainly due to a “significant amount of overlap” between its own strategy and Faroe’s.

Instead, the analyst says acquisitions in the region have “migrated to a piecemeal type approach … you can actually be quite focused on what you will acquire, it’s really single asset types that are going to pique people’s imagination”.

In short, rather than an entire company being taken out, packages of assets will instead be picked up on a case-by-case basis.

This view is backed by Jack Allardyce, oil & gas research analyst at broker Cantor Fitzgerald, who says that most of the M&A activity in the region “has been focused on asset packages, and it tends to be private equity-backed companies … it's majors selling and private picking up asset packages”.

“The slight issue among the North Sea companies is that there just aren’t that many well-balanced companies with good portfolios like Faroe.”

Allardyce adds that the Faroe takeover was “a specific example” of a company whose portfolio “fitted a need for DNO perfectly” as there is “a dearth of available assets and smaller companies on the Norwegian side of the North Sea”.

James Midgley, energy research analyst at broker Mirabaud, is another observer backing the piece-meal approach, saying it’s “asset specific M&A that we’re going to see going forward”.

He adds that there is also unlikely to be much interest from oil majors, usually, the ones making large acquisitions, in the North Sea area.

“I can’t see any interest [from oil majors] in the North Sea … it’s a mature basin which is on the decline and majors are going after reserve replacement at the moment.”

There is however one exception …

One name that pops up as a potential takeover target is Hurricane Energy PLC (LON:HUR), which operates the Lancaster field in the West of Shetland region.

The City analyst says that if any firm was going to be taken out next, Hurricane may be the most likely as it has “size and scale and is suitable for a much larger entity to take it out without getting indigestion”.

Midgley, however, disagrees that Hurricane will follow Faroe, saying the firm will appeal to “a completely different kind of investor”.

“When you’re buying Faroe, you’re essentially buying a North Sea starter package, it’s a neat bolt-on for DNO … The types looking at Hurricane are companies that buy into the technology that need to replace reserves and resources, it’s a totally different acquirer that would go after that,” he adds.

Hurricane Energy did not comment on the analysts' speculation.

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