Paladin Resources, the oil and gas group, has become the latest independent player in the exploration and production sector to be swallowed up, agreeing to be bought for £1.2bn by Talisman Energy Resources of Canada.
The deal sent shares in other mid- and small-sized energy companies racing up. Among the biggest independents, Cairn Energy and BG Group gained more than 2 per cent. The other prominent risers included Venture Production, which ended 8 per cent higher; Dana Petroleum, 7 per cent better; Tullow Oil, which jumped 5 per cent; and Burren Energy, 4 per cent higher.
Paladin's chief executive, Roy Franklin, warned the attractions of his company did not apply to most in the sector. While many of the others are engaged in exploration in far-flung and risky parts of the world, often with low levels of production, the bulk of Paladin's assets are in the North Sea.
Mr Franklin said: "Industry buyers are focused on companies producing assets, high-quality cash flow and incremental upside. It is investors who are seduced by the romance of high-risk exploration."
Paladin had quietly put itself up for sale over the past few months and had approached a "handful" of potential buyers, leading to the Talisman deal. Among other independents bought in recent years are Enterprise Oil, which was swallowed by Shell. Italy's Eni took British Borneo and Lasmo. First Calgary put itself up for sale this year but found no buyers.
Mr Franklin said: "There may be a spate of deals now but there is no company that is a lookalike for Paladin. We decided to see if there was a price out there that would lock in value and give us an attractive premium."
The Talisman cash offer was pitched at 355p a share, a 29 per cent premium to Paladin's closing price on Wednesday. The company's production in the first half of this year was 46,000 barrels of oil equivalent per day. This is expected to rise to more than 70,000 in 2009.
Franklin's second sell-off
This deal, if it completes, represents the second time Roy Franklin and his management have built up an oil and gas group before selling it. The last time was the hostile acquisition in 1997 of Clyde Petroleum, bought by Gulf Canada for £494m.
Mr Franklin, 52, and his management took over Paladin in 1998 when it was in effect a shell company. They cleaned it up and raised £40m at 30p a share, before buying assets, mainly in the North Sea. Mr Franklin says investors have enjoyed stellar compound growth of 40 per cent per annum.
He will sell his 1 per cent stake as part of the Talisman deal, as will the other managers who own 4 per cent. Mr Franklin will stay on for a few months after the deal completes.
After that, he may start another venture. "It's the second time I've delivered, so I hope if I'm minded to do it again, I'll find support among investors," Mr Franklin said.Reuse content