Statoil to top pounds 182m Arco bid

Norwegian oil company targets Aran as part of its strategy to expand upstream activities. Patrick Tooher reports

STATOIL, the state-owned Norwegian oil company, is set to trump a hostile pounds 182m bid from US oil giant Arco for Ireland's Aran Energy in the next few days.

A board meeting tomorrow at Statoil's Stavanger headquarters is expected to rubber-stamp a formal approach to Aran's executive chairman, Michael Whelan, and its other directors. US investment bank Chase Manhattan, Statoil's financial adviser, spent the weekend running a slide rule over the Irish oil explorer's assets.

Asked if a bid for Aran was imminent, Arild Steine, Statoil's head of corporate information, would only say: "Wait and see."

However, sources believe a higher counter-bid will be delivered on Tuesday to comply with the Takeover Panel's request for Statoil to make its intentions known as soon as possible.

Statoil last week confirmed it might make a counter-offer, prompting Arco to up the ante by raising its bid for Aran to 69.4p per share.

The size of any counter-offer depends on whether Statoil can reach agreement with the Aran board, but one analyst said: "Aran would be delighted to get 80p a share, even if that would be below an independent asset valuation of 104p."

Such a deal would leave Arco free to raise its revised offer - the only firm bid on the table at this stage. But an approved takeover by Statoil would almost certainly represent a knockout blow in an increasingly acrimonious battle, which began two months ago when Arco unleashed an unsolicited 61.4p per share offer.

Shares in Aran closed unchanged at 75.5p on Friday, indicating the City thinks a "white knight" will emerge to top Arco's bid. If Statoil makes an offer it would be the first time the Norwegian company has pitched for a publicly quoted rival.

Statoil is the largest producer of oil in Europe and is also believed to be Ireland's biggest petrol retailer, with an estimated 25 per cent market share following the recent acquisition of the Jet chain of stations from Conoco.

But it has made no secret of its desire to expand its upstream activities, partly to offset a forecast sharp reduction in oil revenues from the Norwegian sector of the North Sea over the next five years. It has recently signed oil and gas joint-venture deals with BP and other western companies in Azerbaijan, Kazakhstan, Thailand, Nigeria and Vietnam.

Statoil has also been busy restoring its credibility in downstream ventures, after encountering substantial cost overruns on two refining projects in Scandinavia.

One, at the Mongstad refinery in Norway, went so far over budget that it cost Statoil's president his job in 1988.

Statoil's main interest in Aran is the latter's stake in the Schie-hallion oil field west of Shetland, where the Norwegian company was excluded from acreage in the latest licensing round. Ties between the two companies were strengthened last month when Statoil took a 47.5 per cent stake in Aran's Connemara field, west of Ireland, in exchange for providing joint venture finance.

Under the terms of the deal, Statoil has six months to decide whether to pay $18.6m (pounds 12m) to fund the cost of drilling and developing in the deep-water area in return for taking half the oil flowing from the field, which is expected to come on stream in 1997.

Arco argues that losing sole operational control of the Connemara field represents a diminution in shareholder value to Aran, and says it is therefore only prepared to pay 67.3p per share if the deal receives shareholder approval at an extraordinary general meeting on Wednesday week - just one day before Arco's final offer closes.