Enterprise Oil insists there is life after Lasmo: The bid cost pounds 23.8m, but the dividend was held, the shares are up and acquisitions are being sought. Alison Eadie reports

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The Independent Online
ENTERPRISE OIL, the oil exploration and production company, is putting a brave face on the failure of its pounds 1.6bn bid for Lasmo.

Its results yesterday reveal the cost of failure at pounds 23.8m, which helped depress profits after tax to pounds 8.5m in the six months to the end of June from pounds 80.1m in the previous first half.

However, Graham Hearne, chairman and chief executive, was upbeat. 'Enterprise has high-quality assets, a rising production profile, strong cash flow and a well capitalised balance sheet,' he said.

The City was in forgiving mood and marked the shares up 13p to 400p.

The cost of the abortive bid - pounds 5.7m for expenses and pounds 18.1m to reduce the carrying value of the 9.8 per cent stake to 150p a share - contributed to a decline in earnings per share to 0.1p from 15.8p, leaving the maintained 6.5p dividend denuded of cover. The stake was acquired during the bid at a top price of 169p a share. Lasmo's shares yesterday rose 21 2 p to 159p. Enterprise says that for the time being it will continue to hold the shares for investment purposes.

The strength of underlying cash flow was the reason given for maintaining the dividend. After tax and interest cash flow was pounds 108.6m against pounds 148.2m in first- half 1993. In the second half cash flow will strengthen as Enterprise gains the benefit of production from recent developments, notably the North Sea fields of Nelson, which began production in February, and Scott.

Andrew Shilston, finance director, describes both fields as abnormal in terms of size and production for a medium-sized operator like Enterprise. The huge cash flow from the fields was the rationale behind the bid for Lasmo. Enterprise had more than enough finance for its various projects around the world and was looking for an additional outlet for its money.

'Lasmo was one answer. Now we are looking for others,' Mr Shilston said. 'It could be an acquisition of packages of assets or one single asset.'

He pointed out that there was a big and liquid market in oil assets, as international oil companies sorted through their portfolios.

Enterprise is prepared to consider prospects around the globe, although it says the capital commitments required to be a player in Russia and countries of the Commonwealth of Independent States are too large for it.

Mr Shilston said that although Enterprise had the capacity and appetite for growth, there was no pressing need for it to make a purchase and there was no corporate acquisition on the horizon. 'We are not crashing around with a big cheque book.'

The market was competitive and there was no point in replenishing reserves unless value was being added to the business. 'If you pay a full price for production, you do not add value,' he said.

In the near term Enterprise has enough to keep it busy. With co- venturers it is evaluating the Norne oil field in Norway, the Monte Alpi field in Italy and the Banff and Telford fields in the UK sector of the North Sea. These will help maintain production into the next century.

In the longer term, exploration drilling on the company's farm-in to three Esso blocks in Norway's South Viking Graben field is encouraging. Enterprise was successful with its application for a North Sea licence in the 15th UK offshore licensing round and plans to participate in the 15th licensing round in Norway. It is also appraising finds in Cambodia and plans to explore in the Black Sea, Romania and Bulgaria.

However, the question of what Enterprise will find to buy concerns the City. Colin Smith, an analyst with Hoare Govett, said prices for buying production were often full. 'It may be difficult to find a good-sized acquisition which will add value.'

He pointed out that with production of 200,000 barrels a day secure until the end of the decade, Enterprise was not under pressure to do something in the short term.

With improved cash flow and lower unit operating costs, the company's results should pick up in the second half. Mr Smith expects after-tax profits, including exceptionals, to be pounds 81m in the full year against pounds 94.7m in 1993. Although this is not enough to cover a maintained final dividend, after the preference dividend is paid, Mr Smith says that dividends in the previous two years have only been covered due to exceptional credits. Last year there was a pounds 27m tax credit. Mr Shilston said the company was confident the dividend was sustainable.

While the strategic questions remain unanswered, Mr Smith feels that Enterprise shares, trading at about 100p premium to their net asset value, look expensive.

Another question raised during the bid remains unanswered. The company was making no comment on whether Mr Hearne's dual role of chairman and chief executive was to be split.

But on the advisory front Enterprise has reverted to Cazenove and James Capel as its stockbrokers. Cazenove dropped out during the bid, as it was also broker to Lasmo, and its place was taken by Warburg Securities. The role of Warburg Securities in buying the 9.8 per cent stake in Lasmo was heavily criticised in the City. SG Warburg, the merchant bank, remains Enterprise's corporate adviser.

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