Norwegian eyes are smiling

INVESTMENT COLUMN

It is ironic that just as Aran Energy was starting to make some real money, the Irish oil exploration stock has become the target of a bid. Pre-tax profits have more than doubled to Irpounds 6.9m (pounds 6.8m) in the last three years, giving shareholders the prospect of a dividend for the first time in the company's 23-year history. All being well, Aran has promised investors Ir1p next year.

But that is likely to prove academic, given the auction that looks set to break out over Ireland's biggest home-grown oil group. The US company ARCO opened the bidding at Ir60p a share in August, but has now raised that to Ir68p following the revelation on Friday that Statoil, the Norwegian state-owned company, was considering stepping into the fray.

Even before any higher offer, Statoil had complicated the bid by taking a 47 per cent stake in Aran's Connemara field, west of Ireland, in exchange for providing joint venture finance. Shareholders will vote on that deal the day before the bid closes on 24 October, much to the irritation of ARCO, which says that it will only pay Ir66p a share if the proposal is approved.

As ever with exploration companies like Aran, valuation of the underlying assets will be one of the keys to the outcome of the bid. Given the star- gazing quality of this exercise, each side can quite plausibly rubbish the other's advisers without losing undue credibility.

Even so, it is hard not to agree with ARCO's criticism of Aran's valuation, which at Ir104p a share suggests the undrilled exploration acreage alone is worth Ir32p.

To realise such value depends on a much firmer oil price than at present and a successful exploration programme, neither of which can be guaranteed by any management.

In the past, Aran shareholders would have been happy to take Ir68p and run, but the company now holds a jewel for which Statoil may be prepared to pay more.

Excluded from acreage west of Shetland in the latest 16th round of licensing, Statoil is known to be keen to get a piece of the action.

Taking over Aran may be the only opportunity it gets and with deep pockets and state backing paying up to Ir80p a share would not present too big a financial strain. At 73.5p, hold on for further action.

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