Outlook: Enterprise

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The Independent Online
IT SAYS something about the unpredictable nature of the oil business that a company can plunge into losses and pass its dividend and yet still see its share price rise by 6 per cent on the day.

Luckily for Enterprise Oil, it chose a day on which there was a general rally in the oil price to ditch the dividend. The price hit a four month high of more than $13 a barrel after a group of Opec and non Opec producers promised to turn down the gusher and reduce the flood of unwanted oil by two million barrels a day.

Not so long ago the oil price was submerged below $9 a barrel, so things seem to be looking up. All things are relative, however, and the fact is that Enterprise, in common with many others, is barely profitable even at $13 a barrel. Moreover, it cannot really rely on the big Opec producers to honour their pledges and bring supply closer to demand, least of all on the likes of Saudi Arabia, which is desperate for the cash.

But Enterprise has fall-back plan. It wants to merge with Lasmo, and thereby create one credible (and profitable) independent UK oil exploration and production group. Sir Graham Hearne, the Enterprise chairman, sees "significant synergies". The rest of the market is not so convinced and wonders why, if the advantages are so obvious, Enterprise and Lasmo are still trying to tie the knot two months after news of their discussions leaked.

There is of course, a history between the two. Sir Graham tried and failed to acquire Lasmo with a smash and grab raid in 1994, claiming haughtily that the time had come to sit at "the big boys table". His nemesis at Lasmo, Rudolph Agnew, is gone, but Joe Darby is still there as chief executive, so this time Enterprise's talking is being done by the rather more emollient Pierre Jungels.

He says he is personally convinced of the merits of a merger and promises an outcome to the talks by the end of this month. But it would be unwise to rely on an Enterprise-Lasmo merger, any more than Opec can be relied on to rescue the oil price.