Faroe Petroleum has struck a deal to swap Norwegian oil and gas assets with Equinor, in a move that could raise the price that hostile bidder DNO has to pay to secure the British energy company.
While Faroe Petroleum's Chief Executive Graham Stewart said the deal had been in the works before Norway's DNO launched its 608 million pound ($778 million) offer last month and was not intended to stop the bid, analysts said it would make Faroe a more attractive takeover target.
"The deal hasn't happened overnight. We haven't pulled it as a rabbit out of the hat as a defence strategy even if it looks like (it)," Stewart told Reuters.
He said the company had held discussions about the swap with Equinor for "months", and most intensely during last summer.
Faroe rejected DNO's 152 pence per share bid on Nov. 26, saying it significantly undervalued the Aberdeen-based firm.
Faroe's CEO declined to discuss what price level could be acceptable to its shareholders, but said that the latest swap deal has made the company more valuable.
"We want to secure the best value for our shareholders, and the latest deal cannot be ignored," he added.
Sparebank 1 Markets analyst Teodor Sveen-Nilsen said that, at first glance, the deal looked better for Faroe than Equinor, and will make Faroe a more attractive acquisition target.
"We believe 170-180 pence per share will be the final transaction price in the DNO/Faroe drama," Sveen-Nilsen said. "Maybe a tad higher after today's announcement."
Stewart said the swap would significantly reduce the need for capital investments as the company's stake in Equinor's $1.9 billion Njord re-development project would fall to zero from 7.5 percent.
Equinor will also increase stakes in nearby Bauge and Hyme licenses, while Faroe takes Equinor's stakes in the Vilje and Ringhorne East fields, as well as part of its stakes in the Marulk and Alve fields.
The companies did not give a value for the assets involved, but RBC Capital estimated that at an oil price of $70 per barrel the overall deal is worth about $140 million.
The binding, non-cash deal will add 7,000-8,000 barrels of oil equivalent per day (boepd) for Faroe in 2019, when its overall output is expected to rise to 18,000–22,000 boepd.
"We are now confident in our ability to deliver in excess of 50,000 boepd in the medium term," Steward said.
Faroe shares were broadly unchanged at 1138 GMT, outperforming a European oil and gas index down 1.3 percent, weighed down by weaker crude prices.
Equinor shares were down 1.42 percent while DNO's were down 1.8 percent.
DNO, which already owns 28 percent of Faroe, was not immediately available for comment.
($1 = 8.4978 Norwegian crowns)
($1 = 0.7838 pounds)
(Additional reporting by Ole Petter Skonnord; editing by Jason Neely and Adrian Croft)