A decade-long dance draws towards a close

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The Independent Online
A merger of Enterprise Oil and Lasmo would create one of the world's biggest exploration companies. The combined business would boast oil and gas reserves of about 1.6 billion barrels and production of about 325,000 barrels a day.

It would have a presence in 26 countries from Colombia to Cambodia and exploration acreage of 128,000 square kilometres.

With an enlarged market value of about pounds 3bn, however, the new group would still be tiny in comparison with integrated giants such as Shell, with a value of pounds 63bn, or BP with pounds 22bn which produce, refine and sell oil and gas and their by-products.

Enterprise and Lasmo are relatively young companies and have crossed each other's paths several times in the past 10 years.

Lasmo, formerly London and Scottish Marine Oil, was formed in 1971 by Cazenove, the stockbroker, with a initial pounds 1.7m capital from institutions to coincide with the start of development in the North Sea. Since then it has never been far from the headlines, providing shareholders with a roller-coaster ride.

Floated on the stock market in 1977, it grew largely by acquisition. Enterprise, hived off by the Government from British Gas and privatised in 1984, has been more successful in drilling.

The two companies first crossed swords in 1986 when Lasmo acquired a 30 per cent stake in Enterprise from RTZ, the mining group, in exchange for Lasmo shares. The move sparked an epidemic of bid rumours - Lasmo's share swap was widely regarded as prelude to a full takeover. Lasmo, too, was seen as a target of RTZ or another suitor.

But two astute deals in 1987 helped Enterprise to ward off takeover. First, it made an all-share purchase of ICI's worldwide oil interests, making it the fifth largest oil company in the North Sea.

Later that year it swapped interests in 17 UK offshore blocks with three companies, giving it 100 per cent of Nelson, the 500 million-barrel North Sea oilfield that began production this year and is the jewel in its portfolio.

Pulling off the Nelson purchase was high risk but was little short of brilliant. The sellers knew little about Nelson's full potential but, four months after buying the field, Enterprise surprised the industry with an important oil discovery there. Its share in Nelson has since been cut to about 40 per cent.

Meanwhile Lasmo, under Chris Greentree, who was forced to step down as chief executive last year, was wheeling and dealing its way into the big league of oil explorers.

It paid pounds 368m for Thomson North Sea in 1989, financed by a pounds 200m profit from the sale of the Enterprise stake to Elf a year earlier. RTZ, meanwhile, sold its stake in Lasmo.

But the strategy turned sour after Lasmo's hostile takeover of Ultramar for pounds 1bn in 1991. The deal pushed Lasmo's debts to unsustainable levels at a time when the real price of oil was heading towards a 20-year low. The ensuing problems have now conspired to make it a target for its arch-competitor.

The company has some good assets, some in Indonesia which account for 40 per cent of its total production and a 25 per cent share in a pounds 1bn development in Liverpool Bay that will come on stream in 1998.

(Graphs omitted)

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