THE INVESTMENT COLUMN : Lasmo is leaner after the escape

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The Independent Online
Lasmo's escape from the clutches of its rival Enterprise Oil in the middle of 1994 has had a galvanising effect on the management. The housekeeping measures introduced following the failure of the bid are already reaping benefits, as yesterday's figures for 1995 show.

Net profits for the 12 months to December came in above expectations at pounds 34m, reversing the previous year's loss of pounds 3m. That was a very respectable result, even after taking account of the massive pounds 24m bid defence costs which depressed the 1994 figures. Lasmo suffered a 5 per cent drop in production to 164,000 barrels a day of oil and gas last year as it sold older, higher-cost production assets. Last year saw the disposal of stakes in the Forties and Beatrice fields in the North Sea and an interest in the Malacca Straits in Indonesia. More recently a couple of elderly Canadian fields have gone.

But, along with overhead cuts, Lasmo's portfolio tidying has brought it very close to its target of pounds 3 a barrel operating costs by next year. After shaving a further 7 per cent in 1995, they now stand at pounds 3.17.

Although improving on that will get progressively harder, unit costs will be further reduced by higher production, set to rise to 185,000 barrels a day this year and 210,000 in 1997, and the advent of lower-cost fields. Liverpool Bay, for instance, which came on-stream at the turn of the year, pays tax at 33 per cent compared with up to 80 per cent in mature North Sea fields.

But the excitement in Lasmo lies elsewhere. Test results released yesterday confirm that Lasmo and its partners in the Hassi Berkine fields in Algeria have the makings of a massive oil and gas reserve.

The five discoveries there to date suggest a reserve potential of 1.5 billion barrels, with Lasmo's share put conservatively at 82 million barrels or 11 per cent of its total reserves. The eventual figure could be at least double that, depending on the outcome of further exploration: Lasmo plans 10 wells this year.

Meanwhile, the share price has been run up recently on renewed takeover speculation. Shell looks an obvious predator. As one of the world's largest natural gas groups, Lasmo's Indonesian and Algerian assets have obvious attractions.

In the meantime, the shares, down 4p at 184p, still stand at a discount to the 200p net asset value put on them by house brokers NatWest Markets. Good value.